Nonwovens / Technical Textiles
Suominen publishes half-year figures and gives outlook
Suominen Corporation’s Half-Year Financial Report on August 9, 2022 at 9:30 a.m. (EEST)
In this financial report, figures shown in brackets refer to the comparison period last year if not otherwise stated.
April–June 2022 in brief:
- Net sales increased by 4% and amounted to EUR 118.0 million (113.6)
- Comparable EBITDA decreased to EUR 1.9 million (15.3)
- Cash flow from operations was EUR 11.9 million (1.2)
January–June 2022 in brief:
- Net sales were in line with the previous year and amounted to EUR 228.3 million (229.0)
- Comparable EBITDA decreased to EUR 5.2 million (33.8)
- Cash flow from operations was EUR 9.2 million (17.1)
Outlook for 2022 unchanged
Suominen expects that its comparable EBITDA (earnings before interest, taxes, depreciation and amortization) in 2022 will decrease clearly from 2021. The war in Ukraine has increased the already significant cost inflation in raw materials, energy, and transportation. Also, while there has been progress in the normalization of the customer inventory levels in the US, it has been somewhat slower than expected. These factors will impact the full year result negatively even though we expect that the demand for our products will improve in the second half of the year. In 2021, Suominen’s comparable EBITDA was EUR 47.0 million.
Petri Helsky, President & CEO:
“The first half of 2022 was difficult for Suominen. In the second quarter we did not see an improvement in demand for the hard surface disinfectant products which has been suffering from the high inventory levels in the US supply chains. Overall our sales volumes improved slightly from the previous quarter but remained well below the corresponding period last year. What comes to raw materials, energy and transportation, there was another steep hike in these costs in the second quarter. Due to the lag in our sales pricing mechanisms our sales prices did not fully reflect the cost increases. Especially in Europe, the cost inflation was made worse by the war in Ukraine.
Our net sales were EUR 118.0 million (113.6) in the second quarter with currencies impacting the sales positively by EUR 8.0 million. Sales volumes decreased from Q2/2021 which marked the last quarter of the COVID-19 boom while sales prices increased following the higher raw material prices. Our quarterly EBITDA declined to EUR 1.9 million (15.3) due to the lower sales volumes and lower margins as our raw material, energy and freight costs increased more than the sales prices. Fixed costs saving actions had a small positive impact on the result.
We are continuing to identify and implement actions to improve our financial performance. As described in our previous interim report, we implemented an energy surcharge to all our products sold in Europe in mid-March which took effect in Q2. We have also progressed in our work on widening our product portfolio in the US at the production lines suffering from the inventory imbalance and we expect demand improvement for these lines in the second half of 2022 based on new contracted volumes. On the operations side we have launched a development program to further improve our raw material efficiency.
Safety is a key priority both in our strategy and our daily operations and our long-term target is zero lost-time accidents (LTA). During the first half of the year there has not been any LTAs at our sites and a great example of our successful safety work is our Paulinia site in Brazil which achieved a decade of no LTAs in June 2022.
We are continuously developing our sustainable product offering. To support our product development in nonwovens biodegradability we have built our own compostability test center Green Lab in Nakkila, Finland and the first tests have already started.
During the second quarter we announced an investment to enhance and upgrade one of our lines in Nakkila, Finland. This investment strengthens our capabilities in sustainable products and is made in line with our strategy and vision to be the frontrunner in sustainable nonwovens.
In June 2022 we agreed to extend our EUR 100 million syndicated revolving credit facility agreement by one year. The maturity of the facility is now extended to July 2025.
NET SALES
April–June 2022
In April–June 2022, Suominen’s net sales increased by 4% from the comparison period to EUR 118.0 million (113.6). Sales volumes decreased from the very high level of Q2/2021, but sales prices increased following higher raw material prices. The impact of currencies on net sales was EUR 8.0 million.
Suominen’s business areas are Americas and Europe. The net sales of the Americas business area were EUR 64.2 million (67.4) and of the Europe business area EUR 53.8 million (46.3).
January–June 2022
In January–June 2022, Suominen’s net sales were in line with the previous year and amounted to EUR 228.3 million (229.0). Sales volumes decreased from H1/2021 while sales prices were higher. The impact of currencies on net sales was positive EUR 12.6 million.
The net sales of the Americas business area were EUR 126.0 million (139.3) and of the Europe business area EUR 102.3 million (89.7).
EBITDA, OPERATING PROFIT AND RESULT
April–June 2022
EBITDA (earnings before interest, taxes, depreciation and amortization) declined to EUR 1.9 million (15.3). The decrease was driven by lower sales and production volumes as well as higher raw material, energy and logistics costs even though these were partially compensated by higher sales prices. The impact of currencies on EBITDA was EUR -0.6 million.
Operating profit decreased from the comparison period and amounted to EUR -2.9 million (10.3).
Profit before income taxes was EUR -2.2 million (8.7), and profit for the reporting period was EUR -2.3 million (6.1).
January–June 2022
EBITDA (earnings before interest, taxes, depreciation and amortization) declined to EUR 5.2 million (33.8). The decrease was driven especially by lower sales and production volumes. Higher raw material, energy and logistics costs also impacted the result negatively even though these were partially compensated by higher sales prices. The impact of currencies on EBITDA was EUR 0.0 million.
Operating profit decreased to EUR -4.2 million (23.9).
Profit before income taxes was EUR -4.4 million (25.6), and profit for the reporting period was EUR -4.7 million (19.9). In the comparison period, the sale of Amerplast impacted the result positively by EUR 3.7 million.
FINANCING
The Group’s net interest-bearing liabilities at nominal value amounted to EUR 53.6 million (35.7) at the end of the review period. The gearing ratio was 33.9% (22.4%) and the equity ratio 39.0% (40.6%).
In January–June, net financial expenses were EUR -0.2 million (+1.7), or -0.1% (+0.7%) of net sales. Fluctuations in exchange rates decreased the net financial expenses by EUR 3.0 million (decreased by EUR 0.5 million).
Suominen sold its minority share in Amerplast (Bright Maze Oy) in March 2021. The transaction impacted Suominen’s net financial expenses positively in the comparison period by EUR 3.7 million. The effect on the cash flow in 2021 was EUR 11.6 million.
Cash flow from operations in April–June was EUR 11.9 million (1.2) and in January–June EUR 9.2 million (17.1), representing a cash flow per share of EUR 0.16 (0.30) and EUR 0.21 (0.02) for the quarter.
In the second quarter the change in working capital was EUR 10.9 million (-9.7).
The decrease in the cash flow from operations in the first half of the year was mainly due to lower profit. The change in net working capital was EUR 6.6 million (-11.8).
In June 2022, Suominen announced that it has extended by one year the maturity of the EUR 100 million syndicated revolving credit facility agreement signed in July 2020. The maturity of the facility is now extended to July 2025.
CAPITAL EXPENDITURE
In January–June, the gross capital expenditure totaled EUR 4.0 million (10.7). The investments were mainly for maintenance.
Suominen announced in June that it strengthens its capabilities in sustainable products by enhancing and upgrading one of its production lines in Nakkila, Finland. The investment is made in line with Suominen’s strategy and supports company’s vision to be the frontrunner in sustainability. The total value of the investment is approximately EUR 6 million and the investment project will be completed in the second half of 2023.
Depreciation and amortization for the review period amounted to EUR 9.3 million (9.9).
PROGRESS IN SUSTAINABILITY
During the first half of 2022, we have made steady progress with the actions defined in our sustainability agenda.
We have strong focus on safety and accident prevention, and our long-term target is to have zero lost-time accidents. In the first half of the year there was no LTA’s at Suominen sites. As a concrete example of our successful safety work our Paulinia site in Brazil achieved a decade of no LTAs during the second quarter.
We systematically measure our employee engagement by conducting our engagement survey, Suominen Vibe, every year. During the first half of 2022, we continued our development actions based on the results from the survey conducted late last year. We also actively communicate the actions taken to the whole organization. The next Vibe survey is set for autumn 2022.
We are committed to continuously improving our production efficiency and the efficient utilization of natural resources. In the first quarter we continued our active measures towards our targets to reduce energy consumption, greenhouse gas emissions, water consumption and waste to landfill by 20% per ton of product by 2025 compared to the base year of 2019. As an example of our concrete actions to reduce greenhouse gas emissions we installed solar panels to our Alicante plant during the first half of the year and the start up is planned for early August 2022.
We offer a comprehensive portfolio of sustainable nonwovens to our customers and continuously develop new and innovative solutions with a reduced environmental impact. Our target is a 50% increase in sales of sustainable nonwovens by 2025 compared to 2019, and to have at least 10 sustainable product launches per year. To support our product development in nonwovens biodegradability, we have built our own compostability test center Green Lab in Nakkila, Finland and the first tests have already started.
Suominen reports progress in its key sustainability KPIs annually
As part of our Annual Report 2021 published on March 2, 2022 we reported on the progress of our sustainability performance. Our sustainability reporting in 2021 was done in accordance with the Core option of the GRI Standards from the Global Reporting Initiative and it was assured by an external partner.
INFORMATION ON SHARES AND SHARE CAPITAL
Share capital
The number of Suominen’s registered shares was 58,259,219 on June 30, 2022, 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, 2022 was 9,397,268 shares, accounting for 16.4% of the average number of shares (excluding treasury shares). The highest price was EUR 5.27, the lowest EUR 2.75 and the volume-weighted average price EUR 3.67. The closing price at the end of review period was EUR 2.99. The market capitalization (excluding treasury shares) was EUR 171.9 million on June 30, 2022.
Treasury shares
On June 30, 2022, Suominen Corporation held 778,492 treasury shares.
The share repurchase program of Suominen commenced on November 3, 2021 and ended on January 21, 2022. Suominen acquired in total 68,677 shares in January 2022.
As a share-based payment plan vested, in total 237,584 shares were transferred to the participants of the plan in February.
In accordance with the resolution by the Annual General Meeting, in total 18,585 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 paid in shares
The Annual General Meeting held on March 24, 2022 decided that 75% of the annual remuneration of the members of the Board of Directors is paid in cash and 25% in Suominen Corporation’s shares.
The number of shares forming the remuneration portion 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 two-week period immediately following the date on which the Interim Report of January?March 2022 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 17, 2022.
Share-based incentive plans for the management and key employees
The Group management and key employees participate in the company’s share-based long-term incentive plans. The plans are described in more detail in the Financial Statements and in the Remuneration Report, available on the company’s website www.suominen.fi.
Company's Performance Share Plan currently includes three 3-year performance periods, calendar years 2020–2022, 2021–2023 and 2022–2024. The aim of the Performance Share 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 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.
ANNUAL GENERAL MEETING
The Annual General Meeting (AGM) of Suominen Corporation was held on March 24, 2022.
The AGM adopted the Financial Statements and the Consolidated Financial Statements for the financial year 2021 and discharged the members of the Board of Directors and the President & CEO from liability for the financial year 2021. The AGM approved the Remuneration Report for the governing bodies.
The AGM decided, in accordance with the proposal by the Board of Directors, that a dividend of EUR 0.20 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 70,000 and the Deputy Chair and other Board members an annual fee of EUR 33,000. 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 500 for each meeting held as a telephone conference.
75% of the remuneration is paid in cash and 25% 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 remain unchanged at six (6). Mr. Andreas Ahlström, Mr. Björn Borgman, Mr. Jaakko Eskola, Ms. Nina Linander and Ms. Laura Raitio were re-elected as members of the Board. Mr. Aaron Barsness was elected as a new member of the Board.
Mr. Jaakko Eskola was re-elected as the Chair of the Board of Directors.
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 24, 2022 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 new Board member can be viewed on Suominen’s website at www.suominen.fi.
In compliance with the resolution of the Annual General Meeting, on April 7, 2022 Suominen paid out dividends in total of EUR 11.5 million for 2021, corresponding to EUR 0.20 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 re-elected as the Chair of the Audit Committee and Andreas Ahlström and Laura Raitio were re-elected as members. Jaakko Eskola was re-elected as the Chair of the Personnel and Remuneration Committee, Björn Borgman was re-elected as member, and Aaron Barsness was elected as new member.
Authorizations of the Board of Directors
The Annual General Meeting (AGM), held on March 24, 2022 authorized the Board of Directors to decide on the repurchase a maximum of 1,000,000 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, 2023 and it revokes all previous authorizations to repurchase company’s own shares.
The Annual General Meeting (AGM) held on March 24, 2022 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, 2023.
NOTIFICATIONS UNDER CHAPTER 9, SECTION 5 OF THE SECURITIES MARKET ACT
June 28, 2022: The shareholding of OP-Henkivakuutus Oy in Suominen Corporation crossed the 5% flagging threshold.
March 8, 2022: The shareholding of Etola Group Oy, controlled by Mr. Erkki Etola, in Suominen Corporation crossed the 10% flagging threshold. At the same time the total holding of Erkki Etola and companies controlled by him in Suominen Corporation crossed the 20% flagging threshold.
February 25, 2022: The shareholding of Etola Group Oy, controlled by Mr. Erkki Etola, in Suominen Corporation crossed the 5% flagging threshold.
January 20, 2022: The shareholding of Ilmarinen Mutual Pension Insurance Company in Suominen Corporation fell below the threshold of 5%.
SHORT TERM RISKS AND UNCERTAINTIES
The raw material, energy and logistics markets relevant for Suominen continue to experience significant volatility and cost inflation. This can impact Suominen’s financial performance depending on how the markets develop.
Regarding the war in Ukraine, the direct impact to Suominen’s business is minor as we have no customers nor suppliers in Russia, Belarus or Ukraine. Suominen as a company is mostly affected by the indirect economic impacts of the war which contribute to the cost inflation mentioned above.
Also the COVID-19 pandemic can still cause uncertainty in Suominen’s business environment. The key risks related to the virus concern the health and safety of Suominen personnel and customers, possible shortages of raw materials and issues linked to logistics, as well as potential closures of customers’ or our own plants due to virus infections. Our customers have generally performed well financially even during the pandemic and thus our customer credit risks have not materially increased.
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 2021 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 the 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 market expectation is that in the long run the end user demand for wipes will remain above pre-COVID levels. However, the pandemic-caused demand spike followed by moderation of said demand has led to an inventory imbalance in the whole supply chain especially in the US which still partially persists.
The war in Ukraine has worsened the inflationary pressures in raw material, energy and freight costs and increased uncertainty overall. However, we are seeing signs of the raw material cost inflation moderating from the third and especially fourth quarter onwards and we also expect normalization of the US inventory levels going forward.
OUTLOOK FOR 2022
Suominen expects that its comparable EBITDA (earnings before interest, taxes, depreciation and amortization) in 2022 will decrease clearly from 2021. The war in Ukraine has increased the already significant cost inflation in raw materials, energy and transportation. Also, while there has been progress in the normalization of the customer inventory levels in the US, it has been somewhat slower than expected. These factors will impact the full year result negatively even though we expect that the demand for our products will improve in the second half of the year. In 2021, Suominen’s comparable EBITDA was EUR 47.0 million.