Interim report January-March 2009: Low demand affected Ahlstrom's financial performance

Interim report January-March 2009: Low demand affected Ahlstrom's financial performance

Ahlstrom Corporation STOCK EXCHANGE RELEASE 29.4.2009
 
 
Key highlights in January-March 2009
  •          Due to weak demand, net sales decreased by 19.3% compared to the first quarter of 2008.
  •          EBIT amounted to EUR -10.7 million (EUR 19.3 million).
  •          Net cash from operating activities of EUR 20.9 million virtually covered net cash from investing activities of EUR -21.6 million.
  • Outlook
  •          The market environment will continue to be very challenging in 2009, with a very short-term visibility of the demand. According to current estimates, the market demand for Ahlstrom products will continue at a low level.
  • Key figures
    Key figures, EUR million
    Q1/2009
     
    Q1/2008
     
    Q4/2008
    2008
    Net sales
    376.1
    466.2
    419.0
     1,802.4
    EBIT (Operating profit/loss)
    -10.7
    19.3
    -35.4
    14.6
    Profit/loss before taxes
    -18.6
    11.2
    -49.5
    -20.6
    Earnings per share, EUR
    -0.26
    0.15
    -0.79
    -0.38
    Return on capital employed (ROCE),%
    -3.3
    6.4
    -10.8
    1.4
    Net cash from operating activities
    20.9
    40.7
    31.5
    102.4
    Gearing ratio, %
    99.8
    64.4
    95.3
    95.3
     
    Jan Lång, President & CEO, comments on the first quarter of 2009:
     
    -         In the first quarter of 2009, Ahlstrom strongly and successfully retained its long-standing customer relationships. On the other hand, the global recession had a significant effect on our financial performance. A number of initiatives were started to adjust our operations to the changed situation. Despite the challenging environment, we maintained our activity level in developing new products.
     
    -         In order to adjust to the weak demand, we today announced the initiation of a further restructuring program with the aim of gaining annual cost reductions of EUR 50 million. In addition, we have increased the emphasis on our operational improvement programs to enhance our cost efficiency. A high priority is also given to working capital with the target to improve its turnover.
     

    OPERATING ENVIRONMENT
     
    The very challenging market conditions that impacted Ahlstrom's business in the fourth quarter of 2008 prevailed in the beginning of this year. Consequently, the demand pattern for most of Ahlstrom's products continued to weaken in the first quarter of 2009 compared to the fourth quarter of 2008.
     
    In the Fiber Composites segment*, the markets related to the automotive, construction and marine industries were exceptionally challenging due to the decline in these industries, e.g. the Filtration business area suffered from the significant slowdown in the automotive industry. More recently, there has been a decrease of demand for the windmill applications of glass nonwovens materials. On the positive side, market demand for the food packaging and teabag materials as well as for nonwovens in medical applications was close to normal.
     
    In the Specialty Papers segment*, demand was affected by the decline in construction, automotive, furniture, textile as well as release and labeling industries.
     
    Market prices for Ahlstrom's main raw materials, natural and synthetic fibers, chemicals and energy prices, continued to decrease.
     
    FINANCIAL PERFORMANCE IN JANUARY-MARCH 2009
     
    Net sales
     
    Net sales by segment
    and business area
    Q1/2009
     
    Q1/2008
     
    Change %
    2008
    Fiber Composites
    208.8
    252.0
    -17.1
    987.4
        Advanced Nonwovens
    45.3
    44.6
    1.5
    189.2
        Filtration
    65.0
    79.9
    -18.6
    306.5
        Glass & Industrial Nonwovens
    44.5
    64.3
    -30.8
    235.6
        Home & Personal
        Nonwovens
    56.4
    65.8
    -14.4
    268.5
    Specialty Papers
    170.1
    217.0
    -21.6
    822.4
        Release & Label Papers
    63.4
    81.1
    -21.8
    314.6
        Technical Papers
    106.7
    135.9
    -21.5
    507.9
     
     
    During the January-March period, a strong decline in the demand for most of Ahlstrom's products, which became evident towards the end of 2008, continued.
    Group net sales totaled EUR 376.1 million (EUR 466.2 million), decreasing by 19.3% compared to the same period last year.
     
    Net sales of the Fiber Composites segment amounted to EUR 208.8 million (EUR 252.0 million), representing 55% of the Group net sales. Net sales decreased by 17.1% from the first quarter in 2008. Net sales were reduced in most business areas due to lower volumes in most products. On the other hand, net sales grew slightly in the Advanced Nonwovens business area.
     
