- Net sales: EUR 2,738 million (2002: EUR 2,612 million), growth 5%
- Operating income: EUR 144 million (118 million), growth 22%
Income after financial items: EUR 118 million (94 million), growth 25%
- Net income: EUR 74 million (72 million), growth 2%
- Earnings per share: EUR 0.62 (0.61), cash flow per share: EUR 1.85 (2.45)
- Proposed dividend EUR 0.33 per share (0.30).
- To aid comparability, the comparison figures for 2002 are presented in this report net of the EUR 78 million of write-downs made by GrowHow.
> Tables (.pdf)
All the Kemira Group’s businesses except GrowHow were able to improve their operating income in 2003 despite the continued slow economic growth in Europe.
Consolidated net sales were up 5% on 2002, rising to EUR 2,738 million (2,612 million). Operating income was EUR 144 million (118 million), representing 5% of net sales (4%). Consolidated operating income in October-December was EUR 22 million (13 million). The weakness of the exchange rates (especially the US dollar) against the euro during the year lowered net sales nearly by EUR 80 million and operating income by about EUR 20 million. Contributions to the Finnish pension funds declined by EUR 26 million thanks to good investment income and a decrease in the pension liability.
Income before taxes and minority interests rose to EUR 118 million from EUR 94 million in 2002. Income after taxes was EUR 74 million (72 million). Total earnings per share were EUR 0.62 (0.61). About 82% of the Group’s net sales came from outside Finland.
Return on equity was 7% (5%). The cash flow return on capital invested was 11% (15%).
Cash flow after capital expenditures and income from the disposal of assets was EUR 19 million (67 million). Per-share cash flow from operations was EUR 1.85 (2.45). Equity per share was EUR 9.04 (8.94) and gearing was 69% (72%).
The Board of Directors is proposing that the dividend to be paid for 2003 be raised to EUR 0.33 per share (0.30), or a total dividend payout of EUR 39 million. The proposed dividend is 53% of the company’s net income, exceeding slightly both the total dividend payout in 2002 and the level defined in the dividend policy.
GROUP STRATEGY
Kemira is continuing to strengthen its position in its chosen growth areas. It is seeking growth that will give it a leading position worldwide within pulp and paper chemicals as well as water treatment chemicals, leveraging its expertise based on deep knowledge. Within paints, growth will be sought in the Baltic Rim area and in eastern Europe, including Russia. For industrial chemicals, progress will be based mainly on organic growth, cost position leadership and the creation of added value via the speciality businesses. Within plant nutrients and animal nutrition, added value will be created by means of tailored solutions in accordance with the Food Chain Partner concept and business development will be based on the unit’s own cash flow.
PULP & PAPER CHEMICALS
Pulp & Paper Chemicals supplies chemicals and services mainly to the pulp and paper industry. The business unit had net sales in October-December of EUR 137 million (130 million) and full-year net sales of EUR 521 million, an increase of 7% (485 million in 2002). Thanks to recent acquisitions, sales grew substantially despite the fact that the main customer sector, the pulp and paper industry, was still suffering from the recession and had low production volumes. Because a large part of operations is in North America, the fall in the dollar slowed down euro-denominated sales growth by EUR 19 million. Accordingly, calculated in terms of foreign exchange rates in 2002, Pulp & Paper Chemicals would have posted growth of 11%. Especially for hydrogen peroxide, the market situation has improved and the trend in product prices has been favourable. The raw material prices of sulphur chemicals have risen, but it has not been possible to pass it on into prices. Operating income in October-December was EUR 8.4 million (10.5 million). Full-year operating income was EUR 43 million (28 million), up 52% and representing 8% of net sales.
In July Kemira strengthened its foothold in North America further with the purchase of Vulcan Materials Company’s pulp and paper chemicals business. The company has annual sales of 80 million dollars and the purchase price was 43.5 million dollars. The transaction resulted in the transfer of about 150 employees to Kemira’s payroll.
In Europe, Kemira strengthened its position by way of two acquisitions. In Germany, it purchased the paper chemicals business of Klebstoffwerke Collodin Dr. Schulz & Nauth GmbH, located in Frankfurt, which has annual sales of about EUR 3.5 million. The other acquisition was the Rhodia’s industrial additives business, which has a plant near Mulhouse in France and has net sales of EUR 16 million. The business comprises products and services mainly for the pulp and paper industry as well as a certain amount of custom manufacture for Rhodia.
