Welcome to Aspo Interim Report. For the first part of the Conference Call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to the speakers. Please go ahead.
Very welcome to the Q3 2022 report of Aspo. We have had an extremely strong quarter. Looking at financial figures, we reached all the financial targets during the quarter, both when it comes to growth, operating margin, return on equity and also gearing. We are even delivering record high numbers. Particularly looking at the earnings per share figure, EUR 0.82 per share, and that includes the one-time cost. This figure is EUR 1.05 per share, excluding the one-time cost. This is a record high figure for three quarters this year. I do think that even more importantly than the financial figures themselves is that we've been able to execute our strategy. We made some acquisitions, Kobia, Johan Steng.
We were able to close the pooling concept of ESL Shipping. It's a really transformative project of ESL. We are making good progress when it comes to Russian exits. ESL fully exited already. Telko has signed a binding framework agreement, and also Leipurin is making progress. We've been able to clean up our portfolio during this year. Yesterday we came out with the news of sales of Kauko, and already before that, this year we told that Vulganus has been sold. In sustainability, we're doing good progress, and during Q2 and Q3 this year, we've clearly strengthened our balance sheet. Over to the numbers. Top line development continued growth 8% Q3, 15% year-to-date growth compared to last year.
We're on track compared to our 5%-10% target. ESL is really driving the growth currently of Aspo, 37% growth. Naturally, the war in Ukraine, the situation in Russia is impacting the growth of both Telko and Leipurin. However, we are mitigating this going forward with both organic growth invest as well as acquisitions. Profitability, a good operating profit of EUR 30 million for the last quarter, 8.1% year to date, 9%, basically EUR 44 million of operating profit this year. Again, ESL very strong results, but from a profit perspective, also Leipurin and Telko are doing good.
One-time costs which affect comparability fairly limited for Q3, only EUR 0.7 million, primarily related to transaction costs of Kobia and then Russia. If you look at year-to-date, we are at EUR 8 million. If you recall, it's primarily what has happened in Ukraine, both credit losses from customers as well as the inventories and then the exits of Russia. Overall, we are forecasting EUR 25 million one-time costs, which will include the full exit from Russia and including also this EUR 8 million. A very strong operating cash flow, basically EUR 46 million year-to-date. Working capital of EUR -6 million.
This is primarily related to the Green Coasters, which will be sold further to the special purpose vehicle of the pool, basically increasing the inventories of ESL. Telko performed very well when it comes to working capital. Then, CapEx investments, basically two things. One is the Kobia acquisition. The price was actually EUR 15.6, but here, impacting cash flow EUR 15.4. Then we have the ESL Green Coaster advance payments together with the dockings. That will then take the free cash flow to approximately EUR 80 million. Return on equity, this is the third quarter in a row with return on equity above 30%.
Even if you incorporate the one-time costs, the return is still above target level at 24%. I mentioned already the divestment of Kauko. Of course, overall a small transaction, but very important for us, but because this will free up management time to other things. Kauko basically too small of a business for us, and so far generating losses this year. So it should also be an opportunity to improve our results going forward. Sustainability, I think overall strong development, particularly when it comes to emissions. We measure them as a divided by net sales. We have a target of a 30% reduction by 2025.
Now we're clearly more than halfway as we are at 0.34 compared to the starting point of 0.44. I think all the businesses of us are working on this good progress. Here is one activity mention of ESL virtual arrival procedure, basically optimizing when the ship will arrive at harbor. Therefore, it will save a lot of energy. This is an opportunity where we can share the cost benefits also with our clients. Safety, we are very much focusing on this. We are currently our safety frequency at 7.8. We're lagging a bit behind compared to the target of this year, which is seven. We have done a lot of activities going on.
To mention some, for example, the safety walks we're particularly in Telko now progressing actively with that, and also on an Aspo level, a lot of activities, following up discussions, learning from each other, et cetera. Over to the business reports and starting with ESL, and glad to say that ESL's position continued to deliver good results. If you start with top line, extremely strong growth, 37%. I think overall kind of three drivers behind this good demand, clearly good utilization of the fleet capacity in very efficient use, and thirdly, price increases of fuel and LNG. These are the main drivers. Overall continued good demand when it comes to contract traffic and also relatively good spot freight rates for ESL.
