Raute Oyj ($RAUTE)

Good afternoon, and welcome to this Raute's First Quarter Business Review. I'm Raute's CEO, Mika Saariaho; and together with our CFO, Ville Halttunen, we'll go through the highlights of the first quarter events. You also have a chance to ask questions at the end of the presentation. So the live audience here can use the microphone. And then if you are online joining this meeting, you can post questions there also in the chat box. You can post the questions either in English or Finnish, and we'll respond accordingly. Okay. Very good. Let's get started. I will start with some of the highlights of our performance during the first quarter of this year. I would maybe summarize it in 2 different ways. First of all, I would say that the market environment where we operated was very challenging. We maybe had a view in the beginning of the year that the market would already start to recover a bit faster than what really was then the reality. We saw further escalations in the global economic and geopolitical arena. So the uncertainty really intensified. This really led then for us to have a quite, I would say, low order intake for the first quarter of our business this year. And this was, of course, a consequence of our customers' hesitation in placing the orders and further considering their orders and the approach for updating their or upgrading their technologies in their operations. But then, on the other hand, I would say that this was maybe also already repeating some of the earlier quarters and a couple of earlier years, it was a good quarter for Raute in terms of our operational performance. So, very strong performance. So we were very successful in our customer work, delivering the projects that we have in the pipeline, being on time, on budget. And in fact, we were able to release some of the cost reservations also during the first quarter of this year, which then resulted in us posting, I would say, quite good profitability actually during the first quarter, if you take into account the lower net sales volume that we reached. So, obviously, compared to last year's comparison period, the figures are much lower. Last year, it was a very high net sales and a high profitability. But now I would say with the lower net sales, the relative profitability was on a very good level. This was, in particular, visible in our biggest business units, which is Wood Processing, which really, I would say, the profitability was, I would say, exceptionally strong during Q1. And it was really this reversal of the certain project-related cost provisions. So overall, we've been managing the costs very carefully during the first half of the year -- first quarter of the year, which has been the same approach we've been now having for a couple of years already when we look at the very volatile environment where we operate. So this was the success of the quarter. Then, on the other hand, I would say that in Services and Analyzers, the result both on the topline, and I would say, therefore, in the bottom line also did not quite meet our own expectations. So in Services, we did experience the fact that our customers' operations are not necessarily running at full speed, which was reflected in the Service business we had. And then the Analyzers, still the upgrades on these areas using analyzers are on a low level, I would say, of what we've been experiencing and the net sales realization was low, and that actually had a quite clear impact on the bottom line then as well. There's a quite big sales, net sales lever to the profitability, both in Services and Analyzers as it is also in Wood Processing. So I would describe maybe the market that, since it is so volatile now and during the first quarter, there were further escalations in the world. Of course, we know the war in Iran, it has caused more uncertainty. It has also increased at least the risk of inflation. Global logistics chains have been impacted by that. And this has had an impact on our customers' investment decisions. So we clearly hear that customers are thinking more carefully, is this the right time and when is the right time exactly to place the orders on the technology for their operations. Since this being the case and as we are in a volatile business, our very much focus has been also on managing the internal operations, managing our costs, making sure that we manage the margin that we are realizing from our business, focusing on the disciplined project execution. And on that front, I'm happy what we have been able to accomplish during the first quarter as well. As a part of this managing the cost, we also announced today that we are expanding the possible temporary layoffs in our Finland-based operations. So we've already had these measures in use. We've been using this very proactively. And now we actually expanded this scope. So it really covers all the Finland-based operations. In other regions of the world, we have similar type of tools in use. So this is the system in Finland. And then in other operational locations, we have the local tools similar to that in use if and when needed. So very much then depending on how the next months' order intake, in particular, develops, we will take these tools into use as we've been doing in the past couple of years already. Looking at the figures, little bit more details. Net sales, EUR 33.5 million, obviously, a significant drop from last year's figures, but not a big surprise to us on a big picture because our starting order backlog for this year was much lower. So obviously, expectation is on a lower level than was in 2025. Comparable EBITDA, that was on a good level. EUR 4.2 million is a good achievement. More than 12% with these net sales volumes, I consider this as a very good profitability. I would even consider it as a little bit exceptional. So we are on such low level now in terms of our net sales. And I would say normally, this shouldn't quite be so high, but because of the project cost releases, this looks now maybe even better than what it is. The thing that I want to highlight, nevertheless, is that the EBITDA, reason for the good EBITDA is truly operational reasons. So this is not a one-timer in a sense of getting some extra benefit from somewhere. It really is a sign of excellent project execution and ability