THIRD QUARTER IN SHORT

Consolidated net sales of the third quarter of 2012 was 4.7 mil. euros, representing a 13% increase on the third quarter compared to the same period in 2011. At the same time, consolidated EBITDA amounted to 351 thousand euros (179 thousand euros in Q3 2011 without the gain from a bargain purchase of Püssi softboard factory).

The sales in Pärnu fibreboard factory and of Isotex internal finishing boards increased as compared to the respective period last year by 8%, the operating profit 10% and operating profit amounted to 228 thousand euros.

The turnover of Püssi softboard factory was 799 thousand euros and operating loss 230 thousand euros. The sales increased by 13% compared to the previous quarter. The priority of the management of the enterprise is continuously to ensure the sales of the production of Püssi softboard factory in order to guarantee the maximum production capacity and efforts are taken in this direction on an on-going basis. In addition to efforts regarding the sales volumes we are constantly working on raising the production efficiency of the factory. We have raised the maximum speed of the production line and thereby lowered the cost price of products. In October, the average cost price of products was approximately 18% lower than the average of the third quarter. Such increase of efficiency decreases the loss in case of low production volumes whereas the full effect appears when the sales volumes have grown.

The turnover of the furniture factory decreased by 14% and the operating profit by 55% as compared to the same period last year, and the operating profit was 58 thousand euros.

The turnover of furniture retail chain increased by 24% as compared to the same period last year being 555 thousand euros and the operating profit was 3 thousand euros. The sales of Skano Group AS 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 third quarter 2012 was 4.7 mil. euros (4.2 mil. euros in same period of 2011) representing a 13% increase on the third quarter compared to Q3 2011. The Group’s gross margin in the third quarter of 2012 was 15.9% compared to 14.4% in the third quarter of 2011. Consolidated operating profit amounted to 0.1 mil. euros (0.01 mil. euros from main activities in same period 2011, totally 2.5 mil. euros with the gain from a bargain purchase of Püssi factory). The consolidated operating margin of net sales was 2.3% (0.3% from main activities and totally 59.1% in Q3 2011).

Consolidated net profit amounted to 44 thousand euros (compared to net loss from main activities 53 thousand euros and total net profit 2,402 thousand euros in Q3 2011), and the net margin was 0.9% (57.5% in Q3 2011).

 

POSITION OF FINANCIAL STATEMENT

As of 30.9.2012 the total assets of Skano Group AS amounted to 16.2 mil. euros (31.12.2011: 16.0 mil. euros). The liabilities of the company accounted for 53.1% (31.12.2011: 51.8%) thereof, i.e. 8.6 mil. euros (31.12.2011: 8.3 mil. euros).

Receivables and prepayments have increased by 0.5 mil. euros i.e. 33% increase with 9 months. The reason of increase of receivables is small sales in December 2011, which essentially lowered the amount of receivables at the end of December.

Inventories increased by 0.3 mil. euros to reach 3.4 mil. euros on 30.9.2012. (31.12.2011: 3.2 mil. euros). Property, plant and intangibles decreased by 0.5 mil. euros mainly as a result of depreciation.

Short-term loans decreased by 0.5 mil. euros and amounted to 0.9 mil. euros in 30.9.2012 (31.12.2011: 1.4 mil. euros) as a result of re-classification into long-term loans. Supplier payables, tax liabilities, other payables, including payables to employees, and provisions amounted to 2.6 mil. euros (31.12.2011: 2.1 mil. euros). Current and non-current liabilities increased by 0.3 mil. euros to 8.6 mil. euros (31.12.2011: 8.3 mil. euros).

 

DIVISIONAL REVIEW

NET SALES BY BUSINESS SEGMENTS

	th EUR		% of net sales
	Q3 2012	Q3 2011	Q3 2012	Q3 2011
Building Materials Division	2,964	2,309	63.0%	55.3%
Furniture Factory	1,399	1,626	29.7%	38.9%
Retail sales of furniture	555	448	11.8%	10.7%
Elimination	(210)	(206)	(4.5%)	(4.9%)
TOTAL	4,708	4,177	100.0%	100.0%

 

NET SALES BY GEOGRAPHICAL SEGMENTS

	th EUR		% of net sales
	Q3 2012	Q3 2011	Q3 2012	Q3 2011
Russia	1,487	1,158	31.6%	27.7%
Finland	1,046	1,518	22.2%	36.3%
Estonia	754	734	16.0%	17.6%
Great Britain	334	173	7.1%	4.1%
Ukraine	229	149	4.9%	3.6%
Latvia	207	97	4.4%	2.3%
Nederland	176	0	3.7%	0.0%
Lithuania	146	101	3.1%	2.4%
Sweden	143	103	3.0%	2.5%
Kazakhstan	36	9	0.8%	0.2%
Germany	34	31	0.7%	0.7%
India	22	0	0.5%	0.0%
Denmark	15	23	0.3%	0.6%
China	0	10	0.0%	0.2%
Other countries	79	71	1.7%	1.7%
TOTAL	4,708	4,177	100.0%	100.0%

Regarding the markets, turnover has increased in Russia UK, Latvia and Nederland. The percentage of turnover has decreased in most in Finland.

