Suominen Corporation Financial Statement Release 30 January 2018 at 1:00 pm (EET)
Suominen Corporation’s Financial Statement Release for 1 Jan–31 Dec 2017:
Full year net sales increased, operating profit declined, profit for the period close to last year’s level
Key figures
| 10-12/ | 10-12/ | 1-12/ | 1-12/ | |
| 2017 | 2016 | 2017 | 2016 | |
| Net sales, EUR million | 98.7 | 100.4 | 426.0 | 416.9 |
| Comparable operating profit, EUR million | -0.3 | 3.5 | 15.0 | 25.6 |
| Operating profit, EUR million | -0.3 | 3.5 | 15.0 | 25.6 |
| Profit for the period, EUR million | 6.3 | 1.6 | 14.5 | 15.2 |
| Earnings per share, basic, EUR | 0.12 | 0.03 | 0.27 | 0.29 |
| Earnings per share, diluted, EUR | 0.11 | 0.03 | 0.25 | 0.26 |
| Cash flow from operations per share, EUR | 0.04 | 0.07 | 0.39 | 0.56 |
| Return on invested capital, rolling 12 months, % | − | − | 6.6 | 11.6 |
| Gearing, % | − | − | 59.8 | 39.6 |
| Return of capital per share / dividend per share, EUR | − | − | 0.11* | 0.11 |
* Proposal to the Annual General Meeting.
In this Financial Statement Release, the figures shown in brackets refer to the comparison period last year if not otherwise stated.
Highlights in October–December 2017:
- Net sales decreased by 2% and were EUR 98.7 million (100.4).
- Operating profit fell to EUR -0.3 million (3.5).
- The total impact of the tax reform in the United States on Suominen’s Q4 profit for the period was EUR 8.3 million
- The ramp-up phase of the new manufacturing line at Bethune plant continued.
- Suominen expects that in 2018, its net sales and comparable operating profit will improve from 2017. In 2017, Suominen’s net sales amounted to EUR 426.0 million and operating profit to EUR 15.0 million. In financial years 2017 and 2016 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.
- Suominen’s Board of Directors proposes to the Annual General Meeting a return of capital of EUR 0.11 per share from the financial year 2017. On 30 January 2018, the company had 57,382,939 issued shares, excluding treasury shares. With this number of shares, the total amount of the return of capital would be EUR 6,312,123.29.
President & CEO Nina Kopola comments on Suominen’s full financial year 2017:
“Throughout the year 2017, the consumer confidence continued strong both in euro area and in the United States. Europe and North America are our main market regions. Consumers’ optimism was reflected in the demand of nonwoven products.
In 2017, our net sales increased by 2%, thanks to the positive development of sales volumes which grew by 4%. The transformation of our product portfolio did not develop as we expected in 2017, as the share of products with higher added value decreased in our net sales. Operating profit fell below last year’s level, and we revised our guidance in July 2017. The largest factor impacting Suominen’s operating profit in 2017 was the challenges faced with the start-up and ramp-up of the new manufacturing line in Bethune. The total negative impact of the costs of the growth investments on Suominen’s profitability was nearly EUR 5 million in 2017. In addition, the unfavorable development of sales prices due to the competitive situation in Europe, as well as product mix change, affected our gross profit and hence also the operating profit.
Based on the developments we saw in Bethune towards the end of 2017, I have all reasons to believe that we have now overcome the biggest hurdles. The performance of the new manufacturing line is continuously improving and we expect that the new line will contribute positively to Suominen’s gross profit as of the first quarter of 2018.
The implemented growth investments as well as enhanced capabilities – in R&D, Sales and Product Management, among others – will provide Suominen key stepping stones as we continue to execute our Changemaker strategy, launched in April 2017. If we succeed in its execution, our operating profit margin will exceed 10% by 2021. While our performance on the first year of our strategy period of 2017-2021 was below expectations, I remain confident that we are on a right path.
Our ability to generate cash flow remained healthy, even in spite of the challenges mentioned above. Our cash flow from operations was EUR 22.2 million.
The very favorable impact of the US tax reform, enacted in December 2017, raised Suominen’s profit for the period and earnings per share close to last year’s level, to EUR 14.5 million and EUR 0.27 per share, respectively. On 28 December, we announced our preliminary assessment on the impact of the tax reform and anticipated that the revaluation of Suominen’s net deferred tax liabilities in the US will in 2017 improve the profit for the period by approximately EUR 4 million. On top of that, our further analysis on the other impacts of the tax reform revealed that Suominen benefits also significantly from the revaluation of the deferred tax liabilities related to the accelerated tax depreciations of new investments. The total impact of the changes in US taxation in 2017 was EUR +8.3 million, which turned our income taxes positive. In the future, the decrease of the federal corporate income tax rate from 35% to 21% in the USA will have a beneficial effect on Suominen’s profit. Approximately half of Suominen’s net sales is generated in the USA.
The Board of Directors of Suominen proposes to the Annual General Meeting that for the financial year 2017, a return of capital of EUR 0.11 per share shall be paid to the shareholders. As the hybrid bond issued in 2014 is now fully converted into Suominen shares, the Board of Directors proposes that we partially utilize the funds accumulated at the reserve for invested unrestricted equity for distribution to the shareholders. The proposal is also in line with our dividend policy, according to which Suominen distributes at least 30% of its annual profit as dividends to shareholders.
Suominen’s Board of Directors revised Suominen’s medium-term financial targets in April 2017 in connection with the launch of our new Changemaker strategy. During the five-year strategic period ending in 2021, Suominen aims to reach an average return on investment (ROI) of 15%, an average annual net sales growth
rate of 6% and to operate with a gearing ratio principally in the range of 40–80%. In 2017, while our net sales increased, we did not achieve the targeted growth pace and our return on investments was 6.6%, below the target level. The gearing ratio remained within the target range, at 59.6%.”
NET SALES
October–December 2017
In the fourth quarter, Suominen’s net sales decreased by 2% from the comparison period to EUR 98.7 (100.4) million. The decrease in net sales was primarily due to the changes in currency exchange rates. The weakening of the US dollar compared to euro, Suominen’s reporting currency, decreased the net sales by EUR 5.1 million in the fourth quarter.
Suominen has two business areas, Convenience and Care. Net sales of Convenience business area were EUR 90.7 (91.3) million and net sales of Care business area EUR 8.0 (9.0) million in the fourth quarter. 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. Due to the reclassification of a customer between applications, the figures for the comparison period have been restated.
Financial year 2017
In 2017, Suominen’s net sales increased by 2% from the comparison period to EUR 426.0 (416.9) million, mainly thanks to improved sales volumes. The weakening of the USD compared to euro, Suominen’s reporting currency, decreased the net sales of 2017 by approximately EUR 4.8 million.
Net sales of Convenience business area were EUR 388.6 (380.5) million and net sales of Care business area EUR 37.5 (36.3) million. The main application areas for nonwoven materials supplied by Suominen were baby wipes (accounting for 41% of the sales), personal care wipes (21%), home care wipes (19%), wipes for workplace use (9%), and hygiene and medical products (9%). The shares of nonwovens for baby wipes, home care wipes and hygiene and medical products increased in the product portfolio. All wiping products belong to the Convenience business area and all medical and hygiene products belong to the Care business area.
OPERATING PROFIT AND RESULT
October–December 2017
Operating profit turned to negative and was EUR -0.3 (3.5) million. The costs related to the growth investments, unfavorable development of product mix and lower gross profit affected the operating profit. The weakening of the US dollar compared to euro, Suominen’s reporting currency, decreased the operating profit by EUR 0.2 million. There were no items affecting comparability in the fourth quarters of 2017 and 2016.
Result before income taxes in the fourth quarter was EUR -1.3 (2.4) million and profit for the period EUR 6.3 (1.6) million. In total, the income taxes for the period were positive, EUR +7.6 million. Thanks to the federal corporate income tax rate decrease in the USA from 35% to 21% as of 1 January 2018, the net deferred tax liabilities were revalued with the lower corporate income tax rate, as Suominen announced on 28 December.
Financial year 2017
Operating profit decreased by 42% and amounted to EUR 15.0 million (25.6). The costs related to the growth investments, unfavorable development of product mix and lower gross profit affected the operating profit. The weakening of the US dollar compared to euro, Suominen’s reporting currency, decreased the operating profit by EUR 0.3 million. There were no items affecting comparability in 2017 or 2016.
In 2017, profit before income taxes was EUR 12.4 (22.4) million. Income taxes were positive by EUR 2.0 million, which increased the profit for the period to EUR 14.5 (15.2) million.
The impact of the revaluation of the net deferred tax liabilities with the lower tax rate in the USA was exceptionally large. It had no cash flow impact. In addition to the revaluation of the net deferred tax liabilities, Suominen was able to benefit from the opportunity to utilize accelerated tax depreciations of the new investments in the USA. Utilizing accelerated tax depreciations postpones the payment of income taxes to subsequent years. The total positive impact of the changes in US taxation in 2017 was EUR +8.3 million, which turned the income taxes positive.
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, 31 December 2017, amounted to EUR 81.4 million (56.6). Gearing was 59.8% (39.6%) and equity ratio 41.8% (45.3%).
In 2017, net financial expenses were EUR -2.6 million (-3.2), or 0.6% (0.8%) of net sales. In 2017, net financial expenses were decreased by EUR 2.2 million (1.3) due to the capitalization of borrowing costs in fixed assets as required by IAS 23 standard. Net foreign exchange losses in financial items were EUR -0.6 million (-0.2).
Cash flow from operations in the fourth quarter was EUR 3.6 million (3.5) and in 2017 EUR 22.2 million (28.5). Cash flow from operations per share in 2017 was EUR 0.39 (0.56). The financial items in the cash flow from operations, in total EUR -5.6 million (-3.9), were principally impacted by the interests paid during the reporting period as well as transactions cost related to the refinancing. In total EUR 8.0 million was tied up in working capital (2016: tied up 6.3). Cash flow from financing improved due to repayments of loan receivables (EUR 1.6 million) granted in connection with the divestment of the Flexibles business area in July 2014. Cash flow from financing decreased by EUR 5.2 million due to the tender and transaction costs from the partial repurchase of the bond issued in 2014 and the costs of the issuance of the new bond.
