Ahlstrom Corporation STOCK EXCHANGE RELEASE 27.4.2007 Ahlstrom's Interim report Q1/2007: Growth strategy implementation well underway Ahlstrom, a leader in high performance fiber-based materials, reports an operating profit of EUR 23.3 million for the first quarter of 2007 (EUR 29.6 million), representing a 5.6% margin (7.1%). Profit before taxes was EUR 20.3 million (EUR 25.1 million). Return on capital employed (ROCE) was 10.0% (12.3%). Net sales amounted to EUR 416.5 million (EUR 414.6 million) and earnings per share (EPS) to EUR 0.29 (EUR 0.41). Excluding non-recurring items, the operating profit for the first quarter of 2007 was EUR 19.6 million (EUR 26.3 million), representing a 4.7% margin (6.3%). Profit before taxes was EUR 16.5 million (EUR 21.8 million) and ROCE 8.4% (11.0%), both excluding non-recurring items. January-March 2007 in brief - Net sales (adjusted for currency effect) grew by 3.4% from the first quarter of 2006. - Operating profit improved by 39% from the last quarter of 2006 due to increased sales volumes and lower fixed costs. - Ahlstrom announced four acquisitions with combined annualized net sales of approximately EUR 300 million. - The defined benefit pension plan in the United Kingdom was closed and the historical deficit was funded by EUR 21 million, impacting Ahlstrom's cash flow. Key figures EUR million Q1/2007 Q1/2006 2006 Net sales 416.5 414.6 1,599.1 Operating profit 23.3 29.6 96.1 Operating profit excl. non-recurring 19.6 26.3 87.3 items Profit before taxes 20.3 25.1 81.2 Profit before taxes excl. non-recurring 16.5 21.8 72.5 items Profit for the period 13.4 15.8 57.6 Net cash flow from operating activities -12.0 26.0 119.2 Gearing ratio, % 24.3 30.0 20.3 Return on capital employed (ROCE),% 10.0 12.3 10.4 Return on capital employed (ROCE),% 8.4 11.0 9.5 excl. non-recurring items Cash earnings per share, EUR -0.26 0.68 2.72 Earnings per share, EUR 0.29 0.41 1.31 Average number of shares 45,918 38,326 43,802 during the period, 1000s Jukka Moisio, President & CEO, comments Ahlstrom's first quarter: - The acquisitions in the FiberComposites segment will make us the third largest nonwoven roll good supplier in the world and the intended Brazilian joint venture in specialty papers provides strategic access to raw materials and fast growing markets. The next phase of the growth strategy is the integration of acquisitions and starting up of the organic growth investments. These growth actions will gradually start contributing to our financial development in the coming quarters. I am satisfied with the steps taken and the Ahlstrom team will have a full workload ahead with exciting growth and business openings. - We reported a 3% growth in comparable net sales versus Q1/2006 and a 10% return on capital employed for the first quarter. The operating profit margin recovered from the low level we experienced at the end of 2006. However, return on capital employed remained below our long term target as increasing raw material prices continued to put pressure on margins. We continued our work to increase volumes and sales prices while fixed costs declined. Ahlstrom Group: Interim report January-March, 2007 Financial performance in the first quarter of 2007 The Group's net sales were affected by the weakened USD and amounted to EUR 416.5 million (EUR 414.6 million). Adjusted for the currency effect, Ahlstrom's net sales grew by 3.4%. Sales volumes increased by 3.1% compared with the corresponding period of 2006. Operating profit for the first quarter amounted to EUR 23.3 million (EUR 29.6 million). The operating profit included non- recurring items of EUR 3.8 million (EUR 3.3 million), which were mainly related to the sale of three power plants in Italy. Excluding the non-recurring items, the operating profit amounted to EUR 19.6 million (EUR 26.3 million). Prices for Ahlstrom's main raw materials continued to increase in the first quarter of 2007. The average USD market price for NBSK pulp was approximately 22% higher than in the first quarter of 2006 and 4% higher than in the last quarter of 2006. With sales price increases, productivity improvements and fixed cost reductions, Ahlstrom was able to partially compensate for the effect of the rising raw material costs. Total net financial expenses were EUR 3.0 million (EUR 4.5 million). Net interest expenses totaled EUR 2.4 million (EUR 2.2 million). Net foreign exchange gains on financial items were EUR 0.03 million (losses of EUR 1.7 million). The change was mainly attributable to the actions to decrease the level of equity hedging. Ahlstrom's share of the losses of the associated companies (Jujo Thermal) amounted to EUR 0.1 million (EUR 0.0 million). Profit before taxes was EUR 20.3 million (EUR 25.1 million). Excluding the non-recurring items, profit before taxes amounted to EUR 16.5 million (EUR 21.8 million). Income tax expenses were EUR 6.9 million (EUR 9.3 million). Profit for the period was EUR 13.4 million (EUR 15.8 million). Return on capital employed (ROCE) was 10.0% (12.3%) in the first quarter. Excluding the non-recurring items, ROCE amounted to 8.4% (11.0%). Return on equity (ROE) was 7.1% (9.5%). Earnings per share (EPS) amounted to EUR 0.29 (EUR 0.41), the change being primarily due to the issue of new shares in March, 2006. Capital efficiency improved and net asset turnover was 1.8 (1.6). Financing and financial position in the first quarter of 2007 Net cash flow from operating activities amounted to EUR -12.0 million (EUR 26.0 million). The decrease in cash flow was mainly attributable to the EUR 20.8 million payment to the pension fund to cover approximately half of the historical deficit of the defined benefit pension plan in the United Kingdom. The rest of the deficit will be funded over the remaining years of the pension