Raute Corporation - Interim report January 1 - September 30, 2013

RAUTE CORPORATION INTERIM REPORT OCTOBER 30, 2013 at 9:00 a.m.
 

RAUTE CORPORATION - INTERIM REPORT JANUARY 1 - SEPTEMBER 30, 2013

- The Group’s net sales, EUR 58.8 million (MEUR 67.4), declined 13 percent on the comparison period. The order intake was EUR 41 million (MEUR 104).
- The operating profit was EUR +0.3 million (MEUR +1.9). The profit before tax was EUR +0.4 million (MEUR +1.8).
- Earnings per share were EUR +0.07 (EUR +0.26).
- Third quarter net sales were EUR 15.6 million and operating profit was EUR 0.3 million negative. The order intake was very low at EUR 7 million.
- The order book at the end of the reporting period amounted to EUR 31 million.
- Raute issued a profit warning on September 4, 2013, due to the weakened profit outlook. Net sales are expected to decline from 2012. The operating profit is expected to weaken significantly from the previous year but to remain positive.
 

TAPANI KIISKI, PRESIDENT AND CEO: NEW ORDERS NEEDED!

The order intake remained very low in the third quarter, which lowered our profit outlook for the whole of 2013. The net sales for the third quarter remained lower than we forecast already in the summer, and, consequently, our financial result was negative.

The tentatively positive signs in the macroeconomy are yet to materialize in our industry. Our customers’ market environment is marked by duality. Utilization rates have remained reasonably high, but the order books are exceptionally short. In a single word, the situation could be described as uncertain. At Raute, the situation is materializing as a fairly normal, if not good, demand for services and small projects, with medium-sized and large projects, however, seeming to be unable to make it through to the decision-making and implementation phase. The total volume of new orders has remained very low during the first nine months of the year, despite the growth in technology services.

Our market position continues to be strong, but our order intake has not been sufficient to fuel steady or growing net sales. At the same time, a few of our larger projects in our order book have been moved forward. Our net sales have thus remained low due to the volume and scheduling of the order book. Our result is in line with our cost structure and with our expectations at such a low level of net sales.

We are also undergoing negotiations concerning a reasonable, if not a good, number of projects in several market areas, which has been the case throughout the year. Despite the fact that these projects are being moved further forward, I am confident that our order intake will take a turn for the better in the near future. The scheduling of our order book is such that the net sales and the operating profit for the rest of the year will depend on whether the new orders forecast for the end of the year are realized and on the amount of revenue generated by them for 2013.

THIRD QUARTER OF 2013

Order intake and order book

The order intake during the third quarter remained very low at EUR 7 million (MEUR 28). Technology services accounted for EUR 5 million (MEUR 7) of the order intake.  

The order book declined during the third quarter by EUR 9 million, amounting to EUR 31 million at the end of the period (MEUR 72).

Net sales

Third-quarter net sales were EUR 15.6 million (MEUR 29.9), down 21 percent on the second quarter. The decrease in net sales was due to the scheduling of the order book and the modest order intake during the previous three quarters.

Technology services accounted for 57 percent of total net sales (23%).

Result and profitability

Operating profit for the third quarter was EUR 0.3 million negative (MEUR 1.8 positive) and accounted for -2 percent (6%) of net sales. The third quarter result was EUR 0.4 million negative (MEUR 1.2 positive), and earnings per share were EUR –0.09 (EUR 0.31).

The result was negative due to low net sales.
 

RAUTE CORPORATION - INTERIM REPORT JANUARY 1-SEPTEMBER 30, 2013

BUSINESS ENVIRONMENT

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 commodities and are thus highly affected by fluctuations in construction, housing-related consumption, international trade, and transportation.

The uncertainty related to the global economic and money-market trend is still being upheld by the risks associated with the growing debts of certain European countries, the future of the euro and by the fears of a slowdown in economic growth in Asian countries. For Raute’s customer industries, the market situation has continued to be uncertain in a number of market areas, although the customer industries’ capacity utilization rates have remained good. In North America, there are signs that the market situation is improving, although the signs are now weaker than a few months ago. This improvement is not yet reflected in concrete terms in the investment decisions of the plywood and LVL industries.

