Egger Holzwerkstoffe GmbH, St. Johann in Tirol

Transcription

1 ABCD Egger Holzwerkstoffe GmbH, St. Johann in Tirol Consolidated Financial Statements as of April 30, 2009 KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft July 10, 2009

2 ABCD Egger Holzwerkstoffe GmbH, St. Johann in Tirol Consolidated Financial Statements for the Year ended April 30, 2009 July 10, 2009 Table of Content List of Appendices Appendix Consolidated Financial Statements according to International Financial Reporting Standards (IFRS) as of April 30, 2009 Management Report to the Consolidated Financial Statement for the 2008/09 Financial Year Independent Auditor s Report for the Year ended April 30, 2009 I II III Rounding The use of automated calculation systems may give rise to rounding differences.

3 Appendix I Consolidated Financial Statements according to International Financial Reporting Standards (IFRS) as of April 30, 2009 of EGGER HOLZWERKSTOFFE GMBH, St. Johann in Tirol I/1

4 Contents Page Consolidated Balance Sheet... 3 Consolidated Income Statement... 4 Consolidated Cash Flow Statement... 5 Statement of Changes in Equity Accounting and Valuation Methods The Company Basis of Preparation Consolidation Range Basis of Consolidation Foreign Exchange Translation Significant Accounting Policies Notes to the Balance Sheet, Income Statement and Cash Flow Statement Risk Report Other Information Financial Instruments Other Obligations and Uncertain Liabilities Auditor s Fees Transactions with Related Party and Subsidiaries of other Private Foundations Statement by the Company s Legal Representatives Appendix 1 Consolidation Range I/2

5 Consolidated Balance Sheet as of April 30, 2009 Notes TEUR TEUR ASSETS Non-current assets Property, plant and equipment (1) Intangible assets (1) Financial assets (2) Investments in associates (3) Other assets (4) Deferred tax assets (15) Current assets Inventories (5) Trade receivables (6) Other assets (4) Current tax assets Securities and financial assets (2) Cash and cash equivalents (7) Total Assets EQUITY AND LIABILITIES Equity Issued capital, participation rights, perpetual bond and reserves (8,9) Minority interests Non-current liabilities Bonds (10) Financial liabilities (11) Other liabilities (12) Investment subsidies (13) Provisions (14) Deferred tax liabilities (15) Current liabilities Bonds (10) Financial liabilities (11) Trade payables (16) Other liabilities (12) Liabilities from income taxes Provisions (17) Total Equity and Liabilities I/3

6 Consolidated Income Statement for the 2008/09 Financial Year Notes 2008/ /08 TEUR TEUR Revenues (18) Other operating income (19) Increase/decrease in inventories Own work capitalized Cost of materials (20) Personnel expenses (21) Depreciation and amortization Other operating expenses (22) Operating profit before non-recurring items Non-recurring income (23) Operating profit after non-recurring items Financial results (24) Income from financial investments (25) Income from associates Profit before tax Income taxes (15) Profit after tax Attributable to: Minority interests Shareholders of the parent company I/4

7 Consolidated Cash Flow Statement for the 2008/09 Financial Year Notes 2008/ /08 TEUR TEUR Profit before tax Depreciation and amortization (1) Impairment charges to and valuation of financial assets Use of investment subsidies (19) Income/loss from the disposal of fixed assets Income/loss from changes in the consolidation range Income from associates Increase/decrease in long-term provisions Income taxes paid Gross cash flow Increase/decrease in inventories Increase/decrease in trade receivables Increase/decrease in other assets Increase/decrease in trade payables Increase/decrease in other liabilities Increase/decrease in current provisions Currency translation adjustments Cash flow from changes in net current assets Cash flow from operating activities (26) Purchase of property, plant and equipment and intangible assets (1) Purchase of non-current financial assets Increase/decrease in securities and current financial assets Sale of subsidiaries, less net cash and cash equivalents sold Proceeds from the disposal of non-current assets Cash flow from investing activities Repayment of EGGER bond Increase/decrease in current financial liabilities Increase/decrease in non-current financial liabilities Distributions Cash flow from financing activities Net change in cash and cash equivalents Increase/decrease in cash and cash equivalents from changes in the consolidation range Effects of exchange rate fluctuations on cash held Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year (26) I/5

8 Statement of Changes in Equity as of April 30, 2009 Share capital Participation rights Perpetual bond Reserves Translation reserve Equity before minority interests Minority interests Total equity TEUR TEUR TEUR TEUR TEUR TEUR TEUR TEUR Balance on April 30, Currency translation adjustments Net profit for the period Total income and expense recognized for the period Transfer of shares without recognition through profit or loss (Deferred) taxes not recognized through profit or loss Capital increase Increase/decrease in minority interests Distribution Balance on April 30, Currency translation adjustments Hedging reserve Net profit for the period Total income and expense recognized for the period Transfer of shares without recognition through profit or loss (Deferred) taxes not recognized through profit or loss Increase/decrease in minority interests Balance on April 30, I/6

9 as of April 30, Accounting and Valuation Methods 1.1. The Company Egger Holzwerkstoffe GmbH and its subsidiaries are one of the leading producers and suppliers of wood materials in Europe. The business activities of the 15 production facilities are concentrated primarily on the following: Production and sale of chipboard, MDF and HDF boards as well as various finished and semi-finished products that are derived, refined and/or processed from these items Production and sale of laminated flooring and OSB boards. The headquarters of the company are located in St. Johann in Tirol, Austria. The consolidated financial statements include the parent company, Egger Holzwerkstoffe GmbH, St. Johann i.t., as well as the subsidiaries under its control Basis of Preparation The consolidated financial statements as of April 30, 2009 were prepared in accordance with the International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and Interpretations of the International Financial Reporting Interpretations Committees (IFRIC or SIC) that were issued by the International Accounting Standards Board (IASB) and adopted by the EU and were in effect as of the balance sheet date. The following new standards and interpretations as well as revisions and amendments were applied for the first time during the reporting year: IFRS 3 (revised), IFRS 8 (early application), IFRIC 12 to 14, IFRIC 16 and the amendments to IFRS 1 and IAS 27 (acquisition cost of an investment in a subsidiary, a jointly controlled entity or an associate), IAS 32 and IAS 1 (puttable financial instruments and obligations arising on liquidation), IFRS 2 (vesting conditions and cancellations), IAS 39 and IFRS 7 (reclassification of financial I/7

10 assets) and IAS 27 (consolidated and separate financial statements). The amendment to IAS 1 and the revision to IAS 23 were not applied in advance on a voluntary basis. IAS 1 will lead to changes in the presentation of the consolidated financial statements for the 2009/10 financial year. The effects of the amendment to IAS 23 are currently under evaluation and will have an influence on the acquisition cost recognized for qualified assets. The consolidated financial statements are prepared in thousand Euros (rounded). The use of automatic data processing equipment can lead to rounding differences in the addition of rounded amounts and percentage rates Consolidation Range The consolidated financial statements include 18 Austrian ( : 18) and 43 foreign ( : 44) fully consolidated subsidiaries in which Egger Holzwerkstoffe GmbH has management control and directly or indirectly owns more than 50% of the shares. One domestic ( : one) and eight foreign ( : five) companies are consolidated at equity. A list of all companies included in the consolidated financial statements of Egger Holzwerkstoffe GmbH is provided at the end of the notes in Appendix 1. Egger Holzprodukte Management GmbH, St. Johann in Tirol, and Egger Rohstoffmanagement GmbH, St. Johann in Tirol, were founded during the reporting year and included in the financial statements through full consolidation. As of April 24, 2009 the investment FM International GmbH, St. Johann i.t, transferred its shares in Egger JV Beteiligungs GmbH, St. Johann i.t, to Egger Rohstoffmanagement GmbH, St. Johann i.t, in exchange for participation rights. Prior to this transfer, Egger JV Beteiligungs GmbH and its wholly owned subsidiary, OOO Egger Drevprodukt, Shuya, were controlled by However, Fritz Egger Beteiligungsverwaltung GmbH, St. Johann i.t, previously exercised a material influence over the appointment of management at Egger JV Beteiligungs GmbH and also carried the major share of risks and rewards arising from Egger JV Beteiligungs GmbH through participation rights. Therefore, Egger JV Beteiligungs GmbH was included in these consolidated financial statements. As a result of the transfer of shares, Egger JV Beteiligungs GmbH and its I/8

11 subsidiary, OOO Egger Drevprodukt, are controlled by Egger Holzwerkstoffe GmbH. The newly issued participation rights are shown as minority interests. Egger JV Beteiligungs GmbH was subsequently merged into Egger Rohstoffmanagement GmbH, and Egger Rohstoffmanagement GmbH was renamed Egger Russland Beteiligungs GmbH. Egger Rumänien Beteiligungsverwaltung GmbH, St. Johann in Tirol, was merged into Egger Holzhandel GmbH, St. Johann in Tirol, which now operates as Egger Osteuropa Beteiligungsverwaltung GmbH. In Switzerland 100% of the shares in IHO-Holzprodukte AG, Kriens, were acquired and this company was subsequently renamed EGGER Holzwerkstoffe Schweiz GmbH. Fritz Egger Gesellschaft m.b.h, St. Johann i.t, founded Fritz Egger AG, Tokyo, and Egger Osteuropa Beteiligungsverwaltung GmbH, St. Johann i.t, founded IOOO Egger Drevplit, Minsk. These two companies are included in the consolidation at equity because they are of secondary importance for the entire Group. The investment in E.F.P. Floor Products Fußböden-GmbH, Wismar, was sold to the investment E.F.P. Privatstiftung, Vienna, and consequently deconsolidated. The intra-group sale of Egger Energia SRL, Satu Mare, had no effect on the consolidated financial statements Basis of Consolidation In accordance with IFRS 3, subsidiaries included for the first time are consolidated at the point of acquisition by allocating the acquisition cost to the revalued assets acquired and the revalued liabilities and contingent liabilities assumed (purchase method). Minority interests in the equity of consolidated companies are shown as a separate position under equity. The share of annual profit after tax attributable to minority interests is reported separately on the income statement. The acquisition of additional shares in companies under joint control is accounted for as a transaction within equity, and the resulting differences are therefore offset against reserves. I/9

12 All receivables, liabilities, revenues and expenses arising from transactions between consolidated companies are eliminated. The consolidation process also includes the elimination of gains and losses on the sale of fixed or current assets and the provision of services between Group companies, unless these items are immaterial. In accordance with the equity method, shares in associates are initially recognized at acquisition cost as of the purchase date. In subsequent periods, this value is adjusted to reflect the proportional share of profit or loss generated by the associated company Foreign Exchange Translation Transactions in a foreign currency The individual Group companies record foreign currency transactions using the average exchange rate in effect on the date of the transaction. Monetary assets and liabilities are translated into Euros at the closing rate in effect on the balance sheet date. Any resulting translation gains and losses are recognized to profit or loss in the relevant financial year. Translation of financial statements from a foreign currency The annual financial statements of Egger Holzwerkstoffe GmbH are prepared in Euros. The relevant local currency represents the functional currency for subsidiaries located outside the Euro zone. The assets and liabilities included in the financial statements of these companies, including goodwill and valuation adjustments resulting from initial consolidations, are translated at the average rate in effect on the balance sheet date. The individual items on the income statement are translated at the weighted average exchange rate for the financial year. Any resulting translation gains and losses are recorded to a separate item under equity without recognition through profit or loss, and recognized to the income statement when the company is deconsolidated. Unrealized foreign exchange translation differences arising from long-term shareholder loans (net investments) are recorded to the translation reserve without recognition through profit or loss. These differences are recognized to the income statement when the loan is repaid or the company is sold. I/10

13 The currency translation risk arising from our English subsidiaries is limited by a forward exchange contract. The exchange rates used for foreign currency translation developed as follows during the reporting year: Closing rate on Average rate for the year / /08 EUR EUR EUR EUR 1 British Pound 1, , , , Russian Rubles 2, , , , New Romanian Leu 0, , , , Significant Accounting Policies The accounting and valuation methods applied by the Group remain unchanged from the previous year, with the exception of the initial application of the new rules defined in IFRS 3 (revised) and IFRS 8 (early application), IFRIC 12 to 14, IFRIC 16 and the amendments to IAS 27, IFRS 1 and IAS 27, IAS 32 and IAS 1, IFRS 2 and IAS 39, and IFRS Property, plant and equipment and intangible assets Purchased intangible assets are recorded on the balance sheet at acquisition cost, less accumulated straight-line amortization and any necessary impairment charges. In accordance with IAS 38, the allocated certificates for greenhouse gas emissions are recorded under intangible assets at acquisition cost which in this case equals zero because of the free allocation and the use of the certificates is also recorded at this same value. Any additional certificates required to cover excess emissions are recorded under a provision at the market value of the certificates purchased. The sale of surplus certificates is reported under other operating income. For internally generated intangible assets, the production period is divided into a research phase and a development phase. Costs incurred during the research phase are expensed immediately. All costs previously recognized during the development phase of intangible I/11

