Suominen Oyj (SUY1V) Earnings Call Transcript & Summary

Good morning from Espoo. Welcome to the Suominen Q4 and Full Year 2024 Results Publications. My name is Minna Rouru, and I'm the Chief People and Communications Officer. Joining me today are Suominen's President and CEO, Tommi Björnman; and CFO, Janne Silonsaari. They will present the results. And afterwards, there will be time for questions and answers. Tommi and Janne, the floor is yours.

Okay. Thank you, Minna. And also on my behalf, welcome to this call, and it's very nice to have you all online. Let's look at the agenda first. We will have a quick brief review of Q4 results as well as the highlights of 2024. Then I will hand it over to Janne that he would explain the financial review. Once he have concluded that, I will have a few words about the progress in our strategy and then what is our outlook for 2025, and then I will hand it over back to Minna for questions and answers. Let's look at the next -- so Q4. So Q4, it was a good month -- good quarter for us. We had a 3% growth. If we compare, the comparable quarter was EUR 14.9 million (sic) [ EUR 114.9 million ], and we were able to achieve EUR 118.5 million, which actually generated that 3% growth. During that time, we -- comparable EBITDA was EUR 4.2 million, which was -- in the comparison period, was EUR 5.3 million, which was slightly, on our perspective, it was something considered not that good one, quite moderate. So -- and operations from the quarter Q4, the cash flow from operation was EUR 6.5 million; comparable period was EUR 13.1 million. Then in order to look at what -- how it was for the full year 2024, the turnover increased by 2.5% during the period. Comparable EBITDA improved moderately, which was a shy 8% increase from EUR 15.8 million to EUR 17 million. And during the period, we were able to maintain the operation -- cash flow from operation at the level of EUR 3.9 million. And as a company and discussion with the Board of Directors is proposing to Annual General Meeting that we would not distribute dividends during -- from the fiscal year 2024. And this is, of course, mainly coming from the considerations in order to support the cash balance as we have 2 major investments ongoing: the investment in North America, in Bethune; and the other one in Alicante. So please, Janne, let's look at the financial numbers more in detail.

All right. Hi, and good morning on my behalf as well. So let's start with the net sales. Full year net sales totaled at EUR 462 million. Main drivers were higher sales volumes, which were then offset by lower sales prices resulted from the lower raw material prices. And as a reminder, industry has traditionally a lot of index pricing, which ties sales price to the raw material movements. Q4 sales volumes were a bit lower compared to the comparison period. So we saw a lot of movement in trade flow in the market after U.S. presidential election, which impacted negatively, especially in Europe. We were able to offset partly with the higher sales prices and product mix. Currencies had negative impact during Q4 and full year. On more positive note, share of the new products continued on a good level and was 34% in 2024. We consider new products such that have been commercialized during the past 3 years. All right. Let's move on to the EBITDA. So comparable EBITDA. On the right-hand side, Q4 EBITDA totaled at EUR 4.2 million, as Tommi mentioned earlier, and we mentioned during the last results call, in Q3, we experienced operational issues. Those were mostly fixed and only minor impact on Q4. We -- during the Q4, we faced higher raw material prices that we were not fully able to offset with the pricing. And we were also impacted negatively by the trade flow balance shift from U.S. to the Europe. And full year EBITDA totaled 17% (sic) [ EUR 17 million ] and roughly 8% increase from previous year. Currencies impacted EBITDA positively by EUR 0.1 million in Q4, but negatively by EUR 0.8 million in full year level. And we have the consolidated statement of profit and loss. And the main items impacting listed below the table. So Mozzate plant closure provisions were released in Q4 worth of EUR 1.1 million, meaning full year one-off provisions releases were EUR 170,000 higher than one-off payments related to mainly restructuring activities we took earlier in the year. So as a total, small positive net impact. And we can move on to the cash flow from operations. In Q4, we saw improvement on net working capital, which led also to -- full year to positive. And as a reminder, in 2023, we focused a lot on our net working capital optimization. In 2024, we have increased buffer stocks due to the geopolitical uncertainty, and this has had an impact on the full year level through the net working capital. All right. Tommi, back to you.

