Aspo Oyj (ZYD.F) Earnings Call Transcript & Summary

Welcome to the Q2 2025 financial reporting of Aspo. This time, you have an opportunity to place questions. There's a question formula on the screen. So if you have any questions, please type them there, and we will try to address these at the end of today's session. Q2 and first half of 2025, we report that under the header continued profit improvement in a challenging market. We have an agenda at Aspo this year focusing on improving profitability year 2025. Then we also have the long-term financial target set for each of the businesses. And then we communicated the vision to form 2 separate companies out of Aspo, namely ASPO Infra and Aspo Compounder. Year-to-date 2025, I think we made good progress against this agenda, clear performance improvement during Q2 and H1 2025. And last week on Friday, we announced the sales of Leipurin to Lantmännen, which then means progress regarding our vision to change the structure of Aspo. If I start with the first half of 2025, just capture the key figures, 10% growth, EUR 18 million of EBITA compared to EUR 12.4 million last year, and this performance in a quite challenging uncertain market. ESL Shipping was able to improve its profitability during the first half of 2025, EUR 9.1 million of EBITA compared to EUR 8.8 million. Telko more than doubled its EBITA, EUR 8.7 million compared to EUR 4.2 million and Leipurin, record high profitability, EUR 3.1 million against EUR 2.5 million. From a management perspective, good to see that despite the challenging market, it's clear that what we are doing, all the programs regarding profit improvement are hitting the bottom line currently. In sustainability, in emissions, we made good progress, 0.23, and this is kilograms per euro of sales compared to a target of 0.3, 2 drivers behind this Aspo level growth and then the new electric hybrid vessels gradually taking a bigger share of the entire fleet of ESL and having a then positive impact on emissions. When it comes to safety frequency, we still have quite a task to go in order to reach the target, safety frequency is 6, and that includes all deviations also those who will not impact on the sick leave. We're continuing to work on the safety frequency and that goes for ESL and Telko in particular. Then from an Aspo perspective, I'm happy to say that all the businesses have made good progress in the ESG -- on the ESG agenda. Telko was awarded a Gold Medal by EcoVadis rating, which means that it ranked among the top 2% of companies within its industry. And as we communicated earlier on, ESL already achieved a Platinum level ranking, which was published this year in January. We're also making progress when it comes to science-based targets, we committed to this initiative already last year. And currently, we're detailing the KPIs and the targets and also the actions in order to reach the commission -- the commitments done in the Paris Agreement. If I then jump to the Q2 and start with net sales. As you see this quarter, Q2 has the highest net sales of the reported quarters in the near-term history. We had growth of 6%. ESL Shipping, though, in a decline with some 13% due to the very weak spot market pricing we had and then particularly when it comes to the forest industry, the contractual volumes were fairly low. On the positive side, steel industry on a healthy level from an ESL's perspective, and then also good opportunities in the project cargo market, that means wind mills, et cetera, where we are transporting blades and structures. Telko solid 21% growth, primarily driven by the acquisitions. Organic sales growth in a small decline during Q2, however, positive development during the first half of this year, and prices in a small -- showed small growth driven by the product and service mix of Telko. Leipurin 15% growth, driven by organic sales growth in Sweden and then the acquisition of Kebelco in 2024. And if we look at profitability, EUR 9.2 million of EBITA, the best quarter in the near-term history of Aspo. ESL, a EUR 5 million decline from the EUR 6.1 million impacted by the slow market development, positive, though, impacted by the Green Coasters clearly having a strong profitability compared to the old fleet and the time chartered fleet. And then we also, during Q2, had quite a lot of dockings approximately 130 days compared to 30 days last year, which had a negative profitability impact. Telko, EUR 4.3 million compared with EUR 1.8 million, driven primarily by the acquisitions made, improved margins and then absence of M&A costs. Leipurin, record high profitability, best quarter, I think, ever in Leipurin's history, EUR 1.7 million, and this was really Sweden who made the difference this time. Acquisition of Kebelco and then strong organic growth, we won some big tenders in Sweden and then also supply chain efficiencies clearly hitting the bottom line already in Q2 but even further in Q2 this year. And if we go to onetime items as expected, some EUR 300,000 during Q2. This is still related to the fraud case, basically legal costs of the fraud case, adding up then to EUR 1.4 million for the first half of onetime costs. However, we will be compensated at least with close to EUR 1 million, EUR 0.9 million in Q3 from insurances from this specific case so then we see a figure in the other direction. And last year, these one-off items was primarily related to the Supramax vessels and then to the sale of a minority stake in ESL. What is good to see in these 2 graphs is that the dark blue bars are growing significantly versus the light blue bars are in clear decline, showing a lot stronger development this year compared to last year. Cash flow, operating cash flow better than last year, EUR 23.5 million. All the businesses contributing positively to cash flow. Looking at working capital, also a positive impact to cash flow because of the fact that we sold 1 Green Coaster to the pool of investors, and then secondly, also Telko's inventories in clear decline. Free cash flow on -- still positive EUR 8.8 million negatively then impacted by Green Coaster investments of close to EUR 16 million. And then we also still had some cash outflow from acquisitions made, including Kartagena in Q1 and then cash inflow from the fact that we sold 1 coaster, which was at the end of its life cycle of ESL. Then to the big news that we announced in -- on Friday last week, we signed an agreement to sell Leipurin to Lantmännen, enterprise value EUR 63 million and purchase price, which will be paid in cash of approximately EUR 60 million. And this will then give us a sales gain of EUR 16 million and that is expected to happen during the first quarter next year. And this transaction has no impact on the guidance of Aspo as Leipurin's profitability is still included in this guidance. This transaction gives us a clear step forward, good rationale based on the fact that we will strengthen our balance sheet. We will enable Telko to grow further via acquisitions, then I think this is also a clear step forward when it comes to our vision to form 2 separate companies out of Aspo, namely ASPO Infra and Aspo Compounder. We've invested a lot of in ESL in the Green Coasters, in the green handys, we've done a lot of acquisitions when it comes to Telko, and now we announced the sale of Leipurin. These are the big kind of game-changing items when it comes to these vision so far. How was this impossible, I think, during the 4 years, the 4 past years, Leipurin has made tremendous progress. We had a profitability level of close to 0 back a couple of years back. Now the profitability of Leipurin is basically all-time high, close to the 5% EBITA target. We sold the equipment-related businesses, Vulganus and equipment trading business of Leipurin. We fully exited East, and at the same time, we invested in West via acquisitions, the biggest one, Kobia, but also very important Kebelco and Kartagena enabling us to expand into the food industry. And Kobia actually was a market entry into Sweden, which is nowadays the largest market of Leipurin. We also sold the real estate in Sweden and Lithuania financing the growth and then Leipurin has executed a substantial number of activities to improve profitability in commercial, supply chain and also sourcing and strengthened the management practices over the past couple of years. Big, big thank you for -- to all of the Leipurin personnel for making this substantial transformation happen. What does this then mean to our vision to form 2 separate companies out of Aspo. The financial ambition, the financial targets remains unchanged. ESL more than EUR 300 million of net sales, EBITA of 14%, and Telko more than EUR 500 million of sales and EBITA of 8%. And these are the target figures for 2028. Then when it comes to the vision of restructuring Aspo, this really simplifies the kind of future assessment. Now it boils down to what is the most from a shareholder value perspective, the best alternative for separating Telko and ESL to form 2 separate companies. And we still have all the scenarios on the table being a demerger, an IPO or a full or partial sale of 1 or 2 of the businesses. But then this vision of restructuring Aspo boils down to this question, how to separate Telko and ESL from each other to create value. Then I would ask Erkka to go through the business-specific financials.

