Munksjö Oyj Interim Report January-September 2013 - Integration proceeding according to plan
MUNKSJÖ OYJ, INTERIM REPORT, 19 November, 2013 at 7.30 CET
Highlights of the third quarter 2013
- Net sales for the third quarter increased to MEUR 245,1 (146,3), as a result of the first phase of the business combination.
- Adjusted EBITDA was MEUR 11,0 (10,1).
- Operating result adjusted for non-recurring items amounted to MEUR -0,2 (3,8). Most of the non-recurring items, totalling MEUR -1,9 (-4,6), was mainly costs for activities for achieving synergies.
- Operating result was MEUR -2,1 (-0,8).
- Earnings per share (EPS) were EUR -0,2 (-0,6).
Highlights of the reporting period January–September 2013
- At the end of May, the first phase of the business combination was completed.
- Trading with Munksjö Oyj’s shares commenced on the Helsinki Stock Exchange 7 June.
- Net sales increased to MEUR 607,6 (448,0), primarily as a result of the completion of the first phase of the business combination.
- Adjusted EBITDA was MEUR 39,0 (33,4).
- Operating result adjusted for non-recurring items amounted to MEUR 13,1 (15,0). Most of the non-recurring items, totalling MEUR -32,5 (-7,2), relates to the business combination.
- Operating result was MEUR -19,4 (profit of 7,8).
- Earnings per share (EPS) were EUR -1,3 (-0,5).
- Interest-bearing net debt at the end of the reporting period was MEUR 257,5 (245,0), equivalent to a gearing of 66,8% (118,0%).
| KEY FIGURES (MEUR) | Jul–Sep | Jan–Sep | Full year | ||
| 2013 | 2012 | 2013 | 2012 | 2012 | |
| Net sales | 245,1 | 146,3 | 607,6 | 448,0 | 607,1 |
| EBITDA (adj*) | 11,0 | 10,1 | 39,0 | 33,4 | 42,3 |
| EBITDA margin, % (adj*) | 4,5 | 6,9 | 6,4 | 7,5 | 7,0 |
| EBITDA | 9,1 | 5,5 | 6,5 | 26,2 | 32,8 |
| EBITDA margin, % | 3,7 | 3,7 | 1,1 | 5,8 | 5,4 |
| Operating result (adj*) | -0,2 | 3,8 | 13,1 | 15,0 | 16,9 |
| Operating margin, % (adj*) | -0,1 | 2,6 | 2,2 | 3,3 | 2,8 |
| Operating result | -2,1 | -0,8 | -19,4 | 7,8 | 7,5 |
| Operating margin, % | -0,9 | -0,5 | -3,2 | 1,7 | 1,2 |
| Net result | -7,3 | -6,7 | -31,2 | -5,8 | -10,4 |
| Earnings per share (EPS), EUR | -0,2 | -0,6 | -1,3 | -0,5 | -0,9 |
| Interest-bearing net debt | 257,5 | 245,0 | 257,5 | 245,0 | 217,3 |
*Adjusted for non-recurring items
Munksjö’s President and CEO, Jan Åström
“This is the second interim report issued by Munksjö Oyj since the completion of the business combination in May. Integration efforts are proceeding at full intensity. The projects enabling the business combination have now been brought to completion while the more long-term projects have been initiated. Synergy benefits are expected to reach MEUR 20-25, of which a level of 60 per cent should be achieved in 12 months and the final target level in 36 months.
The second phase of the combination, in which Ahlstrom's specialty papers business in Jacarei, Brazil is combined with Munksjö, is expected to be completed by the end of the current year. With this, the business combination will be concluded in its entirety.
Normally, demand for our specialty papers decreases in July and August because of the holiday season in Europe. As in the past, we have responded to this seasonal change in demand by shutting down the production facilities for the holidays and perform planned maintenance operations. This year’s stop had the same magnitude as previous years.
In terms of volumes, demand for many of Munksjö's products is higher than in 2012, even though the market conditions for specialty papers continued to be challenging in the third quarter.
The programme to substantially improve profitability in business area Graphics and Packaging has now been launched and the first results in financial performance were noticeable in September. The programme foresees a combination of reduced costs, redistribution of volumes from Munksjö’s other business areas, investments in quality and product development as well as benefits from the on-going integration process. We are building the foundation to be able to deliver on our financial target of 12 per cent EBITDA-margin.
I am pleased with the current development and the results we have achieved during the first four months with the new Munksjö and I am looking forward to the completion of the transaction with Jacarei during the fourth quarter.”