Demand for wood products technology and technology services

In the third quarter of 2013, our customers’ investments were focused on relatively small machine and equipment investments and modernizations. Demand for maintenance and spare parts services continued at a good level. This bears testimony to the fact that the utilization rates of Raute’s customers’ production facilities remained good. The demand for technology services developed positively in North America, which has for a long period been suffering from a difficult market situation.

Several large projects encompassing single production lines and mill-scale deliveries that are in the planning and negotiation phase are pending. Customers will decide on and realize these projects only once they are more confident that demand has recovered permanently and once financing for the projects can be arranged.
 

ORDER INTAKE AND ORDER BOOK

Raute serves the wood products industry with a full-service concept based on service that encompasses the entire life cycle of the delivered equipment. Raute’s business consists of project deliveries and technology services. Project deliveries comprise complete production machinery for new mills, production lines and individual machines and equipment. Additionally, Raute’s full-service concept includes comprehensive technology services ranging from spare parts deliveries to regular maintenance and equipment modernizations as well as consulting, training and reconditioned machinery.

During the reporting period, the order intake remained at a low level, amounting to EUR 41 million (MEUR 104). The third quarter accounted for 18 percent of the total order intake. 31 percent of the new orders came from Europe (28%), 26 percent from Russia (12%), 24 percent from North America (6%), 12 percent from South America (52%) and 6 percent from Asia-Pacific (2%). The strong fluctuations in the distribution of new orders between the various market areas are typical for project-focused business.

The order intake in technology services amounted to EUR 24 million (MEUR 20), an increase of 20 percent on the comparison period. The growth resulted predominantly from modernization orders.

The order book weakened during the reporting period by EUR 19 million, amounting to EUR 31 million at the end of the period (MEUR 72).
 

COMPETITIVE POSITION

Raute’s competitive position is good. Raute’s solutions help customers in securing their delivery and service capabilities throughout the life cycle of the equipment or service offered by Raute. In such investments, the supplier’s overall expertise and extensive and diverse technology offering play a key role. The competitive edge provided by Raute is also a major draw when customers select their cooperation partners. Raute’s strong financial position and its long-term dedication to serving selected customer industries also enhance its credibility and improve its competitive position as a company that carries out long-term investment projects.
 

NET SALES

Net sales for the reporting period totaled EUR 58.8 million (MEUR 67.4), down 13 percent on the comparison period. The decline resulted from the low order intake during the first nine months of the year and from the scheduling of our order book.

Of the total net sales for the reporting period, Europe accounted for 45 percent (23%), South America for 21 percent (48%), Russia for 18 percent (17%), North America for 11 percent (9%), and Asia-Pacific for 4 percent (4%).

Technology services’ net sales grew 11 percent on the comparison period and accounted for 40 percent (30%) of total net sales.
 

RESULT AND PROFITABILITY

Operating profit for the reporting period was EUR 0.3 million positive (MEUR 1.9 positive) and accounted for 1 percent of net sales (3%).

The profit before tax for the reporting period was EUR 0.4 million positive (MEUR 1.8 positive). The profit for the reporting period was EUR 0.3 million positive (MEUR 1.0 positive). Earnings per share (undiluted) were EUR +0.07 (EUR +0.26).
 

CASH FLOW AND BALANCE SHEET

The Group’s financial position is good. At the end of the reporting period, gearing was -41 percent (-54%) and the equity ratio 55 percent (44%). Other fluctuations in balance sheet working capital items and the key figures based on them are due to differences in the timing of customer payments and the cost accumulation from project deliveries, which is typical of the project business.  

The Group’s cash and cash equivalents, including financial assets recognized at fair value through profit or loss, amounted to EUR 18.0 million (MEUR 25.6) at the end of the reporting period. Operating cash flow was EUR 5.2 million positive (MEUR 4.8 positive). Cash flow from investment activities totaled EUR 2.0 million negative (MEUR 1.7 negative). Cash flow from financing activities was EUR 4.7 million negative (MEUR 3.2 negative), including dividend payments of EUR 2.0 million and debt repayments of EUR 2.7 million.