 

PROFIT BY BUSINESS SEGMENTS

th EUR	Q3 2012	Q3 2011
Furniture Factory	58	129
Retail sales of furniture	3	(1)
Building Materials Division	25	2,357
Elimination	23	-19
TOTAL	109	2,466
Net financial costs	(62)	(64)
Income tax	(3)	(0)
NET PROFIT	44	2,402

 

BUILDING MATERIALS DIVISION

The net sales of the Building Materials Division in the third quarter of 2012 amounted to 3.0 mil. euros and profit to 25 thousand euros. In the same period last year, the turnover of the division totaled to 2.3 mil. euros and the loss from main activities 98 thousand euros. The profit including the gain from a bargain purchase from Püssi factory amounted to 2,357 thousand euros. As compared to the previous year the turnover of the division has increased by 655 thousand euros (28%). The growth of sales came from production of Püssi softboard factory.          
 

NET SALES BY GEOGRAPHICAL SEGMENTS

	th EUR		% of net sales
	Q3 2012	Q3 2011	Q3 2012	Q3 2011
Russia	804	426	27.1%	18.4%
Finland	602	848	20.3%	36.7%
Estonia	544	537	18.4%	23.3%
Great Britain	334	173	11.3%	7.5%
Nederland	176	0	5.9%	0.0%
Latvia	144	43	4.9%	1.9%
Sweden	143	103	4.8%	4.5%
Lithuania	50	9	1.7%	0.4%
Ukraine	34	26	1.1%	1.1%
Germany	34	31	1.1%	1.3%
India	22	0	0.7%	0.0%
Denmark	15	23	0.5%	1.0%
Other countries	62	90	2.1%	3.9%
TOTAL	2,964	2,309	100.0%	100.0%

The biggest growth has been in sales to Great Britain, Russia and Nederland. The percentage of sales into Finland and Estonia decreased remarkably. Despite of the remarkable growth of sales, profit of division decreased. Instead of one softboard production unit the company operates now with two.

th EUR	Net sales		Profit
	Q3 2012	Q3 2011	Q3 2012	Q3 2011
Pärnu softboard factory	1,347	1,359	125	199
Püssi softboard factory	799	323	(230)	2,091
Pärnu interior boards factory	707	551	103	54
Not allocated	110	77	27	13
TOTAL	2,964	2,309	25	2,357

The net sales of the Pärnu softboard factory and interiors boards line increased 8% in the third quarter of 2012 compared to the same quarter of 2011 and amounted to 2.1 mil. euros.

The turnover of Püssi fibreboard factory amounted to 799 thousand euros and operating loss amounted to 230 thousand euros. The company continues negotiations with several clients, the conclusion of large delivery contracts and reaching higher sales volumes takes time. Although in the fourth quarter of the previous year Püssi factory reached a position to guarantee a sufficient volume, security of supply and quality for corporate clients without taking big risks, the attainment of actual greater amounts of supplies has taken longer than expected due to the general uncertainty in the economic environment in Europe, as well as a relatively lengthy procurement processes of bigger retail chains. Today Püssi factory is operating at approximately of 70% of its capacity and it is difficult to make exact prognosis about the increase of production volume due to instability in the world.

It is also important to note that due to high fixed costs, the factory shall, for a profitable outcome, be operated at as high capacity as possible, which shall ensure a lower average cost price of the product.

Presently, the cost price considerably higher than the optimum is greatly caused by technological standstills and reconstruction of equipment in order to ensure better efficiency. Thereby we have achieved a cost level by the present day in which the average cost price of production in October was 18% lower than the average of the third quarter. At the same time there is still a significant reserve regarding the further decrease of cost price within the following quarters.

We are still confident that purchasing of the Püssi was a very good decision in the medium term and after introducing of significant technological and procedural changes in the factory we succeed in reducing the cost price more than we had expected before the purchase of the factory.

 

FURNITURE DIVISION

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 9 stores in Tallinn (2), Pärnu, Riga, Vilnius, Kiev, Donetsk, Kharkiv and Dnipropetrovs’k at the end of the third quarter.

RETAIL SALES BY COUNTRIES

	th EUR		% of net sales		Number of stores
	Q3 2012	Q3 2011	Q3 2012	Q3 2011	30.09.12	30.09.11
Estonia	201	178	36.2%	39.7%	3	3
Latvia	63	54	11.4%	12.1%	1	1
Lithuania	96	92	17.3%	20.5%	1	1
Ukraine	195	124	35.1%	27.7%	4	6
TOTAL	555	448	100.0%	100.0%	9	11

The furniture retail sale has reached to the profitable sales level, and it results with profit 3 thousand euros in third quarter 2012. Loss from currency exchange rate of hryvnia was 26 thousand euros.

 

FURNITURE PRODUCTION

The net sales of the Furniture Factory in the third quarter amounted to 1.4 mil. euros and profit to 58 thousand euros. In the same period last year, the turnover of the factory totalled to 1.6 mil. euros and the profit 129 thousand euros. As compared to the previous year the turnover of the factory has decreased 227 thousand euros and the profit has decreased 71 thousand euros. The results of third quarter are influenced by the collective vacations in July.

