THE 1st 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, Great Britain, Portugal and the Baltics.
The shares of Skano Group AS are listed on the Nasdaq Tallinn Stock Exchange.
As at 31 March 2017 the Group employed 237 people (31 March 2016: 310 people).
Skano Group recorded net profit for first quarter of 2017 of 88 thousand euros (1Q 2016: loss of 355 thousand euros). The results were influenced by a one-off gain of 48 thousand euros due to the disposal of Skano’s Ukrainian retail subsidiary.
Consolidated net sales of 1Q 2017 were 4.46 mil. euros, representing a 2% decrease compared to the same period in 2016 (4.55 mil. euros). Consolidated EBITDA amounted to 366 thousand euros (in 1Q 2016 EBITDA was negative 50 thousand euros), which equates to 8% of sales.
The turnover of fibreboards production and sales in 1Q 2017 was 3.26 mil. euros, which is 2% less sales than for same period in 2016. The operating profit in 1Q 2017 was 157 thousand euros (in 1Q 2016 16 thousand euros). We have made cost cuts and realigned production capacity to reflect reduced demand.
The turnover of furniture production and sales was 0.96 mil. euros, including the amount of 0.26 mil. euros sales to group retail companies (1Q 2016 respectively 1.05 mil. euros and 0.25 mil. euros). The sales decreased in 1Q 2017 by 9% compared to 1Q 2016. The operating loss in 1Q 2017 was 55 thousand euros (1Q 2016 had operating loss of 211 thousand euros). The two main reasons for the improved performance comes from reduced staffing in production, which has led to higher production efficiency, as well as overhead cost cutting.
The turnover from retail sales was 0.55 mil. euros, which is 12% higher than recorded in 1Q 2016. The operating profit in 1Q 2017 was 61 thousand euros (in 1Q 2016 operating loss of 157 thousand euros). The improvement comes from improved cumulative sales from the group’s existing six shops and closure of loss-making shops since first quarter of 2016.
POSITION OF FINANCIAL STATEMENT
As of 31.03.2017 the total assets of Skano Group AS were 12.7 mil. euros (31.03.2016: 14.6 mil. euros). The liabilities of the company as of 31.3.2017 were 8.8 mil. euros (31.03.2016: 10.0 mil. euros).
Receivables and prepayments amounted 2.1 mil. euros (31.03.2016: 2.3 mil. euros). Inventories were 2.6 mil. euros as of 31.3.2017 (31.03.2016: 3.7 mil. euros). Property, plant and intangibles were to 7.9 mil. euros as of 31.03.2017 (8,4 mil. euros as of 31.03.2016).
Total liabilities were 8.8 mil. euros as of 31.3.2017 (31.03.2016: 8.3 mil. euros).
OUTLOOK
Skano Group’s sales in April this year declined by 13% compared to sales in April 2016, Fibreboard were down 11% while Furniture were down 15%. The general downward trend of total sales which has been seen during the last few years for Skano Group is our main cause for concern at this stage. The ongoing weakness in our two largest markets, Finland and Russia, continues to hurt Skano’s fibreboard sales development while our furniture business dependency on the Finnish market in particular has led to shrinking of Skano’s total furniture sales.
DIVISIONAL REVIEW:
NET SALES BY BUSINESS SEGMENTS:
| th EUR | % of net sales | |||
| 1Q 2017 | 1Q 2016 | 1Q 2017 | 1Q 2016 | |
| Fibreboards production and sales | 3,264 | 3,315 | 73.2% | 73.0% |
| Furniture production and sales | 959 | 1,052 | 21.5% | 23.1% |
| Furniture retail | 548 | 490 | 12.3% | 10.8% |
| Group transactions | (309) | (312) | (7%) | (6.9%) |
| TOTAL | 4,462 | 4,545 | 100.0% | 100.0% |
Fibreboard sales declined by 2% while furniture sales in Finland has experienced a sales decline of 9% in 1Q 2017 compared to 1Q 2016, this being the result of continuous difficult trading conditions in Finland. Our retail furniture business in the Baltics has had a good start to the year with a sales increase of 12% compared to similar period last year.
