Raute Oyj (RAUA.F) Earnings Call Transcript & Summary

Good afternoon, and welcome to Raute's third quarter business review. My name is Mika Saariaho, I'm Raute's CEO. I have also here Ville Halttunen, who is our CFO. And together with him, we'll go through the highlights of Raute's third quarter events, financial performance. And then we have some time at the end for questions and answers. So, if you have any questions during the presentation, you can use also the online tool, chat to post the questions, and we'll go through those at the end. You can post your questions in English or in Finnish. We'll handle those accordingly at the end. Okay. Very good. Let's get started. If we look at the overall performance of Raute during third quarter, I would say the highlight is that we were able to continue on a strong profitability path. This was another solid quarter in terms of our profitability and especially the operational execution has been successful during this year and also this continued in the third quarter. And this was then reflected on a good profitability of our operations. All of our businesses were profitable, but especially the biggest business unit, Wood Processing was, I could say, very, very profitable, doing excellent job during Q3, delivering still this big mill-sized orders that we received some time ago already in 2023 and 2024, those orders were booked in Raute. So, good profitability. Our comparable EBITDA was 15%, EUR 6.5 million increase from last year's figure. Last year figure was already a very good number, and this was a further improvement from those figures. As a consequence of this good profitability that we have seen this year, we actually changed -- before this Q3 announcement a week ago, we actually upgraded our guidance. So, we revised upwards -- a little bit upwards the lower limit of our comparable EBITDA guidance. But then on the other hand, we actually took a little bit down the net sales guidance for this year. And I'll come back to this later, what are the -- all the reasons behind that. So, I would also say the other highlight is that we did have increased order intake during Q3. This was something we did anticipate after Q2 announcement also that there is improving sentiment and prospects from that point of view. And we did book now EUR 33 million of new orders during the third quarter, which I would consider is a reasonable level of new orders, taking into account that there were no mill-sized orders during this quarter. So, this is a good, I would say, good or normal, very reasonable level of orders. However, one has to highlight that this is following the very low start of the year. During H1, we really had low order intake. And this means that still the year-to-date order intake for Raute is only around EUR 66 million. So, it's clear that for the full year so far, it's been low in order intake. We did experience still the turbulence in the market. Our customers are still experiencing the global turbulence, but we remain somewhat positive on the outlook for the technology orders, and we expect that going into 2026, we do see improving prospects and improving demand from that point of view. I would still say that it's likely that we experience quite a big volatility during the quarters to come. And for Raute, this could also mean low order intake or high order intake, and this may vary quite a bit when we move forward. The global uncertainty is also behind of this type of a development. But overall, I think we have been successful in improving our efficiency, also commercial capabilities, and this does provide good basis for us to navigate through these different business cycles when we move forward. Okay. Looking at the numbers a bit more in detail. Net sales, little bit behind last year's net sales. Comparable EBITDA, as I said, even more than a year ago, off a very good level. Order intake, EUR 38 million. And then I would say -- we can say that we have a very strong balance sheet as a company. It increased now the equity ratio to close to 65%, which is way above our target level, which we want to maintain, which is 40%. So, this is a good, strong balance sheet for our type of company. Order book, we have EUR 108 million of order book at the end of quarter. It has been going down during the last 2 years or so since we booked these big mill-sized orders. We can look a little bit later how this compares to the historical level where we normally have been operating. And personnel, a little bit under 700 people. It has also been going down recently. Okay. Here's a view of the order intake. I already mentioned EUR 66 million. It is a low level at this point of year. And Q3 was a good number, EUR 38 million. If you look at the different quarters during the last 5 years or so, this is a good, okay level, but still year-to-date, a low number. Now during Q3, we did book orders both from Europe and North America. So, both markets were somewhat activating, definitely activating compared to the first part of -- first half of the year, much more activity. And this is, of course, a good sign. So, there is some light in the tunnel, I would say, at least, and we believe that this improving sentiment may be realized in the quarters to come and especially going into 2026. Order book, this is a view of our order book over the last 6 years or so. Still, as a reminder, there's this dark blue color is the orders we booked from Russia earlier, some years ago, which is obviously not there anymore in our backlog. And we see from 2023 peak when we had EUR 266 million of order book, we've come down now to EUR 108 million, which still if we look at the historical years, is not unheard of, but it's not, of course, on the level that we were now some time ago. So, obviously, new orders are -- and booking new orders is a high priority for us to be able to continue on our strategy and the growth path that we have set for ourselves. Net sales, EUR 44 million. This was coming very much from Europe. We have this big mill-sized projects. There is one in Uruguay, but we have -- many of these are in Europe. So obviously, net sales realization is coming from those projects and those are mostly in Europe. So, 73% coming from Europe. Net sales little bit came down from year ago figures. I would say that due to the fact that early part of this year, '25, we have booked very low amount of new orders. There has not been so much realization from those orders, and these are mostly coming really from the old orders we got for mill-sized orders. So, there hasn't been -- maybe that's also the reason why I would say that this is the reason why we are now guiding our net sales to be a little bit lower than we anticipated earlier. Comparable EBITDA, this is on a good level, EUR 6.5 million. So obviously, we see here the -- putting things into perspective, the challenging times we had '21, '22 in particular. And now we've been making some money as a company, and this is a good level for our type of company at this point of development. Operating profit also reflecting the same story. I would like to highlight that the EUR 12.9 million year-to-date operating profit does include, quite significantly, costs related to exit from our China operations. So, obviously, if we were to talk about comparable operating profit, it would be more than EUR 16 million, and that would be more comparable to the earlier years' operating profit numbers that we are posting here. But this is a good level. I'm happy with this level of profitability, operating profit for Raute at this point. Personnel has actually dropped quite a bit from a year ago figures. So almost 100 persons less, let's say, 90. This is partly explained by the fact that we've exited now the China operations, own manufacturing operations, that's about 50 people. But the other 40 or so is coming from all over the operations and throughout the globe, so to speak. So, we have been very strict on new recruitments and also finding and trying to find continuously efficiencies and a way to be more efficient in our operations. So now we are a little bit less than 700 people in Raute. Okay. Looking at the different segments, Wood Processing. This is the biggest business unit we have. I'm really happy with the performance and the development over the past couple of years on Wood Processing. We've been able to really turn the business around. We were actually making losses in this business. And now as the biggest unit, obviously, it's very important that this is good profitable business for us, and this is what also the third quarter numbers are showing. So, about EUR 32 million of net sales and more than 15% comparable EBITDA. It happened this time, maybe even a bit surprisingly that this was the most profitable business unit, relatively speaking, also in Raute. So, very happy with this level of performance. I would almost say that this is maybe a little bit exceptionally high profitability. We've been very successful on the project execution and the big mill-sized projects are coming or are in the phase now that we've been more comfortable in looking at the cost -- overall cost aspects of this project, and that has maybe then enabled us to release. It's truly operational result, but this is now good timing for that, and that partly is helping now the third quarter numbers when we look at those. So, despite a little bit lower net sales, profitability is on a very high level. Good operational performance behind that. Services. Services have been developing in a very nice way over the last couple of years also. But now third quarter was little bit low in terms of the net sales. So, we went down from year ago figures, almost 14%. And I would say, consequently also there is this kind of a volume leverage on Service business as well. Our profitability was a bit on the low end, I would say. So, there was also -- we haven't been able to book so much of the small upgrades as we may be anticipated and what's typical for Services. The reasons are a little bit the same as for the other orders, getting the other orders in. So, the market uncertainty has also blocked decisions on those orders. So now even if we got good orders in Q3, obviously, those are not reflected in the net sales of Q3 so that there is some delay on upgrades and those when they are realized. I'm not overly worried about service development. I think we are moving to the right direction. There are also new business concepts, new earnings models coming that we are offering to our customers, and there are good prospects for our Service business going forward. Analyzers I would say, okay quarter. We were going down quite a bit on the net sales. Profitability also went down. But I think we were able to defend the profitability kind of okay way by doing some cost savings, being very careful in what we do and how we operate this business. So, the savings were helping to maintain profitability on somewhat okay level. I think this challenging order intake during the first 9 months of the year will have and have had an impact on Analyzers. So, there is also, relatively speaking, low order backlog for Analyzers business. Prospects for this business are, I think, very good. So, we do strongly believe in our offering in this area and the new innovations we are doing in Analyzers when it comes to AI-enabled analyzers and also new business models that we are offering to our customers. Okay. So that was the short overview and little bit highlights on the different businesses as well. And I'll hand it over to Ville to go through some of the financials in a little bit more details.

