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SKN: Skano Group AS 2017 3Q interim report

THE 3rd QUARTER 2017 IN SHORT

Skano Group is engaged in the manufacture and distribution of building materials and furniture as well as retail trade of furniture and furnishings. Skano Group is a holding company consisting of the following companies, all 100% owned:

Skano Fibreboard OÜ                    Estonia            Production and Distribution

Suomen Tuulileijona OY                 Finland            Distribution

Skano Furniture Factory OÜ           Estonia            Production and Distribution

Skano Furniture OÜ                      Estonia            Retail  

SIA Skano                                    Latvia              Retail

UAB Skano LT                              Lithuania           Retail

Skano Group sold its Ukrainian retail subsidiary TOV Skano Ukraine in March 2017.       

Skano Fibreboard OÜ produces and distributes softboard products for use in many different applications, the main category being within construction (insulation, soundproofing, and interior finishing panels for walls and ceilings). Suomen Tuulileijona OY is the distributor of Skano’s fibreboard products in Finland.

Skano Furniture Factory OÜ produces original, premium price level home furniture made of timber. Skano Furniture OÜ consists of a furniture retail store chain operating in Estonia, Latvia, Lithuania and Ukraine (the Ukrainian retail chain was sold in March 2017).

The principal markets of the company are all Nordic countries, Russia, South Africa, Portugal and the Baltics.

The shares of Skano Group AS are listed on the Nasdaq Tallinn Stock Exchange.

As at 30 September 2017 the Group employed 226 people (30 September 2016: 283 people).

Skano Group recorded EBITDA of € 289 thousand for 3Q 2017, which resulted in EBITDA for the first 9 months of 2017 being € 942 thousand (which equates to 7.5% of sales), which compares favourably with 2016 where EBITDA for the first 9 months were € 219 thousand (1.6% of sales). It should be noted that nine months 2017 results were influenced by one-off gains of 48 thousand euros due to the disposal of Skano’s Ukrainian retail subsidiary in March and 142 thousand euros from property sale in September.

Net profit for 3Q 2017 was € 14 thousand and for the first 9 months 2017 was € 117 thousand (9M 2016: loss of € 667 thousand).

Consolidated net sales for 3Q 2017 were € 4.08 million, making net sales for 9 months 2017 of € 12.57 million, being a 7.7% decrease compared to the same period in 2016.

Fibreboard sales in 3Q 2017 were € 3.17 million, and total sales for 9 months 2017 were € 9.29 million, which is 3.7% less than same period in 2016. Excluding sales to Finland (subdued demand for fibreboards) and UK (cancelling of contract with one large loss-making customer), Fibreboard sales for the first 9 months 2017 increased by 18% compared to same period last year. Strongest sales growth came from sales to Sweden, Latvia, South Africa, Thailand and Ukraine. EBITDA for fibreboard for first 9 months 2017 was € 0.87 million (in 9 months 2016 EBITDA were € 0.50 million). 

Furniture wholesale sales in 3Q 2017 were € 0.72 million, and total sales for 9 months 2017 were € 2.59 million, which is 18.5% down on same period last year. Russia is our largest wholesale market, and our two Russian importers recorded different fortunes, one increasing sales of Skano furniture this year while the other decreased sales of Skano furniture. Our second largest market is Finland where our sole importer continues to struggle which resulted in 30% sales drop in Finland for first 9 months in 2017. EBITDA for furniture wholesale for first nine months 2017 was negative € 10 thousand (9M 2016 EBITDA was negative € 169 thousand).

Furniture retail sales in third quarter 2017 were € 0.37 million, and total sales for nine months 2017 were € 1.38 million. When excluding the discontinued shop operations in Ukraine and last year closure of the third Tallinn shop, sales of our existing six shops in the Baltics showed sales growth of 16% compared to same period in 2016. EBITDA for furniture retail for first nine months 2017 was € 96 thousand (9M 2016 EBITDA was negative € 174 thousand).

