Financial Statement Release Jan-Dec 2012

- The Tulikivi Group’s fourth-quarter net sales totalled EUR 14.2 million (EUR 15.5 million Q4/2011), the operating result was EUR 0.5 million (-1.0) and the profit before taxes was EUR 0.3 million (-1.2). The result was adversely affected by the restructuring provision of EUR 1.0 million for adjustment measures.

- Net sales in 2012 totalled EUR 51.2 million (EUR 58.8 million in 2011), the operating result was EUR 0.1 million (-2.4) and the result before taxes was EUR -0.8 million (-3.1). The comparable figures for 2011 were adversely affected by non-recurring expenses of EUR 1.6 million caused by the centralisation and adjustment measures. Earnings per share amounted to EUR -0.02 (-0.07).

- Year-end order books were at EUR 4.6 (5.7) million.

- Cash flow from operating activities before investments was EUR 0.1 (1.4) million.

- The Group’s equity ratio at the end of the year was 35.2 per cent (33.3).

- The Board will propose to the Annual General Meeting that no dividend be paid.

- Future outlook: The sales of Tulikivi products will depend on the development of demand. No significant growth on the previous year is anticipated for net sales in 2013. As a result of improvements to operating efficiency, operating profit is expected to improve and the result before taxes to be profitable.

Summary of the financial statement release 01-12/2012. The full financial statement release is attached to this release.

Key financial ratios

1-12/
  2012
1-12/
  2011
Change,
  %
10-12/
  2012
10-12/
  2011
Change, %
Sales, MEUR 51.2 58.8 -12.9 14.2 15.5 -8.4
Operating profit/
  loss, MEUR
0.1 -2.4 104.2 0.5 -1.0 150.0
Profit before tax,
  MEUR
-0.8 -3.1 74.2 0.3 -1.2 125.0
Total   comprehensive
  income for the period,
  MEUR
-0.6 2.4 42.9 0.2 -1.0 120.0
Earnings per share,
  Euro
-0.02 -0.07 0.00 -0.03
Net cash flow   from
  operating activities,
  MEUR
0.1 1.4
Equity ratio, % 35.2 33.3
Net indebtness
  ratio, %
112.9 96.5
Return on
  investments, %
0.3 -4.8 3.4 -8.6

Managing Director Heikki Vauhkonen

The financial situation was very challenging at the start of 2012. The European financial crisis, which intensified in October 2011, weakened consumer confidence and decreased fireplace demand in the main markets. The strongest impact was on domestic net sales fireplace business that decreased by approximately 15 per cent despite the positive development in market share. At the start of the year, fireplace demand already remained below the previous year’s level. In September 2012, domestic consumer demand decreased further.

Performance in fireplace exports was more stable, and net sales grew by around 2 per cent. The most positive development took place in the United States, Russia, Germany and the new East European export countries. As a whole, there was satisfactory performance in exports to Central Europe despite the dire financial situation.

Demand for lining stone products was low in early 2012, due to the cautious behaviour of heater manufacturers as regards their stocks. Net sales of lining stone products decreased by 18 per cent.

Net sales of sauna products are not yet significant regarding the whole figure. The net sales and result of interior stone products were as expected.

In spite of the decrease in net sales, the operating result of the Tulikivi Group became profitable in 2012. This was the result of the three million euro savings project that was implemented successfully. The savings boosted production efficiency and decreased fixed costs, as was the target.

Net sales and result

The Tulikivi Group’s fourth-quarter net sales totalled EUR 14.2 million (EUR 15.5 million in Q4/2011), the operating profit was EUR 0.5 (-1.0) million and the profit before taxes was EUR 0.3 (-1.2) million. The comparable figures for 2011 were adversely affected by the restructuring provision of EUR 1.0 million for adjustment measures.

Group net sales in 2012 totalled EUR 51.2 million (EUR 58.8 million in 2011). The net sales of the Fireplaces Segment amounted to EUR 47.1 (53.5) million and the net sales of the Interior Stone Segment were EUR 4.1 (5.3) million. The 2011 figures included net sales of discontinued operations, which amounted to EUR 1.6 million in the Fireplaces Business and EUR 1.4 million in the Interior Stone Business.

Net sales in Finland totalled EUR 24.9 (31.6) million, or 48.5 (53.7) per cent of the total net sales. Exports accounted for more than a half of the net sales total, i.e. EUR 26.3 (27.2) million. The principal export countries were Sweden, France, Germany, Belgium and Russia. In exports, net sales of fireplaces and lining stone products were as expected.

The consolidated operating result was EUR 0.1 (-2.4) million. The Fireplaces Segment’s operating profit was EUR 1.8 (0.2) million and the operating result for the Interior Stone Segment was a loss of EUR -0.1 (-0.6) million, while Other Items’ expenses were EUR -2.0 (-2.0) million. Other Items include expenses of the Group administration and expenses pertaining to financial administration. The operating result for 2011 was adversely affected by non-recurring expenses of EUR 1.6 million net caused by the centralisation and adjustment measures. Of these expenses, EUR 1.4 million is allocated to the Fireplaces Segment and EUR 0.2 million net to the Interior Stone Segment.

The consolidated result before taxes was EUR -0.8 (-3.1) million and comprehensive income was EUR -0.6 (-2.4) million. The consolidated return on investment was 0.3 (-4.9) per cent. Earnings per share amounted to EUR -0.02 (-0.07).

