Ahlstrom Corporation

Ahlstrom interim report January-June 2014: Profitability improved largely driven by better cost structure


Source: Ahlstrom Corporation

Continuing operations April-June 2014 compared with April-June 2013

  • Net sales EUR 253.0 million (EUR 265.0 million).
  • Operating profit EUR 9.6 million (EUR 6.4 million).
  • Operating profit excluding non-recurring items EUR 13.4 million (EUR 7.9 million).
  • Operating margin excluding non-recurring items 5.3% (3.0%).
  • Profit / loss before taxes EUR -0.4 million (EUR -3.5 million).
  • Earnings per share EUR -0.07 (EUR -0.12).

April-June 2014 in brief

  • Reported net sales fell by 4.5%, while profitability improved. Comparable net sales grew 0.4% at constant currency rates and there was clear improvement in the profitability of four business areas: Advanced Filtration, Building and Energy, Food, and Transportation Filtration.
  • Marco Levi was appointed as Ahlstrom's new President & CEO.
  • New products were introduced to accelerate growth and improve the sales mix and profit margin. One key product launch was Ahlstrom EasyLife® Spray & Up, a new offering for the fast-growing digital wall décor market.

Continuing operations January-June 2014 compared with January-June 2013

  • Net sales EUR 502.2 million (EUR 520.3 million).
  • Operating profit EUR 14.0 million (EUR 14.7 million).
  • Operating profit excluding non-recurring items EUR 20.6 million (EUR 14.4 million).
  • Operating margin excluding non-recurring items 4.1% (2.8%).
  • Profit before taxes EUR 4.8 million (EUR 0.1 million).
  • Earnings per share EUR -0.02 (EUR -0.09).

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.

Marco Levi, President & CEO

'We have improved our profitability for three consecutive quarters, demonstrating our ability to enhance financial performance. In particular the Advanced Filtration, Food, and Transportation Filtration business areas increased their profit margins'.

'I am very pleased that our ongoing rightsizing program is progressing as planned and the benefits can already be seen in our operating result. The program has yielded clear reductions in selling, general and administrative costs, along with production overheads'.

'Comparable net sales were flat in the second quarter, with only moderate improvement in the overall market environment. As we cannot rely solely on an economic recovery to boost our sales, we will strive to improve our operational efficiency and continue to launch appealing new products such as Ahlstrom EasyLife® Spray & Up for the digital wall décor market. Our ambition is to swiftly position Ahlstrom in such a way that we can capture new profitable business while operating with a more sustainable cost structure'.

Operating environment

The operating environment in Ahlstrom's main markets in the second quarter of 2014 improved slightly from the comparison period and was in line with the first quarter of this year.

In the Advanced Filtration business area, growth continued in the gas turbine and industrial filtration applications, particularly in North America and Asia. The markets for laboratory and life science, water and high efficiency air applications were somewhat softer.

In the Building and Energy business area, demand for construction-related materials such as flooring applications was stable in Europe, but continued to soften in Russia. The market for reinforced glass fiber products for the wind energy industry in Europe remained low, whereas it started to recover in North America supported by tax incentives. Demand for wallpaper and wallcovering substrates softened in Europe, while it strengthened in China.

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 continued to show positive signs following a slowdown in the second half of 2013.

Discontinued operations

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 April-June 2014, profit from discontinued operations for the period was EUR 9.2 million (EUR 66.7 million). The figure includes Munksjö Oyj's contribution to costs to separate the Osnabrück site required by the European Commission.  The comparison figure includes a demerger effect of approximately EUR 90.6 million as well as a net of tax EUR 30.9 million impairment loss recognized on the re-measurement to fair value and costs to sell.

In January-June 2014, profit from discontinued operations for the period was EUR 8.0 million (EUR 72.7 million).

Result including discontinued operations

In April-June 2014, profit for the period including discontinued operations was EUR 7.0 million (EUR 61.8 million). Earnings per share with the effect of interest net of tax on the hybrid bond were EUR 0.13 (EUR 1.31).

Return on equity (ROE) was 8.6% (60.0%).

In January-June 2014, profit for the period including discontinued operations was EUR 8.8 million (EUR 69.7 million). Earnings per share with the effect of interest net of tax on the hybrid bond were EUR 0.15 (EUR 1.47).

Return on equity (ROE) was 5.3% (33.3%).

Rightsizing program

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, of which approximately EUR 39 million will be derived from continuing operations targeting both selling, general and administration (SGA) costs and production overheads.

The majority of the planned actions related to the rightsizing program will be completed by the end of 2014, and the full impact of the program is expected to be visible by the end of 2015. Tthe aim is to bring the SGA costs back to a run-rate level of 10-11% of net sales by the end of 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.

The program is moving ahead as targeted. As of June 30, 2014, approximately EUR 27 million in total cumulative cost savings were achieved, of which approximately EUR 11 million were derived from costs transferred to Munksjö Oyj. In continuing operations, approximately EUR 16 million in cumulative cost savings were achieved.

In continuing operations, savings of approximately EUR 5 million on a quarterly basis were achieved in the second quarter of 2014 compared to the corresponding quarter in 2013. SGA costs excluding non-recurring items were EUR 2.5 million lower than in the comparison period. In addition, production overheads were reduced.

Ahlstrom plans to book non-recurring costs of approximately EUR 15 million related to rightsizing during the years 2013-2015. So far, EUR 8.9 million in non-recurring costs have been booked, of which EUR 5.8 million were booked in the first half 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).

Short-term risks

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. Asian economies, particularly the Chinese, 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 the key raw materials used by Ahlstrom are volatile and some of them, such as softwood pulp, remain at a high level.

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.

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