Diversification is a much-used word, with many experts advising companies to encompass a range of different business activities in order to spread their exposure to market fluctuations. Pfleiderer, a well-known name in panel making for over 40 years had, until quite recently, followed that mantra very thoroughly.
Headquartered in Neumarkt in Bavaria since 1962, Pfleiderer has had a wide range of manufacturing businesses since it started in sawmilling as a family concern in Heilbronn in 1894. These have included specialist spun concrete and steel poles and masts (such as mobile telephone masts), insulation materials, rail track systems and wind energy, as well as wood based panels.
However, today the company is entirely focused on one sector – what it calls its  engineered wood products (EWP) business – and this thoroughgoing ‘re-invention’ of Pfleiderer has been brought about under the leadership of Hans H Overdiek, 53, a man with extensive experience in senior management positions in various industries, who joined the Pfleiderer board in January 2001.
“In 2002, when business was very poor, we had to make a decision,says Mr Overdiek. “Our panels business was only in particleboard at the time and was heavily dependent on the German market, which was poor and unlikely to improve soon.
“It was clear that we were in too many businesses with no synergies, all of which needed cash and management attention if we were to be among the top players in each sector. In engineered wood products, though far from being one of the really big players, in the markets of mid-Europe, Poland and Russia, we were still among the top companies in particleboard-based products.”
Poland has been a particular success story for the company since Pfleiderer entered that country with the purchase of two particleboard plants, in Grajewo and Wieruszow, in 1999. A turnover of €120m and an EBT (earnings before tax) of €10-12m in 2001 has now been turned into €240m turnover, while profitability has more than doubled. The company also completed its buyout of Thermopal in that year.
“In analysing where the business was going we could see that, although Germany was still our most important wood panel market, it would not generate growth, especially for particleboard, and was in fact more likely to decline. Therefore we had to seek new products and regions for growth,says Mr Overdiek.
This was when he decided to sell off all the other businesses and focus on particleboard and new wood panel-based products. That disinvestment process has just ended with the sale of the rail track systems.
“Having made that decision, we then set three top priorities,explains the ceo.
“Firstly, the German market may be bad but it is still the most important in western Europe, so we had to get our business here into the best shape and regain profitability.
“We did this by taking out particleboard capacity and starting a new business model in Germany. That means we would no longer try to be ‘everybody’s darling’ but would concentrate on the people who would maintain the business and who we could do business with five years on.”
In 2002, Pfleiderer had more than 1,500 customers involved in the furniture sector and today it has around 300, explains Mr Overdiek.
“Clearly we look for volume business, but also specialities. We define the customer by the added value we can bring to him and he can bring to us. We did the same for the  urniture-related part of our business, which makes up 70% of our revenue, with 30% being in the specialist trade and distributors.
“We introduced a new business model here too: instead of going to each and every distributor, we concentrated on 200 leading ones as our regional distributors, who could then supply the smaller furniture makers.”
Mr Overdiek then sets out the second of his priorities.
“We had a strategic gap,he explains. “We were nobody in MDF – we lacked the technology and production know-how, and the plant. Thus we took over the Nidda plant from the receivers of Hornitex in 2004, which solved those two problems. The receivers closed down the particleboard line at Nidda before we bought the site and then it was dismantled. We also closed our own particleboard line at Rheda in 2004. Between them, this removed almost a million m3 of capacity from the [Germanmade] market in 12 months, in a €17m write-off.”
Pfleiderer took on the 130,000m3 a year Siempelkamp ContiRoll continuous MDF line at Nidda in third-quarter 2004.
“In 2001, Pfleiderer had a turnover of €1.4bn and we have since sold €650m of turnover,says Mr Overdiek. This included pulling out of all non-EWP product areas. “The funds generated were used to pay down debt and to fund new investments, which brings me to my third priority – to grow by new investment and by region.”
This growth started with the new factory at Novgorod in Russia, where the foundation stone was laid in May 2004, full permits were obtained by the end of that year and construction was due to be completed at the end of 2005. The short-cycle press lines will commence production at the end of February 2006, with the particleboard press – the continuous one removed from Rheda and refurbished – starting production in April. Capacity is expected to be 500,000m3 a year “depending on how we tune it,grins Mr Overdiek. A decor paper impregnation line is also planned there.
Pfleiderer was already experienced in the way of doing business in Russia, having had insulation material plants there since 1996.
“We have had a successful history in doing business in Russia and were able to prepare the market in the furniture sector with production from our Grajewo plant in surfaced board and melamine films,continues Mr Overdiek.