plan. At the same time, Ahlstrom closed the defined benefit plan and moved to defined contribution plan for the UK pensions. Interest-bearing net liabilities increased by EUR 24.9 million to EUR 180.1 million (December 31, 2006: EUR 155.2 million). Gearing ratio was 24.3% (December 31, 2006: 20.3%) and the equity ratio 53.0% (December 31, 2006: 56.5%). Ahlstrom cancelled EUR 230 million of committed credit facilities, reducing the total availability under such facilities to EUR 343 million at 31 March, 2007 (December 31, 2006: EUR 579 million). Capital expenditure in the first quarter of 2007 Capital expenditure amounted to EUR 29.1 million (EUR 28.0 million). No acquisitions were closed during the first quarter (EUR 8.1 million). The full-year capital expenditure for Ahlstrom Group, excluding acquisitions, is expected to exceed the 2006 level by approximately 10-20% (EUR 120.1 million). Implementation of the growth strategy in the first quarter of 2007 Ahlstrom continued to implement its growth strategy by investing in attractive growth segments. Ahlstrom's investments are expected to generate net sales amounting to 1.5 times the investment value in 3-5 years and reach a return of capital employed of at least 13%. Announced acquisitions and investment decisions On March 30, Ahlstrom signed an agreement to acquire the consumer wipes business of Fiberweb plc. Following the acquisition, Ahlstrom estimates to become the third largest producer of nonwoven roll goods globally. The acquisition price is approximately EUR 65 million. The acquired business includes four plants in Europe and in the USA. In 2006, the net sales of the acquired business amounted to EUR 110 million and it employed approximately 400 people. The wiping fabrics currently produced by Fiberweb's consumer wipes business are used mainly in personal care, baby care and household wipes applications. Ahlstrom anticipates to close the deal within the second quarter of 2007, subject to antitrust clearances. On February 23, Ahlstrom signed a Memorandum of Understanding with Votorantim Celulose e Papel (VCP) to form a joint venture for specialty paper production in Brazil. The assets in the joint venture, currently owned by VCP, comprise a paper machine, an offline coater and extensive finishing equipment at the Jacarei mill, close to São Paulo. The joint venture will be part of Ahlstrom's Specialty Papers segment and serve mainly the labeling and flexible packaging markets. In addition, it will continue to produce coated and uncoated paper grades for other end-uses. According to the Memorandum of Understanding, Ahlstrom will hold a majority of the joint venture. Ahlstrom expects to close the deal on or before June 30, 2007, subject to antitrust clearances and satisfactory conclusion of the ongoing due diligence process. On February 2, Ahlstrom signed an agreement to acquire Fabriano Filter Media SpA, based in Sassoferrato, Italy. Fabriano is a manufacturer of microglass filter media, serving mainly the high efficiency air filtration market. The transaction price is approximately EUR 7 million. The transaction complements Ahlstrom's air filtration portfolio and reinforces the company's position as a leading provider of filtration solutions to the global air filtration industry. The transaction includes one manufacturing plant employing 32 people with net sales of approximately EUR 7 million. The acquired business will be closely integrated with Ahlstrom's current Italian operations in Turin. The transaction is expected to be closed during the second quarter of 2007. On February 2, Ahlstrom decided to invest EUR 5 million in a new drylaid nonwoven line to serve the North American air filtration market. The new line, located at Ahlstrom's Groesbeck, TX, USA facility, will provide Ahlstrom with an additional fast and modern asset to better serve the Heating, Ventilation and Air Conditioning (HVAC) filter media market in North America. The new line is expected to start at the beginning of 2008. On February 1, Ahlstrom signed an agreement to acquire the spunlace nonwovens business of the Italian Orlandi Group. With this acquisition, Ahlstrom will become one of the leading producers of nonwoven roll goods for wipes globally. The acquisition price is approximately EUR 60 million and the transaction is expected to be EPS enhancing from 2007. The acquired business includes two plants in Cressa and Gallarate in Italy employing approximately 120 people in total. The transaction expands Ahlstrom's technology portfolio with airlace technology which is used to manufacture pulp-containing wiping fabrics. In connection with the acquisition, Ahlstrom invested approximately EUR 2.5 million in the airlace line at the Cressa plant. After the investment, the acquired business will generate net sales of approximately EUR 65 million in 2007. The deal is anticipated to be closed within the first half of 2007, subject to antitrust clearances and satisfactory conclusion of the ongoing due diligence. Investment start-ups Ahlstrom's new specialty glassfiber reinforcement plant in South Carolina, USA was ramping up its production in the first quarter of 2007. The investment was valued at approximately EUR 10 million. The new plant further strengthens Ahlstrom's position as a leading global developer and manufacturer of specialty reinforcements especially for the wind energy, marine and transportation markets. Ahlstrom's new spunlace line located at the Green Bay, WI, USA plant was started up in the end of December, 2006. The line was ramping up during the first quarter of 2007. The total value of the investment was approximately EUR 30 million. In addition, Ahlstrom repaired the existing glass furnace and increased the production capacity of the chopped strand mat machine at its