Suominen Oyj (SUY1V) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Suominen Q2 webcast. My name is Markku Koivisto. I'm the Chief Strategy and Transformation Officer at Suominen, and I'm hosting the call today. With me here, I have our President and CEO, Charles Valmet. And then Kimmo Raunio, our CFO. On our agenda today, we're briefly discussing Q2 financial results. the full potential program and our outlook for '27. And obviously, at the end, we'll have the Q&A. The floor is yours, Charles.

Thank you, Maria, and good morning to all of you. My pleasure to welcome you for the results of the second quarter 2026 at Suominen under the title -- improved Sales and comparable EBITDA during the second quarter of the year. So I'd like to give you a few highlights before Kimmo will take you through more details on the financials. Improved during the quarter by almost 6% compared to the same period last year and significant increased compared to the first quarter of the year. With the sales increase we have increased the profitably at the level of comparable EBITDA, which is at a level of EUR 4.3 million in the quarter in the second quarter if we compare it to last year EUR 3.2 million. And that is very much linked to the first benefits that we see from actions implemented in the frame of our Fentialram. Third item is the cash flow, the cash flow from operations, which was slightly negative at minus EUR 4.5 million for the second quarter. Those numbers put in perspective of the first semester obviously show that the second quarter is a significant improvement compared to the first quarter. Now it was not all about the operations and the performance during the second quarter of 2026. You might know that we have made a decision to raise capital during the second quarter, and this was a successful share rights issue oversubscribed, which is giving a gross amount in equity of EUR 28 million to the company. And that is helping us to strengthen our balance sheet, but also accelerate the full potential program, which we have started to move from planning to execution during the second quarter with first signals of good benefits from this full potential program, particularly in our manufacturing operations where we started. Also in the margin management, our margins have improved in the second quarter compared to the first is encouraging versus the plan that we have put in place. Also, we benefit from the fixed cost reduction initiative that we have engaged now exactly a year ago and which is basically completed versus the objective that we have assigned ourselves to reduce the cost by EUR 10 million. Another important point of the quarter is that we have started, however, with some delay, but we have started the commercial -- technical and commercial qualification of our new production line in Alicante in Spain, the line called A55 -- that was at the very end of June. And we are happy to count with that additional ramping it up in quarter 3 and mainly in quarter 4 and then ramping -- accelerating the ramp-up during 2027 for 2 reasons. It's additional capacity, but also it is for innovation solutions based on pulp and fiber. So really important for our growth, but also our different sustain leader. I said, some early signs of improved production performance in line with our program deployment that we have announced on the 29th of January this year. And then a few highlights also because it's not only about the economic performance, but we want to be a great place to work, meaning a safe place to work for our employees, but also with an engaged workforce, and we have some important milestones and recognition in this recognition, for instance, in our factory in Finland in Nakila, arazil where we have recently achieved 500 days without a lost time accident in that factory. Actually, if we extrapolate to July, we have started now 14 years without LTA in that factory. So these are key aspects that I wanted to highlight now handing over to Kimmo for the financial review.

