Suominen (Helsinki:SUY1V) Q4 2025 Earnings Call

0:00 Your line is muted. Call recording is on.

0:05 Welcome to the Suominen Q4 and full year 2025 results call. My name is Anu Ilvanen. I work as the communications and marketing director at Suominen and I will be facilitating the call today. Joining me are our president and CEO Charles Olme and CFO Janne Filosaari. who will present our results and also grow through our newly published full potential program and operating models. Charles and Janne, the floor is yours.

0:35 Thank you. Good morning to all of you. So we will go through the results of the fourth quarter of the full year 2025 and then go through the financial review in more detail as Anu was saying. So if we start with a summary of our results, which are summarized in the title that says it all. Our results are unsatisfactory, both in the fourth quarter and the full year of 2025 in a challenging environment, but also linked to our internal performance. If I first focus on the fourth quarter of 2025, our net sales decreased by 20% versus 2024 same period. And the main aspects were linked to customers, particularly in the US, temporarily increasing their supply and imports from local countries.

1:38 That was also resulting from supply issues in our factories, particularly in the US. The consequence of this lower volume, the EBITDA was 1.9 million euros for the quarter. The cash flow was 7 million euros. And that drives to a full year 2025 where the net sales altogether decreased by 11% versus 2024, 25, sorry, or versus 24. The comparable EBITDA decreased to a level of 12.6 million euro. The cash flow was 12.2 million euro.

2:26 As you know, end of Q2, we had launched a cost saving program that was aiming at 10 million euro benefit over 24 months. And we may come back to this late. This cost saving program is proceeding and continues into 2026. really important to mention, and we mentioned it, of course, in our Q3 call, but still in this one, in terms of the impact on the full year results, we had two major incidents in our US plants during the third quarter and the fourth quarter that affected our ability to supply during those quarters.

3:14 with an interruption of three months in one factory, in one line of one factory, and a flooding in another factory that meant losing a relatively significant inventory, which hampered our supply to customers. So with this disappointing result, the board of directors is proposing to the annual general meeting that no dividend shall be distributed for the financial year 2025. Based also on this situation, we have assessed precisely, deeply our situation and have decided to launch a three-year performance improvement program aiming at profitability increase to reach our full potential within the next three years. I'll come back to this, but first, we will go into more detail on the financial results with RCA4 Yanni.

4:19 All right, good morning from my behalf as well. And we start from the net sales and net sales reflected lower volumes and currency impact. and we will open this split in the next slide. And as Charles mentioned on Q4, net sales decreased by 20% and were roughly 95 million. And as Charles already mentioned, we have had a supply interruptions and that prompted some US customers to temporarily seek alternative sources, which is visible on in top line. and all together a full year 2025 net sales decreased by 11% and were 412 million. Again, we'll follow up the impact split on the next slide, including currency impact.

5:09 Share of the new products out of the total net sales has been decreasing with the lower sales volume. So this has been impacting also negatively through the profit, due to the product mix and impacting on our EBITDA. Yes, and here we have the Q4-25 versus 24 and full year impact on the net sales. So organic impact includes basically volume, price, and mix impact. These exceptional events are referring for the Q3 incidents and our US plans, as Charles was mentioning. and then further impact on q4 and then the currency impact is mainly related to the euro usd conversion rate okay as it says the comparable ebta affected by the exceptional incidents during the q3 and and then the reflection and continuation on q4 and uh or comparable EPTA, excuse me, totaled at 1.9 million in Q4.

6:24 Main reason for the decrease was lower sales volume. Also, mix impacted negatively, as mentioned. While sales prices were slightly lower in Q4, lower raw material prices offset partly the margin impact. A full year comparable EBITDA was 12.6 million compared to the 17 previous year. And as said, the big impact was on the latter part of the year by the incidents we faced at US plants in Q3 and negative impact continued in Q4 as stated earlier. Yes, and here is still the consolidated statement of profit and loss and the main impact on the so-called one of items or items affecting comparability were related to the restructuring program and then very small impact from the Mozart plant closer and there is a small impairment loss of Euro 0.4 million coming from the just basically asset write-off of old production line.