Karhula, Finland plant. The investments were valued at approximately EUR 6 million in total. Divestments in the first quarter of 2007 In March, Ahlstrom agreed to sell three hydropower plants close to its Turin, Italy plant to a local energy company for approximately EUR 7 million. The deal is consistent with the company's strategy to focus on high performance fiber-based materials and to divest non-core assets and reduce related costs. Personnel At the end of March 2007, Ahlstrom had 5,653 employees (5,622). The average number of employees during the first quarter was 5,665 (5,572). Principal risks and uncertainties The principal uncertainties that could affect Ahlstrom's net sales and financial performance in the short term are related to: - General economic conditions and demand for end-user products - Increases in raw material prices (e.g. pulp, chemicals and synthetic fibers) - Increases in energy prices - Fluctuations in foreign currency rates These factors are described in more detail in Ahlstrom's Annual report 2006, on pages 22-23. Shares and share capital During the first quarter of 2007, 4.6 million Ahlstrom shares were traded for a total of EUR 101.3 million. The lowest trading price during the first quarter was EUR 21.20 and the highest EUR 24.50. Closing price on March 30, 2007 was EUR 24.09 and market capitalization was EUR 1,121 million. Equity per share of Ahlstrom Group was EUR 15.88 at the end of the review period (December 31, 2006: EUR 16.79). At the end of the review period, the number of options entitling to subscription of Ahlstrom shares was 62,611. In the first quarter, a total of 946,260 new shares of Ahlstrom Corporation were subscribed with option rights under the company's stock option programs I (2001) and II (2001). After the corresponding increases in Ahlstrom's share capital, the share capital at the end of the first quarter amounted to EUR 69,911,995.50. The total number of shares at the end of the first quarter was 46,607,997. Together with the stock options, the number of shares may increase to a maximum of 46,670,608. Ahlstrom's option rights of stock option program I a, b and c (2001) and stock option program II b and c (2001) have been listed on the Helsinki Stock Exchange as of January 2, 2007. Each option right gives its holder the right to subscribe for one share in Ahlstrom Corporation. The current subscription price is EUR 8.22. The share subscription period with option rights of stock option program I a, b and c (2001) commenced on May 1, 2002 and ends on April 30, 2007. The share subscription period with option rights of stock option program II b and c (2001) started on January 1, 2007 and ends on April 30, 2007. Ahlstrom's Board of Directors is authorized to repurchase a maximum of 4,500,000 Ahlstrom shares, corresponding to less than 10% of all issued Company shares. The Board of Directors is also authorized to resolve to distribute the shares held by the company. The shares may be used as compensation in acquisitions and in other arrangements as well as to implement the company's share-based incentive plans. The Board of Directors has also the right to decide on the distribution of the shares in public trading for the purpose of financing possible acquisitions. Annual General Meeting 2007 Ahlstrom Corporation's Annual General Meeting of Shareholders (AGM) was held on March 30, 2007. The AGM resolved to distribute a dividend of EUR 1.00 per share, EUR 46.67 million in total, for the fiscal year that ended on December 31, 2006 in accordance with the proposal of the Board of Directors. The dividend record date was April 4, 2007 and the pay date April 13, 2007. In addition, the AGM resolved to reserve EUR 70,000 to be used for the public good at the discretion of the Board of Directors. The AGM approved the financial statements and consolidated financial statements and discharged the members of the Board of Directors and the CEO from liability for the financial period January 1-December 31, 2006. The AGM authorized the Board of Directors to repurchase Ahlstrom shares as proposed by the Board of Directors, taking into account the limitations set forth in the Companies' Act. The maximum number of shares to be repurchased is 4,500,000, corresponding to less than 10% of all issued Company shares. The authorization will be valid for 18 months from the close of the Annual General Meeting but will expire at the close of the next Annual General Meeting, at the latest. The shares may be repurchased only through public trading at the prevailing market price by using unrestricted shareholders' equity. The AGM authorized the Board of Directors to resolve to distribute a maximum of 4,500,000 own shares held by the Company as proposed by the Board of Directors. The Board of Directors is authorized to decide to whom and in which order the shares will be distributed. The Board of Directors may decide on the distribution of own shares otherwise than in proportion to the existing pre-emptive right of shareholders to purchase the Company's own shares. The shares may be used as compensation in acquisitions and in other arrangements as well as to implement the Company's share-based incentive plans in the manner and to the extent decided by the Board of Directors. The Board of Directors has also the right to decide on the distribution of the shares in public trading for the purpose of financing possible acquisitions. The authorization will be valid for 18 months from the close of the Annual General Meeting but will expire at the close of the next Annual General Meeting, at the latest. The Annual General Meeting resolved to amend the Articles of Association in accordance with the proposal by the Board of Directors. The AGM confirmed the number of Board members unchanged at seven. Sebastian