Tons we transported a bit less than last year, and that's due to longer transportation routes compared to the situation before the war and also congestions in the harbors. If we look forward, clear kind of macroeconomic uncertainty, however, we see that we will be able to deliver good results also going forward, considering our customer base and our contracts. The situation varies a bit depending on the customer segments. For example, very strong demand in energy, good development in pulp, fertilizers, good development, although for some, of course, a seasonal business, and a bit less favorable development in the metal industry over the next couple of months. Overall, longer term, we see that ESL continues to be well-positioned in the Baltic Sea.
There's significant changes due to the war in Ukraine, and we feel that ESL is in a good position, and particularly due to the investments in green logistics, which should support ESL's profit generation long term. The Baltic Dry Index currently again on the same level approximately when the war started end of February, although it's, as you see, very strong volatility over the past couple of months. Looking particularly, for example, on the Handysize Index, you see that we're still clearly above the kind of historical levels 2015, 2020, although we're lagging behind 2021. In the Q2 report, I already mentioned about the pool and we were finalizing it.
Now I'm happy to say that this deal has been closed, and I see this as a very important strategic vehicle for ESL to facilitate the kind of low carbon growth strategy and reducing CapEx, improving returns of the company. Looking at profit of ESL, at 14.9% operating margin, very strong. Basically strong profitability in all vessel segments, all customer segments. However, in the coaster segment, relatively seen, a bit compared to last year, not as good profitability development during the time chartered vessels, which are priced on a higher level. We see that the market going forward, and particularly our long-term contracts, will support still the good profitability level of ESL.
Over to Telko, which is really a polarized picture. We have West doing very strong, showing very strong development and Russia shrinking business. Basically overall, the top line declined with 13% during the quarter. Year to date, we're still on a growth track. If we speak kind of rough figures, during the quarter, basically the Russian, Belarusian business declined with 40%-50%, whereas the business in West continued to grow with approximately 10%. Just kind of overall ballpark figures showing really this polarized development. This development is also very clear if you look at the business lines. Lubricants, strong growth, partly due to Mentum, partly due to price development, positive price development. Plastics, chemicals, very much impacted by Russia.
Availability of products improved, still not on a normal level. Pricing decline. However, because of the oil prices, energy prices, it was fairly stable development. If we look forward, when it comes to the Western market, there are great uncertainties. There could be rapid changes in the market. However, because of our position in the more kind of engineered specialty products, we see a much more stable development. Glad to see that we were able to do, let's say, the second acquisition of Telko this year. Mentum we closed earlier on this year. Johan Stengs, I think a very good strategic fit with Telko. Fairly small business, EUR 5 million, but this is a kind of mix of an add-on and a platform investment.
This will enable us to grow on the Norwegian market, both in plastics as well as chemicals. Some weeks ago, we came out with the news of exiting Telko Russia. This is from a Russian perspective, let's say the major risk for Aspo. We're selling the business to Khimik, an industrial player. Purchase price EUR 9.5 million, and this will drive a write-down of EUR 9 million, including then all transaction costs and including also write-down of goodwill. In addition, some translation differences, but these are very dependent on the moment of exit, depending on the exchange rate of euro ruble. This is a major step for Aspo.
Of course, this will still have to be approved by the governmental commission in Russia, which creates some uncertainty. Telko profitability, EUR 3.7 million, 6.1%. This is now the first time I would say that this gives some understanding of the run rate of Telko, profitability-wise after exiting Russia. Of course, the operating margin will increase somewhat because we have still here sales from Russia and Belarus, but the Russian business is close to zero from a profitability perspective, and we believe it will remain so during the Q4 this year. Last but not least, Leipurin, and here, apologies, there are a lot of structural changes which makes these figures fairly difficult to understand.
We have the Vulganus, we have Russia, we have Kobia, but I will try to explain kind of the top-line development here, the overall development. Growth continued 17%. Basically, we have a strong growth both in Finland, in the Baltics, clear decline in Russia, in the Eastern markets, -18%. obia, one month of top line here, EUR 4.4 million adding to the revenues. Both bakeries, food industry, also good development, close to a 20% growth. If you look at purely volumes, both in Finland and the Baltic countries, there was a volume decline. We see a clear shift of consumers moving to more affordable products.
