The global nonwovens market totals over 30 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:
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 we have chosen are not very cyclical in nature, which separates them from, for example, the automotive and building segments of the nonwovens market.
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. Suominen’s target is to grow twice as fast during our strategy period for 2017–2021.
At present, Suominen does not have manufacturing operations in Asia or Africa. Looking at the growth forecasts, these regions are obviously very attractive markets and during the strategy period for 2017-2021, Suominen is going to explore its opportunities to expand its business to new market areas, such as Asia, which is the nonwovens market in the world.
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 fast-moving consumer goods – that is, end-products for which most of Suominen’s products are used – is not very cyclical in nature.
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.
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 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.
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.
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.
Convenience business area
Care business area
|Jacob Holm||Ahlstrom||Berry Plastics (ex-PGI)|
|Berry Plastics (ex-PGI)||DuPont||First Quality Nonwovens|
|First Quality Nonwovens||Pegas Nonwovens|
Our customer base includes
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).
The estimate on the development of Suominen’s net sales is partially based on forecasts and delivery plans received from the company’s customers. Changes in these forecasts and plans, resulting from changes in the market conditions or in customers’ inventory levels, may affect Suominen’s net sales.
Suominen’s customer base is fairly concentrated, which adds to the customer-specific risk. This may affect Suominen’s financial result if customers’ purchasing habits become more cautious as a result of a changes in consumption, or as a result of sales losses. 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.