OREANDA-NEWS. May 28, 2012. RusForest’s cost of sales for 1Q 2012 was SEK 163.1 million (USD 22.8 million), compared to SEK 87.6 million (USD 12.3 million) in 1Q 2011. 1Q 2012 included the amounts of Kansky, Adar and NTG, acquired after 1Q 2011, as the company said in a press release.

The significant increase in payroll cost was attributable to the accrual of unused vacations and restructuring programs in Ust-Ilimsk. Apart from the growth of the Group and mentioned one-off items, the cost of fuel continued to increase by 10-15% depending on the location during 1Q 2012.

Total turnover for the quarter ended 31 March 2012 amounted to SEK 122.7 million (USD 17.2 million).

The RusForest Group's revenue from the main product (sawnwood) did not change significantly due to issues with shipments in Arkhangelsk and Boguchany, Russia. As a result the operating companies built substantial stocks as of 31 March 2012, i.e. SEK 194.2 million (USD 27 million) compared with SEK 102.4 million (USD 14.3 million) as of the end of Q1 2011. The shipments are expected to catch up in Q2 2012.

Increase in the other revenue line was attributable to increased sales volumes of planed wood. Also, the Group subleased certain forestry areas to third party harvesting companies in Boguchany and Arkhangelsk.

Distribution expenses amounted to SEK 32.7 million (USD 4.6 million) and included customs duties, railway tariffs, loading and hauling-to-loading costs. Railway tariffs have systematically been increased by the monopoly Russian Railways (6-11% semi-annually). The wagon rates stabilized recently; however, they increased compared with 1Q 2011 by some 15-20%. There is still a certain wagon deficit in Russia.

Management is working with the Russian Railways on changing the loading schemes to be able to ship more volumes on each wagon. Russia did not change the customs regime in 2011-1Q 2012, but changes are expected in September 2012 on accession to the WTO. Starting 4Q 2011 the Group offset customs duties against the revenue according to the basis of the log sales contracts.

Other income of the Group amounted to SEK 12.1 million (USD 1.7 million) and primarily represented the reimbursement of overpaid stumpage following successful court cases in Ust-Ilimsk. Other expenses of the Group increased as a result of old receivables write-off following the outcome of litigations in Ust-Ilimsk, Tuba and Arkhangelsk.

The Group’s net loss for the 1Q 2012 was SEK 115.7 million (USD 16.2 million) compared to SEK 44.7 million (USD 6.3 million) in 1Q 2011. The share of the loss generated by the Gravel asset was SEK 4.3 million (USD 0.6 million).

“The results for the first quarter were very disappointing. In particular, earnings were below expectations as sawnwood sales were weaker than expected. Despite the disappointing results, sawnwood production and availability at the sawmills is increasing.

The Company expects the positive trend of higher sawnwood production to continue in the 2Q, and sales are expected to be higher than 1Q. Furthermore, off-loading of sawnwood is irregular both in context of species and qualities shipped in a certain time period for which the average price is not always an indicator. Using the 1Q as an example, volumes from LDK-3 and Boguchany were actually deferred to the 2Q for logistical reasons and will therefore be included in the 2Q 2012 revenue. This had a negative effect on the result and worsened the EBITDA compared to previous quarter.

Finalization of the Boguchany sawmill is the single largest item on the CAPEX list, where SEK 10.2 million (USD 1.4 million) has been allocated during the first three months of the year, partly financed by a credit from the Russian bank, Sberbank. Full production is expected at the beginning of the 3Q 2012.

Looking at the sawmill in Shenkursk, we will launch new drying capacity of 80,000 m. together with a new boiler during the 2Q, and we will also add an additional shift in the sawmill from 1 June,” said Martin Hermansson, CEO of, RusForest AB.

RusForest is forestry and sawmilling company operating in Eastern Siberia and the Arkhangelsk region of Russia. The Company controls long term forest leases in the areas where it is active, and utilizes these resources to produce a wide range of sawnwood products.