Ahlstrom-Munksjö's Financial Statements Release 2019: Very strong cash flow and stable profitability

AHLSTROM-MUNKSJÖ OYJ FINANCIAL STATEMENTS RELEASE FEBARUARY 13, 2020 at 08:30 EEST

This release is a summary of Ahlstrom-Munksjö’s Financial Statements Release 2019. The complete report is attached to this release as a pdf-file. It is also available at www.ahlstrom-munksjo.com.

highlighTs DURING THE REPORTING PERIOD

  • Very strong operating cash flow

  • Market environment remained uncertain, while volume decline levelled off

  • Letter of intent to acquire Chinese decor papermaker Minglian New Materials Technology to become a truly global leader in decor  papers

  • Acquisition of filter converting capacity to grow the attractive Liquid Technologies business in Asia and North America

  • Agreements to divest the fine art paper business in Arches, France and the glassfiber reinforcement business in Mikkeli, Finland

Q4/2019 VS Q4/2018 pro forma

  • Net sales EUR 699.4 million (EUR 734.8 million), a decrease of 4.8%. 

  • Comparable EBITDA EUR 70.5 million (EUR 71.4 million), representing 10.1% (9.7%) of net sales

  • Gross margin for products improved, while profitability was impacted by somewhat higher fixed costs and lower volumes.

  • Operating results EUR 16.0 million (EUR 1.3 million), supported by lower items affecting comparability (IAC)

  • Net profit EUR 1.9 million (EUR -10.3 million loss)

  • Earnings per share EUR 0.01 (EUR -0.09)

  • Comparable EPS excluding depreciation and amortization arising from PPA EUR 0.16 (EUR 0.18)

2019 VS 2018 pro forma

  • Net sales EUR 2,916.3 million (EUR 2,996.9 million), a decrease of 2.7%.    

  • Comparable EBITDA EUR 312.9 million (EUR 329.9 million), representing 10.7% (11.0%) of net sales

  • Gross margin for products improved, while profitability was impacted by lower volumes

  • Operating results EUR 103.2 million (EUR 129.4 million), impacted by higher
    depreciation and amortization

  • Net profit EUR 32.8 million (EUR 63.2 million), impacted by higher financial costs

  • Earnings per share EUR 0.27 (EUR 0.54)

  • Comparable EPS excluding depreciation and amortization arising from PPA EUR 0.84 (EUR 1.15)

DIVIDEND PROPOSAL

  • The Board of Directors proposes that a dividend totaling EUR 0.52 per share (EUR 0.52), be paid in four installments.

Key figures

Actual (IFRS) Key figures,
EUR million, or as indicated
Q4/2019 Q4/2018 Q3/2019 2019 2018
Net sales 699.4 712.2 712.9 2,916.3 2,438.0
Comparable EBITDA 70.5 72.1 83.6 312.9 277.7
Comparable EBITDA margin, % 10.1 10.1 11.7 10.7 11.4
Items affecting comparability in EBITDA -7.2 -34.5 -5.8 -33.4 -55.1
EBITDA 63.3 37.5 77.8 279.4 222.6
Comparable operating result excl. depreciation and amortization arising from PPA * 38.7 46.3 53.4 191.1 186.1
Comparable operating result 25.5 34.5 40.1 139.0 151.4
Comparable operating result margin, % 3.7 4.9 5.6 4.8 6.2
Items affecting comparability in operating result -9.6 -42.2 -5.8 -35.8 -62.7
Operating result 16.0 -7.7 34.3 103.2 88.7
Net profit / loss 1.9 -19.8 12.0 32.8 42.9
Earnings per share (basic), EUR 0.01 -0.20 0.10 0.27 0.43
Comparable EPS excl. depreciation and amortization arising from PPA, EUR * 0.16 0.20 0.22 0.84 1.18
Cash generated from operating activities 68.4 30.9 125.4 286.7 91.6
Depreciation, amortization and impairment 47.4 45.2 43.4 176.2 133.9
Capital expenditure 36.3 64.5 50.6 161.1 160.1
Net debt ** 885.0 962.5 981.7 885.0 962.5
Gearing ratio, % ** 71.8 82.8 85.4 71.8 82.8
pro forma Key figures,
EUR million, or as indicated
Actual (IFRS)
Q4/2019
pro forma  Q4/2018 Actual (IFRS)
Q3/2019
Actual (IFRS)
2019
pro forma 2018
Net sales 699.4 734.8 712.9 2,916.3 2,996.9
Comparable EBITDA 70.5 71.4 83.6 312.9 329.9
Comparable EBITDA margin, % 10.1 9.7 11.7 10.7 11.0
Items affecting comparability in EBITDA -7.2 -24.0 -5.8 -33.4 -39.6
EBITDA 63.3 47.4 77.8 279.4 290.3
Comparable operating result excl. depreciation and amortization arising from PPA * 38.7 45.3 53.4 191.1 225.5
Comparable operating result 25.5 32.9 40.1 139.0 176.6
Comparable operating result margin, % 3.7 4.5 5.6 4.8 5.9
Items affecting comparability in operating result -9.6 -31.7 -5.8 -35.8 -47.3
Operating result 16.0 1.3 34.3 103.2 129.4
Net profit / loss 1.9 -10.3 12.0 32.8 63.2
Earnings per share (basic), EUR 0.01 -0.09 0.10 0.27 0.54
Comparable EPS excl. depreciation and amortization arising from PPA, EUR * 0.16 0.18 0.22 0.84 1.15
Depreciation, amortization and impairment 47.4 46.2 43.4 176.2 161.0
Capital expenditure 36.3 65.9 50.6 161.1 176.3

