Financial information

Interim CEO Petri Strengell's comments on the H1 2022 half-year report published on July 22, 2022

Second quarter result heavily impacted by Russian business wind-down, high material costs continue to hamper profitability

Overall demand during the quarter has remained quite high. Our sales efforts are now directed to the rest of the world as new contracts with Russian customers have not been made since early this year. Demand in EMEA region has continued on a good level, and we have also seen some additional demand as there is an increased need to produce plywood outside of Russia. E.g. Eastern Europe market seems positive and we have some good opportunities in the region. Activity in China is picking up as well, following the covid-lockdowns, but situation there remains unpredictable.

Order intake for 2022 amounts now to EUR 75 million of which EUR 40 million have been received in the second quarter. This number does not include any major mill projects. Order intake includes EUR 2.4 million orders from Russia that were received in the beginning of the year. We are happy to see that we can start to fill in the gap left by the Russian sales with new business elsewhere and have received a healthy amount of new orders. The new orders are also fairly balanced between mid-sized single production line orders or modernization orders and technology services which is a good and positive trend.

Originally our order book for 2022 included a significant amount from projects in Russia. Since the end of February the Russian business has been gradually scaling down, in accordance with sanctions and local laws and regulations in both countries. We have analyzed the prerequisites for the execution of each project including the contractual commitments, sanctions, and changing impacts on logistics, financing and payment transactions, and we continue to adjust our order book to reflect the outcome.

Following this analysis, our order book fell significantly in the second quarter and is now EUR 104 million. This amount includes EUR 16 million for the Russian market, majority of which is planned to be delivered in 2022. The order book for other markets amounts now to EUR 88 million and has increased by 18% since Q1, which is a positive achievement.

Our net sales in the second quarter were EUR 29.6 million, 17% below comparison period. This decrease reflects the cancellation of several projects to Russia. However, our sales to other markets have grown over 50% since last year, growing especially in North America and EMEA.

Second quarter business and operations have been strongly impacted by the needed reorganizing of delivery projects across the company. This has led to inefficiencies in our internal work, but towards the end of the quarter we believe the worst to be over. From Q3 onwards we can steer our focus on future opportunities and challenges.

Our profitability has been negatively impacted from scaling down the deliveries to Russia during H1 2022. The direct negative impact from the Russian projects is estimated to amount to approximately EUR 9 million which has been recognized in the second quarter reporting. Further additional costs from inefficiencies caused by the reorganization and lower loading have impacted Q2 result as well.

Covid-related lockdowns in Shanghai closed our operations for nearly three months, occurring at the same time when we were transferring our Chinese production from Shanghai to Changzhou. This transition will be completed in Q3 and is expected to improve efficiencies and lower our cost base. The transfer resulted in one-time costs for severances and moving costs. Severance costs were also recognized for group management in Q2. In total the impact from these events was approximately EUR 2 million costs for the period.

Strong increases in purchase prices and freight costs as experienced in Q1 have continued similarly into Q2 and are causing margin pressure. In addition, poor availability of components and resulting cost inflation also cause delays in our customer deliveries and continue to keep our business outside of Russia loss-making at the moment. Some stabilization in prices has started to be visible and we are implementing more rigorous tools to pass the increases to our customers. Still the uncertain situation prevails in the immediate future.

As announced in June, to mitigate the impacts of underlying negative drivers, we will strengthen our development program to improve competitiveness and profitability, targeting margin improvement and cost efficiencies during 2022 and 2023. Provided that the current market conditions remain largely as today, we expect the situation to stabilize during H2 2022 and profitability to start improving.

The geopolitical situation has driven Raute into a difficult position, straining our resources temporarily, but I believe that we start to be largely in the driver’s seat again and can steer the company in the right direction. We need to work all together to find the right way and I would like to thank all our people for their dedication, effort and commitment to the company during this special period.