Interim report: Weak construction activity continues to put pressure on earnings

The deterioration in the construction industry continues to have a negative
impact on earnings. The market for sawn timber is unbalanced and
we experienced falling prices for our sawmill products during the period.
Sales volumes in the Wood Solutions business area were low for the
season, but falling raw material costs improved earnings compared with
previous quarters. Sales volumes, order intake and earnings for Doors &
Windows remained favourable. During the quarter, earnings for Furniture
& Components were reported for the first time and, as expected, made a
positive contribution to the Group’s earnings.

EBITDA, excluding items affecting comparability, totalled SEK 29 million,
compared with SEK 46 million in the previous year. Net sales totalled SEK
777 million, compared with SEK 708 million in the previous year. Cash
flow was strong and amounted to SEK 137 million. The Group’s financial
position remains good. Financial net debt at the end of the quarter
totalled SEK 177 million.

MARKET
The market for construction-related products has weakened further,
while we see differences in the development of our various product
groups.

The market for windows and doors for renovation and energy savings
remains relatively stable. Our newly acquired company Hedlunda manufactures
wooden furniture for a market segment where demand remains
favourable and sales volumes are according to plan.

Demand in the DIY sector is weak, which means that our sales volumes
remain low. We have noticed that there is considerable interest in our
more refined products, such as linseed oil-treated products, and sales
volumes continue to increase. During the year, we delivered products to
a number of high-profile projects, which is beginning to have an impact
on demand and earnings.

Despite a reduced production rate among European sawmills, the market
for sawn wood products weakened further during the quarter. Higher raw
material costs and lower sales prices are putting pressure on sawmills’
profitability, resulting in further reductions in production. A turnaround in
demand is not expected in the near future.

STRUCTURAL MEASURES
During the summer, the Board decided to close down our Estonian sawmill,
Laesti. Production ceased in August and the stock of sawn timber is being
sold. The properties and machinery have been transferred to the company
that acquired the assets.

PERFORMANCE BY BUSINESS AREA
DOORS & WINDOWS
The market for our windows and doors remains favourable. Although we
are noticing a longer time between inquiries and orders, we have a good
order intake and full capacity utilisation in our factories for the rest of
2023. The expansion of the number of showrooms continues according
to plan with seven new ones in 2023 and additional five in 2024. We will
also launch a new window type with improved climate performance in
2024.

FURNITURE & COMPONENTS
Demand for the furniture we produce at our Swedish factory in Lycksele
is good and we expect full capacity utilization for the rest of the year. Our
Polish factory, which is adapted for smaller production series, has a
slightly reduced order intake. We see good opportunities to increase
capacity utilization with orders from our English sales company.

WOOD SOLUTIONS
Demand for wood protection and garden products remains weak. At the
same time, there are signs that inventory levels in the distribution chain
are balanced and that the delivery rate for the coming season is
expected to increase from the current low levels. It is gratifying that our
inventory levels are low and that we are now seeing the effect of lower
raw material prices and reduced costs. The work with product development
and increased marketing efforts continues.
In order to clarify our offer and to strengthen our brand, the operations
within Wood Solutions are now conducted under a uniform name. The
former Byko-Lat in Latvia and Bergs Timber UK have changed their
names to Bitus, which was already the name of the Swedish operations.

SAWN WOOD
In line with the decline in construction, the demand for sawn wood
products has decreased. Lower wood product prices combined with
continued high or rising raw material prices are putting pressure on
sawmill profitability. Production curtailments have so far not been
sufficient to restore balance to the market and we still see an uncertain
development during the winter.
Our Vika Wood sawmill continues to limit production rates by about 15
percent and our finished goods inventories are at low levels.

ENERGY & LOGISTICS
The market for pellets is in balance, which during the quarter resulted in
stable prices and margins. During the quarter, we have reduced the production
rate by approximately 20 percent as an adjustment to a lower supply of
raw materials. Our stock of pellets for the upcoming winter season is normal.
Our English port operation are developing according to plan and the results
have gradually improved.

FUTURE PROSPECTS
We expect continued good development for Doors & Windows and Furniture
& Components. Good capacity utilization and partly a lower cost
situation will help us to maintain margins. Wood Solutions is entering a
season with lower deliveries and, despite lower costs, we expect small
margins for the rest of the year. Sawn Wood has another quarter with
squeezed margins, possibly we will be able to see some raw material
price reductions during the winter.

Parts of the business are delivering in line with expectations, while several
construction-related products are lowering our earnings. Cash flow
is expected to remain positive and we are well equipped to act on interesting
business opportunities that may arise in the current market
situation.

Stockholm, 26 October 2023

Peter Nilsson
President and CEO

THIRD QUARTER (1 JULY–30 SEPTEMBER)

• Net sales amounted to SEK 777 million (708). The increase was primarily related to the acquisition of Hedlunda and higher volumes in Doors & Windows.
• Adjusted EBITDA (adjusted for items affecting comparability) amounted to SEK 29 million (46), a decrease mainly attributable to lower sales prices and volumes in Sawn Wood. The adjusted EBITDA margin was 3.7% (6.5).
• Adjusted operating profit amounted to SEK 2 million (23), corresponding to an adjusted operating margin of 0.3% (3.2).
• Profit for the period amounted to SEK –19 million (22).
• Earnings per share, before and after dilution, were SEK –0.55 (0.63).
• Cash flow from operating activities amounted to SEK 137 million (305), positively affected by a lower level of working capital.
• Financial net debt totalled SEK 177 million (34) as of 30 September, corresponding to a net debt/equity ratio of 0.10 (0.02).
• Items affecting comparabilty amounted to SEK 5 million and was related to result from sale of land at the port in the UK, electricity cost subsidie in the Swedish operations and costs for the closure of the sawmill in Estonia.

INTERIM PERIOD (1 JANUARY–30 SEPTEMBER)

• Net sales amounted to SEK 2,285 million (2,627). The decrease was related to lower sales prices and sales volumes in Wood Solutions and Sawn Wood. The acquisition of Hedlunda and higher sales volumes in Doors & Windows contributed positively.
• Adjusted EBITDA amounted to SEK 58 million (301). The decrease was mainly attributable lower sales prices and sales volumes in Sawn Wood and Wood Solutions. The adjusted EBITDA margin was 2.5% (11.5).
• Adjusted operating profit amounted to SEK –18 million (235), corresponding to an operating margin of –0.8% (8.9).
• Profit for the period amounted to SEK –77 million (238).
• Earnings per share, before and after dilution, were SEK –2.22 (6.86).
• Cash flow from operating activities amounted to SEK 202 million (411).
• Hedlunda, a wooden furniture producer, was acquired on 29 June.
• It was decided to close the sawmill in Estonia.
• Items affecting comparability amounted to SEK -40 million and were related to impairment of fixed assets and costs for the closure of the sawmill in Estonia, result from sale of land at the port in the UK and electricity cost subsidie in the Swedish operations.

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