Bondestam, Jan Inborr, Urban Jansson, Bertel Paulig, Peter Seligson and Willem F. Zetteler were re-elected as members of the Board of Directors and Thomas Ahlström was elected as a new member as proposed by the Nomination Committee. The term of the Board of Directors will expire at the close of the next Annual General Meeting. It was decided that the Chairman of the Board of Directors will receive a remuneration of EUR 5,400 per month. For the members of the Board of Directors, the remuneration was decided to be EUR 2,700 per month. In addition, the remuneration for attendance at the meetings of the permanent Board committees was decided to be EUR 1,150 per meeting. After the AGM, the organization meeting of the Board of Directors elected Peter Seligson as Chairman and Urban Jansson as Vice Chairman of the Board. The Board of Directors also appointed the members of the permanent committees. The members of the Audit Committee are Bertel Paulig (Chairman), Thomas Ahlström and Willem F. Zetteler. The members of the Compensation Committee are Peter Seligson (Chairman), Jan Inborr and Urban Jansson. KPMG Oy Ab was re-elected as Ahlstrom's auditor as proposed by the Audit Committee. KPMG Oy Ab has designated Authorized Public Accountant Sixten Nyman as auditor in charge. Outlook Demand in Europe is expected to remain good. Ahlstrom's main markets, Germany, France, and Italy, are expected to show stable or positive development. Ahlstrom's products are primarily used in industrial processes which react to changes in consumer demand with a slight delay. In the USA, which is Ahlstrom's single largest market, the demand is anticipated to be stable. The visibility of the demand in the USA remains low. Demand in South America and Asia is expected to develop well due to the positive GDP development. The price for Ahlstrom's most important raw material, wood pulp, continued to rise through the first quarter of 2007. Costs for fibers and chemicals for the coming months are expected to remain at the current high level or increase but at a lower rate than in 2006. Sales price increases and cost reductions are implemented to offset the effect of the raw material cost escalation. Energy costs started to decline during the first quarter and are expected to decrease further. Several global growth initiatives are now proceeding to implementation phase and will start to generate additional sales volumes and net sales in 2007. The outlook period is marked by intensive work related to integration of acquisitions and investment start-ups. The impact of this work will be seen gradually already towards the end of the outlook period. The largest organic growth investment is the capacity expansion of release base papers at the La Gère, France plant during the second quarter. In acquisitions, the largest project is the integration of Fiberweb's consumer wipes business. The new acquisitions and investments will have a positive impact on Ahlstrom's financial development from the last quarter of 2007 and onwards. We continue to see promising growth opportunities in the fiber- based materials business and are optimistic about Ahlstrom's development in 2007 and 2008. Financial information in 2007 Ahlstrom Corporation will publish its financial information in 2007 as follows: Interim report January - June Wednesday, July 25 Interim report January - September Friday, October 26 This interim report has been prepared in accordance with the International Financial Reporting Standards (IFRS). The report is unaudited. Comparable figures refer to the same period last year unless otherwise stated. Helsinki, April 26, 2007 Ahlstrom Corporation Board of Directors For additional information, please contact: Jukka Moisio, President and CEO, tel. +358 (0)10 888 4700 Jari Mäntylä, CFO, tel. +358 (0)10 888 4768 Anna Ahlberg, Investor Relations Manager, tel. +358 (0)10 888 4718 A conference call for analysts and investors regarding the first quarter results will be held on Friday, April 27, 2007 at 13.00 Finnish time. To participate in the teleconference, please dial +44 (0) 20 7162 0125 a few minutes before the call. Use the password: Ahlstrom. A replay number is available until May 4, 2007. The number for the replay is + 44 (0) 20 7031 4064, access code: 747430. The presentation material will be available at www.ahlstrom.com > Investors > IR presentations on April 27, 2007 after the interim report has been published. Ahlstrom's stock exchange and press releases can be ordered on www.ahlstrom.com > Media. Releases are delivered by e-mail. This report contains certain forward-looking statements that reflect the present views of the company's management. Due to the nature of these statements, they contain uncertainties and risks and are subject to changes in the general economic situation and in the company's business. Distribution: Helsinki Stock Exchange www.ahlstrom.com Main media Ahlstrom in brief Ahlstrom is a global leader in the development, manufacture and marketing of high performance fiber-based materials. Nonwovens and specialty papers, made by Ahlstrom, are used in a large variety of everyday products, e.g. in filters, wipes, flooring, labels, and tapes. The company has a strong market position in several business areas in which it operates, built upon the company's unique fiber expertise and innovative approach. Ahlstrom's 5,700 employees serve customers via sales offices and production facilities in more than 20 countries on six continents. In 2006, Ahlstrom's net sales amounted to EUR 1.6 billion. Ahlstrom's share is listed on the Helsinki Stock Exchange. The company website is www.ahlstrom.com. Appendices 1. Segment reviews 2. Financial statements Appendix 1 Segment reviews FiberComposites segment Key figures, EUR million Q1/2007 Q1/2006 Change, % 2006 Net