PDF, 3.2 MB - Pfleiderer AG
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PDF, 3.2 MB - Pfleiderer AG
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Annual Report 2004<br />
Core Businesses<br />
and Growth Potential
GERMANY p. 29<br />
Core Businesses<br />
and Growth Potential<br />
EASTERN EUROPE p.19<br />
TURKEY p. 63<br />
ASIA p. 41<br />
<strong>Pfleiderer</strong> <strong>AG</strong> is bundling its strengths and creating sound financial founda-<br />
tions by focusing on its core competences in its two Business Segments<br />
Engineered Wood and Infrastructure Technology. This is creating the basis<br />
from which <strong>Pfleiderer</strong> can now pursue its strategy of value-oriented inter-<br />
national growth - a strategy that is already beginning to pay off.<br />
KEY FIGURES FOR GROUP AND SUMMARY OF BUSINESS SEGMENTS
Group Figures Jan. 1 – Jan. 1 – Change<br />
Dec. 31, 2004 Dec. 31, 2003 in %<br />
Sales revenues million euros 901.0 848.2 +6.2<br />
Foreign share % 53.8 49.1 –<br />
EBITDA million euros 87.4 72.2 +21.1<br />
EBIT million euros 50.2 34.9 +43.8<br />
EBT million euros 58.9 –33.6 –<br />
of which EBT continued operations million euros 31.6 17.9 +76.5<br />
of which EBT discontinued operations million euros 27.3 –51.5 –<br />
Result after taxes and minority interests million euros 33.9 –45.8 –<br />
Operative cash flow million euros 86.4 68.9 +25.4<br />
Cash flow after investment activity million euros 91.9 51.5 +78.4<br />
Liquid funds million euros 82.7 67.2 +23.1<br />
Capital expenditure million euros 45.4 31.7 +4<strong>3.2</strong><br />
Financial liabilities million euros 205.7 323.0 –36.3<br />
Net corporate debt million euros 122.9 255.8 –52.0<br />
Equity ratio % 32.6 17.9 –<br />
ROE = results after minority interests/equity % 14.0 –32.9 –<br />
Capital employed million euros 435.2 423.8 +2.7<br />
ROCE = EBIT/capital employed % 11.5 8.2 –<br />
ROS = net income/sales % 3.5 2.1 –<br />
Sales per employee million euros 0.203 0.193 +5.2<br />
Employees at close 4,429 4,387 +1.0<br />
in Germany at close 2,910 2,914 –0.1<br />
outside Germany at close 1,519 1,473 +3.1<br />
Key Figures per Share Jan. 1 – Jan. 1 – Change<br />
Dec. 31, 2004 Dec. 31, 2003 in %<br />
Earnings per share euros 0.79 –1.07 –<br />
Average number of shares in circulation shares 42,685,000 42,678,146 –<br />
Business Segment Engineered Wood Jan. 1 – Jan. 1 – Change<br />
Dec. 31, 2004 Dec. 31, 2003 in %<br />
Sales revenues million euros 758.9 715.9 +6.0<br />
Foreign share % 56.5 53.4 –<br />
EBITDA million euros 78.9 57.8 +36.5<br />
EBIT million euros 48.4 29.1 +66.3<br />
Employees at close 3,475 3,450 +0.7<br />
Business Segment Infrastructure Technology Jan. 1 – Jan. 1 – Change<br />
Dec. 31, 2004 Dec. 31, 2003 in %<br />
Sales revenues million euros 138.2 124.9 +10.6<br />
Foreign share % 39.6 27.3 –<br />
EBITDA million euros 19.1 18.1 +5.5<br />
EBIT million euros 15.3 15.4 –0.7<br />
Employees at close 861 790 +9.0
Business Segments Overview<br />
Engineered Wood<br />
Carriers Surfaced<br />
Track<br />
Products<br />
Systems<br />
Products:<br />
Raw particleboard<br />
Tongue & groove board<br />
MDF<br />
Customers: Furniture industry, wood trade outlets,<br />
interior designers, building and DIY trade<br />
Production Sites Overview<br />
Europe<br />
Engineered Wood<br />
Germany<br />
Arnsberg<br />
Gütersloh<br />
Leutkirch<br />
Neumarkt<br />
Nidda<br />
Rheda-Wiedenbrück<br />
(in closure)<br />
Poland<br />
Grajewo<br />
Wieruszów<br />
Russia<br />
Novgorod<br />
(being built)<br />
Products:<br />
Melamine-faced chipboard (MFC)<br />
HPL<br />
Postforming elements<br />
Films and surfacings<br />
Infrastructure<br />
Technology<br />
Products:<br />
Railway sleepers<br />
Sleeper systems<br />
Customers: Railtrack<br />
infrastructure operators<br />
Infrastructure Technology<br />
Germany<br />
Brandenburg-Kirchmöser<br />
Coswig<br />
Gernsbach<br />
Langen<br />
Neumarkt<br />
Spain<br />
Constanti<br />
December 2004<br />
Asia<br />
Hungary<br />
Lábatlan<br />
Romania<br />
Buzău<br />
Taiwan<br />
Yang Mei Town<br />
(transferred 2004)
<strong>Pfleiderer</strong> <strong>AG</strong> is focusing on its two Business Segments Engineered<br />
Wood and Infrastructure Technology. We are a leading systems supplier<br />
of engineered wood, surface-finished panels and rail sleeper technology.<br />
<strong>Pfleiderer</strong> Engineered Wood is a preferred partner for the furniture<br />
industry and specialist trade throughout Europe. <strong>Pfleiderer</strong> track<br />
systems is active in the construction and expansion of state-of-the-art<br />
rail networks throughout the world.<br />
Fulfilling the demands of the market and the needs of our customers<br />
defines the challenge we face and our mission. Our strengths lie in<br />
our technological leadership, our innovative abilities and the quality of<br />
our products. To this, we add a uniquely customer-oriented approach<br />
and the dedication of our employees.<br />
Accepting responsibility for our social and natural environment is part<br />
of our corporate philosophy. As a stock market listed company, our<br />
goal is to achieve a long-term sustained increase in the Company’s<br />
value – to the benefit of our shareholders, employees and the world<br />
we live in.<br />
1<br />
ANNUAL REPORT 2004
55<br />
CONTENTS<br />
<strong>Pfleiderer</strong> Engineered Wood<br />
is participating in dynamic market<br />
growth in Eastern Europe.<br />
4 Introduction by Board<br />
of Management<br />
8 Report of the Supervisory Board<br />
11 Corporate Governance<br />
2<br />
Interest in <strong>Pfleiderer</strong>’s share grew considerably<br />
on the capital markets after the<br />
Company’s free float was increased.<br />
20<br />
<strong>Pfleiderer</strong> Group and <strong>Pfleiderer</strong> <strong>AG</strong><br />
Management Report<br />
20 Market Report<br />
22 Company Report<br />
30 Business Segment Engineered Wood<br />
35 Business Segment Infrastructure Technology<br />
42 Research & Development<br />
43 Capital Expenditure<br />
44 Environmental Protection<br />
45 Organization<br />
46 Personnel<br />
49 Risk Report<br />
53 Marketing and Communication<br />
55 The <strong>Pfleiderer</strong> Share<br />
59 Post-Closure Report/Outlook
3<br />
35<br />
<strong>Pfleiderer</strong> Engineered Wood<br />
further increased its foreign<br />
<strong>Pfleiderer</strong> Group Financial Statements<br />
64 Consolidated Balance Sheet<br />
66 Consolidated Statement of Income<br />
67 Consolidated Statement of Cash Flows<br />
68 Consolidated Statement of Changes<br />
in Shareholders’ Equity<br />
70 Segment Reporting<br />
72 Notes to the Consolidated<br />
Financial Statements 2004<br />
114 Analysis of Group Assets<br />
116 Consolidated Companies<br />
118 Independent Auditor’s Report<br />
<strong>Pfleiderer</strong> <strong>AG</strong> Financial Statements<br />
(excerpts)<br />
120 Balance Sheet<br />
121 Statement of Income<br />
122 Analysis of Fixed Assets<br />
CONTENTS<br />
<strong>Pfleiderer</strong> track systems is scoring<br />
international successes with its ballastless<br />
sleeper technology.<br />
sales share.<br />
30<br />
MAN<strong>AG</strong>EMENT REPORT<br />
BUSINESS SEGMENTS<br />
FINANCIAL STATEMENTS<br />
In Brief<br />
124 Supervisory Board and Board of<br />
Management of <strong>Pfleiderer</strong> <strong>AG</strong><br />
126 Glossary<br />
128 Index<br />
130 Multi-Year Summary<br />
Cover<br />
Group Figures<br />
Business Segments<br />
Production Sites<br />
Review of the Year<br />
Financial Calendar
“<strong>Pfleiderer</strong> <strong>AG</strong>’s sound financial basis has given it<br />
more scope to act, enabling it to turn long-term growth<br />
strategies into reality”.<br />
Fiscal 2004 saw <strong>Pfleiderer</strong> <strong>AG</strong> take a big step forward on the road to growth and earnings.<br />
Management and employees alike achieved all their targets for the past fiscal year, and in many<br />
cases even exceeded them.<br />
The successful sale of our Poles & Towers operations in the USA and in Europe, as well as the<br />
disposal of other marginal activities, means we have reached the next milestone – the strategic<br />
focus on core competences. The considerable income gained from these disposals have enabled<br />
us to greatly reduce corporate indebtedness again. The equity ratio for the <strong>Pfleiderer</strong> Group<br />
now stands at over 30 percent. That means that <strong>Pfleiderer</strong> <strong>AG</strong>’s sound financial basis has given<br />
it more scope to act, enabling it to turn long-term growth strategies into reality.<br />
<strong>Pfleiderer</strong> Engineered Wood Improves its Market Position<br />
By acquiring MDF production at the former HORNITEX plant in Nidda, we have closed a strategic<br />
gap in our engineered wood portfolio. Now our brands and marketing companies can offer an<br />
even wider range of products and services to customers. From 2007, the planned new construction<br />
of an MDF/HDF production plant in Poland will further improve our position in this highearning<br />
segment.<br />
4
In closing down the Rheda-Wiedenbrück plant, we have made an active contribution to the<br />
urgently needed consolidation of the engineered wood market in Germany. While this has been<br />
a painful process for those employees affected, it has led to a sustained reduction in production<br />
over-capacity and a marked improvement in prices. Following years of unsatisfactory business in<br />
this market, supply and demand for raw particleboard in Germany have now reached a state of<br />
equilibrium. When taking on and fulfilling orders, <strong>Pfleiderer</strong> Engineered Wood can now look forward<br />
to achieving adequate value-added.<br />
<strong>Pfleiderer</strong> Engineered Wood Poland again had a successful year, making an important contribution<br />
to the positive results of the <strong>Pfleiderer</strong> Group. By increasing our production capacity at our two<br />
sites at Grajewo and Wieruszów, we have strengthened our leading competitive position in what<br />
remains a dynamic market. And towards the end of 2005, our new engineered wood production<br />
plant in Novgorod in Russia starts production. This will give us access to a new market for which<br />
the groundwork has been well laid and which promises to offer attractive growth and development<br />
opportunities over the long term.<br />
Major International Successes for <strong>Pfleiderer</strong> track systems<br />
<strong>Pfleiderer</strong> track systems posted record sales in fiscal 2004, as well as winning the biggest single<br />
order in its history. This came from Turkey, to whom we will be supplying around 680,000 sleepers.<br />
As a result, our plants in Hungary and Romania are fully booked up for the next 15 months.<br />
This impressive international success underlines the tradition of competence that <strong>Pfleiderer</strong> track<br />
systems has built up and expanded as a supplier of sleepers for the rail traffic sector. A holistic<br />
system supplier, <strong>Pfleiderer</strong> track system’s monolithic track technology for high-speed links has<br />
proved especially successful in Europe and Asia. Now, new strategic alliances are preparing the<br />
way for market entry in India, China and South Korea.<br />
On the Road to Further Growth and Increased Earnings Power<br />
The pleasing progress in operative growth and performance achieved by our enterprise is clearly<br />
borne out by all the financial and operational figures reported in our financial statements for 2004.<br />
Group sales increased by around 6 percent, while the share of foreign business also grew and<br />
now stands at 53.8 percent. That shows that we are on the right track. The improved EBITDA<br />
margin at 10.4 percent and the increased sales margin at 3.5 percent are certainly welcome<br />
figures – although we only see them as an “interim” stage on the road to even greater earnings<br />
power and value added. This we intend to achieve through three strategic routes:<br />
1. by increasing profitability in Germany,<br />
2. exploiting growth potential in Eastern Europe and Russia,<br />
3. entering new markets.<br />
In Germany, market conditions remain stagnant, with no apparent potential for qualitative growth<br />
in the near future. For that reason, continuing to optimize the way we operate while significantly<br />
improving cost structures to achieve higher value added must remain our first priority. One<br />
example of how we can achieve this is the new PHW 2006 project, where employees are actively<br />
participating in a large number of measures being introduced on our sites.<br />
5<br />
INTRODUCTION BY BOARD OF MAN<strong>AG</strong>EMENT
The sustained increase of agreed working hours at <strong>Pfleiderer</strong> Engineered Wood sites in Germany<br />
is one such important step. This will help offset identified cost disadvantages when facing national<br />
and international competition. As it has proved impossible to reach a company-wide consensus<br />
with IG Metall, we have decided to set up individual agreements with our employees. As a result,<br />
we are guaranteeing jobs up to the end of 2007. However, the only way we can safeguard jobs<br />
in Germany over the long term is by increasing market share and sales.<br />
In Eastern Europe, we intend to use our outstanding competitive position to achieve further growth<br />
coupled with attractive profit margins. The position we achieved by acquiring an early presence<br />
on potentially attractive markets must now be held on to in what have become mature markets.<br />
This we intend to do by offering new products, stronger sales relations and high quality. And<br />
should the right opportunity present itself, we are ready to move into markets outside Europe, too.<br />
Positive Growth in the Company’s Value<br />
Now that we have successfully reduced corporate indebtedness and increased our equity ratio,<br />
our next task is to concentrate our resources and efforts completely on strengthening and<br />
expanding our operative market positions in Germany, Europe and worldwide. For that reason,<br />
once again in fiscal 2004 we have decided to forego paying a dividend. We believe that you,<br />
the shareholders, will agree with this decision. The above average price rise of the <strong>Pfleiderer</strong><br />
share over the last twelve months means that you have already participated in the Company’s<br />
value increase. This direction signals a future full of prospects, a future that offers more growth<br />
and greater earnings power. May I therefore thank you for the confidence and trust you have<br />
placed in our Company. This spirit of moving forward together is reflected in the successful partnership<br />
that exists between shareholders, management and employees.<br />
I would also like to express my sincere thanks to all our employees for their dedication and hard<br />
work, the employees’ representatives for their understanding and targeted cooperation, as well<br />
as all our customers and associates for the good and fair dealings we have had and which have<br />
been beneficial to us all.<br />
<strong>Pfleiderer</strong> <strong>AG</strong> will make every effort to continue along this road of growth and earnings using<br />
all the means at our disposal – with care, confidence and determination, with entrepreneurial<br />
courage and a sense of responsibility for our values. My colleagues and I, together with all our<br />
employees in Germany and abroad, stand by these words.<br />
Neumarkt, April 5, 2005<br />
Hans H. Overdiek<br />
Spokesman of the Board of Management<br />
6
Dr Jürgen Koch<br />
Member of the Board of Management,<br />
Finance, Infrastructure Technology<br />
Hans H. Overdiek<br />
Spokesman of the Board of Management,<br />
Engineered Wood<br />
Michael Ernst<br />
Member of the Board of Management,<br />
Personnel, Risk Management, IT
8<br />
Ernst-Herbert <strong>Pfleiderer</strong><br />
Chairman of the Supervisory Board<br />
of <strong>Pfleiderer</strong> <strong>AG</strong><br />
During the reporting period, and in accordance with its legal and statutory obligations, the Supervisory<br />
Board of <strong>Pfleiderer</strong> Aktiengesellschaft supervised and advised the Company’s management.<br />
The Supervisory Board was always kept fully informed on all major developments, as well as<br />
on the general course of business. Where approval by the Supervisory Board for decisions and<br />
measures taken by the Board of Management was required – in particular for actions relating<br />
to financial and personnel planning and capital expenditure – the members of the Supervisory<br />
Board carefully examined all the issues at stake and adopted appropriate resolutions based on<br />
the information provided.<br />
The Supervisory Board held four ordinary meetings in March, June, September and December<br />
2004, during which the Board of Management reported in detail about the general state of business<br />
and on current developments. Apart from these meetings, a regular exchange of ideas<br />
took place between the Chairman of the Supervisory Board and the Spokesman of the Board of<br />
Management.
Committees Formed by the Supervisory Board<br />
The Working Committee of the Supervisory Board convened five times in total during the reporting<br />
year – in March, twice in June, as well as in September and December 2004. The Committee<br />
discussed and decided on all transactions and actions which require approval by the Supervisory<br />
Board in accordance with standing orders.<br />
The Audit Committee convened in March and June 2004, as well as in February 2005. On<br />
March 18, 2005, the Audit Committee also reviewed the Financial Statements for fiscal 2004.<br />
The Conciliation Committee, set up in accordance with Sec. 27 (3) Mitbestimmungsgesetz (German<br />
Co-Determination Act), did not convene during the past fiscal year.<br />
Public Auditor<br />
In accordance with the resolution adopted by the General Meeting of <strong>Pfleiderer</strong> <strong>AG</strong> on June 15,<br />
2004, the Chairman of the Audit Committee of the Supervisory Board engaged KPMG Deutsche<br />
Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Berlin/Frankfurt, (public<br />
auditors) to audit the Financial Statements for 2004 and the management report of <strong>Pfleiderer</strong> <strong>AG</strong>,<br />
as well as the consolidated Financial Statements and consolidated management report. In their<br />
audit, the auditors focused on the valuation of continuing and discontinued operations, the impairment<br />
of goodwill and an assessment of latent taxes and risk management.<br />
Financial Statements and Consolidated Financial Statements 2004<br />
The annual Financial Statements of <strong>Pfleiderer</strong> <strong>AG</strong> and the consolidated Financial Statements for<br />
year-ending December 31, 2004, as well as the consolidated management report and the management<br />
report for <strong>Pfleiderer</strong> <strong>AG</strong>, were audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft<br />
Wirtschaftsprüfungsgesellschaft, Berlin/Frankfurt, and all received an unqualified<br />
audit opinion.<br />
The Supervisory Board also reviewed the Financial Statements and consolidated Financial Statements,<br />
as well as the management report and consolidated management report, as drawn up<br />
by the Board of Management. The audit report by the public auditor was made available to all<br />
members of the Supervisory Board in good time. The public auditor participated in the Audit<br />
Committee meeting on March 18, 2005, thereby informing it of the main results of the audit.<br />
No objections were raised by the Supervisory Board following its review of the Financial Statements<br />
of <strong>Pfleiderer</strong> <strong>AG</strong>, the consolidated Financial Statements, the consolidated management<br />
report and the management report. The Supervisory Board concurs with the results of the audit<br />
by the public auditor, and duly approves the consolidated Financial Statements and Financial<br />
Statements for fiscal 2004. Accordingly, the Financial Statements have been approved pursuant<br />
to Sec. 172 Aktiengesetz (German Stock Corporation Act).<br />
In view of the Company’s strategic goal to further develop earnings power, the Supervisory<br />
Board concurs with the proposal made by the Board of Management not to pay a dividend for<br />
fiscal 2004.<br />
9<br />
REPORT OF THE SUPERVISORY BOARD
Dependency Report<br />
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Berlin/<br />
Frankfurt, also audited the Dependency Report prepared by the Board of Management relating to<br />
the Company’s dealings with its affiliated companies, as required under Sec. 312 of the German<br />
Stock Corporation Act (“Dependency Report”). The public auditor issued the following opinion:<br />
“Within the terms of our audit and assessment we confirm that<br />
1. the information provided in the Report is correct,<br />
2. the Company did not make excessive payments as part of the transactions mentioned in the<br />
Report.”<br />
The Supervisory Board has also reviewed the Dependency Report drawn up by the Board of<br />
Management. The Supervisory Board raised no objections to the concluding statement made by<br />
the Board of Management and the results of the audit by the public auditor.<br />
Corporate Governance<br />
In accordance with Sec. 161 German Stock Corporation Act, the Board of Management and the<br />
Supervisory Board of <strong>Pfleiderer</strong> <strong>AG</strong> issued a declaration in December 2004 stating the extent to<br />
which the Company has complied with the Recommendations of the Government Commission on<br />
the German Corporate Governance Code and the extent to which it will comply in future. Where<br />
exceptions and deviations to the Recommendations occur, full reasons are given (see the section<br />
below, “Corporate Governance”). The Corporate Governance Code drawn up in 2003 for the<br />
Company retains validity.<br />
Personnel<br />
N. Erich Gerlach, member of the Supervisory Board of <strong>Pfleiderer</strong> <strong>AG</strong> since 1997, resigned from<br />
office with effect from December 31, 2004. Wolfgang Haupt has since been appointed to replace<br />
him from January 1, 2005. On behalf of all members of the Supervisory Board, I would like to<br />
extend my sincere thanks to Mr Gerlach for his many years of valuable work for the Company.<br />
On behalf of all members of the Supervisory Board, I would also like to thank the Board of Management,<br />
the employee representatives and all employees of our Company for their hard work<br />
and dedication over the last twelve months. I would also like to extend my best wishes to employees<br />
working in those parts of the Company since sold, and wish them every success in their<br />
new companies.<br />
Neumarkt, April 5, 2005<br />
Ernst-Herbert <strong>Pfleiderer</strong><br />
Chairman of the Supervisory Board<br />
10
CORPORATE GOVERNANCE<br />
1. Introduction<br />
Principles of Corporate Governance<br />
<strong>Pfleiderer</strong> Aktiengesellschaft* )<br />
<strong>Pfleiderer</strong> Aktiengesellschaft commits itself to the following Principles of Corporate Governance.<br />
These principles are designed to ensure that management and supervision of the Company<br />
are transparent, responsible and uphold the objective of increasing the Company’s value. The<br />
Supervisory Board and the Board of Management, as well as all directors and employees of<br />
the <strong>Pfleiderer</strong> Group, are committed to this objective, which was formally resolved by the Supervisory<br />
Board in its meeting on November 21, 2002. The Board of Management accepts full<br />
responsibility for the observance of these Principles of Corporate Governance.<br />
<strong>Pfleiderer</strong>’s Principles of Corporate Governance are designed to increase trust among national<br />
and international investors, customers, employees and general public alike regarding the way the<br />
Company is managed and supervised.<br />
<strong>Pfleiderer</strong>’s Principles of Corporate Governance reflect conditions laid down by law, as well as<br />
defining what constitutes good national and international corporate conduct and how to act appropriately<br />
in the specific markets in which the Company is active.<br />
<strong>Pfleiderer</strong>’s Principles of Corporate Governance are not immutably fixed, but are part of an<br />
ongoing process. As such, they will be reviewed and revised as law changes, and in keeping with<br />
other national and international developments. <strong>Pfleiderer</strong>’s Principles of Corporate Governance<br />
will be published on its corporate website and in its annual report.<br />
* ) Principles of Corporate Governance, ensuring good and responsible corporate management and supervision, drafted and adopted<br />
by the Board of Management and the Supervisory Board of <strong>Pfleiderer</strong> Aktiengesellschaft in January 2003.<br />
11<br />
CORPORATE GOVERNANCE
2. Shareholders and<br />
the General Meeting<br />
3. Board of<br />
Management<br />
<strong>Pfleiderer</strong> <strong>AG</strong> has issued registered shares. Each share carries one vote. No “golden shares”<br />
exist.<br />
The General Meeting shall resolve on the appropriation of net income and on the ratification of<br />
the actions of the Board of Management and the Supervisory Board. It elects the public auditors<br />
and exercises all its legal rights.<br />
The Board of Management shall only exercise its authorization to issue new shares without preemptive<br />
rights where the issue does not to exceed 10 percent of subscribed capital. The Company<br />
shall publish all information and reports, including the Agenda of the General Meeting, via electronic<br />
media on the corporate website. The Company offers voting and proxy voting by Internet<br />
to facilitate the personal exercise of shareholders’ voting rights. The Company will arrange a<br />
corporate representative to exercise shareholders’ voting rights in accordance with instructions<br />
received.<br />
In the performance of its statutory duties, the Board of Management is bound to act in the Company’s<br />
best interests and in accordance with the Principles of Good Management. The central<br />
objective of corporate management is the sustained increase in corporate value. The key statistic<br />
used to determine this is EVA (Economic Value Added).<br />
The Board of Management coordinates corporate strategy with the Supervisory Board and is responsible<br />
for its implementation and must select appropriate effective and efficient instruments<br />
to this end. In doing so, it shall implement suitable systems for planning, supervision and risk<br />
management. The Board of Management is committed to acting lawfully and to ensure that all<br />
statutory regulations are upheld throughout the <strong>Pfleiderer</strong> Group.<br />
The Board of Management shall inform the Supervisory Board regularly about all major issues<br />
affecting the Company relating to planning, business developments or risk. Deviations from any<br />
previous plans or targets must be reported and justified. The Board of Management must also<br />
looks after the social responsibilities of the <strong>Pfleiderer</strong> Group.<br />
In accordance with Sec. 77, Aktiengesetz (German Stock Corporation Act), all members of the<br />
Board of Management are jointly and severally charged with the running the Company. Terms of<br />
reference regulate the allocation of areas of responsibility for each member of the Board of<br />
Management, and how the members of the Board of Management cooperate. Standing Orders<br />
allocate responsibility for decisions to be taken on matters of fundamental importance by the<br />
full Board of Management. Depending on the magnitude of the decision or the financial transaction<br />
involved, approval must also be given by the Supervisory Board.<br />
The members of the Board of Management must give their full working capacity to the <strong>Pfleiderer</strong><br />
Group. They are bound to uphold the Company’s best interests and may not pursue any personal<br />
interests which would conflict with those of the Company. The members of the Board of Management<br />
may not accept payments or other personal advantages from third parties during the<br />
discharge of their duties which would be contrary to the best interests of the Company or its<br />
customers.<br />
12
4. Supervisory Board<br />
The Board of Management accepts specific insider trading rules and commits management as a<br />
whole to comply with these rules.<br />
Compensation of members of the Board of Management is regulated by Sec. 87, Aktiengesetz<br />
(German Stock Corporation Act). Compensation comprises a fixed salary factor plus variable<br />
components. The variable components depend on the financial situation of the Company, the<br />
performance and outlook of the Group, as well as other performance-oriented elements. Stock<br />
options serve as variable compensation components, adding a long-term incentive effect. They<br />
are issued according to a scheme adopted by the General Meeting and Supervisory Board.<br />
Compensation and share holdings must be reported in the annual report. Stock option rights<br />
must be exercised within 3 years of issuance at latest. Insider trading rules are met by setting<br />
periods during which the exercising of option rights is suspended.<br />
The Board of Management of <strong>Pfleiderer</strong> <strong>AG</strong> has adopted rules that also apply to senior management<br />
eligible to receive stock options. It must also ensure that compensation for senior management<br />
throughout the Group adheres to these rules.<br />
The members of the Supervisory Board of <strong>Pfleiderer</strong> <strong>AG</strong> shall have the requisite expert knowledge,<br />
specific abilities and experience to enable them to fulfil their advisory and supervisory duties<br />
such that corporate targets are achieved. These qualifications shall be taken into account when<br />
accepting nominations for the Supervisory Board. The members of the Supervisory Board must<br />
have sufficient personal time in which to perform their duties.<br />
The Supervisory Board issues Standing Orders. The Chairman of the Supervisory Board shall<br />
maintain regular contact with the Chairman of the Board of Management and with the Board of<br />
Management as a whole, and shall be informed as soon as possible about any major events.<br />
The Chairman of the Supervisory Board shall then inform the members of the Supervisory Board.<br />
In order to improve efficiency, the Supervisory Board has set up a working Committee and an<br />
Audit Committee. The working Committee may take decisions on behalf of the Supervisory Board<br />
in accordance with statutory rules and Standing Orders. The Chairman of the Supervisory Board<br />
is not Chairman of the Audit Committee.<br />
The members of the Supervisory Board shall treat all information relating to their duties as confidential.<br />
Each member of the Supervisory Board is bound to uphold the Company’s best interests.<br />
The Supervisory Board shall be informed of any conflicts of interest which could result from a<br />
consultancy or directorship function with clients, suppliers, competitors, suppliers of capital or<br />
other business associates. Advisory and other service agreements between a member of the<br />
Supervisory Board and the <strong>Pfleiderer</strong> Group require prior approval by the Supervisory Board.<br />
Remuneration of the Supervisory Board and share holdings of its members are reported in the<br />
Company’s annual report. Representatives of the shareholders and employees are enjoined to<br />
work together on the Supervisory Board in a spirit of consensus.<br />
13<br />
CORPORATE GOVERNANCE
5. Communication and<br />
Information<br />
Preparations relating to nomination of the public auditor, what particular areas of emphasis should<br />
be taken into account during the audit, as well as matters relating to auditor fees, are dealt with<br />
by the Audit Committee. The Audit Committee is also responsible for preparing the audit of the<br />
consolidated Financial Statements including the Management Report.<br />
When communicating with shareholders and the general public, the Board of Management shall<br />
provide transparent information, ensuring that communications are punctual, open, comprehensible<br />
and treat issues fairly. It shall publish all new facts which may arise within the Company’s<br />
areas of activity not known to the public, in particular where these are likely to have a substantial<br />
impact on the share price due to their effect on the assets, financial situation or general course<br />
of the Company’s business. All major financial dates shall be published in advance on the corporate<br />
website.<br />
Information about the Company shall be published electronically, in particular via the Internet.<br />
All publications are available in English.<br />
The Company shall notify on the purchase or sale of Company shares transacted by officers of<br />
the Company or members of their families. These notifications are made on the corporate website<br />
in accordance with the rules of “Directors’ Dealings”.<br />
Neumarkt, January 15, 2003<br />
<strong>Pfleiderer</strong> <strong>AG</strong><br />
14
Declaration of Compliance 2004<br />
Under Sec. 161, Aktiengesetz (German Stock Corporation Act), the Board of Management and<br />
the Supervisory Board of a joint stock company traded on the stock market must issue an annual<br />
Declaration of Compliance. In this declaration, they must disclose to what extent they have<br />
complied and shall comply with the Recommendations of the Government Commission on the<br />
German Corporate Governance Code. In December 2003, the Board of Management and the<br />
Supervisory Board published this declaration on the Company’s website, stating that they are<br />
complying with the Recommendations of the Government Commission on the German Corporate<br />
Governance Code, with the following exceptions:<br />
Article 4.2.3:<br />
Compensation of the Board of Management<br />
Compensation received by the members of the Board of Management of <strong>Pfleiderer</strong> <strong>AG</strong> comprises<br />
a fixed component and variable components. As a long-term incentive component, in 2001 the<br />
General Meeting adopted a stock option scheme which runs until June 30, 2006. The stock option<br />
scheme is not capped. No changes are envisaged to the current Scheme as this would require a<br />
new resolution by the General Meeting.<br />
Article 4.2.4:<br />
Publication of individual compensation received<br />
by members of the Board of Management<br />
Compensation received by members of the Board of Management of <strong>Pfleiderer</strong> <strong>AG</strong> comprises<br />
a fixed component, variable performance-linked components and components with a long-term<br />
incentive (= stock options). Compensation received by members of the Board of Management<br />
is not reported individually, only the total amount received by the board as a whole. In our opinion,<br />
only the total amount received by the Board of Management is relevant to shareholders making<br />
an assessment. In order to protect the private sphere, the Board of Management and the Supervisory<br />
Board have decided not to report individual amounts of compensation or remuneration.<br />
Article 5.4.1:<br />
Age limit on membership of the Supervisory Board<br />
At present, the Articles of Association of <strong>Pfleiderer</strong> <strong>AG</strong> set no age limit on membership of the<br />
Supervisory Board. It is intended that a change to the Articles of Association be made, setting<br />
an age limit of 70 years.<br />
Article 5.4.5:<br />
Publication of individual compensation received<br />
by members of the Supervisory Board<br />
At present, remuneration of the members of the Supervisory Board is a fixed fee. Remuneration<br />
received by members of the Supervisory Board is also not reported individually. Those interested<br />
can see the amount of remuneration as laid down in Article 15 of the Company’s Articles of<br />
Association. This information is published on the website of <strong>Pfleiderer</strong> <strong>AG</strong>. Apart from reimbursement<br />
of out-of-pocket expenses, including VAT when incurred in the course of duty, members<br />
of the Supervisory Board receive payment each of 10,500 euros. This amount is payable after<br />
the end of the fiscal year. In the case of the Chairman, this figure is doubled, while Deputy<br />
Chairmen and Chairmen of the Committees receive 1.5 times this amount and members of the<br />
Committees 1.25 times this amount.<br />
15<br />
CORPORATE GOVERNANCE
Article 7.1.2:<br />
Publication of the Annual Financial Statements 2004<br />
Publication of the Annual Financial Statements 2004 will not be made within 90 days of the end<br />
of the fiscal year. Due to the Easter holidays in spring 2005, publication of the Annual Financial<br />
Statements will exceptionally be made at the beginning of April 2005.<br />
Performance-Linked Compensation of the Board of Management<br />
Compensation received by the members of the Board of Management of <strong>Pfleiderer</strong> <strong>AG</strong> comprises<br />
a fixed component and variable components. In addition to the variable bonus, members of the<br />
Board of Management may participate in the Company’s Long Term Incentive Plan as a further<br />
variable long-term incentive component. The criteria applied when deciding to award options<br />
depend on the duties and performance of the individual board member, as well as the Company’s<br />
economic state, its success and future perspectives. These factors are calculated using Nopat<br />
and the Economic Value Added of the Group, as well as taking into account personal targets.<br />
In fiscal 2004, the Board of Management received compensation amounting to <strong>3.2</strong>22 million<br />
euros. This figure includes a variable component of 2.240 million euros. After adjustment for<br />
elapsed options to former board members, in 2004 members of the Board of Management received<br />
a total of 386,260 stock options which can be purchased at own cost.<br />
Stock Option Plan<br />
On July 10, 2001, the <strong>Pfleiderer</strong> General Meeting approved a stock option scheme which covers<br />
a maximum 4,268,500 no-par value shares (corresponding to 10 percent of capital stock) which<br />
may be issued as part of the <strong>Pfleiderer</strong> stock option scheme. The Company decides annually<br />
at its own descretion whether a stock option scheme is to be run, who will participate and how<br />
many shares each individual entitled to participate may receive. Stock options are issued on<br />
condition that the person entitled make an own investment in the Company. The stock options<br />
have a currency period of 6 years. The option may only be exercised for the first time 3 years<br />
after it has been granted. The number of stock options is calculated from the amount of the individual’s<br />
own investment in the Company, divided by a base value and then multiplied by a factor<br />
of 12. The base value is determined from the average price of the Company’s share in the months<br />
September through November. Stock options can be exercised when an exercise threshold of<br />
between 110–125 percent of the base value has been reached.<br />
Element<br />
Fixed salary component<br />
Variable components:<br />
Nopat Group<br />
EVA® Group<br />
Delta EVA® to previous year EVA® Group<br />
Personal targets<br />
Hans H. Overdiek Michael Ernst Dr Jürgen Koch<br />
(EVA® is a registered trademark of Stern Stewart & Co.)<br />
16
Stock Option Program 2004 (Continuation of SOP 2001)<br />
Based on the 2001 Stock Option Plan formally adopted by the Company on July 10, 2001, the Stock<br />
Option Plan for 2004 was confirmed on August 10, 2004 by the Board of Management, and on<br />
August 23, 2004 by the working Committee of the Supervisory Board. Accordingly, the Company’s<br />
Board of Management is authorized to grant those entitled to take up the Company’s remaining<br />
non-assignable stock options. In total, 24 members of the Board of Management/senior management<br />
participated in 536,016 options in the SOP 2004. The base value was 6.99 euros. The<br />
exercise price lies between 7.69 euros and 8.74 euros with a weighted average exercise price<br />
of 8.22 euros.<br />
A full list of the stock options granted is shown in the Notes to the consolidated Financial Statements<br />
(pages 92 ff.) of the <strong>Pfleiderer</strong> Group.<br />
17<br />
CORPORATE GOVERNANCE
EASTERN EUROPE<br />
Poland reported real economic growth of around 6 percent in 2004. The furniture<br />
industry’s share in GDP came to around 2 percent – twice that of the European Union.<br />
Some 4.3 percent of all furniture produced in Europe now comes from Poland.<br />
20 Percent Growth in Poland<br />
Low production and labor costs, highly qualified employees and secure raw material supplies<br />
are the main location advantages for the production of furniture and particleboard in<br />
Poland. <strong>Pfleiderer</strong> Engineered Wood has increased production capacity at its Polish sites in<br />
order to meet market growth in Eastern Europe. Now, a new plant involving an investment<br />
of around 60 million euros is also under construction in Russia. This will provide a further<br />
important foundation from which we can realize our strategy of international growth.
