Ahlstrom's Financial Statements Bulletin 2007: Growth and restructuring in 2007. Dividend of EUR 1.00 per share proposed

Ahlstrom's Financial Statements Bulletin 2007: Growth and restructuring in 2007. Dividend of EUR 1.00 per share proposed

Ahlstrom Corporation STOCK EXCHANGE RELEASE 1.2.2008
 
Net sales for the full year 2007 grew by 10.1% and amounted to EUR 1,760.8 million (2006: EUR 1,599.1 million). Operating profit amounted to EUR 25.8 million (EUR 96.1 million) and included non-recurring costs of EUR 42.0 million (gains of 8.7 million) mainly related to the restructuring measures taken during the fourth quarter. As part of the restructuring Ahlstrom decided to close four plants which incurred an operating loss of EUR 4.3 million in addition to the restructuring costs. 
 
Profit before taxes was EUR 0.2 million (EUR 81.2 million). Return on capital employed (ROCE) was 2.5% (10.4%). Earnings per share (EPS) amounted to EUR 0.01 (EUR 1.31).
 
The Board of Directors proposes a dividend of EUR 1.00 (EUR 1.00) per share to be paid for the financial year 2007.
 
As a result of the actions taken in 2007, Ahlstrom is well-positioned to grow and improve clearly its operating financial performance in 2008.
 
October-December 2007 in brief
 
- Net sales amounted to EUR 462.5 million, growing by 23.3% (adjusted for currency effect) from the fourth quarter of 2006 as a result of good demand in the FiberComposites segment and Technical Papers business area, as well as recent growth initiatives.
 
- Group operating profit excluding non-recurring items decreased to EUR 11.0 million due to the weak profitability of the Release & Label Papers business area. This was caused by the operating loss of the closed plants as well as technical problems with the ramp-up of the La Gère release base paper investment incurring additional costs of EUR 7.6 million.
 
- In order to improve profitability, Ahlstrom announced restructuring actions targeting to bring profit improvement of EUR 25 million on an annual basis.

Key figures

EUR million
Q4/2007
Q4/2006
2007
2006
Net sales
462.5
389.0
1,760.8
1,599.1
Operating profit/loss
-34.7
12.3
25.8
96.1
Operating profit excl. non-recurring items
11.0
14.1
67.8
87.3
Profit/loss before taxes
-43.2
9.4
0.2
81.2
Profit before taxes excl. non-recurring items
2.5
11.3
42.1
72.5
Profit/loss for the period
-29.0
8.8
1.3
57.6
Net cash flow from operating activities
9.8
25.0
43.9
119.2
Gearing ratio, %
65.3
20.3
65.3
20.3
Return on capital employed (ROCE),%
-10.7
5.3
2.5
10.4
Return on capital employed (ROCE),%
excl. non-recurring items
3.6
6.1
6.3
9.5
Cash earnings per share, EUR
0.21
0.54
0.94
2.72
Earnings per share, EUR
-0.64
0.18
0.01
1.31
Average number of shares
during the period, 1000s
46,671
45,602
46,476
43,802
 
Jukka Moisio, President & CEO, comments Ahlstrom's year 2007:

In 2007, we used the proceeds raised in the 2006 IPO to expand our geographic presence and offerings especially in the fast growing markets in Brazil, Russia, India and China (BRIC). In total we invested EUR 370 million. The investments are progressing according to plan and their impact was partially seen in our net sales, which grew by 10% to EUR 1,761 million. Net sales of the Fiber Composites segment grew by 17 % and the Specialty Papers segment by 4%.
I am satisfied that the Fiber Composites segment and the Technical Papers business area were able to improve their operating profit despite the challenging business environment. However, the weak performance of the Release & Label Papers business area decreased the return on capital employed excluding non-recurring items in 2007 to 6.3%.
In order to improve profitability, Ahlstrom took actions to achieve significant cost reductions. These actions result in the closure of four plants and a reduction of personnel by approximately 10% throughout the organization. The restructuring is targeted to gradually improve Ahlstrom's annualized profits by EUR 25 million with full effect from the second half of 2008 onwards.
Ahlstrom's business is on a solid basis. Our underlying operating profit of the final quarter in 2007 was approximately EUR 20 million, excluding the operating loss of the closed plants and the La Gère problems. Ahlstrom is well-positioned to grow and improve clearly its operating financial performance in 2008.
 
Ahlstrom Group: Financial statements 2007
 
Operating environment in October-December 2007
Despite the slowdown in the USA, demand for Ahlstrom's products developed favorably in its main markets. The US market became, however, increasingly short-term oriented. The export markets from Europe for coated-one-side papers continued weak.
 
The prices for the main raw materials continued to escalate during the quarter. The price increases were driven by the continuous tight supply. The average USD market price for BHKP pulp (Bleached Hardwood Kraft pulp, e.g. eucalyptus pulp), was on average approximately 13% higher than in the fourth quarter of 2006 and 6% higher than in the third quarter of 2007. The market price for NBSK pulp (Northern Bleached Softwood Kraft pulp) was on average approximately 15% higher than in the fourth quarter of 2006 and 5% higher than in the third quarter of 2007.
 
The prices for rayon and polyester, Ahlstrom's most important synthetic raw materials increased significantly as a consequence of the continued shortage of supply. In particular the price for rayon increased by more than 40% during 2007. Chemical prices remained stable in the quarter despite the increasing oil prices.
 
Energy prices increased due to the adoption of winter energy prices in Central Europe and rising oil prices. Ahlstrom's main energy sources are natural gas and electricity.
 
Financial performance in October-December 2007
 
The Group's net sales increased by 18.9% to EUR 462.5 million (EUR 389.0 million). The acquisitions carried out earlier in the year increased sales by EUR 72.3 million in the fourth quarter. On the other hand, exchange rate fluctuations, mainly the weakening of the USD, decreased the net sales approximately by EUR 17.3 million or by 4.5% from the fourth quarter of 2006. Comparable net sales adjusted for acquisitions and the currency effect increased by 4.7% from the same period last year.
 