Total Furniture operations of Skano (wholesale+retail) EBITDA for the first 9 months of 2017 were therefore positive € 86 thousand (9M 2016 result was EBITDA negative of € 343 thousand).

Balance Sheet

As of 30.09.2017 the total assets of Skano Group AS were € 11.9 million (30.09.2016: € 13.1 million). The liabilities of the company as of 30.09.2017 were € 7.9 million (30.09.2016: € 8.8 million), of which Skano has bank loans (including overdraft facilities and factoring) of € 5.3 million.

Receivables and prepayments amounted to € 1.8 mil. (30.09.2016: € 1.8 mil.). Inventories were € 2.6 mil. as of 30.09.2017 (30.09.2016: € 2.8 mil.). Property, plant and intangibles were to € 7.3 mil. as of 30.09.2017 (€ 8.2 mil. as of 30.09.2016).

Outlook

The overall global demand for Fibreboard remains strong, as we can see from our overall 18% sales growth in selling to customers located in 32 countries (excluding sales to Finland and UK). The Finnish situation is however still cause for some concern.

The good performance of Skano’s own retail furniture operations has made up for wholesale sales decline, thus enabling Skano to record a positive EBITDA result for our total furniture activities. We remain bullish on the outlook for our own furniture chain, while our wholesale sales outlook to Finland continues to look weak.

DIVISIONAL REVIEW:

NET SALES BY BUSINESS SEGMENTS

  th EUR % of net sales
  9M 2017 9M 2016 9M 2017 9M 2016
Fibreboards production and sales 9,285 9,648 73.9% 70.8%
Furniture production and sales 2,591 3,181 20.6% 23.3%
Furniture retail Baltics: today shops 1,380 1,225 11.0% 9.0%
Furniture retail Baltics: closed shops 0 201 0 1.4%
Furniture retail Ukraine: closed shops 64 186 0.4% 1.5%
Group transactions (748) (812) (5.9%) (6.0%)
TOTAL 12,572 13,629 100,0% 100.0%

PROFIT BY BUSINESS SEGMENTS

th EUR 9M 2017 9M 2016
EBITDA by business units:    
Fibreboards production and sales 873 502
Furniture production and sales (10) (167)
Furniture retail Baltics 45 (70)
Furniture retail Ukraine 51 (104)
Group transactions (17) 58
TOTAL EBITDA 942 219
Depreciation (614) (642)
TOTAL OPERATING PROFIT/ LOSS 328 (423)
Net financial costs (211) (240)
Income tax  0 (4)
NET PROFIT/ LOSS 117 (667)

Fibreboard profit was helped by further production concentration to thicker boards, which are more profitable for Skano.

Furniture production and sales (wholesale and retail) in total made positive EBITDA in the total amount of € 86 thousand.

FIBREBOARDS production and sales

The total sales of fibreboards in 9 months 2017 amounted to € 9.29 mil., down from sales of € 9,65 mil. in 9 months 2016. However, we recorded a good increase in operating earnings before depreciation, amortisation and interest (ie EBITDA) up from € 502 thousand in 9 months 2016 to € 873 thousand in 9 months 2017.

Strong sales growth was recorded in South Africa, Sweden and Thailand while largest sales decline was recorded in Finland and Great Britain. In Finland our sales subsidiary Suomen Tuulileijona is experiencing weaker demand compared to last year. Sales to Great Britain last year consisted mostly of selling very thin boards as underlay, and our sales was heavily loss-making due to the extensive price competition in this segment. The exit from this market has improved our total fibreboard profitability.  