Refinancing in 2017
Suominen renewed its financing in 2017. On 25 September, Suominen announced it will issue a new bond and on 6 October the company disclosed its new syndicated EUR 100 million revolving credit facility.
Suominen’s new senior unsecured bond of EUR 85 million will mature on 3 October 2022, carries a fixed annual interest at the rate of 2.50% and had an issue price of 100.00%. The bond was subscribed by 75 investors. Based on the application made by Suominen, the bond was admitted to trading on Nasdaq Helsinki Ltd on 10 October 2017. The proceeds from the bond offering were partially used for the partial repurchase (totaling EUR 59.3 million) of Suominen Corporation’s previous unsecured EUR 75 million 4.375% fixed-rate notes due in 2019 (ISIN: FI4000108576). The remaining proceeds may be used for general corporate purposes. Nordea Bank AB (publ) and Svenska Handelsbanken AB (publ) acted as Joint Lead Managers for the issue of the new bond.
In connection with issuing the bond, Suominen entered into a syndicated credit facility agreement consisting of a single-currency revolving credit facility of EUR 100 million with a maturity of four years. The lenders for the facility are Nordea Bank AB (publ) and Svenska Handelsbanken AB (publ). The new bank facility includes leverage ratio and gearing as financial covenants.
The new credit facility replaced the syndicated credit facilities agreement of Suominen from 2014 totaling EUR 55 million with Nordea Bank AB (publ), Finnish Branch (former Nordea Bank Finland plc) and OP Corporate Bank plc (former Pohjola Bank plc) as the lenders.
CAPITAL EXPENDITURE
In 2017, the gross capital expenditure totaled EUR 37.2 million (53.3). Gross capital investments were mainly related to the investment in a new wetlaid production line at the Bethune plant in SC, USA. In addition, Suominen currently runs a Group-wide renewal of ICT systems. The first implementation of the ICT renewal program was conducted successfully at the Alicante plant in Spain in April without major issues. The other investments were mainly for maintenance.
Depreciation and amortization for the review period amounted to EUR -19.4 million (-18.5).
PERSONNEL
During 2017, Suominen employed 670 people (646) in average, and 663 (650) people at the end of 2017. The new employees were hired primarily to Operations, Sales and Marketing functions.
SHARE INFORMATION
Share capital
The number of Suominen’s registered shares was 58,259,219 on 31 December 2017, equaling to a share capital of EUR 11,860,056.00. 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.
The number of shares increased in 2017 in total by 6,593,577 shares due to the share conversions of the hybrid bond notes and accrued interests. The conversion of the hybrid bond into shares has been recorded into the reserve for invested unrestricted equity.
Share trading and price
The number of Suominen Corporation shares (SUY1V) traded on NASDAQ Helsinki from 1 January to 31 December 2017 was 5,405,584 shares, accounting for 10.4% of the average number of shares (excluding treasury shares). The highest price was EUR 5.22, the lowest EUR 3.86 and the volume-weighted average price EUR 4.53. The closing price at the beginning of the review period, on 2 January 2017, was EUR 4.25 and the closing price at the end of review period, on 29 December 2017, was EUR 4.42.
The market capitalization (excluding treasury shares) was EUR 253.6 million on 31 December 2017.
Authorizations of the Board of Directors
The Annual General Meeting (AGM) held on 15 March 2017 authorized the Board of Directors to repurchase a maximum of 400,000 of the company’s own shares. 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 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 repurchase authorization is valid until 30 June 2018.
The AGM held on 16 March 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 June 2019.
Remuneration of the Board payable in shares
Suominen’s Annual General Meeting held on 15 March 2017 decided that the remuneration payable to the members of the Board remains unchanged, with the exception of the remuneration of the Chair of the Board which will be increased by EUR 10,000. The Chair of the Board of Directors 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 held in the home country of respective member and a fee of EUR 1,000 per each meeting held elsewhere than in home country of respective member. 60% of the annual 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.
Of the remuneration payable in shares as described above, the number of shares transferred was determined based on the share value in the stock exchange trading maintained by Nasdaq Helsinki Ltd, and 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 2017 of the company was published. Shares (in total 16,807 shares) were given out of the treasury shares held by the company by the decision of the Board of Directors on 2 June 2017. 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 2017
In 2017, Suominen had a share-based incentive plan for the Group management and Group key employees, which is divided into Performance Share Plan and Matching Share Plan.
Performance Share Plan
The Performance Share Plan includes three vesting periods, calendar years 2015–2017, 2016–2018 and 2017–2019. The Board of Directors will decide separately on new earnings periods. In addition, the Board of Directors will decide on the Plan’s performance criteria and required performance levels for each criterion at the beginning of a vesting period. The Performance Share Plan is directed to approximately 15–20 people. The Board of Directors is 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 reward of the Plan from the period 2015–2017 will be 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 2015–2017 correspond to the value of an approximate maximum total of 460,000 Suominen Corporation shares (including also the proportion to be paid in cash).
The potential reward of the Plan from the period 2016–2018 will be 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 2016–2018 correspond to the value of an approximate maximum total of 245,000 Suominen Corporation shares (including also the proportion to be paid in cash).
The potential reward of the Plan from the period 2017–2019 will be 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 correspond to the value of an approximate maximum total of 480,000 Suominen Corporation shares (including also the proportion to be paid in cash).
The potential rewards from the earnings periods 2015–2017, 2016–2018 and 2017–2019 will be paid partly in the company’s shares and partly in cash in 2018, 2019 and 2020, 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. 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. Such number of shares must be held as long as the participant’s employment or service in a group company continues.
Matching Share Plan 2015
The Matching Share Plan includes one three-year vesting period, calendar years 2015–2017. The prerequisite for receiving reward on the basis of this plan is that a person participating in the plan owns or acquires the company’s shares up to the number determined by the Board of Directors. Furthermore, receiving of reward is tied to the continuance of participant´s employment or service upon reward payment.
The members of the Corporate Executive Team and the Corporate Leadership Team belong to the target group of the Matching Share Plan. The rewards to be paid on the basis of the Matching Share Plan correspond to the value of an approximate maximum total of 127,478 Suominen Corporation shares (including also the proportion to be paid in cash).
The terms and conditions of the share-based incentive plans were technically revised due to the reverse share split implemented on 21 March 2016.
Share-based incentive plans for the management and key employees approved in 2017
On 11 December 2017, the Board of Directors of Suominen approved 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 Performance Share Plan includes a three-year performance period, calendar years 2018–2020. The Performance Share Plan is directed to approximately 20 people, including President & CEO. The plan includes 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 (including also the proportion to be paid in cash).
Reward payment and ownership obligation
The potential rewards from the performance periods 2018–2020 will be paid partly in the Company’s shares and partly in cash in 2021. 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.
Hybrid bond and conversion of the bond notes into Suominen shares in 2017
In February 2014, Suominen Corporation issued a EUR 17.5 million convertible hybrid bond. In accordance with the terms and conditions of the bond, the bondholders have a right to convert the bond notes and the accrued interest related to the notes into Suominen shares. The conversion period started on 11 February 2014 and will end on 10 February 2018. Conversion rate of the bond was EUR 2.50 per share.
In 2017, bond notes and the accrued interest related to the notes have been converted to a total of 6,593,577 new shares in Suominen Corporation. The conversion rate was recorded under the reserve for invested unrestricted equity of Suominen. All notes of the hybrid bond are now converted into new Suominen Corporation’s shares and the number of shares in Suominen will no longer increase due to the conversion of hybrid bond notes.
SHAREHOLDERS
At the end of the review period, on 31 December 2017, Suominen Corporation had in total 4,146 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.
Treasury shares
At the end of review period, on 31 December 2017, Suominen Corporation held 876,280 treasury shares. In accordance with the resolution by the Annual General Meeting, in total 16,807 shares were transferred on 2 June 2017 to the members of the Board of Directors as their remuneration payable in shares.
Notifications under Chapter 9, Section 5 of the Securities Market Act
On 12 December 2017, AC Invest Two BV (a group company of Ahlström Capital) notified Suominen that its shareholding in the company falls below the 25% flagging threshold. The shareholding of AC Invest Two BV in Suominen decreased from 25.92% to 23.95%. The decrease in the ownership was due to the increase in the number of Suominen share in connection with the conversion of Suominen’s hybrid bond notes into new Suominen shares. Due to the conversion, the number of shares and votes in Suominen Corporation increased to 58,259,219. The number of shares owned by AC Invest Two BV remained unchanged.
On 2 June 2017, Oy Etra Invest Ab (a company under the controlling power of Mr. Erkki Etola) notified Suominen that its shareholding in the company will cross the 10% flagging threshold due to the conversion of the bond notes and accrued interests of the hybrid bond issued by Suominen Corporation into Suominen shares.
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. The shareholders entitled to appoint members to the Nomination Board during financial year 2017 were determined on the basis of the registered holdings in the Company’s shareholder register on 1 September 2016 and on 1 September 2017. In addition, the Chair of the Board of Directors of Suominen Corporation serves as the fourth member of the Nomination Board.
During financial year of 2017, the members of the Nomination Board were:
- Thomas Ahlström, Managing Director of Antti Ahlström Perilliset Oy and member of the Board of Directors of Ahlström Capital, nominated by AC Invest Two B.V.;
- Erkki Etola, CEO of Oy Etra Invest Ab, nominated by Oy Etra Invest Ab;
- Reima Rytsölä, Executive Vice-President of Varma Mutual Pension Insurance Company; nominated by Varma Mutual Pension Insurance Company;
- Jorma Eloranta, Chair of Suominen’s Board of Directors (until 15 March 2017) and
- Jan Johansson, Chair of Suominen’s Board of Directors (as of 15 March 2017).
