Suominen Corporation’s Financial Statements Release for January 1–December 31, 2019: Profitability improved, strong cash flow continued

October–December 2019 in brief:

– Net sales decreased by 13.9% and were EUR 94.5 million (109.8)

– Operating profit improved to EUR 1.4 million (-0.4)

– Cash flow from operations decreased from 2018 and was EUR 5.7 million (8.5)

Financial year 2019 in brief:

– Net sales decreased by 4.6% and were EUR 411.4 million (431.1)

– Operating profit improved by 77% to EUR 8.1 million (4.6)

– Cash flow from operations remained strong and was EUR 29.9 million (32.1)

– Petri Helsky started as President and CEO on January 7, 2019

– New business areas, Americas and Europe, started on July 1, 2019

– Board of Directors proposes a dividend of EUR 0.05 per share

 Outlook for 2020:

Suominen gave its long term net sales target for the strategy period 2020–2025 on January 8, 2020, which is that our net sales growth will be above relevant market growth. Suominen will no longer give short-term net sales guidance.

Suominen expects that in 2020, its comparable operating profit will improve from 2019. In 2019, Suominen’s operating profit amounted to EUR 8.1 million. In financial years 2019 and 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.

 Board proposal on distribution of dividend:

 Suominen’s Board of Directors proposes to the Annual General Meeting a dividend of EUR 0.05 per share from the financial year 2019. On January 29, 2020, the company had 57,529,868 issued shares, excluding treasury shares. With this number of shares, the total amount of the dividend would be EUR 2876493.40.

 Petri Helsky, President and CEO:  “In 2019, our operating profit improved and amounted to EUR 8.1 million (4.6), mainly due to improvement in gross profit, thanks to positive development in raw material prices, sales prices and raw material efficiency. 

In 2019, our net sales was at the level of 2018, EUR 411.4 million (431.1). Our sales volumes decreased from the comparison period, whilst sales prices increased slightly. The strengthening of the USD compared to EUR increased the net sales by EUR 12.5 million.                                                                                                   

During the year we made good progress in many areas. The Group-wide ICT systems renewal came to a successful end in the second quarter of the year. Our systematic improvement actions in operations have led to improvement in operational performance. We did also see good results from our variable cost optimization program launched in early 2019.

We announced our new strategy in the beginning of January 2020 targeting growth by creating innovative and more sustainable nonwovens for our customers. We will also improve our profitability through more efficient operations and by building a high performance culture. Our vision is to be the frontrunner for nonwovens innovation and sustainability. The organizational changes made in July will support our new strategy.

Sustainability is one of the key areas in our new strategy and we revised our sustainability agenda as part of the business strategy work. Our approach towards sustainability does not concentrate only on developing more sustainable products and decreasing our own production’s environmental impacts, but also highlights the importance of responsible business practices throughout the value chain.

Overall, we made good progress in 2019 and going forward Suominen is in a good position as the leader in nonwovens for wipes. The market for sustainable products is growing globally and we are well placed to respond to this increasing demand. Our new strategy gives us a good starting point for 2020.”

NET SALES

October–December 2019

In the fourth quarter, Suominen’s net sales decreased by 13.9% from the comparison period to EUR 94.5 million (109.8), due to lower sales volumes as well as lower sales prices driven by declining raw material prices.

Since July 1, Suominen has two business areas, Americas and Europe. Net sales of the Americas business area amounted to EUR 62.2 million (65.9) and net sales of the Europe business area EUR 32.3 million (43.9).

Financial year 2019

 In 2019, Suominen’s net sales decreased by 4.6 % from the comparison period to EUR 411.4 million (431.1), Our sales volumes decreased from the comparison period, whilst sales prices increased slightly. The strengthening of the USD compared to EUR increased the net sales by EUR 12.5 million. 

Net sales of Americas business area were EUR 261.7 million (259.9) and net sales of Europe business area EUR 149.8 million (171.3).

In 2019, the share of nonwovens for baby wipes was 40 % (39 %), for personal care wipes 22 % (22 %), for home care wipes 20 % (20 %), for workplace wipes 9 % (9 %) and for medical & hygiene applications 8 % (8 %).

 OPERATING PROFIT AND RESULT

  October–December 2019

Operating profit improved from the corresponding period of the previous year and was EUR 1.4 million (-0.4). The result impact of foreign exchange rates was minor.