    Net sales of the Specialty Papers segment amounted to EUR 170.1 million (EUR 217.0 million), accounting for 45% of the Group net sales. Net sales were reduced by 21.6% from the first quarter of 2008. Net sales were reduced in both business areas, the Release & Label Papers and Technical Papers.
     
    Net sales by
    geographical area
    Q1/2009
     
    Q1/2008
     
    Change %
    2008
    Europe
    199.5
    284.7
    -29.9
    1,015.9
    North America
    105.7
    102.6
    3.1
    442.5
    South America
    36.8
    42.5
    -13.3
    189.2
    Asia-Pacific
    26.8
    27.8
    -3.6
    119.4
    Rest of the world
    7.3
    8.7
    -15.8
    35.5
     
    In terms of geographical areas, net sales declined in all areas except for North America compared to the first quarter of 2008. The slight growth in North America was mainly due to the West Carrollton acquisition in the USA that was included in the company figures starting from February 2008. In accordance with our ambitions, the relative share of Europe continued to decrease, being 53% (61%) of the Group net sales.
     
    Financial result
     
    Financial result by segment
    Q1/2009
     
    Q1/2008
     
    2008
     
    Fiber Composites
     
     
     
    EBIT (Operating profit/loss)
    -2.5
    15.5
    15.3
    EBIT (Operating profit/loss), %
    -1.2
    6.2
    1.5
    Return on net assets, %
    -1.2
    8.1
    2.0
    Specialty Papers
     
     
     
    EBIT (Operating profit/loss)
    -3.4
    5.5
    10.2
    EBIT (Operating profit/loss), %
    -2.0
    2.5
    1.2
    Return on net assets, %
    -3.3
    4.7
    2.3
     
    In the first quarter, Group EBIT amounted to EUR -10.7 million (EUR 19.3 million). EBIT was, nevertheless, better than that of the final quarter of 2008 (EUR -35.4 million and EUR -13.7 million excluding non-recurring items).
     
    The Group financial performance was burdened by low net sales. In addition, the performance was somewhat affected by the general price pressures in the current market environment.
     
    EBIT of the Fiber Composites segment amounted to EUR -2.5 million (EUR 15.5 million). Most of the weak performance reflects the exceptionally low level of net sales in the Glass and Industrial Nonwovens business area and the Home & Personal Nonwovens business area.
     
    EBIT of the Specialty Papers segment amounted to EUR -3.4 million (EUR 5.5 million). The main reason for the weak performance was low demand in both business areas, the Release & Label Papers as well as in the Technical Papers.
     
    At the beginning of 2009, Ahlstrom announced global restructuring plans to respond to the decrease in demand. Several measures were decided to be taken to improve profitability, and to adjust operations to the challenging market situation. These included permanent layoffs of approximately 200 people, temporary layoffs at production sites as well as in the headquarters, cutting down production globally by market related downtime* procedures and closing down non-competitive operations in Italy. One third of the announced permanent layoffs were implemented in the review period.
     
    Ahlstrom took an active approach in adjusting its daily production to the weak demand. The utilization of downtime in production taken due to market reasons was 24.5% compared to 7.7% in the first quarter of 2008. Temporary layoffs were an essential part of these adjustments. Ahlstrom actively pursued various flexible working hour solutions in different countries, for example the Kurzarbeit program in Germany.
     
    Further, all means to improve cash flow were utilized, including a lower investment activity than in 2008 and an emphasis on the improvement of working capital.
     
    Total fixed costs decreased by 5% from the final quarter of 2008, but did not fully offset the effect of the declining net sales in the same period.
     
    Total net financial expenses decreased slightly to EUR 8.2 million (EUR 8.6 million in the first quarter of 2008).
     
    Loss before taxes increased to EUR -18.6 million (profit before taxes of EUR 11.2 million in the first quarter of 2008).
     
    Tax income amounted to EUR 6.2 million (income tax expenses of EUR 3.4 million in the first quarter of 2008).
     
    Loss for the period was EUR -12.4 million (profit for the period of EUR 7.8 million in the first quarter of 2008) and earnings per share (EPS) weakened to EUR -0.26
    (EUR 0.15).
     
    Return on capital employed (ROCE) amounted to -3.3% (6.4% in the first quarter of 2008), and return on equity (ROE) to -8.0% (4.2%).
     
     
    FINANCING IN JANUARY-MARCH 2009
     
    In the first quarter of 2009, net cash flow from operating activities decreased by EUR 19.8 million to EUR 20.9 million (EUR 40.7 million in the first quarter of 2008). The company was able to reduce its net working capital significantly from the first quarter of 2008. On the other hand, loss for the period had a substantial negative impact on the cash flow. In addition, the financial items were EUR -13.3 million compared to EUR 12.5 million in the reference period. The difference was due to exchange rate hedging that had resulted in higher than usual foreign exchange gains in the cash flow of the first quarter of 2008.
     
