Aspo Oyj (ASPO) Earnings Call Transcript & Summary

Welcome to the Q2 financial reporting Aspo. We have a good, solid profit development in Q2. And in addition, today, Asos Board of Directors have approved a demerger plan of ASP, which will target a demerger into Yael Shipping and Telco on December 31 this year. And then thirdly, we have launched today the mid-term financial targets of both ESL Shipping and Telco. If I start with the first half of 2026, we have an EBITA of EUR 17.9 million so a bit more than EUR 3 million of improvement against last year, fairly stable performance considering the conditions of ESL shipping and quite a significant profitability improvement by Telko. If you look at ESL shipping quite major strategic milestones, which have happened during June this year, we started to construct the first in the Series 4 green hands, so the methanol-powered vessels that we will get them in year 2027 and 2028. and we plan to have all 12 green coasters in traffic by end of this year. Also on Telko side, clear progress when it comes to strategy. So we developed a new revised strategy of Telko, and we also launched May 1 -- we launched a new operating model, a new organization of Telko. If you look at our figures, strong cash flow, particularly driven by the sale of Lauren and also a quite strong earnings per share. If we look at the total figure, we had EUR 0.87 per share for the first half. Then if we take a look at the Q2 figures quite compared to EUR 7.5 million last year, ESL shipping fairly stable, 3.8% against EUR 5 million last year. We had quite a lot of booking during Q2, which negatively impacted performance. And also, if you look at the contractual demand it was fairly weak throughout the quarter. And these 2 combined then resulted in quite low transported volumes of ELS shipping. Telko EBITDA 8.2, the best quarter ever in Telko's history. The EBITDA almost doubled compared to last year, and the EBITA percentage close to 10%. The factors driving this. We had very strong sales growth, 14% and we had gross margin development, which was very positive, which actually shows the positive effect of the strategy that we have selected. And then finally, we had a headwind by the -- or positive effect by the market due to oil prices in volume products, we were able to see prices of the products. Safety development. We are working hard on this. If you look at the first half of this year, we are aligned with the targets. So clearly better, both in ESL shipping and Telko, but we will continue working on this, and there's still a lot to do when it comes to safety culture and processes. This area takes a lot of our attention. As said, we came out today with the news of a demerger of ASP forming to stand-alone listed companies, ESL shipping and Telko. There's a quite substantial background, which then accumulate to this day. So we're already a bit more than 2 years ago, we communicated a vision to look into a scenario where we form 2 companies, AspoInfr and Aspo compounder and we very much highlighted that the intention to value and find a good environment for both of the businesses to develop. Then we have elaborated on this vision in November last year and said that either a partial demerger of Aspo or a sale of ESL shipping. And then today, the Board of Directors have approved the demerger plan. There's a lot of work put into this. ESL shipping has made a lot of the vessels are still to come and partly this was enabled by the fact that we pay in from Varma came in as minority shareholders in ESL Shipping. Telko has made a lot of acquisitions over the past few years. And then due to the fact that we sold labor, and we have now strengthened the balance sheet of Aspen Telko, enabling further acquisitions also going forward. So basically saying that the demerger of Aspo would not have been possible a couple of years ago. And today, we are then in good shape of executing this. Why are we doing this? There's no operative synergies between Telko and ESL shipping. The business models are totally different. One is in shipping, the other companies in distribution, total different business models, different balance sheets, different earning logics, et cetera. And we believe that by creating 2 stand-alone companies, both companies are in a better position to execute their strategies to grow and also then to launch shareholder value. And there's a lot of benefits. So we will make the structure of the companies more simplistic. This will enable management and the Board to focus more on the businesses. We aim to develop much more clear investment profiles of both of the companies. And then also this demerger will enable us to tailored capital structure and financing of both of the companies. As said, the Board of Directors have approved the demerger plan, but it's still a conditional upon approval of an extraordinary general meeting, which will be held on December 7. Already today, we know that the major shareholders support the demerger plan. The plan Martial Koski and will continue as the CEO of ESL Shipping, and I would become the Chair of Board of ESL Shipping Group. And the planned completion date that's December shares will be least beginning of next year, the trading of the shares will start. I will come back to the structural changes due to this demerger. We have 2 companies which have a very strong and unique strategies. If we look at the ESL Shipping, is extremely interested. We anticipate growth of some 50% by year 2030. And in this market, then ESL shipping is really a leading player. It's a very difficult market due to the ice conditions, which are present in a significant part of the year. ESL shipping has an interesting infrastructure-like profile due to the fact that approximately 80% of the revenues are contract-based. And due to the investments made by ESL Shipping, we anticipate very strong product of ESL is very interesting and strong. So we have stable cash flow. We have very good debt capacity. And these 2 things taken together enables a very good return on equity. If we then look at Telko group, we have a leading regional chemicals distributor here in Europe, particularly in the northern part of Europe. There's substantial organic growth opportunity both by copying strongholds of Telko to the neighboring market, but also due to the outsourcing trend of the suppliers that produce the chemicals. And then the market is very fragmented. So basically, the top 50 players in the world, they have less than 40% market share. And there are hundreds and hundreds of players enabling then Telko to take part in this consolidation trend. Telko is very much focused on specialty chemicals and value-added services. This will bring more stable development and also better margins. There's programs in place to improve the profitability of Telko. We have the new organizational model, there's clear scalability advantages, and we also have a full profit potential program going on. Telko aims to be a forerunner in sustainability in the industry. And also, although Telko's business model is quite different from ESL shippings. Also here, we have an interesting characteristics so a very light balance sheet, combined with good margins, and that gives opportunity for good returns. I mentioned the medium-term financial targets of both companies, ESL shipping EUR 40 million in 2030. We are -- what is intact is that we still anticipate approximately EUR 30-plus million of EBITDA improvement by year 2030. Return on equity, 20% and the target to have an equity ratio above 35%. And we anticipate the new company to distribute approximately -- considering that the investments of ESL shipping kind of in the coming years will impact both the equity ratio and possible also the dividend payments. Telko Group, strong growth ambition, EUR 500 million by year 2030, an EBITDA margin above 8%, the same return on equity the target 20% and then leverage to be kept below 2.5%. And the annual dividends which we anticipate to distributed approximately 30% of net profit. Then to the timetable of the demerger, so today approved by the Aspo Board, then in November, we will arrange a Capital Markets Day covering both ESL shipping on Telko November 24, and then the Extraordinary General Meeting on December 7 to approve the demerger plan or the demerger. The trading of the shares to be started then in the beginning of January. And -- although we are executing this process as such, there's still the opportunity for a scenario where we would sell ESL shipping in case the Aspo Board will decide and assessed that this scenario would maximize shareholder value creation. If we then look a bit more in detail on what this demerger entails basically the shares and assets and liabilities of ESL Shipping Limited will be transferred to a new on the stock exchange. And that means that if you now hold 1 share in Aspo, in the future you will hold 1 share in ESL Shipping Group. The minority owners hope in front Varma, their ownership will be transferred from ESL Shipping to ESL Shipping Group, keeping exactly the same ownership percentage. And at the same time, Aspo name will be -- and then here you see the end game. So basically, if you have 1 Aspo share today, in the future, you will then have 1 share in Telko group and 1 share in ESL Shipping group that will be the end game starting on 31st of December this year. If we then illustratively look at ownership structure based on the current ownerships dated in June 30, considering then the demerger, the biggest owners in ESL shipping beginning of next year, if we assume that there are no changes in the structure, the largest owner would be an open infrastructure together with Varma and then the ownership held by the Newbery family and the Verma family, followed by Ilmarinen. so the ownership structure will, to some extent, change in the ESL shipping compared to the current ownership structure in Aspo. Then I would hand over to Erikka to go through the figures in more detail.