Result before income taxes in the fourth quarter was EUR -0.5 million (-1.9) and profit for the period EUR -1.2 million (-2.0). The income taxes for the period were EUR -0.7 million (-0.1).

Financial year 2019

Operating profit improved by 77 % and amounted to EUR 8.1 million (4.6). The application of IFRS 16 leases improved the operating profit by EUR 0.2 million. The negative impact of foreign exchange rates was approximately EUR -1.8 million. Due to the reorganization operating profit included EUR 0.5 million restructuring costs.

In 2019, profit before income taxes was EUR 2.1 million (-1.0). Income taxes were EUR -1.9 million (-0.8), and the profit for the period improved to EUR 0.2 million (-1.7).

FINANCING

 The Group’s net interest-bearing liabilities, calculated with the nominal value of the interest-bearing liabilities at the end of the review period, December 31, 2019, amounted to EUR 67.2 million (70.8). Gearing was 50.7% (54.2%) and equity ratio 42.7% (40.7%, restated).

In 2019, net financial expenses were EUR -6.0 million (-5.6), or 1.5% (1.3%) of net sales. Net effect of changes in foreign exchange rates in financial items were EUR 0.2 million (+0.3). In addition, a bad debt provision based on expected credit losses totaling EUR 0.5 million (0.6) was recognized from loan receivables.

Cash flow from operations in the fourth quarter was EUR 5.7 million (8.5) and in full year 2019 EUR 29.9 million (32.1). Cash flow from operations per share in 2019 was EUR 0.52 (0.56). The financial items in the cash flow from operations, in total EUR -5.2 million (-4.7), were principally impacted by the interests paid during the reporting period. The change in the net working capital was EUR 1.6 million positive (EUR 5.6 million positive).

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.

CAPITAL EXPENDITURE

In 2019, the gross capital expenditure totalled EUR 11.2 million (13.6). Gross capital investments were mainly related to the growth investment initiative at the Green Bay plant, WI, USA as well as to the Group-wide renewal of ICT systems. All of 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 of 2019 at the Paulínia, Brazil and Bethune, USA, plants. The other investments were mainly for maintenance.

Depreciation and amortization for the review period amounted to EUR -25.5 million (-21.0).

PERSONNEL

During 2019, Suominen employed 685 people (676) on average, and 669 people (690) at the end of 2019. The decrease in the number of personnel was primarily in the Operations function.

HEALTH, SAFETY AND ENVIRONMENT

Suominen aims to provide a safe and healthy working environment for all its employees. In 2019, Suominen had 6 (4) lost time accidents. Suominen has processes in place to improve its safety performance. Suominen has established Life Saving rules and Behavior Based Safety Program to enforce its safety culture.

For Suominen the material aspects of environmental responsibility include the targets to minimize the environmental impacts of products throughout their life cycle, reduce the environmental impacts of operations and continuously develop responsible sourcing practices. Suominen is committed to developing more sustainable products by using raw materials with smaller environmental footprint as well as continuously minimizing environmental impacts of its operations.

SHARE INFORMATION

Share capital

The number of Suominen’s registered shares was 58259219 on December 31, 2019, equaling to a share capital of EUR 11860056.00. Suominen has one series of shares. Each share carries one vote in the Shareholders’ Meeting and right to an equally-sized dividend. Suominen’s shares are affiliated in a book-entry system.

Share trading and price

The number of Suominen Corporation shares (SUY1V) traded on Nasdaq Helsinki from January 1 to December 31, 2019 was 4655863 shares, accounting for 8.1 % 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 2.38. The closing price at the beginning of the review period, on January 2, 2019, was EUR 2.14 and the closing price on the last trading date of the review period, on December 30, 2019, was EUR 2.31.

The market capitalization (excluding treasury shares) was EUR 132.9 million on December 31, 2019.

Treasury shares

On December 31, 2019, Suominen Corporation held 729,351 treasury shares.

In accordance with the resolution by the Annual General Meeting, in total 33619 shares were transferred to the members of the Board of Directors as their remuneration payable in shares during the reporting period.

Authorisations 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 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 organised 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 programmes, 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 authorisation 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 5000000 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 5000000 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 4966381 shares in aggregate.

