Surteco Group SE

Quarterly Report • May 31, 2006

REPORT FOR THE FIRST QUARTER

2006

Q1

specialists for surface technologies

Q1

Investor Relations and

isin: DE0005176903 ticker symbol: SUR

Phone +49 8274 9988-508 Fax +49 8274 9988-515 E-Mail g.schneller@surteco.com Internet www.surteco.com

Johan-Viktor-Bausch-Straße 2 86647 Buttenwiesen-Pfaffenhofen

Press Officer

Germany

Günter Schneller

1 January to 31 March

» OVERVIEW SURTECO GROUP

	Q1/2005	Q1/2006
€ 000s	1/1/- 31/3/2005	1/1/- 31/3/2006	Variation in %
Sales revenues	101,680	106,214	+4
of which - Germany - Foreign	39,307 62,373	39,428 66,786	- +7
EBITDA	18,723	19,498	+4
EBIT	14,238	15,021	+5
EBT	12,059	13,078	+8
Net income	7,448	8,188	+10
Minority interest	-71	-65
Consolidated net income	7,377	8,123	+10
€ Net income per share in	0.67	0.73	+9
Cash flow from operating activities	10,522	13,253	+26
EBIT margin	14.0	14.1	+1
Net financial liabilities	147,444	129,995	-12
Gearing (debt ratio)	105	83	-21
Capital ratio at 31 March in %	37.4	41.5	+11
Number of employees at 31 March	2,134	2,057	-4

DEAR SHAREHOLDERS, PARTNERS AND FRIENDS OF OUR COMPANY » » SALES AND MARKETS

This report on the first quarter of 2006 follows on from the development of performance during 2005. The German sales market continues to stagnate, and the SURTECO Group is meanwhile generating growth exclusively in foreign markets. For example, sales in European countries outside Germany rose by a total of 9 % compared with the equivalent period in 2005. In Australia, the Group attained growth of 37 %, albeit at a lower level. In Germany, business stabilized at the level of the first quarter in 2005 after the setbacks of recent years.

SURTECO AG is currently operating in a changing marketplace and increasingly complex competitive environment. This means that the Group is having to adjust to more intensive and tougher global competition. This involves, not least, conclusion of the company-based collective agreement that came into force on 1 January 2006 and will lead to a saving of 15 percent in personnel costs per year for Germany by 2007.

During the first quarter of 2006, SURTECO AG succeeded in posting growth in revenues and all income indicators.

Sales up in foreign business

Sales at the SURTECO Group increased by 4 % during the reporting period and reached € 106.2 million (1st quarter 2005: € 101.7 million). Foreign sales recorded an increase of 7 % or € 4.4 million to € 66.8 million so that the proportion of foreign sales to total sales climbed to 63 % (1st quarter of 2005: 61 %). Business in Germany remained at the year-earlier level with € 39.4.

Strategic Business Unit Plastics

After the companies in the SBU Plastics succeeded in posting high growth in fiscal year 2005 (+12 %), also favoured by the first-time full consolidation of the Canadian Canplast Group, the first quarter of 2006 again posted a positive development. Segment sales rose by 10 % to € 60.4 million. While the business volume in Germany remained unchanged at € 22.4 million, foreign business went up disproportionately by 17 % to € 38.0 million. The main sales drivers are plastic edging tapes, which now represent 63 % in Group sales of the SBU Plastics after a further rise of 14 % to € 38.3 million. This innovative top-quality product allows the SBU Plastics to market a broadly-based and practical range of different qualities, strengths, optical variations and surface designs. Excellent sales successes have been achieved in Europe, particularly in Italy, Spain and Poland. Setbacks in the American market, which is served by the two companies Woodtape and Canplast on the basis of local production, result exclusively from the sale of the veneer business in April 2005. Otherwise, growth of 3 % would have

been posted in this sector. The other extruded plastic products comprising skirtings, roller-shutter systems and technical extrusions contributed 7 % to total earnings with a total of € 10.3 million.

Strategic Business Unit Paper

The SBU Paper achieved sales of € 45.8 million during the year under review. It therefore fell short of the year-earlier value by 2 %. The German market grew by 1 % to € 17.0 million. While it's true that the sector environment relaxed slightly during the first quarter of 2006, this only affects the kitchen and office furniture industry. The sectors living-room and bedroom furniture, and selfassembly and occasional furniture continued to remain weak. Interior design (doors, panels, shop construction) also had to contend with capacity problems owing to the unusually long winter. Foreign markets fell back by 3 % with sales revenues amounting to € 8.8 million. Decorative printers are increasingly raising their profile as competitors in the European market by expanding their product portfolio with the production of pre-impregnated flat foils, and they are seeking to gain market shares with an aggressive price policy. Business in decorative printing (Bausch Decor GmbH) underwent gratifying development, expanding business with external customers by 27 % to € 4.9 million (the majority of the printing products is delivered to BauschLinnemann GmbH for further processing).

