Translation: Original published in Finnish on 12/13/2024 at 7:00 am EET.

The investment program for volume growth, quality improvement and efficiency gains is a multi-year program with a total investment of 12 MEUR in 2025. We believe that the dynamics of the birch plywood market and the stage of Koskisen's growth strategy justify investing in Panel Industry. The investment program puts slight upward pressure on Koskisen's revenue, earnings and investment forecasts for the coming years. Raute has been part of Koskisen's supplier base and we believe that Raute has the potential to win small individual orders for equipment, modernization and/or automation through Koskisen's program in the coming years. 

Investments of 2 MEUR are planned for next year under the three-year program

Koskisen announced yesterday that it will launch a major investment program in the plywood production of its Panel Industry unit in Järvelä. The investment program runs until the end of Koskisen's strategic period in 2027. The first phase of the investment program will be implemented during 2025 with a total value of approximately 12 MEUR. The entire program will increase Koskisen's plywood production capacity in Järvelä by around 30% to 85,000 m3. The investment program will enable volume growth in Panel Industry, streamline production and facilitate related internal logistics. The investments to be made will also include the automation of production stages.

Shifting focus to Panel Industry was an expected move

We did not find the investment program particularly surprising, as Koskinen's investments have been heavily focused on the Sawn Timber Industry in recent years. Koskisen also indicated in the Q3 report that the investment focus will shift to Panel Industry starting next year. In Panel Industry, despite the weak economic cycle, the market in Europe (the main market for birch plywood) is severely supply constrained, with Russian production, which accounted for up to 60% of supply, largely out of the picture so far (apart from dodging sanctions). This dynamic could justify a more aggressive effort to increase capacity, but the availability of birch wood is a limitation. However, we estimate that Koskisen's has the capacity to moderately purchase more birch logs, given the increasing sawing volumes (cf. the new sawmill in Järvelä) and the necessary wood procurement. Continuously striving for the top of the quality pyramid is also a key part of Koskisen's competitiveness. In addition, the plywood industry is still labor intensive, especially in certain sub-processes, so investments in automation have the potential to reduce costs. We see the investment program as a logical continuation of Koskisen's growth strategy.

We expect Koskisen's investment levels to decline from the high levels of recent years to a clear range of around 15-17 MEUR per year (including maintenance) in the coming years. As a result, the 12 MEUR investments now announced for next year and the continuation of the investment program in 2025-2026 will put moderate upward pressure on our investment forecasts for the coming years. Similarly, as capacity increases, our revenue and earnings forecasts for Koskisen may be subject to volume-driven upward pressure. We estimate that Koskisen will be able to finance the entire investment program from current cash and cash flow generated by the business, although the total program is likely to be significantly larger than the 2025 allocation.

Raute can receive orders for individual machines from the program

We estimate that Raute has supplied a significant part of the equipment for the Järvelä sawmill. Raute's offering is also very competitive, especially for machines with a high degree of automation. Therefore, we consider it likely that Raute will supply at least part of the equipment and/or modernizations in Koskisen's investment program. For Raute, individual equipment orders are typically between 1 and 5 MEUR, while modernizations and pure automation deliveries are smaller deals on average. As such, their importance as individual orders would be small on Raute's scale, but to achieve a good annual order intake, orders need to be collected from several different fronts.