Sales volumes grew by 24.3% and were mainly driven by acquisitions and organic growth investments and continued good overall demand.
 
The Group's operating profit excluding non-recurring items decreased by 22.1% and amounted to EUR 11.0 million (EUR 14.1 million). The reason for the decrease was the weak performance of the Release & Label Papers business area due to the the operating loss of the closed plants and the technical problems with the La Gère, France release base paper investment incurring additional costs of EUR 7.6 million. The integration costs of the acquisitions had approximately a EUR 1.0 million impact on operating profit in the quarter.
 
In order to improve profitability, Ahlstrom took restructuring actions in the fourth quarter. Ahlstrom decided to close the Ascoli plant in Italy and the Chantraine plant in France, and to consolidate the air filtration assets in the USA, including the closure of the Darlington and Bellingham plants. Moreover, Ahlstrom completed the integration of the acquisitions made during 2007 and streamlined operations in various parts of the organization. Altogether four sites, nine manufacturing lines and 650 positions (10% of personnel) will be reduced as a result of the integration and the restructuring actions.
 
The restructuring is targeted to bring profit improvement of EUR 25 million on an annual basis. Net non-recurring costs related to the restructuring actions totaled EUR 45.7 million (EUR 1.9 million), of which EUR 9.0 million were asset write-downs and the rest was mainly related to the personnel reduction.
 
The operating loss of the quarter amounted to EUR 34.7 million (profit of EUR 12.3 million).
 
Total net financial expenses amounted to EUR 8.6 million (EUR 2.6 million). Net interest expenses increased to EUR 7.0 million (EUR 1.7 million) due to the increase in net debt and interest rates. Net foreign exchange losses on financial items were EUR 0.5 million (loss of EUR 0.5 million).
 
Ahlstrom's share of the profits of associated companies amounted to EUR 0.1 million (losses of EUR 0.2 million).
 
Profit before taxes excluding non-recurring items decreased to EUR 2.5 million (EUR 11.3 million). Loss before taxes amounted to EUR 43.2 million (profit of EUR 9.4 million). Tax income was EUR 14.2 million (tax expense of EUR 0.7 million). Loss for the period amounted to EUR 29.0 million (profit of EUR 8.8 million) and earnings per share (EPS) to EUR -0.64 (EUR 0.18).
 
Return on capital employed (ROCE) excluding net non-recurring items was 3.6% (6.1%) in the fourth quarter. ROCE amounted to -10.7% (5.3%). Return on equity (ROE) was -15.1% (4.6%).
 
Financial performance in 2007
 
The Group's full year 2007 net sales grew by 10.1% amounting to EUR 1,760.8 million (EUR 1,599.1 million). Currency fluctuations, mainly the weakened USD, decreased net sales by EUR 48.3 million or by 3.0%. Sales volumes increased by 11.8%. Comparable net sales, adjusted for acquisitions, currency effect and investment standstills grew by 4.3%.
 
Operating profit excluding non-recurring items amounted to EUR 67.8 million (EUR 87.3 million). The decrease in operating profit was attributable to the weak performance of the Release & Label Papers business area. The main reason for the decrease was the weakening demand and oversupply of the coated-one-side papers in Europe and the decision was made to close the Chantraine and Ascoli plants. Furthermore, the operating loss of the closed plants and the technical problems with the ramp-up of the La Gère, France investment burdened profitability. The high raw material and energy costs and the integration costs of the completed acquisitions of approximately EUR 3.0 million impacted full year operating profit as well.
 
Net non-recurring costs in 2007 totaled EUR 42.0 million (gains of EUR 8.7 million) and were mainly related to the restructuring in the fourth quarter. The non-recurring gains were mainly related to the sale of three power plants during the first quarter in Italy. In addition to the non-recurring restructuring costs the closed plants incurred an operating loss of EUR 4.3 million.
 
Ahlstrom announced price increases in all business areas during the year to improve profitability. Throughout the year, Ahlstrom's continuous improvement program aPlus brought productivity gains in operations. 
 
Operating profit for 2007 amounted to EUR 25.8 million (EUR 96.1 million).
 
Total net financial expenses were EUR 25.6 million (EUR 14.9 million). Net interest expenses increased to EUR 20.9 million (EUR 8.4 million) due to the increase in net debt and increased interest rates. Net foreign exchange losses were EUR 1.2 million (EUR 4.5 million).
 
Ahlstrom's share of the losses of associated companies amounted to EUR 0.06 million (profit of EUR 0.03 million).
 
Profit before taxes excluding non-recurring items decreased to EUR 42.1 million (EUR 72.5 million). Profit before taxes amounted to EUR 0.2 million (EUR 81.2 million). Tax income amounted to EUR 1.2 million (tax expense of EUR 23.6 million). Profit for the period amounted to EUR 1.3 million (EUR 57.6 million) and earnings per share (EPS) to EUR 0.01 (EUR 1.31).
 
Return on capital employed (ROCE) excluding non-recurring items was 6.3% (9.5%). ROCE was 2.5% (10.4%). Return on equity (ROE) was 0.2% (8.5%).
 
 
 
Financing and financial position in 2007
 
Net cash flow from operating activities in 2007 decreased to EUR 43.9 million (EUR 119.2 million) due to the increase of working capital as a result of growing net sales. In addition, the defined benefit pension plan in the United Kingdom was closed and the historical deficit was funded by EUR 20.8 million, impacting Ahlstrom's cash flow.
 
Interest-bearing net liabilities increased by EUR 335.9 million to EUR 491.1 million due to Ahlstrom's extensive investment program in 2007 including four acquisitions. (December 31, 2006: EUR 155.2 million).
 
Gearing ratio increased to 65.3% (December 31, 2006: 20.3%) and the equity ratio was 44.0% (December 31, 2006: 56.5%).
 
Growth strategy
 
Ahlstrom's strategy is to grow both organically and by acquisitions. Ahlstrom's growth investments are targeted to expand business in fast growing markets and serve customers globally.
 
Ahlstrom's growth investments are expected to generate net sales amounting to 1.5 times the investment value in 3-5 years and reach a return of capital employed of at least 13%.
 
