Suominen Oyj (SUY1V) Earnings Call Transcript & Summary

Good day, everyone, and welcome to Suominen Q4 and Full Year 2023 result publication. My name is Emilia Peltola, and I'm heading Suominen Communication and Sustainability Team. Today, our President and CEO, Tommi Björnman; and CFO, Janne Silonsaari, will present the result and the agenda goes as follows. So Tommi will first summarize the year 2023 in brief, then Janne more in the financial review, and Tommi again conclude the presentation with the progress in strategy and outlook for this year. Tommi, please.

Thank you, Emilia, and good morning, everybody, also on my behalf. And we thought to start this presentation with a small short video which is actually explaining a little bit of Suominen. So let's look at the video first, and then I will continue with the full year brief. [Presentation] We are Suominen, a global nonwovens manufacturer with Finnish roots, best described by 3 words: pure Nordic quality. First, being pure is about the sustainability of the whole company, from the manufacturing process to the materials used. Purity and cleanliness are the sole purpose of our products. Secondly, we're Nordic. If anything, the Nordics are known for their responsibility, well-being and honesty. For us, it also means strong ethics and staying true. You can trust things really are as they are said to be. Finally, there's quality, plain and simple. Quality of products, service and everything else. With Suominen, you know what you get, and what you get is pure Nordic quality.

Okay. Thank you. Hopefully, we enjoyed the video. So just in order to look at briefly what happened within the 2023 last year. So our top line was slightly lower. That was mainly coming from the raw material prices drop. And we have the mechanism of the pass-through method with our many customers. And at the same time, of course, we were slightly able to improve our margins. Our top bottom line EBITDA improved from EUR 15.3 million to EUR 15.8 million. And we continue to have a strong cash flow from the operations, ended up with EUR 30.7 million compared to last year, EUR 14 million. And then based on this strong cash flow, the Board of Directors decided to give the dividend for the owners of $0.10 a share. And now I would like to pass over the presentation to Janne, that he will review the financial part of the operations. So Janne, please.

Okay. Thank you, Tom. Good morning also on my behalf. And here, we have full year and Q4 net sales. The net sales declined from 2022, mainly due to the lower sales prices resulting from lower raw material prices. And as a reminder, it's typical in this industry that a lot of sales pricing is indexed and follows the raw material price trends. Sales volumes decreased slightly from 2022, mainly related to the plant closure in Mozzate and currencies impacted negatively roughly EUR 7 million. In Q4, we saw a positive development, and this was mainly driven by higher sales volumes. And worth mentioning is that share of the new products total on a very good level and over 35% of net sales during 2023. And as a reminder, new products are considered with a launch during the past 3 years and majority of these are part of our sustainable product offering. Then comparable EBITDA. Full year EBITDA slightly increased compared to the previous year. As Tommi mentioned, ended up roughly 4% higher despite the challenging business environment. As you can see on the right-hand side, we had a fairly [indiscernible] year. First half of the year, profit was low, but we saw a good development on the EBITDA levels during the second half of the year when our actions, especially on commercial excellence side, started gradually contributing. And here is still a full profit and loss, including one-off costs. Those are related to the Mozzate plant closure. Only minor costs incurred during Q4 2023. I believe this was EUR 11,000 totally. And for the full year 2023, roughly EUR 4.8 million Mozzate plant closure related costs and EUR 9.6 million as a total during 2022 and 2023. On a positive note, our cash flow from operations was very strong regardless of challenges in business environment. So we were able to continue the strong trend during Q4. Main contribution came from good control of net working capital and mainly from inventories. As a CFO, I'm pleased with our ability to manage the operations and produce positive cash from operations despite the challenges on profitability side. So good to end on a positive note, and Tommi, back to you.