then to save on some of the costs that we already budgeted. Order intake, EUR 17 million. It was actually higher than last year, but last year was really, really bad. It was EUR 15 million. And obviously, EUR 17 million is not the level where we want to be as a company when we move forward. We have very strong balance sheet, which is good. Of course, this is a buffer also for all kinds of uncertainties in the market. Order book at the level of EUR 81 million now. We look at a little bit more detail how that's been developing over the last couple of years and about 700 people, Rauters working in the company. Okay. Here, we see the order intake. We really -- what stands out here is the 2023, obviously, when we got this very high order intake, EUR 315 million. And we clearly see that there's been a couple of years already with a lower order intake, and this year also start is now on a low level. So this is, I would say, a little bit exceptionally long period of low order intake now. But of course, it's following the very high order intake. So we are still delivering also projects from this 2023 order intake that we then received. And here is a picture of the order book, how that's been developing. So we see the decline. I think this is the ninth quarter of decline in the order book. And obviously, we are now at the level of EUR 81 million. If you compare this to history, yes, we've been in this kind of a level, especially if you exclude Russia as a business there, but this starts to be quite low level. So obviously, this is not where we expect to be when we move forward. Net sales, EUR 33 million. This is a quite direct reflection of the fact that the order intake was low also last year, and now it was low also in the first quarter of this year. So taking those into account, this is actually quite understandable net sales realization. A lot of this coming from Europe, but North America also important and then other regions as well. And comparable EBITDA, if the net sales order intake are a bit challenging, I'm actually very happy with this result with the volume that we now had. So EUR 4.2 million. Obviously, it's lower than last year's all-time Raute history highest profitability that we achieved. But still this is -- in this kind of a market environment, I think a good achievement, and I'm happy with that. Relative profitability, 12.6%. If we think about Raute's strategic targets, we want to be more than 12% over cycle. And maybe one could consider that this is a little bit of a low cycle now that we are living, and we are still over 12%. So maybe this is a little bit exceptionally high now even in that sense. Then on the other hand, if that would have been realized earlier, then the earlier figures would have been even higher if we knew that the costs are not needed for the project. So that's always part of the consideration, but a good result from this point of view. And operating profit also positive. We see in this picture, of course, the challenge we had a couple of years, 2021, '22, and we've been really having a business turnaround on quite different level of operations now even with the low volume that we also had on some of those years. Personnel development over the years. So we are now roughly 700 people. The biggest drop last year was the fact that we closed our operations in China. So that was roughly 50 people reduction, and then there has been some other reductions in the personnel as well. Okay. A couple of comments about the different segments. Wood Processing, I already said, this is the area where we see the most significant turnaround and development over the past year. So here, we can see quarter-to-quarter figures. And compared to last year, the net sales went down quite a bit for the reasons I already explained. But then on the profitability, EUR 3.6 million comparable EBITDA, which is more than 15%. This is really, really exceptional for Wood Processing project type of business. And very happy about that, but the reason is very operational, good execution and now it was realized in numbers in this first quarter of this year. But we can see the turnaround, which has taken place over the last 4, 5 years or so. Services, there was a drop on the top line as well. This was a little bit disappointing to us. The fact and the reason behind is really that our service business is quite a bit -- it relates to the operations of our customers, the activity level of our customers. And we did see that in the first quarter, some of our customers are actually not operating at full speed. It really is visible and it's a fact and that is reflected also in our Services business. Services also includes the smaller upgrades and modernizations, and that business also has been kind of on a low level. So that's the reason why top-down came down. And I would say that in Services also, we have quite a high lever on the net sales to profitability. And therefore, the profit EUR 0.8 million is a bit low for this business. It still is close to 10% margin. But for this business, it's not where we want to be and what is our ambition when we move forward. And then we had a challenging quarter also for Analyzers. Unfortunately, this is already the second quarter in a row for Analyzer business where we are actually having negative comparable EBITDA. It's very much explained by the fact that the volume is too low for this business to carry on and kind of create good, profitable results. One should realize that this is an area also where we are doing quite a lot of R&D investments. Big part of the fixed costs for this business are our research people. In this area we have not really cut any material or significant way our efforts because we believe this is the area which is building the competitiveness of Raute going forward. And therefore, we want to keep up those activities. I believe that there's a very strong net sales-to-profitability lever in this business. When the top line starts to develop in a positive way, there's a good chance to make very good profits in this business. The product margins in other way -- putting it other way, the product margins in this business are on a good and healthy level. Okay. Very good. So those were some of the highlights, and then I will hand it over to Ville with some details on the numbers.