Outlook for 2013
The market development and demand has recovered after the holiday shutdowns. However the market situation in the business areas Release Liners and Graphics and Packaging remains challenging. The anticipated decrease in the result, compared to last year, for these two business areas is expected to exceed the positive impact of the synergy benefits and stand-alone savings. The result for the fourth quarter will be affected by non-recurring items due to the measures taken to achieve synergy benefits, as well as the programme for improving profitability in the business area Graphics and Packaging.
Forming a global leader in specialty paper – combining Munksjö AB with Ahlstrom’s Label and Processing business area
On 28 August 2012, Munksjö Oyj, Munksjö AB, EQT and Ahlstrom Corporation agreed on the intent to form a global leader in specialty papers by combining Munksjö AB with Ahlstrom's Label and Processing business area in Europe (LP Europe) and Brazil (Coated Specialties). In 2012, the new company had in aggregate net sales of EUR 1,2 billion, approximately 3 000 employees, 15 production sites in Europe, Brazil and China, and a worldwide sales organisation. The operations are divided into four business areas: Decor, Release Liners, Industrial Applications, and Graphics and Packaging.
The business combination is a natural step in Munksjö’s strategy to focus on growth within specialty papers. Munksjö Oyj is the world’s largest specialty paper company with a strong position in selected market segments. The acquisition will boost competitiveness and efficiency while offering further potential for organic and strategic growth.
Synergy benefits and integration
Annual synergy benefits resulting from the business combination are expected to reach between MEUR 20-25 related to procurement, production efficiency, economies of scale and improved overall performance and efficiency within the organisation. Sixty per cent of the total synergy level is expected to be achieved after the first 12 months and the remaining part within the following two years.
Non-recurring items to achieve synergies are estimated to MEUR 10-15 and the ambition is that the majority shall affect this years’ result. Annual cost savings as a result of the separation of the specialty paper operations from Ahlstrom’s other business operations, will amount to MEUR 10-15 annually.
Integration efforts were launched in May when the first phase of the business combination was completed and are continuing according to plan. The synergy benefits gained by the end of the third quarter are equivalent to approximately 30 per cent of the total expected annual synergy level.
The Munksjö Group
| Jul–Sep | Jan–Sep | Full year | |||
| MEUR | 2013 | 2012 | 2013 | 2012 | 2012 |
| Reported 1) | |||||
| Net sales | 245,1 | 146,3 | 607,6 | 448,0 | 607,1 |
| EBITDA (adj*) | 11,0 | 10,1 | 39,0 | 33,4 | 42,3 |
| EBITDA margin, % (adj*) | 4,5 | 6,9 | 6,4 | 7,5 | 7,0 |
| EBITDA | 9,1 | 5,5 | 6,5 | 26,2 | 32,8 |
| EBITDA, margin % | 3,7 | 3,7 | 1,1 | 5,8 | 5,4 |
| Operating result (adj*) | -0,2 | 3,8 | 13,1 | 15,0 | 16,9 |
| Operating margin, % (adj*) | -0,1 | 2,6 | 2,2 | 3,3 | 2,8 |
| Operating result | -2,1 | -0,8 | -19,4 | 7,8 | 7,5 |
| Operating margin, % | -0,9 | -0,5 | -3,2 | 1,7 | 1,2 |
| Net result | -7,3 | -6,7 | -31,2 | -5,8 | -10,4 |
| Capital expenditure | 7,6 | 4,7 | 14,4 | 9,4 | 14,8 |
| Employees, FTE | 2 594 | 1 684 | 2 073 | 1 684 | 1 679 |
| Pro forma I (incl. LP Europe) 2) | |||||
| Net sales | 245,1 | 255,7 | 788,6 | 790,4 | 1 055,6 |
| EBITDA** (adj*) | 11,0 | 13,0 | 43,6 | 48,2 | 69,2 |
| EBITDA** margin, % (adj*) | 4,5 | 5,1 | 5,5 | 6,1 | 6,6 |
| EBITDA** | 9,1 | 8,4 | 38,0 | 14,1 | 32,9 |
| EBITDA**, margin % | 3,7 | 3,3 | 4,8 | 1,8 | 3,1 |
| Delivery volumes, tonnes | 192 500 | 193 933 | 601 302 | 598 947 | 796 900 |
| Pro forma II (incl. LP Europe and Coated Specialties) 3) | |||||
| Net sales | 265,1 | 281,0 | 855,1 | 866,1 | 1 154,6 |
| EBITDA** (adj*) | 12,1 | 13,2 | 47,3 | 53,3 | 76,6 |
| EBITDA** margin, % (adj*) | 4,6 | 4,7 | 5,5 | 6,2 | 6,6 |
| EBITDA** | 9,8 | 8,6 | 41,3 | 18,7 | 39,8 |
| EBITDA**, margin % | 3,7 | 3,1 | 4,8 | 2,2 | 3,4 |
| Delivery volumes, tonnes | 218 292 | 219 087 | 676 357 | 674 932 | 897 371 |
* Adjusted for non-recurring items
** Does not include stand-alone cost savings or synergies with the exception of those obtained after 27 May linked to LP Europe business. Further information, under the heading Pro forma information in the notes to the interim report.