Okay. Thank you, Jan. So let's look at a little bit something that we -- this is a slide which we have used in many of our presentation already. Just a reminder, this is the plan, what we look at our strategy is from 2020 to 2025. The cornerstone, of course, of that is the sustainability, and we want to be the sustainability leader in the nonwoven industry. And then the other one is, of course, that we have a very strong focus on customers and efficiencies. This is, of course, the frame what we are going to review within this year in order to see that how we would be able to enhance the strategy once going forward. And maybe once we take the big slide, so – looking at the highlights, actually, this gives also the reflection of the areas where we are focusing. The first one, of course, was something that we concluded, the investment in Nakkila, in Finland. Actually, that was a line upgrade and mainly the idea behind that upgrade was something that we would be able to offer more sustainable products from our platform from Finland. Then the other part, of course, is something which is linked to the efficiency. It was the closure of the Mozzate site in Italy that is concluded within the last year. And of course, the impact of that is fully in our P&L. On that, of course, there will be some cash flow impacts coming on, once going forward, once we move the lines. But generally speaking, Mozzate closure went according to the plan, and we were able to transfer a majority of the products and customers to other European sites. And then looking at, again, the sustainability, like Janne mentioned, so we had a good level, actually, I can even say a very good level of new products that we introduced. Majority of those products are sustainable. And then, in order to look at so that the comparison of what we have been using in order to look at the frame, we have been comparing as a start baseline base year 2019. And from 2019 to today, we have been able to increase the share of the new products and the sustainable products with 79%. So generally speaking, the sustainable products have almost like doubled since 2019. And then, as an evidence of that, we also measure ourselves internally. So, how many new sustainable product launches we had within a year? And last year, we had 12 of them. These are always consider that what the customer considers as a new product for them and introduced. And this is mainly something that what we do is something utilizing our platform and investments in order to upgrade our current portfolio. And linked to that, of course, we continue to work around sustainability. And last year, again, we had EcoVadis assessment on that. We maintained the Silver rating. We were able to improve our rating by 5 points. But unfortunately, we just missed 2 points from the gold level, which means that we continue to work around the sustainability in order to improve to achieve the Gold level also in EcoVadis. And then, how we will do all of this was something that we reviewed the organization, and we changed the organization to be closer to the customers. We established a business area, regional business area organization in order to support this profitable growth journey. And we want to really o mention that we see the situation in such a way we want to bring profitability first and then start looking at growth. And then, in order to look at so that how do we see 2024. So in order to look at the outlook of 2024, we stated that we would like to improve from 2023 going to 2024. As a reminder, our EBITDA was 2023, EUR 15.8 million. And back to Emilia, so...

Yes. Thank you, Tommi and Janne. And now it's time for questions. So from the lines, do we have any questions?

The next question comes from Joni Sandvall from Nordea.

Yes. I have a couple of questions. I'll take those one by one. You reiterated your wording of positive signs from the market. So can you give any additional color on how you expect volumes to develop now in H1 and then in full year '24?

Okay, Joni. That was a very good question. So that once we look over here, so generally speaking, of course, the business environment, it continues to be challenging. So that if we look at it, generally speaking, so we have the war in Ukraine, we have the crisis in Gaza, the situation in Suez, then in order to look at so that, what are some things? Interest rates are still high. We have the inflation, which is impacting the general economy. But in order to look at our hygiene business, personal care business, that tends to be a fairly stable business. So looking at that, the underlying demand within in the market is very stable. And even, say, in the United States, it's still on a stronger side. But at the same time, we have a competition. So this is more linked to the activity, what we have in-house, what we do together with our customers, how we work with them, how we are improving our commercial excellence, how we improve our operational excellence. So it's more dependent on us, how we succeed with the steps, what we have decided in order to improve the situation [indiscernible] the support coming from the market.

Now when the Nakkila investment is completed and taking into account the Mozzate closure. Does this actually have volume impact? If we net these two out, should we see positive volume from the Nakkila investment?

So of course, that once we close the Mozzate site, so that generally speaking, if you look at net-net, everything, so if we compare 2022 to 2023, we were something like 1,500 tonnes shy. So more or less, we closed the gap already within last year. And once we go forward, of course, our intention is to squeeze and sweat our assets as we can gradually, which is actually -- it's not very fast, but gradually, we will sweat our assets. And this way, we will get the support to our growth.

Okay. Then my big question related to costs, because there are maybe tentative signs of rising pulp prices in the market. So, how do you see the environment from your side now currently on the pricing front?

So, like Janne mentioned earlier, so that we -- the tendency, if you look at the industry standard, the industry standard, more or less all the way to operate in this industry. So it's something typically the raw materials [indiscernible]. So meaning that actually with the main customers and in the main contracts, we have a pass-through clause. So if the raw material prices are going up and down, it has a certain impact, but more it's dependent on us through the commercial excellence. So that what other new products, what we are able to introduce, what else we can do with the customers, it's impacting more than the market. So of course, we take everything what is granted, and we are able to have the support from the market, but it's mainly driven our internal activity and operations linked to the commercial excellence, how we do it.

Okay. And maybe one question to Janne about the inventory costs, which have reached now pretty much pre-Covid levels. So is it fair to assume that there is not so much -- or there is not much improvement potential on that front in '24?