Thank you, Mika. Hello, on my behalf as well. My name is Ville Halttunen, and I'm CFO of Raute. So, I'll start from the earnings per share development of Raute in the Q3. Our EPS decreased compared to last year despite of increase in our operating profit. There were 2 reasons for this. Our finance net, it came down a bit from last year and taxes were higher. Finance net, there's 2 reasons behind that. One, our interest income has decreased. And then on the other hand, the FX was impacting negatively on the finance net. And the tax rate was exceptionally low in the comparison period. Overall, we delivered EUR 0.69 EPS in the quarter. Then looking into our cash flow performance, which is typically quite volatile compared to our P&L profitability and net working capital changes and can be quite significant. There were now minus EUR 7 million net working capital change make up roughly EUR 1 million minus. And the comparison period, on the other hand, was impacted positively by EUR 13 million. In any case, cumulatively, we have been performing and generating strong cash flow. So, looking into the whole strategy so far, we have made EUR 30 million of operating cash flow since the beginning of '23 already. Then when we look into the net working capital development, we ended now at roughly EUR 6.5 million on the positive side in the net working capital, and there are typical fluctuations in our business in this side, and we have been quite long already on a negative side. And now this is very normal that it can be at some phases also on the positive side, but no worries from this point of view. Our balance sheet strengthened further when measured with the equity ratio, close to 65% based on higher equity amount compared to total balance sheet. So, this enables us strong execution of our growth strategy. We have liquid assets close to EUR 30 million and no interest-bearing debt in our balance sheet when we exclude the lease liabilities that we have in the balance sheet. Investment level. We have been increasing this year according to our plans our investment level, although still the investments are below the depreciation level. We have done some renewal of some machinery in our production facilities and some other targeted investments, which we believe will improve our efficiency as we move forward. And then finally, the R&D development that we have maintained broadly on last year's level, close to EUR 4 million in total, so that we continue to believe is an important investment for our type of company also as we move forward. So, overall, we have a strong profitability, strong balance sheet, which enables us to execute our strategy as we move forward. With these words, I'll hand back to Mika to summarize our business environment and outlook for Raute.