The Nomination Board shall submit its proposals to the Board of Directors no later than 1 February prior to the Annual General Meeting.
ANNUAL GENERAL MEETING
The Annual General Meeting (AGM) of Suominen Corporation was held on 15 March 2017. The AGM decided that a dividend or EUR 0.11 per share will be paid for the financial year 2016.
The AGM adopted the financial statements and the consolidated financial statements for the financial year 2016 and discharged the members of the Board of Directors and the President & CEO from liability.
The AGM decided that the remuneration payable to the members of the Board remains unchanged, with the exception of the remuneration of the Chair of the Board which will be increased by EUR 10,000. The Chair of the Board of Directors 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 held in the home country of respective member and a fee of EUR 1,000 per each meeting held elsewhere than in home country of respective member. 60% of the annual remuneration is paid in cash and 40% in Suominen Corporation’s shares. Compensation for expenses is paid in accordance with the company's valid travel policy.
The AGM decided that the number of Board members remains unchanged at six (6). Mr. 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. Mr. Jan Johansson was elected as a new member and as Chair of the Board of Directors. The decisions concerning the remuneration of the Board, the number of the members in the Board as well as the composition of the Board were in accordance with the proposals by the Shareholders’ Nomination Board.
Ernst & Young Oy, Authorized Public Accountant Firm, was elected as auditor of Suominen Corporation, with Ms. Kristina Sandin, Authorized Public Accountant, as the principal auditor. 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 decided to authorize the Board of Directors to decide on the repurchase a maximum of 400,000 of the company’s own shares. 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 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 repurchase authorization is valid until 30 June 2018. The decision was in accordance with the proposal of the Board of Directors.
Constitutive meeting and permanent committees of the Board of Directors
In its constitutive meeting held on 15 March 2017 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 Jaana Tuominen were re-elected as members. Jan Johansson was elected as the Chair of the Personnel and Remuneration Committee and Risto Anttonen and Laura Raitio were re-elected as members.
CHANGES IN GROUP STRUCTURE
On 1 September 2017, Suominen Italy Holding S.R.L, a 100% owned subsidiary of Suominen Corporation, merged into its subsidiary Mozzate Nonwovens S.R.L.
The closing of Suominen Corporation’s branch in Vaulx-Milieu, France was registered with the French authorities on 20 December 2017.
BUSINESS RISKS AND UNCERTAINTIES
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. Due to the continued uncertainty in the general economic situation and the cautious consumer purchasing habits, the forecasts include uncertainty.
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. The Group’s ten largest customers currently account for 63% (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. Suominen also uses export credit guarantees and insures against customer risks to a limited extent.
The relevance of the United States in Suominen’s business operations increases the significance of the 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 business environment or exchange rates, could have an impact on Suominen’s operations in Brazil.
Suominen purchases significant amounts of pulp- and oil-based raw materials annually. Raw materials are the largest cost item for operations. Rapid changes in the global market prices of raw materials have an impact on the company’s profitability. Suominen’s stocks equal to 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 its raw materials from a number of major international suppliers, significant interruptions are unlikely.
Suominen has numerous regional, national and international competitors in its different product groups. There is currently oversupply in some product groups in Suominen’s both principal market regions. 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 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.
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 risks. If Suominen’s ICT systems and software were to become unusable or significantly impaired for an extended period of time, or the cyber 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.
There could be a risk of Suominen’s business operations being interrupted due to abrupt and unforeseen events, such as power outages or fire and water damage. Suominen may not be able to control these 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.
Suominen aims to protect its business against product liability risks through the use of systematic quality assurance processes and products liability insurance. R&D function of the company is responsible for ensuring the underlying safety of the group´s products during their development. Continuous quality control is designed to guarantee product quality during production. Management considers it unlikely that the Group will face significant product liability-related claims, and is unaware of any such claims.
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.
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 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.
Throughout 2017, the consumer confidence continued strong both in euro area and in the United States. Consumers’ optimism was reflected in the demand of nonwoven products.
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. The new manufacturing capacity that has come on stream has somewhat saturated the markets, primarily in nonwovens for baby wipes and flushables.
At large, the growth in the demand in Suominen’s target markets is expected to continue in 2018, on average, at the pace of 2017.
OUTLOOK FOR 2018
Suominen expects that in 2018, its net sales and comparable operating profit will improve from 2017. In 2017, Suominen’s net sales amounted to EUR 426.0 million and operating profit to EUR 15.0 million. In financial years 2017 and 2016 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 RETURN OF CAPITAL
The loss of the financial year 2017 of Suominen Corporation, the parent company of the Group, was EUR 462,886.34. The funds distributable as dividends, including the loss for the period, of the parent company were EUR 6,592,975 and total distributable funds were EUR 94,016,127. There have been no significant changes in the company’s financial position after the end of the review period.
The Board of Directors proposes that a return of capital of EUR 0.11 per share shall be distributed for the financial year 2017 from the reserve for invested unrestricted equity and that the loss shall be transferred to retained earnings. The record date is 19 March 2018 and the return of capital will be paid on 28 March 2018.
DISCLOSURE OF THE FINANCIAL STATEMENTS AND THE REPORT BY THE BOARD OF DIRECTORS
Suominen Corporation will publish its Financial Statements, Report by the Board of Directors, Auditor’s Report, Corporate Governance Statement, Remuneration Statement and Non-Financial Report concerning the financial year 2017 on 22 February 2018 at the latest. The above documents will be published as a Stock Exchange Release and they will be available also at www.suominen.fi > Investors > Corporate Governance.
ANNUAL GENERAL MEETING 2017
The Annual General Meeting of Suominen Corporation will be held on 15 March 2018 at the Finlandia Hall, Helsinki. The Board of Directors will convene the Annual General Meeting by issuing a Notice to the Annual General Meeting as a Stock Exchange Release. The notice to the Annual General Meeting will also be published at www.suominen.fi.
THE NEXT FINANCIAL REPORT
Suominen Corporation will publish its Interim Report for January–March 2018 on Thursday, 26 April 2018 approximately at 8:00 am EEST.
ANALYST AND PRESS CONFERENCE
Nina Kopola, President & CEO, and Tapio Engström, CFO, will present Suominen’s financial result for Q4 and full year 2017 in Finnish at an analyst and press conference in Helsinki today on 30 January at 14:00 (EET). The conference will take place at Suominen’s Helsinki office in Helsinki (Itämerentori 2). The presentation material will be available after the analyst and press conference at www.suominen.fi.
A teleconference and a webcast on the Q4 and FY2017 financial result will be held on 30 January 2018 at 4:00 pm (EET). The conference can be attended by phone at +44 20 3936 2999. Please use the password 47 67 38. The conference can be accessed also through Suominen’s website www.suominen.fi/webcast.
The conference call will be held in English. A replay of the conference can be accessed at www.suominen.fi or by phone at +44 20 8196 1998, using access code 532928.
SUOMINEN GROUP 1 JANUARY–31 DECEMBER 2017
The consolidated financial statements of Suominen have been audited. The Auditor’s report has been signed on 30 January 2018. Quarterly information, half-year report and interim reports have not been audited.
As a result of rounding differences, the figures presented in the tables do not necessarily add up to total.
ACCOUNTING PRINCIPLES
The consolidated financial statements of Suominen Group are prepared in accordance with International Financial Reporting Standards (IFRS), including International Accounting Standards (IAS) and Interpretations issued by the International Financial Reporting Interpretations Committee (SIC and IFRIC). International Financial Reporting Standards are standards and their interpretations adopted in accordance with the procedure laid down in regulation (EC) No 1606/2002 of the European Parliament and of the Council. The Notes to the Financial Statements are also in accordance with the Finnish Accounting Act and Ordinance and the Finnish Companies' Act.
This financial statements release has been prepared in accordance with the principles defined in IAS 34 Interim Financial Reporting as approved by the European Union. Financial statement release does not include all information required for full financial statements.
The principles for preparing consolidated financial statements are the same as those used for preparing the consolidated financial statements for 2016, except that the following standards and interpretations have been applied from 1 January 2017:
Amendments to IAS 7 Statement of Cash Flows, arising from the Disclosure Initiative, effective for reporting periods beginning on 1 January 2017 or later. The amendments require companies to provide disclosures about changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes, such as foreign exchange gains and losses. The amendments have no material effect on Suominen as the changes in liabilities arising from financing activities, including the changes arising from foreign exchange, have been disclosed in Suominen's consolidated financial statements before the application of the amendment.
Other new or amended standards or interpretations applicable from 1 January 2017 are not material for Suominen Group.
Below are disclosed separately those new standards, amendments and interpretations which will have a material effect on Suominen. Other new or amended standards or interpretations applicable from 1 January 2018 or later are not material for Suominen Group.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers is to be applied for the reporting periods beginning on or after 1 January 2018. The timing of the revenue recognition can take place over time or at a point of time, depending on the transfer of control. The new standard will have no material effect on revenue recognition in Suominen, but it will increase the disclosure information in the consolidated financial statements.
The goods Suominen sells are nonwoven rolls. The customer can benefit from each nonwoven roll either on its own or together with other resources readily available to the customer. The delivered goods have been identified in the contracts Suominen has made with the customer (for example the quality and measurements of the product have been defined). The contracts often define the target for quantities to be delivered, but the customer is not committed to the quantities. The supplied quantities are based on the customer’s purchase orders and each supplied quantity is invoiced separately.
The performance obligation is satisfied when the goods have been delivered to the customer, ie. the performance obligation is satisfied at a point of time. In most cases the goods are handed over to the customer when the goods leave the production plant. If, in accordance with the terms of delivery, the risks and rewards of ownership of the goods as well as control over the goods are transferred to the customer only when the goods have been delivered to the customer, revenue is recognized only when the customer has received the goods. This does not change the current revenue recognition principles of Suominen.
