RNS Number:7599C
Perstorp AB
27 April 2001
PART 1
The Perstorp Group
Interim Report, three months ended March 31, 2001
In order to provide comprehensive information ahead of the planned spin-off
and stock-exchange listing of the Group's flooring operations, this interim
report contains financial statements for:
* Perstorp excluding Pergo (pages 3-11)
* Pergo - extract from interim report (pages 12-19)
* The Perstorp Group (pages 20-26)
* Net sales for Perstorp excluding Pergo increased by 19% and operating
earnings amounted to SEK 78 m (Q1 2000: 110), adjusted for items affecting
comparability.
* Pergo's operating result amounted to a loss of SEK 52 m (earnings: 56);
no items affecting comparability are included.
* The Perstorp Group's pretax earnings amounted to SEK
23 m (230). Operating earnings, adjusted for items affecting comparability
and demerged units, declined to SEK 26 m (167).
* A weaker business climate is expected to result in reduced full-year
operating earnings for Perstorp excluding Pergo (full-year 2000: SEK 462
m, excluding items affecting comparability).
* The Board of Directors proposes that Pergo be spun off to shareholders
and listed on the stock exchange. The Board also proposes a cash dividend
of SEK 2.00 (4.00) per share.
* Sydsvenska Kemi AB has submitted an offer for Perstorp AB and made a
partial offer regarding Pergo AB.
Perstorp AB - a specialized chemicals group
Perstorp is about to complete the streamlining program that has been pursued
by the Board of Directors and Group Management for some time. The Group is now
being focused on continued growth in selected segments of the specialty
chemicals market and the Pergo flooring business is being prepared for a
spin-off to Perstorp shareholders and a stock-exchange listing during 2001.
Accordingly, the Perstorp Group's future focus will be on specialized chemical
products, such as performance chemicals and composite materials, that have the
potential to yield favorable margins and high growth. Effective the beginning
of the current fiscal year, chemical operations have been restructured and are
now organized in four subgroups, each representing a specialized product area:
Perstorp Specialty Chemicals, Perstorp Formox, Perstorp Composites and
Perstorp Chemitec.
Pergo to be spun off to shareholders and listed on stock exchange
The Board of Directors of Perstorp AB proposes that all the shares in Pergo AB
be spun off to Perstorp AB shareholders in proportion to their holdings in
Perstorp AB. Pergo AB has been capitalized in a total amount of SEK 1,520 M in
shareholders' equity from Perstorp AB. Accordingly, the Pergo subgroup had
total pro forma shareholders' equity of SEK 1,689 m at the end of 2000 after
the above capital contribution. The Board also proposes that a cash dividend
of SEK 2.00 (4.00) per share be paid.
The proposal is a consequence of the company's long-term strategy and
streamlining of Perstorp as a specialty chemicals company. Pergo, which is a
typical consumer company, will be better able to develop in its sector as an
independent corporate group. At the same time, shareholders will receive
shares in two exchange-listed companies that can be valued on their own
merits. It is thus expected that increased value will be created for
shareholders over the long term.
It is proposed that the spin-off will take the form of a cost-free
distribution of all the shares in Pergo AB to Perstorp shareholders pursuant
to Sweden's Lex Asea legal precedent, whereby the spin-off will be possible
without any immediate tax consequences in Sweden for Perstorp shareholders.
It is proposed that each multiple of four Perstorp shares, regardless of share
series held, will carry entitlement to one Pergo AB shares; Pergo AB will have
a single series of shares. The spin-off of all of the shares in Pergo AB is
subject to the approval of Perstorp's Annual General Meeting. The proposed
record date for receipt of the Pergo shares is June 15, 2001. It is proposed
that the Pergo AB shares be registered on the Stockholm Exchange's O List
immediately following the record date. Following the spin-off, Pergo AB's
initial ownership structure will be identical to that of Perstorp in terms of
the proportion of share capital owned.
An information brochure about Pergo will be distributed to all shareholders.
Extract from the brochure will be published in a press release on April 27,
2001. The information brochure will also be published in its entirety on the
Group's website (www.perstorp.com) and can be sent on request. A prospectus
will be distributed ahead of the listing on the Stockholm Exchange.
Offer from Sydsvenska Kemi AB
The Board of Directors of Sydsvenska Kemi AB has made a public offer to all
holders of shares and convertible debentures in Perstorp AB pertaining to all
Series A and B shares, as well as convertible debentures issued by Perstorp
AB. Sydsvenska Kemi AB has also directed a partial offer to future
shareholders in Pergo AB. Industri Kapital's IK 2000 Risk Capital Fund owns
Sydsvenska Kemi AB.
One of the preconditions for the offer is that Perstorp's Annual General
Meeting approves the spin-off of Pergo AB to Perstorp shareholders and that
the spin-off is implemented.
