Annual report
7.2.2007
* The Tulikivi Group’s sales rose by 40.1 per cent in 2006 and amounted to EUR 82.1 million (EUR 58.6 million in 2005). * The Group’s profit before taxes grew by 28.6 % to EUR 7.8 (6.1) million. * Cash flow from operating activities before investments was EUR 12.0 (10.5) million. * The order book at the turn of the year amounted to EUR 10.4 (9.2) million. * The new plant was started up as planned in November.
Changes in the Group’s structure and segment reporting Tulikivi Corporation acquired all the shares in Kermansavi Oy on April 3, 2006. The Group’s business operations were divided into three business segments in 2006, namely Soapstone Fireplaces, Natural Stone Products and Ceramic Products. The Soapstone Fireplaces Business supplies soapstone fireplaces and stone lining for heaters. The Natural Stone Products Business supplies interior stone products and delivers stone to construction sites. The Ceramic Products Business produces Kermansavi fireplaces and utensils.
Sales and result The Tulikivi Group’s sales rose by 40.1 per cent in 2006 and amounted to EUR 82.1 million (EUR 58.6 million in 2005). Ceramic Products accounted for EUR 13.5 million of consolidated sales, and thus growth in comparable sales was 17.1 per cent. The Soapstone Fireplaces Business posted sales of EUR 61.3 (52.2) million, up 17.6 per cent. Sales of the Natural Stone Products Business grew by 13.2 per cent to EUR 7.3 (6.4) million.
The share of sales accounted for by exports was EUR 41.9 (30.7) million, or 51.1 (52.4) per cent. The largest countries for exports were Germany and Sweden. The greatest relative growth was achieved in the Baltic countries, France, Russia and Germany. Domestic sales were EUR 40.2 (27.9) million. The Group’s operating profit was EUR 8.2 (6.3) million. Soapstone Fireplaces had an operating profit of EUR 9.8 (8.8) million. The earnings of Soapstone Fireplaces are burdened by EUR 0.3 million in expenses due to the distribution channel change in the fourth quarter, the recognition of environmental provisions amounting to EUR 0.2 million and the start-up expenses of the new plant built in Juuka. The launch of the new product generation and the forging of the new distribution channel solution in Finland increased the Group’s marketing expenses substantially. Natural Stone Products posted an operating profit of EUR 0.3 (0.2) million and Ceramic Products an operating profit of EUR 1.2 million, while unallocated expenses totalled EUR 3.1 (2.7) million.
Profit before taxes improved by 28.6 per cent to EUR 7.8 (6.1) million, representing 9.5 per cent of sales. The acquisition of Kermansavi Oy had an effect of EUR 0.8 million on pre-tax profits. The Group’s return on investment was 21.7 (20.7) per cent. Earnings per share amounted to EUR 0.16 (0.12).
Cash flow and financing The Group’s financial position remained good. Cash flow from operating activities before investments amounted to EUR 12.0 (10.5) million. Current ratio was 1.5 (1.6). The equity ratio was 46.4 (63.0) per cent. The ratio of interest-bearing net debt to shareholders’ equity, or gearing, was 40.9 (-3.1) per cent. Shareholders’ equity per share amounted to EUR 0.83 (EUR 0.70). Financial income during the review period amounted to EUR 0.2 million and financial expenses to EUR 0.6 million.
Investments and development During the report period, the company acquired all of Kermasavi Oy’s shares in order to expand its product range and potential clientele, among other things. The acquisition cost was EUR 13.5 million.
The Group’s other investments amounted to EUR 10.6 (4.8) million. The most significant capital item was the investment in a factory in Juuka, valued at about EUR 6 million. The plant mainly uses leftover small blocks as raw material.
R&D expenditure totalled EUR 1.8 (1.7) million and its relative share of sales was 2.2 (2.8) per cent. The main thrust in product development was on the development of the new generation of soapstone fireplaces. Sales and deliveries of the new fireplace collection to customers began in the autumn. The new products feature peerless combustion technology and efficiency.
Tulikivi sought stone reserves in Finland and Russia. Tulikivi is continuing its prospecting operations in new areas of Russian Karelia in cooperation with the Geology Institute of the Karelian Scientific Centre of the Russian Academy of Sciences and the Geological Survey of Finland.
Personnel The Group employed an average of 664 people during the financial period (514) and 765 (537) at its end. Of the personnel, 579 (487) were employed in Soapstone Fireplaces, 54 (50) in Natural Stone Products and 132 in Ceramic Products. 86.8 per cent of the employment relationships are permanent and 13.2 per cent temporary. Salaries and bonuses during the financial year totalled EUR 22.3 (16.7) million. Incentive pay will be paid to employees from the Group’s result for 2006, which had an impact on earnings of EUR 0.9 (0.7) million including social expenses. All personnel who were in the Group’s employ during the whole financial year are covered by the incentive pay scheme, as set out in the plant- specific accounting rules. Occupational safety has developed well. The number of work accidents per one hundred thousand working hours was 0.06 (0.1).
