Skano Group Quarterly report 29.05.2015

THE FIRST QUARTER IN SHORT

Consolidated net sales of the first quarter of 2015 was 5.1 mil. euros, representing a 5% decrease on the first quarter compared to the same period in 2014. At the same time, consolidated EBITDA amounted to 253 thousand euros (EBITDA 100 thousand euros in Q1 2014).

The sale in Skano Fibreboard OÜ Pärnu factory (incl. Isotex) was 1.8 mil. euros, decreased as compared to the  respective period last year by 15%, the operating profit of the first quarter was 114 thousand euros compared with the operating loss 54 thousand euros last year.

The turnover of Skano Fibreboard OÜ Püssi factory was 1.6 mil. euros, representing 32% increase in the first quarter compared to the same period in 2014. Operating loss amounted to 9 thousand euros compared with the operating
loss 204 thousand euros last year.

Sales mainly increased due to sales to new markets. As our main foreign markets Russia and Finland are still very weak due to the general economic situation we have been continuously expanding the list of our target markets and made
significant efforts in product development. Remarkable sale to SAR in Q1 was a good sample of entering into new markets. In the first quarter we also conducted product testing and tuning of production process in both factories in
order to achieve a lower production cost.

The priority of the management of the company is continuously to ensure the sales of the production of both factories in order to guarantee the maximum production capacity and efforts are taken in this direction on an on-going basis.

Sales of Suomen Tuulielijona OY in Q1 2015 were at the same level compared to last year, which amounted to 1,6 mil. euros. Suomen Tuulileijona OY is the wholesaler of Skano fibreboard products in Finland, which was acquired in July
2015. In Q1 2014 sale of Suomen Tuulielijona OY was not consolidated yet and was recorded under Skano Fibreboard OÜ sales.

The turnover of Skano Furniture Factory OÜ in Pärnu decreased in the first quarter by 23% and amounted to 1.3 mil. euros. The operating loss of the first quarter was 89 thousand euros as in 2014 the operating profit of the same period was 122 thousand euros. Profitability was impacted by low sales volumes. In the first quarter of 2015 sales to Russia decreased heavily due to very weak demand by 52% as compared to 2014, also sales to Finland decreased 20%. Sales
grew in the Baltics and new markets. In addition to seeking new sales possibilities in the current markets the company has made considerable effort to enter into totally new markets like UK and France. Today sale in new markets is not covering the gap from our main markets.

The turnover of Skano Furniture OÜ retail chain increased 7% as compared to the same period last year being 653 thousand euros, operating loss was 240 thousand euros compared with the sales 608 thousand and operating loss 245 thousand euros in the first quarter of 2014. 2015 first quarter operating loss contains also a loss from a drop of currency exchange rate of hryvnia 268 thousand euros. Skano Furniture OÜ exchange rate loss amounting to 228 thousand euros is non-monetary and will be eliminated from the consolidated results as they are intragroup transactions against another group company (realized loss from currency exchange rate 256 thousand euros in the same period of 2014).

Retail sale increased everywhere in the Baltics but decreased in Ukraine due to the conflict. The sales of Skano Furniture Factory OÜ own furniture still forms a considerable part of the retail sale and it enables the furniture factory to
operate much more profitably than it would be possible without its own retail chain.

INCOME STATEMENT

Consolidated net sales of the first quarter in 2015 was 5.1 mil. euros (5.4 mil. euros in same period of 2014) representing a 5% decrease compared to Q1 2014. The Group’s gross margin in the first quarter of 2015 was 23% compared to 15% in the first quarter of 2014. Consolidated operating profit amounted to 36 thousand euros (operating loss 125 thousand euros from main activities in same period 2014). The consolidated operating margin of net sales was 0.7% (-2.3% from main activities in Q1 2014).

Consolidated net loss amounted to 39 thousand euros (compared to net loss 186 thousand euros in Q1 2014), and the net margin was -0.8% (-3.5% in Q1 2014).

POSITION OF FINANCIAL STATEMENT

As of 31.03.2015 the total assets of Skano Group AS amounted to 15.0 mil. euros (31.03.2014: 15.0 mil. euros). The liabilities of the company accounted for 65% (31.03.2014: 56%) thereof, i.e. 9.8 mil. euros (31.03.2014: 8.4 mil. euros).

Receivables and prepayments have increased by 0.8 mil. euros i.e. 56% decrease within 12 months due to new receivables of Suomen Tuulileijona OY recently acquired.

