Suominen Corporation’s Interim Report for January 1– September 30, 2019: Strong cash flow and improved operating profit
Suominen Corporation Interim Report October 22, 2019 at 1:00 p.m. (EEST)KEY FIGURES*restatedJanuary–September 2019 in brief:
– Net sales were on the same level as in the comparison period and amounted to EUR 317.0 million (321.3).
– Operating profit increased by 36% and was EUR 6.7 million (5.0).
– Cash flow from operations was EUR 24.2 million (23.7).Outlook for 2019 unchangedSuominen reiterates the outlook presented on January 31, 2019, in which Suominen expects that in 2019, its net sales will be at the level of 2018 (EUR 431.1 million) and comparable operating profit, excluding the positive effect of applying IFRS 16 Leases, will improve from 2018 (EUR 4.6 million).Operating profit improved from the comparison period and amounted to EUR 1.1 million (0.5), mainly due to improvement in gross profit from raw material prices and raw material efficiency. Foreign exchange rates impacted the result negatively by approximately EUR 0.6 million. We succeeded in reducing inventories significantly during the quarter, which improved our cash flow but had a negative impact on the result. Following the inventory and other net working capital reduction the cash flow from operations was strong in the third quarter, amounting to EUR 17.4 million (7.7).I am confident that with our new business areas, Europe and Americas, we now have clear responsibilities and accountabilities and I strongly believe that this will result in improved performance in the future. We can also already see results from our variable cost optimization program launched in early 2019.At our new manufacturing line in Bethune, SC, US, the systematic improvement plan that we put in place earlier this year has resulted in a clear improvement in operational performance. We have conducted several customer qualification runs during the quarter, and we will continue broadening the product and customer portfolio of this line. Our investment project at our plant in Green Bay, WI, US, has proceeded smoothly and is nearing completion. The customer feedback on the enhancement of the line has been positive. We can see that customers are more and more interested in our sustainable product portfolio. We are preparing for the growing demand of sustainable alternatives by continuously developing new products into our portfolio consisting of products made of renewable, recycled, compostable and plastic-free raw materials.I can see improvement on many fronts of Suominen´s performance. The main focus for us now is to grow our sales volumes.”NET SALESJuly–September 2019In January–September 2019, Suominen’s net sales were on the same level as in the comparison period and amounted to EUR 317.0 million (321.3). The strengthening of the US dollar compared with euro increased the net sales by EUR 10.8 million. In January–September, the share of nonwovens for baby wipes was 40% (38%), for household wipes 23% (20%), for personal care wipes 18% (23%), for workplace wipes 9% (9%) and for medical & hygiene applications 8% (9%).OPERATING PROFIT AND RESULTJuly–September 2019
Operating profit improved from the comparison period and amounted to EUR 1.1 million (0.5), mainly due to improvement in gross profit from raw material prices and raw material efficiency. The negative impact of foreign exchange rates was approximately EUR -0.6 million. Due to the reorganization the third quarter operating profit included EUR 0.2 million restructuring costs.Profit before income taxes was EUR 0.0 million (-1.1), and profit for the reporting period was EUR -0.1 million (-1.1).January–September 2019Operating profit increased by 36% and was EUR 6.7 million (5.0) mainly due to positive development in sales and raw material prices, offsetting lower volumes. The negative impact of foreign exchange rates was approximately EUR -1.8 million.Profit before income taxes was EUR 2.7 million (0.9), and profit for the reporting period was EUR 1.4 million (0.3).FINANCINGCash flow from operations in July-September was EUR 17.4 million (7.7) and in January–September EUR 24.2 million (23.7), representing a cash flow per share of EUR 0.42 (0.41).In the third quarter the change in net working capital was positive by EUR 10.4 million (+4.1), coming mainly from inventory reduction, which was the main driver for improved cash flow from operations during the quarter.The change in net working capital was EUR 0.6 million positive in January–September 2019 when in the corresponding period last year the change in net working capital was EUR 0.6 million negative. The corporate income tax refunds of EUR 7.0 million received in the second quarter of 2018 improved the cash flow from operations of the comparison period.In September the remaining part, EUR 15.7 million, of the debenture bond issued in 2014 was repaid in accordance with the terms of the bond.