Okay. Thank you, Janne. So in order to look at a little bit at the progress in strategy, so more or less, it's something that this frame has been for 2025 to -- from 2020 till 2025. And actually, we are in the process of fine-tuning our strategy based on the changes in the geopolitical environment and on the business as such, and we aim to launch the new strategy during this year, during the 2025. But generally speaking, there are no major changes on this. Maybe just in order to share with you some of the highlights coming from the implementation of the strategy. So like Janne mentioned already, so we have 34% of the new product sales from our annual sales, considered -- which can be considered as a good one. Like Janne mentioned, this is the sales during the past 3 years. At the same time, out of these new products, we were able to introduce a good amount of new sustainable products. Our target is to launch 10 new products within a year, and we launched 11, and that led to the situation that if we look at the strategy frame, so we told us that the base year with where we compare our progress especially for the sustainable products, our target was something that we would be able to increase the share of the sustainable products up to 50%. At the moment, we are delivering 87%. At the same time, at the same period, we mentioned that our aim from operations and, generally speaking, in the -- lowering the greenhouse gases totalized our target in 2019 was something that we wanted to decrease the greenhouse gases by 20%. At the moment, our running rate is 24%. This is actually the implementation of the strategy based on the angle of sustainability. Then in order to support further that, we are increasing the capability of introducing new products to the markets and supporting both sustainable sales and new product sales. The investments in Bethune in South Carolina, that would be operational during the first half of this year. And then the Alicante line, as earlier announced, that line will starting up in the end of this year and will be operational starting from the first half of 2026. Both of the investments are in time. Then as the outcome of all this good work around the sustainability, we were able to achieve and upgrade our rating in EcoVadis from silver to gold. As a reminder, what the gold means, we are among the top 1% in the industry of textile -- other textile industries, and we are among the top 5 companies in all industries. And then this morning also, we announced our new updated Sustainability Agenda from 2025 to 2030. Here, we call this presentation as our sustainability diamond. One corner of this diamond is the people and safety, where we want to continue to strengthen our safety culture, promote the human rights, providing the employees equal opportunities and fostering the high-performance culture. There, we have 2 parameters, which we follow. One is the LTA, which is the 0 lost time accidents, and the other one is DEI, diversity, equity and inclusion measurements, where we have set a target level of 80%. Another corner of the diamond is the sustainable nonwovens, where we innovate the new sustainable nonwovens in order to give the commitment for our customers that they can drive their own sustainability. Here, we have 2 measurements, which we -- metrics, what we are using. We mentioned that 2/3 of our raw materials used in the process should be plant-based. And at the same time, more than half of the new innovation R&D initiatives should be focusing on sustainable products. The third angle of this diamond is corporate citizenship, where we promote the responsible business practices, we communicate the issues and topics transparently and then, of course, that the sustainability is a cornerstone, everything what we do. So what we see at the metrics in order to follow this corporate citizenship measurement, we say that all our qualified raw material suppliers should be able to meet the sustainability criteria defined by our operations, Suominen way of working. And then another one is something that all our employers have completed, the Suominen sustainability training program. The last corner, but not the least, of course, is a low impact on manufacturing in our diamond. So we are decreasing the environmental impact, not only in our operation but in the whole supply chain. And here, what we say that we are -- we will be within the reducing the Scope 1 and 2 and 3 greenhouse gas emissions according to the Paris Agreement. And at the same time, we drive towards the 0 manufacturing waste from landfill. So this is in a nutshell, our sustainability diamond, which we will follow in the coming '25 to 2030 time period. And now if we look at as an outlook to coming for that. So at the moment, it's something that the outlook will remain the same. We will state that Suominen expects that its comparable EBITDA in 2025 will improve from 2024. And just as a reminder, the comparable EBITDA in 2024 was EUR 17 million. Thank you all. Let me hand it over back to Minna, and there is a time for questions and answers.

