Kemira continued to perform well within water treatment chemicals and paints, with the paint business showing a particularly good improvement in earnings. In the area of chemicals for the pulp and paper industry, growth was achieved thanks to an acquisition, but profitability suffered because the capacity utilization rates of the customer industry remained low, especially in June. Earnings reported by the fertilizer and industrial chemicals units were below last year's level. Consolidated net sales grew by 6%. Pre-tax income in the April-June period was EUR 23 million (45 million a year earlier) and from the start of the year it totalled EUR 68 million (93 million). The Board of Directors expects full-year earnings to be close to last year's figure.
Kemira's fast-growing core areas are pulp and paper chemicals, water treatment chemicals and paints. Industrial chemicals (including titanium dioxide pigment) are also a core business area. The company has announced that it is exploring the possibilities of spinning off its fertilizer business.
The Kemira Group's net sales in the January-June period of the current year were EUR 1,364 million, up 6% on the same period a year earlier (1,287 million). Consolidated operating income in the second quarter was EUR 26 million (55 million). Operating income in the January-June period was EUR 79 million (111 million), or 6% of net sales (9%). Operating income includes non-recurring expenses of EUR 7.8 million, that are connected with the structural arrangements mentioned below (income of EUR 6.1 million in Jan.-June 2001) as well as EUR 11.2 million of pension expenses in excess of plan (1.9 million). The booking of currency hedging measures lowered operating income by EUR 5.9 million (a credit to income of EUR 2.1 million in Jan.-June 2001). The hedging result is similarly reflected as a decrease in financial costs. In total, the effect of these exceptional items weakened operating income by EUR 24.9 million (an improvement of 6.1 million in Jan.-June 2001). Income before taxes and minority interests was EUR 68 million (93 million) and income after taxes was EUR 43 million (64 million). Earnings per share were EUR 0.36 (0.52). Cash flow from the sale of assets was EUR 7.8 million. Cash flow after capital expenditures and income from the sale of assets totalled EUR 6 million (139 million negative in Jan.-June 2001). Per-share cash flow from operations was EUR 1.10 (0.29). Equity per share was EUR 9.31 (9.35 at the end of the previous year) and the gearing ratio was 74% (61% at the end of the previous year).
The average number of the Group's employees in January-June was 10,298 (9,707 at the end of last year). Owing to the market situation, the trend in the investment income of the Group's Finnish pension funds and foundations has been weaker than was previously estimated. As a consequence of a legislative change, the assumed life expectancy applied in the calculations of the liabilities of supplementary pension foundations has been raised, and this will result in about EUR 14 million of non-recurring additional contributions for the current year unless the shortfall can be covered from investment income. The contributions to Finnish pension funds and foundations booked to date total EUR 21 million, or about EUR 5 million more than in the first half of last year. The full-year contribution requirement is estimated at about EUR 40 million, and it is based for the most part on the level of securities prices at the end of May.
CHEMICALS
Kemira Chemicals had net sales in the second quarter of EUR 281 million (235 million). Since the beginning of the year Kemira Chemicals has achieved growth of 16% on the previous year and generated net sales of EUR 535 million. Second-quarter operating income was EUR 12 million (25 million). Operating income in the January-June period was EUR 36 million (50 million), or 7% of net sales. The above-mentioned pension costs burden the result of Kemira Chemicals in particular, and their effect in the first half of the year was EUR 7.8 million, all of which has been taken into account in the second quarter. The corresponding expense in the first half of last year was EUR 1.9 million.
The Pulp & Paper Chemicals unit's net sales grew by 35%. Speciality paper chemicals have enjoyed strong growth following Kemira's acquisition in February of Vinings Chemicals Inc. of the USA. On the other hand, the production volumes of the pulp and paper industry have remained at a low level, especially within fine papers, and this is also reflected in the consumption of chemicals. The profitability of bleaching and sulphur chemicals did not meet objectives due to the lower capacity utilization rates and a rise in the level of costs. Pulp & Paper Chemicals' operating income was slightly lower than 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 11% in net sales. Operating income was at nearly the previous year's level. Kemwater is pursuing further growth and will strengthen its market position, primarily in its present markets.
Net sales of the Industrial Chemicals business unit grew by 9% on last year, though operating income was lower than last year. The sales volume of titanium dioxide pigments was at last year's level, but prices were on average down 15% on the previous year. The unit's profitability has also suffered from production difficulties and the strikes in the first part of the year. Calcium chloride sales and profitability have improved further. The formic acid unit increased its net sales, and its operating income too came close to last year's level. Sales of sodium percarbonate, which is used as a raw material in detergents, have developed well and profitability has shown a positive trend. Kemira Fine Chemicals' sales grew substantially compared with last year and profitability improved.
PAINTS AND COATINGS
Second-quarter net sales by the paint business grew by 1% on the figure a year earlier, reaching EUR 135 million (133 million). Since the start of the year, net sales were nearly the same as last year, EUR 236 million (238 million). The sales trend has been good in the main market areas, except for industrial coatings. Second-quarter operating income was EUR 15 million (10 million) and in the January-June period it reached EUR 19 million (13 million), or 8% of net sales (6%). Operating income includes EUR 1.5 million of non-recurring expenses for winding up the Benetton business.
