KEMIRA GETS OFF TO A SLOW START DUE TO GROWHOW, FULL-YEAR OUTLOOK STRENGTHENING
- Net sales: EUR 700 million (January-March 2002: 656 million)
- Operating income: EUR 31 million (53 million)
- Net income: EUR 17 million (31 million)
- Earnings per share: EUR 0.14 (0.26)
- All strategic business units are expected to maintain or improve their operating income in 2003
The Kemira Group's net sales in the January-March period of the current year were EUR 700 million, up 7% on the same period a year earlier (656 million). Consolidated operating income was EUR 31 million (53 million), or 4% of net sales (8%). The decline was largely due to the weak result of Kemira GrowHow. Income before taxes and minority interests was EUR 26 million (45 million) and income after taxes was EUR 17 million (31 million). Earnings per share were EUR 0.14 (0.26). Cash flow after capital expenditures was EUR 71 million negative (80 million negative) due to a seasonal increase in net working capital. Per-share cash flow from operations was EUR 0.37 negative (0.00). Equity per share was EUR 8.96 (8.94 at the start of the year).
The average number of the Group's employees in January-March was 10,135 (10,052).
GROUP STRATEGY
Within pulp and paper chemicals as well as water treatment chemicals, Kemira is seeking to be one of the world's top three companies. The objective for the paint business is to grow to become one of the leading European companies, with a focus on the Baltic Rim operating environment.
The industrial chemicals business will be developed by drawing on its present largely organic growth potential. The GrowHow business will be developed as an independent unit that is part of the Group and its cash flow will be partly used to fund the growth of the other units.
For the first time all the strategic business units are now reported on separately.
PULP AND PAPER CHEMICALS
The Pulp & Paper Chemicals unit's net sales grew by 11% to EUR 121 million (109 million), although the production volumes of its main client, the pulp and paper industry, continued to be depressed. The North American acquisition was now included for the full quarter compared with just two months last year. Operating income was 19% better than the year-ago figure at EUR 9.6 million (8.1 million), which is 8% of net sales. The development in the specialty paper chemicals business and hydrogen peroxide prices has been favourable.
The construction work on the new specialty paper chemicals plant on the west coast of the US as well as the extension to the calcium sulphate pigment plant in Siilinjärvi, Finland, are progressing according to plan. This year the capacities of the different sizing plants in Krems, Austria, will also be expanded.
KEMWATER
Net sales of the water treatment chemicals unit, Kemwater, were EUR 43 million, 4% lower than last year (45 million). The decrease in sales was partly due to the exceptionally dry weather in the Nordic countries, which meant that less drainage than usual passed through water treatment plants. Operating income was EUR 4.3 (4.7 million), a margin of 10%.
Kemira has purchased the shares held by the City of Helsinki (49%) in Kemwater Services Oy and now owns 100% of the company. Kemwater Services Oy offers water supply and sanitation services to municipalities and the industrial sector in Finland and in neighbouring regions.
Kemira has acquired all the shares in Kemwater (Yixing) Co. Ltd of China. The remaining 11% of shares was purchased from FINNFUND, the Finnish Fund for Industrial Cooperation Ltd. Kemwater (Yixing) Co. Ltd mainly produces inorganic coagulants for water treatment in the Yixing industrial park area, in Yixing city, Jiangsu County. The nearest big cities in the area are Shanghai and Nanking.
Kemira has started up water treatment chemical production in St Petersburg. According to the agreement signed between the two companies earlier, the overall transfer to Kemira of the Russian Open Joint Stock Company NPF Pigment's production plant has now taken place.
Kemira plans to develop the plant's current production and will also construct a new production line for water treatment chemicals in St Petersburg. The total value of the deal and the investment will come up to about EUR 10 million.
PAINTS AND COATINGS
The paints and coatings business had net sales of EUR 106 million (101 million). Operating income in the January-March period was up by 37% to EUR 6.3 million (4.6 million), or 6% of net sales. The savings resulting from combining the operations of Tikkurila and Alcro-Beckers as well as other productivity improvement measures continue to increase earnings.
