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

Hello and welcome to the Suominen Q4 and Full Year 2025 Results Call. My name is Anu Ilvonen. I work as the Communications and Marketing Director at Suominen, and I will be facilitating the call today. Joining me are our President and CEO, Charles Heaulme; and CFO, Janne Silonsaari, who will present our results and also go through our newly published Full Potential program and operating models. Charles and Janne, the floor is yours.

Thank you. Good morning to all of you. So we will go through the results of the fourth quarter and the full year 2025, and then go through the financial review in more detail, as Anu was saying. So if we start with a summary of our results, which are summarized in the title that says it all. Our results are unsatisfactory both in the fourth quarter and the full year 2025 in a challenging environment, but also linked to our internal performance. If I first focus on the fourth quarter of 2025. Our net sales decreased by 20% versus 2024 same period. And the main aspects were linked to customers, particularly in the U.S., temporarily increasing their supply and imports from low-cost countries. That was also resulting from supply issues in our factories, particularly in the U.S. As a consequence of this lower volume, the EBITDA was EUR 1.9 million for the quarter. The cash flow was EUR 7 million. And that drives to a full year 2025, where the net sales altogether decreased by 11% versus 2024 -- '25, sorry, versus '24. The comparable EBITDA decreased to a level of EUR 12.6 million. The cash flow was EUR 12.2 million. As you know, end of Q2, we had launched a cost-saving program that was aiming at EUR 10 million benefit over 24 months, and we may come back to this later. This cost-saving program is proceeding and continues into 2026. Really important to mention, and we mentioned it, of course, in our Q3 call, but still in this 1 in terms of the impact on the full year results, we had 2 major incidents in our U.S. plants during the second -- the third quarter and the fourth quarter that affected our ability to supply during those quarters, with an interruption of 3 months in 1 factory, in 1 line of 1 factory and a flooding in another factory that meant losing relatively significant inventory, which hampered our supply to customers. So with this disappointing results, the Board of Directors is proposing to the Annual General Meeting that no dividend shall be distributed for the financial year 2025. Based also on this situation, we have assessed precisely deeply our situation and have decided to launch a 3-year performance improvement program, aiming at profitability increase to reach our full potential within the next 3 years. I'll come back to this. But first, we will go into more detail on the financial results with our CFO, Janne.

All right. Good morning from my behalf as well. And we start from the net sales and net sales reflected lower volumes and currency effects, and we will open this split in the next slide. And as Charles mentioned on Q4, net sales decreased by 20% and were roughly EUR 95 million. And as Charles already mentioned, we have had a supply interruptions and that prompted some U.S. customers to temporarily seek alternative sources, which is visible in top line. And altogether, full year 2025 net sales decreased by 11% and were EUR 412 million. Again, we'll follow up the impact split on the next slide, including currency impact. Share of the new products out of the total net sales has been decreasing with the lower sales volume. So this has been impacting also negatively through the profit due to the product mix, and impacting on our EBITDA. Yes. And here, we have the Q4 '25 versus '24 and full year impact on the net sales. So organic impact includes basically volume, price and mix impact. These exceptional events are referring for the Q3 incidents at our U.S. plants, as Charles was mentioning, and then further impact on Q4. And then the currency impact is mainly related to the euro-USD conversion rate. Okay. As it says, the comparable EBITDA affected by the exceptional incidents during the Q3 and then the reflection and continuation on Q4. And EBITDA -- or comparable EBITDA, excuse me, totaled at EUR 1.9 million in Q4. Main reason for the decrease was lower sales volume, also mix impacted negatively, as mentioned. While sales prices were slightly lower in Q4, lower raw material prices offset partly the margin impact. Full year comparable EBITDA was EUR 12.6 million compared to the EUR 17 million previous year. And as said, the big impact was on the latter part of the year by the incidents we faced at the U.S. plants in Q3 and negative impact continued in Q4, as stated earlier. Yes. And here is still the consolidated statement of profit and loss and the main impact on the so-called one-off items or items affecting comparability were related to the restructuring program, and then a very small impact from the Mozzate plant closure, and there is a small impairment loss of EUR 0.4 million coming from the -- just basically as a write-off of old production line. So the main impact is really on the restructuring program costs that is ongoing. And cash flow from operations amounted EUR 7 million in Q4 and EUR 12.2 million for full year. So the main contribution was coming from net working capital, where we have been able to improve, especially on the outcomes receivables side, partly driven, of course, by the lower sales. And then on the inventories, which in total have been impacting positively at the net working capital side and through that to the cash flow from operations. So this is, in a way, positive if we consider the low profit and general performance we have had. That's it from my side. So Charles, with the full potential program. Go ahead.

