RAUTE CORPORATION INTERIM REPORT APRIL 29, 2022 at 9:00 a.m.
This is a summary of Raute's Interim financial report January 1-March 31, 2022. The complete report is attached to this release as a pdf file and is also available on the company's' website at www.raute.com.
RAUTE CORPORATION - INTERIM REPORT JANUARY 1-MARCH 31, 2022
- The Group's Q1 net sales amounted to EUR 41.3 million (MEUR 24.8), up 67% on the comparison period. Of the net sales, EUR 14 million came from revenue recognized from the Russian order book.
- Operating profit, at EUR -1.5 million (MEUR -2.8) rose 46%. The result before taxes was EUR -1.2 million (MEUR -2.7).
- Earnings per share were EUR -0.29 (EUR -0.65), and diluted earnings per share EUR -0.29 (EUR -0.65).
- Order intake, at EUR 36 million (MEUR 30), was at a good level. The order book at the end of the reporting period stood at EUR 152 million (MEUR 98). EUR 2.4 million of the order intake is from Russia, which we received before Russia's attack on Ukraine. The order book includes EUR 78 million in orders from Russia.
- On March 2, 2022, Raute's Board of Directors withdrew the 2022 earnings guidance that it released earlier. Due to the uncertain situation, the Board of Directors will not present new guidance for 2022 at the present time.
- Orders received before Russia's war in Ukraine began and before the resulting sanctions entered into force, and the net sales and margin resulting from the recognition of revenue from the order book have been treated in this interim report based on the outcome.
KEY FIGURES 1.1.−31.3.2022 1.1.−31.3.2021 1.1.−31.12.2021
Net sales, MEUR 41,3 24,8 142,2
Change in net 66,8 4,1 23,7
Exported portion 96,2 92,4 91,8
of net sales, %
Operating profit, -1,5 -2,8 -2,2
Operating profit, -3,6 -11,1 -1,6
% of net sales
Profit before -1,2 -2,7 -1,8
Profit before -2,8 -11,0 -1,2
taxes, % of net
Profit for the -1,2 -2,8 -1,8
Profit for the -3,0 -11,1 -1,2
period, % of net
Gross capital 1,4 1,1 6,3
% of net sales 3,4 4,6 4,4
Research and 1,5 1,2 4,9
% of net sales 3,6 4,9 3,5
Order book, MEUR 152 98 158
Order intake, MEUR 36 30 203
Personnel, at the 821 781 802
end of the period
Personnel, 819 757 780
Personnel, on 827 765 788
Tapani Kiiski, President and CEO: Rising costs meant a negative Q1 result. Order book for the Russian market presents greatest uncertainty.
Demand was brisk and the order intake was good. As per our decision of March 4, 2022, we did not sign new contracts with Russian parties. Demand from other developed markets will partially replace Russia's potential at least in the short term. Activity in the Asian (except for China) and South American markets is also on the rise. In China, the general slowing of the economy and the recent dramatic Covid-19 restrictions have brought demand almost to a halt. In the longer term, I believe that the focus of growth and the replacement for the Russian market will shift more to the emerging markets.
In the first quarter of the year, we received new orders worth around EUR 36 million. This is a good achievement, considering that the figure does not include major mill projects. Before March 4, 2022 we received EUR 2.4 million in orders from Russia. Mid-sized single production line orders and modernization orders were at a good level, confirming our view that the markets are enjoying a strong momentum. The order intake for technology services and our analyzer products was at a particularly good level thanks to modernization-related projects. That shows that our customers' desire and commitment to systematically improve the safety, quality and efficiency of their operations is on a good level.
Overall, our order book is still at a high level, EUR 152 million, although it fell year-to-date. Of the order book, EUR 78 million is for the Russian market. The order book for the other markets, EUR 74 million, is also at a good level. Our order book for Russia is our greatest risk currently. Once the war in Ukraine began, we quickly made the decision to refrain from making new contracts with Russian parties and we will furthermore evaluate the conditions and liabilities linked to the implementation of each project. Before the EU's fifth sanction package released on April 8, 2022, the sanctions affecting Raute mostly applied to financial transactions and one customer due to their holdings. The most recent sanctions put Raute's technology and services mostly within the scope of the sanctions after the transition period. We will shortly evaluate the impacts of the altered situation on our order book. Also, our already recognized net sales and margin may be subject to uncertainty.
Our net sales, EUR 41.3 million, were up 67 percent on the comparison period. This was expected due to the timing of the order book, partly from making up the delays at the end of 2021. In addition, the good demand for technology services contributed to the growth. We succeeded in delivering our order book despite the problems with raw material and component availability.
The Q1 result was impacted negatively by the significantly stronger-than-expected increase in purchase prices and freight costs. This impacted a few projects in particular. Last summer and thereafter, we prepared for increasing costs based on estimates at the time. However, our preparations turned out to be lacking. The rising cost development is expected to continue. We have tried to prepare for it, but as the past few months have shown, the uncertainty will persist.
Despite the risk caused by the Russian market, we have continued to invest in our stated strategic priorities, the emerging markets and the development of our technology services business and digitalization, without forgetting traditional high-technology production process solutions. All these measures are aimed at improving our earnings power. In terms of sales and marketing, we will focus our resources on the European and North American markets where demand is strong. Our solid financial position and advanced technology are important competitive advantages and enablers of this type of long-term work.
Raute's Board of Directors withdrew its earnings guidance on March 2, 2022, and will not be providing new guidance for now due to the uncertain situation.
As stated in the stock exchange release published on April 19, 2022, I will be leaving my position as Raute's President and CEO after this interim report is published. This will be my 73rd and last interim report. I would like to extend my warmest thanks to Raute's shareholders and the entire investor community for their interest in Raute. Investors' interest has increased significantly during my time as CEO; for example the number of shareholders has grown from around 1,500 to some 6,000. I want to wish my successor, and the whole of Raute, every success. I believe that once this crisis has passed, Raute will be stronger than ever.
