Company
AS Viisnurk has four independent business units:
- Furniture Factory, which produces domestic furniture of pine and birch, and solid wood panels.
- Sports Goods Division, which produces cross-country skis and hockey sticks and distributes various sports and leisure time goods.
- Softboard Factory, which produces boards for insulation and soundproofing, and interior finishing boards for walls and ceilings.
- Wood Panel Factory, which produces edge-glued panels for the furniture industry.
Supporting units include Forestry Centre, which supplies the company with roundwood and sells sawn timber, Boiler House, which produces heat energy, and Maintenance Department, which is responsible for the maintenance of buildings, plant and equipment and arrangement of transportation. Besides the above, income is earned from rental activities and operation of in-house canteens.
Financial review
Net sales
AS Viisnurk ended the year with net sales of 347 million kroons (22.18 million euros) - increase of 12.3 percent on the previous financial year. As regards business units, the sales of Furniture Factory grew by a significant 30 percent. Expected sales were also attained at Softboard Factory, whose sales did not increase due to limited installed capacities only. The sales of Sports Goods Division, however, fell short of expectations and the sales of Wood Panel Factory, which experienced difficulties in the launching stage, proved considerably smaller than expected. The sales of supporting units increased on account of an increase in the sales of Forestry Centre, which began supplying sawn timber to Wood Panel Factory.
AS Viisnurk’s net sales and internal sales by units (in thousands of Estonian kroons):
2001 2000 Change, %
Furniture Factory 157,581 121,497 29.7
incl. internal sales 92 124 (25.8)
Sports Goods Division 86,590 103,764 (16.6)
incl. internal sales 0 4,936 -
Softboard Factory 71,892 72,252 (0.5)
Wood Panel Factory 18,645 41 -
incl. internal sales 9,613 0 -
Supporting units 72,036 43,201 66.7
incl. internal sales 50,067 26,612 88.1
Eliminations (internal sales) (59,772) (31,672) 88.7
AS VIISNURK NET SALES 346,972 309,083 12.3
AS Viisnurk’s net sales and internal sales by units (in thousands of Euros):
2001 2000 Change, %
Furniture Factory 10,071 7,765 29.7
incl. internal sales 6 8 (25.8)
Sports Goods Division 5,534 6,632 (16.6)
incl. internal sales 0 315 -
Softboard Factory 4,595 4,618 (0.5)
Wood Panel Factory 1,191 2 -
incl. internal sales 614 0 -
Supporting units 4,604 2,761 66.7
incl. internal sales 3,200 1,701 88.1
Eliminations (internal sales) (3,820) (2,024) 88.7
AS VIISNURK NET SALES 22,175 19,754 12.3
Earnings
The company ended the year with a net profit of 19.4 million kroons (1.24 million euros) and a net profit margin of 5.6 percent. The corresponding figures for 2000 were 31.6 million kroons (2.02 million euros) and 4.6 percent. Operating margin for 2001 amounted to 7.9 percent, a 3.2 percent decrease on 2000. In terms of business units, profits increased at Furniture Factory (+20 percent) and Softboard Factory (+6 percent). Supporting units passed the break-even point and began earning a profit thanks to an improvement in the operating results of Forestry Centre. The results of Sports Goods Division and Wood Panel Factory remained more modest than expected.
