Skano Group Quarterly report 28.08.2015
THE SECOND QUARTER IN SHORT
Consolidated net sales of the second quarter of 2015 were 4.7 mil. euros, representing a 13% decrease on the second quarter compared to the same period in 2014. At the same time, consolidated EBITDA amounted to 271 thousand euros (EBITDA 431 thousand euros in Q2 2014). Net sales in 2015 H1 amounted to 9.7 mil. euros, representing 9% decrease (2014 H1 net sales: 10.7 mil. euros). First 6 months EBITDA in 2015 was 524 thousand euros staying at the same level as last year (2014 6 months EBITDA: 531 thousand euros). Although consolidated net sales have decreased mainly due to weak demand in Finland and Russia, the company has managed to improve EBITDA margin. The main reasons behind it are improvements of fibreboard production process allowing to reduce production cost and keep profitability at much lower production volumes.
The sale in Skano Fibreboard OÜ Pärnu factory (incl. Isotex) was 2.0 mil. euros, decreased as compared to the respective period last year by 9%, the operating profit of the second quarter was 220 thousand euros compared with the operating profit 126 thousand euros last year.
The turnover of Skano Fibreboard OÜ Püssi factory was 1.1 mil. euros, representing 12% decrease in the second quarter compared to the same period in 2014. Operating loss amounted to 104 thousand euros compared with the operating loss 25 thousand euros last year.
Sales mainly decreased in our core 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. In the second quarter we also conducted product testing and tuning of production process in both factories in order to achieve a lower production cost and break-even point.
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 Q2 2015 decreased 17% compared to last year, which amounted to 1.3 mil. euros. Suomen Tuulileijona OY is the wholesaler of Skano fibreboard products in Finland, which was acquired in July 2014. In Q2 2014 sale of Suomen Tuulielijona OY was not consolidated yet and was recorded under Skano Fibreboard OÜ sales to Finland.
The turnover of Skano Furniture Factory OÜ in Pärnu decreased in the second quarter by 29% and amounted to 1.2 mil. euros. The operating loss of the second quarter was 58 thousand euros as in 2014 the operating profit of the same period was 141 thousand euros. Profitability was impacted by low sales volumes. In the second quarter of 2015 sales to Russia decreased heavily due to very weak demand by 59% as compared to 2014. Sales to Finland increased slightly and remained at the same level in the Baltics. In addition to seeking new sales possibilities in the current markets the company has made considerable effort to enter into new markets like UK, France and USA.
The turnover of Skano Furniture OÜ retail chain increased 17% as compared to the same period last year being 634 thousand euros, operating profit was 80 thousand euros compared with the sales 543 thousand and operating loss 49 thousand euros in the second quarter of 2014. 2015 second quarter operating profit 80 thousand euros contains also a profit from a drop of currency exchange rate of hryvnia 67 thousand euros (realized loss from currency exchange rate 55 thousand euros in the same period of 2014).
Retail sale increased in Estonia and Latvia but decreased slightly in Lithuania and remarkably in Ukraine due to the conflict and difficult economic situation. The sales of Skano Furniture Factory OÜ own furniture still forms a considerable part of the retail sale and it enables the furniture factory tooperate much more profitably than it would be possible without its own retail chain.
INCOME STATEMENT
Consolidated net sales of the second quarter in 2015 was 4.7 mil. euros (5.4 mil. euros in same period of 2014) representing a 13% decrease compared to Q2 2014. The Group’s gross margin in the second quarter of 2015 was 22% compared to 22% in the second quarter of 2014. Consolidated operating profit amounted to 68 thousand euros (operating profit 212 thousand euros from main activities in same period 2014). The consolidated operating margin of net sales was 1.5% (4.0% from main activities in Q2 2014).
Consolidated net loss amounted to 12 thousand euros (compared to net profit 142 thousand euros in Q2 2014), and the net margin was -0.3% (2.7% in Q2 2014).
POSITION OF FINANCIAL STATEMENT
As of 30.06.2015 the total assets of Skano Group AS amounted to 14.0 mil. euros (30.06.2014: 15.1 mil. euros). The liabilities of the company accounted for 64% (30.06.2014: 56%) thereof, i.e. 8.9 mil. euros (30.06.2014: 8.4 mil. euros).
Receivables and prepayments have increased by 0.2 mil. euros i.e. 13% increase within 12 months due to new receivables of Suomen Tuulileijona OY recently acquired.
Inventories have slightly decreased with 12 months, amounting to 3.4 mil. euros on 30.06.2015. (30.06.2014: 3.5 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, the rest was as a result of depreciation.