All right. Thank you, Mika. So good afternoon also on my behalf. My name is Ville Halttunen, CFO for Raute. So, as usual, I'll start from the earnings per share development, which dropped 44% in the quarter compared to last year. The decrease came from the operations. So our operating profit drop is visible in the EPS numbers. No big surprises in the items below, financial items and taxes were close to our expectations. So 0 net interest income and tax rate of 20% in the quarter. We have some items affecting comparability also in the quarter related to our ERP program that we are running globally and then some restructuring costs as well. Cash flow-wise, was a negative EUR 5 million in the quarter. And as usual, there is quite a big variation in our cash flow in our business. And now some cash was tied into the net working capital during the quarter. But this is something what is expected to happen also as we move forward. So, as a reminder, there is like different payment cycles in our project business, and that then influences the -- mostly the volatility of the cash flow, whereas the revenue recognition is based on the percentage of completion, which is more stable than what we show in the P&L. Net working capital now at the end of Q1 was close to EUR 7 million. So this was now second quarter in a long time that we were on a positive side here, and there was some EUR 8 million of cash tied into net working capital. Over long term, we have been on a -- close to 0 level, and our target is to maintain this on a negative side. But obviously, it depends highly on the timing of the projects that we have in the pipeline and order book, how this develops. We have a strong balance sheet, as Mika pointed out. Equity ratio over 65% at the end of Q1 and net liquidity over EUR 30 million, even if our cash is being now tied into the net working capital. And this is end result of good results and then not distributing all of that result back to shareholders. So we have also now capacity to make investments in case they meet our investment criteria. Then looking into the CapEx side, there are no big changes compared to last year. Investments were EUR 600,000. Last year was EUR 700,000 below our depreciation level, and that's something what we are continuing to, renew our machinery and make targeted investments according to our plans here. Investments overall are close to our depreciation levels as we speak. And then still on the R&D investments, so as pointed out also by Mika here earlier, they are close to last year's level in absolute terms. There is quite -- relatively quite large portion of this investment that go into the Analyzer business. And in this line graph, you can see that the relatively now as our sales is coming down, so this drags a bit our relative profitability overall. But we have continued these investments and see these important factors also as we move forward to maintain Raute's competitiveness and create innovative and new offerings in the market. So that's a summary from my side, and then I'll hand back to Mika to conclude with the business environment and our guidance.