Board of Directors, managing director and auditors At Tulikivi Corporation’s Annual General Meeting held on April 6, 2006, the following members were elected to the Board of Directors: Bishop Ambrosius, Juhani Erma, Eero Makkonen, Aimo Paukkonen, Heikki Vauhkonen, Reijo Vauhkonen and Matti Virtaala. From amongst its members, the Board of Directors elected Matti Virtaala chairman and Heikki Vauhkonen vice chairman. Tulikivi Corporation’s managing director is Juha Sivonen. The firm of authorized public accountants PricewaterhouseCoopers Oy is the company’s auditor.
Number of shares, increase in the share capital and Board authorizations The number of Tulikivi Corporation’s shares was quadrupled during the report period without raising the share capital by dividing each old share into four new shares. The share’s new nominal value is EUR 0.17. The increase in the number of shares entered into force on April 21, 2006.
Tulikivi Corporation’s share capital was raised by EUR 122,133.10, the equivalent of 718,430 new Series A shares, through a directed share issue as part of the payment for the shares acquired in Kermansavi Oy. The fair value of the conveyed Series A shares is EUR 2.105 million. Their value was measured at the price of the Series A share on the stock exchange, adjusted for expected dividends, and amounted to EUR 2.93 per share. The new Series A shares were made available for trading on the stock exchange list on July 3, 2006. The share capital entered in the Trade Register at December 31, 2006 amounted to EUR 6,314,474.90. The number of shares is 37,143,970, of which 27,603,970 are Series A shares and 9,540,000 Series K shares.
The Board of Directors has an authorization to buy and, similarly, to transfer treasury shares. A maximum of 2,688,552 Series A shares and a maximum of 954,000 Series K shares can be bought back. The company did not own any of its own shares on the closing date.
The Board of Directors has an authorization to increase the share capital, so that the share capital can be increased by a maximum of EUR 1,238,468 by offering a maximum of 7,285,108 new Series A shares for subscription at the price determined by the Board of Directors and under the terms set by the Board. The authorization includes the right to waive the pre-emptive subscription right of shareholders provided there are weighty financial reasons for the company to do so.
Rate development and exchange of Series A shares In 2006, 7.5 million of Tulikivi Corporation’s Series A shares were traded on the Helsinki Stock Exchange. The value of share turnover was EUR 23.8 million. The highest rating for the share was EUR 4.05 and the lowest was EUR 2.04. The closing rate on the last day of trading was EUR 3.51.
Risk Management At the Tulikivi Group, risk analysis and risk management are part of the regular strategic planning process that is performed annually. In the assessment of risks, their probability and impact are taken into account. Risk management seeks to ensure that the Tulikivi Group’s business risks are identified and managed as effectively as possible so that the Group’s strategic and financial objectives are achieved.
Environmental obligations Tulikivi’s environmental strategy is geared towards systematic progress in environmental efforts in the specified areas. The Group operates in line with environmental permits and complies with the requirements of the authorities and environmental protection.
The company shoulders its responsibilities for the environmental impacts of its operations. On the basis of the Mining Act and environmental legislation, the Tulikivi Group has landscaping obligations that must be met during operations and when quarries and plants are eventually shut down. The Group’s operations do not burden the environment with hazardous or poisonous substances.
All of Tulikivi Corporation’s quarries have the required environmental permits. In addition, renewal processes are under way. A procedure for the evaluation of environmental impacts was performed in connection with the founding of the soapstone quarry in Vaaralampi, Juuka. The procedure not only evaluated impacts in the Vaaralampi mining district, but also accounted for the potential combined impacts on the environment from other quarrying operations in Nunnanlahti.
The Group is neither party to judicial or administrative procedures concerning environmental issues nor is it aware of any environmental risks that would have a significant effect on its financial position.
Outlook for the future The positive trend in the economy and brisk construction will continue in Tulikivi’s main market areas and demand for fireplace products is expected to remain solid. Consolidated sales and earnings will develop favourably at the annual level. The start-up of the new distribution channel in Finland and plant will burden the earnings trend in the first part of the year.
The Board’s dividend proposal The Board of Directors will propose to the Annual General Meeting that will convene on April 13, 2007 that a dividend of EUR 0.090 per share be paid for the Series A shares and EUR 0.088 per share for the Series K shares, to a total of EUR 3.3 million. In addition, it will be proposed that EUR 150,000 be used for charitable purposes as decided by the Board of Directors.
