Suominen Oyj (SUY1V) Earnings Call Transcript & Summary

Good day, and welcome to Suominen's third quarter results publication. My name is Emilia Peltola, and I'm heading Suominen's communication and investor relations. Today, our [indiscernible] and CEO, Petri Helsky; and CFO, Toni Tamminen, will present the results, and after the presentation, they will answer questions.

So hello, everyone. Here is the agenda, and I propose we move on to the first actual slide. So third quarter on this year was very good for us. We made again, a record high quarterly operating profit, EUR 12.9 million. Last year, Q3 for us was EUR 1.1 million. Our net sales increased by 12% and amounted then to EUR 115 million. Last year, it was EUR 103 million. And also the cash flow from operations was strong, reaching EUR 20 million. Last year, the figure was EUR 17.4 million. We have been discussing this COVID-19 pandemic impacts. And as we all know, this pandemic continues and for us, it has meant that the sales volumes have increased in all of our markets. The demand has remained strong, and we expect this strong demand to continue at least in the fourth quarter of this year and in the early 2021. As we mentioned last time as well, we believe that in the longer term, this pandemic mainly to continued higher demand level for nonwovens, especially for cleaning and disinfection purposes. I'm happy to tell that we've been able to continue to run our operations in all our operating countries with rather limited impacts in these strange times. Then, Toni, if you take the next slide, concerning the financial review.

Very well. Thank you. So going into a bit more detail. As Petri said, sales increased by 12% versus Q3 last year, amounted to EUR 115.4 million. And the main driver was the higher sales volumes, driven by the high demand of the white products caused by the corona pandemic. However, on the sales price side, raw materials kept on decreasing. And hence, also our sales prices followed suit. The impact of currencies was quite significant. So due to the USD depreciating in Q3, in addition to the Brazilian real, which had already appreciated earlier in the year, we had EUR 5.6 million negative impact from currencies versus Q3 last year. Share of new products continued on a good level, so about 25% of our net sales. If you look at the result, so again, a new record for Suominen in operating profit, EUR 12.9 million, 11.2% of sales. So obviously, very good results. And this came, the improvement came from higher volumes, both in production and sales. And this was really the case at all sites. So all sites improved significantly. Also, margins improved through this raw material decrease and also improved raw material and production efficiency. If we then look at the profit and loss, the whole profit and loss statement. So again, as we have been reporting for several quarters, the cost side, well in control. Financial expenses increased mainly due to the currency exchange rates and revaluation of USD-based assets. One income statement for perhaps to comment a bit more on is the income taxes. As you can see, tax rates for Q3 was extremely low. This was impacted by recognition of additional deferred tax assets from previous year's losses that have not been recognized previously. Also, we utilized some of these tax losses where there was no deferred tax assets recognized previous. So both of these had a positive impact on the tax rate. And hence, profit for the period reached almost EUR 11 million, EUR 0.19 cents per share. And cash flow, as Petri stated, also very strong. We managed to improve even against the high comparison period, so EUR 20.1 million versus EUR 17.4 million. The main driver was the good result. And we commented during the Q2 results announcement that due to the increased sales in Q2, we had an increase in the net working capital. Now it stabilized and even improved, driven, of course, the slightly lower sales. So both of these drivers resulted in a very nice cash flow from operations for Q3. I think that concludes the financials. So back to you, Petri.

Thanks a lot. So our strategy slide, which we have been showing at each of these events during this year and then if you take the next slide, so a few words about our progress in the implementation work. We announced in the third quarter in August an investment, which leads to increased capacity here in Europe by upgrading and restarting one of our existing production lines in Cressa, Italy. And this investment will, of course, strengthen our capabilities and is made in line with our strategy for growth and thereby improved profitability. Total value of this investment project is about EUR 8 million. And this production line of ours will be then starting in the second half of next year. We announced also in Q3, our new sustainability targets and the KPIs. And according to one of those targets, which is to launch at least 10 sustainable products annually, we then published and launched 2 new sustainable products in Q3, BIOLACE Pure and BIOLACE Combo. And what made us as really happy and proud was the fact that one of our major customers, Rockline, awarded Suominen with their Supplier Innovation Award and really their view was that Suominen has been the most innovative nonwoven supplier of theirs. And of course, this is really in the sweet spot, in the core, of the Suominen strategy, to be able to come with innovations, be the front-runner in innovation of sustainable nonwovens. And we were, of course, very delighted to achieve this kind of recognition for this work of ours. The outlook for 2020, as such, will not change. This is what we have already said earlier, perhaps to comment somewhat Q4. You might remember that we said for the third quarter that we have some maintenance stoppages at our plants in Q3 and other stoppages related then to certain agreements with labor unions, especially in Italy, when it comes to the holidays and thereby stopping the production. Now for Q4, similarly, so we still will be having some maintenance stoppages. And we also have traditionally seasonally weak sales month in December, and we expect that to be the case also this year. Typically, the customers also are paying attention to stock levels and their inventory at the end of the year, which will lead to December typically being not really a full sales month as many of the others are.

Thank you, Petri and Toni. Now it's time for questions. If we start with the questions from the conference call line. So please, operator, do we have any questions?

[Operator Instructions] We have a question from the line of Joonas Ilvonen from Evli.

This is Joonas from Evli. Could you just briefly comment on your nonwovens pricing development and also tonnage volume development quarter-on-quarter? how did these metrics get developed in Q3 compared to Q2?

Can you please repeat the second part of your question? So the pricing development and I think volume? Was it the sales volume or...

Tonnage. Yes. Yes.

Yes. So on the tonnage, we really do not comment on our tons that much. On the pricing, as we had in the presentation. So the raw materials decreased still during Q3 and our formula pricing decreased as well. But there is -- as we have communicated also earlier, there is a certain lag in how quickly this raw material changes come through to our pricing.