Thank you, Rolf. Then going to ESL. ESL sales decreased 13% on the second quarter, the spot market was very weak from -- both from the pricing and the volume point of view. Also the contractual volumes were weak, especially in the forest industry, whereas on a healthy level on the steel industry. We made progress on the project cargo for -- especially for windmill projects. Our Green Coaster vessels are really cost efficient and capable on the project cargoes and we have good expectations also going forward on those. From the performance point of view, the profitability of the second quarter declined compared to the second quarter last year, on a year-to-date basis, slightly higher than last year. Last year was quite specific with strikes and harsh ice conditionings impacting the first quarter, we are seeing then very high demand on the second quarter. And the quarterly development was quite different than it is this year. On -- we had a high amount of dockings this year. In general, we have 2 dockings for each vessel for every 5 years. And they are not distributed evenly between the years. And this year, we had high dockings compared to the previous year. We sold 1 old -- or the oldest coaster vessel as part of our planned renewal of the fleet. Our fleet renewal continues with the new Green Coaster investment proceeding and also the green handy investment proceeding and we are simultaneously then optimizing the fleet of our own and time-chartered vessels. Telko grew 21%, mainly driven by the acquisition. Acquisitions, the organic sales volumes were lower than last year, especially the April was -- we saw low volumes with a high uncertainty at that time, driven with uncertain duty environment. And that impacted our customers' kind of a planning horizon and willingness to commit for the volumes. Since then, we have seen the market more kind of normalizing and the volumes have grown towards the end of the quarter. Sales prices were moderately higher compared to the last year and rather stable compared to the previous quarter. Telko's profitability significantly increased compared to last year, mainly driven by the acquisitions done last year and also the improved margins in the businesses. Also, in this year, we didn't have the acquisition-related expenses, while last year, we had EUR 1.6 million acquisition-related expenses in the second quarter. And in Leipurin, we saw 15% sales growth driven by the Kobia and -- sorry, Kebelco acquisition and then the organic growth in the Swedish market. Overall, the organic volume and price development was stable. And the integration of the food ingredients business acquired in Lithuania progressed well during the quarter. And in Telko -- sorry, in Leipurin, we saw a record high profitability now on the second quarter at EUR 1.77 million. And it was driven by the acquisition, the organic growth in Sweden and the supply chain optimization. And then while now we saw the improvement in Sweden, but there has been significant profit improvement efforts throughout the business. Then when we are looking a bit on a longer perspective, these figures are now on the 12 months rolling basis. We see that the ESL Shipping, the performance is stable on a lower level than previously with the EBITA percentage around 9%, but fairly stable there at the current level. Whereas in Telko and Leipurin, we have seen significant profit improvement, both based on the acquisition and margin improvement in both businesses. That has resulted on the Aspo group level, profitability turning to a positive growth trend. Our liquidity continued strong. On the second quarter, we had a EUR 41.3 million cash at the end of the quarter. We have now secured the funding for the green handy investment with EUR 70 million loan from Svenska Skeppshypotekskassan that is undrawn and is expected to be drawn in '27 and in '28, and also the EUR 45 million loan from Nordic Investment Bank, where half of that has been drawn and the rest is expected to be drawn on '26 and '27. And in April, we also participated in the multi-issuer bond guaranteed by Garantia for EUR 15 million. Also in June, we paid -- repaid the EUR 30 million hybrid bond as communicated earlier. Our average loan maturity has increased now to EUR 4.9 with the loan maturities of the new loans and the average interest rate has declined with the market rates coming down. Our net debt to EBITDA ratio was 3.7, mainly increasing due to repayment of the hybrid bond as the hybrid bond was accounted as equity. And now it is visible in our net debt. The Leipurin sale is expected to decrease our net debt-to-EBITDA ratio by 0.6, when also deducting the EBITDA of Leipurin. In the beginning, obviously, the reported net debt to EBITDA will decline more as the historical EBITDA is still on our figures. We also have a low CapEx commitments for '25 and '26, which support our maintaining the -- a strong balance sheet. Our equity ratio was impacted by the repayment of the hybrid bond. The impact was 5.8% to the equity ratio. In addition to that, we had a temporary impact from the unrealized currency hedges and a fairly high cash balance that we had at the end of the quarter. These are temporary, the unrealized currency hedges, once the hedges are rolled over, the realized part will be booked to the investment and will not impact the equity. We still see the current hedges at the end of third quarter. But in the fourth quarter, we should not expect to see a similar impact in the equity anymore. So in the kind of the normalized run rate, you can assume to be around 31% on the equity ratio currently. And gain on Leipurin sale is expected to improve the equity ratio by 3.6%. Then back to Rolf.

