Feb 09, 2005. /Lesprom Network/. - The Group’s net sales was 81.2 Euro million (97.6) and the operating profit Euro 5.1 million (-3.3). The profit after financial items was Euro 5.8 million (-2.3). The capital gains, 3.0 Euro million, received from the divestment of Raute Precision Oy improved the result. Earnings per share was Euro 1.03 (-0.71). The equity ratio, 56% (41%), improved.
- Proposed dividend is Euro 0.40 per share.
– The net sales of the current business, Euro 73.8 million (66.7), increased by 11%. The operating profit Euro 2.2 million (-2.7) was positive all year.
– The net sales of the current business is estimated to increase and the profitability to improve in 2005.
President and CEO Tapani Kiiski:
a year of structural changes and reinforcement of operations
“2004 was a year of changes for Raute. At the beginning of the year, we decided to concentrate on wood products technology and sold our weighing and dosing technology business. Rationalization measures have already resulted in a stronger market position and improved profitability.
The world economy and our customers’ business developed positively. The strong rise in oil prices and the weakening of the US dollar, however, maintained uncertainty. Launching of large complete plant projects was delayed. The demand focused on modernizations and maintenance service. Competence in rapid installation and implementation was more important than ever.
In the changed market situation, we managed to increase our net sales in the wood products technology business by 11 percent, and were particularly successful in the maintenance service business.
Our profitability improved more than our net sales grew. We achieved a clearly positive result throughout the reporting year, after the losses in 2003. The restructuring measures and continuous development in recent years have contributed to the improvement in profitability. The operating result of our North American operations improved clearly and had a slightly positive effect on the Group’s result.
Our technology and products are highly competitive – in many products, we are the market leader. We have succeeded in introducing new products that both save our customers’ production costs and help to reduce the burden on the environment. The market position of our maintenance services was strengthened by the development of service products and local services.
The year 2005 has had a promising start. The market situation in the wood products industry is favorable, and the capacity utilization rate and value of orders in hand are high. The demand for wood products technology is now lively. Several complete plant projects are in the negotiation stage, but the emphasis of demand will remain on modernizations and maintenance. This year Raute will also be able to turn the focus of development from dissolving and divesting of old to creating and building of new. I would like to thank our customers, personnel, shareholders, and other partners for their trust and cooperation during the past year.”
Market situation
Market situation in the wood products industry
The demand for plywood increased in most parts of Europe, and was particularly strong in Russia. The prices rose from the previous year and remained at a reasonable level. In North America, the market situation was favorable and the price level high. In Asia, the development was slowed down by the limited availability of suitable wood raw material, and by unstable political conditions in some countries with major plywood industry. In China, the growth in the demand for plywood is strong as a result of urbanization and related construction industry.
The demand for laminated veneer lumber (LVL) continued to increase in North America and Japan and in the European countries where it has an established position. As a result of the growing demand, additional capacity will be introduced in the market in the near future.
The growth of the demand for engineered wood flooring (EWF) is strongest in Asia and Eastern Europe. The hard competition has kept the prices unchanged.
Demand for wood products technology
The improved market situation in the veneer-based wood products industry triggered smaller-scale modernization investments that improved the recovery from wood raw material, the efficiency of production and the quality of the end products. Complete plant investments were characterized by uncertainty of realization and timing, and the projects progressed slowly. Some investment decisions were made on complete plant projects, but they did not reach the implementation stage in 2004.
Investment demand remained high throughout the year in Russia, where the volume of plywood production increased remarkably and stricter product quality requirements were introduced. In Western Europe, the demand was also exceptionally brisk. In Finland, the focus was on modernization and maintenance services, whose demand grew considerably, as customers invested in the development of their existing production capacity.
In North America, the improvement of the capacity utilization rate in the plywood industry triggered mainly smaller modernization projects, whereas no new capacity was built. At the end of the year the investment demand picked up, particularly in Canada.
In Indonesia and Malaysia, the major plywood producing countries in Southeast Asia, investment demand continued to be low. In China, the volume of plywood production grew strongly, but the growth relied on traditional production processes characterized by manual work. With the exception of some individual investments, 3/15 China’s plywood industry did not yet generate demand for state-ofthe- art manufacturing technology.