Major shareholders in the company, with holdings corresponding to a total of
about 65% of the total number of shares outstanding and about 75% of the
voting rights in Perstorp, have expressed their support for and intention to
accept the offer.
The offer is described in more detail in the prospectus dated April 2, 2001,
which has been distributed to Perstorp's shareholders by Sydsvenska Kemi AB.
The application period in regard to shares extends from April 6 through June
6, 2001. The application period in regard to convertible debentures extends
from April 6 through April 27, 2001.
On April 24, the Perstorp Board recommended that holders of shares and
convertible debentures in Perstorp AB accept the offer. The Board's
recommendation is attached to the interim report.
Operations during the report period
During the first quarter, the Group consisted mainly of operations in the
chemical sector, plus the Pergo subgroup. Prior to the spin-off and
stock-exchange listing of Pergo, Perstorp Declam AB was transferred to the
Pergo subgroup during the period. Perstorp Declam AB is included in the
financial accounts for Pergo.
In addition to financial statements for the Perstorp Group including the Pergo
subgroup, this interim report contains pro forma financial statements for
Perstorp AB excluding the Pergo subgroup. This is designed to supplement the
account provided of the Perstorp Group's earnings and financial position, by
presenting figures for Perstorp's remaining operations following the planned
spin-off of flooring operations.
Comments on Pergo's accounting principles, earnings and financial position, as
well as this company's outlook for 2001, are presented in Pergo's interim
report.
Accounting principles
The accounting principles and calculation methods used in the consolidated
financial statements are the same as those applied in the 2000 Annual Report.
Perstorp excluding Pergo
Perstorp excluding Pergo constitutes a platform for the creation of the
specialty chemicals group, Perstorp. Perstorp chemical operations consist of
four well-focused divisions with varying potential to achieve Perstorp's
strategic aims of achieving high growth, strengthening its leading positions
and actively working to achieve structural change. In the year ahead, Perstorp
will implement various measures designed to strengthen the Group in its
efforts to become a future-oriented and efficient specialty chemicals company.
Markets and general business conditions
During the first quarter, the general business climate deteriorated relatively
quickly, leading to reduced demand. This trend was particularly noticeable in
the American market, which affected order bookings and production volumes in
the chemical sector. Prices for several of the Group's purchased chemical raw
materials remain at historically high levels and, in a few cases, have risen
despite the economic downturn. Perstorp has not been able to offset this fully
by raising the prices of its own products.
PERSTORP SPECIALTY CHEMICALS
Perstorp Specialty Chemicals is a world leader in its segments of the polyol
market. The division's main products are primarily intended for the paint
industry, while end users are found in the construction, automotive and
printing industries, among others.
Demand for Perstorp Specialty Chemicals' products was favorable during the
first quarter, although a continued decline in general business conditions was
noted in the American and Asian markets. Increased raw-material costs combined
with pressure on prices contributed to a decrease in the division's gross
margin. In the market for the basic polyol TMP, one of Perstorp's major
products, the additional capacity that will enter the market during 2001 is
expected to result in increased competition.
Compared with the year-earlier period, net sales rose by 18%, of which the
polyol operations acquired from the Degussa Huls group during the second
quarter of 2000 accounted for 14 percentage points. The increase in relation
to the preceding quarter was 3%. Demand for specialty polyols remains
favorable, while volumes in the market for basic polyols are being maintained.
The division's operating earnings declined during the period, as a result of
reduced gross margins. The acquisition of the Degussa Huls group's
polyol-production operations had a favorable effect on net sales and operating
earnings, while the planned suspension of operations in connection with the
rebuild of the unit in Italy had an adverse impact. Exchange-rate effects made
a positive contribution to net sales and operating earnings.
Perstorp Specialty Chemicals is implementing a comprehensive restructuring
program during 2001, in order to further increase its profitability. As a
result of the acquisition of the unit in Germany, the plant in Castellanza,
Italy, can be supplemented to enable production of specialty polyols -
including bisMPA - and Penta production at this unit can be transferred to the
plants in Germany, Sweden and the US. At the same time, capacity for specialty
products in the US is being expanded. As a result, Perstorp Specialty
Chemicals' production of Penta will become more efficient and its ability to
satisfy increasing demand for specialty polyols will be improved.
PERSTORP FORMOX
Perstorp Formox is the world's leading supplier of plants for the production
of formalin, with a market share of slightly more than 50%. The division has
an even larger share of the global market for formalin catalysts.
A slight weakening of demand for plant-construction projects and formalin
deliveries was noted during the period.
Net sales rose by 13% compared with the first quarter of 2000, mainly as a
result of increased intra-Group deliveries, but declined by 13% in relation to
the preceding quarter. Operating earnings during the report period were at the
same level as in the year-earlier period and the preceding quarter.
