Suominen Oyj (SUY1V) Earnings Call Transcript & Summary

Good day, and welcome to Suominen's Q4 and Full Year 2020 Result Publication. My name is Emilia Peltola, and I'm heading Suominen's Communication and Investor Relations. Today, our President and CEO, Petri Helsky; and CFO, Toni Tamminen, will present the results. And after the presentation, there is time for questions. So Petri, please.

Thank you. So good morning, everyone. Here's the agenda, and I propose we move to the first actual slide. So Suominen had a record year in 2020, both when it comes to net sales and profitability. Our net sales increased by 11.5%, and we reached sales of EUR 459 million, which compares then with EUR 411 million the year before. Our EBIT improved significantly to EUR 39.5 million. In 2019, we had made an EBIT of EUR 8.1 million. The cash flow was strong and totaled EUR 57 million. The year before, it was on the level of EUR 30 million. And the Board of Directors proposes to the AGM a dividend of EUR 0.10 per share. And in addition to that dividend, a return of capital of also EUR 0.10 per share. We have been reporting about these impacts of the COVID-19 pandemic, and there have been positive effects on our sales volumes in all our markets. We expect the demand for our products to continue on a high level. And also, longer term, this pandemic may lead to a sustained increase in the use of nonwovens, especially for cleaning and disinfection purposes. Despite the challenges that the pandemic has caused all of us, Suominen has continued to be able to run our operations with relatively limited impacts. Then more in detail about the financials, Toni, please.

Thank you, Petri, and good morning also on my behalf. So looking into a bit more detail into Q4. So in Q4, our sales increased by 17.6%, amounting to EUR 111 million. So very nice increase despite a negative currency impact of some EUR 7 million. And the driver behind the increased sales was more or less the same what it has been. So sales volumes increased driven by the high demand caused by the coronavirus pandemic. However, sales price decreased versus the comparison quarter due to lower raw material prices. And as we communicated already during the Q3 results announcement, so December was low or let's say, a bit slower sales-wise due to the holiday season. So no big surprises there. Operating profit improved significantly to EUR 8.5 million from EUR 1.4 million. This is the best-ever Q4 for Suominen and as a detail maybe worth mentioning, that this is higher than the -- all of 2019 EBIT. It was also the sixth quarter in a row that we managed to improve the operating profit versus the comparison period. The increase in the profitability was again not much unchanged from the previous quarter. So we had higher production and sales volumes, favorable raw material prices, and also, efficiency was better. So we were able to improve there. One negative item to mention is that our other operating expenses were impacted by various accruals, which you often have at year-end when working out the financial statements. When we look at the profit and loss statement in detail. So yes, I think Petri went through most of the full year, and I have commented on the Q4. Perhaps one thing to mention is then on the positive side, these net financial expenses, which were perhaps lower than expected, our interest expenses as such were pretty stable. But as is often the case, we got now a positive pickup from foreign exchange rates affecting various valuations. So all in all, net profit for Q4, EUR 7.3 million and EUR 30.1 million for the full year. And to finish this financials review. So cash flow was again very strong, EUR 17.9 million in the fourth quarter; for the full year, EUR 57 million. We almost reached cash flow from operations of EUR 1 per share, but you need to leave something for the future as well. So EUR 57 million, excellent result and strong improvement from previous year. The main driver, of course, being the result improvement, but what I am very, very happy with as well is the net working capital. So despite this significant increase in sales and production and business volume in general, we had very limited upswing in net working capital. So measured in days, we actually came down quite a bit. So financially, as commented in our release, a record year in many respects.

Thank you, Toni. It is now more or less exactly 1 year ago when we published the Suominen new strategy. And it is a good time now to have a look at our progress. As you remember, the strategy of ours really focuses on growth and profitability. And the cornerstones in this path are our capabilities to innovate and come to the market with more sustainable nonwovens and at the same time, also increase and improve the efficiency of our operations. And of course, that then requires also that we are able to create a high-performance culture within Suominen. And then some -- if I pick some items concerning the progress. So we have published during 2020 3 different investment projects: 2 of them in Italy; 1 more linked to increasing our production capacity, which is, of course, very timely needed in order to serve the surging demand. Another one of our projects has more to do about increasing our capabilities of next-generation sustainable nonwovens, and a bit similarly so, the project that we are proceeding with in the U.S. is about increasing our capabilities of offering new innovative products. And very pleasing was that we achieved from one of our main customers, Rockline, a supplier award but specifically granted for Suominen for our innovation capability. And of course, that was really in the bull's eye in the core of our strategy, of course. So that was very, very pleasing indeed to get such a recognition from our customer. The share of new products exceeded 25% of our net sales. And one can also mention that we concluded a cooperation agreement with Ahlstrom-Munksjö, specifically concerning the Ställdalen plant and the flushable products. And also, when it comes to Ställdalen, we have been busy developing further innovations on that side as well. At the same time, as we published the new strategy, we also came out with the new sustainability agenda. We divided the sustainability field in 4 themes about people and safety, about sustainable nonwovens, low-impact manufacturing and corporate citizenship. We set targets for each of the 4 themes. And we set KPIs, which we are then following and making sure that we proceed according to our plan. And if we have then a look on some items concerning the progress. Our sales in sustainable products increased by more than 22% last year. We launched 9 new sustainable products during the year. When it comes to the low-impact manufacturing, we were able to reduce significantly the -- both the greenhouse gas emissions and also the energy and water used. And concerning the Suominen people, we measured then -- we concluded a -- or conducted a personnel survey. And the engagement index that we reached, 69%, is exactly on par with global manufacturing companies. And of course, that now sets the benchmark for further improvement in the coming years. And on lost time accidents, one can mention that the target of ours, of course, is 0 LTAs. And we had 1 in 2020, which is, of course, one too much, but it is very good achievement compared to the -- all the years prior. In 2019, the corresponding figure was 6. And finally, about the outlook. Suominen expects that our EBITDA in 2021 will be in line with 2020. We expect the demand for our products to remain strong. But we have observed rising volatility in the raw material and transportation markets, and that increases the uncertainty and may have a negative impact on the result. The time will show. In 2020, as we saw, our EBITDA was EUR 60.9 million. Thank you, everyone. And now would be the perfect time for questions.