The payment terms and times differ depending on the customer. The applied payment term and the length of the payment time are affected by, among other things, the credit risk and prior payment behavior of the customer. In addition, the geographical location of the invoicing production plant as well of the customer have an effect on the payment terms. Suominen has preferred payment terms defined in the credit policy, but for commercial reasons it is possible to deviate from these payment terms. For the most part trade receivables are due within 30-90 days from the invoicing date.
There are no significant financing components in the transaction prices and the considerations are paid in cash.
Some of the customer contracts include a definition of a rebate, which is granted to the customer if the delivered quantities exceed the predefined level, i.e. in these cases the transaction price includes a variable consideration. The effect of the variable consideration on the transaction price is taken into account in revenue recognition by estimating the probability of the realization of the rebate for each contract. The estimation is based on the most likely amount. When estimating the probability, Suominen takes into account the historical information of the customer (such as whether the deliveries in the past have reached the level which entitles the customer to receive the rebate), the current situation at the time of the delivery of the goods as well as forecasts on future deliveries. The uncertainty inherent in estimating the variable consideration is considered to be so immaterial that the variable consideration has not been constrained. The estimated transaction price is reassessed latest at the end of each reporting period. This does not change the current revenue recognition principles of Suominen.
The receivable from the customer is recognized at the transaction price. This means in practice that both the invoiced trade receivable from the customer and recognized revenue are adjusted in accounting with an accrual based on the estimated rebate amount. This will change the current practice in recognizing amounts in the statement of financial position, as currently the rebate accrual is recognized in accrued expenses.
In some of the customer contracts the transaction price of the goods is tied to the raw material costs of Suominen. The effect of the raw material prices on transaction prices is, however, applied only to future transaction prices and they do not affect the prices of already delivered goods. As the delivered quantities are distinct performance obligations, raw material clauses are not applied retrospectively.
Sales prices are defined in the customer contracts separately for each product. The price for each customer is based on, among other things, quantities, transaction currency and the geographical location of the customer. Variable considerations (rebates) are allocated to the performance obligations which are included in the contract, unless otherwise agreed in the contract. In these cases the variable considerations are allocated only to those performance obligations they relate to.
Suominen has no material incremental costs of obtaining a contract which would fulfill the capitalization criteria. Any incremental costs are recognized as expense when incurred, as the amortization period of such capitalized incremental costs would be one year or less. Suominen has no such costs to fulfill a contract which would fulfill the capitalization criteria of IFRS 15.95-97.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments and its amendments are to be applied for the reporting period beginning on 1 January 2018 or later. The new standard replaces the current standard IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 changes the classification and measurement of financial assets and includes a new model for assessing the impairment of the financial assets based on expected credit losses. The classification and measurement of financial liabilities do not materially change from IAS 39. Hedge accounting can be applied to a larger number of risk exposures than before and hedge accounting principles have been harmonized with those used in risk management.
IFRS 9 will change the classification and measurement of some financial assets of Suominen. Suominen has defined its business model for managing the financial assets and based on the model as well as the characteristics of the financial assets, determined the classification of the financial assets.
Certain loan receivables, which in accordance with IAS 39 have been classified as loans and other receivables and measured at amortized cost, will be under IFRS 9 financial assets at fair value through profit or loss, as they, among other things, include terms which are not basic terms for loan receivables. For these loan receivables the credit risk is taken into account when determining the fair value of the receivables. Some of the loan receivables will continue to be measured at amortized cost also under IFRS 9, as the their contractual cash flows consist solely of payments of principal and interest, and Suominen’s aim is to hold the receivables until maturity in order to collect the contractual cash flows. For these loan receivables the credit risk and impairment losses are estimated based on 12-month expected credit losses, or if there has been an increase in the credit risk related to the receivable, based on lifetime expected credit losses. Based on the situation at the end of the reporting period, Suominen does not expect material negative fair value changes or credit losses arise from the loan receivables.
For investments in equity instruments IFRS 9 enables the entity to make an irrevocable election of classification and measurement by equity instrument. Suominen classifies some of the investments in equity instruments at fair value through profit or loss. With the classification both the fair value changes and possible gains and losses on disposal are recognized in profit or loss. Some equity instruments are classified at fair value through other comprehensive income, and both fair value changes and possible gains and losses on disposal are recognized in other comprehensive income without subsequent recycling to profit or loss.
Cash and cash equivalents are measured under IFRS 9 at amortized cost. Under IFRS 9 also cash and cash equivalents are subject to credit loss assessment, and credit losses are recognized based on either 12-month expected credit losses, or if there has been a significant increase in the credit risk related to the receivable, based on lifetime expected credit losses. Based on the situation at the end of the reporting period and taking into account the counterparty credit risk related to deposits in banks, Suominen does not expect to recognize material credit losses from cash and cash equivalents.
Derivative instruments for which hedge accounting is not applied, are recognized also under IFRS 9 at fair value through profit or loss, and applying IFRS 9 will not change the recognition or measurement of them.
Trade receivables are measured under IFRS 9 at amortized cost. Under IAS 39 they are classified as loans and other receivables and measured at amortized cost. The value of trade receivables depends on the transaction price of sold goods. Transaction price is measured in accordance with IFRS 15 Revenue from Contracts with Customers -standard. In defining the transaction price, for example the variable considerations included in the contracts, such as volume rebates, are taken into account. This means that the transaction price can be lower than the sales amount invoiced from the customer. Suominen recognizes already currently in profit or loss the estimated customer rebates and other potential variable consideration, so the effects of applying IFRS 15 on transaction price are not estimated to be material. As the accruals for variable considerations are presented in the statement of financial position as accrued expenses before IFRS 9 is applied and under IFRS 9 as items decreasing trade receivables, the carrying amount of trade receivables will change under IFRS 9.
Suominen applies the practical expedient allowed by IFRS 9 for impairment losses arising from trade receivables and uses a provision matrix in estimating the impairment losses based on historical experience on realized credit losses. In accordance with the provision matrix, the impairment losses of trade receivables are based on lifetime expected credit losses. Trade receivables are categorized based on risk characteristics of the customers taking into account the customers’ capability to pay all contractual amounts as agreed in the contracts. Risk characteristics include, among others, the geographical risk related to the customer.
In accordance with IFRS 9, the expected credit losses on trade receivables are a probability-weighted estimate of credit losses over the expected life. As historically Suominen’s realized credit losses have mainly been immaterial and as approximately half of the trade receivables were at the end of the reporting period from international customers with high credit rating, Suominen estimates that recognizing credit losses from trade receivables in accordance with IFRS 9 will not have any material effect on profit or loss. The main change would be that credit losses will be recognized earlier than before.
Compared with IAS 39, IFRS 9 will not change the measurement or classification of financial liabilities.
Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions
The amendments to IFRS 2, effective for annual periods beginning on or after 1 January 2018, will change the recognition and measurement of share-based payment transactions which have net settlement features for withholding tax obligations. Under such transactions the entity withholds a number of shares that are equal to the monetary value of the employee’s tax obligation from the total number of shares that would have otherwise been issued to the employee upon exercise or vesting, and transfers the amount in cash to tax authorities on behalf of the employee.
Currently the cash-settled share-based payment transactions are measured at fair value at the reporting date and recognized as a liability in the statement of financial position. After the application of the amendments of IFRS 2, the currently cash-settled portion of share-based payment transactions which have net settlement features for withholding tax obligations will be recognized and measured as equity-settled. At transition date, the cash-settled portion of any unvested share-based payment arrangement which has net settlement features will be remeasured and recognized as equity-settled at fair value and recognized in equity. The liability for the cash settled transaction will be derecognized from the statement of financial position, and any effect of the remeasurement will be recognized in equity.
As Suominen’s share-based payment programs have net settlement features, the amendment will change Suominen’s accounting and measurement for cash settled share-based payments. The change will increase consolidated equity by approximately EUR 0.7 million.
IFRIC Interpretation 22: Foreign Currency Transactions and Advance Considerations
When a non-monetary asset or liability arises from the payment or receipt of a foreign currency advance consideration before the related asset, expense or income is recognized, the non-monetary items are recognized in the statement of financial position using the transaction date exchange rate. The interpretation clarifies that when the non-monetary item related to the advance consideration is derecognized and the related asset, expense or income is recognized, the exchange rate used is the rate used in the initial recognition of the advance consideration, and no revaluation due to changes in foreign exchange rates is made.
The interpretation is effective for reporting periods beginning on 1 January 2018 or later, and Suominen will apply it prospectively to transactions taking place on or after 1 January 2018. Application of the interpretation has no material effect on Suominen's consolidated financial statements.
Annual Improvements 2014–2016
Annual Improvements 2014–2016, partly effective for reporting periods beginning on 1 January 2018 or later. The impacts of the standards vary but are not material for Suominen's consolidated financial statements.
IFRS 16 Leases
IFRS 16 Leases will be effective for the reporting periods beginning on 1 January 2019 or later, if approved by European Union. The new standard will replace the current standard IAS 16 Leases. In accordance with the new standard, the lessee will recognize assets and liabilities for the rights and obligations created by leases. The new standard will increase interest-bearing liabilities and property, plant and equipment as well as intangible assets in the consolidated financial statements of Suominen. In addition, the rental expenses recognized in profit or loss will decrease and depreciation and amortization as well as interest expenses will increase. This will affect 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. At the end of the reporting period Suominen estimates that the carrying amounts of lease liabilities and right-of-use assets arising from application of IFRS 16 will be approximately EUR 15–20 million.
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 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 of 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.
The interpretation is effective for reporting periods beginning on 1 January 2019 or later. The application is made either retrospectively by restating comparative information if this is possible without the use of hindsight or by adjusting equity on initial application without restating comparative information.