14 assets were also expensed as incurred because the criteria for recognition under IAS 38 were not met or the relevant amounts were immaterial. Intangible assets can have a finite or an indefinite useful life. All intangible assets recorded on the balance sheet have a finite useful life. Property, plant and equipment is recorded at acquisition or production cost, less accumulated depreciation and any necessary impairment charges. The production cost of self-constructed property, plant and equipment is comprised of direct costs and an appropriate component of overhead. The costs incurred for an asset in subsequent periods are only capitalized if they lead to a significant increase in the opportunities to use the asset in the future, e.g. through expanded service potential or a significant extension of the asset s useful life. If major components of property, plant or equipment have significantly different patterns of use, they are recognized separately in accordance with the component approach and depreciated separately based on their relevant useful life. The cost of debt and related transaction costs are capitalized for qualified assets. The construction of a new plant represents a qualified asset. I/12

15 Systematic amortization for intangible assets with finite useful lives and depreciation for tangible assets is calculated in accordance with the straight-line method over the expected useful life of the asset. The depreciation and amortization rates used by Group companies are based on the following standard useful lives: Useful life in years Property, plant and equipment Factory buildings 25 Residential and commercial buildings 50 Facilities installed on property 10 Machinery 10 Tools 4 Other equipment 5-10 Furniture, fixtures and office equipment 3-5 Motor vehicles and other means of transportation 4-10 Intangible assets Patents, licenses and software 5 Lease and rental rights 10 Investment subsidies are recorded to a separate position under liabilities and released to the income statement as other income over the useful life of the relevant asset Goodwill Goodwill as shown on the balance sheet results from the use of the purchase method to record business combinations. Goodwill is recognized at acquisition cost. In accordance with IFRS 3, goodwill may no longer be amortized on a systematic basis. Goodwill acquired before May 1, 2004 was recorded at the carrying amount as of April 30, 2004 and similar to goodwill acquired after this date is tested each year for impairment by comparing the carrying amount with the recoverable amount as of the balance sheet date. Any goodwill arising from the acquisition of investments in associates is included in the carrying amount of the relevant item. I/13

16 Assets acquired through leases If a lease contract substantially transfers all risks and rewards incidental to the ownership of an asset to the lessee (finance lease), the asset is recognized as a component of property, plant and equipment or intangible asset and depreciated or amortized on a systematic basis over its useful life. At the start of the lease term, the asset is recognized at the lower of fair value or the present value of future minimum lease payments. As a corresponding entry, the present value of the future minimum lease payments arising from the lease is recognized as a financial liability Financial assets All securities held by the Group are classified as at fair value through profit or loss because reporting to management is based on fair value. These items are recognized at acquisition cost as of the purchase date and measured at fair value in subsequent periods. Any changes in this value are recognized to the income statement. The fair value of securities reflects market value as of the balance sheet date. Securities held for the short-term investment of funds are recorded under current assets on the balance sheet, and are recognized as of the value date. Investment property is measured at acquisition or production cost less accumulated depreciation and any necessary impairment charges in accordance with the useful life of the asset. Loans are carried at amortized cost. Investments in other companies are carried at cost if fair value cannot be determined without substantial expense Impairment In addition to measurement at amortized or depreciated cost, assets are tested for signs of impairment as of each balance sheet date. The higher of the value in use and the net selling I/14

17 price of an asset is determined on an annual basis for intangible assets with an indefinite life and for goodwill, and on an interim basis if any signs of impairment are identified. If this value is less than the carrying amount of the relevant asset, an impairment charge is recorded to reduce the carrying amount to this lower amount. The value in use is defined as the present value of the estimated cash inflows and outflows expected to be derived from the use of the asset, based on a discount rate that reflects the pre-tax market interest rate. If it is not possible to identify independent cash surpluses for a particular asset, this asset is included in the next larger unit (cash-generating unit) for which independent cash surpluses can be determined. The net realizable value represents the amount obtainable from the sale of an asset in an arm s length transaction, less any costs necessary to make the sale. Impairment charges are recognized through profit or loss. If the circumstances that led to impairment have ceased to exist or diminished, the impairment loss is reversed and the carrying amount of the asset is increased up to amortized or depreciated cost. This procedure does not apply to impairment charges recognized to goodwill, to intangible assets with an indefinite useful life or to equity instruments held as financial instruments Inventories Inventories are measured at the lower of cost or net realizable value as of the balance sheet date. Acquisition cost includes all costs incurred to place the asset in the desired condition at the desired location. Production cost includes direct expenses as well as an appropriate share of production overheads based on normal capacity usage. Interest charges as well as selling and administrative overheads are not included in production cost. The moving average method is used to determine the cost per unit. Risks related to the length of storage and other impairments in value are reflected in appropriate write-downs. I/15

18 Trade receivables and other assets Receivables are carried at cost less any necessary valuation adjustments. Interest-free and non-interest bearing receivables with a term of more than one year are stated at their discounted present value. Other assets are valued at cost, less any necessary impairment charges Cash and cash equivalents Cash and cash equivalents include cash on hand, time deposits with a term of less than three months from the date of acquisition and demand deposits with credit institutions as well as cash pooling receivables invested with the subsidiaries of other private foundations that are available on demand Employee benefits Pension obligations Certain subsidiaries of Egger Holzwerkstoffe GmbH are required by individual commitments to make pension payments to employees after their retirement. The Egger Group has both defined contribution and defined benefit pension plans. A provision has been created for defined benefit obligations that are not covered by sufficient pension plan assets. This provision is determined in accordance with IAS 19, whereby calculations are based on the projected unit credit method. An actuarial procedure is used to determine the present value of future payments based on realistic assumptions for the periods in which benefit entitlements are earned. The required amount of the provision is calculated by an actuary as of each balance sheet date. Actuarial gains or losses on pension obligations to external organizations are recognized according to the corridor rule that is defined in IAS In keeping with this rule, gains or losses that exceed 10% of pension plan assets or the present value of the defined benefit obligation are distributed over the average remaining working lives of the employees participating in the plan. I/16

19 Income and expenses related to the provision are included under personnel expenses, with the exception of the interest component. The interest component represents part of financial results. The calculations are based on the following assumptions: 30. April April 2008 Discount rate 4,75 6,5 4,75 6,0 Increase in salaries and wages 0,5 3 0,5 3 Increase in pensions 0 3,0 0 3,5 Expected income on pension plan assets 5,5 7,00 5,5 7,25 Retirement age for women (in years) 57, ,58 65 Retirement age for men (in years) 60, ,00 65 Termination benefits Legal regulations require companies in Austria to make one-time severance payments on termination or retirement to employees whose employment relationship started before January 1, The amount of the severance payment is dependent on the length of service and the salary/wage at the time of termination, and ranges from two to 12 monthly salary or wage installments. This obligation is reflected in a provision. This provision is determined based on the projected unit credit method, which uses financial procedures to determine the present value of future payments for the periods in which the maximum claims are earned (25 years). The full amount of actuarial gains and losses is recognized immediately to profit or loss. This valuation of this provision is based on the same assumptions used to calculate pension obligations. Other long-term employee benefits Collective bargaining agreements require the payment of special bonuses to employees who have reached a specific number of years of service with the company (beginning at 10 years of service). A provision was created for this obligation. This valuation of this provision is based on the same methods and assumptions used to calculate the provision for termination benefits. I/17

20 Other provisions Other provisions are recognized when the company has incurred a legal or constructive obligation to a third party based on a past event, and it is probable that the obligation will lead to an outflow of resources. A provision is created in accordance with the best possible estimate at the time the financial statements are prepared of the amount that will be required to meet the obligation. If a reliable estimate cannot be made, the provision is not recognized. If the nominal value of a non-current provision differs materially from its present value determined on the basis of an ordinary market interest rate, the present value is used for recognition Taxes Income taxes shown for the reporting year include income tax calculated on profit before tax for the individual companies based on the applicable tax rate in each country (actual income taxes) as well as the change in deferred taxes. Deferred taxes are calculated in accordance with the balance sheet liability method required by IAS 12 on all temporary differences arising between financial statements prepared for tax purposes and IFRS financial statements. Tax benefits that are expected to be realized on loss carryforwards in the future are also included in the calculation. Exceptions to the general rule for the creation of deferred taxes are differences arising from goodwill that is not deductible for tax purposes and temporary differences related to investments in other companies. Deferred tax assets are only recognized if it is probable that the inherent tax benefit will be realized. The calculation of deferred taxes is based on the relevant tax rate as defined by tax regulations in the country of the reporting company. A change in the tax rate is reflected in the calculation when this change has been enacted or substantively enacted as of the balance sheet date. I/18

21 Bonds and financial liabilities Bonds are carried at amortized cost. The initial recognition reflects the proceeds received from the issue. Any premium, discount or other difference between the amount received and the repayment amount is recognized to profit or loss over the term of the financing. Other financial liabilities are carried at the fair value of the consideration received Trade payables and other liabilities Trade payables are recognized at the fair value of the goods or services received when the relevant liability is incurred. In subsequent periods, these liabilities are measured at amortized cost. Other liabilities that do not result from the provision of goods or services are carried at their repayment amount Derivative financial instruments Hedges are concluded to reduce the risks arising from changes in foreign exchange rates and interest rates. In particular, the financial instruments used by the Egger Group include forward exchange contracts, interest rate swaps and interest rate options. Derivative financial instruments are recognized at cost as of the date the contract is concluded and measured at fair value in subsequent periods. Unrealized changes in value are recognized to profit or loss. Egger applies hedge accounting as defined in IAS 39 is applied to the hedge of a net investment in a foreign operation. Gains and losses resulting from changes in the value of derivative financial instruments are recorded directly to equity. The fair value of forward exchange contracts is determined on the basis of foreign exchange spot rates and interest rates as of the balance sheet date. Interest rate swaps are measured at present value using current interest rates. The value of interest rate options is determined in accordance with recognized calculation models, and also includes current interest rates and fluctuations. I/19

22 Recognition and disposal of financial instruments All financial instruments are recognized as of the settlement date. Financial instruments are derecognized when the income, control and part of the risks are transferred to the buyer. Additional information on the sale of financial instruments is provided under note (6) to the consolidated financial statements Realization of revenue Revenue is realized when all material risks and benefits from the delivered object are transferred to the buyer. Rental income is realized on a straight-line basis over the term of the rental agreement. Onetime payments or exemptions are distributed over the term of the agreement Financing costs and income from financial investments Financing costs include interest on borrowings, finance leases and provisions for long-term employee benefits as well as similar expenses and fees, interest income, exchange rate gains/losses and profit or loss on derivative financial instruments. Income from financial investments includes recognized interest, dividends and similar income as well as gains and losses on the sale of financial assets and impairment charges to financial assets. Interest is accrued over the term of the contract. Dividends are recognized when the distribution is received Estimates In preparing the consolidated financial statements, it is necessary to estimate certain figures and make assumptions that influence the recording of assets and liabilities, the declaration of other obligations as of the balance sheet date and the recording of revenues and expenses I/20

23 during the reporting period. The actual figures that become known at a later date may differ from these estimates. The following assumptions are coupled with a significant risk that they may lead to a material adjustment in the carrying amounts of assets and liabilities during the next financial year: The valuation of existing pension, severance compensation and long-service bonuses involves the use of assumptions for interest rates, retirement ages, life expectancy, employee turnover and the future development of salaries and wages. The recognition of deferred tax assets is based on the assumption that sufficient taxable income will be generated in the future to utilize existing loss carryforwards. The valuation of risks arising from pending legal proceedings also incorporates a best possible estimate of the potential payment outflows, which is based on opinions prepared by the involved experts. I/21

24 2. Notes to the Balance Sheet, Income Statement and Cash Flow Statement (1) Property, plant and equipment and intangible assets PROPERTY, PLANT AND EQUIPMENT Land and buildings Machinery and equipment Other equipment, furniture, fixtures and office equipment Prepayments and assets under construction Total TEUR TEUR TEUR TEUR TEUR Acquisition or production cost as of Change in consolidation range Foreign exchange increase/decrease Additions Disposals Transfers Acquisition or production cost as of Foreign exchange increase/decrease Additions Disposals Transfers Acquisition or production cost as of Accumulated depreciation as of Change in consolidation range Foreign exchange increase/decrease Ordinary depreciation Disposals Transfers Accumulated depreciation as of Foreign exchange increase/decrease Ordinary depreciation Disposals Accumulated depreciation as of Carrying amount as of Carrying amount as of In accordance with IAS 17, property, plant and equipment obtained through leases are recorded under non-current assets it the lease agreement substantially transfers the risks and benefits of ownership to the lessee. The carrying amount of these assets totals TEUR ( : TEUR 9.008) for land and buildings, TEUR ( : TEUR 8.165) for machinery and equipment and TEUR 455 ( : TEUR 602) for other equipment, furniture, fixtures and office equipment. At the end of the lease, the ownership of the asset is transferred to the lessee. The liabilities arising from these leases are reported under financial liabilities. I/22

