Suominen Oyj

OMXH:SUY1V

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Emilia Peltola, executive]

Good day, everybody, and welcome to Suominen's Q1 2024 results publication. My name is Emilia Peltola, and I'm heading Suominen Communications and Investor Relations.

Today, our President and CEO, Tommi Björnman; and CFO, Janne Silonsaari, will present the results. And after the presentation, there is time for questions and answers as every time.

But please, Tommi, floor is yours.

[Tommi Björnman, executive]

Okay. Thank you, Emilia. Good morning, everybody, and thank you also on my behalf for the Q1 results investor call. And our agenda today is the same as we used before. So we will look at first, first quarter in brief, then Janne will go through the financial review. I will take it over and review a little bit at what is the progress linked to the strategy. And then a few words about the outlook for 2024. And in the end, Emilia will run the questions-and-answers section.

So if we look at the first quarter 2024 in brief, so what we can look at here so that net sales, the top line actually was slightly lower than previous quarter last year, and it was mainly driven by the raw material price, which actually lowered the total sales price. But at the same time, we were able to improve the sales volume and able to improve slightly our sales margins.

Then in order to look at how it delivered to the EBITDA, so the EBITDA was EUR 1.9 million better than the corresponding period last year. Of course, that in order to look at the level of 4.5%, we can't be totally happy about the progress what we have, especially linked to the improvement actions what we have designed. So it is -- it took a little bit longer and a little bit lower, meaning that's the improvement actions what we have in the place.

So our expectation was a little bit better, but we can consider that in order to get a EUR 1.9 million improvement compared to previous period was actually a good achievement, but maybe the expectations also internally was slightly higher. But we gradually continue to improve our quarterly results.

And then in order to look at the cash flow on that was slightly negative compared to the last year as well, but it was mainly driven by the net working capital, which was linked to the situations on the market side. But it's -- for us, operationally, it was well managed, although it was slightly negative.

But now, I would hand it over to Janne in that he would review more the financial part of our results. Janne, please.

[Janne Silonsaari, executive]

Okay. Thank you, Tommi, and good morning on my behalf as well. So let's start with the net sales. So sales volume increased from comparison period as stated and sales prices decreased following lower raw material prices. And as a reminder, price indexes/mechanisms are quite common in our industry. So the raw material changes are driving the general price levels.

We had a small negative impact from the currencies. And on a positive note, we continued good trend on new product sales where share of the total sales continued above 35%. And we consider new products such that are launched during the past 3 years.

On EBITDA, we saw a clear improvement compared to the comparison period. Main drivers for the improvement were higher sales volumes and better sales margins. We saw a nice development, especially in EMEA, regardless of strike at Finnish ports and strike impact on EBITDA, we estimate was less than EUR 0.5 million.

So as Tommi mentioned earlier, regardless of clear improvement versus comparison period, our expectation was higher related to ongoing improvement actions contribution in Q1.

And here is a snapshot on the consolidated P&L and no major items to be commented at this stage. So we can move on to the cash flow from operations. And here, we saw a small negative churn, mainly related to the change in net working capital. Part of it was related to the strike in Finland impact on our inventory and part on accounts receivable, which is mainly related to the customer mix, and this is an area where we expect to be corrected and improved during the year.

So that's shortly and briefly on the financials. So progress in strategy and back to you, Tommi.

[Tommi Björnman, executive]

Okay. Thank you, Janne, on that. And this slide is, of course, we have used this in all the calls so that maybe we do not focus at the text as such, but maybe I will give a couple of comments on the [indiscernible], which are our focus areas once going forward, of course, it's operational excellence. That is something that what we internally are pushing hard in order to be able to be more efficient and get through more to actions -- the improvement actions, what we have in place, where actually we still expect a little bit more delivery on that side.

And then where we can see already a clear improvement, of course, it's coming through the innovation and commercial excellence as well as the sustainability leadership and maybe a very good indicator of that is, of course, the new product sales, which continues to be above 35%, delivering a good platform for future growth.

