Koskisen published its Q3 results this morning. We will discuss the earnings report with the company's CEO, Jukka Pahta. Hello, Jukka!

Hello, Antti.

Let's start with the traditional question about Q3. How did you do? As a group and by business area in Q3.

Well, considering the circumstances, we can find it moderate. Growth continued further. 300 million now for the first 9 months. Sales. 11th consecutive quarter of sales growth, meaning that the execution of our growth strategy is progressing by business area in this manner.

In the Sawn Timber Industry, growth came mainly from the Sawn Timber Industry, but profitability there is under high pressure. That is, we remained at a fairly weak level in EBITDA, and it was weighed on by various costs. Starting from raw material. Well, wood, logistics, energy, and so on, and in the Panel Industry, on the other hand, we were clearly better than last year at the EBITDA level. Well, it stayed. It stayed, however. The EBITDA was just under 2 million, but nevertheless an improvement from last year, and this was particularly affected by increased delivery volumes of birch plywood.

And then there in the core business. We got some more delivery volumes, but it was certainly also affected by the fact that the start-up after our summer shutdown and the actual processes related to it, such as shipping and sales of goods and the like, succeeded better this year than last year.

Indeed, this market situation continues to be colored by the gloom of construction, and especially residential construction in the Sawn Timber Industry, but partly also on the panel side. Did you notice any changes in this market situation one way or the other during Q3?

Unfortunately, we haven't clearly seen changes for the better in that way yet. It is. It is, however. Of course, everyone knows about the boom in infrastructure construction within the construction sector, which is largely related to data centers and the like. But residential construction is consumer-driven, after all. And if consumers look at the moment, interest rates are high. The prospect that interest rates might rise a bit more still exists, and through this, that kind of sentiment is not very strong. And then demand. Of course, residential construction cannot grow, so unfortunately it wasn't seen yet at this stage.

But you still don't see that the rise in market interest rates has further weakened the situation.

I somehow see it in such a way that we are currently experiencing a rather prevailing low flight, meaning that we are flying at a pretty low level in terms of demand, but there haven't been any signals that it would have dipped significantly.

The United States is not a direct major market for you, but it is nevertheless a very large sawn timber market, accounting for around a third of total consumption. Long-term mortgage rates there are at 7 percent. And this naturally means that it is difficult for new buyers to enter the market. And then refinancing loans is also difficult. So, do you see that this housing construction cycle and sawn timber demand can recover in other markets if the US does not recover? And how on earth can the US recover from this deadlock?

That is quite a question, you know, how the US will recover in itself. Well, and that was quite interesting. So now that they had midterms there. And now when you look at the discussion there and experts are asked what factors could potentially be politically influenced regarding this affordability issue. Well, of course, the war in Iran is one, so that we can bring oil prices down. But one thing that comes up there is getting housing construction increased. That it sort of. Now on this new agenda of the Democrats. I believe that it will now also rise to the top there, as to what we can do to make housing construction start recovering.

The situation is indeed not easy if you consider that there are indeed 30-year mortgages where the interest rate has been between two and four, perhaps 2–3 percent, and now it is seven and a half. Well, that means people won't pay off that old loan and finance a new one, so then trading doesn't happen there either. Old buildings or homes don't come onto the market. So the whole dynamic of the secondary housing market is missing there. Which of course in itself would fuel renovation construction and also fuel the demand for new homes. Now the only way someone can get into the market, so to speak. Is that one should have the ability to buy a new home. And that is then, um. Especially for a beginner on the housing ladder, that is difficult. But it is a very difficult question how one can get out of there.

The fact that a broad-based recovery happens somewhere else, which would systematically raise global sawn timber demand, surely one is then China, since it is so large in scale that if construction recovers there, it will surely also start drawing flows for its own use. But that is not necessarily, at least from our perspective, the relevant market that will come. Well, much like the USA isn't, and then it just sort of opens up potential elsewhere. But indeed, the two largest economies in this sense are of course China and the USA.

And Europe alone won't be the locomotive.