Net sales of the decorative paints business were 2% higher than last year. In the decorative paints business in the Nordic countries the first quarter amounts, to a large degree, to predeliveries preparing for the actual paint season, and the important quarters are the second and third quarter. Strong growth has continued, especially in Russia.
The industrial coatings business showed a 14% increase in net sales based on good development in the Nordic countries and Poland. The increase was to a large degree a result of the acquisition of Akzo Nobel Coatings' general industrial liquid coatings business in the Nordic countries. The market has continued to be particularly weak in Great Britain, where additional improvement measures are under way.
INDUSTRIAL CHEMICALS
The Industrial Chemicals unit is a supplier to the paint, printing ink, detergent and fine chemicals industries. The unit's net sales were 2% lower than last year at EUR 99 million (102 million). Operating income was EUR 8.0 million (11.3 million). Roughly half of the unit's sales are generated by the titanium dioxide pigments business, which had the trough of its business cycle last summer and since then prices have been rising. Average prices in the first quarter were 2% higher than in the same period last year. In February the unit suffered from a fire, the damages causing a cut of about EUR 2 million to earnings. Sales volumes decreased by 6% compared with the first quarter of last year.
The demand for both calcium chloride and formic acid have remained at a good level, although some calcium chloride deliveries were deferred until later in the year. Formic acid production suffered from extremely cold weather conditions at the beginning of the year, but has since been running well and the expanded capacity has been in full use. Sodium percarbonate, which is used as an environmentally sound bleaching agent in the detergent industry, has continued to gain market share from alternative products and improved its performance from previous year. The timing of major deliveries in the fine chemicals unit will be in the second half of the year, whereas last year the majority of the deliveries were in the first half of the year.
GROWHOW
Kemira GrowHow (formerly Agro) had net sales of EUR 343 million, an increase of 10% on the previous year (312 million). Operating income of EUR 4.1 million (27 million) was hurt by lower prices, ammonia production problems and a bad debt provision.
The business unit Food Chain Partner supplies compound fertilizers, crop protection chemicals and services to agriculture in Northern and Eastern Europe. The unit's net sales grew by 14% from last year. Sales volumes of compound fertilizers grew by 10% from the same period last year; prices were stable in the Nordic markets and increased by close to 10% in some other European markets. Of raw materials, the price of ammonia was markedly higher than a year ago.
Kemira GrowHow will replace the old nitric acid plant in Uusikaupunki with a relocated modern unit. The new nitric acid unit has been constructed using the most recent technology, with regard to both environmental protection and energy utilization efficiency. The investment will come to EUR 21 million and will be covered using GrowHow's own cash flow. The new nitric acid plant will further improve the Uusikaupunki plants' existing cost effectiveness and competitive advantage. The investment will contribute to reducing the expenses in production costs and improve further the plants' environmental protection level.
Kemira Agro Nitrogen supplies fertilizers to agriculture in the UK and continental Europe. Net sales of the unit were up significantly on last year. Volumes increased showing strong development over the previous year's poor performance both in continental and UK markets. Most of the deliveries in the first quarter were at lower prices than in the first quarter last year. Market prices at the end of the quarter were about 10% higher than a year ago. Production problems at the UK ammonia units decreased operating profit by about EUR 7 million because the unit had to buy ammonia from the markets at peak prices. Ammonia production has been back to normal since the first week of April.
The Specialty Crop Care unit markets customized plant nutrients for specialty crop growers globally. The unit's net sales decreased substantially from last year. The decline came mostly from overseas exports, partly due to the weakening of the US dollar against the euro as well as in European markets after the liquid fertilizer production in the Netherlands was shut down last year. The full scale start-up of the new production unit for potassium nitrate in Jordan in the Middle East has been delayed because of the war in Iraq.
