Suominen (Helsinki:SUY1V) Q4 2023 Earnings Call

0:00 Good day everyone and welcome to Suominen's Q4 and full year 2023 result publication. My name is Emilia Peltala and I'm heading Suominen's communication and sustainability team. Today our president and CEO Tommi Björnman and CFO Janni Silonsaari will present the result and the agenda goes as follows. So Tommi will first summarized the year 2023 in brief, then Janne more in detail in the financial review, and Tommi again conclude the presentation with the progress in strategy and outlook for this year. But Tommi, please.

0:44 Thank you, Emilia, and good morning everybody also on my behalf. And we thought to start this presentation with a small short video which is actually explaining a little bit the Suominen. So let's look at the video first and then I will continue with the fully brief.

1:03 We are Suominen, a global nonwovens manufacturer with Finnish roots. Best described by three words, pure Nordic quality. First, being pure is about the sustainability of the whole company. from the manufacturing process to the materials used. Purity and cleanliness are the sole purpose of our products. Secondly, we're Nordic. If anything, the Nordics are known for their responsibility, well-being, and honesty. For us, it also means strong ethics and staying true. You can trust things really are as they are said to be.

1:53 Finally, there's quality, plain and simple. Quality of products, service, and everything else. With Suominen, you know what you get. And what you get is pure Nordic quality.

2:20 Okay, thank you. Hopefully you enjoyed the video. So just in order to look at briefly what happened within the 2023 last year. So our top line was slightly lower. That was mainly coming from the raw material prices drop as we have the mechanism of the bathroom method with our many customers. And at the same time, of course, we were slightly able to improve our margins, our top Bottom line, EBITDA improved from 15.3 million to 15.8 million. And we continue to have a strong cash flow from the operations. Ended up with 30.7 million compared to last year, 14 million. And then based on this strong cash flow, the board of directors decided to give the dividend for the owners of 10 cents less share.

3:13 And now I would like to pass over the presentation to Janne, that he will review the financial part of the operation. So Janne, please.

3:22 Okay, thank you, Tommi. Good morning also on my behalf. And here we have full year and Q4 net sales. And the net sales declined from 2022, mainly due to the lower sales prices resulting from lower raw material prices. And as a reminder, it's typical in this industry that a lot of sales pricing is indexed and follows the raw material price trends. Sales volumes decreased slightly from 2022 mainly related to the plant closer in Mozarte and currencies impacted negatively, roughly 7 million euros. In Q4, we saw a positive development and this was mainly driven by higher sales volumes. And worth mentioning is that share of the new products total on very good level and over 35% of net sales during 2023. And as a reminder, new products are considered which are launched during the past three years.

4:17 And majority of these are part of our sustainable product offerings. Then comparable EBITDA, full year EBITDA slightly increased compared to the previous year, as Tommi mentioned, ended up roughly 4% higher, despite of the challenging business environment. As you can see on the right-hand side, we had a fairly two-folded year. First half of the year, profit was low, but we saw good development on the EBITDA levels during the second half of the year, when our actions, especially on commercial excellence side, started gradually contributing. and here is still a full profit and loss, including one of costs.

5:03 Those are related to the Mozart plant closer. Only minor cost incurred during Q4 2023, I believe this was 11,000 euro totally, and for the full year 2023, roughly 4.8 million Mozart plant closer related costs and 9.6 million as a total during 2022 and 2023. On a positive note, our cash flow from operations was very strong, regardless of challenges in business environment. So we were able to continue the strong trend during Q4. Main contribution came from good control of networking capital and mainly from inventories. As a CFO, I'm pleased with our ability to manage the operations and produce positive cash flow from operations despite the challenges on profitability side.

5:56 So good to end on positive note, and Tommi back to you.

6:00 Okay. Thank you, Janne. So let's look at a little bit something that we, this is a slide which we have used in many of our presentation already. Just a reminder, this is the frame what we look at our strategy. It's from 2020 to 2025. the cornerstone of course of that is the sustainability and we want to be the sustainability leader in the non-woven industry and then another one is of course that we have a very strong focus on customers and efficiencies and this is of course the frame what we are going to review within this year in order to see that how we would be able to enhance the strategy once going forward and maybe once we take the next slide so Looking at the highlights, actually, this gives also the reflection of the areas where we are focusing.

6:50 The first one, of course, was something that we concluded the investment in Akkila in Finland. Actually, that was a line upgrade. And mainly the idea behind that upgrade was something that we would be able to offer more sustainable products from our platform from Finland. Then the other part, of course, is something which linked to the efficiency. It was the closure of the Mozarte site in Italy that is concluded within last year. And of course, the impact of that is fully in our P&L on that. Of course, there will be some cash flow impacts coming on once going forward, once we move the lines. But generally speaking, Mozarte closure went according to the plan and we were able to transfer majority of the products and customers to other European sites. And then looking at, again, the sustainability, like Janne mentioned, so we had a good level, actually, I can even say a very good level of the new products what we introduced, majority of those products are sustainable.