Europe won't, even though we know we have. We broadly have places and countries where too little has been built. So there now when you look at what, e.g. Spain is currently experiencing, there are massive general strikes because people can no longer afford homes. We know that in the Netherlands the situation has long been that a million new homes should be built there, but for one reason or another that is just not happening now, which is why we have mentioned that when there is such pent-up demand and at the same time we see that on the sawn timber side, at least in the short and medium term, supply is going to go down, at the point when it opens up, that demand gate, it can open up quite broadly, so we consider it probable that a strong cycle will emerge from there. But timing it is very difficult to predict. [empty]

Well, let's jump to the birch plywood side then. This has been your core business for a long time. It is driven by the logistics sector. Did you notice any changes in demand and market conditions on that front in this Q3?

Well, it indeed. The market situation has remained just as challenging there. And there, of course, we see. That the logistics sector there is kind of. There is heavier logistics and lighter logistics. And it is particularly difficult there when that heavy logistics trailer business, so to speak. So there also this prevailing situation has caused those trailers not to be. Demand isn't necessarily that high, and they are not replaced in the exact same cycle as before, so that general demand is lower there, meaning the market is by no means easy or yielding.

Sort of, it certainly requires really active sales work for us to then get from our current customers. And of course, we are also looking for new opportunities. So active work there to find new opportunities to assemble our sales, so to speak. It is not. The situation on that side is not really different in that way.

Are you satisfied with the success of your sales, especially on the birch plywood side, for the entirety of this year?

Yes, I'm satisfied with it in the sense that what we've planned in terms of capacity has been produced, and it also exists. We've also managed to sell it to customers, so in that sense I'm satisfied. And as I said, the situation isn't easy for salespeople to find deals when customers are operating very much from hand to mouth. That is, they always buy only according to need.

In a way, we've performed well, but as I said just now, our intention is still to grow in terms of volume next year on the birch plywood side as well. And in this market, that of course means that not only does production need to work better, but sales must certainly also be able to do even better. And that of course is its own challenge. And our sales and sales management. They certainly know that this is the goal. Understood.

Let's move on to the timber market then. The price of standing timber. Is high, and no seasonal decrease, which often hits H2, was seen this year. At the same time, the industry's economic cycle, meaning demand, is weak and profitability is at a subdued level, so how would you describe the supply of saw logs?

At the moment, there is a supply of saw logs. The situation is twofold. Meaning these pure, in a way log-heavy stands of timber. So there is supply there, but of course there is also demand, because when the other side, meaning stands that have more of that thinning-oriented timber and pulpwood and so on, on that side the price of pulpwood has come down so strongly that there isn't quite the normal amount of supply there. Then of course that demand has shifted to some extent to that log-driven trading in those stands as well where that pulpwood is present. So if that pulpwood isn't paid for, then of course a price has been put on that saw log so that they can be moved from there. So in that sense, um. In that sense, it's a bit of an unfortunate situation right now that normal-level trading hasn't taken place during this year. If you look at those statistics right there.

How much leeway do forest owners have to postpone that thinning work if they want to do so. Are we talking about years or what kind of timeframe?

I can't say. I feel that it is very much, of course, the forest owner's own personal situation, how they view their own forest property. And then of course different forests are at different stages of their life cycle. But to my understanding, it's sort of already. Well, I can't even speculate what that timeframe is. But. Forests, of course. They need to be managed, and that also involves thinning felling of course, but I can't comment on it any further.

Fair enough. You have. Traditionally had a strategy of running production at full capacity, but since this timber market is what it is, do you consider it possible to optimize profitability by reducing production volume and also avoiding higher saw logs? Saw log purchases.

Well, actually we have. We've been saying for quite a long time already that we aim to avoid those peak prices in any case. So our own roundwood sourcing is alert in such a way that we certainly have certain frameworks within which we then operate. And then if we see that prices are getting completely crazy, then we usually aren't involved in them. Or at least not winning those bids.

We. Our philosophy, especially now that we've invested a lot. We must be, and we are competitive, so our philosophy is that we seek volume growth and then aim to find ways to improve profitability through developing our own operations. But. At least in the current situation, the strategy of starting to reduce production is not on the horizon at this stage.