In South America, Australia, and New Zealand, the plant projects implemented in previous years have increased the production capacity. Due to the growth of the plantation forest resources, the investment demand is still focused on building of new production capacity.
Order intake and order book of the current business The volume of new project orders received in 2004 was Euro million 68.4 (Euro million 62.8). The main market areas were North America, Russia, and Western Europe. The orders consisted mainly of modernizations of existing capacity in the plywood industry, compared to several orders for complete plant projects received in 2003.
The largest new orders comprised pressing and peeling lines to Russia, a peeling line to China, veneer drying lines to Canada, and panel handling line machinery and peeling line modernization to Finland.
The volume of orders in hand in wood products technology Euro 32.2 million (Euro 22.1 million) increased from the previous year.
Competitive position
Raute’s market position as a supplier of complete plant projects is traditionally solid. Successful deliveries have proved Raute’s good delivery capacity also in smaller-scale projects with tighter delivery schedules. Raute’s position as the global technology leader in the softwood and birch plywood industry strengthened.
Its position as a technology supplier for the South European poplar plywood industry was established.
Product development resulted in many innovative solutions that improve the recovery from raw material, increase the productivity of the work force, and improve the quality of end products. These solutions also help reduce the burden on the environment. New technologies and products have been received very positively on the market.
Efforts taken to develop the maintenance service business improved Raute's market position, particularly in Finland and North America. These services cover the entire life cycle of the production machines.
Development of operations
The high demand for small modernizations and maintenance services with tight delivery schedules presented new challenges on Raute's operational and delivery capacity. Short delivery times were met by improved internal efficiency, increased subcontracting and improved efficiency of global purchasing operations, and by developing of operating models.
The pressures resulting from the higher prices of steel and other goods on our costs were suppressed by developing the subcontractor network. New financial and ERP systems were implemented at the 4/15 Nastola and Jyväskylä units. These systems reinforce particularly the product base and delivery project management.
The restructuring of the North American operations, i.e. the transfer of technology management and the production of key machinery to the Nastola unit, was completed as planned. The unit in Canada concentrates in maintenance services, modernizations and sales in the North American market.
At the Nastola unit, efficiency was improved and the cost structure was streamlined by outsourcing support operations. At the end of the year, a development project was launched to improve the profitability and competitiveness of the parts manufacturing in Nastola.
The decision was made to develop the Jyväskylä unit into a technology centre for panel handling machinery and systems.
Net sales and profits
Group
The Group’s net sales for the fiscal year, Euro 81.2 million (Euro 97.6 million), decreased by 17 percent from the previous year, due to the divestment of the Raute Precision business. The Group's operating profit amounted to Euro 5.1 million (Euro -3.3 million), and profit after financial items totaled Euro 5.8 million (Euro –2.3 million). The value of the Group’s order book was Euro 32.2 million (Euro 38.8 million) at the end of the year.
The capital gains of Euro 3.0 million on the sales of the shares in Raute Precision Oy on February 24, 2004, included in other operating income, improved the profits for the fiscal year. The Raute Precision business operations were consolidated in the Group’s income statement for the period of January 1 to February 24, 2004.
Current business (proforma)
Since February 24, 2004, Raute has concentrated on the wood products technology business, which was previously reported as the Raute Wood business group. Raute Precision sub-group’s net sales outside the Group, Raute Precision sub-group’s results, and the capital gains on the sale of the Raute Precision business have been eliminated in the Group proforma figures.
These figures are comparable with the Group’s current business.
Raute’s (proforma) net sales for the fiscal year, Euro 73.8 million (Euro 66.7 million),increased by 11%. Western Europe accounted for 31% (24%) of the net sales. North America's share decreased to 20% (31%) whereas Russia’s share more than doubled to 20% (8%). Asia accounted for 7% (4%). As for other market areas, South America 13% (17%) and Oceania 9% (15%) remained at a high level due to the final deliveries of complete plant projects sold in 2003.
The net sales of the maintenance service business and other services, Euro 17.4 million (Euro 14.4 million), grew during the fiscal year by 21%, and accounted for 24% (21%). A significant part of the growth resulted from domestic contract and annual maintenance 5/15 services, including the necessary spare parts, and from modernizations.
