Sales of the products of Kemira's main business areas have got off to a good start. Net sales grew by 11% in the first quarter of the current year. The market outlook in all the Group's growth areas is good. Income before taxes for the January-March period was EUR 24 million (17 million a year earlier). The Group's structural change has moved ahead rapidly and it will improve both the result for the current year and the Group's growth potential and competitiveness over the long term. Full-year net income is expected to improve on last year's result.
The Kemira Group's net sales in the January-March period of the current year were EUR 707 million, up 11% on the same period a year earlier (640 million). Consolidated operating income in the first quarter was EUR 36 million (30 million), or 5% of net sales (5%). The March strike in the chemical industry in Finland lowered operating income by about EUR 6.2 million. Interests in the results of associated companies amounted to a total of EUR 1.0 million. Income before taxes and minority interests was EUR 24 million (17 million) and income after taxes was EUR 16 million (12 million). Earnings per share were EUR 0.13 (0.09), up 36%. Cash flow from the sale of assets was EUR 6 million. Cash flow after capital expenditures and income from the sale of assets was EUR 80 million negative (117 million negative). Per-share cash flow from operations was EUR 0.47 negative (0.68 negative). Equity per share was EUR 7.79 (7.57).
The average number of the Group's employees in January-March was 10,299 (10,530).
KEMIRA CHEMICALS
Kemira Chemicals' net sales grew by 5% on the previous year and were EUR 182 million. Operating income was EUR 22 million (19 million), or 12% of net sales. The week-long strike in the chemical industry in Finland cut into the Group's operating income in March, particularly affecting the Pulp and Paper and Industrial Chemicals units, whose operating income was reduced by a total of about EUR 2.7 million. The eight-day strike in the forest industry was reflected in April deliveries to the pulp and paper industry.
The Pulp & Paper Chemicals unit's net sales grew by 14% thanks to the further favourable trend in the pulp and paper industry's production volumes. The Pulp and Paper Chemicals unit is beefing up its speciality chemicals operations by expanding its plant in Vaasa, Finland and by building a new unit in Brazil.
The Kemwater unit's net sales rose by 6%. Operating income fell slightly short of the previous year's figure.
The Industrial Chemicals unit's net sales were down 12%. The price of phosphoric acid has headed downward and the markets for value added products made from phosphates as well as for calcium chloride are still weak. On the other hand, the sodium percarbonate market looks good and the unit has announced that it will double the production capacity of the plant that was completed in Helsingborg, Sweden, last year. The unit has started a programme to reduce organic emissions into the atmosphere resulting from potassium sulphate production in Helsingborg and Kokkola, Finland.
The sales and profitability of Kemira Fine Chemicals developed in line with expectations.
TIKKURILA
Tikkurila's net sales were up 14% on the previous year and totalled EUR 90 million. First quarter operating income was EUR 7.4 million (1.9 million), or 8% of net sales.
Tikkurila Paints' net sales grew by 12%. Growth in the home market was particularly strong. Tikkurila's subsidiary in Moscow, OOO Kraski Tikkurila, started up production in March. In step with its growth strategy, Tikkurila purchased the 40% stake of its Polish partner Baltchem S.A. in Tikkurila Baltcolor Sp. z o.o. Tikkurila Paints and Tikkurila Coatings now own 100% of the company's shares together on a fifty-fifty basis. The company produces and markets both decorative paints and industrial coatings in the Polish market.
Tikkurila Coatings reported a 2% fall in net sales due to the fact that Tikkurila will divest its 50% holding in UK-based Becker Acroma Ltd, including related business operations. The deal resulted in a non-recurring net credit to income of EUR 1.1 million.
Net sales of Tikkurila CPS grew by 32%. Net sales generated by both colorants and tinting machines grew markedly. CPS is building a new plant in Shanghai, China, that will manufacture components for colour processing systems. The objective is to gain a foothold in China's fast developing paint market by capitalizing on Tikkurila CPS's new technology and marketing tools. According to plans, production will be started up in the early part of 2001.