This gave us a good bridge to the development of our own operations. You announced this week that you are launching change negotiations with the personnel to streamline and make production and the organization more efficient. Can you tell us a bit about what your goals are with these measures and how the benefits will then be achieved?

Yes, well this is an early stage right now, since we've just announced it and we've started cooperation or change negotiations. Meaning we don't have any decisions yet, nor have these discussions been directly started with employee representatives yet, so it's early to start commenting on anything of course.

But on a general level, there is the aspect that we are looking for ways to simplify existing organizations. And then sort of clarify the areas of responsibility of certain functions. We strive to get certain functions closer to the actual work itself, meaning there. Let's talk about safety or quality and others, we strive to give the individuals who manage those production units sufficient resources and tools so that they can broadly oversee the success of their own production unit. And this then means transferring certain functions. For example, from a centralized function closer to the factory and so on. Things like that are there.

Well then I talked about that. I think I mentioned just now that since we've said we want to grow on the plywood mill side, it involves ensuring, through our own internal arrangements as well, the resource so that we have workers there. Instead of us starting to add them through external recruitment now. Job description changes like this are coming. And then in relation to this general uncertainty, layoffs are also being negotiated at the same time. Layoffs related to the possibility that if we need flexibility at some point, we will also have that option ready.

You've had quite a strong investment period actually ever since you came to the stock exchange. So, how would you describe the investment outlook for the coming years? What are the key projects regarding investments for next year?

Well, I mentioned about that just then, that back a few quarters ago it was discussed that our investments will be or will go closer to the level of depreciation. Well, now that we've of course invested a lot, our depreciation level has simultaneously risen somewhat, and we've gone through actually the biggest investment needs. We've said that we've invested extremely heavily in the Sawn Timber Industry and in key areas of the Panel Industry in significant amounts already, so now we are looking at it from the perspective that at least for next year we will clearly pull our planned investments well below that depreciation level. Let's focus then on ensuring that what is done is done efficiently and in a way that doesn't disrupt production.

The investments to be carried out there are actually, let's say two. If. If we think about the Panel Industry and the Sawn Timber Industry, then in the Sawn Timber Industry. Well actually the one that I can mention here and mentioned just now is that. So-called green sorting. Meaning there is the trimming building. We have two different trim lines, so modernizing the number one trimmer, that's quite a significant one by which we once again unlock the bottleneck towards releasing the production capacity of 450,000 cubic meters at the Järvelä production unit, so we have a program there where the first phase has been done. The second phase will be done now at Christmas. And the third phase is scheduled for June, during the summer shutdown next year, so that is perhaps the most significant investment for next year.

What about the Panel Industry side? That investment program you have ongoing was originally planned to be three years long. To my understanding, the first year is big and the second is smaller. Will there be a third, and will it be smaller somewhere?

Well, it will be smaller. We have. We now have investments there too, but it's perhaps more of a kind where we certainly invest there, but now there won't be anything major, rather there will be several smaller ones from which, when we look at the total pot for next year, it will then remain smaller than what the previous two years have been, and these two together, the Sawn Timber Industry and the Panel Industry, will then be clearly below that depreciation level.

That is clear as well. Let's take a peek into the crystal ball for next year or towards next year at the end. What are the key risks and opportunities by business operation if we think about the outlook for next year and the coming years?

Risks and opportunities. That's a good question. The risk is that this kind of. Low sentiment continues further and that somehow on top of this, some other shock is found that then escalates for some reason, so that is. That is a risk that is unfortunately always present in the current atmosphere. And of course as a risk, if it can be considered a risk, that if the cost level continues like it is now and then recovery doesn't happen in the market due to the reasons mentioned just now, then that ability to get profitability clearly upwards. Well, that is challenging.

Well, then of course our opportunity, at least the one that is in our own hands, is that we take these deliberate measures of our own to improve our operations. For us, the customers we serve and provide products to are essential, so we need to be very agile there, deliver the products they want, and also develop products with them so that it brings them even more added value. And then what we promise to them should of course be implemented as efficiently as possible in our own operations. And mastering that chain is our opportunity. And I believe we certainly have potential in that.

Right, towards that then. Thank you for the interview, Jukka. Thank you.