AIR FILTRATION MARKET UPDATE

May 2011

McIlvaine Company
www.mcilvainecompany.com



TABLE OF CONTENTS

CONSTRUCTION
U.S. Housing Starts Fall in April

FINANCIALS
Ahlstrom Interim Report January-March 2011
3M Reports Sales, Earnings
Lydall First Quarter Results
Donaldson Reports Record Third Quarter Results

COMPANY NEWS
Vokes Air Announces Restructuring and Re-branding Campaign
Ahlstrom to Increase Transportation Filtration Material Capacity in Brazil
Sandler Completes Spunlace Investment

NEW PRODUCTS
Hunter Fan Company Launches Portable Air Filtration System
Philips India Launches New Car Air Purification System


Many projects, mergers and acquisitions are detailed in monthly updates in the Market Report’s Chapters under Industry Analysis. Click on the links below to view current updates for each industry.

AEROSPACE
FOOD
DISK DRIVE
FLAT PANEL
METALWORKING
OTHER ELECTRONICS
PHARMACEUTICAL
POWER
PULP MILLS
SEMICONDUCTOR
TRANSPORTATION



CONSTRUCTION

U.S. Housing Starts Fall in April
U.S. residential housing starts in April were at a seasonally adjusted annual rate of 523,000, 10.6 percent below the revised March estimate of 585,000. Single-family housing starts in April fell 5.1 percent from March rates to 394,000. The April rate for units in buildings with five units or more was 114,000.

Building permits authorized in April were at a seasonally adjusted annual rate of 551,000. This is 4.0 percent below the revised March rate of 574,000. Single-family authorizations were 1.8 percent below the revised March figure of 392,000. Authorizations of units in buildings with five units or more were at a rate of 143,000 in April.

FINANCIALS

Ahlstrom Interim Report January-March 2011
Ahlstrom Corporation reported January-March 2011 net sales of EUR 491.6 million, an increase of 11.5 percent year-on-year compared with January-March 2010. Operating profit was EUR 20.8 million compared to EUR 14.0 million for the same period last year. Operating margin excluding non-recurring items was 4.3 percent. Profit before taxes is reported at EUR 15.5 million.

Filtration net sales increased 4.2 percent to EUR 82.3 million. Growth was supported by the improved demand in the transportation industry globally as well as increased selling prices to cover higher chemicals and specialty pulp costs.

On a comparable basis, about 10 percent of the company’s total net sales increase was driven by price increases and product mix. Currency effect increased net sales by about 1.5 percent and higher volumes by about 3 percent. Divestments of the Dust Filtration business and the Altenkirchen plant announced at the end of 2010 reduced net sales by about 3 percent.

The Asia-Pacific region (+28.3 percent) and Europe (+10.7 percent) reported the fastest year-on-year growth. Net sales in South America grew by 9.6 percent and 8.9 percent in North America.
Volumes rose in all but one Business Area from the first quarter 2010. Building and Energy (+15.2 percent), Home and Personal (+10.9 percent), Food and Medical (+9.0 percent), and Filtration (+1.5 percent) increased their volumes, while Label and Processing (-5.1 percent) reported a decline. Divestments of the Dust Filtration business, part of Filtration, in the U.S. and the Altenkirchen plant, part of Label and Processing, in Germany had a total negative impact of about 2 percent on volumes.

Highlights in January-March 2011:
• Encouraging net sales development with 11.5 percent year-on-year growth
• Ahlstrom launched its renewed brand and brand identity
• Production at the Louveira filtration plant in Brazil was fully resumed within a month after flooding in January

Outlook for 2011
Ahlstrom maintains its outlook for 2011. Net sales for the current year are estimated to amount to EUR 1,920-2,080 million. Operating profit excluding non-recurring items is estimated to be EUR 90-110 million.

3M Reports Sales, Earnings
3M has closed its first quarter with increases in both sales and earnings. First-quarter sales totaled $7.3 billion, up 15.2 percent year-on-year, including an 8.9 percent increase in organic sales volumes. All six of the company’s business segments posted operating margins above 21 percent in the quarter.

