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Skano Group Interim Report 3st Quarter 2018

MANAGEMENT REPORT

SKANO GROUP AS UNAUDITED THIRD QUARTER 2018 RESULTS

Consolidated net sales for Q3 2018 were € 3.71 million, being a 9% decrease compared to the same period in 2017. The decline in sales of fibreboards was mainly caused by reduced demand for single family dwellings in Fibreboard’s largest market, Finland. Sales to customers in our other markets showed a slight increase. Furniture wholesale sales were negatively impacted due to weak performance by three of the four key furniture customers. We are working to secure more customers. Furniture retail sales also showed contraction, mainly due to the temporary closure of our best performing shop for total refurbishment caused by the introduction of Skano’s new retail concept.

Skano Group recorded EBITDA of positive € 46 thousand for Q3 2018 (vs € 292 thousand Q3 2017). Total furniture profitability was in line with Q3 2017 profitability, while Fibreboard profitability was substantially reduced due to the higher cost of its main raw material, woodchips. We are now in the process of passing on this cost increase to our customers. Net loss for Q3 2018 was € 211 thousand (Q3 2017: profit of € 14 thousand).

DIVISIONAL REVIEW OF THIRD QUARTER 2018

Fibreboard sales in Q3 2018 were € 2.92 million, which is 8% less than same period in 2017. We sold our products to customers in 29 countries. The sales decline in Finland outweighed the growth from the other countries, thus resulting in sales decline for Q3. Market statistics from AC Nielsen shows us having a steady market share of about 72% in the Finnish fibreboard market, thus the sales decline is due to a change in the housing industry in Finland with consumers moving into cities to live in apartments, instead of following the traditional way of building their own houses. Gross margin in Fibreboard were negatively impacted by the higher woodchip prices. Overhead costs were reduced, thus softening the negative impact on EBITDA, which ended up being € 141 thousand for Q3 2018 (Q3 2017 EBITDA was € 374 thousand).

Furniture wholesale sales in Q3 2018 were € 630 thousand, 12% down on same period last year. Total sales to our two main markets, Russia and Finland, were € 402 thousand (down € 91 thousand from Q3 2017). Sales to Skano’s own retail chain increased by 12% up to € 177 thousand compared to same period last year (Q3 2017: € 158 thousand). EBITDA for furniture wholesale for Q3 2018 was negative € 31 thousand (Q3 2017 EBITDA was negative € 74 thousand), reflecting the increased profitability achieved by ending our own kiln operations last Spring and instead now sourcing dried and cut material.

Furniture retail sales in Q3 2018 were € 333 thousand, down 11% (€ 41 thousand) from same period last year. Shops in all three Baltic markets experienced sales slowdown, and especially our best-selling shop in Tallinn which was temporarily closed due to extensive refurbishing as a result of introducing Skano’s new retail concept. EBITDA for furniture retail for Q3 2018 was negative € 50 thousand (Q3 2017 EBITDA was negative € 3 thousand), reflecting the weak sales in Q3.

Total Furniture operations of Skano (wholesale and retail) EBITDA for 2018 third quarter were negative € 81 thousand (Q3 2017 EBITDA was negative € 77 thousand).

BALANCE SHEET

As of 30.09.2018 the total assets of Skano Group AS were € 11.0 million (30.09.2017: € 11.9 million). The liabilities of the company as of 30.09.2018 were € 7.7 million (30.09.2017: € 7.9 million), of which Skano has borrowings of € 4.9 million as at 30.09.2018 (30.09.2017: € 5.3 million).

Receivables and prepayments amounted to € 1.6 million as at 30.09.2018 (30.09.2017: € 1.8 million). Inventories were € 2.4 million as of 30.09.2018 (30.09.2017: € 2.5 million). Property, plant and intangibles were € 7.0 million as of 30.09.2018 (€ 7.3 million as of 30.09.2017).

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 are in process of implementing the annual price increases, thus aiming to alleviate the negative impact experienced from the higher cost of woodchips, our main raw material. Our marketing activities are focusing on the positive aspects of using our boards, made from fresh 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 exiting our other Riga shop end of November, and also look to divest of our second shop in Tallinn due to its poor profitability. In wholesale we are in negotiations to take over certain European customers from our Finnish distributor, which should help expand our customer base and have potential to secure more sales of our furniture.