These acquisitions strengthened Kemira’s presence in strategically important paper chemicals markets and at the same time expanded its product range. The acquisitions are in line with Kemira’s global growth strategy and contribute to the company’s capability of operating as a one-stop supplier of integrated paper chemicals solutions in line with the trend in customers’ requirements.
A new speciality paper chemical plant was started up in Washington State in the USA, enabling Kemira now to supply AKD size locally to customers in North America. The plant extensions at Krems, the speciality chemicals plant in Austria and at the Siilinjärvi calcium sulphate pigment plant also came on stream successfully during the year. Following the plant extensions and acquisitions, Kemira is the world’s fourth largest player in the pulp and paper chemicals field.
Kemira sold its 30% minority holding in the air gas producer Oy Polargas Ab to L’Air Liquide S.A. of France, which already had a majority holding in Polargas. The divestment was in line with Kemira’s strategy, according to which gas production is not one of the Group’s core businesses. A capital gain of EUR 7.6 million was booked on the sale of Polargas shares.
KEMWATER
The Kemwater unit, which produces water treatment chemicals, had net sales in October-December of EUR 67 million, a 61% increase on the corresponding period in 2002 (41 million), raising full-year net sales to EUR 215 million (176 million). Operating income in October-December was EUR 6.8 million (4.9 million) and full-year operating income was EUR 24 million (18 million), or 11% of net sales (10%). Keener competition in the Nordic countries ate into profitability, but in continental Europe the unit managed to improve its earnings. The biggest impact on the growth in net sales (18%) and the earnings improvement (30%) nevertheless came from the acquisition in North America, which is discussed below.
Kemira purchased all the shares in Kemwater Services Oy that were owned by the City of Helsinki (49%) and now owns the company in full. Kemwater Services Oy offers drinking and waste water treatment services to municipalities and industry in Finland and the country’s nearby areas.
Kemira also acquired the entire shares outstanding in Kemwater (Yixing) Co. Ltd. The remaining 11% stake was purchased from Finnfund. Kemwater (Yixing) Co. Ltd is primarily a manufacturer of inorganic coagulants that are used in water treatment. The company operates in the industrial area of the city of Yixing in Jiangsu county. The nearest big cities are Shanghai and Nanking.
The production plant of the Russian company Pigment Corporation in St Petersburg was acquired by Kemira in full, and Kemira is planning to develop the existing production operations further. The total value of the transaction and new investment is about EUR 10 million. The production of the St Petersburg plant goes nearly in its entirety for the treatment of the city’s drinking water.
With Ageco of Italy, an agreement was signed according to which Kemira will use Ageco’s ferric chloride plant in Lucca and take over Ageco’s water treatment business. As a consequence of this, Kemira will become one of Italy’s leading water chemicals companies, with a production plant in both Cremona and Lucca, and net sales of about EUR 10 million. The agreement also fits in with Kemwater’s business strategy that aims at expanding Kemwater’s operations in continental Europe. At present, Kemwater is one of the largest suppliers of coagulants used in water treatment in continental Europe.
An important step ahead was the increase in the company’s holding in Kemiron Companies Inc. of the United States from 15% to 60%. The parties have also agreed on terms and conditions on which Kemira can be obligated to purchase the remaining 40% of the shares. Kemiron has annual sales of about 90 million dollars and a payroll of 230 employees. The United States is the world’s largest market area for water treatment chemicals, and Kemiron Companies Inc., which manufactures and markets a full range of iron and aluminium-based coagulants, is the second largest player in this field.
PAINTS AND COATINGS
The paint business continued its stable development also in the latter part of the year. Due to the seasonal nature of the business, this is the slowest time of the year. In the fourth quarter Paints and Coatings had net sales of EUR 85 million (85 million). Full-year net sales were EUR 439 million (450 million). Paints and Coatings reported a fourth-quarter operating loss of EUR 4.7 million (an operating loss of 10.1 million) and full-year operating income of EUR 30 million (24 million), or 7% of net sales (5%). Raw material costs were higher than a year ago, but the price trend has subsequently dipped. Thanks to various efficiency-boosting measures, fixed costs have been lowered, bringing an improvement in operating income despite the fall in sales.
