Koskisen Q1 morning result: Result fell slightly as expected, but revenue lagged behind

Translation: Original comment published in Finnish on 5/14/2024 at 9:22 am EEST.

Koskisen's Q1 results published this morning were significantly weaker than the comparison period, but the deviations from our forecasts on the income lines as a whole remained quite moderate. Koskisen reiterated its broad guidance for the year. The company also fine-tuned its strategy for the 2024-2027 period, but the update did not contain any major changes or surprises, and the financial targets remained unchanged. Our preliminary assessment is that the report will not lead to material revisions to our forecasts for the company.

Profitability slightly weakened as anticipated in strike-hit Q1

Koskisen’s revenue decreased 13% in Q1 to 64 MEUR which was quite clearly below our estimate. The earnings miss came mainly from the Sawn Timber Industry, where the port closures due to political strikes in Finland shifted revenue into Q2 even more than we expected. In addition, direct strikes in February and the delayed ramp-up of the new saw line in Järvelä probably weighed on volumes in Q1 (at the end of the quarter, production levels in Järvelä were close to targets). On the other hand, according to our preliminary assessment, the average price in the Sawn Timber Industry seems to have developed slightly better than expected. The Panel Industry's revenue was close to our forecast, probably due to slightly higher volumes and a lower average price than we had estimated. In the Panel Industry, the indirect impact of the strikes on deliveries was less pronounced.

Koskisen's adjusted EBITDA was 5.5 MEUR in Q1. Operating result more than halved from the strong comparison level and was slightly below our forecast. Profitability declined quite as expected in both units. The Sawn Timber Industry underperformed our forecasts in terms of revenue and profitability remained at a sluggish level. The Panel Industry performed slightly better than we expected, but lower volumes and higher birch log prices prevented it from achieving the high comparison figures. In addition, revenue from the sale of emission allowances in Other Activities was significantly lower than in the comparison period and also below our forecast, so that the operating result was qualitatively slightly better than we had estimated.

Depreciation was lower than expected, probably related to the final approvals for the Järvelä sawmill investment in Q1. This turned the slight earnings miss on the operating result into a moderate earnings beat on the bottom line, as there were no surprises on financial costs and taxes. In terms of cash flow, the report was weak as expected, with a clearly negative cash flow in Q1, as the supply disruptions caused by the political strikes tied up capital, especially in inventories. However, we expect the committed working capital to be released in Q2.

Guidance unchanged, as expected at this stage of the year

Koskisen reiterated its guidance for 2024, according to which revenue will grow from last year and the adjusted EBITDA margin will be 8-12%. We felt that the reiteration of guidance was very much to be expected. The market commentary was, in our view, cautiously positive for both businesses, although the still subdued global construction sector does not necessarily indicate a sudden upturn in the market. In addition, the delivery backlogs caused by the strikes will be cleared in Q2 and the summer shutdowns should be shorter than expected. Less surprisingly, high log prices remain a challenge. Our preliminary assessment is that the report will not put significant pressure to revise our near-term forecasts for Koskisen.