Short review of 2007 and future plans 

 

In 2007, several important events took place in the development of Viisnurk. The enterprise was divided into real estate and production enterprise. Sales organizations in Latvia, Lithuania and Ukraine were created for the quick development of retail trade and an additional production line of Isotex interior finishing boards was started.

 

Increase of furniture retail trade and the expansion of our network of stores have generally gone according to the plan. In Riga, the location of the store was exchanged for a more favourable one. Sales began well in the new location right after opening and exceeded the volume of sales of the previous store already in the first month. In the end of 2007, Skano operated six stores in the Baltic states and one in Ukraine. Retail sale increased 98% in 2007 compared to 2006 and the sale in stores existing as of 31.12.2006 has increased 62% in 2007. The openings of new stores are being prepared and one store shall be opened in the 1st quarter of 2008 in Ukraine and the plan is to open three more shops in Ukraine in the 2nd quarter. It is planned to open 16 stores in Ukraine and Central Europe in 2008–2009. Upon creating the retail unit, AS Viisnurk entered the business area of the retail of furniture and furnishing goods that is operated by a private limited company Skano, registered on September 1, 2003 and its subsidiaries in Latvia, Lithuania and Ukraine. AS Viisnurk holds 100% of the shares of OÜ Skano.

 

The furniture factory has considerably narrowed its product portfolio. The production of pine furniture has basically been terminated and the most profitable production lines have been put into focus. Searching for new out-sourced lines has been terminated and preparations are being made in order to satisfy the demands related to the increase in retail business. The company has made a decision to focus on the profitable production of two basic product lines, namely Björkkvist/Boknäs and Villinki in order to improve the efficiency. Already today, the aforementioned product lines make more than 90% of the production of Viisnurk Furniture Division and 90% of the production is exported outside the Baltic states. Above all, the management board foresees that there are some reserves concerning the improvement of quality due to specialization and minimizing the time lost due to re-adjustments made for different product lines. The market has shown an increasing demand for both product lines and because of their classical design, there is little risk that the demand would decrease due to trends. Besides the increase of demand in its retail trade, the management board predicts the increase of furniture production due to the changes in the sales strategy of Scandinavian and Russian customers and increase of the sales network.

 

At the end of 2007, new Isotex production line of interior finishing boards operated in Building Materials Division in one shift. This has created an opportunity for the increase of profitability and margins within the following periods. The main goal for 2009 is to utilize the entire production capacity of the new line and considerably larger marketing costs are planned for 2008 in order to sell the entire production volume. The sale of general construction boards has increased 23% in 2007 compared to 2006 and the sale of interior finishing boards has increased 12%.

 

Although the result of 2007 is weaker than previously forecast, the results at the beginning of 2008 are again on the rise and surpass the initial expectations. The main factor of for not meeting the forecast results was a smaller sale in November and December. Despite the costs related to the expansion of Skano retail sale which made the total of 5.4 million kroons (345 thousand euros) in 2007 and the cost related to the writing off of surplus of stock of the product lines terminated in the previous periods in the total of 0.9 million kroons (57 thousand euros), the profit of the enterprise has increased from 12.5 million kroons (800 thousand euros) in 2006 to 12.7 million kroons (809 thousand euros) in 2007. The management board plans a 20 million kroons (1.3 million euros) profit for 2008 whereas a considerable profit growth has been planned in the second half of 2008. It is not planned to achieve the result of the previous year in the 1st quarter as the costs due to the increase of the retail organization are bigger in this period than the revenue received from the opened stores. It is not planned to achieve the result of the previous year in the 1st quarter mainly because of single expenditures due to the growth of retail sale organization. The result in Building Materials Division was also very good in 2007 which was caused by a great demand and the sale of all warehouse stock in the 1st quarter of 2007 (in the level of the entire group, 58% of the net profit of 2007 was achieved in the 1st quarter of the previous year). The management forecast that the 1st quarter of 2008 would be considerably moderate compared to 2007 but actually the initial results allow us to predict better results than what was forecast by the management which nevertheless do not surpass the results of the 1st quarter of 2007.