Okay. Thank you, Ville. So, if I try to summarize the market -- business environment where we operate, I would, overall, say that it remains quite volatile. We have experienced and our customers are experiencing the turbulence in the global business environment and the prolonged recession in the construction industry is not over. We did see and we think our customers did see some pickup in some areas on the end products demand also in Europe according to some statistics. And we know that the demand for certain special products and also overall for birch plywood and LVL has remained more stable. So, there are some signs also in our customer industries' demand that are at least little bit positive. Then on the other hand, from Raute's point of view, I think this uncertainty is still related to, for example, the U.S. import tariffs and the global trade politics related to that have postponed some investment decisions of Raute's customers into new technologies. So, the uncertainty is not over. But we see that even in this situation now and proven by the third quarter order intake that we got some of our customers, both in Europe and America, North America, are really taking now the actions to start investing again into technology of their operations, and it's both on the process efficiency and additional capacity that is in the scope of consideration. So, that is positive. We did see that happening in Q3. As I said, we got reasonable amount of new orders. And we do think that, looking at our sales funnel and the activity of discussions with our customers that despite of these global uncertainties, which clearly are still there, we expect that the market demand to improve going into 2026. So, we did anticipate little bit of this already in Q2 after that release, and I think that's what we experienced. And still, we think that, of course, one has to realize the starting point from our point of view is a very low demand in the first half. So, improvement from that level is not so much, but I think we are probably moving towards more normal operating environment gradually when we are going into 2026. And then, in terms of our guidance for 2025, we updated this roughly a week ago. I already mentioned we took down a little bit the net sales expectation, which is now EUR 170 million to EUR 190 million. And the EBITDA guidance, we narrowed little bit the guidance, moving the lower limit little bit upwards. So now it's EUR 22 million to EUR 27 million in 2025. And if we still look at the guidance little bit more, it really is like -- even that we got now new orders in Q3, they are not fast enough turning into net sales in this year so that we would reach the original guidance, and that's why the top line went down. And then, on the other hand, the profitability really has been more than we expected, and we've been maybe even more successful than we expected in the project delivery, and that's why we little bit were able to, at the same time, take upwards the EBITDA guidance. I would like to just mention one more thing, which is not part of Q3, but right after the Q3 or today announcement, we also announced that we are continuing or starting new change negotiations in Finland related to our operations in Wood Processing, Analyzers and parts of Service business as well. And I would just comment at this point that this is -- it's unfortunate, of course, to all Rautens, but this is part of the proactive cost base management that we consider, and we are taking actions proactively when needed and continue to do that so that we secure both short-term and long-term profitability and prospects of Raute's business. Very good. So those were the highlights, key observations from our point of view on Q3. And now I would actually like to open it for possible questions and answers or if there's online questions. So Ville, if you can join me here also.