PFLEIDERER GROUP AND PFLEIDERER <strong>AG</strong><br />
MAN<strong>AG</strong>EMENT REPORT<br />
Market Report<br />
Consumption in Germany remains slack<br />
Furniture and engineered wood industries profit from greater foreign demand<br />
Strong international demand in the rail sector<br />
General Economic Conditions<br />
Following several years of slackness, the global economy picked up considerably during the reporting<br />
period, with growth reaching five percent in 2004 according to “ifo”, the German economic<br />
research institute. However, the German Federal Office of Statistics remains somber when focusing<br />
on Germany alone. In this country, economic growth declined by 0.1 percent in 2003. And<br />
despite the fact that a large number of public holidays fell over the weekends in 2004, GDP increased<br />
in that year just 1.7 percent. When adjusted for this “holiday” effect, real growth came<br />
to only around 0.5 percent.<br />
As in 2003, exports proved the major motor for growth for the German economy in 2004. German<br />
exports increased by around 8.2 percent year-on-year, while imports rose by only around<br />
5.7 percent. This said, the German economy still remains in the doldrums. Private consumption,<br />
accounting for nearly 60 percent of demand and thus the single main contributor, fell by a further<br />
0.3 percent in 2004.<br />
Engineered Wood Sector<br />
Developments within <strong>Pfleiderer</strong>’s most important customer segment – the German furniture<br />
industry – and in particular the kitchen furniture industry – are a major factor for <strong>Pfleiderer</strong><br />
Engineered Wood Germany. Looking at fiscal 2004 overall, trade associations reported growth<br />
for the first time after three consecutive years of declining sales. Figures show that sales rose<br />
by 1.5 percent to around 20 billion euros.<br />
20
According to the trade associations, this upturn is almost entirely due to exports. Exports<br />
accounted for around a quarter of all sales and increased in the first nine months of 2004 by<br />
5.9 percent. The German furniture industry’s export quota has doubled in just nine years, and<br />
now stands at 26.2 percent.<br />
But domestic business in the German furniture sector still remains depressed, with growth at just<br />
over one percent. Manufacturers of kitchens and lounge seating reported the strongest growth<br />
within the industry to date. According to the Central Association of German Wood and Plastic<br />
Processors (HDH), sales during the first eleven months of 2004 increased by 4.6 percent compared<br />
to the same period of the previous year. On the other hand, manufacturers of office and<br />
modular furniture complained of falling sales.<br />
Developments in European engineered wood production, which supplies the furniture industry,<br />
took on a similar pattern. According to the European Panel Federation, Brussels (EPF), production<br />
volumes in Europe during the first half of 2004 increased by 7.4 percent compared to the same<br />
period of the previous year. German engineered wood producers also profited from higher foreign<br />
demand. Paralleling production volumes, export demand in the second quarter of 2004 rose overproportionately<br />
by 18 percent over the previous year.<br />
According to the Federal Office of Statistics, exports of raw particleboard from Germany increased<br />
by 25 percent up to October 2004 compared to the same reporting period of the previous year.<br />
The main buyers are Denmark and Poland.<br />
Infrastructure Technology<br />
Business growth in the Business Center track systems, part of the Business Segment Infrastructure<br />
Technology, depends heavily on the capital expenditure plans of Deutsche Bahn <strong>AG</strong>, Germany’s<br />
rail operator. Industrial growth as a whole also plays a major part in this, as does public spending<br />
on infrastructure projects. Maintenance activity and the expansion of passenger and commercial<br />
rail traffic are further influential factors for the rail sector, both in Germany and worldwide.<br />
The Deutsche Bahn <strong>AG</strong> is responsible for maintaining and expanding the German rail network<br />
infrastructure. Due to the German budget deficit in 2003, Deutsche Bahn announced that it would<br />
be postponing planned investments, and it appears that this situation will continue into fiscal<br />
2005. However, this development should only have a minor effect on results for <strong>Pfleiderer</strong> track<br />
systems as weak domestic demand has been offset by export success. Nevertheless, orders in<br />
Germany are expected to be considerably lower in fiscal 2005.<br />
21<br />
MAN<strong>AG</strong>EMENT REPORT MARKET REPORT
Company Report<br />
Corporate portfolio more focused following disposal of Business Center<br />
Poles & Towers and other marginal operations<br />
Pre-tax results for continued operations up by 76.5 percent to<br />
31.6 million euros<br />
Equity ratio improves to 32.6 percent (including minority interests)<br />
Net corporate indebtedness reduced by around 133 million euros to<br />
122.9 million euros<br />
Focusing on Core Competences<br />
In a move to further reduce corporate indebtedness and to strengthen its equity ratio, the<br />
<strong>Pfleiderer</strong> Group disposed of its Business Center Poles & Towers (both US and European operations)<br />
in fiscal 2004, as well as its Business Units water systems and Wind Energy. In January<br />
2004, <strong>Pfleiderer</strong> <strong>AG</strong> and Fuhrländer <strong>AG</strong> set up a joint holding company to incorporate all onshore<br />
wind energy activities from both sides. In this newly formed company Fuhrländer <strong>AG</strong> holds the<br />
majority stake and is responsible for managing operations. Under the terms of agreement, the<br />
new joint venture took over with immediate effect all of <strong>Pfleiderer</strong> Wind Energy’s onshore activities,<br />
including its customer base, patents, licenses and proprietary rights.<br />
In February 2004, the <strong>Pfleiderer</strong> Group sold its US concrete and steel poles and towers operations<br />
to Valmont Industries, Inc., a world market leader for poles, supports and infrastructure technology.<br />
The transaction included seven concrete and steel pole plants in the USA with annual sales<br />
of over 75 million dollars. The purchase price came to 115 million dollars, of which 105 million<br />
dollars was paid in cash.<br />
The remaining activities of the Business Center Poles & Towers were disposed of in two further<br />
stages. On July 1, 2004, steel tower production for wind converters, with 135 employees based<br />
in Leipzig, was sold to the steel and wind tower construction company SI<strong>AG</strong> Tube & Tower GmbH,<br />
an affiliate of Schaaf Industrie Aktiengesellschaft, Leipzig. In December 2004, the residual<br />
activities of the Business Center Poles & Towers were sold to financial investors in cooperation<br />
with VTC Partners GmbH. This deal relates to three sites in Germany with 565 employees and<br />
sales of around 80 million euros.<br />
Finally, in November 2004, the <strong>Pfleiderer</strong> Group signed a contract for the sale of <strong>Pfleiderer</strong><br />
water systems GmbH. Formed in 2000, <strong>Pfleiderer</strong> water systems GmbH employs 33 people and<br />
operates successfully in Germany, Europe, Asia and the USA.<br />
In total, these disposals raised around 43.1 million euros, with a book profit of 51.4 million<br />
euros.<br />
22
Summary of Discontinued Operations<br />
Operations which have been disposed of are shown in the consolidated income statement under<br />
“discontinued operations” in the Financial Statements. The operative results of the Business<br />
Center Poles & Towers’ for its US operations are stated up to March 31, 2004, in accordance with<br />
their respective disposal date. Regarding the German operations of this Business Center, the cutoff<br />
date is November 30, 2004, while <strong>Pfleiderer</strong> water systems is stated up to December 31, 2004.<br />
In order to make comparison easier, the figures for the previous year have been adjusted in the<br />
consolidated income statement in compliance with US-GAAP.<br />
In the consolidated balance sheet as of December 31, 2004, and for the previous year, assets<br />
and liabilities of discontinued operations are shown under “Assets and Liabilities of Discontinued<br />
Operations”.<br />
Earnings<br />
23<br />
MAN<strong>AG</strong>EMENT REPORT COMPANY REPORT<br />
2004 2003<br />
% of % of<br />
million euros sales million euros sales<br />
Sales revenues 901.0 100.0 848.2 100.0<br />
Foreign share in percent 53.8 49.1<br />
Cost of sales –659.5 7<strong>3.2</strong> –628.0 74.0<br />
Gross margin 241.5 26.8 220.2 26.0<br />
EBITDA 87.4 9.7 72.2 8.5<br />
Amortization/depreciation write down<br />
of fixed assets and financial assets –37.2 –37.3<br />
EBIT 50.2 5.6 34.9 4.1<br />
Net interest –18.6 –2.1 –17.0 –2.0<br />
EBT continued operations 31.6 3.5 17.9 2.1<br />
Taxes on income<br />
Earnings of continued operations<br />
–9.6 –1.1 –9.3 –1.1<br />
before minority interests 22.0 2.4 8.6 1.0<br />
Earnings of discontinued operations 27.3 3.0 –51.5 –6.1<br />
Taxes on discontinued operations 0.8 0.1 1.7 0.2<br />
Earnings before minority interests 50.1 5.6 –41.1 –4.8<br />
Minority interests 16.3 1.8 –4.6 0.5<br />
Earnings after minority interests 33.9 3.8 –45.8 –5.4
In fiscal 2004, the <strong>Pfleiderer</strong> Group reported sales of around 901 million euros (2003: 848.2 million<br />
euros). This represents an increase in sales of 6.2 percent compared to the adjusted figures for<br />
the previous year. The continuing internationalization of both Engineered Wood and track systems,<br />
as well as the long sought-after improvement in prices for raw particleboard in Germany, are<br />
decisive factors here. The foreign percentage in Group sales increased by 4.7 percentage points<br />
to 53.8 percent.<br />
Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 21.1 percent<br />
to 87.4 million euros compared to the previous year. The EBITDA margin rose from 8.5 percent in<br />
2003 to 9.7 percent in 2004. This improvement in margin is an important step, but must be still<br />
further consolidated. In the Business Center Engineered Wood the EBITDA increased by 36.5 percent<br />
to 78.9 million euros. This figure reflects significant increases, both in terms of German<br />
business, as well as for our Polish operations. The Business Segment Infrastructure Technology<br />
also reported a slight increase in EBITDA.<br />
Earnings before interest and taxes (EBIT) as at December 31, 2004 came to 50.2 million euros<br />
(2003: 34.9 million euros). The EBIT margin improved from 4.1 percent to 5.6 percent.<br />
Earnings before taxes (EBT) for the <strong>Pfleiderer</strong> Group for continued operations came to 31.6 million<br />
euros (2003: 17.9 million euros). Accordingly, the sales margin increased from 2.1 percent<br />
in 2003 to 3.5 percent in 2004, bringing the Group closer to its target of 5 percent. The earnings,<br />
depreciation and amortization and changes in accruals from the announced disposals of<br />
the Poles & Towers and water systems business are reported under discontinued operations.<br />
Following the losses from disinvestments in the two previous years, positive earnings of 27.3 million<br />
euros (2003: –51.5 million euros) from discontinued operations were recorded again in<br />
2004. Overall, the <strong>Pfleiderer</strong> Group posted pre-tax earnings of 58.9 million euros in 2004, compared<br />
with a loss of 33.6 million euros in 2003.<br />
The <strong>Pfleiderer</strong> share responded accordingly, with EPS improving from –1.07 euros to 0.79 euro<br />
in 2004.<br />
The ratio of cost of materials to sales adjusted for changes in inventories within the Group rose<br />
to 52.8 percent as at year-ending 2004, compared with 51.1 percent at the end of 2003. Among<br />
others, this reflects changed sales and costs structures in the Business Center track systems.<br />
The proportion of material procured from third parties is higher in the international track systems<br />
business than in domestic business.<br />
The depreciation to sales ratio fell from 4.4 percent in 2003 to 4.1 percent in 2004. This is due<br />
to declining capital expenditure in the period since 2002.<br />
The cost-savings package from the previous year further reduced costs. Personnel expenses,<br />
in particular, fell by around 2 percent to 20.3 percent (2003: 22.3 percent). This particularly<br />
reflects changes made to holding structures following simplification of the Group’s composition.<br />
24
Net Assets and Financial Position<br />
25<br />
MAN<strong>AG</strong>EMENT REPORT COMPANY REPORT<br />
Dec. 31, 2004 Dec. 31, 2003<br />
% of balance % of balance<br />
million euros sheet total million euros sheet total<br />
Cash and cash equivalents 82.7 11.2 67.2 8.6<br />
Inventories 104.6 14.1 101.2 13.0<br />
Other current assets 88.8 12.0 89.0 11.4<br />
Assets of discontinued operations 4.9 0.7 106.4 13.7<br />
Current assets 281.0 38.0 363.8 46.7<br />
Property, plant and equipment 328.3 44.4 299.3 38.4<br />
Intangible assets 93.8 12.7 92.6 11.9<br />
Other fixed assets 36.4 4.9 23.6 3.0<br />
Fixed assets 458.5 62.0 415.5 53.3<br />
Total assets 739.5 100.0 779.3 100.0<br />
Dec. 31, 2004 Dec. 31, 2003<br />
% of balance % of balance<br />
million euros sheet total million euros sheet total<br />
Liabilities and other<br />
short-term liabilities 180.5 24.4 151.3 19.4<br />
Financial liabilities<br />
Liabilities of discontinued<br />
13.6 1.8 49.8 6.4<br />
operations 17.1 2.3 72.5 9.3<br />
Short-term liabilities 211.2 28.5 273.6 35.1<br />
Long-term financial liabilities 192.0 26.0 27<strong>3.2</strong> 35.1<br />
Accruals for pensions 60.4 8.2 57.8 7.4<br />
Other long-term liabilities 34.8 4.7 35.5 4.6<br />
Minority interests 90.2 12.2 44.3 5.7<br />
Long-term liabilities 377.4 51.1 410.8 52.7<br />
Shareholders’ equity 150.9 20.4 94.9 12.2<br />
Total liabilities and<br />
shareholders’ equity 739.5 100.0 779.3 100.0
Net indebtedness of the <strong>Pfleiderer</strong> Group was reduced considerably in fiscal 2004. It amounted<br />
at the end of 2004 to 122.9 million euros, or 132.9 million euros less than the previous year’s<br />
figure of 255.8 million euros. This reduction is particularly due to the repayment of long-term<br />
financial liabilities, using the proceeds from the disposals and the cash flow from operating<br />
activities of 86.4 million euros (2003: 68.9 million euros).<br />
Shareholders’ equity including minority interests came to 241.1 million euros as of December 31,<br />
2004. The increase of around 101.9 million euros is largely due to an increase in capital following<br />
the issue of new shares in the Polish affiliate Grajewo S.A., in June 2004 in which the <strong>Pfleiderer</strong><br />
Group did not participate. The capital increase yielded around 62 million euros, with 1.6 million<br />
new no-par value shares taken up by international and private investors at 180 PLN per share.<br />
The new issue was five-times over-subscribed.<br />
The resulting book profit of 22.7 million euros was used to finance restructuring in Germany,<br />
in particular the closure of the Rheda plant. Aside from this special effect, profits after taxes<br />
posted by discontinued operations added a further 28.1 million euros to the equity increase.<br />
Overall, the <strong>Pfleiderer</strong> Group achieved a return on capital employed (ROCE) of 11.5 percent.<br />
Thanks to its improved earnings situation, this figure is considerably higher than in the previous<br />
year (8.2 percent). In particular, the Business Segment Engineered Wood posted better earnings,<br />
thereby improving its ROCE to 12.9 percent. The ROCE for the Business Segment Infrastructure<br />
Technology is 27.8 percent.<br />
Calculation 2004 2003<br />
Net indebtedness Financial liabilities – cash and cash equivalents in million euros 122.9 255.8<br />
Leverage Net indebtedness / EBITDA in million euros 1.4 3.5<br />
Equity ratio Equity (incl. minority interests)/ balance sheet total in % 32.6 17.9<br />
Gearing Net indebtedness / equity (incl. minority interests) in % 51 184<br />
Capital employed Net working capital* ) + fixed assets in million euros 435.2 423.8<br />
Return on Capital Employed EBIT/ capital employed in % 11.5 8.2<br />
* ) Certain medium-term liabilities are taken into account when calculating net working capital.<br />
Financing<br />
Refinancing within the <strong>Pfleiderer</strong> Group is directed at securing the Company’s long-term future.<br />
Long-term liabilities from loans have maturity periods up to 2010 and carry an average interest<br />
change of around 6 percent. Fitch Ratings Ltd., revised its rating in 2004 which was upgraded<br />
in October 2004 from “BB negative outlook” for senior unsecured debt to “BB stable outlook”.<br />
International business is largely conducted using own production plants located within our major<br />
markets. Exports from Germany are mainly invoiced in euros. The proportion of exports billed<br />
in other currencies is low and risks arising from this business are adequately hedged.<br />
26
Derivative Financial Instruments<br />
Derivative financial instruments within <strong>Pfleiderer</strong> Group are only used solely to hedge against<br />
currency and interest rate risks arising from transactions which are part of the Company’s normal<br />
operations. Hedging activities are generally conducted centrally by <strong>Pfleiderer</strong> <strong>AG</strong> and <strong>Pfleiderer</strong><br />
Finance B.V. on behalf of the group. Further information is given in the notes to the consolidated<br />
Financial Statements.<br />
Net Assets and Earnings of <strong>Pfleiderer</strong> <strong>AG</strong><br />
As holding company, <strong>Pfleiderer</strong> <strong>AG</strong> is responsible for the strategy and management of the<br />
Group. This means that the earnings position of <strong>Pfleiderer</strong> <strong>AG</strong> is closely related to the success<br />
of the <strong>Pfleiderer</strong> Group. As in the previous year, the fiscal year for <strong>Pfleiderer</strong> <strong>AG</strong> was marked by<br />
the strategic realignment of the <strong>Pfleiderer</strong> Group and thus by the effects of divesting specific indirect<br />
and direct holdings. As of January 1, 2004, purchase of electricity was performed directly<br />
via <strong>Pfleiderer</strong> <strong>AG</strong>. The electricity was then invoiced at cost to the affiliated companies. Investment<br />
earnings were largely defined by consolidated results from affiliated companies in the Business<br />
Segment Infrastructure Technology and were largely due to the disposal of the Group’s North<br />
American Poles & Towers operations.<br />
The net income for the year of 6.3 million euros was offset by losses carried forward of 29.5 million<br />
euros, resulting in a provisional accumulated deficit of 2<strong>3.2</strong> million euros.<br />
Liabilities to banks increased due to long-term investments. However, this development was offset<br />
by changes to interest-bearing liabilities to affiliated companies, which were considerably reduced.<br />
At the same time, due to a change in affiliated companies’ capital needs, short-term bank balances<br />
decreased, as did interest-bearing receivables from affiliated companies. Interest-bearing liabilities<br />
to affiliated companies relate in particular to <strong>Pfleiderer</strong> Holzwerkstoffe GmbH, <strong>Pfleiderer</strong><br />
Infrastrukturtechnik GmbH & Co. KG and the Dutch financing company <strong>Pfleiderer</strong> Finance B.V.,<br />
Deventer/Netherlands. The Dutch financing company refinances itself via the capital markets.<br />
Dividend<br />
As a matter of policy, payment of a dividend depends on the state of the Group’s operating<br />
results and cash flow. In fiscal 2004, the Company focused on successfully reducing its net indebtedness.<br />
We therefore propose that no dividend be paid for fiscal 2004. Nevertheless, our<br />
shareholders have benefited from the remarkable increase in the value of the <strong>Pfleiderer</strong> shares<br />
they hold.<br />
Dependent Company Report<br />
In its dependent company report on relationships with affiliated companies, <strong>Pfleiderer</strong> <strong>AG</strong> made<br />
the following statement for fiscal 2004:<br />
“We hereby declare that our Company received adequate compensation for every transaction with<br />
affiliated companies listed in the report in the light of the circumstances known to us at the time.<br />
No actions were undertaken or waived in the interests of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG or companies affiliated to <strong>Pfleiderer</strong> Unternehmensverwaltung GmbH & Co. KG.<br />
The Company’s relationship to <strong>Pfleiderer</strong> Unternehmensverwaltung GmbH & Co. KG terminated<br />
on March 21, 2004.”<br />
27<br />
MAN<strong>AG</strong>EMENT REPORT COMPANY REPORT
GERMANY<br />
GDP in Germany increased by 1.7 percent in 2004. Once again, exports proved to be<br />
the driving force behind the German economy. In the engineered wood sector, export sales<br />
of raw particleboard were up by 25 percent.<br />
Domestic Consolidation<br />
and Export Growth<br />
With a market share of around 21 percent, <strong>Pfleiderer</strong> Engineered Wood is Germany’s clear<br />
market leader in the field of raw particleboard. Driving forward consolidation of domestic<br />
production capacity has led to a positive stabilization in prices. Due to high foreign demand,<br />
production plants in the industry are now generally running at full capacity. <strong>Pfleiderer</strong><br />
Engineered Wood Germany increased its percentage in foreign sales by 3.1 percent to<br />
over 56 percent.