25 Additions to property, plant and equipment include TEUR 0 ( : TEUR 1.327) of capitalized interest. Land and buildings includes land with a carrying amount of TEUR ( : TEUR ). INTANGIBLE ASSETS Licenses Goodwill Total TEUR TEUR TEUR Acquisition or production cost as of Change in consolidation range Additions Disposals Acquisition or production cost as of Additions Disposals Transfers Acquisition or production cost as of Accumulated amortization as of Change in consolidation range Ordinary amortization Disposals Accumulated amortization as of Ordinary amortization Disposals Transfers Accumulated amortization as of Carrying amount as of Carrying amount as of Goodwill is comprised of the following: TEUR Egger Beschichtungswerk Marienmünster GmbH & Co. KG No impairment charges were recognized to goodwill during the 2008/09 financial year. I/23

26 (2) Securities and financial assets Non-current financial assets Acquisition value Accumulated incr./decr. in value Carrying amount Carrying amount TEUR TEUR TEUR TEUR Shares in subsidiaries of other private foundations Securities carried at fair value through profit or loss Investment property Other financial assets Loans due from Third parties Subsidiaries of other private foundations Associates Shares in subsidiaries of other private foundations represent a stake of approx. 18% in Egger Getränke Beteiligungsgesellschaft m.b.h, St. Pölten. It was not possible to determine a market value for these shares, and the investment is therefore carried at amortized cost. Securities are comprised primarily of shares in funds. The carrying amount of these items reflects fair value. During the 2008/09 financial year, net unrealized losses of TEUR 60 (2007/08: losses of TEUR 104) were included under income from financial investments. I/24

27 Land and buildings that are not required for business operations (investment property) developed as follows: Investment property TEUR Acquisition or production cost as of Change in consolidation range Additions 1 Disposals -13 Acquisition or production cost as of Additions 8 Acquisition or production cost as of Accumulated depreciation as of Change in consolidation range Ordinary depreciation -96 Disposals 12 Accumulated depreciation as of Ordinary depreciation -89 Accumulated depreciation as of Carrying amount as of Carrying amount as of The fair value of TEUR ( : TEUR 5.361) was determined using an income approach. Expenses arising from investment property totaled TEUR 117 in 2008/09 (2007/08: TEUR 151) and income equaled TEUR 300 (2007/08: TEUR 302). Securities and current financial assets Current financial assets of TEUR 262 ( : TEUR 245) represent loans with a remaining term of less than one year. (3) Shares in associates Carrying amount Addition Results for the year Distribution Carrying amount TEUR TEUR TEUR TEUR TEUR Shares in associates I/25

28 The carrying amount and annual results are related above all to the successor company of Österreichische Novopan Holzindustrie Gesellschaft m.b.h. The annual financial statements of Novopan that form the basis for the valuation were prepared in accordance with the Austrian Commercial Code. However, the differences to IFRS are not considered to be material. As of the balance sheet date on April , assets equaled TEUR ( : TEUR ) and liabilities equaled TEUR ( : TEUR 6.174), while the loss for the reporting year totaled TEUR 513 (2007/08: profit for the year of TEUR 1.980). The final shutdown of production at the successor company of Österreichische Novopan Holzindustrie Gesellschaft m.b.h. was announced at a meeting of employees on May 15, Current estimates indicate that this shutdown will not lead to a loss. All other associates are sales companies. (4) Other assets Total Thereof remaining term Total Thereof remaining term Over 1 year Under 1 year Over 1 year Under 1 year TEUR TEUR TEUR TEUR TEUR TEUR Other assets Due from third parties Tax credits (non-income based taxes) Suppliers with debit balances Due from subsidiaries of other private foundations Due from associates Derivative financial assets Prepaid expenses Other assets due from third parties are comprised chiefly of insurance claims, investment subsidies that have been granted but not yet received and prepayments on expenses. Information on derivative financial instruments is provided under point 4.1. I/26

29 (5) Inventories TEUR TEUR Raw materials and supplies Semi-finished goods Finished goods and merchandise Write-downs of TEUR ( : TEUR ) were recorded to inventories. Of total inventories, TEUR ( : TEUR 7.192) are carried at net realizable value less costs to sell. (6) Trade receivables TEUR TEUR Trade receivables Due from third parties Due from subsidiaries of other private foundations 7 5 Due from associates Valuation adjustments of TEUR ( : TEUR 3.324) were recognized to trade receivables. Of total trade receivables, TEUR 47 ( : TEUR 51) are secured by notes receivable. During the 2008/09 financial year, trade receivables were sold through factoring. In accordance with IAS 39, trade receivables are not recognized if income, control and part of the risk are transferred to the buyer. As of the balance sheet date on April 30, 2009, receivables totaling TEUR ( : TEUR ) were not recognized because they had been sold to an external financing institution. I/27

30 (7) Cash and cash equivalents TEUR TEUR Cash on hand Short-term deposits (time deposits) Deposits with financial institutions (8) Issued capital, participation rights, perpetual bond, reserves and retained earnings The primary objectives of equity management are to safeguard the continued existence of the company, to finance the growth of the company and to ensure an appropriate return on equity. In this connection, the most important indicators are the debt repayment period (net debt / EBITDA) and the equity ratio (equity / balance sheet total). The capital stock of Egger Holzwerkstoffe GmbH totals TEUR and has remained unchanged since the prior year. The share-like participation rights represent participation rights that may only be cancelled by the issuer. The holder of the participation rights is entitled to a 46,3% of the net profit and net liquidation proceeds of Egger Holzwerkstoffe GmbH. The claims by the holder of the participation rights are subordinated to all other non-subordinated liabilities recognized by the Group. These participation rights are not tied to any other participation rights under company law, above all not to voting rights. Egger Holzwerkstoffe GmbH issued a perpetual bond with a total nominal value of EUR 133 million in May In accordance with IFRS, this perpetual bond is recorded as equity. The bond has a perpetual term and a fixed coupon of 7,25%, and cannot be cancelled by the company for a period of ten years. If the bond is not cancelled after ten years, the coupon will change to variable interest at a rate equal to the 6-month EURIBOR plus a step-up of 4,85%. The ordinary cancellation rights of bondholders have been excluded. The individual bond certificates represent subordinated liabilities of the issuer. Interest payments are deductible for tax purposes and are payable in May of each year. However, the issuer is only required to pay interest to bondholders if a distribution to shareholders has been approved. I/28

31 (9) Foreign exchange translation The position foreign exchange increase/decrease includes all exchange rate differences resulting from the translation of subsidiaries annual financial statements that were prepared in foreign currencies. Unrealized foreign exchange differences of TEUR ( : TEUR ) arising from long-term shareholder loans (net investments) were recorded to the translation reserve under equity without recognition through profit or loss. Forward exchange contracts of TEUR were recorded under reserves. These forward exchange contracts had a fair value of TEUR (10) Bonds Nominal value TEUR Total term Remaining term Nominal interest rate Effective interest rate Fixed/ variable Carrying amount TEUR Carrying amount TEUR Bond years 3 years 3,875 % 3,914 % fixed In October 2005 Egger Holzwerkstoffe GmbH issued a 3,875% fixed coupon bond with a volume of EUR 165 million. The bond has a term of seven years, ending in October Interest payments are due each year in October. The fair value of the bond totals TEUR ( : TEUR ). I/29

32 (11) Financial liabilities Total Thereof remaining term Over 5 years 1 to 5 years Under 1 year TEUR TEUR TEUR TEUR Financial liabilities owed to credit institutions Bank loans Accrued interest Other financial liabilities Finance leases Cash pooling liabilities / settlement liabilities due to Subsidiaries of other private foundations Associates Other Total Thereof remaining term Over 5 years Under 1 year TEUR TEUR TEUR TEUR Financial liabilities owed to credit institutions Bank loans Accrued interest Other financial liabilities Finance leases Cash pooling liabilities / settlement liabilities due to subsidiaries of other private foundations Other Of the total bank loans, TEUR ( : TEUR ) are denominated in British Pounds. The other credits were concluded in Euros. Financial liabilities of TEUR ( : TEUR ) are secured by the following collateral. I/30

33 Collateral Financial liabilities TEUR Collateral TEUR Financial liabilities TEUR Collateral TEUR Shareholder rights to consolidated subsidiaries Property, plant and equipment The key conditions of liabilities owed to credit institutions are listed below: Financing Bank loans Carrying amount Fair value Effective interest rate 2008/09 Interest rate TEUR TEUR % fixed/variable ,92 fixed ,99 variable Liabilities arising from finance leases are comprised of the following: Total Thereof remaining term Over 5 years Under 1 year TEUR TEUR TEUR TEUR Present value Interest Payment amount I/31

34 (12) Other liabilities Thereof remaining term Total Over 5 years 1 to 5 years Under 1 year TEUR TEUR TEUR TEUR Other liabilities Due to third parties Due to employees Outstanding customer bonuses Due to subsidiaries of other private foundations Due to associates Taxes (non-income based taxes) Social security Derivative financial instruments (liabilities) Deferred income Thereof remaining term Total Over 5 years 1 to 5 years Under 1 year TEUR TEUR TEUR TEUR Other liabilities Due to third parties Due to employees Outstanding customer bonuses Due to subsidiaries of other private foundations Due to associates Taxes (non-income based taxes) Social security Derivative financial instruments (liabilities) Deferred income Information on derivative financial liabilities is provided under point 4.1. I/32

35 (13) Investment subsidies Investment subsidies developed as follows during the 2008/09 financial year: Balance on Foreign exchange incr./decr. Additions Use Balance on TEUR TEUR TEUR TEUR TEUR Investment subsidies The investment subsidies are released to profit or loss over the useful life of the relevant item of property, plant and equipment. (14) Non-current provisions Balance on Change in consolidation range Foreign exchange incr./decr. Additions Use Reversal Balance on TEUR TEUR TEUR TEUR TEUR TEUR TEUR Provisions for termination benefits Provisions for pensions Other provisions for employees Other non-current provisions Provisions for termination benefits TEUR TEUR Present value (DBO) of obligation = provision recognized as of May Change in consolidation range 0-11 Service cost Interest expense Recognized actuarial gain Severance payments Present value (DBO) of obligation = provision recognized as of April Termination benefits for the 2009/10 financial year are expected to equal TEUR 66. I/33

36 Provisions for pensions Calculation of provisions recognized on the balance sheet TEUR TEUR Present value (DBO) of obligation covered by pension fund assets Fair value of pension fund assets Net value of obligation covered by pension fund assets Present value (DBO) of obligation not covered by pension fund assets Unrecognized actuarial loss Provisions recognized as of April Composition of pension plan assets in % in % Stocks and shares in funds Fixed-interest securities Other Development of present value (DBO) of obligation TEUR TEUR Present value (DBO) of obligation as of May Currency translation adjustment Service cost Interest expense Actuarial gain Pension payments Present value(dbo) of obligation as of April Development of fair value of pension plan assets TEUR TEUR Fair value of pension plan assets as of May Currency translation adjustment Expected return on investment Actuarial loss Contributions to fund Pension payments by fund Fair value of pension plan assets as of April I/34

37 The following amounts were recognized to profit or loss for the period: TEUR TEUR Service cost Interest expense Expected return on investment Realized actuarial loss Expenses included under personnel expenses / financial results Actual loss / gain on investments Development of unrealized actuarial results: TEUR TEUR Balance of accumulated actuarial gains as of May Currency translation adjustment Actuarial gain for the year from the DBO Actuarial loss for the year from pension plan assets Amortization for the financial year (excess over corridor) 0 0 Balance of accumulated actuarial loss / gain as of April Historical information on obligation covered by fund assets TEUR TEUR TEUR TEUR Present value (DBO) Present value of pension plan assets (PA) Deficit from pension plan Adjustment of loss / (gain) from DBO based on experience Adjustments are made based on experience to reflect variances in the employee-related parameters, which include employee turnover, life expectancy and retirement trends. The adjustments to pension plan assets based on actual experience represent the actuarial gains/losses. Payments for pension obligations are expected to total TEUR in 2009/10. I/35

38 Other non-current employee provisions TEUR TEUR Present value(dbo) of obligation as of May Change in consolidation range 0-10 Service cost Interest expense Recognized actuarial gain Long-service bonuses, shift-work bonuses granted on retirement or part-time work for older employees Present value(dbo) of obligation = recognized provision as of April These other non-current provisions for employees include the provisions for long-service bonuses, the provisions for shift-work bonuses granted on retirement and the provisions for part-time work for older employees. The current provision for part-time work for older employees includes TEUR ( : TEUR 1.194) that are secured by collateral. This collateral represents shares in funds. (15) Income taxes Income taxes are comprised of the following: 2008/ /08 TEUR TEUR Income taxes paid Taxes resulting from equity items Deferred taxes The taxes resulting from equity items represent outstanding interest payments for the perpetual bond, the hedging reserve and currency translation differences on net investments. I/36

