Suominen Oyj (SUY1V) Earnings Call Transcript & Summary

Good day, and welcome to Suominen's Half Year Results Publication. My name is Emilia Peltola, and I'm heading Suominen's Communications and Investor Relations. Today, our President and CEO, Petri Helsky; and CFO, Toni Tamminen, will present our results. And after the presentation, there will be time for questions. So Petri and Toni, please.

Very good. So good morning, and welcome.

Hello, hello.

The latter one was, Toni. So second quarter, saw a record high quarterly net sales and operating profit. Our sales increased by 18% amounting to EUR 122 million. The corresponding period last year was EUR 104 million. Our operating profit increased significantly to EUR 12.4 million. Last year, we had a result of EUR 2.7 million. And the cash flow from operations was EUR 9.6 million comparing with EUR 9.1 million the year before. And if we look at the first half, January to June, our sales increased by 9%, and we reached total sales of EUR 232 million. Year before, it was EUR 214 million. Operating profit increased significantly to EUR 18 million comparing with EUR 5.6 million. And our cash flow from operations reached EUR 19 million comparing with EUR 6.7 million in 2019. If we could get the next slide, please. All right. Very good. So we heard that the slides actually are changing. So we continue. We don't see it actually live, but we are now then on Slide #4, with the headline of COVID-19 update. And the coronavirus pandemic has increased our sales volumes in all our markets, and we expect this higher demand to continue for the coming months. In the longer term, this pandemic may lead to continued increased demand for nonwovens for cleaning and disinfection products. As we discussed during last results, publication event, we have as, of course, many, many companies have taken many measures to be able to cope with these unprecedented circumstances, and we, as Suominen, have managed to make sure that we have been receiving the raw materials as needed and the very strict safety procedures that we implemented at all our plants have so far at least enabled us to run our operations with very limited impacts. Of course, with this pandemic continuing and perhaps even worsening in some parts of the world, we still, of course, have many risks in our operating environment and potential risks can, for example, be possible shortages of raw materials, potential closures then of our own plants or of our customer plants or potential authority decisions. We have also seen some problems with logistics transportation chain. But as said, overall, so far, we have been successfully operating our plants. And of course, we, as all of the others in our supply chain, but also in, of course, a lot of businesses, have been able to gather more experience to operate in these circumstances, and that will most probably help us and others going forward. If we then move to the financial review, and we are on slide with the headline, record-high quarterly net sales. I already mentioned that we reached sales of EUR 122 million in the second quarter, and that is really the highest quarterly sales in the history of Suominen. Our sales volumes increased considerably, but the sales prices decreased following the lower raw material prices. Main driver, as already mentioned, for the higher demand was the pandemic. The share of new products, which we are, of course, following with high interest and importance, continued on a level above 25% of our net sales and the impact of currencies and perhaps to mention the USD and the Brazilian real are the most significant currencies in addition to euro. The impact of these currencies on net sales was EUR 0.4 million negative in the second quarter. If we then move to the operating profit slide. As said, we reached EUR 12.4 million which is quite an improvement from a year before, where we reached EUR 2.7 million and also the operating profit is the highest quarterly reached level in the history of our company. And the main reasons behind the high operating profit were the higher production which then allowed the higher sales. Also, our margins increased as the lower sales prices were compensated by lower raw material and other direct product costs. And fixed costs, we kept well under control. Then let us move to the consolidated statement of P&L, and Toni, please.

Yes. To be honest, not that much to add. So as Petri already mentioned, so our gross profit improved very nicely from around 10% last year to 16% in Q2. Fixed costs very much under control, nothing really to mention to there. And also below EBIT, nothing that special. So leading to a very good profit for the period, EUR 8.4 million for the second quarter. So all in all, extremely good results for Q2. Cash flow was improved slightly from last year. So -- which was, of course, good on the level of -- and it was also on the level of Q1. Now this was impacted, to some extent, negatively by the increase in working capital, especially receivables, which was a natural result from the higher sales. So the full impact of the improved result was not yet visible in the cash flow in Q2. Nevertheless, healthy cash flow also in Q2. Not that much to comment also there. So back to you, Petri.

So just as a reminder, the strategy slide you might remember that we published our new Suominen strategy in early January of this year. And if we then move to the next slide, a few words about how we are progressing with the implementation. You remember that we announced an investment in Italy in mid-April, which will allow us to produce of these new developments of our more sustainable products is kind of a card -- pulp card product. And it also allows us to have this line being -- once the investment is completed, very versatile and efficient. This investment project is proceeding as planned and will be finalized in the second half of next year. Today -- earlier today, we announced another investment in Cressa in Italy. We will have increased our production capacity. We have had an existing line idled in Cressa. And now we will modernize it, we will renew it and restart it. And this will again allow us to meet the increasing demand for nonwovens that our customers are facing from, again, then the end users, the consumers. The total value of this investment is about EUR 8 million. And also this investment project will be finalized during the second half of next year. So it's relatively quick project since we have the line already existing. It's more about modernizing and renewing the existing line. And then finally, about the outlook. We expect that in 2020, our comparable operating profit will improve significantly from 2019. Just to remind you that in 2019, Suominen's operating profit amounted to EUR 8.1 million. Thank you very much. And now...