7:31 So the main impact on the restructuring program costs that is ongoing. And cash flow from operations amounted 7 million Euro in Q4 and 12.2 million Euro for full year. So the main contribution was coming from networking capital where we have been able to improve especially on the accounts receivable side partly driven of course by the lower sales and then on the inventories which total have been impacting positively at the networking capital side and through that to the cash flow from operations. So this is in a way positive if we consider the low profit and general performance we have had.

8:24 That's it from my side. So Charles with the full potential program.

8:29 Thank you. Thank you. So I would like to first give a little bit of context. Because the full potential problem is not just based on the unsatisfactory results of 2025. When we assess and look at our performance over years, and you can see on the chart that is projected over a period of about 10 years, we basically as a swimming and business didn't provide growth. and that's the first one actually if we compare to the baseline 2018 the sales are declining four percent including volume and pricing and in addition and more significantly even the profitability has been declining a lot from the peak in 2021 which we know where a pushed by the demand during the COVID period at 10% to 13% EBTA, then we are down since four years to the level of 3% EBTA, which obviously is not enough for a company like Ounce to deliver to shareholders, but also to deliver investment to the future. The key point here is that we consider that all our shareholders are expecting a different perspective, all our shareholders, but also all our stakeholders, Our customers continue to see Suominen as an innovation and sustainability leader, but

10:02 consider that we are far too inconsistent in our production performance, and therefore that has driven to more imports from alternative supply. Also, employees still being loyal and willing engage strongly also showing fatigue with this situation that is deteriorating results and therefore it is our mandate to change the trajectory of the company and to do that quickly. That's why we are entering and launching today the implementation of a full potential program which has as first absolute priority resetting the profitability.

10:48 then we will look into later scaling the business but the the question of the capacity and the growth is secondary versus resetting the profitability and therefore also providing cash out of our business net net that means that for the next three years our absolute focus is on profitability at the same time as reconsidering the culture of our company to make sure that we have a culture of accountability in history. All companies that have successfully turned around a business have done it also and not only with business actions, but also with being very clear on their company culture. And that's why we have already initiated some work on this.

11:41 This to say that If we want to build swimming in the right way for the future, we need basically three dimensions. We need to have the right culture, what we call the swimming and cultural accountability already started the launch. As I was saying, we need the right focus on key priorities, which are about our full potential on the operations, the post competitiveness, and driving profitable growth with our installed capacity, not with new capacity, with our installed capacity. This is our priorities and the focus we need to have. But we also need to have the right operating model. And why am I saying that? It's because we are entering into a transformation phase, and if we want to have a a rapid transformation and an effective transformation. We need to have an organization that is dedicated to driving expertise and effectiveness, also securing the very disciplined execution of this full potential program that we are launching today.

12:53 And that's why we have announced this morning also to change our operating model. I will come back to that. But first, about the focus we are in the full potential program we are basically our situation today is not one problem it's a combination and therefore it's not just one action that's going to change the trajectory it's about turning all the stones without any exceptions so we are looking and continuing to look at the fixed cost competitiveness together changing the operating model, which will have an impact also on the fixed cost reduction. Second, we're looking into procurement obviously, so direct and indirect supply savings.

13:40 Third and foremost, the production efficiency and output. This is our priority number one, where we have the biggest benefit to get. We need also to look at our portfolio pricing and business development. In the portfolio, we have some low margin business that needs to be managed. And as already said, we will not be able to drive all of this if we don't have a very clear control of accountability and without also a very engaged and committed workforce. That's why our deliverables for 2028, our objectives are basically summarized as follows. Five key objectives. First, safety.

14:28 we are delivering a good performance in safety very few accidents in the in our seven factories but the goal is zero accident obviously second we want to grow with our existing capacity third we want to raise the bta profitability from three percent to ten percent by 2028 we want to reduce our leverage which is approximately six the ratio six of net debt over ABTA at the end of 2025. We want to reduce it in the corridor of two to three times. And we want to raise our employee engagement up to 80%, meaning above industry benchmark.

15:15 This will not happen alone. We have major initiatives already standing up. and we will need the internal and external capabilities to do that. That's why we are temporarily supporting ourselves with external experts, both on the manufacturing side and also on the other aspects, other streams of the business, like the strategy, commercial excellence, procurement, and organization. We have an expert consultant helping us on the shop floor into our factories with a focus on, you know, in the factories where most of the benefits are foreseeable. And that has just started in the month of January.

