Interim report January -September 2011

Tulikivi Corporation                        Interim report 20.10.2011 at 3.00 p.m.

Interim report January-September 2011

- The Tulikivi Group’s third-quarter net sales were EUR 15.1 million (EUR 13.9 million, Q3/2010), the operating profit was EUR 0.5 (0.2) million and the profit before taxes was EUR 0.3 (0.1) million.
- The Group’s net sales during the reporting period were EUR 43.3 million (EUR 39.3 million, Jan-Sep 2010), the operating result was a loss of EUR -1.3 (-1.1) million and the result before taxes a loss of EUR -1.9 (-1.6) million. The operating result before expenses caused by concentration was a loss of EUR -0.7 (-1.1) million.
- Earnings per share amounted to EUR -0.04 (-0.03), and in the third quarter EUR 0.00 (0.00).
- Cash flow from operating activities was EUR -1.5 (-1.0) million.
- Order books at the end of the period were at EUR 6.7 (the comparable order books at Sept. 30, 2010 were 7.6) million.
- Despite the uncertainty caused by the economic crisis, the company’s full year like-for-like net sales will be up by slightly under 10 per cent, and the operating profit before non-recurring items is expected to improve on the previous year. The full-year operating result taking into account the non-recurring expenses is expected to be negative, however, and at the same level as the previous year.

Summary of the interim report 1-6/2011. The full interim report is attached to this release.                      

Key financial ratios

Managing Director’s comments:

“Net sales in the third quarter grew in line with expectations. The strongest growth was in fireplace sales in Finland and fireplace exports. Demand in Finland is supported by the rising price of consumer energy and building projects in progress. Nevertheless, the decline in consumer confidence caused by the financial crisis will reduce demand for fireplaces compared with the outlook at the beginning of the year.

The expansion of the distribution channel carried out in Finland and the new fireplace and sauna products will support sales in the final part of the year. In the sauna business, the focus is on expanding the product range and the distribution channel.

In exports, growth was generated by the improved demand in the Baltic countries, Sweden and Russia. The market situation for exports has weakened since the summer. In Central Europe, consumers continue to be interested in purchasing fireplaces, but the significant weakening of consumer confidence is  delaying purchasing decisions. The changed market situation is also likely to be reflected in the demand for lining stone.

The plan to focus on core business areas announced in the spring has been implemented. The loss-making product groups that did not belong to the core business were discontinued, and the Heinävesi plant can now be made into a more efficient fireplace factory. Concentrating kitchen countertop production in Espoo will improve the profitability of the Natural Stone Products Business. Measures to improve profitability will continue.”

Focusing on core businesses
The Group’s core businesses are the manufacture of fireplaces and sauna and interior stone products, development of product concepts and their marketing to consumers. Tulikivi will discontinue the manufacture of utility ceramics by the end of the year. The building stone business in Taivassalo has been sold, and manufacture of natural stone products has been concentrated at the Espoo factory. The negotiations regarding the outsourcing of machine work in quarrying have been completed. In the future, external contractors will carry out a substantial part of the machine work in quarrying.

As a result of the centralisation of functions, the number of employees in the Group is reduced by 55, of whom 43 people have been made redundant. 12 people transferred to another employer as a result of the divestment of businesses. Net sales for the reporting period include EUR 0.4 million in net sales resulting from the sale of the building stone business’s inventories, and the result includes the non-recurring expenses from the arrangement, amounting to approximately EUR 0.6 million net. Of these expenses, the restructuring provision accounts for approximately EUR 0.5 million, impairment losses, other expenses and expense reserves account for EUR 0.3 million, and sales gains EUR 0.2 million. Of the net expenses, EUR 0.4 million is from the Fireplaces Business and EUR 0.2 million from the Natural Stone Products Business. The effect of the sale of the building stone business on net sales for 2011 is EUR -0.6 million, but this will not have a substantial impact on the result for the final part of the year.

Focusing on core businesses will enable improvement of the Group’s profitability in the 2012 financial year and beyond. The arrangement reduces annual net sales by slightly under EUR 3.0 million.

Net sales and result
Consolidated net sales were EUR 43.3 million (EUR 39.3 million in January-September 2010). The net sales of the Fireplaces Business were EUR 39.1 (35.3) million and of the Natural Stone Products Business EUR 4.2 (4.0) million. The like-for-like net sales of the Natural Stone Products Business were EUR 3.8 million.

Net sales in Finland accounted for EUR 23.5 (20.8) million, or 54.4 (53.0) per cent, of total net sales. Exports amounted to EUR 19.8 (18.5) million in net sales. The principal export countries were Sweden, France and Germany. The growth in export net sales was from increased lining stone sales. Fireplace exports have not developed according to plan due to the lower demand.