And if we continue the next place. So in order to look at so that what really have happened on the innovation and sustainability side, so we were very delighted in order to announce the investment in North America in order to strengthen the sustainability platform, where we have them and improving the capabilities within that arena. So that will be a very important part of our strategy and the support of the company's vision in order to be really the front runner in the nonwoven innovation and sustainability. This investment size is roughly EUR 10 million. And we are expecting that it start to contribute to us during the first half of 2025. This is a very important milestone in our strategy and our steps in order to come back to the profitable growth agenda.

A second one, just to name is something that we are working very hard with our customers, not just around the sustainability and innovation, it is our new approach towards more customer-centric organization and in order to deepen the customer collaboration.

And one important part of that was, of course, the [ seminarium ]. So there was 50 people joining from different companies. And it's very rare that you can have it, let's say, almost like 80% of your top -- regional, top line in the one room, which we had in that meeting. It was very well received, and we will continue this way because we believe that this type of technical discussion -- technological discussion will deliver and support these technical niches and will support our growth in this very demanding area of sustainable products.

Maybe a few words about the outlook. So the outlook is and remains the same. So in order to look at -- so we expect that we will improve our EBITDA from 2024. And just as a reminder. So the 2023 EBITDA was EUR 15.8 million.

Maybe back to you, Emilia. So if there are any questions.

[Emilia Peltola, executive]

Thank you, Tommi and Janne. So now it's time for questions. So please, if you have any questions, please ask.

[Emilia Peltola, executive]

We have few question from the chat. So we will start with Joonas Ilvonen.

Your sales volumes continue to increase, but how do you see sales margins developing now that raw material prices again trend upwards?

[Janne Silonsaari, executive]

Okay. It's Janne here. So naturally, part of the business is under the pricing indexes/mechanisms. So yes, there could be a small lag there, but we have been working quite a bit with our customers so that this would not cause any big change for us. And at the same time, as we are pushing for these new products in the market, naturally, we are expecting better margins for those products. So I -- well, of course, we continue to give the outlook as Tommi just announced, but we don't see a huge risk on this area.

[Emilia Peltola, executive]

Then we have 3 questions from [indiscernible]. I'll start with the first one. What is the expected timetable for the Bethune investment in terms of potential downtime and ramp-up of the investment? Is this all included in the H1 2025 estimate?

[Tommi Björnman, executive]

Maybe I will take. [indiscernible] question, it's something that -- first of all, it is something that this investment is planned in such a way that there is no major downtime on the machine. We are able to do in such a way that we will eliminate or minimize the downtime needed for the machine down.

And of course, because this one part of that investment is also debottleneck, we are expecting in order to get a better efficiency of that machine. Which means that once we started up, we are able to partially catch up the volume which is already, in a way, lost during the downtime once going forward. And everything is included already in our estimate. So whatever numbers we share with you, everything is included. So it's a total package.

[Emilia Peltola, executive]

And the second question, how do you see the nonwoven market developing in 2024? Is there a significant pricing pressure for competitors in terms of market areas, how do you see the demand development?

[Tommi Björnman, executive]

And that's also [indiscernible] an excellent question. So if we generally speaking, so that it would be very difficult to talk about just as a global market. Maybe I will share a quick view from Europe, then North America and Latin America.

Generally speaking, if we start from Latin America, it is something that market is, generally speaking, it is okay. Typically in Latin America market, that is a market there are some fluctuations, some cyclicity within the market. And at the moment, in the beginning of the year, it has been a little bit sluggish slows in that terms. There is a growth, but the growth was not as expected. But already now, we can see some signs that the market has started to recover from that normal pace where they used to be growth.

So more or less, if I look at the Latin America, that is a market which will run roughly at a normal level. Then once we look at the United States, generally speaking, if you look at the economy, the economy is doing well, which means that, of course, our products are in a way, convenience product, part of the normal daily activities within the families. So the demand has been, generally speaking, good. I can't say it has been excellent, but it has been good looking at the competitive situation where we are. So not expected any major changes on that market.

