President & CEO Nina Kopola comments on Suominen’s fourth quarter of 2016 and the full financial year:
“Consumers’ confidence in their personal financial situation improved in the last quarter, both in Europe and especially in the US. The consumer confidence indices closed at a higher level than both the end of 2015 and the third quarter of 2016. Nonwovens manufactured by Suominen are used mainly in daily consumer goods, which means the development of demand is affected by both the general economic situation and consumer confidence. North America and Europe are Suominen’s main market areas.
Suominen’s financial development in the 2016 financial year did not live up to our expectations. Due to the tightened competitive situation, it was harder than usual to predict the development of demand during the year, mostly in baby wipes in the North American and European markets, and in flushable products in the European markets. The tightened competitive situation affected sales volumes and made pricing more challenging. Suominen’s fourth quarter net sales would have been at the level of the comparison period if the revenue recognition of larger than usual number of customer deliveries of finished goods were not postponed into 2017. Now the fourth-quarter net sales declined 3.7 percent to EUR 100.4 million. Net sales for the full financial year shrunk 6.1% and amounted to EUR 416.9 million.
Among the reasons for satisfaction with the 2016 financial year is the favorable development of the sales mix, which is also a further reflection of the success of our strategic measures. The share of products with higher added value in our net sales grew from the comparison period and was 62% (60%). The continuation of this trend creates the conditions for future net sales and profitability growth.
Suominen’s comparable fourth-quarter operating profit declined 16.9 percent to EUR 3.5 million. Comparable operating profit for the full financial year amounted to EUR 25.6 million, or 6.1% of net sales. Operating profit was burdened by lower sales volumes and pricing pressure caused by tightened competition. Our ongoing efforts to improve our strategic capabilities, for instance in product development resources, in the Bethune production line investment, and in the current ICT system overhaul, increased our costs last year.
Cash flow from operations continued to be strong, at EUR 28.5 million (27.3).
Fourth quarter profit amounted to EUR 1.6 million, and profit for the full financial year was EUR 15.2 million. Earnings per share in 2016 were EUR 0.29.
Suominen’s Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.11 (0.10) per share be paid for the financial year. The proposal is in line with Suominen’s dividend policy.
Suominen’s Board of Directors has set three medium-term financial targets for the company, which will help measure the success of our strategy. We did not achieve net sales growth in the 2016 financial period, and the return on invested capital, 11.6%, fell slightly short of the target level (target: over 12%). Our gearing was close to the lower limit of our target range, at 39.6% (target: 40–80%). Our determined work produced good results in many respects, but our growth investment program and our focus to improve product development and commercial know-how generated new net sales in a slower pace than we had predicted. These efforts are essential for the acceleration of our growth and for the improvement of our profitability.
The largest single project in our growth investment program is the commissioning of the new production line focusing on higher value-added products at the Bethune plant in the US. The production line equipment installations were completed at the end of 2016, and deliveries to customers are slated to begin in the first quarter of 2017. The production line is unique in that it is tailored based on Suominen’s know-how and it focuses especially on the manufacture of nonwovens for household and workplace wiping and for flushable applications. Demand for these products is expected to grow at an annual rate of 5–9%, depending on the geographical area.
Considering the orders received, net sales development in the first quarter of 2017 appears to be positive. We also estimate that Suominen’s net sales for the full 2017 financial year will be better than in 2016. The comparable operating profit is estimated to improve from year 2016, provided that the new production line at the Bethune plant will be started up as planned.
We are now in the final leg of our three-year strategy period. I am satisfied with the outcome of our work in many respects, despite not reaching our targeted growth level. Thanks to our more than EUR 60 million investment program, which is coming to a close, and our strengthened commercial organization and boosted product development processes, we are in a better position than before as we head into 2017 and our next strategy period.
We are currently fine-tuning Suominen’s strategic markers for the 2017–2021 period. The goal of our future strategy will also be to increase the share of products with higher added value in our sales mix, which will lay the groundwork for improving both our net sales and profitability. The new technological opportunities offered by the production line investment in Bethune will play a key role in helping us achieve that goal. The successful execution of our strategy will bring Suominen’s net sales level above EUR 600 million in 2021. Moreover, we estimate that our operating profit will increase to a clearly higher level compared to the current performance and we are targeting an operating profit margin that exceeds 10%. We will communicate more about our plans for the 2017–2021 period in connection with the first quarterly report of 2017, which will be published on 26 April, and in greater detail on Suominen’s Capital Markets Day on 10 May 2017.
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