Ahlstrom Corporation 2012: Strategic transformation progressing; financial performance still weak

Ahlstrom Corporation STOCK EXCHANGE RELEASE January 31, 2013 at 12.00 noon

Financial statement release

Continuing operations October-December 2012 compared with October-December 2011

• Net sales EUR 240.1 million (EUR 242.8 million). 

• Operating profit EUR 0.1 million (EUR -3.4 million).  

• Operating profit excluding non-recurring items EUR -5.0 million (EUR 0.5 million). 

• Operating margin excluding non-recurring items -2.1% (0.2%). 

• Profit before taxes EUR -8.2 million (EUR -9.5 million).  

• Earnings per share EUR -0.23 (EUR -0.15). 

October-December 2012 in brief

• The poor profitability was due to a shortfall in sales volumes across all key markets, adverse product mix, and increased market-related downtime in production to manage inventory levels.  

• Ahlstrom's Extraordinary General Meeting approved the demerger of the Label and Processing business, which will be combined with Munksjö AB to form a new global leader in specialty papers. Closing of the first phase of the transaction is expected to take place by the end of the first quarter 2013. It is, however, possible that the completion of the first phase of the planned transaction will not take place until the second quarter of 2013. 

• A rightsizing initiative was announced to lower costs by EUR 15 million annually to reflect the future size and scope of the company after the completion of the Label and Processing transaction.   

• To strengthen customer relationships and focus on growth; the Filtration business area was divided into two segments - Advanced Filtration and Transportation Filtration. 

Continuing operations January-December 2012 compared with January-December 2011

• Net sales EUR 1,010.8 million (EUR 1,025.8 million). 

• Operating profit EUR 18.6 million (EUR 2.1 million).  

• Operating profit excluding non-recurring items EUR 17.9 million (EUR 29.6 million). 

• Operating margin excluding non-recurring items 1.8% (2.9%). 

• Profit before taxes EUR -5.7 million (EUR -22.3 million).  

• Earnings per share EUR -0.43 (EUR -0.59). 

Dividend proposal

• The Board of Directors proposes to the Annual General Meeting that a dividend totaling EUR 0.63 per share be paid for the financial year ended on December 31, 2012.  

Outlook for 2013

• 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 financial performance during the fourth quarter and most of the year was clearly disappointing as sales fell below our expectations. Market demand volatility requires a more flexible and responsive cost structure than we have today.  

• We have, in line with our strategy, generated solid growth with our strategic global key accounts. We continue our efforts to improve responsiveness to smaller customers.  

• We are going through a major transformation of our business portfolio with the Label and Processing demerger. I am confident that our improved focus, together with stronger customer relationships and capabilities, will bring us back to the path of profitable growth. 

Key figures from continuing operations

Operating environment

The operating environment changed little in the fourth quarter, as overall demand was soft with increasing volatility. Geographically, demand in Europe remained weak, while demand in North America slowed down during the review period. Some signs of recovery were seen in the Asian market, and particularly in China. Inventory destocking was visible across Ahlstrom's main markets towards the end of the review period.

In the Building and Energy business area, demand for flooring, wallpaper and wallcovering materials in Europe remained stable during the review period. The wallcovering materials market in China showed some signs of improvement following earlier declines. The demand for specialty reinforcements used by the wind energy industry weakened.

In the Filtration business area, the market for transportation filtration materials in North America weakened in the fourth quarter. Demand for transportation filtration materials in Europe remained soft. For example, new car registrations in Europe showed a decline of about 10% in the fourth quarter. The advanced filtration material markets served by Ahlstrom, particularly gas turbine, laboratory and life science filtration, continued to strengthen.

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

Market pulp prices increased somewhat in the fourth quarter, while prices for synthetic fibers such as polypropylene and polyester remained stable. Prices for chemicals in general continued to decline. In its production, Ahlstrom uses chemicals such as latex, titanium dioxide, starch, and clay. Natural gas prices eased in Europe, while development was stable in North America.   

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.

The Competition Directorate-General of the EU Commission completed the first phase of its investigation under the EU Merger Regulation into the transaction between Ahlstrom's Label and Processing business and Munksjö AB and opened an in-depth (second phase) investigation into the proposed combination with respect to abrasive backings and pre-impregnated decor paper. The Commission now has until April 29, 2013, to take a final decision on whether the combination would significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.

Ahlstrom and Munksjö AB continue to work closely with the Commission in order to allow the Commission to complete its review as quickly as possible, aiming at a completion of the demerger of Ahlstrom's Label and Processing business in Europe and other related measures forming the first phase of the planned transaction during the first quarter of 2013. It is, however, possible that the completion of the first phase of the planned transaction will not take place until the second quarter of 2013.

Divestment of the Home and Personal business area

Ahlstrom's former wipes fabrics business, Home and Personal, was transferred to Suominen Corporation on October 31, 2011. As announced on September 27, 2012, the transfer of the wipes business in Brazil to Suominen Corporation has been postponed. Ahlstrom had previously anticipated that the transfer would have taken place in the third quarter of 2012.