39 Temporary differences between the carrying amounts in the IFRS financial statements and the relevant tax bases have the following effect on deferred taxes as shown on the balance sheet: Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities TEUR TEUR TEUR TEUR Property, plant and equipment Intangible assets Financial assets Inventories Trade receivables Other assets Financial liabilities Trade payables Other liabilities Provisions Equity (perpetual bond, net investment) Special depreciation for tax purposes Tax loss carryforwards Deferred tax assets/liabilities Offset within legal tax units and jurisdictions Deferred taxes (net) Transition to deferred income tax expense TEUR TEUR TEUR Deferred tax assets as of Deferred tax liabilities as of Deferred tax assets as of Deferred tax liabilities as of Change in deferred taxes 2008/ Currency translation adjustment 449 Changes recognized directly in equity 16 Deferred income tax expense Current tax regulations support the assumption that the differences between the tax base and the proportional share of equity in consolidated subsidiaries, which are a result of retained earnings, should remain largely tax-free in the future. Therefore, deferred taxes were not recognized for these items. Deferred taxes were capitalized on loss carryforwards because it is probable that sufficient taxable profit will be available to utilize these carryforwards within the next five years. The I/37

40 use of loss carryforwards is limited to 10 years for OOO Egger Drevprodukt, Moscow, and to five years for EGGER Romania S.R.L, Radauti. The tax regulations in other countries do not place time limits on the use of loss carryforwards by Group companies. The difference between the expected tax liability and income tax expense as shown on the income statement resulted from the following factors: 2008/ /08 TEUR % TEUR % Profit before tax Thereof income tax at a rate of 25% , ,0 Decrease / increase in taxes due to Other tax rates , ,2 Tax expense and income from prior periods , ,8 Changes in tax rates 257 1, ,0 Non-deductible expenses 856 4, ,5 Amortization of goodwill for tax purposes , ,2 Partial write-down to an investment for tax purposes ,7 0 0,0 Tax-deductible interest on risk capital , ,5 Tax-free income , ,4 Other 287 1, ,2 Effective tax expense , ,2 (16) Trade payables TEUR TEUR Trade payables Due to third parties Due to subsidiaries of other private foundations Due to associates I/38

41 (17) Current provisions Balance on Change in consolidation range Foreign exchange incr./decr. Additions Use Reversal Balance on TEUR TEUR TEUR TEUR TEUR TEUR TEUR Legal proceedings and other legal costs Other (18) Revenues and segment reporting Segment reporting is based on the Decorative and Retail areas of business. These two segments manufacture and sell the following products: Decorative: Retail: Production and sale of chipboard, MDF and HDF boards as well as various finished and semi-finished products that are derived, refined or processed from these items Production and sale of laminated flooring and OSB boards The same accounting principles described under the section Significant Accounting Policies apply to the above segments. Assets and liabilities as well as income and expenses were allocated to the individual segments. The provision of goods and services between the individual segments is generally based on arm s length pricing. I/39

42 Segment information by area of business A p r i l 3 0, Decorative Retail Consolidation Total TEUR TEUR TEUR TEUR Third party revenues Inter-company revenues Segment EBIT Financial results Income from financial investments -58 Results from associates Profit before tax Income taxes Profit after tax 865 Segment assets Segment liabilities Capital expenditure Depreciation A p r i l Decorative Retail Consolidation Total TEUR TEUR TEUR TEUR Third party revenues Inter-company revenues Segment EBIT Financial results Income from financial investments -104 Results from associates Profit before tax Income taxes Profit after tax Segment assets Segment liabilities Capital expenditure Depreciation I/40

43 Segment information by region Regional segmentation is based on the classification of revenues according to the location of the customer. West and Southern and Other Central Europe Eastern Europe countries Consolidation Total TEUR TEUR TEUR TEUR TEUR Third-party revenues Third-party revenues There are no relationships with individual customers that can be classified as material based on the share of Group revenues. (19) Other operating income 2008/ /08 TEUR TEUR Income from investment property Gains on the sale of property, plant and equipment Reversal of investment subsidies Miscellaneous operating income Miscellaneous operating income is comprised primarily of compensation for damages, income from recycling, expenses charged out and rental income. (20) Cost of materials and services 2008/ /08 TEUR TEUR Cost of materials Cost of services I/41

44 (21) Personnel expenses 2008/ /08 TEUR TEUR Wages Salaries Expenses for pensions Expenses for termination payments and contributions to external employee pension funds Payroll-related taxes and duties Other employee benefits The average number of employees is as follows: 2008/ /08 Production and logistics Sales and administration Part-time employees are included in the above figures based on the time worked. (22) Other operating expenses 2008/ /08 TEUR TEUR Freight Temporary personnel Lease and rental fees Legal and consulting expenses Advertising Miscellaneous taxes Insurance Losses on the disposal of non-current assets Expenses arising from investment property Miscellaneous operating expenses Miscellaneous operating expenses are comprised primarily of waste disposal costs, expenses for maintenance, service and repairs as well as travel, communications and selling expenses. I/42

45 (23) Non-recurring income The amount of TEUR reported in the prior year represents the results from the deconsolidation of Getränke-Industrie Richard Schipal Gesellschaft m.b.h. (24) Financial results 2008/ /08 TEUR TEUR Interest expense Interest expense on provisions for employee benefits Interest income Currency translation gains/losses from financing Income/expenses on financial derivatives With the exception of financial derivatives, the above income is generated exclusively by loans and receivables. The expenses are related to liabilities carried at amortized cost, with the exception of derivatives. (25) Income from financial investments 2008/ /08 TEUR TEUR Recognized income/loss on securities (net income) 3 0 Unrecognized income/loss on securities (net expense) Since all securities are carried at fair value through profit or loss, the above results are attributable entirely to this category of financial instruments. I/43

46 (26) Additional information on the consolidated cash flow statement 2008/ /08 TEUR TEUR Interest income received Interest expense paid Income taxes paid Income taxes refunded Cash and cash equivalents include cash on hand, time deposits with a term of less than three months from the date of acquisition and demand deposits with credit institutions as well as cash pooling receivables invested with the subsidiaries of other private foundations that are available on demand. Cash and cash equivalents at the end of the reporting year include funds of TEUR , which are used for trading in derivative financial instruments. I/44

47 3. Risk Report Principles of risk management The Egger Group uses a comprehensive risk management system to analyze the risks to which it is exposed. Risk is defined as the possibility of a variance from corporate goals, and covers the possibility of a loss as well as the failure to utilize an opportunity. The goals of risk management are to protect the asset, financial and earnings position of the Egger Group and also identify future opportunities to generate earnings and realize growth. The decentralized organizational and management structure of Egger in connection with increasing geographical diversification allows the Group to minimize business risks and reduce the related negative consequences. This process is supported by an integrated risk profile, which was developed to standardize risk management throughout the Group. In addition to geographical diversification, a concentration on the core business supports the optimization of procedures and strengthens the focus of the risk management system. High market shares, long-standing cooperation with customers, suppliers and consultants as well as particularly low employee turnover are the guarantee for wide-ranging knowledge of the Group s markets and the early identification of risks. As part of its risk management strategy, Egger identifies the risks to which the Group is exposed and assesses the major risks. The quantitative and qualitative effects (extent of potential damages) and the probability of occurrence of the most important Egger risks are identified and documented each year during the strategy meeting. The individual risks identified by this survey are summarized under major risks and subsequently into risk groups. Risk management activities are concentrated on the 15 largest major risks, which are analyzed and monitored regularly by designated risk owners. The maximum risk capacity for the entire Egger Group has been defined as 60% of annual consolidated EBITDA for the total of all major risks. Therefore, the identified major risks must be limited to this amount as part of the planning process (through avoidance, reduction or insurance). No risks can be identified at the present time that would endanger the continued existence of the Egger Group. The individual companies in the Egger Group consciously take on risk only I/45

48 in connection with their operating activities. Controlling and planning instruments, Groupwide guidelines and regular reporting are used to monitor and manage risks. The Egger risk management system represents an effective structure for the early identification, communication, management and handling of risks. This system is intended to identify potential risks at an early point in time and to assess these risks, estimate their consequences and, if necessary, to initiate suitable preventive or hedging measures. Risk management represents an integral part of all decisions and business processes in the Egger Group. Financial risks The interest rate and foreign exchange risks arising from the operating activities of the Egger Group are determined each quarter based on a 12-month risk analysis. Any necessary shortterm hedging during the period allowed for payment (the period between the date the foreign currency invoice is issued and the date of expected payment) also flows into the risk analysis in keeping with current market factors. This evaluation forms the starting point for the control and management of interest rate and foreign exchange risks in keeping with the risk management strategy defined by Group management and in accordance with the limits established for interest rate and foreign exchange risks. The hedging requirements determined by this analysis are designed to limit interest rate and foreign exchange risks through the directed use of financial instruments, and thereby ensure that the Group s risk position after the conclusion of these hedges does not exceed the defined risk capacity. This risk capacity is determined each year as a percentage of the Group s overall risk capacity, which represents a percentage of budgeted EBITDA. Interest rate risk Risks arising from changes in interest rates are generally related to borrowings. As part of the general risk analysis, a risk position is calculated for the expected interest rate risk arising from variable rate borrowings based on forward rates and a 95% probability of occurrence. This risk is limited to a level below the available risk capacity through the use of interest rate swaps and forward rate agreements, depending on the underlying transaction. The maximum net interest rate risk is hedged through interest rate caps, whose strike equals the amount of budgeted operating return on investment. I/46

49 A list of all major interest-bearing liabilities together with the effective interest rate and remaining term as well as information on existing hedges is provided in the notes under financial liabilities. The derivative financial instruments used to hedge this risk are included in the list of financial instruments. Foreign exchange risk The regular business operations of the Group lead to foreign exchange risk on cash transactions in CHF, GBP, PLN, USD and AUD. Free cash flows in GBP, RUB and RON, which are generated by non-eur assets, are also exposed to a direct foreign exchange risk until they are converted into the Euro. EUR-revenues recorded in non-eur countries are subject to an indirect foreign exchange risk, since an increase in the value of the Euro can lead to increased pressure on prices in individual markets. Budgeted revenues and budgeted free cash flows represent the foundation for risk analysis in this area. The individual risk positions are calculated for each term based on the implied volatility and the accompanying probability of loss, and then added to determine the total foreign exchange risk. The total risk position is then limited by forward exchange contracts that are coordinated with the individual underlying positions. The Egger Group is also exposed to risks resulting from the translation of individual financial statements from countries outside the Euro zone into the Euro as the reporting currency (translation risk). This risk is also estimated each year as part of the risk analysis. Translation risk is only hedged when the potential risk would lead to an equity ratio of less than 25%. Liquidity risk Liquidity risk represents a danger to the continued existence of the Group companies as well as the entire Group. Therefore, sufficient funds must be available to ensure that payment obligations can be met at any time. The liquidity position is evaluated regularly on the basis of daily cash dispositions and the Group s financial standing (short-term availability of liquid funds) as well as liquidity planning for 18 months and mid-term planning for five years. Budgeted short-term liquidity requirements are covered by cash balances, which include a pre-determined liquidity reserve. Mid-term requirements are safeguarded by pre-arranged lines of credit and individual financing agreements. I/47

50 Liabilities to credit institutions result in the following contractually agreed payment obligations (interest expense and principal repayments): Carrying amount Total Under 6 months Cash Flows 6 12 months 1 2 years 2 5 years Over 5 years Carrying amount Credit risk The amounts reported under assets represent the maximum credit and default risk because there are no general settlement agreements. The risk associated with trade receivables is considered to be low because the credit standing of new and existing customers is monitored on a regular basis. Receivables are also principally insured against default, whereby the Group has a deductible of approx. 15% ( : ca 15%). The maximum risk of default is TEUR ( : TEUR ). The risk of default on other primary financial assets and on derivative financial instruments is considered to be low because the Group only works with financial institutions that have an excellent credit rating. Operating risks Market risks The core business of the Egger Group the development and production of high-quality wood materials for decorative and construction applications is subject to economic and seasonal fluctuations. In order to eliminate fluctuations in earnings to the greatest extent possible, the Group pursues a strategy of geographic and product diversification and also works to develop long-term relationships with customers. Procurement, production and investment risks Egger uses large quantities of raw materials and energy in the production of wood materials, and the relevant purchase prices may fluctuate significantly depending on the market situation. In order to provide the best possible protection against these price risks, the Group monitors procurement markets constantly, minimizes fluctuations with appropriate stock I/48

51 levels and concludes long-term supply contracts with specific suppliers. Moreover, the increasing use of environmentally friendly bio-mass power plants reduces the dependency on fossil fuels. Production capacity may be impaired by unplanned malfunctions, natural disasters or problems in obtaining sufficient supplies of key strategic raw materials. In order to counter the potential effect of any such incidents on earnings, the Group prepares emergency plans, arranges for support and spare parts from other Egger production facilities and safeguards supplies of key raw materials through long-term delivery contracts wherever possible. Production facilities are monitored regularly with forecast models to avoid excess capacity. Any necessary adjustments are made through temporary or permanent plant shutdowns and appropriate marketing instruments to reflect the mid-term development of sales volumes. All investments and growth projects must meet pre-defined targets for return and profitability, and are monitored regularly to ensure that these targets are met. Efficient and effective monitoring is guaranteed by the application of value management principles, analysis on the basis of indicators and the use of detailed investment calculation models. Internal control system Egger views the internal control system (ICS) as an integral part of the risk management system. It supports the profitability of business processes, ensures the reliability of financial reporting and guarantees compliance with applicable legal regulations. In accordance with its decentralized structure, local management is responsible for the ICS in the Egger Group. A different area of the Group is evaluated for compliance with the ICS each year in connection with the audit of the annual financial statements. The following internal control areas were analyzed in recent years: 2008/09: Accounts receivable management, customer credit management 2007/08: Procurement, IT general controls 2006/07: Treasury, selected IT processes 2005/06: Personnel. I/49