Some possible impact also by the fact that Finns, people in the Baltic countries, are traveling abroad, less consumption during the summer months in the domestic market. However, we see kind of going forward that this is a very stable market when consumer confidence will come back. We do not expect this kind of volatility to continue. The nice thing is that when we will exit Russia, Kazakhstan, and Belarus, we are completely offsetting that with the Kobia acquisition, which is actually double the size of the business that we are exiting. That looks for positive development. Kobia acquisition purchase price EUR 15.6 million. We're very happy with this acquisition. We believe it will bring extremely strong synergies.
We're already implementing these. To give you some examples, in Finland, we're looking for growth in the food industry. That we have not done in Sweden. We're making investments there. Of course, the Kobia products that are produced in Sweden, these we will start to sell also in Finland and the Baltic countries, to give you some examples. We are also going to look for the opportunity to sale and leaseback the real estate that we acquired in Kobia, of course, depending on the market conditions when this will happen. Profit development, the graph does not really tell the kind of real trend of Leipurin.
I think the big picture is that Leipurin, during the first three quarters, made an EBIT of 3.5%, and that even includes the negative impact of the Kobia acquisition, because we valued the inventory of Kobia, including the margins, which means that both when it comes to September figures and also October figures, we will make a negative result while selling these products in Sweden. We see strong potential here, both from the full profit potential program that we launched, and then as said, also the synergies between the countries. I'm also glad to soon be able to welcome Miska Kuusela to the team. He will start as Leipurin's CEO beginning of next year. I think he has an extremely relevant background, broad experience of the food industry.
He has showed in several cases as a CEO the opportunity to develop the businesses the last three, approximately three years in Myllyn Paras with Sponsor Capital as an owner. Back to Aspo level figures. Balance sheet, gearing increased a bit, still below the 100% level, and equity ratio increasing a bit to 36%. Net debt declined by some EUR 7 million. We're at EUR 160 million. Liquidity, very strong. Maturity profile of the debt is actually we're stretching it further because we raised some EUR 20 million from Nordic Investment Bank, which you can see in the 2027 and beyond bar.
We came out during this morning with the decision by the Aspo board that we will pay an additional EUR 0.22 per share as dividend, meaning that we for this year has paid a total of EUR 0.45 per share. Some weeks ago, we updated our guidance for this year. Nothing new here, so our guidance is operating profit of EUR 52 million-EUR 57 million. Then summarizing a strong Q3 from a financial perspective, strategy development in good kind of momentum and good progress, and despite the macroeconomic uncertainty, we still see that Aspo is in good position to deliver good result in Q4 this year and beyond.
Thank you very much for this opportunity to present the Q3 results, and I propose we go over to Q&A. Questions and start with the audience here.
Joonas Ilvonen from Evli. Could you provide some color on ESL's operational efficiency? I mean, obviously, it's already on a very high level, but do you see any further, like, short-term improvement potential? I mean, obviously, you have further long-term drivers like the new hybrid vessels and whatnot, but how do you see the kind of short-term potential for operational efficiency gains from this point?
If we think very short-term, then I would more focus on kind of delivering results from the investments we've done in business intelligence. I said that before, we are following up very closely different type of KPIs, and gradually we optimize the business. I mentioned it before that this ballast ratio is, it's developing in a very good direction, kind of optimizing the transport structure and utilizing the ships to a maximum. I think this is the very short-term opportunity, but then long-term, there's a lot of strategic levers. It's pooling the Green Coasters, further investments in Handys, kind of the low carbon shift of the strategy. All of these, kind of bringing those together.
Okay. Do I understand it correct that when you say you see small vessel time charter rates increasing, that you still see some your own pricing kind of tailwind going forward, that your rates are still going to increase catching up with those higher time charter rates?
Of course our rates are fully market-dependent, but clearly there's strong correlations between the rates of the time chartered vessels compared to our rates. I think there's two angles to this. First, how much you pay for the time chartered vessels, and then secondly, how much capacity you will get. As you know, during still during this year, we will get these Green Coaster vessels, and after that, we're less dependent on the time chartered vessels overall.
Maybe a bit further color on those spot market rate changes. Obviously you have already seen some declines in the larger vessel categories, but did they already have a, like, what kind of effect on your profitability?
I think it's fairly limited effect overall because the spot market, I mean it's only some 20% for us. Particularly that is the Supramax vessels to a large extent, and our Supramax vessels are in traffic for the moment, but the problem, of course, is or the challenge is that it's only for a couple of months ahead, compared to the Handysize vessels and Coaster vessels which primarily are tied up in a long-term contract.