    Interest-bearing net liabilities increased by EUR 3.2 million from the first quarter of 2008 to EUR 601.9 million (December 31, 2008: EUR 598.7 million).
     
    The gearing ratio was 99.8% (December 31, 2008: 95.3%) and the equity ratio 36.4% (December 31, 2008: 36.8%).
     
    In the period under review, the cost of financing was lower than in the first quarter of 2008 due to lower interest rates. As of March 31, 2009, Ahlstrom's interest-bearing liabilities amounted to EUR 618.6 million, divided into financing from banks and other financial institutions of EUR 490.3 million, EUR 114.0 million in borrowings under the company's Finnish commercial paper program and EUR 14.3 million in commitments under financial leases.
     
    During the reporting period, Ahlstrom was in the process of finalizing the refinancing of a EUR 200 million medium term credit facility which will mature in the final quarter of 2009.
     
     
    CAPITAL EXPENDITURE IN JANUARY-MARCH 2009
     
    Ahlstrom made no major investment decisions during the first quarter of 2009. Clear majority of the EUR 500 million investments initiated after the IPO in 2006 were finalized by the end of 2008.
     
    In January-March 2009, Ahlstrom's capital expenditure amounted to EUR 26.9 million (EUR 31.9 million in the first quarter of 2008, including acquisitions of EUR 11.0 million), representing 7.2% (6.8%) of Group net sales. The figure included, for example, the on-going investment project in Gujarat, India, where Ahlstrom is establishing a new medical nonwovens plant, with operations estimated to start in the first quarter of 2010. An example of smaller investments was the renewal of one glass furnace at the Karhula plant in Finland.
     
    Investments in 2009 are estimated to be approximately EUR 70 million (EUR 167.0 million in 2008).
     
    CHANGES IN GROUP STRUCTURE
     
    The business area organization of the company was changed in 2008. The organization effective as from January 1, 2009 is as follows. The Fiber Composites segment comprises the Advanced Nonwovens, Filtration, Glass & Industrial Nonwovens and Home & Personal Nonwovens business areas. The Specialty Papers segment comprises the Release & Label Papers and Technical Papers business areas. This business area organization is implemented in financial reporting as from the first quarter of 2009.
     
     
    CHANGES IN MANAGEMENT
     
    President & CEO
     
    Jan Lång started in his position as the President & CEO of the company on January 1, 2009. At the same time, Risto Anttonen assumed the role of Deputy of the President & CEO and continues as a member of the Corporate Executive Team.
    Corporate Executive Team
     
    There were substantial changes in the Corporate Executive Team (CET) in the first quarter. The current CET is presented at the corporate website at www.ahlstrom.com.
    Following persons started in their new positions on January 1, 2009.
    Tommi Björnman, Senior Vice President of the Filtration business area.
    Claudio Ermondi, Senior Vice President, Innovations and Technology.
    Paul Marold, Senior Vice President of the Advanced Nonwovens business area.
    Laura Raitio, Senior Vice President of the Glass and Industrial Nonwovens business area.
    In addition, three appointments were announced in the first quarter of 2009.
    On January 9, 2009, Rami Raulas was appointed Senior Vice President, Sales & Marketing, effective as of February 1, 2009.
    On February 6, 2009, Paula Aarnio was appointed Senior Vice President, Human Resources of Ahlstrom Corporation. She joined Ahlstrom on April 27, 2009.
    On February 6, 2009, Seppo Parvi was appointed Chief Financial Officer of Ahlstrom Corporation. He is estimated to assume his responsibilities in July 2009, at the latest.
     
    PERSONNEL
     
    At the end of March 2009, Ahlstrom had 6,052 employees (6,552). The average number of employees during January-March 2009 was 6,173 (6,541).
     
     
    PRINCIPAL RISKS AND UNCERTAINTIES
     
    The principal uncertainties that affect Ahlstrom's net sales and financial performance in the short-term are related to:
     
    - General economic conditions and changes in the demand for end-user products
    - Changes in sales prices
    - Changes in raw material prices (e.g., pulp, chemicals and synthetic fibers)
    - Changes in energy prices
    - Fluctuations in foreign currency rates.
     
    These factors are described in more detail in Ahlstrom's annual report 2008, on pages 24-29, and at www.ahlstrom.com.
     