Interest-bearing liabilities amounted to EUR 8.7 million (MEUR 13.6) at the end of the reporting period.

The parent company Raute Corporation has a EUR 10 million commercial paper program, which allows the company to issue commercial papers maturing in less than one year.

The parent company Raute Corporation is prepared for future working capital needs and has concluded long-term credit facility agreements with three Nordic banks totaling EUR 23.0 million. The main covenants for the credit facility are an equity ratio of >30% and gearing of <100%. Of the credit facility, EUR 15.0 million remained unused at the end of the reporting period. 
 

EVENTS DURING THE REPORTING PERIOD

Raute Corporation published stock exchange releases on the following events:

September 4, 2013     Raute’s profit outlook for the full year 2013 weakened
September 30, 2013   Raute strengthens its Group Executive Board
 

RESEARCH AND DEVELOPMENT COSTS AND CAPITAL EXPENDITURE

Raute’s goal is to be the leading technology supplier in its field, and to invest strongly in continuous research and development, particularly in plywood and LVL manufacturing technology and the supporting by-product handling, automation and instrumentation applications, especially machine vision.

Research and development costs in the reporting period totaled EUR 2.0 million (MEUR 1.6), representing 3.3 percent of net sales (2.4%).

Investments totaled EUR 2.5 million (MEUR 2.2) in the reporting period. The majority of investments were related to productional investments at the mills in Nastola, Finland, and in China.

PERSONNEL

At the end of the reporting period, the Group’s personnel numbered 532 (496). Group companies outside Finland accounted for 28 percent (26%) of employees.

Converted to full-time employees (“effective headcount”), the average number of employees was 512 (476) during the reporting period.

SHARES

The number of Raute Corporation’s shares at the end of the reporting period totaled 4,004,758, of which 991,161 were series K shares (ordinary share, 20 votes/share) and 3,013,597 series A shares (1 vote/share). The shares have a nominal value of 2 euros. Series K and A shares confer equal rights to dividends and company assets.

Series K shares can be converted to series A shares under the terms set out in section 3 of the Articles of Association. If an ordinary share is transferred to a new owner who has not previously held series K shares, the new owner must notify the Board of Directors of this in writing and without delay. Other holders of series K shares have the right to redeem the share under the terms specified in Article 4 of the Articles of Association.

Raute Corporation’s series A shares are listed on NASDAQ OMX Helsinki Ltd. The trading code is RUTAV. Raute Corporation has signed a market making agreement with Nordea Bank Finland Plc in compliance with the Liquidity Providing (LP) requirements issued by NASDAQ OMX Helsinki Ltd.

The company’s market capitalization at the end of the reporting period was EUR 33.6 million (MEUR 29.3), with series K shares valued at the closing price of series A shares on September 30, 2013, that is EUR 8.39 (EUR 7.32).

STOCK OPTION SCHEME 2010

In compliance with the authorization granted by the Annual General Meeting, the Board of Directors issued 2,000 stock options marked with the symbol 2010 A, 2,000 stock options marked 2010 B and 2,000 stock options marked 2010 C to the Group’s key employees on September 30, 2013. At the end of the reporting period, the Group’s key personnel held altogether 80,000 of the company’s series A stock options, 80,000 series B stock options and 80,000 series C stock options. The subscription period for series A stock options began on March 1, 2013. Stock options have not been exercised to subscribe for shares. More detailed information concerning the stock option system is available on the company’s website.

SHAREHOLDERS

The number of shareholders totaled 1,682 at the beginning of the year and 1,878 at the end of the reporting period. Series K shares were held by 49 private individuals (49) at the end of the reporting period. The Board of Directors, the Group’s President and CEO as well as the Executive Group held altogether 232,799 company shares, equaling 5.8 percent (5.6%) of the company shares and 11.2 percent (11.1%) of the votes at the end of the reporting period. Nominee-registered shares accounted for 3.1 percent (3.3%) of the total shares.

No flagging notifications were given to the company during the reporting period.

CORPORATE GOVERNANCE

Raute Corporation complies with the Finnish Corporate Governance Code 2010 for listed companies issued by the Securities Market Association on June 15, 2010.