7:56 And then in order to look at so that the comparison what we have been using in order to look at the frame, we have been comparing as a start baseline, base year 2019. And from 2019 to today, we have been able to increase the share of the new products and the sustainable products with 79%. So generally speaking, the sustainable products have almost doubled since 2019. And then as an evidence of that, we also measure ourselves internally. So how many new sustainable product launches we had within a year, and last year we had 12 of them. And these are always considered that what the customer considers as a new product for them and introduced.

8:45 And this is mainly something that what we do is something utilizing our platform and investments in order to upgrade our current portfolio. And linked to that, of course, we continue to work around the sustainability. and the last year again we had the Ecovaris assessment on that. We maintained the silver rating. We were able to improve our rating by five points, but unfortunately we just missed two points from the gold level, which means that we continue to work around the sustainability in order to improve to achieve the gold level also in Ecovaris. And then how we will do all of these was something that he reviewed the organization and we changed the organization to be more closer to the customers. We established a regional business area organization in order to support this profitable growth journey.

9:42 And we want to really to mention that we see the situation in such a way we want to bring profitability first and then start looking at the growth. And then in order to look at so that how do we see 2024. So in this something that in order to look at outlook of 2024, we state that we would like to improve from 2023 going to 2024. As a reminder, our EBDA was 2023, 15.8 million. And back to Emilia, so please.

10:24 Thank you, Tomi and Janne. And now it's time for questions. So from the lines, do we have any questions? 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. The next question comes from Joni Sandvall from Nordea. Please go ahead.

11:00 Yeah, thanks, and thanks for the good presentation. I have a couple of questions. I'll take those one by one. You reiterated your wording of positive signs from the market, so can you give any additional color on how you expect volumes to develop now in H1 and then in full year 24?

11:24 Okay, that was a very good question. So that once we look at over here, so generally speaking, of course, the business environment, that continues to be challenging. So that if we look at the general speaking, so we have the war in Ukraine, we have the crisis in Gaza, the situation in Suez, then in order to look at, so that what is something, the interest rates are still high. We have the inflation. So which is impacting the general economy. But in order to look at our hygiene business, personal care business, that tends to be fairly stable business. So looking at the underlying demand within the market, it's fairly stable. And we could even say that in the United States, it's still on the stronger side.

12:12 But at the same time, we have a competition. So this is more linked to the activity what we have, in-house, what we do together with our customers, how we work with them, how we are improving our commercial excellence, how we improve our operational excellence. So it's more depending on us, how we succeed with the steps, what we have decided in order to improve the situation. It's less the support coming from the market.

12:42 Okay. Okay. Thanks. Now when the Nakkila investment is completed and taking into account the Mozart closer, does this have actually volume impact if we net this two out? Should we see positive volume from the Nakkila investment?

13:04 So of course that once we closer the Mozart, that's it. So that generally speaking, if you look at net-net everything, So if we compare 2022 to 2023, we were something like 1,500 tons shy. So more or less, we closed the gap already within last year. And once we go forward, of course, our intention is to squeeze and sweat our assets as we can gradually, which is actually, it's not very fast, but gradually we will sweat our assets and this way we will get the support to our growth.

13:41 Okay, thanks. Then maybe question related to costs, because there are maybe tentative signs of rising pulp prices in the market. So how you see the environment from your side now currently on the pricing front?

13:58 So like Janne mentioned earlier, so that the tendency, if you look at the industry standard, the industry standard more or less or the way to operate in this industry, so it's something typically the raw materials are passed through so meaning that actually with the main customers and in the main contracts we have a pass-through clause so if the raw material prices are going up and down it has a certain impact but more it's depending on us through the commercial excellence so that what are the new products what we are able to introduce what else we can do with the customers it's impacting more than the market so So of course we take everything what is granted and we are able to have the support from the market, but it's mainly driven our internal activity and operations linked to the commercial excellence, how we do it.

14:53 Okay, thanks. And maybe one question to Jan about the inventories, because those have reached now pretty much the pre-COVID levels. So is it fair to assume that there is not so much or there is not much improvement potential on that front in 24.

15:13 That's of course kind of the question where you don't want to be too direct on your answer but I think that you have done the homework well so yes we are pretty much on our pre-COVID level and I put it this way We are not likely to see such a high improvement on the inventories when talking about the NVC, Networking Capital, as we have done so far. So yes, probably there are certain spots where we can still improve, but I would share my view more on the accounts payable, accounts receivable side on Networking Capital. And naturally, overall, when talking about the cash flow, is the main focus on the improvement side.