sales 206.4 212.7 -3.0 808.2 Operating profit 15.2 15.9 -4.2 52.3 Operating profit excl. 13.4 15.9 -15.7 54.1 non-recurring items Operating profit, % excl. 6.5 7.5 6.7 non-recurring items Return on net assets 9.6 10.3 8.6 (RONA), % Return on net asses 8.5 10.3 8.9 (RONA), % excl. non-recurring items Net sales of the FiberComposites segment decreased by 3.0% and amounted to EUR 206.4 million (EUR 212.7 million). Sales volumes fell by 2.2% due to investment standstills within the Glass Nonwovens business area. Additionally, the weakening of the USD decreased the segment's net sales. Compared with the fourth quarter of 2006, the average sales prices increased in all business areas of the FiberComposites segment. Excluding non-recurring items, the operating profit of the segment was EUR 13.4 million (EUR 15.9 million). The non-recurring items of EUR 1.8 million were primarily related to asset sales. The decline in the segment's profitability was mainly attributable to the ramp up of the new glass reinforcement plant in Bishopville, SC, USA and the new production line at the Green Bay, WI, USA plant as well as to the investment standstills at the Karhula, Finland plant. Nonwovens business area (23% of the Group's net sales) The Nonwovens business area serves customers in the food packaging, medical, wiping, building and technical goods sectors. General market conditions were stable during the first quarter of 2007. Volumes sold increased by 3%, driven particularly by solid demand for certain wipes products as well as for industrial nonwovens. However, the business area's net sales decreased by 1% due to the weakening of the USD against the euro. Approximately 50% of the business area's sales is denominated in USD. Prices for raw materials continued to put pressure on the business area's margins. As an example, prices for rayon used in wipes increased strongly during the first quarter and are expected to rise further also in the second quarter. Energy costs declined from the corresponding quarter in 2006, but were still at a high level. The business area started a new spunlace wipes line at the Green Bay, WI, USA plant in December 2006 with the first deliveries to customers made during the first quarter. In the first quarter, Ahlstrom signed an agreement to acquire the consumer wipes business of Fiberweb plc including four plants in Europe and in the USA. Following the acquisition, Ahlstrom estimates to become the third largest producer of nonwoven roll goods globally. The acquisition price is approximately EUR 65 million. The net sales of the acquired business amounted to EUR 110 million in 2006 and it employed approximately 400 people. In the first quarter, Ahlstrom signed an agreement to acquire the spunlace nonwovens business of the Italian Orlandi Group. The acquisition price is approximately EUR 60 million. The acquired business includes two plants employing approximately 120 people and it will generate net sales of approximately EUR 65 million in 2007. Demand for Ahlstrom's nonwovens is expected to remain generally stable in the coming months, with a slight strengthening anticipated for wipes. Filtration business area (20% of the Group's net sales) Filtration media produced by Ahlstrom are used in the transportation industry and in liquid and air filtration applications. The overall market for filtration material was steady during the first quarter. The uncertain demand situation in Northern America was largely offset by strong demand in the European, South American and Asian markets. The North American market for air filtration continued to be affected mainly by the weakness of the housing markets. Sales volumes rose slightly compared with the corresponding period last year while net sales decreased by 4% due to the weakening of the USD versus EUR. Costs for energy and raw materials, especially for methanol and related products, increased significantly. Even though these costs started to gradually decline, they were still at a higher level than in the first quarter of 2006. Price increases have been implemented across the board with an aim to compensate for the increased costs, with the exception of the North American air filtration market. In addition to the price increases, the business area took several actions to improve its profitability, including the transfer of the converting operations from Mt Holly Springs, PA plant to Bishopville, SC, USA. In the first quarter, Ahlstrom signed an agreement to acquire Italian Fabriano Filter Media SpA, a manufacturer of microglass filter media for approximately EUR 7 million. As Fabriano serves mainly the high efficiency air filtration market, the transaction complements Ahlstrom's air filtration portfolio and reinforces the company's position in the global air filtration market. The transaction includes one manufacturing plant employing 32 people with net sales of approximately EUR 7 million. Ahlstrom decided to invest EUR 5 million in a new drylaid nonwoven line to serve the North American air filtration market. The new line, located at Ahlstrom's Groesbeck, TX, USA facility, will further enhance Ahlstrom's ability to better serve the Heating, Ventilation and Air Conditioning (HVAC) filter media market in North America. The new line is expected to start at the beginning of 2008. The outlook for the coming months is cautiously optimistic despite the continued uncertainty in the North American air filtration market. Glass Nonwovens business area (6% of the Group's net sales) Ahlstrom's glass nonwovens products are used in the building materials, marine, transportation, windmill, and sporting goods sectors. Market conditions for Ahlstrom's glass nonwovens developed favorably during the first quarter with a particularly strong demand seen for building materials, windmill