Thank you, Rolf. So here some key figures of how the new ESI Shipping Group and the Telco group would look like based on the last 12 months performance, these numbers are based on Aspo segment reporting, where ESI shipping figures are based on the current ESL segment numbers. whereas the Telko is a combination of current Telco segment and then the Aspo level costs in our other operations. The comparable EBITDA of ESL shipping for the last 12 months have been EUR 14.4 million and in Telco group, EUR 18.1 million. The invested capital in ESL, EUR 250 million, whereas in Telco about EUR 140 million. Then when we are looking at the rolling 12 months development on a comparable EBITDA of the Aspo, ESL shipping has been fairly stable over the last, say, 3 years on average, the quarterly EBITDA has been about EUR 4 million some the market has remained challenging for us and the profitability has been fairly steady with some quarterly volatility. Increasing the profitability quite substantially at the same time and now with a significant jump with the profitability with the latest -- when we look at ESL shipping more in detail, the Net sales increased on the cost and operations by about 20%. That was driven by the high fuel costs which we are passing through to our customers and that was driving our net sales up. However, the fuel prices had was neutral impact to our profitability on the second quarter. From the demand part, the steel industry has faced fairly good demand. Overall, the demand was negatively impacted by the some -- our customers' maintenance breaks during the second quarter. The forest industry demand has remained low as in the past. On a positive note, we had a significant increase in the project cargo shipments especially in the coasters business. The profitability of the second quarter was negatively impacted by the large amount of maintenance dockings there on our fleet. Some of the dockings will continue for the third quarter as well. The impact from the dockings are coming partly from, of course, our capacity being out of the service. but also when taking the vessels to dockings, you either encounter typically some increased exposure to spot market or then higher ballast meaning that you have -- you travel empty with the ship -- so it's not only the time that you lost there on the harbor. We are continuing the profit improvement program in ESL, there has been a really good progress. However, that I just explained. but the profit improvement plan is solid and is moving forward. On the Telko, we saw a record profitability in Telko, EUR 8.2 million with a 14% increase in net sales primarily coming from higher sales prices -- profit improvement. A large part of it -- we are able to sell all the inventory -- higher prices out, the impact estimated to be around EUR 2 million to EUR 2.5 million, but also a very important part of the profit improvement coming from better sales margins. We have been able to, across the whole our product portfolio increased the sales margins on a wide range. So that has also contributed quite significantly due to our profit improvement. also the higher volumes contributed to some extent to the profit increase. Maybe also kind of working on the Aspo level cost to decrease the cost level on the common costs and that has contributed so that the cost level already is clearly going down compared to the previous quarters. Net debt increased compared to the previous quarter. During the quarter, we paid a dividend close to EUR 8 million. We had investments about EUR 16 million. And then the working capital increased EUR 10 million largely driven by the increased oil price as that is tying more and more to teleco inventory and also to customer receivables in ESL, when the higher oil price pass-through is kind of invoiced from the customers. The operative kind of cash flow, the EBITDA was very, very strong on the quarter. Then when we are looking liquidity. Liquidity at the moment is very strong. During the quarter, we renewed several of our loan agreements in preparation for the demerger. All of our lenders have given their consent for the demerger and so that there are no maturing loans on the next coming years. Then when looking at how the -- still on the loans of currently that are held by Aspo plc. Those will remain as loans of Telko group then after demerger and then all the loans that currently are held by ESL shipping or their -- or its subsidiaries will become loans of ESL shipping group. And those arrangements are already done so that the loans are dedicated for the future. For the ESL shipping, the loans are with long maturities with only amortizations on the next coming years and the loans maturing then on the -- the net debt of ESL shipping is EUR 151 million out of which EUR 65 million is tied into investments that are not yet operational. So the investment program that we have ESL Shipping's balance sheet and net debt something that is not yet contributing earnings for us. Of committed undrawn loan arrangements in place -- for the green hand investment and overall ESL shipping has secured financing for all the decided investments to committed financing arrangements and credit commitments. Telko group has low net debt with EUR 34 million, net debt with the net debt EBITDA ratio of 1.5. And with the EUR 75 million of loans in place for Teleco Group, leaving large EUR 41 million available cash position for executing then the acquisition strategy of Telko. Back to Rolf.