 

By the end of 2007, the activities related to the division have been completed and the activities of the enterprises have been separated. The development of the real estate object located next to the Building Materials Division in Rääma Street in Pärnu goes according to the plan. Drawing of the detailed plan has been initiated which gives a chance to render additional value to the area in the future or to realize it more profitably. The winner of the architectural competition is Architect’s Office Luhse & Tuhal and the planned building volume is 60,000 m² (including 21,000 m² in the first part). The architectural competition encompassed the entire registered immovable of Rääma 31, the first part of which is formed by the present real estate development region with the area of ca 2 ha. The prerequisite for the development of the second part would be the termination of the work of the Building Materials Division on the given territory. In the opinion of the management, the termination of Building Materials Division is not practical in the near future and this is mainly an option for the future.

 

 

12 months of 2007

 

The net sales of AS Viisnurk for the 12 months of 2007 were 249.5 mil. kroons/15.9 mil. euros (226.9 mil. kroons/14.5 mil. euros during the same period in 2006) and the net profit amounted to 12.7 mil. kroons/0.8 mil. euros (12.5 mil. kroons/0.8 mil. euros during the same period in 2006).

 

As of the end of December 2007 the total assets of Viisnurk amounted to 157.4 mil. kroons/10.1 mil. euros (31.12.2006: 144.1 mil. kroons/9.2 mil. euros). The liabilities of the company accounted for 55% (31.12.2006: 54%) thereof, i.e. 86.2 mil. kroons/5.5 mil. euros (31.12.2006: 78.1 mil. kroons/5.0 mil. euros).

 

The turnover of the Furniture Division in the 12 months of 2007 amounted to 136.2 mil. kroons/8.7 mil. euros (132.3 mil. kroons/8.5 mil. euros during the same period in 2006) and the profit amounted to 4.2 mil. kroons/0.3 mil. euros (5.5 mil. kroons/0.4 mil. euros during the same period in 2006).

The turnover of the Building Materials Division in the 12 months of 2007 amounted to 112.9 mil. kroons/7.2 mil. euros (94.6 mil. kroons/6.0 mil. euros during the same period in 2006) and the profit amounted to 14.2 mil. kroons/0.9 mil. euros (11.7 mil. kroons/0.7 mil. euros during the same period in 2006).

 

The profit of the Divisions does not reflect the general administrative costs of the corporation in the amount of 2.5 mil. kroons/0.2 mil. euros (1.7 mil. kroons/0.1 mil. euros during the same period in 2006) and the financial expenses of 2.8 mil. kroons/0.2 mil. euros (2.5 mil. kroons/0.2 mil. euros during the same period in 2006) that have been recorded in the report of business segments as unallocated expenses.

 

The division plan of AS Viisnurk was signed on June 29, 2007 as the result of which the part of the previous Viisnurk engaged in production became separate, namely the Furniture and Building Materials Division. The aforementioned decision was also approved by the general meeting of shareholders on August 6, 2007. The division was registered in Commercial Register on September 19, 2007. The separated unit engaged in production named to AS Viisnurk and trading with the share of AS Viisnurk started in Tallinn Stock Exchange on September 25, 2007. The division engaged in production maintain the real estate necessary for its principal activity also in the future as well as the Rääma street real estate development project. Real estate located at Niidu street which was not used in the production activity of Viisnurk, was separated. All assets, liabilities, revenues and costs related to separated unit, are eliminated.

 

 

4th quarter of 2007

 

The net sales of the 4th quarter of the accounting year amounted to 69.0 mil. kroons/4.4 mil. euros (66.7 mil. kroons/4.3 mil. euros in 2006) and the net profit amounted to 1.3 mil. kroons/80 thousand euros (4.6 mil. kroons/293 thousand euros in 2006).

 

The results of the fourth quarter of 2007 of the company compared to the fourth quarter of 2006 have remained more modest both in the Furniture Division and the Building Materials Division. In the Furniture Division the growth of retail sale was smaller than planned mainly due to postponed opening in Kiev. Sales to Finland were also smaller than estimated. In Building Materials Division the quantities agreed on for the year in sales contracts were fulfilled and there was no sale of remarkable additional quantities.

