Kemira continued to perform well within water treatment chemicals and paints and coatings. In the area of chemicals for the pulp and paper industry, growth was achieved thanks to an acquisition, but profitability suffered from the weakening in capacity utilization rates in customer industries. The result for fertilizers improved substantially and the titanium dioxide pigment business posted good earnings. Net sales from continuing operations were up 11%. Income before taxes and extraordinary items in the April-June period was EUR 45 million (58 million a year earlier) and from the start of the year it totalled EUR 93 million (82 million). The Board of Directors believes that full-year net income will improve on last year's result.
Kemira's core growth areas are pulp and paper chemicals, water treatment chemicals and paints and coatings. Other core business areas are specialty fertilizers and industrial chemicals (including titanium dioxide pigment).
The Kemira Group's net sales in the January-June period of the current year were EUR 1,287 million, down 4 % on the same period a year earlier (1,341 million). Growth in continuing operations was 11%. Consolidated operating income in the second quarter was EUR 55 million (67 million). Second-quarter operating income was at the same level as last year, taking into account the EUR 13 million capital gain on the sale of Kemira Safety last year and the EUR 4 million non-recurring income booked this year on Agro's reorganization arrangements in the Benelux area. Operating income for the January-June period was EUR 111 million, an increase of 8% on the previous year and 9% of net sales (8%). Interests in the results of associated companies amounted to a total of EUR 2.9 million. Income before taxes and minority interests was EUR 93 million (146 million) and income after taxes was EUR 64 million (99 million). Last year's figures included non-recurring income of EUR 64 million. Earnings per share net of non-recurring items was EUR 0.52 (0.46). Cash flow from the sale of assets was EUR 15 million. Cash flow after capital expenditures and income from the sale of assets was EUR 139 million negative (435 million). Cash flow per share from operations was EUR 0.29 (0.85). Equity per share was EUR 9.53 (9.08 at the end of the previous year) and the gearing ratio was 58% (37% at the end of the previous year). The Group's effective tax rate was 30% for the six months to 30 June.
The average number of the Group's employees in January-June was 10,388 (8,865).
Last year's comparison figures for the business areas have been restated to be in line with the current business structure.
CHEMICALS
Kemira Chemicals had net sales in the second quarter of EUR 235 million (220 million). Since the beginning of the year Chemicals has achieved growth of 8% on the previous year and generated net sales of EUR 460 million. Second-quarter operating income was EUR 25 million (27 million). Operating income in the January-June period was EUR 50 million (55 million), or 11% of net sales. The rise in pension costs owing to the fall in investment income compared with the previous year burdened the result of Chemicals as a whole.
The Pulp & Paper Chemicals unit's net sales grew by 13 %. Specialty paper chemicals have grown strongly following Kemira's acquisition of Krems Chemie AG in September of last year. On the other hand, the production volumes of the pulp and paper industry have fallen short of last year's figures and this has also affected the consumption of chemicals. Specifically, the profitability of bleaching chemicals did not meet objectives due to the lower capacity utilization rates and a rise in the level of costs. The unit's operating income was lower than it was a year ago. Over the next few years Kemira's objective is to grow into one of the world's leading suppliers of pulp and paper chemicals.
The Kemwater unit, which produces water treatment chemicals, reported a rise of 7% in net sales. Operating income improved substantially on the previous year. The biggest improvement was achieved in the markets of Central and Southern Europe. Kemwater is pursuing further growth and will strengthen its market position primarily in its present markets.
Net sales of the Industrial Chemicals business unit were nearly at last year's level, but operating income improved. Sales volumes of titanium dioxide pigments were 1% lower. Prices, however, were on average 8% higher than they were a year ago. The unit's profitability has held up well, though it has fallen compared with last year. The sales figures and profitability of both calcium chloride and formic acid have improved. Within detergent raw materials, the market for sodium percarbonate has developed well and the expansion of the production unit in Sweden will become operational in the early autumn. The detergent phosphate business was divested in September of last year, leaving only the custom manufacturing business, which meant a considerable decrease in volumes.
Kemira Fine Chemicals reported a year-on-year decrease in net sales of 9%.
PAINTS AND COATINGS
Following the acquisition of Alcro-Beckers, net sales of the paint business doubled in the second quarter compared with the figures a year earlier and totalled EUR 133 million (67 million). From the beginning of the year net sales were up 89% to EUR 238 million. The sales trend has been good in the main market areas, except for industrial coatings in Great Britain. Second-quarter operating income was EUR 10 million (7 million) and for the January-June it reached EUR 13 million (12 million), or 6% of net sales (10%). About EUR 2 million of amortization on the goodwill booked on the Alcro-Beckers acquisition was charged against operating income in the first part of the year, whereas the target is to achieve synergy benefits bringing annual savings of EUR 5-10 million later on this year and next year.
Net sales from decorative paints grew by 160% as a consequence of purchasing Alcro-Beckers, and growth net of the acquisition was 8%. Growth in the Russian market was especially strong. Industrial coatings reported an increase of 8% in net sales, the bulk of which came in the export markets. In Great Britain a reorganization of operations has been started because the difficulties of the farm machinery trade in particular have affected the demand for industrial coatings.
In order to ensure a reasonably priced and flexible supply of resins, a resin plant which is located right next to Tikkurila's facility in Vantaa, Finland was purchased.
AGRO
Kemira's plant nutrient company, Agro, had net sales in the second quarter of EUR 288 million (311 million), with first half net sales totalling EUR 617 million (643 million). The effect of waterlogged fields due to heavy rainfall in Europe continued on into the second quarter and fertilizer sales volumes were all in all down by nearly a quarter on last year's figures.
Agro reported second-quarter operating income of EUR 20 million (14 million) and a first-half figure of EUR 50 million (18 million).