KEMIRA AGRO
Kemira Agro's net sales were EUR 306 million, an increase of 5% on the previous year. Within the Agriculture unit the sales volume of plant nutrients increased by 6%. Prices of straight nitrogen products in Europe bottomed out towards the end of last year and in March-April prices in certain markets were up as much as 20% on the level of the corresponding period of last year. Nevertheless, a large proportion of the deliveries during the first quarter were still made at prices that were agreed towards the end of last year. Thus the rise in prices will not feed through to the full extent until the second quarter. Concurrently, profitability is being hurt by the rise in the price of natural gas, which is used in the manufacture of ammonia, the nitrogen raw material. There has been a more moderate rise in the prices of NPK compound fertilizers, which typically show more stable price fluctuations on the market. Net sales by the Horticulture unit grew by 16%, whereas the Process Chemicals unit saw its net sales decline by 13% on the previous year. Both units had good profitability. Kemira Agro's first quarter operating income was EUR 0.4 (5.4 million). The effect of the chemical workers' strike was about EUR 1.5 million.
In the first part of the year Kemira Agro's operations were divided into nitrogen and speciality fertilizer businesses in accordance with the Group's strategy. Preparations are being made for reorganizing nitrogen fertilizer production with the aim of carrying out the reorganization measures by the turn of the year. As part of this process Kemira Agro plans to close the operations of the nitrogen fertilizer unit in Rozenburg, Holland. The overall cost of the closure is estimated to be EUR 80 million.
Kemira Agro's projects which aim to expand its operations in line with the specialization strategy moved ahead in China, Jordan and Dubai.
KEMIRA PIGMENTS
Kemira Pigments' net sales were up 24% on the previous year and totalled EUR 133 million. The sales volumes of titanium dioxide pigments were about 11% greater and average prices about 2% higher than during the corresponding period a year ago. As a consequence of the good demand, the price increases announced towards the end of last year have been implemented at the beginning of this year and new increases in Europe and Asia were announced in March. Operating income for the January-March period was EUR 7.2 million (5.4 million).
In February a purchase agreement was signed concerning the sale to the American company Kerr-McGee Chemical Corporation LLC of Kemira Pigments' units located in Savannah, on the east coast of the United States, and in Rotterdam, the Netherlands. The purchase price was a total of USD 403 million on a debt-free, cash-free basis. The business in Savannah was transferred to the purchaser as from the beginning of April and the business in Rotterdam from the beginning of May. The deal resulted in a total capital gain for the Group of EUR 140 million. The cash flow recognized as income and the capital gain will not show up until the second quarter figures are in.
First quarter net sales of the divested businesses amounted to EUR 89 million (67 million) and resulted in an operating loss of EUR 3.3 million (operating loss of 0.6 million). The Pori unit's net sales in the first part of the year were EUR 46 million (42 million) and it posted operating income of EUR 9.5 million (6.1 million). The strike in the Finnish chemical industry weakened the Pori unit's earnings in March by about EUR 2 million. Development of the Pori unit will be continued over the long term, and in future it will concentrate on its areas of special expertise, such as pigments for the printing ink industry and speciality pigments (including microfine pigments).
OTHER OPERATIONS
Kemira Metalkat had net sales of EUR 11 million, up 42% on the previous year. Operating income reached EUR 1.1 million.
Kemira Safety's net sales declined by 22% and were EUR 3.8 million. Operating income was EUR 0.3 million (0.0 million). In March an agreement was signed on the sale of Kemira Safety Oy's shares to the American company Scott Technologies Inc for USD 17.15 million. The transaction resulted in a capital gain of EUR 13 million. The deal was consummated when the business was transferred to the purchaser as from the beginning of May, whereby the cash flow and impact on earnings of the divestment will be reflected in the second quarter figures.
CAPITAL EXPENDITURES
The Group's capital expenditures on fixed assets were EUR 27 million (29 million). Income from the sale of shares and fixed assets was EUR 6 million (0 million) and net capital expenditures amounted to EUR 21 million (29 million) because all the major divestments of businesses were not carried out until the second quarter. Full-year gross capital expenditures are estimated to be about EUR 200 million (168 million).