 

The turnover of the Furniture Division in the fourth quarter of 2007 amounted to 41.8 mil. kroons/2.7 mil. euros (40.5 mil. kroons/2.6 mil. euros during the same period in 2006) and the profit amounted to 1.4 mil. kroons/86 thousand euros (profit 2.5 mil. kroons/158 thousand euros in 2006).

 

The turnover of the Building Materials Division in the fourth quarter of 2007 amounted to 27.2 mil. kroons/1.7 mil. euros (26.2 mil. kroons/1.7 mil. euros during the same period in 2006) and the profit amounted to 1.6 mil. kroons/103 thousand euros (3.1 mil. kroons/198 thousand euros in 2006).

 

The profit of the Divisions does not reflect the general administrative costs of the corporation in the amount of 0.8 mil. kroons/54 thousand euros and the financial expenses of 0.9 mil. kroons/55 thousand euros (the general administrative costs 0.3 mil. kroons/20 thousand euros and the financial expenses of 0.7 mil. kroons/43 thousand euros in 2006) that have been recorded in the report of business segments as unallocated expenses.

 

 

Divisional review:

 

Th EEK	Net sales		Profit
	2007	2006	2007	2006
Furniture Division	136,626	132,287	4,207	5,541
Incl. retail (Skano)	22,514	11,348	(1,090)	951
Building Materials Division	112,896	94,581	14,208	11,674
TOTAL	249,522	226,868	18,415	17,215
Unallocated expenses			(2,466)	(1,724)
OPERATING PROFIT			15,949	15,491
Net financial costs			(2,817)	(2,536)
PROFIT BEFORE TAXES			13,132	12,955
Prepaid income tax			(475)	(438)
NET PROFIT			12,657	12,517

 

Th EUR	Net sales		Profit
	2007	2006	2007	2006
Furniture Division	8,732	8,455	269	354
Incl. retail (Skano)	1,439	725	(70)	61
Building Materials Division	7,215	6,045	908	747
TOTAL	15,947	14,500	1,177	1,101
Unallocated expenses			(158)	(111)
OPERATING PROFIT			1,019	990
Net financial costs			(180)	(162)
PROFIT BEFORE TAXES			839	828
Prepaid income tax			(30)	(28)
NET PROFIT			809	800

 

Furniture Division

 

The twelve-month net sales of AS Viisnurk Furniture Division were 136.3 mil. kroons/8.7 mil. euros (2006: 132.3 mil. kroons/8.5 mil. euros) and the economic result 4.2 mil. kroons/269 thousand euros (2006: 5.5 mil kroons/354 thousand euros) as a profit. As compared to the previous year the turnover of the division has increased by 4.3 mil. kroons/277 thousand euros.

 

Furniture Production

The Furniture Division’s twelve-month sales in the company’s basic target market in Russia have proceeded according to the plans and in Finland the fourth quarter was weaker then expected. The following increase in sales is basically the result of the increase in retail sale.

 

Among potential markets the division sees an opportunity to increase sales in Eastern and Central Europe.

 

Furniture Retail – Skano

Concerning the retail trade of the Furniture Division, the company continued its strategic activities in the 4th quarter of 2007 in order to expand the retail trade to the neighbouring markets. The expansion of retail business includes opening new stores offering home furniture and furnishing goods in various Eastern European markets. Moreover, the company is searching for possibilities to enter the market of Central Europe.

 

The retail sale of the Furniture Division shows a rising tendency. Within twelve months this year the retail sale has increased by 98% as compared to the same period last year. At the same time, the sales of the stores opened before 31.12.2007 have increased 62% during the twelve months compared to the same period in 2006.

 

Opening of the store in Kiev (Ukraine) in the fourth quarter was postponed and the store will open in the first quarter of 2008.

 

Compared to the 12 months of the previous year, the expansion costs of retail business have been 5.4 million kroons/345 thousand euros. The aforementioned amount includes the administrative costs of retail business and the losses of the stores opened in Lithuania and Ukraine.