EXPENSES »

Proportion of personnel costs to total output is noticeably lower

Q1

The proportion of the cost of materials in relation to sales at the SURTECO Group was 43.5 % (1st quarter 2005: 42.6 %) in the first three months of 2006. The cost of materials amounted to € 47.1 million compared to € 43.5 million in the equivalent year-earlier months.

While prices of raw papers for edgings and preimpregnated materials remained constant, an increase in purchase costs could not be avoided for flat raw papers that are smooth on one side for foil manufacture. Prices for chemicals, decorative prints and printing inks continued more or less unchanged. There were no supply problems in procuring all the quantities required. The prices for raw materials at SBU Plastics underwent partial increases again. The position continued to remain tense in the energy sector.

Personnel costs during the first quarter of the reporting year amounted to € 25.1 million, remaining at the year-earlier level in absolute terms. However, the significantly higher total output meant that the proportion of personnel costs to total output fell noticeably from 24.5 % to 23.1 %. The initial effects of the company-based collective agreement in place since January 2006 are becoming evident in this area. This pay agreement extends the weekly working time without wage compensation and is significantly more flexible. The number of employees at the end of the quarter was 77 employees less than the equivalent period in 2005 at 2,057. This corresponds to a reduction in the workforce of 4 %. Other operating expenses exceeded the figure for the equivalent year-earlier quarter by nearly € 2 million at € 17.3 million.

EARNINGS » »

Positive profits performance

With € 19.5 million, the SURTECO Group achieved a 4 % increase in the operating result (EBITDA) during the first quarter of 2006. With reference to sales, the EBITDA margin amounted to 18.4 %, as in the 1st quarter of 2005 (fiscal year 2005: 17.4 %). Earnings before the interest (financial result) and tax (EBIT) were € 15.0 million, exceeding the equivalent quarter for the previous year by 5 %. The EBIT margin at 14.1 % was slightly above the equivalent year-earlier level, but significantly above the margin of 12.9 % for the fiscal year 2005.

Earnings before tax went up by 8 % to € 13.1 million. The return on sales amounting to 12.3 % exceeded the year-earlier value by 0.5 percentage points. The calculations in the period under review were based on a tax rate of 37.4 % (1st quarter 2005: 38.2 %).

Earnings for the period amounted to € 8.2 (+10 %) million, Group earnings for the period were € 8.1 million (+10 %). Earnings per share amounted to € 0.73 on the basis of the number of shares issued of 11,075,522 (1st quarter 2005: € 0.67).

NET ASSETS AND FINANCIAL POSITION Net financial liabilities significantly reduced

Scheduled investments were carried out during the first quarter of 2006, focusing on improving and optimizing production. Additions of € 5.1 million compared with write-downs of € 4.5 million.

Q1

On the basis of a slightly improved business performance, working capital increased by 5 % to € 66.1 million compared with the annual financial statements for 2005. However, this amounted to a reduction of 7 % by comparison with the previous year (€ 71.1 million).

Net financial liabilities were reduced by a further 3 % in the first quarter to € 130 million. Compared with the equivalent year-earlier value, the figure declined by 12 % (31/3/2005: € 147.4 million).

At 31/3/2006, the equity ratio was 41.5 % (31/12/2005: 40.2 %). However, the ratio would have been 39.1 % taking the proposed dividend payment of € 0.80 per share into account.

Calculation of Free Cash flow

€ 000s	1/1/ - 31/3/2006
Cash inflow from operating activity	13,253
Tax payments	-2,890
Investments in property, plant and equipment (without financial investments)	-4,265
Free Cash flow	6,098

RESEARCH AND DEVELOPMENT »

New profile geometry for roller-shutter systems

Modern furniture design is increasingly using roller shutters instead of conventional double doors, because they save space inside cupboards. The SBU Plastics offers a complete system with the new FF roller shutter where each individual roller-shutter bar is laminated with highly resistant flat foil. A large selection of foil designs is already available. Development engineers have achieved another quantum leap in the visual and functional quality of the roller shutter under the designation DUO 20/12. The new design of the profile geometry means that there is almost no visible joint between the individual bars of a roller shutter and hence also the foil design. Combined with an increase in the width of the bars to 20 mm, this ensures a homogeneous visual appeal for the roller shutter.