That's, of course, kind of the [indiscernible] where you don't want to be too direct on your answer, but I think that you have done the homework well. So yes, we are pretty much on a pre-Covid level. And I put it this way, we are not likely to see such a high improvement on the inventories of, we see -- net working capital as we have done so far. So yes, probably there are certain spots where we can still improve. But I would say in my view more on then the accounts payables, accounts receivable side, on net working capital. And naturally, overall, when talking about the cash flow, the EBITDA is the main focus on the improvement side.

And last question from my side regarding the guidance. You mentioned that you are expecting improving comparable EBITDA following in '24, and in '23, the improvement was only EUR 0.5 million. So, how should we view this? Do you have some threshold or thresholds for the guidance?

That was an excellent question. So of course, we have to remember that our starting point is fairly low level. So -- and how we see the management sees. So we are improving step by step, and it will take a certain time. Therefore, actually that we gave a 2024 guidance fairly conservative. And we would rather like to see it in such a way that let's look at the situation again after the first quarter once we can see the development of our commercial and operational excellence activity and what is the success rate of that. So that's just understanding the challenging business environment.

The next question comes from Joonas Ilvonen from Evli.

It's Joonas from Evli. You already touched upon on this sales volume outlook for this year. But could you maybe briefly elaborate on volumes. So I guess, I’m [indiscernible] to know, I mean you say that overall Q4 volumes increased slightly, but could you elaborate a bit on Americas versus Europe developments in Q4.

Joonas, that's also an excellent question, so that, of course, that we are not -- normally, we don't go very deep on these regions. But generally speaking, it's something that what we can see that in the United States, like I said, that the basic underlying demand is at a fairly good level. So which is, of course, giving us a support on that. And maybe what I'm able to mention that also in Europe, the situation has slightly improved as well. And this is something that we see. So therefore, we are pretty confident on going forward that we see some positive signs, but we need to be a little bit cautious because it's so unpredictable. It's very difficult to see. And the uncertainty is not because of us, it's because of the whole economy.

And you also touched upon this raw material outlook. I don't know, do you have anything -- I mean, I guess those prices are now kind of stabilizing? Or I guess that's your assumption, that they will remain somewhat stable this year? I mean, compared to where they are now.

Okay. Okay. I understand your question, where you are heading with that. So it's something that the -- generally speaking, once we look at what we succeeded in 2023, we were able to improve our sales margin, which was, of course, a good development. And then, we would rather look at the market in such a way that, yes, there are changes in raw material costs, but we need to add up ourselves, and we need to make sure also that then, whenever these are changing, that it has a minimum impact in the way we run the business. So I wouldn't like to go and claim that with the raw material prices going up or down, so we improved ground around our business, and try to make and maintain and improve our margins.

And maybe a final question. You also mentioned this -- I mean a couple of years ago, there was this Suez Canal crisis, and now there's the situation in the Red Sea. Has that been a major issue from a logistical point of view so far?

So luckily, we are, if we look at it, it's one part of our sustainability strategy as well. We are local. In a way, we want to be a local supplier. We are a European supplier. So the majority of our raw material customers, we operate in Europe. So we want to be close to them, because actually that is the way how you can have the lowest possible carbon footprint. Which means that, actually, the Suez Canal is not impacting us that strongly. So it's not -- we are not immune. Of course, it has impact, but the impact at the moment is not material.

It seems we have one question from the chat. It's from Rauli Juva. Your financials were quite high in Q4. What impact did that have and what kind of run rate should we expect for 2024?

Maybe, Janne, if you take from your view and then I have...

Okay. So with the financials, I'm assuming the reflection to the P&L. And naturally, we stated that our internal improvement actions in the commercial and operative, operational excellence, excuse me, have been gradually starting to impact. And then Tommi, touch point, our guidance for 2024. So naturally, we are expecting that we are able to continue the good trend, but I cannot guide any detailed figure-wise or rates-wise in that sense because we have given the guidance on that we will improve on EBITDA from '23. And we have stated a few times that we see some positive signs on the, let's say, business environment, but that's more on the internal actions and how those are gradually impacting, rather than the market. And Tommi mentioned already earlier that the market in U.S., it's more balanced and stable demand-wise, while in Europe, we still have certain uncertainty because of, let's say, demand-supply balance in the market. That's a very, let's say, round and political answer. But if you want to reframe and be more detailed, I'm happy to answer in more detail. Tommi, if you want to continue any...

No, I have to say something, that you know that it is, like I said, is that we are starting from a low level, and then we are doing this step by step. So it will take a certain time. There is a certain delay with reductions, which is also very typical for this type of industry.

So thank you, all. Before closing this session, I want to advertise that our Q1 results will be published on May 7. And before that, on April 4, we will be having our annual general meeting. Thank you all for participating and have a good day.