52 Egger also carries out an internal audit each year, where Group experts analyze processes along the value added chain together with the local specialist departments. This procedure supports the optimization of processes and ensures compliance with Group standards. I/50

53 4. Other Information 4.1. Financial Instruments The Group holds both primary and derivative financial instruments. Primary financial instruments are comprised chiefly of financial assets, trade receivables, securities, deposits with financial institutions, bonds, financial liabilities and trade payables. Derivative financial instruments consist of the following: Cur- Nominal value Fair value Cur- Nominal value Fair value rency in thous. TEUR rency in thous. TEUR Interest rate swaps with positive fair value EUR EUR Interest rate swaps with negative fair value EUR EUR GBP 0 0 GBP Forward rate agreement EUR EUR Interest rate CAPs EUR EUR GBP GBP Interest rate floor EUR EUR Forward exchange contracts CHF CHF CZK 0 0 CZK GBP GBP HUF 0 0 HUF PLN PLN RON RON 0 0 RUB 0 0 RUB TRY TRY 0 0 Other derivative financial instruments EUR EUR The nominal value reflects the contract volume of the derivative financial instruments. Fair value represents the amount at which the transactions could be settled. The derivative financial instruments are held to hedge interest rate and foreign exchange risks. Fair value The fair values of the derivative financial instruments are shown in the above table. The following table shows the carrying amounts and fair values of the individual financial assets and liabilities for each category of financial instruments as well as the transition of these amounts to the relevant balance sheet positions: I/51

54 Balance Sheet Position Valuation category (1) Carrying Fair Carrying Fair value amount value amount MEUR MEUR MEUR MEUR ASSETS Financial assets Shares in subsidiaries of other private foundations (2) AFS/FAAC 16,3-16,3 - Securities measured at fair value through profit or loss FAFVTPL 1,8 1,8 1,8 1,8 Investment property IAS 40 4,1 5,3 4,2 5,4 Other financial assets (2) AFS/FAAC 3,7-3,7 - Intragroup funds LAR 3,7 3,7 2,8 2,8 29,6 28,8 Other assets Due from third parties LAR 22,7 22,7 20,4 20,4 Tax credits (other than from income taxes) 5,8 5,8 13,1 13,1 Suppliers with debit balances LAR 5,0 5,0 3,0 3,0 Due from subsidiaries of other private foundations LAR 0,3 0,3 0,4 0,4 Due from associates LAR 0,1 0,1 0,1 0,1 Derivative financial instruments (assets) FAFVTPL 1,5 1,5 2,7 2,7 Prepaid expenses LAR 1,9 1,9 2,2 2,2 37,3 41,9 Trade receivables LAR 42,1 42,1 86,6 86,6 Cash and cash equivalents LAR 125,1 125,1 207,8 207,8 Aggregated by valuation category Financial assets measured at amortized cost FAAC 20,0 20,0 Financial assets at fair value through profit or loss FAFVTPL 3,3 4,5 Loans and receivables LAR 200,9 323,3 LIABILITIES Bonds and financial liabilities FLAC 692,3 675,5 699,6 687,6 Other liabilities Due to third parties FLAC 7,8 7,8 13,5 13,5 Due to employees FLAC 25,3 25,3 25,3 25,3 Customer bonuses not yet paid FLAC 14,1 14,1 17,2 17,2 Due to subsidiaries of other private foundations FLAC 0,0 0,0 0,1 0,1 Tax liabilities (other than from income taxes) 9,7 9,7 7,1 7,1 Due to social security carriers 5,1 5,1 6,4 6,4 Derivative financial instruments (liabilities) FLFVTPL 20,6 20,6 1,2 1,2 Deferred income FLAC 2,3 2,3 4,3 4,3 84,9 75,1 Trade payables FLAC 136,5 136,5 205,7 205,7 Aggregated by valuation category Financial liabilities measured at amortized cost FLAC 878,3 965,7 Financial liabilities at fair value through profit or loss FLFVTPL 20,6 1,2 (1) Valuation categories as defined by IAS 39 / valuation in accordance with another IAS / IFRS (2) Generally available for sale (AFS); since fair value cannot be reliably determined, valuation at cost less any impairment charges. I/52

55 4.2. Other Obligations and Uncertain Liabilities Supply contracts The Group has concluded rental and lease agreements with various contract partners for assets that are used in business operations. These contracts are generally related to the rental or leasing of office space, land and information technology (hardware and software). The minimum payments resulting from these contracts are shown below: Obligations as of Total Thereof due Over 5 years 1 to 5 years Under 1 year TEUR TEUR TEUR TEUR Operating leases Rental agreements Obligations as of Total Thereof due Over 5 years 1 to 5 years Under 1 year TEUR TEUR TEUR TEUR Operating leases Rental agreements Lease and rental expenses totaled TEUR in 2008/09 (2007/08: TEUR 8.918). Uncertain liabilities The Group holds numerous patents and has filed additional patent applications in the area of laminated flooring with glueless installation systems, which are connected with general legal uncertainty. Therefore, future disputes over patent rights cannot be excluded. However, this situation has been largely minimized by the conclusion of a licensing agreement with a major flooring producer. In addition, certain subsidiaries of Egger Holzwerkstoffe GmbH are parties in various legal proceedings related to ordinary business activities. A provision was created in cases where it is probable that these proceedings will lead to a future payment or other form of performance whose amount can be estimated. Management assumes that these proceedings will not have a material effect on the asset, financial or earnings position of Egger Holzwerkstoffe GmbH. I/53

56 In March 2009 the German anti-trust authorities conducted investigations in the plants of all major chipboard producers that maintain their headquarters in Germany. These investigations were carried out in reaction to suspicions of anticompetitive agreements and also included EGGER activities in Germany. The related proceedings are pending and there are no indications when a decision will be issued. This situation was not reflected in the financial statements as of April 30, 2009 because the outcome of the proceedings and the possible effects cannot be estimated at the present time. However, it should be noted that anticompetitive agreements are not part of Egger business policies are are expressly prohibited by internal guidelines. Contingent liabilities Egger has accepted contingent liabilities of TEUR 18 ( : TEUR 30) Auditor s Fees The following fees for services provided by the auditor, KPMG Austria GmbH, were recognized as expenses: 2008/ /08 TEUR TEUR Audit of the annual financial statements Other confirmations 3 5 Other services Transactions with Related Party and Subsidiaries of other Private Foundations All subsidiaries and associates of Egger Holzwerkstoffe GmbH are considered to be related parties. A list of the subsidiaries and associates of Egger Holzwerkstoffe GmbH is provided in Appendix 1 to the notes. All transactions between subsidiaries of Egger Holzwerkstoffe GmbH are eliminated during the consolidation. The major business transactions with associates are summarized as follows: I/54

57 TEUR TEUR Revenues Cost of materials (procurement from associates) Receivables Liabilities The shareholders of Egger Holzwerkstoffe GmbH are the investment in "FM Deutschland" Privatstiftung, Vienna, and the investment "FM England" Privatstiftung, Vienna. In addition, there are other private foundations that were directly or indirectly established by members of the Egger family. These foundations are listed below: MFE Vermögensverwaltung Privatstiftung, Vienna Beteiligung "FM Getränke" Privatstiftung, Vienna Beteiligung "E.F.P." Privatstiftung, Vienna Beteiligung "FM International" Privatstiftung, Vienna These four private foundations are designated as other private foundations in the consolidated financial statements. The other private foundations and their subsidiaries are not classified as subsidiaries or associates. Top management comprised 63 persons ( : 60), who received salaries totaling TEUR in 2008/09 (2007/08: TEUR 8.214). The Managing Board was comprised of the following persons in 2008/09. Michael Egger (up to January 1, 2009) Walter Schiegl Thomas Leissing Ulrich Bühler All business transactions with related persons are conducted at arm s length Statement by the Company s Legal Representatives We confirm to the best of our knowledge that the consolidated financial statements provide a true and fair view of the assets, liabilities, financial position and profit or loss of the group as required by the applicable accounting standards and that the group management report provides a true and fair view of the development and performance of the business and the I/55

58 position of the group, together with a description of the principal risks and uncertainties faced by the group. St. Johann i.t, July 10, 2009 Walter Schiegl Thomas Leissing Ulrich Bühler The Managing Board I/56

59 Appendix 1 Consolidation Range Company Headquarters Nominal capital in 1000 Stake Type of consolidation % Egger Holzwerkstoffe GmbH St. Johann i. T. EUR ,00 Full consolidation Fritz Egger Gesellschaft m.b.h. St. Johann i. T. EUR ,90 Full consolidation Fritz Egger Gesellschaft m.b.h. & Co St. Johann i. T. EUR ,90 Full consolidation EGGER Retail Products GmbH St. Johann i. T. EUR 37 94,90 Full consolidation Fritz Egger Vermögensverwaltung GmbH St. Johann i. T. EUR 37 94,90 Full consolidation Fritz Egger Beteiligungsverwaltung GmbH St. Johann i. T. EUR 35 94,90 Full consolidation Fritz Egger Vertriebs GmbH St. Johann i. T. EUR 35 94,90 Full consolidation Egger Rumänien Beteiligungs GmbH (formerly: Egger Osteuropa Beteiligungs GmbH) St. Johann i. T. EUR ,00 Full consolidation Egger Holzprodukte Vertriebs GmbH St. Johann i. T. EUR 35 94,90 Full consolidation Egger Holzprodukte Verwaltungs GmbH St. Johann i. T. EUR 35 94,90 Full consolidation Egger Verwaltungsgesellschaft m.b.h. St. Johann i. T. EUR ,00 Full consolidation Egger Deutschland Beteiligungsverwaltung GmbH St. Johann i. T. EUR ,84 Full consolidation Egger Deutschland Management GmbH St. Johann i. T. EUR ,90 Full consolidation Egger Osteuropa Beteiligungsverwaltung GmbH (formerly: Egger Holzhandel GmbH) St. Johann i. T. EUR ,00 Full consolidation Egger Russland Beteiligungs GmbH (formerly: Egger JV Beteiligungs GmbH) St. Johann i. T. EUR 35 88,28 Full consolidation Egger Belgien Beteiligungsverwaltung GmbH St. Johann i. T. EUR ,00 Full consolidation Egger Holzprodukte Management GmbH St. Johann i.t. EUR 35 94,90 Full consolidation Hackgut Logistik & Handels GmbH Großschönau EUR ,40 Full consolidation Österreichische Novopan Holzindustrie Gesellschaft m.b.h. Nachfolger Leoben EUR ,45 Equity method Egger France SAS Rion des Landes EUR ,90 Full consolidation EGGER Panneaux & Décors S.A.S. Rion des Landes EUR ,90 Full consolidation Egger Floor Products France SAS Tours EUR ,90 Full consolidation Egger (UK) Holdings Limited Woking GBP ,00 Full consolidation Egger (UK) Limited Woking GBP ,00 Full consolidation Campact Limited Woking GBP ,00 Full consolidation Egger Forestry Products Limited Woking GBP ,00 Full consolidation Egger (Barony) Limited Woking GBP ,00 Full consolidation Weyroc Limited Woking GBP 5 100,00 Full consolidation Timberpak Limited Woking GBP 5 90,00 Full consolidation Egger Floor Products Limited Woking GBP 5 100,00 Full consolidation Egger (Ayrshire) Limited Glasgow GBP ,00 Full consolidation Egger Ireland Limited Dublin EUR ,00 Full consolidation Northumbria Finance Limited Dublin EUR ,00 Full consolidation Northumbria Reinsurance Limited Dublin EUR ,00 Full consolidation I/57

