Profitability shows signs of improvement
Ahlstrom Corporation STOCK EXCHANGE RELEASE April 29, 2014 at 09:00 a.m.
This is a summary of the January-March 2014 interim report. The complete report with tables is attached to this release and available at www.ahlstrom.com
Ahlstrom interim report January-March 2014
Profitability shows signs of improvement
Continuing operations January-March 2014 compared with January-March 2013
- Net sales EUR 249.2 million (EUR 255.3 million).
- Operating profit EUR 4.4 million (EUR 8.3 million).
- Operating profit excluding non-recurring items EUR 7.2 million (EUR 6.5 million).
- Operating margin excluding non-recurring items 2.9% (2.5%).
- Profit before taxes EUR 5.2 million (EUR 3.6 million).
- Earnings per share EUR 0.05 (EUR 0.03).
January-March 2014 in brief
- Reported net sales fell by 2.4%, while profitability improved. Comparable net sales grew 2.6% at constant currency rates and there was clear improvement in the profitability of three business areas: Advanced Filtration, Food, and Transportation Filtration.
- New products were introduced to accelerate growth and improve sales mix and profit margin. One key product launch was Ahlstrom NatureMold(TM), a new biodegradable molding material for food packaging.
Outlook for 2014
- The outlook published on January 30, 2014 remains unchanged. 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.
Jan Lång, President & CEO
"I'm pleased that we were able to make good progress and improve our profitability in three business areas. Advanced Filtration achieved excellent profitability, Transportation Filtration posted solid growth in both sales and profits, and Food showed very good comparable growth during the quarter. Overall, our new products are gaining traction."
"Meanwhile, we continued to address the issues in our two underperforming businesses, Building and Energy, and Medical. We still have work ahead of us in these two businesses, but I'm confident that we are able to enhance competitiveness with ongoing initiatives."
"Our rightsizing program, aimed at reducing costs by EUR 50 million annually is progressing as planned. We are well placed to improve our profitability this year and beyond through the rightsizing and growth initiatives."
Key figures from continuing operations
|EUR million||Q1/2014||Q1/2013||Change, %||2013|
|% of net sales||1.8||3.3||1.1|
|Operating profit excl. NRI||7.2||6.5||11.6||13.4|
|% of net sales||2.9||2.5||1.3|
|Profit / Loss before taxes||5.2||3.6||44.0||-15.4|
|Profit / Loss for the period||3.1||1.9||60.9||-18.9|
|Earnings per share||0.05||0.03||71.0||-0.46|
|Return on capital employed, %||3.4||5.1||0.9|
|Net cash flow from operative activities *||-6.1||-21.4||71.6||41.0|
|Number of personnel, at the end of period||3,502||3,821||-8.3||3,536|
*Including discontinued operations
The operating environment in Ahlstrom's main markets in the first quarter of 2014 improved slightly from the comparison period. The North American economy continued to grow and some positive signs were also seen in Europe. Development varied in Asia with growth slowing in China. The economy in South America continued to be soft.
In the Advanced Filtration business area, steady growth continued in the laboratory and life science filtration markets in Europe and Asia, whereas the development was somewhat softer in North America. Demand for water, gas turbine and high efficiency air applications grew as well.
In the Building and Energy business area, demand for construction related materials was stable in Europe, but softened in Russia. The market for reinforced glass fiber products for the wind energy industry in Europe was steady at a low level, whereas it started to recover in North America supported by tax incentives. Demand for wallpaper and wallcovering substrates in Europe and China softened during the period.
In the Food business area, demand for beverage, food packaging and tape products continued to be solid in all main geographical regions except for South America. 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 transportation filtration materials markets in Asia, North America and Europe. In South America, the market started to show some positive signs following a slowdown in the second half of 2013.
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-March 2014, the loss from discontinued operations for the period was EUR 1.2 million (EUR 6.0 million profit). The figure includes a reversal of EUR 2.2 million net of tax of an impairment loss and transaction costs to divest the Brazilian operations of the former Home and Personal business area. In addition, it includes a deferred tax cost in Germany.
Result including discontinued operations
In January-March 2014, profit for the period including discontinued operations was EUR 1.9 million (EUR 7.9 million). Earnings per share with the effect of interest net of tax on the hybrid bond were EUR 0.03 (EUR 0.16).
Return on equity (ROE) was 2.2% (6.6%).
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 EUR 50 million in annual cost savings. The majority of the planned actions related to the rightsizing program will be realized by the end of 2014, and the full impact of the program is expected to be visible in 2015.
As a result of the planned program, Ahlstrom's personnel 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 derived from all business areas and functions globally. In particular, the aim is to reduce selling, general and administration (SGA) costs and further improve supply chain efficiency. The aim is to bring the SGA costs back to a level of 10-11% of net sales in 2015.
The program is moving ahead as targeted. As of March 31, 2014, approximately EUR 19 million in total cumulative cost savings were achieved, corresponding to an annualized run rate of EUR 25 million.
In continuing operations, approximately EUR 12 million in cumulative cost savings were achieved, of which approximately EUR 4 million in the first quarter of 2014. In addition, approximately EUR 7 million were derived from costs transferred to Munksjö Oyj, of which EUR 2 million in the first quarter of 2014.
Ahlstrom plans to book non-recurring costs of approximately EUR 15 million related to rightsizing during the years 2014-2015. So far, EUR 6.3 million in non-recurring costs have been booked, of which EUR 3.1 million was in the first quarter of 2014.
The outlook presented on January 30, 2014 remains unchanged. 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 930-1,090 million. The operating profit 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).
The global economy is expected to gain momentum this year, with regional variations. While the European economy has shown some signs of recovery, it may be uneven and fragile. Recent indicators for the development of the U.S. economy are more positive. 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, 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 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 2013. 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.
Ahlstrom publishes its January-March 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.
Jan Lång, President & CEO, tel. +358 (0)10 888 4700
Sakari Ahdekivi, CFO, tel. +358 (0)10 888 4768
Ahlstrom's President & CEO Jan Lång and CFO Sakari Ahdekivi will present the January-March 2014 interim report at a Finnish-language press and analyst conference in Helsinki today, April 29, 2014, at 10:00 a.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 Lång and CFO Ahdekivi will hold a conference call in English for analysts, investors and representatives of the media today, April 29, 2014, at 2:30 p.m. (CET+1). To participate in the conference call, please call (09) 6937 9543 in Finland or +44 (0)20 3427 1910 outside Finland a few minutes before the conference begins. The access code is 3163135.
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 29, 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 2014
|Report||Date of publication||Silent period|
|Interim report January-June||Wednesday, August 6||July 1 - August 6|
|Interim report January-September||Friday, 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. 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.