Ahlstrom interim report January-September 2013: Strategic roadmap for growth established

Ahlstrom Corporation STOCK EXCHANGE RELEASE October 24, 2013 at 12.00 noon

This is a summary of the January-September 2013 Interim report. The complete January-September 2013 interim report with tables is attached to this release and available at www.ahlstrom.com

Continuing operations July-September 2013 compared with July-September 2012

• Net sales EUR 251.1 million (EUR 248.8 million).
• Operating profit EUR 1.5 million (EUR 6.3 million).
• Operating profit excluding non-recurring items EUR 1.5 million (EUR 7.3 million).
• Operating margin excluding non-recurring items 0.6% (2.9%).
• Profit / loss before taxes EUR -4.4 million (EUR -0.2 million).
• Earnings per share EUR -0.09 (EUR -0.16).

July-September 2013 in brief

• Net sales at constant currency rates rose by 5.4% from the comparison period, whereas profitability declined.
• Ahlstrom announced its strategic agenda until 2020 and new long-term financial targets. The company aims to grow with a high performance product offering for a clean and healthy environment.
• The company issued a new EUR 100 million hybrid bond and completed a partial repurchase of a hybrid bond issued in 2009.

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

• Net sales EUR 771.4 million (EUR 770.8 million).
• Operating profit EUR 16.3 million (EUR 20.9 million).
• Operating profit excluding non-recurring items EUR 15.9 million (EUR 25.2 million).
• Operating margin excluding non-recurring items 2.1% (3.3%).
• Profit / loss before taxes EUR -4.4 million (EUR 2.0 million).
• Earnings per share EUR -0.17 (EUR -0.21).

Outlook for 2013

• The outlook published on September 16, 2013 remains unchanged. Net sales from continuing operations are expected to be EUR 960-1,040 million. The operating profit margin excluding non-recurring items from continuing operations is expected to be 0-2% of net sales.

Jan Lång, President & CEO

"We have now defined our new strategy to take us forward following the major transformation the company has undergone over the past few years. Our current businesses offer good opportunities for growth globally. We have identified three new high priority growth areas in clean water, medical diagnostics and composite materials for the construction and transportation industries."

"While our operating profit in the third quarter was disappointing, we are encouraged by the growth in net sales at constant currency rates. I'm confident that with the more focused business portfolio and the ongoing rightsizing program, we are well placed to improve our financial performance. The rightsizing program is progressing as planned."

"We continued to make progress in renewing our product portfolio and launched several new products during the quarter, including Ahlstrom TenderGuard(TM) in medical fabrics and Ahlstrom MasterTape(TM) for the Chinese market. With the good work we have done in improving our capabilities, I'm confident we can reach our ambitious long-term target of generating 20% of net sales from new products."

Key figures from continuing operations

*Including discontinued operations

Operating environment

The operating environment in the third quarter remained in line with the comparison period 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 laboratory and life science, and gas turbine filtration continued to strengthen, particularly in North America and Asia. Demand for water applications grew as well.

In the Building and Energy business area, demand for flooring materials in Europe, and Russia in particular, stayed at a healthy level during the review period whereas the market for wind energy applications was steady at a low level. Demand for wallpaper and wallcovering materials in Europe was stable, while there were signs of improvement in China. Demand for construction-related materials remained soft.

In the Food and Medical business area, demand for food packaging products was solid, whereas markets for tape and beverage materials were soft, especially in Europe and Asia. Demand for medical materials weakened in North America.

In the Transportation Filtration business area, the market for transportation filtration materials, including heavy duty, in North America recovered towards the end of the review period. Demand for transportation filtration materials in Europe was stable despite the sluggish macroeconomic development in the region. Demand in Asia, and particularly in China, continued to grow. In South America, currency devaluation had a negative impact on the filtration market.

Market pulp prices varied in the third quarter, but they remained 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. The prices of liquid solvents like phenolic resins remained at a high level. In its production, Ahlstrom uses chemicals such as latex, titanium dioxide, liquid solvents and starch. Natural gas prices increased in Europe and North America.

Strategic agenda and new long-term financial targets

Ahlstrom has defined its growth strategy extending to the year 2020. The company's current and future product offering is driven by global megatrends, such as resource scarcity, environmental awareness, demographics and urbanization. Ahlstrom aims to grow with a high performance product offering for a clean and healthy environment.

To support Ahlstrom's sustainable growth strategy, the Board of Directors has approved the company's updated long-term financial targets over the economic cycle:

·         Net sales: at least 5% underlying annual growth  

·         Net sales from new products^[1]: at least 20%

·         Operating profit^[2]: 7% of net sales by 2016 and 10% of net sales beyond 2016. With the current balance sheet structure, this implies a return on capital employed of approximately 13% and approximately 15%, respectively. 

·         Gearing ratio: to be maintained within the 50-80% range

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 by the end 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 to resolve the competition issues identified by the 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

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 July-September 2013, the loss from discontinued operations for the period was EUR 17.3 million (EUR 1.1 million profit). The 2013 figure includes a net of tax EUR 13.2 million impairment loss recognized on the re-measurement to fair value and costs to sell, mainly related to the two production lines to be divested in Osnabrück and the Brazilian operations of the former Home and Personal business.

In January-September 2013, the profit from discontinued operations for the period was EUR 55.4 million (EUR 8.8 million), including approximately a EUR 86.4 million demerger effect, which includes a recognition of distribution liability to fair value and a write down related to the fair valuation of Munksjö Oyj shares. The January-September figure also includes a net of tax EUR 44.3 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.

Result including discontinued operations

In July-September 2013, the loss for the period including discontinued operations was EUR 21.0 million (EUR 5.2 million loss). Earnings per share with the effect of interest on the hybrid bond were EUR -0.46 (EUR -0.13).

Return on equity (ROE) was -22.8% (-4.1%).

In January-September 2013, the profit for the period including discontinued operations was EUR 48.7 million (EUR 2.2 million). Earnings per share with the effect of interest on the hybrid bond were EUR 1.01 (EUR -0.03).

Return on equity (ROE) was 14.9% (0.5%).

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

Rightsizing program

Following the closing of the Label and Processing demerger, Ahlstrom initiated a rightsizing program 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 annualized 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.

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.

The program is moving ahead as targeted. As of September 30, 2013, approximately EUR 6 million in cost savings, of which approximately EUR 2 million is derived from costs being transferred to Munksjö Oyj, were achieved and only minor restructuring costs were booked.

Outlook

The outlook published on September 16, 2013 remains unchanged. Net sales from continuing operations are expected to be EUR 960-1,040 million in 2013. The operating profit margin excluding non-recurring items from continuing operations is expected to be 0-2% 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 has shown some signs of recovery. However, the recovery may be uneven and fragile. Recent indicators for the U.S. economy are more positive, yet they continue to be mixed. In Asia, the Chinese economy in particular, may grow at a slower pace than previously anticipated.

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 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, 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.

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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-September 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-September 2013 interim report at a Finnish-language press and analyst conference in Helsinki today,  October 24, 2013, at 2:00 p.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, October 24, 2013, at 4:00 p.m. (CET+1). To participate in the conference call, please call (09) 6937 9590 in Finland or +44 (0)20 3427 1905 outside Finland a few minutes before the conference begins. The access code is 7806852.

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, 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 2014

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

Ahlstrom in brief