President & CEO’s review

President & CEO's review Q3/2022 

After a difficult first half of the year, Suominen’s result started to turn around in the third quarter. We reached all time high quarterly net sales in Q3 through improvement in both volumes and prices and tailwind from currencies. Our sales volumes increased in comparison to both Q3/2021 and Q2/2022 driven especially by improvement in North America. Margins were still lower than a year ago but improved slightly versus the previous quarter.

Our net sales were EUR 131.9 million (98.7) in the third quarter. Sales volumes increased as did sales prices following the higher raw material prices. Currency impact was significantly positive at EUR +11.1 million. Our quarterly EBITDA improved to EUR 5.1 million (4.2). The higher sales and production volumes impacted the result positively but our sales price increases could not fully compensate for the higher raw material and energy costs even despite the previously implemented energy surcharge in Europe. Other operating income was impacted positively by one-time tax credits and incentives in Brazil and Italy.

In August we announced surcharges on all our products in North America as a response to significant unexpected increases in raw materials, energy and freight costs. In September we announced a new energy surcharge on all our products in Europe as energy prices have continued to increase significantly after our first surcharge in March. Energy cost inflation is expected to continue during the autumn and winter months.

In the third quarter Suominen completed the EcoVadis sustainability assessment for the first time and received a silver level rating. This result places us in the top 8% of companies in the manufacture of other textiles industry rated by EcoVadis.

Looking ahead, we expect the demand for our products in the US to continue recovering and we have already seen the raw material markets turn more favorable in early Q4. At the same time our own improvement actions are starting to bear fruit. All these are expected to contribute positively to our result in the fourth quarter.

Petri Helsky
President & CEO

Previous reviews

The first half of 2022 was difficult for Suominen. In the second quarter we did not see an improvement in demand for the hard surface disinfectant products which has been suffering from the high inventory levels in the US supply chains. Overall our sales volumes improved slightly from the previous quarter but remained well below the corresponding period last year. What comes to raw materials, energy and transportation, there was another steep hike in these costs in the second quarter. Due to the lag in our sales pricing mechanisms our sales prices did not fully reflect the cost increases. Especially in Europe, the cost inflation was made worse by the war in Ukraine.

Our net sales were EUR 118.0 million (113.6) in the second quarter with currencies impacting the sales positively by EUR 8.0 million. Sales volumes decreased from Q2/2021 which marked the last quarter of the COVID-19 boom while sales prices increased following the higher raw material prices. Our quarterly EBITDA declined to EUR 1.9 million (15.3) due to the lower sales volumes and lower margins as our raw material, energy and freight costs increased more than the sales prices. Fixed costs saving actions had a small positive impact on the result.

We are continuing to identify and implement actions to improve our financial performance. As described in our previous interim report, we implemented an energy surcharge to all our products sold in Europe in mid-March which took effect in Q2. We have also progressed in our work on widening our product portfolio in the US at the production lines suffering from the inventory imbalance and we expect demand improvement for these lines in the second half of 2022 based on new contracted volumes. On the operations side we have launched a development program to further improve our raw material efficiency.

Safety is a key priority both in our strategy and our daily operations and our long-term target is zero lost-time accidents (LTA). During the first half of the year there has not been any LTAs at our sites and a great example of our successful safety work is our Paulinia site in Brazil which achieved a decade of no LTAs in June 2022.

We are continuously developing our sustainable product offering. To support our product development in nonwovens biodegradability we have built our own compostability test center Green Lab in Nakkila, Finland and the first tests have already started.

During the second quarter we announced an investment to enhance and upgrade one of our lines in Nakkila, Finland. This investment strengthens our capabilities in sustainable products and is made in line with our strategy and vision to be the frontrunner in sustainable nonwovens.

In June 2022 we agreed to extend our EUR 100 million syndicated revolving credit facility agreement by one year. The maturity of the facility is now extended to July 2025.

In the first half of the year our financial performance has clearly been weak. We are, however, seeing signs of improvement in both US product demand and the general raw material markets. These together with our improvement actions are expected to contribute positively to our financial results in Q3 and especially in Q4.

Petri Helsky
President & CEO

For Suominen the beginning of 2022 has been challenging as was expected. Certain key customers especially in the US continued to struggle with their inventory levels. Furthermore, in the early part of the year both our and our customers’ operations were affected by the omicron variant of the COVID-19. Both of these factors impacted our sales negatively. On the cost side we have seen further sharp increases in raw material, energy and freight costs. Due to the lag in our sales pricing mechanisms our pricing in the first quarter did not fully reflect these increases.

We condemn the Russian invasion of Ukraine and we feel deeply for all Ukrainians whose lives have been devastated by Russia’s incredulous aggression. The war has minor direct impact to Suominen’s business as we have had no suppliers in Russia, Belarus and Ukraine and only very few customers in Russia. Since the war started, we have stopped all sales to Russia. Suominen as a company is mostly affected by the indirect economic impacts of the invasion which contribute to the significant cost inflation mentioned above.