The operating profit for the current business, Euro 2.2 million (Euro - 2.7 million), improved from the previous year. The improvement resulted not only from the growth of net sales but also from the restructuring of operations, which had a permanently positive effect on the cost structure. The effect of the North American operations on the operating result was slightly positive.
Raute Precision
On February 24, 2004, Raute Group divested the business operations that were previously reported as the Raute Precision business group. The effect of the Raute Precision business and its divestment on the Group's net sales was Euro 7.4 million (Euro 31.0 million), and on the Group’s operating profit Euro 3.0 million (–0.7). The capital gains of Euro 3.0 million are included in other operating income.
Changes in business operations during the fiscal year
Raute Group concentrated on wood products technology and divested its shares in Raute Precision Oy on February 24, 2004 to a company owned partly by funds managed by the venture capital company Eqvitec Partners Oy and partly by the operative management of Raute Precision. The debt-free sales price was Euro 7.4 million.
The accounts of the partly Raute-owned real estate company Eloc Oy have been consolidated in the Group’s figures since the beginning of 2004.
The accounts of the associated company Mecano Group Oy, of which Raute Oyj owns 49.92%, have been consolidated in the Group’s figures since the beginning of 2004. Based on a shareholders’ agreement, Raute will purchase the remaining Mecano Group shares at the beginning of 2005.
Raute GmbH, a subsidiary owned entirely by Raute Oyj, has been dissolved.
Changes in business operations after the fiscal year
At the beginning of January, Raute Oyj and Nordea Bank Finland Plc signed a market making agreement that meets the requirements of Liquidity Providing (LP) operations at Helsinki Exchange.
At the end of January, Raute established a maintenance service company in St. Petersburg, Russia. The entirely Raute-owned subsidiary Raute Service LLC, provides spare parts and maintenance services to Raute’s customers in Russia. The operation will start early in 2005.
At the beginning of February, Raute Oyj signed an agreement to transfer the voluntary supplementary pensions insured in Raute’s pensions fund to Henki Sampo life insurance company.
Financial position
The Group’s financial position remained good. The liquid assets amounted to Euro million 9.5 (Euro 13.5 million). The gearing was –32% (–18%) and the equity ratio 56% (41%). The balance sheet totaled Euro million 45.2 (Euro 63.5 million).
The cash flows from operations and investments were positive by Euro 0.3 million (Euro 1.7 million) and Euro 7.8 million (Euro -0.4 million), respectively.
In August, Raute Oyj established a domestic commercial paper program of Euro 10 million, arranged by Nordea Bank Finland Plc. The program allows the company to issue commercial papers with maturities of less than one year. In connection with the rearrangements of financing, Raute Oyj signed long-term bilateral credit facilities to a total of Euro 15 million with Nordea Bank Finland Plc, Danske Bank A/S, and Svenska Handelsbanken AB.
Investment and R&D expenditure
The Group’s investments totaled Euro 1.5 million (Euro 1.5 million) and were mainly related to the updating of information systems.
The R&D expenditure of Euro 3.2 million (Euro million 2.7) accounted for 4% of the Group’s net sales. For the current business, the R&D expenditure accounted for Euro million 3.1 (Euro million 2.2) and was 4% (3%) of the net sales. The increase of the R&D expenditure in euros is mainly a result of the consolidation of Mecano Group Oy in the Group numbers.
Personnel
The number of personnel decreased clearly from the beginning of the year, due to business divestments and restructuring. The number of personnel in the Group was 543 (758) and in the current business 543 (560) at the end of the year.
Periodic layoffs were employed to adjust to the variations in workload, typical for project business. The restructuring implemented in 2004 will reduce the number of personnel in Finland by a total of 49 persons later in 2005.
Raute continued to develop its competence in order to improve customer satisfaction and competitiveness, and to meet the special challenges of smaller-scale deliveries with tighter schedules. In addition to wood products technology, training focused on project work and maintenance business. The professional qualifying examinations taken by the employees reinforced their competence and multiple skills in the core fields of production.
Organizational changes
Raute’s President and CEO Mr. Risto Mäkitalo resigned to join another company on February 9, 2004. Ms. Arja Hakala, Chief Finance Officer, was appointed interim President and CEO followed by Mr. Tapani Kiiski, who was appointed new president and CEO on March 16, 2004.
