Suominen Corporation’s Interim Report for January 1 – March 31, 2020: Operating profit nearly doubled, strong cash flow
Suominen Corporation’s Interim Report on April 23, 2020 at 9:30 a.m. (EEST)
In this financial report, figures shown in brackets refer to the comparison period last year if not otherwise stated.Outlook for 2020 updatedPrevious outlook for 2020 on January 29, 2020:
Suominen expects that in 2020 its comparable operating profit will improve from 2019. In 2019, Suominen’s operating profit amounted to EUR 8.1 million.Petri Helsky, President & CEO:Our net sales remained at the same level as in the comparison period and amounted to EUR 110.2 million (109.8). Sales volumes increased but sales prices decreased following the lower raw material prices. The positive impact from currencies on net sales was EUR 1.4 million.The COVID-19 pandemic increased sales volumes in all our markets towards the end of the quarter and in the short term the higher demand is expected to continue. However in the second half of the year this COVID-19 caused demand surge may already have calmed down. In the longer term the COVID-19 pandemic may lead to continued increased demand for nonwovens for cleaning and disinfection applications. The main risks posed by the pandemic for Suominen are possible shortages of raw materials, potential closures of customers’ or our own plants due to virus infections or authority decisions, and issues linked to logistics. So far we have been able to run our operations with limited impacts. This has been enabled by implementing, at a very early stage, strict safety procedures to minimize the risk of infection at workplace. Also the authorities have classified our nonwovens production as essential in fighting the pandemic in the jurisdictions where other business activities have been shut down. Regarding the raw material risks, we continuously monitor our raw material supply closely and we have identified risk mitigation measures such as utilization of supplementary raw material sources. We have made progress in line with our new strategy which was published in January 2020. One of the cornerstones of our new strategy is sustainability and to strengthen our leadership in sustainable nonwovens we have concluded a multi-year commercial cooperation agreement with Ahlstrom-Munksjö regarding our products made at the Ställdalen plant in Sweden. We also announced an investment to enhance one of our production lines in Italy. Both of these actions will increase our ability to respond to the growing demand for sustainable nonwovens.During the quarter we received the first Fine to Flush certification granted to a nonwovens substrate manufacturer from Water UK with our HYDRASPUN® Royal, which is a dispersible nonwoven material especially designed for moist toilet tissues. Our HYDRASPUN® product line was the first dispersible product in the market, and producing sustainable, dispersible products is one of our core competencies.Financially the year has started well and now our full focus is on keeping our people safe and healthy, supporting our customers, and continuing to implement our new strategy.”OPERATING PROFIT AND RESULTFINANCINGDepreciation and amortization for the review period amounted to EUR 5.6 million (6.3).A safe workplace is one of our top priorities. We have strong focus on safety and accident prevention, and our long term target is to have zero lost-time accidents. In the first quarter of 2020 zero LTAs occurred at Suominen sites.During the COVID-19 pandemic we have taken strict proactive measures to protect our employees’ safety and wellbeing and to ensure our operations can be run safely.As part of its Annual Report 2019 published on February 26, 2020 Suominen reported on the progress of its sustainability performance in 2019. Suominen’s sustainability reporting in 2019 is in accordance with the Core option of the GRI Standards from the Global Reporting Initiative.INFORMATION ON SHARES AND SHARE CAPITALShare trading and priceThe portion of the remuneration of the members of the Board of Directors which shall be paid in shares
The Annual General Meeting held on March 19, 2020 decided that 60% of the annual remuneration of the members of the Board of Directors is paid in cash and 40% in Suominen Corporation’s shares.Share-based Incentive Plan 2019-2021The Board of Directors of Suominen Corporation approved on January 30, 2019 a new share-based incentive plan for the Group management and Group key employees. The aim of the new plan is to combine the objectives of the shareholders and the persons participating in the plan in order to increase the value of the company in the long-term, to bind the participants to the company, and to offer them competitive reward plans based on earning and accumulating the company´s shares. The new plan is a continuation of the share-based incentive plan, resolved by the Board of Directors in December 2017.The new three-year earnings period of the plan includes calendar years 2019–2021. The Board of Directors decides on the plan’s performance criteria and required performance levels for each criterion at the beginning of an earnings period. The plan is directed to approximately 20 people.The potential reward of the plan from the performance period 2019–2021 will be based on the relative Total Shareholder Return (TSR). The rewards to be paid on the basis of the performance period 2019–2021 correspond to the value of an approximate maximum total of 729,000 Suominen Corporation shares (including