During the period, Perstorp Formox signed multi-year contracts with major
customers regarding deliveries of formalin catalysts. In addition, a contract
regarding a rebuild of an existing formalin plant was signed during the
period, and following the end of the report period regarding delivery of a
complete formalin plant.
PERSTORP COMPOSITES
Perstorp Composites' products are based on fiber-reinforced materials that
combine low weight and high performance. They can be used increasingly to
replace metals in, for example, the automotive, aviation, aerospace,
electronics and sports industries. Underlying growth in the division's market
segments is favorable.
Net sales rose by 33% compared with the first quarter of 2000. Operating
earnings were significantly higher than in the preceding quarter but at the
same level as in the corresponding period in 2000. Exchange-rate effects had a
favorable effect on earnings compared with the year-earlier period, while
increased raw-material costs had an adverse impact.
PERSTORP CHEMITEC
Perstorp Chemitec is active in three market segments: resins, thermosets and
seamless flooring. Customers are found in the automotive, construction and
engineering sectors, among others. One of Perstorp's strategic aims is to
improve the margins on the division's products and to participate actively in
the structural transformation of each of its sectors.
Markets in Europe, which were not significantly affected by economic slowdown
during the period, account for most of the division's sales. The volume trend
was favorable and a slight improvement in margins was achieved compared with
the preceding quarter, as a result of price increases implemented for several
of the division's own products.
Net sales rose by 33% in relation to the year-earlier period and by 7%
compared with the fourth quarter of 2000. The increase compared with the
year-earlier period was mainly attributable to the acquisition of Plasta
Erkner, as well as by the effects of changes in prices and exchange rates.
Operating earnings were lower than in the corresponding period in 2000, due to
such factors as the inability to fully offset increased prices for purchased
raw materials. However, earnings were higher than in the preceding quarter.
Perstorp and Matsushita Electric Works have reached an exclusive agreement
regarding the production, development and marketing of new products in the
amino resins segment.
Two major orders in the seamless industrial flooring segment were received
during the period, one of which related to Beijing Nokia Mobile
Telecommunications Ltd's plants in Beijing and the other to an extensive
in-door car park project at Heron City in Barcelona, Spain.
Other
In the tables below, the item "Other" for the Group's operating earnings
mainly comprises Group-wide costs and items affecting comparability. During
the first quarter of 2000, the item affecting comparability consisted of a
capital gain of SEK 75 m on the divestment of Perstorp Surface Materials. The
amount for the current report period includes SEK 12 m for items affecting
comparability.
The streamlining of Perstorp's operations is enabling a continuing reduction
of Group-wide costs. Up to year-end 2000, the item "Other" also included
central research and development costs. Accordingly, "Other" does not relate
exclusively to chemical operations.
PRO FORMA ACCOUNTS
Assuming that the Annual General Meeting approves the Board of Directors'
proposal, Perstorp will become a streamlined specialty chemicals group during
the year. A pro forma income statement for the Perstorp Group excluding Pergo
is presented below. A table containing an equivalent pro forma account of the
Perstorp Group's balance sheet, cash flow statement and selected key data
based on the planned spin-off of the Pergo subgroup to shareholders is also
presented.
For corresponding data regarding Pergo's operations, reference is made to the
below extract from Pergo AB's interim report.
The accounts are based on the financial statements for 2000, taking into
account the capital contribution of SEK 1,520 m that was granted to the Pergo
subgroup at year-end 2000. Accordingly, the Pergo subgroup had total pro forma
shareholders' equity of SEK 1,689 m at the end of 2000 after the above capital
contribution. Capitalization of the Pergo subgroup was effected via a new
share issue and shareholder contributions to the Pergo subgroup's Parent
Company. The accounts for the Pergo subgroup also include Perstorp Declam AB,
which was transferred during the first quarter of 2001. The pro forma accounts
do not include the divested unit Perstorp Surface Materials.
Results during the report period
Quarterly Data for Perstorp excl. Pergo (and excl. demerged business units) -
pro forma
SEK m 1999 2000 2001
I II III IV I II III IV I
Net sales 1,049 1,102 976 1,081 1,199 1,343 1,343 1,399 1,425
Operating earnings
Perstorp chemical operations 87 89 85 124 120 140 164 69 88
(former Perstorp Chemicals)
Others -31 -78 -61 -24 65 -8 2 15 -22
Perstorp excl. Pergo 56 11 24 100 185 132 166 84 66
Operating earnings adjusted
for items
affecting comparability
Perstorp chemical operations 87 89 85 110 120 138 121 97 88
(former Perstorp Chemicals)
Others -27 -52 -31 -24 -10 -6 -6 8 -10
Perstorp excl. Pergo 60 37 54 86 110 132 115 105 78
NET SALES for Perstorp excluding Pergo rose 19% to SEK 1,425 m (1,199). The
volume increase was 9%, which corresponds in its entirety to the chemical
operations acquired in Germany during the second quarter of 2000.
