Ahlstrom interim report January-March 2013: Net sales and profitability improved from Q4/2012

Thu Apr 25, 2013 2:03am EDT

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Ahlstrom Corporation STOCK EXCHANGE RELEASE April 25, 2013 at 9.00 a.m.

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

  • Net sales EUR 255.3 million (EUR 260.3 million).
  • Operating profit EUR 8.3 million (EUR 10.7 million).
  • Operating profit excluding non-recurring items EUR 6.5 million (EUR 10.6 million).
  • Operating margin excluding non-recurring items 2.5% (4.1%).
  • Profit before taxes EUR 4.0 million (EUR 6.0 million).
  • Earnings per share EUR 0.05 (EUR 0.06).

January-March 2013 in brief

  • Net sales and profitability improved from the weak fourth quarter of 2012, but remained below the comparison period.
  • Ahlstrom entered into a collaboration agreement with Dow Water & Process Solutions (DW&PS), a business unit of the Dow Chemical Company, on using Ahlstrom's Disruptor® technology in drinking water applications.
  • The company made changes to its financial segment reporting as of January 1, 2013 as the former Filtration business area was divided into two separate segments: Advanced Filtration and Transportation Filtration. In addition, a new reporting segment called Trading and New Business, has been added.

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 net sales and operating profit improved sequentially, but remained below the relatively strong comparison period. Regionally, annual sales growth in Asia was supported by the introduction of new products. In Europe, sales were flat in a very difficult market environment, particularly in the southern part of the continent.  In North America, we experienced fluctuations in demand despite some positive macroeconomic signals.

- I am pleased with the financial performance of our Advanced Filtration business area, and with the integration of Munktell, which is moving ahead as planned. Transportation Filtration also improved despite regional variations. The Food and Medical business was a disappointment, and we are taking firm measures to address the situation and improve performance in this area.    

- We have worked relentlessly on our product development process and our product pipeline is strengthening. This year we are planning to double the number of new product introductions.

Key figures from continuing operations

EUR million Q1/2013 Q1/2012 Change, % 2012
Net sales 255.3 260.3 -1.9 1,010.8
Operating profit 8.3 10.7 -22.1 21.7
% of net sales 3.3 4.1   2.1
Operating profit excl. NRI 6.5 10.6 -39.1 21.0
% of net sales 2.5 4.1   2.1
Profit / Loss before taxes 4.0 6.0 -32.7 -4.8
Profit / Loss for the period 2.5 4.0 -38.2 -15.2
Earnings per share 0.05 0.06   -0.41
Return on capital employed, % 4.9 5.9   2.2
Net cash flow from operative activities -21.4 14.6   78.7
Capital expenditure 11.5 12.0 -4.4 74.1
Number of personnel, at the end of period  3,821  3,807  0.4  3,829

Operating environment

The operating environment improved somewhat from the weak fourth quarter of 2012. However, overall demand in Ahlstrom's main markets continued to be soft and volatile. Geographically, demand in Europe remained weak, particularly in the southern part of the continent. The North American market showed some mixed signs towards the end of the review period. Markets in Asia continued to recover.

In the Advanced Filtration business area, markets for gas turbine, laboratory and life science filtration applications continued to strengthen. Demand for water filtration was solid.

In the Building and Energy business area, demand for flooring materials in Europe, and especially in Russia, stayed at a healthy level during the review period. Demand for wallpaper and wallcovering materials in the region remained stable. Demand in China for wallcovering materials continued to improve. 

In the Food and Medical business area, the markets for tape, food packaging and beverage materials (e.g. teabags) remained weak during the review period in Europe, while demand for medical materials was stable.

In the Transportation Filtration business area, the market for transportation filtration materials in North America was volatile during the first quarter. Demand for transportation filtration materials in Europe stabilized following earlier declines. Demand in Asia improved.

Market pulp prices continued to increase in the first quarter and the prices of some pulp grades were at levels higher than those of the comparison period. Prices for synthetic fibers such as polyester and viscose were stable whereas polypropylene rose. Prices for chemicals in general were either stable or in decline, while the prices for liquid solvents like phenolic resins increased. In its production, Ahlstrom uses chemicals such as latex, titanium dioxide, liquid solvents and starch. Natural gas prices were stable in Europe, but increased in North America.