Thank you. Thank you, Tommi and Janne. So operator, would there be any questions from the lines?

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

Maybe I'll start with the question related to volumes in Q4. You mentioned that the competition from low-cost countries intensified. Has this -- how this has evolved now going into '25?

Maybe -- thank you, Joni. It's a good question. So of course, it was something that, as we all see that there is a big amount of uncertainty because of the geopolitical tensions and especially the discussions about the tariffs, which led to the situation that from the low-cost countries, naming China, Turkey, India, the main market for those markets has been always North America. And at the moment, once then the discussion started around the tariffs, they started to land more strongly in Europe. So the impact, what we see is mainly in Europe linked to the end products. And especially if we look at the conventional products what we have been producing, not more -- not linked that much about the new products or the more sustainable products. It's more for the conventional products. This is happening -- what's happening in Europe. And then at the same time, in the United States because of the tariff discussions, it has led to the situation that, of course, that in the supply chain of the raw materials, there are the similar type of impacts, which we need to just cope on the market and manage that. So generally speaking, this situation is going to continue at least during the first quarter. And just reminding you that what yesterday news, this morning we were able to read it, most probably this is going to intensify, which means that we believe that the uncertainty will continue. So in a nutshell. And then of course, if we look at the Latin America, we have operation in Latin America. That market has been already fairly protected so that actually inside Brazil, there are already tariffs outside. And at the moment, there has been also some movements that in that market, they are looking at how they would be able to secure the local operations. So in a way, it's a partially good news for us because we have a good stronghold in North America with 3 factories. But of course, on the other hand, it's increasing the competition in Europe at the moment because European Commission do not have yet the same type of tariffs or support to the industry as the other markets. Hopefully we answered.

Yes, that's clear. Yes, it's very good answer. Maybe then on the U.S. tariffs now for the Canadian and Mexico as an example. I believe you don't have a direct impact as you have local production in the U.S. But are you sourcing from example, from Canada, some raw materials, which could have direct or indirect impact to you?

This is the case, what I'm referring to. It is true that there are -- if we look at our overall supply chain, there is a part of the supply chain where we got the raw material outside the United States. It's coming from the different countries, including Canada, especially mentioned over here. But that is, of course, something that which we need to look at with our customers, then how we would be able then to pass through these costs because these costs are not driven by the market. These are set by the authority. And then, of course -- then in the discussions, we have a little bit different position once we talk about this. But we will see how the situation is going to develop that is this going to be the final, et cetera. But anyhow, what is sure, it is something -- this is increasing the uncertainty.

Okay. Okay. That's clear. Maybe next one on -- Janne, you mentioned that you had some costs still related to these operational issues that we saw in Q3. Could you give any number on that? And just looking at your gross margin now in Q4, it's down from Q1, Q3 level if we are adjusting for this around EUR 3 million costs in Q3. So raw mats were up, but any additional colors over this?

No, I would say that it's just the tails of the cost that we fixed already during the Q3. So I have to admit that those are not very big ones. So I don't put any single number there. But I would say it's just the small tails from the Q3.

Okay. Okay. Then maybe a question on the pulp prices, which have now started to go upwards, should we still expect -- now raw material costs were up, but should this actually come down during H1 before maybe going up then for the H2?

Maybe just a general comment about the raw materials. So that once we look at that a good share of the business, we have contracts which actually enables us to have a system mechanism how we would be able to pass over the cost increases. But of course, before the cost increase would be able to pass it over, there is a certain lag -- positive or negative lag depending on which direction the raw material costs are going. So of course, I would say that this is a normal business practice that there is this type of delay in the indices and in the mechanism. And of course, that the volatility of the pulp prices, of course, we have seen it, it has gone up, it has come down. But of course, we are more concentrating on looking at the mid- and long-term view about the business. We see clearly that the sustainability is going to stay. It's the direction where our customers are looking at, and it's very natural that actually we start to use more and more natural fibers. So of course, this becomes also more important for us, but we have the view more for the mid and long term rather than short term.

