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Unaudited consolidated interim report for the fourth quarter and twelve months of 2018

 

MANAGEMENT REPORT

 

SKANO GROUP AS UNAUDITED RESULTS FOR FOURTH QUARTER AND 12 MONTHS OF 2018

 

Consolidated net sales for Q4 2018 were € 3.43 million, being a 9% decrease compared to the same period in 2017. Fibreboard sales declined with 6%, the two main reasons being a drop in demand for building materials in Russia (declining confidence due to geopolitical reasons) and lower sales than planned in South Africa (local competitor emerged from bankruptcy, and is now selling boards at very low prices). Furniture wholesale sales dropped by 19%, of which the main reason was the reduced demand experienced in Russia, where our two distributors cited the declining consumer confidence affecting purchasing behaviour due to geopolitical reasons. Furniture retail sales were down 10%, mainly due to closure of old Riga shop (new shop opened in Riga but needs time to get established) and weak performance of our second Tallinn shop (to be closed in Q1 2019).

 

Skano Group recorded EBITDA of negative € 172 thousand for Q4 2018 (vs positive € 21 thousand Q4 2017). The Q4 EBITDA result for 2018 includes one-off expenses like increase of provision reserves by € 25 thousand. 2017 Q4 EBITDA included one-off profit from sale of fixed assets by € 9 thousand. Fibreboard profitability was substantially reduced due to the much higher cost of its main raw material, woodchips. We are continuing the process of passing on this cost increase to our customers. Furniture profitability was negatively influenced by the reduction in sales during Q4 2018 compared to Q4 2017. Net loss for Q4 2018 was € 389 thousand (Q4 2017: loss of € 243 thousand).

 

Consolidated net sales for 12 months 2018 were € 14.80 million, being a 10% decrease compared to the same period in 2017 (2017: € 16.36 million). The 7% decline in sales of fibreboards from € 11.84 million down to € 11.01 million was mainly due to two reasons, one being reduced demand for single family dwellings in Fibreboard´s largest market, Finland (sales down with € 0.51 million from 2017, to € 3.45 million) and second being drop in sales to South Africa (sales down € 0.51 million from 2017, to € 0.17 million), such drop being caused by the local competitor being brought back from bankruptcy proceedings and now selling at very low prices. Sales to customers in our other 30 countries were up by 2% in 2018 compared to 2017. Furniture wholesale sales decreased by 16% compared to 2017 (from € 3.58 million to € 3.01 million, a drop of € 0.57 million). The drop was caused mainly by loss of sales of € 0.19 million to Russia, reflecting the weakened consumer confidence as described above, and loss of sales of € 0.20 million to our Finnish distributor, who closed some of their Finnish retail shops and reduced their export sales in the process of slimming down their operations in order to improve their profitability. Furniture retail sales decreased by 20% compared to 2017 (from € 1.93 million to € 1.54 million, a drop of € 0.39 million). Sales dropped in Estonia (reduced demand which has led us to start rolling out new shop concept) and in Latvia (we closed one Riga shop due to the furniture centre’s declining performance, and opened a new shop in November), while sales growth was recorded in Lithuania.  

 

Skano Group recorded EBITDA of positive € 87 thousand for full year 2018 (vs positive € 974 thousand in 2017). 2018 full year EBITDA includes one-off expenses like increase of provision reserves by € 25 thousand whereas 2017 EBITDA included one-off profit from sale of real estate investments of € 186 thousand, loss from write down of real estate investment of €44 thousand and profit from sale of fixed assets by € 9 thousand. Furniture wholesale loss for 2018 was somewhat dampened due to the positive effect of closing its kiln operations earlier in 2018 while furniture retail went from being profitable in 2017 to becoming loss making in 2018 due to the drop in sales. Fibreboard profitability was substantially reduced due to the higher cost of its main raw material, woodchips. We started and are continuing the process of passing on this cost increase to our customers. Net loss for full-year 2018 was € 896 thousand (2017: loss of € 127 thousand).