Thank you. Thank you, Janne. So I would like to first give a little bit of context, because the full potential program is not just based on the unsatisfactory results of 2025. When we assessed and look at our performance over the years, and you can see on the chart that is projected over a period of about 10 years, we basically as a Suominen business didn't provide growth. That's the first point. Actually, if we compare to the base line 2018, the sales are declining 4%, including volume and pricing. And in addition and more significantly even, the profitability has been declining a lot from the peak in 2021, which we know were pushed by the demand during the COVID period at 10% to 13% EBITDA, then we are down since 4 years to the level of 3% EBITDA, which obviously is not enough for a company like ours to deliver to shareholders, but also to deliver investment to the future. The key point here is that we consider that all our shareholders are expecting a different perspective, all our shareholders, but also all our stakeholders. Our customers continue to see Suominen as an innovation and sustainability leader, but consider that we are far too inconsistent in our production performance. And therefore, that has driven to more imports from alternative supply. Also, employees still being loyal and willing to engage strongly are also showing fatigue with this situation that is deteriorating results. And therefore, it is our mandate to change the trajectory of the company and to do that quickly. That's why we are entering and launching today the implementation of a full potential program, which as first absolute priority resetting the profitability. Then we will look into later scaling the business. But the question of the capacity and the growth is secondary versus resetting the profitability and therefore, also providing cash out of our business net-net. That means that for the next 3 years, our absolute focus is on profitability at the same time, as reconsidering the culture of our company to make sure that we have a culture of accountability in history, all companies that have successfully turned around a business have done it also and not only with business actions but also with being very clear on their company culture. And that's why we have already initiated some work on this. Least to say that if we want to build Suominen in the right way for the future, we need basically 3 dimensions. We need to have the right culture, what we call the Suominen culture of accountability, already started the launch, as I was saying. We need the right focus on key priorities, which are about our full potential on the operations, the cost competitiveness and driving profitable growth with our installed capacity, not with new capacity, with our installed capacity. This is our priorities and the focus we need to have. But we also need to have the right operating model. And why am I saying that is because we are entering into a transformation phase. And if we want to have a rapid transformation and an effective transformation, we need to have an organization that is dedicated to driving expertise and effectiveness and also securing the very disciplined execution of this full potential program that we are launching today. And that's why we have announced this morning also to change our operating model. I will come back to that. But first, about the focus we have in the full potential program. We are basically -- our situation today is not 1 problem. It's a combination. And therefore, it's not just 1 action that's going to change the trajectory. It's about turning all the stones without any exceptions. So we are looking and continuing to look at the fixed cost competitiveness, together changing the operating model, which will have an impact also on the fixed cost reduction. Second, we're looking into procurement, obviously, so direct and indirect supply savings. Third, and foremost, the production efficiency and output. This is our priority #1, where we have the biggest benefit to get. We need also to look at our portfolio pricing and business development. In the portfolio, we have some low-margin business that needs to be managed. And as already said, we will not be able to drive all of this if we don't have a very clear culture of accountability and without also a very engaged and committed workforce. That's why our deliverables for 2028, our objectives are basically summarized as follows: 5 key objectives: first, safety. We are delivering a good performance in safety, very few accidents in the -- in our 7 factories, but the goal is 0 accident, obviously. Second, we want to grow with our existing capacity. Third, we want to raise the EBITDA profitability from 3% to 10% by 2028. We want to reduce our leverage, which is approximately 6 -- the ratio 6 of net debt over EBITDA at the end of 2025. We want to reduce it in the corridor of 2 to 3x, and we want to raise our employee engagement up to 80%, meaning above industry benchmark. This will not happen alone. We have major initiatives already standing up, and we will need the internal and external capabilities to do that. That's why we are temporarily supporting ourselves with external experts, both on the manufacturing side and also on the other aspects, other streams of the business, like the strategy, commercial excellence, procurement and organization. We have an expert consultant helping us on the shop floor into our factories with a focus on -- in the factories where most of the benefits are foreseeable. And that has just started in the month of January. At the same time, we are planning to build internal capabilities in order to, of course, not being dependent on external resources over time, and we are standing up the -- particularly the capabilities in