Consolidation in Germany.<br />
Growth in Europe.<br />
<strong>Pfleiderer</strong> Engineered Wood<br />
is fitting its production<br />
capacities to match growth<br />
on international markets.<br />
Business Segment Engineered Wood<br />
Successful market consolidaton in Germany<br />
Strategic Expansion of production portfolio to include MDF<br />
Expansion of presence in growth markets of eastern Europe<br />
Part of the <strong>Pfleiderer</strong> Group, the Business Segment Engineered Wood employs 3,475 people at<br />
eight sites in Germany and Poland. <strong>Pfleiderer</strong> Engineered Wood is a leading manufacturer of<br />
raw particleboard and surface-finished products in Europe. Its recent acquisition of a production<br />
site for MDF (medium-density fiberboard) in Nidda on November 15, 2004 has closed a strategic<br />
gap in its product portfolio. <strong>Pfleiderer</strong> Engineered Wood can now fully participate in this strongly<br />
growing high-profit segment using its own production capacity in Germany. Overall, <strong>Pfleiderer</strong><br />
Engineered Wood reported sales in fiscal 2004 amounting to 758.9 million euros (2003: 715.9 million<br />
euros).<br />
Until mid-2004, the German market for engineered wood experienced intense competitive pressure,<br />
lower prices and weakness within the furniture industry over the last three years. In the light<br />
of this, the Group’s strategy has been to strengthen its independence from the domestic market<br />
Sales by Region of Business Segment Engineered Wood<br />
in % 2004 2003<br />
Germany 43.5 46.6<br />
Other EU countries 41.0 27.7<br />
Rest of Europe 12.9 23.6<br />
Other countries 2.6 2.1<br />
30<br />
Rest of Europe<br />
Other<br />
EU countries<br />
Other countries<br />
Germany
y expanding foreign and export ratios during fiscal 2004 in the first instance. Overall, the share<br />
of foreign and export in sales in the Business Segment Engineered Wood came to 56.5 percent.<br />
The increase of 3.1 percent is particularly due to pleasing developments in the Polish market. The<br />
Business Unit East, with its Polish affiliates Grajewo S.A. and Prospan S.A. saw sales increase<br />
in fiscal 2004 by 19.9 percent to 227.3 million euros, thereby contributing around 30 percent to<br />
overall sales of the Business Segment Engineered Wood. High demand in the Polish furniture<br />
market on the eve of Poland joining the EU on May 1, 2004 helped sustain this dynamic development.<br />
The Business Unit East met this stronger demand by making investments which will increase<br />
both the capacity and quality of production at both sites. Exports of Polish production to<br />
other eastern European states, together with the new production plant currently under construction<br />
in Novgorod in Russia, means that <strong>Pfleiderer</strong> has increased its foreign sales share in<br />
the Business Segment Engineered Wood overall. This Business Segment is now profiting from<br />
expanding market economies in eastern Europe.<br />
In fiscal 2004, earnings before interest, taxes, depreciation and amortization (EBITDA) for the<br />
Business Segment Engineered Wood came to 78.9 million euros, a considerable improvement of<br />
36.5 percent. The improvement of the EBITDA margin by 2.3 percentage points to 10.4 percent<br />
reflects the improved price situation in the German and Polish particleboard markets in the second<br />
half of the year. Earnings before interest and taxes (EBIT) at year-ending 2004 came to 48.4 million<br />
euros (2003: 29.1 million euros).<br />
In October 2004, <strong>Pfleiderer</strong> Engineered Wood’s Business Unit West introduced a new program<br />
to further increase profitability through optimized procedures and greater customer utility.<br />
Among others, the “PHW 2006” program analyzes the manufacturing and supply chain, as well<br />
as commercial functions and marketing/sales. Our objective is to harness further potential<br />
for increased profitability by improving the production process and reducing complexity.<br />
Key Indicators of Business Segment Engineered Wood<br />
in million euros 2004 2003<br />
Sales revenues 758.9 715.9<br />
EBITDA 78.9 57.8<br />
EBIT 48.4 29.1<br />
Capital employed 376.8 361.1<br />
ROCE (in %) 12.9 8.1<br />
Sales Revenues<br />
2004<br />
2003<br />
EBITDA EBIT<br />
2004 78.9 million euros 2004 48.4 million euros<br />
2003<br />
31<br />
57.8 million euros<br />
2003<br />
MAN<strong>AG</strong>EMENT REPORT BUSINESS SEGMENTS<br />
29.1 million euros<br />
758.9 million euros<br />
715.9 million euros
Products<br />
<strong>Pfleiderer</strong> Engineered Wood operates in the engineered wood market, manufacturing raw particleboard,<br />
melamine-faced chipboard (MFC), high-pressure laminate (HPL) and post-forming elements.<br />
Following its take-over of the MDF production plant at Nidda from the HORNITEX Group in November<br />
2004, <strong>Pfleiderer</strong> Engineered Wood made a strategic extension to its product portfolio. As<br />
a result, it is now able to offer customers a full range of engineered wood products from own<br />
production. The major part of sales in Germany comes from melamine-faced chipboard, which<br />
accounts for 45.5 percent of the sales of the Business Unit West. This is followed by raw particleboard<br />
(including tongue and groove board) which accounts for 21.3 percent.<br />
With its brands wodego®, Thermopal® and <strong>Pfleiderer</strong>, <strong>Pfleiderer</strong> Engineered Wood markets<br />
engineered wood carriers. The main products are particleboard, MDF and OSB board, either in<br />
raw form or with various facings in a range of styles and color decors. <strong>Pfleiderer</strong> manufactures<br />
a wide range of engineered surface structures, board thicknesses, melamine and ABS edgings<br />
are directed at specialist retail outlets, architects, interior designers, shop fitters and furniture<br />
manufacturers. Its focused system of logistics enables it to supply customers within 48 hours.<br />
Sales by Product Group BU West<br />
in % 2004<br />
Raw particleboard incl. tongue and<br />
groove board 21.3<br />
MFC 45.5<br />
HPL 12.9<br />
Elements and accessories 18.2<br />
MDF/HDF 1.4<br />
Other 0.7<br />
Sales by Customer Group BU West<br />
in % 2004<br />
Industry 55.3<br />
Trade 42.1<br />
Other 2.6<br />
32<br />
Elements<br />
HPL<br />
Trade<br />
MDF/HDF<br />
Other<br />
Other<br />
MFC<br />
Raw particleboard<br />
Industry
Production<br />
<strong>Pfleiderer</strong> Engineered Wood has six production sites in Germany with output and annual sales<br />
of around 2.2 million m 3 of raw particleboard, 65 million m 2 of melamine-faced chipboard,<br />
22.5 million m 2 of high-pressure laminate, 6.3 million m 2 of post-forming elements – and since<br />
November 2004 around 130,000 m 3 of MDF (annual production).<br />
While the German market for engineered wood has been profiting from greater export demand<br />
since mid-2004, increased pressure on plants due to excess capacity, together with downward<br />
price movement, was still being felt in the first half of 2004. The industry responded by greatly<br />
reducing particleboard production capacity in Germany. For its part, <strong>Pfleiderer</strong> decided to close<br />
down its Rheda-Wiedenbrück plant at the end of November 2004, thereby further reducing overall<br />
domestic particleboard production by 6 percent or around 500,000 m 3 . Major parts of the<br />
production plant are now being used on other sites within the Group.<br />
This move was followed up in the autumn of 2004 when it was decided to consolidate production<br />
at the Gütersloh plant.<br />
Steady ordering in Germany and abroad resulted in production running at a high level in all our<br />
plants during 2004. However, an explosion in the conveyor line at the Rheda-Wiedenbrück plant<br />
led the production closing down there for one week. Nevertheless, <strong>Pfleiderer</strong> Engineered Wood<br />
was able to complete all existing outstanding orders without major delay by drawing on existing<br />
inventories and using its production capacity at its other sites in Germany.<br />
During fiscal 2004, around 1.39 million m 3 of raw particleboard was produced at the Polish<br />
sites of Grajewo and Wieruszow. In order to adjust Polish production to increased demand in<br />
eastern Europe, raw particleboard production capacity at the Grajewo plant was extended by<br />
around 5 percent, at the same time improving productivity. During the fitting period, deliveries<br />
were maintained from German production plants within the <strong>Pfleiderer</strong> Group.<br />
Prices<br />
Increased export demand for engineered wood products in the second half of 2004 had a positive<br />
effect on prices for raw particleboard in Germany. Long overdue double-figure percentage<br />
increases were recorded from July 2004 onwards, with the annual average price for raw particleboard<br />
standing at 119.88 euros per m3 . Compared with 110.79 euros per m3 for 2003, this represents<br />
an average increase of 8 percent on the previous year. Prices remained stable in other<br />
product markets that <strong>Pfleiderer</strong> Engineered Wood serves. While pressure on prices for directfaced<br />
white particleboard became noticeable in 2003, price levels stabilized during 2004. However,<br />
prices for these products still need to catch up.<br />
33<br />
MAN<strong>AG</strong>EMENT REPORT BUSINESS SEGMENTS
Procurement<br />
The Business Segment Engineered Wood sets its procurement strategy to safeguard its supply<br />
base. This entails assuring that supplies meet delivery dates, and are acceptable in terms of<br />
quality, environmental and safety standards, quantity and cost.<br />
Quality requirements and environmental standards defined by the Business Segment Engineered<br />
Wood provide a basis on which suppliers are selected and assessed. Continuous assessment is<br />
carried out on materials and goods to ensure that quality levels remain constant. <strong>Pfleiderer</strong> pursues<br />
a multi-supplier strategy for its essential materials and sites. This ensures that it remains<br />
independent and can guarantee supplies. In order to avoid any unnecessary stockpiling of inventories<br />
which binds cash, major chemical pre-products and raw materials are supplied on a<br />
“just-in-time” basis. Contracts outlining prices and quantities with major suppliers of chemical<br />
pre-products, ensure that quantities purchased and prices paid remain largely constant as a<br />
factor of planning.<br />
While prices paid for most chemicals remained stable, considerably higher prices were paid for<br />
urea-based glues and paraffin, mainly due to the increase in oil prices.<br />
Energy needed in production is guaranteed at the major production plants in Germany as the<br />
Company runs its own co-generation plants.<br />
Interwood GmbH<br />
The most important raw material used in the production of particleboard is wood. Particleboard<br />
and MDF board require timber, sawmill by-products and used wood. As a procurement, plant<br />
supply and trading organization, Interwood GmbH has an annual trading and transport volume of<br />
around 4 million metric tons. It is supported in this role by its affiliates Heller Holz GmbH and<br />
the joint venture bi.om GmbH & Co. KG.<br />
Legislation in Germany favors the use of renewable forms of energy, promoting the recycling<br />
of used wood. Procurement of wood used in co-generation plants in Neumarkt, Gütersloh, Nidda<br />
and Rheda-Wiedenbrück, as well as material recycling for particleboard production in Germany,<br />
is now bundled into Interwood GmbH. The large volumes involved and the ongoing optimization<br />
of logistics in the procurement process, ensure that every potential means of reducing costs is<br />
applied. <strong>Pfleiderer</strong>’s daily requirement for timber, sawmill by-products and used wood comes to<br />
around 850 truckloads.<br />
34
Aside from its leading<br />
market presence in<br />
Germany and Europe,<br />
<strong>Pfleiderer</strong> track systems<br />
has now entered the<br />
Asian market.<br />
Business Segment Infrastructure Technology<br />
Focus on Business Center track systems following successful disposal of<br />
Business Center Poles & Towers and water systems business unit<br />
Project success in Europe and Asia<br />
Strategic cooperation to enter other markets in China and India<br />
Having spun off its Business Units Poles & Towers USA and Europe and the development business<br />
water systems in fiscal 2004, the Business Segment Infrastructure Technology is now focused<br />
on its Business Center track systems. A holistic-oriented service system and engineering provider,<br />
<strong>Pfleiderer</strong> track systems is a leading supplier of innovative rail track systems for urban and intercity<br />
rail traffic, producing state-of-the-art concrete track and turnout sleepers. <strong>Pfleiderer</strong> track<br />
systems employs 861 people in sales, engineering and production in nine locations in Germany,<br />
Spain, Hungary and Romania. In presenting the Business Segment Infrastructure Technology,<br />
figures for the previous year have been adjusted for discontinued operations to make comparison<br />
easier. In fiscal 2004, the Business Segment Infrastructure Technology with its Business Center<br />
track systems increased sales by 10.6 percent to 138.2 million euros (2003: 124.9 million euros).<br />
Around 39.6 percent of sales were generated outside Germany. This increase in foreign sales<br />
reflects the successful international growth strategy implemented by <strong>Pfleiderer</strong> track systems. In<br />
order to strengthen its independence from the German market, <strong>Pfleiderer</strong> track systems is putting<br />
much effort into expanding its international project business. This particularly relates to its<br />
ballastless track system RHEDA 2000® used in the new construction of high-speed links.<br />
35<br />
MAN<strong>AG</strong>EMENT REPORT BUSINESS SEGMENTS
In addition to the operative results of the Business Center track systems, earnings before interest,<br />
taxes, depreciation and amortization (EBITDA) for the Business Segment Infrastructure Technology<br />
reflect adjustments following the sale of operations, as well as consolidation effects from this<br />
segment. Despite these expenses, EBITDA improved slightly by 5.5 percent in the previous year<br />
to 19.1 million euros (2003: 18.1 million euros). Earnings before interest and taxes (EBIT) came<br />
to 15.3 million euros and were practically stable compared to the previous year (2003: 15.4 million<br />
euros).<br />
Key Indicators of Business Segment Infrastructure Technology<br />
in million euros 2004 2003<br />
Sales revenues 138.2 124.9<br />
EBITDA 19.1 18.1<br />
EBIT 15.3 15.4<br />
Capital employed 54.9 56.0<br />
ROCE (in %) 27.8 27.5<br />
Sales Revenues<br />
2004<br />
2003<br />
EBITDA EBIT<br />
2004 19.1 million euros 2004<br />
15.3 million euros<br />
2003<br />
Products<br />
<strong>Pfleiderer</strong> track systems has been developing and producing sleeper systems for intercity and<br />
urban rail transportation since 1954. Its customers are the major rail operators, as well as operators<br />
of municipal, underground and tramway networks. Working in close cooperation with<br />
its customers and associates, <strong>Pfleiderer</strong> track systems offers an allround service, from product<br />
development, design, project engineering, production, supply and logistics through to quality<br />
management.<br />
In addition to its classic monolithic sleeper system for traditional asphalt top-layers – the type<br />
B70 concrete sleeper – <strong>Pfleiderer</strong> track systems produces a wide range of products to meet<br />
specific requirements. Particularly important here is <strong>Pfleiderer</strong>’s patented monolithic track system<br />
RHEDA 2000® with which it has had considerable international success. The RHEDA 2000®<br />
technology has proved itself over the last few years in the construction and operation of major<br />
European high-speed rail links. The system is also used in a wide range of special applications,<br />
for example when renovating tunnels, or as RHEDA CITY version for light rail systems such as city<br />
railways and tramways.<br />
36<br />
18.1 million euros<br />
2003<br />
15.4 million euros<br />
138.2 million euros<br />
124.9 million euros
Due to its very low construction height, the RHEDA 2000® offers considerable advantages when<br />
renovating tunnels as it provides greater clearance in existing tunnels. This permits higher train<br />
operating speeds, in turn resulting in better track usage.<br />
Building on its leading position in Germany and Europe, <strong>Pfleiderer</strong> track systems is now targeting<br />
new markets in the growth regions of central, eastern and south-eastern Europe, as well as<br />
in India, South Korea, China and other south-east Asian countries. In fiscal 2004, the Business<br />
Center was actively involved in the following projects:<br />
In Germany, around 100,000 bi-bloc sleepers for ballastless track were supplied for the new<br />
line between Nuremberg and Ingolstadt. These sleepers were produced “just-in-time” and supplied<br />
directly to the site.<br />
In the construction of the new Amsterdam-Brussels high-speed link (HSL-Zuid) – currently the<br />
biggest rail infrastructure project in Europe – where <strong>Pfleiderer</strong> track systems will be producing<br />
and delivering around 260,000 sleeper systems based on the RHEDA 2000® technology by the<br />
autumn of 2006. <strong>Pfleiderer</strong> track systems is also involved in a joint venture with the Dutch construction<br />
company Royal BAM N.V. where it is directly responsible for project design, engineering<br />
and quality management.<br />
<strong>Pfleiderer</strong> track systems has entered the Asian market where it is involved in the construction<br />
of the new high-speed Taipei-Kaohsiung link in Taiwan. Apart from supplying engineering<br />
services for the planning and construction of major sections of the track, railway stations and<br />
turnouts will be fitted with RHEDA 2000® technology. Around 65,000 meters of turnout sleepers<br />
will come from German production, while some 125,000 track sleepers will be produced in<br />
Taiwan in conjunction with a local partner.<br />
<strong>Pfleiderer</strong> track systems will be supplying over 680,000 type B70 concrete sleepers for Turkey’s<br />
modernization of the first stretch of the Ankara to Istanbul link. The sleepers will be delivered<br />
from German production, as well as from the Buzău plant in Romania and the Lábatlan plant<br />
in Hungary. This order means that these plants will be running at full capacity for the next<br />
15 months.<br />
An order has been taken from VAE GmbH, Zeltweg in Austria for <strong>Pfleiderer</strong> track systems to<br />
supply around 20,000 of its RHEDA 2000® ballastless track system turnout sleepers for the<br />
underground “Circle Line” in Singapore by 2008. These sleepers will be supplied by the Coswig<br />
plant near Dresden.<br />
<strong>Pfleiderer</strong> track systems is extending its presence in the growth markets of China and India<br />
through two cooperative ventures:<br />
In China, <strong>Pfleiderer</strong> track systems has been a partner in the “German High-Speed Initiative”<br />
since 2003. The Initiative is represented by two competence centers for rail technology in the<br />
capital Bejing and the South-China growth region of Guangdong.<br />
In India, <strong>Pfleiderer</strong> track systems has entered into a joint venture with Patil Rail Infrastructure<br />
Ltd., the biggest producer of railway sleepers in India. The first project for this newly-formed<br />
joint venture, operating under the name “Patil <strong>Pfleiderer</strong> track systems Pvt. Ltd.,” will participate<br />
in the construction of a 300-kilometer rail track in the mountainous Kashmir region, and will<br />
also involve the construction of tunnels up to 11 kilometers long.<br />
37<br />
MAN<strong>AG</strong>EMENT REPORT BUSINESS SEGMENTS
Production<br />
Reduced capital expenditure by Deutsche Bahn <strong>AG</strong> has affected <strong>Pfleiderer</strong> track systems’ domestic<br />
business. However, production in the German plants during fiscal 2004 was also used in<br />
international projects in Taiwan and the Netherlands, as well as for ongoing domestic business.<br />
Production capacity in the plants in Romania and Hungary is fully booked up for around 15 months<br />
following an order taken to modernize rail links in Turkey.<br />
A plant has been set up with a local partner in Taiwan to produce around 125,000 rail sleepers<br />
as part of the Taiwanese high-speed project. As this project has since been completed. The<br />
plant involved has been dismantled and will be used elsewhere in the region for other projects.<br />
The Business Center track systems produced around 1.2 million track sleepers and around<br />
300,000 meters of rail turnout sleepers at its German production plants in Coswig, Langen,<br />
Neumarkt, Gernsbach and Kirchmöser.<br />
As of December 31, 2004, order books for Germany and abroad were full for the next 6 months.<br />
Quality Management<br />
Maintaining constant high standards of quality for all our products is of fundamental importance,<br />
especially for the rail traffic segment. For many years now, <strong>Pfleiderer</strong> track systems has been<br />
applying a quality management system to ensure uniform high quality standards for all its products.<br />
The quality management system itself is also subject to continual monitoring and improvement.<br />
Productivity and the quality of work processes are constantly enhanced as a result of<br />
continual improvement monitoring. The quality management system for central units and production<br />
plants in operation for <strong>Pfleiderer</strong> Infrastructure Technology is certified according to DIN EN<br />
ISO 9001, documenting the high quality standards of our products. Products from <strong>Pfleiderer</strong> track<br />
systems have an excellent reputation internationally.<br />
Deutsche Bahn <strong>AG</strong> regularly subjects its goods in to product qualification. Our new plant in<br />
Kirchmöser, Brandenburg, which started production in 2003, has now also received Q1 supplier<br />
status. This matches all <strong>Pfleiderer</strong> track systems’ other German plants.<br />
Only proven and extensively tested materials subjected to pre-testing from certified suppliers<br />
are used in production by <strong>Pfleiderer</strong> Infrastructure Technology. Independent accredited organizations<br />
also test our products, in addition own product monitoring performed at various stages<br />
of production.<br />
38
Procurement<br />
In order to take advantage of economics of scale, <strong>Pfleiderer</strong> Infrastructure Technology has bundled<br />
demand for raw materials, supplies and services used in production. The objective of its procurement<br />
strategy is to tie up as little capital as possible, avoiding high inventory levels, yet at<br />
the same time guaranteeing supply certainty for essential materials used in production. Where<br />
possible, medium to long-term contracts are signed to cover the supply of standard materials.<br />
Its multi-supplier strategy for the main materials and pre-products as well as other items ensures<br />
that Infrastructure Technology is not dependent on individual suppliers. Shifting the call-off of<br />
raw materials for cement production back to the suppliers has effectively reduced inventory storage<br />
time to less than one working day.<br />
Higher prices for steel felt during the reporting period were largely alleviated through existing<br />
long-term contracts, resulting in only moderate rises in total material costs.<br />
39<br />
MAN<strong>AG</strong>EMENT REPORT BUSINESS SEGMENTS
ASIA<br />
Asia’s rapid economic expansion is leading to increasing demand for modern, but<br />
environmentally friendly, traffic systems. In these growth markets, mobility is increasingly<br />
becoming a major competitive factor.<br />
High-Speeding to Asia<br />
<strong>Pfleiderer</strong> track systems’ technological leadership in rail sleeper systems has brought the<br />
Company a series of international successes. Its contribution to engineering and constructing<br />
the new high-speed link in Taiwan, connecting the cities of Taipei and Kaohsiung, marks its<br />
successful entry into the Asian market. Now new strategic alliances are being forged in China<br />
and India, strengthening <strong>Pfleiderer</strong> track systems’ presence in these markets and its business<br />
potential in one of the world’s fastest-growing regions.
Research & Development<br />
New “MultiFunctionPanel” successfully introduced<br />
Ballastless “RHEDA 2000®” sleeper further developed to reduce noise<br />
The <strong>Pfleiderer</strong> Group’s research and development activities are directed at optimizing production<br />
processes and products. Products and services are continually improved in close cooperation<br />
with customers and partners to meet market demands. Some 69 quality managers, laboratory<br />
technicians, product designers and applications specialists were also engaged in research at<br />
development work in the Business Segments Engineered Wood and Infrastructure Technology in<br />
2004. Overall, the <strong>Pfleiderer</strong> Group spent 2 million euros on research and development during<br />
fiscal 2004 (2003: 2 million euros).<br />
Reseach & Development<br />
2004<br />
2003<br />
Engineered Wood<br />
Research and development activities by the Business Segment Engineered Wood focus on the<br />
use of recycled wood, optimization of the value added chain and continued product development.<br />
The feedback from an ongoing dialogue with customers flows back into research for new types<br />
of surface finishes and facings for the kitchen furniture industry. <strong>Pfleiderer</strong> Engineered Wood’s<br />
latest development is its MultiFunctionPanel (MFP) from wodego®. With its high flexural and<br />
cross-tension strength, this new carrier is an economic alternative to oriented stranded board<br />
(OSB) for interior outfitters and carpenters. MultiFunctionPanel is strong enough to be used<br />
as a bearing element in interior construction, for flooring or in shop and trade fair stands.<br />
Infrastructure Technology<br />
High demands are placed on all research and development activities in the Business Center track<br />
systems, part of the Business Segment Infrastructure Technology. The high technological standards<br />
of the individual products involved demands a continuous process of innovation and development<br />
of system concepts. One example of this is the optimization of the RHEDA 2000® sleeper system.<br />
The latest development in monolithic track is a mass-spring system. This innovation can be used<br />
in locations with particularly high demands – for example in mountainous terrain, tunnels and stations<br />
or to reduce secondary air noise on neigbouring buildings. The mass-spring system acts<br />
as an elastic element between upper track layer and substructure, effectively reducing vibration.<br />
Absorbing vibration in turn reduces noise levels. At present, around 9 kilometers of ballastless<br />
RHEDA 2000® track in the north-south line in Berlin is being constructed using the mass-spring<br />
system.<br />
42<br />
2.0 million euros<br />
2.0 million euros
The unrelenting development of train is also driving development in track systems, which must<br />
keep pace. <strong>Pfleiderer</strong>’s city solutions – for example its “Green Track” system for tramways –<br />
are just one example of this. <strong>Pfleiderer</strong> track systems maintains a constant dialogue with its<br />
customers, particularly with regard to reducing noise levels and in anticipating the aesthetic<br />
demands of city planners.<br />
Capital Expenditure<br />
New plant construction in Novgorod, Russia progressing on schedule<br />
New construction of MDF/HDF plant planned<br />
Capital expenditure by the <strong>Pfleiderer</strong> Group is directed at the replacement of its assets, as well<br />
as the construction of new production sites and development of new products. Internal feasibility<br />
guidelines ensure that projects are only embarked upon which provide an appropriate return on<br />
capital. In fiscal 2004, the <strong>Pfleiderer</strong> Group invested 45.4 million euros (2003: 31.7 million euros).<br />
Capital Expenditure<br />
2004<br />
2003<br />
Engineered Wood<br />
The main thrust of capital expenditure in the Business Segment Engineered Wood goes towards<br />
strengthening and expanding the Company’s presence in the growth regions of eastern Europe.<br />
This ensures that <strong>Pfleiderer</strong> can participate in dynamic market growth and the sustained strong<br />
demand for engineered wood products in this region. Around one third of total investment by<br />
the <strong>Pfleiderer</strong> Group in fiscal 2004 flowed into the expansion of production capacity at Grajewo<br />
in Poland. Rebuilding the existing raw particleboard press has increased its production capacity<br />
by around five percent. This has been coupled to higher productivity. In 2003, construction work<br />
started on a new plant at Novgorod, Russia, and work on the new particleboard plant is proceeding<br />
on schedule. Following clearance and preparation of the site, the foundation stone was<br />
formally laid in May 2004. Machinery from the Rheda-Wiedenbrück plant, which closed down<br />
production of raw particleboard on November 30, 2004, will be re-used in Novgorod. According<br />
to current planning, production in Russia should start by the end of 2005.<br />
43<br />
45.4 million euros<br />
31.7 million euros<br />
MAN<strong>AG</strong>EMENT REPORT RESEARCH & DEVELOPMENT/CAPITAL EXPENDITURE
In September 2004, <strong>Pfleiderer</strong> approved an investment project to optimize processing logistics<br />
in HPL production at its engineered wood site in Arnsberg, Germany. The optimized production<br />
planning and control system should result in considerably shorter delivery times and a significant<br />
reduction in inventories. This will do more than just strengthen the competitive position and<br />
market share of <strong>Pfleiderer</strong> Engineered Wood as a partner for the furniture industry and specialist<br />
trade by speeding up deliveries. By helping to tighten up product ranges, it will also improve the<br />
site’s cost situation in what it is a difficult domestic market. This must also be seen in the light of<br />
a general reduction in production capacity taking place in this market.<br />
In October 2004, <strong>Pfleiderer</strong> announced that it would start construction work on a new plant to<br />
produce MDF and HDF board. With this project, <strong>Pfleiderer</strong> Engineered Wood is expanding its<br />
ranges to include MDF and HDF board for the furniture and flooring industry, a move that takes<br />
into account increasing demand for MDF by furniture manufacturers.<br />
Infrastructure Technology<br />
Investment activity by the Business Center Infrastructure Technology focused in fiscal 2004 on<br />
expanding and modernizing existing plants. Production capacity was expanded at Buzău in<br />
Romania and Lábatlan in Hungary in order to cover for new orders taken. This follows an order<br />
taken from Turkey for more than 680,000 sleepers as part of its modernization plan to improve<br />
the track between Ankara and Istanbul. These sleepers will be produced and supplied by both<br />
the above mentioned plants effectively booking up their total production capacity for the next<br />
15 months.<br />
The existing turnout production plant at Kirchmöser, Brandenburg and the sleeper plant at<br />
Coswig have both been modernized.<br />
Environmental Protection<br />
The Group’s environmental protection strategy for fiscal 2004 was based on modernizing its production<br />
plants to ensure that they are state-of-the-art and comply with the requirements of the<br />
German Clean Air Regulation TA Luft 2002. Approval procedures and authorizations for technical<br />
changes by local authorities were carried out at nearly all sites. This has resulted in new or lower<br />
thresholds being set, as well as the need to introduce a comprehensive emissions monitoring system.<br />
An approval procedure was introduced at the Leutkirch site with the objective of reducing<br />
noise levels in the neighborhood. In order to improve air quality in the immediate environment,<br />
management also decided that dust-emitting goods (e.g. sawdust) would no longer be stored<br />
in the open air. These items are now stored in silos. During the same reporting period, the wet<br />
electro-filter used to purify exhaust air from the chip dryer at this site was completely overhauled<br />
at a cost of around 1.1 million euros, achieving a further reduction in emission levels.<br />
44
Further optimization of the energy supply plant at Neumarkt has led to a marked decrease in<br />
CO emissions, while an additional emission threshold level for organic material has been introduced<br />
for its chip dryers, combined with a new continuous monitoring system.<br />
The impregnation units at Plant I in Gütersloh, which no longer complied to the Clean Air Regulation<br />
TA Luft 2002, were decommissioned. After production has moved to Plant III as planned,<br />
exhaust air will be treated using a catalytic purification unit. Sound insulation costing up to 1 million<br />
euros is to be introduced over the next few years in order to improve noise emission levels<br />
near the particleboard plant.<br />
As nearly all <strong>Pfleiderer</strong> Engineered Wood’s energy production plants run on biomass, they are in<br />
an excellent position to take part in emissions trading and will not need to purchase emission<br />
certificates.<br />
Organization<br />
The organizational structure of the <strong>Pfleiderer</strong> Group simplified in fiscal 2004 following the disposal<br />
of various business centers. Sale of the Business Center Poles & Towers with its operations<br />
in the USA and Europe, together with the sale of the water systems development business unit,<br />
has simplified the Group’s corporate structure. However, the Group’s basic structure, that of two<br />
main operating segments and a holding company, remains unchanged. Disposing of business<br />
centers has resulted in changes to the Group’s legal structure. Following its acquisition, the Nidda<br />
plant has since joined the other consolidated companies. The full list of companies consolidated<br />
within the Group is given below.<br />
45<br />
Business Segment<br />
Engineered Wood<br />
Business Unit West<br />
Business Unit East<br />
<strong>Pfleiderer</strong> <strong>AG</strong><br />
Business Segment<br />
Infrastructure Technology<br />
<strong>Pfleiderer</strong><br />
track systems<br />
Overhead functions<br />
MAN<strong>AG</strong>EMENT REPORT ENVIRONMENTAL PROTECTION/ORGANIZATION<br />
<strong>Pfleiderer</strong><br />
Service GmbH
Personnel<br />
As of December 31, 2004, the <strong>Pfleiderer</strong> Group employed 4,431 people including officers (2003:<br />
5,614). Of these, 1,519 were employed outside Germany. Due to the disposal of both its Business<br />
Units Poles & Towers USA and Europe, as well as the Business Unit water systems,1,177 employees<br />
no longer counted as belonging to the Group as of December 31, 2004. However, the acquisition<br />
of the Nidda plant by the Business Segment Engineered Wood increased the number of employees<br />
by 161.<br />
<strong>Pfleiderer</strong> is currently providing instruction in 18 commercial and technical occupations at 8 sites<br />
where it offers training. As of December 31, 2004, the <strong>Pfleiderer</strong> Group employed 155 trainees,<br />
70 of which are training for junior management jobs and 85 for technical occupations.<br />
At present, 77 employees are in pre-retirement part-time work. In 2004, 77 employees celebrated<br />
their 25th anniversary with the Company and 16 employees their 40th anniversary.<br />
As part of the Long Term Incentive Program run by the <strong>Pfleiderer</strong> Group, 563,016 stock options<br />
were granted during fiscal 2004. The Stock Option Program was adopted at the Company’s<br />
General Meeting in 2001. Further details on the Stock Option Program are given in the notes in<br />
the Financial Statements at the end of this report.<br />
46<br />
2004 2003<br />
As of Dec. 31 (excluding trainees) Domestic Foreign Total Domestic Foreign Total<br />
Continued operations:<br />
<strong>AG</strong>/Corporate units 16 0 16 28 0 28<br />
Service units 75 2 77 117 2 119<br />
Engineered Wood<br />
Infrastructure Technology<br />
2,492 983 3,475 2,474 976 3,450<br />
(only track systems) 327 534 861 295 495 790<br />
Subtotal Core Operations 2,910 1,519 4,429 2,914 1,473 4,387<br />
Discontinued operations:<br />
Wind Energy 2 – 2 29 21 50<br />
water systems – – – 29 0 29<br />
Poles & Towers USA – – – – 458 458<br />
Poles & Towers Europe – – – 678 12 690<br />
Total 2,912 1,519 4,431 3,650 1,964 5,614
Personnel Development<br />
The <strong>Pfleiderer</strong> Business Campus is the personnel development platform for the <strong>Pfleiderer</strong> Group.<br />
<strong>Pfleiderer</strong> wishes to strategically develop competence levels among its management and employees,<br />
thereby creating competitive advantages. This is done by offering employees target-group<br />
specific multi-stage qualification courses on leadership, motivation, integration and qualification.<br />
The courses and events offered by the Business Campus strengthen identification with the company,<br />
and thus make a significant contribution to the creation of a corporate culture.<br />
Joining Forces for the Future<br />
The most important activity of the <strong>Pfleiderer</strong> Group during fiscal 2004 in terms of personnel development<br />
was the process of setting up and developing Guidelines for Leadership and Working<br />
Together. Economic conditions are constantly changing and employees face ever new challenges.<br />
In this setting, the Guidelines provide orientation and direction. Created jointly through a series<br />
of intensive workshops, these basic rules act as a guideline as to how employees, managers and<br />
employee representatives work together and interact. All those involved are convinced that personal<br />
performance can be improved at all levels, in all areas and in all tasks, thus strengthening<br />
the Company as it moves forward.<br />
These Guidelines for Leadership and Working Together reproduced here, were developed with<br />
the help of employees at all levels within the hierarchy. Subsequently, the Guidelines were introduced<br />
top-down, ensuring that senior management feels responsible for their implementation.<br />
“Jugend forscht”<br />
“Jugend forscht” literally means “young people do research” and is a competition where young<br />
people can present their own innovative ideas. For the ninth time running, <strong>Pfleiderer</strong> <strong>AG</strong> sponsored<br />
the regional round for the Oberpfalz in 2004. Entitled “Suddenly Everything’s Relative”, a<br />
total of 115 schoolchildren and trainees from local companies took part in March 2004, presenting<br />
68 different projects.<br />
“Azubi forscht” – literally “trainees research” – enables <strong>Pfleiderer</strong>’s own trainees to prepare for<br />
the competition with group projects covering working life and technology. This makes <strong>Pfleiderer</strong><br />
unique as a company in that it prepares its trainees during their apprenticeship with key skills<br />
such as the ability to work in teams, how to take a systematic approach to problems, as well as<br />
organizational abilities and other transferable skills.<br />
The youngest winners of the “Jugend forscht” competition are invited to take part in a training<br />
camp organized by <strong>Pfleiderer</strong> where they meet up with real working life and where they can try<br />
to put their research ideas into practice.<br />
47<br />
MAN<strong>AG</strong>EMENT REPORT PERSONNEL
<strong>Pfleiderer</strong> Corporate Guidelines for Leadership and Working Together<br />
1. We Stand for a Culture of Leadership Looking to the Future<br />
We treat our staff with respect and lead through personal example. Senior management and staff<br />
see each other as partners, prepared to place demands on each other and provide mutual support.<br />
Acting as partners is in the common interest of the Company. Our self-confidence is based<br />
on our performance and our readiness to learn. Success provides us with confirmation and gives<br />
us strength. Mistakes are an incentive to improve. Being able to criticize and to accept criticism<br />
are major leadership skills. We discuss openly and argue respectfully in order to achieve optimum<br />
results.<br />
2. We are Creating Organizational Structures Suited to our Goals<br />
We are creating clear structures, with clear lines of responsibility for senior managers and staff.<br />
Shorter, more transparent decision paths speed up our operating processes. In order to improve<br />
efficiency, we are reducing unnecessary complexity and optimizing commercial and working<br />
procedures. By working together productively and constructively internally, we are ensuring that<br />
our working procedures are more effective.<br />
3. Performance, Entrepreneurial Thinking and Trust Pay Off<br />
We are strengthening the performance of our senior managers and staff by carefully developing<br />
their competences and careers within the Company. This ensures a sense of commitment to the<br />
Company and greater self-confidence. We support entrepreneurial thinking by delegating goals<br />
and responsibility. The achievement of commonly agreed team targets and individual goals is<br />
rewarded. This is how we are creating a climate of performance, participation and trust. Performance<br />
pays at <strong>Pfleiderer</strong>. Working together in a spirit of cooperation is essential if the Company<br />
is to succeed. This atmosphere of mutual respect is also the basis with which we deal with staff<br />
representatives.<br />
4. We are Reliable and are Judged on What We Say<br />
We communicate fully, clearly and in good time. We stand by what we say and by our commitments,<br />
and are judged by our actions. Open communication based on mutual respect ensures<br />
that we remain predictable and creates certainty and orientation in our working environment. We<br />
work in a service-orientated manner in the interest of both customers and business associates<br />
alike.<br />
5. We are a Responsible Company<br />
We stand by our key values – innovation, trust, performance, responsibility and identification. We<br />
pass on this enthusiasm to our staff, creating the foundations for economic success that will<br />
ensure that our Company continues to increase in value. We act in the interests of those supplying<br />
us with capital and with a sense of responsibility for our staff and business associates, as<br />
well as towards the environment, the state and society as a whole. We act responsibly with the<br />
corporate assets entrusted to us by our suppliers of capital. We respect those ideas that have<br />
proved themselves and connect them to innovation. In doing so, we are continually expanding<br />
our strengths.<br />
48
Risk Report<br />
<strong>Pfleiderer</strong> <strong>AG</strong>’s business policy is directed at continually strengthening its net assets, financial<br />
position and results of operations. As an internationally operating group, the Company is confronted<br />
with a wide range of potential risk situations. Early identification of risk, monitoring and<br />
keeping risk under control while making every use of business opportunities – these are the<br />
main challenges that confront the Board of Management and all employees alike. Accordingly,<br />
the Board of Management and the Supervisory Board ensure that they are kept regularly informed<br />
about risks which could have a serious effect on the development of the Company’s two<br />
Business Segments, Engineered Wood and Infrastructure Technology, or on the Group as a whole.<br />
The Audit Committee of the Supervisory Board was presented with the Risk Management Report<br />
2004 in its meeting on March 17, 2004.<br />
The Company applies a risk management system to identify risk at an early stage, and to assess<br />
and deal appropriately with any major risk or risk which could threaten the Company’s existence.<br />