 

DIVISIONAL REVIEW OF FOURTH QUARTER AND 12 MONTHS OF 2018

 

Fibreboard sales in Q4 2018 were € 2.40 million, which is 6% less than same period in 2017 (2017: € 2.55 million). We sold our products to customers in 23 countries during Q4 2018. The two main reasons for reduced sales in Q4 2018 from Q4 2017 were a drop in demand for building materials in Russia (declining confidence due to geopolitical reasons) and lower sales than planned in South Africa (local competitor emerged from bankruptcy, and is now selling boards at very low prices). Gross margin in Fibreboard were negatively impacted by the higher woodchip prices. EBITDA therefore ending up being negative € 63 thousand for Q4 2018 (Q4 2017 EBITDA was positive € 39 thousand).

 

Fibreboard sales for 12 months 2018 were € 11.01 million, which is 7% less than same period in 2017 (2017: € 11.84 million). We sold our products to customers in 32 countries during the year 2018. For the full year 2018 we experienced sales decline mainly in Finland and South Africa, while we recorded a 2% sales growth to customers in the other 30 countries. Gross margin in Fibreboard were negatively impacted by the higher woodchip prices.  EBITDA therefore ending up being positive € 284 thousand for 12 months 2018 (12 months 2017 EBITDA was positive € 913 thousand).

 

Furniture wholesale sales in Q4 2018 were € 799 thousand, 19% down on same period last year (Q4 2017: € 987 thousand). The main reason for this decline in sales was due to the reduced demand experienced in Russia, where our two distributors cited the declining consumer confidence affecting purchasing behaviour due to geopolitical reasons. Furniture retail sales were down 10%, mainly due to closure of old Riga shop (located in Spice Center in Riga, who is declining in popularity among Riga consumers) and weak performance of our second Tallinn shop (to be closed in Q1 2019). We opened a new shop in Riga in November in the more furniture concept driven Decco Centrs. Lithuania however has shown sales revenue increase mainly due to increased marketing activity and new shop manager. EBITDA for furniture wholesale for Q4 2018 was negative € 62 thousand (Q4 2017 EBITDA was negative € 53 thousand). It should be considered that due to increase of provisions reserve, there are one-off expenses accounted at a value of € 21 thousand inside Q4 2018 EBITDA.

 

Furniture wholesale sales for full year 2018 decreased by 16% compared to 2017 (from € 3.58 million to € 3.01 million, a drop of € 0.57 million). The drop was caused mainly by loss of sales of € 0.19 million to Russia, reflecting the weakened consumer confidence as described above, and loss of sales of € 0.20 million to our Finnish distributor, who closed some of their Finnish retail shops and reduced their export sales in the process of slimming down their operations in order to improve their profitability. EBITDA for 12 months 2018 was negative € 47 thousand (negative € 57 thousand for 12 months 2017).

 

Furniture retail sales in Q4 2018 were € 441 thousand, down 10% (2017 Q4 € 488 thousand) from same period last year. The sales decline was mainly due to closure of old Riga shop (new shop opened in Riga but needs time to get established) and weak performance of our second Tallinn shop (to be closed in Q1 2019). We see that number of visitors being steady but amount of orders decreasing, this reflects the customer takes more time to consider and weighs alternatives by competitors or waits for marketing campaigns. EBITDA for furniture retail for Q4 2018 was negative € 22 thousand (Q4 2017 EBITDA was positive € 18 thousand), reflecting the weak sales in Q4.

 

Furniture retail sales for full year 2018 decreased by 19% compared to 2017 (from € 1.93 million to € 1.54 million, a drop of € 0.39 million). Sales dropped in Estonia (reduced demand which has led us to start rolling out new shop concept) and in Latvia (we closed one Riga shop due to the furniture centre’s declining performance, and opened a new shop in November), while sales growth was recorded in Lithuania. EBITDA for 12 months 2018 was negative € 103 thousand (positive 119 thousand for 12 months 2017).

 

Total Furniture operations of Skano (wholesale and retail) EBITDA for 2018 Q4 were negative € 84 thousand (Q4 2017 EBITDA was negative € 35 thousand). Total Furniture operations EBITDA for full year 2018 was negative € 150 thousand (in 2017 positive € 62 thousand).

