CEO Mika Saariaho's comments on the Q3 2022 interim report published on October 21, 2022
Good demand in most market areas and recovered profitability in Q3 brightening the unprecedented year
Following the very difficult first half of the year, Raute is operating in a new business environment leveraging the ongoing good market demand. At the same time determined steps for a controlled wind-down of the remaining operations in Russia continue.
Demand during the third quarter has continued at a high level. EMEA demand is good, customers continue efforts to increase capacity to fulfill the gap left by missing imports into the region. This has also raised new interest towards Raute’s solutions among customers and countries where earlier activity has been small. We are actively pursuing opportunities in these markets. Market activity has also been especially strong in North America. Latin America, where raw material availability is good, continues to be positive as well. Activity in Asian markets and in China continue recovery following the extended Covid-19 related downturn.
Order intake in 2022 amounts to EUR 110 million, third quarter order intake being EUR 35 million. No new mill size projects have been received in 2022, and the overall amount includes EUR 2.4 million orders from Russia that were received in the beginning of the year. Received orders continue at a reasonable level giving confidence that the new market situation can provide good volume filling the production capacity. Mid-sized single production line orders and technology services have increased during the year, compensating the lack of mill size orders.
Order book at the end of September was EUR 94 million. The continuing order book excluding Russia amounts to EUR 88 million and has remained on the same level as in Q2.
The remaining order book for the Russian market, after risk reservations, is EUR 6 million, majority of which is planned to be delivered in 2022 or early part of 2023. The ongoing activities for a controlled wind-down of the remaining operations in Russia are strictly bound by the existing sanctions and local laws and regulations in both countries. Each project is considered individually including the contractual commitments, sanctions, changing impacts on logistics, financing and payment conditions, and we continue to adjust the order book and expected margin to reflect the outcome.
Third quarter net sales were EUR 41.8 million, 10% above comparison period. The increase is coming from all market areas, however most significant growth has been in EMEA and North America. The sales of technology services have also developed favorably.
Following the reorganization of Russian delivery projects, the third quarter operational situation has clearly stabilized, and overall loading has been on a good level. Following the improved operating environment, we are encouraged by the third quarter operating profit of EUR 1.4 million. Our Russian projects had net neutral impact on the Q3 profit.
Strong cost inflation as experienced during the first half of the year has started to recede slightly, but margin pressure still prevails. Poor availability of components also continues to burden the supply chain and increases working capital needs. In addition, the ongoing business transformation puts pressure for working capital financing resulting in negative cash flow for the quarter and increasing the net debt.
During the third quarter the earlier announced development program to improve competitiveness and profitability has progressed well and execution has started. Related to this, headcount in Finland is expected to reduce by over 40 people by the end of the year as a result of change negotiations, transfer of business, retirements and other measures. Overall, the program is expected to reduce costs by some EUR 4-5 million and improve margins.
During the last quarter of the year, we will focus on stabilizing the operational situation further and ensure actions to improve our profitability are followed through. We will also work with our customers to secure good and timely service and delivery of our products.
After my first weeks with Raute, I am pleased to say that our people and teams I have met are talented and diligent, and we have an outstanding knowledge to support our customers in utilizing forest assets in the most profitable and sustainable way. We are well equipped to respond to the key challenges of the future by combining leading wood expertise with digital production solutions and local know-how.