Earnings call transcript: Aspo Oyj Q4 2024 sees strong sales growth

Aspo Oyj's latest earnings call highlighted a robust performance for Q4 2024, with net sales growth reaching 20%. The company's strategic investments and acquisitions are positioned to drive future growth despite challenging market conditions. Aspo's stock price rose by 3.19% in response to the earnings call, reflecting investor optimism about the company's strategic direction and future prospects. According to InvestingPro data, the company maintains an impressive dividend yield of 9.36% and has sustained dividend payments for 25 consecutive years, demonstrating strong shareholder commitment.

Key Takeaways

• Aspo Oyj reported a 20% increase in Q4 net sales.
• The company is investing in green vessels, expected to significantly impact EBITDA.
• Strategic acquisitions and a full exit from Russia mark a shift in operations.
• Market conditions remain soft, with postponed economic recovery.
• Stock price increased by 3.19% following the earnings call.

Company Performance

Aspo Oyj demonstrated strong financial performance in Q4 2024, with net sales growing by 20%. This growth is part of a broader 10% increase in full-year net sales. The company's strategic focus on green technologies and operational efficiency has positioned it well for future growth, even as it navigates a challenging economic environment.

Financial Highlights

• Full-year net sales growth: 10%
• Q4 net sales growth: 20%
• Full-year EBITA: 29.1%
• Proposed dividend: €0.19 per share

Market Reaction

Aspo Oyj's stock price rose by 3.19% following the earnings call, trading at 5.18, up from the last close of 5.02. This positive movement reflects investor confidence in the company's strategic initiatives and future growth potential, despite broader market challenges.

Outlook & Guidance

Aspo Oyj has set an ambitious target for 2025, with EBITA projected between €35 million and €45 million. The company aims to achieve €1 billion in net sales with an 8% EBITA by 2028, driven by investments in green vessels and strategic acquisitions. With a market capitalization of €171.36M and analyst consensus showing optimistic targets, InvestingPro subscribers can access detailed financial health scores and growth projections through the platform's exclusive Pro Research Report, available for over 1,400 stocks.

Executive Commentary

"This year goes to the history of a year of very strong strategic execution," stated Ralf, CEO of Aspo Oyj, emphasizing the company's commitment to its strategic transformation. CFO Erkka Repo added, "Our aim is to finance the vessel investments in ESR Shipping with loans," highlighting the financial strategy supporting future growth.

Risks and Challenges

• Soft market conditions and weak demand in Europe could impact sales.
• Declining consumer confidence poses a risk to growth projections.
• The postponed macroeconomic recovery may affect future performance.
• Potential challenges in integrating new acquisitions.
• Fluctuations in spot market pricing could impact revenue.

Q&A

During the earnings call, analysts inquired about the allocation of green coasters, which are primarily designated for contract volumes. The acquisition of Swede handling was also discussed, with positive expectations for its integration. The company confirmed that vessel sales are part of its strategy to fund future investments, with a focus on organic growth opportunities in Telko and Leipurin.

Full transcript - Aspo Oyj (ASPO) Q4 2024:

Ralf, CEO/Senior Executive, Aspo: Welcome to OSPO's Financial Reporting 2024 and Q4 twenty twenty four. If you look at our last quarter last year, we had strong growth, 20% and we improved our profitability, million of EBITA compared to previous year, million. The market though was softer than expected, particularly for ESL shipping but also for telco. Strategy execution continued during the fourth quarter. We made a commitment to the Science Based Targets initiative.

We made an investment decision in four greenhandy vessels. And Leipurin made an acquisition in Lithuania, Kartagena. We also completed fully completed Russian exit during the fourth quarter. If you first look at 2024, the whole year, we experienced quite difficult market conditions. ESL started the first four months of the year faced with political strikes and quite harsh ice conditions.

And if we look at the year overall, fairly soft demand, particularly in the spot market and the macroeconomic recovery, which was forecasted during the beginning of the year, was postponed. It didn't happen during the second half of the year. And particularly Q4 was softer demand wise compared to what we had expected. If you then look at telco, fairly stable market development during the year, price levels being clearly below the level of 2023. And if you look at Europe, in particular, fairly soft demand in many of the markets.