 

BALANCE SHEET

 

As of 31.12.2018 the total assets of Skano Group AS were € 10.3 million (31.12.2017: € 10.9 million). The liabilities of the company as of 31.12.2018 were € 7.4 million (31.12.2017: € 7.2 million), of which Skano has borrowings of € 4.8 million as at 31.12.2018 (31.12.2017: € 5.0 million).

 

Receivables and prepayments amounted to € 1.1 million as at 31.12.2018 (31.12.2017: € 1.2 million). Inventories were € 2.3 million as of 31.12.2018 (31.12.2017: € 2.3 million). Property, plant and intangibles were € 6.9 million as of 31.12.2018 (€ 7.3 million as of 31.12.2017).

 

OUTLOOK

 

In Fibreboard, we are pushing for sales of our various applications which have more global reach than our traditional sales of windboards and insulation boards sold mainly in our traditional markets of Finland, Russia and Estonia. We have implemented annual price increases, thus aiming to alleviate the negative impact experienced from the higher cost of woodchips in 2018, our main raw material. Our marketing activities are focusing on the positive aspects of using our boards, made from virgin woodchips from spruce, compared to competing synthetic materials.

 

In Furniture, we expect improved retail performance with the introduction of the new shop concept. This has been rolled out in our best-selling shop in Tallinn as well as in our newly opened shop in the Decco centre in Riga and will next be rolled out in our Vilnius and Tartu shops. We are looking to end our shop operations of our second shop in Tallinn due to its poor profitability. In wholesale we have signed a deal with our Finnish distributor to take over some of their export customers in Europe, which should expand our customer base and have potential to secure more sales of our furniture.

 

DIVISIONAL REVIEW

 

REVENUE BY BUSINESS SEGMENTS

 

  € thousand € thousand
  Q4 2018 Q4 2017 12M 2018 12M 2017
Fibreboards production and sales 2,404   2,552   11,006   11,836  
Furniture production and sales 799   987   3,006   3,578  
Furniture retail 441   488   1,536   1,932  
  incl. furniture retail Ukraine 0   0   0   64  
Group transactions (215 ) (242 ) (750 ) (990 )
TOTAL 3,429   3,785   14,798   16,357  

 

PROFIT BY BUSINESS SEGMENTS

 

€ thousand Q4 2018 Q4 2017 12M 2018 12M 2017
EBITDA by business units:        
Fibreboards production and sales (63 ) 39   284   913  
Furniture production and wholesale (62 ) (53 ) (47 ) (57 )
Furniture retail (22 ) 18   (103 ) 118  
  incl. furniture retail Ukraine 0   0   0   1  
Group transactions (25 ) 17   (47 ) 1  
TOTAL EBITDA (172 ) 21   87   974  
Depreciation 176   201   730   825  
TOTAL OPERATING PROFIT/ LOSS (348 ) (179 ) (643 ) 149  
Net financial costs 41   64   252   275  
Income tax 0   0   0   0  
NET PROFIT/ LOSS (389 ) (243 ) (896 ) (126 )

 

FIBREBOARD SALES

 

Fibreboard sales in Q4 2018 were € 2.40 million, which is 6% less than same period in 2017 (2017: € 2.55 million). We recorded solid sales increase in markets such as Estonia, Latvia, Norway, and Ukraine while sales were dropping mainly in Russia, South Africa and Netherlands.

 

Fibreboard sales for 12 months 2018 were € 11.01 million, which is 7% less than same period in 2017 (2017: € 11.84 million). We recorded solid sales increase in markets such as Portugal, Asia, Latvia, Norway and Middle East while sales were dropping in Finland, South Africa, Russia, Netherlands and United Kingdom.

