Suominen Corporation’s Half-Year Financial Report for 1 January–30 June 2019: Operating profit improved in the first half of the year despite a slight decrease in net sales

The Group-wide renewal of ICT systems was concluded with successful implementations at the Paulínia, Brazil and Bethune, USA, plants during the second quarter. All our eight plants are now operating with the renewed systems, allowing us to further increase our efficiency, productivity and transparency.”

NET SALES


April–June 2019

In April–June 2019, Suominen’s net sales decreased by 6% from the comparison period to EUR 103.8 million (110.0). The strengthening of the USD compared to EUR increased the net sales by EUR 3.4 million. 

Until June 30, Suominen´s business areas were Convenience and Care. Convenience business area supplied nonwovens as roll goods for a wide range of wiping applications. Care business area supplied nonwovens for hygiene products and medical applications. Net sales of the Convenience business area amounted to EUR 96.1 million (99.9) and net sales of the Care business area to EUR 7.7 million (10.0).

Since July 1, 2019 Suominen’s business areas are Americas and Europe. The net sales of the Americas business area were EUR 65.0 million (66.9) and of the Europe business area EUR 38.8 million (43.1).

January–June 2019

In January–June 2019, Suominen’s net sales decreased by 1% from the comparison period to EUR 213.6 million (216.6). The strengthening of the USD compared to EUR increased the net sales by EUR 8.1 million. 

Net sales of the Convenience business area amounted to EUR 197.3 million (197.4) and net sales of the Care business area EUR 16.2 million (19.1).

The net sales of the Americas business area were EUR 133.3 million (130.1) and of the Europe business area EUR 80.3 million (86.5).
 
In January–June, the share of nonwovens for baby wipes increased to 41% (38%) and household wipes increased to 23% (20%) while the share of nonwovens for personal care wipes declined to 18% (23%). Other key applications remained nearly flat compared with the corresponding period last year with the share of workplace wipes at 9% and medical & hygiene applications at 9%.

OPERATING PROFIT AND RESULT

April–June 2019

Operating profit decreased by 9% from the comparison period and amounted to EUR 2.7 million (2.9). The operating profit was burdened by unusually high bad debt provisions. The impact of US dollar exchange rate fluctuation to the operating profit was minor. Due to the reorganizing of the business areas the second quarter operating profit includes EUR 0.4 million restructuring costs.

Profit before income taxes was EUR 1.0 million (2.4), and profit for the reporting period was EUR 0.4 million (1.8).

January–June 2019

Operating profit increased by 26% and was EUR 5.6 million (4.5). The impact of US dollar exchange rate fluctuation to the operating profit was minor. Profit before income taxes was EUR 2.6 million (2.1), and profit for the reporting period was EUR 1.5 million (1.4).

FINANCING

The Group’s net interest-bearing liabilities at nominal value amounted to EUR 86.5 million (79.1) at the end of the review period. The gearing ratio was 65.0% (59.6%) and the equity ratio 40.3% (41.7%).

In January–June, net financial expenses were EUR -3.0 million (-2.4), or -1.4% (-1.1%) of net sales. Fluctuations in exchange rates decreased the net financial expenses by EUR 0.1 million (0.2). The interest expenses arising from the lease liabilities increased the net financial expenses by EUR 0.5 million.

Cash flow from operations in April–June was EUR 9.1 million (10.8) and in January–June EUR 6.7 million (16.0), representing a cash flow per share of EUR 0.12 (0.28) and EUR 0.16 (0.19) for the quarter. In the second quarter the change in working capital was EUR 0.7 million (-4.0).

The decline in the cash flow from operations in the first half of the year was mainly due to change in working capital (EUR -9.8 million, EUR -4.7 million in corresponding period last year). Cash flow before change in net working capital, financial items and income taxes improved by EUR 3.8 million compared with the corresponding period in 2018. The cash flow from operations in 2018 was positively affected by the US federal corporate income tax refunds.

