Spinnova and ECCO sign a letter of intent for the further development of Respin

Translation: Original comment published in Finnish on 7/31/2024 at 6:53 am EEST.

A decision on the scale-up and commercialization of Respin production will be made by the end of Q1'25. Spinnova's role in development is that of a technology supplier, in line with the company's strategy. Although commercialization will take years, the project appears to be progressing at least in line with or slightly ahead of our projections at this stage. Thus, the progress and consensus between the two parties is, in our view, somewhat positive news for Spinnova, even if it does not imply the need for immediate changes to the forecast. 

Respin production expansion decisions expected by end of Q1'25

Spinnova announced on Tuesday that it and ECCO Investment Corporation have signed a letter of intent regarding future plans for Respin, a joint venture in which the parties each have a 50% interest. Respin's development work on the quality of leather waste-based fibers has yielded good results over the past year. ECCO has successfully produced a prototype shoe incorporating fiber made with Spinnova technology from Respin's pilot line. ECCO is expected to launch a product using fiber produced by Respin by the end of Q1'25.

Spinnova and ECCO see significant opportunities to increase Respin's production volumes to commercial levels. According to the letter of intent, both parties are committed to expanding operations and will work together to reach a final decision on the scale-up and commercialization of Respin production by the end of Q1'25 at the latest.

In line with Spinnova's strategy and the Respin joint venture agreement, Spinnova will be the technology supplier for all production expansions. Furthermore, as stated in Spinnova's strategy, Spinnova itself does not expect to raise additional external funding to finance the increase in Respin's production capacity.

Development of leather waste-based solution appears at least on schedule

We believe that progress on the leather waste side is important for Spinnova as a whole, because in the most advanced development area, wood-based fibers, Spinnova is quite dependent on the progress of its partner Suzano, for example in terms of timelines.  In addition, the progress of the pre-commercial development of Respin and the agreement between the parties on further development is somewhat positive and slightly risk mitigating news for Spinnova, as Spinnova's strategy has changed significantly since the creation of Respin, especially in the production business. However, the content of the letter of intent was not in itself clearly spelled out, so it is difficult to draw more precise conclusions from the news. 

In our forecasts, we did not expect Spinnova to deliver the first industrial-scale leather waste production line to Respin until the mid-2030s. While the commercialization of the Respin concept may require the construction of a pre-industrial scale plant before then, work to date appears to be at least on schedule or slightly ahead of our projections. However, the letter of intent does not imply any immediate changes to Spinnova's revenue, earnings or cash flow forecasts.

The initiation of coverage report on Spinnova, published in May, is still very topical and freely available here.