Suominen Corporation’s Interim Report (January 1– September 30, 2018): Net sales increased, operating profit declined

Highlights in July-September 2018:

– Net sales increased by 2% and amounted to EUR 104.8 million (102.4).

– Operating profit declined by 89% to EUR 0.5 million (4.6) due to continued price increases of raw materials and other resources and slower than expected impact of the 3P program

– Cash flow from operations strengthened to EUR 7.7 million (2.3).

– The new manufacturing line at Bethune, SC, US plant line continued to contribute positively on Suominen’s gross profit.

– Suominen’s President & CEO changed: Nina Kopola left the company on 3 August and Pekka Ojanpää was appointed as the new President & CEO. Tapio Engström acts as interim President & CEO.

On 13 September, Suominen revised its guidance and announced that in 2018, its net sales will be at the level of 2017 and its comparable operating profit will be significantly lower than in 2017. In 2017, Suominen’s net sales amounted to EUR 426.0 million and operating profit to EUR 15.0 million. In financial year 2017 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.

Tapio Engström, President & CEO (interim), comments on Suominen’s third quarter of 2018

“Suominen’s main market areas are Europe and North America. In the euro area, the consumer confidence index turned to decline in the third quarter, however still remaining at a healthy level. In the United States, the consumer confidence index continued strong. Our nonwovens are, for the most part, used in daily consumer goods, and in these target markets the general economic situation and consumer confidence drive the development of consumer demand.

The decline in our profitability with an operating profit decrease to EUR 0.5 million reflects both the impact of the long economic upturn resulting in increased costs and a tense competitive situation with an oversupplied market. The costs of several of our key resources, including raw materials, energy and logistics, have continued to be in a steep rise. While the profitability developed negatively, Suominen’s cash flow from operations remained strong in the third quarter and was EUR 7.7 million, thanks to a positive development in net working capital.

In the end of 2017 we launched the so-called 3P program, which focuses on improving Suominen’s profitability through Pricing, Performance and Planning. Although the impacts of the program have been slower than what we expected, we have continued rigorously with the improvement actions.

Determined measures taken in pricing as well as the favorable change in the product portfolio had a positive impact on the net sales as our net sales increased to EUR 104.8 million. The global price increases announced on September 19 will improve our profitability in the longer term. Approximately half of our net sales is tied to contracts that include a pass-through clause concerning raw material price fluctuations. Passing on the price changes of these raw materials to the customers usually takes two to five months.

Considering performance, our new manufacturing line at the Bethune, SC, US plant continued to contribute positively to the company’s gross profit in the third quarter. The positive development of the net production volumes clearly indicate that the stability and efficiency of the new line has further improved. The ongoing growth investment initiative at our plant in Green Bay, WI, US is proceeding as planned. We expect the enhanced capabilities to be in full utilization by end of 2019.

In planning, our on-going group-wide ICT systems renewal plays an important role. The systems renewal continued as scheduled in the third quarter and the new systems were taken into use at our plant in Windsor Locks, CT, US. Today, five out of our eight plants operate through the new ICT systems. We expect all plants to have the new systems in place during the first half of 2019.

In September, Suominen took again one step forward in its strategy by introducing Suominen Intelligent Nonwovens™ concept to the market. The first of its kind in the world of nonwovens, the concept makes it possible to embed digital features into Suominen nonwovens. The launch really proves that we are able to create nonwovens that others cannot.

We announced on September 13, 2018 that Suominen decreases its estimate regarding the net sales and operating profit development. We expect that for the full year 2018, our net sales will be at the level of 2017 and the comparable operating profit will be significantly lower than in 2017.”

Net Sales

July–September 2018

In July–September 2018, Suominen’s net sales increased by 2% from the comparison period to EUR 104.8 million (102.4). Measures taken in pricing had a positive impact on the net sales, even though sales volumes decreased from the comparison period. The strengthening of the USD compared to EUR increased the net sales by EUR 0.6 million.

Suominen has two business areas, Convenience and Care. Convenience business area supplies nonwovens as roll goods for a wide range of wiping applications. Care business area manufactures nonwovens for hygiene products and medical applications. Net sales of the Convenience business area amounted to EUR 95.6 million (93.0) and net sales of the Care business area EUR 9.1 million (9.3).