In 2007, Ahlstrom continued its global growth strategy by implementing four acquisitions and a number of organic growth investments on four continents, totaling EUR 371.9 million.
 
Capital expenditure in 2007 and estimate for 2008
 
Capital expenditure excluding acquisitions amounted to EUR 154.7 million (EUR 120.1 million). In 2007, the value of acquisitions was EUR 217.2 million (EUR 7.8 million).
 
In 2008, the organic investments are expected to be approximately EUR 120 million including the previously announced food nonwovens line to Chirnside, UK serving the infusion markets, the wiping fabrics line in Brazil and partly the new medical nonwovens plant to be built in Gujarat, India.
 
Acquisitions and investment decisions in 2007
 
On February 2, Ahlstrom decided to invest EUR 5 million in a new drylaid nonwoven line at its Groesbeck, TX, USA plant to serve the North American air filtration market. Later in 2007 Ahlstrom decided to postpone the investment until further notice.
 
On April 30, Ahlstrom closed the acquisition of the spunlace nonwovens business of the Italian Orlandi Group. The acquisition price was approximately EUR 60 million and the acquired business includes two plants in Italy. The acquired business generates annual net sales of approximately EUR 65 million.
 
On May 7, Ahlstrom signed a memorandum of understanding with Mundra Special Economic Zone (SEZ) in Gujarat, India to purchase a land area of 5 hectares in the Textile and Apparel Park. The parties agreed not to disclose the purchase price of the property.
 
On May 11, 2007 Ahlstrom announced an investment of EUR 8 million in a new needlepunch line for its North American filtration business, targeting the growing dust filtration market.
The new line will be located at the Bethune, SC, USA facility. The targeted completion date is June 2008.
 
On May 25, 2007 Ahlstrom closed the acquisition of the consumer wipes business of Fiberweb plc. The acquisition price was approximately EUR 65 million. The acquired business includes four plants in Europe and in the USA. Annual net sales of the acquired business amounts to EUR 110 million.
 
On May 31, 2007 Ahlstrom closed the acquisition of Italian Fabriano Filter Media SpA. Fabriano is a manufacturer of microglass filter media, serving mainly the high efficiency air filtration market. The acquisition price was approximately EUR 7 million. The transaction includes one manufacturing plant with net sales of approximately EUR 7 million.
 
On September 3, 2007 Ahlstrom closed the transaction to form a joint venture with Brazilian Votorantim Celulose e Papel (VCP). Ahlstrom holds 60% and VCP 40% of the shares in the joint venture Ahlstrom-VCP. The price for Ahlstrom's shareholding was approximately EUR 80 million. The annual net sales of the joint venture is approximately EUR 100 million.
 
On September 21, 2007 Ahlstrom signed agreements with Zhejiang Kan Specialty Material Co (KAN Paper) and its management to acquire a majority shareholding in a specialty papers joint venture in China. Ahlstrom will hold 70% of the shares in the joint venture and the debt-free value of the acquisition is expected to be approximately EUR 10 million. The annual production capacity of the joint venture is approximately 12,000 tons and it employs 130 people. The transaction is expected to be closed during the first quarter 2008.
 
On December 13, Ahlstrom announced that it plans to double its production capacity for specialty glassfiber reinforcements in the USA to meet the fast growing demand especially within the wind energy markets. The capacity increase will be implemented in two phases by the end of 2011, and the total investment value is estimated to be approximately EUR 7 million.
 
On December 13, Ahlstrom announced an investment of approximately EUR 10 million in new nonwovens capacity at its Turin plant in Italy. The investment consists of a rebuild of the paper machine 4, currently producing release base papers, to manufacture nonwovens for industrial applications. The line will be operational by the end of the first quarter of 2009 and is targeted to serve customers within the construction and building industries.
 
On December 13, 2007 Ahlstrom announced an investment of EUR 38 million in a new medical nonwovens plant utilizing spunmelt technology in India. The site also enables future expansions of Ahlstrom businesses in India. The new facility will be located in the Mundra Special Economic Zone (SEZ) in the western state of Gujarat and is expected to start production by the end of 2009.
 
Organic growth investment start-ups in 2007
 
During the first quarter of 2007 Ahlstrom repaired a glass furnace and increased the production capacity of the chopped strand mat machine at its Karhula plant in Finland.
 
Ahlstrom's new wiping fabrics line located at the Green Bay, WI, USA plant ramped up during 2007.
 
Ahlstrom's new specialty glassfiber reinforcement plant in Bishopville, SC, USA serving the wind energy, marine and transportation markets was ramping up its production in January- September 2007.
 
In June 2007, a major release base paper capacity expansion was started up at the La Gère, France plant. The investment standstill lasted five weeks. The investment ramp-up had technical problems and ramped up during the second half of 2007.
 
The new industrial nonwovens production line in the Brignoud, France plant started production in December 2007.
 
The new glassfiber tissue production plant in Tver, Russia was expected to start production in December 2007 but it was delayed until late January 2008.
 
Divestments in 2007
 
In March, Ahlstrom agreed to sell three hydropower plants close to its Turin, Italy plant to a local energy company for approximately EUR 7 million. The sale was consistent with the company's strategy to focus on high performance fiber-based materials and to divest non-core assets and reduce related costs.
 
Research and development (R&D) in 2007
 
Innovation is a key element in Ahlstrom's growth strategy. In 2007, the R&D expenses totaled EUR 27.0 million (EUR 25.0 million), representing 1.5% (1.6%) of Ahlstrom's net sales.
 
In 2007, 39% (39%) of Ahlstrom's net sales was generated by new or improved products due to a large number of organic investments started up during the year. The company's target range for net sales generated by new or improved products is 25-35%
 
Ahlstrom continued to introduce new products and technologies in order to further strengthen its position as a leading supplier of fiber-based materials. Ahlstrom was rewarded by ADME (French environment & energy control agency) for its innovative photocatalytic filter media utilized in the first anti-odor building. Other new products that were introduced included the expanded offering of pulp-containing and dispersible wipes and a new specialty glassfibre package for infusion processes used in windpower and marine applications.
 