Profit formation (in thousands of Estonian kroons):
2001 2000 Change, %
Furniture Factory 23,052 19,233 19.9
Sports Goods Division 5,569 11,847 (53.0)
Softboard Factory 20,589 19,362 6.3
Wood Panel Factory (11,963) (476) -
Supporting units 146 (3,329) -
TOTAL 37,393 46,637 (19.8)
Unallocated expenses (general (10,144) (12,441) (18.5)
administration)
AS VIISNURK OPERATING PROFIT 27,249 34,196 (20.3)
Net financial expenses (7,866) (2,568) 206.3
AS VIISNURK NET PROFIT 19,383 31,628 (38.7)
Profit formation (in thousands of Euros):
2001 2000 Change, %
Furniture Factory 1,473 1,229 19.9
Sports Goods Division 356 757 (53.0)
Softboard Factory 1,316 1,237 6.3
Wood Panel Factory (764) (30) -
Supporting units 9 (213) -
TOTAL 2,390 2,980 (19.8)
Unallocated expenses (general (648) (795) (18.5)
administration)
AS VIISNURK OPERATING PROFIT 1,742 2,185 (20.3)
Net financial expenses (503) (164) 206.3
AS VIISNURK NET PROFIT 1,239 2,021 (38.7)
Assets, liabilities and cash flows
Total assets increased by 7.7 percent amounting to 357.5 million kroons (22.85 million euros) at the year-end. The largest increase occurred in inventories. Due to weaker than projected sales in the fourth quarter and the usual seasonal fluctuations inventory balance grew by 28.6 percent. Non-current assets increased by 18.9 million kroons (1.21 million euros). Liabilities and equity went up by 6.3 million kroons (0.4 million euros) and 19.4 million kroons (1.24 million euros) respectively. Equity increased on account of the net profit for 2001. Debt to equity ratio decreased from 57 percent to 54.5 percent.
Despite a substantial decline in net profit, cash flows from operating activities increased by 3.5 million kroons (0.22 million euros) and all units attained positive cash flows. Cash flows from operating activities were significantly affected by an increase in a non-monetary expense - depreciation. Due to major investments in 2000, annual depreciation increased by ca 10 million kroons (0.64 million euros). This reduced the company’s profit but did not affect the amount of cash earned. During the reporting period the company invested 40.1 million kroons (2.56 million euros) and borrowed 11.3 million kroons (0.72 million euros).
Investment
In the past financial year production-related investments totalled 40.7 million kroons (2.6 million euros). The largest amount, 14.4 million kroons (0.92 million euros), was allocated for the completion of the new Wood Panel Factory. Total investments in the factory now amount to 95 million kroons (6.07 million euros). To continue the streamlining and expansion of Furniture Factory, 9 million kroons (0.58 million euros) was spent on improving finishing, establishing a department for the processing of squared elements and upgrading the warehousing system. The investments made in Softboard Factory and Sports Goods Division were aimed at implementing a solution for using sawdust for production purposes and the expansion of the hockey stick department.
Viisnurk share
The total turnover of Viisnurk share at Tallinn Stock Exchange was 25.4 million kroons (1.62 million euros). The corresponding figure for 2000 was 48.2 million kroons (3.08 million euros). The period’s highest and lowest closing prices amounted to 51.5 kroons (3.29 euros) and 41 kroons (2.62 euros) and were registered on 11 January and 12 September 2001 respectively. The year-end closing price was 42 kroons (2.68 euros), a decrease of 14.3 percent on the beginning of the year. On 8 August the company declared a share issue with a view to raising funds for expansion. The intention was to increase share capital by 850,000 shares by way of additional monetary contributions. The issue price of the new shares was 44 kroons (2.81 euros). In connection with the general turbulence at the world’s stock markets the share issue failed and Management Board cancelled the issue on 28 September.
Performance of units
Furniture Factory
In terms of sales and turnover, Furniture Factory is definitely the largest business unit of AS Viisnurk. Sales have increased rapidly in the past years and the same trend could be observed in 2001 when sales grew by 30 percent. The factory’s operating profit amounted to 23.1 million kroons (1.47 million euros). During the year Furniture Factory continued manufacturing own products and completing sub-contracting orders, keeping the activities at a balance. The largest product line is that of antique-style home-office furniture, which is successfully exported to Europe and Russia. The largest sub-contracting
customer is IKEA, one of the world’s leading furniture distributors. To maintain competitiveness in a strained market that is suffering from excess capacities, the management has put a lot of effort in organisation development and streamlining. At the beginning of 2001 the factory was granted an ISO 9001 quality certificate. Another important project was the implementation of a new production management system, which is based on the restrictions theory and has shortened the production cycle and reduced the inventory balance to a considerable extent.