Net sales reported by the decorative paints arm were up 2%. Growth in the Russian market was especially strong. Net sales of industrial coatings fell by 7%. The reorganization of operations that was launched in Great Britain is beginning to produce results.
AGRO
Kemira's plant nutrient company, Agro, had net sales in the second quarter of EUR 315 million (288 million), with first half net sales totalling EUR 626 million (617 million). Fertilizer sales volumes in the first part of the year rose all in all by about 7% from last year's record-low level.
Agro reported second-quarter operating income of EUR 11 million (20 million) and a first-half figure of EUR 38 million (50 million). Operating income includes about EUR 4.4 million of non-recurring net charges for the arrangements mentioned below (income of EUR 5.4 million in Jan.-June 2001) as well as EUR 3.4 million of pension expenses in excess of plan (0).
The speciality fertilizer unit Kemira Agro Specialties reported a year-on-year increase in net sales of 5% in the six months to 30 June. Fertilizer sales volumes rose by 10% and prices declined on average by nearly 5% compared with the same period a year earlier. The fall in prices was offset in part by the low price of ammonia, which is used as a raw material, as well as by a decrease in fixed costs thanks to efficiency-boosting projects. Operating income declined on last year.
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.
Agro sold the shares in its subsidiary Mykora Oy, which grows and markets mushrooms. Mykora had net sales last year of about EUR 7 million and employed 60 people.
In the Netherlands, talks have been initiated with the personnel concerning closure of the liquid fertilizer plant in Rozenburg. The objective is to wind up operations by 31 October 2002.
Net sales of the Kemira Agro Nitrogen unit were down by about 10% on last year. Fertilizer delivery volumes grew by about 4% on last year's figure. The price level has weakened by more than 10% year on year. On the other hand, the price of natural gas, which is used in the manufacture of nitrogen raw material (ammonia), was lower than last year. Operating income declined on last year.
Agro sold part of the equipment and warehouse facilities of the fertilizer plant in the Netherlands that was closed towards the end of 2000. Negotiations on the sale of the remaining parts are continuing.
OTHER OPERATIONS
Net sales by Kemira Metalkat, which manufactures catalytic converters for vehicle exhausts, amounted to EUR 17 million in the first half of the year (23 million) and the unit reported an operating loss of EUR 0.9 million (loss of 0.3 million in Jan.-June 2001).
ADMINISTRATION
With a view to simplifying its organization and lowering fixed costs, Kemira is revamping its Group Administration by combining the administration organizations of the parent company Kemira Oyj and the chemicals and paints operations. In this context, a Kemira Services service centre will be established.
CAPITAL EXPENDITURES
The Group's gross capital expenditures included in the cash flow statement amounted to EUR 132 million (188 million). Capital gains on the sale of shares and assets amounted to EUR 7.8 million (15 million). Full-year gross capital expenditures are estimated to be about EUR 250 million (298 million).
FINANCING
Net financing expenses in the January-June period were EUR 11 million (18 million). A gain on foreign exchange of EUR 6.2 million was booked.
Fixed-interest loans accounted for about 38% of the total amount of interest-bearing long-term loans. Pension loans accounted for 30% of the total loan sum. Interest-bearing net debt was EUR 830 million, or EUR 144 million higher than at the end of last year, primarily as a consequence of the Vinings Chemicals Inc. acquisition.
After January the company has not bought back its own shares.
FULL-YEAR OUTLOOK
Chemicals. The market outlook of the Pulp & Paper Chemicals unit will be affected by the continuing weak demand within the pulp and paper industry. Thanks to the acquisition of Vinings Chemicals, net sales are expected to increase on last year, but earnings will be weaker than they were a year ago. Kemwater is expected to develop favourably. The Industrial Chemicals unit's outlook is good for formic acid, calcium chloride and detergent chemicals as well as for Kemira Fine Chemicals. The market outlook for titanium dioxide pigments is improving, but despite the upward trend, prices will nevertheless be on average weaker than last year. Kemira Chemicals' full-year operating income is expected to come in below last year's result.
Paints and Coatings. 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 paint business is estimated to improve on last year's result.
Agro. Uncertainty still surrounds Agro's prospects owing to the build-up of producers' stocks as a result of low deliveries last year. These increased stocks have led to production curtailments at Agro's plants too. The autumn fertilizer season is getting under way with prices at a lower level than last year. Thanks to the improved cost structure, Agro's full-year operating income is expected to improve.
Kemira Group. The Kemira Group's operating income this year is expected to come in close to last year's level. About 20% of the investments of the Group's Finnish pension foundations are in listed shares. If the valuations of the investments remain at the current level or weaken further, operating income will nevertheless be lower than last year. Solutions connected with the Group's structural arrangements will have an effect on the result if and when they are carried out.
Helsinki, 31 July 2002
Board of Directors
The full report including tables can be downloaded from the enclosed link.