The company continued to develop technologies utilizing nanofibers and the filter media acquisition made in 2007 broadened Ahlstrom's technology portfolio by adding microglass technology to the Group. In addition, Ahlstrom worked to continuously improve its existing products and to increase the use of cost-efficient raw materials e.g. eucalyptus pulp and reduce manufacturing costs.
 
 
Changes in corporate structure in 2007
 
Ahlstrom has changed the operative organization within the Specialty Papers segment with effect from October 1, 2007 in order to improve its performance. The Stenay and the Rottersac plants in France, previously part of the Label & Packaging Papers business area, were transferred to the Technical Papers business area. The plants employ 410 people. Following the reorganization, the Label & Packaging Papers business area was renamed Release & Label Papers. Ahlstrom's reporting reflects the new structure as of October 1, 2007.
 
In line with its strategy to improve profitability, Ahlstrom decided in the fourth quarter 2007 to close its Ascoli, Italy plant and its Chantraine, France plant. The Ascoli plant was closed in January 2008 and the Chantraine plant is expected to be closed by the second quarter in 2008.
 
Furthermore, Ahlstrom decided to consolidate its air filtration sites in Bellingham, Massachusetts and Darlington, South Carolina to its Bethune plant in South Carolina in order to reduce fixed costs. The Darlington plant was closed by the end of the year 2007 and the Bellingham plant will be closed by the third quarter of 2008. Moreover, Ahlstrom completed the integration of acquisitions made in 2007.
 
Changes in the Corporate Executive Team in 2007
 
Daniele Borlatto, previously Vice President, Filtration business in Europe and South America was appointed Senior Vice President of the Release & Label Papers business area and member of the Corporate Executive Team as of October 11, 2007. Daniele Borlatto joined Ahlstrom in 1990, and he has held several managerial positions in sales and controlling prior to his current role.
 
Diego Borello, previously Senior Vice President of Ahlstrom's Label & Packaging Papers business area (renamed Release & Label Papers with effect from 1 October 2007), was appointed Senior Vice President, Innovation and Technology as of October 11, 2007. He continues as a member of the Corporate Executive Team.
 
Personnel
 

 
2007
2006
2005
Number of employees, year-end
6,481
5,677
5,525
Number of employees, average
6,108
5,687
5,605
Wages and salaries, incl. bonus payments, EUR million
256.9
234.1
225.1
 
Geographically, 68% of Ahlstrom's employees were located in Europe, 23% in North America, and 10% in the rest of the world. With 23% of the total workforce, USA has the largest percentage of employees, followed by France with 21%, Italy with 16%, Finland with 12% and Germany with 9%.
 
In 2007, 55% of Ahlstrom's employees worked within the FiberComposites segment, 39% in the Specialty Papers segment and 6.0% in other operations.
 
 
 
 
 
Annual General Meeting
 
Ahlstrom Corporation's Annual General Meeting of Shareholders (AGM) was held on March 30, 2007.
 
The AGM confirmed the number of Board members unchanged at seven. Sebastian Bondestam, Jan Inborr, Urban Jansson, Bertel Paulig, Peter Seligson and Willem F. Zetteler were re-elected as members of the Board of Directors and Thomas Ahlström was elected as a new member as proposed by the Nomination Committee. The term of the Board of Directors will expire at the close of the next Annual General Meeting.
 
The AGM authorized the Board of Directors to repurchase a maximum of 4,500,000 Ahlstrom shares, corresponding to less than 10% of all issued company shares. The Board of Directors is also authorized to resolve to distribute the shares held by the company. The shares may be used as compensation in acquisitions and in other arrangements as well as to implement the company's share-based incentive plans. The Board of Directors has also the right to decide on the distribution of the shares in public trading for the purpose of financing possible acquisitions. The authorization is valid until the next Annual General Meeting on April 2, 2008. The Board did not utilize the authorization to repurchase or distribute the shares during 2007.
 
Risk management
 
The objective of Ahlstrom's risk management is to create a consistent consideration of risk and reward in day-to-day planning and execution to support achievement of agreed targets while avoiding undesired operational and financial events.
 
The Group's risk management policy states that threats to the achievement of the organization's goals will be identified, analyzed, evaluated and responded to, in order to protect the company against loss, uncertainty and lost opportunity. The policy also defines key activities and responsibilities related to managing risks.
 
Ahlstrom's risk management approach and framework was further developed during 2007. Structured risk assessment work continued in 2007, covering integration of the risk assessment aspect into the strategic business planning process as well as arranging detailed risk assessment workshops within the business areas.
 
Ahlstrom has classified risks affecting its operations in three categories, which are strategic business risks, operational risks and financial risks.
 
Strategic business risks
Strategic business risks are often related to customer relationships, product development, efforts to maintain competitive advantage in quality, service and capacity utilization, as well as capital investments and acquisitions. Some of the strategic business risks that Ahlstrom is exposed to relate to global fiber-based materials market, production capacity utilization, sourcing of raw materials as well as integration of realized growth opportunities. In accordance with the operative organization of the company, strategic business opportunities and risks are primarily addressed by the business area and product line management.
 
Operational risks
Operational risks often arise as a consequence of inadequate or failed internal processes, people's actions, systems or external events. If the risks materialize, they can lead to injuries, damage to property, interruption of operations, environmental impacts, or liabilities to third parties. In order to identify and mitigate operational risks, Ahlstrom has developed its operational loss prevention processes. To minimize the potential financial impact of materialized risks, Ahlstrom has an established group-wide insurance program.
 
Financial risks
Financial risks are managed by Group Treasury, under the company's Treasury Policy. The Treasury Policy covers funding, interest rate, foreign currency and counterparty risks as well as risk related to emission rights. There have been no major changes in the area of the financial risks during 2007.
 
Ahlstrom will provide more detailed information on its risk management in the Annual Report 2007.
 
Health, safety and environment
 
In its approach to management of its health, safety, environmental obligations and asset protection (HSEA), Ahlstrom applies a continuous improvement model. This model is applied to all phases of the life cycle of Ahlstrom's products: from product development, through raw material sourcing, production operations, product delivery and ultimate disposal or recycle.
 