OPERATING EARNINGS amounted to SEK 66 m (185). Items affecting comparability
amounted to a charge of SEK 12 m (revenue: 75) against earnings, due mainly to
the restructuring of the Group and the takeover process. The revenue of SEK 75
m for the year-earlier period related to the capital gain from the sale of
Surface Materials operations. Accordingly, excluding items affecting
comparability, operating earnings amounted to SEK 78 m (110).
Operating earnings from chemical operations (formerly Perstorp Chemicals)
amounted to SEK 88 m (120). The decline compared with the year-earlier period
was due mainly to lower margins. Neither of these periods was affected by
items affecting comparability. The corresponding earnings during the preceding
quarter amounted to SEK 97 m, adjusted for items affecting comparability. The
restructuring of Penta production operations and the resulting supplementary
measures required for production of various specialty polyols at the plant in
Italy gave rise to costs of SEK 12 m during the first quarter of 2001, an
amount that is not matched by any revenues.
OTHER OPERATING REVENUES AND EXPENSES amounted to SEK 32 m (7), with
exchange-rate effects of SEK 25 m accounting for most of the increase.
EARNINGS FROM PARTICIPATIONS IN ASSOCIATED COMPANIES in an amount of SEK 1 m
(3) pertained to Perstorp Clariant AB, which manufactures water-borne
dispersions and is continuing to be affected by depressed margins.
NET FINANCIAL ITEMS amounted to revenue of SEK 10 m (-). The improvement
compared with the year-earlier period was due mainly to the acquisition of
withdrawal rights from Alecta at a price that was lower than nominal value and
the following redemption of the rights at nominal value. This contributed
revenue of SEK 32 m. The financial net was adversely affected by an increase
in working capital, higher interest rates compared with the year-earlier
period and the capitalization of Pergo.
TAX COSTS totaled SEK 27 m (83). Accordingly, the tax rate was 36% (45), which
is the estimated effective tax rate for the entire year. Adjusted for the sale
of Perstorp Surface Materials, the tax rate for year-earlier period was 43%.
Actual tax accounted for SEK 26 m and deferred tax for SEK 1m of total tax for
the report period.
Financial position
TOTAL ASSETS rose by SEK 208 m compared with December 31, 2000 to SEK 5,584 m
(5,376) at the end of the period. The rise in total assets was due mainly to
an increase in accounts receivable, exchange-rate effects and the fact that
deferred tax receivables are reported gross as of 2001.
WORKING CAPITAL (current operating receivables and inventories less current
operating liabilities) rose during the period by SEK 134 m, mainly because
accounts payable decreased while accounts receivable rose. An increase in
sales of chemicals to Asia, a market characterized by longer credit periods,
contributed to the increase in accounts receivable.
INTANGIBLE FIXED ASSETS amounted to SEK 138 m (137), of which goodwill
accounted for SEK 116 m (119).
PROVISIONS rose by SEK 125 m during the quarter, due mainly to the fact that
deferred tax receivables are reported gross as of 2001. In the past, the
deferred tax receivable on tax loss carryforwards, which amounted to SEK 113 m
at year-end 2000, was reduced from provisions.
NET DEBT rose during the period to SEK 1,492 m (1,278) on March 31. The
increase was mainly due to the rise in working capital requirements, as well
as higher tax payments resulting from the reversal of untaxed reserves.
SHAREHOLDERS' EQUITY rose by SEK 138 m compared with December 31, 2000 to SEK
2,387 m (2,249) at the end of the period. Shareholders' equity was affected
positively by exchange-rate effects in an amount of SEK 87 m and by net profit
for the period of SEK 51 m.
CONTINGENT LIABILITIES rose by SEK 11 m compared with December 31, 2000, due
to an increase in sureties.
INVESTMENTS amounted to SEK 88 m, of which SEK 44 m related to strategic
investments, meaning major investments that result in a significant increase
in the value of a particular subgroup. Notable investments included the
production adaptations being made by the Italian plant within Perstorp
Specialty Chemicals.
Action program
In order to reduce fixed costs and tied-up capital, a new action program for
the Perstorp Group excluding Pergo has been initiated. The reasons underlying
the program are the weaker business climate and the reduction in the size of
the Group following the planned spin-off of Pergo AB.
The aim of the program which will run for a 12-months period, is to reduce the
Group's annual cost level by at least SEK 100 m and to reduce working capital.
Outlook for 2001
The following outlook for 2001 was published in the 2000 Annual Report.