16:06 At the same time, we are planning to build internal capabilities in order to, of course, not being dependent on external resources over time and we are standing up in the particular the capabilities in the strategic and transformation organization. This program will also require some investment, investment into a transformational operational cost over the next three years estimated to be approximately 10 million euro and also some focused capex investment I want to remind that these capex investments are not for a capacity. They are for restoring our installed base to industry standard and upgrading this equipment where necessary. We estimate this to be 20 million need on top of our normal investment for maintenance. So that would be the program would have a cost of roughly 30 million euro over the next three years.

17:21 But as said before, it's not enough to have the right focus on the right culture. We need to have an operating model that is helping us to be more effective and more expert in what we are doing. There is nothing wrong with the organization that we have had for several years the geographical organization it works very well in many contexts but I don't believe that in a company where we have only one business and therefore the opportunity to have a relatively simple and streamlined organization when we need to engage into a forceful transformation like now I think we need to have a more focused and dedicated organization expert in all the parts that are the engine of our business.

18:14 And what I mean is the engine of the business being customers and factories for supplying our customers. And that's why the decision has been made to come to a globally functional organization with this engine of the business, customers, factories being exactly reflected in the internal responsibilities with a chief a commercial and technology officer and a chief operating officer. This is streamlining the executive committee. And then we have three support functions that is also streamlined so that we are as efficient as possible in the executive committee. So this is effective on the 1st of February, so basically immediately.

19:10 I want to make a disclaimer extremely important. When we globalize the leadership of the commercial function, it does not mean that we get out of the local sales organization. A name of the game to be successful is to be close to customers, and therefore we are not restructuring anything on our sales team. in terms of where they are located. They need to be close to our customers and being customer centric. So this is more about the global management being streamlined and focused on a specific expertise and effectiveness level. Which brings me to show you now the Sominen leadership team that will be effective on the 1st of January, 2026. with the key changes being that Marko Koivisto, who is today the EVP Region Europe, Middle East Africa, is taking charge as Chief Commercial and Technology Officer. He is today already the CTO.

20:24 So from that point of view, it's a logical combination. and it's a very logical combination as a you know most of the discussions and side agenda with customers have to do with supplier availability competitiveness and innovation transition from non-plastic solutions and therefore the combination of being the chief commercial and the chief technology is actually quite powerful and Marcus profile is enabling this The second change is that the CEO, François Guetta, who started in the company, who is a manufacturing expert, who started in the company in November, we are broadening his role by not being just functional, but he will be in direct command of all the factories, the safety, the engineering, the procurement and supply chain.

21:20 That's what I call driving with these two positions, expertise and effectiveness into how we drive the business. And of course, the essential success factor will be in the working together with the same clear aligned objectives, which are already on the table. Then we are appointing also Marika Vagiparta, who was already reporting to me as VP Transformation. We are appointing her into the Swaminem leadership team, into this streamlined team. as of 1st of February. Then, our CFO, Yane Silonsari and I had discussed openly some months ago on our company situation, the need of a radical transformation and also on his personal goals and came to the conclusion that he was also keen on exploring new opportunities.

22:23 We decided to therefore search for a new CFO and we have appointed Kimo Raunyo as our new CFO. Kimo will join us later on the 1st of June, likely a little bit earlier in the month of May. Kimo is joining us from the Fortaco Group where he works since 13 years and 10 out of these 13 years as CFO and Deputy CFO. Timo has a strong track record in the industrial manufacturing sector and at executive level because 10 years at CFO and also driving turnaround productivity activities and he has experience of both the private equity environment and also listed companies for TACO is managed according to the listed company governance since a couple of years.

23:27 So welcoming Kimo later in the first semester and then we will wish Yane all the best for the future. Yane will continue as CFO until Kimo comes in. Which brings me to conclude this by saying that our focus is now on resetting the company profitability. We will not focus on scaling our business now. Of course, we will do that later. But first and foremost, it's about resetting our capability to deliver good profit and cash flow. Then after that, we will scale the company. The future strategic orientation will be analyzed later this year once we have initiated our key resetting activities.