Thanks, Charles. So my name is Kimmo Raunio, and I'm CFO in the company since a couple of months and now walking you through our headline financials in the second quarter. Net sales, we were growing in the second quarter, 5.8 percentage points to EUR 105.6 million, and that's growth both compared to Q2 last year and also compared to Q1 this year when the volume and net sales was depressed. Growth came primarily from our U.S. operations. And when we break it down a little bit, so we had volume increase compared to Q2 last year. And then average sales prices decreased following declining raw material cost and also especially changes in the sales mix. Currency had a minor negative impact in the second quarter. '26 was still showing a decline compared to last year, and that's, of course, driven by the Q1 net sales, which was substantially lower than Q1 in 2025. Recapping then the comparable EBITDA development, as Charles already highlighted, we posted EUR 4.3 million comparable EBITDA in the second quarter. That's plus 35 percentage points compared to Q2 last year. And the main drivers in this positive development was basically improving volume and our cost reduction measures as part of our full potential program. Having said that, we had a negative impact from our sales mix in Q2 '26. And we also had a headwind from delays in adjusting some of our sales prices due to rapidly increasing some raw material costs driven by the oil price jump during the quarter. whole first half '26 still a little bit negative compared to last year. And again, the Q1 performance giving that result. Next page, our consolidated statement of profit and loss. I think it's good to highlight and understand that our Q2 figures are negatively impacted by items affecting comparability and those items amounted to minus EUR 2.1 million during the quarter and EUR 4.6 million in the first half of 2026. And when you compare Q2 last year or first half last year, so the same items were minus EUR 0.6 million. So there's a significant impact coming from the items affecting comparability as part of our full potential program execution. Finally, Q2 cash flow from operations minus EUR 4.5 million negative -- it's an improvement from Q2 last year. And especially in the second quarter, we had a net working capital buildup influencing negatively originating from growing volume, especially in the U.S. whole first half of '26 cash flow from operations at breakeven, and that's clear improvement from last year. Now handing back over to you, Charles.

Thank you, Kimmo. A couple of words on the full potential program. Just to remind something that we have obviously presented already back on 29th of January, but also for the first quarter results. But I would like to remind what we are doing in the company in order to reset our profitability to the level that we believe it should be, meaning that we are aiming midterm at reaching a 10% comparable EBITDA margin level. And that is really the strategic focus on during this period of time. We have engaged in this at the beginning of 2026. As I said before, starting to see early signs of improvement. Of course, it's early days into this journey that is engaging basically all the aspects of our operations and business. And particularly, we have 3 pillars that we are looking at implementing. And the first one also in terms of timing is the pillar #1, which is called operational performance, where we are basically looking end-to-end at all the different chapters of our operations, looking at procurement, obviously, how to deliver and harvest more savings from the procurement, whether it is on direct material or indirect supply. The sales excellence also in terms of pricing management and margin improvement that includes also portfolio management, product and customers. Then something I mentioned and that was the first pillar that we looked at or we worked on since 2025, that's the fixed cost savings. And basically, we are in a position now to say that we have delivered on the commitment that have been given. And then a major chunk of our full potential program is the manufacturing continuous improvement. For that, we have -- we are planning some specific investments to restore some equipment to the right conditions, but also it's about the people and the methodology of working. So we are deploying the TPM, the very well-known TPM methodology, product maintenance, which has been practiced success in many industries, and we have started to deploy it stepwise in different factories, not in all at the same speed. We are focusing and prioritizing where we have the main opportunities of improvement. So that's a very important point. And then we have also implemented a new operating model, which is, we believe, bringing more expertise and effectiveness in dealing with our business. That part has been done. There are still some fine-tuning, but that part has been done basically within the first quarter. Second pillar, which we have started slightly on some equipment, but not in all the different projects that are potentially coming up for the next couple of years. We are targeting some low risk return investments in order to focus on profitability enhancement and of course, marginal growth, but the essence of those investments will not be to add capacity, it will be to bring better profitability in the company. We will get growth, thanks to our new capacity in Alicante in Spain, as I said in the introduction, but we are not planning to invest specifically for growth, but for profitable growth. The third pillar is some specific profitability measures, which have to do with low-margin volume management, increasing the utilization of our current installed base where we have room for growth utilizing better our equipment. and then also some specific contract renegotiations, which will bring additional cost improvement. So those 3 pillars will contribute to bringing the profitability from where we are to where we want to be. That means 10% EBITDA. We believe that the operational performance improvement end-to-end will bring 3 points of margin. The targeted investment about 1 point on the full global scope. And then the other structural profitability measures may bring 2%. That brings us altogether to the 10% where we want to be. In terms of, of course, this full potential program, when we announced it on January 29, we have said, of course, this program will have some cost and investment, and we had mentioned a figure of EUR 30 million, which is still valid for our overall plan, both in investment and in direct costs. We said roughly, we believe EUR 20 million investment, EUR 10 million of cost. We're still in this ballpark in terms of our planning. but in order to do 2 things, first of all, finance that program over time, but second, strengthen our balance sheet very short term because our leverage had reached a level of 7 at the end of 2025, which is obviously too high. We have decided to raise capital, and this has been successfully done without getting into the technicalities of it. It was oversubscribed. It was -- the subscription happened during the month of June. We had announced this project on May 18, and it was closed on July 2 with the approval of this offering and subscription. So we are very happy with the success. And via this channel, like any other channel, I want to really thank our shareholders and investors that really believe in the company and in our plan, believe in the management and trust that we are going to make happen what we have committed to. So thanks a lot for that. This is really reassuring and helping us to accelerate the execution of the program. That's what we wanted to share with you for as an update this morning. Just one word on the outlook that has not changed. Our outlook is that we expect that to deliver in 2026 comparable EBITDA that would be an improvement compared to 2025 as a reference, just repeating that the comparable EBITDA for 2025 was EUR 12.6 million. With this, handing over back to you, Markku, for the Q&A session...

