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

Welcome to the financial reporting Q3 2025 of Aspo. I will start by briefly going through the numbers, then I will present the progress when it comes to our vision for Aspo. And then our CFO, Erkka Repo, will go through the financials in more detail. And finally, I will sum up our presentation. If we start by looking at year-to-date performance, Q1 to Q3 this year, we are -- we have improved our EBITA with a bit more than EUR 6 million compared to last year, EUR 27.5 million of EBITA for the first 3 quarters. We have sales growth of 6% or close to 6%, and we also have an EBITA of 6%. If we look at ESL Shipping, what's interesting as I see it is that the new vessels are clearly outperforming the old vessels when it comes to profitability. That's a key driver of the performance of ESL. Telko, we see a clear shift from volume products to more value-added products, which then has a positive profitability impact. And also, we are benefiting from the acquisitions made last year. And when it comes to Leipurin, the transformation is moving on and good result as a consequence. For all the businesses, we have improved the profitability if you compare to last year. If you then look at the last quarter, Q3 2025, EUR 9.6 million of EBITA. It's, let's say, near-term history record, looking at the 3 past years and approximately EUR 1 million improvement compared to last year. Net sales fairly flat for this quarter against last year. We have an earnings per share of EUR 0.14 per share, and that's actually a continuation of Q1 and Q2, we have EUR 0.46 per share accumulated for the 3 first quarters. Cash flow on the minus side, EUR 8.5 million of free cash flow, driven by the investments in the Green Coasters and also an increase in working capital because of the Green Coasters, which we are producing for the investment pool. Net debt to EBITDA, 3.9, no surprises there. We have a fairly high figure -- and the reason is that we are -- have a lot of growth investments, which are generating net debt, but they will generate then EBITDA in a couple of years when we have the vessels in commercial traffic. And we communicated also earlier on after the review period of Q3 that we've sold one of the vessels, Handysize vessels, Kallio, sold it for EUR 18 million with a sales gain of approximately EUR 10 million. That's briefly the financials, and we will come back to those. Then we also have some news when it comes to the vision for Aspo. And if we take a step back and look at the background, we have communicated already last year a financial ambition for each of the businesses of Aspo. And in this situation, it's more worthwhile focusing on the business-specific targets due to the structural changes that we are making on an Aspo level. ESL Shipping more than EUR 300 million of sales, Telko more than EUR 500 million and Leipurin targeting more than EUR 200 million for 2028. Our vision is to form 2 separate companies out of Aspo, Aspo Compounder, namely Telko and Aspo Infra, ESL Shipping. And our ambition is to release a hidden value and get a more clear investment profile for the different companies of Aspo. And this is why we're going after this vision. When we execute the vision, we will focus on improving the profitability of the companies and executing the strategies of each business. What has then taken place kind of progress against the communicated vision over the past months and even years. I think there are 3 main points. One is what we communicated in August this year, the sale of Leipurin to Lantmannen. And then secondly, both when it comes to Telko as well as ESL Shipping, we have pursued the growth strategies of these companies and giving both companies a better opportunity to operate as a stand-alone company. If we look at this a bit more in depth, I'm very proud of the announced sale of Leipurin. I think we have had a very successful transformation of Leipurin. The really heading is that we are focusing on supplying food ingredients to the bakery and food industries. And that means that we sold some businesses in -- particularly in machinery businesses. We divested the Russian business. We made acquisitions in particularly Sweden and Lithuania, and we've done a lot of different profitability improvement actions for the company. And the announced transaction enterprise value is EUR 63 million. That should generate a sales gain of approximately EUR 60 million, and we expect that to close during Q1 next year. And this will give Telko big opportunities to invest in acquisitions, and it will also strengthen the balance sheet of Aspo. Then if we look at Telko, during the past approximately 4 years, we've done 7 acquisitions. These acquisitions are made in market segments with