Short-term loans have increased by 0.5 mil. euros and amounted to 1.9 mil. euros in 30.06.2015 which was a result of increase of factoring liabilities of Suomen Tuulileijona OY recently acquired and usage of bank overdraft (30.06.2014: 1.4 mil. euros). Supplier payables, tax liabilities, other payables, including payables to employees, and provisions amounted to 2.7 mil. euros (30.06.2014: 2.6 mil. euros).
Long-term loans have decreased by 0.1 mil euros and amounted to 4.0 mil. euros in 30.06.2015 (30.06.2014: 4.1 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 0.5 mil. euros to 8.9 mil. euros (30.06.2014: 8.4 mil. euros).
DIVISIONAL REVIEW
NET SALES BY BUSINESS SEGMENTS
| th EUR | % of net sales | ||||
| Q2 2015 | Q2 2014 | Q2 2015 | Q2 2014 | ||
| Skano Fibreboard OÜ | 3,049 | 3,397 | 65.5% | 63.5% | |
| Skano Furniture Factory OÜ | 1,200 | 1,694 | 25.8% | 31.7% | |
| Skano Furniture OÜ retail | 634 | 543 | 13.6% | 10.1% | |
| Suomen Tuulileijona OY | 1,333 | 0 | 28.6% | 0.0% | |
| Elimination | (1,563) | (284) | 33.6%) | (5.3%) | |
| TOTAL | 4,653 | 5,350 | 100.0% | 100.0% |
NET SALES BY GEOGRAPHICAL SEGMENTS
| th EUR | % of net sales | ||||
| Q2 2015 | Q2 2014 | Q2 2015 | Q2 2014 | ||
| Finland | 1,892 | 2,113 | 40.7% | 39.5% | |
| Estonia | 782 | 872 | 16.7% | 16.3% | |
| Russia | 778 | 1,358 | 16.7% | 25.4% | |
| Great Britain | 309 | 252 | 6.6% | 4.7% | |
| Latvia | 198 | 117 | 4.3% | 2.2% | |
| Sweden | 134 | 99 | 2.9% | 1.9% | |
| Ukraine | 92 | 135 | 2.0% | 2.5% | |
| Lithuania | 77 | 108 | 1.7% | 2.0% | |
| SAR | 63 | 0 | 1.4% | 0.0% | |
| Germany | 45 | 45 | 1.0% | 0.8% | |
| Kazakhstan | 43 | 43 | 0.9% | 0.8% | |
| Saudia Arabia | 35 | 0 | 0.8% | 0.0% | |
| Other countries | 205 | 208 | 4.4% | 3.9% | |
| TOTAL | 4,653 | 5,350 | 100.0% | 100.0% |
Regarding the markets, turnover has increased in Latvia and Great Britain. The turnover has decreased most in Russia,
Finland and Ukraine.
PROFIT BY BUSINESS SEGMENTS
| th EUR | Q2 2015 | Q2 2014 |
| Skano Furniture factory | (58) | 141 |
| Skano Furniture retai | 80 | (49) |
| Skano Fibreboard | 114 | 101 |
| Suomen Tuulileijona OY | (6) | 0 |
| Elimination | (62) | 19 |
| TOTAL | 68 | 212 |
| Net financial costs | (80) | (70) |
| Income tax | 0 | 0 |
| NET PROFIT | (12) | 142 |
SKANO FIBREBOARD
The net sales of Skano Fibreboard in the second quarter of 2015 amounted to 3.0 mil. euros and operating profit to 114 thousand euros. In the same period last year, the turnover of Skano Fibreboard totaled to 3.4 mil. euros and the operating profit from main activities 101 thousand euros.
The decrease in sales in the second quarter compare to last year took place in all core markets. Sales increased in Sweden and Great Britain.