NET SALES BY GEOGRAPHICAL SEGMENTS:
| th EUR | % of net sales | |||
| 1Q 2017 | 1Q 2016 | 1Q 2017 | 1Q 2016 | |
| Finland | 1,785 | 1,898 | 40.0% | 41.8% |
| Estonia | 802 | 654 | 17.9% | 14.4% |
| Russia | 576 | 579 | 12.9% | 12.7% |
| Sweden | 209 | 139 | 4.7% | 3.0% |
| Portugal | 163 | 263 | 3.7% | 5.8% |
| South Africa | 132 | 99 | 2.9% | 2.2% |
| Latvia | 126 | 187 | 2.8% | 4.1% |
| Thailand | 87 | - | 1.9% | - |
| Ukraine | 84 | 61 | 1.9% | 1.3% |
| Netherland | 77 | 16 | 1.7% | 0.3% |
| Lithuania | 63 | 93 | 1.4% | 2.3% |
| Great Britain | 61 | 324 | 1.4% | 7.1% |
| Kazakhstan | 47 | - | 1.3% | - |
| Denmark | 43 | 48 | 0.9% | 1.0% |
| Other countries | 207 | 184 | 4.6% | 4.0% |
| TOTAL | 4,462 | 4,545 | 100.0% | 100.0% |
Skano’s three main markets of Finland, Estonia and Russia together increased their share of total sale of the group, up from 68.9% of total group sales in 1Q 2016 to being 70.8% of group sales in 1Q 2017. We have also gained entry into two new markets, Kazakhstan (furniture) and Thailand (construction).
PROFIT BY BUSINESS SEGMENTS:
| th EUR | 1Q 2017 | 1Q 2016 |
| Fibreboards production and sales | 157 | 16 |
| Furniture production and sales | (55) | (211) |
| Furniture retail | 61 | (157) |
| Elimination | (5) | 84 |
| TOTAL | 158 | (268) |
| Net financial costs | (70) | (86) |
| Income tax | - | (1) |
| NET PROFIT | 88 | (355) |
Fibreboard profit was helped by further production concentration to thicker boards, which are more profitable for Skano. Furniture losses declined, however this business unit needs to further improve. Profit from sale of Ukraine retail operations helped to make Furniture Retail profitable for the 1st Quarter of 2017.
FIBREBOARDS production and sales
The total sales of fibreboards in 1Q 2017 amounted to 3.26 mil. euros, down from sales of 3.32 mil. euros in 1Q 2016. However, we recorded a strong increase in operating profit up from 16 thousand euros in 1Q 2016 to 157 thousand euros in 1Q 2017.
The largest sales decline came from the Portuguese and British market, while Sweden showed the strongest sales growth compared to last year.
FIBREBOARD SALES BY GEOGRAPHICAL SEGMENTS:
| th EUR | % of net sales | |||
| 1Q 2017 | 1Q 2016 | 1Q 2017 | 1Q 2016 | |
| Finland | 1,519 | 1,453 | 47.2% | 44.6% |
| Estonia | 389 | 430 | 10.6% | 11.4% |
| Russia | 260 | 251 | 8.1% | 7.7% |
| Sweden | 209 | 139 | 6.5% | 4.3% |
| Portugal | 163 | 263 | 5.1% | 8.1% |
| SAR | 132 | 99 | 4.1% | 3,00% |
| Latvia | 88 | 84 | 2.7% | 2.6% |
| Thailand | 87 | - | 2.7% | - |
| Netherland | 77 | 16 | 2.4% | 0.5% |
| Great Britain | 51 | 318 | 1.6% | 9.7% |
| Denmark | 43 | 48 | 1.4% | 1.5% |
| Ukraine | 42 | 20 | 1.3% | 0.6% |
| Other countries | 204 | 194 | 6.3% | 6,0% |
| TOTAL | 3,264 | 3,315 | 100.0% | 100.0% |
FURNITURE production and sales
FURNITURE PRODUCTION
Sales dropped to 0.96 mil. euros in 1Q 2017, from 1.05 mil. euros in 1Q 2016. The largest sales decline came from the Finnish market reflecting continuous weak economic environment in our biggest market. Our Russian market was slightly down while deliveries to Kazakhstan and Germany helped us grow our sales outside of our two main markets Finland and Russia. Sales to Skano retail units held up well, and increased its share of total furniture sales within the Group.