Thank you, Erkka. So then a summary of year-to-date 2025. Good profitability in Q2 and also good growth, so EBITA of EUR 9.2 million. And if we look at the first half of this year, all business improved their profitability total EUR 18 million against EUR 12.4 million. And we did some EUR 0.31 per share, that's our earnings per share KPI. And then the big news from last week, we signed an agreement to divest Leipurin to Lantmännen and then making progress on this vision to restructure Aspo. If we then look at the guidance, first, the assumptions behind the guidance, ESL's demand is expected to continue quite weak during the second half with low spot market pricing and fairly low contractual volumes, and we see the soft market continuing during Q3, but gradually then picking up towards the end of the year. Telko, stable overall development, and considering the acquisitions made, we'll focus on integration, organic growth and profitability development. The acquisition-related expenses will be clearly lower this year compared to last year. And stable market development expected for Leipurin with good opportunities to grow and good opportunities to improve profitability going forward. The guidance unchanged, EUR 35 million to EUR 45 million of EBITA, and that is including total group EBITA, i.e., also including Leipurin's profitability. And we expect the market to remain challenging overall. We have geopolitical uncertainty. We have trade tensions driving down economic growth on the positive side in Europe, possibly increased defense spending as well as spending on infrastructure will revive the economical development in Europe. Our profit improvement are based on 3 items: the Green Coasters, we have 6 in commercial traffic already and the seventh will come during Q3. The acquisitions done both by Telko, 3 substantial acquisitions during last year and also Leipurin, specifically Kebelco and then Kartagena. And then as mentioned, we have a lot of profit improvement initiatives, specifically in operations and supply chain and then in the commercial side, which gradually will impact Aspo's profitability going forward. In order to reach the upper range of this guidance, the market needs to be -- have a clear recovery during the second half of this year, and we need to be very successful in our profit improvement measures. And in case we will reach only the lower range of the guidance that will then mean that the economical recovery is further delayed. Then I would like to welcome Erkka back on the stage, and we are ready for questions, and I propose we start here in the audience for questions.

