Hello all. Suominen reported their Q2 this morning, and we have company CEO Charles Héaulmé for the interview as usual. Hi, Charles.

Hi. Good afternoon. Good morning. Sorry.

Hi. So let's start with the typical question. Can you go through the main points of Q2 from your perspective?

Sure. My pleasure. And thank you for the invitation. Key points for the second quarter are, to start with, the business performance, that our sales have been increasing almost 6% compared to the same period of last year. Also, we have improved the comparable EBITDA to €4.3 million compared to the same period last year, €3.2 million. So that is linked particularly to improved margins in Q2 versus the first quarter of this year, and also better production efficiency. We may come back to this, particularly in factories where we took actions already, and then the impact from the fixed cost reduction that we have engaged in quite a few quarters ago.

And I would say the third highlight of the quarter is the capital raise. We have raised capital to strengthen our balance sheet, but also to enable the execution and the acceleration of our Full Potential program, a program that we announced at the end of January this year. Now we are at full speed in execution, and we need, of course, some capital to be able to execute it. And we've been able to have an oversubscribed capital raise. So this was very reassuring. And I take the opportunity of this channel, if you allow, to thank all our shareholders, but also other investors who believe in our plan, in our company and in the management, committed to make the transformation.

Yeah. Thanks. And just to note for the viewers that we had an interview also in June ahead of the rights issue, kind of going through that and also the use of proceeds and the Full Potential program. So you can look more regarding those and that if you are interested in that. But let's continue with more of the Q2 topics then. So like you said, the volume increased, and you alluded to that already in the spring that you had a good order book for Q2. But how do you see the demand? Is it sustainable now at this level for you, or was there some impact of customers pre-buying or restocking ahead of the price increases, which are coming due to the raw material cost hike?

Well, I would say the price increase is due to the raw materials. They have mostly come through already during the second quarter. But back to your question. Yes, volume has increased. And your key question is, is this sustainable? So what are the key facts? The volume has increased if we compare to the same period of Q2 last year by 10%, which is good news. However, when you put things in perspective, first semester, basically it is flat. I mean, it's a growth of 0.3% of volume. How to interpret this? Of course, one way is to say Q1 was weak, Q2 was strong, but we need to give a little bit more granularity for the understanding.

And it's not completely comparable because in 2024, at least the beginning of 2024, we had one additional line which has been closed. In our factory in Finland during the second quarter. So which means that Q2 to Q2 are comparable. The H1 comparison is not fully comparable. Therefore, the conclusion is yes, we are delivering volume growth in H1 and in particular in Q2. Now your question is, is this sustainable? I would say not only is it sustainable, because it is not, how should I say, polluted, if I may say like this, by positive factors like stock building on our customer side. And why am I saying that is because the market demand is solid. The demand is solid, is not terrific. It is solid, in line with the previous quarters.

Second, we have undersupplied the demand. And why have we undersupplied the demand? Because our production efficiency is not where it should be. And we have continued to have some breakdowns in our most critical lines during the second quarter, meaning that when we will be in full swing of implementation of our Full Potential program, executing the improvements in each and every single line, then we will have more output, being able to deliver the demand, to potentially allow some stocking by customers, but also to allow some stocking for us because this has not been the case in Q2. We have been lowering our stocks to be able to deliver on the demand. So yes, in a nutshell, it is sustainable. And we will see also more growth. I was going to forget one important point, is we have a new line that is just starting now in terms of production. And that will give us more capacity, more differentiation and therefore more growth going forward.

Great. That's very clear. Then on the price-mix side, you said that the impact from the price mix was actually negative to your figures, driven by the negative mix change. So can you elaborate a bit on that? What's driving that? Is that a permanent thing or just some quarterly variation?

It is more than a quarterly variation. So I need to explain. There is one way to look at it, is pricing and mix versus 2024. And there it is clearly negative. And the reason is, we have in 2024, the company has lost some volume of high-margin customers. And this has been compensated by gaining some other businesses but with lower margin. So that is a very clear negative impact, which is not temporary, but it's not permanent, meaning that of course we don't stand still and do nothing. And we work, of course, on rebuilding a more solid foundation in terms of margin and customer portfolio. So that's the first perspective versus 2024.

Now, if we look at it more short term versus Q1, we have increased our margins by two points. And that's the result of very specific actions from our Full Potential program being pricing and portfolio management and cost reduction. So there are two sides to the coin here. When you look at mix, more to come in the future, because the negative side versus 2024, we are working on it to further improve it. Yeah. Yeah. Very clear.

And then regarding the dynamics between the raw material cost hike, which we have seen in the spring from the higher oil price in particular, and your price increases kind of offsetting that. You mentioned that there has been some lag as usual, even if you are kind of transitioning to monthly pricing. So can you give any quantification for that? How much, what was that negative impact to your earnings in Q2? And do you expect that to be basically on par then for Q3?

