MANAGEMENT REPORTS
SKANO GROUP AS UNAUDITED THIRD QUARTER 2019 RESULTS
Consolidated net sales for the continuing operations of fibreboard, furniture
retail and the recently commenced operations of renting out space in our
property unit, for Q3 2019 were EUR 3.25 million, a 6% increase compared to the
same period in 2018.
Fibreboard sales increased with 5% during Q3 2019 to EUR 3.06 million compared to
the same period last year, this being mainly a result of securing new customers
across the main application segments. The remaining group sales of continuous
operations, consisting of furniture retail and rental operations less group
transactions, were EUR 0.19 million (versus EUR 0.16 million in Q3 2018). Total
sales of Skano Group, including the discontinued business of Skano Furniture
Factory, were EUR 3.61 million, down 3% from Q3 2018.
Skano Group recorded EBITDA of positive EUR 81 thousand for Q3 2019, a 76%
increase compared to EBITDA of EUR 46 thousand in Q3 2018. Fibreboard EBITDA of EUR
125 thousand was EUR 16 thousand less than recorded in Q3 2018. Rental income from
renting out part of our head office building in Suur-Jõe 48 in Pärnu showed
positive EBITDA of EUR 14 thousand while total furniture operations had negative
EBITDA of EUR 59 thousand. Net loss for Q3 2019 was EUR 700 thousand, which included
loss of EUR 540 thousand from the sale of Skano Furniture Factory OÜ (Q3 2018: net
loss EUR 211 thousand).
Divisional review of third quarter 2019
Fibreboard sales in Q3 2019 were EUR 3.06 million, which is 5% up from the same
period in 2018. Sales growth came from securing new customers in Europe and Asia
within industrial and display board segments. Gross margin in Fibreboard has
continued to improve every quarter this year. We recorded gross margin of 18% in
Q3, up from 15% and 13% respectively in Q2 and Q1 this year (gross margin was
20% in Q3 2018). Other operating expenses (including overhead costs) were EUR 415
thousand, down 3.5% from same period last year, which resulted in EBITDA being EUR
125 thousand (Q3 2018: EUR 141 thousand).
Furniture wholesale in Q3, up to when it was divested on 5 September, was EUR 353
thousand (Q3 2018: EUR 630 thousand), while furniture retail sales in Q3 2019 were
EUR 265 thousand, down 20% from same period last year. EBITDA for furniture
wholesale were showing loss of EUR 12 thousand, while furniture retail showed loss
of EUR 95 thousand (2018 Q3: loss EUR 50 thousand).
Balance Sheet
As of 30.09.2019 the total assets of Skano Group AS were EUR 9.2 million
(30.09.2018: EUR 11.0 million). The change in total assets is mainly related to
exiting furniture business. The liabilities of the company as of 30.09.2019 were
EUR 7.6 million (30.09.2018: EUR 7.7 million), of which Skano has borrowings of EUR
4.6 million as at 30.09.2019 (30.09.2018: EUR 4.9 million).
Receivables and prepayments amounted to EUR 1.8 million as at 30.09.2019
(30.09.2018: EUR 1.6 million). Inventories were EUR 1.1 million as of 30.09.2019
(30.09.2018: EUR 2.4 million). Property, plant and intangibles were EUR 6.3 million
as of 30.09.2019 (EUR 7.0 million as of 30.09.2018).
Outlook
Fibreboard sales have grown due to our successful push into 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. The industrial segment offers more potential as customers are becoming
more conscious of using environmentally friendly materials, such as our
fibreboards. We see further upside potential in sales growth of display boards,
especially in the dynamic Asian market.