"With respect to 2001, we anticipate a weakening of global conditions in the
chemical market, coupled with an increased imbalance in the market and thus
lower demand. It is estimated that part of this decline will be offset by
improved gross margins as an effect of lower raw material prices. The first
six months will be marked by operational stoppage and the running-in of the
plant in Italy due to rebuilding measures required for the manufacture of
specialty polyols. The comprehensive program that will be implemented in
stages during the year, in order to boost the efficiency of the production
structure, is also expected to make a positive contribution to full-year
earnings."
It was also stated in the Annual Report that rapid changes in general market
conditions could be expected to lead to increased uncertainty regarding price
trends for products and raw materials.
Although this outlook stands firm, we have concluded that the uncertainty
regarding the future market and price trends increased during the period. As a
result, the Perstorp Group excluding Pergo will not be able to achieve
full-year operating earnings in line with those reported by corresponding
units in 2000 (SEK 462 m, pro forma, excluding items affecting comparability).
Earnings Perstorp Group excl. Pergo - pro forma
SEK m Q1 2001 Q1 2000 Full year
20001)
Net sales 1,425 1,199 5,284
Cost of goods sold -1,173 -921 -4,236
Gross earnings 252 278 1,048
Sales, administration and R&D costs -207 -178 -655
Items affecting comparability -12 75 105
Other operating revenues and expenses 32 7 62
Result from participation in associated 1 3 7
companies
Operating earnings 66 185 567
Net financial items 10 - -20
Earnings before taxes 76 185 547
Taxes -27 -83 -161 2)
Minority share in net profit 2 2 8
Net profit of the period 51 104 394
1. In relation to the pro forma income statement presented in the Annual
Report for 2000, a correction has been made in the form of a
reclassification between costs of goods sold, on the one hand, and sales,
administration and R&D costs, on the other. Prior to the correction, costs
of goods sold amounted to SEK 4,271 m and sales, administration and R&D
costs amounted to SEK 620 m.
2. Group contributions granted to the Pergo group during 2000 have been
eliminated pro forma, resulting in an increase of SEK 13 m in takes.
Consolidated Balance Sheet Perstorp Group excl. Pergo - pro forma
SEK m March 31, Dec 31, March 31,
2001 2000 2000
Intangible fixed assets 138 137 32
Tangible fixed assets 2,889 2,813 2,259
Deferred tax receivables 1) 114 - -
Financial fixed assets 342 333 282
Inventories 654 664 585
Current operating receivables 1,364 1,338 1,274
Current financial assets 83 80 267
Cash and bank - 11 146
Total assets 5,584 5,376 4,845
Shareholders' equity 2,387 2,249 2,921
Minority interests 39 39 39
Provisions 1) 508 383 398
Long-term financial liabilities 87 58 -
Current operating liabilities 998 1,256 1,167
Current financial liabilities 1,565 1,391 320
Total shareholders' equity and 5,584 5,376 4,845
liabilities
1. Up to year-end 2000, the deferred tax receivable related to unutilized tax
loss carryforwards was reported among provisions as a reduction of
deferred tax liabilities.
Cash flow analysis Perstorp Group excl. Pergo - pro forma
Cash flow analysis, summary 1) Q I
2000
Operating earnings 66
Depreciations 93
Change in working capital -134
Current investments in fixed assets -44
Adjustment for divested fixes assets 8
Operating cash flow -11
Standard tax related to operating earnings -21
Free cash flow -32
Net financial items 10
Reversal of standard tax 21
Taxes paid/change in deferred tax receivables -144
Adjustment item, including exchange-rate differences -15
Cash flow from operations -160
Strategic investments in fixed assets -44
Net cash flow -204
Free cash flow per share, SEK -0.45
Net debt at beginning of period -1,278
Net cash flow -204
Currency effects -10
Net debt at end of period -1,492
Key Ratios Perstorp Group excl. Pergo - pro forma
Key Ratios 2) Q I Q I Full year
2001 2000 2000
Operating margin, % 4.6 15.4 10.7
Operating margin, adjusted for non-comparable items, % 5.5 9.2 8.7
Interest-coverage ratio, times 3.2 6.8 6.1
Free cash flow/net sales, % -2 1) 1)
1. It was not possible to prepare a Cash Flow Statement for 2000, since no
balance sheet was prepared for Perstorp excluding Pergo at the end of
1999.
2. Pro forma key figures based on the balance sheet are not presented, since
valid calculations regarding Perstorp excl Pergo, which did not exist at
the beginning of 2000, are not possible.
Pergo AB
The accounts below are an extract from the interim report for the first
quarter of 2001 that will be included in Pergo's listing prospectus and which
constitutes part of Perstorp AB's interim report. The prospectus will be
distributed to shareholders at the end of May ahead of the planned spin-off
and stock-exchange listing of Pergo.