The company estimates that combined direct and indirect business disruption resulting from events in Japan reduced first-quarter sales growth by 70 basis points, operating margins by 40 basis points and earnings by $0.03 per share.

“We are off to a tremendous start in 2011 with first-quarter organic sales growth of 9 percent—or 10.5 percent adjusting for Japan and H1N1 impacts,” said George W. Buckley, 3M chairman, president and CEO. “New product flow is accelerating, boosted by higher investment in laboratory, sales and marketing and manufacturing capacity. Sales are growing faster as a result and our businesses are growing most everywhere in the world.”

“In addition, we were able to more than overcome the impact of the terrible earthquake in Japan and its tragic aftermath in the tsunami and nuclear power plant issues,” Mr. Buckley continued. “I would like to thank all our employees for their outstanding execution in the first quarter, with special heartfelt thanks to our courageous Japanese team for selflessly responding to this challenge. Our hearts go out to all of them and to their nation.”

First-quarter worldwide sales totaled $7.3 billion, up 15.2 percent compared to the first quarter of 2010. Organic volumes grew 8.9 percent, selling prices rose 0.1 percent, acquisitions added 3.2 percent and foreign exchange added 3 percent to sales in the quarter.

Local-currency sales including acquisitions grew in all six of the company’s business segments.
Total sales in 3M’s Health Care business were up 9.7 percent. Industrial and Transportation segment sales rose 16.9 percent.

Lydall First Quarter Results
Lydall announced sales results for the first quarter ended March 31, 2011. Lydall’s sales for the quarter totaled $108.1 million, a 43 percent increase from the first quarter 2010, primarily attributable to the Thermal/Acoustical and Performance Materials segments, which reported $21.4 million (or 52.9 percent) and $9.3 million (or 34.3 percent), respectively, higher net sales in Q1 2011 than the same period in the prior year.

The increase in gross profit was a direct result of the increased sales. Negatively impacting the gross margin was the mix of segment sales, with the increase in the Thermal/Acoustical segment outweighing the increase in the Performance Materials segment, and the dilutive impact of the fiber product line at North American automotive, which incurred an estimated negative gross profit of $(0.4) million on $19.3 million of net sales in the first quarter of 2011, but had positive gross profit in the first quarter of 2010. The Thermal/Acoustical segment was also negatively impacted in the first quarter of 2011 by the rising cost of both aluminum and fiber raw materials.

The Performance Materials segment reported an increase in operating income of $4.3 million. In addition, the segment recorded $0.4 million of operating income in the first quarter of 2011 related to ongoing services resulting from the sale of a product line in June 2010. The Thermal/Acoustical segment reported an increase in operating income of $0.8 million. The positive impact of the added volume in this segment was diluted by the negative gross profit of the fiber product line, which had positive gross profit in the first quarter of 2010.

The company has been monitoring the impact of the Japanese natural disaster on its customers and the company’s supply chain. The Company has not been materially impacted by a reduction or delay in orders from customers or disruptions in its ability to procure raw materials, but there is no assurance that a broader supply chain disruption would not negatively impact the Company’s future financial results.

Dale Barnhart, president and CEO stated, “We are pleased to report to our shareholders an earnings per share of 17 cents in the first quarter of 2011. Our markets were robust, we saw market share increases in a number of products in both of our segments, and the majority of our product lines produced strong returns. In addition, while growing net sales by 43 percent, we have been able to maintain the level of selling, general and administrative expenses, consistent with the first quarter of 2010.”

Donaldson Reports Record Third Quarter Results
Donaldson Company, Inc. (NYSE: DCI) announced its financial results for its fiscal 2011 third quarter. Donaldson posted a 25 percent rise in third-quarter net income Friday, led by growth in engine and industrial filtration sales.

The company reported net income of $61.8 million for the three months ending April 30. That compares with net income of $49.5 million a year earlier. Revenue rose 19 percent to $594.6 million.