So Joonas Ilvonen from Evli. Telko saw some volume challenges, but I think its margin still developed quite well and also Leipurin recorded record high earnings for the quarter. So wouldn't you say that the Telko and Leipurin have developed this year may be in line or even better than you would have expected, still like, say, 3 to 6 months ago? Whereas your comments regarding ESL's H2 demand outlook seem maybe a bit more cautious than it would have been some months back.

I think that if you look at Telko, what is very positive is the increase in sales margin. So I think that's clear evidence of that the strategy is paying off. So moving from volume products to more specialty products and increasing the service content of Telko as well, selling basically processed products and services. When it comes to Leipurin, what is really positive is the profit improvement in Sweden, which then delivered this record high results. I also see ESL as kind of a positive story from the perspective that our strategy is paying off. So we see very solid profitability of the Green Coasters vessels, and that is basically these Green Coasters and green handys, that is the future of ESL. Then you're right that during the first half of this year, the market of ESL has been quite challenging and that you can see specifically in the contractual volumes for the forest industry and then also on the spot market, which has very low pricing.

And then both the ESL and Telko they are impacted by the industrial demand, which has been on the market fairly low during the first half. So still impacting both businesses. But yes, yes.

So is ESL's H2 customer demand outlook quite similar to this -- compared to this Q2 trends that forest industry is still like quite soft and then maybe steel is a bit better?

I think you are right, but at the same time, we're expecting some revival when we move towards the end of the year. So quite a soft still Q3, but then Q4 gradually picking up.

Okay. And a question related to the timing of the Leipurin divestment. I guess the price seems quite fair. But now we saw -- but I think Leipurin still has quite a lot of nice earnings margin upside left and now we saw a record high Q2 earnings from its -- and I understand that you can't like perfectly time the exit of any of these businesses. But any comments on the timing of this sale?

