Skano Group Interim Report 1st Quarter 2018
Management report
Skano Group AS unaudited first quarter 2018 results and second quarter outlook
Consolidated net sales for Q1 2018 were € 3.71 million, being a 17% decrease compared to the same period in 2017 (Q1 2017: € 4.46 million). Skano Group recorded EBITDA of negative € 17 thousand for Q1 2018, which compare poorly with EBITDA of € 366 thousand for Q1 2017. Main reasons for negative EBITDA in Q1 2018 were lower sales revenue as well as higher prices of raw material woodchip in the fibreboard division. It should be noted that Q1 2017 results were positively influenced by one-off gains of € 48 thousand due to the disposal of Skano’s Ukrainian retail subsidiary in Q1 2017. Net loss for 1Q 2018 was € 274 thousand (Q1 2017: profit of € 88 thousand).
Already in April 2018 the trend turned, with Fibreboard sales ahead of April 2017 sales, and Furniture profitability greatly strengthened due to the change in the production process implemented in Q1. Group EBITDA for April 2018 of € 110 thousand was thus ahead of April 2017 EBITDA (€ 96 thousand). Sales and order development in May, and outlook for rest of Q2, is looking good.
Divisional review of first quarter 2018
Fibreboard sales in Q1 2018 were € 2.72 million, which is 17% less than same period in 2017. Most significant drop was from Finland (subdued demand for fibreboards) but also slow start in other regions. EBITDA for Fibreboard Q1 2018 was € 30 thousand (Q1 2017 EBITDA was € 313 thousand).
Furniture wholesale sales in Q1 2018 were € 800 thousand, 17% down on same period last year. Russia, who overtook Finland last year in total sales revenue has continued it´s good trend and increased revenues compared to last year same period by 14% (Q1 2018 € 361 thousand). In Finland our sole importer recorded sales drop of 12% during Q1 2018 (€ 234 thousand) compared to Q1 2017. Largest sales decline however came from Skano’s own retail chain, sale from Skano furniture wholesale to Skano furniture retail dropped by 46% in Q1 2018 compared to same period last year. EBITDA for furniture wholesale for Q1 2018 was negative € 32 thousand (Q1 2017 EBITDA was negative € 5 thousand).
Furniture retail sales in Q1 2018 were € 332 thousand (Q1 2017 € 549 thousand). EBITDA for furniture retail for Q1 2018 was negative € 20 thousand (Q1 2017 EBITDA was positive € 63 thousand). Q1 2017 EBITDA results include 48 thousand one-off gains from disposal of Ukraine retail store chain.
Total Furniture operations of Skano (wholesale and retail) EBITDA for 2018 first quarter were negative € 52 thousand (2017 first quarter result was positive EBITDA of € 57 thousand).
Balance Sheet
As of 31.03.2018 the total assets of Skano Group AS were € 11.9 million (31.03.2017: € 12.7 million). The liabilities of the company as of 31.03.2018 were € 8.4 million (31.12.2017: € 8.8 million), of which Skano has borrowings of € 5.7 million (31.03.2017: € 5.8 million).
Receivables and prepayments amounted to € 2.3 million (31.03.2017: € 2.1 million). Inventories were € 2.4 million as of 31.03.2018 (31.03.2017: € 2.6 million). Property, plant and intangibles were € 7.1 million as of 31.03.2018 (€ 7.9 million as of 31.03.2017).
Outlook
Despite slow start for 2018 we see improved demand for fibreboard and we expect sales revenue as well as EBITDA to recover during Q2. In addition, more focused sales and marketing activities have been started where we focus on the various product applications of our fibreboards, such as expansion joint filler boards, pin and notice boards, sound insulation and other.
In Furniture, we expect both sales revenue and EBITDA to recover somewhat, this being linked to better performance of Skano’s retail unit as well as lower costing in production as a result of ending our kiln operations and instead buying in dried and cut material for our production.