Raute deviates from the Code’s recommendation 22 on appointing members to the Appointments Committee in that one member to the Committee is elected from outside the Board of Directors, as per the company’s Administrative Instructions, from among the representatives of major shareholders who have significant voting rights. The Board views this exception as justified, taking into consideration the company’s ownership structure and the possibility to consider the expectations of major shareholders as early as in the preparation phase of selecting members of the Board of Directors.

Raute deviates from recommendation 9 on the number, composition and competence of the directors in that the company does not have both genders represented on the Board. When seeking new members, the Appointments Committee was unable to find any female candidates fulfilling the criteria set for the members of the Board of Directors.

EXECUTIVE BOARD

On September 30, 2013, Raute has clarified the areas of responsibility for its Executive Board and appointed two new members as of October 1, 2013.

Mika Hyysti, B.Sc. (Eng.) (48) has been appointed Group Vice President, Technology, with responsibility for technology, products and R&D. He joined Raute in 1990 and has previously held the positions of Automation Engineering Manager, R&D Manager and Technology Manager, among others.

Marko Hjelt, M.Ed. (44) has been appointed Group Vice President, Human Resources, with responsibility for human resources and competence development. He joined Raute in 2013 as Group HR Manager. Prior to joining Raute, he worked at Go On Yhtiöt as Head of the unit in Lahti and Hämeenlinna, Finland, and as a Senior Consultant for Mercuri Urval.

Raute Group’s Executive Board and the members’ areas of responsibility as of October 1, 2013:

Tapani Kiiski, President and CEO, Chairman – Sales
Arja Hakala, Group Vice President, Finance, CFO – Finance and administration 
Marko Hjelt, Group Vice President, Human Resources – Human resources and competence development
Mika Hyysti, Group Vice President, Technology – Technology, products and R&D
Timo Kangas, Group Vice President, Customer Care – Customer relationships and marketing, market area EMEA
Petri Lakka, Group Vice President, Technology Services – Technology services
Petri Strengell, Group Vice President, Operations – Project deliveries and operations.

ANNUAL GENERAL MEETING 2013

Raute Corporation’s Annual General Meeting was held on April 8, 2013. A stock exchange release on the decisions of the Annual General Meeting was published on April 8, 2013.

DIVIDENDS FOR THE FINANCIAL YEAR 2012

The Annual General Meeting held on April 8, 2013 decided to pay a dividend of EUR 0.50 per share for the financial year 2012. The total amount of dividends is EUR 2.0 million, series A shares accounting for EUR 1,506,798.50 and series K shares for EUR 495,580.50. The dividend payment date was April 18, 2013.

BOARD OF DIRECTORS AND BOARD COMMITTEES

At Raute Corporation’s Annual General Meeting on April 8, 2013, Mr. Erkki Pehu-Lehtonen was elected Chairman of the Board, Mr. Mika Mustakallio Vice-Chairman and Mr. Joni Bask, Mr. Risto Hautamäki, Mr. Ilpo Helander and Mr. Pekka Suominen as Board members.

Based on the evaluation of independence, Chairman Erkki Pehu-Lehtonen and members Joni Bask, Risto Hautamäki, Ilpo Helander, Mika Mustakallio, and Pekka Suominen are independent of the company. The Chairman of the Board (Mr. Erkki Pehu-Lehtonen) and two Board members (Mr. Ilpo Helander and Mr. Risto Hautamäki) are independent of major shareholders.

Raute Corporation’s Board of Directors has an Appointments Committee and a Working Committee. The Appointments Committee is chaired by Mr. Erkki Pehu-Lehtonen and its members are Mr. Mika Mustakallio and Mr. Ville Korhonen, who was elected by the major shareholders from amongst their number. The Working Committee is chaired by Mr. Erkki Pehu-Lehtonen and its members are Mr. Mika Mustakallio and Mr. Risto Hautamäki. The Audit Committee’s tasks are handled by the Board of Directors.

BUSINESS RISKS

Risks in the near term continue to be driven by the global economic situation and the uncertainty concerning the development of the financial markets. During the reporting period, there were no essential changes in the business risks described in the 2012 Board of Directors’ Report and Financial Statements. The most significant risks for Raute in the near term are related to the development of demand and the order book after the delivery of the present order book has taken place.