Divisional review
Revenue by business segments
EUR thousand | EUR thousand |
--------+-------+-------+-------+
Q3 2019|Q3 2018 9M 2019|9M 2018
-----------------------------------------------+-------+---------------+--------
Continued operations | | |
-----------------------------------------------+-------+-------+-------+-------+
Fibreboards production and sales 3,064| 2,924| 8,970| 8,603|
-------------------------------------------------------+-------+-------+-------+
Furniture retail 265| 333| 1,126| 1,095|
-------------------------------------------------------+-------+-------+-------+
Rental and operating of own or leased real | | | |
estate 32| 0| 48| 0|
-------------------------------------------------------+-------+-------+-------+
Group transactions (109)| (177)| (525)| (537)|
-------------------------------------------------------+-------+-------+-------+
TOTAL from continued operations 3,253| 3,080| 9,620| 9,162|
| | | |
Discontinued operations
-------------------------------------------------------+-------+-------+-------+
Furniture production and sales 353| 630| 1,703| 2,207|
-------------------------------------------------------+-------+-------+-------+
-------------------------------------------------------+---------------+--------
TOTAL 3,606| 3,709 11,323| 11,369
-------------------------------------------------------+---------------+--------
Profit by business segments
--------+ --------+
Q3 2019|Q3 2018 9M 2019|9M 2018
-------------------------------------------------------+-------+-------+-------
EBITDA by business units: | | |
-------------------------------------------------------+-------+-------+-------
Fibreboards production and sales 125| 141 117| 349
-------------------------------------------------------+---------------+-------
Furniture production and wholesale* (12)| (31) (176)| 15
-------------------------------------------------------+---------------+-------
Furniture retail (95)| (50) (134)| (80)
-------------------------------------------------------+---------------+-------
Rental and operating of own or leased real | |
estate 14| 0 30| 0
-------------------------------------------------------+---------------+-------
Group transactions 49| (14) 100| (22)
-------------------------------------------------------+---------------+-------
TOTAL EBITDA 81| 46 (63)| 261
-------------------------------------------------------+---------------+-------
Depreciation 163| 181 501| 554
-------------------------------------------------------+---------------+-------
TOTAL OPERATING PROFIT/ LOSS (82)| (135) (564)| (294)
-------------------------------------------------------+---------------+-------
Net financial costs 618| 77 759| 212
-------------------------------------------------------+---------------+-------
NET PROFIT/ LOSS (700)| (211) (1,322)| (505)
* Discontinued operations, the subsidiary has been sold on 05.09.2019
**We incurred a loss of EUR 540 thousand on sale of Skano Furniture Factory
FIBREBOARD sales
The total sales of fibreboards for Q3 2019 were EUR 3.06 million, which are 5% up
from Q3 2018 sales level (EUR 2.92 million). We recorded sales increase in EU,
Asia and Africa while sales were dropping in Russia and Middle East, reflecting
the subdued economic environment in both regions.
FIBREBOARD SALES BY GEOGRAPHICAL SEGMENTS
EUR thousand | EUR thousand |
| +-------+ |
Q3 2019|Q3 2018 9M 2019|9M 2018
-------------------------------------------------------+-------+-------+-------+
European Union (including Suomen Tuulileijona | | | |
sales) 2,291| 2,093| 6,620| 6,455|
-------------------------------------------------------+-------+-------+-------+
Russia 417| 448| 1,169| 1,169|
-------------------------------------------------------+-------+-------+-------+
Asia 157| 128| 400| 318|
-------------------------------------------------------+-------+-------+-------+
Middle East 34| 74| 160| 248|
-------------------------------------------------------+-------+-------+-------+
Africa 122| 62| 421| 137|
-------------------------------------------------------+-------+-------+-------+
Other 43| 118| 200| 276|
-------------------------------------------------------+-------+-------+-------+
TOTAL 3,064| 2,923| 8,970| 8,603|
FURNITURE wholesale sales*
Prior to the sale on 5 September 2019 of our furniture wholesale company Skano
Furniture Factory, sales in this unit were EUR 353 thousand, compared to the full
Q3 2018 sales of EUR 630 thousand.
FURNITURE WHOLESALE SALES BY COUNTRIES *
EUR thousand | EUR thousand |
----------+---------+---------+---------+
Q3 2019 | Q3 2018 9M 2019 | 9M 2018
------------------+---------+---------+---------+---------+
Russia | 170 | 254 | 627 | 892 |
------------------+---------+---------+---------+---------+
Finland | 38 | 148 | 335 | 596 |
------------------+---------+---------+---------+---------+
Skano Retail | 91 | 177 | 476 | 530 |
------------------+---------+---------+---------+---------+
Other countries 54 | 51 | 265 | 189 |
------------------+---------+---------+---------+---------+
TOTAL | 353 | 630 | 1,703 | 2,207 |
* Discontinued operations, the subsidiary was sold on 05.09.2019
FURNITURE RETAIL SALES
Furniture retail operations recorded sales of EUR 265 thousand in Q3 2019, a
decline of 20% from Q3 2018. We initiated closing down sales of our shops in
Vilnius and Riga in early September, and these shops ended their operations last
day in September.
