PDF, 3.2 MB - Pfleiderer AG

Economic and Political Risks and Individual Risk Scenarios
The Group expects to draw a large portion of earnings from its eastern European business, particularly
in Poland. Active observation and assessment of political conditions and developments
in Russia, as part of our scheduled entry into that market, will also gain in importance as far
as planning and monitoring own business activities are concerned. The continued weakness in
domestic demand has placed both business segments under stronger competition. Pfleiderer is
answering the pressure on costs and from competition in the domestic market by implementing
cost-saving measures and by increased productivity, as well as by reducing fixed costs and the
concentration of production capacity. The effects relating to these measures have been adequately
taken into account in business planning and do not represent a specific risk. Higher costs in
Germany are being met by increasing and expanding production sites in eastern Europe. Economic
risks facing foreign sales markets which might affect results are expected under certain circumstances
in Poland, although the probability of their occurrence is considered very slight.
The reduced budget available for investment by Deutsche Bahn AG, the German rail operator, is
having an effect on the Business Center track systems, part of the Business Segment Infrastructure
Technology. Expanding business and improving earnings in this Business Segment therefore
depends on further growth in foreign activities involved in the construction of high-speed links
in Europe and Asia. In order to expand in this area, as well as to bolster its innovative and competitive
strengths, this Business Center is expected to make acquisitions and enter into strategic
alliances, such as joint ventures. On the one hand, this offers opportunities, on the other, such
measures require additional organization and personnel involvement.
In the engineered wood sector, continued reluctance on the part of private consumers to spend
on furniture and interior fittings cannot be discounted for 2005, thereby affecting sales and
earnings. Production over-capacity in the particleboard industry, which has hit prices over the
last few years, has been reduced by shutting down the Rheda plant in 2004, with closure first
taking place in August 2005 in some areas. However, the Company believes that this measure
will also reduce pressure on prices for particleboard over the long term.
Operating Risks
No new suppliers are expected to enter the market who could have a significant effect on the
competitive situation in those markets that the Pfleiderer Group serves. Equally, there are no
signs of a process of concentration as far as buyers are concerned, and thus of any risks that
could result. On the other hand, insolvency of individual customers cannot be completely
discounted in any of the markets relevant to Pfleiderer, although this would not endanger the
existence of Pfleiderer AG. In accordance with corporate guidelines, risks of bad debt due to
insolvency have been largely covered by credit insurance.
No risks ensuing from the potential infringement of third party proprietary rights are currently
expected. Nor are any risks anticipated in the field of product development and production
technology, as Pfleiderer is currently using state-of-the-art technology in its Business Segments.
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