Kvist Industries A/S

Ledelsesberetning

Key activitiesThe Group is a significant manufacturer of finished furniture and sub-components for a number of well-known brands in both classic design furniture and modern design. KVIST Industries is often in charge of the technical and manufacturing design of the furniture and has a long tradition of creating beautiful, functional furniture of a high quality suitable for production. In addition, KVIST Industries provides a wide range of services related to, for example, logistics and product certification, while staying committed to CSR as a central element for KVIST and KVIST’s customers today and in future.Development in the year and stronger capital baseThe Group generated revenue of DKK 407.4 million in 2023 compared to DKK 560.1 million in 2022, which is a drop of DKK 152.7 million corresponding to 27%. The decrease is mainly due to a lower demand than the expected DKK 465-485 million stated in the Annual Report for 2022. KVIST has not lost any customers, but the market has dropped 25-30% following a substantial increase in demand in 2021-2022.The consolidated loss after tax was DKK 35.8 million compared to a loss of DKK 2.2 million in 2022. Therefore, the results for 2023 are significantly poorer than the Annual Report 2022 expectations of break-even results. Results for the year are, as a consequence, highly unsatisfactory.The lower level of market activity and thereby order intake and sales for KVIST Industries A/S is driven by a general slowdown in the market and market fluctuations rather than a change in the customer base.Although the slowdown was somewhat unexpected, the then management team reacted very late, which in part caused an unintentional massive accumulation of inventories throughout 2022 and in Q1 2023, and consequently, the completely necessary reduction of staff was not implemented until the new management took over in Q2 2023.During the same period, the planned relocation of part of the production from the Group's Danish factory to its Latvian factory was completed. The process of reducing inventories and developing the organisation will continue throughout 2024.The unintentional accumulation of inventories and subsequent need for reduction called for a comprehensive reassessment of the inventory composition, which led to a significant write-down for obsolescence of inventories of about DKK 16 million.In connection with the closing of the accounts, it was decided to change the principle for revenue recognition at KVIST. Up until 2022, revenue was recognised under the percentage of completion method. Owing to the need for an inventory write-down and the intention of introducing greater transparency of the Company’s financial management, it is Management's assessment that the method of recognising income as invoiced would provide a more fair view of the Company's financial position. Consequently, the 2023 Financial Statements have been presented based on the method of recognising income as invoiced, and the comparative figures for 2022 have been restated. This implies that the profit previously capitalised at the end of 2022 due to application of the percentage of completion method has been reversed from the assets against equity, resulting in a reduction of equity by DKK 13.4 million.The efforts are beginning to have an effect, implying that the balance sheet has been reduced by DKK 45.6 million from DKK 240.3 million in 2022 to DKK 194.7 million at the end of 2023. The reduction is, essentially, attributable to less capital tied up in inventory and reduced receivables as well as a change of accounting principle. Equity decreased from DKK 52.8 million to DKK 23.0 million at the end of 2023 as a result of the loss for the year and the changed principle for recognition of revenue.During 2023, the chairman of the board, the day-to-day management and other key personnel in KVIST were replaced by new and strong resources.In addition, after the end of the financial year, the owners strengthened equity by new share capital of DKK 24 million. Moreover, sufficient committed funding have been obtained from Sydbank so that, at the time of the annual general meeting, the basis of the Company is sound. The basis of this is new energy and a new strategy for the coming period.Outlook– based on fire in May 2024In terms of sales, the 2024 budget reflects expectations of an unchanged activity level compared to 2023, but with a major difference in the sense that while 2023 was characterised by declining revenue and considerable indications of impairment throughout the year and several new organisational initiatives, the 2024 budget marks the commencement of a new strategy period for KVIST focussed on stabilisation and preparation for profitable growth in the coming years, in addition to slightly increasing revenue and earnings over the course of the year.The focal points of 2024 consist, in particular, of a strengthening and streamlining of internal processes to achieve significantly higher productivity, delivery capacity and shorter time-to-market. Moreover, professionalisation of the sourcing function will be in focus, as well as further controlled reduction of inventory, and thus working capital. All initiatives will be based on a progressively better delivery and product performance.As of 1 April 2024, KVIST will take over all of DAQUA Limtræ A/S’ activities and simultaneously make an investment, running into a double-digit million amount, in a brand new processing facility and conversion at the Danish factory. The purpose of this part of the strategy is to establish the basis for an even wider range and more efficient production of high-quality tables.After the reporting date, as stated in note 3, KVIST's Latvian factory unfortunately caught fire after having been struck by lightning on 25 May 2024. Luckily, no one was injured in connection with the serious fire. However, the fire caused a loss of capacity and thus revenue for a period over the summer of 2024.If this fire had not occurred, a moderate increase in revenue and positive results for 2024 would have been expected. Taking the fire into consideration, revenue is now expected to end in the range of DKK 390-410 million, similar to the level for 2023.As also stated in note 3, the operating loss and loss of assets caused by the fire, in addition to the highly unsatisfactory results for 2023, have implied that the owners of KVIST Industries A/S have decided to implement a capital increase of DKK 24 million. In combination with additional operating finance of a similar amount from Sydbank, this means that the financial resources of KVIST are secured in relation to the implementation of the approved strategy and business plan in the coming years. At the same time, the management of KVIST Industries has agreed to co-invest in KVIST Industries A/S.At the time of the annual general meeting, the Company is working together with the insurance company and other specialists to clarify all matters related to the restoration of capacity and compensation for goods and operating losses. Consequently, the Company presents its Financial Statements without recognising any insurance compensation awarded after the fire.Despite the fire, a substantial improvement of about DKK 20-30 million is expected compared to the extremely disappointing 2023 performance. The budgeted results for 2024 will be an EBITDA of approx. DKK 0 (zero) and a loss after tax in the range of DKK 10-15 million. In the coming years, the expectations are, according to the strategic plan, to achieve steady improvement, driven by an expected volume increase and higher productivity.As a result of in particular the planned focus on reducing inventory, working capital is expected to once again be reduced in 2024, just as the balance sheet total is anticipated to be affected positively while capital expenditure will increase owing to the acquisition of Daqua, new machines and the restoration after the fire.Management expects the current, stronger capital resources to be adequate for carrying out all the planned activities.