Ahlstrom-Munksjö half-year report January-June 2017: Good start for the combined company with solid quarterly result

AHLSTROM-MUNKSJÖ HALF-YEAR REPORT RELEASE, JULY 25, 2017 AT 12:15 CEST

This release is a summary of Ahlstrom-Munksjö’s’ half-year financial report January-June 2017. The complete report is attached to this release as a pdf-file. It is also available at www.ahlstrom-munksjo.com.

In this half-year 2017 report, the January-June 2017 figures as well as all comparison figures are presented on a pro forma basis to illustrate the financial impact of the merger between Ahlstrom and Munksjö as if it had been completed at the beginning of 2015. Only the April-June 2017 figures are presented according to International Financial Reporting Standards (IFRS). The appendix including unaudited consolidated financial statements has been prepared according to IFRS standards.

April-June 2017 compared with April-June 2016

  •  Net sales EUR 576.9 million (EUR 561.0 million), showing a gain of 2.8%. Comparable net sales increased by 1.8% at constant currency rates.
  •  Comparable EBITDA EUR 77.4 million (EUR 77.3 million), representing 13.4% (13.8%) of net sales
  •  EBITDA* EUR 75.0 million (EUR 76.0 million)
  •  Operating result* EUR 43.3 million (EUR 42.5 million)
  •  Net result* EUR 27.5 million (EUR 23.7 million)
  •  Earnings per share* EUR 0.28 (EUR 0.25)
  •  Comparable EPS excluding merger related items (PPA) EUR 0.39 (0.25)
  •  Net cash flow from operating activities EUR 41.2 million (EUR 89.1 million)

January-June 2017 compared with January-June 2016

  •  Net sales EUR 1,143.8 million (EUR 1,096.9 million), showing a gain of 4.3%. Comparable net sales increased by 2.7% at constant currency rates.
  •  Comparable EBITDA EUR 156.8 million (EUR 137.2 million), representing 13.7% (12.5%) of net sales
  •  EBITDA* EUR 150.5 million (EUR 111.6 million)
  •  Operating result* EUR 86.2 million (EUR 43.1 million)
  •  Net result* EUR 51.7 million (EUR 13.3 million)
  •  Earnings per share* EUR 0.54 (EUR 0.14)
  •  Comparable EPS excluding merger related items (PPA) EUR 0.64 (0.33)
  •  Net cash flow from operating activities EUR 84.1 million (EUR 84.5 million)

Major events

  •  The merger of Ahlstrom Corporation into Munksjö Oyj was completed on April 1, 2017
  •  The company redeemed the EUR 100 million hybrid bond with an annual fixed interest rate of 7.875% and issued a EUR 250 million bond with an annual fixed coupon of 1.875% as part of a refinancing package to lower financing costs. Furthermore, the EUR 100 million bond with an annual fixed coupon of 4.125% maturing in 2019 was tendered and EUR 89.2 million was offered for purchase by noteholders.

Key figures

EUR   million Q2/2017 Q2/2016 Change, % 1-6/2017 1-6/2016 Change, % FY/2016
Net sales 576.9 561.0 2.8% 1,143.8 1,096.9 4.3% 2,147.9
Comparable EBITDA 77.4 77.3 0.2% 156.8 137.2 14.3% 268.7
Comparable EBITDA   margin, % 13.4 13.8 13.7 12.5 12.5
EBITDA* 75.0 76.0 -1.3% 150.5 111.6 34.9% 239.9
Operating result* 43.3 42.5 1.9% 86.2 43.1 100.0% 104.7
Comparable operating   result excluding merger related items (PPA) 53.7 52.5 2.3% 108.2 86.6 24.9% 168.7
Net result* 27.5 23.7 15.9% 51.7 13.3 N/A 49.8
Earnings per share* 0.28 0.25 13.8% 0.54 0.14 N/A 0.51
Comparable EPS   excluding merger related items (PPA) 0.39 0.25 56.0% 0.64 0.33 94.0% 0.71
Cash generated from   operating activities 41.2 89.1 -53.7% 84.1 84.5 -0.4% 232.1
Capital expenditure 15.4 15.4 -0.2% 31.8 30.2 5.3% 77.7
Net debt** 420.3 N/A N/A 420.3 N/A N/A N/A
Gearing ratio, %** 41.3 N/A 41.3 N/A N/A
Average number of   employees, FTE  5,903 5,984 -1.4% 5,914 5,970 -0.9% 5,974

*Fair valuation of EUR 11 million inventory adjustment excluded as already included in pro forma 2016 figures
**No comparative balance sheet figures on pro forma basis available

The actual figures for January-June 2017 and for the corresponding comparison periods are presented in the appendix only.