24:17 And we will, of course, keep you updated when and if we have any strategic direction change going forward. Ending the presentation with our outlook statement where we are saying for 2026 that we expect the comparable EBTA in 2026 to improve versus 2025.

24:45 Thank you, Charles and Janne. And now let's open the line for 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.

25:09 Yeah, thanks, Charles and Janne, for the presentation. Maybe starting with the Q4 questions. I'm just thinking you said 2.4, 2.8 million that you lost sales due to this incident in Q3.

25:30 how large risk you see that this situation continues that your customers are are are still continuing to use the alternative sources going into into 26 yeah this is a good question this event the second I mean the let's be precise the two in the two events the first one which was a major breakdown in a factory in the US created a basically three months Interaction of production of one major line. This is over the normal consequence. This is all a back to normal business. The second event was a floating in another US factory. And because of this floating and because of the significant inventory lost inventory of finished goods, then a particularly one customer had to drive towards alternative supply at that time in order to comply with the demand on the market and its it's a growing customer so that means that some importing from low-cost country as a result meant you know not a long-term contract but a long term from our point of view a couple of months which means that it will also impact Q1 and we will be back in normal absolutely normal order pattern

27:04 in April so Q1 we still foresee for that specific event, the same level of direct impact on the science.

27:18 Okay, okay, that's clear.

27:21 Then given the weak volumes that you are currently having and as you said you are aiming for fixed cost reductions, are you considering any adjustments to capacity going forward and if you could give any color on your operating rates currently?

27:39 So, number one i would say we we are obviously if if we would keep exactly the same volume as 2025 going forward then we have clearly too much capacity we have too much capacity with the capacity installed but on top we are launching we are starting the commercial production early second quarter on our new line in spain so we would clearly have too much capacity So very clearly that would need to drive towards a capacity adjustment. However, we are in a market where we have growth, a low single-digit growth in Europe, also in the U.S. and in Brazil, however, with a category and the MPT, the moist eyes, toilet tissue in the US that is growing at high single digit, the demand is high.

28:38 And we expect also some growth in other regions. And that means that we are in a context where we should have, we should receive more demand. Let's remember that our volume 2025 is linked to the big impact of three things. Number one, the trade policy evolution that has meant a disruption in the first semester with huge imports from China basically in the first quarter. That has disrupted a lot the first quarter. semester volume. Second, our two events in the US factories that I just mentioned before, those meant a pretty significant reduction of our volume.

29:28 This volume from the event is back into 2026. So we will, we should see growth in 2026. Then if we don't see enough growth or if we want, you know, to drive further competitiveness, looking at the manufacturing footprint is of course not excluded.

29:49 Okay, that's clear. Then going on the profitability improve programs, maybe firstly on the 10 million program, what was the run rate in Q4 and maybe secondly on the new program, how should we think about the bridge towards the 10% target and here I mean is there more material uplift when you have completed this 20 million capex investments, which maybe then points more towards the end of the target period?

30:26 Yeah, so there are questions in one. So the 10 million Euro program run right end of 2025, roughly 5 million impact in 2021. PNL roughly 2.5 million versus 2024. That's one thing. It is continuing. We are continuing the effort on reducing costs. And when I'm talking about those numbers, I'm talking fixed costs only, okay? So we have also reduced and done some cost reduction on the procurement and we continue or even accelerate. Now, what will happen with this $10 million program? It's not a program that is going to live its own life on the side of the full potential program. The full potential program is taking over in a much broader scale this specific cost-saving program, which will be embedded into the overall program. Then your question about the investments in the factories, that will have...

31:35 indeed a more let's say weighted impact towards 27-28 because this is about restoring some of our factories to the basic industry standards which we have lost over years of lacking maintenance in those factories or upgraded some equipment automizing and that will bring more benefits to 2027-2028 which may bring me to say because it may be a suggested question into what you ask him in your in our If you draw a trajectory from the 3% ABTA to the 10% ABTA, do we see a linear progression?

32:23 Likely not, okay? It's not a front-loading program because of the reason is that the main part of the benefits will come from the manufacturing improvements, and that does not come overnight, obviously.

