Interim Report: Bergs grows in wood processing and implements structural measures

The second quarter of the year was negatively affected by the generally deteriorating construction market. This is particularly noticeable in the Swedish market, where activity in new construction and renovation has decreased significantly. During the latter part of the quarter, we saw slightly improved activity from the building materials trade and increased sales volumes for Wood Solutions. Order intake and results for Doors & Windows continued to be good.

Considering that the second quarter of the year is normally a favourable quarter, the result is disappointing where EBITDA, excluding items affecting comparability, amounted to SEK 23 million compared to SEK 173 million the previous year. Net sales amounted to SEK 793 million compared to SEK 1,009 million the previous year. It is gratifying that the cash flow was strong and amounted to SEK 77 million compared to SEK –18 million the previous year.

MARKET
The market for our window and door business has remained favourable, although the time between quotation and order has increased slightly. We also see a good order rate for furniture for Hedlunda, the company that was acquired at the end of June. Sales of wood-protected products have been significantly lower than in previous years. Higher interest rates and high inflation have had a negative impact on demand and sales, especially in the DIY sector.

The deliveries of sawn timber products have generally been quite good during the quarter and the stock statistics point to normal stocks. As the profitability of the sawmills deteriorated and the availability of raw materials decreased, we are now seeing a lower production rate for European sawmills. Despite the improved inventory balance, price increases during the quarter have been marginal and there is continued uncertainty ahead of the autumn.

ACQUISITION OF HEDLUNDA
At the end of the quarter, the acquisition of Hedlunda was completed. The company, which has production in Sweden and Poland, has in the last twelve months had net sales of SEK 590 million and an EBITDA of SEK 72 million. Together with our existing sales of furniture components on the English market, Hedlunda will form a new product area, Furniture & Components. The new product area will be reported from the third quarter. The acquisition of Hedlunda fits well with Berg’s strategy to expand and broaden the Group’s operations within wood processing.

STRUCTURAL MEASURES
Our sawmill in Estonia, Laesti, has a vulnerable position with high production costs and investment needs. Various options for the future of the unit have been evaluated. In light of financial development and the challenges facing the business, a decision has been made to discontinue the operations. This means that the sawing operations will cease in August and that the entire operation will be phased out in the autumn of 2023. The closure affects about 30 employees. Laesti had during the last twelve-month period net sales of approximately SEK 100 million.

The closure will affect the result for the second quarter with SEK 40 million for impairment of fixed assets and closure costs. Cash flow is estimated to be positively affected by approximately SEK 70 million when the discontinuation of operations is completed. A letter of intent has been signed with the Estonian company Warmeston OÜ for the sale of land, buildings and machinery and the transaction is expected to be completed in the third quarter 2023.

In July, Berg’s English subsidiary Baltic Wharf Properties, which owns the port at Creeksea, entered into an agreement to divest a small part of the property to an existing tenant. The buyer intends to expand it’s operations in the port. The purchase price amounts to approximately SEK 22 million and the result to approximately SEK 10 million. The effect will be reported in the third quarter.

PERFORMANCE BY PRODUCT AREA

DOORS & WINDOWS
Despite the declining construction activity, we have continued growth and a satisfactory margin for our window and door business. During May and June, we have noticed that customers are somewhat more cautious and that the time to order has become longer. Our concept with our own dealers and high level of service means that in this slightly more challenging market situation we can increase our market share. The order back- log for the autumn is satisfactory and ensures full production in our factories for the rest of the year. During the winter, we will open our first showrooms in Poland, starting in Warsaw and Sopot.

WOOD SOLUTIONS
Demand for wood-protected products remains weak, not least in the Swedish market, which is important to us. During the quarter, inventory reductions have been made and we have a lower raw material purchase price for the autumn, which contributes to an improved margin. Our business for garden products has improved and shows a positive margin despite lower sales volume than normal.