STATEMENT OF FINANCIAL POSITION
| EUR thousand | 31.12.2017 | 31.12.2016 |
| Assets | ||
| Non-current assets | ||
| Goodwill | 15,496 | 15,496 |
| Intangible assets | 17,470 | 14,133 |
| Property, plant and equipment | 136,649 | 135,510 |
| Loan receivables | 3,072 | 6,836 |
| Available-for-sale assets | 777 | 777 |
| Other non-current receivables | 1,744 | 2,524 |
| Deferred tax assets | 5,142 | 3,424 |
| Total non-current assets | 180,349 | 178,698 |
| Current assets | ||
| Inventories | 44,241 | 42,631 |
| Trade receivables | 57,560 | 53,946 |
| Loan receivables | 4,337 | 1,550 |
| Other current receivables | 4,236 | 7,274 |
| Assets for current tax | 7,703 | 2,008 |
| Cash and cash equivalents | 27,240 | 29,522 |
| Total current assets | 145,318 | 136,929 |
| Total assets | 325,666 | 315,628 |
| Equity and liabilities | ||
| Equity | ||
| Share capital | 11,860 | 11,860 |
| Share premium account | 24,681 | 24,681 |
| Reserve for invested unrestricted equity | 87,423 | 70,855 |
| Treasury shares | -44 | -44 |
| Fair value and other reserves | 264 | 10 |
| Exchange differences | -3,151 | 12,613 |
| Retained earnings | 15,084 | 6,324 |
| Total equity attributable to owners of the parent | 136,117 | 126,300 |
| Hybrid bond | − | 16,525 |
| Total equity | 136,117 | 142,824 |
| Liabilities | ||
| Non-current liabilities | ||
| Deferred tax liabilities | 14,558 | 11,195 |
| Liabilities from defined benefit plans | 984 | 1,081 |
| Other non-current liabilities | 350 | 364 |
| Debentures | 95,192 | 75,000 |
| Other non-current interest-bearing liabilities | 162 | 11,574 |
| Total non-current liabilities | 111,246 | 99,214 |
| Current liabilities | ||
| Current interest-bearing liabilities | 15,118 | 7,923 |
| Liabilities for current tax | 32 | 280 |
| Trade payables and other current liabilities | 63,154 | 65,388 |
| Total current liabilities | 78,304 | 73,590 |
| Total liabilities | 189,550 | 172,804 |
| Total equity and liabilities | 325,666 | 315,628 |
STATEMENT OF PROFIT OR LOSS
| EUR thousand | 10-12/2017 | 10-12/2016 | 1-12/2017 | 1-12/2016 |
| Net sales | 98,694 | 100,365 | 425,996 | 416,862 |
| Cost of goods sold | -92,352 | -89,413 | -383,839 | -364,636 |
| Gross profit | 6,342 | 10,952 | 42,157 | 52,226 |
| Other operating income | 441 | 324 | 1,764 | 1,909 |
| Sales and marketing expenses | -1,904 | -2,162 | -7,262 | -7,364 |
| Research and development | -1,116 | -1,362 | -4,739 | -4,330 |
| Administration expenses | -3,842 | -3,938 | -16,861 | -16,191 |
| Other operating expenses | -188 | -275 | -59 | -629 |
| Operating profit | -267 | 3,540 | 15,000 | 25,622 |
| Net financial expenses | -988 | -1,149 | -2,570 | -3,190 |
| Profit before income taxes | -1,256 | 2,391 | 12,430 | 22,432 |
| Income taxes | 7,570 | -759 | 2,048 | -7,199 |
| Profit / loss for the period | 6,314 | 1,632 | 14,478 | 15,233 |
| Earnings per share, EUR | ||||
| Basic | 0.12 | 0.03 | 0.27 | 0.29 |
| Diluted | 0.11 | 0.03 | 0.25 | 0.26 |
STATEMENT OF COMPREHENSIVE INCOME
| EUR thousand | 10-12/2017 | 10-12/2016 | 1-12/2017 | 1-12/2016 |
| Profit for the period | 6,314 | 1,632 | 14,478 | 15,233 |
| Other comprehensive income: | ||||
| Other comprehensive income that will be subsequently reclassified to profit or loss | ||||
| Exchange differences | -2,903 | 6,941 | -17,083 | 7,881 |
| Fair value changes of cash flow hedges | 62 | -268 | 267 | 245 |
| Reclassified to profit or loss | 4 | 5 | 13 | 116 |
| Reclassified to property, plant and equipment | -69 | -11 | -35 | -188 |
| Income taxes related to other comprehensive income | 153 | -100 | 1,328 | -410 |
| Total | -2,754 | 6,567 | -15,510 | 7,644 |
| Other comprehensive income that will not be subsequently reclassified to profit or loss | ||||
| Remeasurements of defined benefit plans | -28 | -110 | 15 | -110 |
| Income taxes related to other comprehensive income | 8 | 16 | -4 | 16 |
| Total | -20 | -93 | 11 | -93 |
| Total other comprehensive income | -2,754 | 6,474 | -15,500 | 7,551 |
| Total comprehensive income for the period | 3,561 | 8,106 | -1,022 | 22,784 |
STATEMENT OF CHANGES IN EQUITY
| Share capital | Share premium account | Reserve for invested unrestricted equity | Treasury shares | Exchange differences | |
| Equity 1 January 2017 | 11,860 | 24,681 | 70,855 | -44 | 12,613 |
| Profit / loss for the period | − | − | − | − | − |
| Other comprehensive income | − | − | − | − | -15,764 |
| Total comprehensive income | − | − | − | − | -15,764 |
| Share-based payments | − | − | − | − | − |
| Dividend distribution | − | − | − | − | − |
| Conveyance of treasury shares | − | − | 84 | − | − |
| Conversion of hybrid bond | − | − | 16,484 | − | − |
| Hybrid bond | − | − | − | − | − |
| Equity 31 December 2017 | 11,860 | 24,681 | 87,423 | -44 | -3,151 |
| Fair value and other reserves | Retained earnings | Total | Hybrid bond | Total equity | |
| Equity 1 January 2017 | 10 | 6,324 | 126,300 | 16,525 | 142,824 |
| Profit / loss for the period | − | 14,478 | 14,478 | − | 14,478 |
| Other comprehensive income | 254 | 11 | -15,500 | − | -15,500 |
| Total comprehensive income | 254 | 14,489 | -1,022 | − | -1,022 |
| Share-based payments | − | 338 | 338 | − | 338 |
| Dividend distribution | − | -5,585 | -5,585 | − | -5,585 |
| Conveyance of treasury shares | − | − | 84 | − | 84 |
| Conversion of hybrid bond | − | − | 16,484 | -16,484 | − |
| Hybrid bond | − | -481 | -481 | -41 | -522 |
| Equity 31 December 2017 | 264 | 15,084 | 136,117 | − | 136,117 |
| EUR thousands | Share capital | Share premium account | Reserve for invested unrestricted equity | Treasury shares | Exchange differences | |||||
| Equity 1 January 2016 | 11,860 | 24,681 | 69,652 | -44 | 5,097 | |||||
| Profit / loss for the period | − | − | − | − | − | |||||
| Other comprehensive income | − | − | − | − | 7,516 | |||||
| Total comprehensive income | − | − | − | − | 7,516 | |||||
| Share-based payments | − | − | − | − | − | |||||
| Dividend distribution | − | − | − | − | − | |||||
| Conveyance of treasury shares | − | − | 80 | − | − | |||||
| Conversion of hybrid bond | − | − | 1,124 | − | − | |||||
| Hybrid bond | − | − | − | − | − | |||||
| Equity 31 December 2016 | 11,860 | 24,681 | 70,855 | -44 | 12,613 | |||||
| EUR thousands | Fair value and other reserves | Retained earnings | Total | Hybrid bond | Total equity | |||||
| Equity 1 January 2016 | -118 | -3,076 | 108,052 | 17,664 | 125,716 | |||||
| Profit / loss for the period | − | 15,233 | 15,233 | − | 15,233 | |||||
| Other comprehensive income | 128 | -93 | 7,551 | − | 7,551 | |||||
| Total comprehensive income | 128 | 15,140 | 22,784 | − | 22,784 | |||||
| Share-based payments | − | 190 | 190 | − | 190 | |||||
| Dividend distribution | − | -5,030 | -5,030 | − | -5,030 | |||||
| Conveyance of treasury shares | − | − | 80 | − | 80 | |||||
| Conversion of hybrid bond | − | − | 1,124 | -1,124 | − | |||||
| Hybrid bond | − | -899 | -899 | -16 | -915 | |||||
| Equity 31 December 2016 | 10 | 6,324 | 126,300 | 16,525 | 142,824 | |||||
STATEMENT OF CASH FLOWS
| EUR thousand | 1-12/2017 | 1-12/2016 |
| Cash flow from operations | ||
| Profit for the period | 14,478 | 15,233 |
| Total adjustments to profit the period | 21,069 | 29,783 |
| Cash flow before changes in net working capital | 35,547 | 45,016 |
| Change in net working capital | -8,028 | -6,277 |
| Financial items | -5,575 | -3,895 |
| Income taxes | 207 | -6,348 |
| Cash flow from operations | 22,152 | 28,496 |
| Cash flow from investments | ||
| Investments in property, plant and equipment and intangible assets | -33,839 | -49,553 |
| Cash flow from disposed businesses | 287 | 313 |
| Adjustments of purchase consideration | − | 161 |
| Sales proceeds from property, plant and equipment and intangible assets | 5 | 8 |
| Cash flow from investments | -33,548 | -49,072 |
| Cash flow from financing | ||
| Drawdown of non-current interest-bearing liabilities | 25,730 | − |
| Drawdown of current interest-bearing liabilities | 25,000 | − |
| Repayment of current interest-bearing liabilities | -27,263 | -3,359 |
| Repayment in loan receivables | 1,550 | 1,000 |
| Tender and issuance costs of the bonds | -5,190 | − |
| Payment of hybrid bond interest | -642 | -624 |
| Dividend distribution | -5,585 | -5,030 |
| Cash flow from financing | 13,599 | -8,013 |
| Change in cash and cash equivalents | 2,203 | -28,588 |
| Cash and cash equivalents at the beginning of the period | 29,522 | 55,570 |
| Effect of changes in exchange rates | -4,485 | 2,540 |
| Change in cash and cash equivalents | 2,203 | -28,588 |