All financial figures for prior periods are presented pro forma. 1)
Net sales and earnings
Sales amounted to SEK 874 m (867). A certain degree of price pressure combined
with lower sales of accessories in North America had an adverse impact on net
sales compared with the first quarter of 2000. This was offset by the stronger
exchange rate for the US dollar.
The operating result during the period was a loss of SEK 52 m (earnings: 57).
The weaker earnings were mainly attributable to a low capacity utilization at
Pergo's production plants, which was largely due to the transition to direct
laminate flooring. Increased costs for Pergo's forceful design and
product-development programs and the increase in the pace of new product
launches, as well as a certain degree of price pressure in North America, had
an adverse impact on earnings. The favorable results of the new product
launches are not expected to become noticeable until during the second half of
2001. Costs in an amount of SEK 18 m, pertaining to a patent dispute in the
US, among other matters, were charged against earnings for the period.
Exchange-rate movements had only a marginal impact on earnings during the
period. The positive effect of the appreciation of the US dollar was
neutralized by increases in Euro-denominated purchases, which also increased
in value in relation to the Swedish krona.
1) Preparation of the consolidated financial accounts was based on the
assumption that the "new" Pergo Group was formed on January 1, 2001.
Accordingly, earnings include revenues and costs for all companies throughout
the period January 1 to March 31, 2001. Since shares in subsidiaries at the
time of the Pergo Group's formation were acquired at the book value in
Perstorp's consolidated accounts and not at market value, these acquisitions
did not result in any goodwill or negative goodwill. The difference between
the acquisition value and acquired equity has been entered directly in
shareholders' equity. Pergo's capitalization became effective on January 1,
2001.
The interim report has been prepared in accordance with the Financial
Accounting Standards Council's recommendations.
Market
Pergo's two main markets for laminate flooring, Europe and North America,
continue to grow, at the same time as competition has intensified. Prices have
been depressed by the fact that direct laminate flooring, which is based on a
more cost-effective production method, is rapidly increasing its market share.
Competition between home stores and specialist flooring outlets has increased
during recent years, resulting in price pressure and an increase in market
shares for home stores. In order to resolve this "channel conflict," which is
most noticeable in North America but also exists in Europe, Pergo has
differentiated its product range between the various channels.
Laminate flooring featuring glue-free joints, also known as click joint, which
simplify the laying of flooring, has been rapidly accepted by the market and
is enjoying increasing consumer demand. A number of patent disputes in this
field are under way among various players, including Pergo. At present, these
disputes are not expected to have a sssignificant adverse impact on Pergo's
operations.
The overall assessment is that the flooring market in Europe and North America
slackened slightly during the period, which mainly affected textile flooring.
Sales of laminate flooring continue to grow, albeit at a slightly slower pace
than previously.
Europe
Laminate flooring featuring glue-free joints and direct laminate flooring,
which are manufactured by the associated company Witex, were launched during
the period. The market reception has been favorable to date. Separate programs
have been designed for the primary distribution channels: specialist flooring
outlets, retail chains and the contract market. The new product program for
the contract market will be launched during the second quarter, when a number
of additional new products for the retail sector will also be introduced.
North America
Separate programs have been designed for the two distribution channels that
are currently being used by Pergo. The differentiation of the product range
has been appreciated by the market. The new range for specialist flooring
outlets was presented at the beginning of January. A new range has also been
developed for The Home Depot retail chain, Pergo's largest customer.
Deliveries of products from the new ranges will commence in May, which is
expected to boost sales as of the third quarter of 2001.
Production and distribution
The change in production-technology towards direct laminate flooring and
flooring with glue-free joints that is currently under way has necessitated a
major investment program. A new line for the production of laminate flooring
featuring glue-free joints has been put into operation at the plant in
Trelleborg, Sweden. During April, another new production line will be
installed and one of the existing lines will be rebuilt. Both of these
measures are designed to enable production of flooring with glue-free joints.
A distribution center in Trelleborg for deliveries of laminate flooring to
Nordic countries and to parts of the rest of Europe became operational during
the period.
A decision has been taken regarding investments in an additional line in
Garner, North Carolina, USA, for the production of direct laminate flooring.
This requires a 4,500 square meter expansion of the plant. In addition, a
17,000 square meter distribution center will be constructed adjacent to the
production plant. These investments are scheduled for completion at year-end
2001, which will mark the conclusion of an approximately USD 27 m investment
program. Pergo is considering the use of a sale-leaseback arrangement for the
financing of all or part of the construction investments.