Sports Goods Division
The results of Sports Goods Division remained modest. The division’s total sales decreased by 17 percent and profit dropped by a half, amounting to 5.6 (mlion kroons (0.36 million euros). Poor snow conditions in the previous winter brought about a decline in the ski market and a substantial decrease in the production volume. This became especially evident in the fourth quarter when production of skis dropped by 56 percent compared to 2000. The critical decrease in output caused the division to end the fourth quarter with a loss of ca 411,000 (26,300 euros) The fourth quarter of 2000 ended with a profit of 6.1 million kroons (0.39 million euros). Altogether Ski Factory produced 212,000 pairs of skis, i.e. 30 percent less than in 2000. In hockey stick production the results of the fourth quarter were adversely affected by production expansion and marketing development costs. The results of mediation activities remained on the level of 2000.
Despite a significant decline in sales, Sports Goods Division retained its market positions in the production cross-country skis both in Europe and North America and penetrated the world hockey stick market. For Sports Goods Division, 2001 was a year of product development and trademark promotion. The division began producing a completely new product - metal-edged skis. Ten percent of cross-country skis were sold under the company’s own “Visu" trademark and seven percent of hockey sticks were sold under the “Maxx" trademark.
Softboard Factory
Softboard Factory continued attaining excellent results. Due to maximum utilisation of installed capacities, sales remained as high as in the previous year. Profit increased slightly, amounting to 20.6 million kroons (1.32 million euros). Operating margin amounted to 28.6 percent. Operating margin was retained thanks to successful control over production inputs, an increase in sales to neighbouring markets, an increase in the share of interior finishing boards and efficient operation of an ISO 9001-compliant quality management system that was implemented in 2000. The share of the Estonian market increased by 25 percent and surpasses now 30 percent of sales. Sales of interior finishing boards accounted for 27 percent of total sales. The factory’s dependence on developments in the construction sector decreased. As a result of efforts made in previous periods, softboard sales were not limited to the construction industry only. In 2001 softboards were sold to furniture producers in Estonia, a notice board producer in Portugal, partition producers in Finland and Australia, and a producer of fire lighting supplies in the Netherlands.
Wood Panel Factory
Investments in the production of edge-glued panels were aimed at increasing production capacities, creating conditions for diversification into new wood processing areas and ensuring the development and expansion of furniture production. For Wood Panel Factory, 2001 was the first year of operation. Operation began at the beginning of the second quarter. The factory ended the first nine months with net sales of 18.6 million kroons (1.19 million euros). More than a half of the sales were internal. External sales amounted to 9 million kroons (0.58 million euros) and 48 percent of the aggregate. Together with financial expenses the loss of the factory amounted to 17.3 million kroons (1.11 million euros), an excess of 15 percent over the projected figure. Loss proved larger than expected because launch of operations, increase of capacities and penetration of suitable marketing channels were adversely affected by a general slump in the market and higher than expected input prices.
At the beginning of 2001 when production was launched, the principal edge-glued panels markets in Scandinavia and Western Europe were in a recession that resulted from a general cooling of world economy and a decline in furniture consumption. Competition in the production of edge-glued panels of pine was extremely stiff and both Scandinavian and Western European manufacturers had excess capacities, which reduced the price of pine panels to the lowest of the past couple of years. Furthermore, the consumers’ interest in pine as a traditional furniture material decreased. On the other hand, interest in birch products increased. Thus, in the following periods the factory may focus on increasing the production of birch panels.
