INVITATION TO PARTICIPATE IN THE BUY-OUT OF AS VIISNURK’S SPORTING GOODS DIVISION

INTRODUCTION AS Viisnurk, the leading Estonian wood-processing group, has decided to focus its furniture production and dispose its non-core activities of sporting goods and building materials by way of asset sale (together with operations). This document has been prepared to introduce the sporting goods division to potential bidders and as an invitation for participation in the sale process.

EXECUTIVE SUMMARY AS Viisnurk’s Sporting Goods Division (the “SGD”) is among the global leaders in cross- country production with extensive experience in the field since 1968. Throughout its history, AS Viisnurk has been one of the world leaders in the segment and is currently among the world’s three largest cross-country ski producers. The SGD is also a promising player in the world hockey stick segment. The SGD has historically been one of the most profitable divisions of AS Viisnurk. However, over the past two years the division has experienced financial difficulties due to problems in production, partly as a result of lack of focus on the group level. Despite problems in production, the SGD has maintained good relations with its customers and the demand for its cross-country has remained strong. The strong demand for the SGD’s cross-country ski products is also reflected in a solid 2004 order book. Using the strong order book, experienced workforce and marketing relationships of the SGD, any potential new owner has a solid base for turning the division around.

DIVESTMENT PROCESS AS Viisnurk has retained AS Trigon Capital as its financial adviser in the disposal of its sporting goods and building materials divisions. All potential bidders are expected to submit their expressions of interest to AS Trigon Capital. An Information Memorandum will be compiled and distributed to potential bidders expressing their interest and accepted by AS Viisnurk (and after the signing of the confidentiality agreement) on the week starting March 29, 2004. All potential bidders are requested to submit their non- binding indicative tender bids during the week starting April 19, 2004. Preferred bidders, as chosen by AS Viisnurk, will be invited to perform due-diligence on the sporting goods division. For further information please contact: AS Trigon Capital Contact person: Amish Mody Pärnu mnt 15 email: [email protected] 10141 Tallinn Estonia

Tel. +372 6 679 210 Fax. +372 6 679 201

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OVERVIEW OF AS VIISNURK Established in 1945 (under the name of Industrial Combine of Pärnu District), AS Viisnurk has long traditions in the wood processing industry. Initially focusing mainly on furniture production, the production of skis and softboard boards was added in 1968. The state owned wood-processing group was privatised to its employees and private equity funds in 1990s with a subsequent listing on the Tallinn Stock Exchange in 1997. Today AS Viisnurk is part of the HEX Tallinn Stock Exchange Investor list. The current main focus of AS Viisnurk is furniture production, supplemented by sporting goods, building materials and edge-glued panels production. From total sales, the furniture business totals about 40%, while the sporting goods division, the building materials division and the edge-glued panels division accounted for approximately 20% each in year 2003.

OVERVIEW OF THE SGD

The history of ski manufacturing in Estonia Sales split, 2003 dates back to 1939 when a production facility Distr. was set up in Pärnu. In 1968 Viisnurk took over 14% the ski production in Pärnu. During the 1990s Hockey sticks the production of hockey sticks (in 1998) and 20% wholesale of sporting and leisure goods (in 1996) Skis 66% were added to the business but production of cross-country skis has remained the main focus Source: Viisnurk of the division. In the year 2003 ski manufacturing generated about 67% of the division’s revenues while production of hockey sticks and distribution of sporting goods accounted for 20% and 13% respectively. The SGD employed 286 employees as of February 1, 2004. Today the SGD is one of the business units of AS Viisnurk and has not been separated into a separate legal entity. However, the unit has its own management accounting and operates independently.

PRODUCTION AND PRODUCTS Skis The core product of the SGD is recreational cross-country skis, which constitute over half of the skis produced. Other types of skis manufactured include active recreational skis, children’s skis and metal- edged skis. The SGD produces cap construction skis. The majority of the skis produced are distributed under the brands of well-known international players such as Rossignol, Atomic, , , and Exel. About 15% of the skis manufactured by the SGD are sold under the SGD’s proprietary VISU brand. The main markets for the SGD skis are the Nordic countries and North America.