As a result of that Pergo changes its product range towards an increased
proportion of direct laminate flooring, certain suppliers have filed claims
against Pergo, due to not insignificant decreases in the volume of purchases
from Pergo. Pergo has rejected these claims. The current assessment of these
claims is that they will not have a significant adverse impact on Pergo's
operations.
Investments
Group investments in fixed assets during the period totaled SEK 59 m (48).
Working capital/capital employed
Inventories have risen by SEK 97 m compared with year-end, mainly as a result
of the build-ups ahead of the forthcoming product launches during the spring/
summer.
At the end of the period, capital employed amounted to SEK 2,213 m, an
increase of SEK 184 m during the period.
Financial position
Net debt has risen by SEK 274 m since year-end and amounted to SEK 541 m at
the end of the period.
Tax
The estimated tax rate for the Group is 35%.
Personnel
The number of Pergo Group employees at the end of the period was 946, compared
to 1083 at the beginning of the period, of whom 605 were employed in Europe
and 289 in North America. The decrease compared with year-end is mainly
attributable to the personnel laid off during the preceding year at the plant
in Perstorp.
Preparations for the stock-exchange listing
Perstorp's Board of Directors will propose to its Annual General Meeting on
June 12, 2001 that all of the shares in Pergo AB be spun off to Perstorp AB
shareholders and subsequently listed on the stock exchange. The proposed
record date for receipt of Pergo shares is June 15, with the proposed initial
listing on the Stockholm Exchange 's O List shortly thereafter. A new Parent
Company, Pergo AB, has been formed. Perstorp Declam, which manufactures such
products as laminate for high-pressure laminate flooring, is also included in
the Pergo accounts during the current report period. Pergo has been provided
with equity of SEK 1,520 m, on which interest has been calculated as of
January 1. Accordingly, the Pergo Group had pro forma shareholders' equity of
SEK 1,689 m at the end of 2000.
During January, Michael Boris-Moller was recruited as new president of the
Pergo Group, with his appointment becoming effective on April 1, 2001. In
addition, a new Board chaired by Christer Gardell, President of AB Custos, has
been elected. The other Board members are: Kurt Augustsson, Senior Advisor at
SCA, Gunnar Brock, Board member in such companies as Perstorp and OM-gruppen,
as well as Lego of Denmark, Karl Stenstrom, Chairman of the Board of the
Swedish American Chamber of Commerce and of Thomas Concrete Inc., USA, Thomas
Svensk, President of C Tybring-Gjedde ASA, and Katarina Wendt Englund,
President of Jaxvall Design AB, as well as Ulla Ohlsson and Christer Jonsson,
representing the employees.
Outlook for 2001
Pergo is entering an intensive period that will involve extensive marketing
work and the launch of a large number of new products that are expected to
help the company strengthen its position as "an innovative interior decor
company that manufactures flooring."
Pergo is expected to show a loss during the first part of 2001, due to the
completion of the comprehensive adjustment program required for its technology
shift and to launches of new products, which are expected to start yielding
significant effects during the latter part of the year.
As a result of the company's unique offering of new products and more
competitive pricing following the reorientation towards direct lamination and
glue-less joints, combined with selective marketing programs customized for
each induvidual market, Pergo's potential for strengthening its market
positions is regarded as favorable.
Earnings Pergo Group
SEK m Q1 Q 1 Most Full
recent year
2001 2000 12 months 2000
Net sales 874 867 3,720 3,713
Cost of goods sold -680 -589 -2,751 -2,660
Gross earnings 194 278 969 1,053
Sales, administration and R&D costs -253 -216 -961 -924
Items affecting comparability 0 0 -295 -295
Other operating revenues and expenses 4 -5 21 12
Result from participation in associated 3 0 4 1
companies
Operating earnings -52 57 -262 -153
Net financial items -1 -8 -40 -47
Earnings before taxes -53 49 -302 -200
Taxes 19 -11 75 45
Minority share in net profit 0 0 1 1
Net profit/loss for the period -34 38 -226 -154
Depreciation and write-downs for the -28 -35 -350 -357
period
Earnings per share, SEK -1.90 2.12 -12.62 -8.60
Number of shares outstanding 1) 17,897,430 17,897,430 17,897,430 17,897,430
1) Pertains to the number of shares the Parent Company received in connection
with its capitalization during the first quarter of 2001.
Balance Sheet Pergo Group
SEK m March 31, 2001 March 31, 2000 Dec 31, 2000
Intangible fixed assets 0 3 0
Tangible fixed assets 856 1,006 798
Financial fixed assets 203 35 216
Inventories 542 420 445
Current receivables 1,329 847 1,220
Cash and bank 15 33 54
Total assets 2,945 2,344 2,733
Shareholders' equity 1,679 1,044 1,689
Minority interests 3 4 3
Provisions 65 105 70
Long-term liabilities 1) 531 628 337
Current liabilities 667 563 634
Total shareholders' equity and 2,945 2,344 2,733
liabilities
1) Pertains to interest-bearing liabilities to the Perstorp Group, which will
be replaced by external long-term financing prior to the exchange listing of
the Pergo Group.