*Depreciation and amortization arising from PPA (purchase price allocation) comprise depreciation and amortization charges from fair value adjustments relating to the business combinations starting from 2013.
** Classification of certain balance sheet items between interest-bearing and non-interest-bearing assets and liabilities was redefined. For more information, see appendix 1.

Ahlstrom-Munksjö has adopted the European Securities and Markets Authority (ESMA) guidelines on Alternative Performance Measures (APMs) to reflect the underlying business performance and improve comparability. These measures should, however, not be considered as a substitute for measures of performance in accordance with IFRS. Alternative performance measures are derived from performance measures reported in accordance with IFRS by adding or deducting items affecting comparability (IAC), or purchase price allocation (PPA,) and they are called “comparable”. More details on APMs and key figures are available in the appendix 2.

CEO COMMENTS

We continued to execute our strategy with speed and determination on many fronts in order to strengthen our competitiveness and profitability as well as our balance sheet. We focused on the integration of acquired businesses and implemented profit improvement actions, strengthened our company culture and actively developed our business portfolio. Our cash flow was very strong in 2019 due to our relentless focus on working capital and this helped us to strengthen our financial position. However, market fundamentals turned out to be tougher than expected and our comparable EBITDA weakened slightly.

Lower end-use demand and destocking in the value chain put pressure on delivery and production volumes which in turn had a negative impact on our results. Despite the challenging market environment, our gross margin for products did, however, improve. This confirms that that our commercial strategy, based on leading positions in niche markets and a differentiated product offering, is working well. In addition, we benefitted from the achieved cost synergies from our recent acquisitions. Raw material and energy prices had a negative impact for the full year, while they started to have a positive impact in the second half of the year.

In the fourth quarter, our profitability was still unsatisfactory. Gross margin for products remained at a good level while volumes stabilized at a low level. This shows that while our cost reduction measures have been necessary, they have not been sufficient; in October, we identified further savings with an overall impact of at least EUR 50 million for the year 2020.

actively developing our BUSINESSes

We actively developed our business structure. We took a step forward in the process where our Decor business could become a globally leading stand-alone operation by signing a letter of intent to acquire a Chinese decor manufacturer. We also made one acquisition to grow our highly attractive Liquid Technologies business and announced two divestments.

Our strategic investment program, which has kept our capital expenditure at an exceptionally high level for the past two years,  is nearing completion and we expect to complete the remaining four projects by the end of 2021. On the product development front, we continued to develop new value-added solutions for our customers.

looking ahead

There are some early signs of improvement, although the market environment still remains uncertain. We will continue to develop our business structure, proceed with our investment program and deliver value-added solutions to our customers. This gives me confidence in our ability to reach our targets for this year.

Outlook for 2020   

Ahlstrom-Munksjö’s comparable EBITDA reached EUR 313 million in 2019. The decline in volumes, which had a negative impact on the result in 2019, levelled off towards the end of the year. In the beginning of 2020, there are some early signs of improvement in demand. Raw material and energy prices had a negative impact for the full year 2019, while they started to have a positive impact in the second half. The ratio between average selling price and variable costs was at a good level at the start of 2020. Ahlstrom-Munksjö will continue its efforts to improve performance and competitiveness. Identified cost savings, mainly related to variable costs, are estimated to have an overall impact of at least EUR 50 million for 2020. Ahlstrom-Munksjö’s comparable EBITDA in 2020 is expected to be higher than in 2019.

PROPOSAL FOR THE DISTRIBUTION OF PROFIT

The Board of Directors has amended the company’s dividend policy. The new policy: Ahlstrom-Munksjö aims to distribute a stable, over time increasing dividend, to be paid four times per year. The previous policy: Ahlstrom-Munksjö aims to distribute a stable, over time increasing dividend, to be paid biannually.

The distributable funds on the balance sheet of Ahlstrom-Munksjö Oyj as of December 31, 2019 amounted to EUR 801,327,209.86. The Board of Directors proposes that the Annual General Meeting resolves, based on the financial statements of the company for 2019, on the dividend payment in the amount of EUR 0.52 per share.

The dividend shall be paid in four instalments. The first instalment of EUR 0.13 per share shall be paid to a shareholder who on the record date of the payment, March 27, 2020, is registered in the shareholders’ register of the company maintained by Euroclear Finland Ltd or in the register of shareholders maintained by Euroclear Sweden AB. The payment date proposed by the Board of Directors for this instalment is April 3, 2020. 