32:41 Okay, that's clear. Maybe one more question on the operating model. You are clearly targeting higher accountability on the P&L responsibility while simultaneously bringing the commercial functions together. You said that you are keeping the sales teams, but now with the COO commanding all the factories, I'm just thinking, is there a risk that there is too many layers now between customers and you know, factories in the operating model?

33:18 No. No, we're not including the layers at all. Absolutely not. On the contrary, the fact that we organize this operating model differently is an opportunity to improve drastically our SNOP process. That's the number one thing. So that's where the factories will the customers will first benefit from the challenge. The second thing is, if you ask any of our customers what is their main pain point with Suominen, it is the fact that we are not reliable in supply. Why aren't we reliable in supply? It's because we have too many breakdowns and efficiency problems in our factories, and we need, therefore, a very expert and a clear line of command, which we didn't have with the original organization.

34:08 By definition, a end-to-end geographical responsibility doesn't bring expertise. It brings harmonization eventually, but it doesn't bring expertise into each aspect. And our customers, I have just now spoken to one customer, and he was like, wow, fantastic, this is exactly what Swamina needs.

34:30 Okay, okay, perfect. Thanks. That's all from me. The next question comes from Jonas Ilvenen from Evli. Please go ahead.

34:44 Hi, it's Jonas from Evli. If I can just come back to these market growth rates you just discussed. So you did say that the U.S. moist oil market is growing at a very high single digit rate, right? And then I think you said Europe is growing at a low single digit rate. Is that correct?

35:04 Yes, that's exactly what I said. You know, if you look at the world and we are if you take our portfolio the majority of our portfolio is baby wipes the an interesting part of our portfolio particularly in the us is the so-called mtt moisturized toilet tissue and which is big in the us and small in the rest of the world likely if you think about you know long term this this is a category that is likely going to um grow also in the rest of the world but right now very relevant in the us um if you look at the world there is everybody knows a demographic crack in the world there are there are fewer and fewer baby, the natality is going down.

36:00 So what we see in terms of shift in the market is baby wipes slightly declining in volume, not dramatically, but slightly declining everywhere. Then you have other products like, you know, senior applications for other people in terms of wipes and other non-woven applications increasing. and then the category of MTT is the one growing at the pace that is high single digit in the U.S. But that's the most relevant growth we see right now.

36:35 Okay. And the U.S. market as a whole is maybe like mid single digit growth or? Yeah.

36:45 Small mid single digit growth, yeah.

36:50 and if I can come back to Europe I mean so in the US you have these supply disruptions but also in your European figures were maybe slightly lower than expected so so what it may like these low-cost imports again that like affected your European figures yeah this is you know we have a very big internal headache that I mentioned very clearly which is our

37:18 production and supply efficiency and reliability and the external headache is the fact that there is in this global market there is in capacity there is over capacity therefore it's important that we are in a growing market because there is today too many alternatives and that is also hampering our volume in 2025 so in Europe

37:48 and then Q4 sales margins and also going forward so now the non-warmers prices decreased but also raw materials prices decreased I mean previously your sales margins developed favorably but what was the net effect did they decline now did they decline now with the non-warmers even though raw materials prices

38:17 Whether, I'm not sure to have gotten your question, is whether our margins have declined. No, our margins have slightly increased, and that's on the back of better sourcing and procurement activities. Our big issue is the volume, but otherwise the margin, the variable margin has actually slightly increased in 2020.

38:47 And then another question on these capex investments. So are these focused in the US or Europe or both? I mean, I understand that these are like relatively small and straightforward upgrade investments across your manufacturing network. Is that correct?

39:08 Yeah, I anticipate that the majority will be in the US, but not all. of in what we need to do in this full potential program in the factories, the majority of the investments will be in the U.S. factories. Okay. The next question comes from Samu Wilhelmsen from Nordia Markets. Please go ahead.

39:41 Hi, someone from Crate Research. Thanks for the presentation. Maybe just a big question regarding, let's say, near-term capital allocation, because you have presented the targets for balance sheet metrics for 28. But in the near term, how are you seeing you doing efforts in the balance sheet? Because, I mean, given weak profitability and margin pressure, how are you, for example, approaching leverage and refinancing risks in the near term, given that you have a senior bond that is maturing in 18 months?

