Ahlstrom half-year report January-June 2016: All-time high quarterly operating profitability and cash flow
Ahlstrom Corporation STOCK EXCHANGE RELEASE August 3, 2016 at 08:30
This is a summary of the half-year report January-June 2016. The complete report with tables is attached to this release and available at www.ahlstrom.com
Ahlstrom half-year report January-June 2016
All-time high quarterly operating profitability and cash flow
April-June 2016 compared with April-June 2015
- Net sales EUR 279.4 million (EUR 281.1 million).At constant currency rates, growth was 2.8%.
- Adjusted EBITDA EUR 37.1 million (EUR 31.5 million), representing 13.3% (11.2%) of net sales
- Operating profit EUR 23.3 million (EUR 15.7 million)
- Adjusted operating profit EUR 24.5 million (EUR 16.8 million), representing 8.8% (6.0%) of net sales, and the 11th consecutive quarter of year-on-year improvement
- Profit before taxes EUR 19.6 million (EUR 20.8 million. The comparison figure includes a capital gain of EUR 11.1 million from share sales.)
- Earnings per share EUR 0.22 (EUR 0.29)
- Net cash flow from operating activities EUR 54.9 million (EUR 14.0 million)
January-June 2016 compared with January-June 2015
- Net sales EUR 546.6 million (EUR 552.9 million).At constant currency rates, growth was 1.0%.
- Adjusted EBITDA EUR 65.1 million (EUR 57.7 million), representing 11.9% (10.4%) of net sales
- Operating profit EUR 34.0 million (EUR 28.4 million)
- Adjusted operating profit EUR 39.5 million (EUR 28.8 million), representing 7.2% (5.2%) of net sales
- Profit before taxes EUR 26.4 million (EUR 34.6 million. The comparison figure includes a capital gain of EUR 17.1 from share sales.)
- Earnings per share EUR 0.27 (EUR 0.46)
- Net cash flow from operating activities EUR 63.3 million (EUR 12.5 million)
Major events after the reporting period
- July 20: outlook on profitability for 2016 raised
- July 27: the agreement to divest Ahlstrom's Building & Wind business unit to Owens Corning was terminated
Marco Levi, President & CEO
"April-June 2016 was a very strong quarter, where we delivered sales growth of 2.8% at constant currency rates and were able to raise our profitability to an all-time high level in the current structure of the company. Albeit we continued to benefit from lower variable costs, we now have a much improved operational efficiency and a more competitive cost structure. In addition, our cash flow generation was very good in the quarter, driven by higher profitability and active management of working capital.
We are successfully executing on our strategic roadmap through better commercial excellence and a new lean operating model, and will further pursue to improve margins and lower costs. In addition, we are growing by increasing the capacity utilization of our recent investments and finding new growth opportunities in areas such as single-serve coffee materials and water filtration. This has been reflected in our updated guidance for 2016, giving us confidence we can reach our target of above 8% adjusted operating profit margin by 2018.
Sales growth at constant currency rates was also very encouraging in the quarter and most of our business units increased their profits. In the Filtration & Performance segment, the Filtration as well as Wallcover & Poster units delivered either higher sales or margins despite challenging market conditions with the Industrial Nonwovens unit continuing to make steady progress. In the Specialties segment, all four business units - Food, Advanced Liquid Technologies, Tape, and Medical - improved their profitability.
I'm also happy about the much improved performance of our Building & Wind business unit, which we will continue to manage and develop as part of our business portfolio."
Outlook for 2016
Ahlstrom reiterates the outlook published on July 27, 2016. The company expects net sales from continuing operations in 2016 to be in the range of EUR 1,040-1,140 million. The adjusted operating profit from continuing operations is expected to be 5.4%-6.4% of net sales.
The adjusted operating profit excludes restructuring costs, impairment charges and capital gains or losses.