also the proportion to be settled in cash). The Board of Directors will be entitled to reduce the rewards agreed in the Performance Share Plan if the limits set by the Board of Directors for the share price are reached.The potential rewards from the performance periods 2019–2021 will be settled partly in the company’s shares and partly in cash in 2022. The cash proportion is intended to cover taxes and tax-related costs arising from the reward to the participant. As a rule, no reward will be paid, if a participant´s employment or service ends before the reward payment.A member of the Corporate Executive Team must hold 50% of the net number of shares given on the basis of the plan, as long as his or her shareholding in total corresponds to the value of half of his or her annual gross salary. The President & CEO of the Company must hold 50% of the net number of shares given on the basis of the plan, as long as his or her shareholding in total corresponds to the value of his or her annual gross salary. Such number of shares must be held as long as the participant’s employment or service in a group company continues.Matching Restricted Share Plan 2019-2021The Board of Directors of Suominen Corporation approved on June 4, 2019 a new share-based incentive plan for selected Group key employees. The aim is to align the objectives of the shareholders and key employees in order to increase the value of the Company in the long-term, to retain key employees at the Company, and to offer them a competitive reward plan that is based on acquiring, receiving and accumulating the company´s shares.The Matching Restricted Share Plan is directed to selected key employees in the Suominen Group. The prerequisite for receiving a reward from the plan is that a participant acquires the company’s shares, amounting to the number resolved by the Board.If the prerequisites set for a participant have been fulfilled and his or her employment or service in a company belonging to the Suominen Group is in force at the time of the reward payment, he or she will receive matching shares as a reward.The plan includes vesting periods, the duration of which is resolved by the Board. The potential reward will be paid partly in shares and partly in cash after a vesting period. The cash proportion is intended to cover taxes and tax-related costs arising from the rewards to the plan participants.The prerequisite for reward payment is that a participant’s employment or service is in force upon reward payment. The plan rewards to be allocated in 2019–2021 will amount to a maximum total of 200,000 Suominen Corporation shares including also the proportion to be paid in cash.New earnings period for management’s and key employees’ incentive planOn January 29, 2020 Suominen announced that the Board of Directors of Suominen resolved to continue Group management’s and key employees’ share-based incentive plan with a new earnings period.The new three-year earnings period of the Performance Share Plan includes calendar years 2020-2022 and is directed to approximately 20 people.The potential reward of the Plan from the performance period 2020–2022 will be based on the Relative Total Shareholder Return (TSR). The rewards to be paid on the basis of the performance period 2020–2022 correspond to the value of an approximate maximum total of 893,000 Suominen Corporation shares (including also the proportion to be paid in cash). The Board of Directors will be entitled to reduce the rewards agreed in the Performance Share Plan if the limits set by the Board of Directors for the share price are reached.The potential rewards from the performance period 2020–2022 will be paid partly in the company’s shares and partly in cash in 2023. The cash proportion is intended to cover taxes and tax-related costs arising from the reward to the participant. As a rule, no reward will be paid, if a participant’s employment or service ends before the reward payment.A member of the Executive Team must hold 50 % of the net number of shares given on the basis of the plan, as long as his or her shareholding in total corresponds to the value of half of his or her annual gross salary. The President & CEO of the company must hold 50 % of the net number of shares given on the basis of the plan, as long as his or her shareholding in total corresponds to the value of his or her annual gross salary. Such number of shares must be held as long as the participant’s employment or service in a group company continues.ANNUAL GENERAL MEETINGThe AGM adopted the Financial Statements and the Consolidated Financial Statements for the financial year 2019 and discharged the members of the Board of Directors and the President & CEO from liability for the financial year 2019. The AGM approved the Remuneration Policy for the governing bodies.The AGM decided, in accordance with the proposal by the Board of Directors, that a dividend of EUR 0.05 per share will be paid.The AGM confirmed the remuneration of the Board of Directors. The Chair will be paid an annual fee of EUR 66,000 and the Deputy Chair and other Board members an annual fee of EUR 31,000. Chair of the Audit Committee will be paid an additional fee of EUR 10,000. Further, the members of the Board will receive a fee for each Board and Committee meeting as follows: EUR 500 for each meeting held in the home country of the respective member, EUR 1,000 for each meeting held elsewhere than in the home country of the respective member and EUR 250 for each meeting held as telephone conference.