60 Company Headquarters Nominal capital in 1000 Stake Type of consolidation % Fritz Egger Beteiligungs GmbH & Co.KG 1 / 2 Brilon EUR ,86 Full consolidation E.F.P. Floor Products Fußböden GmbH & Co. KG 1 Brilon EUR ,86 Full consolidation Egger Holzwerkstoffe Brilon GmbH & Co. KG 1 / 2 Brilon EUR ,86 Full consolidation EGGER Retail Products GmbH & Co. KG 1 / 2 Brilon EUR 26 94,86 Full consolidation Egger Holzwerkstoffe Brilon Beteiligungs-GmbH Brilon EUR 25 94,86 Full consolidation EGGER Retail Products Beteiligungs-GmbH Brilon EUR 25 94,86 Full consolidation LTPRO GmbH Brilon EUR 25 94,86 Full consolidation Egger Kraftwerk Brilon GmbH Brilon EUR ,86 Full consolidation Egger Bevern Verwaltungs-GmbH Brilon EUR 25 94,86 Full consolidation Egger Kunststoffe Beteiligungs- GmbH Brilon EUR 25 94,86 Full consolidation E.F.P. Brilon Beteiligungs-GmbH Brilon EUR 26 94,86 Full consolidation Egger Sägewerk Brilon GmbH Brilon EUR 25 94,86 Full consolidation Egger Sägewerk Brilon Beteiligungs GmbH Brilon EUR 25 94,86 Full consolidation Egger Holzwerkstoffe Wismar GmbH & Co. KG 1 / 2 Wismar EUR ,86 Full consolidation Egger Holzwerkstoffe Wismar Beteiligungs GmbH Wismar EUR 26 94,86 Full consolidation Egger Wismar Instandhaltung und Service GmbH & Co. KG 1 Wismar EUR ,86 Full consolidation Egger Floor Products Wismar GmbH Wismar EUR ,86 Full consolidation Egger Kunststoffe GmbH & Co. KG 1 Gifhorn EUR ,86 Full consolidation Egger Elemente Beteiligungs-GmbH Bünde EUR 26 94,86 Full consolidation Egger Elemente GmbH & Co. KG 1 Bünde EUR 26 94,86 Full consolidation Egger Beschichtungswerk Marienmünster- Beteiligungs-GmbH Marienmünster EUR 26 94,86 Full consolidation Egger Beschichtungswerk Marienmünster GmbH & Co.KG 1 Marienmünster EUR ,86 Full consolidation Egger Bevern GmbH & Co. KG 1 Bevern EUR ,86 Full consolidation Egger Benelux GCV Zulte EUR ,00 Full consolidation Egger Benelux Management BVBA Zulte EUR ,00 Full consolidation Egger Scandinavia ApS Tistrup DKK ,90 Equity method Egger Polska Plyty Wiórowe Sp.z o.o. Poznan PLN 65 94,90 Equity method Egger CZ s.r.o. Hradec Kralove CZK ,90 Equity method Egger Baltic UAB Vilnius LTL ,00 Equity method TOV Egger Holzwerkstoffe Tcherniwzi UAH ,00 Equity method IOOO Egger Drevplit Minsk BYR ,00 Equity method EGGER Holzwerkstoffe Schweiz GmbH Kriens CHF ,90 Equity method Fritz Egger AG Tokyo JPY ,90 Equity method EGGER Romania S.R.L. Radauti RON ,00 Full consolidation EGGER Energia S.R.L. Satu Mare RON 1 100,00 Full consolidation OOO Egger Drevprodukt Shuya RUB ,28 Full consolidation 1 The subsidiaries elected to use the exemptions provided by 264 b of the German Commercial Code. 2 The subsidiaries included in the consolidated financial statements elected to use the exemption provided by 291 of the German Commercial Code, and therefore did not prepare consolidated financial statements or a group management report. I/58

61 Appendix II MANAGEMENT REPORT to the Consolidated Financial Statements of Egger HOLZWERKSTOFFE GMBH, St. Johann in Tirol, for the 2008/09 Financial Year II/1

62 Contents 1 Overview of the Egger Holzwerkstoffe Group 3 2 Development of Business Highlights of 2008/09 (Egger in the media) The Economy and Branch 7 The Branch Environment Marketing and Sales Production Procurement Employees Environmental Protection 23 3 Asset, Financial and Earnings Positions Asset and Financial Position Earnings Development of Earnings in the Individual Countries Cash Flow Investments Financing Measures and Plans Egger Value Management 30 4 Risk Management 30 5 Subsequent Events after the Balance Sheet Date Significant Events after the End of the Financial Year Expected Developments / Outlook Research and Development / Innovation 31 II/2

63 Management Report on the Consolidated Financial Statements 1 Overview of the Egger Holzwerkstoffe Group Organization and Management The Egger Holzwerkstoffe Group comprises companies in Austria, Germany, France, England, Ireland, Russia and Romania as well as sales companies in Eastern Europe, the Benelux countries, Scandinavia and Asia. Michael Egger left the Managing Board to join the Advisory Board as of 1 January The Managing Board of the parent company, Egger Holzwerkstoffe GmbH, now consists of Thomas Leissing (Corporate Speaker, CFO, Finance, Logistics and Personnel), Walter Schiegl (CTO, Production, Engineering and Procurement) and Ulrich Bühler (CSO, Marketing and Sales). Segments of Business The core expertise of the Egger Group lies in the development and production of high-quality wood materials for decorative applications (furniture / interior construction / flooring) and construction applications (building / OSB / DHF / DFF / tongue and groove as well as timber products). II/3

64 Management Report on the Consolidated Financial Statements Egger Locations Following the shutdown of the Leoben plant (see Section 5, Significant Events after the Balance Sheet Date ), Egger now operates 15 production facilities in six European countries. This network underscores the Group s commitment to remain close to its customers. Egger products are also sold in strategic export markets outside Europe. An extensive sales organization, efficient logistics, company-operated sales offices and an international network of retail partners in more than 90 countries are part of the Egger benchmark. The Group s production locations are shown on the following map and listed below: - Austria St. Johann / Tirol: Chipboard, furniture elements, Eurolight Unterradlberg: Chipboard Wörgl: Thin chipboard - Germany Brilon: Chipboard, MDF, flooring, timber products Wismar: MDF, OSB, flooring, adhesives Gifhorn: Laminates Bevern: Thin MDF Marienmünster: Lacquering Bünde: Furniture elements - France Rion des Landes: Chipboard Rambervillers: Chipboard - Great Britain Hexham: Chipboard, adhesives Barony : Chipboard - Russia Shuya: Chipboard - Romania Radauti: Chipboard II/4

65 Management Report on the Consolidated Financial Statements 2 Development of Business 2.1 Highlights of 2008/09 (Egger in the media) May 2008 State Marketing Prize for Egger ( HK Holz- und Kunststoffverarbeitung, Nr. 3/08, ) The Zoom collection launched by Egger in spring 2007 has caused quite a stir, not only in the timber trade but also across the wood processing industry and among architects: The Austrian Ministry for Commerce and the Productivity and Profitability Center honored the Tyrolian wood materials producer with this year s State Prize for Marketing. This represents the first recognition of a company for a business-to-business concept. June 2008 Egger receives environmental prize ( Tiroler Tageszeitung, ) The Tyrolian wood giant Egger was recognized for its long-distance heating project. [ ] As one of four such projects in Austria, the concept developed by the Tyrolian wood materials producer was recognized at the national level and nominated for the European Environmental Innovation Prize (EEP award). [ ] July 2008 Egger starts operations at EUR 75 million sawmill in Brilon ( Der Patriot, ) The wood materials producer Egger has started operations with a new sawmill at its plant in Brilon after eight months of construction. [ ] For this Austrian company, which operates six plants in Germany, this represents the first fully integrated site: from round timber cutting to board production, laminating and finishing up to to the generation of energy at an in-house power plant. [ ] August 2008 The New Floorline Collection ( frank.stein, Nr. 20, ) The new "Floorline" by Egger is more than just a collection update after three years it represents a completely revised concept. Egger has introduced an expanded range of patterns that includes classic items like oak up to extravagant innovations like metal and fantasy decors and now covers all trendy themes in the residential and furnishings areas. September 2008 Start-up at Egger s long-distance heating plant ( Kitzbüheler Anzeiger, Nr. 37, ) A historical day for St. Johann: After a construction period of four months, the first supplies of long-distance heating were fed into the local network on Monday. This long-distance heating project at the chipboard plant will lead to a decisive improvement in air quality and represents an innovative step in the use of environmentally friendly energy. [ ]. The Egger plant will support a reduction of 26,000 tons in CO2 emissions. II/5

66 Management Report on the Consolidated Financial Statements Egger: New Plant in Romania ( bwd Boden Wand Decke Nr. 11, ) The Austrian wood materials producer Egger has officially opened the Group s 16th plant in the Romanian city of Radauti. Egger has invested a total of EUR 210 million in this new chipboard plant which, according to information provided by the company, will create 400 new long-term jobs. [ ] October 2008 Wood via Rail ( WEST, ) The St. Johann chipboard producer Egger has been awarded this year s Tyrol VÖC Mobility Prize for the successful changeover of transportation from road to rail [ ]. Over the past five years, Egger has been able to double the rail share of its wood material transports with the help of modern logistics concepts. [ ] January 2009 Change in Advisory Board ( Holzdesign, Nr. 1-2, ) As of 1 January 2009 Michael Egger, co-owner and Chairman of the Managing Board of the Egger Group, joined his brother Fritz Egger on the company s Advisory Board. [ ] Four-month standstill ( Kleine Zeitung, ) Since the current market situation does not allow for the profitable production of chipboard and adhesives by Novopan in Leoben, production will be interrupted for four months beginning in February An agreement has been reached to suspend employment for 80 of the 90 employees. [ ] February 2009 Environmental Declarations for Egger Products ( dds Das Magazin für Möbel und Ausbau, Nr. 2, ) Egger is the first producer of wood materials to provide so-called environmental product declarations (EPDs) for all its base products. EPDs are generally binding and objective information systems for planners and producers. [ ] Egger: personnel reduction and reduced working time Bezirksblätter Kitzbühel, The crisis has also reached the Egger Group. [ ] 200 of the Group s 5,700 employees in Europe, including 140 at the headquarters in St. Johann, will be placed on reduced working hours beginning in mid-march. The Group will also cut its production and administrative staff by 180. [ ] March 2009 More Shades of Grey ( Timber Online Newsletter, ) At the ZOW Egger, St. Johann in Tirol, presented a number of products including wood grains that were given a unique optic with glazed and limed effects, and combine well with trendy uni-colors such as Lava, Brown Grey, Olive and Dakar. [ ] II/6

67 Management Report on the Consolidated Financial Statements 2.2 The Economy and Branch Economic developments The Euro zone is currently in the midst of a severe recession, as is illustrated by the decline of 0,3% in real gross domestic product (GDP) during Q and 1,6% in the following quarter. Despite the implementation of stimulus packages by numerous governments, the economic outlook remains bleak. Real GDP fell by 1,9% in Q1 2009, and is forecasted to decrease by 0,6% in Q2 and 0,2% in Q3. Industrial production is also expected to contract drastically as a result of the sharp drop in orders. The global recession has created a generally subdued mood throughout the corporate sector. A decline in consumer spending is predicted for the coming year, above all because of the likely drop in real disposable income. Investments should also continue to decline sharply after a slump at the end of The situation on financial markets remains tense, while the under-utilization of capacity has had a substantial negative effect. Forecasts place inflation at -0,2% for the second half of However, there is no danger of deflation at the present time because the core inflation rate remains clearly positive (source: CESifo: Eurozone Economic Outlook, ). Source: CESifo: Eurozone Economic Outlook, ; IMF: World Economic Outlook, The construction industry The construction branch in Europe The European construction branch reported a 2,5% volume decline for 2008, and the experts are predicting a drop of approx. 4.5% for the countries in the Euroconstruct Group 1 during After stagnation in 2010, demand should begin to recover during The major impulses for growth in this forecast period should come from the civil engineering sector. Investments in this sub-segment are expected to rise by roughly 3.5% annually in 2010 and 2011 after only moderate growth this year. Residential construction, which held the top rank in 2006 with a plus of approx. 4,5%, is expected to follow weakness in 2008 (-7%) with a further downturn in 2009 (-7%). This negative development was triggered above all by a sharp drop in residential construction in Spain. The four countries analyzed in Eastern Europe the Czech Republic, Slovakia, Hungary and Poland are expected to record strong growth over the coming years (also see The construction branch in Eastern Europe ). Construction activity in these countries should rise by an annual average of 8,5% from 2009 to 2011 (Source: CESifo, Die europäische Bauwirtschaft bis 2011 ). II/7

68 Management Report on the Consolidated Financial Statements Dwelling Completions* in Europe by Countries 2007 to 2011 In 1000 Accomodation Units Change in % /2008 Belgium 54,2 48,9 48,4 46,8 44,0-10,5 Denmark 28,0 28,0 18,0 17,0 18,0-35,7 Germany 185,3 171,9 160,2 172,8 193,5 12,6 Finland 35,5 31,0 27,0 22,5 22,5-27,4 France 412,0 398,0 357,0 369,0 372,0-6,5 Great Britain 203,2 153,0 140,0 148,0 155,0 1,3 Ireland 78,0 43,0 25,0 25,0 28,0-34,9 Italy 299,3 280,7 245,6 203,9 189,2-32,6 Netherlands 80,1 79,0 72,5 65,1 64,1-18,9 Norway 31,0 29,0 22,0 18,0 21,0 27,6 Austria 44,0 45,0 43,0 41,0 41,5-7,8 Portugal 59,8 54,7 51,2 49,4 50,1-8,4 Sweden 36,5 29,5 25,6 27,6 30,3 2,7 Switzerland 42,6 42,2 43,1 43,9 43,7 3,6 Spain 795,0 660,0 300,0 240,0 250,0-62,1 West-Europe (EC-15) 2.384, , , , ,8-27,3 Poland 133,8 175,0 153,0 165,0 180,0 2,9 Slovakia 16,5 17,1 17,6 16,8 16,4-4,1 Czech Republic 41,6 42,1 43,4 43,6 45,8 8,8 Hungary 36,2 33,0 32,0 32,0 34,0 3,0 East-Europe (EC-4) 228,1 267,2 246,0 257,4 276,2 3,4 Total 2.612, , , , ,0-23,8 * Completed Apartments in newly built residential buildings Source: Euroconstruct Source CESifo, ifo Schnelldienst 2/2009; Die europäische Bauwirtschaft bis 2011 II/8