Yes. Maybe we'll take from the audience first the questions. So, let's start from here.

Joonas Ilvonen from Evli. So, Wood Processing, the 15% EBITDA margin, I think that was setting like new quarterly record high. And even with, I would say, not that high revenues. So, does this already reflect the closure of your China operations? Or is the explanation more similar to what you said during the previous quarters that everything just went like very smoothly?

Maybe I give this to Ville, what is the impact of China closure? It takes some cost down.

Yes. Overall, I would say now that it did not really materially impact the China closure yet into our Q3 numbers, but it's more -- it starts to gradually impact. Of course, there were the indirect costs, as we anticipated, will be lower by EUR 2 million, and it will come gradually. But anyway, I think that this -- the result is primarily caused by the good project execution. That's the primary reason for strong EBITDA performance in Wood Processing.

Right. Last year, Q4, you had this jump in new orders, but that was bit of a one-off. But now you say -- I think you seem relatively positive on European demand going forward, maybe more cautious on other areas, maybe Americas. So, what can you say about, let's say, Q4 orders at this point?

On Q3 -- Q4 orders at this point, I can't say much. Obviously, it's not our approach. But I can say what we are guiding that we do believe that going into 2026, the market is improving. It's also typical for us that we should expect that there might be quite a big volatility between the quarters. So, still in one [Technical Difficulty] 1 quarter, whether something gets realized exactly in this quarter or next quarter, this probably will be quite a volatile and bumpy road when we move forward as well. I can't promise that something happens exactly in Q4 or even in Q1 next year. I can say that within the next 12 months, we clearly see that this is an improving environment, and we are moving to that kind of operating environment. I think overall, we have -- the prospects we have in the sales funnel are on a, let's say, good, normal level. When I say that, we need to realize that I would have said the same in the beginning of this year, but things have just postponed all the time. So the funnel has been all the time quite good, and there has been good stuff there. It has not disappeared from the funnel, but still we haven't been able to realize those in the Q1 and Q2. Now in Q3, some of these started to realize. So, when the market allows, I'm sure our customers are making the decisions. Maybe there's even more an increasing pressure to make some decisions because there's been a little bit of now period of no decisions on investments into new technologies.

All right. And one question about Services. So, you already talked a bit about it, but seems like that was maybe the only rather softer part of the report. So, is it also partly because of the relatively high comparison figures because Services actually grew so much in revenue last year?

Yes, it maybe also partly that. But I think there was -- our Service business includes also the small upgrades, which are like small modernizations, very small ones. And it's been low order intake on those during this year as well. What we have booked earlier already in Q1 and Q2 has been the normal traditional service business and these small upgrades, which typically have actually quite good profitability, have been not there so much in the funnel. So, that was little bit missing. And then we had a little bit over -- a little bit higher cost, obviously, because maybe we had anticipated higher volumes and then the allocations became a little bit bigger for service business despite the fact that they didn't realize the top line. So, there was this kind of a top line impact lever on the profitability as well.

We have other questions?

Antti Viljakainen from Inderes. Still continuing from Wood Processing margin. I understand that these changes in provisions may fluctuate quite a lot profitability over time, up and down, both. But can you anyhow elaborate how much they supported profitability in Q3?

It's very difficult to say because the way, of course, we operate is that there's not maybe daily, but there's a weekly meeting and review of the project progress by the project management and the project team. And then they evaluate, of course, in the percentage of completion calculations that how much is still cost left and how much have we already delivered. So that is changing all the time. So, it's not like it changes all of a sudden like that. But during the quarter, I mean, there was this kind of a progress. I don't think it's un-normal because it actually truly is operational performance. I mean it truly is operational performance. So, it went even better than we thought some phases of the development. Typically, however, we do need to reserve more things and have more contingencies at certain phases of the project, which is more towards the end of the project. So, when -- we are then realizing and leaving that phase of the project, there either is then a possibility to release something or sometimes you might even need more than what you have booked. And if it goes very well, you are able to release or maybe what you could normally expect on average happening over the project life cycle.