    In accordance with the International Financial Reporting Standards and Ahlstrom Accounting Principles, Ahlstrom Group regularly reviews its assets and possible indications of impairment. No impairment charges were recorded during January-March 2009.
     
     
    ANNUAL GENERAL MEETING
     
    Ahlstrom Corporation's Annual General Meeting of Shareholders (AGM) was held on March 25, 2009. The key resolutions of the AGM are summarized below.
     
    The AGM resolved to distribute a dividend of EUR 0.45 per share for the fiscal year that ended on December 31, 2008 from the retained earnings in accordance with the proposal of the Board of Directors. The AGM approved the financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial period January 1 - December 31, 2008.
     
    The AGM confirmed the number of Board members unchanged at seven. Thomas Ahlström, Sebastian Bondestam, Jan Inborr, Martin Nüchtern, Bertel Paulig and Peter Seligson were re-elected as members of the Board of Directors and Anders Moberg, born in 1950, was elected as a new member as proposed by the Compensation and Nomination Committee of the Board. The term of the Board of Directors will expire at the close of the next Annual General Meeting.
     
    PricewaterhouseCoopers Oy was elected as Ahlstrom's auditor as recommended by the Audit Committee. PricewaterhouseCoopers Oy has designated Authorized Public Accountant Eero Suomela as auditor in charge.
     
    The AGM authorized the Board of Directors to repurchase a maximum of 4,500,000 Ahlstrom shares. The shares may be repurchased only through public trading at the prevailing market price by using unrestricted shareholders' equity.
     
    The AGM also authorized the Board of Directors to distribute a maximum of 4,500,000 own shares held by the Company. The Board of Directors is authorized to decide to whom and in which order the shares will be distributed. The shares may be used as consideration in acquisitions and in other arrangements as well as to implement the Company's share-based incentive plans in the manner and to the extent decided by the Board of Directors. The Board of Directors also has the right to decide on the distribution of the shares in public trading for the purpose of financing possible acquisitions.
     
    The authorizations are valid for 18 months from the close of the Annual General Meeting but will, however, expire at the close of the next Annual General Meeting, at the latest.
     
    After the AGM, the organization meeting of the Board of Directors elected Peter Seligson as Chairman and Bertel Paulig as Vice Chairman of the Board.
    The Board of Directors also appointed the members of the permanent committees. The members of the Audit Committee are Bertel Paulig (Chairman), Thomas Ahlström and Martin Nüchtern. The members of the Compensation and Nomination Committee are Peter Seligson (Chairman), Sebastian Bondestam and Jan Inborr.
     
     
    SHARES AND SHARE CAPITAL
     
    Ahlstrom's share is listed on the NASDAQ OMX Helsinki. Ahlstrom has one series of shares. The share is classified under the Materials sector and the trading code is AHL1V.
     
    During January-March 2009, a total of 0.7 million Ahlstrom shares were traded for a total of EUR 4.8 million. The lowest trading price during the review period was EUR 6.20 and the highest EUR 7.69. The closing price on March 31, 2009 was EUR 6.21 and market capitalization was EUR 290 million.
     
    Equity per share of Ahlstrom Group was EUR 12.93 at the end of the review period (December 31, 2008: EUR 13.46).
     
    Ahlstrom has not used the AGM authorization to repurchase company shares.
     
     
    EVENTS AFTER THE REVIEW PERIOD
    Restructuring program
     
    Today, on April 29, 2009, Ahlstrom announced the initiation of a further restructuring program with the aim of gaining annual cost reductions of EUR 50 million with full effect in 2010.
     
    The company will review its underperforming units and the overall cost structure, which may impact 400-500 Ahlstrom employees globally. The decisions related to individual actions will be made during 2009 and will be disclosed respectively. The cost of the program is estimated to be approximately EUR 40 million in 2009, of which 50% will be cash-related.
    Strategy review process
     
    Ahlstrom's business is currently built on a platform of 18 product lines worldwide and the main goal of the company strategy has been strong growth with the special focus on BRIC countries Brazil, China, India and Russia. The management has recently begun a strategy review process with the aim of verifying the future direction and ambition of the company. Conclusions can be expected towards the end of 2009.
     
     
    OUTLOOK
     
    In 2009, it is anticipated that the market environment will continue to be challenging with a very short-term visibility of the demand for Ahlstrom products. Therefore, at the beginning of 2009, Ahlstrom decided to change its disclosure policy. During a period of major uncertainty, the outlook only includes forecasts of the business and market environment. Forecasts of net sales development will be included when the operating environment has returned to a more predictable mode.
     
