Viisnurk                      REPORT                            02/26/2002



ACTIVITY REPORT 2001



Company



AS Viisnurk has four independent business units:

- Furniture Factory, which produces domestic furniture of pine and birch,

  and solid wood panels.

- Sports Goods Division, which produces cross-country skis and hockey

  sticks and distributes various sports and leisure time goods.

- Softboard Factory, which produces boards for insulation and

  soundproofing, and interior finishing boards for walls and ceilings.

- Wood Panel Factory, which produces edge-glued panels for the furniture

  industry.

Supporting units include Forestry Centre, which supplies the company with

roundwood and sells sawn timber, Boiler House, which produces heat energy, and

Maintenance Department, which is responsible for the maintenance of buildings,

plant and equipment and arrangement of transportation. Besides the above,

income is earned from rental activities and operation of in-house canteens.





Financial review



Net sales



AS Viisnurk ended the year with net sales of 347 million kroons (22.18 million

euros) -  increase of 12.3 percent on the previous financial year. As regards

business units, the sales of Furniture Factory grew by a significant 30

percent. Expected sales were also attained at Softboard Factory, whose sales

did not increase due to limited installed capacities only. The sales of Sports

Goods Division, however, fell short of expectations and the sales of Wood

Panel Factory, which experienced difficulties in the launching stage, proved

considerably smaller than expected. The sales of supporting units increased on

account of an increase in the sales of Forestry Centre, which began supplying

sawn timber to Wood Panel Factory.



AS Viisnurk’s net sales and internal sales by units (in thousands of Estonian

kroons):



                                2001      2000 Change, %

Furniture Factory            157,581   121,497      29.7

incl. internal sales              92       124    (25.8)

Sports Goods Division         86,590   103,764    (16.6)

incl. internal sales               0     4,936         -

Softboard Factory             71,892    72,252     (0.5)

Wood Panel Factory            18,645        41         -

incl. internal sales           9,613         0         -

Supporting units              72,036    43,201      66.7

incl. internal sales          50,067    26,612      88.1

Eliminations (internal      (59,772)  (31,672)      88.7

sales)

AS VIISNURK NET SALES        346,972   309,083      12.3



AS Viisnurk’s net sales and internal sales by units (in thousands of Euros):



                                2001      2000 Change, %

Furniture Factory             10,071     7,765      29.7

incl. internal sales               6         8    (25.8)

Sports Goods Division          5,534     6,632    (16.6)

incl. internal sales               0       315         -

Softboard Factory              4,595     4,618     (0.5)

Wood Panel Factory             1,191         2         -

incl. internal sales             614         0         -

Supporting units               4,604     2,761      66.7

incl. internal sales           3,200     1,701      88.1

Eliminations (internal       (3,820)   (2,024)      88.7

sales)

AS VIISNURK NET SALES         22,175    19,754      12.3



Earnings



The company ended the year with a net profit of 19.4 million kroons (1.24

million euros) and a net profit margin of 5.6 percent. The corresponding

figures for 2000 were 31.6 million kroons (2.02 million euros) and 4.6

percent. Operating margin for 2001 amounted to 7.9 percent, a 3.2 percent

decrease on 2000. In terms of business units, profits increased at Furniture

Factory (+20 percent) and Softboard Factory (+6 percent). Supporting units

passed the break-even point and began earning a profit thanks to an

improvement in the operating results of Forestry Centre. The results of Sports

Goods Division and Wood Panel Factory remained more modest than expected.



