Tapani Kiiski's comments on the Q1 2022 Interim report published on APril 29, 2022
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.