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Ponsse's Interim Report for 1 January - 31 March 2022

Ponsse's Interim Report for 1 January - 31 March 2022

JUHO NUMMELA, PRESIDENT AND CEO (26 March, 2022)
At the beginning of the first quarter, the forest machine market outlook was at a good level. Russia’s invasion of Ukraine led to a deterioration of the situation and subsequent closure of the large forest machine market. In other market areas, the company’s demand was good throughout the quarter, and the order flow in these areas continued to develop positively. Our efforts to quickly find new customers for the machines pulled from the Russian market were partly successful. Order intake for the period under review totalled approximately EUR 200 million. All machine orders for Russia were removed from the order books, which impacted the order intake by EUR 109 million. Order intake for the period under review was net EUR 90 million. At the end of the review period, the company’s order books stood at EUR 356.2 (308.0) million.

During the last quarter, we finally experienced positive growth and our net sales increased by approximately six percent to EUR 173.7 (163.4) million. The fastest-growing business areas were maintenance services and our technology company Epec Oy. The good working situation of our customers was reflected in the strong growth of our maintenance services. Following the withdrawal of wood and sawn timber exported from Russia from the European market, the volumes of harvested timber are expected to grow. This will have a positive effect on the near-term demand in the European forest machine market.

Ponsse condemns the Russian invasion of Ukraine. The crisis in Ukraine has a significant impact on Ponsse’s operations and finances. All export operations for machines and spare parts to Russia and Belarus were suspended following the company’s announcement on 2 March 2022. Ponsse has also discontinued temporarily the operations of the Russian subsidiary. Ponsse’s products subject to export sanctions include forwarders and related maintenance, training, spare parts and digital services. Ponsse has approximately 3,000 forest machines in the scope of maintenance services in Russia, the life cycle services for which include various local contracts and obligations. We are monitoring the situation and seeking responsibly for solutions to contractual obligations. It is important that we are able to ensure the safety of the management of our subsidiary and local Ponsse’s personnel.

Russia has been the world’s largest market for CTL machines, accounting for 20 per cent of Ponsse’s net sales in the previous financial year. Our Russian subsidiary OOO Ponsse has been the largest business branch of the Ponsse Group. It will be challenging to offset the business of such scale.

The war in Ukraine is still severely hampering the availability of parts and components. There is a shortage of semiconductors, castings, hydraulic components and transmission components in particular. The European steel market is also in a difficult situation. Component availability issues combined with challenges related to raw materials and energy have elevated inflation to extraordinarily high levels. This will affect Ponsse’s profitability in the coming quarters. We were forced to raise prices for our products, however, with no immediate effect because our long order books. The machines that will be completed in the next few months have been sold to our customers almost a year ago, when the product costs were clearly more moderate.

The difficult situation with the availability of parts and inflation were clearly reflected in our profitability in the last quarter. Our operating profit decreased significantly and our relative profitability accounted for 7.2 (10.3) per cent. In addition, profitability was hampered by growth in operating expenses that increased faster than revenue. Cash flow amounted to EUR -24.2 (14.8) million. The capital was temporarily tied up in inventory of machines not delivered to Russia, unfinished products awaiting components and stock of raw materials. The inventory turnover and level of trade-in machines remained good. The company’s solvency is at a very good level.

In this difficult situation, we have minimised the implementation of our investment plans and rigorously focused on prioritisation of our operations. Our subsidiary Epec is proceeding according to the normal investment plan; for the other subsidiaries, the situation will be assessed separately. The company evaluated different scenarios of the crisis impacts on our operations. We will continue to vigorously develop Ponsse using all available resources and effectively invest in our product technology and solution offering while ensuring productivity improvements in each of our operations.