Okay. Maybe a final question on Telko. You said that Western margins continued on a strong level, but I think was that mainly from a year-on-year perspective? I mean, what about quarter-on-quarter? Because obviously it's a pretty kind of extraordinary market environment. Did you see any softening in quarter-on-quarter in Western margins?
If I look at gross margin, they are fairly flat developments, so no major changes. If we then divide the market into two kind of more commodity, kind of volume products versus specialty engineering products, I see some softening when it comes to volume products and commodities, but not in any specialty products at all.
Okay, thanks. That's all from me.
Sauli Vilén from Inderes. A couple of questions from me also. About the Kobia sale and lease-back transaction. On the appendix, you said that the Kobia had tangible assets of close to EUR 13 million. Is that mainly properties? Well, that's the first question.
It's primarily properties. There are some production equipment as well, but primarily property. Yes.
How have you valued those? Like, did you appreciate them to full market value, so to speak, and how we should look at those?
I think it's a very conservative valuation of those assets, what we have now in our balance sheet.
About the restricted cash in Russia. You had the EUR 14 million at the moment there. Can you like how we should look at that amount? Obviously, it's in your book still, but like, you hope to get it back basically through the sale arrangements, right? Or what is? Since obviously through dividends you cannot repatriate too much capital at the moment, I guess.
I think that's a very relevant question. First of all, if kind of the EUR 14 million, it's approximately EUR 9-10 million for Telko and EUR 4-5 million of Leipurin. Taking home that money by dividends, it's a long path, and it will take too much of a time. This is really the exit. Now we will get the EUR 9.5 million back from Telko when and if that deal is closed. Of course, we're leaving behind something and that is the inventory. Based on that, you have the write-down of the net assets. Then it's a question of the upcoming purchasing price of Leipurin, Russia.
Basically the answer is that our aim is to take back that restricted cash of EUR 40 million via the exit.
Regarding that, are you still confident that you will exit Leipurin also during this year?
Definitely. Still the target is to make a full exit during this year. When it comes both to Telko and Leipurin, the bigger question is how fast and when the governmental commission will give approval to these transactions. There's been a lot of discussions with experts on this topic, and I think your guess is as good as mine. It can be from a couple of weeks to a couple of months, but I can tell you that we've done all the necessary preparatory work for this, including valuations, submitting the materials, et cetera. For Telko, the materials have been submitted already to the commission.
Final question about Telko's profitability. If we look back like, let's say before COVID crisis, Telko's EBIT as a group was like EUR 10 million, give or take. Russia was kind of a big part of it actually back then. Or Russia plus Belarus back then. Now basically, if the run rate is, as you said, the Q3 figures, that means that the Western EBIT level of Telko has multiplied basically. More than doubled, close to tripled or so in rough figures. Again, just obviously it's still the same business, just management has changed. Obviously, market situation is really good at the moment in the West.
Like, what are the main drivers for the change in the profit side there, since in the profit side, it seems it's a different company even though it's the same company.
Maybe the answer is that it's a different company. We should not look at the 2020 figures, we should look at the 2021 figures. If you recall, 2021 we did a revenue of approximately EUR 270 million, and we delivered EBIT of EUR 21 million. Then we said that we will divest EUR 70 million, so approximately one quarter of the revenue will disappear. If you cut a similar proportion out of the EUR 20 million, then we're roughly on the same level as these EUR 3.7 million that we reported this quarter.
I think there was extremely successful strategic change between 2020 and 2021, and basically that was the focus on the value-added products, engineering plastics, specialty products, very strong focus on margin and very strong focus on working capital and basically rotating the inventory. Let's compare with the 2021 figures, and they correlate, I think, very strongly with these figures here.
Okay, thanks.
Going to the online. Do we have any questions online?
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Well, hi. This is Pasi from Nordea Bank. I have several questions. If I may take those one by one. We can start with the ruble rate. With some extra operating profit coming from the very strong ruble against euro in the third quarter. Is this some kind of a true underlying EBIT you posted or does it include something artificial coming from the currencies? Thanks.
Yeah. I think that's a very, very good and valid question. If we look at kind of year-to-date figures, basically during particularly Q2, I think we benefited a lot from the strong ruble because we very much focused on selling the inventories of Telko in the Russian market against good demand. We with the strong ruble exchange rate.