NET SALES BY GEOGRAPHICAL SEGMENTS
| th EUR | % of net sales | |||
| Q2 2015 | Q2 2014 | Q2 2015 | Q2 2014 | |
| Finland (incl. to Suomen Tuulileijona OY) | 1,361 | 1,651 | 44.6% | 48.6% |
| Russia | 432 | 509 | 14.2% | 15.0% |
| Estonia | 405 | 552 | 13.3% | 16.2% |
| Great Britain | 297 | 262 | 9.7% | 7.7% |
| Sweden | 134 | 99 | 4.4% | 2.9% |
| Latvia | 75 | 68 | 2.5% | 2.0% |
| SAR | 63 | 0 | 2.1% | 0.0% |
| Germany | 45 | 45 | 1.5% | 1.3% |
| Ukraine | 37 | 28 | 1.2% | 0.8% |
| Denmark | 35 | 17 | 1.1% | 0.5% |
| Other countries | 165 | 166 | 5.4% | 4.9% |
| TOTAL | 3,049 | 3,397 | 100.0% | 100.0% |
| th EUR | Net sales | Operating Profit | |||
| Q2 2015 | Q2 2014 | Q2 2015 | Q2 2014 | ||
| Pärnu Fibreborad factory | 1,527 | 1,564 | 246 | 111 | |
| Püssi Fibreboard factory | 1,090 | 1,233 | (104) | (25) | |
| Pärnu interior boards factory (Isotex) | 432 | 594 | (26) | 15 | |
| Not allocated | 0 | 6 | 0 | 0 | |
| TOTAL | 3,049 | 3,397 | 114 | 101 |
The net sales of the Pärnu fibreboard factory and interior board’s line decreased 9% in the second quarter of 2015 compared to the same quarter of 2014 and amounted to 2.0 mil. euros.
The turnover of Püssi fibreboard factory amounted to 1.1 mil. euros declining 12% compared to the same quarter in 2014 (turnover 1.2 mil. euros in Q2 2014).
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 11 stores in Tallinn (3), Tartu, Pärnu, Riga, Vilnius, Kiev (2), Kharkiv and Dnipropetrovs’k at the end of the second quarter in 2015.
RETAIL SALES BY COUNTRIES
| th EUR | % of net sales | Number of stores | ||||
| Q2 2015 | Q2 2014 | Q2 2015 | Q2 2014 | 30.06.15 | 30.06.14 | |
| Estonia | 368 | 294 | 58.0% | 54.1% | 5 | 4 |
| Latvia | 123 | 49 | 19.4% | 9.0% | 1 | 1 |
| Lithuania | 88 | 93 | 13.9% | 17.1% | 1 | 1 |
| Ukraine | 55 | 107 | 8.7% | 19.7% | 4 | 4 |
| TOTAL | 634 | 543 | 100.0% | 100.0% | 10 | 11 |
Retail sale amounted to 634 thousand euros in the second quarter of 2015 and operating profit 80 thousand euros (sales 543 thousand euros and operating loss 49 thousand euros in Q2 2014). Current year second quarter operating profit 80 thousand euros contains also loss profit of currency exchange rate of hryvnia 67 thousand euros (realized loss from currency exchange rate 55 thousand euros in the same period of 2014). In the second quarter a new shop was opened in Tallinn in Estconde building in Pärnu mnt 158/1.
FURNITURE PRODUCTION
The net sales of the Skano Furniture Factory in the second quarter amounted to 1.2 mil. euros and operating loss to 58 thousand euros. In the same period last year, the turnover of the factory amounted to 1.7 mil. euros and the profit to 141 thousand euros. As compared to the previous year the turnover of the factory has decreased 29%. In the second quarter the sales decreased in Russia by 59% due to colder economic environment and weaker purchasing power for imported durable goods. Sales in Finland and the Baltics remained at the same level.
FURNITURE FACTORY SALES BY COUNTRIES
| th EUR | % of net sales | |||
| Q2 2015 | Q2 2014 | Q2 2015 | Q2 2014 | |
| Finland | 486 | 462 | 40.5% | 27.3% |
| Russia | 346 | 849 | 28.8% | 50.1% |
| Other countries | 96 | 105 | 8.0% | 6.2% |
| Subsidiaries | 272 | 278 | 22.7% | 16.4% |
| TOTAL | 1,200 | 1,694 | 100.0% | 100.0% |
FORECAST AND DEVELOPMENT
SKANO FIBREBOARD. We expect sales of Skano Fibreboard in Q3 2015 to be slightly lower compared to sales of the same period last year due to weak demand in our core markets. 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 Q3 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 Q3 2015 we expect smaller sales of the furniture factory compared to the same period in 2014 because of the deteriorated economic situation in the near regions, especially in Russia. In Russia sales are down due to weak currency, broad-based economic downturn and low consumer confidence.
Sales to new markets in Q3 2015 are not covering the lag from our main markets but 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.