Divisional review
Net Revenue by business segments
| € thousand | % of net sales | |||||||
| Q1 2018 | Q1 2017 | Q1 2018 | Q1 2017 | |||||
| Fibreboards production and sales | 2,723 | 3,265 | 73 | % | 73 | % | ||
| Furniture production and sales | 800 | 959 | 22 | % | 22 | % | ||
| Furniture retail | 332 | 549 | 9 | % | 12 | % | ||
| incl. furniture retail Ukraine | 0 | 64 | 0 | % | 1 | % | ||
| Group transactions | (144 | ) | (311 | ) | (4 | %) | (7 | %) |
| TOTAL | 3,711 | 4,462 | 100 | % | 100 | % | ||
Net Profit by business segments
| € thousand | Q1 2018 | Q1 2017 | ||
| EBITDA by business units: | ||||
| Fibreboards production and sales | 30 | 313 | ||
| Furniture production and wholesale | (32 | ) | (5 | ) |
| Furniture retail | (20 | ) | 63 | |
| incl. furniture retail Ukraine | 0 | 1 | ||
| Group transactions | (1 | ) | (5 | ) |
| TOTAL EBITDA | (23 | ) | 366 | |
| Depreciation | 191 | 208 | ||
| TOTAL OPERATING PROFIT/ LOSS | (214 | ) | 158 | |
| Net financial costs | (66 | ) | (70 | ) |
| Income tax | 0 | 0 | ||
| NET PROFIT/ LOSS | (281 | ) | 88 | |
Fibreboard sales
The total sales of fibreboards for Q1 2018 were € 2.72 million, which are 17% down from Q1 2017 sales level (€ 3.27 million). All regions (see table below) showed decline, the only exception was our sales to Russia which showed some increase. Apart from the structural changes in the Finnish construction sector, we expect the other markets to somewhat recover during Q2.
Fibreboard sales by geographical segment
| € thousand | % of net sales | |||||
| Q1 2018 | Q1 2017 | Q1 2018 | Q1 2017 | |||
| European Union (including Suomen Tuulileijona sales) | 2,198 | 2,630 | 81 | % | 81 | % |
| Russia | 298 | 259 | 11 | % | 8 | % |
| Africa | 42 | 132 | 2 | % | 4 | % |
| Middle East | 73 | 82 | 3 | % | 3 | % |
| Asia | 47 | 118 | 2 | % | 4 | % |
| Other | 65 | 43 | 2 | % | 1 | % |
| TOTAL | 2,723 | 3,265 | 100 | % | 100 | % |
Furniture wholesale sales
Sales dropped to € 800 thousand in Q1 2018, down from € 959 thousand in Q1 2017. However, our largest market Russia experienced sales growth of 14% in Q1 2018 compared to Q1 2017, while our sole importer in Finland recorded sales decline of 12% for same period. Sales to Skano retail units decreased in first quarter compared to same period last year, however more marketing activities should yield better performance in Q2. Other countries sales were negatively influenced by the delay of the usual Q1 order from our Kazakhstan importer.
Furniture wholesale sales by countries
| € thousand | % of net sales | |||||
| Q1 2018 | Q1 2017 | Q1 2018 | Q1 2017 | |||
| Russia | 361 | 316 | 45 | % | 33 | % |
| Finland | 234 | 266 | 29 | % | 28 | % |
| Skano Retail | 141 | 259 | 18 | % | 27 | % |
| Other countries | 64 | 118 | 8 | % | 12 | % |
| TOTAL | 800 | 959 | 100 | % | 100 | % |
Furniture retail sales
Skano Group retail business recorded sales of € 332 thousand in Q1 2018, which is 46% decline from Q1 2017. The recent appointment of a marketing specialist into our retail unit will result in more focused marketing and sales campaigns which should help improve sales.
Reteail sales by country
| € thousand | % of net sales | Number of stores | ||||||
| Q1 2018 | Q1 2017 | Q1 2018 | Q1 2017 | 31.03.2018 | 31.03.2017 | |||
| Estonia | 204 | 322 | 61 | % | 59 | % | 4 | 4 |
| Latvia | 74 | 88 | 22 | % | 16 | % | 1 | 1 |
| Lithuania | 54 | 74 | 16 | % | 14 | % | 1 | 1 |
| Ukraine* | 0 | 64 | 0 | % | 12 | % | 0 | 3 |
| TOTAL (ongoing shops) | 332 | 549 | 100 | % | 100 | % | 6 | 9 |
People
On the 31st of March 2018, the group employed 221 people (down from 237 people as of 31.03.2017). The average number of personnel in Q1 2018 was 222 (Q1 2017: 244).
During first three months of 2018, wages and salaries with taxes amounted to € 0.90 million (first three months 2017: € 1.03 million). Payments made to management board members of all group companies including all subsidiaries with relevant taxes were € 40 thousand in Q1 2018 and € 103 thousand in Q1 2017.
