Aspo Oyj (ASPO) Earnings Call Transcript & Summary

Welcome to Aspo's Financial Reporting 2024 and Q4 2024. If we look at our last quarter last year, we had strong growth, 20%, and we improved our profitability, EUR 8 million of EBITA compared to previous year, EUR 7.2 million. The market though was softer than expected, particularly for ESL Shipping, but also for Telko. Strategy execution continued during the fourth quarter. We made a commitment to the science-based targets initiative. We made an investment decision in 4 green handy vessels, and Leipurin made an acquisition in Lithuania, Kartagena. We also completed -- fully completed Russian exit during the quarter. If you first look at 2024, the whole year, we experienced quite difficult market conditions. ESL started the first 4 months of the year faced with political strikes and quite harsh ice conditions. And if you look at the year overall, fairly soft demand, particularly in the spot market and the macroeconomic recovery, which was forecasted during the beginning of the year was postponed. It didn't happen during the second half of the year. And particularly Q4 was softer demand-wise compared to what we had expected. If we then look at Telko, fairly stable market development during the year, price levels being clearly below the level of 2023. And if you look at Europe, in particular, fairly soft demand in many of the markets. And during Q4, particularly November month as well as, to some extent, December were poor from a volume perspective. Leipurin, slow, small deflation, low level of consumer confidence, which will impact what sales channels the customer pick and therefore, also the product range that we sell and overall declining volumes, which gradually picked up towards the end of the year. In this market, we're very much focused on strategic execution. And here, you see a summary of the kind of major events during the year. We got minority investors on board for ESL Shipping. We sold 2 Supramax vessels. We made an investment decision in the 4 green handy vessels, EUR 186 million. And by end of the year, we had 4 green coaster vessels in commercial traffic. When it comes to Telko, we made very major acquisitions from our perspective, Optimol and Greenfluid, Polyma and Swed Handling, all in all, representing some EUR 85 million, EUR 90 million of net sales. Leipurin also there acquisitions, Kebelco and Kartagena and then this transformation that we do is yielding results, which you can see in the profit development of Leipurin. And we exited Russia, which really means a new chapter in Aspo -- for Aspo going forward. This strategy execution, how do you then see that in our numbers and starting with net sales. Here, we compare Q4 figures 2024 and 2021. And the first observation is that the net sales is pretty much on the same level a bit beyond EUR 160 million. Then if you look at the sales split, you have close to 20% basically Russian-related sales, which has fully disappeared. You have Scandinavia, particularly Sweden, doubled as a percentage to 40% due to the acquisitions made. Finland being very stable at 30% and then other Europe, also fairly stable, but the content of that has, to some extent, changed. So unfortunately, then decline of Ukraine and growth in Germany, France, Benelux, but quite major transformation when you look at net sales. If you then look at profitability, the change is not as obvious yet. And here are the reasons for that. If you look at ESL last year, we had -- in average, we had 2 green coasters in commercial traffic during the year. That means that we have still -- we have 10 more green coasters to come with full impact for the years to come during 2025. And by end of 2026, we will have all 12 green coasters in commercial traffic. You cannot see from our profitability last year, of course, not the investment in the green handies, this will be in commercial traffic in '27 to '28. If you look at Telko, we made a lot of acquisitions last year. But if you look at the net profit impact of these acquisitions during last year, it was very minor. So basically some EUR 400,000. And the reason for that is the M&A costs, the cost of the due diligences, then the IFRS-related valuation of the inventory, which postpones the profitability impact and then also, of course, the timing of the closing of these acquisitions. If you then look at the years to come, including 2025, a sign of the impact of these acquisitions is what profitability these companies represented last year. It was approximately EUR 6 million of EBITA and that, of course, excludes any performance improvement opportunities and any synergies. So that gives a strong indication of the potential of Telko going forward. Same story applies for Leipurin. We had Kebelco here contributing to EBITA with EUR 300,000, although the full year result of Kebelco last year was some EUR 0.7 million. And Kartagena, we expect profitability of EUR 100,000 to EUR 200,000 for Kartagena the years to come. So this shows that the profitability of the strategy execution is still to come over the next couple of years. We communicated last year our ambition to reach EUR 1 billion, 8% of EBITA. That is still valid for 2028 as an ambition. We have taken steps towards this ambition, particularly on the ESL side, the bulk of the investment decisions have been made to reach over EUR 300 million of net sales. And if you look at Telko and Leipurin, we still need to acquire companies representing net sales of approximately EUR 150 million to reach this ambition. Erkka Repo will go through the CapEx investment later on in this