the strategic transformation organization. This program will also require some investment, investments into a transformational operational cost over the next 3 years, estimated to be approximately EUR 10 million and also some focused CapEx investments. I want to remind that these CapEx investments are not for capacity. They are for restoring our installed base to industry standard and upgrading this equipment where necessary. We estimate this to be EUR 20 million need on top of our normal investment for maintenance. So that would be -- the program would have a cost of roughly EUR 30 million over the next 3 years. But as said before, it's not enough to have the right focus and the right culture. We need to have an operating model that is helping us to be more effective and more expert in what we are doing. There is nothing wrong with the organization that we have had for several years, the geographical organization. It works very well in many contexts. But I don't believe that in a company where we have only 1 business, and therefore, the opportunity to have a relatively simple and streamlined organization, when we need to engage into a forceful transformation like now, I think we need to have a more focused and dedicated organization, experts in all the parts that are the engine of our business. And what I mean is the engine of the business being customers and factories for supplying our customers, and that's why the decision has been made to come to a globally functional organization with this engine of the business, customers, factories being exactly reflected in the internal responsibilities with a Chief Commercial and Technology Officer and a Chief Operating Officer. This is streamlining the Executive Committee. And then we have 3 support functions that is also streamlined so that we are as efficient as possible in the Executive Committee. So this is effective on the 1st of February, so basically immediately. And I want to make a disclaimer extremely important. When we globalize the leadership of the commercial function, it does not mean that we get out of the local sales organization. The name of the game to be successful is to be close to customers. And therefore, we are not restructuring anything on our sales team in terms of where they are located. They need to be close to our customers and being customer-centric. So this is more about the global management being streamlined and focused on a specific expertise and effectiveness level, which brings me to show you now the Suominen leadership team that will be effective on the 1st of January 2026, with the key changes being that Markku Koivisto, who is today the EVP Region, Europe, Middle East, Africa is taking change for the -- as Chief Commercial and Technology Officer. He is today already the CTO. So from that point of view, it's a logical combination. And it's a very logical combination as most of the discussions and strategic agenda with customers have to do with supply availability, competitiveness and innovation transition from non-plastic solutions. And therefore, the combination of being the Chief Commercial and the Chief Technology is actually quite powerful and Markku's profile is enabling this. The second change is that the COO, Francois Guetat, who started in the company with -- he is a manufacturing expert, who started in the company in November, we are broadening his role by not being just functional, but he will be in direct command of all the factories, the safety, the engineering, the procurement and supply chain. That's what I call driving with these 2 positions, expertise and effectiveness into how we drive the business. And of course, the essential success factor will be in the working together with the same clear aligned objectives, which are already on the table. Then we are appointing also Marika Väkiparta, who was already reporting to me as VP Transformation. We are appointing her into the Suominen leadership team into this streamlined team as of 1st of February. Then our CFO, Janne Silonsaari, and I had discussed openly some months ago on our company situation, the need of a radical transformation and also on his personal goals and came to the conclusion that he was also keen on exploring new opportunities. We decided to, therefore, search for a new CFO. And then we have appointed Kimmo Raunio as our new CFO. Kimmo will join us latest on the 1st of June, likely a little bit earlier in the month of May. Kimmo is joining us from the Fortaco Group, where he works since 13 years and 10 out of these 13 years as CFO and Deputy CEO. Kimmo has a strong track record in the industrial manufacturing sector and at executive level because 10 years as CFO and also driving turnaround productivity activities, and he has experience of both the private equity environment and also listed company as Fortaco is managed according to the listed company governance since a couple of years. So welcoming Kimmo later in the first semester, and then we will wish Janne all the best for the future. Janne will continue as CFO until Kimmo comes in, which brings me to conclude this by saying that our focus is now on resetting the company profitability. We will not focus on scaling our business now. Of course, we will do that later. But first and foremost, it's about resetting our capability to deliver good profit and cash flow. Then after that, we will scale the company. The future strategic orientation will be analyzed later this year once we have initiated our key resetting activities. And we will, of course, keep you updated when and if we have any strategic direction change going forward. Ending the presentation with our outlook statement where we are saying for 2026 that we expect the comparable EBITDA to -- in 2026 to improve versus 2025.

