Suominen Corporation’s Half-Year Financial Report for January 1 – June 30, 2020: Record high net sales and operating profit in Q2

During the first half of the year we launched a nonwoven material for the manufacturing of face mask applications, FIBRELLA^® Shield. This material fulfills the requirements for Type II facemasks that are used by e.g. healthcare professionals. I am proud of our team and the ultra-fast innovation process that enabled us to launch this new material to the markets in such a short time. This is an important addition, although minor in net sales, to our overall product offering helping to fight the pandemic.  

The first half of the year was financially very strong and  we continue to focus on keeping our personnel safe and healthy, serving our customers, and implementing our strategy. I would like to thank everyone in the Suominen team for their hard work, flexibility and adaptability in these exceptional circumstances.”

NET SALES


April–June 2020
In April–June 2020, Suominen’s net sales increased by 18% from the comparison period to EUR 122.2 million (103.8). The impact of currencies on net sales was EUR -0.4 million.

Suominen’s business areas are Americas and Europe. The net sales of the Americas business area were EUR 77.2 million (65.0) and of the Europe business area EUR 45.0 million (38.8).

January–June 2020

In January–June 2020, Suominen’s net sales increased by 9% from the comparison period to EUR 232.4 million (213.6). The impact of currencies on net sales was EUR 1.3 million.

The net sales of the Americas business area were EUR 150.3 million (133.3) and of the Europe business area EUR 82.1 million (80.3).
 
OPERATING PROFIT AND RESULT

April–June 2020

Operating profit increased from the comparison period and amounted to EUR 12.4 million (2.7). The impact of currencies on operating profit was EUR -0.8 million.

Profit before income taxes was EUR 10.6 million (1.0), and profit for the reporting period was EUR 8.4 million (0.4).

January–June 2020

Operating profit increased to EUR 18.1 million (5.6). The impact of currencies on operating profit was EUR -1.3 million.

Profit before income taxes was EUR 14.3 million (2.6), and profit for the reporting period was EUR 11.9 million (1.5). Corporate income taxes were positively impacted in the first quarter by the US tax reliefs enacted as a result of the COVID-19 pandemic.

FINANCING

The Group’s net interest-bearing liabilities at nominal value amounted to EUR 56.7 million (86.5) at the end of the review period. The gearing ratio was 40.9% (65.0%) and the equity ratio 44.2% (40.3%). Our financial position and liquidity improved during the first half of the year.

In January–June, net financial expenses were EUR -3.8 million (-3.0), or -1.6% (-1.4%) of net sales. Fluctuations in exchange rates increased the net financial expenses by EUR 1.3 million (decreased by EUR 0.1 million). The net financial expenses include a bad debt provision based on expected credit losses of loan receivables totaling EUR -0.5 million and a fair value change of assets of EUR +0.3 million.

Cash flow from operations in April–June was EUR 9.6 million (9.1) and in January–June EUR 19.0 million (6.7), representing a cash flow per share of EUR 0.33 (0.12) and EUR 0.17 (0.16) for the quarter. In the second quarter the change in working capital was EUR -7.7 million (+0.7). Increased net sales affected the net working capital as trade receivables grew in line with net sales.

The increase in the cash flow from operations in the first half of the year was mainly due to better result than in the previous year. The change in working capital was EUR -8.6 million (-9.8).

CAPITAL EXPENDITURE

In January–June, the gross capital expenditure totaled EUR 2.5 million (6.3) the largest single item being the enhancement of a production line at one of Suominen’s plants in Italy. Other investments were mainly for maintenance.

Depreciation and amortization for the review period amounted to EUR 11.2 million (12.8).

IMPACTS OF THE COVID-19 PANDEMIC ON SUOMINEN

The health and safety of Suominen’s employees is a key priority. Suominen has secured the health and safety of its employees by various measures and is closely monitoring the COVID-19 situation. Thanks to our proactive approach, there has been a limited impact on our ability to serve our customers and run our operations so far.

As a nonwovens manufacturer Suominen is an integral part of the supply chain making disinfecting and cleaning products, facemasks and protective clothing available to everyone around the world. The authorities have classified our nonwovens production as essential in fighting the pandemic in the jurisdictions where other business activities were shut down.

The pandemic has increased demand for our products in all our markets and the higher demand is expected to continue in the coming months. In the longer term the COVID-19 pandemic may lead to a continued increase in demand for nonwovens for cleaning and disinfection products.

Both Suominen’s financial position and cash flow have remained strong throughout the pandemic.

Risks related to COVID-19 are described in short-term risk and uncertainties section.

PROGRESS IN SUSTAINABILITY - PERSONNEL

During the first half of the year, one lost-time accident (LTA) occurred at Suominen sites (2 in H1/2019). We have strong focus on safety and accident prevention, and our long-term target is to have zero lost-time accidents.

We continued to implement our global coronavirus management measures to protect our employees’ safety and wellbeing and to ensure our operations can be run safely.

Many of the core people related processes were completed during the first half of 2020. Target setting and performance evaluations were finalized for approximately 90% of the white collar employees in scope. An employee pulse survey was also conducted during second quarter asking questions relating to engagement and performance, and also few questions on COVID-19 in order to understand the current situation. The results indicated that our people are engaged and feeling well at Suominen. A large majority of the respondents also felt that they were able to work effectively during the pandemic.

We continued our work in finalizing concrete targets and KPI’s for our renewed Sustainability agenda.

