The Kemira Group's net sales in the January-September period of the current year were EUR 2,054 million, 4 % higher than in the same period a year earlier (1,975 million). Consolidated operating income in the third quarter was EUR 45 million, almost double the operating income for the third quarter of last year (26 million). Operating income in the January-September period was EUR 121 million (105 million), or 6% of net sales (5%). Income before taxes and minority interests in the third quarter was EUR 37 million (13 million), and in the January-September period EUR 102 million (82 million). Income after taxes in January-September was EUR 68 million (53 million). Earnings per share were EUR 0.58 (0.45). Cash flow from operations was EUR 131 million (217 million) and from disposals EUR 33 million (10 million). Cash flow after capital expenditures and sales of assets was EUR 22 million negative (55 million positive in Jan.-Sept. 2002). Per-share cash flow from operations was EUR 1.11 (1.84). Equity per share was EUR 9.07 (8.94 at the end of the previous year) and the gearing ratio was 77% (72 % at the end of the previous year).
The average number of the Group's employees in January-September was 10,455 (10,296).
GROUP STRATEGY
Kemira is continuing to strengthen its position in the Group's selected growth areas. The Group is pursuing global growth in pulp and paper chemicals as well as water treatment chemicals, relying on its knowledge-intensive expertise. In paints and coatings, growth efforts have been geographically concentrated on the Baltic Rim and Eastern Europe, including Russia. Development in industrial chemicals will be based mainly on organic growth potential, with its roots in solid technological expertise, and on adding value through specialization in niche businesses. In plant nutrients and animal nutrition, organic growth and added value will be generated through custom-made solutions in accordance with the food chain partner concept. The development will be based on the unit's own cash flow.
PULP AND PAPER CHEMICALS
The Pulp & Paper Chemicals unit's third-quarter net sales were EUR 140 million (121 million) and EUR 384 million for the first nine months of the year, growing by 8 % on the previous year (355 million). Strong sales growth has been achieved in spite of the low production volumes of the main client, the pulp and paper industry, which continues to suffer from the depressed economy. The depreciation of the dollar has reduced sales in euros. Operating income for the third quarter was EUR 20 million (8.2 million), including the capital gain of EUR 7.6 million from the sale of Polargas shares, and EUR 36 million for the nine-month period (19 million), which is a 90% increase and a margin of 9 % of net sales.
KEMWATER
Third-quarter net sales of the water treatment chemicals unit, Kemwater, were EUR 59 million, 34 % higher than last year (44 million) bringing the first nine months' net sales to EUR 149 million (135 million). Operating income for the third quarter was EUR 8.1 million (4.6 million) and for the nine-month period EUR 17 million (13 million), yielding a margin of 12% (10%).
PAINTS AND COATINGS
Third-quarter net sales by the paint business decreased by 5% on the figure a year earlier, and were EUR 122 million (129 million). Since the start of the year, net sales were 3% lower than last year, EUR 355 million (365 million). Third-quarter operating income was EUR 15 million (16 million) and in January-September it totalled EUR 36 million (35 million), or 10% of net sales (10%). Raw material costs were higher than last year, but the trend more recently is slightly down. Various improvement measures are yielding results through lower fixed costs, and the operating income level has been sustained even with lower sales.
INDUSTRIAL CHEMICALS
The Industrial Chemicals unit is a supplier to the paint, printing ink, detergent, road maintenance, silage, textile and fine chemicals as well as other industries. The unit's third-quarter net sales were 11% higher than last year at EUR 97 million (87 million). January-September net sales were EUR 313 million (301 million). Operating income for the third quarter, including an EUR 7 million restructuring charge in Helsingborg, was significantly higher than last year at EUR 8.0 million (0.5 million) and almost doubled from last year's figure for the first nine months, reaching EUR 29 million (17 million).
GROWHOW
Kemira's plant nutrient unit, GrowHow, had net sales in the third quarter of EUR 262 million (245 million), with net sales in the first nine months totalling EUR 894 million, an increase of 3 % on the previous year (871 million). Net sales were affected negatively by the exchange rate of the US dollar and lower feed phosphate selling prices. Fertilizer sales volumes in the first three quarters of the year rose all in all by about 7% from last year's low level.
GrowHow reported a third-quarter operating loss of EUR 2.1 million (income of 1.8 million) and a year-to-date figure of EUR 16 million (40 million). Lower profitability was due mainly to lower selling prices of feed phosphates.
OTHER OPERATIONS
Net sales by Ecocat, which manufactures catalytic converters for vehicle exhausts, amounted to EUR 38 million in the first nine months of the year (26 million) and the unit reported an operating profit of EUR 2.9 million (a loss of 1.0 million in Jan.-September 2002).
Kemira has its own electricity generation as well as holdings in Finnish power companies, which makes the Group more than self-sufficient in electricity in Finland. The excess is sold on the market, providing a natural hedge against electricity costs outside Finland.
FULL-YEAR OUTLOOK
The depressed phase in the cycle of the pulp and paper industry is estimated to continue. The Group's geographical presence has been strengthened further, both in North America and in continental Europe through the acquisitions mentioned above. Also, Kemira's product range and scope of services has expanded. The operating income of Pulp & Paper Chemicals for the full year is expected to improve on the previous year.
Demand is expected to continue developing favourably within water treatment chemicals. The purchase of shares by which Kemira gained a majority holding in Kemiron Companies in the US will increase Kemwater's sales considerably in the last part of the year and consequently Kemwater's operating income is expected to be higher than last year.
The general slowdown in the economy should not affect demand in the Paints & Coatings business to any significant degree. Strong growth is expected to continue in Russia. The last quarter of the year is a seasonally slower period than the rest of the year for the decorative paints business, and is typically loss-making. Full-year operating income is expected to be higher than last year.
The outlook for the Industrial Chemicals unit remains positive. The titanium dioxide pigment markets have stabilized during the third quarter and all major producers have announced price increases recently. They are not, however, expected to have much impact before the end of the fourth quarter. All the other business units in Industrial Chemicals are performing well in forms of both sales and operating profit. Operating income of the Industrial Chemicals business is expected to improve on last year.
GrowHow's new year for fertilizer sales has started with considerably higher prices in the continental European and UK markets. On the other hand, overseas exports continue to suffer from the weakening in the US dollar against the euro and higher freight costs. In the animal nutrition markets, the price war combined with the weak dollar is hurting profitability. For these reasons, the last quarter's contribution to GrowHow's operating income is expected to be close to breakeven or slightly negative and the full year is expected to remain considerably below last year's level. The higher fertilizer prices are expected to have a bigger impact on profitability next year. Furthermore, the start-up of the operations of the Jordanian joint venture this year is expected to improve profitability next year.
The Kemira Group's operating income and operational net result are expected to improve on last year.
Helsinki, 4 November 2003
Board of Directors
The full Interim Report including tables can be downloaded from the following link:
