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2019-04-24 14:00:00 CEST 2019-04-24 14:00:15 CEST REGULATED INFORMATION Suominen Oyj - Interim report (Q1 and Q3)Suominen Corporation’s Interim Report for 1 January – 31 March 2019: Net sales and operating profit improvedSuominen Corporation’s Interim Report on April 24, 2019 at 15:00 p.m. (EEST)
*restated Outlook for 2019 unchanged Petri Helsky, President & CEO, comments on Suominen’s first quarter of 2019: This is a positive start for the year, however we still have a lot to do to improve our result and performance. We need to continue to take necessary actions to improve Suominen’s profitability. We will concentrate on further improving our production performance and continue to develop our commercial capabilities. This first quarter was the best production quarter for our new manufacturing line in Bethune, SC, USA. During the quarter we conducted Final Acceptance Certifications (FAC) and other test runs. These FAC’s and other test runs impacted negatively on the result, but the line’s contribution to company’s gross profit was however slightly positive. The other growth investment initiative at our plant in Green Bay, WI, USA proceeded as planned and we anticipate the new capabilities to be in full utilization by the end of 2019. Our Group-wide renewal of ICT systems continued as planned as the new systems were taken into use at our Paulinia, Brazil plant on 1 April. The last remaining implementation of the new systems will take place at the Bethune, SC, plant in the US in May. I am certain that with this renewal we will increase our efficiency, productivity and transparency in the future.“ OPERATING PROFIT AND RESULT FINANCING Depreciation and amortization for the review period amounted to EUR 6.3 million (5.0). The majority of the increase in depreciation and amortization compared to the previous year is due to application of IFRS 16 Leases standard. INFORMATION ON SHARES AND SHARE CAPITAL The portion of the remuneration of the members of the Board of Directors which shall be paid in shares The Board of Directors of Suominen Corporation approved on 30 January 2019 a new share-based incentive plan for the Group management and Group key employees. The aim of the new plan is to combine the objectives of the shareholders and the persons participating in the plan in order to increase the value of the company in the long-term, to bind the participants to the company, and to offer them competitive reward plans based on earning and accumulating the company´s shares. The new plan is continuation of the share-based incentive plan, resolved by the Board of Directors in December 2017. The new three-year earnings period of the plan includes calendar years 2019–2021. The Board of Directors decides on the plan’s performance criteria and required performance levels for each criterion at the beginning of an earnings period. The plan is directed to approximately 20 people. The potential reward of the plan from the performance period 2019–2021 will be based on the Relative Total Shareholder Return (TSR). The rewards to be paid on the basis of the performance period 2019–2021 correspond to the value of an approximate maximum total of 729,000 Suominen Corporation shares (including also the proportion to be settled in cash). The Board of Directors will be entitled to reduce the rewards agreed in the Performance Share Plan if the limits set by the Board of Directors for the share price are reached. The potential rewards from the performance periods 2019–2021 will be settled partly in the company’s shares and partly in cash in 2022. The cash proportion is intended to cover taxes and tax-related costs arising from the reward to the participant. As a rule, no reward will be paid, if a participant´s employment or service ends before the reward payment. A member of the Corporate Executive Team must hold 50% of the net number of shares given on the basis of the plan, as long as his or her shareholding in total corresponds to the value of half of his or her annual gross salary. The President & CEO of the Company must hold 50% of the net number of shares given on the basis of the plan, as long as his or her shareholding in total corresponds to the value of his or her annual gross salary. Such number of shares must be held as long as the participant’s employment or service in a group company continues. ANNUAL GENERAL MEETING 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, in accordance with the proposal by the Board of Directors, that no dividend will be distributed and no capital will be returned from the reserve for invested unrestricted equity for the financial year 2018, and the profit shall be transferred to retained earnings. The AGM decided that the remuneration payable to the members of the Board remains unchanged. The Chair will be paid an annual fee of EUR 60,000, Deputy Chair of the Board an annual fee of EUR 37,500 and other Board members an annual fee of EUR 28,000. Further, the members of the Board will receive a fee of EUR 500 for each meeting of the Board of Directors held in the home country of the respective member and a fee of EUR 1,000 per each meeting of the Board of Directors held elsewhere than in the home country of the respective member. 60% of the remuneration is paid in cash and 40% in Suominen Corporation’s shares. Compensation for expenses is paid in accordance with the company's valid travel policy. The decision was in accordance with the proposal by the Shareholders’ Nomination Board.
Authorizations of the Board of Directors The Annual General Meeting (AGM) held on 19 March 2019 authorized the Board of Directors to decide on issuing new shares and/or conveying the company’s own shares held by the company and/or granting options and other special rights referred to in Chapter 10, Section 1 of the Finnish Companies Act. New shares may be issued, and the company’s own shares may be conveyed to the company’s shareholders in proportion to their current shareholdings in the company; or by waiving the shareholder’s pre-emption right, through a directed share issue if the company has a weighty financial reason to do so, such as, for example, using the shares as consideration in possible acquisitions or other arrangements related to the company’s business, as financing for investments, using shares as part of the company’s incentive program or using the shares for disbursing the portion of the Board members’ remuneration that is to be paid in shares. The new shares may also be issued without payment to the company itself. New shares may be issued and/or company’s own shares held by the company or its group company may be conveyed at the maximum amount of 5,000,000 shares in aggregate. The Board of Directors may grant options and other special rights referred to in Chapter 10, Section 1 of the Finnish Companies Act, which carry the right to receive against payment new shares or own shares held by the company. The right may also be granted to the company’s creditor in such a manner that the right is granted on condition that the creditor’s receivable is used to set off the subscription price (“Convertible Bond”). However, options and other special rights referred to in Chapter 10, Section 1 of the Companies Act cannot be granted as part of the company’s remuneration plan. The maximum number of new shares that may be subscribed and own shares held by the company that may be conveyed by virtue of the options and other special rights granted by the company is 5,000,000 shares in total which number is included in the maximum number stated above. The authorizations shall revoke all earlier authorizations regarding share issue and issuance of special rights entitling to shares. The Board of Directors shall decide on all other terms and conditions related to the authorizations. The authorizations shall be valid until 30 June 2020. CHANGES IN THE CORPORATE EXECUTIVE TEAM Petri Helsky started as the President & CEO of Suominen on 7 January 2019. Tapio Engström, Senior Vice President & CFO acted as Suominen’s interim President & CEO from 3 August 2018 until 7 January 2019. Suominen announced on 9 January 2019, that the CFO of Suominen Corporation and member of Suominen Executive Team Tapio Engström will leave Suominen on 8 July 2019 at the latest. 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.
Global political developments and changes in consumer preferences could have an adverse effect on Suominen. For instance, a political decision that constrains the global free trade may significantly impact the availability and price of certain raw materials, which would in turn affect Suominen’s business and profitability. Suominen’s geographical and customer-industry diversity provides partial protection against this risk. The demand for Suominen’s products depends on the development of consumer preferences. Historically, changes in global consumer preferences have had mainly positive impact on Suominen, as they have resulted in the growing demand for products made of nonwovens. However, certain factors, including consumers’ attitude towards the use of products made even partially of oil-based raw materials, or their perception on the sustainability of disposable products in general, might rapidly change the consumers’ preferences and buying habits. Suominen monitors the consumer trends proactively and develops its product offering accordingly. The company has had biodegradable, 100% plant-based nonwovens in its portfolio for over 10 years. Suominen also interacts with policymakers regarding the so-called Single-Use Plastic Directive proposal in the European Union. The estimate on the development of Suominen’s net sales is partially based on forecasts and delivery plans received from the company’s customers. Changes in these forecasts and plans, resulting from changes in the market conditions or in customers’ inventory levels, may affect Suominen’s net sales. Suominen’s customer base is fairly concentrated, which adds to the customer-specific risk. This may affect Suominen’s financial result if customers’ purchasing habits become more cautious as a result of a changes in consumption, or as a result of sales losses. In 2018, the Group’s ten largest customers accounted for 65% (63%) of the Group net sales. Long-term contracts are preferred with the largest customers. In practice the customer relationships are long-term and last for several years. Customer-related credit risks are managed in accordance with a risk policy approved by the Board of Directors. Credit limits are confirmed for customers on the basis of credit ratings and customer history.
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. 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 and consumer confidence determines the development of consumer demand, even though the demand for consumer goods is not very cyclical in nature. North America and Europe are the largest market areas for Suominen. In addition, the company operates in South American markets. The growth in the demand for nonwovens has typically exceeded the growth of gross domestic product by a couple of percentage points. In the euro area, the consumer confidence index increased slightly in the beginning of the year. In the United States the consumer confidence index instead declined slightly. The consumer confidence index is still strong in both geographical areas. Suominen assesses the trend in the demand for its products on the basis of both the general market situation and, above all, on the basis of the framework agreements drawn up with its customers. There is currently overcapacity in the market, mainly in nonwovens for baby wipes and flushables. At large, the growth in the demand in Suominen’s target markets is expected to continue in 2019, on average, at the pace of 2018.
This interim report has been prepared in accordance with the principles defined in IAS 34 Interim Financial Reporting. The principles for preparing the interim report are the same as those used for preparing the consolidated financial statements for 2018, with the exception of the effect of the new accounting standards and interpretations which have been applied from 1 January 2019. Below are disclosed separately those new standards, amendments and interpretations, which have been applied from 1 January 2019 and which have a material effect on Suominen. Other new or amended standards or interpretations applicable from 1 January 2019 are not material for Suominen Group. The effects of the changes in accounting principles on Suominen’s opening balances in the statement of financial position are presented in separate tables at the end of this interim report. IFRS 16 Leases IFRS 16 Leases is effective for the reporting periods beginning on 1 January 2019 or later. In accordance with the new standard, the lessee recognizes assets and liabilities for the rights and obligations created by leases. The new standard increased interest-bearing liabilities and property, plant and equipment (right-of-use assets) in the consolidated financial statements of Suominen. In addition, the rental expenses recognized in profit or loss have decreased and depreciation as well as interest expenses have increased. This has affected operating profit. Suominen owns the majority of its production facilities (ie. buildings and land) as well as all of its production lines. The most significant leasing agreements Suominen has consist of the leased production facilities in Italy and Windsor Locks, USA. Other leasing agreements are mainly leasing agreements on offices and smaller machinery and equipment. The carrying amounts of the lease liabilities and right-of-use assets depend on, among other things, the length of the leasing contracts as well as the potential options and possibilities to lengthen or shorten the lease term. The carrying amounts are especially affected with the estimates made of the lease terms and possible renewals of the lease agreements of the production facilities. Suominen has restated its statement of financial position as of 31 December 2018. The carrying amounts of lease liabilities were at the end of 2018 EUR 15.3 million and right-of-use assets arising from application of IFRS 16 were EUR 16.8 million. In addition, Suominen has recognized provisions related to the leased property. Suominen has applied the modified retrospective approach in application of IFRS 16. With this approach the comparative information is not restated and the lease liabilities at transition date equaled the present value of remaining lease payments. In addition, IFRS 16 was not applied to leases ending within 12 months from the transition date of 1 January 2019 nor to low value leases. At transition, IFRS 16 has also been applied only to contracts which have been previously identified as leases. The discount rates used in calculation of the lease liabilities were the discount rates at transition date. After transition Suominen has applied the recognition exemptions allowed by IFRS 16. This means that low value leases or leases, where the lease term is initially 12 months or less, are recognized as rental expenses in the statement of profit or loss. In addition, the lease and non-lease components are not separated for all asset classes. IFRIC Interpretation 23: Uncertainty over Income Tax Treatments IFRIC 23 Interpretation clarifies the accounting of uncertainty in accounting for income taxes. Under IFRIC 23 the key test is whether it is probable that the tax authority will accept the company's chosen tax treatment. If it is probable that the tax authority accepts the company's chosen tax treatment in the tax return, there is no uncertainty which would have to be recognized in the financial statements. If it is not probable, then the uncertainty is reflected in the measurement of current or deferred tax. The uncertainty is reflected in the measurement by using either the most likely amount or the expected value, which ever predicts the outcome better. The judgements and estimates applied in estimating the uncertainty over an income tax treatment are reassessed if facts and circumstances change. In accordance with the interpretation, the company has to determine, whether to consider each tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty in tax treatments has to be followed. Suominen has applied the interpretation from 1 January 2019 without restating comparative information. CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF CASH FLOWS
KEY RATIOS
CALCULATION OF KEY RATIOS AND ALTERNATIVE PERFORMANCE MEASURES Some of the other key ratios Suominen publishes are alternative performance measures. An alternative performance measure is a key ratio which has not been defined in IFRS standards. Suominen believes that the use of alternative performance measures provides useful information for example to investors regarding the Group's financial and operating performance and makes it easier to make comparisons between the reporting periods. The link between the components of the key ratios per share and the consolidated financial statements is presented in the consolidated financial statements of 2018. The link between the components of the alternative performance measures and the consolidated financial statements is presented in Suominen’s Annual Report for 2018. Calculation of key ratios per share Earnings per share
Cash flow from operations per share
Market capitalization
Share turnover
Calculation of key ratios and alternative performance measures Operating profit and comparable operating profit
In order to improve the comparability of result between reporting periods, Suominen presents comparable operating profit as an alternative performance measure. Operating profit is adjusted with material items that are considered to affect comparability between reporting periods. These items include, among others, impairment losses or reversals of impairment losses, gains or losses from the sales of property, plant and equipment or intangible assets or other assets and restructuring costs. Suominen did not have any items affecting comparability in 2019 or 2018. EBITDA
Gross capital expenditure
Interest-bearing net debt It is the opinion of Suominen that presenting interest-bearing liabilities not only at amortized cost but also at nominal value gives relevant additional information to the investors.
Return on equity (ROE), %
Invested capital
Return on invested capital (ROI), %
Equity ratio, %
Gearing, %
NET SALES BY GEOGRAPHICAL MARKET AREA
NET SALES BY BUSINESS AREA
QUARTERLY DEVELOPMENT
RELATED PARTY INFORMATION
(* 2018 recognition of lease liabilities to statement of financial position in IFRS 16 application. CONTINGENT LIABILITIES
Total 13,285 13,920 13,378 NOMINAL AND FAIR VALUES OF DERIVATIVE INSTRUMENTS
FINANCIAL ASSETS BY CATEGORY
Principles in estimating fair value of financial assets for 2019 are the same as those used for preparing the consolidated financial statements for 2018. FINANCIAL LIABILITIES
FAIR VALUE MEASUREMENT HIERARCHY
Principles in estimating fair value of financial assets and their hierarchies for 2019 are the same as those used for preparing the consolidated financial statements for 2018. Consolidated statement of financial position
Alternative performance measures Interest-bearing net debt
Invested capital
Return on invested capital (ROI), %
Equity ratio, %
Gearing, %
SUOMINEN CORPORATION
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