Europe, on the other hand, has been a market which traditionally, there has been always somewhat overcapacity. The overcapacity is still in the market and especially after the COVID period, it has been generally -- so after the COVID, the overcapacity increased slightly. But generally speaking, if you look at over that, it has started to recover as we all see from the general economy as well. So it's -- the market is starting to behave like it used to be before the COVID. After the COVID, there was this huge demand, then it came it around and now it starts to act as a normal market. So our expectation from Europe, I would say that it's more positive than negative.

And then your question linked to the competitors, of course, during the COVID in every region, the capacity was increased. Of course, it will take a little bit time before that capacity is melted in the market. But generally speaking, it is something that now once the transportation cost went first down, the competition increased a little bit coming from China, from the other markets. But now once the transportation went up again because of the Gaza situation, the Red Sea situation, et cetera, so it started to stabilize. So there is not that much pressure coming from outside. The competition is always fierce as in every market, but nothing -- it's not abnormal.

And then as a general comment, once we look at the nonwoven market, I'm talking about a little bit reflection not only just for this business, but a reflection about generally the nonwoven market. Nonwoven market has normally been so, especially in these developed countries that the first half of the year has been a little bit lower than the second half of the year. So always, it has been like that, that there is a certain cyclicity and the difference between the first half of the year and second half of the year. And then once you come to the quarters, then every region works a little bit in the different cycles once you look at the quarters. But at the higher level in first half and second half, second half is always expected to be a little bit higher.

Hopefully, this was a pretty long explanation, but hopefully, it came a little bit more less around the board.

[Emilia Peltola, executive]

Thank you, Tammi. And then we have a third question from [indiscernible] and what kind of impact did the Finnish strikes have on the production, deliveries and net working capital?

[Janne Silonsaari, executive]

Yes. So I mentioned briefly about the impact there on the presentation. And the main thing was that naturally the deliveries of the raw materials and the deliveries of the finished goods where basically completely down a big part of the month. So we estimated that EBITDA impact would be less than EUR 0.5 million.

So talking about some hundreds, thousands and a small impact on the inventory side. So naturally the finishes goods inventory with the higher value, we were not able to ship it out. But at the same time, the raw material inventory was decreasing. So that was [ probably knitting et cetera ]. But we are talking about in same relation as on the EBITDA on the inventory side.

[Tommi Björnman, executive]

And maybe I can mention about that. And of course, that one step announcement or once we saw that the strikes is about to come. So we actually guided some of the orders away from Finland to other sites. So some of the volume, which was indicated to be produced in Finland was actually produced in Italy and Spain, which in the customer size was something that Suominen as a company delivered but not from the same location.

[Emilia Peltola, executive]

Thank you, Janne and Tommi. And then a final question from the chat from Rauli Juva.

With current raw material prices, when are you expecting price component to turn positive?

[Janne Silonsaari, executive]

Well, this is something that we are, of course, all the time evaluating. And we should see the churning during summer if the current estimations mainly related to the higher delivery costs would churn. So let's see. But this is, I would say, a difficult area to estimate very precisely.

So naturally, there is the market price and then also our inventory turnaround impact that needs to be calculated. But I would give a rough estimation that we see it sometimes during the summer.

But as a business, generally speaking, is something that typically that we know what happened so that once the raw material prices are going down, once they are going up, there are slight delay both directions. So sometimes we gain a little bit. Sometimes we lose a little bit. But we rather look at so that how we would be able to manage our margins. We are less -- of course, we are interested in on the components as such, but we are more focusing on our sales margin rather than the individual components.

[Emilia Peltola, executive]

Thank you. Thank you for all the questions. Thank you, Tommi and Janne for your answers. And before ending this session, I -- just a reminder that our Q2 results will be published on 9th of August. So everybody, thank you for participating, and have a great day.

[Janne Silonsaari, executive]

Thank you all.

[Tommi Björnman, executive]

Thank you.