Profit formation (in thousands of Estonian kroons):



                                   2001      2000  Change, %

Furniture Factory                23,052    19,233       19.9

Sports Goods Division             5,569    11,847     (53.0)

Softboard Factory                20,589    19,362        6.3

Wood Panel Factory             (11,963)     (476)          -

Supporting units                    146   (3,329)          -

TOTAL                            37,393    46,637     (19.8)

Unallocated expenses (general  (10,144)  (12,441)     (18.5)

administration)

AS VIISNURK OPERATING PROFIT     27,249    34,196     (20.3)

Net financial expenses          (7,866)   (2,568)      206.3

AS VIISNURK NET PROFIT           19,383    31,628     (38.7)



Profit formation (in thousands of Euros):



                                   2001      2000  Change, %

Furniture Factory                 1,473     1,229       19.9

Sports Goods Division               356       757     (53.0)

Softboard Factory                 1,316     1,237        6.3

Wood Panel Factory                (764)      (30)          -

Supporting units                      9     (213)          -

TOTAL                             2,390     2,980     (19.8)

Unallocated expenses (general     (648)     (795)     (18.5)

administration)

AS VIISNURK OPERATING PROFIT      1,742     2,185     (20.3)

Net financial expenses            (503)     (164)      206.3

AS VIISNURK NET PROFIT            1,239     2,021     (38.7)



Assets, liabilities and cash flows



Total assets increased by 7.7 percent amounting to 357.5 million kroons (22.85

million euros) at the year-end. The largest increase occurred in inventories.

Due to weaker than projected sales in the fourth quarter and the usual

seasonal fluctuations inventory balance grew by 28.6 percent. Non-current

assets increased by 18.9 million kroons (1.21 million euros). Liabilities and

equity went up by 6.3 million kroons (0.4 million euros) and 19.4 million

kroons (1.24 million euros) respectively. Equity increased on account of the

net profit for 2001. Debt to equity ratio decreased from 57 percent to 54.5

percent.

Despite a substantial decline in net profit, cash flows from operating

activities increased by 3.5 million kroons (0.22 million euros) and all units

attained positive cash flows. Cash flows from operating activities were

significantly affected by an increase in a non-monetary expense -

depreciation. Due to major investments in 2000, annual depreciation increased

by ca 10 million kroons (0.64 million euros). This reduced the company’s

profit but did not affect the amount of cash earned. During the reporting

period the company invested 40.1 million kroons (2.56 million euros) and

borrowed 11.3 million kroons (0.72 million euros).



Investment



In the past financial year production-related investments totalled 40.7

million kroons (2.6 million euros). The largest amount, 14.4 million kroons

(0.92 million euros), was allocated for the completion of the new Wood Panel

Factory. Total investments in the factory now amount to 95 million kroons

(6.07 million euros). To continue the streamlining and expansion of Furniture

Factory, 9 million kroons (0.58 million euros) was spent on improving

finishing, establishing a department for the processing of squared elements

and upgrading the warehousing system. The investments made in Softboard

Factory and Sports Goods Division were aimed at implementing a solution for

using sawdust for production purposes and the expansion of the hockey stick

department.



Viisnurk share



The total turnover of Viisnurk share at Tallinn Stock Exchange was 25.4

million kroons (1.62 million euros). The corresponding figure for 2000 was

48.2 million kroons (3.08 million euros). The period’s highest and lowest

closing prices amounted to 51.5 kroons (3.29 euros) and 41 kroons 

(2.62 euros) and were registered on 11 January and 12 September 2001 

respectively. The year-end closing price was 42 kroons (2.68 euros), 

a decrease of 14.3 percent on the beginning of the year.

On 8 August the company declared a share issue with a view to raising funds

for expansion. The intention was to increase share capital by 850,000 shares

by way of additional monetary contributions. The issue price of the new shares

was 44 kroons (2.81 euros). In connection with the general turbulence at the

world’s stock markets the share issue failed and Management Board cancelled

the issue on 28 September.





Performance of units



Furniture Factory



In terms of sales and turnover, Furniture Factory is definitely the largest

business unit of AS Viisnurk. Sales have increased rapidly in the past years

and the same trend could be observed in 2001 when sales grew by 30 percent.

The factory’s operating profit amounted to 23.1 million kroons (1.47 million

euros).

During the year Furniture Factory continued manufacturing own products and

completing sub-contracting orders, keeping the activities at a balance. The

largest product line is that of antique-style home-office furniture, which is

successfully exported to Europe and Russia. The largest sub-contracting

customer is IKEA, one of the world’s leading furniture distributors.