69 Management Report on the Consolidated Financial Statements The construction branch in Germany The first half of the 2009 construction year was characterized by sound growth, above all in the building segment, due to a backlog of orders from the commercial and public sectors. The main driver for the development of business in 2009 will be the public sector, which could manage to support double-digit growth of approx. +11%. In 2009 commercial construction will be negatively influenced by the recessionary climate, and results for the year are unlikely to match the sound level of orders at the end of Based on these assumptions, commercial construction should decline 4% year-on-year. Revenues in the German residential construction segment are likely to remain weak due to an increase in supply and lower number of new housing starts, whereby positive results in the new provinces should contrast losses in the western provinces. Residential construction lost one percentage point of its share of construction revenues, which represents less of a decline than the commercial segment (minus two percentage points). Growth in public sector construction activity should be more than able to offset the decline in commercial construction and allow revenues to surpass the 2008 level (+1,3%). Developments in the new provinces (+3,7%) are comparatively better than in the old provinces (0,7%) (Source: ZDB Analyse und Prognose 2009 ). Source: ZDB Konjunkturanalyse 4Q/2008, Auftragseingang im Baugewerbe According to forecasts by B&L Marktdaten, Bonn, two basic trends will distinguish the German construction sub-contractor industry up to 2010: on the one hand, the residential and non-residential sectors will continue to show different patterns of development on the other hand, strength in the non-residential sector will be contrasted by weakness in residential construction. In the area of new construction, market researchers see a slight increase in building permits only for multiple-family dwellings; the share of single family houses is forecasted to decline significantly by 2020 (Source: B&L Zukunftsforum 01/2009 ). II/9

70 Management Report on the Consolidated Financial Statements Source: B&L Zukunftsforum 01/2009 The construction branch in France Source: B&L Zukunftsforum 01/2009 In France, the construction industry has already passed the low point of the economic downturn. The number of residential building permits issued in this country reflected doubledigit growth rates for many years. However, the current weakness in demand and fading impulses from the economic stimulus program lead to expectations of a moderate decline of 2 to 4% in residential construction. French non-residential construction should also recover over the coming years, whereby major projects will be found more in the expansion of transportation systems than in the creation of halls or multi-storey structures. The previous growth sectors (offices/administration and industry) will be hit hardest by the economic downturn up to 2010 (Source: B&L Zukunftsforum 01/2009). The construction branch in Great Britain Residential construction on the British Isles reached an interim high in 2007 after many years of growth, with housing starts at a lower level than in the previous year. The volume of lending has declined sharply since 2007 and the prices of apartments and houses have fallen since the end of that year. However, the growing number of households will serve as a II/10

71 Management Report on the Consolidated Financial Statements driver for demand over the long-term. The stable development of the economy has allowed non-residential construction to detach from the current decline in the residential sector. Nonresidential construction will be supported up to 2012 by extensive infrastructure investments and building activity in advance of the Olympic Games (Source: B&L Zukunftsforum 01/2009). Source: B&L Zukunftsforum 01/2009 The construction branch in Eastern Europe While the value-based volume of construction in Western Europe is forecasted to rise by only a slight amount over the mid-term, Eastern and Central Europe are expected to generate in part double-digit growth rates. Subsidies will support increased investments in infrastructure, especially in the road and railway networks, as well as major environmental projects in the eastern countries of the EU. II/11

72 Management Report on the Consolidated Financial Statements Consumer spending Source: GFK Konsumklimaindex In spite of the severe economic crisis, consumer sentiment remained stable during Economic and income expectations even improved moderately after a slight setback. Spending has weakened slightly, but nevertheless remains positive. The overall indicator was revised to 2.5 points in April and also points to 2.5 for May, which is surprisingly robust against the backdrop of the continuous negative news reports (Source: GFK Konsumklimaindex ). The furniture industry The World Furniture Outlook 2009 by the Centre for Industrial Studies (CSIL) in Milan/Italy indicates that the global demand for furniture will weaken on all major markets in Exceptions to this forecasted development are the key furniture industry markets of China, India and South Korea (Source: Euwid Möbel 51/ ). II/12

73 Management Report on the Consolidated Financial Statements (Source: CSIL, World Furniture Outlook, ) The furniture industry in Germany The past year in the German furniture industry was characterized above all by rescue attempts for numerous companies that were forced to declare bankruptcy in With the exception of upholstered furniture and mattress producers, most furniture manufacturers were able to record relatively stable revenues during the first half-year. This development was supported not only by exports, but also by price increases implemented during the previous year. However, companies were faced with weakening demand not only from the domestic market, but also from foreign countries at the latest after the summer break. This situation was reflected in the first capacity adjustments at the end of 2008 (Source: Euwid Möbel 51/ ). II/13

74 Management Report on the Consolidated Financial Statements (Source: HDH/VDM, Wirtschaft kompakt, ) The expectations of furniture producers in Germany stabilized during January and February, but deteriorated 12 points to -51 over the next six months. The ifo index shows the positive or negative attitude of the survey participants toward the future. Results for the kitchen furniture segment were negative with a drop of 52 points to -34 in March. The picture in the home furniture segment was similar with a decline of 8 points to -60. The only positive value was recorded in the upholstered furniture segment, which improved from -51 to -45 points (Source: HDH/VDM, Wirtschaft kompakt, ). The furniture industry in Italy Furniture consumption in Italy will follow the current year trend with a further decline in However, the share of imported furniture has risen from 7% in 1989 to 14% in (Source: CSIL, The Italian furniture market, ) II/14

75 Management Report on the Consolidated Financial Statements The Branch Environment Acquisitions / consolidation There were few transactions in 2008 and the first months of 2009 due to the active consolidation of the branch in recent years and the crisis-related concentration of companies on their own core business. Ikea was responsible for one of the few takeovers during the reporting period: This Swedish group acquired all shares in the Lithuanian chipboard and furniture manufacturer UAB Giriu Bizonas, Kazlu Ruda, through its holding company Ingka Beheer B.V. ( Euwid Holz Nr. 51/52, ). Investments / expansion in the branch Pfleiderer MDF OOO, a subsidiary of Pfleiderer AG, Neumarkt, started construction on a MDF/HDF plant in Novgorod/Russia during July However, the construction contract was cancelled in spring The foundations for the structure had not been completed up to that time ( Euwid Holz Nr. 51/52, and Euwid Holz Nr. 16, ). The wood materials and construction element producer Kastamonu Entegre Agac Sanayi Ve Ticaret A.S., Istanbul, which is owned by the Turkish Hayat holding company, has started operations at its third MDF/HDF plant ( Euwid Holz Nr. 51/52, ). In April the Kronospan Group started construction on an MDF/HDF plant with subsequent finishing facilities in Strzelec Opolskie through its Polish subsidiary Kronospan Pl Sp.zo.o. ( Euwid Holz Nr. 51/52, ). M. Kaindl Holzindustrie, Wals/Austria, spent roughly 35 million on new investments and expansion during the 2007/2008 financial year. The largest single project involved the construction and start-up of a new veneer flooring plant in Salzburg-Wals ( Euwid Holz Nr. 51/52, ). The Kronospan Group has started construction on a new chipboard plant in Lapovo/Serbia ( Euwid Holz Nr. 51/52, ). Divestments in the branch The Canadian wood materials producer Norbord Inc., Toronto/Ontario, announced the final shutdown of its chipboard aggregate in Genk/Belgium. This plant will now concentrate on the production of OSB ( Euwid Holz Nr. 51/52, ). Glunz AG, Meppen, announced the planned shutdown of the older of two continuous MDF/HDF production lines in Meppen by the end of the year ( Euwid Holz Nr. 51/52, ). Homanit GmbH & Co. KG, Losheim, permanently closed its production facilities for raw and processed thin MDF/HDF boards in Herzberg ( Euwid Holz Nr. 03, ). Isoroy S.A., Rungis/France, which is owned by Sonae Industira SGPS S.A., Maia/Portugal, has largely concluded negotiations to close the plants in St. Dizier and Chatellerault. These disinvestments will result in the loss of 187 jobs ( Euwid Holz Nr. 11, ). II/15

76 Management Report on the Consolidated Financial Statements Temporary standstills / business interruption During the second half of 2008 nearly all manufacturers adjusted their production through temporary standstills and/or the slowdown of individual aggregates to reflect the current market conditions. Numerous manufacturers closed their facilities for several weeks at the end of 2008 and beginning of In Central Europe the production of chipboard, MDF/HDF and OSB was halted for roughly two weeks on average. Only a limited number of companies produced continuously during December and January. In contrast, specific companies interrupted production for periods of three to five weeks ( Euwid Holz Nr. 5, ). Current market developments Austria / Switzerland / Italy Demand in the retail trade sector of Switzerland and Austria is generally constant. In Italy, the general attitude in both industry and the retail trade is very reserved because of the unfavorable economic climate. Industry demand in Switzerland remains stable, but is coming under greater pressure from the neighboring countries of Germany and Austria, above all in the kitchen segment. In Austria, the office furniture and shopfitting branches have registered a sharp decline in demand and are affected by a strong downward trend. The kitchen and residential furniture industries are currently stable at a low level. Sales volumes in the wood construction segment (OSB/DHF) of Austria and Switzerland have fallen slightly. In Italy, where the largest share of OSB volumes is sold to packaging producers, there are no signs of a positive turnaround. The warehouses of retail customers are filled with construction products. Eastern Europe The global economic crisis has had a severe negative impact on private consumption as well as lending to companies in Eastern Europe. Demand from industrial processors has declined significantly as a result of the drop in exports to Western Europe and lower domestic consumption. Retail customers have been affected to a lesser extent because of better diversification. Germany The utilization of capacity in the kitchen and residential furniture industry has declined from the prior year level. Companies in these branches have not followed a general pattern of development, but rather individual trends. The office furniture industry reported satisfactory capacity utilization up to the beginning of this year, but orders dropped sharply during the first quarter following the cancellation of projects. Retailers and craftsmen, in particular firms that supply the commercial construction, trade fair and shopfitting sectors, are still reporting good capacity utilization. However, these areas of business are also expected to weaken during the course of the year. II/16

77 Management Report on the Consolidated Financial Statements Great Britain Order backlog in the British residential construction sector was substantially lower up to the beginning of 2009 than in the prior year, but signs of an upturn in demand have recently been noted. However, demand still remains at a historical low. Rising unemployment and growing uncertainty among consumers have had a negative effect on the general interest in furniture purchases. The continuing weakness of the British Pound has also led to the substitution of imports with domestic products. France / Spain Demand in Southwestern Europe has fallen sharply in recent months. Both the retail trade and industry continue to report double-digit declines in the demand for furniture and building materials. Residential construction is still characterized by a capacity overhand from previous years, and this situation must be corrected. The turn of the year brought a decrease in capacity utilization by the French furniture industry and sales by the retail trade. Substantial production stops have been noted throughout the entire wood materials industry. For Egger, the modernization of several French plants has improved the Group s competitive position by optimizing the cost structure. In spite of production cutbacks, the prices for mass produced goods have come under significant pressure. Russia A decline in market demand has had a negative effect on the utilization of capacity by furniture producers and led many companies to introduce reduced working hours. The office furniture industry has been particularly hard hit by the cancellation of large and mid-sized furnishing projects in the wake of the economic crisis. The retail trade continues to record a stable level of incoming orders, with most of these sales volumes originating from smaller private and commercial objects. The pressure on prices in the chipboard industry is very high, and the production from new start-ups or optimized plants can only be sold at reduced prices. The stabilization of the Rouble has led to a leveling off of economic growth. Retail The laminated flooring industry in Europe recorded its first significant drop in sales volumes during 2008 (-7% vs. 2007). Sales volumes fell by a further 18% year-on-year during the first quarter, above all in the core markets of Germany, Spain and France as well as in Russia. The utilization of capacity in this industry is now less than 60%, and the only reaction involves capacity adjustments (shutdowns, reduced working hours). The pressure on prices is high and cost savings are passed on directly to the market. Volume customers in the DIY (do-it-yourself) segment can only be acquired and maintained on a "best cost" basis. II/17

78 Management Report on the Consolidated Financial Statements 2.3 Marketing and Sales The most important customer groups for Egger in 2008/09 were the retail trade with 46% of revenues and the furniture industry with 46% (2007/2008: 45% / 47%) The share of the DIY (do-it-yourself) segment, which is supported by a separate retail organization, remained unchanged at 8% of revenues. Marketing activities covered a wide range of projects during the reporting year. Project to strengthen the Egger umbrella brand A project to strengthen the Egger brand was rolled out throughout the entire organization at the beginning of 2008: Goal: the Egger Brand The goal of this project is to transform the current entrepreneur-related brand into a corporate brand. This will clearly differentiate the company from the competition and allow for more efficient brand management. The strengthening of the Egger umbrella brand will also create awareness for the philosophy of the owners, provide the necessary orientation and strengthen identification. A strong umbrella brand will make it possible to simplify the brand structure and market all products made by the Group under the Egger name. This, in turn, will support the growth and continuous development of Egger. Definition of brand values in connection with the vision Egger presents itself in all markets with the mission statement Creating more from wood and the vision To be Europe s leading brand for wood-based solutions. Our corporate image is complemented and supported by brand values and attributes. II/18

