Pergo Reports 1st Half 2004 Results

Trelleborg, Sweden, July 23—Pergo reported its results for the first six months of 2004. Sales during the period were SEK 1,417 M ($187.9M) (1,344), an increase of 13% compared with the year-earlier period after adjustment for currency effects. Sales in the North American market increased 18% in local currency, mainly due to increased sales to Lowe’s, but growth in sales to the specialty segment was also positive. In Europe, sales increased by 5%, adjusted for currency effects. Sales during the second quarter amounted to SEK 671 M ($88.9M). Excluding currency effects, this was an increase of 5%. This was due to increased sales in both Europe and North America. The second quarter of 2003 was the first full quarter with sales to Lowe’s. The second quarter was not affected by any sales campaigns to The Home Depot, as was the case during the first quarter. During the first quarter, costs for the initiated restructuring of the European product supply amounting to SEK 250 M ($33.1M) were charged against operating earnings, of which the major portion affected the gross margin. Excluding these costs, the gross margin for the first six months amounted to 24.6%, which was about 3 percentage points better than the year earlier period. Operating loss for the period amounted to SEK 222 M ($29.4M) (loss: 159). Excluding items affecting comparability, the operating profit was SEK 31 M (5). These items consisted of SEK 250 M ($33.1M) in restructuring costs as well as SEK 3 M ($397,736) in costs in conjunction with a party expressing interest in a possible acquisition of Pergo. Operating loss for 2003 was adjusted in a corresponding manner for Witex-related costs amounting to SEK 168 M ($22.1M) as well as the recovery of a previous write-down of accounts receivable of SEK 4 M ($530,276). For the second quarter, operating profit amounted to SEK 11 M ($1.5M)(loss: 10). The second quarter of 2003 was adjusted for Witex-related items totaling SEK 158 M. Compared with the corresponding period of the preceding year, currency fluctuations had a negative effect of SEK 25 M ($3.3M) on earnings. North America Sales in North America amounted to SEK 856 M ($113.5M) (811) during the period, which excluding currency effects was an increase of 18%, compared with the year-earlier period. The growth in sales was primarily due to increased sales to Lowe’s, but growth in sales to the specialty segment was also positive. At the beginning of 2003, Pergo introduced its own product range with Lowe’s, the world’s second largest home improvement chain. The introduction with Lowe’s was carried through during the first five months of last year. Confirmation that this introduction was successful was received when Lowe’s during the month of May this year doubled Pergo’s floor space in all 950 stores. Growth in sales to the specialty segment was affected by a number of factors. The introduction of three new distributors was successful. In addition, sales were improved by a favorable trend for premium product Select™ in the US, as well as the launch of an expanded product range under the Vintage Home™ brand. Growth in the flooring market has been strong, particularly for laminate flooring, which has experienced an annual growth of about 10%. This can be compared with Pergo’s growth of 18%. The company expects that growth will continue in the flooring market, although at a somewhat slower pace. Sales in Europe amounted to SEK 500 M ($66.3M) (478), which excluding currency effects was an increase of 5% compared with the year-earlier period. The sales increase was due in part to a shift of the product mix toward a greater proportion of premium products and in part to an expanded product range. During the quarter, Pergo VintageTM and Pergo ExoticTM were launched in Europe. These products are included in the premium price segment.