[Operator Instructions] Thank you, Charles. I think we will first move into any phone questions that you may have. The next question comes from Joni Sandvall from Nordea.

A couple of questions from my side. Starting first with the overall demand situation. Have you seen any changes on this? And if you could split this on Americas and then Europe?

For the question. The demand, yes, it's a good question because I did not mention it. And I didn't mention it because there is nothing to really update on the demand. The market demand remains relatively solid. There is -- you may remember that there is overcapacity overall in Europe more than in the U.S. There is also in this industry, increasing imports from low-cost countries producers. But the demand is still good. In the case of Suominen, the good news is that the improvement will come from us from our operational efficiency, our manufacturing efficiency and with this, our reliability to supply because I'm happy to report that the demand from our customers is exceeding what we have been able to deliver. Therefore, so critical that we continue or even accelerate the deployment of our program of improvement in our factories.

Okay. That's clear. Then coming back still on the U.S. where you last year lost some volumes after this incident. And I think you mentioned in Q1 that you are expecting to recover some of these volumes already in Q2. So how this has played out? And what is your expectation now for H2?

So exactly in line with the answer to your first question, actually, yes, we have -- from a demand point of view, what customers are willing to get supply from us compared to alternative supply, we would. be back basically at this point in time in line with what it was before. However, we are -- we have been facing some operational issues, not of the magnitude of what happened in 2025. But in terms of our efficiency is not yet where it should be. It's going to be a long journey, which we will take step by step. But we have, for instance, in some lines where we have started the restoration to basic conditions changing or upgrading some leadership into lines and also implementing the TPM methodology, we have very clear signs. And then it's not early signs. It's already 6 months in a specific line, for instance, of production performance, which we did not have before. Now we need to deploy the same into other lines, other critical lines in order to be able to reach the level of demand from our customers. So we are undersupplying versus the demand at this point in time. That's really the key message, which may sound negative, but it's actually very positive in the sense of it's an opportunity for better output and better profit generation in the future in the near future.

Okay. That's clear. And lastly, on the mix impact, you mentioned some delays on this oil derivative cost push through. So how big of impact you had in Q2? And should we expect this to be transition to Q3 then on positive note?

Yes. Maybe Kimmo will complement on this. But yes, we have some negative mix impact during the first semester, not just the second quarter, so in the first quarter and in the second quarter. Some of it is linked to changes in the customer portfolio that we didn't necessarily want to happen, but that have happened. That's number one. But second is also linked to pricing mechanism that in some cases, didn't have the agility because of applications of contract terms and conditions basically, which didn't have the agility that we wanted on a monthly basis. And therefore, some of the margin may have slipped from Q2 to Q3, okay? So that -- yes, we have an impact in the Q2 numbers, which is not positive from the mix. Kimmo, do you want to add something on this?

No, not really. I think that is the case.

[Operator Instructions] The next question comes from Samuel Wilhelmsson from Nordea Markets.