presentation. If we then go to strategic priorities going forward. We have the long-term financial ambition. We have the vision of forming 2 separate companies out of Aspo, Aspo Infra and Aspo Compounder. These are still valid. And then the agenda for this year, we will focus on profit generation after a year with a strong strategic execution being 2024. That means that we will try to maximize the benefits of all investments made during last year, including the acquisitions, and then we'll focus on -- particularly on organic growth and performance improvement actions. The ESG targets were achieved last year. Emission intensity, 0.3 compared to the target 0.33. We also made progress. As mentioned, we joined the science-based targets initiative during end of last year. And particularly ESL received a platinum medal when it comes to EcoVadis rating. So strong progress when it comes to the environment. If you look at safety, a record year of Aspo, particularly ESL Shipping, very strong performance, the safety frequency at 4.4 compared to 6.0 as a target. Job satisfaction on a high level at Aspo, AA, which was the same figure as in year 2023. If I then jump to the net sales figures, and this is on an Aspo level for the whole year 10% growth for the fourth quarter, 20% growth. And if we then look at ESL Shipping and disregard one of the vessels, which were sold to the pool -- investor pool, then we had a decline in net sales of 5%, and that is to a far extent due to the decline in diesel fuel prices. But also, as already stated, the market of the contract customers and the volume of these were lower than expected and particularly the spot market pricing was very weak, also affecting negatively ESL Shipping's net sales. Telko, very strong growth, 43%. That's driven by acquisition, but also actually due to organic sales growth. So we had very strong volume growth compensating for the lower price levels, meaning then that in euros, organically also Telko grew. And this despite the fact that we had a very soft market in particularly Europe during the fourth quarter. Leipurin, 4% growth, that was really Kebelco-driven some negative impact, particularly from our own actions, trying to focus more on the value-added products segment, which then reduced net sales as a consequence. If we then look at EBITA, full year EUR 29.1 million, which is aligned with our guidance for last year, around EUR 30 million, a slight improvement compared to the previous year. The fourth quarter, EUR 8 million compared to EUR 7.2 million in the last year fourth quarter. ESL Shipping, a decline in profitability due to the soft market, lower-than-expected volumes for the contracted customers and very weak pricing in the spot market. We had -- during the fourth quarter last year, we had time chartered vessels, which were loss-making for us considering the market conditions, and these we've abandoned during January this year, 2025. Telko, EUR 3.9 million, quite significant improvement from last year, driven by the acquisitions, driven by reduced M&A costs only EUR 200,000 during the fourth quarter and also driven by improving sales margins as a percentage. And this despite a fairly soft market of Telko. Leipurin, improving profitability from EUR 900,000 to EUR 1.1 million. We can see the actions particularly in Sweden improving our profitability going forward, both supply chain as well as commercial and then also Kebelco contributing to the positive profitability development. Onetime costs really minor during the fourth quarter. Actually, the reported result was a bit better than the comparable results, so EUR 8.1 million. And then looking at the whole year, we had some EUR 7.9 million of onetime costs related to the Supramax vessels, the sales of these. And then if you recall, year 2023, we had EUR 16.8 million of onetime cost, and that was related to the primarily to the exit from Russia. In the cash flow, you can see the impact of the strategy execution, EUR 32 million of operating cash flow weakened by the fact that Telko's inventories grew during the year, particularly goods in transit increased and the operating cash flow primarily contributed by ESL Shipping. Then the free cash flow, minus EUR 36 million generated by the investments in ESL Shipping close to EUR 50 million proceeds from the Supramax vessels and then all the acquisitions made during last year. Still a wrap up of the major strategic events during fourth quarter last year. Investment decision into 4 e-methanol driven green handy vessels. These are extremely competitive vessels, energy-efficient. They have efficient and flexible cargo space, and they are low cost in operations compared to older vessels. And we also see over the next couple of years, increasing consumer preference towards fossil-free transportation, which will be partly driven by legislation, driving up the fossil-free fuel prices. And these 4 vessels will enter into our commercial traffic end of 2027 and in the beginning of 2028. Leipurin made acquisition of Kartagena's food distribution business in Lithuania. This acquisition was closed during February this year, and that will contribute with some EUR 2 million of net sales and EUR 150,000 of EBITA. This is a good example of a synergetic acquisition of Leipurin's strengthening in the local position, for example, in the food industry segment. And then Leipurin also completing the exit from Russia, and now Aspo has fully exited Russia, which has taken a lot of time and a lot of resources. I will then hand over to Erkka Repo, who will go through the financials of the different business segments.