Key figures
| EUR million | Q2/2016 | Q2/2015 | Change, % | Q1-Q2/2016 | Q1-Q2/2015 | Change, % |
| Net sales | 279.4 | 281.1 | -0.6 | 546.6 | 552.9 | -1.1 |
| EBITDA | 36.0 | 30.4 | 18.2 | 59.5 | 57.4 | 3.7 |
| % of net sales | 12.9 | 10.8 | 10.9 | 10.4 | ||
| Adjustment items included in EBITDA | -1.1 | -1.1 | -5.5 | -0.3 | ||
| Adjusted EBITDA | 37.1 | 31.5 | 17.8 | 65.1 | 57.7 | 12.7 |
| % of net sales | 13.3 | 11.2 | 11.9 | 10.4 | ||
| Operating profit | 23.3 | 15.7 | 48.6 | 34.0 | 28.4 | 19.8 |
| % of net sales | 8.4 | 5.6 | 6.2 | 5.1 | ||
| Adjustment items included in operating profit | -1.1 | -1.1 | -5.5 | -0.4 | ||
| Adjusted operating profit | 24.5 | 16.8 | 46.0 | 39.5 | 28.8 | 37.4 |
| % of net sales | 8.8 | 6.0 | 7.2 | 5.2 | ||
| Profit before taxes | 19.6 | 20.8 | -5.5 | 26.4 | 34.6 | -23.9 |
| Profit for the period | 12.0 | 15.8 | -23.9 | 15.5 | 24.6 | -37.0 |
| Earnings per share | 0.22 | 0.29 | 0.27 | 0.46 | ||
| Return on capital employed, % | 18.1 | 10.0 | 13.2 | 9.3 | ||
| Net cash flow from operative activities | 54.9 | 14.0 | 63.3 | 12.5 | ||
| Capital expenditure | 7.3 | 5.1 | 43.9 | 11.9 | 8.1 | 47.5 |
| Interest-bearing net liabilities | 160.2 | 233.8 | -31.5 | 160.2 | 233.8 | -31.5 |
| Gearing ratio, % | 55.4 | 69.3 | 55.4 | 69.3 | ||
| Equity ratio, % | 34.9 | 35.9 | 34.9 | 35.9 | ||
| Number of personnel, at the end of the period | 3,328 | 3,413 | -2.5 | 3,328 | 3,413 | -2.5 |
Ahlstrom has adopted the European Securities and Markets Authority (ESMA) guidelines on Alternative Performance Measures, which became effective on July 3, 2016. The company uses alternative performance measures to reflect the underlying business performance and to improve comparability. These alternative performance measures should, however, not be considered as a substitute for measures of performance in accordance with IFRS.
Ahlstrom has used revised terminology since the beginning of 2016. In accordance, the previously used terms "Operating profit excluding non-recurring items" has been replaced by "Adjusted operating profit" and "EBITDA excluding non-recurring items" by "Adjusted EBITDA".
Adjusted items affecting comparability and alternative performance measures used by Ahlstrom are defined below:
Adjustment items: restructuring costs, impairment charges, capital gains or losses
EBITDA = Operating profit + depreciation and amortizations + impairments
Adjusted EBITDA = EBITDA - Adjustment items
Adjusted operating profit = operating profit - Adjustment items
Redefined strategy and long-term financial targets
Ahlstrom's redefined strategy and new long-term financial targets extending to the year 2018 were announced in January 2016. Global trends faced by our customers steer our product offering and provide us with a wealth of opportunities. We are committed to growing and creating stakeholder value by providing the best-performing sustainable fiber-based materials.
As part of the implementation, the company's business structure was simplified and reorganized into two business areas: Filtration & Performance and Specialties. The aim of this change is to increase market and customer focus. Both business areas have business unit-specific strategies and operating models. This enables us to provide customer-driven product development and tailored customer service, cost efficiency, better allocation of resources, and specific go-to-market approaches.
The roadmap for execution outlines the change in strategy and is focused on commercial excellence, a new lean operating model, organic growth via higher asset turnover and growth via new platforms.
Long-term financial targets over the economic cycle:
- Operating profit margin: adjusted operating profit margin to be above 8% by 2018
- Gearing: gearing to be maintained below 100%
- Dividend policy: we aim for a stable dividend, increasing over time, based on the annual net income performance
The adjusted operating profit margin excludes restructuring costs, impairment charges, capital gains or losses, and discontinued operations.
Major events after the reporting period
Agreement to divest Building & Wind business unit terminated
On July 27, 2016, Ahlstrom and Owens Corning announced the termination of the agreement regarding the planned divestiture of Ahlstrom's Building & Wind business unit to Owens Corning following challenges associated with obtaining regulatory clearance in Germany for the transaction.