Now it's time for questions. So we take questions from the conference call line. So operator, do we have any questions?

[Operator Instructions] Our first question comes from the line of Harri Taittonen from Nordea.

Yes, Harri from Nordea. One question from me on your capacity utilization where you already running at that basically full speed in production in Q2? Or how was the situation?

Yes. We are basically running at full speed, our lines.

All right. And then can you say anything about the magnitude that you mentioned this maintenance breaks that how much will those kind of reduce the capacity in the second half compared to the full production right here you had in the second quarter?

What would you -- Toni estimate that we could say that there are -- we have some, say, mandatory stoppages in -- typically in Italy. always, it's due to the collective agreements. In fact, even more than maintenance, it's about allowing our employees to have a certain holiday period in August that will affect. We have then also in the U.S. at one of our plants always lengthy, so more than a week maintenance stoppage, which is, again, not really for our plant, it's more about, let's say, the town infrastructure, which is always having a maintenance break. So there are some impacts and then our own maintenance programs, which typically then are timed for the third quarter. So it will have some impact. Yes.

I think it's rather like 2 weeks than a month or so, so the length of those breaks?

And it's not the only ones...

Yes. And not all plants either. So it's a bit uneven spread. So -- but on spread on a quarter, there's some impact, but not, of course, enormous. So we're not talking about, as you said, 1 month out of 3 months that all our plants would be stopping.

Our next question comes from Joonas Ilvonen from Evli.

This is Joonas from Evli. First, congratulations with regards to very strong results. I understand you would not look like to guide to specifically on gross margin going forward. But it's just that I think this was like a record high gross margin. And could you maybe comment on how do you see the delta going forward? Like I think many raw material prices are still kind of sort of soft? And could you maybe comment on how do you see it?

If we start from the raw materials, I think that a bit -- as always, there are some moving upwards. And I'd say that we have reached now a level where we expect the others to remain flat rather than going further down. And that is perhaps the outlook that we see. We can't really see perhaps further much reducing raw material costs.

Yes, there are signs that at least certain raw materials would now start trending upwards again.

Okay. And what about in terms of fixed costs, was this quarter -- was there anything sort of special or how do you -- how would you see maybe Q3 fixed cost or for the rest of the year developing?

Not really, no. It's -- our fixed costs have been, generally speaking, rather steady, and we do not expect major fluctuations at least in those.

The next question comes from Antti-Pekka Viljakainen.

Antti from Inderes. Can you hear me?

Yes. We can hear you, Antti.

Good. Could you please comment how has the pricing developed during the first half in this part of portfolio, which is not covered by raw material costs?

Yes, the line was a bit bad, but I think that I heard your question. If we think of first half as a whole, the -- and then we, of course, we are present on in different geographies. But to simplify the answer somewhat. So I think that we saw -- of course, the raw material prices and price development in our market, it affects both the mechanism prices, but also the non-mechanism prices. So if the raw material costs are trending downwards and materializing downwards, typically the prices of our products follow that as well. And that is what we saw. We then started to see some price recovery in the second quarter partly as well. But I think that -- there's a relatively high correlation also in the non-mechanism prices to raw material costs.

Okay. And the second question about your investment in Italy. What kind of payback or return are you, in general, looking for this kind of, let's say, medium-scale investment from your perspective?

I don't think we comment the payback as such. But if we think of the investment otherwise, so it's a -- you could think about it in such a way that it's a relatively reasonable investment costs in this case, since we have the line existing already. It's also a rather quick, as I mentioned, implementation of it, again, for the same reason because it's already there. And then it allows us to have more capacity, meaning more sales. At the same time, we have the infrastructure already and, therefore, these new investments will be then diluting existing fixed costs, which we can then utilize just more efficiency. So overall, it's a good project as far as I consider it.

And there appear to be no further audio questions, I'll return the conference.

And it seems we don't have any questions from the audio guests, either. But before we end this meeting, I would like to advertise our Virtual Capital Markets Day that will be held on September 2. You will find more information about that from our web pages. And the next interim report, so January-September will be published on October 27.

So it was published today that there was a change. We postponed it by a couple of days. So please note that the date has changed.

Yes.

But a good welcome to both those events as well.

And if no more questions, then we would like to thank you for participating to this audiocast and teleconference, and wish you a good week.

Until next time.

Bye.

Thank you. Bye-bye.

Thank you. Bye.