Spinnova and Suzano plant project pre-engineering start delayed

Translation: Original published in Finnish on 11/20/2024 at 8:11 am EET.

The companies previously expected the pre-engineering phase of the new facility to begin in the second half of this year. However, Spinnova announced on Tuesday that it expects a delay in achieving the targeted process metrics required to move into the pre-engineering phase of the project. From Spinnova's perspective, the project is particularly important, so the news is somewhat negative for the company and also puts downward pressure on our forecasts. We will update our view on Spinnova in the near future.

Letter of intent is critical for Spinnova

Spinnova and Suzano announced in March 2024 that the companies had signed a letter of intent to build a new SPINNOVA® wood-based fiber production plant. This was a non-binding letter of intent in which the parties set out the criteria for the project to proceed to pre-engineering, but these criteria were not disclosed.

According to a press release issued by Spinnova yesterday, the achievement of these criteria is expected to be delayed and the start of the pre-engineering phase, previously scheduled for the end of this year, will be postponed. According to the press release, technological development in fiber spinning is well advanced in terms of increasing the efficiency of fiber drying units, and the main processes have already been validated separately. At the same time, the validation of process efficiency metrics at the targeted level of investment and operating costs will not be achieved in 2024.

Pressure to change our forecasts

According to Spinnova, it will promote alternative plans with Suzano to enable them to validate the overall process efficiency metrics as quickly as possible in order to move to the next phase of the project. Our forecasts expect Spinnova to record the first milestone payment on the progress of the investment project in Q4’24. In addition, we have assumed in our forecasts that this project will progress to an investment decision in H1'25, thus accounting for the majority of Spinnova's projected revenue for 2025-2027.

The delay puts pressure on our forecasts, but there is also uncertainty in the forecasts due to the alternative plans that have now been announced but are not yet concrete at this stage. Given this, and the delay in the project, we also initially expect some upward pressure on our required return. We will update our view on Spinnova in the near future. We have comprehensively discussed the relevance of the project for Spinnova in our extensive report, which is freely available here.