CAPITAL EXPENDITURE

In January–June, the gross capital expenditure totaled EUR 6.3 million (6.7) and was mainly related to the growth investment initiative at Suominen’s plant in Green Bay, WI, USA as well as to the investment in the group-wide renewal of ICT systems.

All Suominen’s eight plants are now operating with the renewed ICT systems as the implementation of the new systems was conducted successfully during the second quarter at the Paulínia, Brazil and Bethune, USA, plants.

Other investments were mainly for maintenance. Depreciation and amortization for the review period amounted to EUR 12.8 million (10.1).

INFORMATION ON SHARES AND SHARE CAPITAL

Share capital

The number of Suominen’s registered shares was 58,259,219 shares on June 30, 2019, equaling to a share capital of EUR 11,860,056.00.

Share trading and price

The number of Suominen shares traded on Nasdaq Helsinki from January 1 to June 30, 2019 was 2,775,156 shares, accounting for 4.8% of the average number of shares (excluding treasury shares). The highest price was EUR 2.70, the lowest EUR 2.04 and the volume-weighted average price EUR 2.41. The closing price at the end of review period was EUR 2.36. The market capitalization (excluding treasury shares) was EUR 135.8 million on June 30, 2019.

Treasury shares

On June 30, 2019, Suominen Corporation held 729,351 treasury shares.

In 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 reporting period.

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.

The number of shares forming the remuneration portion which is payable in shares was determined based on the share value in the stock exchange trading maintained by Nasdaq Helsinki Ltd, calculated as the trade volume weighted average quotation of the share during the one month period immediately following the date on which the Interim Report of January‒March 2019 of the company is published. The shares were given out of the treasury shares held by the company by the decision of the Board of Directors on May 31, 2019.

Share-based incentive plans for the management and key employees

The Group management and key employees participate in the company’s share-based incentive plan. The earlier plans are described in detail in the Financial Statements 2018 and in the Remuneration Statement 2018 of Suominen Corporation, available on the company’s website www.suominen.fi

Share-based Incentive Plan 2019-2021

The 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 2019-2021

The 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 MEETING

The Annual General Meeting (AGM) of Suominen Corporation was held on March 19, 2019.

The 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.

The AGM decided that the number of Board members remains unchanged at six (6).  Jan Johansson was re-elected as Chair of the Board of Directors and Andreas Ahlström, Risto Anttonen, Hannu Kasurinen and Laura Raitio were re-elected as members of the Board of Directors. Sari Pajari was elected as a new member of the Board.

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.

The AGM authorized the Board of Directors to decide on the repurchase of the company’s own shares and to resolve 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 half-year financial report.

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 Directors

The Annual General Meeting (AGM) held on March 19, 2019 authorized the Board of Directors to decide on the repurchase a maximum of 400,000 of the company’s own shares. The company’s own shares shall be repurchased otherwise than in proportion to the holdings of the shareholders by using the non-restricted equity through trading on regulated market organized by Nasdaq Helsinki Ltd at the market price prevailing at the time of acquisition. The shares shall be repurchased and paid in accordance with the rules of Nasdaq Helsinki Ltd and Euroclear Finland Ltd. The shares shall be repurchased to be used in company’s share-based incentive programs, in order to disburse the remuneration of the members of the Board of Directors, for use as consideration in acquisitions related to the company’s business, or to be held by the company, to be conveyed by other means or to be cancelled. The Board of Directors shall decide on other terms and conditions related to the repurchase of the company’s own shares. The repurchase authorization shall be valid until June 30, 2020 and it revokes all earlier authorizations to repurchase company’s own shares.

The 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 ACT

During the review period Suominen received no notifications under Chapter 9, Section 5 of the Securities Market Act.