Thank you, Erikka. So the guidance for this year is kept unchanged. We expect the EBITDA to increase from previous year. And if we look at the current kind of rolling 12 months rolling figures combining the first half of 2026 and the second half of 2025 we are at EUR 32.5 million, so will align with the guidance for this year. Assumptions behind the guidance. We expect significant uncertainty when it comes to geopolitical tensions worse, et cetera, which makes forecasting a bit difficult at this moment. However, the profit improvement is largely based as ESL shipping and in Telko mentioned the fleet renewal, also better fleet utilization and then the synergies and the new operating model in Telko and this, combined with a reduction of Aspo costs. In both of the businesses, we expect slow revival of the market. Demand to slightly improved during the second half in 2026 of ESL shipping and also spot market pricing will gradually improve. There are still some dockings to come for the Q3, which will negatively affect the profitability of ESL shipping. The same for Telko, volume demand, either stable or slightly increasing prices, we expect to be either in decline or stable and then very much spending on the oil price development, what eventually will happen with the price level. And we expect Telko to continue grow by acquisitions still during 2026. And to highlight extremely strong profitability Q2 this year Aspo Board has approved a plan to demerge Aspo by year-end and then we have launched new medium-term targets for both of the companies. And I would like to ask Erica to come back to the stage, and we will continue with questions. But 1 thing before that, I want to thank you, Erikka, for the all the contributions here at Aspo over the past couple of years, great work, and I wish you all the best going forward. Thank you.