60% of the remuneration is paid in cash and 40% in Suominen Corporation’s shares. Compensation for expenses is paid in accordance with the company’s valid travel policy.Ernst & Young Oy, Authorised Public Accountant firm, was re-elected as the auditor of the company for the next term of office in accordance with the Articles of Association. Ernst & Young Oy appointed Mr. Toni Halonen, Authorised Public Accountant, as the principally responsible auditor of the company.The AGM authorized the Board of Directors to decide on the repurchase of the company’s own shares and to resolve on the issuance of shares and granting of options and the issuance of special rights entitling to shares. The terms and conditions of the authorization are explained later in this interim report.Suominen published a stock exchange release on March 19, 2020 concerning the resolutions of the Annual General Meeting and the organizing meeting of the Board of Directors. The stock exchange release and an introduction of the new Board members can be viewed on Suominen’s website at www.suominen.fi.In compliance with the resolution of the Annual General Meeting, on April 3, 2020 Suominen paid out dividends of EUR 2.9 million for 2019, corresponding to EUR 0.05 per share.Organizing meeting and permanent committees of the Board of Directors
In its organizing meeting held after the AGM, the Board of Directors elected Andreas Ahlström as Deputy Chair of the Board.Authorizations of the Board of DirectorsThe Annual General Meeting (AGM) held on March 19, 2020 authorized the Board of Directors to decide on issuing new shares and/or conveying the company’s own shares held by the company and/or granting options and other special rights referred to in Chapter 10, Section 1 of the Finnish Companies Act. New shares may be issued, and the company’s own shares may be conveyed to the company’s shareholders in proportion to their current shareholdings in the company; or by waiving the shareholder’s pre-emption right, through a directed share issue if the company has a weighty financial reason to do so, such as, for example, using the shares as consideration in possible acquisitions or other arrangements related to the company’s business, as financing for investments, using shares as part of the company’s incentive program or using the shares for disbursing the portion of the Board members’ remuneration that is to be paid in shares. The new shares may also be issued without payment to the company itself. New shares may be issued and/or company’s own shares held by the company or its group company may be conveyed at the maximum amount of 5,000,000 shares in aggregate.The Board of Directors may grant options and other special rights referred to in Chapter 10, Section 1 of the Finnish Companies Act, which carry the right to receive against payment new shares or own shares held by the company. The right may also be granted to the company’s creditor in such a manner that the right is granted on condition that the creditor’s receivable is used to set off the subscription price (“Convertible Bond”). However, options and other special rights referred to in Chapter 10, Section 1 of the Companies Act cannot be granted as part of the company’s remuneration plan.CHANGES IN THE EXECUTIVE TEAMSuominen announced on March 19, 2020 that Ernesto Levy, SVP Americas business area and member of the Executive Team will leave Suominen on April 6, 2020. Process to recruit a successor has already been initiated. Lynda Kelly will act as interim SVP, Americas business area in addition to her role as SVP, Business Development.NOTIFICATIONS UNDER CHAPTER 9, SECTION 5 OF THE SECURITIES MARKET ACTDuring the review period Suominen received no notifications under Chapter 9, Section 5 of the Securities Market Act.BUSINESS RISKS AND UNCERTAINTIESManufacturing risks
Suominen has production plants in several European countries, United States and Brazil. Interruptions at the plants caused for example by machinery breakdown can cause production losses and delivery problems. Ongoing maintenance and investments aiming to extend the lifetime of the assets are an essential part of ensuring the operational efficiency of the existing production lines.Suominen’s operations could be disrupted due to abrupt and unforeseen events beyond the company’s control, such as power outages or fire and water damage. Suominen may not be able to control such events through predictive actions, which could lead to interruptions in business. Risks of this type are insured in order to guarantee the continuity of operations. As Suominen has valid damage and business interruption insurance, it is expected that the damage would be compensated, and the financial losses caused by the interruption of business would be covered.The main risks to our manufacturing posed by COVID-19 pandemic are the potential closures of our plants due to virus infections or authority decisions. So far we have been able to run our operations with limited impacts. This has been enabled by implementing, at a very early stage, strict safety procedures to minimize the risk of infection at workplace. Also the authorities have classified our nonwovens production as essential in fighting the pandemic in jurisdictions where other business activities have been shut down.
Suominen uses certain technologies in its production. In the management’s view, the chosen technologies are competitive and there is no need to make major investments in new technologies. However, it cannot be excluded that the company’s technology choices could prove wrong, and the development of new or substitute technologies would then require investments.Competition
Suominen has numerous regional, national and international competitors in its different product groups. There is currently oversupply in some product groups in Suominen’s principal markets. Products based on new technologies and imports from countries of lower production costs may reduce Suominen’s competitive edge. If Suominen is not able to compete with an attractive product offering, it may lose some of its market share. Competition may lead to increased pricing pressure on the company’s products.