Okay. Thank you, Ville. So if I try to summarize the business environment, a little bit feels like being a broken record here because I feel like I've been saying the same story for the last couple of years already. So the market environment is challenging. Still the uncertainty is big. I think we've been maybe wrong in the past saying that the recovery should start. We've been a good company because this been the whole world saying the same. And then there has been further escalations. And this happened also during the first quarter of this year. However, I'm very convinced or let's say, I would be very surprised if the market never recovers. It always has, if the history has anything to teach us, at some point, the orders will start coming in. We have, at the moment, actually, I would say, quite good healthy sales funnel. It's quite active. The discussions with customers are very active. They were also active during the first quarter, but still the orders -- signing of the orders was postponed. This was a little bit the case also in the quarters before that. So it's a little bit the old story, same story. So at the moment, I'm saying that it's very hard to predict when this really actually exactly happens because we know that, for example, the war in Iran is still now having an impact on the world, and it truly has a real -- not a direct impact to our business, but strong indirect impact to our industry because our customers are then considering and reconsidering what is the right timing for their investments and what to do with the technology updates and upgrades. Of course, our customers are operating in the construction business quite heavily. And we know that the construction market has been down now for extended period, I would say, and this is globally quite much true. And we know that some of our customers have a little bit different market -- target markets for their products, and they are doing fine. But some of our customers are actually not profitable at the moment. So obviously, these kind of things and the current uncertainty impacts their decision-making. But I think there's a good amount of, I would say, necessary investments that have to be done very soon. So I'm sure the market will have to recover at some point if there's not another war in the world or similar taking place in the near future. I think we are also very well positioned now as Raute. We've been focusing very much on our own operations and getting really some of the efficiencies out of our system. I think we are on a better -- higher level of operational capability than what we were a couple of years ago. So that all is a good thing because then when the market does recover and it will recover, I think we are in a good position to capture those opportunities. Obviously, we have very long-term relations with our customers. So that also feels confident in that scenario. But then, on the other hand, if that doesn't now happen very soon or soon, we are ready then to take very proactively the actions to protect our margins and profitability in whatever environment we are then operating and experiencing. So I think that's maybe the summary. And I think, for example, the temporary layoff negotiations that we are now starting and expanding to all Rauters in Finland. I would like to add that we have similar tools in use in other parts of the world where we have other kind of legal system to manage the things similarly. So we are actually having a global approach to manage our costs in a way that is very proactive and it's really taking into account the current realities in the market. Okay. And then if we look at the guidance, we already actually a week ago or so, updated the guidance a little bit, I would say. We reduced a little bit the range for the net sales because the order intake was low in the first quarter of this year. So now the guidance is saying EUR 125 million to EUR 160 million as net sales. So we took it down EUR 10 million, the range. But we did not change the EBITDA -- comparable EBITDA guidance. We still believe we will be in the original range from EUR 10 million to EUR 19 million. And this is also because of the very good profitability that we experienced in Q1 and the actions that we are planning then, if needed, for the latter part of the year to manage the cost and profitability. So this is our guidance going forward. Okay. So, to summarize maybe with just 2 sentences. I'm very happy as a CEO on the performance of Raute and our internal operations and how we have been able to serve our customers successfully during the Q1. I'm also happy with the profitability that we achieved in this challenging environment. And we are then, on the other hand, challenged by the market realities, which have not really turned yet sustainably or we cannot say when that exactly happens, but we are ready to also face -- if there's even a more prolonged downturn, we are ready for that. But then on the other hand, I would say there are good cases that we are talking about with our customers and the funnel for sales is, I think, in a healthy situation. So at some point, we believe the market will recover as it always has. That's all. Thank you very much. And I think we will now open for questions. Is there anything from the audience here. Antti?

Antti Viljakainen from Inderes. Would you be well on black figures in Wood Processing if this project provision reversals didn't support margin, with this EUR 23 million net sales level?