And during Q4, particularly November month as well as to some extent December were poor from a volume perspective. Leipurin, slow, small deflation, low level of consumer confidence, which will impact what sales channels the customer pick and therefore also the product range that we sell and overall declining in volumes, which gradually picked up towards the end of the year. In this market, we're very much focused on strategy execution and here you see a summary of the kind of major events during the year. We got minority investors on board for ESL Shipping. We sold two Supramax vessels.

We made an investment decision in the four greenhandy vessels, €186,000,000 and by end of the year, we had four green coaster vessels in commercial traffic. When it comes to telco, we made very major acquisitions from our perspective, optimal and green fluid, polymer and suede handling, all in all representing some 85,000,000, 90 million of net sales. Leipurin, also their acquisitions, Kebelko and Kartagena. And then this transformation that we do is yielding results, which you can see in the profit development of Leiporen. And we exited Russia, which really means a new chapter in Aspo for Aspo going forward.

This strategy execution, how do you then see that in our numbers? And starting with net sales, Here we compare Q4 figures 2024 and 2021. And the first observation is that the net sales is pretty much on the same level, a bit beyond million. Then if you look at the sales split, you have close to 20% basically Russian related sales, which has fully disappeared. You have Scandinavia, particularly Sweden, doubled as a percentage to 40% due to the acquisitions made.

Finland being very stable at 30%. And then other Europe also fairly stable, but the content of that has to some exchange changed. So unfortunately then decline of Ukraine and growth in Germany, France, Benelux. But quite major transformation when you look at net sales. If you then look at profitability, the change is not as obvious yet and here are the reasons for that.

If you look at ESL, last year, we had in average we had two green coasters in commercial traffic during the year. That means that we have still we have 10 more green coasters to come with full impact for the years to come during 2025. And by end of twenty twenty six, we will have all 12 green coasters in commercial traffic. You cannot see from our profitability last year, of course, not the investment in the green handies, these will be in commercial traffic in 2027 to 2028. If you look at telco, we made a lot of acquisitions last year.

But if you look at the net profit impact of these acquisitions during last year, it was very minor. So basically some And the reason for that is the M and A costs, the cost of the due diligence, then the EFRS related valuation of the inventory, which postpones the profitability impact and then also, of course, the timing of the closing of these acquisitions. If we then look at the years to come, including 2025, a sign of the impact of these acquisitions is what profitability these companies represented last year. It was approximately million of EBITA and that, of course, excludes any performance improvement opportunities and any synergies. So that gives a strong indication of the potential of telco going forward.

The same story applies for Leiporen. We had Kebelco last year contributing to EBITA with although the full year result of Kebelko last year was some million. And Cartagena, we expect profitability of to for Cartagena in the years to come. So this shows that the profitability of the strategic execution is still to come over the next couple of years. We communicated last year our ambition to reach billion, 8 percent of EBITA.

That is still valid for 2028 as an ambition. We have taken steps towards this ambition. Particularly on the ESL side, the bulk of the investments decisions have been made to reach the over million of net sales. And if you look at Telkom (JO:TKGJ) Leiporen, we still need to acquire companies representing net sales of approximately million to reach this ambition. Erkka Repo will go through the CapEx investments later on in this presentation.

If we then go to strategic priorities going forward, we have the long term financial ambition. We have the vision of forming two separate companies out of Aspo, Aspo Infra and Aspo Compounder. These are still valid. And then the agenda for this year, we will focus on profit generation after a year with strong strategic execution being 2024. That means that we will try to maximize the benefits of all investments made during last year, including the acquisitions, and then we'll focus on particularly on organic growth and performance improvement actions.

The ESG targets were achieved last year. Emission intensity 0.3 compared to the target 0.33. We also made progress. As mentioned, we joined the Science Based Targets initiative during end of last year. And particularly, SL received a platinum medal when it comes to equivitis rating.

So strong progress when it comes to the environment. If you look at safety, a record year of Aspah, particularly ESL Shipping, very strong performance. The safety frequency at 4.4 compared to six point zero as a target. Job satisfaction on a very high level at Aspart AA, which was the same figure as in year 2023. If I then jump to the net sales figures and this is on an Aspall level, for the whole year, 10% growth for the fourth quarter, '20 percent growth.