In the segment of high-quality finishes, the SBU Paper has opened up the possibility of developing and producing customer-specific, high-quality textures with the production of a dedicated structural facilitator. An in-house production technology has been developed for the purpose, and this allows special papers to be processed with tailored paint and embossing techniques. In-house manufacture harnesses a substantial cost-saving potential and also exerts a positive influence on the quality of the end products. The products refined in this way are being marketed under the brand name Tecotop. Tecotop is used as edgebandings or flat foils in areas subject to heavy-duty requirements for moisture resistance or impact strength. The SBU Paper has supplemented its Tecotop range with a more flexible version. The new surface is easier to mould and opens up additional areas of new applications in industrial furniture production.

Q1

SURTECO SHARES » »

January - March 2006
Number of shares	11,075,522
Free float in %	14.5
Price on 2/1/2006 in €	28.00
Price on 31/3/2006 in €	33.00
Share price performance 1st quarter 2006 in %	+18
High in €	33.50
Low in €	26.50
Market capitalization as at 31/3/2006 in € millions	365.5

Share price performance of the SURTECO share

OUTLOOK FOR FISCAL YEAR 2006

Q1

The overwhelming majority of customers supplied by SURTECO AG is in the furniture industry and related areas, such as interior design and renovation. We are not expecting a tangible economic upswing for this group of customers. We do not share the view that there will be a mini-boom in advance of the increase in value added tax from 1 January 2007. We regard overall development in foreign markets as positive, even if growth will ease in individual markets.

Adjusted by exchange-rate changes, we maintain our previous forecast of a slight increase in growth with above-average earnings performance.

» CONSOLIDATED INCOME STATEMENT SURTECO GROUP

12004 Q1_06 engl 18.05.2006 10:53 Uhr Seite 14

	Q1/2005	Q1/2006
€ 000s	1/1/- 31/3/2005	1/1/- 31/3/2006
Sales revenues	101,680	106,214
Changes in inventories	308	1,965
Production of own fixed assets capitalized	87	101
Total output	102,075	108,280
Cost of purchased materials	-43,515	-47,074
Personnel expenses	-24,972	-25,064
Other operating expenses	-15,378	-17,333
Other operating income	513	689
EBITDA	18,723	19,498
Depreciation and amortization	-4,485	-4,477
EBIT	14,238	15,021
Financial result	-2,179	-1,943
EBT	12,059	13,078
Income tax	-4,611	-4,890
Net income	7,448	8,188
Minority Interest	-71	-65
Consolidated net income	7,377	8,123
€ Net income per share in	0.67	0.73
Number of shares issued	11,075,522	11,075,522

» CONSOLIDATED BALANCE SHEET SURTECO GROUP

€ 000s	31/12/2005	31/3/2006
ASSETS
Cash and cash equivalents	2,209	3,746
Trade accounts receivable	33,839	37,403
Inventories	53,868	57,455
Other current assets	11,164	11,731
Current assets	101,080	110,335
Plant property and equipment, net	156,048	155,377
Intangible assets	4,691	4,619
Goodwill	98,027	97,884
Investments	1,917	167
Interests in associated companies	0	1,822
Other non-current assets	1,420	1,494
Non-current assets	262,103	261,363
Deferred tax asset	6,938	6,817
	370,121	378,515

» CONSOLIDATED BALANCE SHEET SURTECO GROUP

€ 000s	31/12/2005	31/3/2006
LIABILITIES AND SHAREHOLDERS' EQUITY
Current financial liabilities	34,256	41,157
Trade accounts payable	20,736	24,919
Tax liabilities	12,543	11,994
Short-term accrued expenses	4,273	3,854
Other current liabilities	16,675	18,215
Total short-term liabilities and provisions	88,483	100,139
Non-current financial liabilities	102,570	92,584
Pensions and similar obligations	13,085	13,154
Other non-current liabilities	353	388
Non-current liabilities	116,008	106,126
Deferred tax liability	16,663	15,231
Capital stock	11,076	11,076
Reserves	115,364	115,227
Net profit	21,831	29,955
Capital attributable to shareholders	148,271	156,258
Minority interest	696	761
Equity capital	148,967	157,019
	370,121	378,515

» CONSOLIDATED CASH FLOW STATEMENT SURTECO GROUP

	Q1/2005	Q1/2006
€ 000s	1/1/- 31/3/2005	1/1/- 31/3/2006
Earnings before Interest and Income Tax	12,059	13,078
Adjustments	4,613	1,863
Internal financing	16,672	14,941
Change in net current assets	-10,761	-4,578
Cash flows from current business operations	5,911	10,363
Cash flows from investing activities	-5,700	-4,265
Cash flows from financing activities	487	-4,561
Change in cash and cash equivalents	698	1,537
Cash and cash equivalents
1 January	4,480	2,209
31 March	5,178	3,746