Ahlstrom-Munksjö has adopted the European Securities and Markets Authority (ESMA) guidelines on Alternative Performance Measures to reflect the underlying business performance and improve comparability. These measures should, however, not be considered as a substitute for measures of performance in accordance with IFRS. Alternative performance measures are derived from performance measures reported in accordance with IFRS by adding or deducting the items affecting comparability (IAC), or purchase price allocation (PPA,) and they are called Comparable.

CEO comments: Jan Åström

“We had a good quarter, our first as Ahlstrom-Munksjö, and we achieved a solid operational result and profitability. We were able to capitalize on the strong demand for most of our products across many regions. In addition, the integration work is proceeding as planned and the identified synergy benefits are already becoming clearly visible as we reached an annual run rate of about EUR 13 million by the end of the quarter.

Our performance was driven by excellent results in the Filtration and Performance, and Industrial Solutions business areas. Our Decor business area experienced good demand, while enduring a sharp increase in input costs. We will continue to work on our pricing to mitigate this. In Specialties, almost all of our units improved and we will keep on working hard in integrating the former Graphics and Packaging unit into that business area. This will also help us to address the oversupplied market in coated one-sided papers.

We have also raised our estimate for investments this year to address the several near-term growth opportunities in many of our segments, such as filtration, food packaging and abrasives. In addition, we refinanced our funding structure during the quarter to significantly lower our financing costs. Going forward, we are working with full steam ahead to achieve and even exceed the synergy targets, set at the time of the merger. I’m fully confident that we can deliver on our long-term targets by following our strategic direction based on profitable growth, customer value, accountability, flexibility and agility.”

Outlook for 2017

Ahlstrom-Munksjö reiterates the outlook on comparable EBITDA and shutdowns published on May 15, 2017. The guidance on market outlook and capital expenditure has been revised.

Market outlook: The demand outlook for 2017 for Ahlstrom-Munksjö’s fiber-based products is expected to remain stable at the current good level for most of the product segments and to reflect the seasonal pattern. Price increases continue to be implemented to mitigate raw material cost inflation and they will take effect during the rest of the year.

EBITDA: Comparable EBITDA in 2017 is expected to be higher than in the previous year (pro forma EUR 268.7 million).

Shutdowns: The annual maintenance and vacation shutdowns in the third quarter as well as the seasonal shutdowns at the end of 2017 are expected to be carried out to about the same extent as in 2016. However, the maintenance shutdown usually carried out in the third quarter in the Swedish plant Billingsfors is replaced by shorter stops in the second and fourth quarters due to changes in the shift form. The next maintenance shut-down at the pulp production facility in Aspa in Sweden will be carried out in the fourth quarter of 2017.

Capital expenditure: The cash flow effect of current capital expenditure for fixed assets in 2017 is expected to be approximately EUR 80 million, which is higher than the previously estimated EUR 70 million, to address the good demand. In addition, the cash flow impact of the strategic investments in Arches and Madisonville is expected to be approximately EUR 18 million.

Completion of the merger

On April 1, 2017, Ahlstrom Corporation was merged into Munksjö Oyj, and the name of the combined company was changed to Ahlstrom-Munksjö Oyj. The combination created a global leader in innovative and sustainable fiber-based materials with combined pro forma net sales of approximately EUR 2.15 billion, around 6,000 employees, and 41 production and converting facilities in 14 countries. A total of 45,376,992 new shares in Ahlstrom-Munksjö were issued to Ahlstrom shareholders as merger consideration, bringing the total number of shares to 96,438,573. Trading in the new shares started on April 3, 2017.

Approvals from the Extraordinary General Meetings of Ahlstrom and Munksjö as well as the European Commission were received on January 11, 2017 and March 13, 2017, respectively. In connection with the merger, Ahlstrom and Munksjö distributed funds in the total amount of approximately EUR 46 million, corresponding to EUR 0.49 per share in Ahlstrom and EUR 0.45 per share in Munksjö.

Cost synergies

Ahlstrom-Munksjö is targeting annual cost synergiesof EUR 35 million to be gradually realized and fully visible from the second quarter of 2019. The savings comprise mainly of lower fixed costs as well as coordination of purchases and production following the merger. The company is also working on identifying further business synergies such as integrating the former Graphics and Packaging business area into the new Specialties business area, to develop a combined product and service offering.

