Suominen (Helsinki:SUY1V) Q3 2026 Earnings Call

0:00 Good morning, everyone, and welcome to Suominen Q3 webcast. My name is Anne Kuopanen. I'm manager external communications and investor relations at Suominen. Here with me are our president and CEO, Charles Hölme. Good morning.

0:19 Good morning.

0:20 And our CFO, Kimmo Raunio. Good morning.

0:24 Good morning.

0:26 Today on our agenda, Charles and Himmo are presenting Q3 financial results, the full potential program and the outlook for 2026. In the end, we will have the questions and answers session. But now, Charles, the stage is yours.

0:53 Thank you, Annie. And then good morning to all of you. And thank you for joining us in this session. I will, before RCFO Kimo will take us through the financials, I will give you an overview of the third quarter context and the results. in this slide that you have in front of you if you are connected with the screen. The first thing I would say is that our performance continued to improve during the third quarter of 2026 after the good and positive trend better better from a sales point of view better from a profitability point of view specifically during the third quarter of 2026 we have seen that the non-woven demand has remained relatively stable at least coherent consistent with what we've seen during the the first half of the year 2026 And despite the continued disruptions on geopolitical situation and uncertainties that is impacting partly on the on the value chain, we see that the demand on our main categories remains stable in terms of light growth, but still

2:28 continued growth in this market. In this context, Our net sales have been increasing by 1.3% during the quarter 3, 2026, reaching 101 million euro. And our comparable EBTA reached 5.1 million euro, which compares to the third quarter of 2025 at 3.4 million euro. And then the low light of those results and we'll come back to this is our cash flow that the cash flow from operations was negative at minus 8.5 million euros. A couple of words on what has been driving the net sales and also the profitability to increase.

3:19 The good news is we have seen tangible operational improvements from all the initiatives that we have started to implement during 2026 in our full potential program. Reminding that the food potential program is aiming at bringing midterm profitability back to 10% BTA. We will come back to this later in this session from a commercial point of view, but also from a manufacturing point of view. Another important news of the quarter is that we started commercial deliveries from our Ali 55 new line based in Alicante in Spain. That line, just reminding that this line has been implemented, installed for enhancing our sustainable products portfolio. It is dedicated to fiber pulp production.

4:17 This is now live since September and then the ramping up of the production will continue during Q4 and mostly during the year 2027. However, this quarter could have been even better if we didn't have a couple of disruptions, particularly linked to two U.S. production lines that have been heavily interrupted at the end of June 2026, which we were able to restart in terms of production by the middle of August during the third quarter. So this has hampered, obviously, our capacity to supply, to deliver, and this would have brought an even better results in the third quarter. The cash flow, as I said, and we will come back to this in more detail, has been burdened by the networking capital increase, inventory increase.

5:20 We have good reasons to believe that this is a temporary hiccup. and that we will resolve this over the next one or two quarters. And then last point that you obviously might remember from our previous call, we had a successful equity raise at the end of early July in the amount of 28 million euros gross. With this, ending over to Kimmo for more details on the financials.

5:57 Thanks, Charles. Good morning again from my side. So walking you briefly through our headline figures, net sales, comparable EBITDA development, briefly addressing the whole income statement and then finally concluding with the cash flow. As Charles told, our net sales increased slightly in Q3 and in America we were up a little bit, in Europe we were down a little bit, volume overall flat, sales prices increased slightly and their increasing raw material cost is a big contributing factor.

6:45 mix impact was negative. And we got a little bit support from currencies also. Year-to-date net sales is down and there the impact comes from weaker sales mix and lower prices even by raw material on a year-to-date basis and volume is roughly flat. Moving to the comparable EPDA development, so 5.1 million in third quarter this year. It's substantial improvement compared to previous year.

7:32 Main contributing factors are production volume, which was increasing in Q3, and then we have reduced our fixed cost base. to the profitability. However, sales mix is weaker currently until we have some higher production costs and these are impacting negatively. Compared to Q2, we see now that our pricing was catching up with the raw material cost development. So we see positive development on that front.

8:17 year-to-date basis 11.6 million comparable EBITDA up 0.9 million from previous year Q1 this year was weak quarter for us and since that we have been improving and fixed cost reduction is contributing positively we are proceeding in line with our targets and savings program also we start to see overall early benefits of full potential program as an example in in driving up the profitability of our our um that part of business where the profitability has been on the low side and and we also see that our operations are improving step by step in accordance with the full potential program targets briefly commenting the income statement we want to flag that our reported figures they are impacted by the items affecting comparability Those items totaled 1.6 million of cost in Q3.

9:35 And these costs are originating from our full potential program, primarily external support and then severance payments as we have reduced our fixed costs still. Year-to-date basis 2026. These costs are totaling 6.1 million. Finally, moving to the cash flow, which is the low light of the quarter. So we saw our cash flow operations totaling minus 8.5 million euros in third quarter of 2026. The impact comes from inventory buildup.