The specialty fertilizer unit Kemira Agro Specialties (KAS) reported a clear increase of net sales on last year. The growth came mainly from Kemira becoming the majority holder in the Lithuanian associate company A/S Lifosa as well as from feed phosphates. Sales volumes of NPK fertilizers declined by 5% and prices rose on average by 5-15% from the same period a year earlier. Operating income improved markedly.
The project for expanding operations in accordance with Agro's specialization strategy is moving ahead in Jordan, where a unit that will manufacture potassium nitrate and feed phosphates is being built.
The joint venture Kemira Compound Fertilizer started up operations in Southern China. Specialized in the manufacture of NPK fertilizers, the plant has a capacity of 200,000 t/a and is located near the country's important cash crop areas.
Agro's company in Denmark is stepping up its operations both by investing in the automation of its control rooms and by closing down about 250,000 t/a of fertilizer capacity. The measures will improve the company's profitability significantly and the annual cost savings are estimated to be EUR 6.3 million beginning in 2002. The non-recurring costs connected with the closure were taken into account in last year's financial statements. The decrease in production will be offset partly by expanding cooperation with JSC Acron and in part by deliveries from Agro's other plants.
The business operations of A. Jalander Oy, Agro's subsidiary that manufactures and markets loading pallets, were sold to a new company that is mainly owned by the former company's operational management. Kemira is participating as a capital investor and is a minority shareholder in the company with a 16% stake. Jalander had net sales last year of EUR 8.8 million and a payroll of 45 employees.
Net sales of the Kemira Agro Nitrogen unit (KAN) were down clearly on last year. Heavy rainfall was detrimental chiefly to KAN's markets and the volumes of fertilizers it delivered were more than a third less than last year. The price level has held up well and was higher than it was last year. This offset the high price of natural gas, which is used in the manufacture of nitrogen raw material (ammonia). Operating income was clearly better than in 2000.
The efficiency of KAN's operations in continental Europe are being improved with the aim of developing the competitiveness, profitability and shareholder value of the nitrogen business, which is earmarked for divestment. The measures improved Agro's second-quarter earnings by a net amount of about EUR 4 million.
The nitric acid plant that was closed in Rozenburg, the Netherlands, at the turn of the year will be relocated to the company's site in Tertre, Belgium. Agro has sold the entire shares in Kemira Pernis B.V. to the Van Bentum company. The deal comprises the entire Pernis site that is located in Rotterdam, the Netherlands, together with its land area, harbour and equipment. The Kemistar concept which is in use in continental Europe is being developed by strengthening cooperation with customers and adjusting support functions to the new situation by simplifying the logistics structure. The required capital expenditures will total about EUR 12.5 million and the expected annual savings will come to about EUR 16 million. The savings will kick in to the full extent starting in the latter half of 2002.
OTHER OPERATIONS
Kemira Metalkat, the Group's catalytic converter unit, reported first-half net sales of EUR 23 million, which was on a par with the previous year. Metalkat made an operating loss of EUR 0.3 million (operating income of EUR 3.4 million in Jan.-June 2000).
CAPITAL EXPENDITURES
The Group's gross capital expenditures in the cash flow statement amounted to EUR 188 million (68 million). Income from the sale of shares and assets was EUR 15 million (EUR 395 million). Full-year gross capital expenditures are estimated to be about EUR 400 million (218 million).
FINANCING
Net financing expenses in the January-June period were EUR 18 million (21 million). A net loss on foreign exchange of EUR 4.0 million was booked, of which the effect of applying IAS 39 was EUR 4.1 million. Fixed-interest loans accounted for about 58% of the total amount of interest-bearing loans (excluding pension loans, which are not considered to be fully fixed-interest liabilities).
Interest-bearing net debt was EUR 687 million, or EUR 262 million higher than at the end of last year, mainly as a consequence of the Alcro-Beckers acquisition.
In accordance with a resolution of the Annual General Meeting, in April the company cancelled 6,440,000 of its own shares, or 5% of the amount of shares outstanding at that time. Subsequently, in accordance with an authorization granted by the Annual General Meeting, by 27 July the company bought back 1,417,500 of its own shares at an average price of EUR 6.69 per share.
FULL-YEAR OUTLOOK
For Kemira Chemicals, the market outlook of the Pulp & Paper Chemicals unit will be affected by the weaker demand within the pulp and paper industry. Thanks to the acquisition of Krems Paper Chemicals, net sales are expected to increase on last year, but profitability is anticipated to be weaker than it was last year. Kemwater's earnings are expected to grow further. The outlook for the Industrial Chemicals unit is good for formic acid, calcium chloride and detergent chemicals, though the market outlook for titanium dioxide pigments is poorer than it was a year ago. Chemicals' full-year operating income is expected to come in below last year's result.
Demand for paints appears moderately good and the general slowdown in the economy is not expected to have a significant impact on it. The strong growth in demand for paints is expected to continue, especially in Russia and the Baltic countries. Full-year operating income of the paints and coatings business is estimated to improve on last year's result.
Uncertainty still surrounds Agro's prospects owing to the build-up of producers' stocks as a result of low deliveries in the first part of the year. These increased stocks have led to production curtailments at Agro's plants too. On the other hand, soil nutrient concentrations are exceptionally low for the same reasons and this means that demand can be expected to improve over the months ahead. The autumn fertilizer season appears to be starting off at a higher price level than last year. The solutions connected with the structural arrangement for the nitrogen products business and their timing may have an impact on the result. Agro's full-year operating income is set to improve substantially.
This year the Kemira Group's operating income is expected to improve on last year's result.
Helsinki, 1 August 2001
The Board of Directors
All forecasts and estimates mentioned in this report are based on the 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.