And if we then look at ESL shipping and disregard one of the vessels which were sold to the pool investor pool, then we had a decline in net sales of 5% and that is to a far extent due to the decline in diesel fuel prices. But also as already stated, the market of the contract customers and the volume of these were lower than expected and particularly the spot market pricing was very weak, also affecting negatively SR Shipping's net sales. Telkop, very strong growth, 43%. That's driven by acquisition, but also actually due to organic sales growth. So we had very strong volume growth compensating for the lower price levels, meaning then that in euros organically also telco grew.

And this despite the fact that we had a very soft market in particularly Europe during the fourth quarter. Leipur in 4% growth, that was really kebelko driven some negative impact, particularly from our own actions trying to focus more on the value added products segment, which then reduced net sales as a consequence. If we then look at EBITA, full year 29.1%, which is aligned with our guidance for last year, around million, a slight improvement compared to the previous year. The fourth quarter, million compared to million in the last year fourth quarter. ESL shipping declined in profitability due to the soft market, lower than expected volumes for the contracted customers and very weak pricing in the spot market.

We had during the fourth quarter last year, we had time charted vessels, which were loss making for us considering the market conditions and these we've abandoned during January 2025. Telco, million, quite significant improvement from last year, driven by the acquisitions, driven by reduced M and A costs, only during the fourth quarter and also driven by improving sales margins as a percentage. And this despite fairly soft market of telco. Leipurin, improving profitability from 900,000 to €1,100,000 We can see the actions, particularly in Sweden, improving our profitability going forward, both supply chain as well as commercial and then also Kebelko contributing to the positive profitability development. Onetime costs, really minor during the fourth quarter.

Actually, the reported result was a bit better than the comparable results, so million. And then looking at the whole year, we had some million of onetime costs related to the Supramax vessels, the sales of these. And then if you recall, year 2023, we had million of onetime cost and that was related to the primarily to the exit from Russia. In the cash flow, you can see the impact of the strategy execution, million of operating cash flow weakened by the fact that telcos inventories grew during the year, particularly goods in transit increased. And the operating cash flow primarily contributed by ESL shipping.

Then the free cash flow minus million generated by the investments in ESR Shipping close to EUR 50,000,000, proceeds from the Supramax vessels and then all the acquisitions made during last year. Still a wrap up of the major strategic events during fourth quarter last year. Investment decision into four e methanol driven greenhandi vessels. These are extremely competitive vessels, energy efficient. They have efficient and flexible cargo space and they are low cost in operations compared to older vessels.

And we also see over the next couple of years increasing consumer preference towards fossil free transportation, which will be partly driven by legislation driving up the fossil free fuel prices. And these four vessels will enter into our commercial traffic end of twenty twenty seven and in the beginning of twenty twenty eight. Leiporen made the acquisition of Kartagena's food distribution business in Lithuania. This acquisition was closed during February and that will contribute with some million of net sales and of EBITA. This is a good example of a synergetic acquisition of Leipurin strengthening the local position, for example, in the food industry segment.

And then Leipurin also completing the exit from Russia and now Aspo has fully exited Russia, which has taken a lot of time and a lot of resources. I will then hand over to Erkka Repo, who will go through the financials of the different business segments.

Erkka Repo, CFO/Financial Executive, Aspo: Thank you, Ralf. Going for ESL shipping. The like for like sales for ESL shipping decreased by 5%. Volumes increased slightly from the previous year and the decline in net sales was driven by the lower diesel fuel prices. Despite the volumes being higher than on the previous year, overall, the volumes were softer than we expected.

Normally, the last quarter is a busy season for ESL, but now both contractual demand and spot demand were lower than what we expected. Spot market prices decreased during the quarter and were on a weak level. Normally, the market sees an improvement in the spot rates during the last quarter. Net sales of ESR shipping in quarter four included 12,600,000.0 from a sale of a Greencoaster vessel to Investopor. This was the second vessel we sold and we have an agreement altogether to sell six vessels.

We are expecting the vessel sales to take place every other quarter until the end of twenty twenty six.

