Suominen (Helsinki:SUY1V) Q1 2024 Earnings Call

0:00 Good day, everybody, and welcome to Suominen's Q1 2024 result publication. My name is Emilia Peltala, and I'm heading Suominen's Communications and Investor Relations. Today, our president and CEO, Tommi Björman, and CFO, Janne Silonsaari, will present the result, and after the presentation, there is time for questions and answers as every time.

0:28 but please tommy floor is yours okay thank you Emilia good morning everybody and thank you also my behalf for the q1 result investor call and our agenda today is the same as we used before so we will look at first the first quarter in brief then Janne will go through the financial review I will take it over and review a little bit that 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 1.9 million better than the corresponding period last year.

1:46 Of course, 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 took a little bit longer. and a little bit lower, meaning that the improvement actions what we have in the place. So that our expectation was a little bit better, but we can consider that in order to get the 1.9 million improvement compared to previous period was actually 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 networking capital which was linked to the 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

2:57 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 slash 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 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 in the past three years. On EBITDA, we saw clear improvement compared to the comparison period.

3:45 Main drivers for the improvement were higher sales volumes and better sales margins. We saw nice development, especially in EMEA, regardless of strike at Finnish sports. And strike impact on EBITDA, we estimate, was less than half a million euro. So as Tommy 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 turn mainly related to the change in networking 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 area where we expect to be to be corrected and improved during the year so that's shortly and briefly on on the financial so progressing strategy Thank you, Jange, on that.

5:01 And, you know, this slide is, of course, we have used this in all the course so that maybe we do not I'm not focused on the text as such, but maybe I will give a couple of comments on the three bubbles, 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 of the 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 about 35% delivering a good platform for future growth.

5:58 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 what we have done 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 forerunner in the non-woven innovation and sustainability. This investment is a size is roughly 10 million euro and we are expecting that it start to contribute to us during the first half of 2025.

6:43 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 to just to name is something that we are working very hard with our customers not just around the sustainability and innovation it is their our new approach towards more customer-centric organization and and in in order to deepen the customer collaboration and one important part of that was of course this 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 one room which we had in that meeting it was very well received and we will continue in this way because we believe that this type of technical discussion technological discussion will will deliver and support these technical niches and will support our growth in this very demanding area of sustainable products.

7:51 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 15.8 million. Maybe back to you, Emilia, so if there are any questions.

8:18 Thank you, Tommi and Janne. So now it's time for questions. So please, if you have any questions, please ask. If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. There are no questions at this time, so I hand the conference back to the speakers.

8:59 Okay, we have a few questions from the chat, so we start with Joona Silvonen. Your sales volumes continue to increase, but how do you see sales margins developing now that raw material prices again trend upwards?

9:19 Okay, Janne here. So naturally, part of the business is under the pricing indexes, less mechanisms. So yes, there could be a small lack 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. Well, of course, we continue to give the outlook, as Tommi just announced, but we don't see a huge risk on this area.

10:01 Thank you. Then we have three questions from Jukka-Pekka Pessonen. I 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?

10:19 Maybe I will take it. Juha-Pekka, that was a great question. 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 time needed for the machine down. And of course, because this one part of that investment is also the bottleneck, we are expecting in order to get the better efficiency of that machine, which means that once we start it 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

11:06 And the second question, how do you see the non-woven market developing in 2024? Is there a significant pricing pressure for competitors? In terms of market areas, how do you see the demand development?

11:20 That's also, Jukka-Pekka, 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 slackish slow is in that terms there is a growth but the growth was not as expected but already now we can see some signs that it the market has started to recover from that normal pace where they used to be and growth so more or less if I look at the Latin America that is a market which will run roughly at at the normal level then once we look at the United States as 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 you know good I can't say it has been excellent but it has been good looking at the you know compared to the situation where we are so that no expected any major major you know changes on that market

12:51 Europe on the other hand has been a market which traditionally there has been always somewhat over capacity the over capacity is still in the market and especially after the COVID period Oyj. I would say that it's more positive than negative.

13:42 And then your question linked to the competitors. Of course, that 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, 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 it's not abnormal. And then as a general comment, once we look at the non-woven market, I'm talking about a little bit reflection, not only just for this business, but reflection about generally the non-woven market.

14:39 non-woven market has normally been so especially in 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 and a difference between the first half of the year and second half of the year and then once you come to the quarters then every every region works a little bit in the different cycles once you look at the quarters but at the higher level if first half and second half second half is always expected to be a little higher hopefully this was a pretty long long explanation but hopefully it came a little bit more flesh around the bone thank you Tommy and then we have third question from Jukka-Pekka Pesonen what kind of impact did the Finnish strikes have on the production deliveries and networking capital

15:32 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 were basically completely down big part of the month. So we estimated that the EBITDA impact would be less than half a million, so talking about some hundreds, thousands. Small impact on on on the inventory side. So naturally the finished course 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 public netting letting each other But we are talking about in in same relation as on the EPTA on the inventory side and maybe I can mention about that and of course that once that announcement

16:29 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 that 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 Suomenen as a company delivered, but not from the same location.

16:51 Thank you, Janne and Tommi. And then final question from the chat from Rauli Juva. With current raw material prices, when are you expecting price component to turn positive?

17:08 Well, this is something that we are, of course, all the time evaluating, and we should see the turning during summer if the current estimations mainly related to the higher delivery costs would turn so let's see but this is this is I would say difficult area to estimate very precisely so so naturally there is the 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.

17:53 But as a business, generally speaking, is something that, you know, typically that we know what happens 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.

18:27 Thank you.

18:28 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 result will be published on 9th of August. So everybody, thank you for participating and have a great day.

18:48 Thank you all. Thank you.