Inventories have been at the same level with 12 months, amounting to 3.3 mil. euros on 31.03.2015. (31.03.2014: 3.3 mil. euros). Property, plant and intangibles decreased by 1.2 mil. euros mainly due to one-off write-down of Püssi factory assets by 0.9 mil. euros.

Short-term loans have increased by 0.9 mil. euros and amounted to 2.8 mil. euros in 31.03.2015 which was result of increase of factoring liabilities of Suomen Tuulileijona OY recently acquired and usage of bank overdraft (31.03.2014: 1.9 mil. euros). Supplier payables, tax liabilities, other payables, including payables to employees, and provisions amounted to 3.2 mil. euros (31.03.2014: 2.8 mil. euros).

Long-term loans have decreased by 0.2 mil euros and amounted to 3.6 mil. euros in 31.03.2015 (31.03.2014: 3.4 mil. euros). The increase was caused by restructuring of the loan between short- and long-term payment schedule.

Current and non-current liabilities have increased by 1.4 mil. euros to 9.8 mil. euros (31.03.2014: 8.4 mil. euros).



DIVISIONAL REVIEW

NET SALES BY BUSINESS SEGMENTS

		th EUR		% of net sales
	Q1 2015	Q1 2014	Q1 2015	Q1 2014
Skano Fibreboard OÜ	3,445	3,388	67.8%	63.3%
Skano Furniture Factory OÜ	1,325	1,717	25.9%	32.1%
Skano Furniture OÜ retail	653	608	12.8%	11.4%
Suomen Tuulileijona OY	1,604	0	31.4	0.0%
Elimination	(1,919)	(362)	(37.6%)	(6.8%)
TOTAL	5,108	5,351	100.0%	100.0%

NET SALES BY GEOGRAPHICAL SEGMENTS

		th EUR		% of net sales
	Q1 2015	Q1 2014	Q1 2015	Q1 2014
Finland	2,076	2,181	40.6%	40.8%
Estonia	792	679	15,5%	12,7%
Russia	773	1,275	15.1%	23.8%
SAR	360	9	7.0%	0.2%
Great Britain	206	241	4.0%	4.5%
Sweden	199	176	3.9%	3.3%
Latvia	181	142	3.5%	2.7%
Lithuania	101	89	2.0%	1.7%
Ukraine	86	165	1.7%	3.1%
Kazakhstan	82	0	1.6%	0.0%
Denmark	56	6	1.1%	0.1%
France	54	20	1.1%	0.4%
Other countries	142	368	2.9%	6.7%
TOTAL	5,108	5,351	100.0%	100.0%

Regarding the markets, turnover has increased in Estonia, Latvia, Lithuania and SAR. The turnover has decreased most in Russia and Ukraine.

PROFIT BY BUSINESS SEGMENTS

th EUR	Q1 2015	Q1 2014
Skano Furniture factory	(89)	122
Skano Furniture retail	(240)	(245)
Skano Fibreboard	105	(258)
Suomen Tuulileijona OY	41	0
Elimination	219	256
TOTAL	36	(125)
Net financial costs	(72)	(61)
Income tax	(3)	0
NET PROFIT	(39)	(186)

SKANO FIBREBOARD

The net sales of Skano Fibreboard in the first quarter of 2015 amounted to 3.4 mil. euros and operating profit to 105 thousand euros. In the same period last year, the turnover of Skano Fibreboard totaled also to 3.4 mil. euros and the operating loss from main activities 258 thousand euros.

The increase in sales in the first quarter compare to last year took place in Estonia and SAR, but declined in Russia, Taiwan and Netherlands.

NET SALES BY GEOGRAPHICAL SEGMENTS

		th EUR			% of net sales
	Q1 2015	Q1 2014		Q1 2015	Q1 2014
Finland (incl. to Suomen Tuulileijona OY)	1,612	1,639		46.8%	48.4%
Estonia	415	326		12.0%	9.6%
Russia	368	437		10.7%	12.9%
SAR	360	9		10.4%	0.3%
Great Britain	199	231		5.8%	6.8%
Sweden	199	176		5.8%	6.8%
Latvia	57	64		1.7%	1.9%
Denmark	56	6		1.6%	0.2%
Germany	38	8		1.1%	0.2%
UAE	36	9		1.0%	0.3%
Other countries	105	483		3.1%	14.2%
TOTAL	3,445	3,388		100.0%	100.0%

th EUR		Net sales		Operating Profit
	Q1 2015	Q1 2014	Q1 2015	Q1 2014
Pärnu Fibreborad factory	1,389	1,633	100	(15)
Püssi Fibreboard factory	1,577	1,197	(9)	(204)
Pärnu interior boards factory (Isotex)	424	493	14	(39)
Not allocated	55	65	0	0
TOTAL	3,445	3,88	105	(258)

The net sales of the Pärnu fibreboard factory and interior board’s line decreased 15% in the first quarter of 2015 compared to the same quarter of 2014 and amounted to 1.8 mil. euros.