10:25 and there we have a volatile supply market overall that's contributing negatively and then secondly we have had operational disruptions in the US and the impact comes from basically from these two factors and year-to-date gas flow is also from operations also minus 8.5 million euros handing back over to you, Charles.

10:58 Thank you, Kimmo. So Kimmo, in his comments and also in my introduction, we suggested that quarter three results are supported also by the first benefits from implementing our full potential program. So a couple of words here about what is our full potential program about. And this is likely not news to you as we have communicated about it since January 29th this year, but still important to remember where we're coming from and where we want to go. The background is basically that our sales have been declining 4% over the last 10 years in a relatively growing market. The growth in the market is estimated to be a low single digit, but it is growing over time.

11:55 And second, During that same time, our profitability has been declining, particularly if we take the peak of the year 2020, which was extraordinary demand in 2020 linked to the pandemic. Our profitability at the time was 13% BTA. And it went down through the last four years, 2022 to 2025, to the level of 3% EBTA, which is obviously not sustainable as a level. And that's the background why we said we enter into 2026 with the idea of resetting our profitability, of turning back the profitability to what it should be according to industry standards, which is a 10% EBTA.

12:42 then of course you know in a second phase we would like to further scale the company grow the company and potentially invest in growth whether it is organic or inorganic but first is not that stage we need first to make sure the company is healthy and profitable with also not only economic results or targets but an ambition to be a leader in all the operational aspects of our business, meaning safety. We want to be a zero accident company. We are what I would call a relatively good, particularly if we look at the history of the company, we come from a well improved safety record.

13:27 However, we're not yet at zero accident. Second, we want to be a quality leader, and this is what our customers are expecting. Our customers are expecting two main things from us, quality and reliability of supply. Of course, they're looking for competitive supply from a price point of view, but primarily it's about quality and the reliability of our local supply. And that's what we are investing in right now, in parallel to the investment we've made into product portfolio becoming stronger in sustainable products, particularly with this new line in Alicante in Spain. We want also to be a sustainability leader.

14:15 We are seen as a sustainability leader, but we are not today a leader in terms of non-woven, reliable supply. And that's where we need to progress in order for our customers to further grow their business with us. And that's the concept of this full potential program. So that's the framework. Now, what does this mean more in detail? Well, basically, the full potential program is about three main pillars. It's about driving for three years, three pillars in parallel, which are number one, the operational performance. Number two, invest in targeted and focused areas. And then number three, implement some structural profitability measures.

15:11 The operational performance drivers of this full potential program basically cover everything because it's not only one area where we can find a significant benefit, but it's across the board. So we have changed our new operating model. I will come back in a second to this. We have engaged in a significant fixed cost saving program. We have also the ambition to drive more savings, more net savings with procurement. We have the ambition also to implement commercial excellence tools and processes which have to do with portfolio management, margin management and obviously pricing and then last but not least actually this is the first enabler to the transformation the manufacturing continuous improvement which we have already engaged and this is particularly there that we see the first benefits already arising in the first quarter We believe that this operational performance pillar will bring us a good three percentage point of profitability improvement. Then we have the targeted investments, which are specifically dedicated to enhancing the profitability. So increasing the efficiency and the output, reducing the waste

16:41 in our factories. And then we have the structural profitability measures, which have a lot to do with some decisions on how to better utilize the capacity that we have with our install base, which has to do also with portfolio management. be less dependent on low margin products and also some various renegotiations of long-term contracts. This in a nutshell is planned to drive us towards the 10% EBITDA by within a frame of three years. To do that, we have changed the operating model, as I said, and with the operating model, of course, the leadership team. And I'm really pleased to say that now that team is fully in place and it's fully in place since September.

17:41 It's very much of a strong leadership team with very clearly identified responsibilities and around particularly what I would call the engine of the company, which is driving efficient operations under the leadership of our COO, Chief Operating Officer François Guetta, and then making the right choices in terms of technology and commercially under the leadership of Marco Coivisto, with a long time, if I may say, in our industry. He's been at Suominen for almost 10 years by now. And the rest of the team has been also renewed. So with a chemo that you have met already since two quarters as a CFO, Eva Makihuro, who just joined us as a new chief strategy and transformation officer.

18:39 Liza Persuemo, who is our chief human resources officer, she started during the spring, and Halil Woma, who has been our general counsel for now probably three years, but was not part of the executive committee and is now part of the executive committee. So feeling very strongly about adding that team now in place and running full steam ahead, implementing the full potential program to reach our 10% EBTA. Concluding this session, or at least the presentation part of this session, with our outlook that remains unchanged with the guidance that our comparable EBITDA for 2026 will improve from 2025, knowing that 2025 was at €12.6 million in last year, full year.

19:41 With this, I will hand over back to Anne for opening our Q&A session.

19:49 Thank you, Charles. At first, we will have the phone questions. If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Joni Sandvall from Nordia. Please go ahead.