Remuneration of the Board payable 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 was 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.

Since the decision taken by the Board of Directors was essentially an execution of a detailed resolution taken by the AGM, the Board did not exercise independent discretion when it decided on the transfer of the shares. The transferred shares are of the same class as the company’s other shares.

Share-based incentive plans for the management and key employees valid in 2019.

Performance Share Plan 2015-2019

The last vesting period (2017–2019) of the Performance Share Plan 2015-2019 ended in 2019. The potential reward of the Plan from the period 2017–2019 was based on the Suominen Group’s net sales growth, earnings before interest and taxes (EBIT %) and return on invested capital (ROI  %). The rewards to be paid on the basis of the performance period 2017–2019 corresponded to the value of an approximate maximum total of 480000 Suominen Corporation shares (including also the proportion to be settled in cash). No rewards will be paid for the vesting period of 2017–2019.

Performance Share Plan 2018

The Performance Share Plan 2018 currently includes two 3-year performance periods, calendar years 2018–2020 and 2019–2021. The Performance Share Plan is directed to approximately 20 people. The Plan includes a share price cap mechanism which cuts the reward if the limits set by the Board of Directors for the share price are reached. The potential reward of the Plan from the performance period 2018–2020 is based on the Relative Total Shareholder Return (TSR) and earnings before interest and taxes margin (EBIT %). The potential rewards to be paid on the basis of the performance period 2018–2020 correspond to the value of an approximate maximum total of 502,000 Suominen shares, of which the maximum portion of the President & CEO would be the value of 88,000 shares (both including also the proportion to be paid in cash). The potential reward of the Plan from the performance period 2019–2021 is based on the Relative Total Shareholder Return (TSR). The potential 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 shares, of which the maximum portion of the President & CEO would be the value of 151500 shares (both including also the proportion to be paid in cash).

The potential rewards from the performance periods 2018–2020 and 2019–2021 will be paid partly in the Company’s shares and partly in cash in 2021 and 2022, respectively. 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. 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 his or her employment or service in a group Company continues.

Matching Restricted Share Plan 2019-2021

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 200000 Suominen Corporation shares including also the proportion to be paid in cash.

SHAREHOLDERS

At the end of the review period, on December 31, 2019, Suominen Corporation had in total 3710 shareholders. Suominen is not aware of any shareholder agreements related with the shareholding or use of voting rights. Detailed information on the management shareholding and a table presenting the largest shareholders is available in the notes of this Financial Statement Release.

COMPOSITION OF THE NOMINATION BOARD

In accordance with the decision taken by the Annual General Meeting of Suominen Corporation, the representatives notified by the company’s three largest shareholders have been elected to Suominen Corporation’s permanent Nomination Board. In addition, Chair of the company’s Board of Directors shall serve as the fourth member. The shareholders entitled to appoint members to the Nomination Board during financial year 2019 were determined on the basis of the registered holdings in the company’s shareholder register on September 1, 2018 and on September 2, 2019. The Nomination Board shall submit its proposals to the Board of Directors no later than February 1 prior to the Annual General Meeting.

 From January 1 to September 2, 2019, the members of the Nomination Board were:

Lasse Heinonen, President & CEO of Ahlström Capital, nominated by AC Invest Two B.V.; Roger Hagborg, Investment Advisory Professional, TVF TopCo Limited, nominated by Oy Etra Invest Ab;

Reima Rytsölä, Executive Vice-President, Investments of Varma Mutual Pension Insurance Company; nominated by Varma Mutual Pension Insurance Company;

Jan Johansson, Chair of Suominen’s Board of Directors.

Suominen’s three largest registered shareholders on the basis of the registered holdings in the company’s shareholders’ register on September 2, 2019, AC Invest Two B.V., Oy Etra Invest Ab and Varma Mutual Pension Insurance Company, nominated the following members to the Shareholders’ Nomination Board from September 3, 2019: 

Lasse Heinonen, President & CEO of Ahlström Capital Oy, as a member appointed by AC Invest Two B.V.;

Erik Malmberg, Investment Advisory Professional, Triton Advisers AB, as a member appointed by Oy Etra Invest Ab;

Hanna Kaskela, Director of Responsible Investments, Varma Mutual Pension Insurance Company;

Jan Johansson, Chair of Suominen’s Board of Directors

CHANGES IN MANAGEMENT

Petri Helsky started as the President & CEO of Suominen on January 7, 2019. Tapio Engström, Senior Vice President & CFO acted as Suominen’s interim President & CEO from August 3, 2018 until January 7, 2019.