The risk management system complies with legal requirements and is an integral part of the<br />
Company’s operating and reporting process. The Risk Management System is defined in the Risk<br />
Management Manual which defines<br />
risk identification and assessment,<br />
how to deal with current risk,<br />
new or additional measures to deal with risk and<br />
how risk should be followed up and what measures be taken.<br />
Risk management for the Group is controlled and continually developed by a corporate service<br />
unit. <strong>Pfleiderer</strong> places particular value on the regular exchange of information with other companies<br />
to ensure that new approaches and ideas flow into the Group’s risk management system.<br />
Apart from the risk management central services unit, individual operating Business Segments<br />
and Units and other central services functions each have nominated a risk manager responsible<br />
for ensuring that the system is upheld within the relevant business or service unit. Apart from<br />
that, senior managers in the <strong>Pfleiderer</strong> Group are required to ensure that all employees are sensitized<br />
to the need to identify and avoid risks. As well as an instant reporting system which<br />
captures sudden changes in the risk situation, risk officers carry out monthly checks on existing<br />
risk, as well as seeking to identify any new potential risk. The results are compiled in a separate<br />
quarterly report which is presented to the Board of Management and the Chairmen of the Supervisory<br />
Board and the Audit Committee. The current risk management system is also examined<br />
to establish whether it is suitable and effective. This examination is performed by the internal<br />
audit department, as well as by the external auditors.<br />
As in previous years, no risks face the <strong>Pfleiderer</strong> Group which could be considered either a threat<br />
to its existence, or which could have a major effect on its assets, finances or earnings positions.<br />
The main risks facing <strong>Pfleiderer</strong>’s activities are given below.<br />
49<br />
MAN<strong>AG</strong>EMENT REPORT RISK REPORT
Economic and Political Risks and Individual Risk Scenarios<br />
The Group expects to draw a large portion of earnings from its eastern European business, particularly<br />
in Poland. Active observation and assessment of political conditions and developments<br />
in Russia, as part of our scheduled entry into that market, will also gain in importance as far<br />
as planning and monitoring own business activities are concerned. The continued weakness in<br />
domestic demand has placed both business segments under stronger competition. <strong>Pfleiderer</strong> is<br />
answering the pressure on costs and from competition in the domestic market by implementing<br />
cost-saving measures and by increased productivity, as well as by reducing fixed costs and the<br />
concentration of production capacity. The effects relating to these measures have been adequately<br />
taken into account in business planning and do not represent a specific risk. Higher costs in<br />
Germany are being met by increasing and expanding production sites in eastern Europe. Economic<br />
risks facing foreign sales markets which might affect results are expected under certain circumstances<br />
in Poland, although the probability of their occurrence is considered very slight.<br />
The reduced budget available for investment by Deutsche Bahn <strong>AG</strong>, the German rail operator, is<br />
having an effect on the Business Center track systems, part of the Business Segment Infrastructure<br />
Technology. Expanding business and improving earnings in this Business Segment therefore<br />
depends on further growth in foreign activities involved in the construction of high-speed links<br />
in Europe and Asia. In order to expand in this area, as well as to bolster its innovative and competitive<br />
strengths, this Business Center is expected to make acquisitions and enter into strategic<br />
alliances, such as joint ventures. On the one hand, this offers opportunities, on the other, such<br />
measures require additional organization and personnel involvement.<br />
In the engineered wood sector, continued reluctance on the part of private consumers to spend<br />
on furniture and interior fittings cannot be discounted for 2005, thereby affecting sales and<br />
earnings. Production over-capacity in the particleboard industry, which has hit prices over the<br />
last few years, has been reduced by shutting down the Rheda plant in 2004, with closure first<br />
taking place in August 2005 in some areas. However, the Company believes that this measure<br />
will also reduce pressure on prices for particleboard over the long term.<br />
Operating Risks<br />
No new suppliers are expected to enter the market who could have a significant effect on the<br />
competitive situation in those markets that the <strong>Pfleiderer</strong> Group serves. Equally, there are no<br />
signs of a process of concentration as far as buyers are concerned, and thus of any risks that<br />
could result. On the other hand, insolvency of individual customers cannot be completely<br />
discounted in any of the markets relevant to <strong>Pfleiderer</strong>, although this would not endanger the<br />
existence of <strong>Pfleiderer</strong> <strong>AG</strong>. In accordance with corporate guidelines, risks of bad debt due to<br />
insolvency have been largely covered by credit insurance.<br />
No risks ensuing from the potential infringement of third party proprietary rights are currently<br />
expected. Nor are any risks anticipated in the field of product development and production<br />
technology, as <strong>Pfleiderer</strong> is currently using state-of-the-art technology in its Business Segments.<br />
50
<strong>Pfleiderer</strong> operates production plants which are running mainly continuous lines manned on a<br />
multi-shift basis. The high level of organization and technical complexity involved means that<br />
production stoppages can occur, as well as harboring risks with regard to quality control, environmental<br />
pollution and industrial injury. All this can represent a break in the value added<br />
chain. An active system of preventative maintenance is applied to prevent stoppages and downtime.<br />
Plant is carefully maintained and employees are trained how to operate it. Wood processing<br />
contains an inherent risk of fire and explosion that cannot be entirely excluded. Damage<br />
to machinery and plant, as well as losses due to down-time, have been insured against where<br />
this is economically meaningful. Additionally, all necessary technical and organizational avoidance<br />
measures are applied to prevent such breakdowns occurring, and the Company has also drawn<br />
up contingency and emergency plans to deal with such incidents.<br />
As a matter of corporate policy, the Company is not dependent on any one supplier as a wide<br />
range of raw materials is needed for operations. A multi-source procurement policy has been set<br />
up to safeguard supply. However, in the case of a certain raw materials and pre-products only<br />
a few suppliers exist. The failure, delay, or poor quality of supplies, could result in production<br />
stoppages, having a negative effect on earnings. <strong>Pfleiderer</strong> has offset these risks by entering<br />
into longer-term supply agreements, as well as setting up a procurement organization which continuously<br />
monitors that raw materials are delivered on time, and are of suitable quality. Price<br />
increases for certain raw materials are currently expected, but this has already been taken into<br />
account in planning. Dependence on the way energy costs develop in future has been specifically<br />
reduced by the use of co-generation plants.<br />
Personnel Risks<br />
<strong>Pfleiderer</strong> is limiting personnel risks such as fluctuation or loss of know-how, demotivation, poor<br />
qualification and competition for specialists and senior managers through modern personnel<br />
instruments. Attractive systems of compensation, as well as training and updating schemes are<br />
offered in order to bind employees closer to the Company. Potential assessment procedures<br />
ensure that there is an internal supply of successors and that positions are occupied. Close contact<br />
to selected universities supports the recruitment of qualified junior management.<br />
Financial Risks<br />
<strong>Pfleiderer</strong> understands financial risks to include those risks relating to liquidity and market prices<br />
arising from transactions in the course of normal business and their hedging, as well as risks<br />
arising from financing the Group. As a matter of principle, all financial risks are monitored by the<br />
treasury department using appropriate financial control and monitoring instruments. Debtor<br />
management, which remains the responsibility of the individual operating segments, is also overseen<br />
by the treasury department in this work, ensuring that limits imposed by credit insurance<br />
are maintained – an increasingly important aspect in view of increasing insolvency in the economy.<br />
51<br />
MAN<strong>AG</strong>EMENT REPORT RISK REPORT
No liquidity risk exists at present. The proceeds from the sale of the Business Center Poles &<br />
Towers, capital increases performed in Poland and the use of alternative financing instruments<br />
have resulted in net corporate indebtedness being halved again in 2004. Apart from that, the<br />
Company has sufficient short and long-term credit lines available. The capital market was also<br />
successfully used to place a promissory note loan for 40 million euros in 2004 and to restructure<br />
financial debt. Accordingly, the available volume of credit currently provides the Group with<br />
sufficient financial resources and liquidity.<br />
Market price risks mainly relate to currency translation, interest rates and the market value of<br />
financial assets. <strong>Pfleiderer</strong>’s risk policy aims to limit fluctuations in results and valuations which<br />
can arise through changes in exchange rates, interest rates or valuations. In view of the relatively<br />
small volume of business conducted outside the euro, PLN and dollar areas together with currency<br />
hedging, no significant exchange rate risks are expected. The danger of an increase in base interest<br />
rates which would affect existing credit lines for the planning period, in turn affecting fixed<br />
operating conditions, can be practically excluded.<br />
Legal Risks<br />
Neither <strong>Pfleiderer</strong> <strong>AG</strong> nor its affiliated companies are involved in court or arbitration procedures<br />
which by current assessment could have a major, sustained influence on the economic and<br />
financial position of the Group. The Company maintains its own legal department which ensures<br />
that legally relevant matters are handled correctly throughout the Group in terms of form and<br />
content. This particularly applies to contracts and the conduct of legal procedures, where necessary<br />
bringing in external specialists. In order to cover warranty claims which the Company is<br />
inevitably confronted with in the course of its business, the <strong>Pfleiderer</strong> Group has set up provisions<br />
and, where economically meaningful, covered such risks through appropriate insurance.<br />
IT and Other Risks<br />
Various measures have been implemented to limit potential risk from IT such as unauthorized<br />
access to, or misuse of, data. These measures extend to employees, organization, applications,<br />
systems and networks. Only standard software from leading suppliers is used to support our<br />
technical and commercial procedures. In the coming fiscal year, we shall be drawing up a Groupwide<br />
guideline on how to deal with information, as well as how to operate information systems<br />
safely. In future, technical security measures such as firewall or virus scanners will be subjected<br />
in future to an annual internal IT security audit.<br />
In order to eliminate and limit environmental risks, environmental officers are employed at<br />
Group and Business Segment levels, and appropriate guidelines have been drawn up. According<br />
to expert opinion, historical contamination may occur at individual production sites. Suitable<br />
monitoring and control mechanisms have been introduced and costs accounted for in planning.<br />
52
Marketing and Communication<br />
The <strong>Pfleiderer</strong> Group organizes its marketing and communication activities by target group. While<br />
direct communication with the customer and specialist public relations is the responsibility of<br />
the operative segments Engineered Wood and Infrastructure Technology, the central services unit<br />
Corporate Communication organizes contacts with the capital market, the financial press and<br />
employees. Total marketing expenditure in the Business Segments Engineered Wood and Infrastructure<br />
Technology and the central services unit Corporate Communication came to 3.9 million<br />
euros (2003: 5.8 million euros).<br />
Corporate Communication<br />
The activities of the central services unit Corporate Communication are directed at communicating<br />
the Group’s strategic direction and positioning. This information is directed in the first<br />
instance at employees, the financial press and the capital market. Contact to target groups<br />
is achieved through regular publications such as business and quarterly reports, the corporate<br />
website and the employees’ magazine “Imagine”, as well as through broad-based public relations<br />
work.<br />
Engineered Wood<br />
In fiscal 2004, marketing and communication activities by the Business Center Engineered Wood<br />
aimed to optimize the process of communicating with the customer. Following the introduction<br />
of a new brand and sales concept in fiscal 2003, <strong>Pfleiderer</strong> Engineered Wood now markets its products<br />
and services in Germany through its three brands: wodego®, Thermopal® and <strong>Pfleiderer</strong>.<br />
Specifically directing products and services at customers in industry, trade and processing ensures<br />
market-driven solutions, convincing quality and reliable delivery service.<br />
The premium brand Thermopal® offers 14 different carrier materials for every type of use. Products<br />
have a wide range of different characteristics depending on application: flame-retardant,<br />
non-inflammable, anti-electrostatic, increased cross-strength, impact-resistant, light-weight and<br />
high-pressure resistant. The wide range of carriers is matched by over 300 different decors and<br />
16 structural surface finishes. Thermopal® customers are national and international companies<br />
from the wood trade, industrialized furniture manufacturers, interior designers and specialist<br />
sectors such as shipbuilders. Distribution is through a network of main distributors.<br />
The Thermopal® image – a well-known traditional brand – was reworked in 2004, and its new<br />
market appearance rigorously implemented. Trade fair stands, product catalogues, brochures and<br />
business equipment have all been updated in line with the brand’s new image. In order to clearly<br />
differentiate itself from the competition, Thermopal® stresses proximity to the customer, advanced<br />
processing methods and an above-average range of designs and decors.<br />
53<br />
MAN<strong>AG</strong>EMENT REPORT MARKETING AND COMMUNICATION
wodego® is the latest brand in <strong>Pfleiderer</strong> Engineered Wood’s portfolio. Marketed through a network<br />
of around 200 selected dealerships and small to medium-sized industrial customers, the<br />
new brand comprises a comprehensive range of products based on raw particleboard, tongue<br />
and groove board and MDF board, decorative board with 266 different decors, high-pressure<br />
laminate (HPL) and postforming elements. An important part of the new wodego® family is the<br />
traditional Duropal products, featuring worktops and high-pressure facings for heavily used surfaces.<br />
Following its introduction in the German market in 2003, wodego® has since been introduced<br />
in 2004 in the international markets of France, England and the Benelux countries.<br />
Brand Company Target Group<br />
Infrastructure Technology<br />
The international trade fair for national and international suppliers and users of passenger and<br />
goods transportation, “InnoTrans” in Berlin, is the rail industry’s most important marketing platform<br />
for <strong>Pfleiderer</strong> track systems. The Fair, which ran from September 21 to 24, 2004, was<br />
an ideal showcase for <strong>Pfleiderer</strong> track systems to present its extensive portfolio of products and<br />
services which cover product development, manufacturing and applications – from engineering<br />
to production, supply, logistics to quality management. The main attraction presented by <strong>Pfleiderer</strong><br />
at the Fair was its ballastless sleeper system RHEDA 2000®. This system has proved itself over<br />
the years during the construction and operation of major European high-speed links. It is available<br />
in a wide range of variations and is eminently suitable for specialist applications such as the construction<br />
or modernization of railway tunnels, or as RHEDA CITY, where it is used for urban railways<br />
and tramway networks.<br />
<strong>Pfleiderer</strong> track systems was also represented and presented internationally at trade fairs in the<br />
Netherlands, Taiwan and China. Main topic at the Dutch Symposium “Switch to Delft”, held from<br />
March 16 to 18, 2004, was the Project “High-Speed Line Zuid” running from Amsterdam to the<br />
Belgian border. Here <strong>Pfleiderer</strong> track systems is demonstrating its competence in the planning and<br />
construction of this new high-speed link. At the “Rail Solutions Asia” in Taipei, Taiwan, running<br />
from May 12 to 14, 2004, <strong>Pfleiderer</strong> track systems also featured centrally due to its involvement<br />
in what is currently the biggest infrastructure project in the world, the Taiwan High Speed Rail<br />
(THSR). This project has opened the door to the Asian market for <strong>Pfleiderer</strong>. From May 26 to 28,<br />
2004, <strong>Pfleiderer</strong> track systems, together with its partners in the “German High-Speed Initiative” –<br />
Butzbacher Weichen-Systemlieferanten BWG and the Rail Technology Division of Siemens <strong>AG</strong>,<br />
Transportation Systems, presented their range of products and services in China at the Trade Fair<br />
“Metro 2004”, the 9th “International Exhibition on Metro, Light Rail Transit and High-Speed<br />
Transit” in the South-China metropolis of Guangzhou.<br />
54<br />
<strong>Pfleiderer</strong> Vertriebs GmbH Furniture industry, Key Account<br />
wodego GmbH Wood Specialist Outlets, Building<br />
Materials Trade, DIY<br />
Thermopal GmbH Wood Specialist Outlets, Interior<br />
Design Outlets, Specialist Industrial<br />
Customers
Share data<br />
ISIN<br />
DE0006764749<br />
Exchange code<br />
PFD 4<br />
Traded at<br />
Frankfurt, Hamburg,<br />
Munich, Stuttgart,<br />
Berlin/Bremen,<br />
Düsseldorf, Xetra<br />
Calc. par value<br />
2.56 euros<br />
Market segment<br />
Prime Standard<br />
The <strong>Pfleiderer</strong> Share<br />
Increased free float to 87 percent strengthens demand for the<br />
<strong>Pfleiderer</strong> share in the international capital market<br />
Market capitalization rises in 2004 by around 60 percent<br />
<strong>Pfleiderer</strong> Share Price Compared to SDAX Index<br />
(January–December 2004)<br />
euros index<br />
9<br />
8<br />
7<br />
6<br />
5<br />
4<br />
3<br />
Share Price Movement<br />
The <strong>Pfleiderer</strong> share continued to strengthen pleasingly during 2004, moving up by around 60 percent<br />
overall in Xetra trading during the reporting period. After shooting up by around 80 percent<br />
at year ending 2003, the share consolidated during the first quarter of 2004, reaching its lowest<br />
level in February at 3.93 euros. At this point in time, the <strong>Pfleiderer</strong> Group’s market capitalization<br />
stood at around 167.8 million euros.<br />
During the second quarter of 2004, the share gained from a fundamental restructuring in shareholder<br />
structure. Free float increased to 87 percent following <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG reducing its holding to 13 percent. As a result, the share rapidly became<br />
more attractive on the international stock market. The ensuing strong demand for the share,<br />
with turnover increasing daily, resulted in its price rising to 7.70 euros by June 2004.<br />
55<br />
J F M A M J J A S O N D<br />
<strong>Pfleiderer</strong> share in euros<br />
SDAX index<br />
MAN<strong>AG</strong>EMENT REPORT THE PFLEIDERER SHARE<br />
3400<br />
3250<br />
3100<br />
2950<br />
2800<br />
2650<br />
2500
Key Figures<br />
2004 2003<br />
No. of shares 42,685,000 42,685,000<br />
Market capitalization as of Dec. 31 in million euros 362.40 227.51<br />
Price as of Dec. 31 (Xetra) euros 8.49 5.33<br />
High/low euros 8.52/3.93 5.33/1.65<br />
Dividend euros 0.00 0.00<br />
EPS euros 0.79 –1.07<br />
Av. daily trading 67,623 34,575<br />
During the summer break in the third quarter, profit-taking by some investors following publication<br />
of the first-half figures at the beginning of August pushed the price back, consolidating it for<br />
a while at 6.00 euros during low trading.<br />
However, the fourth quarter saw the share pick up again during higher trading, reaching a peak<br />
of 8.52 euros in December 2004. Market capitalization of the <strong>Pfleiderer</strong> Group increased to<br />
363.7 million euros, the share having clearly outperformed the SDAX.<br />
Trading in the <strong>Pfleiderer</strong> Share<br />
Around 17.3 million shares of <strong>Pfleiderer</strong> <strong>AG</strong> with a value of 107 million euros were traded in fiscal<br />
2004 in the Xetra electronic trading system and on the floor of the Frankfurt Stock Exchange.<br />
Turnover per trading day averaged 67,623. The weakest month was August 2004 averaging 29,429<br />
shares, while October 2004 was the month with the highest trading, averaging 115,642 shares<br />
per trading day.<br />
Earnings per Share/Dividend<br />
Earnings per share (EPS) are calculated from the Group’s net income/loss for the year divided<br />
by the weighted average of issued shares. In fiscal 2004, the <strong>Pfleiderer</strong> Group achieved an EPS<br />
of 0.79 euros as against –1.07 euros in the previous year. This result includes one-off earnings<br />
from the disposal of the Business Units Poles & Towers USA and Europe. Accordingly, this report<br />
also shows EPS excluding this one-off effect: EPS for continued operations increased from<br />
0.10 euro in 2003 to 0.13 euro in 2004.<br />
56
Shareholder Structure<br />
As of January 26, 2005, the number of shareholders in the <strong>Pfleiderer</strong> shareholders’ register stood<br />
at 14,632 shareholders. German investors hold around 49 percent of the shares, British investors<br />
hold around 21.3 percent and Luxembourg investors hold approximate 10.2 percent. The largest<br />
single investor is <strong>Pfleiderer</strong> Unternehmensverwaltung GmbH & Co. KG, which holds 13.0 percent.<br />
Previously the majority shareholder in <strong>Pfleiderer</strong> <strong>AG</strong> with a holding of just on 62 percent, in<br />
March 2004 <strong>Pfleiderer</strong> Unternehmensverwaltung decided to spread around 48 percent of the<br />
Company’s capital. Thirty international and German institutional investors, including several<br />
leading funds, took up these shares. This means that around 87 percent of <strong>Pfleiderer</strong>’s capital<br />
stock is now in free float. The relevant notifications in accordance with Sec. 41(2) Wertpapierhandelsgesetz<br />
(German Securities Trading Act) were made and published in due time.<br />
Breakdown of Shareholders According to Notifications Received under Sec. 41 (2)<br />
Wertpapierhandelsgesetz (German Securities Trading Act) as of December 31, 2004<br />
in % 2004<br />
<strong>Pfleiderer</strong> UV 13.04<br />
Henderson Global Investors 10.66<br />
Capital Group International 7.31<br />
Fidelity International 5.02<br />
FMR Corp. (a Fidelity Company) 5.48<br />
Remaining free float 58.49<br />
Pursuant to Sec. 15a Wertpapierhandelsgesetz (German Securities Trading Act), the Board of<br />
Management and the Supervisory Board and their dependents are obliged to notify the Company<br />
and the German Federal Financial Services Supervisory Office without delay of securities trading<br />
in the Company (Directors’ Dealings) if they exceed the de minimis limit. Such notifications are<br />
published on <strong>Pfleiderer</strong>’s website at www.pfleiderer.com.<br />
Notification of Directors’ Dealings Pursuant to Sec. 15a Wertpapierhandelsgesetz<br />
Date of deal Notifying person Transaction Volume of deal<br />
30. 09. 2004 Hans H. Overdiek Purchase of 400,000 2,120,000.00 euros<br />
(Spokesman of no-par shares at<br />
Board of Management) 5.30 euros per share<br />
27.12. 2004 Hanno C. Fiedler Purchase of 2,000 16,300.00 euros<br />
(Member of no-par shares at<br />
Supervisory Board) 8.15 euros per share<br />
28.12. 2004 Hanno C. Fiedler Purchase of 2,000 16,400.00 euros<br />
(Member of no-par shares at<br />
Supervisory Board) 8.20 euros per share<br />
57<br />
MAN<strong>AG</strong>EMENT REPORT THE PFLEIDERER SHARE<br />
Remaining<br />
free float<br />
<strong>Pfleiderer</strong><br />
Henderson<br />
Capital<br />
Fidelity<br />
FMR Corp.
Investor Relations Activities<br />
Individual and open communication with institutional and private investors is a cornerstone of<br />
<strong>Pfleiderer</strong>’s communications policy. In view of the changes in shareholder structure during fiscal<br />
2004, numerous national and international roadshows were held in which the Board of Management<br />
explained our corporate strategy. Frequent communication with the capital market takes<br />
place, with regular events for analysts and telephone calls in which the Company’s quarterly<br />
figures are presented, as well as individual talks with investors and analysts held.<br />
The most important contact with our private shareholders is made during the Annual General<br />
Meeting. Around 600 shareholders attended the <strong>AG</strong>M on June 15, 2004, representing around<br />
33.36 percent of capital stock. Resolutions on the Agenda (ratification of the actions of the<br />
Board of Management and the Supervisory Board, authorization to acquire treasury stock) were<br />
adopted by a majority vote of 99 percent. The General Meeting also appointed KPMG Deutsche<br />
Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Berlin/Frankfurt, as<br />
the Company’s new external auditor.<br />
58
Post-Closure Report/Outlook<br />
<strong>Pfleiderer</strong> Engineered Wood and <strong>Pfleiderer</strong> track systems both cautious<br />
about domestic business<br />
Further improvements in sales and earnings figures expected in 2005<br />
General Economic Conditions<br />
Leading German economic research institutes are forecasting that GDP in 2005 will grow between<br />
0.8 percent (Institute for Global Economic Research at the University of Kiel/IfW) and 1.3 percent<br />
(Institute for Economic Research Halle/IWH and the Rhineland Westphalia Institute for Economic<br />
Research/RWI). According to the HWWA Institute for Economic Research in Hamburg, the economic<br />
recovery which started in 2004 will continue in 2005, but there will not be “a major upturn”.<br />
Exports will continue to be the economy’s main motor, but potential here will probably much<br />
weaker than in 2004.<br />
The German furniture industry expects a slight improvement in 2005. According to the Association<br />
of German Furniture Manufacturers (VDM), sales should improve slightly, in particular through<br />
exports. However, the positive view of the Association of German Furniture Manufacturers is by<br />
no means universal. Overall, <strong>Pfleiderer</strong> expects domestic sales for <strong>Pfleiderer</strong> Engineered Wood<br />
to stabilize. Similarly, the Business Unit East, with its activities in Poland and Russia, is likely to<br />
profit from growth in these economies as their markets continue to expand.<br />
As far as <strong>Pfleiderer</strong> Infrastructure Technology is concerned, investment planning by Deutsche<br />
Bahn and international infrastructure providers will be decisive in 2005. Reduced government<br />
spending on infrastructure in Germany and lower expectations for operating results by Deutsche<br />
Bahn mean that capital expenditure is likely to be limited. Information from these sources indicates<br />
that spending will be restricted to existing projects. New projects are being postponed until<br />
after 2009. On the other hand, spending by international infrastructure providers on the construction<br />
and expansion of high-speed rail links is expected to remain constant, due to the long-term<br />
planning involved.<br />
Procurement<br />
How procurement conditions for <strong>Pfleiderer</strong> Engineered Wood change is very much depends on<br />
economic growth and how industry develops in the specific markets involved. In principle, the<br />
bundling of procurement activities for all sites in 2005 is also expected to have positive effects<br />
on purchase prices.<br />
59<br />
MAN<strong>AG</strong>EMENT REPORT POST-CLOSURE REPORT/OUTLOOK
While the prices paid for paraffin and urea-based glue in 2004 moved clearly upwards, supplies<br />
of resins stabilized over the last few months. Nevertheless, tighter supplies are expected, but<br />
this should not lead to shortages. Energy prices are expected to remain at their present high<br />
levels.<br />
Corporate Structure and Personnel<br />
The corporate structure of the <strong>Pfleiderer</strong> Group is continuously being refined to gain further cost<br />
efficiency. At present, no deep-rooted organizational changes are envisaged.<br />
The number of employees will grow beyond current figures when the new particleboard plant in<br />
Novgorod, Russia, starts production in 2005.<br />
Capital Expenditure<br />
Due to the cautious forecasts on business growth in the domestic market, all spending in the<br />
<strong>Pfleiderer</strong> Group will be concentrated in the coming year on developing and expanding the<br />
Company’s presence in other growth regions. Overall, planned corporate spending is expected<br />
to come to around 96 million euros.<br />
The biggest investments planned for fiscal 2005 are the new particleboard plant currently being<br />
built in Novgorod, Russia, and the construction of a new MDF/HDF plant. Construction work<br />
on the particleboard plant in Novgorod, Russia, is running according to plan so that production<br />
should start towards the end of 2005.<br />
In fiscal 2005, the Business Segment Infrastructure Technology will be concentrating on strengthening<br />
its international presence in the growth markets of central and eastern Europe, southeastern<br />
Europe, as well as India, South-Korea, China and other countries in south-eastern Asia.<br />
Other Post-Closure Events<br />
On February 8, 2005, <strong>Pfleiderer</strong> announced that an exclusivity period had been agreed in which it<br />
was carrying out a due diligence on the Kunz Group. This follows on from a letter of intent signed<br />
on December 6, 2004 between <strong>Pfleiderer</strong> <strong>AG</strong> and Kunz Holding GmbH & Co. KG, Gschwend, in<br />
which the <strong>Pfleiderer</strong> Group has an option to aquire the Kunz Group.<br />
60
Future Earnings<br />
How those sectors develop where the Group’s customers are active will largely determine the<br />
way in which sales and earnings develop in the <strong>Pfleiderer</strong> Group.<br />
There is some guarded optimism among the domestic furniture industry, and this is reflected in<br />
an equally cautious forecast on domestic sales by <strong>Pfleiderer</strong> Engineered Wood. The fall back in<br />
sales following closure of the Rheda-Wiedenbrück plant will be offset by consolidating the Nidda<br />
plant in 2005. <strong>Pfleiderer</strong> continues to build on positive growth in the Polish market in recent years<br />
where it assumes that sales and earnings will increase. Should basic conditions affecting sales<br />
remain stable, the Business Segment Engineered Wood can expect steady growth. Definite sales<br />
growth is expected in fiscal 2006 when production in the new particleboard plant in Novgorod<br />
in Russia starts up.<br />
The way in which domestic business develops in the Business Segment Infrastructure Technology<br />
will very much depend on the restrictive spending plans of Deutsche Bahn <strong>AG</strong>. However, <strong>Pfleiderer</strong><br />
has been operating a strategy of greater internationalization over the last few years, so that domestic<br />
business will effect results less than in the past. Current projects are expected to lead to<br />
further low growth in sales and earnings.<br />
Bearing this in mind, <strong>Pfleiderer</strong>’s management expects sales and earnings for fiscal 2005 to improve<br />
slightly overall. Following a marked improvement in the ratio of EBITDA to net corporate<br />
indebtedness, this will increase marginally due to capital expenditure activity in 2005. However,<br />
the ratio is not to exceed a factor of three.<br />
61<br />
MAN<strong>AG</strong>EMENT REPORT POST-CLOSURE REPORT/OUTLOOK
TURKEY<br />
The Turkish economy reported a strong upturn in 2004. With growth at nearly 7 percent<br />
and inflation at its lowest for the last three decades, Turkey’s economy is consumer-friendly<br />
and welcomes outside investment.<br />
680,000 Sleepers for Turkey<br />
Modernizing national and international rail networks is one of the biggest investment projects<br />
for a common European future. As well as participating in the construction of the Dutch<br />
high-speed link HSL-Zuid/NL, <strong>Pfleiderer</strong> track systems was awarded the biggest single order<br />
in its history in 2004. The order comprises 680,000 rail sleepers for the Turkish rail operator<br />
TCDD for its “Ankara to Istanbul Railway Rehabilitation Project”. As a result, production<br />
capacity at <strong>Pfleiderer</strong> track systems’ two plants in Hungary and Romania is fully booked up<br />
for the next 15 months.
PFLEIDERER GROUP FINANCIAL STATEMENTS<br />
<strong>Pfleiderer</strong> Consolidated Balance Sheet for Fiscal Year Ending December 31, 2004<br />
Assets<br />
‘000 euros Notes Dec. 31, 2004 Dec. 31, 2003<br />
Liquid funds (1) 57,663 67,154<br />
Securities classified as current assets (2) 25,065 0<br />
Receivables and other assets (3) (4) 79,159 80,533<br />
Inventories, net (5) 104,554 101,173<br />
Deferred tax assets (21) 9,108 7,786<br />
Prepaid expenses 499 762<br />
Assets of discontinued operations (17) 4,940 106,388<br />
Current assets 280,988 363,796<br />
Property, plant and equipment, net (6) 328,283 299,279<br />
Intangible assets, net (7) 93,751 92,643<br />
Financial assets (8) 17,625 2,218<br />
Deferred tax assets (21) 16,742 15,759<br />
Other fixed assets (9) 2,143 5,561<br />
Fixed assets 458,544 415,460<br />
Total assets 739,532 779,256<br />
64
Liabilities and Shareholders’ Equity<br />
‘000 euros Notes Dec. 31, 2004 Dec. 31, 2003<br />
Short-term liabilities (10) 123,058 120,294<br />
Financial liabilities (11) 13,640 49,816<br />
Other short-term accruals (12) 54,836 26,738<br />
Deferred tax liabilities (21) 801 2,219<br />
Deferred income 1,794 2,061<br />
Liabilities of discontinued operations (17) 17,090 72,468<br />
Short-term liabilities 211,219 273,596<br />
Long-term financial liabilities (13) (14) 192,037 273,176<br />
Accruals for pensions (22) 60,420 57,825<br />
Deferred tax liabilities (21) 17,902 19,396<br />
Other long-term liabilities 1 0<br />
Other long-term accruals (15) 14,335 11,754<br />
Deferred income (16) 2,495 4,278<br />
Minority interests 90,227 44,338<br />
Long-term liabilities 377,417 410,767<br />
Subscribed capital 109,274 109,274<br />
Additional paid-in capital 10,927 10,927<br />
Revenue reserves 158,862 158,862<br />
Treasury stock 0 0<br />
Retained earnings/accumulated loss –120,326 –163,195<br />
Other comprehensive income –7,841 –20,975<br />
Shareholders’ equity (18) 150,896 94,893<br />
Total liabilities and shareholders’ equity 739,532 779,256<br />
The accompanying notes are an integral part of these consolidated Financial Statements.<br />
65<br />
FINANCIAL STATEMENTS PFLEIDERER GROUP
<strong>Pfleiderer</strong> Consolidated Statement of Income For Fiscal Year 2004<br />
‘000 euros Notes Dec. 31, 2004 Dec. 31, 2003<br />
Sales revenues 900,978 848,205<br />
Cost of sales –659,459 –628,033<br />
Gross margin 241,519 220,172<br />
Selling expenses (1) –121,636 –113,577<br />
Administrative expenses –78,573 –86,827<br />
Research an development costs –1,984 –2,017<br />
Other operating income and expenses (2) 11,154 16,099<br />
Operating result 50,480 33,850<br />
Net interest (3) –18,616 –17,062<br />
Investment income 810 1,089<br />
Other financial income/loss –1,052 5<br />
Financial result<br />
Earnings of continued operations before taxes<br />
–18,858 –15,968<br />
on income and minority interests 31,622 17,882<br />
Taxes on income<br />
Earnings of continued operations before<br />
(21) –9,599 –9,255<br />
minority interests 22,023 8,627<br />
Earnings of discontinued operations (17) 27,279 –51,498<br />
Taxes on income of discontinued operations 839 1,727<br />
Earnings before minority interests 50,141 –41,144<br />
Minority interests –16,281 –4,618<br />
Earnings after minority interests 33,860 –45,762<br />
Earnings per share (basic) 0.79 –1.07<br />
Earnings per share (diluted) 0.79 –1.07<br />
Earnings of continued operations per share 0.13 0.10<br />
Earnings of discontinued operations per share 0.66 –1.17<br />
Average number of shares outstanding 42,685,000 42,678,146<br />
The accompanying notes are an integral part of these consolidated Financial Statements.<br />
66
<strong>Pfleiderer</strong> Consolidated Statement of Cash Flows for Fiscal Year 2004<br />
Jan. 1 – Jan. 1 –<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Cash flow from operating activities<br />
Earnings of continued operations before minority interest<br />
Proceeds from issue of shares and repurchase<br />
22,023 8,627<br />
of own shares from consolidated companies –23,412 0<br />
Depreciation and amortization of fixed assets 37,854 37,312<br />
Proceeds from disposal of fixed assets –122 –680<br />
Change in accruals for pensions 2,188 1,021<br />
Change in current assets 22,727 28,244<br />
Change in fixed assets 3,976 15,874<br />
Change in short-term liabilities excluding financial debt 20,410 –1,292<br />
Change in long-term liabilities excluding financial debt<br />
Change in adjustment item for minority interests<br />
–11,150 –15,865<br />
(before current earnings and distribution) 11,886 –4,368<br />
Cash flow from operating activities 86,380 68,873<br />
Cash flow from investing activities<br />
Cash paid for investments in intangible assets –1,752 –2,274<br />
Cash paid for investments in property, plant and equipment –38,387 –31,744<br />
Cash paid for investments in financial assets<br />
Cash paid for acquisition of companies and<br />
–1,668 –619<br />
repurchase of own shares –20,113 0<br />
Cash received for disposal of intangible assets 1,730 1,036<br />
Cash received for disposal of property, plant and equipment 2,267 16,121<br />
Cash received for disposal of finance assets 276 136<br />
Cash received from issue of shares by consolidated companies 63,194 0<br />
Cash flow from investing activities 5,547 –17,344<br />
Cash flow from operating activities after investing activities 91,927 51,529<br />
Cash flow from financing activities<br />
Change in financial liabilities –117,315 –38,118<br />
Change in externally factored receivables –20,560 1,453<br />
Distribution to minority interests –2,555 –1,390<br />
Cash paid for the purchase of treasury stock 0 8<br />
Cash flow from financing activities –140,430 –38,047<br />
Change in cash and cash equivalents<br />
Change in cash and cash equivalents due to<br />
–48,503 13,482<br />
exchange rate fluctuations<br />
Change in cash and cash equivalents due to<br />
–451 8,221<br />
discontinued operations 64,188 –11,747<br />
Change in cash and cash equivalents due to purchase accounting 340 –185<br />
Cash and cash equivalents as of January 1 67,154 57,383<br />
Cash and cash equivalents as of December 31 82,728 67,154<br />
The accompanying notes are an integral part of these consolidated Financial Statements<br />
67<br />
FINANCIAL STATEMENTS PFLEIDERER GROUP
<strong>Pfleiderer</strong> Consolidated Statement of Changes in Shareholders’ Equity<br />
Fiscal Year 2004<br />
Subscribed Additional<br />
‘000 euros capital paid-in capital<br />
As of January 1, 2004<br />
Change in adjustment item from currency translation<br />
Change in adjustment item from valuation<br />
of financial derivatives<br />
Change in adjustment item from valuation of pensions<br />
Change in percentage holding Poland<br />
Effects from initial consolidation<br />
Earnings after minority interests<br />
109,274 10,927<br />
As of December 31, 2004 109,274 10,927<br />
Fiscal Year 2003<br />
Subscribed Additional<br />
‘000 euros capital paid-in capital<br />
As of January 1, 2003<br />
Treasury stock<br />
Change in adjustment item from currency translation<br />
Change in adjustment item from valuation<br />
of financial derivatives<br />
Change in adjustment item from valuation of pensions<br />
Earnings after minority interests<br />
109,274 10,927<br />
As of December 31, 2003 109,274 10,927<br />
The accompanying notes are an integral part of these consolidated Financial Statements.<br />
68
Comprehensive income<br />
69<br />
Other comprehensive income<br />
Retained Valuation of<br />
Revenue Treasury earnings of Currency financial Valuation of<br />
reserves stock the Group translation derivatives pensions Total<br />
158,862 0 –163,195 –11,726 –7,731 –1,518 94,893<br />
12,221 12,221<br />
1,320 1,320<br />
–407 –407<br />
9,859 9,859<br />
–850 –850<br />
33,860 33,860<br />
158,862 0 –120,326 495 –6,411 –1,925 150,896<br />
Comprehensive income<br />
Other comprehensive income<br />
Retained Valuation of<br />
Revenue Treasury earnings of Currency financial Valuation of<br />
reserves stock the Group translation derivatives pensions Total<br />
158,862 –8 –117,433 4,057 –8,403 –1,488 155,788<br />
8 8<br />
–15,783 –15,783<br />
FINANCIAL STATEMENTS PFLEIDERER GROUP<br />
672 672<br />
–30 –30<br />
–45,762 –45,762<br />
158,862 0 –163,195 –11,726 –7,731 –1,518 94,893
Segment Reporting for Fiscal Year 2004<br />
70<br />
Engineered Wood<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
External sales 753,001 698,009<br />
Intercompany sales 5,926 17,913<br />
Sales revenues 758,927 715,922<br />
thereof domestic 329,097 333,247<br />
thereof foreign 429,830 382,675<br />
Foreign share (%) 56.5 53.4<br />
Cost of sales –555,732 –538,282<br />
% of sales revenues –7<strong>3.2</strong> –75.2<br />
Gross margin 203,195 177,640<br />
% 26.8 24.8<br />
Selling expenses –108,937 –101,915<br />
% of sales revenues –14.4 –14.2<br />
General and administrative expenses –52,579 –51,753<br />
% of sales revenues –6.9 –7.2<br />
Research and development –1,035 –1,324<br />
% of sales revenues –0.1 –0.2<br />
Other comprehensive income and expenses 9,357 6,075<br />
Operating result 50,001 28,723<br />
Interest result –6,577 –8,846<br />
thereof interest expenses –13,242 –11,600<br />
thereof interest earnings 6,665 2,754<br />
Results from participating interests 0 353<br />
Other financial results –1,550 13<br />
Financial result<br />
Results from continuing operations before<br />
–8,127 –8,480<br />
taxes on earnings and income 41,874 20,243<br />
Taxes on earnings and income<br />
Results from continuing operations after<br />
–6,681 –4,848<br />
taxes on earnings and income 35,193 15,395<br />
EBIT 48,443 29,117<br />
% of sales revenues 6.4 4.1<br />
Depreciation and amortization* ) 30,407 28,645<br />
EBITDA 78,850 57,762<br />
% of sales revenues 10.4 8.1<br />
Capital expenditure on assets 39,893 22,903<br />
Average number of employees, excluding trainees 3,475 3,450<br />
Segment assets in million euros** ) 376.8 361.1<br />
*) This position includes all depreciation and amortization on intangible assets, fixed assets and financial assets.<br />
**) Segment assets are calculated from net assets and net working capital. Certain long-term liabilities are taken into account<br />
when calculating net working capital.
