Nordic Fibreboard
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

PROFIT BY BUSINESS SEGMENTS

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

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

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

*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

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONS

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Torfinn Losvik

Juhatuse esimees

+372 569 90 988

torfinn.losvik@skanogroup.com

Attachment

• Skano 2018 interim report for 4th quarter and 12 months