FURNITURE WHOLESALE SALES BY COUNTRIES:
| th EUR | % of net sales | |||
| 1Q 2017 | 1Q 2016 | 1Q 2017 | 1Q 2016 | |
| Finland | 266 | 445 | 27.7% | 42.3% |
| Russia | 316 | 328 | 32.9% | 31.2% |
| Other countries | 117 | 25 | 12.2% | 2.4% |
| Group retail companies | 260 | 254 | 27.2% | 24.1% |
| TOTAL | 959 | 1,052 | 100.0% | 100.0% |
FURNITURE RETAIL SALES
Skano group retail business recorded increased sales, up from 0.49 mil. euros in 1Q2016 to 0.55 mil. euros in 1Q 2017. Estonia experienced strong growth at the start of the year (we have 4 shops; Tallinn two, Tartu one and we have a factory shop in Pärnu). Both our Riga and Vilnius stores had a poor start this year, while we managed to sell in March our loss-making Ukrainian subsidiary.
RETAIL SALES BY COUNTRIES:
| th EUR | % of net sales | Number of stores | ||||
| 1Q 2017 | 1Q 2016 | 1Q 2017 | 1Q 2016 | 31.03.2017 | 31.03.2016 | |
| Estonia | 444 | 277 | 81.0% | 56.5% | 4 | 5 |
| Latvia | 38 | 103 | 6.9% | 21.0% | 1 | 1 |
| Ukraine | 42 | 41 | 7.7% | 8.3% | 0 | 3 |
| Lithuania | 24 | 69 | 4.4% | 14.2% | 1 | 1 |
| TOTAL | 548 | 490 | 100.0% | 100.0% | 6 | 10 |
FORECAST AND DEVELOPMENT
SKANO FIBREBOARD. Sales in our largest market Finland started well this year, however the Finnish economy is still weak thus difficult to forecast the development for the rest of the year. We are seeing good sales increase in Sweden and South Africa, the latter due to the labour difficulties experienced by our competitor, the only local fibreboard producer in southern Africa. We have also secured a new construction customer from Thailand, while we lost the largest UK customer, thus the decline in sales to the UK. Our two main pin-board customers in Portugal and Netherland are on divergent paths, the Portuguese customer losing some market share while the Dutch competitor is gaining market share. The closure of the fourth shift in our Püssi fibreboard factory in April should help to adjust capacity better to demand. We also closed in April our Finnish warehouse and will be supplying the Finnish customers directly from our factories in Püssi and Pärnu.
SKANO FURNITURE FACTORY. Last autumn’s reduction of capacity in the furniture factory have made our production much more cost efficient. Further pruning of costs this year also contributed to substantially reducing this unit’s ongoing losses. The key challenge this year will be try to turn around declining sales trend for this unit.
SKANO FURNITURE RETAIL SALES. We expect steady sales from our Baltic shops this year. The closure of loss-making shops and overhead cost reductions should strengthen this unit’s profitability compared to last year.
