Areas of Activity
Viisnurk AS is a wood processing company with over half a century of experience in adding value to wood. The core business of the company is furniture production, although it currently incorporates a number of significant non-core activities.
The Furniture, Sports Goods, Building Materials and Wood Divisions are the business units of Viisnurk AS.
The Furniture Division includes the Furniture Factory of the company, which manufactures and markets wooden home furniture.
The Sports Goods Division produces cross-country skis and hockey sticks, and distributes sports and recreational goods.
The Building Materials Division produces two softboard-based product categories: building boards for insulation and soundproofing, and interior finishing boards for walls and ceilings.
The Wood Division comprises a hardwood sawmill, a complex of kilns and the Wood Panel Factory.
Additionally, the group holds 100% of the shares of Skano OÜ (registered on 01.09.2003), a retailer of furniture in Tallinn and Pärnu.
Financial Review
Net Sales
The Viisnurk Group ended the year 2003 with net sales of 392.3 million kroons (25.1 million euros). The net sales of the company increased by 6.7% as compared to the previous financial year. Among the business units of the company, the Wood and Building Materials Divisions managed to increase their net sales (by a third and 8%, respectively, on 2002), whilst the net sales of the Furniture Division remained on the same level as a year ago, and those of the Sports Goods Division decreased by almost 14% compared to 2002.
Net sales and internal sales of Viisnurk AS by areas of activity
2003 2002 2003 2002 Difference
thou. EEK thou. EEK thou. € thou. € %
Furniture Division 153 673 156 170 9 821 9 981 (1,6)
incl. internal sales 722 76 46 5
Sports Goods Division 71 809 83 099 4 589 5 311 (13,6)
Building Mat Division 94 923 87 991 6 067 5 624 7,9
incl. internal sales 2 722 4 757 174 304 (42,8)
Wood Division 99 119 74 296 6 335 4 748 33,4
incl. internal sales 24 984 31 067 1 597 1 986 (19,6)
Other activities 15 916 20 026 1 017 1 280 (20,5)
incl. internal sales 14 993 18 151 958 1 160 (17,4)
Eliminations (43 421) (54 051) (2 775) (3 455) (19,7)
(internal sales)
NET SALES OF VIISNURK 392 019 367 531 25 054 23 489 6,7
NET SALES OF SKANO OÜ 312 20
NET SALES OF GROUP 392 331 367 531 25 074 23 489 6,7
Profit
The Viisnurk Group ended the year 2003 with a net loss of 68.8 million kroons (4.4 million euros), compared to a loss of 19.6 million kroons (1.2 million euros) in 2002. Broken down by the business units, the Building Materials and the Furniture Divisions ended the year with a profit (19.5/1.2 million and 6.8/0.4 million kroons/euros, respectively), whereas the Wood and Sports Goods Divisions incurred a loss (52.9/3.4 million and 24.5/1.6 million kroons/euros, respectively). From a total loss of the period, the write-downs and provisions related to restructuring formed 41.2 million kroons (2.6 million euros).
Breakdown of net profit of Viisnurk AS by areas of activity
2003 2002 2003 2002 Difference
thou. EEK thou. EEK thou. € thou. € %
Furniture Division 6 764 15 184 432 970 (56,9)
Sports Goods Division (24 471) (15 484) (1 564) (990) 58,0
Building Mat Division 19 482 17 275 1 245 1 104 12,8
Wood Division (52 914) (17 401) (3 382) (1 112) 204,1
Other activities 2 801 650 179 42 330,9
TOTAL PROFIT OF (48 338) 224 (3 090) 14
BUSINESS UNITS
Unallocated expenses (11 915) (9 953) (762) (636) 19,7
(general
administration)
OPERATING PROFIT (60 253) (9 729) (3 852) (622) 521,5
Net financial (8 413) (9 903) (537) (633) (15,4)
expenses
NET PROFIT OF (68 666) (19 632) (4 389) (1 255) 249,8
VIISNURK
NET PROFIT OF SKANO (174) (11)
NET PROFIT OF GROUP (68 840) (19 632) (4 400) (1 255) 250,7
Balance Sheet and Cash Flow Statement
The total assets of the Viisnurk Group decreased by 18.5% in the accounting period, amounting to 281 million kroons (18 million euros) as of 31.12.2003. As to the assets on the balance sheet, the current assets remained unchanged as compared to 2002, whereas the net book value of fixed assets decreased by 60.2 million kroons (3.8 million euros) in 2003 due to the write-downs of the Wood and Sports Goods Divisions assets (38.1 million kroons/2.4 million euros) and new investments not offsetting the depreciation of the existing fixed assets. The size of the group liabilities remained largely unchanged from 2002 (206.8 million kroons/13.2 million euros), but the proportion of current liabilities increased significantly (156.6 million kroons/10 million euros). The increase in current liabilities resulted from two loans amounting to 56 million kroons (3.6 million euros) and maturing in 2004 having been reclassified as current liabilities. These loans are intended to be refinanced.
