Suominen Oyj
OMXH:SUY1V
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
2.32
2.89
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
So good afternoon, and welcome to this Suominen's Q4 and full year 2019 results publication event. My name is Emilia Peltola, and I'm heading Suominen's Communications and Investor Relations. Today, our President and CEO, Petri Helsky; and CFO, Toni Tamminen, will present the result. [Operator Instructions] So please, Petri and Toni, floor is yours.
Thank you. And welcome also on my behalf. The agenda for today, have a look at the past year and brief financial review for fourth quarter and the full year. We published the new Suominen strategy a couple of weeks ago. So a few words about that. We also published the new sustainability agenda and also some more details on that. And then the outlook for the new year. So in 2019, our operating profit improved to EUR 8.1 million from EUR 4.6 million in the year before. Our net sales decreased by 4.5%, and then reached EUR 411 million, down from EUR 431 million in 2018. The cash flow from operations was very strong, and reached almost EUR 30 million, down slightly from the comparison period. But as Toni might mention later on, in that EUR 32 million in 2018, there was some extraordinary EUR 7 million return on taxes -- tax payments in the U.S. So that -- taking that into account, the cash flow was very good. We launched the new business areas from July 1st onwards, Europe and Americas. And the Board of Directors proposed a dividend of EUR 0.05 per share. Here on the left, you see the quarterly development of sales. In Q4, our sales was then slightly below EUR 95 million, and some main factors impacting on that. The raw material prices had -- they were really on the peak level in early part of last year, and then they were decreasing throughout the year. And there were significant raw material price decreases, especially for Europe, which were then, of course, reflected also on our sales prices. Further impact came from what we had said all through the year that we had aggressively went with price first, volume second, and that impact was also very visible in Q4. And finally, especially when it comes to Europe, the Christmas holidays as they were placed in the calendar, December was almost just half a month because very little deliveries took place in the latter half of December. That impact was much less visible in our Americas business. Why I mentioned also about the raw materials, that the impact was more so on Europe, is the fact that these trade war tariffs between China and the U.S. have caused a bit of a different situation for the raw material market in North America, and therefore, the raw material price movements there have been less significant than in Europe. We haven't earlier talked so much about the fact that we also have, of course, measured and are measuring the share of new product sales. And in Suominen's case, there's nothing to be ashamed of. In 2019, our share of new products exceeded 20% of net sales. And you can have many different kinds of definition on new product sales, but this is really products that have come through our R&D funnel and have been launched within the 3 years of starting the calculation for the sales. The USD-euro exchange rate had an impact on the revenue of about EUR 12.5 million. Operating profit looks like this. There was, let's say, improvement compared to the year before. And as mentioned, we reached then on annual level, the EUR 8.1 million improvement in gross profit and main issues behind, of course, mentioned raw material prices, higher sales prices and really improved raw material efficiency on our production side. We had then a negative impact on the foreign exchange rate, mainly again USD-euro. It was positive on the revenue side. But on the EBIT side, the impact was negative, about EUR 1.8 million. Again, the reason behind is that for Europe, we buy plenty of raw materials in U.S. dollars. And therefore, it hits us if the dollar become stronger. You might also remember that due to the organizational changes, we had some reorganization costs in second and third quarter, amounting to something like EUR 0.5 million, and they were more or less than already done with after Q3. So in the last quarter, we didn't have significant restructuring costs anymore.
Thank you. Then regarding the net profit. So in Q4, despite the improvement in EBIT, we still fell negative. So although we improved versus the comparison quarter last year, we are still in the negative. There a big -- despite the EBIT improvement, so a big factor was the fact that we had on the financial items, about EUR 0.5 million impact from exchange rates, mainly revaluation of our USD-based assets. And secondly, similarly to Q4 '18, we had EUR 0.5 million bad debt preservation of certain old outstanding debts that are in our balance sheet.
Which are due to restructuring of the business some years back.
Correct. And for the whole year, of course, after the negative 2018, we ended up slightly positive on the net profit. Here, the detailed financials. Petri already commented on the top line side. On the cost side, not really that much to comment. Overall, the costs were well in control. As Petri mentioned, we had some restructuring costs during the year, but nothing major in Q4. And as a result, the costs were well under control.
Even taking into account that we have plenty of costs in U.S. dollar rate, where, of course, the impact on the cost side is, of course, weighing more if the dollar is stronger.
Cash flow, as said, continued strong, significant improvement -- sorry, not an -- overall significant improvement if we take into account the USD 7 million or United States tax refund that happened in Q2 last year.
Last year being 2018.
2018, correct. So taking that into account, the cash flow improved -- cash from operations improved and free cash flow improved even more given that cash flow of investments were on a lower level than before. So overall, the cash situation is on a quite stable, if not even strong level.
The inventory reduction program that we launched...