January–September 2018

In January–September 2018, Suominen’s net sales decreased by 2% from the comparison period to EUR 321.3 million (327.3). Measures taken in pricing and in portfolio transformation had a positive impact on the net sales but were counteracted by the weakening of the US dollar compared with euro, which decreased the net sales by EUR 13.0 million. Sales volumes decreased slightly from the comparison period.

 

Net sales of the Convenience business area amounted to EUR 293.1 million (297.8) and net sales of the Care business area EUR 28.3 million (29.5).

In January–September, the product portfolio developed in line with the company’s strategy, as the share of products with high added value increased to 62 % (59 %). The share of nonwovens for baby wipes declined to 38 % (41 %). The share of nonwovens for personal care wipes grew to 23 % (20 %) and the share of home care wipes increased to 20% (19%). The share of workplace wipes remained at 9 % and medical & hygiene applications at 9%. All nonwovens for wiping products belong to the Convenience business area and nonwovens for hygiene and medical products to the Care business area.

Operating profit and result

July–September 2018

Operating profit declined by 89 % from the comparison period and amounted to EUR 0.5 million (4.6), mainly due to the significantly increased costs of several of our key resources, including raw materials, energy and logistics and a slower than expected impact of the 3P program. At the same time there is overcapacity on the markets. The impact of sales price increases was not yet material in operating profit. The effect of US dollar exchange rate fluctuation had no material impact on operating profit.

Profit before income taxes was EUR -1.1 million (3.5), and profit for the reporting period was EUR -1.1 million (1.8).

January–September 2018

Operating profit decreased by 68% and was EUR 5.0 million (15.3) mainly due to lower sales prices in the first quarter, overcapacity on the markets as well as higher raw material costs. In addition, we faced some issues with delivery efficiency. The weakening of the US dollar compared to euro decreased the operating profit by EUR 0.2 million.

Profit before income taxes was EUR 0.9 million (13.7), and profit for the reporting period was EUR 0.3 million (8.2).

Financing

The Group’s net interest-bearing liabilities at nominal value amounted to EUR 76.1 million (74.9) at the end of the review period. The gearing ratio was 58.1 % (56.5 %) and the equity ratio 42.3% (43.1 %).

In January–September, net financial expenses were EUR -4.0 million (-1.6), or -1.2 % (-0.5 %) of net sales. During the comparison period of 2017 the capitalization of borrowing costs in fixed assets required by IAS 23 standard decreased interest expenses recognized in the statement of profit or loss by EUR 2.2 million. Fluctuations in exchange rates decreased the net financial expenses by EUR 0.1 million (in 2017, increased by EUR 0.1 million). Recognition of loan receivables at fair value increased the net financial expenses by EUR 0.2 million.

Cash flow from operations in July-September was EUR 7.7 million (2.3) and in January-September EUR 23.7 million (18.6), representing a cash flow per share of EUR 0.41 (0.35).

In the third quarter the change in working capital was positive by EUR 4.1 million (-4.4), which was the main driver for improved cash flow from operations during the quarter. In addition, less net financial expenses than in the third quarter of 2017 were paid.

The improvement in the cash flow from operations in January-September was mainly due to the fact that less cash was tied up to working capital (EUR 0.6 million, EUR 6.9 million tied up in the corresponding period last year). The corporate income tax refunds of EUR 7.0 million received in the second quarter improved the cash flow from operations. In addition, less net financial expenses than in the corresponding period of the previous year were paid.

Capital expenditure

In January-September, the gross capital expenditure totalled EUR 9.8 million (31.7) and was mainly related to the investment in the group-wide renewal of ICT systems as well as to the growth investment initiative at Suominen’s plant in Green Bay, WI, USA.

Out of Suominen’s eight plants, five are currently operating with the renewed ICT systems as the implementation of the new systems was conducted successfully in the Green Bay, WI, USA plant in the first quarter, both Italian plants in the second quarter and the Windsor Locks, CT, USA plant in the third quarter.

Other investments were mainly for maintenance. Depreciation and amortization for the review period amounted to EUR 15.4 million (14.0).

Share capital

The number of Suominen’s registered shares was 58259219 shares on 30 September 2018, equalling to a share capital of EUR 11860056.00.

Share trading and price

The number of Suominen Corporation shares traded on Nasdaq Helsinki from 1 January to 30 September 2018 was 2547703 shares, accounting for 4.4 % of the average number of shares (excluding treasury shares). The highest price was EUR 4.60, the lowest EUR 2.54 and the volume-weighted average price EUR 3.52. The closing price at the end of review period was EUR 2.56. The market capitalization (excluding treasury shares) was EUR 147.2 million on 30 September 2018.