Financing and investments                     

Cash flow from operating activities before investments was EUR 0.1 (1.4) million. Working capital increased by EUR 3.0 million during the financial year and came to EUR 9.9 million. This was the result of the decrease in accrued expenses, the cancellation of the restructuring provision and the increase in boulder stocks. Interest-bearing debt was EUR 23.9 (24.9) million, and net financial expenses were EUR 0.8 (0.7) million. The current ratio was 1.7 (1.5). The equity ratio was 35.233.3) per cent. The ratio of interest-bearing net debt to equity, or gearing, was 112.9 (96.5) per cent. The equity per share amounted to EUR 0.49 (0.51).

Tulikivi completed negotiations to change the loan instalment schedule for the next three years. This includes covenants which are tied to the increase of the Group’s profitability.

At the end of the financial year, the Group’s cash and other liquid assets came to EUR 3.3 (6.8) million, and the total of undrawn credit facilities and unused credit limits amounted to EUR 4.0 (4.1) million. The Group’s debt financing, totalling EUR 18.4 (14.5) million, includes covenants which are tied to the Group’s equity. Furthermore, a covenant condition tied to the ratio between the interest-bearing debt and EBITDA is applied on a share of EUR 8.4 (0.0) million of debt financing. All covenant conditions were met on the balance sheet date, and the Group’s financing resources are sufficient for the implementation of business plans.

The Group´s investments in production, quarrying and development came to total of EUR 2.7 (4.9) million. The new ERP system was introduced at the beginning of 2012. The new system will harmonise Tulikivi’s internal processes in the various production plants and businesses. It will also make the management of the partner network and the entire delivery chain more efficient. Other major investments included replacement investments in the production plants and quarry investments.

Research and development expenses totalled EUR 1.6 (2.1) million, and their relative share of net sales was 3.1 (3.8) per cent. A total of EUR 0.6 (0.6) million of this figure, after deduction of subsidies, was capitalised.

Significant investments were made in the commercialisation, launch and product approvals of the modular Hiisi collection. The modular design of the products allows the growth of component-specific volumes in order to boost production and acquisitions. This will accelerate and intensify product development in future.

Tulikivi Figure and Tulikivi Color coating materials were launched at the same time as the Hiisi collection. They will enable the use of new designs and colours in soapstone fireplaces.

The Tulikivi Nuoska sauna heater received a Fennia Prize design award and the Hiisi collection received an award for its design at the Habitare Fair. The Tulikivi Harmaja fireplace received a Vesta Award for its technical features at the HBPA Expo in the USA.

Personnel

The Group employed an average of 351 (427) people during the financial year. The average was calculated according to the period of employment, taking account of the impact of layoffs. The number of personnel at the end of the year was 377 (436) people. Of these employees, 341(395) were employed by the Fireplaces Segment, 21 (25) by the Interior Stones Segment and 15 (16) in activities not allocated to a segment. The number of personnel decreased during the year by 54 people as a result of the centralisation measures and attrition .

In all, 97.6 per cent of the employment relationships were permanent and 2.4 per cent were temporary. Salaries and bonuses during the year totalled EUR 13.9 (17.4) million.

Resolutions of the Annual General Meeting

Dividends

Tulikivi Corporation’s Annual General Meeting, held on 12 April 2012, resolved not to pay a dividend on the 2011 financial year.

Decision-making bodies

The following persons were elected to the Board of Directors of the parent company and domestic business subsidiaries: Olli Pohjanvirta, Markku Rönkkö, Pasi Saarinen, Maarit Toivanen-Koivisto, Heikki Vauhkonen and Matti Virtaala. The Board of Directors elected from among its members Matti Virtaala as Chairman. KPMG Oy Ab, Authorized Public Accountants, was elected as the auditor.

Major business risks

In 2012, the relative profitability of Tulikivi operations was significantly improved. Efficient operations will be further intensified with the renewed enterprise resource planning system that enables faster and more reliable reporting.

Any major downturn that might be caused by the euro area crisis could decrease the demand for the company’s products and the company’s profitability and equity. The company’s balance sheet assets include goodwill, intangible assets and deferred tax assets, the value of which is based on the management’s estimates. If these estimates fail to materialise, it is possible that impairment losses would have to be recognised in connection with the impairment testing processes. Meeting the covenant conditions on the Group’s bank loans will require the improvement of the company’s profitability in future.

Events following the end of the financial year

On 21 January 2013, the company began codetermination negotiations covering all of the Group’s personnel. The current estimate is that any reorganisation of work would mean up to 10 people being made redundant in the Group’s Finnish operations, in sales, customer service and production, and up to 40 production staff being laid off until further notice. In addition to this, temporary layoffs of a maximum of 90 days are being negotiated. Tulikivi’s negotiations concerning implementation of the layoffs will take account of the demand situation during 2013.

Future outlook

The demand for Tulikivi products depends on the development of consumer confidence. New products will enable the growth of market share, but no significant growth is anticipated for net sales in 2013. As a result of improvements to operating efficiency, operating profit is expected to improve and the result before taxes to be profitable.

Order books at the end of the year amounted to EUR 4.6 (5.7) million.

Board of Directors’ proposal on use of distributable equity

There is no distributable equity. The reserve for invested unrestricted equity has a total of EUR 5,835 thousand of returnable funds.

The Board will propose to the Annual General Meeting that no dividend be paid.

Corporate Governance Statement

Tulikivi Corporation will issue its Corporate Governance Statement for 2012 separately from the Annual Report. The Corporate Governance Statement has been prepared in accordance with Recommendation 54 of the Finnish Corporate Governance Code and Chapter 2, section 6 of the Securities Markets Act. Information on corporate governance can be found on Tulikivi’s website, at http://www.tulikivi.com/en/tulikivi/Corporate_governance_and_management.

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, tel.

+358 403 063 100, www.tulikivi.com

- Chairman of the Board of Directors Matti Virtaala

- Managing Director Heikki Vauhkonen

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