On June 1, 2004, Raute's Board of Directors confirmed the members of the Executive Management Team as follows: Mr. Tapani Kiiski, President and CEO; Ms. Arja Hakala, CFO; Mr. Petri Strengell, Vice President, Technology and Operations; and Mr. Bruce Alexander, President of North American Operations. Mr.Timo Kangas, Vice President, Maintenance Service Business, was appointed to the Executive Management Team on September 22, 2004.
Shares
The trading volume of A shares for 2004 totaled 568,922 shares, valued at Euro 4,631,605. The highest and lowest quotations were Euro 8.90 and Euro 7.10, respectively. At the end of the year, the share closed at Euro 7.70. The number of shareholders totaled 772 at the beginning and 921 at the end of the year.
In April 2004, a total of 4,900 K shares were converted into A shares after which the number of K shares is 991,161 and A shares 2,823,447, totaling 3,814,608 shares. Market capitalization on December 31, 2004 totaled Euro million 29.4, with the K shares valued at the value of A shares.
Annual general meeting
On March 16, 2004, Raute Oyj’s Annual General Meeting adopted the financial statements for 2003 and resolved to distribute a dividend of Euro 1.00 per share. The dividend was paid in two parts, on March 26, 2004 and December 16, 2004.
Mr. Jarmo Rytilahti, M.Sc. (Econ.), was elected Chairman of Raute Oyj’s Board of Directors, and Ms. Sinikka Mustakallio, researcher, was elected Vice Chairman. Mr. Mika Mustakallio, M.Sc. (Econ.), was elected to the Board as a new member. Mr. Panu Mustakallio, Mr. Markku Nihti, Mr. Pekka Paasikivi, and Mr.
Heikki Lehtonen continued as Board members.
All the Board members are independent of the company, and the Chairman of the Board (Jarmo Rytilahti) and three of the members (Heikki Lehtonen, Markku Nihti, Pekka Paasikivi) are independent of the company’s major shareholders.
Mr. Kari Miettinen and Ms. Lotta Mäkelä, Authorized Public Accountants, were re-elected as auditors, and PricewaterhouseCoopers Oy, Authorized Public Accountant, was elected as deputy auditor.
Adoption of ifrs-based accounting standards
Beginning in the first quarter of 2005, Raute Group will start to apply the accounting principles based on IFRS (International Financial Reporting Standards). A bulletin describing Raute Group’s transition to the IFRS standards and the transition period reconciliations of the effects of IFRS on the Group’s previously reported shareholders’ equity and profit will be issued before the publishing of the year’s first interim report.
The project to change over to IFRS reporting has proceeded as planned. The opening balance sheet on January 1, 2004 was prepared in accordance with the standards and interpretations valid on December 31, 2004. The effect on the Group’s shareholders’ equity on January 1, 2004 is not significant. The most important positive changes result from the activation of R&D costs and the receivable from the defined benefit pension plan in Raute Oyj's Pension Fund. The shareholders’ equity is decreased by the deferred liabilities from the defined benefit disability pension covered by the Employers Pensions Act, specifications of partial debiting principles, and depreciations from real estate revaluations.
Board’s proposal to the annual general meeting
The Board of Directors will propose to the Annual General Meeting on March 22, 2005, that a dividend of Euro 0.40 per share be paid on A and K shares, totaling Euro 1.5 million, on April 5, 2005. The balancing date is March 29, 2005.
Prospects for 2005
The favorable and steady market development in the wood products industry is estimated to continue, and the investment demand remain brisk. The demand will continue to focus on production line and modernization projects. The growth of the maintenance business is estimated to continue. Capacity-increasing plant-scale investments are at the planning stage in many market areas, but there is still uncertainty regarding their realization and timing.
Raute’s competitiveness is traditionally strong in complete plant projects. New technology and successful deliveries have made Raute highly competitive also in smaller-scale projects with tighter delivery schedules.
The high demand for smaller modernizations, the growth of the maintenance business, and the planned complete plant projects, result in positive prospects for Raute in 2005. The new products launched in the market also improve the competitiveness of Raute’s technology. The restructuring of operations has permanently improved the profitability. We will continue to improve customer orientation, cost-efficiency, and the management of cyclic variations.
In 2005 the net sales from the current business is estimated to increase and the profitability to improve.