FINANCIAL HIGHLIGHTS
| th EUR | 1Q 2017 | 1Q 2016 | 1Q 2015 |
| Income statement | |||
| Revenue | 4,462 | 4,545 | 5,108 |
| EBITDA | 366 | (50) | 258 |
| EBITDA margin | 8.2% | (1.1%) | 5.0% |
| Operating profit | 158 | (268) | 36 |
| Operating margin | 3.5% | (5.9%) | 0.7% |
| Net profit | 88 | (355) | (9) |
| Net margin | 2.0% | (7.8%) | (0.8%) |
| Balance sheet (31.03) | |||
| Total assets | 12,705 | 14,591 | 14,989 |
| Return on assets | 0.7% | (2.4%) | (0.3%) |
| Equity | 3,948 | 4,529 | 5,212 |
| Return on equity | 2.2% | (7.8%) | (0.7%) |
| Debt-to-equity ratio | 68.9% | 68.0% | 65.2% |
| Share (31.03) | |||
| Closing price | 0.520 | 0.726 | 0.845 |
| Earnings per share | 0.02 | (0.08) | (0.01) |
| Price-earnings ratio | 26.0 | (9.08) | (84.5) |
| Book value of a share | 0.88 | 1.01 | 1.16 |
| Market to book ratio | 0.59 | 0.72 | 0.73 |
| Market capitalization | 2,340 | 3,266 | 3,802 |
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 | 31.03.2017 | 31.12.2016 | 31.03.2016 |
| Cash and bank | 152 | 184 | 278 |
| Receivables and prepayments | 2,068 | 965 | 2,252 |
| Inventories | 2,627 | 2,760 | 3,681 |
| Total current assets | 4,847 | 3,909 | 6,211 |
| Investment property | 405 | 405 | 406 |
| Tangible fixed assets | 7,392 | 7,584 | 7,955 |
| Intangible fixed assets | 61 | 66 | 19 |
| Total fixed assets | 7,858 | 8,055 | 8,380 |
| TOTAL ASSETS | 12,705 | 11,964 | 14,591 |
| Debt obligations | 1,639 | 1,176 | 2,237 |
| Payables and prepayments | 2,729 | 2,497 | 3,422 |
| Short-term provisions | 13 | 15 | 12 |
| Total current liabilities | 4,381 | 3,688 | 5,671 |
| Non-current debt obligations | 4,163 | 4,163 | 4,163 |
| Non-current provisions | 213 | 213 | 228 |
| Total non-current liabilities | 4,376 | 4,376 | 4,391 |
| Total liabilities | 8,757 | 8,064 | 10,062 |
| Share capital at nominal value | 2,699 | 2,699 | 2,699 |
| Issue premium | 364 | 364 | 364 |
| Statutory capital reserve | 288 | 288 | 288 |
| Other reserves | 2 | 2 | 6 |
| Currency translation | 0 | 40 | (25) |
| Retained profits | 507 | 1,552 | 1,552 |
| Net profit (loss) for the year | 88 | (1,045) | (355) |
| Total equity | 3,948 | 3,957 | 4,529 |
| TOTAL LIABILITIES AND EQUITY | 12,705 | 11,964 | 14,591 |
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
| th EUR | 1Q 2017 | 1Q 2016 |
| SALES | 4,462 | 4,545 |
| Cost of production sold | (3,425) | (3,728) |
| Gross profit | 1,037 | 817 |
| Marketing expenses | (602) | (874) |
| General administrative expenses | (235) | (145) |
| Other income | 51 | 8 |
| Other expenses | (93) | (74) |
| Operating profit (loss) | 158 | (268) |
| Financial income and financial expenses | (70) | (86) |
| Profit (loss) before taxes | 88 | (354) |
| Prepaid income tax | 0 | (1) |
| NET PROFIT (LOSS) FOR THE PERIOD | 88 | (355) |
| Basic earnings per share | 0,02 | (0.08) |
| Diluted earnings per share | 0,02 | (0.08) |
| Other income: | ||
| Currency translation differences | 0 | (32) |
| TOTAL CONSOLIDATED INCOME | 88 | (387) |
The planned time of publishing of interim report of the first quarter of 2017 is week 35 in 2017 (30-31th of August 2017)
Torfinn Losvik
Member of the Management Board
+372 569 90 988
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