Ahlstrom will continue to operate and develop the Building & Wind business unit as before and it will be reported as part of the Filtration & Performance segment. The divestment was announced on January 21, 2016. The German competition authority opened a second-phase investigation into the planned transaction on April 8, 2016.
Outlook raised and revised
On July 20 2016, Ahlstrom raised its outlook for adjusted operating profit margin in 2016 as the result of continued improvement in operational performance and lower variable costs. The outlook for net sales was kept unchanged.
On July 27, 2016, Ahlstrom revised the outlook to include the Building & Wind business unit. The outlook is stated in the section below.
Outlook in 2016
Ahlstrom reiterates the outlook published on July 27, 2016. The company expects net sales from continuing operations in 2016 to be in the range of EUR 1,040-1,140 million. The adjusted operating profit from continuing operations is expected to be 5.4%-6.4% of net sales.
The adjusted operating profit excludes restructuring costs, impairment charges and capital gains or losses.
Short-term risks
The global economic outlook remains uncertain. The European markets continue to suffer from slower growth, and Britain's decision to leave the European Union has increased uncertainty. In addition, the recent slowdown in China has raised concerns, although the expected shift in the country's economic structure towards more consumer consumption and less investment can also provide opportunities.
Slower-than-anticipated economic growth poses risks for Ahlstrom's financial performance. It may lead to lower sales volumes and force the company to initiate market-related shutdowns at plants, which could affect profitability. Tougher competition through competitors' increased production capacity, aggressive pricing as well as adoption of new technologies may also affect profitability. Shifts in the pattern of demand for the company's products may strain the flexibility of its asset base and leave some assets underutilized, while others may become over-loaded.
Further swings in currency exchange rates may lead to fluctuations in net sales and profitability. Ahlstrom's main raw materials are wood pulp, synthetic fibers, and chemicals. The prices of these key raw materials are volatile, and any increases may affect the company's profitability depending on its ability to mitigate the risk.
In some of the Group companies income tax returns are under examination in tax audits or have been already disputed by the tax authorities. The main items under discussion or already disputed relate to transfer pricing and restructuring issues. Based on an evaluation of the current state of these processes, no significant tax provisions have been booked, because it is not possible to make a reliable estimate of the outcome of the processes.
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 for 2015. The risk management process is also described in the Corporate Governance Statement, also available on the company's website.
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 publishes its half-year report January-June 2016 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
Juho Erkheikki, Financial Communications & Investor Relations Manager, tel. +358 (0)10 888 4731
Ahlstrom's President & CEO Marco Levi and CFO Sakari Ahdekivi will present the report at an analyst and press conference in Helsinki on Wednesday, August 3 at 11:00 a.m. Finnish time. The event will take place at Ahlstrom's head office, Alvar Aallon katu 3 C, second floor, meeting room Antti.
The combined webcast and teleconference will be held in English and can be viewed at the following address: http://qsb.webcast.fi/a/ahlstrom/ahlstrom_2016_0803_q2
Conference call details:
In Finland +358 (0)9 2310 1618
In Sweden +46 (0)8 5065 3935
In the U.K. +44 (0)20 3427 1922
To participate via telephone, please dial in a few minutes before the conference begins. A list of phone numbers for other countries is available at www.ahlstrom.com/Investors. The confirmation code is 6434508.
An on-demand webcast of the conference will be available on Ahlstrom's website for twelve months after the call.
The presentation material will be available at www.ahlstrom.com/en/Investors/Reports-and-presentations/2016/ after the report has been published
Financial information in 2016
| Report | Date of publication | Silent period |
| Interim report January-September 2016 | Friday, October 28 | September 29- October 27 |
During the silent period, Ahlstrom will not communicate with capital market representatives.
Ahlstrom in brief
Ahlstrom provides innovative fiber-based materials with a function in everyday life. We are committed to growing and creating stakeholder value by proving the best performing sustainable fiber-based materials. Our products are used in everyday applications such as filters, medical fabrics, life science and diagnostics, wallcoverings, tapes, and food and beverage packaging. In 2015, Ahlstrom's net sales amounted to EUR 1.1 billion. Our 3,300 employees serve customers in 22 countries. Ahlstrom's share is quoted on the Nasdaq Helsinki. More information is available at www.ahlstrom.com.