Suominen Oyj (SUY1V) Earnings Call Transcript & Summary

Good day, and welcome to Suominen's Q2 Results audiocast. My name is Julia Koivulanaho, and I'm the Interim Head of Suominen Communications. Next, our present and CEO, Tommi Björnman; and CFO, Janne Silonsaari, will present the results. Janne, Tommi, the floor is yours.

Thank you, Julia, and good morning, everybody. Thank you for joining this second quarter 2024 results discussion. Agenda, yes, we will do so that -- actually, I will go through the second quarter in brief as well as the first half of 2024. Then Janne will continue with the financial reviews, and then I will progress with the strategy and give you the outlook of 2024. And after that, Julia will take care of the questions and answers, if you may have any of them. So if we look at the first -- the second quarter in brief, so we saw a 5% increase on our top line, then amounting EUR 118.7 million, which was mainly driven by the increase of the volume and especially the volume surge in the United States. And then that drove, of course, partially the comparable EBITDA to EUR 5 million, comparing to the previous region to EUR 2.7 million, which was actually not only driven by the volume, but as well as the improved sales mix. And then driving the whole business, overall, the cash flow from the operation ended up in EUR 2.1 million comparably previous year, it was EUR 6.4 million. And then in order to look at briefly the whole second half -- the first half of the year, excuse me, we can see that the total amount of the sales was EUR 232 million. Janne will come a little bit details about how it was composed. And then comparable EBITDA during the first half of the year was EUR 9.5 million, which was a bit more EUR 4.2 million better than previous period, which we could say that actually at this case, it is satisfactory based on the situation where we are today. Of course, then the cash flow was slightly negative and also that on the negative side, so that compared to last year, so we have some explanation coming from Janne that what was driving mainly those deviations compared to last year. But all in all, the second quarter and first half of the year, we could see that the improvement continued as seen in the numbers. Okay, Janne, please, let's look at the financials.

All right. Good morning on my behalf as well. So as Tommi mentioned in the key figures summary on previous slide, net sales increased roughly EUR 6 million or about 5% to EUR 119 million. We have been able to increase the sales volumes, but sales prices have been lower, driven by the lower raw material prices. Slightly positive currency impact on Q2. We saw basically the same amount negative on Q1. So the year-to-date level, no impact from the currencies. We continued the good trend on the new product sales. As a reminder, that means the products that we have been -- we have commercialized during the past 3 years, with the sales exceeding 37% of net sales. So we keep on reshaping our portfolio according to our strategy and towards the more sustainable products. On a year-to-date level, after first half of the year, the net sales are EUR 232 million, last year H1 being slightly below EUR 230 million. Then on EBITDA, the next slide, comparable EBITDA in Q2 was EUR 5 million, as Tommi mentioned. So we have seen a clear improvement from previous year and small step from the Q1 this year. The main drivers for improvement were increased sales volumes, especially in Americas region and better sales margins. There was a minor impact from the currencies, nothing major. And we can say that the gradual improvement continued, but we are still facing some challenges on our internal efficiency actions and how they contribute. And first half of the year, as said, the EBITDA has totaled EUR 9.5 million. Here is a consolidated statement of profit and loss mentioning items affecting comparability, those are cost related, through the Mozzate plant closure and restructuring program that we announced at the end of May. In Q2, there was EUR 1.2 million severance costs booked related to restructuring activities. And regarding the Mozzate closure, which is targeted to be financed by the end of the year, we actually saw a small positive impact, roughly 200,000 during the Q1 so really the minor cost any more positive from there. And then on cash flow, the next slide. Cash flow from operations was EUR 2.1 million in Q2, resulting first half of the year on close to be 0 and decrease in the cash flow from operations in the first half was mainly due to the negative change in the net working capital. This is really driven by the increased inventory levels and some mix on higher receivables or customer mix driven to higher receivables. On inventories, we have reacted on the challenges on global supply chain. We see that the situation will balance on second half of the year, but at the same time, we want to secure the supply security. So that has really been the main impact on net working capital, but nothing major there item. So next strategy and back to you, Tommi.