Yes. Thank you, Petri and Toni. And if we start with the questions from the lines. So operator, do we have any questions?

Yes. Our first question will come from the line of Joonas Ilvonen from Evli.

This is Joonas from Evli. Congratulations once again, a very strong result. How would you describe the nonwovens pricing environment at the moment? Say, were you able to defend your nonwovens pricing to some extent in Q4 relative to your previous expectation?

I think that the achievement was very much in line with our expectations.

Okay. And what about in terms of gross margin, would you say like -- do you see how it's going to -- how that environment looks in early 2021 relative to late 2020?

Well, of course, what we say about raw materials is, of course, impacting this -- many of the raw materials, main raw materials that Suominen uses, they reached historically low levels in 2020. And I would say that if something reaches its historical low, the expectation is, of course -- the likelihood is, of course, higher than the prices start to increase rather than further drop. And we have started to see this impact. And as we have discussed many a time before, we then are able to price such impact into our own products. There may be some lag in that. Toni, would you want to add something to the question?

No. I think you covered it very well. So this is exactly the case. So this uncertainty that we are seeing and which we have commented on in the outlook, it, of course, would impact the gross margins. However, again, we do have the ability to pass on this to the customers. What exactly will be the final impact, if any, remains to be seen. We have to remember that we are now in the first days of February. So still some uncertainty as we commented on the full year.

Okay. Good. And maybe final question on Europe. It seems Europe has been improving quite a lot and maybe America has been -- well, not bad, but maybe somewhat lukewarm compared to Europe recently. So could you maybe comment on those market areas, what's been happening there?

First, to start off, one thing to remember, that our consolidated figures are in euros. And as we commented in Q4 alone, we had almost EUR 7 million net sales impact. And obviously, that's -- almost all of that comes from the Americas. So that kind of masks the improvements, and there was improvement in the Americas as well. So that needs to be remembered when looking at the -- especially the sales figures which we publish. Petri, do you want to add on then?

No. I think that, that is the main impact. I think that we have made progress on both sides of the Atlantic.

Yes.

Of course, then the starting level in Europe was much lower. Therefore, it's a bigger improvement in such sense.

We have one more question on the bar. [Operator Instructions] Our next question comes from the line of [ Rauli Wuba ] from Nordea.

[ Rauli ] from Nordea here. One question on the balance sheet. You obviously have quite a lot of cash now after a very strong year, and the outlook looks pretty good as well for this year. And you're also below on the gearing of your targeted range. So the question would be that what are your plans basically to deploy that cash in the future? And is that gearing range still a relevant target that we should look for?

Well, of course, the Board is proposing to deploy some EUR 11.5 million of that cash to the shareholders. But -- well, as you know, we have various plans, but difficult to comment on those. At this stage, they are in preparation phase, and some might realize and some not. And overall, I think that the long-term gearing target is still valid.

Okay. Good. And so you are basically looking at M&A opportunities as well.

We are looking at various options.

Our next question comes from the line of Harri Taittonen from Nordea.

Harri Taittonen, Nordea. Just could you give a feel of how fully that capacity is sort of utilized within the realistic kind of sustainable levels? Given the strong demand, I mean, how much is there unused capacity potentially there? And then on the 3 projects and sort of remind where in the ramp-up stage you are there. Is there sort of additional, or sort of how much further then of impact could there be stemming from this?

Yes. Thanks for the question. That has been asked also during last year in these events, and our current capacity is very much in full use. And therefore, these projects that we have will come very timely. But only one of them has actually really capacity-increasing impact. So the -- and the time line for these 3 projects that we currently have ongoing is such that they all come to effect in the second half of this year. And the 2 in Italy, let's say, more in the earlier part of the second half and the 1 in the U.S., in the latter part of the H2.

Our next question comes from the line of Antti Viljakainen from Inderes.