Operating environment

Nonwovens markets

 

The global nonwovens market totals approximately 26 billion euros. It is a huge market but, on the other hand, a very fragmented one, since nonwovens are used in a vast number of applications.

Suominen has chosen three market segments where it operates:

  1. Wiping
  2. Medical
  3. Hygiene

Suominen is the ninth-largest of all nonwovens suppliers. In nonwovens for wipes, we are the global market leader, while in the medical and hygiene markets, Suominen is a challenger.

These three market segments are not very cyclical in nature, which separates them from, for example, the automotive and building segments of the nonwovens market.

Of the large hygiene market, it is worth noting that approximately one fifth of it is within our reach. Suominen concentrates only on producing carefully selected nonwoven components with higher added value for hygiene products.

Demand for nonwovens for wiping, medical and hygiene applications is driven by the same megatrends, which are discussed in more detail below. The same raw materials, technologies and employee capabilities are utilized in all three market segments, and the features required of the products in these segments are often quite similar. Nearly all Suominen’s products eventually touch human skin.

Suominen’s main market areas are Europe and North America. We also have a foothold in the growing South American markets. In these areas, demand for nonwovens used in wipes and in hygiene and medical products is increasing at an annual rate of some 3% in Suominen’s selected segments. Exceeding this average growth rate organically is one of the financial targets of our strategy for 2015–2017.

In Asia and Africa, annual growth in the nonwovens markets averages 7 to 8%. One might ask, why is Suominen not operating on those market areas as well? The answer is: Because extending our geographical reach to new areas is not in our focus during this strategy period. We know that successful business in those areas requires both a local footprint and focus. Our focus is currently on our existing geographical markets and on organic growth, i.e. growth achieved without acquisitions.

Growth in demand for nonwovens depends mostly on consumer demand.

 

Consumer demand is a combination of the general economic situation and consumers’ confidence in the development of their personal finances. However, demand for fastmoving consumer goods – that is, end-products for which most of Suominen’s products are used – is not very cyclical in nature.

Megatrends change the world – and the business

Megatrends are global changes that profoundly transform societies over a long period of time. Many of them are bolstering our business and consequently boosting our growth forecasts, thanks to their impact on consumer behavior.
They include:

  • Population growth
  • Growing global middle class
  • Aging population
  • Rising healthcare expenditure
  • Increasing consciousness of health and well-being

There is a direct correlation between the rise in the standard of living and, for example, demand for hygiene products. According to various industry sources, an increase in gross domestic product (GDP) to only approximately USD 1,000 per capita could spark demand for disposable sanitary napkins. When the GDP rises to roughly USD 4,000 per capita, demand extends to disposable diapers and, with further increases, to other daily hygiene and convenience products.

The global middle class, the segment of the population with an annual income of between USD 3,000–20,000, is set to become the consumer group with the highest purchasing power in the world in the near future. It has been estimated that by 2020, 2.1 billion people will make up the global middle class.

The rise in the standard of living combined with evolving lifestyles will be reflected in the consumer behavior of the prospering middle class. In addition to essential commodities, the consumption of this demographic will center around solutions that make daily routines easier and less time-consuming. The use of disposable household wipes and beauty care wipes are examples of this phenomenon.

With the aging of the population and changing healthcare models, new needs are emerging and demand for nonwovens used in, for example, medical applications and incontinence products is increasing.

By 2050, people over the age of 60 will make up slightly more than 20% of the global population.*

 

In 2000, this demographic accounted for only 10% of the population.

The average age of the population is increasing especially in industrialized countries. At the same time, the aging population is staying active for longer, which increases the need for, for example, incontinence products. On the other hand, the need to find cost-effective solutions to combat hospital-acquired infections and various pandemics is also contributing to the increase in demand for nonwovens.

Aging, pandemics and changing healthcare models are reflected in the rising healthcare expenditure. On the other hand, cash flows related to healthcare are increasing as a result of consumers’ interest in enhancing their well-being and health. The overall expenditure in healthcare is expected to double between 2010 and 2020.

* UN report: World Population Ageing 1950–2050.

Key competitors

 

Suominen has two business areas: Convenience and Care. Convenience offers nonwovens mainly for a range of wiping applications, while Care business area serves medical and hygiene markets.

Key competitors by business area and market segment 

Convenience business area

Care business area

Wiping Medical Hygiene
Kimberly-Clark Kimberly-Clark Kimberly-Clark
Jacob Holm Ahlstrom Berry Plastics (ex-PGI)
Sandler Freudenberg Fiberweb
Berry Plastics (ex-PGI) DuPont First Quality Nonwovens
  First Quality Nonwovens Pegas Nonwovens

 

Customers

 

Our customer base includes

  • Manufacturers of consumer brands, many of them global operators
  • Manufacturers of globally operating private label products
  • Manufacturers of medical and hygiene products
  • Regional further processors

Our customer relationships last, on average, more than ten years and are typically based on 2–3-year-long framework agreements. Ten of our largest customers make up around half of Suominen’s net sales. Key purchasing criteria include consistent quality, continuity, proximity (logistical benefits, flexibility of cooperation).

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. Long-term contracts are preferred in the case of the largest customers. In practice, the customer relationships are long-term and last for several years.

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, as Suominen’s stocks equal to two to four weeks consumption and passing on price changes of these raw materials to the prices Suominen charges its contract customers takes between 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 several product groups, particularly in Europe. If Suominen is not able to compete through an attractive product offering, it may lose some of its market share, and the competition may lead to increased pricing pressure on the company’s products.

The Group’s damage risks are insured in order to guarantee the continuity of operations. Suominen has valid damage and business interruption insurance according to which it is estimated that the damages can be covered and the financial losses caused by an interruption compensated.

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.

The Group’s financial risks consist of foreign exchange, interest rate, credit, counterparty, liquidity and commodity risks. The nature of international business means that the Group has risks arising from fluctuations in foreign exchange rates. The effect of changes in interest rate levels on Group result represent an interest rate risk. Credit and counterparty risks arise mainly from risks associated with the payment period granted to customers and, in the case of loan receivables, from the ability of the counterparty to repay the loans. Liquidity risk is the risk that the Group’s negotiated credit facilities are insufficient to cover the financial needs of the business or that obtaining new funding for these needs will cause a significant increase in financing costs.