higher profitability in average, companies more focused on the technical products, on the value-added services. These acquisitions have helped us to build better local positions, not to spread us too thin over a wide geographical area. And these, of course, compensate for what we lost when exiting Russia. We have acquired revenue here of approximately some EUR 120 million, EUR 130 million. And this also gives us a platform to come up with good synergies between these companies and Telko. Good evidence of functioning growth strategy and a lot of learnings when it comes to M&A, and that builds the opportunity to build a stand-alone company of Telko. Actually, a similar story when it comes to ESL, we invested more than EUR 300 million in the next generation vessels. These are the electric hybrid Green Coasters and the e-methanol-driven green Handys, putting us in a much better position to generate profitability, but also increasing our competitiveness. So these new vessels are extremely energy efficient. They are flexible for different cargoes, and they have less OpEx costs compared to the old vessels. And we also then in October, as already mentioned, we sold the Kallio vessel for EUR 18 million. These investments give a good promise of ESL to generate good growth and profitability in the future and really in taking the kind of sustainable leadership role in the industry of dry bulk shipping. Then we communicated this morning that we have narrowed down the options for Aspo going forward. Our objective is to by end of next year -- end of year 2026, either execute a partial demerger of Aspo, basically creating 2 stock-listed companies, ESL Shipping and Telko or then to divest, sell ESL Shipping. And as already mentioned, Leipurin, we are hoping to close during Q1 2026. And then a bit rationale why we're thinking align these thoughts. And starting with ESL, ESL has a tremendous growth strategy, a really good position in the market it serves, very stable EBITDA and cash flow generation. And this also gives ESL a lot of debt capacity, which then can be translated in good return on equity. And hence, we see ESL to be a suitable stand-alone listed company. But at the same time, if we find an owner with better opportunities than Aspo to invest in this growth strategy, that's an alternative path for ESL. So either a sale of ESL or then ambition to create a separate listed company out of ESL Shipping. Then looking at Telko, we see Telko as an ideal candidate to be a stand-alone listed company, a very light balance sheet, good profitability, good return due to the light balance sheet and then very strong opportunities for growth, both organic growth as well as acquisitions in a very fragmented market, very well positioned to become a stand-alone company on the stock exchange. Then we are proud to state that we have got approval of our sustainability targets by the science-based target initiative. There's a lot of work involved in this. And here are some of the key targets presented. It's all about the Scope 1 and Scope 2 emissions that is primarily related to ESL shipping. And then it's also related to emissions when it comes to our network, basically suppliers, and this is more related to Telko then. And we are also committed to stop shipping energy coal during the next year. You might recall that this represented maybe 10 years ago, some 40%, 50% of our volumes. Currently, it's a fraction of the total volumes, maybe 4%, 5% in that magnitude. I'm very proud to say that ESL Shipping and according with our knowledge, is the first dry bulk cargo shipping operator to receive approval for these targets. If we then look at the sustainability targets that we are following up on an ongoing basis, we have good development when it comes to emissions, driven by the growth of Aspo and driven by the investments in new vessels and as well energy efficiency is very much emphasized when driving the vessels. 0.23 emissions as part of net sales compared to the 0.3 target. Unfortunately, when it comes to safety, we have had some challenges during this year. Our safety frequency is at 9.5 against the target of 4. And we have done a lot of actions to turn around this performance. We have strengthened the organizations, recruited new talent into the organizations. And then we are very much analyzing the incidences that have occurred to learn from this. And finally, we just got a couple of weeks ago, our personal survey results and glad to say that our People Power index is at AA remained at the same level. And if you look a bit more into detail, the net promoter score actually increased somewhat compared to last year. And our ambition is to get a AA+ rating by 2030. Then I will hand over to Erkka to go through a bit more in detail the financials.