| Cash and cash equivalents at the end of the period | 27,240 | 29,522 |
| KEY RATIOS | 10-12/ 2017 | 10-12/ 2016 | 1-12/ 2017 | 1-12/ 2016 |
| Change in net sales, % * | -1.7 | -3.7 | 2.2 | -6.1 |
| Gross profit, as percentage of net sales, % | 6.4 | 10.9 | 9.9 | 12.5 |
| Comparable gross profit, as percentage of net sales, % | 6.4 | 10.9 | 9.9 | 12.5 |
| Operating profit, as percentage of net sales, % | -0.3 | 3.5 | 3.5 | 6.1 |
| Comparable operating profit, as percentage of net sales, % | -0.3 | 3.5 | 3.5 | 6.1 |
| Net financial items, as percentage of net sales, % | -1.0 | -1.1 | -0.6 | -0.8 |
| Profit before income taxes, as percentage of net sales, % | -1.3 | 2.4 | 2.9 | 5.4 |
| Profit for the period, as percentage of net sales, % | 6.4 | 1.6 | 3.4 | 3.7 |
| Gross capital expenditure, EUR thousand | 5,559 | 26,826 | 37,210 | 53,320 |
| Depreciation and amortization, EUR thousand | 5,373 | 4,693 | 19,349 | 18,520 |
| Return on equity, rolling 12 months, % | − | − | 10.6 | 11.6 |
| Return on invested capital, rolling 12 months, % | − | − | 6.6 | 11.6 |
| Equity ratio, % | − | − | 41.8 | 45.3 |
| Gearing, % | − | − | 59.8 | 39.6 |
| Average number of personnel | − | − | 670 | 646 |
| Earnings per share, EUR, basic | 0.12 | 0.03 | 0.27 | 0.29 |
| Earnings per share, EUR, diluted | 0.11 | 0.03 | 0.25 | 0.26 |
| Cash flow from operations per share, EUR | 0.04 | 0.07 | 0.39 | 0.56 |
| Equity per share, EUR | − | − | 2.37 | 2.81 |
| Return of capital / dividend per share, EUR ** | − | − | 0.11 | 0.11 |
| Price per earnings per share (P/E) ratio | − | − | 16.47 | 14.13 |
| Dividend payout ratio / payout ratio for return of capital, % | − | − | 41.0 | 37.6 |
| Dividend yield, % | − | − | 2.49 | 2.66 |
| Number of shares, end of period, excluding treasury shares | − | − | 57,382,939 | 50,772,555 |
| Share price, end of period, EUR | − | − | 4.42 | 4.14 |
| Share price, period low, EUR | − | − | 3.86 | 3.49 |
| Share price, period high, EUR | − | − | 5.22 | 6.20 |
| Volume weighted average price during the period, EUR | − | − | 4.53 | 4.24 |
| Market capitalization, EUR million | − | − | 253.6 | 210.2 |
| Number of traded shares during the period | − | − | 5,405,584 | 13,611,634 |
| Number of traded shares during the period, % of average number of shares | − | − | 10.4 | 27.0 |
| 31.12.2017 | 31.12.2016 | |||
| Interest-bearing net debt, EUR thousands | ||||
| Non-current interest-bearing liabilities, nominal value | 100,892 | 86,574 | ||
| Current interest-bearing liabilities, nominal value | 15,118 | 7,923 | ||
| Interest-bearing receivables and cash and cash equivalents | -34,650 | -37,908 | ||
| Interest-bearing net debt | 81,360 | 56,589 | ||
| * Compared with the corresponding period in the previous year. | ||||
| ** Distribution of funds per share in 2017 is the proposal by the Board of Directors to the Annual General Meeting. | ||||
CALCULATION OF KEY RATIOS
Key ratios per share
Key ratios per share are either IFRS key ratios (earnings per share) or required by Ordinance of the Ministry of Finance in Finland or alternative performance measures (cash flow from operations per share).
Earnings per share
Basic earnings per share are calculated by dividing the net result attributable to owners of the parent (adjusted with interest on hybrid bond, net of tax) by the weighted share-issue adjusted average number of shares outstanding during the reporting period, excluding shares acquired by the Group and held as treasury shares.
When calculating diluted earnings per share, the weighted share-issue adjusted average number of shares outstanding during the year is adjusted by the effect of the hybrid bond on the number of shares.
The dilutive effect of the hybrid bond on the number of shares is calculated by assuming that the remaining amount of the bond is fully converted into shares at the issuance date. In addition, the cumulative accrued interest during the whole loan period on the remaining loan amount is assumed to have been converted into shares at the issuance date. At the end of the 2017 reporting period, the hybrid bond in its entirety was converted into shares.
When calculating diluted earnings per share the number of shares is adjusted also with the effects of the share-based incentive plans.
| EUR thousand | 31.12.2017 | 31.12.2016 |
| Profit for the period | 14,478 | 15,233 |
| Interest on hybrid bond net of tax | -481 | -486 |
| Total | 13,997 | 14,747 |
| Average share-issue adjusted number of shares | 52,145,416 | 50,343,806 |
| Average diluted share-issue adjusted number of shares excluding treasury shares | 57,798,395 | 58,024,756 |
| Earnings per share, EUR | ||
| Basic | 0.27 | 0.29 |
| Diluted | 0.25 | 0.26 |
Cash flow from operations per share
| Cash flow from operations per share | Cash flow from operations | |
| = | Share-issue adjusted number of shares excluding treasury shares, end of reporting period |
| 2017 | 2016 | ||
| Cash flow from operations, EUR thousand | 22,152 | 28,496 | |
| Share-issue adjusted number of shares excluding treasury shares, end of reporting period | 57,382,939 | 50,772,555 | |
| Cash flow from operations per share, EUR | 0.39 | 0.56 |
Equity per share
| Equity per share | Total equity | |
| = | Share-issue adjusted number of shares excluding treasury shares, end of reporting period | |
| 2017 | 2016 | |
| Total equity, EUR thousand | 136,117 | 142,824 |
| Share-issue adjusted number of shares excluding treasury shares, end of reporting period | 57,382,939 | 50,772,555 |
| Equity per share, EUR | 2.37 | 2.81 |
Dividend / return of capital per share
| Dividend / return of capital per share | Dividend paid / return of capital for the reporting period | |
| = | Number of issued shares at end of the period excluding treasury shares |
| 2017 | 2016 | ||
| Dividend paid / return of capital for the reporting period, EUR thousand | 6,312 | 5,585 | |
| Number of issued shares at end of the period excluding treasury shares | 57,382,939 | 50,772,555 | |
| Dividend / return of capital per share, EUR | 0.11 | 0.11 | |
Dividend payout ratio / payout ratio for return of capital, %
| Dividend payout ratio / payout ratio for return of capital, % | Dividend / return of capital per share x 100 | |
| = | Basic earnings per share |
| 2017 | 2016 | |||
| Dividend / return of capital per share x 100 | 11.00 | 11.00 | ||
| Basic earnings per share, EUR | 0.27 | 0.29 | ||
| Dividend payout ratio / payout ratio for return of capital, % | 41.0 | 37.6 | ||
Dividend yield, %
| Dividend yield, % | = | Dividend / return of capital per share x 100 |
| Share price at end of the period |
| 2017 | 2016 | ||
| Dividend / return of capital per share x 100 | 11.00 | 11.00 | |
| Share price at end of the period, EUR | 4.42 | 4.14 | |
| Dividend yield, % | 2.49 | 2.66 | |
Price per earnings per share (P/E)
| Price per earnings per share (P/E) | Share price at end of the period | |
| = | Basic earnings per share |
| 2017 | 2016 | ||
| Share price at end of the period, EUR | 4.42 | 4.14 | |
| Basic earnings per share, EUR | 0.27 | 0.29 | |
| Price per earnings per share (P/E) | 16.47 | 14.13 | |
Market capitalization
| Market capitalization | = | Number of shares at the end of reporting period excluding treasury shares x share price at the end of period |
| 2017 | 2016 | ||
| Number of shares at the end of reporting period excluding treasury shares | 57,382,939 | 50,772,555 | |
| Share price at end of the period, EUR | 4.42 | 4.14 | |
| Market capitalization, EUR million | 253.6 | 210.2 | |
Share turnover
| Share turnover | = | The proportion of number of shares traded during the period to weighted average number of shares excluding treasury shares |
| 2017 | 2016 | ||
| Number of shares traded during the period | 5,405,584 | 13 611 634 | |
| Average number of shares excluding treasury shares | 52,145,416 | 50,343,806 | |
| Share turnover, % | 10.4 | 27.0 | |
Alternative performance measures
Some of Suominen's key ratios 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 provide useful information for example to investors regarding the Group's financial and operating performance and makes it easier to make comparison between the reporting periods.
Operating profit and comparable operating profit
Operating profit, or earnings before interest and taxes (EBIT) is an important measure of profitability as by ignoring income taxes and financial items it focuses solely on the company's ability to generate profit from operations. Operating profit is presented as a separate line item in the consolidated statement of profit or loss.