20:12 Yeah, thanks Charles and Kimmo for the presentation. Starting first up with this, you mentioned higher production volumes while networking capital increased clearly in Q3. So up this a bit more, as you are also saying that you had production difficulties in US that actually led to higher inventories. So to me, this points more to lower production in US or is the problem more on the delivery side? So I just want to know where did you have higher production volumes and do you need actually to adjust production levels to bring down the inventories in coming quarters?

20:52 So you have brought a lot of the elements into your question. The cash flow has been impacted by inventories primarily and mostly. and within inventories, primarily it has been impacted by raw materials, but not only. So when Kimo mentioned a higher production volume, it is right, meaning that we have We have increased our production volume during the third quarter and increased our finished goods inventory, which is also answering a request from large customers who want to have security of supply. One of the values they see with local suppliers like us, for instance, in the US compared to importing from other countries, for instance, even in Asia, is the lead time.

21:52 the long term partnership, but also the possibility to have at hand a safety stocks. That means at points increasing eventually our finished goods stocks. when we're talking about increase of stocks we have everything is relative it's a photo at the end of q3 versus a photo at the end of q2 or at the end of last year and at the end of q2 our stocks of finished goods were extremely low so there is a bit of a rebalancing now the biggest effect is on raw material and raw material we have indeed increased a lot our inventory actually too much. So this is going to be normalized during Q4 and latest Q1, but mostly during Q4. And why have we increased our raw material inventory, because we add an action to on the back of the value chain disruptions, there was clearly signs of Increased lead times, particularly for supplies from Asia, which meant that we had to make a decision early in Q3 to increase our supplies from suppliers that ended up into Q3 stocks.

23:17 Okay, thanks. Just some additional flavor, improving production, especially compared to Q3 last year, where we had significant disruptions in the US, which were not the case this year, though we still had some disruptions, as we said,

23:40 but much more smaller. Okay, okay. yeah thanks and maybe follow up on on these production disruptions has this had any impact on on your clients because you have been you know looking to recover this lost lost clients this year so any any impact on this trajectory so out of the two lines um that were interrupted and of um

24:10 June until mid August. You know, on the one line we do not have any negative impact during the third quarter because. It is a line that is. Not utilized at full capacity. It's very much a line where we produce specialty material. And and therefore it's not used at full capacity, meaning that when we've been able to restart it. mid August. Then we went full speed on it and recovered the. You know the the the backlog, let's say on the other line, which is a much larger line fully utilized. Yes, it has an impact on our deliveries. It has also an in a short term impact even on Q4 on the orders of that customer that has to during a certain period of time go for alternative supply and alternative supply is never a one-to-one meaning just for the period where you cannot supply because you know alternative suppliers are asking for volume commitment and and that has an a short-term impact not for 2027 we believe but for the rest of the year yes

25:28 Okay, thanks. Then I think, Kimmo, you mentioned flat volumes and prices up slightly in Q3. Could you give any, you know, split between Americas and Europe?

25:47 I think these comments were valid basically for both of the regions.

25:54 Okay, thanks. And lastly, on the Alicante ramp up, how long you are expecting this to take time, the ramp up? And is there, on the sales point of view, do you have challenges to get these volumes into the market?

26:17 Yeah, this is a very good question. I'm not saying that the others were not good, but this is an interesting question because It relates also to what's happening in the market in terms of demand, an increase of the demand for non-plastic products. This line, as I said in the introduction, is dedicated to sustainable solutions. So non-plastic, non-polymer, non-woven. And we see increasing demand. Let me put it like this. If we were able or if we had been able to ramp up the production faster, we would have been able to utilize the capacity. There is demand. The simple answer to your question is there is demand. It's not a question of demand, it's a question of us ramping up the production.

27:12 Okay, okay. And lastly on Aliko, when you have the full depreciation on that line in your P&L?

27:23 I think we start to depreciate the last assets now in Q4. So in Q4...

27:31 Okay, thanks. That's all.

27:34 Okay, thank you. There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments.

27:46 We have one chat question. you have some issues in US but sales declined actually in Europe. What was driving that?

27:55 I think the important aspect is the comparability to last quarter. And I don't know if the question is relating to Q3 only or to year to date. I assume it is Q3. And we had a relatively strong quarter in last year Q3 in Europe, while it was depressed in the US due to this line that was not producing for two months and a half during the whole of Q3 last year. So that would be the way the mix works between the two regions on the quarter.

28:49 The next question, you seem to be booking taxes to P&L as well as paying some income tax despite the loss making results. Can you open up your tax position?

29:05 Yes. So, um, our taxes, if you compare this year and last year, so we have made, uh, uh, they're changing the deferred tax assets and that's impacting our, our P and L, uh, tax tax, uh, values, uh, then in some places we are in a tax paying position also.

29:32 Okay. We don't have any more questions, so it's time to close the call. But before that, a short reminder, we will publish our 2026 results on 2nd March, 2027. Welcome to . Thank you all.

29:56 Thank you all for joining. Thanks a lot.