Thank you, Rolf. Before starting going through the financials, few words about the changes in our reporting. So starting from this quarter, Leipurin is now reported as discontinued operations. The historical figures are slightly different than what reported earlier as Leipurin as a stand-alone segment. And when you look at our profit and loss statement and balance sheet, there Leipurin is reported as a one line way of reporting and therefore, the profit and loss and balance sheet, so then the ESL Shipping and Telko as combined. For example, when you look at key figures like our cash position or net debt, you need to look at the kind of the details that what we tell in the interim, not to look directly from the balance sheet as you will find only the ESL and Telko figures reported. But then also then to kind of to support the message on the strategic development of the company, we have now increased a little bit insight on the ESL and Telko segments. We are now on the segment information reporting EBITDA to give a better kind of view on the cash generation capability of the businesses. And then there also, we are reporting now the net debt of ESL Shipping and Telko separately there towards the end of the reporting there on the segment information. But then going to these numbers. ESL Shipping continues to have a fairly stable performance, which now for the last 2 years there when looking at this 12-month rolling basis. Telko showing an improvement for the last 12 months, the improvement is now fully organic as there has not been acquisitions included in the last 12 months. So slight organic improvement there on Telko. And then a clear improvement on Leipurin on the 12 months basis. Also turning to Aspo, Aspo profit improvement continues there on the rolling basis. Then look at the Aspo level figures. Aspo net sales about flat compared to the last year. There was a 1.5% decline in the net sales, 7% decline in ESL Shipping, 4% decline in Telko and then 10% increase in Leipurin net sales. And there about EUR 1 million increase in the EBITA of Aspo with a slight increase in the ESL Shipping and also in Telko and then clear improvement in Leipurin as reported in discontinued operation. Then I'll go more in detail on the segments. So ESL Shipping, the EBITA, EUR 3.5 million, a decline of EUR 0.3 million compared to the last year. The like-for-like sales of the Coaster and Handy operations decreased by 7%. We had a smaller vessel capacity with 2 of the lossmaking time charter vessels were redelivered during the quarter. Also, we had a quite high planned dockings there during the quarter. And there was a fire on board of one of the Handy vessels. So time out of that from the market impacted the profitability negatively. The spot market continued weak and the forest industry volumes were soft, especially impacting the Coaster operations and the steel industry activity continued on a high level or healthy level. Then when looking at the vessel performance on the different kind of vessel classes, we see very clearly that the new vessels, both on the new Handys and then the new Green Coasters, they are performing very well even in this challenging market that we have. The new vessels are much more energy efficient. They have a better cargo load carrying capacity and the OpEx cost is also lower than older vessels. So our transformation to invest into new vessels will -- is expected to improve our profitability going forward, both on the investments in the new Handysize fleets and the continuing then the investment on the Green Coasters. Also, our pooling concept on the Green Coasters is working well, providing a good return without capital -- our capital tied into the pooling concept. And the older vessels, both on the Handys and the Coasters, their performance is clearly lower than our kind of the newer vessels. The time chartered contracts have been lossmaking with the current market conditions. And we will see a positive improvement in our fleet mix. Our Green Coaster investment is only halfway through we had during the third quarter. For the full quarter, we had only 6 vessels there in commercial operations. The seventh vessel came into commercial operations only in September. So there will still be either significant shift from the time chartered vessels to our Green Coaster vessels or then if the market allows obviously an increase in the fleet size. And the same with the new Handy investments, expecting a significant improvement in our kind of mix there with the new Handys coming online. Telko continued positive development now with the organic growth there EUR 0.2 million -- EUR 4.8 million compared to EUR 4.6 million last year. The net sales in Telko declined by 4% with the modest demand in the most European markets. The organic sales volumes were lower compared to previous year and sales prices were slightly higher than the previous year and slightly declined compared to the second quarter of this year. The profitability improvement was mainly due to the absence of the acquisition-related cost. Those we had still EUR 700,000 in quarter 3, 2024. We also had the positive sales margin development continued with the increased share of higher-margin specialty products in the portfolio. And in Telko portfolio, the focus is on higher value-added products and services where the [ EBITA ] margin is clearly better than the average of Telko. Also, the specialty products segment is more resilient with the changes, less impact from the demand or price volatility compared to the volume products. During this year, we have been able to increase the share of the specialty products and therefore, improving the EBITA percentage in Telko's business. We do still have also in Telko some poorly performing segments and that we will focus and to improve those as well. Leipurin reported record high profits in the third quarter with a 10% increase in the sales that coming especially to the strong organic sales growth in Sweden. We also continued implementing the profit improvement measures, those also mainly coming from our Swedish business. The like-for-like improvement in the profitability was EUR 200,000 and the reported profitability was boosted by stopping depreciation to discontinued operations with the sale of Leipurin. Then Aspo's liquidity has continued strong. Our cash was EUR 28.6 million, and we have EUR 40 million unused revolving credit facilities. The EUR 60 million syndicated loan was extended by 1 year to mature in 2027. And then we have EUR 92.5 million of committed undrawn loan agreements in place for funding the Green Handy investment. Also, when looking at the maturity profile of ESL Shipping, very well visible that ESL Shipping has long maturities in use to match with the long life cycle of the assets. It has the ESL Shipping net debt was EUR 149.6 million. It's good to note that ESL's net debt includes EUR 64 million of that are not yet in our operations. So those are not yet turning any EBITDA, but then we have invested about a bit more than half of it is on those Green Coasters where we are halfway on the investment cycle. And then a bit less than EUR 30 million is for the Green Handys for the down payment of the Green Handys. That obviously is then increasing the net debt-to-EBITDA ratio for ESL Shipping that was 4.2. For Green Coaster investment, we do not have a net cash outflow anymore. So we do have still the investment payments going out, but those will be offset by the sale of the pooled vessels. So as a net, there is no cash outflow anymore for the Green Coaster investment. For the Green Handy investment, the investment commitment for all 4 ships is EUR 157 million. The cash flow is expected to go out 10% on '26, 60% on '27 and 30% on '28. We are expecting to sell 1 vessel to the pool investors. Aspo's net debt-to-EBITDA ratio was 3.9 and our net debt EUR 233 million. Here also the same EUR 64 million of the net debt is on the vessels that are not yet generating any EBITDA. Leipurin sale expected to decrease our net debt significantly as well as the sale of Kallio vessel that took place in October. Still on our dividend Aspo's Annual General Meeting decided on the dividend of EUR 0.19 per share to be paid in 2 installments. The first installment of EUR 0.09 was paid in May and the second installment of EUR 0.10 is expected to be paid on this week on Thursday, on the November 6. And we today announced that we will start repurchasing our own shares for the share -- to be used for the share-based incentive plans, purchasing 130,000 shares starting tomorrow and ending latest on the April 30. Thank you, and then turning over to Rolf.

