Sales of water treatment chemicals and decorative paints have been good, and it is still believed that the market for pulp and paper chemicals will head upward towards the end of the year. Net sales grew by 1% in the first quarter of the current year. Income before taxes in the January-March period was EUR 45 million (49 million a year earlier). Full-year operating income is expected to be better than in 2001.
The Kemira Group's net sales in the January-March period of the current year were EUR 656 million, up 1% on the same period a year earlier (651 million). Consolidated operating income in the first quarter was EUR 53 million (57 million),or 8% of net sales (9%). Interests in the results of associated companies amounted to a total of EUR 0.4 million. Income before taxes and minority interests was EUR 45 million (49 million) and income after taxes was EUR 31 million (34 million). Earnings per share were EUR 0.26 (0.28). Cash flow after capital expenditures was EUR 80 million negative (126 million negative in Jan.-Mar. 2001). Per-share cash flow from operations was EUR 0.00 negative (0.07 positive in Jan.-Mar. 2001). Equity per share was EUR 9.65 (9.35 at the start of the year).
The average number of the Group's employees in January-March was 10,052 (10,207 in 2001).
NEW STRATEGY
In accordance with its strategy that was confirmed in February 2002, Kemira is stepping up its growth in the company's core business areas. Within pulp and paper chemicals as well as water treatment chemicals, Kemira is seeking to be one of the world's top three companies, accomplishing this mainly through M&A arrangements. 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.
In respect of Kemira Agro, the company is exploring the possibilities of spinning off the entire business into an independent company in which an external industrial partner would join Kemira and the Finnish State as the major shareholders. The Ministry of Trade and Industry has also expressed its support of this objective.
CHEMICALS
Kemira Chemicals' net sales grew by 13% on the previous year and were EUR 254 million. Operating income was EUR 24 million (25 million), or 10% of net sales.
The Pulp & Paper Chemicals unit's net sales grew, partly thanks to an acquisition, by 24% although the production volumes of its main client, the pulp and paper industry, were lower than a year ago. Operating income was also slightly better than the year-ago figure.
The Vinings deal, which was formally approved in the United States towards the end of January, made Kemira a major supplier of pulp and paper chemicals, now on a worldwide scale. By way of the transaction, Kemira will grow from being a strong European supplier of speciality chemicals serving the forest industry to become one of the biggest players in this sector worldwide. The purchase price was USD 138 million, or EUR 153 million.
A new speciality chemicals production unit went into operation in Brazil. At Siilinjärvi construction work on the extension to the calcium sulphate pigment plant is progressing according to plan.
Net sales of the water treatment chemicals producing Kemwater unit rose by 11% and operating income remained good.
The Industrial Chemicals unit's net sales grew by 5%. The unit's mainstay is the titanium dioxide business, which has seen its profitability weaken as prices have eroded in step with the downturn in the world economy. In February-March the unit also suffered from production problems caused by strikes. Sales volumes of the Pori plant, which manufactures titanium dioxide pigment, grew by 10%. Prices were on average 15% lower than a year ago.
There is good demand for both calcium chloride and formic acid. The market for sodium percarbonate, which is used as an environmentally sound bleaching agent in the detergent industry, has developed in line with expectations. The fine chemicals business posted earnings that were markedly better than last year's.
Capital expenditure projects for expanding titanium dioxide and formic acid production are progressing according to plan.
PAINTS AND COATINGS
The paint business had net sales of EUR 101 million (104 million). Operating income in the January-March period was EUR 4.6 million (3.5 million), or 5% of net sales. The savings resulting from combining the operations of Tikkurila and Alcro-Beckers, which was acquired at the beginning of last year, are beginning to feed through into earnings.
Net sales of Tikkurila Deco, the decorative paints arm, were on a par with last year. Strong growth has continued in the Baltic countries and in Russia.
The industrial coatings manufacturer Tikkurila Coatings reported a 12% drop in net sales because investments by industry and agriculture have remained at a low level owing to the poor economic outlook. The market in Great Britain has been particularly weak.
AGRO
Kemira's plant nutrient company, Agro, had net sales of EUR 312 million, down 5% on the previous year. Operating income was EUR 27 million (31 million).
The speciality fertilizer unit Kemira Agro Specialties reported net sales on a par with last year. No major change took place in the sales volumes or prices of fertilizers, either. Of raw materials, the price of ammonia was markedly lower than a year ago. The feed phosphate business has developed favourably both in terms of net sales and profitability. The unit's operating income improved.
Net sales of the Kemira Agro Nitrogen unit were down on last year. Despite growth expectations, fertilizer delivery volumes were flat. The price level was about 10% lower than in the first quarter of last year. Operating profit was down on last year.