Adaption of new IFRS standard on employee benefits

As of January 1, 2013, Ahlstrom has adopted the revised IAS 19 Employee Benefits standard. As a result, the quarterly Group and segment financial information for 2012 has been restated accordingly.

The adoption of the revised IAS 19 Employee Benefits standard results in higher operating profit, higher pension liability and lower pension assets and reduced equity in the Group's financial figures for 2012.

The operating profit from continuing operations in 2012 is increased by EUR 3.1 million as the net interest costs related to employee benefits are reported in financial items. The effect on the first quarter of 2012 is EUR 0.8 million. The operating profit impact is positive for the segments. The Group's equity in the December 31, 2012 balance sheet is reduced by EUR 59 million as a result of recognizing actuarial gains and losses in other comprehensive income. As a consequence, the gearing ratio increased by 6.7 percentage points at the year end.

Discontinued operations

Combination of the Label and Processing business and Munksjö AB

On November 27, 2012, Ahlstrom's Extraordinary General Meeting approved the demerger of the Label and Processing businesses, which will be combined with Munksjö AB to form a global leader in specialty papers through two partial demergers: one consisting of the Label and Processing operations in Europe (LP Europe) and one in Brazil (Coated Specialties).

Label and Processing is reported separately as discontinued operations.

On March 20, 2013, Ahlstrom and Munksjö filed a remedy proposal to the European Commission related to the proposed combination of the Label and Processing business and Munksjö with respect to the abrasive backings and pre-impregnated décor paper businesses. Following the remedy proposal, the EU Commission extended the review phase related to the transaction until June 7, 2013.

Ahlstrom has proposed that the abrasive backings and pre-impregnated décor paper businesses, including two production lines in Osnabrück, Germany, would be divested to a third party in order to resolve the competition issues identified by the Commission.

The approval of the demerger plans by Ahlstrom's Extraordinary General Meeting of the Shareholders (in November 2012) will expire on May 27, 2013. Due to the extension of the review period, it is possible that the decision by the EU Commission will not be received before this date.

If the approval of the demerger of Ahlstrom's Label and Processing business in Europe expires due to the revised timetable of the EU, a new EGM will be arranged to decide on the demerger plan of LP Europe.

Also as a consequence of the extended review by the EU, Ahlstrom expects to complete the demerger of the company's Label and Processing business in Brazil during the second half of 2013 instead of the previously targeted second quarter of 2013. The company plans to arrange a new Extraordinary General Meeting for the shareholders later in the year to decide on the demerger process related to the Brazilian business.

Result from discontinued operations

In January-March 2013, the profit from discontinued operations for the period was EUR 5.4 million (EUR 4.1 million). The figures include the Label and Processing business as well as the Brazilian operation of the former Home and Personal business area. Both figures exclude depreciation and the 2013 figure includes release of certain accruals related to personnel liabilities.

Result including discontinued operations

In January-March 2013, the profit for the period including discontinued operations was EUR 7.9 million (EUR 8.1 million). Earnings per share with the effect of interest on the hybrid bond were EUR 0.16 (EUR 0.15).

Return on equity (ROE) was 6.6% (5.5%).

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 continue to be mixed. In Asia, the acceleration of economic growth may be slower than 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.

*   *   *

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 Standard 5.2b published by the Finnish Financial Supervision Authority and hereby publishes its interim report enclosed to this stock exchange release. The company's interim report January-March 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-March 2013 interim report at a Finnish-language press and analyst conference in Helsinki today,  April 25, 2013, at 10:00 a.m. (CET+1). The conference will take place at Event Arena Bank, Unioninkatu 20. 

In addition, President & CEO Lång and CFO Parvi will hold a conference call in English for analysts, investors and representatives of the media today, April 25, 2013, at 2:30 p.m. (CET+1). To participate in the conference call, please call (09) 2310 1621 in Finland or +44 (0)20 3364 5381 outside Finland a few minutes before the conference begins. The access code is 7529840.

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 April 25 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-June Wednesday, August 7 July 1-August 7
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 the 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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