FINANCING
Net financing expenses in the January-March period were EUR 12 million (13 million). Gains on foreign exchange were EUR 1.5 million (1.1 million). Fixed-interest loans amounted to about 45% of the total amount of interest-bearing long-term loans (excluding pension loans, which are not considered to be fully fixed-interest liabilities).
Interest-bearing net debt amounted to EUR 1,021 million, an increase of EUR 87 million since the end of last year because the cash flow in January-March was negative and the weakness of the euro, especially against the United States Dollar, raised the balance sheet value of loans denominated in dollars.
RESOLUTIONS OF THE ANNUAL GENERAL MEETING
The Annual General Meeting confirmed the payment of a dividend of EUR 0.23 per share (0.29) for the 1999 financial year, or a total of EUR 29.6 million (36.8 million). The Annual General Meeting resolved to amend the Articles of Association such that the authority of the Supervisory Board was reduced and that of the Board of Directors was expanded correspondingly. In future the Board of Directors will decide on all capital expenditures in its present business areas, regardless of their size, and it will convene general meetings of shareholders. The Annual General Meeting resolved to authorize the Board of Directors to purchase the company's own shares on the market in a maximum amount of 5 440 000 shares, or about 4.2% of the total shares outstanding. It also authorized the Board of Directors to transfer a maximum 6 440 000 of the company's shares that are in its possession after the share buyback for the purpose of using them as part of the bonuses to be paid to the personnel funds and as bonuses according to the management incentive schemes (if it is decided to introduce these) or as a means of payment in making acquisitions. The authorization is in force for one year from the resolution of the Annual General Meeting.
FULL-YEAR OUTLOOK
Kemira Chemicals' market outlook is good, spurred by the strong demand for paper products and the high rates of capacity utilization in the pulp and paper industry. The eight-day strike by the paperworkers in April will weaken second quarter operating income slightly. The Kemwater unit does not see any major changes on the horizon. Although the Industrial Chemicals unit must bear the brunt of the fall in the price of phosphoric acid, Kemira Chemicals is expected to be able to keep its operating income at last year's level. In future the aim is to accelerate the growth of both the Pulp and Paper and Kemwater units also through acquisitions.
Sales of paints on the home market are expected to develop well. It is believed that the business in Russia will grow and improve its profitability, particularly when the new plant that has been built in the Moscow vicinity has started up production and is able to exploit the local cost structure in its own operations. Sales of both tinting machines and colorants are expected to continue the good growth that got under way during the latter part of last year. Tikkurila is estimated to generate markedly better operating income than it did last year. A decision concerning the ownership arrangement for Tikkurila CPS will probably be taken in the second or third quarter.
For Kemira Agro, the most important event this year is the imminent structural arrangements for the nitrogen products business. The objective is to carry out the transfer of business functions by the end of the year. It is believed that the solution arrived at will affect this year's operations only to a minor extent. Many producers have announced that they are striving to wind down overcapacity by closing plants and this has sent prices clearly upward. The rise in the price of natural gas is nevertheless causing higher raw material costs and partially eroding the advantage brought by higher prices. The trend is expected to remain positive in the horticultural and speciality fertilizer sector as well as within process chemicals. Kemira Agro's full-year operating result is expected to improve, though it may still be in the red.
The market for titanium dioxide pigment appears to be developing favourably. The outlook is good in the main market areas in North America and Europe as well as in Asia. The market situation is improving in South America. During the year prices are expected to rise when already announced price increases come into effect in the summer. Following the capacity expansion that was completed at the end of last year, Kemira Pigments' Pori unit will be able to boost its sales volumes by about 20%, the market permitting. Since Kemira's structural transformation has so far resulted in divesting about two thirds of its pigment business during the spring, Kemira Pigments' net sales will fall, yet operating income is expected to improve.
Consolidated operating income from normal operations over the whole year is expected to improve on last year's figure. Net income is further improved through non-recurring capital gains on divestments of business functions and lower net financing expenses, when income from the sale of assets reduces net debt. The Group's tax base is expected to drop to a level of 32-35% from last year's exceptionally high 47%.
Helsinki 9 May 2000
Board of Directors
All forecasts and estimates mentioned in this report are based on current judgement of the economic environment and the actual results may be significantly different.
The full report including tables can be downloaded from the enclosed link.