To maintain competitiveness in a strained market that is suffering from excess

capacities, the management has put a lot of effort in organisation development

and streamlining. At the beginning of 2001 the factory was granted an ISO 9001

quality certificate. Another important project was the implementation of a new

production management system, which is based on the restrictions theory and

has shortened the production cycle and reduced the inventory balance to a

considerable extent.



Sports Goods Division



The results of Sports Goods Division remained modest. The division’s total

sales decreased by 17 percent and profit dropped by a half, amounting to 5.6

million kroons (0.36 million euros).

Poor snow conditions in the previous winter brought about a decline in the ski

market and a substantial decrease in the production volume. This became

especially evident in the fourth quarter when production of skis dropped by 56

percent compared to 2000. The critical decrease in output caused the division

to end the fourth quarter with a loss of ca 411,000 (26,300 euros) The fourth

quarter of 2000 ended with a profit of 6.1 million kroons (0.39 million

euros). Altogether Ski Factory produced 212,000 pairs of skis, i.e. 30 percent

less than in 2000. In hockey stick production the results of the fourth

quarter were adversely affected by production expansion and marketing

development costs. The results of mediation activities remained on the level

of 2000.

Despite a significant decline in sales, Sports Goods Division retained its

market positions in the production cross-country skis both in Europe and North

America and penetrated the world hockey stick market. For Sports Goods

Division, 2001 was a year of product development and trademark promotion. The

division began producing a completely new product - metal-edged skis. Ten

percent of cross-country skis were sold under the company’s own “Visuö

trademark and seven percent of hockey sticks were sold under the “Maxxö

trademark.



Softboard Factory



Softboard Factory continued attaining excellent results. Due to maximum

utilisation of installed capacities, sales remained as high as in the previous

year. Profit increased slightly, amounting to 20.6 million kroons (1.32

million euros). Operating margin amounted to 28.6 percent.

Operating margin was retained thanks to successful control over production

inputs, an increase in sales to neighbouring markets, an increase in the share

of interior finishing boards and efficient operation of an ISO 9001-compliant

quality management system that was implemented in 2000. The share of the

Estonian market increased by 25 percent and surpasses now 30 percent of sales.

Sales of interior finishing boards accounted for 27 percent of total sales.

The factory’s dependence on developments in the construction sector decreased.

As a result of efforts made in previous periods, softboard sales were not

limited to the construction industry only. In 2001 softboards were sold to

furniture producers in Estonia, a notice board producer in Portugal, partition

producers in Finland and Australia, and a producer of fire lighting supplies

in the Netherlands.



Wood Panel Factory



Investments in the production of edge-glued panels were aimed at increasing

production capacities, creating conditions for diversification into new wood

processing areas and ensuring the development and expansion of furniture

production. For Wood Panel Factory, 2001 was the first year of operation.

Operation began at the beginning of the second quarter.

The factory ended the first nine months with net sales of 18.6 million kroons

(1.19 million euros). More than a half of the sales were internal. External

sales amounted to 9 million kroons (0.58 million euros) and 48 percent of the

aggregate. Together with financial expenses the loss of the factory amounted

to 17.3 million kroons (1.11 million euros), an excess of 15 percent over the

projected figure.

Loss proved larger than expected because launch of operations, increase of

capacities and penetration of suitable marketing channels were adversely

affected by a general slump in the market and higher than expected input

prices.

At the beginning of 2001 when production was launched, the principal edge-

glued panels markets in Scandinavia and Western Europe were in a recession

that resulted from a general cooling of world economy and a decline in

furniture consumption. Competition in the production of edge-glued panels of

pine was extremely stiff and both Scandinavian and Western European

manufacturers had excess capacities, which reduced the price of pine panels to

the lowest of the past couple of years. Furthermore, the consumers’ interest

in pine as a traditional furniture material decreased. On the other hand,

interest in birch products increased. Thus, in the following periods the

factory may focus on increasing the production of birch panels.