The cash flow from operations was positive in the financial year 2003, amounting to 12.5 million kroons (0.8 million euros). In 2003, 7.8 million kroons (0.5 million euros) were used for business-related investments; the transfer of the company’s real estate and fixed assets generated 4.7 million kroons (0.3 million euros), and the outstanding balance of loans decreased by approximately 10 million kroons (0.6 million euros).
Performance of Business Units
Furniture Division
The Furniture Division ended the year with net sales of 153.7 million kroons (9.8 million euros) and a profit of 6.8 million kroons (0.4 million euros). As compared to 2002, the net sales of the division were on the same level, but the profit slumped by approximately a half, reflecting the increased marketing and personnel expenses related to the new Strategic Development Plan of the division, but also other issues such as having difficulties launching new products and supplying raw materials, which resulted in delayed deliveries in the second half of the year.
In 2003, a Strategic Development Plan aimed at laying the foundation for a substantial future increase in the sales volumes of furniture was compiled for the Furniture Division. On the basis of the Development Plan, changes were made in the organisational structure, adding twelve new managers and specialists and strengthening the marketing, engineering and logistics departments.
In 2003, exports accounted for 91.6% of the net sales of the division (the major markets being Finland, Sweden, Germany and Russia).
Sports Goods Division
The Sports Goods Division ended the year 2003 with net sales of 71.8 million kroons (4.6 million euros) and a loss of 24.5 million kroons (1.6 million euros).
The sales of skis accounted for 67%, hockey sticks for 20%, and the retail and wholesale of sports goods and accessories for 13% of the turnover of the division.
Lower sales figures primarily resulted from the strategy of reducing the production volumes opted for as a way of dealing with the production problems. As a result of customers’ claims for compensation (mainly due to late deliveries), and an unacceptably high level of manufactured skis not conforming to the required quality standards, the production problems were the main reason for generating a loss. Furthermore, the results for 2003 recognise extraordinary expenses in the amount of 6.8 million kroons (0.4 million euros) related to claims from past periods, inventory write- downs and the reduction in the value of semi-finished goods. Additionally, in the end of 2003, the write-down of the fixed assets of the division amounted 6.8 million kroons (0.4 million euros).
Regardless of the problems, the orders of all major customers were mainly fulfilled, and the customer relations remained good. Co-operation with a large customer (Atomic) was restored. The production and sales targets for 2004 have been covered with orders. To minimise production-related problems, the division has avoided taking orders for skis requiring particularly sophisticated production processes.
The increase in the sales of hockey sticks by a third in 2003 was positive. However, the sales of other winter goods (such as boots, poles, waxes, etc) were less successful due to the belated winter.
In 2003, exports accounted for 83% of the net sales of the division (the major export markets being the USA, Norway, Finland and Canada).
Building Materials Division
The Building Materials Division ended the year 2003 with record net sales of 94.9 million kroons (6.1 million euros) and a profit of 19.5 million kroons (1.2 million euros). Compared to the previous year, the net sales increased by 8% and the profit by 14%.
Optimisation of the product portfolio of the main production line towards products of higher profitability resulted in improved results. The optimisation was possible owing to the high demand for the products of the division in both the domestic and neighbouring markets. The proportion of the Isotex internal finishing boards, which involve a higher level of added value, was successfully increased to 28% of total sales (compared to 22% in 2002).
Exports accounted for 56% of the total sales of the division, the largest markets being Finland and the Netherlands.
Wood Division
The Wood Division ended the year 2003 with the total sales of 99.1 million kroons (6.3 million euros), including internal sales in the amount of 25 million kroons (1.6 million euros). The turnover of the division increased by 33% as compared to the previous year. Among the subdivisions of the Wood Division, the total turnover of the sawmill and the kiln complex was 33.7 million kroons (2.2 million euros) (an increase of 3% on 2003) and that of the Wood Panel Factory 65.4 million kroons (4.2 million euros) (an increase of 58% on 2003). The division ended the year with a loss of 52.9 million kroons (3.4 million euros). From the total loss the write-downs and provisions related to closing down the division formed 34.4 million kroons (2.2 million euros).