Yes. So, it's been pricing in Q2 has been extremely complex because, for obvious reasons, it's not only Suominen, I guess it's across industries because of the disruptions that we all know. The precise answer to your question is roughly in the earnings, we have a minus €1 million in price lag. And the other part of your question, which is, are we going to get it back in Q3? If I understood the question. Yeah. Not completely, but we hope partly, but we hope to get it completely back until the end of the year. Okay. Okay.

That's clear. Then we actually had one question from the investor forum, a bit broader thing. And the person was wondering, do you have some innovations in the company in the pipeline, kind of on the technological or material side, that would drive new growth, as the person described? So I guess this means some kind of maybe new revenue streams, or I know you are innovating in the current business, the products, all the time, but is there anything maybe more, I don't know, revolutionary, but maybe some more new things brewing somewhere which could open up some kind of completely new possibilities? Mhm.

So new possibilities. We are not at this point talking about other categories. We are particularly into baby wipes and moist toilet tissue and then home care, health care kind of wipes also, but this is a lower part of our portfolio. The one thing I would like to say is the market is shifting towards a stronger demand for non-plastic solutions. Okay. Non-plastic, if you think about backwards in history, all wipes were polymer-based, plastic-based. Now there is a lot of demand for non-plastic. This is not easy to produce. It's more complex to produce than plastic-based wipes. And this is where Suominen can win the game.

Not many nonwovens producers are able to get ahead of the game in terms of innovation for non-plastic. We are leading that trend, it's early days. So it is challenging from a production point of view, challenging on our hand, but also it is challenging for the customer because when you involve natural resources, natural fiber, then it does not react in the same way as polymer plastics in general. It can be also economically challenging. And that is, of course, a potential slowing factor in a very competitive market. However, the positive side is that there is demand for it. It's early days, but when we're talking about the new line we are starting now in Alicante, in Spain, in our factory, this is a line that is fully dedicated and designed for sustainable solutions, fiber- and pulp-based. So Suominen is leading, thanks to this line, we will grow that business. There is high demand. So the conclusion, in a way, is Suominen has differentiation and will grow with this differentiation and will grow not only in value and volume, but also in volume.

Okay. Yeah, that's good. Good to hear. Then going to our outlook, you maintain the guidance of improving adjusted EBITDA and you were still somewhat behind for the first half. So that obviously indicates that you should be improving both in relative and absolute terms compared to the first half. So is there anything new behind the assumptions, or is it just the Full Potential program moving forward and getting benefits from that?

Yeah, exactly. So the answer is in the question. You said it almost all. Yes. When you look at the first semester, we are just on the edge of delivering the same as last year. If you just multiply by two, obviously we are planning a better second semester than the first semester. And when you look now at the first semester and put in perspective Q2 and Q1, this is very different performance. So of course, our H1 is hampered significantly by Q1. We plan better performance in H2, better output also, and therefore we are confident we have not changed anything to our assumptions.

The Full Potential programme implementation, as it is usually the case, may be slightly slower than we had anticipated. It's more complex than we had anticipated, particularly on the manufacturing side. But it is happening. So if I give granularity on our Full Potential programme, one area where we've been faster than, I would say, the plan is on the fixed cost reduction, and really kudos to the organisation because it's never easy to make cuts in the organisation. We've done it well. Where it is slower than anticipated is on the manufacturing upgrade. But it is coming and we are absolutely determined to make it happen. And we have proof from the first lines where we made it happen already. We have absolute proof with facts and figures that it is working. So there is no reason now, it's about making what we've done on one line happen on, let's say, the 15 lines we have over time, and it will not be done in the second semester. Okay. So it is inch by inch, as I usually say internally. Okay. Step by step, we have to prioritize and this is what we're doing. But being confident, I'm not giving you an overconfident message either. The 10% will take a couple of years. Yeah. Yeah.

That's understandable. And just finally, just one detail. You mentioned that the Alicante plant line startup ramp-up was delayed or will be delayed somewhat. Does that have any meaningful financial implications for this year?

Yes. So clearly we are delayed compared to our plan. We believed that we were going to start the production early Q2 and we really started technically at the end of Q2. We have our first qualification, which is actually positive. That's just very recent news from customers. So things will unfold positively, but delayed. So to your question, what does that mean financially for the P&L? I mean, you were talking about the outlook and H1 not being at the level of the outlook. Indeed in H1, I would say, not getting into too many details, roughly half a million is the negative impact of the cost of the line while not producing.

If you would say, well, compared to if the line had been producing in H1, then it's more than half a million. Obviously it's more, €1-plus million. Okay. But the real cost is half a million in the first semester. What will be the case in H2? At minimum, we would like to have a break-even on that line, meaning that the fixed cost of the line would be compensated by the volume. We are planning to produce 1,500 tons in the second semester. And to put things in perspective, we are planning to produce, let's say, 10%, a bit more than 10%, of the capacity of the line, the capacity of the line is 12,000 tons. We are planning up to 1,500 tons and then ramping up much faster in 2025. So the real impact we should be thinking about is in 2025. Yeah.

Great. That was good color. All right. Thank you very much for the interview and good luck for the second half of the year. Thank you. Thanks for

the invitation. Thank you. Bye.