Ahlstrom interim report January-June 2013: Net sales and profitability improved slightly

Ahlstrom interim report January-June 2013: Net sales and profitability improved slightly

Ahlstrom Corporation STOCK EXCHANGE RELEASE August 7, 2013 at 09.00 a.m.

This is a summary of Ahlstrom's January-June 2013 interim report. The complete January-June 2013 interim report with tables is attached to this release and available at www.ahlstrom.com

Continuing operations April-June 2013 compared with April-June 2012

  • Net sales EUR 265.0 million (EUR 261.6 million).
  • Operating profit EUR 6.4 million (EUR 4.0 million).
  • Operating profit excluding non-recurring items EUR 7.9 million (EUR 7.4 million).
  • Operating margin excluding non-recurring items 3.0% (2.8%).
  • Profit / loss before taxes EUR -3.5 million (EUR -3.3 million).
  • Earnings per share EUR -0.12 (EUR -0.11).

April-June 2013 in brief

  • Net sales and profitability improved from the comparison period.
  • Ahlstrom completed the first phase of the combination of its Label and Processing business in Europe with Munksjö AB. The combination created a new global leader in high-quality specialty papers listed on the NASDAQ OMX Helsinki stock exchange. The second phase, Coated Specialties in Brazil, is expected to be completed in the second half of 2013.
  • The company continued to launch new products including Ahlstrom Captimax(TM), a new best-in-class fuel filter material for passenger and commercial heavy-duty vehicles and off-road machinery.

Continuing operations January-June 2013 compared with January-June 2012

  • Net sales EUR 520.3 million (EUR 521.9 million).
  • Operating profit EUR 14.7 million (EUR 14.6 million).
  • Operating profit excluding non-recurring items EUR 14.4 million (EUR 17.9 million).
  • Operating margin excluding non-recurring items 2.8% (3.4%).
  • Profit before taxes EUR 0.1 million (EUR 2.1 million).
  • Earnings per share EUR -0.09 (EUR -0.06).

Outlook for 2013

  • The outlook published on January 31, 2013 remains unchanged. Net sales from continuing operations are expected to be EUR 980-1,140 million. The operating profit margin excluding non-recurring items from continuing operations is expected to be 2-5% of net sales.

Jan Lång, President & CEO

- Our sales and operating profit excluding non-recurring items improved slightly from the comparison period, but our performance did not yet meet the targets we have set, despite the significant efforts we have taken to restructure our product portfolio and renew our way of working. To enhance our competitiveness, we have today announced a rightsizing program, which aims at reducing our annual cost base by EUR 35 million in the next 18 months.  We need to adjust our cost base to reflect the size and scope of our business now that the Label and Processing demerger in Europe has been completed. This will unfortunately impact the employment of about 350 people globally.

- Advanced Filtration continued to perform well in the second quarter. The integration of Munktell, which we acquired last October, is also progressing well. Transportation Filtration performed steadily, but there was surprising volatility in North American demand despite the continued recovery of the U.S. economy. The organizational adjustments to deliver more efficient execution and improve performance in Food and Medical have also been completed. 

- We can also improve profitability by strengthening our product pipeline and bringing new differentiated products to the market more quickly. We have already good examples from the new launches this year, which include Ahlstrom Captimax (TM) announced in the second quarter.

Key figures from continuing operations

EUR million Q2/2013 Q2/2012 Change, % Q1-Q2/2013 Q1-Q2/2012 Change, %
Net sales 265.0 261.6 1.3 520.3 521.9 -0.3
Operating profit 6.4 4.0 58.6 14.7 14.6 0.8
% of net sales 2.4 1.5   2.8 2.8
Operating profit excl. NRI 7.9 7.4 6.3 14.4 17.9 -19.9
% of net sales 3.0 2.8   2.8 3.4
Profit / Loss before taxes -3.5 -3.3 -7.3 0.1 2.1 -97.3
Profit / Loss for the period -4.9 -3.8 -30.6 -3.0 -0.2
Earnings per share -0.12 -0.11   -0.09 -0.06
Return on capital employed, % 1.0 1.5   3.2 3.8
Net cash flow from operative activities* 35.5 27.5 29.2 14.1 42.0 -66.6
Capital expenditure 20.7 19.5 6.3 32.2 31.5 2.2
Number of personnel, at the end of period  3,781  3,869  -2.3 3,781  3,869 -2.3

*Including discontinued operations

Operating environment

The operating environment remained unchanged during the second quarter as the overall demand in Ahlstrom's main markets continued to be soft with regional variations. Geographically, demand in Europe remained weak, particularly in the southern part of the continent. The North American market showed some positive signs, while growth was fastest in Asia.