Okay. Thank you, Janne. Thank you for the brief summary. So let's look at -- in order to look at our mission and strategy, the strategic focus areas and values, of course, we continue with our improvement actions and activities within the company. And as on -- seen from already in the increase of the new product sales up to 37% of the top line, it will also reinforce that we are moving to the right direction. Just as a reminder, this strategy frame is between the years 2020 and 2025, and we are already in the process of a little bit of reshaping this. And it's very probable that before the end of the year, we will come with some more fine-tuned strategy once moving forward. Execution is the important part, and we continue executing this strategy. And as a part of that execution of the strategy, we already announced in May, the investment in the United States to focus more sustainable products. That is proceeding well. It will be -- it will start according to the plan what we had during the first half of 2025. And at the same time, like Janne already mentioned, we started a small restructuring program as a part of our transformation journey. That is also progressing well, and we look forward for the savings, like say, the annual savings expected next year is actually EUR 1.5 million. And the aim is to -- also to close this program before the end of third quarter. But of course, once that is closed, we will announce you. And then I'm pleased to inform you as well that we continue our journey of increasing the capacity in the sustainable products. And also yesterday, based on the border solution, we are going to make a new investment, increasing the capacity of the CPC products in Alicante. The investment roughly is EUR 20 million, and it is expected to be completed the second half of 2025. This is very exciting, of course, as a company, we need to make sure that the base business is running well, and we plan properly for the future growth, which is actually -- this is an indication of that and one important cornerstone of the execution of the strategy. Then coming -- going forward the outlook of 2024, and as in the previous calls, so we stay the same so that we say that in 2024, it is expected that our profitability EBITDA will increase from EUR 15.8 million as it was last year. We keep the outlook the same, of course, in the market overall. If we look at, there are certain uncertainties. But of course, we can also see some slightly positive signs of areas where we can see that some part of the markets are fairly stable. So Julia, back to you, so any questions or answers.

Yes. So no, it is questions. Are there any questions from the lines?

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

Maybe starting with the volume development, can you please elaborate a bit more? You said that Americas volume development was positive, but how about EMEA? Was it positive also there?

Maybe I can take it -- I can talk in a rough numbers. So I would say that actually, we saw positive development in both of the areas. So -- but slightly less in Europe and the main driver for the volume growth was coming from United States. So if I would say, roughly 2/3 from the United States and 1/3 from Europe.

Okay. Okay. Perfect. Then about -- maybe a little bit about the outlook on the markets. I think you mentioned that you expect no major changes there. How is the visibility currently in the market if you compare, for example, situation in Q1?

I would say that the market and the visibility have remained roughly the same. It's -- the market situation is -- if you look at the -- we need to look at them a little bit differently. So if we look at Europe, Europe is a market where there is a fairly fierce competition because of the structure of the market. There are more players in Europe. So the market situation in Europe, it's -- of course, it is tight, but I would say it's stable. I can't say that it's very positive, but I would say it's more stable. While in the United States, it's less consolidated market. Of course, there are a little bit less players. The market situation is -- because of the overall economy, it has been driven quite well. I can't say it's extremely good, but I would say that it's somewhat better than in Europe and continues to be fairly good. And then if we look at Latin America, the first half of the first quarter of the year was a little bit softer, and we are expecting that the second half of the year will be somewhat stronger. So net-net, in order to look at the global picture, I would say that it's fairly stable in our business. Of course, we need to remember this is a consumable product mainly driven by the Babycare business.

Okay. Okay. That's clear. Maybe to Janne, sales and marketing expenses were up sequentially on a year-over-year basis. Was there some one-off type investments or costs here?

Well, no, any specific in that sense. But yes, we have had certain, let's say, project type of costs that we have been posted as an OpEx on that side. So yes, that has been mainly driven. It's not really any like specific items in that sense. But naturally, we have been also investing on the R&D side and having a good activity on that side. So new products and the general development that we have been doing there in order to shape the portfolio on more, let's say, sustainable and more profitable direction.