Well, now we were 15% comparable EBITDA, and it was EUR 3.6 million comparable EBITDA for that business. So I would say that it all depends on what kind of projects we would be realizing. Obviously, now what we are realizing, it's also not so that all these goodies that we now realized should have been booked earlier because some of that really also happened during the Q1. So also that should be taken into account. I would maybe not exactly comment now because you are basically asking what is the breakeven volume that we have because I don't even necessarily have a full answer to that because it really depends on the product mix because if we have a lot of modernization businesses in Wood Processing, it's quite different than having a big project in delivery phase. So -- but I would say that -- I would maybe refer to our long-term target, which is 12% over cycle. So if we were -- now with this volume overall Raute, we were 12.6%, and this is maybe the low cycle. So maybe we should, on a more normalized way, now to be there below 12% with these volumes because we were like 15%, 16% when the volume was much higher a year ago or something like that. So that's maybe the variance. But of course, to further answer that, if it would happen in Wood Processing that we would be reaching the kind of 0 profitability, we would take obviously further actions, and we would not reach that point. So we would then reduce something on the cost side. And that, of course, at some point, would then also start hindering the growth potential for that business. We have not done that. We are investing into R&D, as I say, and all the other areas so that we are ready to capture the future opportunity. Long answer, but maybe not answering what you asked.

Yes, that was something I expected. Okay. So when it comes to demand, have you seen further weakening in demand since early March when these tensions in the Middle East escalated, if we think about demand in March and April?

Well, I would not comment the Q2 -- the second quarter at this point. I would just say that in the first quarter, we did see the impact of this war already. So it did very concretely postpone some of the decisions. So there was a message from customers, let's wait, let's get back to this a little bit later. So I think, when this a little bit later is? Is it in Q2 already or is it much later? It depends on what happens today and tomorrow in the market again and if the Strait of Hormuz open or whatever. And all this will have a real impact in our customers' decision-making. But I would say, although I've been saying it already before, that there is a good amount of discussions and -- active discussions with our customers ongoing, and this has been all in all for a prolonged time, the situation and always then there has been a postponement, but let's wait a little bit more time. At some point, this has to stop, obviously, and the decision has to be made.

And can you confirm that you didn't lose any major projects in Q1 to competition?

Not major projects like that. It would have been in the news also if there's another mill size or anything like that, and there hasn't been that kind of investment. On the small things, if you look at the EUR 17 million order intake we got, big, big part of that is Services and then some Analyzers. Actually, the ones that are now posting the most challenging numbers, those actually had, relatively speaking, better order intake in Q1 than the Wood Processing. So it was that way around. So, obviously, in this kind of smaller cases, you win and you lose. That's kind of a normal part of the business. But I wouldn't describe it any exceptional things happening in Q1 either.

Okay. And then on guidance, your net sales guidance is still quite wide, and it doesn't look like that there is like a broad improvement in demand in sight. So my question is, is it like a question if large projects will kick in this year, which you decide if you end up at the upper or lower end of the range?

Yes. Everything is still possible. And of course, Service business, for example, which was now down is a business we want to grow every year, year-to-year. And normally, in the normal environment, I think this would be achievable. Now it didn't look quite like that in the first quarter. And that -- those orders are still to be booked. So quite fast, of course, if the market activates, there's more demand for services, for example. So services can be quite -- there can be quite a big difference actually in Services business. And then Analyzers is the same way. I mean, those orders are not yet necessarily there and depends quite a bit. And then for Wood Processing, yes, the small ones are still open. And of course, there always is a possibility for a bigger order also. And if that happens, it can still -- realize still some net sales even this year. But that really remains to be seen how the market develops.

Okay. And finally, '28 targets, you are targeting EUR 250 million revenue. And this year, we will most likely end up or at least midpoint of the guidance range is below EUR 150 million. So is there any other opportunity but huge cyclical upturn or M&A to reach these targets until '28?