DIVISIONAL REVIEW
REVENUE BY BUSINESS SEGMENTS

  € thousand € thousand
  Q3 2018 Q3 2017 9M 2018 9M 2017
Fibreboards production and sales 2,924 3,172 8,603 9,285
Furniture production and sales 630 715 2,207 2,591
Furniture retail 333 374 1,095 1,445
  incl. furniture retail Ukraine 0 0 0 64
Group transactions (177) (176) (537) (748)
TOTAL 3,709 4,085 11,369 12,572

PROFIT BY BUSINESS SEGMENTS

€ thousand Q3 2018 Q3 2017 9M 2018 9M 2017
EBITDA by business units:        
Fibreboards production and sales 141 374 349 874
Furniture production and wholesale (31) (74) 15 (5)
Furniture retail (50) (3) (80) 100
  incl. furniture retail Ukraine 0 0 0 1
Group transactions (14) (5) (22) (17)
TOTAL EBITDA 46 292 261 952
Depreciation 181 208 554 625
TOTAL OPERATING PROFIT/ LOSS (135) 84 (294) 328
Net financial costs 77 70 212 211
Income tax 0 0 0 0
NET PROFIT/ LOSS (211) 14 (505) 117

  1. SALES

The total sales of fibreboards for Q3 2018 were € 2.92 million, which are 8% down from Q3 2017 sales level (€ 3.17 million). We recorded solid sales increase in markets such as Portugal, Asia and Middle-East while sales were dropping in Finland and South Africa.

FIBREBOARD SALES BY GEOGRAPHICAL SEGMENTS

  € thousand € thousand
  Q3 2018 Q3 2017 9M 2018 9M 2017
European Union 2,093 2,202 6,455 6,911
Russia 448 554 1,169 1,173
Asia 128 50 318 223
Middle East 74 94 248 204
Africa 62 201 137 564
Other 118 70 276 209
TOTAL 2,923 3,172 8,603 9,284

FURNITURE WHOLESALE SALES

Sales dropped to € 630 thousand in Q3 2018, down from € 715 thousand in Q3 2017. Russian consumer confidence is still negatively influenced by the sanctions imposed on Russia while in Finland our exclusive distributor is continuing with their restructuring. Skano’s retail shops in the Baltics recovered slightly from a very weak 1st half of year, with more sales compared to Q3 2017.

FURNITURE WHOLESALE SALES BY COUNTRIES

  € thousand € thousand
  Q3 2018 Q3 2017 9M 2018 9M 2017
Russia 254 280 892 915
Finland 148 213 596 795
Skano Retail 177 158 530 665
Other countries 51 65 189 216
TOTAL 630 715 2,207 2,591

FURNITURE RETAIL SALES

Skano Group retail business recorded sales of € 333 thousand in Q3 2018, which is 11% decline from Q3 2017. We started work in Q3 by introducing a more modern retail concept which provides furniture solutions for a family’s total living space, thus widening our furniture appeal from the historical more narrow focus on mainly bookshelves. The new retail concept was rolled out in our main Tallinn shop end of August, which meant closure of the shop for most of August due to the required refurbishment of the shop. The implementation of the new retail concept took place in our new shop in Decco centre in Riga, opened late October, and will be rolled out in our Vilnius and Tartu shops early next year. We will close our shop in the Spice centre in Riga end of November, and we are also seeking to exit our second Tallinn shop.  

RETAIL SALES BY COUNTRIES

  € thousand € thousand Number of stores 
  Q3 2018 Q3 2017 9M 2018 9M 2017 30.09.2018 30.09.2017
Estonia 234 250 603 815 4 4
Latvia 56 59 250 317 1 1
Lithuania 43 65 242 248 1 1
Ukraine* 0 0 0 64 0 0
TOTAL 333 374 1,095 1,445 6 6

*Ukraine retail operations divested in March 2017.

PEOPLE

On the 30th of September 2018, the Group employed 213 people (compared to 226 people as of 30.09.2017). The average number of personnel in Q3 2018 was 213 (Q3 2017: 231).

During first nine months of 2018, wages and salaries with taxes amounted to € 2.7 million (first nine months 2017: € 2.9 million). Payments made to management board members of all group companies including all subsidiaries with relevant taxes were € 136 thousand in nine months 2018 and € 152 thousand in nine months 2017.