FINANCIAL HIGHLIGHTS
| th EUR | 6 m 2015 | 6 m 2014 | 6 m 2013 |
| Income statement | |||
| Revenue | 9,761 | 10,701 | 9,098 |
| EBITDA | 524 | 531 | 0.9% |
| EBITDA margin | 5.4% | 5.0% | 0.9% |
| Operating profit | 104 | 87 | (370) |
| Operating margin | 1.1% | 0.8% | (4.1%) |
| Net profit | (51) | (44) | (486) |
| Net margin | (0.5%) | (0.4%) | (5.3%) |
| Balance sheet (30.06) | |||
| Total assets | 14,032 | 15,133 | 15,256 |
| Return on assets | (0.4%) | (0.3%) | (3.2%) |
| Equity | 5,136 | 6,737 | 7,009 |
| Return on equity | (1.0%) | (0.7%) | (6.9%) |
| Debt-to-equity ratio | 63.4% | 55.5% | 54.1% |
| Share (30.06) | |||
| Closing price | 0,805 | 1,000 | 1,060 |
| Earnings per share | (0.01) | (0.01) | (0.11) |
| Price-earnings ratio | (80.50) | (100.00) | (9.64) |
| Book value of a share | 1,14 | 1,50 | 1,56 |
| Market to book ratio | 0,71 | 0,67 | 0,68 |
| Market capitalization | 3,622 | 4,499 | 4,769 |
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 | 30.06.2015 | 31.12.2014 | 30.06.2014 |
| Cash and bank | 306 | 432 | 264 |
| Receivables and prepayments (Note 1) | 1,806 | 1,232 | 1,601 |
| Inventories (Note 2) | 3,355 | 2,962 | 3,512 |
| Total current assets | 5,467 | 4,626 | 5,377 |
| Investment property (Note 3) | 407 | 407 | 408 |
| Tangible fixed assets (Note 4) | 8,133 | 8,267 | 9,322 |
| Intangible fixed assets (Note 5) | 25 | 29 | 26 |
| Total fixed assets | 8,565 | 8,703 | 9,756 |
| TOTAL ASSETS | 14,032 | 13,329 | 15,133 |
| Debt obligations (Note 6) | 1,932 | 2,030 | 1,406 |
| Payables and prepayments (Note 7) | 2,708 | 2,198 | 2,617 |
| Short-term provisions (Note 8) | 8 | 15 | 7 |
| Total current liabilities | 4,648 | 4,243 | 4,030 |
| Non-current debt obligations (Note 6) | 4,013 | 3,563 | 4,127 |
| Non-current provisions (Note 8) | 235 | 223 | 239 |
| Total non-current liabilities | 4,248 | 3,786 | 4,366 |
| Total liabilities | 8,896 | 8,029 | 8,396 |
| Share capital at nominal value (Note 9) | 2,699 | 2,699 | 2,699 |
| Issue premium | 364 | 364 | 364 |
| Statutory capital reserve | 288 | 288 | 288 |
| Other reserves | 2 | 0 | 0 |
| Currency translation | (129) | (16) | (16) |
| Retained profits | 1,963 | 3,446 | 3,446 |
| Net profit (loss) for the year (Note 10) | (51) | (1,481) | (44) |
| Total equity | 5,136 | 5,300 | 6,737 |
| TOTAL LIABILITIES AND EQUITY | 14,032 | 13,329 | 15,133 |
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
| th EUR | 2nd Q 2015 | 2nd Q 2014 | 6 m 2015 | 6 m 2014 |
| RETURN ON SALES (Note 11) | 4,653 | 5,350 | 9,761 | 10,701 |
| Cost of production sold | (3,652) | (4,181) | (7,574) | (8,719) |
| Gross profit | 1,001 | 1,169 | 2,187 | 1,982 |
| Marketing expenses | (793) | (729) | (1,627) | (1,451) |
| General administrative expenses | (179) | (159) | (353) | (332) |
| Other income | 200 | 6 | 266 | 23 |
| Other expenses | (161) | (75) | (369) | (135) |
| Operating profit (loss) (Note 11) | 68 | 212 | 104 | 87 |
| Financial income and financial expenses | (80) | (70) | (152) | (131) |
| Profit (loss) before taxes | (12) | 142 | (48) | (44) |
| Prepaid income tax | 0 | 0 | (3) | 0 |
| NET PROFIT (LOSS) FOR THE PERIO | (12) | 142 | (51) | (44) |
| Basic earnings per share (Note 10) | (0.00) | 0,03 | (0.01) | (0.01) |
| Diluted earnings per share (Note 10) | (0.00) | 0.03 | (0.01) | (0.01) |
| Other comprehensive income: | ||||
| Currency translation differences | (64) | 21 | (113) | (24) |
| TOTAL COMPREHENSIVE INCOME | (76) | 163 | (164) | (68) |
The planned time of publishing of interim report of the third quarter of 2015 is week 48 (23-27 November 2015)
Martin Kalle
CEO
+372 4478 331
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