In January-September, the gross capital expenditure totaled EUR 8.6 million (9.8) and was mainly related to the growth investment initiative at Suominen’s plant in Green Bay, WI, US as well as to the investment in the group-wide renewal of ICT systems. Other investments were mainly for maintenance. Depreciation and amortization for the review period amounted to EUR 19.5 million (15.4). INFORMATION ON SHARES AND SHARE CAPITAL
Share trading and priceIn accordance with the resolution by the Annual General Meeting, in total 33,619 shares were transferred to the members of the Board of Directors as their remuneration payable in shares during the second quarter.The 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, 2019 decided that the remuneration payable to the members of the Board remains unchanged. 60% of the annual remuneration 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 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.ANNUAL GENERAL MEETINGThe AGM adopted the Financial Statements and the Consolidated Financial Statements for the financial year 2018 and discharged the members of the Board of Directors and the President & CEO from liability for the financial year 2018.The AGM decided that no dividend will be distributed and no capital will be returned from the reserve for invested unrestricted equity for the financial year 2018, and the profit shall be transferred to retained earnings.The AGM decided that the remuneration payable to the members of the Board remains unchanged. The Chair will be paid an annual fee of EUR 60,000, Deputy Chair of the Board an annual fee of EUR 37,500 and other Board members an annual fee of EUR 28,000. Further, the members of the Board will receive a fee of EUR 500 for each meeting of the Board of Directors held in the home country of the respective member and a fee of EUR 1,000 per each meeting of the Board of Directors held elsewhere than in the home country of the respective member. 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 Toni Halonen, Authorised Public Accountant, as the principally responsible auditor of the company.Suominen published a stock exchange release on March 19, 2019 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 Board members can be viewed on Suominen’s website at www.suominen.fi.Authorizations of the Board of DirectorsThe Annual General Meeting (AGM) held on March 19, 2019 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.The maximum number of new shares that may be subscribed and own shares held by the company that may be conveyed by virtue of the options and other special rights granted by the company is 5,000,000 shares in total which number is included in the maximum number stated above.The authorizations shall revoke all earlier authorizations regarding share issue and issuance of special rights entitling to shares. The Board of Directors shall decide on all other terms and conditions related to the authorizations. The authorizations shall be valid until June 30, 2020.On May 29, 2019 Suominen announced about the portion of the annual remuneration of the members of the Board of Directors which was paid in shares. The aggregate number of the shares that were granted out of the Company’s treasury shares was 33,619 shares. After this, the maximum amount of authorization is 4,966,381 shares in aggregate.NOTIFICATIONS UNDER CHAPTER 9, SECTION 5 OF THE SECURITIES MARKET ACTDuring the review period Suominen received no notification under Chapter 9, Section 5 of the Securities Market Act.CHANGES IN MANAGEMENTToni Tamminen, D.Sc. (Tech.) M.Sc. (Econ.) started as Senior Vice President, CFO and member of Suominen Executive Team on July 30, 2019. Klaus Korhonen (LL.M) started as Senior Vice President, Human Resources and Legal Affairs and member of Suominen’s Executive Team on August 19, 2019.BUSINESS RISKS AND UNCERTAINTIESGlobal political developments and changes in consumer preferences 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 provides partial protection against this risk.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. Suominen also interacts with policymakers regarding the so-called Single-Use Plastic Directive proposal in the European Union.The estimate on the development of Suominen’s net sales is partially based on forecasts and delivery plans received from the company’s customers. Changes in these forecasts and plans, resulting from changes in the market conditions or in customers’ inventory levels, may affect Suominen’s net sales.Suominen’s customer base is fairly concentrated, which adds to the customer-specific risk. This may affect Suominen’s financial result if customers’ purchasing habits become more cautious as a result of a changes in consumption, or as a result of sales losses. In 2018, the Group’s ten largest customers accounted for 65% (63%) of the Group net sales. Long-term contracts are preferred with the largest customers. In practice the customer relationships are long-term and last for several years. Customer-related credit risks are managed in accordance with a risk policy approved by the Board of Directors. Credit limits are confirmed for customers on the basis of credit ratings and customer history. 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.Suominen has identified also other business risks and uncertainties, for example risks related to production technologies, product liability, investments and financial risks. These risks are described in more detail in the Interim Report January–March 2019 and Financial Statements 2018.