Our net sales were EUR 110.3 million (115.3) in the first quarter. Sales volumes decreased from the COVID-19 boom levels while sales prices increased clearly following the higher raw material prices. Our quarterly EBITDA was EUR 3.3 million (18.5). The main reasons for the decline were the lower volumes and the timing gap between our customer pricing and raw material, energy and freight costs which increased even more than the sales prices.

To improve our financial performance, we have launched an EBITDA improvement program to identify both new sales opportunities and cost savings initiatives. As an example of actions taken, we implemented an energy surcharge to all our products sold in Europe in mid-March. Also, as the inventory issues in the US are mainly related to a certain product group, we have been working to widen the product portfolio at the production lines especially affected by the inventory imbalance.

In line with our vision to be the frontrunner in sustainable nonwovens we are continuously developing our sustainable product offering. During the quarter, we launched our first carbon neutral product BIOLACE® Zero. Our efforts in the sustainability area were also recognized at the IDEA®22 Conference with our HYDRASPUN® Aquaflo winning the Nonwoven Product Achievement Award.

The near future continues to look challenging. The war in Ukraine has worsened the inflationary pressures in raw material, energy and freight costs and increased uncertainty overall. The inventory levels at our certain US key customers have remained elevated despite a decreasing trend supported by solid end consumer demand. However, we are more optimistic about the second half of the year. We are seeing signs of the raw material cost inflation moderating from the third quarter onwards and we also expect improved demand for our products through normalization of the US inventory levels and our portfolio widening actions mentioned above.

Petri Helsky
President & CEO

The second year of the COVID-19 pandemic was twofold for Suominen. During the first half, Suominen’s sales volumes and result continued at the record levels of 2020. In the third quarter, we suffered sudden, temporary drop in volumes due to overstocking in the supply chain followed by partial recovery in the fourth quarter. Our strategy implementation proceeded steadily.

We continued executing our strategy published in 2020. The main objectives of our strategy are growth and improved profitability by focusing on sustainability, customer focus and efficiency. During 2021, we completed three investment projects. Two of them were in Italy, one to increase the capacity by re-starting a line, and another to increase our capabilities in sustainable nonwovens. The third project was in the USA to increase our capabilities to offer new innovative products.

Our EBITDA was EUR 47.0 million, the third-best annual result in the history of Suominen. The result declined from record high 2020 mainly due to lower sales volumes and the increases in raw material, freight and energy costs which we were not fully able to push through to our sales prices.

Our net sales were EUR 443.2 million. Our strong ability to innovate and to meet market needs is reflected in the share of new products of our net sales which was above 25% in 2021. By new products, we mean products launched less than three years ago.

Sustainability at the core of our strategy

Sustainability is the cornerstone of our strategy, and we develop our product offering and operations accordingly. Our target is to increase the sales of sustainable products by 50% compared to a base year of 2019, and to launch 10 sustainable products each year. In 2021, the sales of sustainable products were 47% higher than in the base year 2019, and during the year we launched 16 sustainable products. We are also actively researching new sustainable fibers to be able to serve the needs of our customers even better. We have conducted test runs for example with hemp and have received excellent feedback from our customers on the products.

In our operations we want to use resources efficiently and to operate with the smallest possible impact on the environment. We have concrete reduction targets for our greenhouse gas emissions, energy and water consumption, and landfill waste, and we made steady progress towards these targets in 2021. One example of our work to reduce greenhouse gas emissions is our decision to shift entirely to fossil-free electricity in all our European sites.

Occupational safety is a key priority at Suominen, and our target is zero lost time accidents. We work continuously to further improve our safety culture and share best practices. Another people related target is to strengthen employee engagement. We conducted a second consecutive employee engagement survey in 2021. The results will be used as a basis for concrete, goal-oriented development actions as part of our systematic work to improve employee engagements and the development of a high-performance culture.

For us sustainability is not only about environmentally friendly products and minimizing the environmental impact of our operations: we highlight the importance of sustainable business practices throughout our value chain. Accordingly, our all employees received training on our new Code of Conduct.

Strategy implementation continues

We implement our strategy through five focus areas: Operational excellence, Sustainability leadership, Differentiate with innovation and commercial excellence, Great place to work, and Dual operating model.

We are continuously improving the efficiency and quality of our operations and promoting the health and safety of our employees. We leverage our unique asset base and our pioneering know-how in nonwovens to strengthen our leadership position in sustainable nonwovens. We serve our customers with the best products and services, we get results by harnessing our organization’s positive energy and commitment.

Toward the future

Looking at the year 2022 we see challenges especially in the first months of the year. Certain important customers are still struggling with their inventory levels, and the recent surge of COVID cases will impact not only our but also our customers’ operations. Combined, these challenges will make the near-term demand picture very volatile. We also continue to have a lag between the rising raw material, energy and logistics costs and our sales prices. We expect demand for our products to stabilize starting from the second quarter of the year. The long-term consumer demand is expected to remain above the pre-pandemic levels.

Our performance was good despite all the challenges. I want to thank our shareholders, customers, and business partners for their excellent cooperation. I particularly want to thank our employees for their solid commitment and excellent work. As we continue with the same determination, we can be sure that our vision will be realized, and we will continue to be the forerunner in innovative and sustainable nonwovens.

Petri Helsky
President & CEO