The financial statements have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS), and applying the IAS and IFRS standards as well as SIC and IFRIC interpretations in force as at December 31, 2006.
CONSOLIDATED INCOME STATEMENT MEUR 01-12/ 01-12/ Change 10-12/ 10-12/Change 2006 2005 % 2006 2005 %
Sales 82.1 58.6 40.1 24.5 17.6 39.2 Other operating income 0.6 0.3 0.1 0.1 Increase/decrease in inventories in finished goods and in work in progress -0.3 -1.0 -0.1 -0.2 Production for own use 1.0 1.2 0.3 0.3 Raw materials and consumables 14.4 9.7 4.5 2.8 External services 10.5 6.6 3.3 1.9 Personnel expenses 28.7 21.0 8.5 6.1 Depreciation 5.2 4.0 1.5 1.0 Other operating expenses 16.3 11.5 4.5 3.3
Operating profit 8.2 6.3 30.9 2.5 2.7 -8.9 Percentage of sales 10.0 10.7 10.2 15.5 Finance costs (net) -0.4 -0.1 0.0 0.0 Share of the profit of associated company 0.0 -0.1 0.0 -0.1
Profit before tax 7.8 6.1 28.6 2.4 2.6 -7.5 Percentage of sales 9.5 10.3 9.9 15.0 Income taxes -2.1 1.7 -0.7 0.8
Profit for the year 5.7 4.4 31.1 1.7 1.8 -3.4
Earnings per share attributable to the equity holders of the parent company, EUR basic and diluted 0.16 0.12 29.8
CONSOLIDATED BALANCE SHEET MEUR 12/06 12/05 ASSETS Non-current assets Property, plant and equipment Land 0.9 0.9 Buildings 9.0 6.2 Machinery and equipment 13.8 8.4 Other tangible assets 1.2 0.8 Intangible assets Goodwill 4.0 0.6 Other intangible assets 10.5 4.1 Investment properties 0.2 0.2 Available-for-sale investments 0.1 0.1 Receivables 0.2 Deferred tax assets 0.5 0.5 Total non-current assets 40.2 22.0
Current assets Inventories 10.6 7.0 Trade receivables 8.5 6.5 Current income tax receivables 0,0 0.0 Other receivables 2.0 1.0 Cash and cash equivalents 4.9 4.1 Total current assets 26.0 18.6 Total assets 66.2 40.6
EQUITY AND LIABILITIES Equity Share capital 6.3 6.2 Share premium fund 7.4 5.4 Translation difference 0.0 0.0 Retained earnings 17.0 13.9 Total equity 30.7 25.5 Non-current liabilities Deferred income tax liabilities 3.0 0.8 Provisions 0.6 0.3 Interest-bearing debt 14.7 1.8 Other debt 0.4 0.4 Total non-current liabilities 18.7 3.3 Current liabilities Trade and other payables 13.7 10.2 Current income tax liabilities 0.4 0.1 Short-term interest-bearing debt 2.7 1.5 Total current liabilities 16.8 11.8 Total liabilities 35.5 15.1 Total equity and liabilities 66.2 40.6
CONSOLIDATED CASH FLOW STATEMENT MEUR 01-12/ 01-12/ 2006 2005 Cash flows from operating activities Profit for the period 5.7 4.4 Adjustments: Non-cash transactions 5.1 4.0 Interest expenses and income and taxes 2.5 1.8 Change in working capital 0.8 1.8 Interest paid and received and taxes paid -2.1 -1.5 Net cash flow from operating activities 12.0 10.5
Cash flows from investing activities Acquisition of subsidiaries -11.0 Acquisition of associated companies and loans granted to them -0.1 Investment in property, plant and equipment and intangible assets -10.1 -5.1 Grants received for investments and sales of property, plant and equipment 1.0 0.3 Sale of financial assets at fair value through profit and loss (net) 0.8 Net cash flow from investing activities -20.1 -4.1
Cash flows from financing activities Long-term loans received 15.3 Repayment of long-term loans -3.8 -5.3 Dividends paid -2.6 -2.1 Net cash flow from financing activities 8.9 -7.4
Change in cash and cash equivalents 0.8 -1.0
Cash and cash equivalents at beginning of period 4.1 5.1 Cash and cash equivalents at end of period 4.9 4.1
KEY FINANCIAL RATIOS AND SHARE RATIOS 12/06 12/05 Outstanding orders (31 Dec.), MEUR 10.4 9.2 Gross investment, MEUR 24.1 4.8 Gross investment, % of sales 29.4 8.1 Average number of staff 664 514