Thank you, Erkka. Then finally, our guidance and the assumptions behind the guidance. First, starting with the business-specific comments. So when it comes to ESL, we see that the market will continue weak during this year with fairly low contractual volumes and with low spot market pricing. Typically, though, there's a seasonality in ESL, which means that the fourth quarter will be better than the previous quarters. Telko, overall stable market development, still a lot of opportunities when it comes to the synergies and the integration of the acquired companies. And we expect the acquisition-related costs to remain low for this year. Also for Leipurin, a very stable market development to be expected and good opportunities to grow in the food industry, more in general, not only in bakeries. And there's a lot of opportunities being captured when it comes to profitability improvement. If we then look at the guidance, it remains at EUR 35 million to EUR 45 million of EBITA. We expect the market still to be challenging during the end of year 2025, a lot of uncertainty due to trade tensions due to geographical -- geopolitical uncertainty. But at the same time, the infra investments, particularly in Europe, and also increased defense spending has a positive impact. As -- so far this year, the profit generation compared to last year, the positive profit generation will primarily come from the Green Coasters, from the acquisitions completed during 2024 and then all the improvement actions that we have ongoing in the company. And where we will end up within this range, it's an equation of how successful we are in implementing the profitability measures and getting the bottom-line impact of these still during this year. And then it's a question of economic recovery when that will happen. If I then sum up the 3 first quarters of this year, first of during Q3, we announced divestment of Leipurin into Lantmannen, an extremely important strategic step for Aspo. We are very happy with this communicated transaction and the transformation of Leipurin. We also today elaborated our vision for Aspo going forward, where we see either a partial demerger, creating 2 separate stock-listed companies or alternatively the sale of ESL and which then in practice will mean a listed Telko on the stock exchange. And still, due to the market environment and a fairly challenging market conditions, our focus is on profitability improvement during the remaining months of year 2025.