Okay. Okay. That's clear. Maybe then a follow-up on the cash flow situation and on the working capital, it's -- we see the -- clearly negative impact during the H1 and also in Q2. So you said that you have made some actions on the inventory level. So how should we expect now the working capital changes during the H2?

Well, I do believe clearly -- and it's a clear target that we will improve there. That's clear. I would say that there's a little bit question mark for the Q3 but Q4, I do believe that we will see a clear improvement on the inventories. So advance receivable, it's more on the customer mix. And that's -- it's not nearly as big part of the impact as our inventories. So we have consciously taken a decision of having a little bit buffer due to the challenges on the global supply chain, and we do see that it will slowly stabilizing again in the market. So I do believe that we will be able to improve.

And also, maybe to add to that is something that based on the decision of what we did last year and the work, what we did last year and continued this year, we have been able to maintain the net working capital as a percentage of the net sales at a very competitive level.

Yes. That's clear. Then maybe a broader question on the pulp market, as there has been indications of price drop in the global pulp prices. So should we -- if the situation continues, should we expect these lower pulp prices come visible already towards year-end? Or should this take place only in '25 on your P&L?

Well, it depends, of course, how quickly that will materialize on the market prices, what is then the sort of lead time. It's usually like a 1 quarter lead time or so. And after that, we will start seeing it. The inventories for us, yes, a little bit up. But then again, the turnaround is rather quick. It's rather that it's -- a lot of pulp producers are shipping it from the longer term. So I would say that there's roughly 1 quarter of a delay or 1 quarter plus 1 month depending a little bit on the inventory levels. So that's roughly the cycle there. And this is, of course, interesting. So we have seen estimation on the both directions. So it's interesting to see where this will actually -- which direction it will start going. And as a reminder, we have quite a big part of the business indexed prices on the customer prices. So on a certain time frame that will come on the selling prices as well or reflect on the selling prices.

Maybe last question, interesting, investment decision on Alicante. So should we read this as a positive demand outlook for medium term? And can you maybe just remind us of the market capacity situation currently in the Europe?

Maybe I can take this so that -- in order to look at the sustainable products, we are the front runner of developing the sustainable products in both markets so that if we look at EMEA and also in Americas. And of course, our recent investments in North America, now in Europe, it is actually just driving the same thing is something that there is ongoing this change of the green deal. Everybody is keen on sustainable products. So this is, of course, something that once we go forward, so this is the way where we pace. This has been the cornerstone of our strategy in order to drive these more sustainable products. These more sustainable products will grow faster, and they will generate a little bit better profitability for us once going forward. And this is a big difference on the products, what we currently supply to normal customers, mainly based on the mixture of non -- let's say, plastic fibers with nonplastic fibers. Of course, that portfolio almost probably is going to a little bit decrease, and that's the area where there is the most competition because of there are many products [indiscernible] products. And we want to differentiate ourselves on the marketplace with this.

The next question comes from Joonas Ilvonen from Evli.

It's Joonas from Evli. You already touched upon many questions I had, but maybe if I can just continue on the raw materials price question. So pulp prices, like you discussed -- I mean they have been increasing a bit earlier this year and maybe now stabilizing. But how do you see like this -- other than pulp prices, these oil-based raw material prices? Do you have any feel on those? I mean I guess they have been rather more flat this year so far than pulp prices?

Pretty much, yes, the main change that we have seen on other than that is really being driven by the possible increases on the logistic costs, which was the case, especially during the time that there was instability in the Red Sea area. And that was reflecting a little bit wider scale on the logistic cost. But other than that, I would concur what you just mentioned.

All right. And I think you also kind of implied that Americas volume development in H1 was more or less what you expected? Have you seen any changes? I mean, when you think about H2, I mean it's -- they have all these seasonal campaigns there during the order months. So any updates on that outlook in the U.S.

Mainly -- what we mentioned, which was already discussed in the earlier quarterly reviews as well. It is something that in order to look at the market a little bit that it tends to be so that if -- in demand wise, the second half of the year typically is a little bit stronger than the first half of the year. So in this respect, it is something that market-wise and demand-wise, we expect that actually there is -- it's looking okay. So we can't yet say that it will -- is it going to be higher or lower. But I would say that based on this, it's something it's -- the situation is normal so -- once going forward. So expectations are that we would continue roughly at this pace.