 

FIBREBOARD SALES BY GEOGRAPHICAL SEGMENTS

 

  € thousand € thousand
  Q4 2018 Q4 2017 12M 2018 12M 2017
European Union (including Suomen Tuulileijona sales) 1,843 1,824 8,297 8,700
Russia 362 459 1,531 1,631
Middle East 64 81 312 260
Asia 8 25 294 241
Africa 31 115 168 679
Other 95 48 404 325
TOTAL 2,404 2,552 11,006 11,836

 

FURNITURE WHOLESALE SALES

 

Furniture wholesale sales in Q4 2018 were € 799 thousand, 19% down on same period last year (Q4 2017: € 987 thousand). Sales decrease was caused mainly by weak consumer demand in Russia and weakened sales to Skano retail (shop closure and shop refurbishments).

 

Furniture wholesale sales for full year 2018 decreased by 16% compared to 2017 (from € 3.58 million to € 3.01 million, a drop of € 0.57 million). The drop was caused mainly by loss of sales of € 0.19 million to Russia, reflecting the weakened consumer confidence as described above, and loss of sales of € 0.20 million to our Finnish distributor, who closed some of their Finnish retail shops and reduced their export sales in the process of slimming down their operations in order to improve their profitability.

 

FURNITURE WHOLESALE SALES BY COUNTRIES

 

  € thousand € thousand
  Q4 2018 Q4 2017 12M 2018 12M 2017
Russia 325 490 1,217 1,406
Finland 202 207 798 995
Skano Retail 203 230 733 900
Other countries 69 60 258 278
TOTAL 799 987 3,006 3,579

 

FURNITURE RETAIL SALES

 

Furniture retail sales in Q4 2018 were € 441 thousand, down 10% (2017 Q4 € 488 thousand) from same period last year. The sales decline was mainly due to closure of old Riga shop (new shop opened in Riga but needs time to get established) and weak performance of our second Tallinn shop (to be closed in Q1 2019). We see that number of visitors being steady but amount of orders decreasing, this reflects the customer takes more time to consider and weighs alternatives by competitors or waits for marketing campaigns.

 

Furniture retail sales for full year 2018 decreased by 19% compared to 2017 (from € 1.93 million to € 1.52 million, a drop of € 0.41 million). Sales dropped in Estonia (reduced demand which has led us to start rolling out new shop concept) and in Latvia (we closed one Riga shop due to the furniture centre’s declining performance, and opened a new shop in November), while sales growth was recorded in Lithuania due to the efficiency of the new Lithuania shop manager.

 

RETAIL SALES BY COUNTRIES

 

  € thousand € thousand Number of stores 
  Q4 2018 Q4 2017 12M 2018 12M 2017 31.12.2018 31.12.2017
Estonia 260 327 962 1,266 4 4
Latvia 77 98 272 356 1 1
Lithuania 104 62 302 246 1 1
Ukraine* 0 0 0 64 0 0
TOTAL 441 488 1,536 1,932 6 6

 

*Ukraine retail operations divested in March 2017.

 

PEOPLE

 

On the 31st of December 2018, the Group employed 216 people (compared to 223 people as of 31.12.2017). The average number of personnel in Q4 2018 was 212 (Q4 2017: 229).

 

For twelve months of 2018, wages and salaries with taxes amounted to € 3.6 million (twelve months 2017: € 3.8 million). Payments made to management board members of all group companies including all subsidiaries with relevant taxes were € 187 thousand in twelve months 2018 and € 176 thousand in twelve months 2017.

 

FINANCIAL HIGHLIGHTS

 

€ thousand        
Income statement Q4 2018 Q4 2017 12M 2018 12M 2017
Revenue 3,429   3,785   14,798   16,357  
EBITDA (172 ) 21   87   974  
EBITDA margin (5 %) 1 % 1 % 6 %
Operating profit (348 ) (179 ) (643 ) 149  
Operating margin (10 %) (5 %) (4 %) 1 %
Net profit (389 ) (243 ) (896 ) (126 )
Net margin (11 %) (6 %) (6 %) (1 %)
         
Statement of financial position 31.12.2018   31.12.2017   31.12.2018   31.12.2017  
Total assets 10,302   10,937   10,302   10,937  
Return on assets (4 %) (2 %) (9 %) (1 %)
Equity 2,895   3,753   2,895   3,753  
Return on equity (13 %) (6 %) (31 %) (3 %)
Debt-to-equity ratio 72 % 66 % 72 % 66 %
         