All necessary Brazilian regulatory permits for the operations in addition to competition clearances have been received. The parties are negotiating the prerequisites, including financing of the remaining EUR 25 million of the total transaction value of EUR 170 million, for completing the transaction. The aim is to transfer the operations in Brazil to Suominen as soon as possible.

Home and Personal was reported separately as discontinued operations until October 31, 2011. For the time being, the Brazilian operation of Home and Personal is reported as discontinued operations.

Result from discontinued operations

In October-December 2012, the profit for the period from discontinued operations was EUR 7.5 million, compared with a EUR 9.1 million loss in the comparison period. The fourth-quarter 2011 figure includes the Home and Personal business area as a whole until October 31, 2011, while the fourth-quarter 2012 figure includes the Brazilian part only. The 2011 figure includes an impairment loss recognized on the re-measurement to fair value and costs to sell of EUR 4.9 million after tax related to the divestment of Home and Personal business.

In January-December 2012, the profit for the period from discontinued operations was EUR 15.1 million, compared with a EUR 10.2 million loss in the comparison period. The 2011 figure includes the Home and Personal business area as a whole until October 31, 2011, while the 2012 figure includes the Brazilian part only. The 2011 figure includes an impairment loss recognized on the re-measurement to fair value and costs to sell of EUR 23.4 million after tax related to the divestment of Home and Personal business.

Result including discontinued operations

In October-December 2012, the loss for the period including discontinued operations was EUR 2.3 million (EUR 14.8 million loss). Earnings per share with the effect of interest on the hybrid bond were EUR -0.07 (EUR -0.34).

Return on equity (ROE) was -1.7% (-9.6%).

In January-December 2012, the loss for the period including discontinued operations was EUR 0.7 million (EUR 32.2 million loss). Earnings per share with the effect of interest on the hybrid bond were EUR -0.10 (EUR -0.81).

Return on equity (ROE) was -0.1% (-4.9%).

Events after the review period

On January 17, 2013, Ahlstrom provided preliminary information on net sales and operating profit excluding non-recurring items from continuing operations items for 2012. Net sales were in line with the outlook Ahlstrom issued in November 2012. The operating profit excluding non-recurring items was lower than the company had earlier anticipated because of a weaker sales mix and volumes across all key markets towards the end of the year, as well as longer-than-expected production downtime taken during the last quarter.

Proposal for the distribution of profits

Ahlstrom aims to pay a dividend of not less than one third of the net cash from operating activities after operative investments, calculated as a three-year rolling average to achieve stability in the dividend pay-out. Operative investments include maintenance, cost reduction, and efficiency improvement investments.

The distributable funds on the balance sheet of Ahlstrom Corporation as of December 31, 2012 amounted to EUR 526,131,945.20.

The Board of Directors will propose to the Annual General Meeting that for the financial year which ended on December 31, 2012 a dividend totaling EUR 0.63 per share be paid based on the dividend policy mentioned above.

The dividends will be paid to shareholders registered in the Register of Shareholders held by Euroclear Finland Ltd. on the record date, April 3, 2013. On December 31, 2012, the number of shares of the Company amounted to 46,670,608 based on which the maximum amount that can be distributed as dividend would be EUR 29,402,483. The Board of Directors proposes that the dividend be paid on April 10, 2013.

In addition, the Board of Directors proposes that EUR 75,000 will be reserved for donations at the discretion of the Board.

Outlook

From 2013 onwards, Ahlstrom continues to provide its outlook on net sales as a range in euros. The outlook for operating profit excluding non-recurring items is given as a range in percentage of net sales instead of the euro-based range previously used.

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 unemployment reduce disposable incomes. Recent indicators for the U.S. economy continue to be mixed. In Asia the economy in China in particular has shown signs of recovery.  

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, with volatility.

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.

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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 Standard 5.2b published by the Finnish Financial Supervision Authority and hereby publishes its financial statement bulletin enclosed to this stock exchange release. The company's financial statement bulletin 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 Financials statements bulletin 2012 at a Finnish-language press and analyst conference in Helsinki today, January 31, 2013, at 2:00 p.m. (CET+1). The conference will take place at Event Arena Bank, Unioninkatu 20. The meeting room will be announced on the display board in the lobby.  

In addition, President & CEO Lång and CFO Parvi will hold a conference call in English for analysts, investors and representatives of the media today, January 31, 2013, at 4:00 p.m. (CET+1). To participate in the conference call, please dial (09) 6937 9543 in Finland or +44 (0)20 7136 2050 outside Finland a few minutes before the conference begins. The access code is 2482850.

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 January 31 2013, after the Interim Report is published, at www.ahlstrom.com > Investors > Reports and presentations > 2012. Material in Finnish will be available at www.ahlstrom.fi > Sijoittajat > Katsaukset ja presentaatiot > 2012.

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.