and marine applications. However, sales volumes declined temporarily by 16% and net sales by 3% due to the planned investment standstills (glass furnace repair and speed up of the chopped strand mat machine) at the Karhula, Finland plant. The sales in Eastern Europe increased strongly, while in Central Europe sales declined temporarily. The new glass nonwovens plant built in Bishopville, SC, USA started production during the first quarter. Additionally, the above-mentioned investment projects at the Karhula plant were initiated and completed successfully during the quarter. High raw material and energy costs continued to put pressure on the business area's margins. However, price increases as well as favorable changes in the product mix partially offset the effect of high input costs. Demand for Ahlstrom's glass nonwovens is anticipated to remain good in the coming months. Specialty Papers segment Key figures, EUR million Q1/2007 Q1/2006 Change, % 2006 Net sales 211.4 203.3 4.0 794.0 Operating profit 13.0 13.0 -0.1 32.2 Operating profit excl. 8.6 13.0 -33.8 36.4 non-recurring items Operating profit, % excl. 4.1 6.4 4.6 non-recurring items Return on net assets 16.1 17.1 10.5 (RONA), % Return on net asses 10.7 17.1 11.8 (RONA), % excl. non-recurring items Net sales of the Specialty Papers segment grew by 4.0% and amounted to EUR 211.4 million (EUR 203.3 million). Sales volumes grew by 5.1%. The growth was driven by improved demand in the Technical Papers business area. Compared with the fourth quarter of 2006, the average sales prices increased in the Technical Papers business area, but decreased slightly in the Label and Packaging Papers business area. Excluding non-recurring items, operating profit of the segment was EUR 8.6 million (EUR 13.0 million). The non-recurring items of EUR 4.4 million were primarily related to asset sales. The decline in the segment's operating profit was mainly due to increased raw material costs. Label & Packaging Papers business area (32% of the Group's net sales) The Label & Packaging Papers business area manufactures a number of different specialty papers for use in the self-adhesive industry, as well as in the labeling, packaging and graphic industries. The demand for release base papers remained good in the first quarter despite the temporary excess supply in the market. In wet glue labels, demand was solid throughout the quarter as the peak season of the beverage label industry started. Demand for metalizing labels also improved towards the end of the quarter for the same reason. In flexible packaging, the market situation remained challenging. Volumes sold increased by 3% compared with the first quarter of 2006 due to improved demand. Additionally, the business area's major production line at the Turin, Italy plant was stopped in January 2006 due to an investment for capacity expansion, thus decreasing the volumes of the review period in comparison. Net sales grew in the first quarter by 2% from the corresponding period in 2006. In the release base paper market, sales prices were under pressure. Price for wood pulp, the business area's main raw material, continued to increase and was at a remarkably higher level than in the corresponding period of 2006. Also the energy costs increased from the first quarter 2006 despite the slight decline experienced at the end of the quarter. In the first quarter, Ahlstrom signed a Memorandum of Understanding with Votorantim Celulose e Papel (VCP) to form a joint venture for specialty paper production in Brazil. The joint venture will serve mainly the labeling and flexible packaging markets. According to the Memorandum of Understanding, Ahlstrom will hold a majority of the joint venture. Ahlstrom expects to close the deal on or before June 30, 2007, subject to antitrust clearances and satisfactory conclusion of the ongoing due diligence process. The investment to increase the production capacity of release base papers at the La Gère, France plant will take place during the second quarter of 2007. The project is equivalent in size with the investment at the Turin, Italy plant, completed in January 2006. Demand for release base papers is anticipated to remain at the current good level in the coming months. In both metalizing and wet glue labels, the peak season for the beverage label industry strengthens the demand in the coming months. In flexible packaging papers market situation remains challenging. Technical Papers business area (19% of the Group's net sales) The main products of the Technical Papers business area are abrasive base papers, crepe papers (such as masking tape base, wipes, medical applications), pre-impregnated decor papers, sealing & shielding materials (for gaskets, heat shields, calender bowls), coated papers (e.g. wallpaper base and poster papers) as well as vegetable parchment papers. The business area's main markets include the furniture and home decoration, healthcare, food and automotive industries. The overall demand for Ahlstrom's technical papers developed favorably from the corresponding period last year, though varying by product area. Market situation was particularly positive in vegetable parchment, crepe papers, pre-impregnated decor papers, poster papers and in certain sealing & shielding applications, while within abrasive base papers and wallpaper base papers the market was more challenging. Volumes sold increased by 10% from the first quarter of 2006. Mainly due to the changes in product mix and the exchange rate impact, net sales increased by 8%. Price for pulp continued to escalate during the first quarter. In addition, electricity costs of the business area increased. Price increases, implemented despite the tight competition, only partially offset the increased input costs. In addition, the business area