INFORMATION ON SHARES AND SHARE CAPITAL

Share capital

The number of Suominen’s registered shares was 58,259,219 shares on June 30, 2020, 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, 2020 was 3,573,603 shares, accounting for 6.2% of the average number of shares (excluding treasury shares). The highest price was EUR 3.99, the lowest EUR 2.00 and the volume-weighted average price EUR 2.84. The closing price at the end of review period was EUR 3.87. The market capitalization (excluding treasury shares) was EUR 222.8 million on June 30, 2020.

Treasury shares

On June 30, 2020, Suominen Corporation held 700,230 treasury shares.

In accordance with the resolution by the Annual General Meeting, in total 29,121 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, 2020 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 2020 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 28, 2020.

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 2019 and in the Remuneration Statement 2019 of Suominen Corporation, available on the company’s website www.suominen.fi

On December 11, 2017 the Board of Directors approved a share-based incentive plan for the Group management and key employees. The aim of the 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 long-term, to build loyalty to the company and to offer them competitive reward plans based on earning and accumulating the Company’s shares. The plan includes three 3-year performance periods, calendar years 2018-2020, 2019-2021 and 2020-2022.

Performance Share Plan performance periods

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. 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. 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 Matching Restricted Share Plan for 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, 2020.

The 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.

The AGM decided that the number of Board members remains unchanged at six (6). Mr. Jan Johansson was re-elected as Chair of the Board of Directors and Mr. Andreas Ahlström, Ms. Sari Pajari and Ms. Laura Raitio were re-elected as members of the Board. Mr. Björn Borgman and Ms. Nina Linander were elected as new members 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 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 the meeting materials 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.

The Board of Directors elected from among its members the members for the Audit Committee and Personnel and Remuneration Committee. Nina Linander was elected as the Chair of the Audit Committee and Andreas Ahlström and Laura Raitio were re-elected as members. Jan Johansson was re-elected as the Chair of the Personnel and Remuneration Committee and Sari Pajari was re-elected as a member. Björn Borgman was elected as a new member to the Personnel and Remuneration Committee.

Authorizations of the Board of Directors

The Annual General Meeting (AGM) held on March 19, 2020 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, 2021 and it revokes all earlier authorizations to repurchase company’s own shares.

The 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.
 
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, 2021.

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.

SHORT TERM RISKS AND UNCERTAINTIES

Currently the COVID-19 pandemic is causing uncertainty. The key risks related to the virus have concerned the health and safety of Suominen personnel and customers, possible shortages of raw materials as well as potential closures of customers’ or our own plants due to virus infections or authority decisions and issues linked to logistics. In the latter half of the year, the biggest risks related to the coronavirus are potential new waves of the epidemic in Suominen’s operating countries and the resulting impacts on our operations.

We have implemented extensive precautions to protect the health and safety of our employees and to ensure business continuity and progress of our strategic projects during the pandemic. We continuously monitor the raw material situation closely and we have identified risk mitigation measures such as utilization of supplementary raw material sources. 
 
The vast majority of our customers have also experienced increased demand for their products and thus our customer credit risks have not materially increased. The COVID-19 pandemic has not increased Suominen’s risk of impairment losses on non-current assets.

Suominen’s other risks and uncertainties include, but are not limited to: risks related to manufacturing, competition, raw material prices and availability and customer specific volumes and credits, changes in legislation, political environment or economic conditions and investments, and financial risks.

A more detailed description of risks is available in Suominen’s Annual Report and Q1/2020 Interim report at suominen.fi/investors.

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.

The demand for nonwovens has increased due to COVID-19 pandemic. In the short term, the higher demand is expected to continue. In the longer term, the COVID-19 pandemic may lead to a continued increase in demand for nonwovens for cleaning and disinfection products.
 
EVENTS AFTER THE REPORTING PERIOD

New revolving credit facility agreement linked to sustainability targets

On July 13, 2020 Suominen announced a single-currency syndicated revolving credit facility agreement of EUR 100 million with a maturity of three years with two one-year extension options. The lenders for the facility are Danske Bank A/S, Finland Branch and Nordea. The new credit facility includes leverage ratio and gearing as financial covenants.

The margin of the facility will increase or decrease dependent on Suominen meeting two sustainability key performance indicators (“KPI”), namely:

• Increase in the sales of sustainable products
• Reduction of greenhouse gas emissions

The new credit facility replaces the existing EUR 100 million syndicated revolving credit facility agreement of Suominen provided by Nordea and Svenska Handelsbanken AB (publ), Branch Operation in Finland as the lenders.
OUTLOOK FOR 2020

Suominen repeats its outlook, disclosed on June 17, 2020 that Suominen expects that its comparable operating profit will improve significantly from 2019. In 2019, Suominen’s operating profit amounted to EUR 8.1 million. In financial years 2020 and 2019 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.

CORPORATE GOVERNANCE AND REMUNERATION STATEMENTS

Suominen 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.fi

AUDIOCAST AND CONFERENCE CALL

Petri Helsky, President & CEO, and Toni Tamminen, CFO, will present the result in English in an audiocast for analyst, investors and media on August 12 at 11:00 a.m. (EEST). The audiocast can be followed at https://suominen.videosync.fi/2020-q2. 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: +1 631 913 1422
The confirmation code for joining the conference call is 56242138#.
NEXT FINANCIAL REPORT

Suominen Corporation will publish its Interim Report for January–September 2020 on Thursday October 22, 2020 approximately at 9:30 a.m. (EEST).

SUOMINEN GROUP JANUARY 1 – JUNE 30, 2020

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 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 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

*    Compared with the corresponding period in the previous year.

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 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 share

Earnings per share                                                                               
                                                                                      

 Cash flow from operations per share
                     

Equity per share

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