Treasury shares

On September 30, 2018, Suominen Corporation held 762970 treasury shares.

The Board of Directors of Suominen Corporation resolved on March 6, 2018 on a directed share issue without payment for the reward payment from Suominen’s Matching Share Plan 2015 and from the Performance Share Plan 2015 (Performance Period 2015‒2017). The number of treasury shares distributed to the participants was 89568 shares.

In accordance with the resolution by the Annual General Meeting, in total 23,742 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 15 March 2018 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 will be 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 2018 of the company is published. The shares were given out of the own shares held by the company by the decision of the Board of Directors on May 31,  2018.

Share-based incentive plans for the management and key employees

The Group management and key employees participate the company’s share-based incentive plan. The plans are described in detail in the Financial Statements 2017 and in the Remuneration Statement 2017 of Suominen Corporation, available on the company’s website, www.suominen.fi > Investors > Corporate Governance.

The Board of Directors of Suominen Corporation resolved on 6 March 2018 on a directed share issue without payment for the reward payment from Suominen’s Matching Share Plan 2015 and from the Performance Share Plan 2015 (Performance Period 2015‒2017). The resolution on the directed share issue without payment was based on the authorization granted to the Board of Directors by the Annual General Meeting held on 16 March 2016.

The plans had in total 14 participants. Based on the terms and conditions of the plans and after the deduction of the cash portion of the reward for taxes, the number of shares earned by the participants was 89,568 shares.

Change of President and CEO

Suominen Corporation announced on 3 August 2018, that the Board of Suominen Corporation had appointed Mr. Pekka Ojanpää as the new President & CEO of the Company. Ojanpää works currently as the President & CEO of Lassila & Tikanoja Plc and will start as Suominen’s President & CEO latest on  February 3, 2019.

The previous President & CEO, Ms. Nina Kopola, left her position as President & CEO and Mr.Tapio Engström, SVP, CFO, was appointed as Suominen’s interim President & CEO as of 3 August 2018.

Annual General Meeting

The Annual General Meeting (AGM) of Suominen Corporation was held on March 15, 2018.

The AGM adopted the Financial Statements and the Consolidated Financial Statements for the financial year 2017 and discharged the members of the Board of Directors and the President & CEO from liability for the financial year 2017.

The AGM decided that a return of capital of EUR 0.11 per share will be paid, in total EUR 6.3 million. The decision was in accordance with the proposal by the Board of Directors.

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 decision was in accordance with the proposal by the Shareholders’ Nomination Board.

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, Mr. Risto Anttonen, Mr. Hannu Kasurinen, Ms. Laura Raitio and Ms. Jaana Tuominen were re-elected as members of the Board of Directors. The decisions were in accordance with the proposal by the Shareholders’ Nomination 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 decided that the auditor’s fee would be paid according to the invoice accepted by the company. The decisions were in accordance with the proposal of the Board of Directors and the recommendation by the Audit Committee.

The AGM authorized the Board of Directors to decide on the repurchase of the company’s own shares. The decision was in accordance with the proposal by the Board of Directors. The terms and conditions of the authorization are explained later in this half-year financial report.

Constitutive meeting and permanent committees of the Board of Directors

In its organising meeting held after the AGM, the Board of Directors re-elected Risto Anttonen 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. Hannu Kasurinen was re-elected as the Chair of the Audit Committee and Andreas Ahlström was re-elected as member. Laura Raitio was elected as a new member to the Audit Committee. Jan Johansson was re-elected as the Chair of the Personnel and Remuneration Committee and Risto Anttonen and Laura Raitio were re-elected as members.

Authorizations of the Board of Directors

The Annual General Meeting (AGM) held on March 15, 2018 authorised the Board of Directors to decide on the repurchase a maximum of 400000 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, 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 30 June 2019 and it revokes all earlier authorizations to repurchase company’s own shares.

The AGM held on March 16, 2016 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 special rights entitling to shares referred to in Chapter 10, Section 1 of the Finnish Limited Liability Companies Act. 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 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 earlier. The authorization is valid until 30 September 2019. On 30 June 2018, the remaining maximum amount of shares to be conveyed was 4,872,826 shares.

https://www.suominen.fi/en/