Ahlstrom interim report January-September 2014: Profitability improved with strong sales growth in three business areas

Ahlstrom Corporation STOCK EXCHANGE RELEASE October 24, 2014 at 12.20

This is a summary of the January-September 2014 interim report. The complete report with tables is attached to this release and available at www.ahlstrom.com

Ahlstrom interim report January-September 2014

Profitability improved with strong sales growth in three business areas

Continuing operations July-September 2014 compared with July-September 2013

• Net sales EUR 252.0 million (EUR 251.1 million).
• Operating profit excluding non-recurring items EUR 9.7 million (EUR 1.5 million).
• Operating margin excluding non-recurring items 3.9% (0.6%).
• Operating profit / loss EUR -13.4 million (EUR 1.5 million), including non-recurring items of EUR -23.2 million (EUR 0.0 million).
• Profit / loss before taxes EUR -19.9 million (EUR -4.4 million).
• Earnings per share EUR -0.30 (EUR -0.09).

July-September 2014 in brief

• Comparable net sales grew 2.3% at constant currency rates with growth in Advanced Filtration, Transportation Filtration and Food business areas. Reported net sales increased by 0.3%.  
• Fourth consecutive quarter of year-on-year improvement in profitability excluding non-recurring items.

• New products were introduced to accelerate growth and improve sales mix and profit margin. One key product launch was Ahlstrom Pleat2Save^TM, a new portfolio of products for residential, commercial and healthcare HVAC applications.

Continuing operations January-September 2014 compared with January-September 2013

• Net sales EUR 754.1 million (EUR 771.1 million).
• Operating profit excluding non-recurring items EUR 30.4 million (EUR 15.9 million).
• Operating margin excluding non-recurring items 4.0% (2.1%).
• Operating profit EUR 0.6 million (EUR 16.3 million), including non-recurring items of EUR -29.8 million (EUR 0.4 million).
• Profit / loss before taxes EUR -15.1 million (EUR -4.4 million).
• Earnings per share EUR -0.32 (EUR -0.17).

Outlook for 2014

• Ahlstrom narrows its outlook range for net sales and operating profit margin excluding non-recurring items in 2014. Net sales are expected to be EUR 960-1,020 million. The operating profit margin excluding non-recurring items is expected to be 2.5-4% of net sales.
   
• Previous outlook: Net sales are expected to be EUR 930-1,090 million. The operating profit margin excluding non-recurring items is expected to be 2-5% of net sales.

Marco Levi, President & CEO

"We are starting to build a track record of enhanced financial performance with improved profitability for four consecutive quarters. The Advanced Filtration and Transportation Filtration businesses in particular have achieved very good results. Food and Medical businesses have also made significant improvements in profitability. In the Building and Energy business we have more work ahead of us to address profitability issues."

"I'm pleased with the strong sales growth in three of our businesses; Advanced Filtration, Transportation Filtration and Food. Our ongoing rightsizing program is also progressing as planned."

"We now have a roadmap to increased performance. We will improve margins and enhance customer segmentation through our commercial excellence program. We are going to refocus our product development portfolio to shorten the time from idea to successfully commercialized product. In addition, we will simplify our processes, which will lead to a more competitive cost structure. To this end, we are today announcing a new organizational structure."   

Key figures from continuing operations

*Including discontinued operations

Operating environment

The operating environment in Ahlstrom's main markets in the third quarter of 2014 varied considerably depending on regions and markets.

In the Advanced Filtration business area, growth continued in the gas turbine and industrial filtration applications, particularly in North America and Asia. The markets for laboratory and life science also grew, whereas demand for high efficiency air applications was somewhat softer, particularly in Europe.

In the Building and Energy business area, demand for construction-related materials such as flooring applications has improved in Europe, but continued to soften in Russia. The market for reinforced glass fiber products for the wind energy industry in Europe remained soft. Demand for wallpaper and wallcovering substrates softened in Europe and Russia, while it remained solid in China.

In the Food business area, demand for beverage, food packaging and tape products continued to be solid in all main geographical regions. Growth continued in the single-use coffee products market.    

In the Medical business area, demand for medical fabrics was stable in Europe and North America, while it strengthened in Asia, supported by the growing trend for single-use products.

In the Transportation Filtration business area, solid growth continued in the markets in Asia, North America and Europe. In South America, the market continued to show positive signs following a slowdown in the second half of 2013.

Discontinued operations

The operative result of the Brazilian operation of the former Home and Personal business area was included in discontinued operations until February 10, 2014, when its sale to Suominen Corporation was completed. The comparison figures include the operative results from the Label and Processing business as well as the Brazilian operations of the former Home and Personal business area. All operative figures exclude depreciation. 

Result from discontinued operations

In January-September 2014, profit from discontinued operations for the period was EUR 7.7 million (EUR 55.4 million). The figure includes Munksjö Oyj's contribution to costs to separate the Osnabrück site as required by the European Commission. The comparison figure includes a demerger effect of approximately EUR 86.4 million as well as a net of tax EUR 44.3 million impairment loss recognized in the re-measurement to fair value and costs to sell.