Price and availability of raw materials
Suominen purchases significant amounts of pulp- and oil-based raw materials. Raw materials are the largest cost item for operations. Changes in the global market prices of raw materials can have an impact on the company’s profitability. Suominen’s stocks equal two to four weeks’ consumption and passing on the price changes of these raw materials to the prices Suominen charges its contract customers takes two to five months. Extended interruptions in the supply of Suominen’s main raw materials could disrupt production and have a negative impact on the Group’s overall business operations. As Suominen sources most of its raw materials from a number of major international suppliers, significant interruptions in the production of the majority of Suominen’s products are unlikely.The COVID-19 pandemic might pose a risk of possible raw material shortage to Suominen. We continuously monitor the situation closely and we have identified risk mitigation measures such as utilization of supplementary raw material sources. The demand for Suominen’s products depends on the development of consumer preferences. Historically, changes in global consumer preferences have had mainly positive impact on Suominen, as they have resulted in the growing demand for products made of nonwovens. However, certain factors, including consumers’ attitude towards the use of products made even partially of oil-based raw materials, or their perception on the sustainability of disposable products in general, might rapidly change the consumers’ preferences and buying habits. Suominen monitors the consumer trends proactively and develops its product offering accordingly. The company has had biodegradable, 100% plant-based nonwovens in its portfolio for over 10 years.Changes in legislation, political environment or economic conditions
Suominen’s business and products can be affected directly or indirectly by political decisions and changes in government regulations for example in areas such as environmental policy or waste legislation. An example of such legislation is the EU’s Single-Use Plastics Directive that focuses on reducing marine litter. The potential exists for similar regulations to expand worldwide. This creates demand for more sustainable products, and Suominen is well placed to respond to this increasing demand.Global political developments could have an adverse effect on Suominen. For instance, a political decision that constrains the global free trade may significantly impact the availability and price of certain raw materials, which would in turn affect Suominen’s business and profitability. Suominen’s geographical and customer-industry diversity provide partial protection against this risk.The relevance of the United States in Suominen’s business operations increases the significance of the foreign exchange rate risk related to USD in the Group’s total exchange risk position. Suominen hedges this foreign exchange position in accordance with its hedging policy.
Investments
Suominen continuously invests in its manufacturing facilities. The deployment of the investments may delay from what was planned, the costs of the investments may increase from what has been expected or the investments may create less business benefits than anticipated. The deployment phase of investments may cause temporary interruptions in operations.Suominen is subject to corporate income taxes in numerous jurisdictions. Significant judgment is required to determine the total amount of corporate income tax at Group level. There are many transactions and calculations that leave room for uncertainty as to the final amount of the income tax. Tax risks relate also to changes in tax rates or tax legislation or misinterpretations, and materialization of the risks could result in increased payments or sanctions by the tax authorities, which in turn could lead to financial loss. Deferred tax assets included in the statement of financial position require that the deferred tax assets can be recovered against the future taxable income.Suominen performs goodwill impairment testing annually. In impairment testing the recoverable amounts are determined as the value in use, which comprises of the discounted projected future cash flows. Actual cash flows can differ from the discounted projected future cash flows. Uncertainties related to the projected future cash flows include, among others, the long economic useful life of the assets and changes in the forecast sales prices of Suominen’s products, production costs as well as discount rates used in testing. Due to the uncertainty inherent in the future, it is possible that Suominen’s recoverable amounts will be insufficient to cover the carrying amounts of assets, particularly goodwill. If this happens, it will be necessary to recognize an impairment loss, which, when implemented, will weaken the result and equity. Goodwill impairment testing has been described in the consolidated financial statements.CORPORATE GOVERNANCE AND REMUNERATION STATEMENTSSuominen has prepared a separate Corporate Governance Statement and a Remuneration Statement for
2019, which comply with the recommendations of the Finnish Corporate Governance Code for listed
companies. The statements also cover other central areas of corporate governance. The statements have been published on Suominen’s website, separately from the Report of the Board of Directors, at www.suominen.fiAUDIOCAST AND CONFERENCE CALL
Petri Helsky, President & CEO, and Toni Tamminen, CFO, will present the result in English in an audiocast and a conference call for analyst, investors and media on April 23, 2020 at 11:30 a.m. (EEST). The audiocast can be followed at https://suominen.videosync.fi/2020-q1-results. The recording of the audiocast and the presentation material will be available after the event at www.suominen.fi.Conference call participants are requested to dial on:
SE: +46 856 642 651
UK: +44 333 300 0804
US: +1 855 857 0686
The confirmation code for joining the conference call is 49472689#.