“Then came the big move for Pfleiderer. The company was back in the black in 2004 after heavy losses in the previous two years – and this was achieved through the  perating business, not just by the disposal of assets.We were then able to convince the institutional investors to buy shares in Pfleiderer and it has been a good business for them. When I took over, the shares were priced at less than three euros and within two years they had risen to over fifteen.
“Our next move was to go from being a mediocre particleboard player in Germany to being one of the top five in panel making by acquiring Kunz and merging the two companies. Now we will become one of the top global players in the furniture production and interior design sectors.We now have not just a small MDF plant in Nidda but one of the best in Europe at Baruth [formerly Kunz] and we have access to two MDF plants in North America [Uniboard, part of the Kunz business] and, for the first time, access to the laminate flooring market with one of the few integrated laminate flooring manufacturers in North America, Uniboard, with a market share there of around 14%.”
The takeover of the Kunz group was delayed by the need to first remove some 360,000m3 of uneconomic particleboard production at Uniboard – line one at Sayabec and the whole site at New Liskeard – and was concluded on October 13, 2005.
The Kunz name will disappear as the German operations are re-branded Pfleiderer, while the Uniboard name will continue, says Mr Overdiek.
“We see very significant potential to increase the profitability of Uniboard by applying more European know-how, bringing in more technical competence and by concentrating the business on higher-margin value-added products.
“The combined business will be good for €1.4bn turnover and an EBITDA of €200m or better for 2006 and that doesn’t take into account any new investments.”
One such new investment that is not included, and which is valued at €83m, was confirmed in its final form on November 2, 2005. That is a new, greenfield, thin MDF line to be built at Grajewo, Poland, with an annual capacity of 250,000m3. Start-up is scheduled for quarter two, 2007. Also not included is the Novgorod line.
“We have a fine and solid financial base and will be able to grow the company  substantially from where we are now, in new products and new regions with a combination of local organic growth and new investments,says Mr Overdiek, backing up his reasons for reversing the diversification of Pfleiderer under his stewardship:
“We are far less vulnerable than we were two or three years ago, by concentrating our management focus and our funds in one business area – wood based panels. But, we have significantly taken out risk and volatility by taking our business away from just Germany and expanding regionally in areas which show organic growth, such as eastern Europe – and which show better profitability, even for a more ‘mature’ product like particleboard. We have also shifted our risk portfolio from purely particleboard-related products to MDF and laminate flooring.
“The North American laminate flooring market grew by 25% last year and eastern Europe will show double digit growth and we have three large plants with most of the infrastructure already in place.”
Pfleiderer was number five in composite panel production volume in Europe even before it bought Kunz. After that acquisition, Mr Overdiek expects a market share in Germany of around 30% for particleboard and 14% for MDF. And he believes that the ‘big five’ players will get bigger, with more takeovers and mergers and so the market will become less fragmented.
In 2002, Pfleiderer was in fact very close to buying all the Hornitex mills but he says there were too many staff employed there.
“We would have wanted a maximum of 400 in Horn, but there are nearly 1,000 and we would have shut the loss-making businesses. We wanted to buy Beeskow [MDF plant] as well as Nidda but the receiver would not sell it separately. I would still be interested in that mill on its own, at the right price.”
But the Overdiek philosophy is not just about size: “I am not looking just at turnover, but at profitability because that will help me to grow the company and give returns to my shareholders and that is what we are going to do,he says.
Pfleiderer also had a joint venture, started in January 2000 with Binder Holz: MDF Hallein in Austria, which started production that year. However, Pfleiderer pulled out of that business in September 2001, to the surprise of many observers.
“Hallein was not able to produce the product we needed for our German furniture manufacturing market – it was designed for different products,explains Mr Overdiek. “There were also business cultural differences and we thought it best to part and I believe it was the right decision; we are in 100% charge of all our businesses now.”
Pfleiderer sells its products under three brand names: Pfleiderer, Wodego and Thermopal.
Wodego was launched in August 2003 with a programme for panels including Duropal for HPL and worktops. “Wodego is still for volume business, but to specialized distributors,explains Mr Overdiek.
Pfleiderer Holzwerkstoffe Vertriebs GmbH handles sales to key accounts in the furniture sector, while Thermopal is similar to Wodego but doesn’t include any raw board products and has a specialized product range.
So what of the future for Pfleiderer?
“When I say we will continue to grow, I am not talking just ‘natural growth’. We are prepared to continue with acquisitions to grow both product-wise and regionally. We plan upgrading of existing facilities and new acquisitions and we are also willing to make greenfield investments,concludes Mr Overdiek.
So this company certainly seems to be one to watch in this evolving industry.