Good. Then I would ask Erkka to join me on the scene and on the stage, and we're ready to take some questions and maybe start with questions on the floor.

It's Joonas Ilvonen from Evli. If I just start with ESL first. How did ESL's Q3 earnings go according to your expectation earlier this year? I mean, I think I would say that the Q3 earnings was still quite soft, especially considering that last year's comparison figures were already quite low. And what's your assumption behind the guidance? I mean, right now, the guidance range is still very wide for Q4. And I assume that's mainly due to ESL. Is it -- do you see basically like already like significant pent-up demand for Q4 this year? Can you talk about a bit about this dynamic?

If starting with the ESL and ESL's performance, as Erkka mentioned earlier on, we had a bit of lack of capacity, particularly on the Handysize vessels during the quarter. We had the engine fire on board of Tali, which also impacted our performance negatively. If you look at the market conditions, spot market very weak and also less demand on the forest segment compared to expectations. Then if I comment on the guidance, it's a fairly wide range, EUR 35 million to EUR 45 million of EBITA. At the same time, we see that the market has quite a good understanding of Aspo's profit generation for this year. And the uncertainty, of course, particularly regarding the market conditions, how they will evolve during the fourth quarter and then how we are able to get bottom line effect of our measures.

Okay. That's clear. And what about these -- if I switch to Telko, what about these so-called poorly performing parts of Telko that you mentioned? Are they all basically outside the specialty product categories like in more [ commoditized ] products or...

We have some poorly performing businesses in all of those areas that was visible there that needs our attention. So there's kind of same way of possibilities to improve all of the areas, including also on the specialty category.

Right. And last year, Telko acquired, I think, more than EUR 80 million of revenue. And so have these acquisitions, have they already been like fully integrated? Do you still see some more work to do there?

You mean the Telko acquisition?

Yes.

When it comes to synergies, I think there's a lot of upside still to be expected from the already completed acquisitions. And then of course, we will continue to implement further acquisitions as well. We have, as communicated an ambition to grow Telko to more than EUR 0.5 billion of net sales by 2028. So we need to make quite a lot of acquisitions still over the next years.

All right. And a final question about Telko. So this product mix development that drove your profitability improvement besides the lack of M&A cost this year. So was it like this increased share of specialty products, was it mainly driven by these new companies you acquired last year? Or was it like coming from all over the Telko business areas?

It's both. And so the like-for-like development also shows clearly improved sales margin as a percentage. But then in particular, also the acquired companies are all having good profitability, including Swed Handling, Optimol, as such.

And also a higher organic growth in the specialty area.

And you also -- so you also see potential to further improve your product mix organically, not just due to additional acquisitions?

Yes, definitely, and that is our ambition to do so. It's, I think, one essential cornerstone of Telko's strategy to focus on the specialty products. So better profitability and less dependency on market conditions, and that makes this segment interesting.

[ Matti Kaurola from OP Markets ]. A couple of questions first regarding the ESL and the portfolio vision you've been talking about. You just today announced that you are trying to either list ESL as a separate company or then sell it to a third party. Is it now the right time to do it? Because I'm just thinking that the cycle is probably bottoming right now. Margins are still quite weak. So from the perspective of maximizing the shareholder value, is the next year and putting quite strict time line the best way to proceed?

I think when it comes both to Telko as well as ESL, we have, over the past couple of years, made tremendous progress when it comes to the growth strategy. So I think we have a good showcase for Telko when it comes to the acquisitions and for ESL when it comes to investments into new fleet. And that then also will generate better profitability as we show today. So there's a clear profitability gap between the Green Coasters versus the old fleet. And if you look at the Green Handys, we use kind of the LNG vessels as a proxy, and they generate -- gives us confidence that if you look at the business in detail, you can see the kind of profit generation already now today.

All right. Then maybe the continuation question. Do you see any signs that the cycle would be turning better regarding ESL. So is it -- are we now seeing the kind of the bottoming of the cycle when it comes to the industrial activity?

If you look at our kind of customer industries of both ESL and Telko, there's automotive, there's construction, there's the forest industry, we see still kind of fairly weak demand. There are some positive signs due to the infra investments made in Europe. So that generates some traffic for ESL. Also investments in the defense industry give some positive signs for Telko. But at the end of the day, we cannot afford kind of expecting anything from the market, which I think we've done in general, not Aspo for some years. We need to focus on our profitability improvement actions. And then if the market conditions picks up, it will just help us at the end of the day. So that's kind of our approach.

All right. Then turning to Telko. There, the first question, like could you a little bit elaborate the product mix that was actually a bit discussed, but kind of the -- what is roughly the share of the volume products and then the specialty products in kind of revenue. Could you a little bit open up the share?

I don't want to give any percentages, but from the illustration that showed you earlier, the share of the specialty products is fairly high, and we aim to increase still going forward with that.

All right. Then a continuation question on that. So if the specialty product kind of the portion is that high, why are you so much behind, let's say, Brenntag or IMCD when it comes to the EBITDA margin?