Earnings per share, EUR 0.16 0.12 Equity per share, EUR 0.83 0.70 Return on investments, % 21.7 20.7 Equity ratio, % 46.4 63.0 Gearing, % 40.9 -3.1 Current ratio 1.5 1.6
Number of shares average 36784755 36425540 Number of shares 31 Dec. 37143970 36425540
STATEMENT OF CHANGES IN EQUITY MEUR Share Share Trans- Re- Total capital premium lation tained fund diff.earnings
Equity 1 January 2006 6.2 5.4 0.0 13.9 25.5 Translation differences 0.0 0.0 Items recognised directly in equity -0.1 -0.1 Profit for the year 5.7 5.7 Dividends -2.5 -2.5 Share issue 0.1 2.0 2.1 Equity 31 Dec. 2006 6.3 7.4 0.0 17.0 30.7
Equity 1 January 2005 6.2 5.4 0.0 11.6 23.2 Translation differences 0.0 0.0 Profit for the year 4.4 4.4 Dividends -2.1 -2.1 Equity 31 Dec. 2005 6.2 5.4 0.0 13.9 25.5
BUSINESS SEGMENTS 01-12/ 1-12/ MEUR 2006 2005 Sales 82.1 58.6 Soapstone Fireplaces Business 61.3 52.2 Natural Stone Products Business 7.3 6.4 Ceramic Products Business 13.5
Operating profit 8.2 6.3 Soapstone Fireplaces Business 9.8 8.8 Natural Stone Products Business 0.3 0.2 Ceramic Products Business 1.2 Unallocated group expenses -3.1 -2.7
BUSINESS SEGMENTS QUARTERLY MEUR Q4/ Q3/ Q2/ Q1/ Q4/ Q3/Q2/ Q1/ 2006 2006 2006 2006 2005 2005 2005 2005
Sales 24.4 20.5 20.9 16.3 17.6 13.4 14.6 13.1 Soapstone Fireplaces Business 17.6 14.2 14.9 14.6 15.9 12.1 12.8 11.4 Natural Stone Products Business 1.8 1.7 2.1 1.7 1.7 1.3 1.8 1.7 Ceramic Products Business 5.0 4.6 3.9
Operating profit 2.4 2.4 1.7 1.7 2.7 1.8 1.5 0.3 Soapstone Fireplaces Business 2.5 2.2 2.8 2.3 3.2 2.5 2.1 0.9 Natural Stone Products Business 0.0 0.2 0.0 0.1 0.1 -0.1 0.1 0.1 Ceramic Products Business 0.7 0.7 -0.2 Unallocated group expenses -0.8 -0.7 -0.9 -0.7 -0.6 -0.7 -0.7 -0.7
COLLATERAL AND SECURITIES GIVEN AND OTHER COMMITMENTS MEUR 12/2006 12/2005
Loans from credit institutions and other non-current liabilities, secured by mortgages and pledges 17.4 2.9 Mortgages and pledges given 27.7 10.8 Other mortgages and pledges given by the company on its own behalf 2.1 1.7 Leasing commitments 0.0 Derivatives Interest rate swaps; nominal value 8.3 Interest rate swaps; fair value 0.1
The fair value of derivatives is equivalent to a profit or loss from the closing of the contract calculated on the basis of the market price at Dec. 31.
LARGEST SHAREHOLDERS ON 31 DECEMEBER 2006
Name of shareholder Shares Proportion of total vote Vauhkonen Reijo 4 160 146 24.3 % Vauhkonen Heikki 2 997 706 24.1 % Elo Eliisa 2 957 020 5.9 % Virtaala Matti 2 420 346 11.9 % Mutual Pension Insurance Company Ilmarinen 1 902 380 1.5 % Mutanen Susanna 1 643 800 7.2 % Vauhkonen Mikko 800 700 3.6 % Paatero Ilkka 718 430 0.6 % Nuutinen Tarja 674 540 3.5 % Fondita Nordic Small Cap Placfond 619 000 0,5 % Other shareholders 18 249 902 16.9 %
The Financial Statements have not yet been audited.
The companies included in the Group are the parent company Tulikivi Corporation and subsidiaries Kermansavi Oy, Kivia Oy, AWL- Marmori Oy, Tulikivi U.S. Inc. and OOO Tulikivi. Group companies include also Tulikivi Vertriebs GmbH and The New Alberene Stone Company, Inc., which are dormant. Parent company has a fixed place of business in Germany, Tulikivi Oyj Niederlassung Deutschland. The Group has associated companies Stone Pole Oy and Leppävirran Matkailukeskus Oy.
TULIKIVI CORPORATION
Board of directors Matti Virtaala, Chairman of the Board
Distribution: Helsinki Stock Exchange Central Media
Additional information: Tulikivi Corporation, 83900 Juuka, tel. +358-207-636 000, www.tulikivi.com - Chairman of the Board of Directors Matti Virtaala - Managing Director Juha Sivonen