was able to reduce costs e.g. by decreasing waste levels and by improving its overall productivity. The market environment is expected to remain stable in the coming months, with stronger demand anticipated for abrasive base papers, wallpaper base papers and calender bowl materials. Appendix 2 CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING PRINCIPLES This report has been prepared in accordance with the International Financial Reporting Standards (IFRS) and the accounting policies set out in IAS 34 (Interim Financial reporting) as adopted by EU and in the Group's Financial Statements for 2006. Application of amended or new IFRS-standards as of January 1, 2007 The Group has adopted the following new or amended standards and interpretations as of January 1, 2007: - IFRS 7 Financial Instruments: Disclosures - Amendment to IAS 1 Presentation of Financial Statements - Capital disclosures - IFRIC 9 Reassessment of Embedded Derivatives The above mentioned standards and interpretations do not have a material effect on the consolidated financial statements. They will impact the format and extent of year-end 2007 notes to the financial statements. Financial Statements are unaudited. INCOME STATEMENT Q1 Q1 Q1-Q4 Eur million 2007 2006 2006 Net sales 416.5 414.6 1 599.1 Other operating income 11.3 10.3 36.7 Expenses -384.9 -375.5 -1 458.2 Depreciation, amortization and -19.6 -19.8 -81.6 impairment charges Operating profit 23.3 29.6 96.1 Net financial expenses -3.0 -4.5 -14.9 Share of profit (loss) of -0.1 -0.0 0.0 associated companies Profit before taxes 20.3 25.1 81.2 Income taxes -6.9 -9.3 -23.6 Profit for the period 13.4 15.8 57.6 Attributable to Equity holders of the parent 13.3 15.8 57.5 Minority interest 0.0 0.0 0.1 Basic earnings per share, EUR 0.29 0.41 1.31 Diluted earnings per share, EUR 0.29 0.40 1.29 BALANCE SHEET Mar 31, Mar 31, Dec 31, Eur million 2007 2006 2006 ASSETS Non-current assets Property, plant and equipment 608.0 586.2 601.7 Goodwill 99.8 107.0 101.0 Other intangible assets 31.7 38.4 32.6 Investment property - 4.0 - Investments in associated 12.7 49.4 12.9 companies Other investments 0.2 0.2 0.2 Other receivables 12.3 7.1 6.1 Deferred tax assets 27.6 28.0 25.9 Total non-current assets 792.3 820.2 780.4 Current assets Inventories 216.1 205.2 214.4 Trade and other receivables 357.0 349.0 328.0 Income tax receivables 8.1 2.0 8.7 Other investments 0.0 12.7 5.0 Cash and cash equivalents 23.9 69.6 20.1 Total current assets 605.1 638.5 576.1 Total assets 1,397.4 1,458.7 1,356.6 EQUITY AND LIABILITIES Equity attributable to equity 739.5 733.7 765.8 holders of the parent Minority interest 0.8 0.9 0.8 Total equity 740.3 734.5 766.6 Non-current liabilities Interest-bearing loans and 43.1 95.9 44.0 borrowings Employee benefit obligations 95.7 112.7 112.4 Provisions 5.0 3.7 3.7 Other liabilities 0.5 0.6 0.6 Deferred tax liabilities 27.4 23.8 26.8 Total non-current liabilities 171.8 236.8 187.4 Current liabilities Interest-bearing loans and 161.0 206.9 136.4 borrowings Trade and other payables 294.8 246.1 241.0 Income tax liabilities 17.1 21.5 12.4 Provisions 12.5 12.8 12.8 Total current liabilities 485.3 487.4 402.6 Total liabilities 657.1 724.1 590.0 Total equity and liabilities 1,397.4 1,458.7 1,356.6 STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of Mino- Total the parent Sha- Non- Hedg- Trans- rity equ- Issued re re- ing latio Re- inte- ity n cap- pre- strict re- re- tained rest ed ital mium equity serve serve earn- re- ings Eur serve million Equity at Dec 31, 2005 54,6 26,7 - 1,0 3,7 503,7 0,8 590,5 Cash flow hedges, net of tax: Gains and losses taken to equity - - - -0,4 - - - -0,4 Trans- lation differ- ences - - - - -4,3 - - -4,3 Gains and losses from hedge of net invest- ments in foreign oper- ations, net of tax - - - - 3,1 - - 3,1 Other changes - - - - - -0,1 0,0 -0,1 Profit for the period - - - - - 15,8 0,0 15,8 Total recogn- ized income and expense for the period - - - -0,4 -1,2 15,7 0,1 14,1 Divid- ends paid - - - - - -65,2 - -65,2 Share issue 13,7 182,5 - - - - - 196,3 Share options exercise 0,0 0,2 - - - - - 0,2 d Redem- ption of share options - - - - - -1,4 - -1,4 13,8 182,7 - - - -66,6 - 129,9 Equity at Mar 31, 68,4 209,4 - 0,6 2,5 452,8 0,9 734,5 2006 Equity at Dec 31, 68,5 209,3 0,5 0,1 -3,1 490,4 0,8 766,6 2006 Cash flow hedges, net of tax: Gains and losses taken to - - - -0,1 - - - -0,1 equity Trans- lation differ- ences - - - - -3,2 - - -3,2 Gains and losses from hedge of net invest- ments in foreign operatio ns, net of tax - - - - 1,5 - - 1,5 Other changes - - - - - 0,1 -0,0 0,1 Profit for the period - - - - - 13,3 0,0 13,4 Total recogn- ized income and expense for the period - - - -0,1 -1,7 13,5 0,0 11,7 Divid- ends - - - - - -46,6 - -46,6 paid Share options exercise 1,4 - 7,3 - - - - 8,7 d 1,4 - 7,3 - - -46,6 - -37,9 Equity at Mar 31, 69,9 209,3 7,8 -0,0 -4,8 457,3 0,8 740,3 2007 STATEMENT OF CASH FLOWS Q1 Q1 Q1-Q4 Eur million 2007 2006 2006 Cash flow from operating activities Profit for the period 13.4 15.8 57.6 Adjustments, total 19.7 34.1 109.8 Changes in net working capital -27.2*) -11.4 -14.4 Change in provisions and pension -14.0*) -0.4 -0.5 liability Financial items -1.0 -6.9 -3.7 Taxes paid -3.0 -5.2 -29.6 Net cash from operating -12.0 26.0 119.2 activities Cash flow from investing activities Acquisition of Group companies - -8.1 -7.8 Purchases of property, plant & -32.8 -29.6 -116.5 equipment Other investing activities 14.5 -12.3 45.3 Net cash from investing -18.3 -50.0 -79.0 activities Cash flow from financing activities Share issue 8.7 194.7 195.1 Dividends paid - -65.2 -65.3 Other financing activities 25.4 -51.9 -165.8 Net cash from financing 34.1 77.6 -36.0 activities Net change in cash and cash 3.8 53.6 4.3 equivalents Cash and cash equivalents at 20.1 16.0 