Thank you, Charles and Janne. And now let's open the line for questions.

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

Maybe starting with the Q4 questions. I'm just thinking, you said was EUR 2.4 million, EUR 2.8 million that you lost sales due to this incidents in Q4 -- in Q3. How large risk you see that this situation continues that your customers are still continuing to use the alternative sources going into '26?

Yes. This is a good question. This event -- the second -- I mean, let's be precise. In the 2 events, the first one, which was a major breakdown in a factory in the U.S. created a basically 3-month interruption of production of 1 major line. This is over and no more consequence. This is all back to normal business. The second event was a flooding in another U.S. factory. And because of this flooding and because of the significant inventory loss, inventory of finished goods, then particularly 1 customer had to drive towards alternative supply at that time in order to comply with the demand on the market, and it's a growing customer. So that means that some importing from low-cost country as a result, meant not a long-term contract, but long term from our point of view, a couple of months, which means that it will also impact Q1, and we will be back in normal -- absolutely normal order pattern in April. So Q1, we still foresee for that specific event, the same level of direct impact on the sales.

Okay. Okay. That's clear. Then given the weak volumes that you are currently having and as you said, you are aiming for fixed cost reductions, are you considering any adjustments to capacity, going forward? And if you could give any color on your operating rates currently?

So number one, I would say we are -- obviously, if we would keep exactly the same volume as 2025 going forward, then we have clearly too much capacity. We have too much capacity with the capacity installed. But on top, we are launching -- we are starting the commercial production early second quarter on our new line in Spain. So we would clearly have too much capacity. So very clearly, that would need to drive towards a capacity adjustment. However, we are in a market where the -- we have growth -- a low single-digit growth in Europe, also in the U.S. and in Brazil. However, with the category, the MTT, the moisturized toilet tissue in the U.S. that is growing at high single digit, the demand is high, and we expect also some growth in other regions. And that means that we are in a context where we should have -- we should receive more demand. Third, let's remember that our volume 2025 is linked to the big impact of 3 things. Number one, the trade -- the trade policy evolution that has meant a disruption in the first semester with huge imports from China basically in the first quarter. That has disrupted a lot the first semester volume. Second, our 2 events in the U.S. factories that I just mentioned before, those meant a pretty significant reduction of our volume. This volume from the event is back into 2026. So we will -- we should see growth in 2026. Then if we don't see enough growth or if we want to drive further competitiveness, looking at the manufacturing footprint is, of course, not excluded.

Okay. Okay. That's clear. Then going on the profitability improve programs. Maybe firstly, on the EUR 10 million program, how -- what was the run rate in Q4? And maybe secondly, on the new program, how should we think about the bridge towards the 10% target? And here, I mean, is there more material uplift when you have completed this EUR 20 million CapEx investments, which maybe then points more towards the end of the target period?