    According to current estimates, the market demand for Ahlstrom products will continue at a low level. In addition to the announced restructuring program, the company will adjust its operations to the market situation, as necessary.
     
    *   *   *
     
    This interim report has been prepared in accordance with the International Financial Reporting Standards (IFRS). Comparable figures refer to the same period last year unless otherwise stated. The report is unaudited.
     
    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.
     
     
    Helsinki, April 29, 2009
     
    Ahlstrom Corporation
    Board of Directors

    ADDITIONAL INFORMATION
     
    Jan Lång, President & CEO, tel. +358 (0)10 888 4700
    Jari Mäntylä, CFO, tel. +358 (0)10 888 4768
     
    Ahlstrom's President & CEO Jan Lång will present the financial results in Finnish in a press conference in Helsinki on April 29, 2009 at 10.00 a.m. Finnish time. The conference for media and analysts will take place at Hotel Scandic Simonkenttä, address Simonkatu 9, meeting room Espa on the street level, connected to Restaurant Simonkatu. You are welcome to attend.
     
    In addition, a conference call for analysts and investors will be held in English on April 29, 2009 at 1.30 p.m. Finnish time. The discussion will be led by President & CEO Jan Lång. To participate in the teleconference, please dial +358 (0)9 2313 9201 a few minutes before the call. Use the title of the conference call: Ahlstrom conference call. A replay number is available until May 6, 2009. The number for the replay is +358 (0)9 2314 4681, access code: 833017.
     
    The presentation material will be available at www.ahlstrom.com > Investors > IR presentations on April 29, 2009 after the first quarter financial results for 2009 have been published.
     
     
    AHLSTROM'S FINANCIAL INFORMATION IN 2009
     
    Ahlstrom Corporation will publish its financial information in 2009 as follows:
     
    Interim report January-June: Friday, July 24
    Interim report January-September: Wednesday, October 28 
     
     
    Distribution:
    NASDAQ OMX 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 6,100 employees serve customers via sales offices and production facilities in more than 20 countries on six continents. In 2008, Ahlstrom's net sales amounted to EUR 1.8 billion. Ahlstrom's share is quoted on the NASDAQ OMX Helsinki. The company website is at www.ahlstrom.com.
     
     
    APPENDIX
    Consolidated financial statements

    APPENDIX
     
    CONSOLIDATED FINANCIAL STATEMENTS
     
     
    Financial Statements are unaudited.
     
     
     
     
     

     
     
     
    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
    8) Total equity
     
     

     
     
     

     
     

    ACCOUNTING PRINCIPLES
     
    This interim report has been prepared in accordance with IAS 34, Interim Financial reporting, as adopted by EU and the accounting policies set out in the Group's Financial Statements for 2008 except for the changes below.
     
    Changes in accounting principles
     
    The Group has adopted the following new or amended standards and interpretations as of January 1, 2009:
     
    - IFRS 8 Operating segments
    The Group has two reportable segments: the Fiber Composites segment and the Specialty Papers segment. The adoption of IFRS 8 does not have an impact on reportable segments.
     
    - Revised IAS 23 Borrowing costs
    The Group has already earlier applied this accounting policy and the adoption of the revised standard has no impact on the consolidated financial statements.
     
    - Amendment to IAS 1 A Revised presentation
    The amendment has changed the presentation of financial statements. The income statement is presented in two statements: income statement and statement of comprehensive income. The statement of changes in equity includes only transactions with owners and all non-owner changes are presented in equity as a single line.
     
    The below mentioned new and amended standards and interpretations do not have an impact on the consolidated financial statements.
     
    - Amendment to IFRS 2 Share-based payment: Vesting Conditions and Cancellations
     
    - Amendments to IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation
     
    - IFRIC 13 Customer Loyalty Programmes

     
     
    Segment information is presented according to the IFRS standards.

     
     
     
    Market prices have been used in transactions with associated companies.
     
     
     
     

     
     
     
     

     
     
     
     

    CALCULATION OF KEY FIGURES
     
     



    * Ahlstrom's business is reported in two segments: the Fiber Composites segment and the Specialty Papers segment. The Fiber Composites segment comprises the Advanced Nonwovens, Filtration, Glass & Industrial Nonwovens  and Home & Personal Nonwovens business areas. The Specialty Papers segment covers the Release & Label Papers and Technical Papers business areas.
     
    * Market related downtime = downtime taken due to market reasons, lack of orders or too high product stock. Otherwise plants could have run normally without any other downtime.
    Market related downtime % = market related downtime / manned time. Manned time = available time - unmanned time. Time the machines were running according to their shift system.
     
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