FINANCIAL HIGHLIGHTS

€ thousand        
Income statement Q3 2018 Q3 2017 9M 2018 9M 2017
Revenue 3,709 4,085 11,369 12,572
EBITDA 46 292 261 952
EBITDA margin 1% 7% 2% 8%
Operating profit (135) 84 (294) 328
Operating margin (4%) 2% (3%) 3%
Net profit (211) 14 (505) 117
Net margin (6%) 0% (4%) 1%
         
Statement of financial position 30.09.2018 31.12.2017 30.09.2017 31.12.2016
Total assets 11,012 10,937 11,917 11,965
Return on assets (2%) 0% (4%) 1%
Equity 3,277 3,753 3,978 3,901
Return on equity (6%) 0% (13%) 3%
Debt-to-equity ratio 70% 66% 67% 67%
         
Share 30.09.2018 31.12.2017 30.09.2017 31.12.2016
Last Price* 0.49 0.62 0.56 0.46
Earnings per share (0,05) 0,00 (0,11) 0,03
Price-earnings ratio (10.35) 195.86 (4.94) 17.54
Book value of a share 0.73 0.83 0.88 0.87
Market to book ratio 0.67 0.74 0.63 0.52
Market capitalization, € thousand 2,187 2,771 2,497 2,047
Number of shares, piece 4,499,061 4,499,061 4,499,061 4,499,061

 

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 = Last price / Earnings per share 
Book value of a share = Equity / Total shares
Market to book ratio = Last price / Book value of a share
Market capitalization = Last price * Total shares
*http://www.nasdaqbaltic.com/

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONS

€ thousand 30.09.2018 31.12.2017 30.09.2017
Cash and cash equivalents (Note 2) 42 74 312
Receivables and prepayments (Note 3) 1,611 1,215 1,773
Inventories (Note 4) 2,409 2,336 2,554
Total current assets 4,062 3,624 4,640
       
Investment property (Note 5) 170 170 170
Available-for-sale financial assets (Note 8) 351 182 0
Other shares and issues 0 6 0
Property, plant and equipment (Note 6) 6,391 6,908 7,055
Intangible assets (Note 7) 38 47 52
Total non-current assets 6,950 7,313 7,277
       
TOTAL ASSETS 11,012 10,937 11,917
       
Borrowings (Notes 9) 464 593 708
Payables and prepayments (Notes 10) 2,647 1,956 2,400
Short-term provisions (Note 11) 2 13 5
Total current liabilities 3,114 2,562 3,113
       
Long-term borrowings (Notes 9) 4,421 4,422 4,613
Long-term provisions (Note 11) 200 200 213
Total non-current liabilities 4,621 4,622 4,826
Total liabilities 7,735 7,184 7,939
       
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) 38 9 2
Unrealised currency differences 0 0 0
Retained earnings (loss) (112) 393 624
Total equity (Note 13) 3,277 3,753 3,978
       
TOTAL LIABILITIES AND EQUITY 11,012 10,937 11,917

 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

€ thousand Q3 2018 Q3 2017 9M 2018 9M 2017
Revenue (Note 14) 3,709 4,085 11,369 12,572
Cost of goods sold (Note 15) 3,206 3,457 9,683 10,100
Gross profit 503 628 1,686 2,472
         
Distribution costs (Note 16) 479 501 1,460 1,574
Administrative expenses (Note 17) 150 110 444 531
Other operating income (Note 19) 2 187 13 238
Other operating expenses (Note 19) 10 121 89 278
Operating profit (loss) (Note 11) (135) 84 (294) 328
         
Finance income (Note 20) 0 (0) 1 4
Finance costs (Note 20) 77 70 212 215
LOSS BEFORE INCOME TAX (211) 14 (505) 117
Corporate income tax 0 0 0 0
         
NET LOSS FOR THE FINANCIAL YEAR (211) 14 (505) 117
         
Other comprehensive income (loss)  0 0 (40) 
Currency translation differences   0  0  0 (40)
TOTAL COMPREHENSIVE LOSS FOR THE FINANCIAL YEAR (211) 14 (505) 77
         
Basic earnings per share (Note 13) (0,05) 0,00 (0,11) 0,03
Diluted earnings per share (Note 13) (0,05) 0,00 (0,11) 0,02

 

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 2018 3rd Quarter interim report.pdf