Manufacturing risks
Suominen has production plants in several European countries, United States and Brazil. Interruptions at the plants caused for example by machinery breakdown can cause production losses and delivery problems. Ongoing maintenance and investments aiming to extend the lifetime of the assets are an essential part of ensuring the operational efficiency of the existing production lines.
Suominen’s operations could be disrupted due to abrupt and unforeseen events beyond the company’s control, such as power outages or fire and water damage. Suominen may not be able to control such events through predictive actions, which could lead to interruptions in business. Risks of this type are insured in order to guarantee the continuity of operations. As Suominen has valid damage and business interruption insurance, it is expected that the damage would be compensated, and the financial losses caused by the interruption of business would be covered.
Suominen uses certain technologies in its production. In the management’s view, the chosen technologies are competitive and there is no need to make major investments in new technologies. However, it cannot be excluded that the company’s technology choices could prove wrong, and the development of new or substitute technologies would then require investments.
Competition
Suominen has numerous regional, national and global competitors in its different product groups. 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.
Price and availability of raw materials
Suominen purchases significant amounts of pulp- and oil-based raw materials. Raw materials are the largest cost item for operations. Changes in the global market prices of raw materials can have an impact on the company’s profitability. Suominen’s stocks equal two to four weeks’ consumption and it generally takes two to five months for raw material price changes to be reflected in Suominen’s customer pricing either through automatic pricing mechanisms or negotiated price changes.
Extended interruptions in the supply of Suominen’s main raw materials could disrupt production and have a negative impact on the Group’s overall business operations. As Suominen sources most of its raw materials from a number of major international suppliers, significant interruptions in the production of the majority of Suominen’s products are unlikely.
Market and customer risks
Suominen’s customer base is fairly concentrated, which increases the potential impact of changes in customer specific sales volumes. In 2020, the Group’s ten largest customers accounted for 67% (65%) of the Group net sales. Long-term contracts are preferred with the largest customers. In practice the customer relationships are long-term and last for several years. Customer-related credit risks are managed in accordance with a credit policy approved by the Board of Directors. Credit limits are confirmed for customers on the basis of credit ratings and customer history.
The demand for Suominen’s products depends on possible changes in consumer preferences. Historically, such changes have had mainly a positive impact on Suominen, as they have resulted in the growing demand for products made of nonwovens. This was clearly visible in 2020 as the COVID-19 pandemic increased the demand for nonwovens for cleaning and disinfecting wipes. However, certain factors, including consumers’ attitude towards the use of products made even partially of oil-based raw materials, or their perception on the sustainability of disposable products in general, might change the consumers’ buying habits. Suominen monitors the consumer trends proactively and develops its product offering accordingly. The company has had biodegradable, 100% plant-based nonwovens in its portfolio for over 10 years and hence is well positioned to respond to changes in customer preferences related to sustainability and climate change.
Changes in legislation, political environment or economic conditions
Suominen’s business and products can be affected directly or indirectly by political decisions and changes in government regulations for example in areas such as environmental policy or waste legislation. An example of such legislation is the EU’s Single-Use Plastics Directive that focuses on reducing marine litter. The potential exists for similar regulations to expand worldwide. This creates demand for more sustainable products, and Suominen is well placed to respond to this increasing demand.
Global political developments could have an adverse effect on Suominen. For instance, a political decision that constrains the global free trade may significantly impact the availability and price of certain raw materials, which would in turn affect Suominen’s business and profitability. Suominen’s geographical and customer-industry diversity provide partial protection against this risk.
The relevance of the United States in Suominen’s business operations increases the significance of the exchange rate risk related to USD in the Group’s total exchange risk position. Suominen hedges this foreign exchange position in accordance with its hedging policy.
The risks that are characteristic to South American region, including significant changes in political environment or exchange rates, could have an impact on Suominen’s operations in Brazil.
Investments
Suominen continuously invests in its manufacturing facilities. The deployment of the investments may delay from what was planned, the costs of the investments may increase from what has been expected or the investments may create less business benefits than anticipated. The deployment phase of investments may cause temporary interruptions in operations.
Cyber and information security
Suominen’s operations are dependent on the integrity, security and stable operation of its information and communication systems and software as well as on the successful management of cyber attack risks. If Suominen’s information and communication systems and software were to become unusable or significantly impaired for an extended period of time, or the cyber attack risks are realized, Suominen’s reputation as well as ability to deliver products at the appointed time, order raw materials and handle inventory could be adversely impacted.