Regardless of the increase in net sales, the division continued to generate a operating loss. Low price levels resulting from the significant overcapacity in the European market combined with a high volume of fixed costs made it impossible to operate the division at a profit. The consequences of the severe shortage of raw material in the 4th quarter also hampered the operations of the Wood Division.
Export accounted for 45% of the total sales of the Wood Division, the largest markets being Denmark, Germany and the United Kingdom.
Restructuring
In order to give the company a strong balance sheet and allow it to focus on its core business of furniture production, the following steps have been decided upon:
- The Building Materials Division is put up for sale;
- The Sports Goods Division is put up for sale;
- The Wood Division will be closed and the assets will be either sold or rented out.
Due to the issues mentioned above, the fixed assets of the Wood and Sports Goods Divisions were written down in the 4th quarter of 2003 resulting from the evaluation of the individual item of the assets. As the selling process of the Sports Goods division and the sale/rent out of Wood Division’s assets have not been completed yet, the final sales price of the divisions as a set of assets may be significantly higher, depending on the business plan and other factors, than the total balance sheet value resulting from the evaluation of the individual item of the assets.
The total amount of write-down of the fixed assets of the Wood Division is 31.3 million kroons (2 million euros); the redundancy payment reserve (1.9 million kroons/0,1 million euros) and closing-related write-downs of inventories (1.2 million kroons/0.08 million euros) will accrue to this sum.
The total amount of write-downs of the fixed assets of the Sports Goods Division is 6.8 million kroons (0.4 million euros).
The total amount of restructuring-related write-downs and provisions is 41.2 million kroons (2.6 million euros).
The Supervisory and Managing Boards of Viisnurk AS believe that the opportunity to focus on the core activity of the company as well as the stronger financial position resulting from the restructuring process will enable the company to progress towards its objective of being a leading Baltic furniture producer whilst maintaining solid profitability. 2004 will be the year of a change, the first positive results of which are expected in 2005.
INCOME STATEMENT
Consolidated, unaudited
th. kr. th. kr. th. eur th. eur
2003 2002 2003 2002
NET SALES 392,331 367,531 25,074 23,489
Cost of goods sold (414,157) (343,168) (26,469) (21,932)
Gross profit (21,826) 24,363 (1,395) 1,557
Marketing expenses (23,210) (19,664) (1,483) (1,257)
General admin. expenses (11,915) (9,953) (762) (636)
Other income 6,864 1,642 438 105
Other expenses (10,380) (6,117) (663) (391)
Profit from operations (60,467) (9,729) (3,865) (622)
Financial income and (8,373) (9,903) (535) (633)
expenses
NET PROFIT (68,840) (19,632) (4,400) (1,255)
Basic earnings per share (15.30) (4.36) (0.98) (0.28)
Diluted earnings per (15.30) (4.36) (0.98) (0.28)
share
BALANCE SHEET
Consolidated, unaudited
th. kr. th. kr. th. eur th. eur
31.12.2003 31.12.2002 31.12.2003 31.12.2002
Cash and bank 1,141 1,764 73 113
Customer receivables 45,005 54,143 2,876 3,460
Other receivables 115 1,916 7 122
Prepayments 7,127 4,447 456 284
Inventories 63,819 58,602 4,079 3,746
Total current assets 117,207 120,872 7,491 7,725
Long-term financial 1,436 1,436 92 92
investments
Real estate investments 2,535 2,792 162 178
Tangible fixed assets 156,102 219,008 9,977 13,998
Intangible fixed assets 3,716 785 237 50
Total fixed assets 163,789 224,021 10,468 14,318
TOTAL ASSETS 280,996 344,893 17,959 22,043
Debt obligations 90,011 38,773 5,753 2,478
Customer prepayments 219 620 14 40
Supplier payables 38,802 30,978 2,480 1,980
Taxes payable 6,956 5,944 445 380
Accrued expenses 17,514 12,267 1,119 784
Short-term provisions 3,129 1,493 200 95
Total current 156,631 90,075 10,011 5,757
liabilities
Non-current debt oblig. 50,160 111,773 3,206 7,144
Total non-current liab. 50,160 111,773 3,206 7,144
Total liabilities 206,791 201,848 13,217 12,901
Share capital (nom. 44,991 44,991 2,875 2,875
value)
Issue premium 11,332 11,332 724 724
Mandatory capital 4,499 4,499 288 288
reserve
Retained profits 82,223 101,855 5,255 6,510
Net profit for the year (68,840) (19,632) (4,400) (1,255)
Total equity 74,205 143,045 4,742 9,142
TOTAL LIABILIT. AND 280,996 344,893 17,959 22,043
EQUITY
Andrus Aljas
Business Controller
+372 447 8355