Raute Corporation - Half-year Report January 1-June 30, 2022

RAUTE CORPORATION HALF-YEAR REPORT JULY 22, 2022 AT 9:00 a.m.

This is a summary of Raute’s Half-year Report January 1-June 30, 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 – HALF-YEAR REPORT JANUARY 1–JUNE 30, 2022

• The Group’s net sales amounted to EUR 70.9 million (60.2), 18% above the comparison period. EUR 16.1 million of the net sales came from revenue recognized from the Russian order book.
• Operating loss was EUR -16.6 million (-4.5). The result before taxes was EUR -16.5 million (-4.1). The loss was impacted by approximately EUR - 9 million from write-downs related to winding down the Russian business as well as one-time items of approximately EUR -2 million.
• Earnings per share were EUR -3.31 (-0.87), and diluted earnings per share EUR -3.31 (-0.87).
• Net sales in the second quarter were EUR 29.6 million and operating loss was EUR -15.1 million. Order intake in the second quarter was EUR 40 million. The order book at the end of the reporting period stood at EUR 104 million (129). The order book includes EUR 16 million in orders from Russia which constitutes the remaining part of the Russian order book after the controlled wind-down of Russian agreements.

Guidance statement for 2022

On June 22, 2022, Raute Corporation’s Board of Directors issued a revised earnings guidance for 2022. The Board of Directors now expects Raute’s 2022 operating profit to stay significantly negative and below last year’s level. Raute’s operating profit for 2021 was -2.2 million euros.

Petri Strengell, Interim CEO: 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.

BUSINESS ENVIRONMENT

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 a significant impact on Raute’s business operations in Russia as Raute has ongoing projects for several different Russian customers. On March 4, 2022, we announced that we do not enter into new contracts with Russian parties. Set sanctions prohibit several deliveries to Russia. With customers or deliveries that are not under sanctions, Raute has started a controlled wind-down of existing agreements through completing or changing the scope of deliveries or ending the contract. As a result of the wind-down activities, Raute’s order book for Russian customers has significantly reduced during Q2 and was EUR 16 million on June 30, 2022. The remaining order book still includes risks in case the controlled wind-down of remaining contracts turns out not to be possible. Raute’s assets in rubles in Russia were equal to approximately one million euros on June 30, 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.

Market situation and outlook in the global economy and the financial markets that became uncertain in Q1 due to the military action begun by Russia and the resulting sanctions have slightly stabilized in Q2 but remain uncertain. Higher inflation caused by the rise in raw material and transport costs, and poor availability of certain materials and components increase uncertainty and weaken the outlook, but this has not yet weakened demand for Raute’s customers’ products. Restrictions imposed due to the Covid-19 pandemic and its other direct impacts have mainly disappeared in Raute’s market area, except from a few Asian markets, China in particular.

Demand for wood products technology and technology services

Demand for Raute’s technology and services has been strong in the developed markets of Europe and North America. However, likelihood for economic downturn seems higher in Europe whereas North American demand continues stronger. In the emerging markets in Asia, with the exception of China, and in South America, demand was lower than in the developed markets, and market feel is uncertain. China’s demand continues very low due to its strict Covid-19 measures and reduced industry financing.

Investment activity among Raute’s customers remained good. The reporting period’s order intake was relatively good, but it did not include any large capacity orders.

Demand for maintenance and spare parts services has been very good, indicating generally good capacity utilization rates of Raute’s customers’ production plants.

OUTLOOK FOR 2022

On June 22, 2022, Raute Corporation’s Board of Directors issued a revised earnings guidance for 2022. The Board of Directors now expects Raute’s 2022 operating profit to stay significantly negative and below last year’s level. Raute’s operating profit for 2021 was -2.2 million euros.

RAUTE CORPORATION

Board of Directors

BRIEFING ON JULY 22, 2022 AT 2 P.M.:

A briefing will be organized for analysts, investors and the media on July 22, 2022 at 2 p.m. at Scandic Simonkenttä Hotel, Tapiola cabinet, Simonkatu 9, Helsinki. The half-year report will be presented by Mr. Petri Strengell, Interim President and CEO, and Ms. Minna Yrjönmäki, Interim CFO. The event can also be watched online via Teams. We will send a Teams link to those who have registered by email; registrations at ir@raute.com. The event will be recorded, and the recording can be viewed on Raute’s website www.raute.com later on the same day, July 22, 2022.

NEXT INTERIM REPORT:

Raute Corporation’s interim report for January 1–September 30, 2022 will be published on Friday, October 21, 2022.

FURTHER INFORMATION:

Mr. Petri Strengell, Interim President and CEO, tel. +358 40 758 6580

Ms. Minna Yrjönmäki, Interim CFO, tel. +358 40 570 2067

DISTRIBUTION:

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, Changzhou, 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.