Bergs Timber
Bergs Timber - Cuts dividend - permanently closing one mill (ABG Sundal Collier)
2020-03-30 21:26
2020 results will likely be weak (lower volumes, prices)
Closes one sawmill, boosts cash flow by ~SEK 60m
Cuts dividend, but no balance sheet issues
Corona situation: lower volumes and prices in 2020Bergs says it is hard to estimate the effects of the Corona situation, but it has started to see negative effects, particularly in Further Processed (closures of DIY stores). Q1 deliveries have been good and it has also managed to get some price increases. In our view, results are likely to weaken again from Q2. Sales volumes will be weaker (lower construction activity, refurbishments and sales to DIY stores). Prices have already dropped 14% from peak, but are likely to drop further. During the financial crisis, prices dropped 30% from peak to bottom. Wood prices, (the primary cost item) are also likely drop and the SEK has weakened, which is positive. These effects will help, but will come with a lag.
Closes one sawmill, will move production to the other mills
Bergs also announced the result of its previously announced strategic review: it will close the Gransjö sawmill (capacity: 100k m3). This will give a positive cash flow effect of SEK 60m. About SEK 50m of this is related to an inventory release. In Q1, it will book SEK 30m in costs related to the closure (SEK 20-25m in impairments and SEK 6-7m in restructuring costs). In the longer-term, the ambition is to have the same production capacity in Sweden as before the closure, but at three sawmills, instead of four (will require additional capex of less than SEK 100m). In our view, the timing of the closure is good as Bergs can move volumes to the other sawmills, lowering the risk of additional production curtailments.
We do not see any balance sheet issues
It also postpones the AGM and withdraws the proposed dividend. This frees up ~SEK 14m in liquidity. Free cash flow will likely be negative in 2020 (although the SEK 60m helps). But, it should not be any liquidity issue here short-term as the majority of it’s debt does
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