Ahlstrom's operative structure changed significantly in 2007.  Ten sites were either acquired in 2007 or commenced operation during the year.  Four sites were either closed or scheduled for closing.  Environmental due diligence investigations were conducted of all new acquisitions.  All sites scheduled for closing follow prescribed phase down procedures to ensure regulatory compliance and risk mitigation.
 
In 2007, Ahlstrom's environmental performance continued to improve as gauged by its key environmental performance indicators.  Energy conservation was a key focus for the year.  A significant number of energy saving investments were made utilizing a dedicated capital fund.  The benefits of these investments were apparent in the third and fourth quarters of the year.   Coincident with improved energy utilization, CO2 emissions also dropped globally. Ahlstrom expects to be a net creditor for Phase 2 (2008 - 2012) of the European Emissions Trading Scheme (ETS). Water utilization also improved and waste to landfill continued to decrease as sites improved material utilization and pursued more environmentally friendly disposal techniques.  There were no significant environmental incidents in 2007. 
 
Ahlstrom believes that there are no material issues regarding compliance with applicable environmental laws or regulations at any of its sites.  The company continuously monitors regulatory developments worldwide.  At this time, Ahlstrom does not foresee any prospective environmental, health or safety regulatory change that would have a material impact on Ahlstrom's operations or product offerings. 
 
Consistent with its standard practice, Ahlstrom will provide more detailed information on its environmental, health and safety performance in its Annual Report 2007.
 
Shares and share capital
 
Ahlstrom's share is listed on the OMX Nordic Exchange Helsinki. Ahlstrom has one series of shares. The share is classified under the Materials sector and the trading code is AHL1V.
 
During 2007, a total of 14.5 million Ahlstrom shares were traded for a total of EUR 290.1 million. The lowest trading price during the review period was EUR 16.03 and the highest EUR 24.50. The closing price on December 31, 2007 was EUR 16.37 and market capitalization was EUR 764.0 million.
 
Equity per share of Ahlstrom Group was EUR 15.35 at the end of the review period (December 31, 2006: EUR 16.79).
 
At the end of the review period, there were no outstanding options entitling to subscription of Ahlstrom shares.
 
In 2007, a total of 1,008,871 new shares of Ahlstrom Corporation were subscribed with option rights under the company's stock option programs I (2001) and II (2001). After the corresponding increases in Ahlstrom's share capital, the share capital at the end of the review period amounted to EUR 70,005,912.00. The total number of shares on December 31 was 46,670,608.
 
Other events
 
In December 2007 the Board of Directors of Ahlstrom Corporation decided to expand the responsibilities of the Compensation Committee to cover the tasks of the Nomination Committee with immediate effect. Consequently, the committee was renamed as Compensation and Nomination Committee. The members of the committee are Peter Seligson (Chairman), Jan Inborr and Urban Jansson. The main tasks of the Compensation and Nomination Committee are to decide on the compensation and benefits of the persons reporting to the President & CEO as well as to identify and propose candidates for election to the Board and propose compensation of the Board.
 
In December 2007 Ahlstrom Corporation's head office moved to more cost effective office premises in Salmisaari, in western Helsinki from Eteläesplanadi, Helsinki where Ahlstrom has had its head office since 1937.
 
Outlook for the first half of 2008
 
Demand in Ahlstrom's main markets is expected to continue at a good level. The slowdown in the USA increases uncertainty and reduces short-term visibility, however, currently Ahlstrom sees no signs of decreasing deliveries in its main businesses in the USA. The recent acquisitions and the ongoing investment projects in Brazil, Russia and China are expected to increase Ahlstrom's net sales by 10%.
 
Prices for Ahlstrom's main raw materials, especially pulp, are expected to increase or stay at the current high level during the outlook period. Oil prices continued to rise in the fourth quarter of 2007 and are expected to keep energy and synthetic fiber costs high. For chemicals the price development is anticipated to be mixed.
 
In order to improve profitability, Ahlstrom has implemented price increases, which are currently taking effect in all business areas. As a result of the restructuring actions decided on during the fourth quarter, Ahlstrom will have a more competitive cost structure in 2008. The restructuring is targeted to gradually improve operating profit annually by EUR 25 million, with full effect seen from the second half of 2008 onwards.
 
Due to the implemented growth actions and recent restructuring measures, Ahlstrom is well positioned to grow and improve clearly its operating financial performance in 2008.
 
More detailed information on the outlook for the business areas is available in the appendix in the business area reviews.
 
Proposal for the distribution of profits
 
The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.00 per share be paid for the fiscal year that ended December 31, 2007. According to the proposal of the Board of Directors, the dividend record date will be April 7, 2008 and the pay date April 14, 2008.
 
In addition, the Board of Directors proposes that EUR 70,000 be reserved to be used for the public good at the discretion of the Board of Directors.
 
Financial information in 2008
 
Ahlstrom Corporation will publish its financial information in 2008 as follows:

Annual report 2007
Week 12 
Interim report January - March
Friday, April 25
Interim report January - June
Friday, July 25
Interim report January - September
Tuesday, October 28 
 
Ahlstrom's Annual General Meeting will be held on Wednesday, April 2, 2008 at 13.00 at the Finlandia Hall, Mannerheimintie 13 e, Helsinki.
 
This financial statement bulletin has been prepared in accordance with the International Financial Reporting Standards (IFRS). Comparable figures refer to the same period last year unless otherwise stated.
 
Helsinki, February 1, 2008
 
Ahlstrom Corporation
Board of Directors
 
For additional information, please contact:
 
Jukka Moisio, President and CEO, tel. +358 (0)10 888 4700
Jari Mäntylä, CFO, tel. +358 (0)10 888 4768
Anna Ahlberg, Investor Relations Manager, tel. + 358 (0)10 888 4718
 
A news conference for media and analysts will be held on Friday, February 1, 2008 at 9.30 Finnish time at the Helsinki Bourse Club, address Fabianinkatu 14 A. The conference will be held in Finnish.
 