Thank you, Rolf. Going for ESL Shipping. The like-for-like sales for ESL shipping, decreased by 5%, volumes increased slightly from the previous year, and the decline in net sales was driven by the lower diesel fuel prices. Despite the volumes being higher than on the previous year, overall, the volumes were softer than we expected. Normally, the last quarter is a busy season for ESL, but now both contractual demand and spot demand were lower than what we expected. Spot market prices decreased during the quarter, and we're on a weak level. Normally, the market sees an improvement in the spot rates during the last quarter. Net sales of ESL Shipping in quarter 4 included EUR 12.6 million from a sale of a green coaster vessel to investor pool. This was the second vessel we sold, and we have an agreement altogether to sell 6 vessels. We are expecting the vessel sales to take place every other quarter until the end of 2026. The comparable EBITDA in ESL Shipping was EUR 4.3 million. That was EUR 700,000 less than on the previous year. The lower result was driven mainly by the overall weak market I just explained. In Telko, we saw significant sales and earnings improvement from our successful execution of the compounder strategy. Sales grew 43%, driven mainly by the acquisitions and also by organic sales volume growth. Sales prices were on a slightly lower level compared to the previous year. In November, we saw softer sales than we expected. We believe that was destocking in the value chain. And the sales have after November recovered the normal level. Sales volume in December, as expected, were low due to the long holiday season. Telko's EBITDA increased to EUR 3.9 million driven by the acquisitions. Acquisition-related costs were EUR 200,000 in the fourth quarter. That was EUR 0.5 million less than on the third quarter. When compared to the third quarter, profitability declined by the soft sales in November and the short sales month in December. Also, the fixed costs were seasonally higher in the fourth quarter. In Leipurin, sales increased by 4%, driven by the Kebelco acquisition. Organic sales slightly declined with a slightly lower market prices and slightly lower volumes. Throughout the year, our activities to improve the sales mix have resulted in decreased volume in low-margin categories. In Sweden, we have taken significant growth steps in in-store bakeries. And the positive sales impact will be visible later this year. The profit improvement in Leipurin continued. Kebelco acquisition was behind the improvement as well as the improved sales mix and the successful margin management in the business. Also in Leipurin quarter 4, fixed costs were seasonally higher than on the previous quarters. In Leipurin, we continue to implement profit improvement actions in commercial activities in supply chain and in-sourcing during this year. In the Capital Markets Day last year, we communicated a CapEx guidance of EUR 350 million to EUR 400 million, 4 years, 2024 to '28. We are now taking that guidance down by EUR 50 million. The main reason is our ambition to sell out one out of the four green handy vessels to pool investors. EUR 70 million of the CapEx guidance was used last year. That was net of the asset sales during last year. About EUR 135 million of the CapEx has been committed for years 2025, '28. That figure is assuming sale of one green handy vessel, and EUR 95 million to EUR 145 million remains uncommitted. Our CapEx commitments for the next 2 years are low, about EUR 15 million for this year and about EUR 25 million for '26. ESL Shipping has committed in the major investments for 12 new green coasters and then 4 green handies. The green coasters will be in commercial operations between 2024 and '26 and the handies in 2027 and '28. The investments into the new vessels is expected to be about EUR 200 million that excludes the investment from the pool investors. By the end of last year, we had 38% of the CapEx already used for ESL's investments. The expected EBITDA impact once the vessels are fully in commercial operations is expected to be over EUR 30 million per year. During this year, we start to see the profit improvement impact from the green coaster vessels, and their full impact is expected to be visible in our results from 2027 forward. During -- the green handy vessels, the main profit impact is expected to come in 2028 and the full impact from 2029 forward. And from the CapEx spending going forward, 2027 and '28 will be then when the major next outflows will be. We continue to have strong liquidity with EUR 36 million in cash and EUR 40 million in unused revolving credit facilities. Last year, in October, we signed a new syndicated loan of EUR 60 million that was mainly used to refinance maturing loans. That loan is fully drawn, and it has a maturity in 2026 with 1-year extension option. A new EUR 70 million loan with Svenska Skeppshypotekskassan was signed in February this year for financing green handy investment. The loan is expected to be drawn in 2027 and '28 and the loan has a 15 years maturity. Our aim is to finance the vessel investments in ESL Shipping with loans of loan maturities. And then our loan portfolio will be balanced with the shorter 3- to 5-year loans in Aspo. Our average loan maturity at the end of last year was 4.3 years. The EUR 30 million hybrid bond has a call option in June this year. As communicated earlier, we see the hybrid bond as a temporary tool and would like us to see -- to be able to repay that. No decision on the hybrid bond has been made yet. Our net debt increased to EUR 188 million mainly due to the first installment of EUR 29 million for green handy investment. Net debt-to-EBITDA ratio was 3.0 when considering a full 12 months of EBITDA from the acquired companies. Our low CapEx commitment for this year and 2026 will support maintaining the strong balance sheet. Also as Rolf mentioned earlier, in this year, we will focus on maximizing the benefits of already made investments, and we'll focus on organic growth and performance improvement actions. If we would decide not to renew the hybrid bond, the net debt-to-EBITDA ratio would temporarily increase above our leverage target before being reduced back to the target range. We remain fully committed on maintaining a strong balance sheet going forward. Then I hand over back to Rolf.

