Spinnova H1'24 preview: Our focus in the report will be particularly on the progress of technological development

Translation: Original comment published in Finnish on 8/20/2024 at 7:08 am EEST.

Spinnova will publish its H1 report on Thursday at 8:15 am EEST. Spinnova had no technology delivery projects underway in H1, so the company's revenue is likely to have been marginal in the first half of the year. However, we expect Spinnova's loss and also negative cash flow to have been reduced from the comparison period due to the savings measures and the change in strategy. The company is likely to reiterate its guidance for the current year. However, for a development company like Spinnova, short-term numbers are largely irrelevant (especially as the company's financial position is still secure). Thus, the most interesting part of the report, in our view, is the update on the progress of the development of the wood pulp-based technology, which, based on the letter of intent between Spinnova and Suzano, would allow Suzano's first investment project to proceed to pre-engineering in H2. In order to meet our expectations, the company should state that the development has progressed as planned and the timetable should be reiterated. 

Revenue, losses and cash burn all decreased

In the comparison period, Spinnova delivered Woodspin the tail end of the Jyväskylä factory project, while in H1 Spinnova had no technology delivery projects underway. As a result, Spinnova's revenue has fallen sharply from last year and we forecast a 93% decline to 0.6 MEUR in H1. As we estimate that the project in the comparison period was a low-margin or break-even project for the company, we expect Spinnova's operating loss to have been reduced by a good 20% to 8.9 MEUR in H1 as a result of the change in strategy and related savings measures.

Spinnova's EBIT includes 50% of the net loss of associated companies (notably Woodspin). This item has no direct cash flow effect. In addition, Spinnova has continued to earn interest income on its hefty cash reserves, and the pace of investments has also slowed down following the change in strategy in the spring. We therefore forecast the company's free cash flow to be around -9 MEUR, which would be about half of the cash burn in the comparison period. We estimate Spinnova's cash at hand at the end of H1 to have been around 52 MEUR. In our view, this would still be a strong liquidity situation and would allow the implementation of the current strategy in all scenarios at least until the end of the decade.  

Guidance to be reiterated, but our main focus is on technological developments

Spinnova has issued guidance for the current year, according to which the company's revenue in 2024 is expected to be lower than in 2023. Spinnova expects the operating result to improve this year compared to 2023, but to be negative. We believe that the company will repeat this guidance. In H2, we expect the company's cost structure to continue to decline with savings of around 1.4 MEUR from the change negotiations in the spring. In addition, our loss forecast for H2 is reduced by the transition of the Suzano investment project to pre-engineering, which we estimate would also generate revenue for Spinnova. A key area of interest in the H1 report is indeed the progress of technological development with regard to the Suzano project. We expect Spinnova to report that development is proceeding as planned and to reiterate the timetable for the Suzano project. Also of interest in the report will be further details and concrete next steps on the further development of Respin with ECCO, which Spinnova announced in July (comment here).

The initiation of coverage report on Spinnova, published in May, is still very topical and freely available here. A video interview with Tuomas Oijala, CEO of Spinnova, conducted in June can be viewed here (subtitled in English).