Financial highlights
| € thousand | Q1 2018 | Q1 2017 | ||
| Income statement | ||||
| Revenue | 3,711 | 4,462 | ||
| EBITDA | (23 | ) | 366 | |
| EBITDA margin | (1 | %) | 8 | % |
| Operating profit | (214 | ) | 158 | |
| Operating margin | (6 | %) | 4 | % |
| Net profit | (281 | ) | 88 | |
| Net margin | (8 | %) | 2 | % |
| Statement of financial position | 31.03.2018 | 31.03.2017 | ||
| Total assets | 11,846 | 12,705 | ||
| Return on assets | (2 | %) | 1 | % |
| Equity | 3,487 | 3,949 | ||
| Return on equity | (8 | %) | 2 | % |
| Debt-to-equity ratio | 71 | % | 69 | % |
| Share | 31.03.2018 | 31.03.2017 | ||
| Last Price* | 0.54 | 0.57 | ||
| Earnings per share | (6 | %) | 2 | % |
| Price-earnings ratio | (8.66 | ) | 29.09 | |
| Book value of a share | 0.78 | 0.88 | ||
| Market to book ratio | 0.70 | 0.65 | ||
| Market capitalization, € thousand | 2,429 | 2,429 | ||
| Number of shares | 4,499,061 | 4,499,061 | ||
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 = Last price / Earnings per share
Book value of a share = Equity / Total shares
Market to book ratio = Last price / Book value of a share
Market capitalization = Last price * Total shares
*http://www.nasdaqbaltic.com/
Consolidated statement of financial positions
| € thousand | 31.03.2018 | 31.12.2017 | 31.03.2017 |
| Cash and cash equivalents (Note 2) | 60 | 74 | 152 |
| Receivables and prepayments (Note 3) | 2,318 | 1,215 | 2,068 |
| Inventories (Note 4) | 2,343 | 2,336 | 2,627 |
| Total current assets | 4,721 | 3,624 | 4,847 |
| Investment property (Note 5) | 170 | 170 | 405 |
| Available-for-sale financial assets (Note 8) | 187 | 182 | 0 |
| Other shares and issues | 0 | 7 | 0 |
| Property, plant and equipment (Note 6) | 6,724 | 6,908 | 7,391 |
| Intangible assets (Note 7) | 43 | 47 | 61 |
| Total non-current assets | 7,124 | 7,313 | 7,858 |
| TOTAL ASSETS | 11,845 | 10,937 | 12,705 |
| Borrowings (Notes 9) | 1,240 | 593 | 1,638 |
| Payables and prepayments (Notes 10) | 2,486 | 1,956 | 2,729 |
| Short-term provisions (Note 11) | 10 | 13 | 13 |
| Total current liabilities | 3,736 | 2,562 | 4,380 |
| Long-term borrowings (Notes 9) | 4,421 | 4,422 | 4,163 |
| Long-term provisions (Note 11) | 200 | 200 | 213 |
| Total non-current liabilities | 4,621 | 4,622 | 4,376 |
| Total liabilities | 8,358 | 7,184 | 8,756 |
| Share capital (at nominal value) (Note 12) | 2,699 | 2,699 | 2,699 |
| Share premium | 364 | 364 | 364 |
| Statutory reserve capital | 288 | 288 | 288 |
| Other reserves | 24 | 9 | 2 |
| Unrealised currency differences | 0 | 0 | 0 |
| Retained earnings | 113 | 393 | 596 |
| Total equity | 3,487 | 3,753 | 3,949 |
| TOTAL LIABILITIES AND EQUITY | 11,845 | 10,937 | 12,705 |
Consolidated statement of profit or loss and other comprehensive income
| € thousand | Q1 2018 | Q1 2017 | ||
| Revenue (Note 14) | 3,711 | 4,462 | ||
| Cost of goods sold (Note 15) | 3,294 | 3,425 | ||
| Gross profit | 416 | 1,036 | ||
| Distribution costs (Note 16) | 454 | 602 | ||
| Administrative expenses (Note 17) | 150 | 235 | ||
| Other operating income (Note 19) | 3 | 51 | ||
| Other operating expenses (Note 19) | 30 | 93 | ||
| Operating profit (loss) | (214 | ) | 158 | |
| Finance income (Note 20) | 1 | 4 | ||
| Finance costs (Note 20) | 67 | 73 | ||
| LOSS BEFORE INCOME TAX | (281 | ) | 88 | |
| Corporate income tax | 0 | 0 | ||
| NET LOSS FOR THE FINANCIAL YEAR | (281 | ) | 88 | |
| Other comprehensive income (loss) | ||||
| Other comprehensive income (loss) that can in certain cases be reclassified to the income statement | ||||
| Currency translation differences | 0 | (40 | ) | |
| TOTAL COMPREHENSIVE LOSS FOR THE FINANCIAL YEAR | (281 | ) | 48 | |
| Basic earnings per share (Note 13) | (0.06 | ) | (0.02 | ) |
| Diluted earnings per share (Note 13) | (0.06 | ) | (0.01 | ) |
Torfinn Losvik
Member of the Management Board
+372 569 90 988
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