FIBREBOARD SALES BY GEOGRAPHICAL SEGMENTS

  th EUR % of net sales
  9M 2017 9M 2016 9M 2017 9M 2016
Finland 3,393 3,958 36.6% 41.0%
Estonia 1,266 1,379 13.6% 14.3%
Russia 1,173 1,104 12.6% 11.4%
Sweden 605 463 6.5% 4.8%
South-Afrika 564 230 6.1% 2.4%
Portugal 515 538 5.5% 5.6%
Latvia 341 262 3.7% 2.7%
Great Britain 222 869 2.4% 9.0%
Ukraine 164 91 1.8% 0.9%
Thailand 164 0 1.8% 0.0%
Netherlands 146 48 1.6% 0.5%
Lithuania 141 124 1.5% 1.3%
United Arab Emirates 93 70 1.0% 0.7%
Denmark 85 112 0.9% 1.2%
Germany 67 111 0.7% 1.2%
Hungary 50 0 0.5% 0.0%
Saudi Arabia 46 36 0.5% 0.4%
Australia 33 0 0.4% 0.0%
Other countries 217 253 2.3% 2.6%
TOTAL 9,285 9,648 100.0% 100.0%

FURNITURE production and sales

FURNITURE PRODUCTION

Sales dropped to € 2.59 mil. in 9 months 2017, from € 3.18 mil. in 9 months 2016. The largest sales decline came from the Finnish market reflecting the current difficulties experienced by Skano’s large Finnish wholesale customer. Our Russian market was down, however one of our two importers recorded sales increase of Skano furniture this year while the other one recorded a sales decline. Sales to Skano retail units increased its share of total furniture sales within the Group.  

FURNITURE WHOLESALE SALES BY COUNTRIES

  th EUR % of net sales
  9M 2017 9M 2016 9M 2017 9M 2016
Russia 915 1,039 35.3% 32.7%
Finland 788 1,129 30.4% 35.5%
Skano Retail 669 750 25.8% 23.6%
Other countries 219 263 8.1% 8.2%
TOTAL 2,591 3,181 100.0% 100.0%

FURNITURE RETAIL SALES

Skano group retail business recorded sales € 1.44 mil. in 9 months 2017. Skano has 4 shops in Estonia: Tallinn two, Tartu one and a factory shop in Pärnu. Vilnius recorded sales growth of 22 % this year compared to same period last year, as well as improving its net result. Riga shop sales were slightly at same level as last year but improved its net result due to better gross margin and less fixed costs.

RETAIL SALES BY COUNTRIES

  th EUR % of net sales Number of stores
  9M 2017 9M 2016 9M 2017 9M 2016 30.09.2017 30.09.2016
Estonia* 939 789 65.0% 49.0% 4 4
Latvia 258 278 17.9% 17.2% 1 1
Lithuania 183 150 12.7% 9.3% 1 1
Ukraine** 64 186 4.4% 11.5% 0 3
Estonia (closed shop) 0 201 0.0% 12.5% 0 1
Other countries 0 8 0.0% 0.5% 0 0
TOTAL 1,444 1,612 100.0% 100.0% 6 10

* Ongoing shops

** Ukraine business was sold in March 2017

FINANCIAL HIGHLIGHTS

Income statement 2Q 2017 2Q 2016 2Q 2015
Revenue 4,025 4,432 4,653
EBITDA 294 (27) 267
EBITDA margin 7.3% (0.6%) 5.7%
Operating profit 86 (187) 68
Operating margin 2.1% (4.2%) 1.5%
Net profit 15 (268) (42)
Net margin 0.4% (6.1%) (0.9%)
 
Income statement 1H 2017 1H 2016 1H 2015
Revenue 8,487 8,977 9,761
EBITDA 660 (23) 524
EBITDA margin 7.7% (0.3%) 5.4%
Operating profit 244 (455) 104
Operating margin 2.9% (5.1%) 1.1%
Net profit 103 (624) (51)
Net margin 1.2% (6.9%) (0.5%)
 
Balance sheet 30.06.2017 30.06.2016 30.06.2015
Total assets 12,204 13,005 14,032
Return on assets 0.8% (4.8%) (0.4%)
Equity 3,963 4,293 5,136
Return on equity 2.6% (14.5%) (1.0%)
Debt-to-equity ratio 67.5% 67.0% 63.4%
 