Infrastructure Technology Consolidation/other <strong>Pfleiderer</strong> Group<br />
Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2003<br />
138,165 121,237 9,812 28,959<br />
6 3,623 –5,932 –21,536<br />
138,171 124,860 3,880 7,423 900,978 848,205<br />
83,501 90,750 416,492 431,462<br />
54,670 34,110 484,486 416,743<br />
39.6 27.3 53.8 49.1<br />
–103,999 –87,796 –659,459 –628,033<br />
–75.3 –70.3 –7<strong>3.2</strong> –74.0<br />
34,172 37,064 4,152 5,468 241,519 220,172<br />
24.7 29.7 26.8 26.0<br />
–13,559 –12,000 –121,636 –113,577<br />
–9.8 –9.6 –13.5 –13.4<br />
–10,707 –10,922 –78,573 –86,827<br />
–7.7 –8.7 –8.7 –10.2<br />
–952 –698 –1,984 –2,017<br />
–0.7 –0.6 –0.2 –0.2<br />
5,005 1,946 11,154 16,099<br />
13,959 15,390 –13,481 –10,263 50,480 33,850<br />
–2,721 –5,072 –18,616 –17,062<br />
–4,389 –9,877 –24,361 –24,937<br />
1,668 4,805 5,745 7,875<br />
810 13 810 1,089<br />
503 10 –1,052 5<br />
–1,408 –5,049 –9,323 –2,439 –18,858 –15,968<br />
12,551 10,341 –22,803 –12,702 31,622 17,882<br />
–1,199 2,535 –1,720 –6,942 –9,600 –9,255<br />
11,352 12,876 –24,523 –19,644 22,022 8,627<br />
15,261 15,403 –13,486 –9,598 50,218 34,922<br />
11.0 12.3 5.6 4.1<br />
3,799 2,707 2,940 5,960 37,146 37,312<br />
19,060 18,110 –10,546 –3,638 87,364 72,234<br />
13.8 14.5 9.7 8.5<br />
5,184 7,030 310 1,811 45,387 31,744<br />
861 790 93 147 4,429 4,387<br />
54.9 56.0 3.5 6.7 435.2 423.8<br />
71<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
Notes to the Consolidated Financial<br />
Statements 2004<br />
I. Business Units and Description of the Business Enterprise<br />
Following the disposal during the business year of the US concrete and steel poles business,<br />
Newmark International Inc., the production of wind towers at the site in Leipzig and the Poles &<br />
Towers and water systems Business Units, which no longer belong to the defined target market<br />
of the <strong>Pfleiderer</strong> Group, <strong>Pfleiderer</strong> Aktiengesellschaft, Neumarkt (hereinafter referred to as<br />
“<strong>Pfleiderer</strong> <strong>AG</strong>” or “Company”) is concentrating on its core competences of Engineered Wood<br />
and Infrastructure Technology, the second of which is mainly involved in traffic technology.<br />
Items in the financial statements remaining after the disposal of the discontinued operations are<br />
reported separately in the balance sheet and statement of income.<br />
As in the previous year, activities already sold and deconsolidated during the past business year<br />
are also reported in the comparative figures for the previous year under discontinued operations.<br />
<strong>Pfleiderer</strong> <strong>AG</strong> was included in the consolidated financial statements of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH, Nuremberg, until March 22, 2004.<br />
II. Exemption Pursuant to Section 264b HGB (German Commercial Code)<br />
The companies that have applied the exemption rules are marked accordingly in the list of consolidated<br />
companies.<br />
III. Summary of Significant Accounting Policies<br />
Basis of Presentation<br />
The consolidated financial statements of <strong>Pfleiderer</strong> <strong>AG</strong> are prepared in accordance with United<br />
States Generally Accepted Accounting Principles (“US-GAAP”). Pursuant to Section 292a HGB<br />
(German Commercial Code), <strong>Pfleiderer</strong> <strong>AG</strong> is exempted accordingly from the obligation to prepare<br />
consolidated financial statements in accordance with the HGB. All amounts in the consolidated<br />
financial statements are stated in euros.<br />
From 2005 onwards, the Company will prepare financial statements in accordance with International<br />
Financial Reporting Standards or “IFRS”. The basis for this is provided by the EU Directive<br />
promulgated in 2002 on the application of International Accounting Standards, which makes the<br />
preparation of consolidated financial statements in accordance with IFRS mandatory for all capitalmarket-oriented<br />
companies listed in the EU for fiscal years commencing on or after January 1, 2005.<br />
Certain amounts in the consolidated financial statements and the notes to the consolidated financial<br />
statements for the previous year have been reclassified, to ensure their comparability with<br />
the group structure for the past business year. The prior year presentation has been adjusted to<br />
this extent.<br />
72
Scope of Consolidation<br />
The consolidated financial statements include the financial statements of <strong>Pfleiderer</strong> <strong>AG</strong> and all<br />
majority-owned subsidiaries in which it has a controlling interest. All significant subsidiaries in<br />
which the Company has a direct or indirect controlling interest have been consolidated. In addition<br />
to <strong>Pfleiderer</strong> <strong>AG</strong>, 24 (2003: 24) domestic and 17 (2003: 20) foreign subsidiaries are included<br />
in the consolidated financial statements in conjunction with the full consolidation. In the<br />
past business year, 7 (2003: 7) subsidiaries were consolidated for the first time, while 9 (2003: 4)<br />
subsidiaries withdrew from the consolidation.<br />
Eight (2003: 11) subsidiaries are not consolidated because their impact on the financial position<br />
and results of the Group is not material.<br />
Number of fully consolidated companies:<br />
2004 2003<br />
Domestic 24 24<br />
Foreign 18 20<br />
Total 42 44<br />
Number of fully consolidated companies accounted for as continuing operations:<br />
Subsidiaries Included in the Consolidated Financial Statements for the First Time:<br />
Newly-established<br />
<strong>Pfleiderer</strong> Holzwerkstoffe Nidda Verwaltungs-GmbH<br />
<strong>Pfleiderer</strong> dritte Erwerbergesellschaft mbH<br />
<strong>Pfleiderer</strong> Holzwerkstoffe Nidda GmbH & Co. KG<br />
<strong>Pfleiderer</strong> dritte Erwerbergesellschaft mbH & Co. Grundstücksverwaltungs KG<br />
Engineered Fiberglass Products, Ltd.<br />
Other<br />
<strong>Pfleiderer</strong> OOO<br />
<strong>Pfleiderer</strong> track systems B.V.<br />
Both the companies reported under “Other” were already established in the previous year, but<br />
were not included in the previous year’s consolidated financial statements due to immateriality.<br />
73<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP<br />
2004 2003<br />
Domestic 21 21<br />
Foreign 17 19<br />
Total 38 40
Impact of the Additions to the Scope of Consolidation on Significant Balance Sheet<br />
Items Reported as Continuing Operations:<br />
‘000 euros<br />
Assets<br />
Fixed assets 27,594<br />
Inventories 934<br />
Trade receivables 3,243<br />
Liabilities<br />
Accurals 6,828<br />
Other liabilities 33,056<br />
The sales revenues of the continuing operations increased by 2,304 thousand euros as a result<br />
of the additions to the scope of consolidation.<br />
Principles of Consolidation<br />
The capital consolidation is carried out by the purchase accounting method. In accordance therewith,<br />
the acquisition costs of the acquired interests are set off against the share of the equity<br />
that is attributable to the parent company as of the acquisition date. The difference is assigned<br />
in accordance with the investment holding to the assets and liabilities of the subsidiary up to<br />
their fair value (proportionate revaluation method). Any remaining debit difference is recognized<br />
as goodwill and is tested for impairment in accordance with SFAS 142 (Goodwill and Other<br />
Intangible Assets).<br />
Investments in affiliated companies that are not fully consolidated are measured at acquisition<br />
cost. Investments in associated companies did not have to be accounted for by the equity method,<br />
due to immateriality.<br />
All intercompany receivables and liabilities, revenues, expenses and income, and intercompany<br />
profits and losses, are eliminated on consolidation.<br />
Minority interests are determined on the basis of the stockholders’ equity as of the balance sheet<br />
date, and are reported in the consolidated balance sheet, together with the shares of profits and<br />
losses, under a separate item entitled “minority interests”.<br />
Acquisitions and Disposals/Discontinued Operations<br />
In 2004, the <strong>Pfleiderer</strong> Group acquired the MDF production location of “Hornitex Werke Nidda<br />
Kunststoff- und Holzwerkstoffplatten GmbH & Co. KG” through its newly established subsidiaries,<br />
<strong>Pfleiderer</strong> Holzwerkstoffe Nidda Verwaltungs-GmbH, <strong>Pfleiderer</strong> dritte Erwerbergesellschaft<br />
mbH, <strong>Pfleiderer</strong> Holzwerkstoffe Nidda GmbH & Co. KG and <strong>Pfleiderer</strong> dritte Erwerbergesellschaft<br />
mbH & Co. Grundstücksverwaltungs KG (all based in Neumarkt). The acquisition was carried out<br />
by means of a so-called “transferred restructuring”, by which <strong>Pfleiderer</strong> acquired the assets and<br />
liabilities of “Hornitex Werke Nidda Kunststoff- und Holzwerkstoffplatten GmbH & Co. KG” (asset<br />
deal). First-time consolidation was carried out as of December 31, 2004, so that no earnings of<br />
these companies are included in the consolidated statement of income.<br />
74
The activities of the Poles & Towers Business Center and the water systems Business Unit were<br />
sold during fiscal 2004. The impact of the sale and deconsolidation of these segments on the<br />
consolidated balance sheet and consolidated statement of income is discussed below under IV. 17<br />
“Discontinued operations”.<br />
The balance sheet items of the residual Wind Energy Business Unit, two further companies<br />
engaged in the former insulating materials activities and a company engaged in the former Poles<br />
& Towers activities in the USA are reported separately in the balance sheet as discontinued<br />
operations.<br />
Use of Estimates<br />
The preparation of the consolidated financial statements requires the Board of Management to<br />
make estimates and assumptions, which affect the reported amounts of assets, liabilities, revenues<br />
and expenses in the consolidated financial statements and the disclosure of contingent liabilities.<br />
The actual results may vary from these estimates.<br />
Foreign Currency Translation<br />
The financial statements of the subsidiaries of <strong>Pfleiderer</strong> <strong>AG</strong> were prepared in their functional<br />
currency, which was generally their local currency. With the exception of equity, which was<br />
translated at the exchange rate valid at the time of the respective transaction, all balance sheet<br />
accounts were translated to the reporting currency (euros) applying the exchange rates in<br />
force as of the end of the reporting period. Income and expense accounts were translated at the<br />
weighted average rates for the fiscal year. Any differences resulting from the foreign currency<br />
translation are recorded in a separate item under equity (“Other comprehensive income/adjustment<br />
item from foreign currency translation”) until the group company is sold or liquidated.<br />
Average rate at balance sheet date (euro 1 =) Dec. 31, 2004 Dec. 31, 2003<br />
United Kingdom (GBP) 0.7089 0.7070<br />
Poland (PLN) 4.0852 4.7255<br />
Romania (ROM) 38,347.8000 40,146.3000<br />
Russia (RUB) 37.7300 36.8800<br />
Switzerland (CHF) 1.5450 1.5590<br />
Slovenia (SIT) 235.3710 233.8310<br />
Czech Republic (CZK) 30.4300 32.5500<br />
Hungary (HUF) 245.6250 262.1150<br />
USA (USD) 1.3606 1.2610<br />
Ukraine (UAH) 7.0334 6.5137<br />
The main foreign currencies for the Group are as follows:<br />
75<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
Revenue Recognition<br />
Sales revenues are mainly generated from the supply of products and services. These revenues<br />
are recognized net of sales deductions, such as bonuses, cash discounts or rebates, at the date<br />
at which they are deemed under US-GAAP to be realized or realizable and earned. This is generally<br />
the case when persuasive evidence of an agreement exists, delivery has occurred or services<br />
have been rendered, the price is fixed or clearly determinable, and collectability is reasonably<br />
assured.<br />
Revenues from long-term construction-type contracts are considered to be realized once the total<br />
revenue, total costs and the percentage of completion can be determined to a sufficiently reliable<br />
degree (“percentage of completion method”, as primarily defined in SOP 81-1 and ARB 45).<br />
No revenues were generated during the past fiscal year under the percentage of completion<br />
method.<br />
Liquid Funds<br />
Liquid funds comprise cash on hand and at banks, including current deposits with banks with<br />
original maturities of up to three months.<br />
Concentration of Credit Risks<br />
The Group sells a broad range of products and services to a wide circle of industrial and commercial<br />
customers in Germany and abroad. Outside Germany, the <strong>Pfleiderer</strong> Group is mainly<br />
represented in Europe, Asia, Australia and South Africa. The concentration of credit risks on trade<br />
receivables is already limited alone by the large number of customers. In addition, some of the<br />
receivables are secured by credit insurance.<br />
In the reporting period, about 4 percent (2003: 5 percent) of the total sales revenues were generated<br />
with a single customer. The Company sees no credit standing risk in relation to this major<br />
customer.<br />
The Company invests cash reserves via current accounts at banks and other high quality investments<br />
that can be liquidated at short notice. The Company monitors its credit risk by a regular<br />
check of the credit standing of its investments. In addition, these investments are held exclusively<br />
as deposits or short-term investments.<br />
Receivables<br />
Receivables are stated at net realizable value, i.e. at their face value less specific and general<br />
allowances for doubtful accounts and less decreases in their value (bonuses, cash discounts and<br />
sales deductions). Specific allowances are recorded if receivables are entirely or partly nonrecoverable<br />
or if it is probable that they will not be recovered, and the non-recoverable amount<br />
can be determined with sufficient accuracy. A lump-sum allowance is applied in the Business<br />
Segment Infrastructure Technology to cover the general risk of default on receivables based on<br />
historical experience of past bad debts. Adequate valuation adjustments for bonuses and cash<br />
discounted are deducted on the assets side of the balance sheet.<br />
76
Sales of receivables are treated within the Group in accordance with SFAS 140 (Accounting for<br />
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). In accordance<br />
with SFAS 140, a company has to recognize the financial and servicing assets that it controls and<br />
the liabilities that it has incurred and derecognize these financial assets when control has been<br />
surrendered in accordance with the criteria listed in SFAS 140.<br />
The Group treated the receivables transferred under an asset-backed securities program until<br />
June 2004 as a sale of receivables. Thereby, the transfer is only recognized as a sale when the<br />
receivables are beyond the reach of the Company and its creditors. This also applies in the case<br />
of the insolvency or other receivership of the creditor’s assets. In addition, the right to pledge<br />
or exchange the transferred receivables must be surrendered and the entitlement or obligation<br />
to repurchase them must be excluded. Active receivables were transferred and sold under an<br />
asset-backed securities program for the last time in June 2004. All the sold receivables had been<br />
collected and the asset-backed securities program was accordingly terminated by the end of<br />
October 2004.<br />
A factoring program commenced in July 2004 in the Business Segment Engineered Wood. Under<br />
this, the factor purchases the Group’s receivables up to an individual or total limit, and assumes<br />
the risk for the debtor’s insolvency (nonrecourse factoring). This is accounted for in the same<br />
way as the asset-backed securities program described above.<br />
Inventories<br />
Inventories are valued at the lower of cost or market on the basis of individual values or the<br />
weighted average method. The first in-first out method (FIFO) is also used in justified individual<br />
cases. Market value is generally determined by referring to replacement costs. The ceiling for<br />
determination of market value is the estimated selling price in the ordinary course of business<br />
less the estimated costs of completion and the estimated costs necessary to make the sale<br />
(net realizable value). The floor for determination of market value is the net realizable value less<br />
a normal profit margin.<br />
Production costs include direct material and production costs and an adequate portion of the<br />
material and production overheads resulting from the production process.<br />
All foreseeable risks in the inventories resulting from reduced saleability or obsolescence are<br />
reflected by appropriate provisions. Markdowns are recorded for slow-moving items.<br />
Use of Financial Instruments<br />
The Group transacts business worldwide in numerous international currencies, so that it is<br />
generally exposed to exchange rate fluctuations. <strong>Pfleiderer</strong> uses financial instruments in order<br />
to reduce various kinds of market risks.<br />
77<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
Fair Value of Financial Instruments<br />
The fair value of a financial instrument is the price for which one party would be prepared to<br />
take over the rights and/or obligations from this financial instrument from another party. The<br />
Company has its financial instruments valued by the respective contracting partners, which are<br />
generally banks.<br />
The carrying amount of liabilities from finance leases approximates current market value, applying<br />
the fair value for similar financing. The same also applies to the other financial instruments.<br />
Financial Assets<br />
Financial assets are recognized in accordance with the acquisition cost principle. Impairments<br />
are investigated to determine whether they are permanent. This is assessed on the basis of<br />
available general market data, specific industry and individual company data, which flows into a<br />
plan covering several year applying DCF methods. The duration and the amount by which the fair<br />
value has fallen below the acquisition costs as well as the Company’s intention and the ability to<br />
hold this financial asset also flow into this assessment.<br />
Intangible Assets<br />
Intangible assets acquired for a consideration are capitalized at acquisition cost and amortized<br />
systematically straight-line over their useful lives.<br />
Expenses incurred in connection with the purchase and own development of computer software<br />
used by the Company, including the costs incurred to enable this software to be operated in<br />
the manner intended, are capitalized and amortized systematically over its estimated useful life.<br />
The estimated useful life of software, patents, licenses and similar rights is generally three to<br />
five years. Other useful lives can arise on first-time consolidation of intangible assets that are<br />
acquired as part of a business combination.<br />
Goodwill<br />
Goodwill is capitalized and is tested for impairment at regular intervals (at least once a year) in<br />
accordance with SFAS 142. SFAS 142 requires that goodwill and intangible assets determined to<br />
have an indefinite useful life are no longer systematically amortized, but are tested for impairment<br />
whenever there are indications of this, and, at a minimum, once a year at the same time<br />
each year. The amortization rules under SFAS 142 must be applied to all goodwill and intangible<br />
assets acquired in business combinations after June 30, 2001. Pursuant to SFAS 142, systematic<br />
amortization was to be no longer applied from fiscal 2002 onwards to all other goodwill acquired<br />
on or before June 30, 2001.<br />
78
Property, Plant and Equipment<br />
Property, plant and equipment are reported at historical acquisition or production cost less<br />
accumulated depreciation. Depreciation is recorded straight-line over the normal useful lives of<br />
the assets for the business. In addition to direct material and production costs, the production<br />
costs of assets constructed by the Company itself also include an appropriate portion of the allocable<br />
material and production overheads and, if construction takes place over a longer period<br />
of time, interest on borrowings from third parties during the construction period. Administrative<br />
expenses are only capitalized if they are directly related to the construction process. Maintenance<br />
and repair costs are recognized as expense.<br />
Assets with a finite life are depreciated systematically straight-line pro rata temporis. For reason<br />
of immateriality, low-value items of fixed assets costing individually less than 410 euros are<br />
expensed in full in the year of acquisition in accordance with German accounting practice. Fixed<br />
assets are retired from the balance sheet when they are sold or scrapped, and any gains or<br />
losses are recognized as income or expense at that time.<br />
Systematic depreciation is based on the following useful lives:<br />
Buildings<br />
Years<br />
20–25<br />
Technical equipment and machines 8–16<br />
Other equipment, furniture and fixtures 3–11<br />
Leasehold improvements and leased property, plant and equipment are depreciated over the<br />
normal useful lives for the business or over the rental or lease period, whichever is shorter.<br />
Government Subsidies and Grants<br />
Provided the conditions relating to the investment have been fulfilled, government grants and<br />
subsidies are deducted, when received, on the assets side of the balance sheet from the acquisition<br />
and production cost of the subsidized investments.<br />
Impairment of Long-Lived and Intangible Assets with a Finite Useful Life<br />
Long-lived and intangible assets are tested for impairment whenever events or changed circumstances<br />
indicate that the carrying amount of an asset may not be recoverable. If facts and<br />
circumstances indicate that an asset has been impaired, the carrying amount of the asset is<br />
compared to the future undiscounted cash flows expected to be generated. If necessary, a<br />
write-down to the lower fair value is recognized. The fair value is based on the discounted cash<br />
flows generated by the asset over its useful life.<br />
Leases<br />
Leasing transactions are classified either as capital leases or operating leases. Transactions that<br />
meet one of the criteria of SFAS 13 (Accounting for Leases) are treated in the Group as capital<br />
leases. In accordance therewith, the Group, as the lessee, has to recognize the leased asset and<br />
the corresponding liability in its balance sheet.<br />
79<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
SFAS 13 lists the following criteria:<br />
The lease transfers ownership of the property to the lessee at the end of the lease term.<br />
The lease contains a bargain purchase option to purchase the leased property for considerably<br />
less than its fair value.<br />
The lease term is equal to 75 percent or more of the estimated economic life of the leased<br />
property.<br />
The present value at the beginning of the lease term of the future minimum lease payments<br />
equals or exceeds 90 percent of the fair value of the leased property.<br />
All other leases in which the Group is the lessee must be treated as operating leases, with the<br />
consequence that the lease payments are expensed as incurred.<br />
Stock-Based Compensation<br />
On the basis of SFAS 123 (Accounting for Stock-Based Compensation), the Company has decided<br />
to value the stock options that have been granted in accordance with the intrinsic value based<br />
method in compliance with Accounting Principles Board Opinion 25 (Accounting for Stock Issued<br />
to Employees) and related interpretations. In accordance with APB 25, the difference between<br />
the market price of the Company’s shares at the date of issue of the option and the exercise price<br />
of the subscription price that has been granted is recorded in the personnel expenses. The option<br />
available under SFAS 148 (Accounting for Stock-Based Compensation – Transition and Disclosure)<br />
that was published in December 2002 on transition to the fair value method has not been applied.<br />
The following table provides information on the personnel expenses and the impact that application<br />
of the fair values prescribed by SFAS 123 would have had on earnings (after taxes) and<br />
earnings per share.<br />
Dec. 31, 2004 Dec. 31, 2003<br />
Earnings after minority interests and taxes<br />
Less: Personnel expenses for stock-based compensation<br />
‘000 euros 33,860 –45,762<br />
in accordance with the fair value method ‘000 euros –945 –893<br />
Pro forma earnings ‘000 euros 32,915 –46,655<br />
Earnings per share euros 0.79 –1.07<br />
Pro forma earnings per share euros 0.77 –1.09<br />
Earnings per share (diluted) euros 0.79 –1.07<br />
Pro forma earnings per share (diluted) euros 0.77 –1.09<br />
80
Accruals for Pensions and Similar Obligations<br />
Accruals for pensions and similar obligations are measured in accordance with the projected<br />
unit credit method. A minimum obligation is recognized in some cases, i.e. an amount in excess<br />
of the pension obligations recognized as expense in the past. If no intangible asset has to be<br />
recognized or if there are additional obligations exceeding the amount of the intangible asset,<br />
the amount is offset against equity. Unrealized actuarial gains and losses are amortized in<br />
accordance with the terms of the specific pension plan, but at a maximum over the remaining<br />
period of service or the life expectancy of the beneficiaries.<br />
Other Accruals<br />
Accruals, including accruals for environmental protection measures resulting from legal claims,<br />
local authority regulations or another basis, are set up at the date when it is probable that they<br />
have been incurred and their amount can be reasonably estimated, i.e. when a legal obligation<br />
exists.<br />
Changes to these estimates are recorded in the period in which the change occurs. While the<br />
Company is unable to estimate the impact of future laws, the Group assumes that a final ruling<br />
on these matters will not have a significant impact on the consolidated financial statements.<br />
Advertising Expenses<br />
Expenses for advertising and sales promotion are recognized as expense at their inception. In<br />
the past financial year, expenses for advertising and sales promotion amounted to 3,872 thousand<br />
euros compared with 5,780 thousand euros in the previous year. The expenses fell compared<br />
with the previous year, because the launch of a new brand and selling concept in the Business<br />
Segment Engineered Wood had resulted in higher costs in 2003.<br />
Research and Development Costs<br />
Research and development costs are expensed as incurred.<br />
Deferred Taxes<br />
Deferred tax assets and liabilities are set up for all temporary differences between the tax base<br />
and the consolidated balance sheet and for tax loss carryforwards (“temporary concept”). The tax<br />
rates to be applied are the enacted tax rates that will apply in the periods in which the temporary<br />
differences are expected to reverse. The impact of changes in tax laws on deferred tax assets and<br />
liabilities is recognized in income in the period in which the changes are enacted. Deferred tax<br />
assets are only recognized if it is probable that the related tax benefits will be realized.<br />
When estimating the recoverability of deferred tax assets, the Company considers whether there<br />
is a more than 50 percent chance that they will be realized.<br />
81<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
Comprehensive Income<br />
SFAS 130 (Reporting Comprehensive Income) requires companies applying it to report comprehensive<br />
income and its components (net income after minority interests and other comprehensive<br />
income) separately in the financial statements.<br />
Other comprehensive income comprises income, expenses, gains and losses that are not included<br />
in the group earnings.<br />
Basic and Diluted Earnings per Share<br />
Earnings per share (EPS) were calculated in accordance with SFAS 128 (Earnings per Share).<br />
SFAS 128 requires all companies that have issued common stock to present earnings per share.<br />
Basic earnings per share comprises net earnings (after taxes) divided by the weighted-average<br />
number of common shares outstanding during the period. Common stock equivalents used for<br />
stock option compensation can have a dilutive effect. If a dilutive effect occurs, the diluted<br />
earnings per share must also be shown.<br />
New Accounting Standards<br />
<strong>Pfleiderer</strong> has applied SFAS 143 (Accounting for Asset Retirement Obligations) since January 1,<br />
2003. This new statement regulates the financial accounting and reporting for obligations associated<br />
with the closure or disposal of items of property, plant and equipment and the associated<br />
retirement costs. It applies to legal obligations associated with closures or disposals of property,<br />
plant and equipment that result from the acquisition, construction, development and/or the normal<br />
operation of the asset. The liabilities are to be recognized at fair value in the period in which<br />
the related payment obligations are incurred, if a reasonable estimate of fair value can be made.<br />
At the same time, the carrying amount of the related asset is increased by the same amount.<br />
This additional amount is amortized again over the remaining useful life of the items of property,<br />
plant and equipment. The liability is adjusted at the end of each period to its current present<br />
value, with an effect on income. Any positive or negative difference compared to its carrying<br />
amount at the time of extinguishing the obligation is recognized as income or expense. Neither<br />
the initial nor the subsequent application of SFAS 143 had any impact on the Company in 2004.<br />
The FASB published Interpretation (FIN) 46, (Consolidation of Variable Interest Entities) in January<br />
2003, and amended this once more in December 2003 as FIN 46, revised in December 2003.<br />
FIN 46 (R) regulates the application of Accounting Research Bulletin (ARB) 51 for the consolidation<br />
of certain entities (VIEs), in which it has a controlling financial interest through means other<br />
than voting rights. FIN 46 (R) provides for the consolidation of a VIE by the primary beneficiary<br />
and the disclosure of significant holdings in VIEs as the non-primary beneficiary. The Company<br />
holds a controlling financial interest in a leasing object company that qualifies as a VIE. Please<br />
refer for further details to VII. 2.<br />
82
1. Liquid funds<br />
2. Securities classified<br />
as current assets<br />
3. Receivables and<br />
other assets<br />
4. Trade receivables<br />
IV. Notes to the Consolidated Balance Sheet<br />
Liquid funds of 57,663 thousand euros were reported as of December 31, 2004 (2003: 67,154<br />
thousand euros). Liquid funds comprise cash at banks, petty cash balances and short-term deposits<br />
with banks with initial maturities of three months or less.<br />
Securities classified as current assets of 25,065 thousand euros (2003: 0 thousand euros)<br />
mainly comprise Polish treasury bonds of 23,263 thousand euros with a term of three months,<br />
which are held for trading (trading securities) and measured at fair value.<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Trade receivables 63,717 61,211<br />
Tax refunds 4,830 8,049<br />
Receivables from affiliated companies 2,270 2,077<br />
Miscellaneous 8,342 9,196<br />
Total 79,159 80,533<br />
The decline in tax receivables is due to the tax assessment notices received in 2004 and the<br />
associated payment of the credit balance to <strong>Pfleiderer</strong> <strong>AG</strong>.<br />
The receivables are made up as follows:<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Trade receivables 81,152 75,939<br />
Less: Specific allowance 6,585 5,775<br />
Less: Lump-sum allowances<br />
Less: Adjustments for price reductions,<br />
93 686<br />
sales bonuses and cash discounts 10,757 8,267<br />
Receivables, net 63,717 61,211<br />
All the receivables have a remaining term of less than a year.<br />
Appropriate lump-sum allowances based on historical experience are recorded in the Business<br />
Segment Infrastructure Technology to cover the general credit risk. Valuation adjustments are<br />
recognized in an adequate amount for bonuses and cash discounts.<br />
83<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
5. Inventories<br />
6. Property, plant<br />
and equipment<br />
Receivables of 30,036 thousand euros had been sold as of December 31, 2004 (2003: 45,342<br />
thousand euros). The Group retains rights and insignificant obligations as a result of these sales<br />
(“retained interests”), including the provision of settlement services. The Group only sells receivables<br />
covered by credit insurance. Expenses of 1,460 thousand euros (2003: 1,477 thousand<br />
euros) were incurred in connection with the sale of receivables. Most of these expenses relate<br />
to interest and the costs of assuming the debtor default risk, which are reported in the statement<br />
of income in the financial result.<br />
The inventories are made up as follows:<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Raw materials, consumables and supplies 42,845 43,288<br />
Work in process 3,270 4,109<br />
Finished goods and merchandise 57,743 53,245<br />
Payments on account 696 531<br />
Total 104,554 101,173<br />
The increase in finished goods and merchandise is due, firstly, to building up inventories at the<br />
Rheda-Wiedenbrück site to avoid delivery bottlenecks during the closure process and, secondly,<br />
because sleepers were produced in advance for various foreign <strong>Pfleiderer</strong> track systems projects<br />
and made available for call-off.<br />
Please refer to the analysis of Group fixed assets with regard to changes in property, plant and<br />
equipment.<br />
Property, plant and equipment are made up as follows:<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Land, land rights and buildings including buildings<br />