16:04 Sure, thanks. And last question from my side regarding the guidance. You mentioned that you are expecting improving comparable EBITDA following in 24 and in 23, the improvement was only half a million. So how should we view this? Do you have some threshold or thresholds for the guidance?

16:30 That was an excellent question. Of course, we have to remember that our starting point is very low level. And how we see, you know, the management sees. So we are improving step by step and it will take a certain time. Therefore, actually, that we gave 2024 guidance fairly conservative. and we would rather like to see it in a such a way that let's look at the situation again after the first quarter once we can see the development of our commercial and operational excellence activity and what is the success rate of that. So that's just understanding the challenging business environment.

17:16 Okay, thanks. That's all from me. The next question comes from Jonas Ilvenen from Evli. Please go ahead.

17:28 Hi, it's Jonas from Evli. You already touched upon this state volume outlook for this year, but could you maybe briefly elaborate on Q4 volumes? So I guess America's development, I mean, you say that overall Q4 volumes increased slightly, but could you elaborate a bit on, you know, America's versus Europe developments in Q4?

17:52 Okay, Joonas, that's also an excellent question. Normally, we don't go too very deep on these regions, but generally speaking, it's something that we can see that in the United States, like I said, the basic underlying demand is at a fairly good level, which is, of course, giving us support on that. And maybe what I'm able to mention is that also in Europe, the situation has slightly improved. as well and this is something that what we see so therefore we are pretty confident once going forward that we see some positive signs but we need to be a little bit cautious because it's it's so unpredictable it's very difficult to see and the uncertainty is not because of us it's because of the whole economy right and you also touched upon this raw material outlook

18:51 don't know do you have anything I mean I guess I guess those prices are now kind of stabilizing or I guess that's your assumption that they will remain somewhat stable this year I mean compared to where they are now yeah okay okay I understand your question so that what you are heading to that so you know it's something that you know the

19:15 You know, generally speaking, once we're looking at what we succeeded in 2023, we were able to improve our sales margin, which was, of course, a good development. And then in order to look at, so we would like to rather look at the market in such a way that, yes, there are changes in raw material cost, but we need to adapt ourselves and we need to make sure so that then whenever these are changing, that it has a minimal impact in the way how we run the business. So I wouldn't like to go and claim that with the raw material prices going up or down. So we would rather run our business and try to make and maintain and improve our margins.

20:05 Good. And maybe final question. You also mentioned this, I mean, a couple of years ago there was this Suez Canal crisis and now there's the situation in the Red Sea. And has that been like any major issue from a logistical point of view

20:23 so far? So luckily we are, if we look at it, it's one part of our sustainability strategy as well. We are locals. In a way, we want to be a local supplier. We are European suppliers. So majority of our raw material customers we operate in Europe so we want to be close to them because actually that is the way how you can have the lowest possible carbon footprint so which means that actually the Suez Canal is not that strongly impacting on us so it is it is it's not we are not immuno that we have of course it has impact but the impact at the moment is not material

21:03 All right, thanks.

21:04 That's all from me. Thank you. Thank you.

21:14 Are there any more questions from the lines? It seems not. We have one question from the chat. It's from Rauli Juva. Your financials were quite high in Q4. What impacted that, and what kind of run rate should we expect for 2024?

21:40 Maybe, Anne, if you take from your view, and then I can...

21:44 Okay, so with the financials, I'm assuming the reflection to the P&L. And naturally, we stated that our... Internal improvement actions in the commercial and operational excellence excuse me have been gradually starting to impact and then Tommy touched point the our guidance for 2024 so naturally we are expecting that we are able to continue the good trend but I cannot guide any you know detail figure wise or range wise in that sense because we have given the guidance on that we will improve on EBITDA from 23 and we have stated few times that we see some positive signs on the let's say business environment but that's more on the internal actions and how those are gradually impacting rather than the market and Tommy mentioned already earlier that market in U.S., it's more balanced and stable demand-wise, while in Europe we still have certain uncertainty because of, let's say, demand-supply balance in the market. That's a very, let's say, round and political answer, but if you want to refrain and be more detailed, then happy to answer on a more detailed level.

23:16 Tomi, do you want to continue?

23:19 No, I mean just something that you know that it is like say this and we are starting from a low level and then we are doing this step by step so it's it will take a certain time there is a certain delay with actions which is also very typical for this type of industry.

23:40 So thank you all. Before closing this session, I want to advertise that our Q1 result will be published on May 7th. And before that, on April 4th, we will be having our annual general meeting. But thank you all for participating and have a good day.

24:05 Thank you. Bye-bye.