A conference call for analysts and investors will be held in English at 13.00 Finnish time. To participate in the teleconference, please dial +44 (0) 20 7162 0025 a few minutes before the call. Use the password: Ahlstrom. A replay number is available until February 8, 2008. The number for the replay is + 44 (0) 20 7031 4064, access code: 782251.
 
The presentation material will be available at www.ahlstrom.com > Investors > IR presentations on February 1, 2008 after the financial statements bulletin has been published.
 
This report contains certain forward-looking statements that reflect the present views of the company's management. Due to the nature of these statements, they contain uncertainties and risks and are subject to changes in the general economic situation and in the company's business.
 
Distribution:
OMX Nordic Exchange Helsinki
www.ahlstrom.com
Main media
 
Ahlstrom in brief

Ahlstrom is a global leader in the development, manufacture and marketing of high performance fiber-based materials. Nonwovens and specialty papers, made by Ahlstrom, are used in a large variety of everyday products, such as filters, wipes, flooring, labels, and tapes. Based upon its unique fiber expertise and innovative approach, the company has a strong market position in several business areas in which it operates. Ahlstrom's 6,500 employees serve customers via sales offices and production facilities in more than 20 countries on six continents. In 2007, Ahlstrom's net sales amounted to EUR 1.8 billion. Ahlstrom's share is listed on the OMX Nordic Exchange Helsinki. The company website is www.ahlstrom.com.
 
Appendices
 
1. Segment reviews
2. Financial statements 2007

 
 
Appendix 1
 
Segment reviews
 
 
FiberComposites segment
Key figures

EUR million
2007
2006
Change, %
Q4/2007
Q4/2006
Change, %
Net sales
941.4
808.2
16.5
249.7
195.4
27.8
Operating profit
excl. non-recurring items
60.6
54.1
12.0
15.7
11.0
43.2
Operating profit, %
excl. non-recurring items
6.4
6.7
 
6.3
5.6
 
Return on net assets (RONA), %
excl. non-recurring items
8.7
8.9
 
8.0
7.2
 
 
The FiberComposites segment comprises three business areas: the Nonwowens, Filtration and Glass Nonwowens business areas.
 
Fourth quarter
In the fourth quarter, the segment's net sales grew significantly by 27.8% and amounted to EUR 249.7 million (EUR 195.4 million), representing 54% of the Group's net sales. The growth was mainly a result of recent acquisitions, growth investments and continued good demand. Sales volumes increased by 39.8%. The three acquisitions made in 2007, Orlandi's nonwovens business, Fiberweb's consumer wipes business and Fabriano S.p.A, increased net sales by EUR 48.2 million in the fourth quarter. Comparable net sales adjusted for acquisitions and currency effect grew considerably by 10.2%.
 
Operating profit excluding non-recurring items in the fourth quarter improved significantly to EUR 15.7 million (EUR 11.0 million) despite the increased raw materials prices and a shortage of certain raw materials, especially abaca pulp, rayon and methanol.
 
Full year 2007
For the full financial year 2007, the segment's net sales amounted to EUR 941.4 million (EUR 808.2 million), reflecting 16.5% growth and representing 53% of Group net sales. Volumes sold grew by 23.3% from the 2006 level. Net sales growth was achieved by good demand in all business areas and by the acquisitions and the organic investments implemented during 2007. Net sales adjusted for currency effect and acquisitions grew by 6.6%.
 
The operating profit excluding non-recurring items increased clearly to EUR 60.6 million (EUR 54.1 million). The improvement in the segment's profitability was mainly achieved by increased net sales in all business areas. However, the segment's profitability was negatively impacted by the continued escalation of raw material and energy costs and the ramp-up of several large lines during 2007. In addition, the integration costs of the acquisitions had a EUR 3.0 million impact on operating profit in 2007.
 
In order to streamline its organization and improve its competitiveness, Ahlstrom decided to consolidate its air filtration sites in Bellingham, Massachusetts and Darlington, South Carolina to its Bethune plant in South Carolina in the fourth quarter of 2007.
 
Furthermore, Ahlstrom successfully finalized the integration of the acquisitions made in 2007. As a result of the integration of the acquisitions and the restructuring of the FiberComposites segment altogether six manufacturing lines were closed and 200 positions reduced. The restructuring in the FiberComposites segment will further support profitability improvement in 2008.
 
Nonwovens business area (28% of the Group's net sales)
 
The Nonwovens business area serves customers in the food packaging, medical, wiping, building and technical goods sectors.
 
The good market situation for all the product areas continued throughout the year 2007 despite the general concerns of the US economy. The business area sales volumes grew significantly by 54.4% in 2007 and net sales by 33.5% and amounted to EUR 491.6 million. The growth was mainly driven by strong demand in wipes and wall coverings and organic investments and acquisitions within the wiping fabrics business.
 
As a result of the growth actions in 2007, Ahlstrom became the largest wiping fabrics producer in the world. Comparable net sales adjusted for acquisitions and currency effect grew by 7.7%. As approximately 50% of the business area's net sales is denominated in USD, the weakened USD had an adverse effect on the business area's net sales during 2007.
 
In the fourth quarter, the business area's sales volumes increased by 90.0% compared with the corresponding period of 2006. The net sales amounted to EUR 141.1 million and grew by 58.7% from the corresponding quarter in 2006 driven by continuous strong demand in most of the product areas and the positive impact of the implemented growth investments and acquisitions. The weakened USD had a negative impact on net sales during the fourth quarter.
 
Costs for energy and raw materials continued to increase in the fourth quarter of 2007. Year- on-year, the price for rayon, one of the most important raw materials for the nonwovens business area increased by more than 40%. The business area was, however, able to partially offset the increased input costs by improving productivity at most of the manufacturing sites and by significantly increasing sales prices.
 
In the fourth quarter, Ahlstrom announced that it will invest EUR 38 million in a new medical nonwovens plant in India with a possibility for further expansions of Ahlstrom's businesses in the future. In addition, Ahlstrom decided to invest approximately EUR 10 million to convert a specialty paper machine to manufacture nonwovens for industrial applications at its Turin plant in Italy.
 
