Nordic Fibreboard
Half Year financial report

SKANO GROUP AS unaudited results for second quarter of 2019, Supervisory Board resolutions and Group Internal Restructuring

SKANO GROUP AS unaudited results for second quarter of 2019

Consolidated net sales for Q2 2019 were € 3.88 million, being a 2% decrease compared to the same period in 2018. Fibreboard sales increased with 2%, driven mainly by new customers in EU and increased sales to existing customers in the emerging markets. Furniture wholesale sales dropped by 19%, of which the main reason was the reduced demand experienced in Russia, Finland and Western Europe. The reduced demand in Russia is still caused by declining consumer confidence, affecting purchasing behaviour due to geopolitical reasons. Furniture retail sales were up 9%, mainly due to more active marketing campaign activities in all Baltic shops.

Skano Group recorded EBITDA of negative € 67 thousand for Q2 2019 (vs positive € 237 thousand Q2 2018). Fibreboard gross margin was negatively influenced by production problems caused by change in the product portfolio mix from our new customers, as well as reduction of inventory, which led to gross margin being 15% in Q2 (2018 Q2: 23%). Furniture wholesale profitability was also negatively influenced by the reduction of finished goods inventory level during Q2 2019 compared to Q2 2018. Furniture retail gross margin was 32% for Q2 2019 being slightly lower compared to 37% for Q2 2018. Net loss for Q2 2019 was € 300 thousand (Q2 2018: loss of € 14 thousand).

DIVISIONAL REVIEW

Revenue by business segments

Profit by business segments

SKANO FIBREBOARD

Fibreboard sales in Q2 2019 were € 3.01 million, which is 2% more than same period in 2018 (2018: € 2.96 million). We sold our products to customers in 29 countries during Q2 2019. We recorded sales increase in emerging markets in Asia and Africa while also continuing sales to recently found customers in EU. Finland, our largest market, continued to experience sales decline despite Skano keeping its market share within soft density fibreboard, thus reflecting the growth of other materials for use in the construction sector.  Gross margin was negatively influenced by production problems caused by change in the product portfolio mix from our new customers, as well as reduction of inventory, which led to gross margin being 15% in Q2 (2018 Q2: 23%). Fixed costs were however € 44 thousand less in 2019 Q2 compared to 2018 Q2. EBITDA ending up being negative € -10 thousand for Q2 2019 (Q2 2018 EBITDA was positive € 170 thousand).

Fibreboard sales by geographical segment

Skano Furniture Factory: furniture production & wholesale 

Furniture wholesale sales in Q2 2019 were € 632 thousand, 19% down on same period last year (Q2 2018: € 778 thousand). The main reason for this decline in sales was due to the reduced demand experienced in Russia, where our two distributors still face declining consumer confidence due to geopolitical reasons. Also our Finnish distributor continued his downsizing of his operations in Finland. Skano assumed the Finnish distributor’s EU customers at the start of this year, which has resulted in somewhat neutralizing sales decline from other regions. Sales to our own Baltic retail chain was similar to last year’s level.

Direct production cost in Q2 2019 were € 563 thousand (being 89% of sales), which is € 146 thousand less compared to Q2 2018 (Direct production cost in Q2 2018 €708 thousand, being 91% of sales). We continued during Q2 2019 to look for subcontractors for some of our early stage production, thus enabling us to reduce our production staffing and costing for furniture components. This process is ongoing and should result in us reducing our production cost further, while optimising the buying in of semi-finished products, which should improve profitability. Furniture wholesale profitability was also negatively influenced by the reduction of finished goods inventory level during Q2 2019 compared to Q2 2018.

However, the reduced sales and reduction of inventory levels led to EBITDA for furniture wholesale for Q2 2019 being negative € 96 thousand (Q2 2018 EBITDA was positive € 78 thousand).

Furniture wholesale sales by country 

Skano Furniture: retail sales

Furniture retail sales in Q2 2019 were € 468 thousand, up 9% (2018 Q2 € 430 thousand) from same period last year. The sales increase was driven mainly due to well performing marketing campaign in all Baltic shops. However, the marketing campaign had decreasing effect on Gross Margin, leaving EBITDA for furniture retail for Q2 2019 to be negative € 16 thousand (Q2 2018 EBITDA was negative € 10 thousand).

Total Furniture operations of Skano (wholesale and retail) EBITDA for 2019 Q2 were negative € 112 thousand (Q2 2018 EBITDA was positive € 67 thousand).

Retail sales by countries

OUTLOOK

SKANO FIBREBOARD

In Fibreboard, we are continuing to push 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. 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 addition more focus is being put to securing higher profitability of current product mix.

SKANO FURNITURE FACTORY

The deal signed, with effect from start of this year, with our Finnish distributor to take over their export customers in Europe has expanded our customer base and shows promising sales potential of our furniture. In addition, we expect improved product profitability as we continue with our production outsourcing while reducing our own production cost. The combination of these initiatives should bring improved sales development and improved profitability.

SKANO FURNITURE RETAIL SALES

In Furniture Retail, we see high competition causing some concerns to ongoing sales revenue. Management decided to end the Latvian and Lithuanian shop operations by closing during the coming months the respective shops in Riga and Vilnius, while also now implementing cost cuts in the retail administration in Estonia. These actions should result in improved profitability.

PEOPLE

On the 30th of June 2019, the Group employed 195 people (compared to 214 people as of 30.06.2018). The average number of personnel in Q2 2019 was 196 (Q2 2018: 210).

For six months of 2019, wages and salaries with taxes amounted to € 1.8 million (six months 2018: € 1.8 million). Payments made to management board members of all group companies including all subsidiaries with relevant taxes were € 110 thousand during 6M 2019 and € 187 thousand during 6M 2018.

FINANCIAL HIGHLIGHTS

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONS

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Supervisory Board resolutions and Group Internal Restructuring

Based on the resolution of the supervisory board of Skano Group AS, Skano Furniture Factory OU has with 30.08.2019 transaction transferred its 100% ownership of Skano Furniture OU to Skano Group AS. The transfer was done without any payment taking place and has no effect on the financial performance of Skano Group and its subsidiaries. The purpose of the ownership change is intra-group restructuring, activity of the parties is not affected.

Skano Furniture OÜ management decided to end the Latvian and Lithuanian shop operations by closing during the coming months the respective shops in Riga and Vilnius, while also now implementing cost cuts in the retail administration in Estonia. These actions should result in improved profitability.

Torfinn Losvik

Member of Management Board

+372 569 90 988

torfinn.losvik@skanogroup.com

Attachment

• Skano Group Interim Report 2019 Q2 and 6M