OUTLOOK FOR 2013

Raute’s business operations are characterized by the sensitivity of investment commodity demand to cyclical fluctuations in the global economy and the financial markets.

The development of the global economy and financial markets is still facing major uncertainty. The market situation for Raute’s customer industries is expected to remain uncertain.

However, improvement investments in the plywood industry to ensure quality and cost competitiveness and to maintain market shares are expected to be at a reasonable level in the near future, provided that the economic uncertainty does not spiral into a new crisis. Several large projects encompassing single production lines and mill-scale deliveries that are in the planning and negotiation phase are also pending.

Thanks to its strong financial and market position and the development measures carried out, Raute is well positioned to respond to demand once the markets recover.

Raute issued a profit warning on September 4, 2013, due to the weakened profit outlook. Uncertainty concerning the development of the economy has been reflected in the investment decisions of Raute’s customers and in the order volume of new project deliveries. Net sales are expected to decline from 2012. The operating profit is expected to weaken significantly from the previous year but to remain positive. The operating profit will depend on whether the new orders forecast for the end of the year are realized and on the amount of revenue generated by them for 2013.

TABLES SECTION OF THE INTERIM REPORT

*Cash and cash equivalents comprise assets at fair value through profit and loss, as well as cash and bank receivables, which will be due within the following three months' period.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. General information

Raute Group is a globally operating technology and service company. Raute's customers are companies operating in the wood products industry that manufacture veneer, plywood and LVL. Raute's technology offering covers machinery and equipment for the entire production process. Raute's full-service concept is based on product life-cycle management. In addition to a broad range of machines and equipment, our solutions cover technology services ranging from spare parts deliveries to regular maintenance and equipment modernizations. Raute's head office is located in Nastola, Finland. Its other production plants are in the Vancouver area in Canada, in the Shanghai area in China, and in Kajaani, Finland. The company's sales network has a global reach.

Raute Group's Parent company, Raute Corporation, is a Finnish public limited liability company established in accordance with Finnish law (Business ID FI01490726). Its series A shares are quoted on NASDAQ OMX Helsinki Ltd, under Industrials. Raute Corporation is domiciled in Lahti. The address of its registered office is Rautetie 2, FI-15550 Nastola, and its postal address is P.O. Box 69, FI-15551 Nastola.

Raute Corporation's consolidated financial statement information is available online at www.raute.com or at the head office of the Parent company, Rautetie 2, FI-15550 Nastola, Finland.

Raute Corporation's Board of Directors has on October 30, 2013 reviewed the Interim financial report for January 1 - September 30, 2013, and approved it to be published in compliance with this release.

2. Accounting principles

Raute Corporation's Interim financial report for January 1 - September 30, 2013 has been prepared in accordance with standard IAS 34 Interim Financial Reporting.

The Interim financial report does not contain full notes and other information presented in the financial statements, and therefore the Interim financial report should be read in conjunction with the Financial statements published for 2012.

Raute Corporation's Interim financial report for January 1 - September 30, 2013 has been prepared in accordance with the International Financial Reporting Standards, IFRS, accepted for application in the EU. Preparations have complied with the IAS and IFRS standards, as well as SIC and IFRIC interpretations, effective on September 30, 2013. The notes to the Interim financial statements also comply with Finnish accounting legislation. The presented Interim financial report figures have not been audited.

The Interim financial report has been prepared according to the same accounting principles as those applied in the Annual financial statement for 2012, with the exception of certain new or revised standards, interpretations and amendments to existing standards which the Group has applied as of January 1, 2013.The impact of the new and revised standards has been presented in the Annual financial statements for 2012. The adoption of these standards has not had an impact on the Interim financial report.

All of the figures presented in the Interim financial report are in thousand euro, unless otherwise stated. Due to the rounding of the figures in the financial statement tables, the sums of figures may deviate from the sum total presented in the table. Figures in parentheses refer to the corresponding figures in the comparison period.