Aspo's Board will propose EUR 0.19 per share as dividend for financial year 2024, and this represents approximately 49% of the comparable earnings per share for year 2024, and we'll give shareholders a return, considering the current share price of approximately 4%. And the proposal is that the dividend will be paid in 2 installments in spring and during the fall. If I then summarize strong growth profit improvement for Q4 in very difficult market conditions and long-term good position to improve profitability considering the strategic execution during last year. A lot of acquisitions, investments in ESL Shipping, pool of vessels and then also acquisitions for Leipurin on top of the ones for Telko and actions to improve financial profitability. If we then look at the guidance for this year and start with the outlook for the particular businesses, the demand of ESL is expected still to be weak on a fairly low level when it comes to contractual volumes and low combined with low spot market prices. But we expect for volumes both in the steel industry as well as in the forest industry to revive during the year. Stable development for Telko. Also here, an outlook of demand slowly picking up during the year and focus on organic measures and on integrating the acquired companies, those that we acquired during last year. The M&A costs are expected to be on a lower level in 2025 compared to 2024. Leipurin, also stable development, we see growth opportunities in the food industry and then also the acquisitions, Kebelco and Kartagena, will boost performance for this year. If we then go to the guidance for -- on an Aspo level, it's an EBITA of EUR 35 million to EUR 45 million for 2025 to be compared with the EUR 29.1 million in 2024. We see that despite quite a challenging market when we start year 2025, we see good opportunities to improve the profitability of Aspo and that comes from the green coaster vessels. There will be basically on average, 4 more vessels in traffic during 2025. All the acquisitions that Telko completed during last year, they will start bringing the full potential in year 2025. And then we have a lot of performance improvement actions, which also will boost performance during the year. In order to reach the higher end of this range, basically EUR 45 million, then we need to be very successful in the performance improvement measures, and there needs to be a clear economic recovery during the second half of the year compared to the first half. And in case of the lower end of the range, i.e., EUR 35 million, then the economic recovery will be further delayed. And then also if we are hit with strikes or other unforeseen events, which will negatively impact the profitability in year 2025. Summary of year 2024, I think we transformed Aspo quite remarkably with acquisitions, with the investments in ESL. This year goes to the history of a year of very strong strategic execution. We saw growth 10%. We saw a small profit improvement in this difficult market compared to last year. And then going into year 2025, profit generation will be our top priority. And we are expecting and guiding a comparable EBITA in the range of EUR 35 million to EUR 45 million in 2025. And financial ambition still remains at EUR 1 billion and 8% of EBITA for 2028. Then I would ask Erkka to join me on the stage, and we can take some questions starting from the floor.

Joonas Ilvonen from Evli. Even if ESL's demand and market environment remains quite soft in H1, do you still expect to be able to employ these new green coasters with high capacity utilization rates already in H1?

We have -- as mentioned, we have terminated some of the time chartered contracts during January this year. And our experience from the green coasters are extremely strong. So we see these as very much kind of profit-generating, and there is demand for such capacity in the market.

Okay. And then Telko. So obviously, the acquisitions will contribute a lot to your earnings this year. But if we look Telko on organic basis, I think organic volume development last year wasn't that bad, either it was maybe like flat or slightly positive. So how do you see the volume outlook for Telko on an organic basis this year?