Yes. That was helpful. Then continuing, demand and -- demand of mill-sized project, could you anyhow elaborate your sales funnel in mill-sized projects? And are you as confident that the demand of mill-sized projects, in particular, is going to improve as well as demand in general?

I think there are -- I know we have prospects in the pipeline kind of on a normal level for the mill-sized project as well. So maybe that's the short answer. Definitely, I cannot promise that it will come on certain quarter because I never can. And in this particular moment now, it's more difficult than ever because of the global uncertainties. So, with the customer discussions, if not changing daily, but weekly to becoming more probable and then becoming less probable for their decision-making. So -- but I would say, overall, we have things in the pipeline. It's not impossible that we have mill-sized orders coming in the near future or at least in short-term future or medium-term future, but I can't promise that. But normally, of course, if you look at the history of Raute, we normally have the kind of base order intake without the mill-sized orders and then we booked like 1 or 1.5 mill-sized orders per year. And in 2023, '24, we booked actually 4 big ones, and then there hasn't been much anything for a couple of years. So, from the statistics point of view, there should be also something coming, and that aspect of the world has not changed. I guess that's my main message.

So, do I understand correctly that you have like cases in the pipeline in which your clients have financing in place [indiscernible] permits in place. So, they are just -- it's about making decision.

There are things -- that kind of things as well. And of course, always this go hand-in-hand. Normally, you get all the -- our customers get all the financing completely secured around the same time, but all the other things are also fully secured, so all the permissions and all these things. So, there are things also towards the final stages of decision-making and then on the early stages. And very much, I'm sure customers are thinking when is the right time to invest and is the market sentiment now right? Or is it right in 1 years' time or 1.5 years' time when actually the new investment will be up and running. So this is where our customers have a little bit different risk appetite also in their own thinking.

And finally, about aftersales businesses, you have been like executing your strategy 2 years or something like that and aftersales businesses had like a big role in strategy in general. While it has been somewhat bumpy road also in aftersales side. So my question is, do you think that you are on path when it comes to strategy execution until 2028?

I think we are. It's, of course, clear that if the market is very challenging, there might be still ups and downs on a path to get there. But I think we are doing exactly the right things, which are delivering the strategy. Of course, as we're also saying, we expect certain profitability on average over cycles and things like that. So, in that sense, profitability, we are -- I could almost say that we are already there. If this is now a good cycle and good profitability, 15% if on average, we need to be 12%. In terms of top line, clearly, of course, if we don't get -- if we don't get new orders in, there probably will be some kind of a change on the trajectory of the top line growth. But obviously, at some point, it will pick up. Part of the growth ambition we have for 2028 does include, and we've said that also some inorganic steps. So, it's clear that something in that area, we also need to happen -- needs to happen in order to reach the '28 ambition, which remains valid for us, and we believe in it.

Right. Then we have a couple of questions from the chat, starting from; if further cost cutting and workforce reductions continue our Raute's service innovation capacity, particularly in the areas of analytics and automation technology?

It's a very good question. And I think what Ville was actually sharing here that we have continued our investment into R&D. So, we are not giving up on that. That would be kind of a short solution, but shortsighted solution also to start cutting significantly on R&D. We have not done that. So, I don't think we are cutting on the future of our company. And that's -- it's a very good question and very important question, and we need to obviously continuously balance that. But I don't think there's an intention to cut on the future prospects for Raute.

Okay. Then there's a question on the capital allocation. Does Raute's high equity ratio reflect efficient capital use? Or does it suggest a lack of sufficient profitable investment opportunities?

This, I might give back to Ville to answer.

Yes, maybe I can take that. So, obviously, we are in a project business, and we need to have a strong balance sheet to execute our business, normal course of business. But then on the other hand, we are prudently also evaluating other opportunities like M&A, which is a part of our strategy. And it takes 2 to tango and we need to, let's say, have the ammunition in place also. So, we are carefully evaluating opportunities in our strategy as we move forward from here.

Exactly so. And if you think about our type of company, it's good. And it's important that we do have a strong balance sheet because of the inherent volatility of cash flows and projects and prospects. So that's what we -- why we want to maintain it also strong.

Correct. And then there was one question on the mill-sized orders, but I think that that was already coming from Antti. So those were the questions from the chat.

Okay. Very good. Are there any other comments or questions here? And if not, I want to really thank you all for following this info call session, and I will meet you in the next info call at the latest. Thank you very much. Bye.

Thank you.