OREANDA-NEWS. December 04, 2013. Rusforest AB, Swedish forestry company operating in Eastern Siberia and the Arkhangelsk region of Russia, decreased 3 times y-o-y EBITDA loss in January-September 2013 to USD 9.9 million, according to company's quarterly report. Revenue was up 3.8% to USD 65.7 million. Rusforest's debt has redused to USD 17.8 million (USD 107.5 million).

In Q3 2013, RusForest increased sawnwood sales to Japan to 22% of total sales compared to almost zero in the prior year. As a result, the average sawnwood price realization in Magistralny increased in Q3 2013 by 36% to USD 220 per m3 compared to January 2013. This had a positive effect on group operating results, especially in the Magistralny segment, which reported USD 1.6 million in positive EBITDA.

On September 25, 2013, RusForest announced that it secured financing in two tranches from CentroCredit, a Russian bank, in order to purchase wood pellet equipment for the Arkhangelsk sawmill and finance construction and installation. The first tranche amounts to EUR 4.9 million and carries an effective annual interest rate of 7%. The second tranche amounts to RUB 170 million (approximately EUR 4 million) and carries an effective annual interest rate of 13.5%. Both tranches have a 5-year maturity. The Company expects the pellet plant to be operational during Q1 2014. RusForest began ground works in July 2013 and started active assembly in the beginning of October 2013 when the equipment arrived in Arkhangelsk. RusForest drew approximately 80% of the financing at the date of the report.

Commenting results, CEO Matti Lehtipuu said: 'During Q3, there were a number of positive developments in the Company. RusForest was able to continue reducing EBITDA losses from continued operations by 60% from USD 4.3 million to USD 1.7 million when comparing Q3 2012 to Q3 2013.

In Boguchany, our continuing improvements brought the operations close to break-even. However, the fundamentals of conducting a profitable business in Boguchany remain challenging. This is due to the lack of a rail connection, resulting in high transportation costs, and due to the lack of a nearby pulp industry for our residual products (woodchips and sawdust), reducing our sawmill margins. We continue to look for a long-term strategic solution in Boguchany.

At the corporate level, RusForest managed to reduce overhead costs by 45% from USD 2.2 million to 1.2 million when comparing Q3 2012 to Q3 2013. The Company used less external consulting services and had less employees at the headquarter level in Q3 2013 compared to Q3 2012. In addition, RusForest managed to optimize office rental costs both in Stockholm and in Moscow.

Despite these improvements, the Arkhangelsk operations will require more time to reach profitability. The sawmill is still not able to monetize its residual products due to the weak pulp industry in Arkhangelsk. We expect the situation to improve after the completion of the new pellet mill in Q1 2014. We have secured bank financing for the pellet project and have made significant progress already in construction (as seen in the photos on our website)'.

In Q3 2013, RusForest sold a small mothballed planing mill in Arkhangelsk, classified as an asset held for sale, to a local entrepreneur. The price was in line with the book value.

The new pellet mill under construction
In June 2013, RusForest engaged AS Hekotek, a mechanical engineering company, to build a wood pellet production facility at the Company's LDK-3 sawmill in Arkhangelsk. The pellet facility will have an annual capacity of up to 100,000 tons and will allow RusForest to monetize its sawmill by-products by exporting wood pellets to Europe. The pellet plant is expected to be operational during the first quarter of 2014.