Suominen Oyj (1S0.F) Earnings Call Transcript & Summary

Good morning from Espoo, and welcome to the Suominen Q2 results publication. My name is Minna Rouru and I'm the Chief People and Communications Officer. Joining me today is our CFO and Interim CEO, Janne Silonsaari. Janne will present the results. And afterwards, there will be time for questions and answers. Janne, the floor is yours.

All right. Thank you, Minna. And let's start the presentation. So agenda today is that we go through Q2 and first half of the year figures in brief. Then we have a bit more deep dive on financial performance. A couple of words regarding the progress in strategy and then the outlook for this year. And at the end, as Minna stated, we will have the questions-and-answers session. All right. So here, Q2 and first half of the year figures in brief. Our net sales in Q2 decreased by 16% that amounted to EUR 99.8 million, comparing to the roughly EUR 119 million in comparison period. Comparable EBITDA amounted to EUR 3.2 million, versus comparison of EUR 5 million and cash flow from operations was roughly EUR 10 million negative. Another highlight is that Charles Héaulmé was appointed as the new President and CEO, and he will start on August 11. And first half of the year in brief, our net sales decreased from previous year and amounted to EUR 217 million compared to EUR 232 million on previous year and comparable EBITDA amounted to EUR 7.3 million versus EUR 9.5 million the previous year. And cash flow from operations was negative EUR 10.5 million compared to close to the 0 previous year. But let's go through the more detailed figures on financial review and start with the net sales. So as stated, we were heavily impacted by the tariff situation in U.S. and uncertainty in the market. So especially volume in the U.S. was negatively impacted. And as we have stated in the interim report ahead of the announced high tariffs towards China. U.S. nonwoven customers stocked their inventories mainly with supply from China and this led to excess inventories throughout the supply chain and impacted negatively to the demand. We saw a gradual recovery during the latter part of the quarter. But still, our sales ended up roughly 15% lower versus first quarter of this year and 16% lower versus comparison period year before. Currencies impacted negatively as mainly coming from the USD-euro change and that was minus EUR 3.6 million during the Q2. And new product sales totaled 28% of the net sales. And these new products -- this is the new products launched within the last 3 years. And then the comparable EBITDA, although we have been working on improving the sales margins. This was offset by the lower volume, which naturally had a negative impact on total profitability. And then lower volume, coupled with the Bethune investment ramp-up phase and costs related to the CEO change led to lower-than-expected comparable EBITDA in the second quarter amounting to EUR 3.2 million. Currencies impacted EUR 0.2 million in Q2 and roughly EUR 0.9 million negatively in the first half of the year. And here, still, I stated that the consolidated statement of profit and loss. So we saw in previous slide, EBITDA with the main items affecting -- excuse me, items affecting comparability. And we see below the slide or below the table, excuse me, the main items affecting comparability are coming from the severance costs related to the cost saving program. So this was the big one roughly EUR 600,000 and there was a small positive impact from accrual release related to the Mozzate plant closure accrual, which was made earlier. And then cash flow from operations, lower EBITDA is naturally impacting the cash flow from operations, but the main negative impact is coming from the net working capital and from there from accounts payable. This was impacted mainly by the lower volume, but also by the currency impact. So no major happening behind the item, and it's really the volume item. And on net working capital, we have targeted actions, but those were not taking full effect, but this is the area where we are focusing to be able to release cash going forward. So I'm trusting that we will see a positive development on this area. All right. A few words or a couple of words regarding the strategy and no major changes in this area, and we have communicated that the current strategy period is valid until 2025. And I'll let the new CEO comment this area going forward. So we'll come back to this later. On sustainability, we have announced a new sustainability agenda. And this is -- and continue to be in the core of the company strategy and operations. And this is the reminder of the sustainability agenda targets that we have published already earlier and work in this area has started and is ongoing in all the related areas. Then as mentioned earlier, Suominen announced at the end of the June, that the company's CEO and President will change. And Charles Héaulmé will start as the new CEO and President, the next Monday, August 11. Saving actions update. So we announced saving actions to improve the profitability and initiative cost saving program targeting to EUR 10 million cost savings. We implemented head count reduction at the end of the second quarter, which led to a decrease of approximately 60 positions globally. On top of that, we reduced the number of contractor roles and are implementing several other saving actions. And actions so far are proceeding well, and we are expecting a positive impact from savings during the second half of the year and targeting to implement maturity of the actions by the end of the year. Outlook. We repeat our outlook for 2025 and expect that Suominen comparable EBITDA, so earnings before interest, taxes, depreciation and amortization will improve from previous year in 2024. And as a reminder, in 2024, our comparable EBITDA was EUR 17 million. All right. Then any questions and answers or questions rather...