We're very happy with the timing. So if you look 4 years back, we were close to 0 profitability, and now we're fairly close to the 5% of EBITA and the strategic value for us to strengthen the balance sheet and allow further compounding of Telko and then simplifying this vision for restructuring Aspo is of clear value. But I think you're right, there's a lot of opportunities for Leipurin when it comes to growth and performance improvement, but I also would like to see those similar opportunities when it comes to Telko and ESL.

This is Pasi from Nordea. Can I start with -- regarding your guidance for the full year? I mean you have steadily reported roughly EUR 9 million in the quarter in the first half, and you are guiding a kind of stable development for the second half, and that ends up roughly EUR 36 million on an annual basis, but your guidance midpoint is actually EUR 40 million, and that means that you're supposed to get EUR 11 million per quarter going forward, regardless, you are guiding a stable development and practically quite weak market in the shipping segment. So is there some mismatch here? Or have you actually taken down your expectations? And are you still confident regarding the midpoint of your guidance?

We're comfortable regarding the midpoint and maybe a couple of comments. One is that typically, the profitability of Aspo's second half is better than the profitability of the first half. And then secondly, if you look at the performance improvement measures that we have ongoing, these are likely to give more and more over time also then supporting more the H2 performance.

Yes. And then second topic regarding your guidance. I mean, if you usually have a rather stable EBITA per quarter, let's say, EUR 9 million, EUR 10 million, EUR 11 million. How come you can still have a EUR 10 million kind of spread on your guidance, which is actually 25% regardless, we have 4 months -- still 4 to 5 months left for the '25? So that is a very wide range and uncertainties coming?

It's, to me, very clear that this geopolitical uncertainty and then the kind of tariff war or tensions that we have ongoing creates a lot of uncertainty. And I think the outcome of these could have quite a significant impact on overall economical development also short-term, and that being said, also quite a lot of impact for Aspo for the remainder of the year.

Yes. I do understand. And then regarding your vision to create value and to kind of divest operations if that actually creates more value than the listed entity Aspo share price could indicate it. So is it realistic? I mean, can it even happen that you are going to sell both Telko and shipping? And then you are going to be a listed entity with the operations regarding the net cash position without any other kind of operational activity? So is this a realistic kind of outcome from your value creation plan?

What is then realistic and what is not about now this vision, it boils down to the question that how to separate ESL and Telko. And we are continuing to do that assessment as we did for Leipurin from a pure perspective of creating value to the shareholders. And then we still have all the scenarios on the table so sale, technical demerger or then an IPO. So I wouldn't exclude at this point of time any scenario. We're looking to find the best kind of viable options for the owners of Aspo and that is what makes sense.

So when creating value, you mean kind of giving back the maximum cash from the operations for the owners? Or are you going to invest another, let's say, new entity or new segment with the cash you might have after the second divestment?

It's not purely about giving back cash to the shareholders, it's also about the assets you own. We don't have on the agenda currently to invest in a new business of Aspo. So what we're aiming for is to create 2 separate companies ASPO Infra, which is equals then to ESL Shipping and then Aspo Compounder, which equals to Telko and then to find the kind of best possible homes of these entities, either as a listed company or then as part of some other structure and that we then assess from a value perspective.

Excellent. I hear you.

Thanks.

This is Kasper from Inderes. Norwegian press reported, there's been a fire in one of ESL vessels. Does this have an impact on ESL's profitability in the short term?

You're very right, there was a fire on one of our vessels. Luckily, we have insurances in place, and the foremost most luck is that no persons were injured in this occasion. There's, of course, a certain cost, which we need to pay prior to the insurance compensating, but my estimate for the downside of this incidence on a profitability basis is, let's say, approximately EUR 200,000.

Okay. So you expect the vessel to go back live pretty soon?

Pretty soon. And then as said, we have insurance compensating also for some lost days after a certain time period.

Okay. That makes sense. Then you adjusted downwards the expected earn-outs from past -- Telko's past acquisitions. Have some of your acquisitions developed below your own expectations?