At the end of the reporting period, the annual synergy achievement run rate was approximately EUR 13 million, confirming the previously communicated target of EUR 35 million, giving the program a good start and supporting the strive to exceed the target. Of the annual synergy savings arising from the merger, the vast majority is related to lower SG&A costs, and the remainder is related to reduced costs of goods sold and improved operational efficiency, as well as planned revenue synergies. The financial result for the second-quarter 2017 includes realized synergies of approximately EUR 3 million.

Non-recurring costs to achieve the synergy savings amounted to EUR 4 million at the end of the reporting period. The previously communicated full cost related to the achievement of synergies within two years from the merger is EUR 30 million. The cash flow effect was EUR -2 million in the second quarter of 2017. 

Financial targets

The company’s Board of Directors has set the following long-term financial targets:

  •  EBITDA margin above 14% over a business cycle
  •  Net gearing below 100%
  •  A stable and annually increasing dividend, to be paid bi-annually

Short-term risks

Ahlstrom-Munksjö is exposed to changing market conditions and uncertainty caused by both macroeconomic and industry related events and is exposed to risks that may arise from its operations, changes in the business environment, developments in the global economy or potential changes in the legislative framework. The materialization of such risks could have a material adverse effect on the company’s operations, earnings and financial position.

The company’s significant risks and uncertainty factors mainly consist of developments in demand for and prices of sold products, the cost and availability of significant raw materials, financial risks, as well as other business factors including developments in the financial markets. Currently there is a risk related to the availability of titanium dioxide, a key raw material for decor paper, due to a shortage of supply. Ahlstrom-Munksjö’s key financial risks include interest rate and currency risks, liquidity risk and credit risk. The Group has exposure to tax risks due to potential changes in tax laws or regulations or their application, or as a result of on-going and future tax audits or claims.

Ahlstrom-Munksjö has operations in many countries, and sometimes disputes cannot be avoided in daily operations. The company is sometimes involved in legal actions, disputes, claims for damages and other procedures. The result of these cannot be predicted, but taking into account all available information to date, the impact is not expected to have a significant impact on the financial position of the company.

More information about risks and uncertainty factors related to Ahlstrom-Munksjö’s business and the company’s risk management is available at www.ahlstrom-munksjo.com.

Additional information

Jan Åström, President and CEO, tel. +46 10 250 1001
Pia Aaltonen-Forsell, CFO, tel. +46 10 250 1029
Juho Erkheikki, Investor & Media Relations Manager, tel. +358 50 413 4583

Webcast and conference call

A combined news conference, call and live webcast will be arranged on the publishing day, July 25, 2017, at 2:00 p.m. CEST (3:00 p.m. EEST) at the World Trade Center in Stockholm (Klarabergsviadukten 70, the Conference Center). The report will be presented in English by President and CEO Jan Åström and CFO Pia Aaltonen-Forsell.

Webcast and conference call information

The combined webcast and teleconference can be viewed at:
http://qsb.webcast.fi/a/ahlstrommunksjo/ahlstrommunksjo_2017_0725_q2/

Finnish callers: +358 (0)9 7479 0404
Swedish callers: +46 (0)8 5065 3942
UK callers: +44 (0) 330 336 9411
US callers: +1 719 457 1036

Conference ID: 7986852

To join the conference call, participants are requested to dial one of the numbers above 5-10 minutes prior to the start of the event. An on-demand version of the conference call will be available on Ahlstrom-Munksjö’s website later the same day.

Future financial reports

Interim report January-September 2017                                            October 25, 2017
Financial Statements Release 2017                                                  February 13, 2018

Ahlstrom-Munksjö in brief
Ahlstrom-Munksjö is a global leader in fiber-based materials, supplying innovative and sustainable solutions to customers worldwide. Our offerings include decor paper, filter media, release liners, abrasive backings, nonwovens, electrotechnical paper, glass fiber materials, food packaging and labeling, tape, medical fiber materials and solutions for diagnostics. Combined annual net sales are about EUR 2.15 billion and we employ 6,000 people. The Ahlstrom-Munksjö share is listed on the Nasdaq Helsinki and Stockholm. The company was formed on April 1, 2017 through the merger of Ahlstrom Corporation and Munksjö Oyj. Read more at www.ahlstrom-munksjo.com.

About Us

Ahlstrom-Munksjö is a global leader in fiber-based materials, supplying innovative and sustainable solutions to customers worldwide. Our offerings include decor paper, filter media, release liners, abrasive backings, nonwovens, electrotechnical paper, glass fiber materials, food packaging and labeling, tape, medical fiber materials and solutions for diagnostics. Combined annual net sales are about EUR 2.2 billion and we employ 6,000 people. The Ahlstrom-Munksjö share is listed on the Nasdaq Helsinki and Stockholm. Read more at www.ahlstrom-munksjo.com.

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