[Operator Instructions] The next question comes from Joni Sandvall from Nordea.

Maybe starting with -- still with this import pressure. Could you give any color, did this have any impact on Europe in Q2? And how you expect this to develop in H2 given the higher U.S. tariffs?

All right. Thanks. A good question. And for Europe, of course, the situation has been stable for a longer period of the time. If the higher tariff especially towards the China would have continued longer period, then that could have potentially impacted directly Europe as well or, let's say, change the current status. And then going forward, we expect situations to stabilize now with the agreed tariff levels. And naturally, if the situation remains as is, we should not see further huge fluctuation as we did in second quarter. Longer-term impact for local producers is, of course, item we are naturally following and having a close dialogue with our customers at which direction that will go because naturally, this has caused also a lot of uncertainty and potential, let's say, supply reliability questions locally. So we are expecting situation to continue, let's say, interesting. But at the moment, we are looking situation to stabilize.

Okay. That's clear. Maybe a follow-up on -- still on U.S. You mentioned that demand situation has -- or inventory situation has gradually improved towards end of Q2. So could you give any color on what level on, let's say, some kind of normal level are we currently?

Well, naturally, we don't have full visibility throughout the whole market and whole supply chain. But then again, I would say that during the second half of the Q2, we saw gradual recovery on gradual normal level. Then, of course, the question is that what is the normal level? And what is the, say, consumer confidence and impact on the market demand. So that is something we are following closely. Traditionally, second half of the year and especially Q3 has been stronger in the nonwoven, especially in U.S. due to the back-to-school campaign, et cetera. So this is something we are following closely. Generally, we commented and we are commenting that this, let's say, uncertainty in the market is, of course, and has been increasing as we have seen in many other companies' result announcements as well.

Okay. Okay. That's clear. And then maybe about the cost savings program. You have this EUR 10 million program ongoing. Was there any positive impact in Q2? And could you give any color on how much support you expect for the whole H2?

So naturally, we have started the actions already during the Q2, and there have been small impact, but I wouldn't call that material. And yes, we are aiming for the, let's say -- let's put it that way, that head count savings and reductions we have implemented now are expected to impact minimum EUR 2 million during the second half of the year. Naturally, we are targeting the higher impact, but that is, let's say, what I can name now as the figure.

Okay. Perfect. And then last question from my side. Any additional color on the Bethune ramp-up situation and let's say, that when it's completed, so that you don't have any additional costs from that?

Let's say that we are on the final stage and translating here from Finnish to English. But generally, that is on the final stage, but there are still -- there are different products and different grades that we are ramping up. So we have not finalized everything there. So generally, the production ramp-up has been going rather okay. But yes, it has been taking quite long, and there are always different costs involved when you are introducing a different and new grades as we have right now. So I'm sure that we will be much better position commenting that during the Q3. So it is still continuing, but I would expect that the biggest impact of the costs are there in Q2. But cannot say that been finalized or completed fully yet.

The next question comes from Joonas Ilvonen from Evli.

So this U.S. inventory build situation complicates your earnings recovery further. But can you give any -- I mean, you already commented on the outlook on that. But can you give any color on your customer demand outlook? Like, for example, Kimberly-Clark just released their earnings. And I think the relevant segment that includes wiping products saw like 5% volume growth year-on-year. So can you give any comments on that kind of consumer outlook?