RETAIL SALES BY COUNTRIES
| EUR thousand | EUR thousand | Number of stores |
-------------+---------+---------+---------+---------+------------+------------+
Q3 2019 | Q3 2018 9M 2019 | 9M 2018 | 30.09.2019 | 30.09.2018
-------------+---------+---------+---------+---------+------------+-------------
Estonia | 162 | 234 | 783 | 603 | 3 | 4
-------------+---------+---------+---------+---------+------------+-------------
Latvia* | 40 | 56 | 125 | 250 | 0 | 1
-------------+---------+---------+---------+---------+------------+-------------
Lithuania* | 63 | 43 | 218 | 242 | 0 | 1
-------------+---------+---------+---------+---------+------------+-------------
TOTAL | 265 | 333 | 1,126 | 1,095 | 3 | 6
* Latvian and Lithuanian stores were closed on 30.09.2019
STATEMENT OF FINANCIAL POSITION AND CASH FLOW STATEMENT
As of 30.09.2019 the total assets of Skano Group AS were EUR 9.2 million
(30.09.2018: EUR 11.0 million). The liabilities of the company as of 30.09.2019
were EUR 7.6 million (30.09.2018: EUR 7.7 million), of which Skano has borrowings of
EUR 4.6 million as at 30.09.2019 (30.09.2018: EUR 4.9 million).
Receivables and prepayments amounted to EUR 1.8 million as at 30.09.2019
(30.09.2018: EUR 1.6 million). Inventories were EUR 1.1 million as of 30.09.2019
(30.09.2018: EUR 2.4 million). Financial investments (i.e. Trigon Property
Development shares) were EUR 378 thousand as at 30.09.2019, down from EUR 399
thousand as at 30.06.2019. Total non-current assets were EUR 6.3 million as of
30.09.2019 (EUR 7.0 million as of 30.09.2018).
During 2019 9M, the Group's cash flows from operating activities totalled cash
inflow of EUR 279 thousand (2018 9M: cash inflow EUR 295 thousand). Investment
activities resulted in cash outflows in amount of EUR 117 thousand during
2019 9M, compared to outflows in amount EUR 197 thousand during 9M 2018. Financing
activities also resulted in cash outflows of EUR 172 thousand during 9M 2019 (2018
9M: cash outflow EUR 129 thousand). Net cash effect during 2019 9M showed cash
outflows of EUR 10 thousand, (2018 9M: cash outflows EUR 31 thousand).
Outlook
SKANO FIBREBOARD
We expect the trend to continue with growing sales of our various applications
outside of our historic focus on the construction sector in our nearby markets.
The construction sector in Finland and Russia is subdued, thus no sales growth
in these two historically important markets are expected. Increased electricity
prices should be more than offset with the decline of the woodchip and gas
prices. In addition we have reduced our product mix by ending the production of
some of the slow moving products, which should also help profitability.
SKANO FURNITURE RETAIL SALES
We will continue our process of exiting from the furniture retail segment. Our
Tartu shop will cease operations at end of November, and we have also commenced
closing down sales in our Tallinn shop. We expect to close the Tallinn shop and
Pärnu factory outlet shop in early 2020, which will mark the total exit of Skano
Group's furniture operations.
PEOPLE
On the 30th of September 2019, the Group employed 128 people (compared to 213
people as of 30.09.2018). The average number of personnel in Q3 2019 was 123 (Q3
2018: 213). The drop in the number of employees is related to the sale of
subsidiaries.
During first nine months of 2019, wages and salaries with taxes amounted to EUR
2,7 million (first nine months 2018: EUR 2.7 million). Payments made to management
board members of all group companies including all subsidiaries with relevant
taxes were EUR 103 thousand in nine months 2019 and EUR 136 thousand in nine months
2018.