Okay. And last one, maybe a question related to customers and their needs. You said that the direction is clear, but have you seen any changes now under -- let's say, in U.S., there is the new government. So have you seen any changes on demand from your customer side for new products? Is there a shift maybe to lower-cost products in the market?

Let's look at this that maybe we would need to split it, this a little bit differently so in order to look at the market. Generally speaking, the market, I mean, the general market and the growth of the market is good. So I mean the underlying demand is good. Of course, that once you have the local production and then you have import, there is, of course, some fluctuation depending on the situation, how the cost structure is changing. And especially once you put the tariffs, the swifts and the swings can be fairly big ones in a short period of time because, of course, some of the customers might be willing to optimize the supply chain. But generally speaking, if we look at then the pricing and the demand on the market side is something that big brands are driving the sustainability. So it's -- there is a more and more need of more sustainable products, especially in North America. It's not led by the legislation like in Europe, which is actually European progress is more, let's put it this way, more manageable and more visible, and it's easier to follow. But in the United States, because it's driven by -- mainly by the big brands and now also the private label have started to use it, so it is possible that there can be some short-term swings in the products. But generally speaking, there are no major changes in the end user demand or in the view how the brands or the private label is looking at the market at the moment. Maybe this is a little bit wait and see, depending a little bit how the legislation will change. But I would say the sustainability is already there. So the people will understand how important it is. We see what's happening to the nature, et cetera. So I would say that the message have gone through and the train is moving. So I don't believe that nobody is going to stop that train.

The next question comes from Joonas Ilvonen from Evli.

Joonas from Evli. If I may come back to the regional volume question. So you said that the situation in Europe is rather more challenging now that there are more low-cost exports. But still, your EMEA growth was -- revenue growth was like 7.5% year-on-year in Q4, whereas Americas remained basically flat. So do you think -- will this impact be seen more during this year in Europe? And can you talk about -- a little more about the U.S. demand outlook you see for this year that underpins your guidance? Because my feeling is that volume growth last year in the U.S. was still may be somewhat below your expectations. So do you expect to -- that there is good potential for additional volume recovery in the U.S. this year?

Yes. Joonas, thank you. Yes, also a very, very good question. So let me try to remember that question. So first of all, if you look at the Europe, so something that in Europe, yes, it's very true so that actually we were able to bounce back and utilize our assets better and drive it. The main driver for that was, of course, the new products what we introduced and also, of course, also more sustainable products, which we have been pushing to the market. So that's doing one part of that. But on the other hand, at the same time, we have this conventional business, which is more, let's say, put this is -- has a little bit more possibilities that the Chinese, Turkish and Indian suppliers can enter that market because some of those products are -- I can't say standard products, but they are something conventional products where actually there is a better possibility for them to match it. So that at the same time in market, if you look at the European market as well, it's healthy, it's growing more than GDP, generally speaking, on the market, and many places double or triple the GDP growth depending on a little bit of application. So it's a more question in Europe about the mix and the capability of producing. Then coming to the United States, that if we look at our numbers, it was -- of course, we can open and share here so that the market is doing well. Again, the growth is very nice. It's double or triple the GDP, depending on the different applications. But of course, this was the incident what happened, for example, in the third quarter impacted on our volumes. And of course, if we look at our underlying profitability, which is moderate improvement, so we're absolutely not happy for that, and we are not happy for the volumes.

Okay. That's clear. And so this year, I mean, maybe last year, you talked about more that it's -- earnings recovery it's more in your own hands. It's more about your own actions than market recovery. But -- and about this year, is it more like that you might also expect a bit more help from the market that it's now maybe a little more stable and favorable?