In the Advanced Filtration business area, the markets for gas turbine, laboratory and life science filtration, and water applications continued to strengthen, particularly in North America and Asia.

In the Building and Energy business area, demand for wind energy applications weakened. Demand for flooring materials in Europe, and Russia in particular, stayed at a healthy level during the review period. Demand for wallpaper and wallcovering materials in Europe and China remained stable. 

In the Food and Medical business area, the markets for tape, food packaging and beverage materials (e.g. teabags) strengthened in North America, while remaining soft in Europe and Asia during the review period. Demand for medical materials weakened.

In the Transportation Filtration business area, the market for transportation filtration materials was volatile during the second quarter, especially for heavy duty vehicles in North America. Demand for transportation filtration materials in Europe was stable despite the sluggish macroeconomic development in the region. Demand in Asia continued to grow.

Market pulp prices stabilized in the second quarter, but prices were still higher than in the comparison period. The prices of synthetic fibers such as polyester and viscose were stable or in decline, whereas polypropylene prices rose. The prices of chemicals in general were either stable or in decline, while the prices of liquid solvents like phenolic resins increased. In its production, Ahlstrom uses chemicals such as latex, titanium dioxide, liquid solvents and starch. Natural gas prices increased in Europe and remained stable in North America.

Discontinued operations

Combination of the Label and Processing business and Munksjö AB

On May 24, 2013, Ahlstrom completed the first phase (LP Europe demerger) of the combination of its Label and Processing business in Europe and Munksjö AB. The combination created a new global leader in high-quality specialty papers.

The second phase of the transaction, the demerger of Coated Specialties in Brazil, is expected to be completed during the second half of this year. On July 4, 2013, Ahlstrom's Extraordinary General Meeting approved the demerger of Coated Specialties.

The Label and Processing business in Europe was reported as discontinued operations until May 27, 2013. Coated Specialties in Brazil continues to be reported as part of the discontinued operations until the transaction has been completed for that part.

Ahlstrom has started the process of divesting its abrasive backings and pre-impregnated décor paper businesses in Osnabrück, Germany, to a third party as a consequence of the commitments provided to the European Commission. These two businesses are also reported as part of the discontinued operations. The divestment is expected to be finalized by the end of 2013.

Result from discontinued operations

In April-June 2013, the profit from discontinued operations for the period was EUR 66.7 million (EUR 3.1 million) including approximately a EUR 90.6 million demerger effect, which include a recognition of distribution liability to fair value and a write down related to the fair valuation of Munksjö Oyj shares. The April-June figure also includes a net of tax EUR 30.9 million impairment loss recognized on the re-measurement to fair value and costs to sell, mainly related to the demerger effect of Coated Specialties in Brazil, which is expected to take place during the second half of 2013.

The operative result for the European operation of the Label and Processing business has been included until May 27, 2013. The operative results from Coated Specialties and the Brazilian operation of the former Home and Personal business area were included throughout the review period. The two production lines at Osnabrück to be divested to a third party were also reported as discontinued operations. All operative figures exclude depreciation.

In January-June 2013, the profit from discontinued operations for the period was EUR 72.7 million (EUR 7.7 million).

Result including discontinued operations

In April-June 2013, the profit for the period including discontinued operations was EUR 61.8 million (EUR 0.6 million loss). Earnings per share with the effect of interest on the hybrid bond were EUR 1.31 (EUR 0.04 loss).

Return on equity (ROE) was 60.0% (-0.5%).

In January-June 2013, the profit for the period including discontinued operations was EUR 69.7 million (EUR 7.4 million). Earnings per share with the effect of interest on the hybrid bond were EUR 1.47 (EUR 0.11).

Return on equity (ROE) was 33.3% (2.7%).

The figures above include the demerger effects explained in the previous section.

Events after the review period

Rightsizing program

Following the closing of the Label and Processing demerger, Ahlstrom initiates a rightsizing program, announced earlier today, to reflect the new size and scope of the company. The aim is to make the company's cost base leaner while maintaining sufficient resources globally. The company's target is to achieve EUR 35 million in cost savings by the end of 2014. The figure includes the previously announced EUR 15 million cost reductions, of which approximately EUR 10 million will be derived from costs that will be transferred to Munksjö Oyj.  As of June 30, 2013, approximately EUR 1.4 million in cost savings was achieved and only minor restructuring costs were booked.

The cost savings will be derived from rightsizing the activities and the common cost base of the functions worldwide. Ahlstrom will book non-recurring costs of approximately EUR 15 million in 2013-2014 from the program, which is estimated to affect 350 people globally.