There are no more questions at this time. So I hand the conference back to the speakers.

Thank you. There are a few questions in the chat. So first, let's start with the first 3 questions from [ Poli ]. I'm going to start with the first one. So was the positive mix impact larger than the negative impact in pricing?

So yes, it is -- this is a good question. So excellent question is something that in order to look at that. So the net-net, in order to look at that, at the moment, we could say that because the new products are growing faster and then once you have 37% of the sales at the moment, I would say that the new products are roughly -- if you look at that percentage, I would say that it is slightly lesser than the impact of the negative ones. So of course, our aim is to improve the mix -- the product portfolio mix and also -- in certain areas also the customer mix. But typically, that process is somewhat slower. And it depends a little bit about the capabilities, how quickly you are able to speed up and build up the capability for the new products.

And then the second question, are you expecting the price component to turn positive in Q3 already?

And this is now quite a bit tied with the topics we have been discussing here already earlier in this call so raw material prices and which direction that market is going because that is driving directly the prices. So I was expecting -- I think that this was asked during the previous call, and I was expecting that during the summer months, we would see the kind of shift that direction. But now the main question would be that which direction this pulp and fiber prices are heading in the market. So I'm leaving a little bit on the air and depending on that. So if they would start increasing, then I would believe that, that is the case. If not, then we probably remain roughly on the same level or a bit lower. So we'll see.

And then of course, on top of that, are the internal commercial actions -- commercial operational actions, what we have into place where we have been able to state that we have been slightly improving our sales margins.

That is correct.

And then the third question, given the large investment to Alicante, are you expecting your CapEx to be above depreciation in 2024 and/or 2025?

Yes. And I would say that -- well, we announced also this a bit soon -- a bit smaller investment earlier. And with that, I would say that likely, our investment or CapEx will be a bit higher than the depreciation during 2024. And driven by this Alicante investment, we just announced this morning, yes, the 25% will be a bit higher than the general level of depreciation. So answer is likely in '24 and years in '25, yes, for the board.

Yes. And then there are 2 questions from Markku Moilanen from Nordea. The first question is in 2 parts. In Q2, the sales development was flat in EMEA. How do you see the demand environment developing in the EMEA region in Q3 to Q4? And if you compare it to ongoing Q3 to Q2, how would you comment on the development?

Okay. This is, okay, 2 parts of the question. So let's start first at -- looking at a little bit EMEA. So once we talk about -- we need to separate that, that once we talk about the market and then once we talk about the sales, what we have in our sales. So like we told, the market is normal. We can't say that it's not too positive. It's -- there is no headwind. There is no tailwind, but it's the market situation. It is tough. And based on that, of course, depending a little bit what the competition is also doing on the market, we are a little bit dependent on the that, which is, of course, very good because a big part of our sales is our committed because we have the deals with the big customers. So in order to look at that, it is something that once we look at, so it is a very natural development of our sales based on the activity, what we have in the new product releases and the activities, what we have our customers. So it would be very difficult in order to compare, but I would now say that the situation is normal or I could even say that it is expected to continue like this until the end of the year.

Yes. And then the second question, how will you finance the Alicante investment?

Yes, and this is, of course, a relevant question. So if we take a look of the balance sheet. So our cash position, so basically net debt position, has been fairly strong. But at the same time, understandably, the EBITDA is, of course, the key. We need to continue the gradual development. And I would say that even speed up the sort of the next steps and step-wise improvement. And we already discussed a little bit on this net working capital. So we need to be able to free up and monitor that and control that on a very efficient way. So I would say that, that's really the main items there impacting and that is really the own money that we are looking right now for this investment.

Okay. So there is no more questions in the chat. Is there more questions from the lines?

[Operator Instructions] There are no more questions at this time.

Okay. Then before we close this session, I would like to remind that our Q3 results is published on November 6. Thank you for joining, and have a nice day. Bye.

Thank you all. Bye.

Bye-bye.