Yes, that we mentioned that we had a positive impact from the net working capital and that is mainly -- or that is only due to receivables and inventories, payables went down. But especially, I would like to highlight these inventories as they were on a high level end of last year, especially beginning of this year, and then this -- we launched this inventory improvement program, which we have already commented on. And now at the end of Q4, we reached the targeted level. So the current inventory level is very much where we want to be at, and there was really significant reduction in existing overall level reduction. Yes. So back to you on the strategy.
So very briefly to start with that nonwovens, as such, is a growing business and growing in all markets, including mature markets like North America and Europe. These are, of course, the overall total nonwovens figures, but I think that is one good basis for Suominen's future. We then, as said, launched the new strategy. It was approved in early January. We describe our mission as enabling our customers to win by creating quality nonwovens. Our vision is to be the front-runner for nonwovens innovation and sustainability. And the strategy, as such, is really about growth and profitability. And we will grow by creating innovative and more sustainable nonwovens for our customers and improve our profitability through more efficient operations and a high-performance culture. The main focus will be on wipes, and we will strengthen our capabilities in Europe and Americas and evaluate opportunities in Asia. We have then listed 5 focus areas. And we came, based on a lot of interaction with the entire organization, for the whole strategy as such, but also what comes to the values, and our values are ownership -- really taking ownership of matters, seeing through and seeing to it that the different tasks will be done working as teams. The high-performance culture is really embedded into the values as such and integrity being open, honest and transparent and ethical in all our dealings towards the external world and within the company.
Yes. And the financial targets were also set and updated. So on the sales side, the market is growing quite healthily. So we want to be growing with and above the market relevant for us. On the profitability side, we want to reach an EBITDA margin of about 20% -- 12% by 2025. The current level, as you can see in the financials, we are at around 8% something. And the balance sheet, we want to keep a strong balance sheet, meaning a gearing of 40% to 80% according to the new IFRS, i.e., including the impact of the standard IFRS 16 leases.
Sustainability agenda. We published as well that we have divided into 4 themes: people and safety; sustainable nonwovens; low impact manufacturing; and corporate citizenship. And then we have set some targets for the different themes. So we will be investing in further increasing our employer, employee engagement. We continue to build a high-performance culture, to strengthen our safety culture. As said, our vision is to be the front-runner in sustainable nonwovens. We continuously strive to decrease the environmental impacts of our own operations, and we promote responsible business practices in our operations and the entire supply chain. And we communicate openly and transparently about our operations. Then about being the front-runner in sustainable nonwovens. As we have discussed a bit in these events also during the last year, there have been an enormous surge in, first of all, the debate and discussion around, first of all, plastics, but then sustainability in large. And that has been also then reflected in regulatory decisions on EU level. And as we have been seeing also, our customers have been increasingly very keen to get access, first of all, to sort of concept, but more recently, really then to the product, which can answer to these sustainability questions. And the evolution on this front has been very quick. Occasionally, some regulatory things may take a long time, but now, this train has been moving very quickly. And we at Suominen, we believe that we are very well placed to be playing a significant role in this what can be a significant transformation for the entire nonwovens industry and business. So we have already had, but we are continuously, of course, developing it further, a sustainable product portfolio, where it's mainly about the raw materials, which are, for example, then renewable, recycled, compostable or plastic free. And very few -- very recent examples, we have BIOLACE Air as one of our products, where we at Suominen are really in a unique position to be able to combine viscose and pulp. And now in Europe, we have made a significant first contract, commercial deal concerning these products. And these are what I would be calling a bit sort of already a second-tier of sustainable products because the first escape, when you want to create plastic-free materials, is to think of 100% viscose. But here, we are already one step further. And in fact, there's -- without going through enormous amount of detail, there's a lot of discussion and clarity still in Europe, what will be the final definition on plastics and especially what comes to viscose. So here we are, in fact, then selling already a pulp blend, where there's even no viscose in it. Then the next development step is then to have launching BIOLACE Pure, which we are in sampling stage now. But the first feedback that we have been receiving from consumer panels has been very positive, and we have sent over the samples to the market, and we have commercial negotiations ongoing with very high interest from our customers. Then outlook for the current year. As said, we gave a couple of weeks ago then, the long-term net sales or, let's say, growth targets for the coming year. And that's why we then opted not to give short-term guidance on the revenue as such. And the guidance is, therefore, that we expect our comparable operating profit to improve versus last year when the EBIT was EUR 8.1 million. And in the years '19 and '18, we had no items as such, affecting the comparability of the operating profit. I hope that also the ones in the virtual reality could hear us. And now we would welcome questions from either the people in -- here in place or from the virtual audience.
Joonas Ilvonen, Evli. Nonwovens demand looks good, but now that you have made this strategic assessment, how would you describe the supply situation in the Americas and Europe?