The demand for the main nonwoven products is currently good in the main markets.
 
Filtration business area (19% of the Group's net sales)
 
Filtration media produced by Ahlstrom are used in the transportation industry and in liquid and air filtration applications.
 
In general, the demand for filtration materials continued to develop favorably in 2007. Demand for transportation filtration media was good in Europe and particularly strong in South America and Asia due to strong local economic growth and certain customers relocating to the area. In North America, the development was mixed. While the market for transport filtration remained good the market for air filtration media continued to suffer due to the slow down of the housing market. The demand for liquid filtration, however, remained steady throughout the year.
 
Full year sales volumes grew by 3.1%. Net sales amounted to EUR 332.6 and remained at the same level as in 2006. Net sales for the full year 2007 adjusted for the currency effect and acquisitions increased by 4.0%.
 
In the fourth quarter sales volumes increased by 3.2% mainly due to continued strong growth in all geographical areas for transportation filtration media, especially in Latin America and Asia. Net sales decreased by 2.8% and was EUR 78.7 million despite increasing sales volumes due to the negative impact of the weakened USD.
 
Costs for energy and raw materials, especially pulp and methanol related products, increased significantly. Price increases have been implemented in all geographic regions in order to improve profitability.
 
The EUR 8 million investment in a new needlepunch line at the Darlington facility announced on May 11, 2007 will be redirected to the Bethune plant and start production in June 2008. On October 8, Ahlstrom made the decision to invest in new filtration capacity in its Windsor Locks, USA plant by converting a machine previously producing nonwovens materials.
 
The market situation for transportation filtration is expected to remain positive in Europe, Asia and Latin America.  In North America the filtration markets are uncertain and will depend on the general economic development. Air filtration markets will remain weak. 
 
Glass Nonwovens business area (7% of the Group's net sales)
 
Ahlstrom's glass nonwovens products are used in the building materials, marine, transportation, windmill, and sporting goods sectors.
 
The market demand for Ahlstrom's glass nonwovens applications developed favorably throughout the year in all main geographies. Especially the windmill market grew strongly in 2007. In 2007 Ahlstrom's sales volumes grew by 9.8% and net sales by 11.1% and amounted to EUR 122.0 million. The new specialty reinforcement plant in Bishopville, USA serving the windmill, transportation and marine industries and the capacity expansion made in Karhula, Finland in the beginning of the year were the main drivers of sales growth. Furthermore price increases and improved product mix had a positive impact on growth.
 
In the fourth quarter, sales volumes grew by 26.2% while net sales grew by 16.0 % and amounted to EUR 30.8 million. The solid demand continued in the fourth quarter and Ahlstrom's capacity was in full utilization.
 
Raw material and energy prices continued to rise throughout the year 2007. The business area will continue to raise its sales prices and improve productivity.
 
The new glassfiber tissue production plant in Tver, Russia, serving the building and composite materials industries, was expected to start production in December 2007 but was delayed until late January 2008.
 
At the end of year 2007 Ahlstrom decided to double its production capacity for specialty glassfiber reinforcements in the USA to meet the fast growing demand especially within the wind energy markets. In the first phase, Ahlstrom will invest approximately EUR 3 million in 2008 and install new machinery at the facility. In the second phase, the investment value is estimated to be approximately EUR 4 million.
 
The investments made in 2007 further strengthen Ahlstrom's global position as a leading supplier of glass nonwovens materials and supports further growth in the business area.
 
Demand for Ahlstrom's glass nonwovens is expected to remain solid in all geographic areas in the coming months.
 
Specialty Papers segment
Key figures

EUR million
2007
2006
Change, %
Q4/2007
Q4/2006
Change, %
Net sales
824.7
794.0
3.9
214.4
193.9
10.5
Operating profit/loss excl. non-recurring items
13.9
36.4
-61.7
-2.8
4.4
-163.7
Operating profit/loss, % excl. non-recurring items
1.7
4.6
 
-1.3
2.3
 
Return on net asses (RONA), % excl. non-recurring items
3.6
11.8
 
-2.4
5.6
 
 
The Specialty Papers segment comprises two business areas: Release & Label Papers and the Technical Papers business areas.
 
Fourth quarter
In the fourth quarter, net sales of the Specialty Papers segment amounted to EUR 214.4 million (EUR 193.9 million), representing 46% of Group net sales. Net sales increased by 10.5% compared with the corresponding period last year. Volumes sold grew by 18.3%. Comparable net sales adjusted for acquisitions and currency effect remained at the same level as in the fourth quarter of 2006.
 
Operating loss excluding non-recurring items amounted to EUR 2.8 million (profit of EUR 4.4 million) and was attributable to the weak performance of the Release & Label Papers business area due to the operating loss of the closed plants. Technical problems with the ramp-up of the La Gère investment incurred additional costs of EUR 7.6 million in the fourth quarter of 2007.
 
Full year 2007
For the full financial year 2007, the segment's net sales increased by 3.9% and amounted to EUR 824.7 million (EUR 794.0 million). The segment net sales represented 47% of Group net sales. Comparable net sales adjusted for acquisitions and currency effect grew slightly by 1.1%.
 
Operating profit excluding non-recurring items decreased clearly to EUR 13.9 million (EUR 36.4 million).The main reason for the decline in profitability was the decrease in the sales prices in the Release & Label Papers business area. This was due to the weakening demand of coated-one-side papers in Europe and the temporary excess supply of release base papers. The operating loss of the closed plants and technical problems with the ramp-up of the La Gère, France investment impacted operating profit negatively. In addition, the increase in the main raw material costs had a negative impact on operating profit.
 
In order to improve its profitability, Ahlstrom decided in the fourth quarter of 2007 to restructure its European operations of the Specialty Paper segment including the closure of its Ascoli, Italy plant and the Chantraine, France plant and the closure of the Turin PM4 release base paper line. The Ascoli and the Turin PM4 have already been closed and Chantraine is expected to close during the first half of 2008. The actions will affect 450 positions and reduce capacity by 120 thousand tons and their positive effect will be seen during 2008.
 