Yes, I would say that in order to look at the market, so that in this respect, if you look at as a overall demand, yes, of course, always, once the market is growing, it's giving you a little bit help because, of course, new volumes is available on the market side. At the same time, of course, the competition have intensified. But I would say that we can't say that we have a tailwind. We have rather -- a little bit because of this uncertainty, we have a headwind, and it is true that this is more in our hands than in the hands of the market. So we are not expecting any support from the market side. It's more how we, ourselves, we will succeed of implementing and pushing through the commercial excellence activities and operational excellence activities.

Okay. That's good. And maybe final question that you have done this strategy review process or is underway. Have you identified any particular market niches where you would like to focus more in terms of like product mix, say, more personal care or home care versus, say, industrial wipes in terms of sustainable products there?

You have excellent questions. So Joonas, so that in order to look at -- so that in order not to answer you directly, I will answer that indirectly, so that, of course, it is very natural once you have a platform and you are increasing the new capabilities in the company, once you find the solutions for certain part of the business, of course, it's very natural. The other parts of the similar type of businesses would need a similar type of solutions. Answer to your question is, yes, there are opportunities what, at the moment, we are looking at we are tracking, and we have sharpened our pens in order to be able to make that plan. And once we are ready with the strategy, hopefully, before the end of this year, we would be able to announce that what would be then the steps once going forward. So -- but we are working on those. So if everything, it is based on the innovation, capability and then the opportunity in order to offer the solution for the customer.

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

Okay. Thank you, Joni and Joonas, for your questions, and now it is time to look at the questions in the chat. So there is a first question that comes from Rauli, and it goes like, what level of CapEx you expect for 2025 given quite large ongoing investment projects?

All right. It's Janne Silonsaari here. Then that's a good question. So that's really the base CapEx that we have been reporting has been plus/minus EUR 10 million, and we have these 2 strategic growth investments ongoing, which we have announced that the Bethune investment should be ready or will be ready around the first half of the year. And then that leaves the Alicante maturity of the cost for this year. So I would say, roughly EUR 20 million to EUR 30 million on that ballpark depending a little bit on the time of the project cost, et cetera, but that is the estimation at the moment.

Thank you, Janne. And Rauli has another question. What kind of positive drivers do you see for your margins in 2025?

Maybe if -- thank you, Rauli, good question. So that in order to look at -- so that what is something -- first is, of course, coming through the innovation and the introduction of the new products that every time once you have the possibility of introducing a new product, you have the possibility in order to revise and look at that what is the value proposition for the customer, what is the benefit what the customer is going to get and what is the benefit what Suominen is going to get from that. That is, of course, the key thing on that. And then, of course, the other part of that, it is something that you need to be able to drive your commercial excellence. And then once we talk about commercial excellence, commercial excellence is not only about the price. Of course, a little bit of cautious about price. You can have the price increases. You can have a discussion about the price. But commercial excellence includes also other components, which are price type of things. For example, how we manage the supply chain, what is the efficiency of the supply chain, what is the cost of the transportation, how we pack the product, how we load it, what is the stuffing of the containers, are we very efficient in transportation, et cetera? There are many, many areas where you can see opportunities of improving your margins by doing that more efficiently that we would be more efficient. And then, of course, the other part of the formula, this is the part which is actually part of the commercial excellence part and then the other part of the formula is, of course, how you do your operations that do you drive your operational excellence in such a way that you are the most efficient, your waste levels are low, your OE is high, et cetera. So that -- this is not just a one trick. It is a combination of these actions coming from commercial excellence together with operational excellence. So this is -- we see that there are opportunities in order to improve our margins -- continue to improve our margins and of course, we have been able already, which is visible on the numbers as well. So we have been able to improve our sales margin year-on-year.

Thank you, Tommi, and thank you, Rauli, for your questions. It seems to be the last question that we've had today. And if not anything else, so then just kind of a reminder of the Q1 2025 result publication that happens on May 7. And then Annual General Meeting takes place on April 25. So with this, thank you for attending this audiocast, and have a nice day, everyone.

Thank you.

Thank you. Bye-bye.