The second instalment of EUR 0.13  per share shall be paid in July 2020 to a shareholder who on the record date of the payment is registered in the shareholders’ register of the company maintained by Euroclear Finland Ltd or in the register of shareholders maintained by Euroclear Sweden AB. The Board of Directors shall resolve on the payment separately. The preliminary record date of the payment is July 2, 2020 and the preliminary payment date July 9, 2020.

The third instalment of EUR 0.13  per share shall be paid in October 2020 to a shareholder who on the record date of the payment is registered in the shareholders’ register of the company maintained by Euroclear Finland Ltd or in the register of shareholders maintained by Euroclear Sweden AB. The Board of Directors shall resolve on the payment separately. The preliminary record date of the payment is October 2, 2020 and the preliminary payment date October 9, 2020.

The fourth instalment of EUR 0.13  per share shall be paid in January 2021 to a shareholder who on the record date of the payment is registered in the shareholders’ register of the company maintained by Euroclear Finland Ltd or in the register of shareholders maintained by Euroclear Sweden AB. The Board of Directors shall resolve on the payment separately. The preliminary record date of the payment is January 4, 2021 and the preliminary payment date January 11, 2021.

In addition, the Board of Directors proposes that EUR 150,000 will be reserved for donations at the discretion of the Board.

Short-term risks

As Ahlstrom-Munksjö manages a broad portfolio of businesses and serves a wide range of end uses globally, the company is not likely to be significantly affected on a group level by individual factors. However, uncertain global economic and financial market conditions could have a materially adverse effect on the Group, its results of operations and financial condition.

The company’s significant risks and uncertainty factors mainly consist of developments in demand for and prices of sold products, the cost and availability of significant raw materials and energy, financial risks, as well as other business factors including developments in global politics and the financial markets. The company’s financial performance may be impacted by the timing of possible raw material price increases and its ability to raise selling prices. On-going trade disputes and the outcome of Brexit increases uncertainty in the global economic outlook and this may have an effect on Ahlstrom-Munksjö’s markets. At this stage, it is too early to assess the impact of the recent coronavirus outbreak to the company’s businesses.

In the case of potential business combinations, substantial integration work is needed to realize expected synergies. The integrations of Expera and Caieiras are ongoing  and according to plan, however, the risk also refers to future potential acquisitions.

The company’s key financial risks include interest rate and currency risks, liquidity risk and credit risk. To mitigate these risks, methods such as hedging and credit insurance are used. The Group has exposure to tax risks due to potential changes in tax laws or regulations or their application, or as a result of on-going or future tax audits or claims.

The company has operations in many countries, and sometimes disputes cannot be avoided in daily operations. The company is sometimes involved in legal actions, disputes, claims for damages and other procedures. The result of these cannot be predicted, but taking into account all available information to date, the impact is not expected to have a significant impact on the financial position of the company.

Additional information

Hans Sohlström, President and CEO, tel. +358 10 888 2520
Sakari Ahdekivi, Deputy CEO and CFO, tel. +358 10 888 4760
Johan Lindh, Vice President, Communications and Investor Relations, + 358 10 888 4994
Juho Erkheikki, Investor Relations Manager, tel. +358 10 888 4731

Webcast and conference call

A combined news conference, call and live webcast will be arranged on the publishing day, February 13, 2020, at 11:00 a.m. EET at Ahlstrom-Munksjö’s head office in Helsinki (Alvar Aallon katu 3 C). The report will be presented in English by President and CEO Hans Sohlström and Deputy CEO and CFO Sakari Ahdekivi.

Webcast and conference call information

The combined webcast and teleconference can be viewed at:
https://cloud.webcast.fi/ahlstrommunksjo/ahlstrommunksjo_2020_0213_q4

Finland: +358 (0)9 7479 0360
Sweden: +46 (0)8 5033 6573
UK: +44 (0)330 336 9104

Conference ID: 228540

To join the conference call, participants are requested to dial one of the numbers above 5-10 minutes prior to the start of the event. An on-demand version of the conference call will be available on Ahlstrom-Munksjö’s website later the same day. By dialing in to the conference call, the participant agrees that personal information such as name and company name will be collected. The conference call will be recorded.


Ahlstrom-Munksjö in brief
Ahlstrom-Munksjö is a global leader in fiber-based materials, supplying innovative and sustainable solutions to its customers. Our mission is to expand the role of fiber-based solutions for sustainable everyday life. Our offering include filter materials, release liners, food and beverage processing materials, decor papers, abrasive and tape backings, electrotechnical paper, glass fiber materials, medical fiber materials and solutions for diagnostics as well as a range of specialty papers for industrial and consumer end-uses. Our annual net sales is about EUR 3 billion and we employ some 8,000 people. The Ahlstrom-Munksjö share is listed on the Nasdaq Helsinki and Stockholm. Read more at www.ahlstrom-munksjo.com

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