Suominen announced on January 9, 2019, that the CFO of Suominen Corporation and a member of Suominen Executive Team Tapio Engström will leave Suominen. His last day at Suominen was May 3. Toni Tamminen, D.Sc. (Tech.), M.Sc. (Econ.) started as CFO and a member of Suominen Executive Team on July 30, 2019. Sirpa Koskinen, VP, Group Controller acted as interim CFO until Toni Tamminen started.

On April 24, 2019 Suominen announced its new business areas and changes in the Executive Team. 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. Klaus Korhonen (LL.M) started as Senior Vice President, Human Resources and Legal Affairs and as a member of Suominen’s Executive Team on August 19, 2019.

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 60000, Deputy Chair of the Board an annual fee of EUR 37500 and other Board members an annual fee of EUR 28000. 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 authorised 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 in this Financial Statements Release.

Constitutive meeting and permanent committees of the Board of Directors

In its organizing 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 and Laura Raitio were re-elected as members. Jan Johansson was re-elected as the Chair of the Personnel and Remuneration Committee and Risto Anttonen was re-elected as a member. Sari Pajari was elected as a new member to the Personnel and Remuneration Committee.

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

BUSINESS RISKS AND UNCERTAINTIES

Manufacturing risks

Suominen has production plants in several European countries, United States and Brazil. Interruptions at the plants caused for example by machinery breakdown can cause production losses and delivery problems. Ongoing maintenance and investments aiming to extend the lifetime of the assets are an essential part of ensuring the operational efficiency of the existing production lines.

Suominen’s operations could be disrupted due to abrupt and unforeseen events beyond the company’s control, such as power outages or fire and water damage. Suominen may not be able to control such events through predictive actions, which could lead to interruptions in business. Risks of this type are insured in order to guarantee the continuity of operations. As Suominen has valid damage and business interruption insurance, it is expected that the damage would be compensated, and the financial losses caused by the interruption of business would be covered.

Suominen uses certain technologies in its production. In the management’s view, the chosen technologies are competitive and there is no need to make major investments in new technologies. However, it cannot be excluded that the company’s technology choices could prove wrong, and the development of new or substitute technologies would then require investments.

Competition

Price and availability of raw materials

Suominen has numerous regional, national and international competitors in its different product groups. There is currently oversupply in some product groups in Suominen’s principal markets. Products based on new technologies and imports from countries of lower production costs may reduce Suominen’s competitive edge. If Suominen is not able to compete with an attractive product offering, it may lose some of its market share. Competition may lead to increased pricing pressure on the company’s products.

Suominen purchases significant amounts of pulp- and oil-based raw materials. Raw materials are the largest cost item for operations. Changes in the global market prices of raw materials can have an impact on the company’s profitability. Suominen’s stocks equal two to four weeks’ consumption and passing on the price changes of these raw materials to the prices Suominen charges its contract customers takes two to five months.

Extended interruptions in the supply of Suominen’s main raw materials could disrupt production and have a negative impact on the Group’s overall business operations. As Suominen sources most of its raw materials from a number of major international suppliers, significant interruptions in the production of the majority of Suominen’s products are unlikely.

Market and customer risks

Suominen’s customer base is fairly concentrated, which increases the potential impact of changes in customer specific sales volumes. In 2019, the Group’s ten largest customers accounted for 65% (65%) 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 credit policy approved by the Board of Directors. Credit limits are confirmed for customers on the basis of credit ratings and customer history.

The demand for Suominen’s products depends on the development of consumer preferences. Historically, changes in global consumer preferences have had mainly positive impact on Suominen, as they have resulted in the growing demand for products made of nonwovens. However, certain factors, including consumers’ attitude towards the use of products made even partially of oil-based raw materials, or their perception on the sustainability of disposable products in general, might rapidly change the consumers’ preferences and buying habits. Suominen monitors the consumer trends proactively and develops its product offering accordingly. The company has had biodegradable, 100 % plant-based nonwovens in its portfolio for over 10 years.