NEXT FINANCIAL REPORT
Suominen Corporation will publish its Half Year Report 2020 on Wednesday, August 12, 2020 approximately at 9:30 a.m. (EEST).SUOMINEN GROUP 1.1–31.3.2020
The figures in these interim financial statements are mainly presented in EUR thousands. As a result of rounding differences, the figures presented in the tables do not necessarily add up to total.This interim report has been prepared in accordance with the principles defined in IAS 34 Interim Financial Reporting. The principles for preparing the interim report are the same as those used for preparing the consolidated financial statements for 2019, with the exception of the effect of the new accounting standards and interpretations which have been applied from 1.1.2020.The new or amended standards or interpretations applicable from 1.1.2020 are not material for Suominen Group.CONSOLIDATED STATEMENT OF FINANCIAL POSITIONCONSOLIDATED STATEMENT OF PROFIT OR LOSSCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWSKEY RATIOS* Compared with the corresponding period in the previous year.
** RestatedCALCULATION OF KEY RATIOS AND ALTERNATIVE PERFORMANCE MEASURESSome of the other key ratios Suominen publishes are alternative performance measures. An alternative performance measure is a key ratio which has not been defined in IFRS standards. Suominen believes that the use of alternative performance measures provides useful information for example to investors regarding the Group’s financial and operating performance and makes it easier to make comparisons between the reporting periods.The link between the components of the key ratios per share and the consolidated financial statements is presented in the consolidated financial statements of 2019. The link between the components of the alternative performance measures and the consolidated financial statements is presented in Suominen’s Annual Report for 2019.Calculation of key ratios per shareEarnings per share
Cash flow from operations per share
Equity per share
Market capitalization
Share turnover
Calculation of key ratios and alternative performance measuresOperating profit and comparable operating profitIn order to improve the comparability of result between reporting periods. Suominen presents comparable operating profit as an alternative performance measure. Operating profit is adjusted with material items that are considered to affect comparability between reporting periods. These items include, among others, impairment losses or reversals of impairment losses, gains or losses from the sales of property, plant and equipment or intangible assets or other assets and restructuring costs. Suominen did not have any items affecting comparability in 2020 or 2019.EBITDA
Gross capital expenditureInterest-bearing net debtIt is the opinion of Suominen that presenting interest-bearing liabilities not only at amortized cost but also at nominal value gives relevant additional information to the investors.
Return on equity (ROE). %
Invested capital
Return on invested capital (ROI). %
Equity ratio. %
Gearing. %
NET SALES BY GEOGRAPHICAL MARKET AREANET SALES BY BUSINESS AREAQUARTERLY DEVELOPMENTRELATED PARTY INFORMATION
Goodwill is not included in intangible assets.
CHANGES IN INTEREST-BEARING LIABILITIESCONTINGENT LIABILITIESNOMINAL AND FAIR VALUES OF DERIVATIVE INSTRUMENTSFINANCIAL ASSETS BY CATEGORY
Principles in estimating fair value of financial assets for 2020 are the same as those used for preparing the consolidated financial statements for 2019.FINANCIAL LIABILITIES
Principles in estimating fair value for financial liabilities for 2020 are the same as those used for preparing the consolidated financial statements for 2019.FAIR VALUE MEASUREMENT HIERARCHYPrinciples in estimating fair value of financial assets and their hierarchies for 2020 are the same as those used for preparing the consolidated financial statements for 2019. There were no transfers in the fair value measurement hierarchy levels during the reporting period. RESTATEMENT OF PREVIOUSLY PUBLISHED FIGURESSuominen has reclassified some overhead expenses from cost of goods sold to sales, marketing and administration expenses.Consolidated statement of profit or lossSUOMINEN CORPORATION
Board of DirectorsSuominen manufactures nonwovens as roll goods for wipes and other applications. Our vision is to be the frontrunner for nonwovens innovation and sustainability. The end products made of Suominen’s nonwovens, such as wet wipes, feminine care products and swabs, are present in people’s daily life worldwide. Suominen’s net sales in 2019 were EUR 411.4 million and we have nearly 700 professionals working in Europe and in the Americas. Suominen’s shares are listed on Nasdaq Helsinki. Read more at www.suominen.fi.AttachmentSuominen Corporation Interim report Q1 2020