CHANGES IN MANAGEMENT

On April 24, 2019 Suominen announced its new business areas and changes in the Executive Team. Toni Tamminen (D.Sc. Technology, M.Sc. Economics) was appointed as CFO and member of the Suominen’s Executive Team from July 30, 2019 onwards. As it was announced earlier, Suominen’s former CFO Tapio Engström’s last day at Suominen was May 3 and Sirpa Koskinen, VP, Group Controller acted as interim CFO until Toni Tamminen started.

Various changes in the Executive Team responsibilities were announced simultaneously: Ernesto Levy was appointed Senior Vice President, Americas business area, previously SVP, Convenience business area. Markku Koivisto was appointed interim Senior Vice President, Europe business area, he continues also in his role as CTO. Lynda Kelly was appointed Senior Vice President, Business Development, previously SVP, Care business area. Larry Kinn, SVP Operational Excellence, retired in July. At the same time Suominen announced that the Corporate Leadership Team was discontinued.

On May 20, 2019 Suominen announced that Hannu Sivula, Senior Vice President, Human Resources will leave the company.

On May 22, 2019 Suominen announced that Klaus Korhonen (LL.M) was appointed as Senior Vice President, Human Resources and Legal Affairs and member of Suominen’s Executive Team. He will join the company on August 19, 2019.

BUSINESS RISKS AND UNCERTAINTIES

Global 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. 


The relevance of the United States in Suominen’s business operations increases the significance of the exchange rate risk related to USD in the Group’s total foreign exchange risk position. Suominen hedges this foreign exchange position in accordance with its hedging policy.

The risks that are characteristic to South American region, including significant changes in business environment or exchange rates, could have an impact on Suominen’s operations in Brazil.

Suominen purchases significant amounts of pulp- and oil-based raw materials annually. Raw materials are the largest cost item for operations. Rapid changes in the global market prices of raw materials have an impact on the company’s profitability. Suominen’s stocks equal to 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.

Suominen has numerous regional, national and international competitors in its different product groups. There is currently oversupply in some product groups in Suominen’s both principal market regions. 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.


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 ENVIRONMENT

Suominen’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.

In the euro area, the consumer confidence index decreased slightly in the second quarter. In the United States the consumer confidence index instead increased slightly.  The consumer confidence index is still strong in both geographical areas.

Suominen assesses the trend in the demand for its products on the bases of both the general market situation and, above all, on the basis of the framework agreements drawn up with its customers. There is currently overcapacity in the market, mainly in nonwovens for baby wipes and flushables.

At large, the growth in the demand in Suominen’s target markets is expected to continue in 2019, on average, at the pace of 2018.

OUTLOOK FOR 2019

Suominen repeats its estimate, disclosed on January 31, 2019, that Suominen expects that in 2019, its net sales will be at the level of 2018 and comparable operating profit, excluding the positive effect of applying IFRS 16 Leases, will improve from 2018. In 2018, Suominen’s net sales amounted to EUR 431.1 million and operating profit to EUR 4.6 million. In 2018 Suominen had no items affecting the comparability of the operating profit. The calculation of comparable operating profit is explained in the disclosures of this release.

ANALYST AND PRESS CONFERENCE

Petri Helsky, President & CEO, and Toni Tamminen, CFO, will present the Q2 financial result in Finnish at an analyst and press conference in Helsinki on Wednesday, August 7 at 3:00 pm (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 Interim Report for January–September 2019 on Tuesday October 22, 2019 approximately at 3:00 pm (EEST).

SUOMINEN GROUP JANUARY 1 – JUNE 30, 2019

The figures in these half-year 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 half-year report has not been audited.
This half-year 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 POSITION

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

KEY RATIOS

CALCULATION OF KEY RATIOS AND ALTERNATIVE PERFORMANCE MEASURES


Key ratios per share are either IFRS key ratios (earnings per share) or required by Ordinance of the Ministry of Finance in Finland or alternative performance measures (cash flow from operations per share).

Some 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 share

Earnings per share                                                                               
                                                                                      

 Cash flow from operations per share
                     

                     
Equity per share

Market capitalization

Share turnover

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