Result including discontinued operations

In January-September 2014, the loss for the period including discontinued operations was EUR 8.2 million (EUR 48.7 million profit). Earnings per share with the effect of interest net of tax on the hybrid bond were EUR -0.15 (EUR 1.01).

Return on equity (ROE) was -3.3% (14.9%).

Rightsizing program

Following the completion of the Label and Processing demerger in 2013, Ahlstrom initiated a rightsizing program to bring down costs to reflect its new size and scope. The company aims to achieve approximately EUR 39 million in annual costs savings in continuing operations, targeting both selling, general and administration (SGA) costs and production overheads. In addition, approximately EUR 11 million in savings have been derived from costs transferred to Munksjö Oyj, bringing the total target to EUR 50 million.

On September 23, 2014, Ahlstrom announced a plan to transfer its information technology operations to Tech Mahindra Ltd. With the planned long-term agreement Ahlstrom aims to increase efficiency, harmonize service levels and lower IT costs. Approximately 50 Ahlstrom IT employees globally are planned to move to Tech Mahindra under a business transfer agreement. The planned transfer is expected to take place on December 1, 2014. The business transfer is subject to country-specific conditions.

The majority of the planned actions related to the rightsizing program will be completed by the end of 2014, and the full impact of the program is expected to be visible by the end of 2015. The aim is to bring the SGA costs back to a run-rate of 10-11% of net sales by the end of 2015.

As a result of the planned program, Ahlstrom's personnel level is to be reduced by approximately 400 people globally. The planned changes and personnel impacts are subject to employee consultation processes according to local legislation in the countries affected. The targeted savings will be globally derived from all business areas and functions.

The program is moving ahead as targeted. As of September 30, 2014, approximately EUR 22 million in cumulative cost savings was achieved in continuing operations.

In continuing operations, savings of approximately EUR 4 million on a quarterly basis were achieved in the third quarter of 2014 compared to the corresponding quarter in 2013. Comparable SGA costs continued to decrease in the third quarter of 2014, but were impacted by a one-time pension cost in the U.K. and set-up costs related to the shared service center in Vilnius.

Ahlstrom plans to book non-recurring costs of approximately EUR 15 million related to rightsizing during the years 2013-2015. So far, EUR 13.2 million in non-recurring costs have been booked, of which EUR 10.1 million were booked in the first nine months of 2014.

Outlook

Ahlstrom narrows its outlook range for net sales and operating profit margin excluding non-recurring items outlook in 2014. Based on Ahlstrom's view of the development of its main markets, pricing and product mix, competitive dynamics and expected cost savings, the company anticipates net sales in 2014 to be EUR 960-1,020 million. The operating profit margin excluding non-recurring items is expected to be 2.5-4% of net sales.

Previous outlook: Net sales are expected to be EUR 930-1,090 million. The operating margin excluding non-recurring items is expected to be 2-5% of net sales.

In 2014, investments excluding acquisitions are estimated to be approximately EUR 50 million (EUR 76.1 million in 2013).

Short-term risks

The global economy may be growing at a slower pace than earlier predicted as the economic recovery in Europe stalls. On the other hand, recent indicators for the development of the U.S. economy continue to be positive.

Slower-than-anticipated economic growth 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, make it more difficult to forecast future developments.

In recent years, Ahlstrom has initiated investment projects, such as the wallcoverings production line in Binzhou, China, that are in a start-up phase. The company's financial performance may be negatively affected by the commercialization of new production lines.

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

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 2013. The risk management process is also described in the Corporate Governance Statement, also available on the company's website.

Disclosure procedure

Ahlstrom publishes its January-September 2014 interim report enclosed to this stock exchange release. The report is attached to this release in pdf format and is also available on the company's web site at www.ahlstrom.com.

Additional information

Marco Levi, President & CEO, tel. +358 (0)10 888 4700

Sakari Ahdekivi, CFO, tel. +358 (0)10 888 4768

Ahlstrom's President & CEO Marco Levi and CFO Sakari Ahdekivi will present the January-September 2014 interim report at a press and analyst conference in Helsinki today,  October 24, 2014, at 2:00 p.m. (CET+1). The conference will take place at Ahlstrom's head office at Alvar Aallon katu 3 C (second floor, meeting room Antti). 

In addition, President & CEO Levi and CFO Ahdekivi will hold a conference call for analysts, investors and representatives of the media today, October 24, 2014, at 4:00 p.m. (CET+1). To participate in the conference call, please call (09) 6937 9543 in Finland or +44 (0)20 3427 1902 outside Finland a few minutes before the conference begins. The confirmation code is 7685517.

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 October 24, 2014, after the Interim Report is published, at www.ahlstrom.com > Investors > Reports and presentations > 2014. Material in Finnish will be available at www.ahlstrom.fi > Sijoittajat > Katsaukset ja presentaatiot > 2014.

Financial information in 2015

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. We aim to grow with a product offering for clean and healthy environment. Our materials are used in everyday applications such as filters, medical fabrics, life science and diagnostics, wallcoverings and food packaging. In 2013, Ahlstrom's net sales from the continuing operations amounted to EUR 1 billion. Our 3,500 employees serve customers in 24 countries. Ahlstrom's share is quoted on the NASDAQ OMX Helsinki. More information available at www.ahlstrom.com.