16.0 beginning of period Foreign exchange adjustment -0.0 -0.1 -0.1 Cash and cash equivalents at end 23.9 69.6 20.1 of period *) Includes EUR -20.8 million payment to the pension fund to cover approximately half of the historical deficit of the defined benefit pension plan in the United Kingdom. KEY FIGURES Q1 Q1 Q1-Q4 2007 2006 2006 Operating profit, % 5.6 7.1 6.0 Operating profit (excluding non- 4.7 6.3 5.5 recurring items), % Return on capital employed (ROCE), 10.0 12.3 10.4 % ROCE (excluding non-recurring 8.4 11.0 9.5 items), % Return on equity (ROE), % 7.1 9.5 8.5 Interest-bearing net liabilities, 180.1 220.6 155.2 EUR million Equity ratio, % 53.0 50.4 56.5 Gearing ratio, % 24.3 30.0 20.3 Earnings per share, EUR 0.29 0.41 1.31 Earnings per share, diluted, EUR 0.29 0.40 1.29 Equity per share, EUR 15.88 16.11 16.79 Cash earnings per share, EUR -0.26 0.68 2.72 Average number of shares during 45,918 38,326 43,802 the period, 1000's Number of shares at the end of the 46,608 45,587 45,662 period, 1000's Capital expenditure, EUR million 29.1 28.0 120.1 Capital employed, at the end of 944.4 1 037.4 946.9 the period, EUR million Number of employees, average 5,665 5,572 5,687 CHANGES OF PROPERTY, PLANT AND EQUIPMENT Q1 Q1 Q1-Q4 Eur million 2007 2006 2006 Book value at Jan 1 601.7 577.4 577.4 Additions 28.7 32.6 121.6 Disposals -0.1 -0.0 -1.0 Depreciations and impairment -18.5 -18.4 -75.7 charges Translation adjustment and other -3.8 -5.4 -20.6 changes Book value at end of the period 608.0 586.2 601.7 TRANSACTIONS WITH RELATED PARTIES Q1 Q1 Q1-Q4 Eur million 2007 2006 2006 Transactions with associated companies Sales and interest income 0.1 0.4 1.3 Purchases of goods and services -2.1 -2.4 -10.9 Trade and other receivables 0.1 1.2 0.5 Trade and other payables 0.1 0.9 0.8 Interest-bearing loans and 2.9 4.6 6.6 borrowings Market prices have been used in transactions with associated companies. OPERATING LEASES Mar 31, Mar 31, Dec 31, Eur million 2007 2006 2006 Current portion 5.7 5.8 6.1 Non-current portion 16.3 21.0 18.2 Total 22.0 26.8 24.3 CONTINGENT LIABILITIES Mar 31, Mar 31, Dec 31, Eur million 2007 2006 2006 For own liabilities Loans from financing institutions Amount of loans - 0.1 - Amount of mortgages - 0.1 - Other loans Amount of loans 1.3 1.9 1.5 Book value of pledges 1.5 2.0 1.6 For other own commitments Guarantees 57.5 23.1 29.1 For commitments of associated companies Guarantees 8.3 8.3 8.3 Capital expenditure commitments 48.0 22.6 50.6 Other contingent liabilities 5.2 9.7 5.3 QUARTERLY DATA Q1 Q4 Q3 Q2 Q1 Eur million 2007 2006 2006 2006 2006 Net sales 416.5 389.0 385.9 409.6 414.6 Other operating income 2.6 4.3 4.4 5.6 7.0 * Expenses * -379.9 -359.3 -349.6 -368.7 -375.5 Depreciation, -19.6 -19.9 -19.8 -20.5 -19.8 amortization, impairment charges * Non-recurring items 3.8 -1.9 4.4 2.9 3.3 Operating profit 23.3 12.3 25.3 28.9 29.6 Net financial expenses -0.1 -0.2 -0.2 0.4 -0.0 Share of profit (loss) -3.0 -2.6 -3.7 -4.1 -4.5 of associated companies Profit before taxes 20.3 9.4 21.4 25.2 25.1 Income taxes -6.9 -0.7 -5.0 -8.6 -9.3 Profit for the period 13.4 8.8 16.4 16.6 15.8 Attributable to Equity holders of the 13.3 8.8 16.4 16.5 15.8 parent Minority interest 0.0 -0.0 0.0 0.1 0.0 Operating profit * 19.6 14.1 20.8 26.0 26.3 Operating profit, % * 4.7 3.6 5.4 6.4 6.3 * Excluding non- recurring items QUARTERLY DATA BY Q1 Q4 Q3 Q2 Q1 SEGMENT Eur million 2007 2006 2006 2006 2006 Net sales FiberComposites 206.4 195.4 195.3 204.9 212.7 Specialty Papers 211.4 193.9 191.5 205.2 203.3 Other operations and -1.3 -0.3 -0.9 -0.5 -1.5 eliminations Group total 416.5 389.0 385.9 409.6 414.6 Operating profit FiberComposites 15.2 9.2 13.3 13.9 15.9 Specialty Papers 13.0 3.0 6.0 10.3 13.0 Other operations and -4.9 0.1 6.0 4.8 0.7 eliminations Group total 23.3 12.3 25.3 28.9 29.6 Operating profit excluding non-recurring items FiberComposites 13.4 11.0 13.3 13.9 15.9 Specialty Papers 8.6 4.4 8.7 10.3 13.0 Other operations and -2.5 -1.2 -1.2 1.9 -2.6 eliminations Total 19.6 14.1 20.8 26.0 26.3 Non-recurring items 3.8 -1.9 4.4 2.9 3.3 Group total 23.3 12.3 25.3 28.9 29.6 KEY FIGURES QUARTERLY Q1 Q4 Q3 Q2 Q1 Eur million 2007 2006 2006 2006 2006 Net sales 416.5 389.0 385.9 409.6 414.6 Operating profit 23.3 12.3 25.3 28.9 29.6 Operating profit 19.6 14.1 20.8 26.0 26.3 (excluding non- recurring items) Profit before taxes 20.3 9.4 21.4 25.2 25.1 Profit before taxes 16.5 11.3 17.0 22.3 21.8 (excluding non- recurring items) Profit for the period 13.4 8.8 16.4 16.6 15.8 Gearing ratio, % 24.3 20.3 25.0 30.0 30.0 Return on capital 10.0 5.3 10.3 11.7 12.3 employed (ROCE), % ROCE (excluding non- 8.4 6.1 8.5 10.6 11.0 recurring items), % Earnings per share, EUR 0.29 0.18 0.36 0.36 0.41 Cash earnings per -0.26 0.54 1.29 0.21 0.68 share, EUR Average number of 45,918 45,602 45,592 45,587 38,326 shares during the period, 1,000's CALCULATION OF KEY FIGURES Interest- Interest-bearing loans and borrowings - Cash and bearing cash equivalents - Other investments (current) net liabilities Equity Total equity x 100 ratio, % Total assets - Advances received Gearing Interest-bearing net liabilities x 100 ratio, % Total equity Return on Profit (loss) for the period x 100 equity (ROE), % Total equity (annual average) Return on Profit (loss) before taxes + Financing x 100 capital expenses employed (ROCE), % Total assets (annual average) - Non-interest bearing liabilities (annual average) Earnings per Profit for the period attributable to share,EUR equity holders of the parent Average adjusted number of shares during the period Cash Net cash from operating activities earnings per share, EUR Average adjusted number of shares during the period Equity per Equity attributable to equity holders share, EUR of the parent Adjusted number of shares at the end of the period