The Group’s operating result after the above-mentioned expenses from centralisation was a loss of EUR -1.3 (-1.1) million and the operating result before expenses caused by concentration was EUR -0.7 (-1.1) million.
The Fireplaces Business had an operating profit of EUR 0.6 (0.6) million, and the Natural Stone Products Business had an operating loss of EUR -0.5 (-0.3) million, while expenses under other items were EUR -1.4 (-1.4) million. In addition to the expenses from the centralisation of functions, the operating profit during the reporting period was burdened by non-recurring expenses of EUR 0.8 million from the launch of electric sauna heaters, expansion of the Finnish distribution channel, the redesign of the corporate image and the introduction of a new information system.

The consolidated result before taxes was a loss of EUR -1.9 (-1.6) million and the consolidated result before expenses caused by concentration was EUR -1.3 (-1.6) million. The result for the reporting period was a loss of EUR -1.4 (-1.2) million and earnings per share amounted to EUR -0.04 (-0.03).

The Group’s third-quarter net sales totalled EUR 15.1 (13.9) million, the operating profit was EUR 0.5 (0.2) million and the profit before taxes EUR 0.3 (0.1) million. Earnings per share amounted to EUR 0.00 (0.00).

Financing and investments
Cash flow from operating activities before investments was EUR -1.5 (-1.0) million. Working capital increased by EUR 2.0 (3.1) million in the period and came to EUR 9.3 million (EUR 9.5 million on 30 September 2010). Interest-bearing debt was EUR 27.7 (25.8) million and net financial expenses were EUR 0.6 (0.6) million. The equity ratio was 33.3 (36.9) per cent. The ratio of interest-bearing net debt to equity, or gearing, was 101.0 (82.9) per cent. The current ratio was 1.7 (1.8). Equity per share was EUR 0.53 (0.59).

The Group has a solid financial position. At the end of the reporting period, the Group’s cash assets were EUR 7.7 (7.8) million and unused credit limits amounted to EUR 1.0 (4.0) million. The Group’s debt financing, totalling EUR 16.0 (12.5) million, includes covenants which are tied to the Group’s equity. All covenant conditions were met at the close of the reporting period.

The Group’s investments in production, quarrying and development were EUR 3.3 (2.0) million in the reporting period. Research and development costs were up, to a total of EUR 1.8 (1.4) million, i.e. 4.1 (3.4) per cent of net sales. EUR 0.5 (0.3) million of development costs was capitalised in the balance sheet.

In September, the new modular design fireplace Suvas was launched as well as ceramic fireplace models decorated with nature-themed decals. The development of the Green products has continued. In February, the Group launched its range of electric sauna heaters.  Development of the heaters and sauna products is continuing, and new products will be introduced later in the year. Other major development projects include development of the Group’s processes and renewal of the enterprise resource planning system.

Personnel
The Group employed 481 (488) people at the end of the reporting period. As a result of the centralisation of functions, the number of employees in the Group is reduced by 55, of whom 43 people were made redundant. 12 people transferred to another employer as a result of the divestment of businesses. Salaries and bonuses during the reporting period totalled EUR 12.3 (11.2) million. The Group employed an average of 437 (389) people during the reporting period.

Annual General Meeting
Tulikivi Corporation’s Annual General Meeting, held on 14 April 2011, resolved to pay a dividend of EUR 0.0250 on A shares and EUR 0.0233 on K shares. The dividend payout date was 28 April 2011. The other decisions of the general meeting can be found in the separate release published on the date of the meeting.

Near-term risks and uncertainties
The probability of an economic downturn in Europe has increased. The Group’s risks in the near future include negative fluctuations in the economy. Another risk is that consumer demand may be driven solely by price and not by the qualities of the product.

The renewal of the ERP system is in progress. Timetable and cost risks are often associated with such projects.

More information on risks can be found in the 2010 Board of Directors’ report and the notes to the financial statements.

Future outlook
Changes in consumer confidence will have an effect on demand for Tulikivi products in the near future. In Finland and the rest of Northern Europe, demand is expected to remain comparatively good. Moreover, sales in Finland will be supported by the new sauna and fireplace products and an expanding distribution network.

In Central Europe, the economic crisis will have a greater effect on consumers’ decision-making, and thus on fireplace demand.

Despite the uncertainty caused by the economic crisis, the company’s full year like-for-like net sales will be up by slightly under 10 per cent, and the operating profit before non-recurring items is expected to improve on the previous year. The full-year operating result taking into account the non-recurring expenses is expected to be negative, however, and at the same level as the previous year.

TULIKIVI CORPORATION

Board of Directors
Matti Virtaala Chairman of the Board

Distribution: NASDAQ OMX Helsinki Ltd
Central Media
www.tulikivi.com

Additional information: Tulikivi Corporation, 83900 Juuka, www.tulikivi.com

- Chairman of the Board of Directors Matti Virtaala, +358 207 636 666
- Managing Director Heikki Vauhkonen, +358 207 636 555