 

 

Building Materials Division

 

The twelve-month net sales of the Building Materials Division amounted to 112.9 mil. kroons/7.2 mil. euros and profit to 14.2 mil. kroons/0.9 mil. euros. In the same period of the last year, the turnover of the division totalled 94.6 mil. kroons/6.0 mil. euros and the net profit 11.7 mil. kroons/0.7 mil. euros. As compared to the previous year the turnover of the division has increased by 18.3 mil. kroons/1.2 mil. euros and the profit by 2.50 mil. kroons/0.2 mil. euros.

 

Building Boards

The results of the first nine months of 2007 have most been influenced by the sale success of Isoplaat wind protection boards in Northern Europe. The demand for wind protection boards is big in the domestic market as well. In other neighbouring markets, especially in Latvia and Russia, the sale of floor boards has increased. Wind protection boards were the product group with the largest share in the sale of building boards.

 

Interior Finishing Boards

In October, the selection of wall panels with textile cover increased by 3 new covers which make the entire product selection more attractive and help to differentiate clearly in tough competition.

 

Ceiling panels comprised 78% (80% in 2006) and wall panels 22% (20% in 2006) of the sales of interior finishing boards.

 

Sales of Isotex interior finishing boards comprised 35% (2006: 42%) of the total sales of the division in 2007. Interior finishing boards are being produced since 1996 and they are sold 100% under the company’s own trademark Isotex.

 

 

Consolidated balance sheet (pro forma)

	Th EEK	Th EEK	Th EUR	Th EUR
	31.12.2007	31.12.2006	31.12.2007	31.12.2006
Cash and bank	6,006	12,234	384	782
Receivables and prepayments	29,859	26,630	1,908	1,701
Inventories	51,551	44,970	3,295	2,874
Non-current assets held for sale	3,191	0	204	0
Total current assets	90,607	83,834	5,791	5,357
Investment property	2,893	2,903	185	186
Tangible fixed assets	63,727	56,745	4,073	3,627
Intangible fixed assets	220	650	14	42
Total fixed assets	66,840	60,298	4,272	3,855
TOTAL ASSETS	157,447	144,132	10,063	9,212
Debt obligations	8,782	19,017	561	1,215
Payables and prepayments	37,488	30,230	2,396	1,932
Short-term provisions	264	221	17	15
Total current liabilities	46,534	49,468	2,974	3,162
Non-current debt obligations	36,734	25,574	2,348	1,634
Non-current provisions	2,936	3,047	188	195
Total non-current liabilities	39,670	28,621	2,536	1,829
Total liabilities	86,204	78,089	5,510	4,991
Share capital at nominal value	44,991	44,991	2,875	2,875
Issue premium	5,698	7,795	364	498
Statutory capital reserve	4,499	4,499	288	288
Currency translation reserve	39	0	2	0
Retained profits	3,359	(3,759)	215	(240)
Net profit for the year	12,657	12,517	809	800
Total equity	71,243	66,043	4,553	4,221
TOTAL LIABILITIES AND EQUITY	157,447	144,132	10,063	9,212

 

 

Consolidated income statement (pro forma)

 

	Th EEK	Th EEK	Th EUR	Th EUR
	2007	2006	2007	2006
RETURN ON SALES	249,522	226,868	15,947	14,500
Cost of production sold	(199,796)	(187,989)	(12,769)	(12,015)
Gross profit	49,726	38,879	3,178	2,485
Marketing expenses	(30,021)	(21,258)	(1,919)	(1,358)
General administrative expenses	(2,466)	(1,724)	(158)	(111)
Other income	206	526	13	34
Other expenses	(1,496)	(932)	(95)	(60)
Operating profit	15,949	15,491	1,019	990
Financial income and financial expenses	(2,817)	(2,536)	(180)	(162)
Profit before taxes	13,132	12,955	839	828
Prepaid income tax	(475)	(438)	(30)	(28)
NET PROFIT FOR THE PERIOD	12,657	12,517	809	800
Basic earnings per share	2.81	2.78	0.18	0.18
Diluted earnings per share	2.81	2.78	0.18	0.18

 

 

Einar Pähkel

CFO

+372 447 8331