Let's say, traditionally, supply has been -- supply demand has been more balanced in the Americas. And less so in Europe. So more perhaps oversupply than in Europe. Last year, there were some perhaps more new phenomena that took place due to the trade war and the tariffs. And first of all, we saw more Asian product supplied to South America. And we also saw perhaps somewhat of an increase of product produced in Europe being supplied then in North America because of the cost shift in raw materials as such. I think those can be somewhat short-term issues if the trade war comes to some kind of a solution.
Rauli Juva from Nordea. On your guidance, you're guiding for improving EBIT. Can you a bit elaborate on what that's based on given in '19, your EBIT went quite significantly down from H1 to H2, and also your sales is kind of was decreasing towards the year-end. So the trend doesn't look that encouraging. So what gives you the confidence to expect improvement?
I think looking also on the previous year before '19, that Q4 generally is not the strongest quarter. So I wanted to put perhaps that much, let's say, focus on the trend within the year. I think that when comparing the years '18 and '19, I think that we saw clear improvement. And we have, therefore, I think, good stepping stones already in mind how to further continue to improve. And that has a lot to do with many different items, but we said something here as well about operational efficiency. We made improvement last year. We continue to do so. We had this variable costs saving program, which we launched early last year, the results from that were very good and very much on target, and we continue with that also in the new year. And again, our organization is already then -- they know what to do and how to do it. When it comes to the commercial side, we, of course, have some customer relationships, where, like in any business, where there might be sort of better or worse situations. But again, overall, we believe that we have been able to create much better situation on the customer relationship front, but also on the supply front, because we, as has been mentioned in this audience also earlier, is that in late '18, we had a lot of supply problems which were linked to the Bethune 4 line and how it was running, which then impacted our Windsor Locks operations. And we lost quite a bit of customers because of not being able to serve them. And we are building back those relationships as well now. So I think that we have really on all fields, opportunities to continue to improve. And not to forget also the R&D funnel and the sustainable product offering that we are really launching now.
Also, one thing coming from the market is that, at least for the early part of the year, we still see that the raw materials are on the decline, which helps us profitability-wise, even if it's visible in lower sales prices. But on the EBIT level, we expect improvement also from there.
Okay. Good. And then if we expand that a bit to your financial targets, 12% EBITDA margin in '25, can you give some kind of indication where that -- what improvement should come over the years? Is that mainly sales growth? Is it -- or is it kind of evenly split with margin improvement and sales growth, given leverage? Or what kind of components will that include...
Sales growth is certainly one of the key components in that. Of course, then the margin improvement, again, comes from operating better, so having better raw material efficiency and higher efficiencies is another key item. And then having perhaps somewhat more unique offering when it comes to sustainable products is the third leg.
All right. And then finally, your CapEx outlook for this year, should we expect something similar than in '19? Or is it even lower?
I think when it comes to maintenance CapEx type of thing, we expect unchanged level.
And you don't have any expansion CapEx ongoing at least, right?
When it comes to maintenance CapEx, we expect unchanged level.
Antti-Pekka Viljakainen, Inderes. Is there going to be any changes in your price volume thinking this year compared to last year?
Yes.
I would like to hear more.
Okay. Yes, I think that the focus, of course, as we have been saying, it's not changing. Now we, of course, changed it already a year ago. Then there are, I would say, there can be certain, what I was referring to, customers where we might be still impacted by longer-term commitments that they have done. But overall, we strive to sell more and grow our business with all those customers that we at least can.
Okay. And you mentioned the raw material efficiency, but what are other bottlenecks inefficiency that you must move to improve profitability over the next years?
I think on the cost side as such, overall, I think we don't have issues. Then the other thing is to full our production lines more. And that improves, of course, the efficiency as such.
We have a question here from the lines. Jussi Nikkanen, Handelsbanken. Could you give an estimate for your coming CapEx levels for the coming years? Your possible Asia expansion? Are you possibly planning on investing in a greenfield plant? Or is this more of a sales approach?
That was for Asia, I think, the last question. I think really for Asia, what we have said in public is that it's really that we are elaborating our opportunities there. Just as a comment, I think if we think of different ways of entering a new market with own production in a new geography would be greenfield acquisition or some kind of a joint approach with some existing player already. I think that the risk with greenfield is highest than acquiring some existing company. There's still plenty of risk, but perhaps less so because at least you have already a market and you can have an idea of how the current operations are. And the third one, joining forces with some existing could be the lowest risk. We will be evaluating all of those.
More questions? There is no more questions on the lines either.
Very good. Then we, at least, thank all the ones on the virtual side, if they want to leave the webcast, thank you very much. I hope it worked, technically that everyone was able to see and hear. And then, of course, I thank very much and even more so the ones who came in person. I think it's much more nicer than to speak to a screen. Thank you very much.
Thank you.