 

FURNITURE FACTORY SALES BY COUNTRIES

	th EUR		% of net sales
	Q3 2012	Q3 2011	Q3 2012	Q3 2011
Russia	683	732	48.8%	45.0%
Finland	444	670	31.7%	41.2%
Kazakhstan	36	0	2.6%	0.0%
Estonia	9	18	0.6%	1.1%
Other countries	17	0	1.2%	0.0%
Subsidiaries	210	206	15.0%	12.7%
TOTAL	1,399	1,626	100.0%	100.0%

 

FORECAST AND DEVELOPMENT

BUILDING MATERIALS DIVISION. The main production line of Pärnu fibreboard factory is operating at reduced capacity in the fourth quarter. Production lines of Isotex interior finishing boards use one or two shifts as necessary. Due to low demand Püssi factory is operating at approximately of 70% of its capacity in the fourth quarter of the year 2012.

FURNITURE RETAIL SALES. We expect growth of retail sale in the fourth quarter of 2012 compared to previous quarter.

FURNITURE FACTORY. In the fourth quarter of 2012 we shall plan increase in turnover of the furniture factory as compared to the third quarter since the period of Q3 included the collective vacation of the factory. Compared to the fourth quarter last year, the sales amount will decrease.

 

FINANCIAL HIGHLIGHTS

th EUR	9 m 2012	9 m 2011	9 m 2010
Income statement
Revenue	14,148	12,513	9,875
EBITDA	862	3,353	1017
EBITDA margin	6.1%	26.8%	10.3%
Operating profit	119	2,893	644
Operating margin	0.8%	23.1%	6.5%
Net profit	(90)	2,775	562
Net margin	(0.6%)	22.2%	5.7%
Balance sheet (30.9)
Total assets	16,201	16,538	9,104
Return on assets	(0.6%)	16.8%	6.2%
Equity	7,602	7,693	5,129
Return on equity	(1.2%)	36.1%	11.0%
Debt-to-equity ratio	53.1%	53.5%	43.7%
Share (30.9)
Closing price	1.37	1.50	1.15
Earnings per share	(0.02)	0.62	0.12
Price-earnings ratio	-	2.42	9.21
Book value of a share	1.69	1.76	1.14
Market to book ratio	0.81	0.85	1.01
Market capitalization	6,164	6,749	5,174

 

EBITDA = Earnings before interest, taxes, deprecation 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	30.9.2012	31.12.2011	30.9.2011
Cash and bank	179	206	160
Receivables and prepayments	2,219	1,674	2,261
Inventories	3,448	3,177	3,100
Total current assets	5,846	5,057	5,521
Investment property	185	185	185
Tangible fixed assets	10,158	10,692	10,815
Intangible fixed assets	12	16	17
Total fixed assets	10,355	10,893	11,017
TOTAL ASSETS	16,201	15,950	16,538
Debt obligations	880	1,380	659
Payables and prepayments	2,579	2,137	2,692
Short-term provisions	3	11	1
Total current liabilities	3,462	3,528	3,352
Non-current debt obligations	4,898	4,490	5,067
Non-current provisions	239	239	198
Total non-current liabilities	5,137	4,729	5,265
Total liabilities	8,599	8,257	8,617
Share capital at nominal value	2,699	2,699	2,699
Issue premium	364	364	364
Statutory capital reserve	288	288	288
Currency translation	(11)	(11)	7
Retained profits	4,353	1,788	1,788
Net profit (loss) for the year	(61)	2,565	2,775
Total equity	7,602	7,693	7,921
TOTAL LIABILITIES AND EQUITY	16,201	15,950	16,538

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

th EUR	3rd q 2012	3rd q 2011	9 m 2012	9 m 2011
RETURN ON SALES	4,708	4,176	14,148	12,513
Cost of production sold	(3,961)	(3,573)	(11,901)	(10,022)
Gross profit	747	603	2,247	2,491
Marketing expenses	(559)	(516)	(1,752)	(1,700)
General administrative expenses	(76)	(102)	(385)	(349)
Other income*	40	2,500	131	2,562
Other expenses	(43)	(19)	(122)	(111)
Operating profit	109	2,466	119	2,893
Financial income and financial expenses	(62)	(64)	(197)	(114)
Profit (loss) before taxes	47	2,402	(78)	2,779
Prepaid income tax	(3)	0	(13)	(4)
NET PROFIT (LOSS)  FOR THE PERIOD	44	2,402	(91)	2,775
Basic earnings per share	0.01	0.53	(0.02)	0.62
Diluted earnings per share	0.01	0.53	(0.02)	0.62
Currency translation differences	27	(21)	0	(9)
TOTAL COMPREHENSIVE INCOME	71	2,381	(91)	2,766

*The other income in 2011 includes the gain from a bargain purchase 2,455 th. EUR.

The planned time of publishing of interim report of fourth quarter 2012 is week 9 (25. - 28. February 2013).

         Einar Pähkel
         CFO
         +372 447 8331
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