The preparation of Interim financial report in conformity with IFRS standards requires management to make certain critical accounting estimates and to exercise its judgment in applying the Group's accounting policies. Because the forward-looking estimates and assumptions are based on management's best knowledge at the reporting date,  they comprise risks and uncertainties. The actual results may differ from these estimates.

3. Segment information

Operational segment

Continuing operations of Raute Group belong to the wood products technology segment.

Due to Raute's business model, operational nature and administrative structure, the operational segment to be reported as wood products technology segment is comprised of the whole Group and the information on the segment is consistent with that of the Group. Segment reporting follows the principles of presentation of the consolidated financial statements.

4. Net sales

The main part of the net sales is comprised of project deliveries related to wood products technology and modernizations in technology services, which are treated as long-term projects. The rest of the net sales is comprised of technology services provided to the wood products industry such as spare parts and maintenance services as well as services provided to the development of customers' business.

Project deliveries and modernizations related to technology services include both product and service sales, making it impossible to give a reliable presentation of the breakdown of the Group's net sales into purely product and service sales.

Large delivery projects can temporarily increase the shares of various customers of the Group’s net sales to more than ten percent. At the end of the period, the Group had two customers (2), whose customized share of the Group's net sales temporarily exceeded ten percent. The total share of these customers was 33 percent.

Finland accounted for 5 percent (7 %) of net sales.

11. Related party transactions

No loans are granted to the company's management. On September 30, 2013, the Parent Company Raute Corporation had loan receivables from its subsidiary Raute Service LLC EUR 355 thousand (EUR 355 thousand) and from Raute Canada Ltd. EUR 884 thousand (EUR 1 774 thousand).

No pledges have been given or other commitments made on behalf of the company's management and shareholders.   

 13. Share-based payments

The fair value of the options granted according to the 2010 stock option plan is recognized as an expense in the income statement during the earning period of the options. An expense of EUR 138 thousand (EUR 152 thousand) was recognized for the options to the income statement during the period.

14. Dividend distribution

Raute Corporations' Annual General Meeting held on April 8, 2013, decided, according to the Board of Directors' proposal, to distribute a dividend of EUR 0,50 per share to be paid for series A and K shares, a total of EUR 2 002 thousand. The dividend payment date was April 18, 2013.

15. Financial assets and liabilities that are measured at fair value

At the end of the reporting period September 30, 2013, the fair value of the financial assets categorized at fair value on hierarchy level 3 was EUR 789 thousand. The methods of fair value determination correspond the valuation principles presented in the Annual financial statements for 2012. There were no transfers between the hierarchy levels 1 and 2 during the reporting period.

RAUTE CORPORATION
Board of Directors

BRIEFING ON OCTOBER 30, 2013 AT 2 P.M.:
A briefing will be held for analysts, investors and the media on Wednesday October 30, 2013 at 2 p.m. at Scandic Simonkenttä Hotel, Tapiola cabinet, Simonkatu 9, Helsinki. The interim report will be presented by Mr. Tapani Kiiski, President and CEO, and Ms. Arja Hakala, CFO.

FINANCIAL RELEASES IN 2014:
Raute Corporation will publish a release of its financial statements for 2013 on Thursday February 13, 2014.

Raute’s interim reports will be published as follows:
- January - March on Tuesday April 29, 2014
- January - June on Tuesday July 29, 2014
- January - September on Wednesday October 29, 2014.

Raute Corporation’s Annual general meeting is scheduled to be held in Lahti on Monday March 31, 2014.

FURTHER INFORMATION:
Mr. Tapani Kiiski, President and CEO, Raute Corporation, tel. +358 3 829 3560, mobile +358 400 814 148
Ms. Arja Hakala, CFO, Raute Corporation, +358 3 829 3293, mobile phone +358 400 710 387

DISTRIBUTION: NASDAQ OMX 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 and LVL (Laminated Veneer Lumber). The technology offering covers machinery and equipment for the entire production process. 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 Nastola, Finland. Its other production plants are in the Vancouver area of Canada, in the Shanghai area of China, and in Kajaani, Finland. Raute’s net sales in 2012 were EUR 101.3 million. The Group’s headcount at the end of 2012 was 503.

More information about the company can be found at www.raute.com.