1) Includes LP Europe from 27 May 2013
2) Includes LP Europe from 1 January 2012
3) Includes LP Europe and Coated Specialties from 1 January 2012
Reported
Third quarter 2013
Planned maintenance operations were carried out during the third quarter as part of the yearly shutdowns for the holiday season. While the scope of the maintenance work corresponded to plan but the negative impact on the financial result was slightly higher than last year.
Net sales increased to MEUR 245,1 (146,3). The acquired business contributed an additional MEUR 105,1 to net sales.
EBITDA adjusted for non-recurring items was MEUR 11,0 (10,1) and the adjusted EBITDA margin 4,5% (6,9%). Operating result adjusted for non-recurring items was MEUR -0,2 (profit of 3,8). As previously communicated in connection to the financial result for the second quarter, the non-recurring items were primarily related to the measures taken to achieve synergy benefits and amounted to MEUR -1,9 (-4,6).
Operating result was MEUR -2,1 (-0,8).
January–September 2013
The market conditions for Munksjö’s four business areas varied during the reporting period. A more detailed description for each area is provided on the following pages. Munksjö’s net sales increased to MEUR 607,6 (448,0). The acquired business contributed an additional MEUR 152,0 to net sales.
While somewhat lower prices on raw material during the first nine months had a positive effect on profitability, the less favourable product mix reduced the effect. Operating profit adjusted for non-recurring items was MEUR 13,1 (15,0) and operating margin 2,2% (3,3%).
Most of the non-recurring items totalling MEUR -32,5 (-7,2) were mainly related to costs for the business combination. Munksjö has made a commitment to pay certain costs arising from the divestiture of part of the business in Osnabrück, Germany, required by the European Commission’s Competition Authority as a condition for regulatory approval. This commitment is included in the non-recurring items in the amount of MEUR 13,5. The cost was booked in the second quarter.
The operating result was MEUR -19,4 (7,8) and net result MEUR -31,2 (-5.8).
Pro forma II
Third quarter 2013
Pro forma II net sales decreased by 5,6% to MEUR 265,1 (281,0). Pro forma II EBITDA adjusted for non-recurring items was MEUR 12,1 (13,2).
January–September 2013
Pro forma II net sales decreased slightly by 1,3% to MEUR 855,1 (866,1). Apart from Release Liners, all business areas had higher or equivalent net sales than the corresponding period last year. Net sales within Release Liners decreased slightly in Europe as a result of lower volumes. Year-on-year, the BRL (Brazilian Real) weakened significantly against the Euro, which has affected the net sales and result of the Brazilian operation measured in Euro.
Pro forma II EBITDA adjusted for non-recurring items was MEUR 47,3 (53,3). The lower result is mainly related to the business areas Release Liners and Graphics and Packaging.
Webcast and conference call
A combined news conference, conference call and live webcast for investors, analysts and media will be arranged on the publishing day, 19 November, 2013, at 10.00 am CET (11.00 am EET, 9.00 am UK time) at restaurant Savoy, room Salikabinetti (Eteläesplanadi 14, 7th floor, Helsinki). The report will be presented by President and CEO Jan Åström. The event will be held in English.
The conference call and live webcast can be followed on the Internet and an on-demand version of the webcast will be available on the webpage, www.munksjo.com later the same day.
To join the conference call, participants are requested to dial one of the numbers below 5 to 10 minutes prior to the start of the event.
Webcast and conference call information:
US callers: +1 334 323 6201
UK callers: +44 (0)20 7162 0077
Conference ID: 937161
Munksjö Oyj
For further information, please contact:
Jan Åström, President and CEO, tel. +46 10 250 1001
Kim Henriksson, CFO, tel. +46 10 250 1015