Ralf, CEO/Senior Executive, Aspo: The

Erkka Repo, CFO/Financial Executive, Aspo: comparable EBITDA in ESL shipping was 4,300,000.0. That was 700,000 less than on the previous year. The lower result was driven mainly by the overall weak market I just explained. In telco, we saw significant sales and earnings improvement from our successful execution of the compounder strategy. Sales grew 43%, driven mainly by the acquisitions and also by organic sales volume growth.

Sales prices were on a slightly lower level compared to the previous year. In November, we saw softer sales than we expected. We believe that was destocking in the value chain. And the sales have after November recovered to a normal level. Sales volume in December, as expected, were low due to the long holiday season.

Telogas EBITDA increased to SEK3.9 million, driven by the acquisitions. Acquisition related costs were SEK 200,000 in the fourth quarter. That was SEK 500,000.0 less than on the third quarter. When compared to the third quarter, profitability declined by the soft sales in November and the short sales month in December. Also the fixed costs were seasonally higher in the fourth quarter.

In Leiporen, sales increased by 4% driven by the Kebelko acquisition. Organic sales slightly declined with slightly lower market prices and slightly lower volumes. Throughout the year, our activities to improve the sales mix have resulted in decreased volume in low margin categories. In Sweden, we have taken significant growth steps in in store bakeries and the positive sales impact will be visible later this year. The profit improvement in Leiporen continued.

Gebelko acquisition was behind the improvement as well as the improved sales mix and the successful margin management in the business. Also in laboring, the quarter four fixed costs were seasonally higher than on the previous quarters. In laboring, we continue to implement profit improvement actions in commercial activities in supply chain and in sourcing during this year. In the Capital Markets Day last year, we communicated a CapEx guidance of SEK $350,000,000 to SEK 400,000,000 for years 2024 to 2028. We are now taking that guidance down by SEK 50,000,000.

The main reason is our ambition to sell out one out of the four greenhandy vessels to pool investors. NOK seventy million of the CapEx guidance was used last year. That was net of the asset sales during last year. About SEK135 million of the CapEx has been committed for years twenty twenty five-twenty twenty eight. That figure is assuming a sale off of one green handy vessel.

And NOK95 million to NOK145 million remains uncommitted. Our CapEx commitments for the next two years are low, about NOK 15,000,000 for this year and about NOK 25,000,000 for NOK twenty six. ESL Shipping has committed into major investments for 12 new green coasters and four green handies. The green coasters will be in commercial operations between 2024 and 2026 and the handies in 2027 and 2028. The investments into the new vessels is expected to be about SEK 200,000,000.

That excludes the investment from the Paul investors. By the end of last year, we had 38 of the CapEx already used for ESL's investments. The expected EBITDA impact once the vessels are fully in commercial operations is expected to be over SEK 30,000,000 per year. During this year, we start to see the profit improvement impact from the green coaster vessels and their full impact is expected to be visible in our result from 2027 forward. During the greenhand vessels, the main profit impact is expected to come in 2028 and the full impact from 2029 forward.

And from the CapEx spending going forward, 2027 and 2028 will be then when the major next outflows will be. We continue to have strong liquidity with NOK 36,000,000 in cash and SEK 40,000,000 in unused revolving credit facilities. Last year in October, we signed a new syndicated loan of SEK 60,000,000 that was mainly used to refinance maturing loans. That loan is fully drawn and it has a maturity in 2026 with one year extension option. A new SEK70 million loan with Svenska Sceptsubotexkarson was signed in February for financing a greenhandy investment.

The loan is expected to be drawn in 2027 and 2028 and the loan has a fifteen years maturity. Our aim is to finance the vessel investments in ESR Shipping with loans of loan maturities. And then our loan portfolio will be balanced with shorter three to five year loans in Aspo. Our average loan maturity at the end of last year was SEK 4 point 3 years. The SEK 30,000,000 hybrid bond has a call option in June.

As communicated earlier, we see the hybrid bond as a temporary tool and would like us to see to be able to repay that. No decision on the hybrid bond has been made yet. Our net debt increased to SEK 188,000,000, mainly due to the first installment of SEK 29,000,000 for greenhandy investment. The net debt to EBITDA ratio was three point zero when considering full twelve months of EBITDA from the acquired companies. Our low CapEx commitment for this year and 2026 will support maintaining the strong balance sheet.