BUSINESS ENVIRONMENTSuominen’s nonwovens are, for the most part, used in daily consumer goods, such as wet wipes as well as in hygiene and medical products. In these target markets of Suominen, the general economic situation determines the development of consumer demand, even though the demand for consumer goods is not very cyclical in nature. North America and Europe are the largest market areas for Suominen. In addition, the company operates in South American markets. The growth in the demand for nonwovens has typically exceeded the growth of gross domestic product by a couple of percentage points.ANALYST AND PRESS CONFERENCE
Petri Helsky, President & CEO, and Toni Tamminen, CFO, will present the Q3 financial result in Finnish at an analyst and press conference in Helsinki on Tuesday, October 22 at 3:00 p.m. (EEST). The conference will take place at Suominen´s Head Office, Ultimes Business Garden, Karvaamokuja 2 B, Helsinki. The presentation material will be available after the analyst and press conference at www.suominen.fi.NEXT FINANCIAL REPORT
Suominen Corporation will publish its Financial Statement Release 2019 on Wednesday January 29, 2020.SUOMINEN GROUP 1 JANUARY–30 SEPTEMBER 2019
The figures in this interim report 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 2018, with the exception of the effect of the new accounting standards and interpretations which came into force on January 1, 2019.The new standards, amendments and interpretations, which have been applied from January 1, 2019 and which have a material effect on Suominen have been disclosed in Suominen’s January–March 2019 Interim Report. Other new or amended standards or interpretations applicable from January 1, 2019 are not material for Suominen Group. Also the effects of the changes in accounting principles on Suominen’s opening balances in the statement of financial position are presented separately in Suominen’s January–March 2019 Interim Report.
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONCONSOLIDATED STATEMENT OF PROFIT OR LOSSCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMECONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWSKEY RATIOSCALCULATION 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 2018. The link between the components of the alternative performance measures and the consolidated financial statements is presented in Suominen’s Annual Report for 2018.Calculation of key ratios per shareEarnings per share
Cash flow from operations per share
Equity per share
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 2019 or 2018EBITDA
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, %
NET SALES BY GEOGRAPHICAL MARKET AREAQUARTERLY SALES DEVELOPMENT BY BUSINESS AREAQUARTERLY DEVELOPMENTRELATED PARTY INFORMATIONThe Annual General Meeting held on March 19, 2019 resolved that 40% of the annual remuneration for the Board of Directors is paid in Suominen Corporation’s shares. The number of shares transferred to the members of the Board of Directors as their remuneration payable in shares for 2019 was 33,619 shares. The shares were transferred on May 31, 2019 and the value of the transferred shares totaled EUR 83,796, or approximately EUR 2.49 per share.CHANGES IN PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND RIGHT-OF-USE ASSETS
Goodwill is not included in intangible assets.(* 2018 recognition of lease liabilities to statement of financial position in IFRS 16 application.CONTINGENT LIABILITIESNOMINAL AND FAIR VALUES OF DERIVATIVE INSTRUMENTSFINANCIAL ASSETS BY CATEGORY
Principles in estimating fair value of financial assets for 2019 are the same as those used for preparing the consolidated financial statements for 2018.FINANCIAL LIABILITIES
Principles in estimating fair value for financial liabilities for 2019 are the same as those used for preparing the consolidated financial statements for 2018.FAIR VALUE MEASUREMENT HIERARCHYPrinciples in estimating fair value of financial assets and their hierarchies for 2019 are the same as those used for preparing the consolidated financial statements for 2018. RESTATEMENT OF PREVIOUSLY PUBLISHED FIGURESRestatement of previously published figures is presented in the Interim report for January–March 2019.SUOMINEN CORPORATION
Board of Directors
www.suominen.fiAttachmentSuominen Corporation Interim Report Q3 2019