Cash flow statement Pergo Group
SEK m Q1 Q1 Full
year
2001 2000 2000
Ongoing business
Earnings after financial items -53 49 -200
Adjustments for items not included in cash flow
- Depreciation 28 35 143
- Write-downs 214
- Result from participation in associated companies -3 0 -1
Tax paid 3 17 -63
Cash flow from ongoing business before change in working -25 101 93
capital
Cash flow from change in working capital
Change in inventories -97 -18 -43
Change in current receivables -89 -90 -419
Change in current liabilities 29 -30 40
Other, including exchange-rate differences 7 -22 -20
Cash flow from ongoing business -175 -59 -349
Investment operations
Acquisition of associated companies -143
Acquisition of tangible fixed assets -59 -48 -135
Sale of tangible fixed assets 1 1 4
Cash flow from investment operations -58 -47 -274
Financing operations
Group contribution received 47
Capital contribution 782
Loans raised 194 71
Amortization of debt -220
Cash flow from financing operations 194 71 609
Cash flow during the year -39 -35 -14
Cash and bank at beginning of year 54 68 68
Exchange-rate differences in liquid assets 0 0 0
Cash and bank at year-end 15 33 54
Shareholders' equity Pergo Group
SEK m Q1 Q1 Full
year
2001 2000 2000
Share Restricted Non-Restricted Total Total Total
1) 1)
capital reserves reserves
At beginning of period 179 430 1,080 1,689 996 996
Earnings for the period -34 -34 38 -154
Capital contribution 782
Group contribution 47
received
Tax on Group -13
contribution
Translation difference 30 -6 24 10 31
At end of period 179 460 1,040 1,679 1,044 1,689
1) Amounts for the comparative periods have not been divided into restricted
shareholders' equity and unrestricted shareholders' equity, since the "new"
Pergo Group did not exist at the beginning of 2000. In view of this, the
information value of such a division was considered to be minor.
Net sales by region Pergo Group
SEK m Q1 Q1 Most recent Full year
2001 2000 12 months 2000
Europe 308 321 1,245 1,258
North America 530 517 2,312 2,299
Asia 20 16 92 88
Latin America 14 11 57 54
Others 2 2 14 14
Total 874 867 3,720 3,713
Key ratios Pergo Group
Q 1 Q1 Most recent Full year
2001 2000 12 months 2000
Sales growth, % 0.8% 1.8% 2.1% 2.1%
Gross margin, % 22.2% 32.1% 26.0% 28.4%
Operating margin, % -5.9% 6.6% -7.0% -4.1%
Average capital employed 2,064 1,639 1,965 1,867
Return on capital employed, % - - -11.7% -7.2%
Net debt 514 599 514 240
Net debt/equity ratio, % 31% 57% 31% 14%
Interest-coverage ratio, times -1.22 4.57 -2.98 -2.01
Equity ratio, % 57% 45% 57% 62%
Earnings per share, SEK -1.90 2.12 -12.62 -8.60
Shareholders' equity per share, SEK 93.81 - 93.81 94.37
Quarterly data Pergo Group
Earnings
SEK m Q 1 Q 4 Q 3 Q 2 Q 1
2001 2000 2000 2000 2000
Net sales 874 1,050 885 911 867
Cost of goods sold -680 -807 -655 -609 -589
Gross earnings 194 243 230 302 278
Sales, administration and R&D
costs -253 -238 -225 -245 -216
Items affecting comparability 0 -199 -96 0 0
Other operating revenues and
expenses 4 6 11 0 -5
Result from participation in 3 1 0 0 0
associated companies
Operating earnings -52 -187 -80 57 57
Net financial items -1 -15 -14 -10 -8
Earnings before taxes -53 -202 -94 47 49
Taxes 19 45 22 -11 -11
Minority share in net profit 0 1 0 0 0
Net profit/loss for the period -34 -156 -72 36 38
Depreciation and write-downs
for the -28 -208 -77 -37 -35
period
Earnings per share, SEK -1.90 -8.72 -4.02 2.01 2.12
Number of shares
outstanding 1) 17,897,430 17,897,430 17,897,430 17,897,430 17,897,430
1) Pertains to the number of shares the Parent Company received in connection
with its capitalization during the first quarter of 2001.
Net sales by region
Europe 308 303 315 319 321
North America 530 698 525 559 517
Asia 20 28 25 19 16
Latin America 14 17 16 10 11
Others 2 4 4 4 2
Total 874 1,050 885 911 867
MORE TO FOLLOW
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