Share 31.12.2018   31.12.2017   31.12.2018   31.12.2017  
Last Price* 0.36   0.62   0.36   0.62  
Earnings per share (0.09 ) (0.05 ) (0.20 ) (0.03 )
Price-earnings ratio (4.14 ) (11.40 ) (1.80 ) (21.92 )
Book value of a share 0.64   0.83   0.64   0.83  
Market to book ratio 0.56   0.74   0.56   0.74  
Market capitalization, € thousand 1,611   2,771   1,611   2,771  
Number of shares, piece 4,499,061   4,499,061   4,499,061   4,499,061  

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONS

 

€ thousand 31.12.2018   31.12.2017 31.12.2016
Cash and cash equivalents (Note 2) 54   74 184
Receivables and prepayments (Note 3) 1,141   1,215 965
Inventories (Note 4) 2,252   2,336 2,760
Total current assets 3,447   3,624 3,909
       
Investment property (Note 5) 175   170 405
Available-for-sale financial assets (Note 8) 422   182 0
Other shares and issues 0   7 0
Property, plant and equipment (Note 6) 6,223   6,908 7,584
Intangible assets (Note 7) 34   47 66
Total non-current assets 6,855   7,313 8,055
       
TOTAL ASSETS 10,302   10,937 11,964
       
Borrowings (Notes 9) 650   593 1,176
Payables and prepayments (Notes 10) 2,420   1,956 2,497
Short-term provisions (Note 11) 23   13 15
Total current liabilities 3,094   2,562 3,688
       
Long-term borrowings (Notes 9) 4,113   4,422 4,163
Long-term provisions (Note 11) 200   200 213
Total non-current liabilities 4,313   4,622 4,376
Total liabilities 7,407   7,184 8,064
       
Share capital (at nominal value) (Note 12) 2,699   2,699 2,699
Share premium 364   364 364
Statutory reserve capital 288   288 288
Other reserves (Notes 8; 12) 46   9 42
Unrealised currency differences 0   0 0
Retained earnings (loss) (501 ) 393 507
Total equity (Note 13) 2,895   3,753 3,900
       
TOTAL LIABILITIES AND EQUITY 10,302   10,937 11,964

 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

 

€ thousand Q4 2018 Q4 2017 12M 2018 12M 2017
Revenue (Note 14) 3,429   3,785   14,798   16,357  
Cost of goods sold (Note 15) 3,073   3,319   12,753   13,419  
Gross profit 356   466   2,045   2,938  
         
Distribution costs (Note 16) 492   467   1,953   2,040  
Administrative expenses (Note 17) 179   172   627   703  
Other operating income (Note 19) 1   17   14   255  
Other operating expenses (Note 19) 34   23   122   301  
Operating profit (loss) (Note 11) (348 ) (179 ) (643 ) 149  
         
Finance income (Note 20) 22   0   22   4  
Finance costs (Note 20) 62   64   275   279  
LOSS BEFORE INCOME TAX (389 ) (243 ) (896 ) (126 )
Corporate income tax 0   0   0   0  
         
NET LOSS FOR THE FINANCIAL YEAR (389 ) (243 ) (896 ) (126 )
         
Other comprehensive income (loss) 0   0   0   (40 )
Other comprehensive income (loss) that can in certain cases be reclassified to the income statement  0   0   0    
Currency translation differences   0    0    0   (40 )
TOTAL COMPREHENSIVE LOSS FOR THE FINANCIAL YEAR (389 ) (243 ) (896 ) (166 )
         
Basic earnings per share (Note 13) (0.09 ) (0.05 ) (0.20 ) (0.03 )
Diluted earnings per share (Note 13) (0.09 ) (0.05 ) (0.20 ) (0.04 )

 


Skano 2018 interim report for 4th quarter and 12 months.pdf 

 

 

Torfinn Losvik

Juhatuse esimees

+372 569 90 988

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