on third-party land 145,333 139,154<br />
Technical equipment and machines 152,037 133,352<br />
Other equipment, furniture and fixtures 11,970 12,434<br />
Payments on account and assets under construction 18,943 14,339<br />
Total 328,283 299,279<br />
Depreciation of property, plant and equipment amounted in fiscal 2004 to 33,735 thousand euros<br />
(2003: 34,049 thousand euros), of which 518 thousand euros in the fiscal year (2003: 0 thousand<br />
euros) comprised impairment losses that were recognized in order to write off parts of the<br />
property of the Coswig concrete poles plant that are no longer used. The impairment losses<br />
relate exclusively to the Business Segment Infrastructure Technology.<br />
84
7. Intangible assets<br />
As in the previous year, no interest for building finance on qualifying property, plant and equipment<br />
was capitalized in the Group in fiscal 2004.<br />
Property, plant and equipment of 2,406 thousand euros (2003: 2,463 thousand euros) less<br />
accumulated depreciation of 809 thousand euros (2003: 848 thousand euros) was capitalized<br />
under capital leases. The residual book value accordingly amounts to 1,597 thousand euros<br />
(2003: 1,615 thousand euros).<br />
No individual assets were assigned as collateral in the past fiscal year.<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Licenses, software and patents 7,354 9,831<br />
Goodwill 86,351 82,302<br />
Payments on account 46 510<br />
Total 93,751 92,643<br />
The goodwill comprises 73,252 thousand euros (2003: 69,203 thousand euros) for the Business<br />
Segment Engineered Wood and 13,099 thousand euros (2003: 13,099 thousand euros) for the<br />
Business Segment Infrastructure Technology.<br />
Amortization on intangible assets amounted in fiscal 2004 to 3,048 thousand euros (2003:<br />
3,246 thousand euros). Additions to intangible assets amounted altogether to 1,789 thousand<br />
euros (2003: 2,274 thousand euros).<br />
The Company has tested the impairment of the goodwill reported in the consolidated financial<br />
statements. The impairment tests performed in 2004 did not result in any need to recognize impairment<br />
losses in the consolidated financial statements.<br />
The estimated future amortization on intangible assets, which are still subject to systematic<br />
amortization, is as follows:<br />
‘000 euros<br />
2005 1,993<br />
2006 1,674<br />
2007 1,232<br />
2008 1,123<br />
2009 1,114<br />
Thereafter 218<br />
85<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
8. Financial assets<br />
9. Other fixed assets<br />
10. Short-term liabilities<br />
The breakdown and development of financial assets are presented in the analysis of Group<br />
fixed assets.<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Shares in affiliated companies 538 1,602<br />
Equity investments 45 56<br />
Loans to companies in which equity investments are held 0 169<br />
Other loans 17,042 391<br />
Total 17,625 2,218<br />
The other loans include an interest-bearing loan of 10,000 thousand euros to the purchaser of<br />
the Poles & Towers Europe Business Unit. A further 5,289 thousand euros relates to an interestbearing<br />
loan to a former affiliated company that was sold in 2003, which is being redeemed as<br />
scheduled.<br />
Other fixed assets amount to 2,143 thousand euros in the year under review (2003: 5,561 thousand<br />
euros). An interest-bearing loan of 5,289 thousand euros (2003: 4,846 thousand euros) to<br />
a former affiliated company that was reported here in the previous year was reclassified to the<br />
other loans included in the financial assets.<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Payments on account received on orders 12,598 8,346<br />
Trade payables 75,085 69,701<br />
Liabilities to affiliated companies 592 5,502<br />
Miscellaneous 34,783 36,745<br />
Total 123,058 120,294<br />
Payments on account received in the fiscal year mainly comprise payments on account of<br />
8 million euros for an infrastructure project abroad.<br />
Miscellaneous other short-term liabilities are made up as follows:<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Financial derivatives 9,864 12,116<br />
Other taxes 546 1,463<br />
Corporate income tax 4,633 1,800<br />
Wages and salaries 4,916 5,332<br />
Withheld social security contributions 4,509 5,139<br />
Withheld wage and church tax 3,532 3,968<br />
Payments received on sold receivables 0 1,269<br />
Value added tax 848 454<br />
Other personnel liabilities 123 24<br />
Miscellaneous 5,812 5,180<br />
Total 34,783 36,745<br />
86
11. Financial liabilities<br />
12. Other short-term<br />
accruals<br />
13. Capital leases<br />
The Company’s short-term loan liabilities are made up as follows:<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Other short-term liabilities and short-term portion<br />
of long-term loans 13,129 49,294<br />
Capital leasing 511 522<br />
Total 13,640 49,816<br />
The average interest rate following interest hedging is about 6 percent p.a.<br />
Other short-term liabilities and short-term portion of long-term loans include 2,428 thousand<br />
euros owed to related companies.<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Accruals for obligations to employees 27,944 18,678<br />
Accruals for the production area 3,050 268<br />
Accruals for sales and marketing 112 0<br />
Miscellaneous accruals 23,730 7,792<br />
Total 54,836 26,738<br />
The change in the accrual for obligations to employees mainly relates to an increase in the<br />
accruals for management bonuses and social plan obligations. The increase in the accruals<br />
relates in the amount of 5,164 thousand euros to the Rheda-Wiedenbrück site. The increase in<br />
the accruals for the production area mainly relates to obligations assumed as a result of the<br />
acquisition of an MDF-production location from “Hornitex Werke Nidda Kunststoff- und Holzwerkstoffplatten<br />
GmbH & Co. KG”. The increase under the miscellaneous accruals is mainly due to<br />
provisions for the Rheda-Wiedenbrück site.<br />
The Company entered into lease agreements in 1998 and 1999 for wood-processing machines<br />
for the Polish site and for technical facilities, which are treated as capital leases. Furthermore,<br />
automobile leasing agreements exist at a German site, which are also regarded as capital leases<br />
because of their wording. The future minimum lease payments from lease commitments as of<br />
December 31, 2004 are:<br />
‘000 euros<br />
2005 524<br />
2006 16<br />
Total minimum lease payments 540<br />
Less: Imputed interest 29<br />
Present value of minimum lease payments 511<br />
Less: Short-term portion 496<br />
Long-term portion of lease commitments 15<br />
87<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
14. Long-term liabilities<br />
15. Other long-term<br />
accruals<br />
The Company is primarily financed by long-term loans. These loans generally bear interest based<br />
on variable EURIBOR or LIBOR interest rates. The average interest rate for these loans in fiscal<br />
2004 was approximately 6 percent. Most of the variable interest payments are hedged by interest<br />
swaps.<br />
As of the balance sheet date, the Group had fixed-interest loans with a volume of 18,189 thousand<br />
euros (2003: 38,235 thousand euros) and an average interest rate of 5.3 percent (2003:<br />
5.1 percent). These loans were valued as of the balance sheet date of December 31, 2004 at<br />
19,812 thousand euros (2003: 39,863 thousand euros).<br />
As of December 31, 2004, redemptions of long-term liabilities for the next five fiscal years and<br />
thereafter are as follows:<br />
They include a borrower’s loan note from Westdeutsche Landesbank of 40 million euros with a<br />
five year term.<br />
88<br />
Dec. 31, 2004<br />
Short-term Long-term<br />
Long-term portion of portion of more<br />
‘000 euros amounts up to 1 year than 1 year Dec. 31, 2003<br />
Long-term financial<br />
liabilities (redemption<br />
amounts excluding<br />
capital leases) 193,726 760 192,966 304,232<br />
‘000 euros<br />
2005 760<br />
2006 16,099<br />
2007 38,584<br />
2008 84,023<br />
2009 51,760<br />
Thereafter 2,500<br />
Total 193,726<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Restructuring 1,816 3,254<br />
Environmental risks 3,230 311<br />
Long-service bonuses 3,837 3,794<br />
Pre-retirement part-time work 5,426 4,368<br />
Miscellaneous 26 27<br />
Total 14,335 11,754
16. Long-term<br />
deferred income<br />
17. Discontinued<br />
operations<br />
The restructuring accruals were set up to recognize probable, quantifiable obligations in the<br />
balance sheet.<br />
The accruals for environmental risks relate to possible obligations to recultivate land and remedy<br />
contamination at two locations. This amount includes 3,000 thousand euros for possible obligations<br />
assumed in connection with the acquisition of an MDF plant from “Hornitex Werke Nidda<br />
Kunststoff- und Holzwerkstoffplatten GmbH & Co. KG”.<br />
Long-term deferred income includes the proceeds from the sale of receivables from a lease agreement<br />
that are not due until later years (non-recourse financing). The deferred income is released<br />
to income in installments at the due dates of the corresponding lease payments. The outstanding<br />
residual amount from the non-recourse financing agreement amounted as of December 31, 2004<br />
to 2,495 thousand euros (2003: 4,278 thousand euros). It is subject to interest at the customary<br />
market rates. The agreement expires on May 1, 2007.<br />
In fiscal 2004, the Group sold the water systems, Poles & Towers Europe and Poles & Towers<br />
USA Business Units, and the company, WINDTEC Anlagenerrichtungs- und Consulting GmbH, in<br />
the Wind Business Unit. Furthermore, the onshore activities of <strong>Pfleiderer</strong> Wind Energy GmbH<br />
were brought into Fuhrländer-<strong>Pfleiderer</strong> GmbH & Co. KG. This is a joint venture company in which<br />
Fuhrländer <strong>AG</strong> holds a majority interest and exercises control. <strong>Pfleiderer</strong> <strong>AG</strong> has a put option<br />
allowing it to offer its interest to Fuhrländer <strong>AG</strong> after a period of three years. WINDTEC Anlagenerrichtungs-<br />
und Consulting GmbH was sold in March 2004 to the Gerald Hehenberger-Privatstiftung,<br />
Klagenfurt, Austria.<br />
The water systems Business Unit was sold with economic effect from December 31, 2004 to<br />
<strong>Pfleiderer</strong> Invest Veranlagungs GmbH, Vienna, which is owned by Hans Theodor <strong>Pfleiderer</strong>, and<br />
to Wernher Behrendt.<br />
The Poles & Towers USA Business Unit was given up in March 2004 as a result of the sale of<br />
Newmark International Inc., and <strong>Pfleiderer</strong> Leasing USA Inc., to Valmont Industries Inc., (USA)<br />
and the sale of factory land belonging to Engineered Fiberglass Products Inc., (USA) to CMT<br />
South Carolina LLC, USA. The Poles & Towers Europe Business Unit was given up in December<br />
2004 through the sale of Poles & Towers GmbH & Co. KG, Poles & Towers Verwaltungs-GmbH,<br />
<strong>Pfleiderer</strong> Energietechnik Verwaltungs GmbH, <strong>Pfleiderer</strong> Technika Infrastrukturalna Polska Sp.zo.o.,<br />
<strong>Pfleiderer</strong> Infrastructure S.A.R.L., and Pesa Telekom SAU to LLRR Management GmbH, Munich.<br />
89<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
The assets and liabilities that have remained in the Group are reported in the consolidated balance<br />
sheet under discontinued operations.<br />
The sale of the discontinued operations resulted on an agreed aggregate selling price of<br />
92,623 thousand euros, in a gain of 51,352 thousand euros. This figure does not include possible<br />
proceeds from subsequent purchase price adjustments.<br />
The gain on disposal is arrived at as follows:<br />
‘000 euros<br />
Agreed aggregate selling prices 94,623<br />
Retirement of assets and liabilities of operations sold –43,134<br />
51,489<br />
Expenses from deferred taxes –137<br />
Gain on sale of discontinued operations 51,352<br />
The operative business of the discontinued operations before special effects developed<br />
as follows:<br />
‘000 euros 2004 2003<br />
Sales revenues 118,819 182,375<br />
Expenses –125,401 –177,093<br />
EBIT –6,582 5,282<br />
Net interest –916 –2,174<br />
EBT –7,498 3,108<br />
Taxes 1,623 607<br />
Earnings after taxes –5,875 3,715<br />
Further operative special effects and subsequent expenditure of –17,359 thousand euros were<br />
incurred after tax in 2004 (2003: –53,486 thousand euros) for discontinued operations. This includes<br />
special effects for the Leipzig location of –9,484 thousand euros (2003: –10,677 thousand<br />
euros) and impairment losses of 670 thousand euros (2003: 0 thousand euros) for the complete<br />
write-off of the portions of the land at the Coswig concrete pole plant that are no longer used.<br />
Net interest only includes the net interest of the companies that are included in the discontinued<br />
operations.<br />
90
18. Stockholders’ equity<br />
The following table shows the balance sheet items summarized under the assets and liabilities<br />
of discontinued operations:<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Liquid funds and securities classified as current assets 86 1,540<br />
Receivables and other assets 1,862 23,438<br />
Inventories 41 37,905<br />
Other current assets 278 2,901<br />
Current assets 2,267 65,784<br />
Property, plant and equipment 2,520 34,278<br />
Intangible assets 18 3,317<br />
Financial assets 10 157<br />
Deferred tax assets 125 2,852<br />
Fixed assets 2,673 40,604<br />
Assets of discontinued operations 4,940 106,388<br />
Liabilities 2,958 28,793<br />
Financial liabilities 0 6,680<br />
Accruals 10,871 19,363<br />
Other short-term liabilities 173 2,900<br />
Short-term liabilities 14,002 57,736<br />
Long-term financial liabilities 0 1,206<br />
Accruals for pensions 1,865 6,268<br />
Deferred tax liabilities 427 3,488<br />
Other liabilities 0 609<br />
Other long-term accruals 796 3,161<br />
Long-term liabilities 3,088 14,732<br />
Liabilities of discontinued operations 17,090 72,468<br />
The balance sheet items for both fiscal years relate to the Wind Energy Business Unit, two companies<br />
of the former insulation operations and the Poles & Towers Business Center.<br />
Of the goodwill included in the intangible assets, 3,237 thousand euros relating entirely to the<br />
Business Segment Infrastructure Technology was derecognized in 2004.<br />
The development of stockholders’ equity is presented in the statement of changes in stockholders’<br />
equity, which precedes the notes to the consolidated financial statements.<br />
Subscribed Capital<br />
The capital stock remained unchanged as of the balance sheet date at 109,273,600 euros and<br />
is divided into 42,685,000 shares, each with a nominal value of 2.56 euros. All of the shares have<br />
been issued and are in circulation. Each share carries one vote.<br />
91<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
19. Stock appreciation<br />
rights and stock<br />
option programs<br />
Authorized Unissued Capital<br />
On July 10, 2001, the general meeting of the stockholders authorized the Board of Management,<br />
subject to the approval of the Supervisory Board, to increase the capital stock, once or on<br />
several occasions, by June 30, 2006 by up to 51,200 thousand euros by issuing new shares in<br />
exchange for contributions of cash.<br />
Conditional Capital<br />
The conditional capital, which can similarly be issued by June 30, 2006, amounts to 20,480 thousand<br />
euros.<br />
Further conditional capital of 10,927 thousand euros can also be created in connection with the<br />
<strong>Pfleiderer</strong> <strong>AG</strong> stock option scheme.<br />
Additional Paid-In Capital<br />
The Group’s additional paid-in capital comprises the additional paid-in capital of <strong>Pfleiderer</strong> <strong>AG</strong><br />
of 10,927 thousand euros.<br />
Changes in Other Comprehensive Income Recognized in Equity<br />
The following table shows how the valuation of financial derivatives and valuation of pensions<br />
in other comprehensive income has developed:<br />
The Company decides every year at its discretion whether to grant a stock option scheme,<br />
which persons will be eligible to participate and how many stock options each beneficiary will<br />
receive. The stock options are granted to beneficiaries on condition that the beneficiaries also<br />
make a personal contribution. Stock options have a term of 6 years. The stock options may be<br />
exercised for the first time three years after having been granted. The number of stock options<br />
for each beneficiary is based on the amount of the personal contribution divided by the reference<br />
price and multiplied by a factor of 12. The reference price for the Stock Option Programs for 2001<br />
and 2002 is based on the Company’s average share price between September and November, for<br />
the Stock Option Program for 2004 in accordance with the Company’s average share price between<br />
June and August 2004 and for the stock appreciation rights that have already expired, is<br />
based on the Company’s average share price between June and November 2000. Stock options<br />
can be exercised at a subscription price of between 110 percent and 125 percent of the reference<br />
price.<br />
92<br />
2004 2003<br />
Before Tax After Before Tax After<br />
‘000 euros tax effect tax tax effect tax<br />
Financial derivatives 2,112 –792 1,320 817 –145 672<br />
Minimum pension obligation –651 244 –407 16 –46 –30<br />
Total 1,461 –548 913 833 –191 642
Stock Appreciation Rights 2000<br />
Under the stock appreciation rights resolved by the Company on November 14, 2000 and approved<br />
by resolution of the general meeting of the stockholders dated December 5, 2000, the<br />
Company’s Board of Management was authorized to grant the participants up to 1,270,608 stock<br />
appreciation rights in the Company until June 30, 2006. The reference price was 9.73 euros.<br />
The exercise prices lay between 10.70 euros and 12.16 euros, with a weighted average exercise<br />
price of 11.43 euros.<br />
No further rights were exercisable as of the balance sheet date of December 31, 2004.<br />
Stock Option Program 2001<br />
Under the terms of the stock option scheme resolved by the Company on July 10, 2001 (Stock<br />
Option Program 2001) and approved by the Supervisory Board on October 25, 2001, the Company’s<br />
Board of Management is authorized to grant eligible participants up to 4,268,500 non-transferable<br />
options to acquire Company stock. Of the 116 potentially eligible participants at that time,<br />
65 board members and senior executives have participated in SOP 2001 with 1,257,456 options.<br />
The reference price is 7.45 euros. The exercise prices lie between 8.20 euros and 9.31 euros,<br />
with a weighted average exercise price of 8.76 euros.<br />
SOP 2001 can be exercised for the last time as of November 30, 2007.<br />
93<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP<br />
2004 2003<br />
Stock appre- Stock apprein<br />
thousands ciation rights ciation rights<br />
Outstanding at beginning of year 0 919<br />
Granted 0 0<br />
Exercised 0 0<br />
Forfeited 0 919<br />
Outstanding at end of year 0 0<br />
Exercisable at end of year 0 0<br />
2004 2003<br />
Stock Stock<br />
in thousands options options<br />
Outstanding at beginning of year 728 1,080<br />
Granted 0 0<br />
Exercised 0 0<br />
Forfeited 202 352<br />
Outstanding at end of year 526 728<br />
Exercisable at end of year 131 0
Stock Option Program 2002 (continuation of SOP 2001)<br />
The Stock Option Program 2002 was confirmed by the Board of Management on September 10,<br />
2002 and by the working Committee of Supervisory Board on September 20, 2002 on the basis<br />
of the Stock Option Program resolved by the Company in 2001 and adopted on July 10, 2001<br />
(SOP 2001). In accordance therewith, the Company’s Board of Management is authorized until<br />
June 30, 2006 to grant eligible participants the remaining non-transferable options to acquire<br />
Company stock. Altogether 40 board members and senior executives have participated in SOP<br />
2002 with 983,544 options. The reference price is 4.67 euros. The exercise prices lie between<br />
5.14 euros and 5.84 euros with a weighted average exercise price of 5.49 euros.<br />
SOP 2002 can be exercised for the last time as of November 30, 2008.<br />
Stock Option Program 2004 (Continuation of SOP 2001)<br />
The Stock Option Program 2004 was confirmed by the Board of Management on August 10,<br />
2004 and by the working Committee of Supervisory Board on August 23, 2004 on the basis of<br />
the Stock Option Program resolved by the Company in 2001 and adopted on July 10, 2001 (SOP<br />
2001). In accordance therewith, the Company’s Board of Management is authorized until June 30,<br />
2006 to grant eligible participants the remaining non-transferable options to acquire Company<br />
stock. Altogether 24 board members and senior executives have participated in SOP 2004 with<br />
563,016 options. The reference price is 6.99 euros. The exercise prices lie between 7.69 euros<br />
and 8.74 euros with a weighted average exercise price of 8.22 euros.<br />
SOP 2004 can be exercised for the last time as of August 31, 2010.<br />
94<br />
2004 2003<br />
Stock Stock<br />
in thousands options options<br />
Outstanding at beginning of year 780 984<br />
Granted 0 0<br />
Exercised 0 0<br />
Forfeited 166 204<br />
Outstanding at end of year 614 780<br />
Exercisable at end of year 0 0<br />
2004 2003<br />
Stock Stock<br />
in thousands options options<br />
Outstanding at beginning of year 0 0<br />
Granted 563 0<br />
Exercised 0 0<br />
Forfeited 0 0<br />
Outstanding at end of year 563 0<br />
Exercisable at end of year 0 0
20. Derivative financial<br />
instruments<br />
As permissible under SFAS 123, the Company records the stock options using the intrinsic value<br />
based method from APB 25 (Accounting for Stock Issued to Employees). All options were issued<br />
at an exercise price in excess of the market price as of the issue date. The Company accordingly<br />
did not report any personnel expenses in connection with these subscription rights.<br />
SFAS 123 requires the disclosure of adjusted pro-forma information on the Group’s net income<br />
for the year, reported as if the Company had accounted for the employees’ subscription rights<br />
applying the fair value method. The fair value of these subscription rights granted for the 2001,<br />
2002 and 2004 plans was estimated as of the date on which they were granted using the Black-<br />
Scholes method based on the following assumed weighted averages: risk-free interest rate of<br />
4.7 percent for 2001, 4.4 percent for 2002 and 3.4 percent for 2004; volatility of 42.0 percent<br />
for 2001, 54.8 percent for 2002 and 48.6 percent for 2004, expected dividend yield as of the<br />
valuation date of 2 percent for 2001, 2002 and 2004 and a weighted average life expectancy of<br />
the subscription right of six years.<br />
No plans for stock options exist that were not approved by the stockholders’ meeting.<br />
Stock Appreciation Rights of <strong>Pfleiderer</strong> Grajewo S.A. and <strong>Pfleiderer</strong> Prospan S.A.<br />
A separate bonus plan for executives at the Polish companies, <strong>Pfleiderer</strong> Grajewo S.A. and<br />
<strong>Pfleiderer</strong> Prospan S.A., was issued in addition to the Stock Option Programs at <strong>Pfleiderer</strong> <strong>AG</strong>.<br />
The Company resolved the price appreciation program on November 2, 2004. The reference<br />
price is 167 PLN. The exercise barrier is 120 percent of the reference price. The qualifying period<br />
ends at midnight on October 31, 2006. The <strong>Pfleiderer</strong> Grajewo S.A. share price as of December 31,<br />
2004 was 200 PLN. No personnel expenses resulted from these stock appreciation rights in 2004.<br />
Stock apprein<br />
thousands ciation rights<br />
Outstanding at beginning of year 0<br />
Granted 81<br />
Exercised 0<br />
Forfeited 0<br />
Outstanding at end of year 81<br />
Exercisable at end of year 0<br />
Derivative financial instruments are used to hedge interest and foreign currency positions with the<br />
aim of minimizing the risks resulting from fluctuations in exchange rates and market interest<br />
rates. The corporate guidelines state that such risks must generally be hedged. Only marketable<br />
interest derivatives and forward exchange contracts that are concluded with banks of first class<br />
standing are used for this purpose. Derivative financial transactions are restricted to the hedging<br />
of the operative business and the related financing. The Company does not conduct any derivative<br />
financial transactions for speculative purposes.<br />
95<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP<br />
2004
Interest swaps are held to hedge interest risks. These instruments are used to hedge variable<br />
liabilities denominated in euros.<br />
The following interest derivatives had been entered into as of the balance sheet date:<br />
Forward exchange contracts are concluded to hedge fluctuations in the rate of the US dollar,<br />
Swiss franc, pound sterling and Polish zloty against the euro. Hedging covers both recorded<br />
transactions and future transactions considered highly likely to occur.<br />
The following forward exchange contracts had been entered into as of the balance sheet date:<br />
The notional volumes are the reference values of interest swaps and the purchase and selling<br />
amounts of the forward exchange contracts measured with the forward rates as of the balance<br />
sheet date.<br />
Interest derivatives are valued by the contractual partner on the basis of the discounted flow<br />
of funds that result from the difference compared with the development of the market interest<br />
rates (mark to market valuation). The valuation of the forward exchange contracts corresponds<br />
to the losses or gains that would otherwise be realized if the transaction was settled as of the<br />
balance sheet date.<br />
The notional volume and fair value of the derivative financial transactions as of the balance<br />
sheet date were as follows:<br />
96<br />
Dec. 31, 2004 Dec. 31, 2003<br />
Notional Notional<br />
‘000 euros volume volume<br />
Interest swaps 122,710 237,630<br />
Interest caps 0 6,741<br />
Total 122,710 244,371<br />
Dec. 31, 2004 Dec. 31, 2003<br />
Notional Notional<br />
‘000 euros volume volume<br />
Exchange rate hedges of current or recognized transactions 17,742 11,710<br />
Exchange rate hedges of expected cash flows 0 3,442<br />
Total 17,742 15,152<br />
Dec. 31, 2004 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2003<br />
Notional Notional<br />
‘000 euros volume Fair value volume Fair value<br />
Interest derivatives 122,710 –9,864 244,371 –13,601<br />
Forward exchange contracts 17,742 110 15,152 293<br />
Total 140,452 –9,754 259,523 –13,308
Derivative financial instruments are reported in the balance sheet at fair values under other<br />
assets or other liabilities.<br />
In accordance with SFAS 133, (Accounting for Derivative Instruments and Hedging Activities),<br />
derivative financial transactions are accounted for as follows:<br />
If forward exchange contracts are used to hedge the fair value, both the changes in the value of<br />
the derivatives and also the contrary changes in the hedged items are recognized in earnings<br />
for the period. If they are used to hedge foreign exchange risks on future payments (cash flow<br />
hedges), changes in fair value are reported as a component of other comprehensive income<br />
(outside earnings) until the transaction is settled.<br />
In the 2004 business year, 110 thousand euros from forward exchange contracts were recorded<br />
in the other operating income, and 3,820 thousand euros from cash flow hedges in connection<br />
with interest swaps were recorded as interest expense.<br />
Where interest swaps or interest caps are used to hedge future cash flows (cash flow hedges),<br />
the development of the fair value is treated as a change in equity and reported under comprehensive<br />
income (component of equity). In the case of interest derivatives, which in accordance with<br />
SFAS 133 are not regarded as being sufficiently effective to hedge the cash flow, the gain or loss<br />
is recognized immediately in the statement of income as interest expense or interest income.<br />
Financial derivatives were valued as of the balance sheet date in accordance with SFAS 133 as<br />
follows:<br />
The residual term of the interest derivatives essentially corresponds with the term of the underlying<br />
financing transaction and lies between three and five years. The average term is four years.<br />
The residual term of the forward exchange contracts lies between one and five months.<br />
97<br />
Dec. 31, 2004 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2003<br />
Notional Notional<br />
‘000 euros volume Gain or loss volume Gain or loss<br />
Recognized in equity 133,610 –9,864 228,420 –12,096<br />
Recognized in earnings 6,842 110 31,103 –1,212<br />
Total 140,452 –9,754 259,523 –13,308<br />
Market volume Market volume Dec. 31, 2004<br />
due within due in more<br />
‘000 euros 1 year than 1 year Total<br />
Interest derivatives 0 122,710 122,710<br />
Forward exchange contracts 17,742 0 17,742<br />
Total 17,742 122,710 140,452<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
21. Deferred taxes<br />
The Group’s exposure from derivative instruments is limited to the risk that the counterparty will<br />
be unable to fulfill its obligations. The maximum default risk for the Group cannot exceed the<br />
positive fair values of the derivatives. In the case of forward exchange contracts, the maximum<br />
risk is the exchange rate fluctuation of the hedged amounts.<br />
In accordance with SFAS 109 (Accounting for Income Taxes), deferred tax assets and liabilities<br />
are recognized for the estimated future tax effects resulting from temporary differences between<br />
the reported carrying amounts of assets and liabilities and their tax bases and secondly as a<br />
result of tax loss carryforwards.<br />
Taxes on income for the Group are made up as follows:<br />
‘000 euros<br />
Current taxes<br />
2004 2003<br />
Germany 2,795 –104<br />
Abroad<br />
Deferred taxes<br />
10,476 6,578<br />
Germany –4,837 662<br />
Abroad 1,165 2,119<br />
Total 9,599 9,255<br />
Long-term deferred taxes were recognized on the basis of an overall tax rate of 37.5 percent<br />
(2003: 37.5 percent). This rate is calculated assuming a corporate income tax rate (including the<br />
solidarity surcharge) of 26.4 percent (2003: 26.4 percent) and an average trade tax burden<br />
at the German companies of 11.1 percent (2003: 11.1 percent). Short-term deferred taxes that<br />
are expected to reverse in the following year are also calculated applying an overall tax rate<br />
of 37.5 percent (2003: 37.5 percent). This rate is determined based on a corporate income tax<br />
charge (including the solidarity surcharge) of 26.4 percent (2003: 26.4 percent) and an average<br />
trade tax burden of 11.1 percent (2003: 11.1 percent). Changes in tax rates resulted in deferred<br />
tax expense in 2004 of 0 thousand euros (2003: deferred tax income of 11 thousand euros).<br />
The computations for foreign companies are based on their respective local tax rates.<br />
98
The following table reconciles the expected income tax expense to actual income tax expense.<br />
The expected income tax expense is computed by multiplying the pre-tax earnings by the overall<br />
tax rate applicable for the respective business year:<br />
‘000 euros 2004 2003<br />
Group earnings before taxes 31,622 17,882<br />
Expected tax expense at a tax rate of 37.5% (2003: 38.8%)<br />
Increase/decrease in tax expense due to:<br />
11,858 6,938<br />
Tax-rate differential with non-German countries –7,078 –2,987<br />
Changes in tax rates 0 –11<br />
Non-deductible operating expenses 5,282 352<br />
Tax-free income –1,318 128<br />
Prior year taxes 7,053 –3,123<br />
Non-deductible foreign source taxes 0 1,113<br />
Additions to valuation adjustment on deferred taxes<br />
Special impact from definition of continuing and<br />
10,625 30,676<br />
discontinued operations –7,188 –23,756<br />
Tax effects at the consolidation level –9,131 0<br />
Other –504 –75<br />
Actual tax expense 9,599 9,255<br />
As of December 31, 2004, the Group has loss carryforwards for German corporate income tax<br />
of 302,262 thousand euros (2003: 276,393 thousand euros), for German trade tax of 237,179<br />
thousand euros (2003: 204,257 thousand euros) and for foreign taxes of 3,894 thousand euros<br />
(2003: 6,261 thousand euros). Under German tax law as applicable as of the balance sheet<br />
date, domestic losses can be carried forward without limit as to time or the amount. Of the foreign<br />
loss carryforwards, 1,171 thousand euros may be used until 2008.<br />
Valuation adjustments of 92,136 thousand euros (2003: 83,242 thousand euros) have been<br />
recorded against deferred tax assets, mainly for tax loss carryforwards, if realization within a<br />
foreseeable period of time is uncertain because of the circumstances or the legal situation and<br />
the available information. The current assessment with regard to the recoverability of deferred<br />
tax assets can change, depending on the earnings situation in future years, and necessitate higher<br />
or lower valuation adjustments. Changes in German tax legislation with regard to the utilization<br />
of loss carryforwards (minimum taxation) have been taken into account in the assessment of the<br />
recoverability of deferred tax assets on loss carryforwards.<br />
99<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
Deferred tax assets and liabilities from valuation differences on balance sheet items are made<br />
up as follows:<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Intangible assets 7,036 8,116<br />
Property, plant and equipment 7,778 8,879<br />
Financial assets 378 4,335<br />
Inventories 1,407 540<br />
Receivables 1,992 2,059<br />
Sundry assets 640 781<br />
Accruals for pensions 2,911 2,569<br />
Other accruals 10,753 3,648<br />
Liabilities 3,513 4,649<br />
36,408 35,576<br />
Tax loss carryforwards 106,278 94,937<br />
142,686 130,513<br />
Valuation adjustments –92,136 –83,242<br />
Deferred tax assets 50,550 47,271<br />
Intangible assets 8,243 8,102<br />
Property, plant and equipment 32,958 34,352<br />
Financial assets 0 0<br />
