Ahlstrom January-September 2016 interim report: All-time high quarterly operating profit combined with solid sales growth

Ahlstrom Corporation STOCK EXCHANGE RELEASE October 28, 2016 at 08:00

This is a summary of the January-September 2016 interim report. The complete report with tables is attached to this release and available at www.ahlstrom.com

Ahlstrom January-September 2016 interim report

All-time high quarterly operating profit combined with solid sales growth

July-September 2016 compared with July-September 2015

  • Net sales EUR 273.2 million (EUR 266.9 million).At constant currency rates, growth was 3.7%.
  • Adjusted EBITDA EUR 39.5 million (EUR 25.5 million), representing 14.4% (9.5%) of net sales
  • Operating profit EUR 28.9 million (EUR 9.9 million)
  • Adjusted operating profit EUR 26.7 million (EUR 11.2 million), representing 9.8% (4.2%) of net sales, and the 12th consecutive quarter of year-on-year improvement
  • Profit before taxes EUR 25.1 million (EUR 8.5 million. The comparison figure includes a capital gain of EUR 3.2 million from share sales.)
  • Earnings per share EUR 0.35 (EUR 0.06)
  • Net cash flow from operating activities EUR 35.6 million (EUR 24.2 million)

January-September 2016 compared with January-September 2015

  • Net sales EUR 819.8 million (EUR 819.8 million).At constant currency rates, growth was 1.9%.
  • Adjusted EBITDA EUR 104.5 million (EUR 83.2 million), representing 12.8% (10.1%) of net sales
  • Operating profit EUR 62.9 million (EUR 38.2 million)
  • Adjusted operating profit EUR 66.2 million (EUR 39.9 million), representing 8.1% (4.9%) of net sales
  • Profit before taxes EUR 51.4 million (EUR 43.2 million. The comparison figure includes a capital gain of EUR 20.3 million from share sales.)
  • Earnings per share EUR 0.61 (EUR 0.52)
  • Net cash flow from operating activities EUR 98.9 million (EUR 36.7 million)

Marco Levi, President & CEO

"July-September 2016 was an excellent quarter for us, with very strong performance from our organization. We achieved 3.7% sales growth at constant currency rates and profitability reached yet another record in the current structure of the company. This was also the 12th consecutive improvement in quarterly operating profit. Our hard work towards enhancing operational efficiency and achieving a more competitive cost structure is clearly paying off and we continued to benefit from lower variable costs during the quarter.

I am pleased that we have been able to grow our net sales for the past two quarters on a comparable basis. This is particularly true for glassfiber, wallcover, filtration, and tape products, as well as single-serve coffee materials, where we achieved a breakthrough in the North American market during the reporting period. All of our business units reported higher operating profits and most of them increased net sales. We have also announced a EUR 23 million investment into our engine and industrial filtration portfolio to show our commitment to growth and the further development of the company. 

We will continue to execute our strategic agenda at full speed. The benefits are clearly visible when looking at higher margins through commercial excellence, our lean operating model, the increased capacity utilization at our recent investments and capitalizing on new growth opportunities. As a result, we have further accelerated our progress towards reaching our financial target of above 8% adjusted operating margin by 2018. Also, we are already well below our gearing target thanks to the very strong cash flow generation this year."

Outlook for 2016

Ahlstrom reiterates the outlook published on September 13, 2016. The company expects net sales in 2016 to be in the range of EUR 1,060-1,100 million. The adjusted operating profit is expected to be 6.5%-7.5% of net sales.

The adjusted operating profit excludes restructuring costs, impairment charges and capital gains or losses.

Key figures

EUR million Q3/2016 Q3/2015 Change, % Q1-Q3/2016 Q1-Q3/2015 Change, %
Net sales 273.2 266.9 2.4 819.8 819.8 0.0
EBITDA 41.6 24.2 71.9 101.2 81.6 24.0
  % of net sales 15.2 9.1   12.3 10.0  
Adjustment items included in EBITDA 2.2 -1.2   -3.4 -1.6  
Adjusted EBITDA 39.5 25.5 55.0 104.5 83.2 25.6
  % of net sales 14.4 9.5   12.8 10.1  
Operating profit 28.9 9.9 192.8 62.9 38.2 64.4
  % of net sales 10.6 3.7   7.7 4.7  
Adjustment items included in operating profit 2.2 -1.3   -3.4 -1.7  
Adjusted operating profit 26.7 11.2 139.3 66.2 39.9 65.9
  % of net sales 9.8 4.2   8.1 4.9  
Profit before taxes 25.1 8.5 194.0 51.4 43.2 19.2
Profit for the period 17.9 4.1   33.5 28.8 16.3
Earnings per share 0.35 0.06   0.61 0.52  
Return on capital employed, % 23.4 6.7   16.3 8.6  
Net cash flow from operative activities 35.6 24.2 47.0 98.9 36.7 169.5
Capital expenditure 6.0 5.5 9.0 18.0 13.6 31.8
Interest-bearing net liabilities 130.5 203.7 -36.0 130.5 203.7 -36.0
Gearing ratio, % 42.4 64.2   42.4 64.2  
Equity ratio, % 38.1 34.8   38.1 34.8  
Number of personnel, at the end of the period 3,277 3,367 -2.7 3,277 3,367 -2.7

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:

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 Ahlstrom 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.
Outlook in 2016

Ahlstrom reiterates the outlook published on September 13, 2016. The company expects net sales in 2016 to be in the range of EUR 1,060-1,100 million. The adjusted operating profit is expected to be 6.5%-7.5% 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 January-September 2016 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
Juho Erkheikki, Investor Relations & Financial Communications 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 Friday, October 28 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_1028_q3

Conference call details:

In Finland +358 (0)9 7479 0404
In Sweden +46 (0)8 5065 3942
In the U.K. +44 (0)20 3043 2024

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 7688290.

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.

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.