Also as Rolf mentioned earlier, in this year, we will focus on maximizing the benefits of already made investments and will focus on organic growth and performance improvement actions. If we would decide not to renew the hybrid bond, the net debt to EBITDA ratio would temporarily increase above our leverage target before being reduced back to the target range. We remain fully committed on maintaining a strong balance sheet going forward. Then I hand over back to Rolf.

Ralf, CEO/Senior Executive, Aspo: Oslo's Board will propose $0.19 per share as dividend for financial year 2024 And this represent approximately 49% of the comparable earning per share for year twenty twenty four and will give shareholders a return considering the current share price of approximately 4%. And the proposal is that the dividend will be paid in two installments in spring and during the fall. If I then summarize strong growth, profit improvement for Q4 in very difficult market conditions and long term good position to improve profitability considering the strategic execution during last year. A lot of acquisitions, investments in ELC shipping, spool of vessels and then also acquisitions for Leipurin on top of the ones for Telkor and actions to improve financial profitability. If we then look at the guidance for this year and start with the outlook for the particular businesses, The demand of ESL is expected still to be weak on a fairly low level when it comes to contractual volumes and low combined with low spot market prices.

But we expect for volumes both in the steel industry as well as in the forestry industry to revive during the year. Stable development for telco, also here an outlook of demand slowly picking up during the year and focus on organic measures and on integrating the acquired companies, those that we acquired during last year. The M and A costs are expected to be on a lower level in 2025 compared to 2024. Leipurin also stable development. We see growth opportunities in the food industry and then also the acquisitions, Kebelko and Kartagena will boost performance for this year.

If we then go to the guidance for on an Aspen level, it's an EBITA of million to million for 2025 to be compared with the million in 2024. We see that despite quite a challenging market when we start year 2025, we see good opportunities to improve the profitability of Aspah and that comes from the green coaster vessels. It will be basically an average four more vessels in traffic during 2025. All the acquisitions that Telkor completed during last year, they will start bringing the full potential in year 2025. And then we have a lot of performance improvement actions, which also will boost performance during the year.

In order to reach the higher end of this range, basically million, then we need to be very successful in the performance improvement measures and there needs to be a clear economic recovery during the second half of the year compared to the first half. And in case of the lower end of the range, I. E, EUR 35,000,000, then the economic recovery will be further delayed. And then also if we are hit with strikes or other unforeseen events which will negatively impact the profitability in year 2025. Summary of year 2024, I think we transformed Aspo quite remarkably with acquisitions, with investments in ESL.

This year goes to the history of a year of very strong strategic execution. We saw growth 10%. We saw small profit improvement in this difficult market compared to last year. And then going into year 2025, profit generation will be our top priority. And we are expecting and guiding a comparable EBITA in the range of million to million in 2025.

And financial ambition still remains at billion and 8 percent of EBITA for 2028. Then I would ask Erkka to join me on the stage and we can take some questions starting from the floor. Please go ahead.

Jonas Sjilbornen, Analyst, Evli: Jonas Sjilbornen from Evli. Even if ESL's demand and market environment remains quite soft in H1, do you still expect to be able to employ these new green coasters with high capacity utilization rates already in H1?

Ralf, CEO/Senior Executive, Aspo: We have, as mentioned, we have terminated some of the time chartered contracts during January. And our experience from the green coasters are extremely strong, so we see these as very much kind of profit generating and there is demand for such capacity in the market.

Jonas Sjilbornen, Analyst, Evli: And then telco, so obviously, the acquisitions will contribute a lot to your earnings this year. But if we look telco on an organic basis, I think organic volume development last year wasn't that bad either. It was maybe like flat or slightly positive. So how do you see the volume outlook for Telkom on an organic basis this year?

Ralf, CEO/Senior Executive, Aspo: If you look at last year, we had very strong organic volume growth. But due to the price levels declining, the organic net sales growth was slightly negative. But the good news was that during Q4, this turned into Europe based growth as well. So when we go into a stable market this year, we see good opportunities also for organic growth of telco for 2025. Okay, good.

Jonas Sjilbornen, Analyst, Evli: And maybe kind of similar question for Leipur in the bakery business. It's you can't really expect major volume growth there. But what about the food industry? Can it already like deliver significant volume growth that's kind of will be reflected on your numbers this year?