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Skis sales split geographically, 2003

The SGD estimates the annual global sales Other Estonia of skis to amount to 1.2mln - 1.4mln pairs, 2% 6% N. America Rest Europe 33% main markets being Norway, , the 19% USA and Russia. Due to problems in production, the 2003 production levels were Nordic lower than in 2002 but nevertheless totalled 40% some 15% of global output. Source: Viisnurk The demand for the SGD’s cross-country ski production services has remained strong. The initial agreements with clients indicate substantially higher production volumes in year 2004 than in year 2003. Following client orders early in year 2004, the SGD started producing skis from January, whereas in 2003 the production was only operational starting from the middle of March (due to lack of orders in the first part of the year). The main production cycles of the cross-country ski production process are the preparation of materials (preparing and processing core blocks, etc), central stage (pressing and milling skis, sorting of skis, etc) and the finishing stage. The major production machines used in the process are the ski presses (the SGD has 20 presses) and the CNC machines used for the processing of the centre core profiles. Through focused management and investments into the production it is possible to increase the efficiency of the SGD. The management estimates that the necessary investments into replacements of amortised equipment and into the automatisation of the production is approximately EUR 320th during the next two years. As a result of these investments the management expects the division to increase the production and profitability levels considerably.

Hockey-sticks In 1998 the SGD launched the production of hockey-sticks and in the year 2003 produced about 110 thousand sticks. The division has mainly concentrated on the production of wooden medium level player sticks and goalie sticks, which account for more than 60% of the total hockey-stick output of the unit. The current hockey-stick production volume of the SGD can easily be doubled without any significant costs. The SGD performs subcontracting services to well-known names such as I-tech, Hespeler, Louisville, Salming, Graf and others. In 2003 approximately 10% of the production was sold under the SGD’s proprietary MAXX brand name mainly in Estonia, Finland, Latvia, Austria and Poland. MAXX goalie sticks were used at the year 2002 Olympics and World Championships. The SGD’s goalie sticks have also been used in the North American Hockey League. The SGD estimates the annual global sales of hockey sticks to be around 12mln pieces, of which the SGD accounts for 0.9%-1%. The higher-margin goalie sticks produced by the SGD (approx. 50 thousand) account for approximately 2.5% of respective annual global output.

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Sporting and Leisure Goods Distribution The manufacturing business is complemented by distribution of the Wilson trademark and a full line of skiing equipment, such as ski suits, boots, poles, bindings, gloves and similar by Exel, Alpina, , Uvex and others in the Baltic countries. The main market for the SGD is Estonia but it also owns distribution rights for Latvia and Lithuania where it is actively looking to expand. The target client group for the sporting and leisure goods are devoted hobby and professional sportsmen. Wilson is the number one brand in Estonia and the market share of Wilson rackets and tennis balls in the country is approximately 30% and 50% respectively. The market share of the SGD imported Alpina ski boots and Rottefella bindings in Estonia stands at 30%-35%, with the main competitors being Solomon and equipment. Exel ski poles, distributed by the SGD, have a 35%-40% market share in Estonia. Further sales growth is to be achieved through the introduction of new product lines such as sporting footwear for professional and recreational sportsmen.

COMPETITION In the cross-country ski production segment the SGD has two main competitors – Russian manufacturer STC and the global winter sports related goods marketer and producer Fischer. The main competitive advantages of the SGD are its long-term customer relationships and experience with very different well known customers as well as the ability to produce technologically different products. The hockey stick market is significantly wider than that of cross-country skis. The main competitors are from Russia, Finland and Canada.

FINANCIALS The SGD has shown stable profit margins in the past as depicted in the table below with EBITDA margins of 11% - 15% during the years of 1998 – 2001. In 2002, however, the SGD experienced a severe loss as a result of manufacturing related problems. Write-offs of previous periods’ unusable or non-conforming products from inventories and assets in year 2002 totalled EUR 530th. Most of the sales of the SGD occur in the second half of the year. Therefore the 2003 9month figures do not fully represent the full year. However, due to lower production levels in 2003 the net sales for 2003 are expected to be lower than in the previous year.

Summarised Income Statement EUR, th 1998 1999 2000 2001 2002 2003 9m Net sales 4,492 4,644 6,316 5,534 5,311 2,787 Growth yoy % -24% 3% 36% -12% -4% N/R

EBITDA 653 717939 613 -691 N/A EBITDA margin % 15% 15% 15% 11% -13% N/A

Depreciation 79 132 182 257 299 N/A Operating profit 574 585 757 356 -990 -275 Operating margin % 13% 13% 12% 6% -19% -10% Source: Management Accounts, AS Viisnurk EEK/EUR exchange rate 15.6466

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