SAWN WOOD
Despite the weakened construction market, deliveries have been at a decent level and we see no stock build-up. At the beginning of the second quarter, some price increases were made. During the summer, the market has become more cautious and prices for parts of the range have been adjusted downwards for the third quarter to prices prevailing in the first quarter. Despite the reduced rate of production, there is still uncertainty about the price trend for the autumn and the best assessment at present is a minor price decrease.

Our sawmill Vika Wood in Latvia has a satisfactory raw material situation and continued low stocks of finished goods. We plan for normal production rates for the rest of the year.

ENERGY & LOGISTICS
Deliveries of pellets during the second quarter have been good for the season. Sales prices have stabilized and we expect rising prices for the coming autumn and winter. The supply of raw material is currently limited and we expect a reduced production rate of about 20 percent during the second half of the year.

FUTURE PROSPECTS
Doors & Windows is expected to continue to develop well with full capacity utilization in the autumn. We continue to see weak sales volumes for Wood Solutions, while margins are improving due to lower raw material costs. The margins for Sawn Wood are expected to remain low in the autumn. In light of the generally weakened economic situation, we are restrictive with stockpiling and we expect a continued positive cash flow in the second half of the year.

The acquisition of Hedlunda means an investment in a new product area where we see an exciting potential in furniture and component manufacturing. The company will be reported in Bergs from the third quarter and is expected to contribute positively to the Group’s earnings.

Stockholm, 25 July 2023

Peter Nilsson
President and CEO

SECOND QUARTER (1 APRIL–30 JUNE)

• Net sales amounted to SEK 793 million (1,009). The decrease was related to lower sales prices and sales volumes in Wood Solutions and Sawn Wood. Higher sales volumes in Doors & Windows contributed positively.
• Adjusted EBITDA (adjusted for items affecting comparability) amounted to SEK 23 million (173), a decrease mainly attributable to lower sales prices in Sawn Wood and lower sales prices and sales volumes in Wood Solutions. The result for Doors & Windows was on a satifisfying level. The adjusted EBITDA margin was 2.9% (17.1).
• Adjusted operating profit amounted to SEK –2 million (151), corresponding to an adjusted operating margin of –0.3% (15.0).
• Profit for the period amounted to SEK –40 million (153).
• Earnings per share, before and after dilution, were SEK –1.15 (4.41).
• Cash flow from operating activities amounted to SEK 77 million (–18), positively affected by a lower level of working capital.
• Financial net debt totalled SEK 331 million (278) as of 30 June, corresponding to a net debt/equity ratio of 0.19 (0.16).
• Hedlunda, a wooden furniture producer, was acquired on 29 June.
• It was decided to close the sawmill in Estonia. The closure have affected the result for the second quarter with SEK –40 million related to impairment of fixed assets and costs for the closure.
• Items affecting comparability amounted to SEK –45 million and related to the closure of the sawmill in Estonia and transaction costs for the acquisition of Hedlunda.

INTERIM PERIOD (1 JANUARY–30 JUNE)

• Net sales amounted to SEK 1,508 million (1,919). The decrease was related to lower sales prices and sales volumes in Wood Solutions and Sawn Wood. Higher sales volumes in Doors & Windows contributed positively.
• Adjusted EBITDA amounted to SEK 29 million (255). The decrease was mainly attributable lower sales prices in Sawn Wood and lower sales prices and sales volumes in Wood Solutions. The result for Doors & Windows was on a satifisfying level. The adjusted EBITDA margin was 1.9% (13.3).
• Adjusted operating profit amounted to SEK –20 million (212), corre- sponding to an operating margin of –1.3% (11.0).
• Profit for the period amounted to SEK –58 million (216).
• Earnings per share, before and after dilution, were SEK –1.67 (6.23).
• Cash flow from operating activities amounted to SEK 65 million (106).
• Items affecting comparability were the same as recognised in the second quarter.

The Group’s key performance indicators

Note: For a reconciliation of alternative performance measures incl. adjusted EBITDA and adjusted operating profit and corresponding margins, see pages 20–21.