Share 30.06.2017 30.06.2016 30.06.2015
Closing price 0.533 0.540 0.805
Earnings per share 0.02 (0.14) (0.01)
Price-earnings ratio 26.65 (3.86) (80.50)
Book value of a share 0.88 0.95 1.14
Market to book ratio 0.60 0.57 0.71
Market capitalization 2,398 2,429 3,622

EBITDA = Earnings before interest, taxes, depreciation and amortization

EBITDA margin = EBITDA / Revenue

Operating margin = Operating profit / Revenue

Net margin = Net profit / Revenue

Return on assets = Net profit / Total assets

Return on equity = Net profit / Equity

Debt-to-equity ratio = Liabilities / Total assets

Earnings per share = Net profit / Total shares

Price-earnings ratio = Closing price / Earnings per share

Book value of a share = Equity / Total shares

Market to book ratio = Closing price / Book value of a share

Market capitalization = Closing price * Total shares

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

th EUR 30.09.2017 31.12.2016 30.09.2016
       
Cash and bank accounts 312 184 248
Receivables and prepayments (Note 1) 1,773 965 1,790
Inventories (Note 2) 2,554 2,760 2,839
Total current assets 4,639 3,909 4,877
       
Investment property (Note 3) 170 405 405
Tangible fixed assets (Note 4) 7,055 7,584 7,720
Intangible fixed assets (Note 5) 52 66 72
Total fixed assets 7,277 8,055 8,197
       
TOTAL ASSETS 11,916 11,964 13,074
       
Debt obligations (Note 6) 708 1,176 1,649
Payables and prepayments (Note 7) 2,400 2,497 2,770
Short-term provisions (Note 8) 5 15 5
Total current liabilities 3,113 3,688 4,424
       
Non-current debt obligations (Note 6) 4,613 4,163 4,163
Non-current provisions (Note 8) 213 213 228
Total non-current liabilities 4,826 4,376 4,391
       
Total liabilities 7,939 8,064 8,815
       
Share capital at nominal value (Note 9) 2,699 2,699 2,699
Share premium 364 364 364
Statutory capital reserve 288 288 288
Other reserves 2 2 6
Currency translation reserve - 40 17
Retained earnings 507 1,552 1,552
Net profit (loss) for the period (Note 10) 117 (1,045) (667)
Total equity 3,977 3,957 4,259
       
TOTAL LIABILITIES AND EQUITY 11,916 11,964 13,074

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

th EUR 3Q 2017 3Q 2016 9M 2017 9M 2016
         
SALES (Note 11) 4,085 4,652      12,572 13,629
         
Cost of production sold (3,457) (3,636) (10,100) (11,075)
         
Gross profit 628 1,016 2,472 2,554
         
Marketing expenses (501) (712) (1,573) (2,350)
General administrative expenses (110) (159) (531) (459)
Other income 187 3 238 71
Other expenses (121) (116) (278) (239)
         
Operating profit (loss) (Note 11) 83 32 328 (423)
Financial income and financial expenses (69) (74) (211) (240)
         
Profit (loss) before taxes 14 (42) 117 (663)
Prepaid income tax - (1) - (4)
         
NET PROFIT (LOSS) FOR THE PERIOD 14 (43) 117 (667)
         
Basic earnings per share (Note 10) 0.00 0.01 0.03 (0.15)
Diluted earnings per share (Note 10) 0.00 0.01 0.03 (0.15)
         
Other comprehensive income:        
Currency translation differences - 8 - 10
         
TOTAL COMPREHENSIVE INCOME (LOSS) 14  
(35)
117  
(657)

The planned time of publishing of interim report of the fourth quarter of 2017 is week 9 in 2018 (27-28th of February 2018).

Torfinn Losvik

Member of the Management Board

+372 569 90 988

This email address is being protected from spambots. You need JavaScript enabled to view it.


Skano 2017_3Q_interim report.pdf