Technical Papers business area (27% of the Group's net sales)
 
The main products of the Technical Papers business area are abrasive base papers, crepe papers (such as masking tape base, wipes, medical applications), pre-impregnated decor papers, sealing & shielding materials (for gaskets, heat shields, calender bowls), coated papers (e.g. wallpaper base and poster papers), flexible packaging papers as well as vegetable parchment papers. The business area's main markets include the furniture and home decoration, healthcare, food and automotive industries.
 
The demand for technical papers varied by product and geographic area. The market
environment continued to be favorable for vegetable parchment, poster, and crepe paper papers while market conditions for flexible packaging papers were challenging. The export markets were impacted by the weak USD against the euro.
 
For the full year 2007 the business area's sales volumes grew by 4.9% and net sales by 4.3% and amounted to EUR 485.6 million. 
 
In the fourth quarter sales volumes increased by 7.4% and net sales by 5.4% compared to the fourth quarter of 2006 and amounted to EUR 117.6 million. Strongest growth was seen in abrasive base, poster and vegetable parchment papers.
 
The price for pulp, the main raw material of the business area continued to rise throughout the year. In addition electricity prices increased when winter tariffs were adopted in Central Europe. Ahlstrom was able to increase sales prices in most product areas during the year. Productivity improvements and fixed cost reductions were implemented at all plants in order to improve profitability.
 
Ahlstrom was expected to close the joint venture with Zhejiang Kan Specialty Material Co (KAN Paper) in the fourth quarter of 2007. The closing was postponed due to Chinese authority approvals and currently Ahlstrom expects to close the transaction during the first quarter of 2008.
 
The business area expects reasonable demand to continue in the first half of 2008.
 
Release & Label Papers business area (19% of the Group's net sales)
 
The Release & Label Papers business area manufactures a number of different specialty papers for use in the self-adhesive industry, as well as in the labeling and graphic industries.
 
The market situation for the business area remained challenging. The temporary excess supply of release base papers prevailed and the European export markets suffered due to the weak dollar. In Latin America, the good demand of label and release base papers continued.
 
Sales volumes for the full year grew by 10.1%. Net sales was EUR 340.4 million and increased by 3.2%. Net sales adjusted for acquisitions and currency effect decreased by 5.4% due to the decrease in sales prices.
 
Sales volumes of the business area grew by 30.3% in the fourth quarter and net sales by 17.5% and amounted to EUR 97.1 million. The growth was mainly driven by the consolidation of the Ahlstrom-VCP joint venture in Brazil.
 
The business area's main raw material, pulp, continued to escalate in the fourth quarter. Furthermore, the energy costs increased when the European plants adopted the winter energy prices. The operating loss of the closed plants and the technical problems with the ramp-up of the release base paper investment at the La Gère plant impacted the performance of the business area negatively.
 
The market situation for release base, label and packaging papers is expected to improve in Europe in the next six months due to recent capacity reductions made in the market. In Latin America demand is anticipated to remain good. The business area is well-positioned to improve its financial performance in 2008.

 
APPENDIX 2
 
CONSOLIDATED FINANCIAL STATEMENTS
 
ACCOUNTING PRINCIPLES
 
This report has been prepared in accordance with the International Financial Reporting Standards (IFRS) and the accounting policies set out in IAS 34 (Interim Financial reporting) as adopted by EU and in the Group's Financial Statements for 2007.
 
Application of amended or new IFRS-standards as of January 1, 2007
 
The Group has adopted the following new or amended standards and interpretations as of January 1, 2007:
 
- IFRS 7 Financial Instruments: Disclosures
- Amendment to IAS 1 Presentation of Financial Statements - Capital disclosures
- IFRIC 9 Reassessment of Embedded Derivatives
- IFRIC 10 Interim Financial Reporting and Impairment
 
The above mentioned standards and interpretations do not have a material effect on the consolidated financial statements.
They will impact the format and extent of year-end 2007 notes to the financial statements.
 
Financial Statements are audited.
 

 

 
 

STATEMENT OF CHANGES IN EQUITY
 
1) Issued capital
2) Share premium
3) Non-restricted equity reserve
4) Hedging reserve
5) Translation reserve
6) Retained earnings
7) Minority interest
 

 

 
 

 

 
 

 

 
 

 

 

 

 

 
Acquisitions in 2007
 
In 2007 Ahlstrom made several acquisitions in line with its strategy.
 
In April, Ahlstrom acquired the spunlace nonwovens business of the Italian Orlandi Group. The transaction expands Ahlstrom's technology portfolio with airlace technology which is used to manufacture pulp-containing wiping fabrics. In May, Ahlstrom acquired the consumer wipes business of Fiberweb plc, serving mainly the personal care, baby care and household wipes applications. With these two acquisitions, Ahlstrom became the leading wiping fabrics producer in the world. In May, Ahlstrom acquired Italian Fabriano Filter Media SpA, a manufacturer of microglass filter media, serving mainly the high efficiency air filtration market.
 
In September, Ahlstrom acquired 60% of a Brazilian specialty paper production plant and formed a joint venture with the seller, Votorantim Celulose e Papel (VCP). The joint venture will serve mainly labelling and flexible packaging applications but produces also coated and uncoated papers for other end users.
 
Management estimates that the consolidated net sales for year 2007 would have been EUR 1900 million, if the acquisition had been accomplished on January 1, 2007.
 
The table below summarizes the acquisitions in 2007.
The goodwill that arose mainly from the acquisition of Orlandi Group and the Ahlstrom-VCP joint venture reflects the synergy benefits resulting from the expanded product offering to wipes and filtration business, entry to the new geographical markets as well as growth opportunities.
 

 

 
QUARTERLY DATA
Eur million

* Excluding non-recurring items

 
QUARTERLY DATA BY SEGMENT
Eur million

 

 
KEY FIGURES QUARTERLY
Eur million

 

 
CALCULATION OF KEY FIGURES
 

 
 
 
 
Share this pageShare this page