How this amount is divided between the Telko segment and financial items or to a kind of where we should actually look at this EUR 70 million to come up at.
Again, good question. We have 8 year to date. If you look at Telko, the Russian exit will have EUR 9 million, that is EUR 17 million euros together. Then the remainder, kind of EUR 8 million, that would come from the exit of Leipurin plus some other structural costs including. That is the kind of ballpark explanation of the 25.
Okay. Yeah. Looking at this Leipurin operations, what would happen if you don't get the reasonable price for the Leipurin Russia business? Are you still going to divest those with the EUR 1-2 million, or are you just actually going to stop the business, or is it going to be there still in the first quarter next year?
In any case, we will make the write-downs during this year, based on either clear exits or then kind of best estimates of the situation. We still, in all of these cases, have several scenarios on the table. Let's assume for a while that if we would not be able to find a good buyer for Leipurin Russia, we also of course have a wind down scenario. But that's painful. It takes a lot of time. As already commented before, you have limited opportunity to take back capital from Russia at the moment. We are really working on finding a good buyer for the business. I think we have relatively good prospects here because basically what are we selling?
We're selling cash, we're selling inventories, we're selling networks and competencies. A great share of the value is actually tied to the cash reserve and then the inventory. From that perspective, it should be a fairly interesting asset to buy for some investors.
Yeah. I hear you. Then I have at least two questions here on my list. The next one is related to hybrid loan and the interest expenses. If I actually saw right from the past reports, you have usually booked interest expenses to reported EPS figure, and now I think it is not there for the third quarter. Is there something changed in the reporting or how to kind of book these interest expenses coming from the new hybrid loan?
I don't think we have made any changes. I think these expenses should also be found on the row of financing expenses. That should include the hybrid loan as well. Arto, do you want to further comment on this topic?
Pasi, do you hear me? Can you hear me? Yeah. Okay, Pasi. In EPS calculation, we still have them in. We have to check whether there is some misunderstanding. In income statement, of course, this interest of hybrid loan is not included. EPS calculation, there should be this interest.
Okay. Yeah. Maybe it was EUR 0.02 if I calculated it right. But I end up 0.28, and you reported 0.30, so that was the kind of difference. But we can look at that a bit later on and check that calculation. Maybe a bit kind of a product question then the last regarding the business environment and next year.
Would it be a kind of a realistic assumption that your operating profit could even decline in next year when taking into account kind of the Russian operations and exit from there, which actually could even take EUR 10 million out from the operating profit, and taking into account also the recent decline in the yields of shipping market, are these recent acquisitions enough to fulfill the EBIT gap coming from the key decline in shipping and also the Russia exit in this year?
If I comment kind of business by business, starting with Leipurin, we will fully compensate the Russian business with the acquisition of Kobia. When it comes to Telko, we're saying that the Q3 result, EUR 3.7 million, is a fairly good indication of the run rate going forward. That also, if you tie back to the 2021 figures and deduct basically one quarter of the top line and results also arrives at the same indication. When it comes to ESL, as said in the presentation, if we look kind of short term, we see that we, based on our customer contracts, are able to deliver continued good results.
Longer term, naturally, there's a lot of uncertainty when it comes to the macroeconomic aspect. However, we see us being a kind of good strategic position to deliver results, both based on the investments that we're doing in green logistics, but also due to the changes in the market here in the Baltic Sea area, which should further strengthen ESL's position. To give you one example of that, I mean, we always talk about Finland being an island from a logistical perspective. This is of course even more true now, if you close the border between Finland and Russia, then that means a kind of modal shift forward to shipping, which should be in our benefit. As one example.
Yeah. By calculating that, EUR 3.7 million EBIT run rate, that would actually lead to EUR 8 million decline in the Telko segment's operating profit for next year. If the shipping is down and Leipurin intact, I guess that actually leads to a fact that operating profit could decline.
Uh, I, uh-
Is there something else I should take into account?
As said, Leipurin should be a strong development based on the Kobia acquisition. Telko, we're trying to compensate what we're losing in Russia via organic growth and acquisitions. ESL, overall, we see that we're still in a strong position to deliver good results going forward.
Okay. I hear you. Well, that was all from my side. Thanks.
Any further questions?
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you very much for showing continued interest in Aspo and thank you for participating.