The efficiency-boosting project that is aiming to develop the unit's competitiveness and profitability in continental Europe is moving ahead according to plans.
OTHER OPERATIONS
Kemira Metalkat, the Group's catalytic converter unit, reported net sales of EUR 9 million, down 22% on the previous year. Metalkat made an operating loss of EUR 0.3 million (operating income of EUR 0.5 million in Jan.-Mar. 2001).
CAPITAL EXPENDITURES
Kemira Group's gross capital expenditures in the cash flow statement amounted to EUR 85 million (138 million). Full-year gross capital expenditures are estimated to be at last year's level.
FINANCING
Net financing expenses in the January-March period were EUR 7.5 million (8.2 million). Gains on foreign exchange were EUR 0.2 million (a loss of EUR 1.7 million in Jan.-Mar. 2001). Fixed-interest loans accounted for about 42% 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 900 million, or EUR 214 million higher than at the end of last year, primarily as a consequence of the Vinings acquisition and the seasonally high net working capital.
RESOLUTIONS OF THE ANNUAL GENERAL MEETING
The Annual General Meeting confirmed the payment of a dividend of EUR 0.30 per share (0.30) for the 2001 financial year, or a total payout of EUR 35.5 million (36.7 million). The Annual General Meeting resolved to authorize the Board of Directors to purchase the company's own shares on the market such that the company can have in its possession treasury shares up to a maximum of 5% of the company's entire shares outstanding, or 6,118,000 shares. Shares can nevertheless be bought back up to a maximum amount of 1,928,000 shares because the Company has in its possession 4,190,000 previously purchased treasury shares. It furthermore authorized the Board of Directors to transfer on treasury shares following their purchase and to sell them on Helsinki Exchanges. They can also be used as part of the bonuses which are to be paid to the Group's personnel funds and as employee bonuses (in the event that a decision is taken to introduce them) or else as consideration in acquisitions. The authorization relates to a maximum of 6,118,000 of the own shares bought back for the Company. The authorization will be in force for one year from the passing of the resolution by the Annual General Meeting.
The Annual General Meeting furthermore resolved to amend the Articles of Association such that the general meeting of shareholders elects the Company's Board of Directors and its chairman and the Board of Directors elects the Company's president and his deputy.
The former members of the Board of Directors were re-elected up to the next Annual General Meeting, with the exception of President and CEO Tauno Pihlava, whereby executive directors no longer have seats on the Board. Matti Packalén was elected a new member of the Board of Directors.
FULL-YEAR OUTLOOK
Demand for pulp and paper chemicals still reflects the recession in the customer sector. It is nevertheless believed that the business cycle will swing upward towards the end of the year. The acquisition of Vinings of the USA has strengthened Kemira's position in the global pulp and paper chemistry market significantly: the company's geographical presence has been reinforced and it also offers an expanded palette of products and services.
Demand for water treatment chemicals is expected to hold up well. Similarly, within industrial chemicals the earnings trend is good. A turn for the better within titanium dioxide products is expected in the latter part of the year because producers' price increase announcements anticipate an incipient upswing in demand and prices in the industry. March delivery volumes were at a record-high level and producers' stocks are decreasing. Full-year earnings of the chemicals business are expected to improve on the result a year earlier.
Paint sales in the home market are expected to develop well. Brisk growth for the paint business is expected to continue, notably in Russia and the Baltic countries. When, furthermore, the synergy benefits from combining the Alcro-Beckers functions with the rest of Kemira's paints business begin to kick in to an increasing extent, Kemira Paints and Coatings' full-year operating income is expected to exceed last year's level.
The markets for Agro's specialty fertilizers are expected to develop favourably. On the other hand, within nitrogen fertilizers, demand in continental Europe has not yet revived, contrary to expectations, and this has already caused production curtailments. All in all, Agro's earnings are nevertheless expected to come in above last year's because the cost cuts will begin to bear fruit, and the price of the main raw material, natural gas, has fallen. To be sure, in the second quarter the price of natural gas is likely to head upward in tandem with rising oil prices. As part of its earnings-boosting measures, Agro has closed down overcapacity in the Netherlands and Denmark. In addition, the company is further stepping up its European distribution and logistics functions as well as its nitric acid production at Tertre in Belgium. Exploratory talks are being held with the aim of finding an industrial partner for the fertilizer business. Kemira is seeking to spin off its Agro business into an independent company in which it may retain a minority shareholding.
This year the Kemira Group's operating income is expected to improve on last year's result. The operational net result is also estimated to improve.
Helsinki, 6 May 2002
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.