The turnover of Püssi fibreboard factory amounted to 1.6 mil. euros growing 32% compared to the same quarter in 2014 (turnover 1.2 mil. euros in Q1 2014). Output of Püssi Fibreboard factory grew in the first quarter but the main challenge is still to secure Püssi Fibreboard factory with sufficient sales volumes and efficiency.

SKANO FURNITURE

FURNITURE RETAIL SALES

Skano Group AS retail business is operated by a private limited company Skano Furniture OÜ and its subsidiaries in Latvia, Lithuania and Ukraine. Skano has totally 10 stores in Tallinn (2), Tartu, Pärnu, Riga, Vilnius, Kiev (2), Kharkiv and Dnipropetrovs’k at the end of the first quarter in  2015.

RETAIL SALES BY COUNTRIES

		th EUR			% of net sales			Number of stores
	Q1 2015	Q1 2014		Q1 2015	Q1 2014		31.03.15	31.03.14
Estonia	369	329		56.5%	54.1%		4	4
Latvia	124	78		19.0%	12.8%		1	1
Lithuania	84	73		12.9%	12.0%		1	1
Ukraine	76	128		11.6%	21.1		4	4
TOTAL	653	608		100.0%	100.0%		10	10

Retail sale amounted to 653 thousand euros in the first quarter of 2015 and operating loss 240 thousand euros (sales 608 thousand euros and operating loss 245 thousand euros in Q1 2014). Current year first quarter operating loss 240 thousand euros contains also loss from drop of currency exchange rate of hryvnia 268 thousand euros. Skano Furniture OÜ exchange rate loss amounting to 228 thousand euros are eliminated from the consolidated results as they are intragroup transactions against another group company (realized loss from currency exchange rate 256 thousand euros in the same period of 2014).

FURNITURE PRODUCTION

The net sales of the Skano Furniture Factory in the first quarter amounted to 1.3 mil. euros and operating loss to 89 thousand euros. In the same period last year, the turnover of the factory amounted to 1.7 mil. euros and the profit to 122 thousand euros. As compared to the previous year the turnover of the factory has decreased 23%. In the first quarter the sales decreased in Russia by 52% and in Finland by 20% due to colder economic and political environment and weaker demand for durable goods.

FURNITURE FACTORY SALES BY COUNTRIES

		th EUR			% of net sales
	Q1 2015	Q1 2014		Q1 2015	Q1 2014
Russia	433	542		32.7%	31.6%
Finland	405	838		30.6%	48.8%
Other countries	146	40		11.0%	2.3%
Subsidiaries	341	297		25.7%	17.3%
TOTAL	1,325	1,717		100.0%	100.0%

FORECAST AND DEVELOPMENT

SKANO FIBREBOARD. We expect sales of Skano Fibreboard in Q2 2015 to be lower compared to sales of the same period last year. The main reason behind sale’s decline is planned regular stoppage in the second quarter in both factories. Also the technical maintenance break in Püssi due to the fire of heat exchanger to restart the factory was slightly longer than expected.

Continuously weak economic situation in our core markets will impact our sales in Finland and Russia. On the other hand we see already better results in efficiency even with lower production volumes compared to last year as a result of the recent production improvement plan.

The management’s priority is to secure the factories with sufficient sales volumes and to improve energy efficiency in the production process, where 2015 investment and improvement program is aimed. Although we have achieved in 2014 significant progress in the production cost compared to prior year, we expect also higher production efficiency in 2015 compared to 2014. Further progress in
production efficiency is achieved primarily due to lower energy consumption and technological improvements as a result of which amount of poor quality products and production outage would decrease.

SKANO FURNITURE RETAIL SALES. We expect total retail sale in Q2 2015 to remain at the same level compared to sales of the same period last year. We expect sale increase in the Baltics but decrease in Ukraine due to political and economic instability.