» SCHEDULE OF EQUITY CAPITAL SURTECO GROUP

€ 000s	Capital stock	Capital reserves	Other com prehensive income	Revenue reserves	Consoli dated net retained profits	Minority interest	Total
31 December 2004	10,576	35,860	0	50,637	18,205	1,331	116,609
Consolidated net income	0	0	0		7,377	71	7,448
Capital increase	500	14,596	0	0	0	0	15,096
Other changes	0	0	0	2,048	0	-592	1,456
31 March 2005	11,076	50,456	0	52,685	25,582	810	140,609

31 December 2005	11,076	50,416	-404	65,352	21,831	696	148,967
Consolidated net income	0	0	0	0	8,124	65	8,189
Other changes	0	0	0	-137	0	0	-137
31 March 2006	11,076	50,416	-404	65,215	29,955	761	157,019

» SEGMENT REPORTING SURTECO GROUP

SALES REVENUES AND FINANCIAL RESULTS BY STRATEGIC BUSINESS UNITS

	Segment revenues		Operating Segment earnings before interest (financial result) and taxes
€ 000s	1/1/- 31/3/2005	1/1/- 31/3/2006	1/1/- 31/3/2005	1/1/- 31/3/2006
SBU Paper	46,798	46,347	6,484	6,617
SBU Plastics	56,238	61,801	8,678	9,919
SURTECO AG	0	0	-812	-1,545
Consolidation	-1,356	-1,934	-112	30
SURTECO Group	101,680	106,214	14,238	15,021

SALES REVENUES BY REGIONAL MARKETS

	SURTECO GROUP
€ 000s	1/1/- 31/3/2005	1/1/- 31/3/2006
Germany	39,377	39,489
Europe (without Germany)	38,073	41,547
America	18,460	18,571
Asia, Australia, Others	7,126	8,541
	103,036	108,148
Consolidation	-1,356	-1,934
Total SURTECO Group	101,680	106,214

» SEGMENT REPORTING SURTECO GROUP

SALES REVENUES BY REGIONAL MARKETS

SBU Plastics
	1/1/- 31/3/2006
22,503	22,443
15,419	19,320
13,844	13,424
4,472	6,614
56,238	61,801
-1,158	-1,341
55,080	60,460
	1/1/- 31/3/2005

	SBU Paper
€ 000s	1/1/- 31/3/2005	1/1/- 31/3/2006
Germany	16,874	17,046
Europe (without Germany)	22,654	22,227
America	4,616	5,147
Asia, Australia, Others	2,654	1,927
	46,798	46,347
Consolidation	-198	-593
Total SBU Paper	46,600	45,754

This unaudited report of the SURTECO Group for the first three months of 2006 is in accordance with the international Accounting Standard 34. The same accounting and valuation principles are applied as in the preparation of the consolidated financial statements for the year 2005. Changes resulting from the IFRS accounting standards, which had to be applied from 1 January 2006, were applied when the interim report was drawn up.

The interim report includes statements about the future. These statements are based on the assessments of the management of SURTECO, on assumptions made by SURTECO and on information that is currently available to SURTECO. The statements made about the future are only valid at the point in time when they are made. SURTECO does not intend to – and assumes no obligation – to update any forward-looking statements contained herein or to adapt such information to future results or developments.

FINANCIAL CALENDAR

22 June 2006

Annual General Meeting Gasteig, Carl-Orff-Saal, Munich

• »»»» 23 June 2006 Dividend payout
• 31 August 2006 Six-month report January - June 2006
• 30 November 2006 Nine-month report January - September 2006

Calculation of indicators:

EBIT margin in % EBIT/sales revenues

EBITDA margin in % EBITDA/sales revenues

Earnings per share in € Consolidated net income/number of shares

Gearing (debt level) in % (Current and non-current financial liabilities ./. liquid assets)/equity capital

Cost of materials ratio in % Cost of materials/total output

Net financial debt in € Liquid assets ./. (current financial liabilities + non-current financial liabilities)

Personnel expense ratio in % Personnel expense ratio/total output

Return on sales in % (Consolidated net income + income tax)/sales revenues

Working Capital in € (Trade receivables + Inventories) ./. (Trade liabilities + short-term accrued reserves)

28 SURTECO AG 29

isin: DE0005176903 ticker symbol: SUR

1 January to 31 March

Q1

2006

REPORT FOR THE FIRST

QUARTER

specialists for surface technologies

Investor Relations and Press Officer

Günter Schneller

Phone +49 8274 9988-508 Fax +49 8274 9988-515 E-Mail g.schneller@surteco.com Internet www.surteco.com

Johan-Viktor-Bausch-Straße 2 86647 Buttenwiesen-Pfaffenhofen Germany