"The continued strength in many of our early- and mid-cycle businesses, combined with solid execution across our Company, helped us set new third quarter sales and EPS records," said Bill Cook, Chairman, President and CEO. "In the quarter, sales in our Engine and Industrial Products' segments increased 25 percent and 11 percent over the prior year, respectively. Business levels continued to expand in many of our regions with notable performances in the Americas, where local currency sales grew 26 percent, and in Europe, which grew 15 percent. Our overall sales in Asia were flat, but it was really a combination of two different stories. Our Gas Turbine and Special Applications Products were down from the prior year; however, they were offset by our Engine and Industrial Filtration Solutions Products, which grew 18 percent and 20 percent, respectively, driven primarily by their rapid growth in China.

We achieved an operating margin of 14.0 percent – our highest so far this fiscal year due to the combination of operating leverage in our plants and distribution centers, our focus on effective execution in support of our Customers, and the benefits of our many Continuous Improvement initiatives across our Company."

"With projected sales of over $600 million in our 4th quarter, we forecast continued growth. We are also very pleased to now forecast that our full year EPS should be a new record of between $2.76 and $2.86, which is up between 30 and 35 percent from both last year and our pre-recession record."

FY11 Outlook

Donaldson expects to achieve both full year sales are and EPS records in FY11, planning FY11 sales to be nearly $2.3 billion, or up about 21 to 23 percent from the prior year. The current forecast is based on the Euro at US$1.44 and 81 Yen to the US$.

• sales to agricultural, mining, and construction equipment OEM Customers to remain strong globally.
• continue to benefit from increased market share on Customers' new Tier IV equipment platforms.
• build rates for heavy- and medium-duty trucks at OEM Customers in the On-Road Products' business will continue accelerating consistent with current industry forecasts
• Aftermarket Products sales to remain strong based on current utilization rates for both off-road equipment and on-road heavy trucks.
• distribution networks continue to expand in the emerging economies and from the increasing number of systems installed in the field with their proprietary filtration systems
• Industrial Products: forecast full year FY11 sales to increase 11 to 14 percent, including the impact of foreign currency translation
• Industrial Filtration Solutions' sales are projected to increase 16 to 19 percent as the demand for new filtration equipment and replacement filters both continue to improve as general industrial capital activity and spending increase globally
• Gas Turbine Products' sales to be up 2 percent due to strength in the oil and gas market segment
• Special Applications Products' sales to increase 7 percent due to growing sales of their membranes products, which are partially offset by slower disk drive filter sales

COMPANY NEWS

Vokes Air Announces Restructuring and Re-branding Campaign
Vokes Air is dividing its organization into two units to meet the needs of customers in industries ranging from facilities management to biological research.

The new Clean Air division will deal with the volume market for replacement air filters in HVAC (heating, ventilation and air conditioning) applications.

In the Engineered Solutions department customized air filtration systems will be designed and supplied to markets such as industrial and healthcare.

CEO George Black said: “The fundamental aim of this restructure is to focus our internal resources on product and service delivery by market segment, which we believe will ultimately add greater value to our clients.”

To accompany the restructuring the firm has developed a new logo and brand identity, bringing national brands in Denmark, Germany and Sweden under the Vokes Air name, ceasing the use of the Atex-Filter, Scandfilter and Industri-Filter brand names.

To coincide with this, a new corporate website at www.vokesair.com has been launched with a live chat facility to instantly answer potential client requests, along with extended information on products and applications. The website will also give visitors a 'quote basket feature' which allows them to configure a product and send it to Vokes Air for a full quotation.

Ahlstrom to Increase Transportation Filtration Material Capacity in Brazil
Ahlstrom will invest into additional capacity in transportation filtration materials at its site in Louveira, Brazil. The investment will be completed in the first quarter of 2012.

"We have been pleased to grow with our key customers and as a commitment to the filtration business we are expanding the operation. This is another important step in our global growth roadmap where we have strengthened our global platform in Europe, Asia, and now in South America. We will continue to keep our focus on our markets in all four geographies - enabling Ahlstrom to be a global supplier in the filtration market with a full offering of filter media", states Gary Blevins, Vice President, Transportation Filtration.