Ralf, CEO/Senior Executive, Aspo: We would expect quite a stable market, but in the food industry, we have opportunity to take some market share. Kebelko will contribute as well as Kartagena to the growth in the Food segment. And there are naturally also organic growth opportunities there. So I clearly see a positive net sales opportunity from the Food segment in year 2025.

Pasi, Analyst, Nordea: Thanks for the presentation. This is Pasi from Nordea. When looking at the air shipping segment and this new green coaster, so are these new vessels operating in a spot market? And if they are, so would it be a fair assumption that the outlook for these vessels in terms of profitability is now weaker than it has been before, like in last year when you made kind of calculations? And then probably when looking at the kind of the group level kind of improvement in EBITDA.

I think your guidance midpoint actually indicates some 10,000,000 improvement. So could you please kind of slightly break down from which part of the kind of business these kind of improvements are coming from in a bit more detail level? And then probably also third question, if I may, is this related to these acquisitions you made in last year? So have you been happy with these companies you acquired? Or has there been any kind of negative surprises?

And what would those be so that we would understand what's going to happen on next year and why you are improving profitability and that has not been made on last year?

Ralf, CEO/Senior Executive, Aspo: I can start and then Nelka can comment further. If you look at the green coasters, they have been primarily allocated to the contract volumes of ESL shipping. Naturally, if the spot market and the spot freights are complementary to the contract volumes, then we also allocate the green coasters to the spot market. If you look at the performance improvement of, as you mentioned, approximately million if you take the midpoint of the range which is guided, We indicated in the presentation that if you look at telcos acquisitions, which last year was close to zero impact and we are looking at companies that are contributing with approximately million of EBIT last year, then you could add some synergies and performance improvement to that. Then also if you look at ESL, which Erco presented so and what we said already last year in the Capital Markets Day, we expect some kind of million of EBITDA of the green coasters and a similar size of EBITDA from the green handies.

So these will gradually then also improve the performance this year. Basically, we have four in average four more green coasters in traffic in year 2025 compared to 2024. And then Lipurin finally, Kebelko Cartagena will automatically give if you compare that kind of apples to apples including the timing of the closings, they should give in the magnitude of more than EUR 500,000.0 of EBITDA, which I presented earlier on, plus the performance improvement opportunities. So this is kind of ballpark how it looks like. And then the acquisitions, I would say that Swede handling has been a very positive acquisition and that has been also the kind of major acquisitions that we've done.

The optimal green fluid and polymer are more kind of aligned with targets, unfortunately negatively impacted by the poor macroeconomical development in particularly Germany currently. But the potential, the strategic potential is very much there.

Erkka Repo, CFO/Financial Executive, Aspo: And on the ESL, we have about 80% contracted volumes and that is similar to all of our vessel classes, so also considering for the green coasters. And the new vessels are the most cost efficient in our fleet. So there's a significant difference between the newer vessels and the older vessels. So obviously, we want to maximize the use of the new fleet to kind of get the benefit of the cost efficiency that the new vessels are bringing.

Ralf, CEO/Senior Executive, Aspo: Any further questions on the floor?

Pasi, Analyst, Nordea: Maybe one more, if I may. Regarding your uncommitted investments and the target to reach kind of your expected top line in 2028, '20 '20 '9. So do you have any plans where the remaining part of the investment program is going to be funded? Are you going to take a kind of hybrid equity loans or the incoming cash flow? Or what's the kind of idea?

Or is it so that you need to actually sell all the vessels? You have actually ordered three more from these four Handicrene vessels to the pool to kind of fund investments.

Erkka Repo, CFO/Financial Executive, Aspo: The vessel sales is as explained earlier. So we have the agreement to sell the six green coasters and our ambition is to sell one green handy. So that is our plan. And obviously, the investments will be funded with the cash flow from the operations and also with the depth that is then made possible by the increased EBITDA performance of the company. Also, they have increased EBITDA from the acquired companies.

Ralf, CEO/Senior Executive, Aspo: Any further questions on the floor? If not, do we have any questions on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. I want to take the opportunity to thank everyone joining this financial reporting of OSPO. Thank you.

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