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 2017 or 2016.
| Operating profit (EBIT) | = | Profit before income taxes + net financial expenses |
| Comparable operating profit (EBIT) | = | Profit before income taxes + net financial expenses, adjusted with items affecting comparability |
EBITDA
EBITDA is an important measure that focuses on the operating performance excluding the effect of depreciation and amortization, financial items and income taxes, in other words what is the margin on net sales after deducting operating expenses.
| EBITDA | = | EBIT + depreciation, amortization and impairment losses |
| EUR thousand | 2017 | 2016 | |
| Operating profit | 15,000 | 25,622 | |
| + Depreciation, amortization and impairment losses | 19,349 | 18,520 | |
| EBITDA | 34,349 | 44,142 | |
Gross capital expenditure
Suominen considers gross capital expenditure as a relevant measure in order to understand for example how the Group maintains and renews its production machinery and facilities. Gross capital expenditure includes also capitalized borrowing costs and capitalized cash flow hedges.
| EUR thousand | 2017 | 2016 | |
| Increases in intangible assets | 6,027 | 3,300 | |
| Increases in property, plant and equipment | 31,183 | 50,020 | |
| Gross capital expenditure | 37,210 | 53,320 | |
Interest-bearing net debt
Suominen considers interest-bearing net debt to be an important measure for investors to be able to understand the Group’s indebtedness. 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.
| Interest-bearing net debt | = | Interest-bearing liabilities at nominal value - interest-bearing receivables - cash and cash equivalents |
| EUR thousand | 2017 | 2016 | |
| Interest-bearing liabilities | 110,472 | 94,497 | |
| Tender and issuance costs of the debentures | 5,538 | − | |
| Interest bearing receivables | -7,409 | -8,386 | |
| Cash and cash equivalents | -27,240 | -29,522 | |
| Interest-bearing net debt | 81,360 | 56,589 | |
| Interest-bearing liabilities | 110,472 | 94,497 | |
| Tender and issuance costs of the debentures | 5,538 | − | |
| Nominal value of interest-bearing liabilities | 116,010 | 94,497 | |
Return on equity (ROE), %
The return on equity is one of the most important profitability ratios used by owners and investors. The ratio measures the ability of a company to generate profits from its shareholders' investments in the company and it defines the yield on the company's equity during the reporting period.
| Return on equity (ROE), % | = | Profit for the reporting period (rolling 12 months) x 100 |
| Total equity (quarterly average) |
| EUR thousand | 2017 | 2016 | ||
| Profit for the reporting period (rolling 12 months) | 14,478 | 15,233 | ||
| Total equity 31 December 2016 / 2015 | 142,824 | 125,716 | ||
| Total equity 31 March 2017 / 2016 | 139,902 | 120,806 | ||
| Total equity 30 June 2017 / 2016 | 134,074 | 130,712 | ||
| Total equity 30 September 2017 / 2016 | 132,564 | 135,186 | ||
| Total equity 31 December 2017 / 2016 | 136,117 | 142,824 | ||
| Average | 137,096 | 131,049 | ||
| Return on equity (ROE), % | 10.6 | 11.6 | ||
Invested capital
| Invested capital | = | Total equity + interest-bearing liabilities |
| EUR thousand | 2017 | 2016 | |
| Total equity | 136,117 | 142,824 | |
| Interest-bearing liabilities | 110,472 | 94,497 | |
| Invested capital | 246,589 | 237,321 |
Return on invested capital (ROI), %
Return on invested capital is one of the most important key ratios. It measures the relative profitability of the company, ie. the yield on the capital invested in the company.
| Return on invested capital (ROI), % | = | Operating profit + financial income (rolling 12 months) x 100 |
| Invested capital, quarterly average |
Financial income does not include fair value changes of liabilities at fair value through profit or loss.
| EUR thousand | 2017 | 2016 | |
| Operating profit (rolling 12 months) | 15,000 | 25,622 | |
| Financial income (rolling 12 months) | 758 | 727 | |
| Total | 15,758 | 26,349 | |
| Invested capital 31 December 2016 / 2015 | 237,321 | 222,578 | |
| Invested capital 31 March 2017 / 2016 | 244,103 | 217,181 | |
| Invested capital 30 June 2017 / 2016 | 234,892 | 227,594 | |
| Invested capital 30 September 2017 / 2016 | 229,735 | 228,648 | |
| Invested capital 31 December 2017 / 2016 | 246,589 | 237,321 | |
| Average | 238,528 | 226,664 | |
| Return on invested capital (ROI), % | 6.6 | 11.6 |
Equity ratio, %
Equity ratio is an important key ratio as it measures the solidity of the company, the company's tolerance for losses and ability to cover its long-term commitments. The performance measure shows how much of the company's assets are financed with equity. The equity creates a buffer against potential losses, and equity ratio represents the level of this buffer.
| Equity ratio, % | = | Total equity x 100 |
| Total assets - advances received |
| EUR thousand | 2017 | 2016 | |
| Total equity | 136,117 | 142,824 | |
| Total assets | 325,666 | 315,628 | |
| Advances received | -8 | -3 | |
| 325,659 | 315,625 | ||
| Equity ratio, % | 41.8 | 45.3 |
Gearing, %
Gearing represents the ratio between the equity invested by the owners of the company and the interest-bearing liabilities borrowed from financiers. Gearing is an important performance measure in assessing the financial position of a company. A high gearing is a risk factor which might limit the possibilities for growth of a company and narrow its financial freedom.
| Gearing, % | = | Interest-bearing net debt x 100 |
| Total equity |
| EUR thousand | 2017 | 2016 | |
| Interest-bearing net debt | 81,360 | 56,589 | |
| Total equity | 136,117 | 142,824 | |
| Gearing, % | 59.8 | 39.6 |
NET SALES BY GEOGRAPHICAL MARKET AREA
| EUR thousands | 1-12/2017 | 1-12/2016 |
| Finland | 2,510 | 2,386 |
| Rest of Europe | 160,817 | 158,118 |
| North and South America | 252,176 | 246,287 |
| Rest of the world | 10,494 | 10,071 |
| Total | 425,996 | 416,862 |
QUARTERLY DEVELOPMENT
| 2017 | 2016 | |||||||
| EUR thousand | 10-12 | 7-9 | 4-6 | 1-3 | 10-12 | 7-9 | 4-6 | 1-3 |
| Net sales | 98,694 | 102,380 | 112,002 | 112,920 | 100,365 | 103,796 | 108,832 | 103,869 |
| Comparable operating profit | -267 | 4,618 | 4,391 | 6,258 | 3,540 | 7,878 | 8,661 | 5,543 |
| as % of net sales | -0.3 | 4.5 | 3.9 | 5.5 | 3.5 | 7.6 | 8.0 | 5.3 |
| Items affecting comparability | − | − | − | − | − | − | − | − |
| Operating profit | -267 | 4,618 | 4,391 | 6,258 | 3,540 | 7,878 | 8,661 | 5,543 |
| as % of net sales | -0.3 | 4.5 | 3.9 | 5.5 | 3.5 | 7.6 | 8.0 | 5.3 |
| Net financial items | -988 | -1,139 | -285 | -157 | -1,149 | -830 | -967 | -244 |
| Profit before income taxes | -1,256 | 3,478 | 4,105 | 6,102 | 2,391 | 7,047 | 7,694 | 5,299 |
| as % of net sales | -1.3 | 3.4 | 3.7 | 5.4 | 2.4 | 6.8 | 7.1 | 5.1 |
INFORMATION ON RELATED PARTIES
Suominen Group's related parties include the parent of the Group (Suominen Corporation) and subsidiaries. In addition, the related parties of Suominen include the members of the Board of Directors, President & CEO and the members of the Corporate Executive Team as well as their family members and their controlled companies. In addition, shareholders who have a significant influence in Suominen through share ownership are included in related parties. Suominen has no associated companies.
In its transactions with related parties Suominen follows the same commercial terms as in transactions with third parties.
The Annual General Meeting held on 15 March 2017 resolved that 40 percent of the annual remuneration for the Board of Directors is paid in Suominen Corporation’s shares. The number of shares transferred to the members of the Board of Directors as their remuneration payable in shares for 2017 was 16,807 shares. The shares were transferred on 2 June 2017 and the value of the transferred shares totaled EUR 83,795, or approximately EUR 4.98574 per share.
Management remuneration
The remuneration of Suominen Corporation’s Board of Directors totaled to EUR 242 thousand in 2017, of which EUR 84 thousand was remuneration in shares. The remuneration of the President & CEO, including fringe benefits was EUR 381 thousand, statutory pension payments totaled EUR 55 thousand and voluntary pension payments were EUR 38 thousand. The remuneration of other related parties, including fringe benefits totaled EUR 1,394 thousand, statutory pension payments were EUR 172 thousand and voluntary pension payments were EUR 58 thousand. The accrual based on the new share-based incentive plans for the related parties was EUR 621 thousand at the end of the review period.