Ahlstrom is a leading manufacturer of filtration materials globally with 11 production sites across four continents. In 2010, the company acquired a transportation filtration plant in Binzhou, China and announced a EUR 17.5 million investment to expand capacity in Turin, Italy.

Sandler Completes Spunlace Investment
Sandler AG has completed work on its fourth plant in Schwarzenbach/Saale, Germany.

"Two years ago—at the height of the financial crisis—the Sandler AG Management Board decided to invest €40 million in a new plant and a state-of-the-art spunlace production facility," recalled Christian Heinrich Sandler. "The new construction of plant 4 was a challenge for all company employees, who were highly motivated and enthusiastic in their commitment towards the project during all phases of civil engineering, plant assembly, and the start-up of the system."

The new building is 150 meters long, 70 meters wide and 20 meters high; each of the two floors measures 10,500 square meters, which is the equivalent area of four soccer fields. The top floor is used as a warehouse. The lower floor houses the centrepiece of the investment—a new nonwoven production line. This spunlace line—Sandler’s third—will be used to produce a new generation of materials for care and cleaning wipes as well as technical nonwovens.

"The nonwovens line 52 is a production plant with high potential for innovation. True to our concept ‘less is best to nature’, we have the opportunity to further reduce the basis weight of wet wipe substrates while maintaining the same level of performance. In terms of sustainability, we are not only able to produce nonwovens made from biodegradable and lactic acid-based polylactate fibers. As part of a development project with a major supplier, we have designed a bio-wipe with a substrate of 100 percent biodegradable viscose, which in turn consists of raw materials acquired from PEFC-certified European forests," explained Dr. Sandler.
NEW PRODUCTS

Hunter Fan Company Launches Portable Air Filtration System
Hunter Fan Company announced recently the launch of the Total Air Sanitizer, a portable air purifier that the company claims effectively captures and kills living biological pollutants and viruses.

Hunter developed the Total Air Sanitizer in order to provide customers with a reliable alternative to UV or UV-C air purifiers, which often do not expose all germs and viruses to the concentration of light intended to kill them. The Total Air Sanitizer uses new technology patented exclusively by Hunter to add an electric current to the HEPA air filter that kills bacteria, viruses, molds and fungi while capturing and removing dust, pollen, pet dander and other allergens from the air during any season.

The Total Air Sanitizer captures more than 99.9 percent of airborne particles and applies a charge throughout its one-of-a-kind HEPA filter that "traps and zaps" germs and viruses on the spot. In some rooms or homes, the Total Air Sanitizer may provide a noticeable improvement in air quality in as little as one hour of use.

The Total Air Sanitizer is priced at $249 and offered at HunterCleanAir.com and 1-800-716-3043.

Hunter Fan Company, founded in 1886 and headquartered in Memphis, Tenn., is the world's original ceiling fan manufacturer. Today, the company also manufactures high-performance air purifiers, low-maintenance humidifiers, portable fans and energy-saving thermostats.

Philips India Launches New Car Air Purification System
Philips India has announced its entry into the all new automotive car air purification system category with the Philips GoPure car cleaning system. This system has been designed to work in the harsh dusty conditions that India offers and is said to offer cleaner air for passengers.

The air purifier system incorporates an advanced filtering technology which has been designed to remove harmful gases, viruses, bacteria, odor and other fine particles from the car. The clean air system is equipped with a three stage filtering process which incorporates a HEPA filter and a patented HESA filter to help remove pollutants and further reduce odor.

The system is equipped with 3 stage air improvement indicator with LED signature that measures the concentration of particulates and shows how the cabin air improves. Philips GoPure Automotive Clean Air System is easy to operate and is automatically turned on/off with ignition. The system is priced at Rs. 12,000.


McIlvaine Company
Northfield, IL 60093-2743
Tel: 847-784-0012 Fax: 847-784-0061
E-mail: editor@mcilvainecompany.com
Web site: www.mcilvainecompany.com