Yes. I think for '28 targets, we do need inorganic growth. I think we've been saying that all the time. So somewhat material part would need to be through inorganic growth. I think otherwise, of course, it does maybe assume that for '28, there's some kind of a normalized recovery. We were already EUR 200 million. And I would say the normalized recovery would be to be at least organically around that and maybe a bit over. And that should be very much possible if the market does recover. I think it's quite fair then to say that if it's another 2, 3 years of a world wars or something like that, that it's a different scenario. But if it's anyway normal, I mean, that should be the organic development so that we are not where we are now, but somewhere where we were and maybe a little bit over and then there has to be inorganic growth as well. So that's part of the plan. But you are right that the challenge for '28 ambition is more on the topline, but we have other targets. Other target is to have this 12% profitability. I think we have achieved quite well that target. So that part of the thing is happening. What happens then in the Analyzers and Services growth, which we want this business to be more than 40% of our overall business, it little bit depends on the Wood Processing development as well. So it might be that actually quite soon, it is more than 40%. But it's not good if the wood -- it's because Wood Processing goes down. So I mean there's these kind of things. But on the profitability side, I think we are very much on track. We've been focusing on that internal efficiencies. Topline does require some kind of a recovery, obviously, by '28, not necessarily this year because there's still 2 years, but yes, it does by 2028, plus inorganic actions. Ville was explaining that we have a strong balance sheet. So if those opportunities do emerge, we have the ammunition power to make some moves. But obviously, we want to make sure all those make good sense if they are there. Okay. Thanks Antti. Was there any questions from...?

Yes, there's a couple of questions on the line. So starting now from the customer activity. When it comes to potential mill scale orders in Europe, do you think that the current environment causes significant further decision postponements even though these are a large long-term projects?

They do have an impact, obviously. So it's about timing. Normally, what our customers plan in the ideal scenario is that they want to come online when there really is a demand for the new investment if it's a big mill size or a bigger line investment. So obviously, that consideration is there. And then it depends on the customers' financial situation. If they are having a struggle now, even if they believe in the long term, it might be a reason why they postpone some decisions. But these are very -- if the world is now volatile, this mill size order timing question is particularly volatile always because it always has been that when is the decision and what is driving that decision. But I can say that as we have a normal type of a sales funnel at the moment, there are small cases and there are also big cases in discussions as there have been all the time.

Then there's a question still on the customer decision-making. What's the biggest uncertainty hurdle our customers see at the moment that they are postponing their decisions?

I think the biggest, globally speaking, is the recovery of the construction market because that's so big part of our customers' investments. So what is happening with the both on the demand in the construction area, prices of those products. And then a little bit combined with the fact of global tariffs impacting decision-making. So U.S. has a tariff, for example, from imports from Europe to exports from Europe to U.S.A. So that has an impact on those considerations. Same way from Latin America to U.S.A. So U.S.A. has a big impact on this global picture overall.

Then a question on Wood Processing. Are these Wood Processing active cost saving measures you mentioned all attributable to the change negotiations?

Are these all -- can you repeat?

Are these Wood Processing active cost savings measures you mentioned all attributable to the change negotiations?

Okay. Maybe I answer the way that the savings in the Wood Processing side, now if we -- when we move forward and what we have already experienced have required us to balance the workload also in terms of our employers, so -- employees. So we have already taken those measures. It does not work because it's not equally distributed among our organization. So we have taken those actions. But the good profitability in Wood Processing, that's only one small thing of the reasons. I mean the other biggest reasons for good profitability are the savings we've done on the project execution side, and we've managed our supply chain, our costs overall and the project execution has been very good on time and on budget. So those are the biggest reasons for Wood Processing profitability.

All right. Then there's a question on the -- also on the customer decision-making. Despite the prevailing uncertainty, some of your customers have continued preparatory work for future investments. Has the amount of activity decreased compared to the situation end of '25?

It has not decreased. I think we also had last year those kind of discussions. We have at the moment, those discussions. Normally, what I keep saying is normal for Raute would be to capture 1 or 1.5 kind of a mill size bigger opportunities every year. And now the last time we captured something was, I think, February '24. So this starts to feel 2.5 years ago or so. So it's been a long dry season, so to speak. But even during this dry season period, there has been active discussion. But as I said, things have been postponed and there's been reasons, kind of external reasons mostly, impacting those cases.

That's all from the chat.

Okay. Good. Thank you very much. And if there are no further questions now, thank you very much for participating, and I'll see you all and we'll see you all in the next quarterly review meeting. Thank you very much.

Thank you.