Inventories 124 270<br />
Sundry assets 125 1,305<br />
Accruals for pensions 0 27<br />
Other accruals 1,305 593<br />
Liabilities 381 324<br />
Sundry liabilities 267 368<br />
Deferred tax liabilities 43,403 45,341<br />
Deferred tax assets, net 7,147 1,930<br />
100
22. Pensions and similar<br />
obligations<br />
Deferred tax assets and liabilities, net, are reported as follows:<br />
‘000 euros<br />
Deferred tax assets<br />
Dec. 31, 2004 Dec. 31, 2003<br />
Current 9,108 7,786<br />
Fixed<br />
Deferred tax liabilities<br />
16,742 15,759<br />
Short-term 801 2,219<br />
Long-term 17,902 19,396<br />
Deferred tax assets, net 7,147 1,930<br />
Total deferred taxes resulting from matters that were recognized in equity during the past business<br />
year amount to 4,557 thousand euros (2003: 5,082 thousand euros). No deferred taxes<br />
were set up on translation differences recognized in equity resulting from the consolidation of<br />
foreign subsidiaries.<br />
Deferred tax assets of 3,452 thousand euros (2003: 4,163 thousand euros) were capitalized for<br />
changes in financial derivatives recognized in equity.<br />
Deferred tax liabilities from the recognition of the adjusting item from valuation of pensions<br />
amounted in the reporting period to 1,114 thousand euros (2003: 919 thousand euros).<br />
<strong>Pfleiderer</strong> grants defined benefit obligations to eligible employees in individual cases. In addition,<br />
historical obligations still exist under various pension plans that provide retirement, disability<br />
and surviving dependents’ benefits. The pension plans were closed for new entrants at the latest<br />
as of May 31, 1986. Obligations similar to pensions exist at certain foreign companies with nonrecurring<br />
rights that are also reported under the accruals for pensions.<br />
Accruals for pensions for the fiscal years ended December 31, 2004 and 2003 are made up as<br />
follows:<br />
‘000 euros 2004 2003<br />
Accruals for pensions 59,916 57,553<br />
Obligations similar to pensions 504 272<br />
Accruals for pensions and similar obligations 60,420 57,825<br />
The accumulated benefit obligation ignoring future salary increases amounted in the reporting<br />
period to 59,309 thousand euros (2003: 61,507 thousand euros).<br />
101<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
The benefits under defined benefit plans mainly depend on the employee’s length of service, age<br />
and salary. The costs and obligations resulting from defined benefit plans are calculated on the<br />
basis of actuarial reports, applying the projected unit credit method. This method sets the past<br />
service of the employee in relation to the date of valuation, and therefore includes estimates<br />
with regard to future salary trends. The reports as of December 31, 2004 include the following<br />
assumptions:<br />
in % 2004 2003<br />
Discount rate 5.5 5.5<br />
Rate of salary increases 3.0 3.0<br />
The discount rate applied roughly approximates the interest rate achievable as of the valuation<br />
date on top quality fixed-interest securities with the same maturity period. The annual rate of<br />
salary increases is used to calculate the pension benefit obligations.<br />
The components of pension cost for the years ended December 31, 2004 and 2003 were<br />
as follows:<br />
‘000 euros 2004 2003<br />
Service cost 599 959<br />
Interest cost 3,206 3,267<br />
Amortisation of net actuarial gains (losses) 28 30<br />
Amortisation of prior service cost 127 341<br />
Total 3,960 4,597<br />
102
The following table explains the change in the benefit obligations as reported in the consolidated<br />
financial statements as of December 31, 2004 and 2003:<br />
‘000 euros 2004 2003<br />
Benefit obligation at beginning of year 60,880 60,247<br />
Service cost 599 959<br />
Interest cost 3,206 3,267<br />
Benefits paid –3,577 –3,423<br />
Actuarial gains –1,030 –294<br />
Retrospective plan amendments 64 127<br />
Business combinations 300 0<br />
Disposals and transfers –92 –3<br />
Benefit obligation at end of year 60,350 60,880<br />
Unrecognized actuarial loss –3,351 –5,754<br />
Unrecognized prior service cost –64 –127<br />
Amount recognized in the balance sheet 56,935 54,999<br />
The following amounts are reported in the Company’s consolidated balance sheet as of<br />
December 31, 2004 and 2003:<br />
‘000 euros 2004 2003<br />
Intangible assets 64 98<br />
Accruals for pensions 59,916 57,553<br />
Accumulated other comprehensive income 2,917 2,456<br />
Pension costs, net 56,935 54,999<br />
The following table shows the pension benefits in the reporting period and in the previous year,<br />
and for those expected over the next five years (not discounted):<br />
‘000 euros<br />
Pension benefits paid<br />
2003 3,423<br />
2004 3,577<br />
Expected pension benefits<br />
2005 3,650<br />
2006 3,723<br />
2007 3,798<br />
2008 3,874<br />
2009 3,951<br />
2005–2009 18,996<br />
103<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
1. Selling expenses<br />
2. Other operating<br />
income/other<br />
operating expenses<br />
3. Net interest<br />
V. Notes to the Statement of Income<br />
The selling expenses of 121,636 thousand euros (2003: 113,577 thousand euros) include freight<br />
out of 52,031 thousand euros (2003: 46,748 thousand euros).<br />
Jan. 1 – Jan. 1 –<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Other operating income 48,609 26,152<br />
Other operating expenses 37,455 10,053<br />
Total 11,154 16,099<br />
Other operating income/other operating expenses include the proceeds from the dilution gain<br />
of 22,699 thousand euros from the increase in capital in Poland. They also include proceeds<br />
of 3,588 thousand euros from the reversal of specific and lump-sum allowances for doubtful accounts.<br />
Foreign exchange gains of 3,070 thousand euros are also reported here. The expenses<br />
mainly result from provisions of 16,998 thousand euros for closure costs for the Rheda-Wiedenbrück<br />
site, expenses of 5,257 thousand euros for allocations to accruals and foreign exchange<br />
losses of 4,688 thousand euros.<br />
Jan. 1 – Jan. 1 –<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Other interest and similar income 5,745 7,875<br />
Interest and similar expenses 24,361 24,937<br />
Total –18,616 –17,062<br />
Other interest and similar income primarily includes interest income on invested funds. The<br />
interest expense results from financial liabilities, interest in connection with hedging transactions<br />
and expenses of 3,820 thousand euros from the dissolution of interest swaps.<br />
VI. Notes to the Consolidated Statement of Cash Flows<br />
The cash and cash equivalents in the cash flow statement comprise the sum of the balance<br />
sheet items, liquid funds and securities classified as current assets.<br />
Interest payments in the fiscal year 2004 amounted to 19,707 thousand euros (2003:<br />
21,039 thousand euros). Payments for taxes on income amounted to 11,587 thousand euros<br />
(2003: 14,185 thousand euros).<br />
104
1. Contingent liabilities<br />
VII. Other Disclosures<br />
Contingent liabilities are recognized below at nominal values:<br />
million euros Dec. 31, 2004 Dec. 31, 2003<br />
Guarantees and letters of comfort 32.7 10.7<br />
Warranty obligations 1.4 29.1<br />
Discounted notes 0.0 0.9<br />
The Group has provided the purchasers with guarantees on a customary scale in connection with<br />
various business disposals. The Company does not currently expect any significant claims under<br />
these guarantees.<br />
Long-term supply obligations to a power plant operator at fixed prices exist in the Business<br />
Segment Engineered Wood. A possible risk to the earnings as a result of these prices is deemed<br />
improbable.<br />
Furthermore, credit institutions have issued guarantees in favor of customers, suppliers and other<br />
contractual partners of the Group totaling of 41.8 million euros (2003: 40.5 million euros), and<br />
corresponding guarantee lines are available. These mainly comprise guarantees under warranties<br />
and guarantees in connection with the contingent liabilities from disinvestments.<br />
No accruals have been set up for the above contingent liabilities, because the probability that<br />
the risks will occur is deemed to be low.<br />
The Group provides warranties for certain products. The amount of the potential warranty claims<br />
is based on the sales of these products and the records relating to past warranty claims.<br />
Under a factoring program for the financing of trade receivables of 30.3 million euros, <strong>Pfleiderer</strong> <strong>AG</strong><br />
is liable for the verity of the receivables sold. The receivables sold are covered in full by commercial<br />
credit insurance, so that a claim from this is not expected.<br />
‘000 euros<br />
Balance as of January 1, 2004 0<br />
Warranties issued during the reporting period 2,769<br />
Claims during the past business year 0<br />
Balance as of December 31, 2004 2,769<br />
Accruals for warranty obligations developed as following during the past business year:<br />
The application of FIN 45 does not result in any further disclosable matters.<br />
105<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
2. Other financial<br />
commitments<br />
The Group is leasing property, plant and equipment under rental and leasing agreements that do<br />
not qualify under US-GAAP as capital leases, but as operating leases. Additionally, the Group has<br />
entered into contracts for the maintenance of property, plant and equipment and for various<br />
services. Expenses under rental and leasing agreements reported in the statement of income<br />
amount to 19,199 thousand euros (2003: 18,954 thousand euros).<br />
The following table shows the future (non-discounted) minimum payments under non-cancelable<br />
leases with an initial or remaining term of more than a year as of December 31, 2004:<br />
‘000 euros<br />
2005 25,314<br />
2006 36,784<br />
2007 11,798<br />
2008 10,732<br />
2009 5,849<br />
After 2009 13,856<br />
Total 104,333<br />
The Group carried out sale and leaseback transactions in fiscal 2004 in which in the main two<br />
plants were sold and then leased back under an operating lease. The total volume of these<br />
transactions amounted to 51 thousand euros.<br />
Together with a related party, the Group holds a controlling financial interest in a leasing object<br />
company that qualifies as a VIE. Since the Group is not the primary beneficiary of the VIE, the<br />
leasing object company has not been included in the consolidated financial statements. The<br />
object company was formed on August 29, 1999, and is engaged in the acquisition, sale, letting<br />
and leasing of property, plant and equipment and the performance of all related business. The<br />
unaudited balance sheet total of the object company (under HGB) amounts as of December 31,<br />
2004 to 43,653 thousand euros. The maximum potential loss for the Group from the participation<br />
in the VIE amounts to some 5,300 thousand euros. The realization of a loss from the participation<br />
in the VIE is not expected.<br />
Between 2000 and 2003, <strong>Pfleiderer</strong> <strong>AG</strong> and its subsidiaries sold several large plants worth a total<br />
of 76,909 thousand euros to the object company and then leased them back again. These lease<br />
agreements qualify as operating leases under US-GAAP. Most of the lease agreements run until<br />
the end of 2006. The lease expenses for the years from 2005 until the end of the contractual<br />
terms are disclosed under the other financial commitments.<br />
As of December 31, 2004, the Group had purchase commitments of 66,092 thousand euros<br />
(2003: 41,007 thousand euros).<br />
106
3. Pending litigation<br />
and claims<br />
4. Transactions with<br />
related parties<br />
5. Directors’ Dealings<br />
6. Corporate<br />
Governance<br />
The Company is involved from time to time in litigation in the ordinary course of business. The<br />
Company is not aware of any matters that could have a significant negative impact on its results<br />
of operations, liquidity or financial position.<br />
<strong>Pfleiderer</strong> Unternehmensverwaltung GmbH & Co. KG held a substantial investment in <strong>Pfleiderer</strong> <strong>AG</strong><br />
(subsidiary) until March 22, 2004 and was thus a related party to the Group. The Group had business<br />
relations with this company and its subsidiary, <strong>Pfleiderer</strong> Leasing GmbH & Co. KG, Delitzsch,<br />
both in the current and the prior financial year. The extent of the business relations in 2004 was<br />
as follows:<br />
‘000 euros 2004 2003<br />
Interest income 0 10<br />
Income from cost allocations 7,138 5,051<br />
Expenses from cost allocations 7,654 795<br />
Rental expense 2,567 3,395<br />
The expenses for power purchased from <strong>Pfleiderer</strong> Energietechnik Verwaltungs-GmbH, Neumarkt,<br />
amounted in 2004 to 988 thousand euros (2003: 12,067 thousand euros).<br />
Pursuant to Section 15a, German Securities Trading Act, members of the Board of Management<br />
and the Supervisory Board and members of their families are obliged to report to the Company<br />
and the German Federal Financial Services Supervisory Office without delay information about<br />
any securities trading relating to the Company (Directors’ Dealings) that exceed a minimum limit.<br />
These notifications are published on <strong>Pfleiderer</strong> <strong>AG</strong>’s website at www.pfleiderer.com.<br />
On September 30, 2004, Hans H. Overdiek (Spokesman of the Board of Management) announced<br />
that he had acquired 400,000 shares in <strong>Pfleiderer</strong> <strong>AG</strong> from <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG at a price of 5.30 euros per share.<br />
Hanno C. Fiedler (a member of the Supervisory Board) acquired 2,000 shares at a price of<br />
8.15 euros per share on December 27, 2004, and a further 2,000 shares on December 28, 2004<br />
at a price of 8.20 euros per share.<br />
The Board of Management and the Supervisory Board have issued the statement of compliance for<br />
the year 2004 in accordance with Section 161 of the German Stock Companies Act on the recommendations<br />
of the German Corporate Governance Code Commission and have published this<br />
on the Company’s website. <strong>Pfleiderer</strong> <strong>AG</strong> has reported in detail on the subject of Corporate<br />
Governance in the chapter of the annual report entitled “Principles of Corporate Governance<br />
<strong>Pfleiderer</strong> Aktiengesellschaft” (see pages 11 to 17).<br />
107<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
7. Personnel expenses<br />
8. Relief in accordance<br />
with Section<br />
264b HGB<br />
Total personnel expenses in the past business year amounted to 183,262 thousand euros<br />
(2003: 189,375 thousands euros).<br />
The breakdown of employees as of December 31, 2004 was as follows:<br />
‘000 euros 2004 2003<br />
Senior management 29 25<br />
Junior management, clerical 1,377 1,349<br />
Production, manual 3,023 3,013<br />
Total 4,429 4,387<br />
The following partnerships have applied the relief available under Section 264b HGB:<br />
<strong>Pfleiderer</strong> dritte Erwerbergesellschaft mbH & Co. Grundstücksverwaltungs KG<br />
<strong>Pfleiderer</strong> Holzwerkstoffe GmbH & Co. KG<br />
<strong>Pfleiderer</strong> Holzwerkstoffe Nidda GmbH & Co. KG<br />
<strong>Pfleiderer</strong> Infrastrukturtechnik GmbH & Co. KG<br />
<strong>Pfleiderer</strong> Dämmstofftechnik International GmbH & Co. KG<br />
<strong>Pfleiderer</strong> Leasing GmbH & Co.<br />
VIII. Segment Reporting<br />
For segment reporting purposes as defined by SFAS 131 (Disclosures about Segments of an<br />
Enterprise and Related Information), the Group is engaged in two Business Segments, Engineered<br />
Wood and Infrastructure Technology (see consolidated segment reporting preceding the notes<br />
to the consolidated financial statements). The Business Segment Engineered Wood produces raw<br />
particleboard and processed products. The Business Segment Infrastructure Technology mainly<br />
generates its revenues with products for track systems technology and the manufacture of concrete<br />
sleepers. The Poles & Towers Business Center, which was sold during the past business<br />
year, is no longer reported. Transactions between the segments are mainly carried out at market<br />
prices.<br />
108
Geographical Information<br />
Sales Revenues by Region<br />
Sales revenues by region are as follows:<br />
Jan. 1 – Jan. 1 –<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Germany 416,492 431,462<br />
Other EU countries 348,595 215,920<br />
Rest of Europe 98,707 181,471<br />
Other countries 37,184 19,352<br />
Total 900,978 848,205<br />
Segment Assets by Region<br />
Property, plant and equipment by region are as follows:<br />
Jan. 1 – Jan. 1 –<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Germany 196,852 201,615<br />
Other EU countries 118,992 6,956<br />
Rest of Europe 12,439 90,708<br />
Total 328,283 299,279<br />
IX. Earnings per Ordinary Share<br />
The following table shows the earnings per share:<br />
2004 2003<br />
Net earnings for the year after minority interests ‘000 euros 33,860 –45,762<br />
Average number of outstanding shares number 42,685,000 42,678,146<br />
Basic earnings per share euros 0.79 –1.07<br />
Diluted earnings per share euros 0.79 –1.07<br />
Earnings per share of continuing operations euros 0.13 0.10<br />
Earnings per share of discontinued operations euros 0.66 –1.17<br />
Stock options granted to members of the Board of Management and employees under SOP 2001<br />
did not have a dilutive effect, and were therefore not included in the calculation of diluted earnings<br />
per share.<br />
Under SOP 2002, 105,862 shares have a dilutive effect. The minor dilutive effect did not result<br />
in any difference between diluted earnings per share and basic earnings per share.<br />
109<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
1. Board of Management<br />
2. Supervisory Board<br />
X. Management Remuneration/Stock Held by Board Members<br />
The total remuneration of the Board of Management amounted in fiscal 2004 to 3,222 thousand<br />
euros (2003: 3,834 thousand euros). The remuneration of the past business year includes a variable<br />
portion of 982 thousand euros (2003: 982 thousand euros).<br />
Pension obligations to former members of the Board of Management and their surviving dependents<br />
amount to 3,917 thousand euros (2003: 3,916 thousand euros). No remuneration was paid<br />
to former members of the Board of Management during the 2004 business year (2003: 145 thousand<br />
euros).<br />
After adjusting for options to former members of the Board of Management, members of the<br />
Board of Management were granted 386,260 options to subscribe for stock in 2004 (2003: 0)<br />
under <strong>Pfleiderer</strong> <strong>AG</strong>’s Stock Option Program, in return for making an own contribution. On the<br />
basis of the amount of personal contributions for the 2004 Stock Option Program, the Company<br />
does not intend to grant members of the Board of Management any further options (2003: 0).<br />
Members of the Board of Management hold 442,680 shares (2003: 36,380).<br />
The total remuneration paid to members of the Supervisory Board amounted in 2004 to<br />
152 thousand euros (2003: 152 thousand euros).<br />
Members of the Supervisory Board hold a total of 17,683 shares (2003: 1,045 shares).<br />
XI. Subsequent Events<br />
The Company announced on February 8, 2005 that a due diligence review is currently in progress<br />
at the Kunz Group within an exclusivity period. The basis is provided by a letter of intent signed<br />
by <strong>Pfleiderer</strong> <strong>AG</strong> and Kunz Holding GmbH & Co. KG, Gschwend, on December 2004 on the possible<br />
acquisition of the Kunz Group by <strong>Pfleiderer</strong>.<br />
XII. Deviations in Accounting, Valuation and Disclosure Obligations<br />
under Section 292a HGB (German Commercial Code)<br />
The consolidated financial statements of <strong>Pfleiderer</strong> <strong>AG</strong> have been prepared in accordance with<br />
US-Generally Accepted Accounting Principles (US-GAAP) as applicable as of the balance sheet<br />
date, applying the exemption available under Section 292a HGB from the requirement to prepare<br />
financial statements in accordance with the German Commercial Code (HGB).<br />
The main differences between the accounting, valuation and disclosure requirements under<br />
US-GAAP compared with those under the HGB are as follows:<br />
110
1. Leases<br />
2. Valuation of<br />
inventories<br />
HGB does not stipulate explicitly how lease transactions should be treated. German companies<br />
therefore generally fall back on the leasing decrees issued by the tax authorities when deciding<br />
on how to account for leases. Applying tax criteria to lease agreements generally has the effect<br />
that leased assets are recognized in the lessor’s balance sheet.<br />
Comprehensive rules (especially SFAS 13) exist under US-GAAP on accounting for lease transactions.<br />
As a matter of principle, a distinction is drawn between capital leases and operating leases,<br />
depending on which party bears the significant rewards and risks from the use of the leased<br />
assets and can thus be regarded as their economic owner. The lessee must capitalize the leased<br />
asset if he is regarded as the economic owner, and the lessor must capitalize it in the event of<br />
an operating lease.<br />
Under HGB, inventories are valued as of the balance sheet date, in accordance with the strict<br />
principle of the lowest value, at the lower of cost and market or a lower fair value. The fair value<br />
of raw materials, consumables and supplies is generally based on the replacement values on the<br />
procurement market and, for work in process and finished goods, by the inverse method starting<br />
off from the net proceeds of sale on the sales market.<br />
Under US-GAAP, inventories are valued at the lower of cost or market on the basis of individual<br />
values or applying the weighted average method. The FIFO method (first in-first out) is also applied<br />
in justified individual cases. Market value is based as a matter of principle on the replacement<br />
value. The ceiling for determination of market value is the estimated selling price in the ordinary<br />
course of business less the estimated costs of completion and the expected costs necessary to<br />
make the sale (net realizable value). The floor for determination of market value is net realizable<br />
value less a normal profit margin.<br />
The production costs also include, in addition to direct material and production costs, an appropriate<br />
share of the material and production overheads caused by the production process.<br />
All foreseeable risks in the inventories that have resulted from diminished usability or obsolescence<br />
were reflected by appropriate write-downs. Markdowns were recorded for slow-moving<br />
items.<br />
111<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
3. Derivative financial<br />
instruments<br />
4. Costs of rasing<br />
capital<br />
5. Stock options<br />
6. Foreign currency<br />
translation<br />
7. Accounting for<br />
and amortization<br />
of goodwill<br />
There is no binding approach under HGB to accounting for and the valuation of derivative financial<br />
instruments, so that they are valued taking into account the historical cost, realization and<br />
prudence principles.<br />
US-GAAP, on the other hand, requires all original and derivative financial instruments to be measured<br />
at fair value. Under certain restrictive conditions, US-GAAP requires that hedging be recognized<br />
in the balance sheet, with the consequence that fluctuations in the fair value of financial<br />
instruments used for hedging purposes are not recognized directly as expense or income, but<br />
are deferred temporarily under equity. The criteria for recognition of hedging in the balance sheet<br />
depend on the nature of the hedged item and the hedging instrument. If the criteria for recognition<br />
of hedging in the balance sheet are not fulfilled, fluctuations in the fair value of derivatives<br />
must be recognized as expense or income in the period in which they occur.<br />
Under German law, costs of raising capital must be recognized as expense and may not be offset<br />
against the proceeds of increases in capital. Under US-GAAP, costs of raising equity, such as<br />
issuing costs incurred in conjunction with an initial public offering, less the related income tax<br />
effects, are deducted from the gross proceeds of the funds raised, thus reducing the additional<br />
paid-in capital.<br />
No prevailing opinion has developed to date in Germany on the treatment of the issuance of<br />
stock options to employees. Under US-GAAP, stock options are mainly dealt with in APB 25 and<br />
SFAS 123. Under APB 25, stock options are valued in accordance with their intrinsic value and<br />
under SFAS 123 in accordance with their fair value. The Company applies APB 25 for accounting<br />
for stock options, in accordance with which the intrinsic value is based on the difference between<br />
the exercise price and the higher current market price.<br />
Whereas under HGB, non-hedged foreign currency receivables and liabilities are valued at the<br />
exchange rate on the transaction date or the less favorable rate in each case as of the balance<br />
sheet date, US-GAAP requires in accordance with SFAS 52 (Foreign Currency Translation) that<br />
all foreign currency receivables and liabilities are valued at the closing rate as of the balance sheet<br />
date, with the consequence that unrealized exchange gains are also recognized as income.<br />
Under German commercial law, goodwill acquired for a consideration must be capitalized and<br />
amortized over its expected useful life. If the goodwill results from first-time consolidation, it<br />
is offset in full against equity in the year in which it arises. Goodwill must be written down, for<br />
instance, if the future earnings situation is not expected to be positive. An impairment loss is<br />
regarded as justified under the aspect of the prudence principle.<br />
112
8. Discontinued<br />
operations<br />
Under US-GAAP, goodwill is similarly capitalized, but systematic amortization is no longer permitted.<br />
Instead, SFAS 142 requires an impairment test to be carried out at least once a year.<br />
Section 246 (2) HGB (German Commercial Code) prohibits the offsetting of expenses and income<br />
and assets and liabilities. This has the consequence that discontinued operations may not be<br />
reported separately in the financial statements.<br />
Under US-GAAP on the other hand, SFAS 144 (Accounting for the Impairment or Disposal of Long-<br />
Lived Assets) requires items in the statement of income and the balance sheet to be adjusted for<br />
the effect of discontinued operations. The adjusted figures must be reported in separate items<br />
as income or loss from discontinued operations in the statement of income and as assets and<br />
liabilities from discontinued operations in the balance sheet.<br />
XIII. Development of Group Fixed Assets<br />
The development of the Group fixed assets can be seen from the analysis enclosed with these<br />
notes.<br />
Neumarkt, February 22, 2005<br />
Hans H. Overdiek Dr Jürgen Koch Michael Ernst<br />
113<br />
FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP
Analysis of Group Assets<br />
Acquisition and production costs<br />
Change in<br />
Currency consolidated Reclassifi- Dec. 31,<br />
‘000 euros Jan. 1, 2004 translation group Additions Disposals cations 2004<br />
I. Intangible assets<br />
1. Franchises, trademarks,<br />
patents and licenses<br />
and similiar rights and<br />
licenses to such rights 37,851 288 – 629 –4,241 692 35,219<br />
2. Goodwill 148,150 – 6,904 1,114 –3,969 – 152,199<br />
3. Payments on account 510 – – 46 – –510 46<br />
186,511 288 6,904 1,789 –8,210 182 187,464<br />
II. Property, plant and equipment<br />
1. Land, land rights and<br />
buildings including<br />
buildings on<br />
third-party land<br />
2. Technical equipment<br />
232,042 6,975 6,105 742 –364 3,919 249,419<br />
and machines<br />
3. Other equipment, furniture<br />
530,472 23,371 6,828 5,021 –5,865 22,777 582,604<br />
and fixtures<br />
4. Payments on account and<br />
56,383 1,250 197 2,029 –3,849 1,139 57,149<br />
construction in progress 14,974 385 1,745 30,595 –1 –28,017 19,681<br />
833,871 31,981 14,875 38,387 –10,079 –182 908,853<br />
III. Financial assets<br />
1. Shares in affiliated<br />
companies 3,257 –1 – 149 –234 26 3,197<br />
2. Equity investments<br />
3. Loans to companies<br />
in which investments<br />
74 – – 15 – –26 63<br />
are held 169 – – – –169 – –<br />
4. Other loans 391 1 – 11,504 –77 5,2891) 17,108<br />
3,891 – – 11,668 –480 5,289 20,368<br />
1) Transferred from current assets to financial assets due to changes in maturity dates.<br />
1,024,273 32,269 21,779 51,844 –18,769 5,289 1,116,685<br />
114
Accumulated amortization/depreciation/write-downs Net carrying amount<br />
Change in<br />
Currency consolidated Dec. 31, Dec. 31, Dec. 31,<br />
Jan. 1, 2004 translation group Additions Disposals 2004 2004 2003<br />
–28,021 –271 – –3,048 3,475 –27,865 7,354 9,831<br />
–65,848 – – – – –65,848 86,351 82,302<br />
– – – – – – 46 510<br />
–93,869 –271 – –3,048 3,475 –93,713 93,751 92,643<br />
–92,886 –2,910 –39 –8,527 276 –104,086 145,333 139,154<br />
–397,121 –15,867 –232 –21,975 4,628 –430,567 152,037 133,352<br />
–43,949 –1,014 –16 –3,230 3,030 –45,179 11,970 12,434<br />
–635 –100 – –3 – –738 18,943 14,339<br />
–534,591 –19,891 –287 –33,735 7,934 –580,570 328,283 299,279<br />
–1,654 – – –1,005 – –2,659 538 1,602<br />
–18 – – – – –18 45 56<br />
– – – – – – – 169<br />
– – – –66 – –66 17,042 391<br />
–1,672 – – –1,071 – –2,743 17,625 2,218<br />
–630,132 –20,162 –287 –37,854 11,409 –677,026 439,659 394,140<br />
115<br />
FINANCIAL STATEMENTS PFLEIDERER GROUP
Consolidated Companies as of December 31, 2004<br />
<strong>Pfleiderer</strong> <strong>AG</strong> Neumarkt<br />
Business Segment Engineered Wood<br />
FH Frischholz GmbH Korbach 100.00%<br />
Fideris Spanplatten <strong>AG</strong> St Gallen (CH) 100.00%<br />
FOLS Sp.zo.o. Warsaw (PL) 100.00%<br />
Heller Forstservice GmbH Korbach 100.00%<br />
Heller Holz GmbH Korbach 100.00%<br />
Interwood GmbH Neumarkt 100.00%<br />
Jura Belgium BVBA Hoogstraaten (B) 100.00%<br />
JURA-Spedition GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> dritte Erwerbergesellschaft mbH<br />
<strong>Pfleiderer</strong> dritte Erwerbergesellschaft mbH & Co.<br />
Neumarkt 100.00%<br />
Grundstücksverwaltungs KG Neumarkt *) 100.00%<br />
<strong>Pfleiderer</strong> Grajewo S.A. Grajewo (PL) 60.27%<br />
<strong>Pfleiderer</strong> Holzwerkstoffe GmbH & Co. KG Neumarkt *) 100.00%<br />
<strong>Pfleiderer</strong> Holzwerkstoffe International GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> Holzwerkstoffe Nidda GmbH & Co. KG Neumarkt *) 100.00%<br />
<strong>Pfleiderer</strong> Holzwerkstoffe Nidda Verwaltungs-GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> Holzwerkstoffe Vertriebs-GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> Holzwerkstoffe Verwaltungs-GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> Industrie Ltd. Macclesfield (GB) 100.00%<br />
<strong>Pfleiderer</strong> OOO Velikii Novgorod (RUS) 60.27%<br />
<strong>Pfleiderer</strong> Prospan S.A. Wieruszów (PL) 34.17%<br />
Thermopal GmbH Leutkirch 100.00%<br />
wodego <strong>AG</strong> St Gallen (CH) 100.00%<br />
wodego B.V. Deventer (NL) 100.00%<br />
wodego GmbH Neumarkt 100.00%<br />
wodego S.A.S Reims (F) 100.00%<br />
Non-consolidated companies:<br />
Jura Polska Sp.zo.o. Dabrowa Gornicza (PL) 100.00%<br />
Laminat Sp.zo.o. Grajewo (PL) 47.22%<br />
MSG Musterservice GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> erste Erwerbergesellschaft mbH Neumarkt 100.00%<br />
Business Segment Infrastructure Technology<br />
Engineered Fiberglass Products, Ltd. Birmingham (USA) 100.00%<br />
<strong>Pfleiderer</strong> Consulting GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> España S.A. Constanti (E) 100.00%<br />
<strong>Pfleiderer</strong> Infrastrukturtechnik GmbH & Co. KG Neumarkt *) 100.00%<br />
<strong>Pfleiderer</strong> Infrastrukturtechnik Verwaltungs-GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> Lábatlani Vasbetonipari Rt. Lábatlan (H) 86.00%<br />
116
<strong>Pfleiderer</strong> track systems B.V. Deventer (NL) 100.00%<br />
<strong>Pfleiderer</strong> Wind Energy GmbH Neumarkt 100.00%<br />
S.C. Travertec srl Brasov (RO) 100.00%<br />
Travipos S.A. Constanti (E) 51.00%<br />
Non-consolidated companies:<br />
German track systems Projektgesellschaft mbH GTS Neumarkt 100.00%<br />
Patil <strong>Pfleiderer</strong> track systems Pvt. Ltd. Secunderabad (IND) 55.00%<br />
Swiss track systems <strong>AG</strong> Zolfingen (CH) 48.70%<br />
Other<br />
<strong>Pfleiderer</strong> Dämmstofftechnik International GmbH & Co. KG Neumarkt *) 100.00%<br />
<strong>Pfleiderer</strong> Dämmstofftechnik Verwaltungs-GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> Finance B.V. Deventer (NL) 100.00%<br />
<strong>Pfleiderer</strong> Leasing GmbH & Co. Neumarkt *) 100.00%<br />
<strong>Pfleiderer</strong> Leasing Verwaltungs-GmbH Neumarkt 100.00%<br />
<strong>Pfleiderer</strong> Service GmbH Neumarkt 100.00%<br />
Non-consolidated companies:<br />
<strong>Pfleiderer</strong> Energietechnik Verwaltungs-GmbH Neumarkt 100.00%<br />
*) Companies opting out under Section 264b HGB as of December 31, 2004<br />
117<br />
FINANCIAL STATEMENTS PFLEIDERER GROUP
Independent Auditor’s Report<br />
We have audited the consolidated Financial Statements, comprising the balance sheet, the income<br />
statement and the statements of changes in shareholders’ equity and cash flows as well as the<br />
Notes to the Financial Statements prepared by <strong>Pfleiderer</strong> Aktiengesellschaft, Neumarkt, for the<br />
business year from January 1 to December 31, 2004. The preparation and the content of the<br />
consolidated Financial Statements in accordance with Generally Accepted Accounting Principles<br />
in the United States of America (US-GAAP) are the responsibility of the Company’s management.<br />
Our responsibility is to express an opinion on these consolidated Financial Statements based on<br />
our audit.<br />
We conducted our audit of the consolidated Financial Statements in accordance with German<br />
auditing regulations and generally accepted standards in Germany for the audit of Financial Statements<br />
promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we<br />
plan and perform the audit such that it can be assessed with reasonable assurance whether the<br />
consolidated Financial Statements are free of material misstatements. Knowledge of the business<br />
activities and the economic and legal environment of the Group and evaluations of possible<br />
misstatements are taken into account in the determination of audit procedures. The evidence<br />
supporting the amounts and disclosures in the consolidated Financial Statements is examined<br />
on a test basis within the framework of the audit. The audit includes assessing the accounting<br />
principles used and significant estimates made by management, as well as evaluating the overall<br />
presentation of the consolidated Financial Statements. We believe that our audit provides a<br />
reasonable basis for our opinion.<br />
In our opinion, the consolidated Financial Statements give a true and fair view of the net assets,<br />
financial position, results of operations and cash flows of the Group for the business year in accordance<br />
with Generally Accepted Accounting Principles in the United States of America.<br />
Our audit, which also extends to the group management report prepared by the Company’s<br />
management for the business year from January 1 to December 31, 2004, has not led to any<br />
reservations. In our opinion on the whole the group management report provides a suitable<br />
understanding of the Group’s position and suitably presents the risks of future development.<br />
In addition, we confirm that the consolidated Financial Statements and the group management<br />
report for the business year from January 1 to December 31, 2004 satisfy the conditions required<br />
for the Company’s exemption from its duty to prepare consolidated Financial Statements<br />
and the group management report in accordance with German law.<br />
Nuremberg, February 25, 2005<br />
KPMG Deutsche Treuhand-Gesellschaft<br />
Aktiengesellschaft<br />
Wirtschaftsprüfungsgesellschaft<br />
Zehnder Rupprecht<br />
External auditor External auditor<br />
118
119
PFLEIDERER <strong>AG</strong> FINANCIAL STATEMENTS (EXCERPTS)<br />
The following is a excerpt of the Financial Statements of <strong>Pfleiderer</strong> <strong>AG</strong> as drawn up and audited<br />
pursuant to the German Commercial Code (HGB). This excerpt does not comply with Sec. 328 (2)<br />
HGB. A copy of the full Financial Statement can be ordered from <strong>Pfleiderer</strong> <strong>AG</strong>, Investor Relations,<br />
Ingolstädter Strasse 51, 92318 Neumarkt, Germany.<br />
<strong>Pfleiderer</strong> <strong>AG</strong> Balance Sheet as of December 31, 2004<br />
Assets<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Fixed assets<br />
Intangible assets 1 0<br />
Property, plant and equipment 68 62<br />
Financial assets 261,068 273,925<br />
Liabilities<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Stockholders’ capital<br />
Subscribed capital 109,274 109,274<br />
Capital reserve 10,927 10,927<br />
Revenue reserve 50,621 50,621<br />
Retained earnings –23,178 –29,520<br />
120<br />
261,137 273,987<br />
Current assets<br />
Receivables and other assets 58,059 59,697<br />
Treasury stock 0 0<br />
Cash and cash equivalents 55,417 59,376<br />
113,476 119,073<br />
Deferrals<br />
Discount 984 0<br />
984 0<br />
Total assets 375,597 393,060<br />
147,644 141,302<br />
Accruals<br />
Accruals for pensions 6,436 6,365<br />
Other accruals 14,082 9,002<br />
20,518 15,367<br />
Liabilities<br />
Financial liabilities 59,760 22,971<br />
Other liabilities 147,675 213,420<br />
207,435 236,391<br />
Total stockholders’ equity and liabilities 375,597 393,060
<strong>Pfleiderer</strong> <strong>AG</strong> Statement of Income 2004<br />
Jan. 1 – Jan. 1 –<br />
‘000 euros Dec. 31, 2004 Dec. 31, 2003<br />
Income from investments 33,027 24,584<br />
Depreciation of financial assets 0 –4,263<br />
Expenses from absorption of losses from affiliated companies 0 –26,745<br />
33,027 –6,424<br />
Income from other securities and long-term loans 0 103<br />
Other interest and similar income 8,797 6,179<br />
Interest and similar expenses –19,334 –13,989<br />
121<br />
FINANCIAL STATEMENTS PFLEIDERER GROUP<br />
–10,537 –7,707<br />
Holding performance 22,490 –14,131<br />
Other operating income 17,800 16,660<br />
Personnel expenses –5,321 –6,898<br />
Amortization and depreciation of fixed assets –30 –18<br />
Other operating expenses –27,020 –23,793<br />
Result from ordinary operations 7,919 –28,180<br />
Extraordinary expenses 0 0<br />
Taxes on income –1,404 –1,340<br />
Other taxes –173 0<br />
Net income 6,342 –29,520<br />
Losses carried forward –29,520 0<br />
Withdrawal from capital reserve 0 0<br />
Withdrawal from revenue income 0 0<br />
Retained earnings –23,178 –29,520
Analysis of Fixed Assets of <strong>Pfleiderer</strong> <strong>AG</strong> 2004<br />
122<br />
Acquisition or production costs<br />
Reclassifi-<br />
‘000 euros Jan. 1, 2004 Additions Disposals cations Dec. 31, 2004<br />
I. Intangible assets<br />
Franchises, trade marks, patents and licenses<br />
and similar right and licenses to such rights 0 2 0 0 2<br />
0 2 0 0 2<br />
II. Property, plant and equipment<br />
Other equipment, furniture and fixtures 102 36 4 0 134<br />
102 36 4 0 134<br />
III. Financial assets<br />
1. Investments in affiliated companies 349,160 48 22,905 0 326,303<br />
2. Loans to affiliated companies 0 0 0 0 0<br />
3. Equity investments 28 0 0 0 28<br />
4. Other loans 0 10,000 0 0 10,000<br />
349,188 10,048 22,905 0 336,331<br />
349,290 10,086 22,909 0 336,467
Accumulated amortization/depreciation/write-downs Net carrying amount<br />
Reclassifi-<br />
Jan. 1, 2004 Additions Disposals cations Dec. 31, 2004 Dec. 31, 2004 Dec. 31, 2003<br />
0 1 0 0 1 1 0<br />
0 1 0 0 1 1 0<br />
40 29 3 0 66 68 62<br />
40 29 3 0 66 68 62<br />
75,263 0 0 0 75,263 251,040 273,897<br />
0 0 0 0 0 0 0<br />
0 0 0 0 0 28 28<br />
0 0 0 0 0 10,000 0<br />
75,263 0 0 0 75,263 261,068 273,925<br />
75,303 30 3 0 75,330 261,137 273,987<br />
123<br />
FINANCIAL STATEMENTS PFLEIDERER GROUP
IN BRIEF<br />
Supervisory Board and Board of Management of <strong>Pfleiderer</strong> <strong>AG</strong><br />
Committees Formed<br />
by Supervisory Board<br />
Working Committee<br />
Ernst-Herbert <strong>Pfleiderer</strong> (Chairman)<br />
N. Erich Gerlach<br />
(until December 31, 2004)<br />
Hanno C. Fiedler (from January 1, 2005)<br />
Wolfgang Rhode<br />
Audit Committee<br />
Dr Manfred Scholz (Chairman)<br />
Ernst-Herbert <strong>Pfleiderer</strong><br />
Wolfgang Rhode<br />
Conciliation Committee<br />
Ernst-Herbert <strong>Pfleiderer</strong> (Chairman)<br />
Frank Kratzsch<br />
Wolfgang Rhode<br />
Dr Manfred Scholz<br />
Additional Offices Held by Members<br />
of the Supervisory Board<br />
Ernst-Herbert <strong>Pfleiderer</strong><br />
Chairman of the Supervisory Board<br />
of <strong>Pfleiderer</strong> <strong>AG</strong><br />
General Manager of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG,<br />
Neumarkt – from May 28, 2004<br />
Member of the following comparable<br />
German Advisory Board:<br />
Advisory Board of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG,<br />
Neumarkt, (Chairman) – until<br />
May 21, 2004<br />
Wolfgang Rhode* )<br />
1st Deputy Chairman of the<br />
Supervisory Board<br />
Executive member of the Managing<br />
Board of IG Metall<br />
124<br />
Dr Manfred Scholz<br />
2nd Deputy Chairman of the<br />
Supervisory Board<br />
General Manager of MS Verwaltungs<br />
GmbH, Augsburg<br />
Member of the Supervisory Boards<br />
in the following companies:<br />
Citigroup (Member of German<br />
Advisory Board)<br />
ASSTEL Lebensversicherung <strong>AG</strong>,<br />
Cologne (Chairman)<br />
Württembergische Hypothekenbank<br />
<strong>AG</strong>, Stuttgart<br />
Drei Mohren <strong>AG</strong>, Augsburg<br />
Gothaer Lebensversicherung <strong>AG</strong>,<br />
Göttingen (Chairman)<br />
Gothaer Versicherungsbank VvaG,<br />
Cologne<br />
Gothaer Finanzholding <strong>AG</strong>, Cologne<br />
Member of the following comparable<br />
German Advisory Board:<br />
Advisory Board of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG,<br />
Neumarkt, (Deputy-Chairman) –<br />
until May 21, 2004<br />
N. Erich Gerlach<br />
(until December 31, 2004)<br />
Business Consultant, General<br />
Manager Business Integration<br />
Service, Friedrichsdorf<br />
Member of the following comparable<br />
German Advisory Board:<br />
Advisory Board of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG,<br />
Neumarkt – until May 21, 2004<br />
Reinhard Hahn* )<br />
Trade Union Secretary, Managing<br />
Board of IG Metall, Frankfurt/Main<br />
Wolfgang Haupt<br />
(from January 1, 2005)<br />
Businessman, Düsseldorf<br />
Member of the Supervisory Boards<br />
in the following companies:<br />
HSBC Trinkhaus & Burkhardt KGaA,<br />
Düsseldorf<br />
HSBC Trinkhaus & Burkhardt Immobilien<br />
GmbH, Düsseldorf (Chairman)<br />
Trinkhaus Private Equity Pool I<br />
GmbH & Co. KGaA, Düsseldorf<br />
(Chairman)<br />
Trinkhaus Secondary GmbH & Co.<br />
KGaA, Düsseldorf (Chairman)<br />
Member of the following comparable<br />
German Advisory Board:<br />
Partners Committee of<br />
Karl Otto Braun KG, Wolfstein<br />
(Deputy Chairman)<br />
Frank Kratzsch* )<br />
Chairman, Works Council of<br />
<strong>Pfleiderer</strong> Holzwerkstoffe<br />
GmbH & Co. KG, Arnsberg plant<br />
Hans Theodor <strong>Pfleiderer</strong><br />
Member of the Board of Management<br />
of P&V Holding Aktiengesellschaft,<br />
Vienna<br />
General Manager of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG,<br />
Neumarkt – from May 28, 2004<br />
Member of the following comparable<br />
German Advisory Board:<br />
Advisory Board of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG,<br />
Neumarkt – until May 21, 2004<br />
* ) Elected by the employees
Hanno C. Fiedler<br />
Chairman of the managing board<br />
of Ball Packaging Europe GmbH,<br />
Ratingen<br />
Executive Vice President of Ball Corporation,<br />
Broomfield, Colorado, USA<br />
Member of the following comparable<br />
German Advisory Board:<br />
Advisory Board of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG,<br />
Neumarkt – until May 21, 2004<br />
Dresdner Bank <strong>AG</strong>, Düsseldorf<br />
(Advisory Board)<br />
Member of the Supervisory Boards<br />
in the following companies:<br />
Thyssen Krupp Stahl <strong>AG</strong>, Duisburg<br />
Howaldtswerke-Deutsche Werft <strong>AG</strong>,<br />
Kiel<br />
Member of the following comparable<br />
foreign Advisory Board:<br />
Ball Corporation, Broomfield,<br />
Colorado, USA<br />
Robert J. Koehler<br />
Chairman of the Board of Management<br />
of SGL Carbon <strong>AG</strong>, Wiesbaden<br />
Member of the Supervisory Board<br />
of the following company:<br />
Wacker Chemie GmbH, Munich<br />
Benteler <strong>AG</strong>, Paderborn (Chairman)<br />
AXA Lebensversicherung <strong>AG</strong>, Cologne<br />
Heidelberger Druck <strong>AG</strong>, Heidelberg<br />
Member of the following comparable<br />
German Advisory Board:<br />
Advisory Board of <strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG,<br />
Neumarkt – until May 21, 2004<br />
125<br />
Rainer Stracke* )<br />
Member of the Board of Management<br />
of <strong>Pfleiderer</strong> Prospan S.A.,<br />
Wieruszów, Poland<br />
Member of the Board of Management<br />
of <strong>Pfleiderer</strong> Grajewo S.A.,<br />
Grajewo, Poland<br />
Manfred Schmidt* )<br />
Works Council Chairman, <strong>Pfleiderer</strong><br />
Holzwerkstoffe GmbH & Co. KG,<br />
Neumarkt plant<br />
Josef Rugge-Fechtelpeter* )<br />
Works Council Chairman, <strong>Pfleiderer</strong><br />
Holzwerkstoffe GmbH & Co. KG,<br />
Rheda-Wiedenbrück plant<br />
Chairman of Central Works Council,<br />
Wood-Based Panels<br />
Additional Offices Held by Members<br />
of the Board of Management of<br />
<strong>Pfleiderer</strong> <strong>AG</strong><br />
Hans H. Overdiek<br />
Spokesman of the Board of Management<br />
Business Segment Engineered Wood<br />
Member of the Managing Board<br />
of <strong>Pfleiderer</strong> Holzwerkstoffe<br />
GmbH & Co. KG<br />
Member of the Managing Board of<br />
<strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG – until May 28, 2004<br />
IN BRIEF SUPERVISORY BOARD AND BOARD OF MAN<strong>AG</strong>EMENT<br />
Member of the following comparable<br />
foreign Advisory Board:<br />
wodego B.V., Deventer, Netherlands<br />
<strong>Pfleiderer</strong> Industrie Ltd., Macclesfield/Cheshire,<br />
UK<br />
<strong>Pfleiderer</strong> Grajewo S.A., Grajewo,<br />
Poland, Chairman of the Supervisory<br />
Board<br />
<strong>Pfleiderer</strong> Prospan S.A., Wieruszów,<br />
Poland, Chairman of the Supervisory<br />
Board<br />
Michael Ernst<br />
Member of the Board of Management<br />
Personnel, Legal Affairs, Risk Management,<br />
IT<br />
Member of the Supervisory Boards in<br />
the following companies:<br />
Incon <strong>AG</strong>, Taunusstein (Deputy<br />
Chairman)<br />
Member of the following comparable<br />
foreign Advisory Board:<br />
<strong>Pfleiderer</strong> Finance B.V., Deventer,<br />
Netherlands<br />
Dr Jürgen Koch<br />
Member of the Board of Management<br />
Finance<br />
Business Segment Infrastructure<br />
Technology<br />
Member of the Managing Board of<br />
<strong>Pfleiderer</strong> Unternehmensverwaltung<br />
GmbH & Co. KG – until May 28, 2004<br />
Member of the following comparable<br />
foreign Advisory Board:<br />
<strong>Pfleiderer</strong> Finance B.V., Deventer,<br />
Netherlands<br />
<strong>Pfleiderer</strong> Grajewo S.A, Grajewo,<br />
Poland<br />
* ) Elected by the employees
Glossary<br />
Technical Glossary<br />
Ballastless track<br />
Rail track frequently constructed on a<br />
load-bearing asphalt sub-layer. This type<br />
of track is mainly used for high-speed<br />
rail links. Where asphalt is used as a<br />
sub-layer, concrete sleepers are laid<br />
directly on the asphalt. Alternatively, a<br />
concrete sub-layer can be used. In this<br />
case, bi-bloc concrete sleepers are<br />
integrated into the concrete sub-layer.<br />
The main advantages of ballastless<br />
track: high stability and low maintenance.<br />
Carrier material<br />
Wood-based materials which serve as<br />
the base for decorative surface facings<br />
(HPL, melamine-faced chipboard). The<br />
preferred materials are raw particleboard<br />
and MDF.<br />
Combined heat-power plant<br />
Also known as co-generation plant.<br />
A decentralized plant for generating<br />
energy, supplying <strong>Pfleiderer</strong> with electricity<br />
and production heat, particularly<br />
used in the production of wood-based<br />
board (<strong>Pfleiderer</strong>’s “Central Energy<br />
Unit”).<br />
Contipress<br />
A twin-band press used in the continuous<br />
production of particleboard, MDF or<br />
laminates. As the process is continuous,<br />
after pressing the board must be cut<br />
to a pre-defined length using a diagonal<br />
saw. The twin-band press enables both<br />
thickness and width of the material to<br />
be pre-set, so that the production line<br />
can then run using a wide variety of<br />
base materials.<br />
126<br />
EPF<br />
European Panel Federation – the industrial<br />
association of the engineered<br />
wood industry in Europe, with offices<br />
in Brussels. Among others, the EPF<br />
publishes an annual report describing<br />
international developments in the engineered<br />
wood industry.<br />
HDF – High-Density Fiberboard<br />
Engineered wood-based board consisting<br />
of wood fibers soaked in glue which<br />
are then pressed together under heat<br />
at very high compression. Preferred<br />
carrier material where high load-bearing<br />
properties and thin material thickness<br />
are required (e.g. laminated flooring).<br />
HPL – High-Pressure Laminate<br />
High-pressure laminate consists of<br />
several layers of core paper and a decorative<br />
face layer. The paper layers are<br />
impregnated with phenol and melamine<br />
resins and then compressed under<br />
heat. This surface material is extremely<br />
durable and is ideal for furniture and<br />
interior surfaces subject to heavy wear<br />
(e.g. kitchen worktops).<br />
MDF – Medium-Density Fiberboard<br />
Wood-based board comprising wood<br />
fibers impregnated with glue and compressed<br />
under heat. This material has<br />
a homogeneous structure and very<br />
smooth surface. It is especially used<br />
for three-dimensional furniture fronts,<br />
as well as for varnished or high-gloss<br />
surfaces.<br />
MFP – MultiFunctionPanel<br />
MultiFunctionPanel is an engineered<br />
wood board with facing and middle layers<br />
made of slender random-direction<br />
stands. MFP has high cross and longitudinal<br />
tensile strength, making it particularly<br />
suitable as a construction material<br />
for trade fair stands or interior fixings.<br />
MFC – Melamine-Faced Chipboard<br />
Particleboard with a finished surface,<br />
faced with melamine (decorative paper<br />
soaked in melamine resin). Using heat<br />
and pressure, the melamine film is<br />
compressed onto the board to give a<br />
durable plastic top surface.<br />
OSB – Oriented Strand Board<br />
Engineered wood board made of<br />
glue-soaked slender wooden strands<br />
arranged lengthwise and crosswise<br />
in layers to form a mat which is then<br />
compressed under heat. This board<br />
has a high bending strength, making it<br />
suitable for construction purposes.<br />
Particleboard/Chipboard<br />
Particleboard is produced by combining<br />
wood chips and/or smaller particles of<br />
other similar material (flax, hemp) with<br />
resin-based glue. The chips and particles<br />
are then hot pressed into board.<br />
Postforming elements<br />
This comprises particleboard or MDF<br />
board, faced with a layer of HPL. The<br />
facing is moulded around the edges<br />
of the carrier board at a pre-defined<br />
radius. This is done by heating the HPL<br />
facing and then moulding it mechanically.<br />
Rail track sleeper<br />
Two main types of sleeper are used in<br />
track construction. Monolithic sleepers<br />
are made of pre-stressed concrete<br />
and are capable of withstanding high<br />
loads – this type of sleeper is frequently<br />
constructed on a classic ballast sublayer.<br />
The bi-bloc sleeper, on the other<br />
hand, comprises two separate nonreinforced<br />
concrete units connected<br />
together by a steel grid. This type of<br />
design is mainly used when constructing<br />
RHEDA 2000® ballastless track.
Economic Glossary<br />
Asset deal<br />
Describes the acquisition of companies,<br />
or parts thereof, by assigning all or<br />
specific assets and liabilities of a company<br />
by way of singular succession. The<br />
opposite of a share deal, where only<br />
shares in the company are transacted.<br />
Capital employed<br />
The entire capital employed in the<br />
company, i.e. fixed assets plus current<br />
assets, less provisions (excluding<br />
provisions for pensions), and liabilities<br />
(excluding financial liabilities).<br />
Cash flow<br />
A measure used when analyzing balance<br />
sheets, companies and shares in<br />
order to assess a company’s financial<br />
strength and profitability. The cash flow<br />
defines the inflow of liquid funds to a<br />
company from sales and other sources<br />
over a certain period.<br />
Derivative financial instruments<br />
Derivative financial instruments are<br />
used to hedge against and minimize<br />
risks arising when transactions are<br />
exposed to potential changes in<br />
currency exchange rates or market<br />
interest rates. Hedging is performed<br />
using swaps, options or futures.<br />
Discontinued operations<br />
According to US-GAAP business segments<br />
which are ear marked for<br />
disposal or separation are shown separately<br />
under “discontinued operations”<br />
in the income statement and balance<br />
sheet.<br />
127<br />
EBITDA<br />
Earnings before interest, taxes, depreciation<br />
and amortization. EBITDA describes<br />
a company’s profit margin and<br />
is a key figure when assessing its earnings<br />
power.<br />
EBIT<br />
Earnings before interest and taxes.<br />
EBT<br />
Earnings before taxes.<br />
EPS<br />
Earnings per share. Consolidated earnings<br />
divided by the weighted number of<br />
shares.<br />
IFRS – International Financial<br />
Reporting Standards<br />
The International Financial Reporting<br />
Standards have been drafted to ensure<br />
that corporate financial reporting and<br />
publication standards are comparable<br />
worldwide. From 2005, all capital market<br />
holding companies listed on a regulated<br />
stock market within the EU are<br />
obliged to draw up their financial statements<br />
in accordance with IFRS rules.<br />
In 2003 and 2004, <strong>Pfleiderer</strong> <strong>AG</strong> compiled<br />
its financial statements according<br />
to US-GAAP (United States Generally<br />
Accepted Accounting Standards). As<br />
from 2005, the Company will be<br />
accounting according to IFRS rules.<br />
Impairment test<br />
A test for determining whether an intangible<br />
asset (or goodwill) has depreciated<br />
in value based on future discounted<br />
cash flow.<br />
IN BRIEF GLOSSARY<br />
Long Term Incentive Program<br />
A motivation program geared to the<br />
long term to encourage staff loyalty,<br />
incorporating schemes to allow employees<br />
a share in the success of the<br />
company.<br />
ROCE<br />
Return On Capital Employed.<br />
Stock options<br />
Form of remuneration entailing the<br />
issue of subscription rights to members<br />
of management and employees,<br />
conferring on them the right to acquire<br />
shares in their own company, provided<br />
they achieve certain goals under certain<br />
conditions.
Index<br />
A<br />
ABS Asset Backed Securities 77<br />
Accruals 81, 87, 89, 101<br />
Affiliates 74<br />
Assets 114, 122<br />
Auditor’s report 118<br />
B<br />
Balance sheet 64<br />
Ballastless track 35, 37, 54<br />
Biomass power plants 45<br />
Board of management 12, 15<br />
Business campus 47<br />
C<br />
Capital expenditure 43<br />
Cash flow 67<br />
Co-generation plant 51<br />
Communication 53<br />
Consolidated companies 45, 73<br />
Corporate Communication 53<br />
Corporate development 20, 21<br />
Corporate governance 11<br />
Cost of materials 24<br />
Current assets 83, 104<br />
Currency translation 75<br />
D<br />
Delivery times 44<br />
Depreciations 67, 70, 79, 84, 85,<br />
115, 121, 123<br />
Developments within<br />
the industry 44, 50<br />
Discontinued<br />
operations 23, 74, 89, 113<br />
Disinvestments 105<br />
Dividend 56<br />
128<br />
E<br />
Earnings 23, 27<br />
Economy 20<br />
Employees 22, 30, 35, 46<br />
Energy supply 34, 45<br />
Engineered wood 20, 24, 26, 30,<br />
43, 53<br />
Environmental protection 44<br />
EVA Economic Value Added 12, 16<br />
Export 20, 26, 31, 33, 59<br />
F<br />
Financial developments 22<br />
Financial position 25, 107<br />
Financial statements 64, 65<br />
Fixed assets 79, 82, 84, 106<br />
Forecast 59<br />
Furniture industry 20, 30<br />
Future 47, 61<br />
G<br />
General Meeting 58<br />
Gross domestic product 20, 59<br />
H<br />
Holdings 82<br />
I<br />
Income statement<br />
Infrastructure<br />
66, 104, 121<br />
technology 21, 35, 42, 44, 54<br />
Intangible assets 78<br />
Interest result 90, 104<br />
Internationalization 24<br />
Interwood 34<br />
Investor Relations 58<br />
IT 52<br />
J<br />
“Jugend forscht” 47<br />
K<br />
Key figures/ratios 56, 130, 131<br />
L<br />
Leadership 48<br />
Liabilities 27, 74, 86, 88, 105<br />
Licenses 22, 78<br />
Liquidity 51, 107<br />
Logistics 34, 36, 54<br />
M<br />
Management report 20<br />
Marketing 53<br />
MDF Medium-<br />
Density Fiberboard 30, 32, 34, 43<br />
MFC Melamine-Faced<br />
Chipboard 32<br />
N<br />
Net income 27<br />
Net indebtedness 22, 26, 52<br />
Newmark International, Ltd. 72, 89<br />
O<br />
Onshore 22, 89<br />
Organization 45<br />
Overall economic developments 59
P<br />
Particleboard 30, 32, 34, 43, 54<br />
Payment of dividend 27<br />
Personnel 46, 60, 51, 108<br />
Personnel development 47<br />
Poles & Towers 22, 24, 35<br />
Prices 30, 33, 34, 56<br />
Procurement 34, 39<br />
Production, productivity 33, 38, 43<br />
Products 32, 36<br />
Q<br />
Quality 31, 53<br />
Quality management 38, 54<br />
R<br />
Rail sleepers 38<br />
Rail traffic 36<br />
Reducing costs 34, 50<br />
Restructuring 26, 89<br />
Research and development 42<br />
Result 66, 121<br />
RHEDA 2000® 35, 42, 54<br />
Risk report<br />
ROCE Return On<br />
49<br />
Capital Employed 26<br />
S<br />
Sales revenue 24, 30, 35<br />
SDAX 55<br />
Segment reporting 70, 108<br />
Share 55, 56<br />
Shareholders’ equity 68, 91<br />
Shareholders’ structure 57<br />
Share price movement 27, 55<br />
Sleeper production 44<br />
Statement of cash flows 104<br />
Stock Option Program 92<br />
Supervisory Board 12, 107, 110, 124<br />
Supervisory Board report 8<br />
Supply chain 31<br />
129<br />
T<br />
Taxes 81, 98<br />
Technology 36<br />
Thermopal® 32, 53<br />
track systems 21, 35, 42, 54<br />
Traffic 35<br />
Training 46, 47, 51<br />
U<br />
Used wood 34<br />
US-GAAP 23, 72, 76, 106, 110<br />
V<br />
Value added 42, 51<br />
W<br />
water systems 22, 35, 45, 46, 89<br />
Wind Energy 22<br />
wodego® 32, 54<br />
IN BRIEF INDEX
Multi-Year Summary<br />
130<br />
2004 2003 2003 2002 2001<br />
as of proforma as of as of as of as of<br />
‘000 euros (US-GAAP) Dec. 31, 2004 Dec 31, 2004 1) Dec 31, 2003 Dec 31, 2002 Dec 31, 2001<br />
Balance sheet ratios<br />
Assets<br />
Current assets<br />
Liquid funds and short-term securities 82,728 67,154 68,735 58,255 61,914<br />
Inventories 104,554 101,173 133,716 114,397 192,909<br />
Other current assets 88,766 89,081 108,806 157,245 277,439<br />
Assets of discontinued operations 4,940 106,388 14,731 35,045 –<br />
Fixed assets<br />
Property, plant and equipment 328,283 299,279 331,054 381,546 580,326<br />
Intangible assets 93,751 92,643 95,950 102,435 70,401<br />
Financial assets 17,625 2,218 2,231 2,072 3,841<br />
Other fixed assets 18,885 21,320 24,033 36,440 –<br />
Liabilities and stockholders’ equity<br />
Accruals<br />
Accruals for pensions 60,420 57,825 62,414 61,263 56,275<br />
Other accruals 69,171 38,492 46,396 41,306 105,560<br />
Financial liabilities 205,677 322,992 329,465 365,488 565,310<br />
Other liabilities 146,051 148,248 169,935 194,798 236,787<br />
Liabilities of discontinued operations 17,090 72,468 31,816 23,314 –<br />
Stockholders’ equity and minority interests 241,123 139,231 139,230 201,266 222,898<br />
Balance sheet total 739,532 779,256 779,256 887,435 1,186,830<br />
As share of balance sheet total<br />
Fixed assets (asset intensity) 62.0% 53.3% 58.2% 58.9% 55.2%<br />
Current assets 38.0% 46.7% 41.8% 41.1% 44.8%<br />
Stockholders’ equity including minority interests 32.6% 17.9% 17.9% 22.7% 18.8%<br />
Financial debt 27.8% 41.5% 42.3% 41.2% 47.6%<br />
Ratios<br />
Property, plant and equipment<br />
financed by equity 73.5% 46.5% 42.1% 52.8% 38.4%<br />
Fixed assets financed by equity 52.6% 33.5% 30.7% 38.5% 34.1%<br />
Fixed assets and inventories financed by equity 42.8% 27.0% 23.7% 31.6% 26.3%
Income ratios<br />
Sales revenues 900,978 848,205 1,020,900 1,028,432 1,427,386<br />
Foreign share in percent 53.8 49.1 48.8 48.4 44.5<br />
EBITDA 87,364 72,234 85,385 109,460 175,270<br />
Amortization/depreciation –37,146 –37,312 –57,753 –60,566 –87,056<br />
EBIT 50,218 34,922 27,632 48,894 88,214<br />
Interest incl. income from other securities –18,596 –17,040 –16,284 –15,265 –36,836<br />
EBT of continuing operations 31,622 17,882 11,348 33,629 51,378<br />
Taxes on income –9,599 –9,255 –9,305 –13,200 –15,942<br />
Earnings of continued operations<br />
before minority interests 22,023 8,627 2,043 20,429 35,436<br />
Earnings from discontinued operations 27,279 –51,498 –44,964 –52,452 –<br />
Taxes on income from discontinued operations 839 1,727 –1,777 –3,000 –<br />
Earnings before minority interests 50,141 –41,144 –41,144 –35,023 35,436<br />
Minority interests –16,281 –4,618 –4,618 –4,641 –4,476<br />
Earnings after minority interests 33,860 –45,762 –45,762 –39,664 30,960<br />
Personnel expenses 183,262 189,375 233,949 251,091 337,866<br />
Earnings key ratios<br />
EBITDA in percent of sales 9.7% 8.5% 8.4% 10.6% 12.3%<br />
EBIT in percent of sales 5.6% 4.1% 2.7% 4.8% 6.2%<br />
EBT of continued operations in percent of sales 3.5% 2.1% 1.1% 3.3% 3.6%<br />
EBT of continued operations after taxes<br />
before minority interests in percent of sales 2.4% 1.0% 0.2% 2.0% 2.5%<br />
Ratios per share<br />
Average number of shares outstanding 42,685,000 42,678,146 42,678,146 42,673,784 42,685,000<br />
Earnings per share 0.79 –1.07 –1.07 –0.93 0.39<br />
Financial position<br />
Ratio of EBIT to sales 0.06 0.04 0.03 0.05 0.06<br />
Capital employed in million euros 2) 435.2 423.8 484.3 562.7 767.4<br />
Operative cash flow in million euros 3) 38.5 46.3 62.1 83.3 123.3<br />
1) Figures adjusted to changed consolidated structure as of Dec. 31, 2004, to enable better comparison.<br />
2) Capital employed without capital tied up in discontinued operations.<br />
3) Earnings from continued operations including depreciation and changes in accruals for pensions.<br />
131<br />
2004 2003 2003 2002 2001<br />
as of proforma as of as of as of as of<br />
‘000 euros (US-GAAP) Dec. 31, 2004 Dec 31, 2004 1) Dec 31, 2003 Dec 31, 2002 Dec 31, 2001<br />
IN BRIEF MULTI-YEAR SUMMARY
Turnover rates<br />
Turnover of inventories 8.6 8.4 7.6 9.0 7.4<br />
Turnover of receivables 14.1 13.9 13.0 10.8 5.2<br />
Turnover of capital employed 2.1 2.0 2.1 1.8 1.9<br />
Profitability after taxes on income<br />
Return on equity 4) 9.1% 6.2% 1.5% 10.2% 15.9%<br />
Return on total working capital 4) 11.2% 6.5% 4.6% 7.0% 10.0%<br />
Return on sales 4) 2.4% 1.0% 0.2% 2.0% 2.5%<br />
Profitability before taxes on income<br />
ROCE 11.5% 8.2% 5.7% 8.7% 11.5%<br />
CFROCE 19.9% 16.3% 12.8% 14.8% 16.1%<br />
Number of employees at balance sheet date<br />
(excluding trainees) 4,429 4,387 5,535 5,647 9,185<br />
Average number of employees<br />
(excluding trainees) 4,295 5,623 5,623 5,691 9,220<br />
4) Based on earnings of continued operations before minority interests.<br />
132<br />
2004 2003 2003 2002 2001<br />
as of proforma as of as of as of as of<br />
‘000 euros (US-GAAP) Dec. 31, 2004 Dec 31, 2004 1) Dec 31, 2003 Dec 31, 2002 Dec 31, 2001
Financial Calendar 2005<br />
April 7, 2005<br />
Balance Sheet Press Conference, Munich<br />
April 8, 2005<br />
DVFA Analysts’ Conference, Frankfurt/Main<br />
May 3, 2005<br />
Publication of Three-Month-Report 2005<br />
June 14, 2005<br />
Annual Shareholders’ Meeting<br />
August 2, 2005<br />
Publication of Six-Month-Report 2005<br />
November 8, 2005<br />
Publication of Nine-Month-Report 2005<br />
Imprint<br />
Publisher<br />
<strong>Pfleiderer</strong> <strong>AG</strong>, Neumarkt<br />
Responsible:<br />
Corporate Communication<br />
Concept and Design<br />
3st kommunikation, Mainz<br />
Photography<br />
Stefan Wildhirth, Offenbach<br />
Typesetting<br />
Knecht GmbH, Ockenheim<br />
Print<br />
Societätsdruck, Mörfelden<br />
This annual report is published<br />
in German and English. In case<br />
of discrepancies, the German<br />
version shall prevail.
Review of the Year<br />
2004<br />
February<br />
<strong>Pfleiderer</strong> <strong>AG</strong> sells its US concrete<br />
and steel towers business bundled in<br />
its affiliate Newmark International,<br />
Inc., and uses the income from the<br />
sale and book gains to strengthen<br />
its equity base.<br />
February<br />
<strong>Pfleiderer</strong> Engineered Wood presents its new brand wodego®<br />
for the first time to the visitors at the ZOW 2004 trade fair.<br />
The Thermopal® brand appears with a new corporate design.<br />
May<br />
<strong>Pfleiderer</strong> track systems starts delivery and assembly of<br />
sleepers using its ballastless RHEDA 2000® technology for the<br />
new construction of the Dutch high-speed link HSL-Zuid/NL<br />
running from Amsterdam towards Brussels.<br />
March<br />
<strong>Pfleiderer</strong> Unternehmensverwaltung<br />
reduces its holding in <strong>Pfleiderer</strong> <strong>AG</strong><br />
from just on 62 percent to around<br />
14 percent. The broad spread of<br />
shares among international and<br />
German investors considerably<br />
increases <strong>Pfleiderer</strong>’s free float.<br />
June<br />
Following an increase in capital by<br />
<strong>Pfleiderer</strong> Grajewo S.A., the <strong>Pfleiderer</strong><br />
Group nets around 62 million euros<br />
in new equity. The Polish affiliate<br />
uses the income from the issue to<br />
expand its production plants in<br />
Poland and for construction of a<br />
new plant in Russia.
July<br />
<strong>Pfleiderer</strong> track systems wins the<br />
biggest single order in its history<br />
to supply 680,000 rail sleepers to<br />
Turkey, which is modernizing its<br />
Ankara – Eskischir rail link.<br />
May<br />
<strong>Pfleiderer</strong> Engineered Wood celebrates the laying of the foundation<br />
stone for construction of a new plant in Novgorod, Russia.<br />
The new plant is due to start production at the end of 2005.<br />
October/November<br />
<strong>Pfleiderer</strong> Engineered Wood takes<br />
over MDF production at the former<br />
HORNITEX site at Nidda and decides<br />
to build a new MDF/HDF plant in<br />
Poland. This will round off its product<br />
portfolio and further expand its<br />
market position in Europe.<br />
September<br />
<strong>Pfleiderer</strong> track systems presents its wide range of products and services<br />
at InnoTrans 2004. Its products and services range from engineering<br />
and production, supply and logistics to quality management – covering<br />
all phases of development, production and application.<br />
November/December<br />
Following the sale of the Business<br />
Unit Poles & Towers Europe,<br />
<strong>Pfleiderer</strong> <strong>AG</strong> reaches a further<br />
milestone towards focusing its<br />
corporate strengths on its Business<br />
Segments Engineered Wood and<br />
Infrastructure Technology.
Contact<br />
<strong>Pfleiderer</strong> <strong>AG</strong><br />
Ingolstädter Strasse 51<br />
92318 Neumarkt, Germany<br />
E-Mail: info@pfleiderer.com<br />
Internet: www.pfleiderer.com<br />
Corporate Communication<br />
Tel. +49 (0) 9181/28 - 84 91<br />
Fax +49 (0) 9181/28 - 606<br />
<strong>Pfleiderer</strong> <strong>AG</strong><br />
Annual Report 2004