The Animal Nutrition unit supplies feed phosphates and acids to the animal feed industry globally. The unit's net sales grew clearly from last year due to the acquisition made in South Africa. Profitability has been depressed, with lower feed phosphate prices due to strong competition in the markets. The unit also made a provision of EUR 3 million for a bad debt in its Hungarian operations. The Kemphos unit's sales and profitability were hurt by the weakening of the US dollar against the euro.
The Process Chemicals unit mainly sells nitrogen based chemicals to other industries. The unit's net sales were at the same level, but profitability fell somewhat short of last year due to the higher cost of natural gas.
OTHER OPERATIONS
Kemira Metalkat, the Group's catalytic converter unit, reported net sales of EUR 9 million, at the same level as last year. Metalkat made an operating loss of EUR 0.6 million (an operating loss of 0.3 million).
Kemira has its own electricity generation as well as holdings in Finnish power companies which make the Group more than self sufficient in electricity in Finland. The excess is sold on the market, providing a natural hedge for costs outside Finland. Thus, the recent high cost of electricity has not impacted Kemira's energy costs significantly.
Kemira sold its 15% holding in Oy Forcit Ab, a Finnish producer of explosives and dispersions, to its other shareholders.
PROFITABILITY IMPROVEMENT
During the last 12 months Kemira has launched several projects with the aim of improving profitability. These include establishing the Corporate Centre and the shared services unit called Kemira Service as well as improving logistics, procurement and efficiency at the production sites. Together these projects are estimated to have significant savings potential over the next 2-3 years.
CAPITAL EXPENDITURES
The Kemira Group's gross capital expenditures in the cash flow statement amounted to EUR 29 million (85 million). Full-year gross capital expenditures are estimated to be about EUR 200 million (243 million).
FINANCING
The Group's financial position remained stable. Interest-bearing net debt at the end of the quarter was EUR 831 million, or EUR 63 million higher than at the end of last year, primarily as a consequence of the seasonal increase in net working capital.
The Group's equity ratio was 42% at the end of the quarter (43% at the end of the year). The gearing ratio (net debt as a ratio of shareholders' equity) was 77% (72% at the end of the year). At the end of the quarter liquid funds amounted to EUR 49 million and unused agreed credit facilities totalled about EUR 297 million.
Net financing expenses in the January-March period were EUR 4.9 million (7.5 million). Gains on foreign exchange were EUR 2.2 million (0.2 million). The proportion which fixed-interest loans represented within the total amount of the Group's interest-bearing loans was about 38% at the end of the quarter. Pension loans are considered to be floating rate loans.
FINNISH PENSION FUNDS
The current estimate for company contributions paid into Finnish pension funds is about EUR 36 million, which is based on investment returns up to March 31. The first quarter charge is one fourth of the full-year estimate, or about EUR 9 million.
RESOLUTIONS OF THE ANNUAL GENERAL MEETING
The Annual General Meeting of Kemira Oyj resolved that a dividend of EUR 0.30 per share be paid for the 2002 financial year. The dividend was paid on 23 April 2003.
The Company has 4,190,000 of its own shares in its possession. The Annual General Meeting also resolved that the Board of Directors be authorized to decide on the transfer of the Company's own shares as well as to sell them through Helsinki Exchanges;
the shares can be used for the payment of employee bonuses and possible bonuses to the personnel funds provided the Board of Directors decides to introduce such a compensation system, and as consideration in making acquisitions. The authorization will be in force for one year from the passing of the resolution by the Annual General Meeting. There is no authorization for the Board to increase the Company's share capital or to buy back shares after the AGM.
The Annual General Meeting elected the Company's Board of Directors to a new term of office of one year. As Chairman of the Board the Annual General Meeting elected Anssi Soila, and as Vice Chairman Eija Malmivirta. Matti Packalén will remain a member of the Board of Directors. The following new members were elected: Markku Tapio of the Ministry of Trade and Industry, Elizabeth Armstrong and Ove Mattsson, both of whom have strong experience in the international chemical industry.
The full report (including tables) can be downloaded from the following link:
