Published: 2019-02-26 14:52:58 CET
Skano Group
Quarterly report

Unaudited consolidated interim report for the fourth quarter and twelve months of 2018

MANAGEMENT REPORT

SKANO GROUP AS UNAUDITED RESULTS FOR FOURTH QUARTER AND 12 MONTHS OF 2018

Consolidated net sales for Q4 2018 were € 3.43 million, being a 9% decrease compared to the same period in 2017. Fibreboard sales declined with 6%, the two main reasons being a drop in demand for building materials in Russia (declining confidence due to geopolitical reasons) and lower sales than planned in South Africa (local competitor emerged from bankruptcy, and is now selling boards at very low prices). Furniture wholesale sales dropped by 19%, of which the main reason was the reduced demand experienced in Russia, where our two distributors cited the declining consumer confidence affecting purchasing behaviour due to geopolitical reasons. Furniture retail sales were down 10%, mainly due to closure of old Riga shop (new shop opened in Riga but needs time to get established) and weak performance of our second Tallinn shop (to be closed in Q1 2019).

Skano Group recorded EBITDA of negative € 172 thousand for Q4 2018 (vs positive € 21 thousand Q4 2017). The Q4 EBITDA result for 2018 includes one-off expenses like increase of provision reserves by € 25 thousand. 2017 Q4 EBITDA included one-off profit from sale of fixed assets by € 9 thousand. Fibreboard profitability was substantially reduced due to the much higher cost of its main raw material, woodchips. We are continuing the process of passing on this cost increase to our customers. Furniture profitability was negatively influenced by the reduction in sales during Q4 2018 compared to Q4 2017. Net loss for Q4 2018 was € 389 thousand (Q4 2017: loss of € 243 thousand).

Consolidated net sales for 12 months 2018 were € 14.80 million, being a 10% decrease compared to the same period in 2017 (2017: € 16.36 million). The 7% decline in sales of fibreboards from € 11.84 million down to € 11.01 million was mainly due to two reasons, one being reduced demand for single family dwellings in Fibreboard´s largest market, Finland (sales down with € 0.51 million from 2017, to € 3.45 million) and second being drop in sales to South Africa (sales down € 0.51 million from 2017, to € 0.17 million), such drop being caused by the local competitor being brought back from bankruptcy proceedings and now selling at very low prices. Sales to customers in our other 30 countries were up by 2% in 2018 compared to 2017. Furniture wholesale sales decreased by 16% compared to 2017 (from € 3.58 million to € 3.01 million, a drop of € 0.57 million). The drop was caused mainly by loss of sales of € 0.19 million to Russia, reflecting the weakened consumer confidence as described above, and loss of sales of € 0.20 million to our Finnish distributor, who closed some of their Finnish retail shops and reduced their export sales in the process of slimming down their operations in order to improve their profitability. Furniture retail sales decreased by 20% compared to 2017 (from € 1.93 million to € 1.54 million, a drop of € 0.39 million). Sales dropped in Estonia (reduced demand which has led us to start rolling out new shop concept) and in Latvia (we closed one Riga shop due to the furniture centre’s declining performance, and opened a new shop in November), while sales growth was recorded in Lithuania.  

Skano Group recorded EBITDA of positive € 87 thousand for full year 2018 (vs positive € 974 thousand in 2017). 2018 full year EBITDA includes one-off expenses like increase of provision reserves by € 25 thousand whereas 2017 EBITDA included one-off profit from sale of real estate investments of € 186 thousand, loss from write down of real estate investment of €44 thousand and profit from sale of fixed assets by € 9 thousand. Furniture wholesale loss for 2018 was somewhat dampened due to the positive effect of closing its kiln operations earlier in 2018 while furniture retail went from being profitable in 2017 to becoming loss making in 2018 due to the drop in sales. Fibreboard profitability was substantially reduced due to the higher cost of its main raw material, woodchips. We started and are continuing the process of passing on this cost increase to our customers. Net loss for full-year 2018 was € 896 thousand (2017: loss of € 127 thousand).

DIVISIONAL REVIEW OF FOURTH QUARTER AND 12 MONTHS OF 2018

Fibreboard sales in Q4 2018 were € 2.40 million, which is 6% less than same period in 2017 (2017: € 2.55 million). We sold our products to customers in 23 countries during Q4 2018. The two main reasons for reduced sales in Q4 2018 from Q4 2017 were a drop in demand for building materials in Russia (declining confidence due to geopolitical reasons) and lower sales than planned in South Africa (local competitor emerged from bankruptcy, and is now selling boards at very low prices). Gross margin in Fibreboard were negatively impacted by the higher woodchip prices. EBITDA therefore ending up being negative € 63 thousand for Q4 2018 (Q4 2017 EBITDA was positive € 39 thousand).

Fibreboard sales for 12 months 2018 were € 11.01 million, which is 7% less than same period in 2017 (2017: € 11.84 million). We sold our products to customers in 32 countries during the year 2018. For the full year 2018 we experienced sales decline mainly in Finland and South Africa, while we recorded a 2% sales growth to customers in the other 30 countries. Gross margin in Fibreboard were negatively impacted by the higher woodchip prices.  EBITDA therefore ending up being positive € 284 thousand for 12 months 2018 (12 months 2017 EBITDA was positive € 913 thousand).

Furniture wholesale sales in Q4 2018 were € 799 thousand, 19% down on same period last year (Q4 2017: € 987 thousand). The main reason for this decline in sales was due to the reduced demand experienced in Russia, where our two distributors cited the declining consumer confidence affecting purchasing behaviour due to geopolitical reasons. Furniture retail sales were down 10%, mainly due to closure of old Riga shop (located in Spice Center in Riga, who is declining in popularity among Riga consumers) and weak performance of our second Tallinn shop (to be closed in Q1 2019). We opened a new shop in Riga in November in the more furniture concept driven Decco Centrs. Lithuania however has shown sales revenue increase mainly due to increased marketing activity and new shop manager. EBITDA for furniture wholesale for Q4 2018 was negative € 62 thousand (Q4 2017 EBITDA was negative € 53 thousand). It should be considered that due to increase of provisions reserve, there are one-off expenses accounted at a value of € 21 thousand inside Q4 2018 EBITDA.

Furniture wholesale sales for full year 2018 decreased by 16% compared to 2017 (from € 3.58 million to € 3.01 million, a drop of € 0.57 million). The drop was caused mainly by loss of sales of € 0.19 million to Russia, reflecting the weakened consumer confidence as described above, and loss of sales of € 0.20 million to our Finnish distributor, who closed some of their Finnish retail shops and reduced their export sales in the process of slimming down their operations in order to improve their profitability. EBITDA for 12 months 2018 was negative € 47 thousand (negative € 57 thousand for 12 months 2017).

Furniture retail sales in Q4 2018 were € 441 thousand, down 10% (2017 Q4 € 488 thousand) from same period last year. The sales decline was mainly due to closure of old Riga shop (new shop opened in Riga but needs time to get established) and weak performance of our second Tallinn shop (to be closed in Q1 2019). We see that number of visitors being steady but amount of orders decreasing, this reflects the customer takes more time to consider and weighs alternatives by competitors or waits for marketing campaigns. EBITDA for furniture retail for Q4 2018 was negative € 22 thousand (Q4 2017 EBITDA was positive € 18 thousand), reflecting the weak sales in Q4.

Furniture retail sales for full year 2018 decreased by 19% compared to 2017 (from € 1.93 million to € 1.54 million, a drop of € 0.39 million). Sales dropped in Estonia (reduced demand which has led us to start rolling out new shop concept) and in Latvia (we closed one Riga shop due to the furniture centre’s declining performance, and opened a new shop in November), while sales growth was recorded in Lithuania. EBITDA for 12 months 2018 was negative € 103 thousand (positive 119 thousand for 12 months 2017).

Total Furniture operations of Skano (wholesale and retail) EBITDA for 2018 Q4 were negative € 84 thousand (Q4 2017 EBITDA was negative € 35 thousand). Total Furniture operations EBITDA for full year 2018 was negative € 150 thousand (in 2017 positive € 62 thousand).

BALANCE SHEET

As of 31.12.2018 the total assets of Skano Group AS were € 10.3 million (31.12.2017: € 10.9 million). The liabilities of the company as of 31.12.2018 were € 7.4 million (31.12.2017: € 7.2 million), of which Skano has borrowings of € 4.8 million as at 31.12.2018 (31.12.2017: € 5.0 million).

Receivables and prepayments amounted to € 1.1 million as at 31.12.2018 (31.12.2017: € 1.2 million). Inventories were € 2.3 million as of 31.12.2018 (31.12.2017: € 2.3 million). Property, plant and intangibles were € 6.9 million as of 31.12.2018 (€ 7.3 million as of 31.12.2017).

OUTLOOK

In Fibreboard, we are pushing for sales of our various applications which have more global reach than our traditional sales of windboards and insulation boards sold mainly in our traditional markets of Finland, Russia and Estonia. We have implemented annual price increases, thus aiming to alleviate the negative impact experienced from the higher cost of woodchips in 2018, our main raw material. Our marketing activities are focusing on the positive aspects of using our boards, made from virgin woodchips from spruce, compared to competing synthetic materials.

In Furniture, we expect improved retail performance with the introduction of the new shop concept. This has been rolled out in our best-selling shop in Tallinn as well as in our newly opened shop in the Decco centre in Riga and will next be rolled out in our Vilnius and Tartu shops. We are looking to end our shop operations of our second shop in Tallinn due to its poor profitability. In wholesale we have signed a deal with our Finnish distributor to take over some of their export customers in Europe, which should expand our customer base and have potential to secure more sales of our furniture.

DIVISIONAL REVIEW

REVENUE BY BUSINESS SEGMENTS

 € thousand€ thousand
 Q4 2018Q4 201712M 201812M 2017
Fibreboards production and sales2,404 2,552 11,006 11,836 
Furniture production and sales799 987 3,006 3,578 
Furniture retail441 488 1,536 1,932 
  incl. furniture retail Ukraine0 0 0 64 
Group transactions(215)(242)(750)(990)
TOTAL3,429 3,785 14,798 16,357 

PROFIT BY BUSINESS SEGMENTS

€ thousandQ4 2018Q4 201712M 201812M 2017
EBITDA by business units:    
Fibreboards production and sales(63)39 284 913 
Furniture production and wholesale(62)(53)(47)(57)
Furniture retail(22)18 (103)118 
  incl. furniture retail Ukraine0 0 0 1 
Group transactions(25)17 (47)1 
TOTAL EBITDA(172)21 87 974 
Depreciation176 201 730 825 
TOTAL OPERATING PROFIT/ LOSS(348)(179)(643)149 
Net financial costs41 64 252 275 
Income tax0 0 0 0 
NET PROFIT/ LOSS(389)(243)(896)(126)

FIBREBOARD SALES

Fibreboard sales in Q4 2018 were € 2.40 million, which is 6% less than same period in 2017 (2017: € 2.55 million). We recorded solid sales increase in markets such as Estonia, Latvia, Norway, and Ukraine while sales were dropping mainly in Russia, South Africa and Netherlands.

Fibreboard sales for 12 months 2018 were € 11.01 million, which is 7% less than same period in 2017 (2017: € 11.84 million). We recorded solid sales increase in markets such as Portugal, Asia, Latvia, Norway and Middle East while sales were dropping in Finland, South Africa, Russia, Netherlands and United Kingdom.

FIBREBOARD SALES BY GEOGRAPHICAL SEGMENTS

 € thousand€ thousand
 Q4 2018Q4 201712M 201812M 2017
European Union (including Suomen Tuulileijona sales)1,8431,8248,2978,700
Russia3624591,5311,631
Middle East6481312260
Asia825294241
Africa31115168679
Other9548404325
TOTAL2,4042,55211,00611,836

FURNITURE WHOLESALE SALES

Furniture wholesale sales in Q4 2018 were € 799 thousand, 19% down on same period last year (Q4 2017: € 987 thousand). Sales decrease was caused mainly by weak consumer demand in Russia and weakened sales to Skano retail (shop closure and shop refurbishments).

Furniture wholesale sales for full year 2018 decreased by 16% compared to 2017 (from € 3.58 million to € 3.01 million, a drop of € 0.57 million). The drop was caused mainly by loss of sales of € 0.19 million to Russia, reflecting the weakened consumer confidence as described above, and loss of sales of € 0.20 million to our Finnish distributor, who closed some of their Finnish retail shops and reduced their export sales in the process of slimming down their operations in order to improve their profitability.

FURNITURE WHOLESALE SALES BY COUNTRIES

 € thousand€ thousand
 Q4 2018Q4 201712M 201812M 2017
Russia3254901,2171,406
Finland202207798995
Skano Retail203230733900
Other countries6960258278
TOTAL7999873,0063,579

FURNITURE RETAIL SALES

Furniture retail sales in Q4 2018 were € 441 thousand, down 10% (2017 Q4 € 488 thousand) from same period last year. The sales decline was mainly due to closure of old Riga shop (new shop opened in Riga but needs time to get established) and weak performance of our second Tallinn shop (to be closed in Q1 2019). We see that number of visitors being steady but amount of orders decreasing, this reflects the customer takes more time to consider and weighs alternatives by competitors or waits for marketing campaigns.

Furniture retail sales for full year 2018 decreased by 19% compared to 2017 (from € 1.93 million to € 1.52 million, a drop of € 0.41 million). Sales dropped in Estonia (reduced demand which has led us to start rolling out new shop concept) and in Latvia (we closed one Riga shop due to the furniture centre’s declining performance, and opened a new shop in November), while sales growth was recorded in Lithuania due to the efficiency of the new Lithuania shop manager.

RETAIL SALES BY COUNTRIES

 € thousand€ thousandNumber of stores 
 Q4 2018Q4 201712M 201812M 201731.12.201831.12.2017
Estonia2603279621,26644
Latvia779827235611
Lithuania1046230224611
Ukraine*0006400
TOTAL4414881,5361,93266

*Ukraine retail operations divested in March 2017.

PEOPLE

On the 31st of December 2018, the Group employed 216 people (compared to 223 people as of 31.12.2017). The average number of personnel in Q4 2018 was 212 (Q4 2017: 229).

For twelve months of 2018, wages and salaries with taxes amounted to € 3.6 million (twelve months 2017: € 3.8 million). Payments made to management board members of all group companies including all subsidiaries with relevant taxes were € 187 thousand in twelve months 2018 and € 176 thousand in twelve months 2017.

FINANCIAL HIGHLIGHTS

€ thousand    
Income statementQ4 2018Q4 201712M 201812M 2017
Revenue3,429 3,785 14,798 16,357 
EBITDA(172)21 87 974 
EBITDA margin(5%)1%1%6%
Operating profit(348)(179)(643)149 
Operating margin(10%)(5%)(4%)1%
Net profit(389)(243)(896)(126)
Net margin(11%)(6%)(6%)(1%)
     
Statement of financial position31.12.2018 31.12.2017 31.12.2018 31.12.2017 
Total assets10,302 10,937 10,302 10,937 
Return on assets(4%)(2%)(9%)(1%)
Equity2,895 3,753 2,895 3,753 
Return on equity(13%)(6%)(31%)(3%)
Debt-to-equity ratio72%66%72%66%
     
Share31.12.2018 31.12.2017 31.12.2018 31.12.2017 
Last Price*0.36 0.62 0.36 0.62 
Earnings per share(0.09)(0.05)(0.20)(0.03)
Price-earnings ratio(4.14)(11.40)(1.80)(21.92)
Book value of a share0.64 0.83 0.64 0.83 
Market to book ratio0.56 0.74 0.56 0.74 
Market capitalization, € thousand1,611 2,771 1,611 2,771 
Number of shares, piece4,499,061 4,499,061 4,499,061 4,499,061 

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONS

€ thousand31.12.2018 31.12.201731.12.2016
Cash and cash equivalents (Note 2)54 74184
Receivables and prepayments (Note 3)1,141 1,215965
Inventories (Note 4)2,252 2,3362,760
Total current assets3,447 3,6243,909
    
Investment property (Note 5)175 170405
Available-for-sale financial assets (Note 8)422 1820
Other shares and issues0 70
Property, plant and equipment (Note 6)6,223 6,9087,584
Intangible assets (Note 7)34 4766
Total non-current assets6,855 7,3138,055
    
TOTAL ASSETS10,302 10,93711,964
    
Borrowings (Notes 9)650 5931,176
Payables and prepayments (Notes 10)2,420 1,9562,497
Short-term provisions (Note 11)23 1315
Total current liabilities3,094 2,5623,688
    
Long-term borrowings (Notes 9)4,113 4,4224,163
Long-term provisions (Note 11)200 200213
Total non-current liabilities4,313 4,6224,376
Total liabilities7,407 7,1848,064
    
Share capital (at nominal value) (Note 12)2,699 2,6992,699
Share premium364 364364
Statutory reserve capital288 288288
Other reserves (Notes 8; 12)46 942
Unrealised currency differences0 00
Retained earnings (loss)(501)393507
Total equity (Note 13)2,895 3,7533,900
    
TOTAL LIABILITIES AND EQUITY10,302 10,93711,964

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

€ thousandQ4 2018Q4 201712M 201812M 2017
Revenue (Note 14)3,429 3,785 14,798 16,357 
Cost of goods sold (Note 15)3,073 3,319 12,753 13,419 
Gross profit356 466 2,045 2,938 
     
Distribution costs (Note 16)492 467 1,953 2,040 
Administrative expenses (Note 17)179 172 627 703 
Other operating income (Note 19)1 17 14 255 
Other operating expenses (Note 19)34 23 122 301 
Operating profit (loss) (Note 11)(348)(179)(643)149 
     
Finance income (Note 20)22 0 22 4 
Finance costs (Note 20)62 64 275 279 
LOSS BEFORE INCOME TAX(389)(243)(896)(126)
Corporate income tax0 0 0 0 
     
NET LOSS FOR THE FINANCIAL YEAR(389)(243)(896)(126)
     
Other comprehensive income (loss)0 0 0 (40)
Other comprehensive income (loss) that can in certain cases be reclassified to the income statement 0 0 0  
Currency translation differences  0  0  0 (40)
TOTAL COMPREHENSIVE LOSS FOR THE FINANCIAL YEAR(389)(243)(896)(166)
     
Basic earnings per share (Note 13)(0.09)(0.05)(0.20)(0.03)
Diluted earnings per share (Note 13)(0.09)(0.05)(0.20)(0.04)

Torfinn Losvik

Juhatuse esimees

+372 569 90 988

torfinn.losvik@skanogroup.com

Attachment


Skano 2018 interim report for 4th quarter and 12 months.pdf