Outlook

The outlook published on January 31, 2013 remains unchanged. Net sales from continuing operations are expected to be EUR 980-1,140 million in 2013. The operating profit margin excluding non-recurring items from continuing operations is expected to be 2-5% of net sales.

In 2013, investments excluding acquisitions from continuing operations are estimated to be approximately EUR 75 million (EUR 74.1 million in 2012). The estimate includes investments that were already announced in 2011 and 2012, such as the wallcovering materials line Binzhou, China, and the additional capacity in filtration materials in Turin, Italy.

Short-term risks

The global economic outlook remains uncertain with limited visibility. The European economy may face a prolonged slowdown as proposed cuts in public spending and tax increases coupled with record-high levels of unemployment reduce disposable incomes. Recent indicators for the U.S. economy are more positive, yet they continue to be mixed. In Asia, particularly the Chinese economy may grow at a slower pace than earlier anticipated.

Slower economic growth, or even a temporary contraction, poses risks to Ahlstrom's financial performance. It may lead to lower sales volumes and force Ahlstrom to initiate more market-related shutdowns at plants, which could affect profitability. The uncertainty related to global economic growth, increased volatility in our main markets and limited visibility are making it more difficult to forecast future developments.

In recent years, Ahlstrom has initiated investment projects, especially in China, that are in a start-up phase, or will be in the near future. The company's financial performance may be negatively affected by the commercialization of the new production lines.

Ahlstrom's main raw materials are natural fibers, mainly pulp, synthetic fibers, and chemicals. The prices of some of the key raw materials used by Ahlstrom remain at a high level and are volatile.

If global economic growth slows down further, maintaining current sales prices may be at risk and sustaining the current level of profitability may be compromised, even if raw material prices fall at the same time.

The general risks facing Ahlstrom's business operations are described in greater detail on the company website at www.ahlstrom.com and in the report by the Board of Directors in the company's Annual Report 2012. The risk management process is also described in the Corporate Governance Statement, also available on the company's website.

*   *   *

This report contains certain forward-looking statements that reflect the present views of the company's management. The statements contain uncertainties and risks and are thus subject to changes in the general economic situation and in the company's business.

Disclosure procedure

Ahlstrom follows the disclosure procedure enabled by the Finnish Financial Supervision Authority and hereby publishes its interim report enclosed to this stock exchange release. The company's interim report January-June 2013 is attached to this release in pdf format and is also available on the company's web site at www.ahlstrom.com.

Additional information

Jan Lång, President & CEO, tel. +358 (0)10 888 4700

Seppo Parvi, CFO, tel. +358 (0)10 888 4768

Ahlstrom's President & CEO Jan Lång and CFO Seppo Parvi will present the January-June 2013 interim report at a Finnish-language press and analyst conference in Helsinki today,  August 7, 2013, at 10:00 a.m. (CET+1). The conference will take place at Ahlstrom's head office at Alvar Aallon katu 3 C. 

In addition, President & CEO Lång and CFO Parvi will hold a conference call in English for analysts, investors and representatives of the media today, August 7, 2013, at 2:30 p.m. (CET+1). To participate in the conference call, please call (09) 2310 1620 in Finland or +44 (0)20 3427 1907 outside Finland a few minutes before the conference begins. The access code is 5023517.

The conference call can also be listened to live on the Internet. The link to the English-language presentation (an audio webcast) including slides is available on the company website at www.ahlstrom.com. Questions may also be submitted in writing via the Internet. Listening to the conference call requires registration.

An on-demand webcast including slides is available for viewing and listening on the company website for one year after the conference call.

Presentation material will be available on August 7, 2013, after the Interim Report is published, at www.ahlstrom.com > Investors > Reports and presentations > 2013. Material in Finnish will be available at www.ahlstrom.fi > Sijoittajat > Katsaukset ja presentaatiot > 2013.

Financial information in 2013

Report Date of publication Silent period
Interim report January-September Thursday, October 24 October 1-24

During the silent period, Ahlstrom will not communicate with capital market representatives.

Ahlstrom in brief

Ahlstrom is a high performance fiber-based materials company, partnering with leading businesses around the world to help them stay ahead. Our products are used in a large variety of everyday applications, such as filters, medical gowns and drapes, diagnostics, wallcoverings, flooring and food packaging. We have a leading market position in the businesses in which we operate. In 2012, Ahlstrom's net sales from continuing operations (excluding Label and Processing business) amounted to EUR 1 billion. Our 3,800 employees serve customers in 28 countries on six continents. Ahlstrom's share is quoted on the NASDAQ OMX Helsinki. More information available at www.ahlstrom.com.

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