79 Management Report on the Consolidated Financial Statements Brand architecture Brand architecture supports communications by target group, with a classification into three segments for Egger: INDUSTRY, PROFESSIONAL and HOME. INDUSTRY comprises our offering for major customers from the furniture and wood construction industries. We create specially designed, individual solutions that are functional and economical and also incorporate sustainability and modern design. PROFESSIONAL solutions by Egger provide planners, architects and craftsmen with a perfectly coordinated range of products. A widespread network of specialized sales partners makes every product available in small quantities at every warehouse. We also provide an extensive range of services from personal assistance through the Egger partner program up to a wide variety of information in the Internet and in printed form. HOME comprises products for the retail customer in keeping with the latest trends and simple to use. We supply well-known international building market chains with our product lines. II/19

80 Management Report on the Consolidated Financial Statements 2.4 Production Production capacity for wood materials A number of aggregates were unable to reach full capacity in 2008/09 because of the decline in sales volumes. The production of raw chipboard fell slightly from 5,4 million m³ in the previous year to 5,1 million m³ in 2008/09, and the production of impregnates totaled 556 million m² (2007/08: 610 million m²). Laminate production rose to 19 million m² (2007/08: 18,3 million m²). The internal manufacture of adhesives decreased from approx. 375,000 to approx. 325,000 tons. The lightweight board aggregate at the plant in St. Johann i.t. (AT) has an annual capacity of over m 3. Product and product line policies Egger places high value on the further processing of its products. Of the total volume of raw chipboard produced, approx million m² is laminated (2007/08: 201 million m²) - 50 million m² is converted into flooring (2007/08: 57 million m²) and - 25 million m² is processed into furniture components (2007/08: 19 million m²). 2.5 Procurement The raw materials markets were highly differentiated in 2008/09. Wood prices remained stable, but the chemicals sector was extremely volatile. Similar fluctuations were noted on the energy market. This increasing volatility represents a significant challenge for procurement. The key material positions, e.g. wood, chemicals and paper, are managed by a central department, which supports the local plants in their purchasing activities and also identifies and optimizes synergy effects for the Group. Securing adequate supplies of timber represents the most important aspect of raw material procurement. The timber price index has risen by +35 points since the 2004/05 financial year, above all Index Costs of Wood (2004/2005 = 100) due to the increasing use of this product for energy generation (bio-mass power plants, pellets, bio-fuels) However, timber prices have declined since 2007/08 as 130 a result of lower demand from the sawmill and wood 120 materials industries. The Egger Group was also able to realize a better price for the purchase of timber in /09 because of a more favorable procurement mix / / / / 2009 The situation in the chemicals area was particularly volatile throughout 2008/09. Chemical prices rose to an all-time high during the first half of the reporting year, but fell again in the second six months. The Egger Group was confronted with a total year-on-year increase of EUR 12 million in the price of chemicals, with the largest share resulting from the price of urea. As shown in the graph to the right, the price of glue rose by 144 percentage points since 2004/05 and by five points over 2007/08. However, the largest increases were recorded in the price of urea. The indexed purchase price rose by 35% over the prior year level to 192 points. Similar increases were recorded in the cost of melamine. The Index Costs of Urea (2004/2005 = 100) / / / / 2009 II/20

81 Management Report on the Consolidated Financial Statements price of impregnating resins, which form the basis for the processing of raw paper, rose by only a slight amount in comparison with the previous year. The only favorable development was the price of methanol, which fell 25% below the high prior year level. Adhesives and impregnating resins are purchased in part from long-standing partners in the chemical industry, but substantial quantities are also produced at the company s adhesive plants. This forms the basis for a benchmarking process in the areas of prices and costs. In this connection, a central department was established to expand the internal production of adhesives and impregnating resins. Energy procurement was also influenced by higher costs for natural gas and electricity, with the prices of these supplies rising by approx. EUR -9,2 million in year-onyear comparison. As illustrated by the graph on the right, the cost of electricity and natural gas has risen significantly in recent years. The Egger Group is optimizing its energy balance through the increasing use of bio-mass power plants. This has led to a reduction in the quantities of natural gas required, for example at the plants in Hexham (UK) and Rion des Landes (FR). Electricity requirements are met in part through combined power and heat generation, and have involved the development of extensive internal know-how in the area of energy production. In addition to the resulting favorable impact on costs, these activities play an important role in climate protection by substantially reducing emissions. One special example of these activities is the energy and environmental project at the plant in St. Johann i.t. (AT), which also supplies neighboring communities with long-distance heating. Moreover, nearly all plants have concluded purchase contracts for electricity at market prices, which will safeguard long-term supplies over the coming years / 2006 Index Costs of Glue (2004/2005 = 100) / / 2008 Index Costs of Electricity (2005/2006 = 100) 2004 / / / 2007 Index Costs of Natural Gas (2005/2006 = 100) / / / / / / 2009 II/21

82 Management Report on the Consolidated Financial Statements 2.6 Employees The Egger Group employed an average workforce of in 2008/09 (2007/08: 5.345). The regional distribution of these employees is as follows: 2008/ /08 - Austria France Great Britain Germany Russia Romania Total As a result of the decline in demand and subsequent production adjustments, the Group has reduced its workforce by terminating most of the temporary workers and fixed-term employees since October In addition, the number of employees declined to as of April 30, People represent the focal point of activities for Egger. The Group wants to be the most attractive employer in each of its major markets. Varied and responsible duties provide the many men and women who work for the Egger Group with a foundation for growth and personal development. Annual appraisal meetings are used as a forum to set goals for employees. Group-wide surveys are conducted on a regular basis, and provide management with information on employee satisfaction. The results of these surveys are subsequently used to develop, coordinate and implement improvement measures at the Group, country and plant levels. The human resources strategy is managed by an HR cockpit. In addition to cost and process indicators, this system also includes key personnel-related indicators on training as well as employee ties and personnel marketing. Special focus is also placed on the training of employees, both at the Group level and through special programs for skilled personnel and managers. The know-how, talents and expertise of employees represent a decisive factor for the success and continued growth of the Egger Group. A number of projects have been conducted to improve employee appraisals, competence models and management training. Examples of the measures implemented in this area since 2005 are the Spirit, Startklar and Impuls programs (training for managers, future talents and new employees) as well as an apprentice training program. Group-wide standardized catalogues guarantee uniform training in all countries. Health management represents another focal point of personnel activities at Egger. Programs and events to promote health and healthcare are organized at all locations. The remuneration of managers in the country and plant organizations includes a variable component that is based on EBITDA targets as well as the attainment of individual goals. Personnel marketing is conducted on a European basis above all at career and university trade fairs and is supported by the info brochure Careers with Egger as well as numerous trade fair presentations. II/22

83 Management Report on the Consolidated Financial Statements 2.7 Environmental Protection The protection of the environment has a high standing in the Egger Group and is firmly anchored in the Egger corporate philosophy. In addition to providing support for sustainable forestry management and the environmentally compatible use of raw materials and resources, all plants are equipped with state-of-the-art systems for waste water treatment, noise protection and air filtering. During the 2008/09 financial year, numerous investments were made to improve environmental protection measures: The conversion of gas-fired power plants and the construction of new bio-mass power plants will make a valuable contribution to the further reduction of emissions. Measures were also implemented to improve energy efficiency. The commitment of the Egger Group to the development of lightweight materials as well as the optimal and efficient utilization of existing logistics systems represent additional steps towards energy savings and the protection of resources. In the logistics area, Egger is continuing its program to step up the use of railway transportation and has increased rail transports by 50% over the past five years. In January 2009 Egger became the first wood materials producer at the international BAU trade fair in Munich to equip its entire product line with environmental product declarations (EPDs), which provide planners and builders with the data required for the sustainability certification of buildings. These certificates document the environmental compatibility of Egger products over their entire life cycle from the origin of the raw materials to production and disposal and also provide extensive information on the most important properties of the wood material for the usage phase. II/23

84 Management Report on the Consolidated Financial Statements 3 Asset, Financial and Earnings Positions 3.1 Asset and Financial Position Balance Sheet Comparison April 30, 2009 April 30, 2008 Change EUR million EUR million in % Non-current assets Inventories Receivables Other current assets Balance sheet total Equity including subsidies Provisions Financial liabilities and bonds Other liabilities The balance sheet total fell by 9% from the prior year level of EUR million to EUR million as of 30 April The primary factors for this development were successful working capital management in the area of inventories and lower trade receivables as well as a decline in cash and cash equivalents. Non-current assets rose by 4% to EUR million, and comprised 73% of the balance sheet total as of April 30, 2009 (2007/08: 64%). This reflects the high capital intensity of the Group s production and is typical for the branch. Inventories fell by EUR 54 million to EUR 204 million (2007/08: EUR 258 million). This decrease resulted from lower demand as well as the adjustment of production volumes. Another reason was the decline in raw material prices at the end of the financial year. Trade receivables declined to EUR 42 million (2007/08: EUR 87 million). The turnover of trade receivables fell from an average of 44 days in the prior year to 41 days in 2008/09. Equity, including subsidies, decreased 11% to total EUR 508 million at the end of 2008/09 (2007/08: EUR 571 million). This decline resulted from the lower exchange rates of the GBP, RUB and RON in relation to the EUR and the subsequent translation of foreign currency financial statements. After the inclusion of subsidies, the equity ratio equaled 34% compared with 35% in the previous year. Interest-bearing liabilities (financial liabilities and bonds) fell slightly to EUR 692 million (2007/08: EUR 700 million), and include a long-term financing component of 90% (2007/08: 77%). The major part of financing was concluded in the Euro. Net debt rose by 15% or EUR 75 million to equal EUR 567 million as of April 30, 2009 (2007/08: EUR 492 million). This increase in net debt resulted chiefly from investments, which were financed from cash flow as well as borrowings. II/24

85 Management Report on the Consolidated Financial Statements Net debt April 30, 2009 April 30, 2008 Change EUR million EUR million in % Financial liabilities and bonds Less liquid funds and securities Net debt Treasury Indicators 2008/ /08 Net debt / EBITDA 3,2 1,6 Equity ratio 34% 35% Activities by the treasury department focused on the optimization and expansion of corporate finance programs throughout the Group as well as the implementation of a financial guideline for the management of liquidity, interest rate and foreign exchange risk. The most important treasury indicators are the debt repayment period (net debt / EBITDA) and the equity ratio (equity/ balance sheet total), which are monitored on a regular basis. II/25

86 Management Report on the Consolidated Financial Statements 3.2 Earnings Consolidated revenues totaled EUR million for 2008/09 (2007/08: EUR million), which is 8% less than in the previous year. This decline reflected a drop of approx. 3% in sales volumes and approx. 5% in prices. Lower revenues were reported in nearly all markets, with only Southeastern and Eastern Europe generating a slight improvement following a strong increase in the market share. The distribution of consolidated revenues by segment is as follows: - Decorative: EUR million (2007/08: EUR million) - Retail: EUR 332 million (2007/08: EUR 384 million) The following graph shows the distribution of revenues by geographic region (based on the headquarters of the customer): Revenues by Geographic Region 2008/2009 Rest (Export) 7% Austria / Switzerland 6% Benelux + Scandinavia 9% Germany 25% SE- and Eastern Europe 27% Great Britain / Ireland 11% France / Spain / Portugal 15% The development of revenues in the various geographic regions was influenced by a difficult market environment in 2008/09. Southeastern and Eastern Europe was the only region to record an increase over the prior year (+2%). Austria/Switzerland was able to match the prior year level. Revenue declines of 8 to 10% were registered in the key markets of Germany, France & Spain and Benelux & Scandinavia. The strongest negative effects of the decline in demand and prices were registered in UK & Ireland (-23%) and exports (-20%). II/26

87 Management Report on the Consolidated Financial Statements The Egger Group was unable to meet its growth targets because of the financial and economic crisis. EBITDA (earnings before interest, tax, depreciation and amortization) fell by 39% from EUR 292 million in 2007/08 to EUR 178 million for the reporting year. This development resulted from a decline in selling prices and demand as well as higher chemical prices. As a result of these factors, the EBITDA margin fell from 17,8% in the prior year to 11,9% for 2008/09. Development of Earnings 2008/ /08 Change EUR million EUR million in % Revenues EBITDA Operating EDITDA margin 11,9% 17,8% Operating profit (EBIT) Operating EBIT margin 3,2% 10,8% Financial results Profit before tax (EBT) Profit after tax EBIT / Net financing costs 0,7 4,5 Operating depreciation in relation to revenues rose to 8,7% (2007/08: 7,1%), primarily as a result of the decline in revenues. This figure reflects the capital-intensive business in which the Group is active. Financial results dropped 67% to EUR -64,9 million (2007/08: EUR -38,9 million). Interest cover (the ratio of EBIT to net financing costs) equaled 0,7 (2007/08: 4,5). In addition to II/27