Okay. And I think you commented during your CMD, something like that in this current environment, you might see some opportunities to defend your pricing despite of low raw materials prices.

Yes. That is correct. And there was a certain impact from that as well.

Okay. And would you also care to comment on wiping certain specific developments like where there's certain product groups that were especially in demand?

I think that wiping, of course, in these corona times, it is, first and foremost, surface cleaning and disinfection type of wipes, not only surfaces, but also hand cleaning wipes and thinking of our customer segment, which is then the converters, they have also changed a bit their production scope in such a way that they traditionally were producing perhaps other type of wipes products. But to some degree, they have been redirected it to produce, for example, such disinfection wipes impacts, which should -- to be carried with each person either in their handbags or pockets and be able to, for example, then make sure that the hand hygiene can be maintained also being outside homes. But overall, to answer your question, I think all categories of wipes has shown to have a high demand.

Okay. And maybe a final question on your communicated production plans. Do you see -- could you comment on what's the impact like or what's the kind of -- what's the size -- the magnitude of the impact? How will -- how may it be on Q4 compared to Q3?

Yes. And also, as Toni said, we don't really comment the volume development. But of course, goes without saying that if we had maintenance stoppages and we are out of production, it has an impact then on the volumes. And therefore, the answer is there without actually saying it even. And now when your question was about Q4, we think that roughly, the impact would be similar to Q3. But there might be slight nuance difference in this because, as we said in Q3, the -- a lot of the stoppages were in August. And therefore, we saw somewhat of a higher than peak in September after the stoppages. And now when we speak about December, if there were to be a similar impact, that would then show in January. So in Q3, it was within the quarter. In Q4, we will see.

And the next question comes from the line of [ Lucy McKinnon ] from Handelsbanken.

First of all, congrats -- congratulations for the strong quarter. Just wanted to verify that, did you have any effect from kind of coronavirus stimulus packages in Q3 had a positive impact?

Corona, which -- I didn't catch. Could you please repeat? Coronavirus and I didn't catch...

If there were any governmental stimulus packages that you have received in Q3?

No. So the main topic we have had is this U.S. CARES Act, which was already reported during the first half where we had some tax refunds in the first part of the year. But in Q3, nothing material at least.

Okay. And although you don't mention the production volumes, but can you kind of give us some color on the utilization rate in Q3 compared to perhaps to earlier quarters or year-over-year?

Yes. As we said the last time, we are running our lines basically full. So utilization as that was -- when the lines were -- when the plants were open, not on a holiday or whatnot agreed with the unions that lines were running, but we had this impact from the stoppages and from this August holiday season. Yes. But no major change from Q2.

And can you estimate how the pulp and viscose markets looks from your perspective when looking ahead?

I think that, of course, time will tell. But I think for many raw materials, we are at a sort of historical low level currently. And that has, of course, been caused by especially the soft demand in textiles, which is due to the corona pandemic. And then it depends, of course, how the textile market and textile demand will be picking up once the different parts of the world are either getting out of this pandemic or when the pandemic situation is evolving in the different countries. And just my own opinion is, of course, that being on a historically low point in raw material costs, it is, of course, more likely that the prices start to recover once the world continues to rotate.

[Operator Instructions] We have one more question from the line of Antti Viljakainen from Inderes.

Congrats on very good results also from me. Could you please discuss a bit how about your variable cost optimization program? How significant contribution this program has had on your gross profit in the third quarter and also at [indiscernible]?

Yes. I think that this program of ours we launched in the early 2019, and we have then been continuing after relatively good results reached in the calendar year '19, we then continue the program for this year. And we've been very happy with the different -- many single items for each of our production plants, which then make this total program of ours. But I don't think we mentioned any details of the magnitude of the outcome. But it is, for us, nevertheless, significant.

Okay. And how would you describe your operational performance in plants in quarter 3? You commented that all plants improved, but were all plants on satisfactory levels in terms of operational efficiency in third quarter?

Well, you can always improve. So the world is not perfect.

Yes, I understand, somebody must be worse, but anyway, when will [indiscernible] of the low performance of the plants?

Yes. We measure it, of course, with many different KPIs. And as Toni was saying, the world will never become ready. Therefore, there's always room for improvement. But overall, we've been happy in this -- taking into account, especially the special circumstances that we have been operating in. So we've been relatively happy really with the outcome from our production and our operations. You mentioned some typical, of course, aspects in this that we have been reaching new production records, for example, on Suominen level, which, of course, is one of the KPIs that we measure.

As there are no further questions, I'll hand it back to the speakers.

Thank you. We have one question from [indiscernible]. You have managed to get EBIT percentages close to 10% level. How do you see the development going forward? Or are you happy with the level you have now?

Yes. Again, the world is never ready, but we have to remember that these are extraordinary times. In many respects, as Petri was saying, the raw materials are at record lows. And as we have stated, our long-term target is 12% EBITDA, and we are currently exceeding that level. So right now, I think we are happy but of course, there is a tendency of the appetite to grow when you are eating. So we shall see, we shall see. And as said, you can always improve.

Yes. And of course, our target is to develop the company further. But indeed, we are happy with this level. But of course, these are, as Toni said, unprecedented times as well. So the visibility to the future, even though it has improved from the early parts of the year, so still, it is not at the normal level, how this corona will play out and what will be the long-term impacts, which obviously will have a very significant impact on our results.

Thank you. It seems that we don't have any more questions. So just a quick reminder that we will publish our financial statements release on 4th of February. And that's all today. Thank you for participating.

Thank you, and wish you all good health.

Bye.

Bye-bye. Thanks.