Supporting units



At Forestry Centre centralised purchase and preliminary processing of timber

increased 2.1 times. The net sales of Forestry Centre amounted to 50.4 million

kroons (3.22 million euros), a considerable increase on the 24.2 million

kroons (1.55 million euros) attained a year ago. Intra-company sales increased

2.7 times to 33.7 million kroons (2.15 million euros) and accounted for 67

percent of the total. External sales amounted to 16.8 million kroons (1.07

million euros), a solid increase on the 11.9 million kroons (0.76 million

euros) achieved in 2000. The result of operations was a loss of 1.1 million

kroons (0.07 million euros), a notable improvement on the loss of 4.7 million

kroons (0.3 million euros) incurred in 2000. Altogether the centre distributed

purchased and self-produced timber of 21,200 cubic metres. The shares of soft-

and hardwood were equal.



The sales of Boiler House amounted to 19.7 million kroons (1.26 million

euros), an 8 percent increase on 2001. Inter-segment sales of 16.4 million

kroons (1.05 million euros) accounted for 83.2 percent of the total. External

sales amounted to 3.3 million kroons (0.21 million euros), a slight increase

on the 3.1 million kroons (0.2 million euros) attained in 2000. The year ended

with a profit of 0.5 million kroons (0.03 million euros). The corresponding

figure for 2000 was 0.7 million kroons (0.04 million euros). During the

financial year Boiler House produced 79.6 GWh (2000 – 87.2 GWh) and purchased

10.5 GWh of heat energy.



Maintenance Department deals with the maintenance of production equipment and

technical communications, produces special equipment for the core production

activities and is in charge of power supply and management. The monetary value

of services provided in 2001 amounted to 28.4 million kroons (1.82 million

euros), a 20 percent increase on 2000.





Future objectives



For AS Viisnurk 2001, was a year of sustaining growth. At the end of the

period we completed our development strategy until 2005, which outlines our

strategic objectives and the measures for attaining them.

In line with the corporate vision, a significant increase in operating

capacities will remain an important objective both in the short and long

range. In 2002 turnover should continue increasing rapidly. Growth is rapid

when it exceeds 15 percent per year. However, stable profitability is even

more important. In 2001 difficulties in the launch of Wood Panel Factory

caused a setback in profits. In 2002 we intend to increase profitability and

expect to reach the level of net profit earned in 2000.



Units have the following objectives.



Furniture Factory



Furniture production remains a priority. On existing premises capacities

cannot be increased. Therefore, the factory’s main objective for 2002 is to

prepare a business plan and launch a project for the implementation of

additional production capacities in 2003. Due to limited production

capacities, the results of 2002 should remain similar to the ones attained in

2001.



Sports Goods Division



The key to the development of Sports Goods Division is sustaining rapid growth

in hockey stick production and hedging production risks at the manufacture of

cross-country skis. Expectations regarding an increase in net sales are not

high because adverse climatic conditions do not allow to foresee a substantial

increase in the number of pairs of cross-country skis that can be sold. On the

other hand, in the long range overall growth can be attained through an

increase in the sales of hockey sticks. Especially as the hockey sticks market

is many times larger than the cross-country skis market. In 2002 the division

should increase the average price of cross-country skis by way of increasing

the sales of skis that bear our own trademark and new, more sophisticated

models. As regards the sales of hockey sticks, the division will focus on

winning new large customers through active sales campaigns and more aggressive

sales techniques. The preparations made in product development and marketing

in 2001 allow to expect an increase in profits in 2002.



Softboard Factory



In 2002 the objective of Softboard Factory is to maintain profitability in an

environment of continually rising input prices (especially power). This can be

achieved by optimising marketing expenses and increasing the share of products

of a higher finishing category. Installed capacities will not be increased.



Wood Panel Factory



The short-term objective of Wood Panel Factory is to attain the results

outlined in the business plan. The long-term objective is to ensure the supply

of the expanded Furniture Factory with high quality raw material. In 2002 Wood

Panel Factory should become the company’s main growth engine. Generation of

profit should begin in the second half-year and by the year-end the factory

should have attained all the capacity, output and quality targets that are

outlined in the business plan.





Andrus Aljas

CFO

+372 44 78 355