FINANCIAL HIGHLIGHTS
* Including discontinued operations
EUR thousand
| | |
Income statement | Q3 2019*| Q3 2018* 9M 2019*| 9M 2018*
-----------------------------------+----------+----------+----------+----------
Revenue | 3,606| 3,709| 11,323| 11,369
-----------------------------------+----------+----------+----------+----------
EBITDA | 81| 46| (63)| 261
-----------------------------------+----------+----------+----------+----------
EBITDA margin | 2%| 1%| (1%)| 2%
-----------------------------------+----------+----------+----------+----------
Operating profit | (82)| (135)| (564)| (294)
-----------------------------------+----------+----------+----------+----------
Operating margin | (2%)| (4%)| (5%)| (3%)
-----------------------------------+----------+----------+----------+----------
Net profit | (700)| (211)| (1,322)| (505)
-----------------------------------+----------+----------+----------+----------
Net margin | (19%)| (6%)| (12%)| (4%)
| | | |
* Including discontinued
operations
|
|
-----------------------------------+
| | | |
Statement of financial position |30.09.2019|31.12.2018|30.09.2018|31.12.2017
-----------------------------------+----------+----------+----------+----------
Total assets | 9,213| 10,307| 11,012| 10,937
-----------------------------------+----------+----------+----------+----------
Return on assets | (14%)| (9%)| (5%)| (1%)
-----------------------------------+----------+----------+----------+----------
Equity | 1,608| 2,901| 3,277| 3,753
-----------------------------------+----------+----------+----------+----------
Return on equity | (82%)| (31%)| (15%)| (3%)
-----------------------------------+----------+----------+----------+----------
Debt-to-equity ratio | 83%| 72%| 70%| 66%
| | | |
| | | |
Share |30.09.2019|31.12.2018|30.09.2018|31.12.2017
-----------------------------------+----------+----------+----------+----------
Last Price* | 0.41| 0.36| 0.49| 0.62
-----------------------------------+----------+----------+----------+----------
Earnings per share | (0.29)| (0.20)| (0.11)| (0.03)
-----------------------------------+----------+----------+----------+----------
Price-earnings ratio | (1.38)| (1.82)| (4.36)| (21.83)
-----------------------------------+----------+----------+----------+----------
Book value of a share | 0.36| 0.64| 0.73| 0.83
-----------------------------------+----------+----------+----------+----------
Market to book ratio | 1.14| 0.56| 0.67| 0.74
-----------------------------------+----------+----------+----------+----------
Market capitalization, EUR thousand | 1,827| 1,620| 2,205| 2,771
-----------------------------------+----------+----------+----------+----------
Number of shares, piece | 4,499,061| 4,499,061| 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/
FINANCIAL RISKS
INTEREST RATE RISK
Skano Group AS's interest rate risk relates to changes in EURIBOR (Euro
Interbank Offered Rate) since our loans are linked to EURIBOR. At 30.09.2019 six
months' EURIBOR rate was (0,394)% and at 30.09.2018 six months' EURIBOR rate was
(0.268)%. As EURIBOR is negative and in the loan agreements it is set to 0%, the
continued negative rate of EURIBOR does not have interest expense reducing
effect. As the borrowing have a maturity of up to 2 years or less, management is
in opinion that the floating interest rate will not bear significant impact to
Group's cash flows.
The dates for fixing interest rates on the basis of changes in EURIBOR are the
30th day of every six months for its bank loans.
The interest rate risk also depends on the overall economic situation in Estonia
and in the eurozone. Skano Group AS has a cash flow risk arising from the
interest rate risk because its loans have a floating interest rate. Management
believes that the cash flow risk is not significant, therefore no hedging
instruments are used.
CURRENCY RISK
The foreign exchange risk is the risk that the company may have significant loss
because of fluctuating foreign exchange rates. However, Skano Group has no
operations outside of the euro zone and most of our export-import contracts to
customers outside of the euro zone are nominated in euros. Raw materials for
production and goods purchased for resale in our retail operations are mainly in
euros.
RISK OF THE ECONOMIC ENVIRONMENT
The risk of the economic environment for the fibreboard division depends on
general developments in the construction and industrial segments; the risk for
the furniture division depends on the expectations of the customers towards
economic welfare in future.
FAIR VALUE
The management estimates that the fair values of cash, accounts payable, short-
term loans and borrowings do not materially differ from their carrying amounts.
The fair values of long-term loans do not materially differ from their carrying
amounts because their interest rates correspond to the interest rate risks
prevailing on the market.
DECLARATION OF THE MANAGEMENT BOARD
The management board has prepared the management report and the consolidated
financial interim statements of Skano Group AS for the third quarter 2019.
The management board confirms that the management report on pages 4-9 provides a
true and fair view of the business operations, financial results and financial
condition of the parent company and the entities included in consolidation.
The management board confirms that according to their best knowledge the
consolidated financial interim report on pages 11-32 presents a fair view of the
assets, liabilities, financial position and profit or loss of the issuer and the
entities involved in the consolidation as a whole according to the International
Financial Reporting Standards as they are adopted by the European Union and
contains a description of the main risks.
Torfinn Losvik
Chairman of the Management Board
Pärnu, November 29, 2019
|