Financial risks
The Group is exposed to several financial risks, such as foreign exchange, interest rate, counterparty, liquidity and credit risks. The Group’s financial risks are managed in line with a policy confirmed by the Board of Directors. The financial risks are described in the Note 3 of the consolidated financial statements.
Suominen is subject to corporate income taxes in numerous jurisdictions. Significant judgment is required to determine the total amount of corporate income tax at Group level. There are many transactions and calculations that leave room for uncertainty as to the final amount of the income tax. Tax risks relate also to changes in tax rates or tax legislation or misinterpretations, and materialization of the risks could result in increased payments or sanctions by the tax authorities, which in turn could lead to financial loss. Deferred tax assets included in the statement of financial position require that the deferred tax assets can be recovered against the future taxable income.
Suominen performs goodwill impairment testing annually. In impairment testing the recoverable amounts are determined as the value in use, which comprises of the discounted projected future cash flows. Actual cash flows can differ from the discounted projected future cash flows. Uncertainties related to the projected future cash flows include, among others, the long economic useful life of the assets and changes in the forecast sales prices of Suominen’s products, production costs as well as discount rates used in testing. Due to the uncertainty inherent in the future, it is possible that Suominen’s recoverable amounts will be insufficient to cover the carrying amounts of assets, particularly goodwill. If this happens, it will be necessary to recognize an impairment loss, which, when implemented, will weaken the result and equity. Goodwill impairment testing has been described in the consolidated financial statements.
Non-financial risks and their management
The assessment of Suominen’s most significant risks also covers significant non-financial risks. A typical effect of the realization of a non-financial risk would be a negative reputation effect. Suominen’s Code of Conduct guides our all operations. Suominen requires that all of its employees comply with the Code of Conduct. Suominen’s suppliers are expected to comply with the company’s Supplier Code of Conduct, which establishes the standards for conducting business with Suominen.
Risks related to the environment and climate change
Environmental risks have been identified as part of the ISO14001 environmental management system (excl. Paulinia plant in Brazil), and they are controlled and managed by each production plant. The most significant identified environmental risks include binder or chemical spills and fires at production sites, which may cause harm to environment. These risks are managed by identifying and executing mitigation actions to minimize likelihood and severity of environmental risks.
Suominen could be impacted by risks related to climate change including weather-related events such as storms, floods, droughts, fires, hurricanes and other extreme weather conditions that may damage the company’s production facilities or disrupt its value chains. Suominen manages these risks with appropriate precautions, business continuity plans and insurances. As an example, risks relating to continuity of raw material supply are managed by working with multiple international suppliers, and risks relating to the company’s own manufacturing facilities are reduced for example by Suominen’s geographical diversity.
Social and employee-related risks
Suominen’s success is dependent upon the professional competence and expertise of its management and personnel, its ability to secure employee commitment, and success in recruiting skilled people in the future. Suominen implements and continuously develops processes and practices that enable us to attract, motivate and retain talented employees. We work for building and maintaining a culture of high performance where people are encouraged to set the bar higher and are able to perform at their top potential every day.
Occupational safety related risks are managed
through continuous safety work and by ensuring that work guidelines are followed. To minimize safety risks Suominen has established Life Saving Rules, which are mandatory for everyone to comply in any circumstances. As preventive measure, Suominen has a Behavior Based Safety (BBS) program in use, which is implemented through safety walks with the purpose to identify unsafe and safe behavior or conditions as well as corrective actions to improve safe working conditions.
Risks related to human rights and corruption or bribery
Suominen has identified risks related to human rights in safe working conditions and inappropriate treatment of employees. Suominen has zero tolerance for any kind of discrimination. Human rights topics are incorporated into the Code of Conduct and will also be incorporated in to supplier audit process.
Suominen does not tolerate corruption or bribery in any form. As stated in Suominen’s Code of Conduct and Anti-Corruption Policy, Suominen does not offer, give, solicit, or accept any improper or corrupt payments or benefits in return for a favorable decision or improper business advantage. Suominen expects all service providers, agents, consultants, and other third parties who act on its behalf to adhere to the same standards. Suominen has set up internal and external whistleblower channels for reporting any suspected non-compliance, and expects all employees and suppliers to report any violations of the Code of Conduct or the Supplier Code of Conduct to the company.