Changes in legislation, political environment or economic conditions

Suominen’s business and products can be affected directly or indirectly by political decisions and changes in government regulations for example in areas such as environmental policy or waste legislation. An example of such legislation is the EU’s Single-Use Plastics Directive that focuses on reducing marine litter. The potential exists for similar regulations to expand worldwide. This creates demand for more sustainable products, and Suominen is well placed to respond to this increasing demand.

Global political developments could have an adverse effect on Suominen. For instance, a political decision that constrains the global free trade may significantly impact the availability and price of certain raw materials, which would in turn affect Suominen’s business and profitability. Suominen’s geographical and customer-industry diversity provide partial protection against this risk.

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

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

Investments

Suominen continuously invests in its manufacturing facilities. The deployment of the investments may delay from what was planned, the costs of the investments may increase from what has been expected or the investments may create less business benefits than anticipated. The deployment phase of investments may cause temporary interruptions in operations.

Cyber and information security

Suominen’s operations are dependent on the integrity, security and stable operation of its ICT systems and software as well as on the successful management of cyber attack risks. If Suominen’s ICT systems and software were to become unusable or significantly impaired for an extended period of time, or the cyber attack risks are realized, Suominen’s reputation as well as ability to deliver products at the appointed time, order raw materials and handle inventory could be adversely impacted.

Financial risks

The Group is exposed to several financial risks, such as foreign exchange, interest rate, counterparty, liquidity and credit risks. The Group’s financial risks are managed in line with a policy confirmed by the Board of Directors. The financial risks are described in the note 3 of the Financial Statements.

Suominen is subject to corporate income taxes in numerous jurisdictions. Significant judgment is required to determine the total amount of corporate income tax at Group level. There are many transactions and calculations that leave room for uncertainty as to the final amount of the income tax. Tax risks relate also to changes in tax rates or tax legislation or misinterpretations, and materialization of the risks could result in increased payments or sanctions by the tax authorities, which in turn could lead to financial loss. Deferred tax assets included in the statement of financial position require that the deferred tax assets can be recovered against the future taxable income.

Suominen performs goodwill impairment testing annually. In impairment testing the recoverable amounts are determined as the value in use, which comprises of the discounted projected future cash flows. Actual cash flows can differ from the discounted projected future cash flows. Uncertainties related to the projected future cash flows include, among others, the long economic useful life of the assets and changes in the forecast sales prices of Suominen’s products, production costs as well as discount rates used in testing. Due to the uncertainty inherent in the future, it is possible that Suominen’s recoverable amounts will be insufficient to cover the carrying amounts of assets, particularly goodwill. If this happens, it will be necessary to recognize an impairment loss, which, when implemented, will weaken the result and equity. Goodwill impairment testing has been described in the consolidated financial statements.

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 consumer confidence indexes in euro area and in the United States fluctuated slightly throughout the year, staying strong in both geographical areas the whole time. 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 on 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 2020 on average, at the pace of 2019.

CHANGES IN THE GROUP STRUCTURE

Suominen Spain Holding S.A.U. merged into Alicante Nonwovens S.A.U. in December 2019.

OUTLOOK FOR 2020

Suominen gave its long term net sales target for the strategy period 2020–2025 on January 8, 2020, which is that our net sales growth will be above relevant market growth. Suominen will no longer give short-term net sales guidance.

Suominen expects that in 2020, its comparable operating profit will improve from 2019. In 2019, Suominen’s operating profit amounted to EUR 8.1 million. In financial years 2019 and 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.

PROPOSAL ON DISTRIBUTION OF FUNDS

The loss of the financial year 2019 of Suominen Corporation, the parent company of Suominen Group, was EUR -1,268,595.40. The funds distributable as dividends, including the loss for the period, were EUR 8386647 and total distributable funds were EUR 89655609.

The Board of Directors proposes that a dividend of EUR 0.05 per share shall be distributed for the financial year 2019 and that the loss shall be transferred to retained earnings. On January 29, 2020 the company had 57529868 issued shares, excluding treasury shares. With this number of shares, the total amount of dividends to be distributed would be EUR 2,876,493.40.

There have been no significant changes in the company’s financial position after the end of the review period.

The record date is March 23, 2020 and the dividend would be paid on April 3, 2020.

www.suominen.fi