SKANO FURNITURE FACTORY. In the second quarter of 2015 we expect remarkablysmaller sales of the furniture factory compared to the same period in 2014 because of the deteriorated economic situation in the near regions. In Finland sales are down due to general weak economic conditions, in Russia due to weak currency, predictable broad-based economic downturn and low consumer confidence.

Sales to new markets in Q2 2015 are not covering the lag from our main markets. In 2015 our goal is to compensate with sales in new markets partly the gap from our main markets in Russia and Finland. In addition to seeking sales possibilities in new markets, we are refreshing our existing furniture series, developing new furniture series and alternative sales channels. By the current moment in the second quarter we have launched a new modern furniture range called Trevik plus other new ranges are expected to come out soon.


FINANCIAL HIGHLIGHTS

th EUR	3 m 2015	3 m 2014	3 m 2013
Income statement
Revenue	5,108	5,351	4,361
EBITDA	253	100	(37)
EBITDA margin	5.0%	1.9%	(0.8%)
Operating profit	36	(125)	(266)
Operating margin	0.7%	(2.3%)	(6.1%)
Net profit	(39)	(186)	(322)
Net margin	(0.8%)	(3.5%)	(7.4%)
Balance sheet (31.03)
Total assets	14,989	14,980	15,511
Return on assets	(0.3%)	(1.2%)	(2.1%)
Equity	5,212	6,574	7,174
Return on equity	(0.7%)	(2.8%)	(4.5%)
Debt-to-equity ratio	65,2%	56.1%	56.1%
Share (31.03)
Closing price	0,845	0,995	1,190
Earnings per share	(0.01)	(0.04)	(0.07)
Price-earnings ratio	(84.50)	(24.88)	(17.00)
Book value of a share	1,16	1,46	1,59
Market to book ratio	0,73	0,68	0,75
Market capitalization	3,802	4,477	5,354

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	31.03.2015	31.12.2014	31.03.2014
Cash and bank	691	432	392
Receivables and prepayments (Note 1)	2,326	1,232	1,477
Inventories (Note 2)	3,347	2,962	3,301
Total current assets	6,364	4,626	5,170
Investment property (Note 3)	407	407	408
Tangible fixed assets (Note 4)	8,189	8,267	9,374
Intangible fixed assets (Note 5)	29	29	28
Total fixed assets	8,625	8,703	9,810
TOTAL ASSETS	14,989	13,329	14,980
Debt obligations (Note 6)	2,795	2,030	1,931
Payables and prepayments (Note 7)	3,185	2,198	2,822
Short-term provisions (Note 8)	11	15	10
Total current liabilities	5,991	4,243	4,763
Non-current debt obligations (Note 6)	3,563	3,563	3,413
Non-current provisions (Note 8)	223	223	230
Total non-current liabilities	3,786	3,786	3,643
Total liabilities	9,777	8,029	8,406
Share capital at nominal value (Note 9)	2,699	2,699	2,699
Issue premium	364	364	364
Statutory capital reserve	288	288	288
Currency translation	(65)	(16)	(37)
Retained profits	1,965	3,446	3,446
Net profit (loss) for the year (Note 10)	(39)	(1,481)	(186)
Total equity	5,212	5,300	6,574
TOTAL LIABILITIES AND EQUITY	14,989	13,329	14,980

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

th EUR	1st Q 2015	1st Q 2014
RETURN ON SALES (Note 11)	5,108	5,351
Cost of production sold	(3,922)	(4,538)
Gross profit	1,186	813
Marketing expenses	(833)	(722)
General administrative expenses	(174)	(173)
Other income	65	27
Other expenses	(208)	(60)
Operating profit (loss) (Note 11)	36	(125)
Financial income and financial expenses	(72)	(61)
Profit (loss) before taxes	(36)	(186)
Prepaid income tax	(3)	0
NET PROFIT (LOSS) FOR THE PERIOD	(39)	(186)
Basic earnings per share (Note 10)	(0.01)	(0.04)
Diluted earnings per share (Note 10)	(0.01)	(0.04)
Other comprehensive income:
Currency translation differences	(49)	(45)
TOTAL COMPREHENSIVE INCOME	(88)	(231)

The planned time of publishing of interim report of the second quarter of 2015 is week 35 (24-28 August 2015)


Martin Kalle
CEO
+372 4478 331
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Skano 2015 1Q Interim report ENG.pdf