Supporting units
At Forestry Centre centralised purchase and preliminary processing of timber increased 2.1 times. The net sales of Forestry Centre amounted to 50.4 million kroons (3.22 million euros), a considerable increase on the 24.2 million kroons (1.55 million euros) attained a year ago. Intra-company sales increased 2.7 times to 33.7 million kroons (2.15 million euros) and accounted for 67 percent of the total. External sales amounted to 16.8 million kroons (1.07 million euros), a solid increase on the 11.9 million kroons (0.76 million euros) achieved in 2000. The result of operations was a loss of 1.1 million kroons (0.07 million euros), a notable improvement on the loss of 4.7 million kroons (0.3 million euros) incurred in 2000. Altogether the centre distributed purchased and self-produced timber of 21,200 cubic metres. The shares of soft- and hardwood were equal.
The sales of Boiler House amounted to 19.7 million kroons (1.26 million euros), an 8 percent increase on 2001. Inter-segment sales of 16.4 million kroons (1.05 million euros) accounted for 83.2 percent of the total. External sales amounted to 3.3 million kroons (0.21 million euros), a slight increase on the 3.1 million kroons (0.2 million euros) attained in 2000. The year ended with a profit of 0.5 million kroons (0.03 million euros). The corresponding figure for 2000 was 0.7 million kroons (0.04 million euros). During the financial year Boiler House produced 79.6 GWh (2000 – 87.2 GWh) and purchased 10.5 GWh of heat energy.
Maintenance Department deals with the maintenance of production equipment and technical communications, produces special equipment for the core production activities and is in charge of power supply and management. The monetary value of services provided in 2001 amounted to 28.4 million kroons (1.82 million euros), a 20 percent increase on 2000.
Future objectives
For AS Viisnurk 2001, was a year of sustaining growth. At the end of the period we completed our development strategy until 2005, which outlines our strategic objectives and the measures for attaining them. In line with the corporate vision, a significant increase in operating capacities will remain an important objective both in the short and long range. In 2002 turnover should continue increasing rapidly. Growth is rapid when it exceeds 15 percent per year. However, stable profitability is even more important. In 2001 difficulties in the launch of Wood Panel Factory caused a setback in profits. In 2002 we intend to increase profitability and expect to reach the level of net profit earned in 2000.
Units have the following objectives.
Furniture Factory
Furniture production remains a priority. On existing premises capacities cannot be increased. Therefore, the factory’s main objective for 2002 is to prepare a business plan and launch a project for the implementation of additional production capacities in 2003. Due to limited production capacities, the results of 2002 should remain similar to the ones attained in 2001.
Sports Goods Division
The key to the development of Sports Goods Division is sustaining rapid growth in hockey stick production and hedging production risks at the manufacture of cross-country skis. Expectations regarding an increase in net sales are not high because adverse climatic conditions do not allow to foresee a substantial increase in the number of pairs of cross-country skis that can be sold. On the other hand, in the long range overall growth can be attained through an increase in the sales of hockey sticks. Especially as the hockey sticks market is many times larger than the cross-country skis market. In 2002 the division should increase the average price of cross-country skis by way of increasing the sales of skis that bear our own trademark and new, more sophisticated models. As regards the sales of hockey sticks, the division will focus on winning new large customers through active sales campaigns and more aggressive sales techniques. The preparations made in product development and marketing in 2001 allow to expect an increase in profits in 2002.
Softboard Factory
In 2002 the objective of Softboard Factory is to maintain profitability in an environment of continually rising input prices (especially power). This can be achieved by optimising marketing expenses and increasing the share of products of a higher finishing category. Installed capacities will not be increased.
Wood Panel Factory
The short-term objective of Wood Panel Factory is to attain the results outlined in the business plan. The long-term objective is to ensure the supply of the expanded Furniture Factory with high quality raw material. In 2002 Wood Panel Factory should become the company’s main growth engine. Generation of profit should begin in the second half-year and by the year-end the factory should have attained all the capacity, output and quality targets that are outlined in the business plan.
Andrus Aljas
CFO
+372 44 78 355