| Management share ownership | |
| shares | |
| Board of Directors | 31.12.2017 |
| Jan Johansson, Chair of the Board of Directors | 4,814 |
| Risto Anttonen, Deputy Chair of the Board | 31,839 |
| Hannu Kasurinen | 21,456 |
| Jaana Tuominen | 11,552 |
| Andreas Ahlström | 7,606 |
| Laura Raitio | 7,606 |
| Total | 84,873 |
| Total % of shares and votes | 0.15 % |
| Corporate Executive Team | |
| Nina Kopola, President & CEO | 85,172 |
| Tapio Engström | 33,266 |
| Larry L. Kinn | 6,348 |
| Lynda A. Kelly | 10,000 |
| Ernesto Levy | 12,000 |
| Mimoun Saïm | 21,525 |
| Hannu Sivula | 29,345 |
| Markku Koivisto | 10,000 |
| Total | 207,656 |
| Total % of shares and votes | 0.36 % |
THE LARGEST SHAREHOLDERS ON 31 DECEMBER 2017
| Shareholder | Number of shares | % of shares and votes |
| AC Invest Two BV | 13,953,357 | 23.95% |
| Oy Etra Invest Ab | 5,909,167 | 10.14% |
| Varma Mutual Pension Insurance Company | 4,500,000 | 7.72% |
| Ilmarinen Mutual Pension Insurance Company | 4,071,892 | 6.99% |
| Nordea Bank Finland Plc | 3,219,884 | 5.53% |
| Pension Insurance Company Elo | 3,024,651 | 5.19% |
| OP-Suomi Arvo Investment Fund | 1,976,760 | 3.39% |
| Nissi Evald and Hilda | 1,000,000 | 1.72% |
| Heikki Bergholm | 998,417 | 1.71% |
| Mandatum Life Insurance Company | 963,475 | 1.65% |
| Nordea Nordic Small Cap Fund | 937,152 | 1.61% |
| H.Kuningas & Co. Ltd | 920,081 | 1.58% |
| Nordea Life Assurance Finland Ltd | 837,000 | 1.44% |
| Mikko Maijala | 829,098 | 1.42% |
| Juhani Maijala | 794,026 | 1.36% |
| 15 largest total | 43,934,960 | 75.41% |
| Other shareholders | 9,589,312 | 16.46% |
| Nominee registered | 3,854,618 | 6.62% |
| Treasury shares | 876,280 | 1.50% |
| In joint account (not in the book-entry securities system) | 4,049 | 0.01% |
| Total | 58,259,219 | 100.00% |
CHANGES IN PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
| 31.12.2017 | 31.12.2016 | |||
| EUR thousand | Property, plant and equipment | Intangible assets | Property, plant and equipment | Intangible assets |
| Carrying amount at the beginning of the period | 135,510 | 14,133 | 97,931 | 13,275 |
| Capital expenditure | 31,183 | 6,027 | 50,020 | 3,300 |
| Disposals | 0 | -36 | − | -89 |
| Depreciation, amortization and impairment losses | -16,857 | -2,493 | -16,162 | -2,358 |
| Exchange differences and other changes | -13,187 | -161 | 3,721 | 4 |
| Carrying amount at the end of the period | 136,649 | 17,470 | 135,510 | 14,133 |
Intangible assets excluding goodwill.
CONTINGENT LIABILITIES
| Guarantees | 31.12.2017 | 31.12.2016 |
| Guarantees on own commitments | 9,865 | 16,810 |
| Other own commitments | 3,484 | 4,036 |
| Guarantees on behalf of others | − | 963 |
| Total | 13,349 | 21,841 |
| Other contingencies | ||
| Contractual commitments to acquire property, plant and equipment | 86 | 5,517 |
| Total | 86 | 5,517 |
| Minimum lease payments under non-cancellable operating leases in future periods | ||
| Within one year | 3,756 | 3,808 |
| Between 1-5 years | 3,113 | 3,853 |
| After 5 years | 1,745 | 5,427 |
| Total | 8,614 | 13,088 |
NOMINAL AND FAIR VALUES OF DERIVATIVE INSTRUMENTS
| 31.12.2017 | 31.12.2016 | |||
| EUR thousand | Nominal value | Fair value | Nominal value | Fair value |
| Currency forward contracts | ||||
| hedge accounting applied | − | − | 5,240 | -327 |
| hedge accounting not applied | 1,334 | 24 | 2,396 | 30 |
| Electricity forward contracts | ||||
| hedge accounting applied | − | − | 594 | 43 |
FINANCIAL ASSETS BY CATEGORY
| a. Fair value through profit or loss |
| b. Loans and receivables |
| c. Available-for-sale assets |
| d. Derivatives, hedge accounting applied |
| e. Carrying amount |
| f. Fair value |
| Classification | ||||||
| EUR thousand | a. | b. | c. | d. | e. | f. |
| Available-for-sale assets | − | − | 777 | − | 777 | 777 |
| Other non-current receivables | 214 | − | − | − | 214 | 214 |
| Loan receivables | − | 7,409 | − | − | 7,409 | 7,409 |
| Trade receivables | − | 57,560 | − | − | 57,560 | 57,560 |
| Derivatives | 24 | − | − | − | 24 | 24 |
| Interest and other financial receivables | − | 670 | − | − | 670 | 670 |
| Cash and cash equivalents | − | 27,240 | − | − | 27,240 | 27,240 |
| Total 31.12.2017 | 238 | 92,880 | 777 | − | 93,894 | 93,894 |
| EUR thousand | a. | b. | c. | d. | e. | f. |
| Available-for-sale assets | − | − | 777 | − | 777 | 777 |
| Other non-current receivables | 501 | − | − | − | 501 | 501 |
| Loan receivables | − | 8,386 | − | − | 8,386 | 8,386 |
| Trade receivables | − | 53,946 | − | − | 53,946 | 53,946 |
| Derivatives | 30 | − | − | 43 | 73 | 73 |
| Interest and other financial receivables | − | 869 | − | − | 869 | 869 |
| Cash and cash equivalents | − | 29,522 | − | − | 29,522 | 29,522 |
| Total 31.12.2016 | 530 | 92,723 | 777 | 43 | 94,072 | 94,072 |
Principles in estimating fair value for financial assets for 2017 are the same as those used in consolidated financial statements for 2016.
CHANGES IN INTEREST-BEARING LIABILITIES
| EUR thousand | 1-12/2017 | 1-12/2016 |
| Total interest-bearing liabilities at the beginning of the period | 94,497 | 96,862 |
| Current liabilities at the beginning of the period | 7,923 | 3,363 |
| Repayment of current liabilities, cash flow items | -27,264 | -3,359 |
| Drawdown of current liabilities, cash flow items | 25,000 | − |
| Drawdown of current liabilities, non-cash flow items | − | 102 |
| Reclassification from non-current liabilities | 11,412 | 7,899 |
| Exchange rate difference | -1,953 | -84 |
| Current liabilities at the end of the period | 15,118 | 7,923 |
| Non-current liabilities at the beginning of the period | 11,574 | 18,498 |
| Drawdown of non-current liabilities, non-cash flow items | − | 368 |
| Reclassification to current liabilities | -11,412 | -7,899 |
| Exchange rate difference | − | 607 |
| Non-current liabilities at the end of the period | 162 | 11,574 |
| Debentures at the beginning of the period | 75,000 | 75,000 |
| Issuance of the new debenture bond, cash flow items | 25,730 | − |
| Periodization of debenture to amortized cost, non-cash flow items | -348 | − |
| Tender and issuance costs of the debentures, cash flow items | -5,190 | − |
| Debentures at the end of the period | 95,192 | 75,000 |
| Total interest-bearing liabilities at the end of the period | 110,472 | 94,497 |
FINANCIAL LIABILITIES
| 31.12.2017 | 31.12.2016 | |||||
| EUR thousand | Carrying amount | Fair value | Nominal value | Carrying amount | Fair value | Nominal value |
| Non-current financial liabilities | ||||||
| Loans from financial institutions | − | − | − | 11,294 | 11,294 | 11,294 |
| Debentures | 95,192 | 102,647 | 100,730 | 75,000 | 78,503 | 75,000 |
| Finance lease liabilities | 162 | 162 | 162 | 280 | 280 | 280 |
| Total non-current financial liabilities | 95,354 | 102,809 | 100,892 | 86,574 | 90,076 | 86,574 |
| Current financial liabilities | ||||||
| Current part of non-current loans from financial institutions and current loans from financial institutions | 15,000 | 15,000 | 15,000 | 7,812 | 7,812 | 7,812 |
| Finance lease liabilities | 118 | 118 | 118 | 111 | 111 | 111 |
| Derivatives, hedge accounting applied | − | − | − | 327 | 327 | 327 |
| Interest accruals | 736 | 736 | 736 | 912 | 912 | 912 |
| Other current liabilities | 301 | 301 | 301 | 283 | 283 | 283 |
| Trade payables | 52,145 | 52,145 | 52,145 | 50,248 | 50,248 | 50,248 |
| Total current financial liabilities | 68,300 | 68,300 | 68,300 | 59,692 | 59,692 | 59,692 |
| Total | 163,654 | 171,109 | 169,192 | 146,266 | 149,769 | 146,266 |
Principles in estimating fair value for financial liabilities for 2017 are the same as those used in consolidated financial statements for 2016.
FAIR VALUE MEASUREMENT HIERARCHY
| Fair value hierarchy in 2017 | |||
| Financial assets at fair value | Level 1 | Level 2 | Level 3 |
| Other non-current receivables | − | − | 214 |
| Available-for-sale assets | − | − | 777 |
| Currency derivatives | − | 24 | − |
| Total in 2017 | − | 24 | 990 |
| Fair value hierarchy in 2016 | |||
| Financial assets at fair value | |||
| Other non-current receivables | − | − | 501 |
| Available-for-sale assets | − | − | 777 |
| Electricity derivatives | − | 43 | − |
| Currency derivatives | − | 30 | − |
| Total in 2016 | − | 73 | 1,277 |
| Financial liabilities at fair value | |||
| Other current liabilities | − | − | 253 |
| Currency derivatives | − | 327 | − |
| Total in 2016 | − | 327 | 253 |
Principles in estimating fair values in 2017 are the same as those used in consolidated financial statements for 2016.
SUOMINEN CORPORATION
Board of Directors
For further information, please contact:
Nina Kopola, President & CEO, tel +358 10 214 300
Tapio Engström, CFO, tel. +358 10 214 300
Suominen in brief
Suominen manufactures nonwovens as roll goods for wipes as well as for medical and hygiene products. The end products made of Suominen’s nonwovens – wet wipes, feminine care products and swabs, for instance – bring added value to the daily life of consumers worldwide. Suominen is the global market leader in nonwovens for wipes and employs over 650 people in Europe and in the Americas. Suominen’s net sales in 2017 amounted to EUR 426.0 million and operating profit to EUR 15.0 million. The Suominen share (SUY1V) is listed in Nasdaq Helsinki Stock Exchange (Mid Cap). Read more at www.suominen.fi.
Distribution:
Nasdaq Helsinki
Main media
www.suominen.fi
http://prlibrary-eu.nasdaq.com/Resource/Download/abc985ce-e02c-4674-90cc-94fdb8f2dc36