Yes. So several questions in one. So the EUR 10 million program run rate end of 2025, roughly EUR 5 million impact in 2025 P&L, roughly EUR 2.5 million versus 2024. That's one thing. It is continuing. We are continuing the effort on reducing costs. And when I'm talking about those numbers, I'm talking fixed cost only, okay? So we have also reduced and done some cost reduction on the procurement and will continue or even accelerate. Now what will happen with this EUR 10 million program, it's not a program that is going to leave its own life on the side of the full potential program. The full potential program is taking over in a much broader scale this specific cost saving program, which will be embedded into the overall program. Then the -- your question about the investments in the factories, that will have indeed a more, let's say, weighted impact towards '27, '28 because this is about restoring some of our factories to the basic industry standards, which we have lost over years of lacking maintenance in those factories or upgraded some equipment automating and that will bring more benefits to 2027, 2028, which may bring me to say because it may be a suggested question into what you asked in our -- if you draw a trajectory from the 3% EBITDA to the 10% EBITDA, do we see a linear progression? Likely not, okay? It's not a front-loaded program because of the reason is that the main part of the benefits will come from the manufacturing improvement, and that does not come overnight, obviously.

Okay. That's clear. And maybe one more question on the operating model. You are clearly targeting higher accountability on the P&L responsibility while simultaneously bringing the commercial functions together. You said that you are keeping the sales teams, but now with the COO commanding all the factories, I'm just thinking, is there a risk that there is too many layers now between customers and factories in the new operating model?

No, we are not increasing the layers at all. Absolutely not. On the contrary, the fact that we organize this operating model differently is an opportunity to improve drastically our S&OP process. That's the #1 thing. So that's where the factories will -- the customers will first benefit from the change. The second thing is if you ask any of our customers, what is their main pain point with Suominen, it is the fact that we are not reliable in supply. Why aren't we reliable in supply is because we have too many breakdowns and efficiency problem in our factories, and we need, therefore, a very expert and a clear line of command, which we didn't have with the regional organization. By definition, an end-to-end geographical responsibility doesn't bring expertise. It brings harmonization eventually, but it doesn't bring expertise into each aspect. And our customers, I have just now spoken to one customer, and he was like, "Wow, fantastic. This is exactly what Suominen needs."

The next question comes from Joonas Ilvonen from Evli.

It's Joonas from Evli. If I can just come back to the market growth rates you just discussed. So you did say that the U.S. moist toilet tissue market is growing at a high single-digit rate, right? And then I think you said Europe is growing at the low single-digit rate. Is that correct?

Yes, that's exactly what I said. If you look at the world, and we are -- if you take our portfolio, the majority of our portfolio is baby wipes. The -- an interesting part of our portfolio, particularly in the U.S. is the so-called MTT, moisturized toilet tissue, which is big in the U.S. and small in the rest of the world, likely, if you think about long term, this is a category that is likely going to grow also in the rest of the world. But right now, very relevant in the U.S. If you look at the world, there is, everybody knows, a demographic crack in the world. There are fewer and fewer baby, the mortality is going down. So what we see in terms of shift in the market is baby wipes slightly declining in volume, not dramatically, but slightly declining everywhere. Then you have other products like senior applications for elder people in terms of wipes and other nonwoven applications increasing. And then the category of MTT is the one growing at a pace that is high single digit in the U.S. That's the most relevant growth we see right now.

Okay. And the U.S. market as a whole is maybe like mid-single-digit growth or...

Yes. Small, mid-single-digit growth, yes.

Okay. And if I can come back to Europe. I mean, so in the U.S., you had the supply disruptions, but also your European figures were maybe slightly lower than expected. So was it mainly like these low-cost imports again that like affected your European figures?

Yes. This is -- we have a very big internal headache that I mentioned very clearly, which is our production and supply efficiency and reliability. And the external headache is the fact that there is in this global market, there is capacity, there is overcapacity. Therefore, it's important that we are in a growing market because there is today too many alternatives, and that is also hampering our volume in 2025 in Europe.

And then Q4 sales margins and also going forward, so now the nonwoven prices decreased, but also raw material prices decreased. I mean, previously, your sales margins developed favorably. But what was the net effect? Did they decline now? Did they only decline now with the nonwovens price, even though raw material prices...

Whether -- I'm not sure to have gotten your question is whether our margins have declined. No, our margins have slightly increased, and that's on the back of better sourcing and procurement activities. Our big issue is the volume. But otherwise, the margin -- the variable margin has actually slightly increased in 2025.