Thank you. So questions, please?

This is Pasi from Nordea. I have a couple of questions. Maybe I take those 1 by one. Firstly, so -- did you have any interest for the ESL Shipping segment? Or was it only related to pricing and valuation, you decided to list the company as a super entity?

We still have the door open also for a sale of ESL shipping, and that would be of the company compared to our assessment of the value in a demerger situation. No comments on discussions with possible buyer candidates.

Yes, I understand. And then Secondly, regarding the Telko segment. I mean the margins were practically pretty okay sales margins. And when looking at the kind of the sector, there has been some availability problems. So are these margins sustainable.

That has been extremely strong already for continue. Then if we look at the EBITDA percentage of Q2, which was 9.8%. That is clearly positively impacted by the market conditions. And maybe a comment on the availability that we haven't faced any I would say substantial issues with availability. So availability has been okay throughout the year.

Yes, I see. And maybe thirdly, regarding the Telco segment and your target profitability in the segment. So is this target for a segment -- without the group overhead costs, are you going to add on the costs coming from the Aspo Group to the Telko segment when it's going to be listed as a separate entity?

There will be approximately EUR 4 million of Aspo group costs, which will be transferred to the Telco segment. And those are taken into account when stating the 8% EBITDA target. So of course, we have a substantial program going on to improve the profitability. -- pest includes EUR 4 million negative effect million Yes.

Certainly, the EUR 4 million is also something that will be looked at.

Yes. And maybe lastly, regarding the long-term contracts on sale shipping segment. So you said that roughly 80% from the volumes are coming from long-term contracts. But when looking at the second quarter, first quarter, you are still quite cyclical in terms of kind of end demand. So what are you gaining from these contracts if you are still kind of cyclical in terms of demand. So contracts don't actually offer any kind of visibility or for dosing volumes or where to gain for you is coming from this kind of these customer agreements.

Actually, if we look the contractual market. The spot market is a lot more volatile than the contract market. So in case the demand and market cycles are extremely strong, then the spot market would overperform the contractual market. But our structure kind of 80-20, that means that in the long run, we will make a lot more stable profitability.

Yes, looking like the first half of this year. So is the weakness coming from the 20% of your business are the yields practically quite stable in the 80% for remaining part of the volumes. I guess then you are actually almost loss-making in the spot market then.

I would say that during the first half of 2026, the contractual demand has been lower, but also the spot market pricing has been very low. So the logic is that when the contractual market is in decline, then typically, there will be more vessels available in the spot market, which will run the kind of price level. So there's a bit of a leverage a more stronger effect than on the spot market compared to the contractual market.

And then maybe to elaborate on what we shared last year on the third quarter was the kind of the snapshot of the profitability between the different vessel ages that also makes a big kind of different there. The new vessels with high efficiency, they are performing even this market extremely well, whereas the old vessels, we are struggling -- and we do have the investment program ongoing, which is renewing our fleet, delivering very significant improvement of profitability compared what we are today. So even in the challenging market, we are able to perform very well on the -- when we have the right fleet.

Excellent. That is all from my side.

Yes. level from Inderes. About the dockings on the second half, which you mentioned, -- can you give us any ballpark like what kind of a negative effect are you expecting?

If we look at Q2, I would say, we talk about kind of EUR 100,000. And then if we look at the Q3, the effect.

Then about the continuing what Pasi already asked about the group costs or yes, the EUR 4 million will go now to the telco. But what about the ESL, what kind of OpEx uplift are you expecting there since, of course, you need to build some kind of capability listed company.

We have actually been working on this over the past year already. So we have decentralized a lot of the functions -- some of the APO people will move to ESL shipping as well and strengthen different kind of critical functions within the company. And also when it comes to ESL shipping as with telco, of course, the full profit potential program looks at the whole thing. So tries to optimize the entire cost structure.

But do you still expect OpEx to grow when it as a stand-alone companies since you need to build some functions there.