Pergo Reports Results

Trelleborg, Sweden, Apr. 21—Pergo in the first quarter of 2004 reported sales of SEK 746 M (679), an increase of 22% compared with the year-earlier period after currency adjustments. (All figures in parentheses pertain to corresponding period in the preceding year.) Sales in the North American market increased 32%, due mainly to increased sales to Lowe’s, but sales also increased to The Home Depot and the specialty segment. Sales in Europe increased with 6% adjusted for currency effects. The gross margin for the period was a negative 9.6%. The margin was affected adversely by costs connected with the pending concentration of the European production to Trelleborg. These costs are estimated at SEK 245 M, of which SEK 140 M pertains to write-downs of fixed assets. Excluding these costs, the gross margin amounts to 23.2%, in line with the first quarter 2003. Operating loss for the period was SEK 233 M (profit: 9). In addition to the above mentioned margin affecting costs, operating earnings were charged with an additional SEK 5 M relating to the changed structure. Accordingly, the pending restructuring affected operating earnings negatively by a total of SEK 250 M. It was announced in February that the Board was contacted by a party interested in acquiring Pergo. The costs associated with this process amounted to SEK 3 M. Operating profit adjusted for these costs together with the SEK 250 M for the European restructuring amounted to SEK 20 M. This result can be compared with the first quarter 2003 which, excluding the earnings participation in Witex of a loss of SEK 10 M and the recovery of a customer receivable of SEK 4 M that had previously been written down, amounted to SEK 15 M. Compared with the year-earlier period, currency movements affected earnings adversely by approximately SEK 15 M. Sales in North America amounted to SEK 462 M (408), which excluding currency effects was an increase of 32% compared with the year-earlier period. The sales increase is mainly due to increased sales to Lowe’s, while sales also increased to The Home Depot and specialty segment. Compared with the year-earlier period, sales to Lowe’s rose significantly. The increase is mainly due to the reporting of a full quarter’s sales to the building improvement chain compared with the corresponding period in the preceding year. Sales to Lowe's began at the end of the first quarter of 2003. Sales to the specialty segment increased during the first quarter compared with the first quarter 2003. The main reason for the increased sales in the quarter is that another two distributors began selling Pergo products. The Home Depot conducted a sales campaign in the first quarter. Compared with the corresponding period last year, sales therefore increased. During the first quarter of 2004, Pergo received three awards in the US, including “2004 Retailer's Choice Award” and “Best of the Best Design” for work conducted in 2003. Laminate flooring continues to drive growth within the total flooring market. For the first time in two years, sales increased in a quarter compared with the year-earlier quarter. Sales amounted to SEK 256 M (245), which excluding currency effects was an increase of 6%. The sales increase is attributable partly to a shift of the product mix toward a greater share of premium products and partly to an expanded product range. To offer customers a broader product portfolio, Pergo complemented its premium price segment during the quarter with a number of product groups in the mid-price range. Launch of these products was carried out in nearly all European markets with positive response. The European market organization also continued preparing for the launch in the second quarter of Pergo Vintage and Pergo Exotic. The products are in the premium price segment and have during the pre-launch been well received by the customers. The laminate flooring market in Europe is expected to show growth in an otherwise stagnating flooring market. The prevailing overcapacity is resulting in continued price pressure. As a consequence of the weakening of the US dollar during the past year, there is also a risk that the price pressure intensifies since exports to the US could be reduced. Pergo announced at the end of the quarter that it intended to initiate union negotiations regarding concentration of production of premium products for the European market to the plant in Trelleborg. About 120 persons are being given notice of termination of employment at Pergo’s units in Sweden. Pergo intends to transfer operations from Perstorp to Trelleborg concurrent with new investments being made in Trelleborg. The terminations will be carried out in phases, in which 45 employees have been given notice during the period. After negotiations with the unions 39 employees have been released. The time for the restructuring is estimated at 1.5 years. Earnings during the period were charged with SEK 250 M as a result of the pending structural changes. SEK 140 M of this amount pertains to write-downs of fixed assets. During the autumn of 2003, the market was informed about future investments in a direct laminating press as well as extension of the plant in Garner. The start-up of the press has been delayed one quarter and is now scheduled for the second quarter 2005. As announced previously, the investments is estimated at USD 16 M. Purchase of accessories to the American market has to a considerable extent been transferred from European to American suppliers during the period to reduce exposure to the US dollar. All three production units produced higher volumes than projected during the period. Despite the weak US dollar, the result could be held at budgeted level mainly due to the higher volumes.