If you look at last year, we had very strong organic volume growth, but due to the price levels declining, the organic net sales growth was slightly negative. But the good news was that during Q4, this turned into euro-based growth as well. So when we go into a stable market this year, we see good opportunities also for organic growth of Telko for 2025.

Okay. Good. And maybe kind of a similar question for Leipurin, maybe the bakery business, you can't really expect major volume growth there, but for about the food industry, can it already like deliver significant volume growth that kind of will be reflected on your numbers this year?

We would expect quite a stable market. But in the food industry, we have opportunity to take some market share. Kebelco will contribute as well as Kartagena to the growth in the food segment. And there are naturally also organic growth opportunities there. So I clearly see a positive net sales opportunity from the food segment in year 2025.

This is Pasi, from Nordea. When looking at the ESL Shipping segment and this new green coaster, so are these new vessels operating in the spot market? And if they are, so would it be a fair assumption that the outlook for these vessels in terms of profitability is now weaker than it has been before, like in last year when you made kind of calculations? And then probably when looking at the kind of the group level, kind of improvement in EBITDA figure, your guidance midpoint actually indicates some EUR 10 million improvement. So could you please kind of slightly break down from which part of the kind of business, these kind of improvements are coming from in a bit more detailed level. And probably also a third question, if I may, is related to these acquisitions you made in last year. So have you been happy with these companies you acquired? Or has there been any kind of negative surprises? And what would those be so that we would understand what's going to happen on next year and why you are improving profitability, and that has not been made on last year?

I can start, and then Erkka can comment further. If we look at the green coasters, they have been primarily allocated to the contract volumes of ESL Shipping. Naturally, if the spot market and the spot freights are complementary to the contract volumes, then we also allocate the green coasters to the spot market. If you look at the performance improvement of, as you mentioned, approximately EUR 10 million, if you take the midpoint of the range, which is guided, we indicated in the presentation that if you look at Telko's acquisitions, which last year was close to 0 impact and we are looking at companies that are contributing with approximately EUR 6 million of EBIT last year, then you could add some synergies and performance improvement to that. Then also, if you look at ESL, which Erkka presented, so -- and what we said already last year in the Capital Markets Day, we expect some kind of EUR 15 million of EBITDA of the green coasters and a similar size of EBITDA from the green handies. So this will gradually then also improve performance this year. Basically, we have 4 -- in average, 4 more green coasters in traffic in year 2025 compared to 2024. And then Leipurin, finally, Kebelco, Kartagena will automatically give, if you compare that kind of apples-to-apples, including the timing of the closings, they should give in the magnitude of more than EUR 0.5 million of EBITDA, which I presented earlier on, plus the performance improvement opportunities. So this is kind of ballpark how it looks like. And then the acquisitions, I would say that Swed Handling has been a very positive acquisition, and that has been also the kind of major acquisitions that we've done. The Optimol, Greenfluid and Polyma are more kind of aligned with targets, unfortunately negatively impacted by the poor macroeconomical development in particularly Germany currently. But the potential -- the strategic potential is very much there.

And on the ESL, we have about 80% contracted volumes and that is similar to all of our vessel classes, so also considering for the green coasters. And the new vessels are the most cost efficient in our fleet. So there is a significant difference between the newer vessels and the older vessels. So obviously, we want to maximize the use of the new fleet to kind of get the benefit of the cost efficiency that the new vessels are bringing.

Any further questions on the floor?

Maybe one more, if I may. Regarding your uncommitted investments and the target to reach kind of your expected top line in 2028, '29. So do we have any plans where the remaining part of the investment program is going to be funded? Are you going to take a kind of hybrid equity loans or the incoming cash flow? What's the kind of idea? Or is it so that you need to actually sell all the vessels you have actually ordered 3 more from this 4 handy green vessels to the pool to kind of fund the investments?

The vessel sales, as explained earlier. So we have the agreement to sell the 6 green coasters. And our ambition is to sell one green handy. So that is our plan. And obviously, the investments will be funded with the cash flow from the operations and also with the debt that is then made possible by the increased EBITDA performance of the company, also the increased EBITDA from the acquired companies.

Any further questions on the floor? If not, do we have any questions online?

[Operator Instructions] There are no questions at this time. So I hand the conference back to the speakers.

I want to take the opportunity to thank everyone joining this financial reporting of Aspo. Thank you.

Thank you.