40:14 Yes, thanks for the question. And that is, of course, very relevant in this position. So as a reminder, our senior fund is maturing in June 27. And naturally, we are looking for all the options ongoing. So do not close, of course. We are not disclosing here that we will do this or that. When the time comes, if and when that would take place, then we will come out as supposed to be. The question is, of course, on the table that since we know that there will be items where we need to invest, that what would be the financial item? So we are not ready to disclose yet any of the items, but yes, you are asking the right question in that sense that all those opportunities are on the table and we are considering and reviewing those carefully.

41:07 okay but for example given that where you are at the moment with the balance sheet and the profitability you don't see any immediate refinancing risks well I would say that if you're asking the direct risk no it's not the direct risk no but at the same time it is something that yes we consider and follow carefully so this is of course naturally in this kind of situation where where the target is is much lower if we are talking about for example the leverage and the balance sheet overall and then it's an it's an item where we are having a constant discussion with all the relevant stakeholders and and uh it is it is ongoing discussion and we are looking for the let's say ways to improve the situation and bring it back back let's say on at normal level so so it's very much in our focus definitely

42:03 all right thank you very much the next question comes from rally juva from india's please go ahead yeah hi raleigh from india is here my colleagues asked asked already most of the relevant questions but maybe maybe still coming back on the volume or since decline for the full year of 25 how much of that would you in total described as temporary losses related mostly to the U.S. issues with tariffs and production that you are expecting to regain in 26 and what proportion is perhaps related to more permanent kind of losses or yeah.

42:57 I would say that yes, the majority is temporary In essence, there is always a risk when you, because of this temporary issue, you let other alternatives enter, that these alternatives are further, you know, used. So it would be a speculation, and that's why on a previous question I said prudently that we need to monitor the growth, that we see growth coming, yes, but we need to monitor the recovery in order to understand whether this requires capacity adaptation or not. It's too early to say at this point, but we are very precisely looking at that.

43:46 Okay, yeah, that's fair. There may be a few questions more the numbers side on CapEx. Firstly, is the 25 million, spent last year it is in proxy going forward given the additional full potential investments or what kind of annual level should they be expecting?

44:10 No. I mean, let's remember, I will let Jan complement. The 25 million of 2025 is including an important capacity investment in Spain. our new line that will be up and running as of early second quarter. And as I said before, we are not planning any capacity investment going forward in the next couple of years. Therefore, what we're talking about in terms of investment going forward is the business as usual maintenance plus the necessary investment for the full potential program. How much the total means per year, I would relatively prudently say that it will be between 10 and 20, lower than 20 and likely more in the middle than closer to 20 per year.

45:15 Okay, okay, thanks. And then...

45:20 No, I think the charge captured it. And if looking without the expansion investments that we have had within the couple of previous years, then, you know, the trend wise, the, let's say, maintenance improvement type of investments have been plus minus 10 million, even below in the past years. Going forward, of course, an area which we need to take very, very seriously.

45:44 know carefully due to the fact that Charles has been mentioning few times that we ensure the the production efficiency and and also reliability but but nothing nothing further to add yes that's clear and then then finally maybe to you as well Jan the level of receivables is quite low or was quite low we discussed last quarter that you had some arrangements there but is is this

46:11 like a normal level now going forward which you have had later in the second half of the year or is there something unusual yeah so so i remember you asked last time and i confirmed that yes we do have these supply chain financing with some of the customers and we have also this occurs receivable selling uh let's say uh let's say readiness for for certain customers that we are utilizing with with the chosen ones main main impact of course coming also from the lower sales but all those together and then and we have been focusing very much on on uh you know uh collecting the the receivables you know early and and and let's say implementing shorter payments and they are applicable so so I would say that if and when the sales will increase, I'm expecting that we'll drive also the receivables up, but in relation, we are looking for, yes, the more optimized level going forward as well.

47:19 Yeah. Yeah. Okay.

47:21 That's good. That's all for me. Thanks. As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

47:51 Thank you. As there are no written questions, I would like to thank you all for this call and welcome you to join us to hear about our first quarter performance on META. Thank you all and have a good day.

48:03 Thank you. Thank you. Bye.

48:08 The host has ended this call. Goodbye.