Update of the impacts of the Russian military actions on Raute's business operations in Russia
Raute condemns Russia's attack on Ukraine. The attack and resulting sanctions have an impact on Raute's business operations in Russia. Raute has projects ongoing for several different customers located at Russia. On March 4, 2022, we announced our decision to not sign any new contracts with Russian parties. Raute's order book on March 31, 2022 for Russian customers was EUR 78 million. The order book consisted of project and technology service deliveries both to operating mills and new plywood mill projects in Russia.
Due to Russia's attack on Ukraine, the EU, the United States and other countries have set wide sanctions against Russia. In particular, the EU's fifth sanction package released on April 8, 2022 included export prohibitions which are estimated to have an impact also on some of Raute's deliveries to Russia. In addition, the logistics to Russia has become significantly more difficult due to the prohibitions having an influence on Russian transport companies. Raute has started a controlled shutdown of existing agreements with those customers that are not under sanctions. After that the company does not expect any net sales accruing from the remaining order book. Controlled shutdown of the order book through completing deliveries or ending the contract depends on how the payments and logistics work and on potential changes and interpretations of export restrictions and other sanctions. Raute's assets related to the Russian customers were EUR 9.4 million at the end of March. Raute's balance sheets includes advance payments from Russian customers worth approximately EUR 17.1 million at the end of March. There are risks related to these assets and received advance payments in case the controlled shutdown of contracts turns out to not be possible.
The contracts of Russian project deliveries have been made in euros. The contracts include advance payments, which typically are secured with an advance payment guarantee from banks operating in Finland. In several agreements, payment items based on deliveries and other milestones have been secured with documentary credits confirmed by banks operating in Finland. Typically, the payment schedules have been agreed so that the advance payments received by Raute exceed the accrued costs. Raute's assets in rubles in Russia were equal to less than one million euros at March 31, 2022 and the assets were mainly related to the local maintenance business in Russia. Raute has no currency hedging related to Russian ruble.
Market situation in customer industries
Raute's customers in the veneer, plywood and LVL (Laminated Veneer Lumber) industries are engaged in the manufacture of wood products used in investment projects and are thus affected by fluctuations in construction, housing-related consumption, international trade, and transportation. We expect that the trend-like growth in wood construction will create demand for our customers and indirectly for Raute, strengthening our long-term growth opportunities.
In Q1, the situation and outlook in the global economy and the financial markets became uncertain due to the military action begun by Russia and the resulting sanctions. Inflation concerns caused by the rise in raw material and transport costs increased uncertainty and weakened the outlook, but this did not weaken demand for Raute's customers' products. Aside from a few Asian markets, China in particular, we could say that the restrictions imposed due to the Covid-19 pandemic and its other direct impacts have all but disappeared.
Demand for wood products technology and technology services
Demand for Raute's technology and services was strong in the developed markets of Europe and North America. We did not conclude any new contracts in Russia, as per our decision of March 4, 2022. In the emerging markets in Asia, with the exception of China, and in South America, demand was lower than in the developed markets, but is looking up. China's demand was very low because of its strict Covid-19 measures.
Investment activity among Raute's customers remained good. The reporting period's order intake was good, considering that it did not include any large capacity orders.
Demand for maintenance and spare parts services remained good, which is an indication of the generally good capacity utilization rates of Raute's customers' production plants.
Outlook for 2022
Raute Corporation's Board of Directors withdrew its earnings guidance on March 2, 2022. Due to the uncertain situation, the Board of Directors will not present new guidance for 2022.
Board of Directors
BRIEFING ON APRIL 29, 2022 AT 2 P.M.:
A briefing will be organized for analysts, investors and the media on April 29, 2022 at 2 p.m. at Scandic Simonkenttä Hotel, Tapiola cabinet, Simonkatu 9, Helsinki. President and CEO Tapani Kiiski will present the interim report. The event will also be attended by CFO Tarja Järvinen and Petri Strengell who has been appointed as the interim President and CEO effective May 1, 2022. The event can also be watched online via Teams. We will send a Teams link to those who have registered by email; registrations at firstname.lastname@example.org.The event will be recorded, and the recording can be viewed on Raute's website www.raute.com later on the same day, April 29, 2022.
NEXT INTERIM REPORT:
Raute Corporation's half-year report for January 1-June 30, 2022 will be published on Friday, July 22, 2022.
Mr. Tapani Kiiski, President and CEO, Raute Corporation, mobile phone +358 400 814 148
Ms. Tarja Järvinen, Executive Vice President, Finance, CFO, Raute Corporation, mobile phone +358 40658 3562
Nasdaq Helsinki Ltd, main media, www.raute.com
RAUTE IN BRIEF:
Raute is a technology and service company that operates worldwide. Raute's customers are companies operating in the wood products industry that manufacture veneer, plywood, LVL (Laminated Veneer Lumber) and sawn timber. Its technology offering covers the entire production process for veneer, plywood and LVL and special measurement equipment for sawn timber. As a supplier of mill-scale projects, Raute is a global market leader both in the plywood and LVL industries. Additionally, Raute's full-service concept includes technology services ranging from spare parts deliveries to regular maintenance and equipment modernizations. Raute's head office is located in Lahti, Finland. The company's other production plants are located in Kajaani, Finland, the Vancouver area of Canada, the Shanghai/Changzhou area of China and in Pullman, Washington, USA. Raute's net sales in 2021 were EUR 142.2 million. The Group's headcount at the end of 2021 was 802. More information about the company can be found at www.raute.com.