Net sales generated by decorative paints were down 4% on the year 2002. Due to the unfavourable weather conditions prevailing in the main market areas in the Nordic countries, paint consumption was smaller than a year ago. The renewal of the product range in Poland and Sweden also caused a temporary drop in sales. Strong growth continued in Russia.
The industrial coatings business posted net sales growth of 3% thanks to the good trend in the Nordic countries and Poland, boosted by the acquisition of Akzo Nobel Coatings’ Nordic metal industry paints business in autumn 2002. Owing to the weak economic outlook, the customers within industry and agriculture have undertaken only minor investments. The market in Great Britain has remained particularly weak, and the one-off costs of reorganizing operations there burdened net income. The production unit in the Netherlands was wound up at the beginning of 2003. Akzo Nobel Coatings’ general industrial liquid coatings business in Hungary was purchased in December. The acquired business fits in excellently with our product range and it strengthens our market position in Hungary appreciably.
INDUSTRIAL CHEMICALS
Industrial Chemicals’ products are used, notably, in the manufacture of paints, printing inks, detergents, silage, textiles and fine chemicals as well as in maintaining roads. The business unit’s net sales in October-December amounted to EUR 96 million, down 6% on the corresponding period in 2002 (103 million). Full-year net sales were EUR 410 million (404 million). Operating income of EUR 40 million was up 48% on the figure a year ago (27 million) despite the EUR 8 million structural change cost for the Helsingborg site. The weakness of the dollar against the euro lowered net sales by about EUR 15 million and weakened earnings substantially, though this was offset thanks to markedly lower pension costs.
The Pigments unit’s sales volumes were 5% higher than in 2002 despite the worldwide decline in demand for the product compared with 2002. Prices were on average 2% lower than in 2002. Euro-denominated prices of titanium dioxide pigments were in decline in the first part of the year and evened out during the summer, but continued downwards towards the end of the year. Prices in euros at the end of the year were nearly 10% lower than at the end of 2002. The fall in the dollar depressed the average selling price in euros, at the same time improving the position of those competitors in Europe whose costs are in dollars. The expansion of the manufacture of speciality anatase products at the Pori titanium dioxide plant and the building of a new packaging line progressed according to schedule, and the projects are estimated to reach completion in December 2004. The capital expenditures support the Pigments unit’s paramount strategic objective of being the world’s number one supplier within selected speciality product applications, meeting the needs of, for example, the cosmetics, pharmaceutical and food-processing industries.
Demand for calcium chloride has fallen due to the milder-than-usual weather at the end of the year and also as a result of a stronger euro. Earnings were furthermore burdened by the indirect effects on production of the structural change carried out at the Helsingborg site. Demand for formic acid has remained good, and production has benefited from the expansion of manufacturing capacity. Sodium percarbonate, which is used as an environmentally benign bleaching agent in the detergent industry, posted a further improvement in operations compared with 2002.
The fine chemicals unit expanded its operations to custom manufacturing for the pharmaceuticals industry. The unit is successfully carrying out a number of long-term contract manufacturing agreements, and both its net sales and earnings were markedly better than they were a year ago.
GROWHOW
Kemira GrowHow, which produces plant nutrients, had net sales in October-December of EUR 311 million (294 million) and full-year net sales of EUR 1,205 million, up 3% on the figure a year earlier (1,165 million). The weak dollar and the fall in selling prices of feed phosphates cut into sales growth. Volumes of fertilizers sold rose all in all by about 7% from the low level of 2002. GrowHow reported operating income in October-December of EUR 3.9 million (1.6 million) and full-year operating income of EUR 25 million (46 million). The decline in profitability was mainly a consequence of the fall in euro-denominated export prices owing to a weaker dollar, the sharp drop in selling prices of feed phosphates, the higher price of natural gas, low fertilizer prices in the first part of the year, difficulties in ammonia production and credit losses. The profitability of exports outside Europe also weakened due to higher marine freights.
The Food Chain Partner unit delivers compound fertilizers, plant protection substances and services to agricultural producers in northern and eastern Europe. The unit increased its net sales on the previous year, and volumes of fertilizers sold were also higher. Prices of compound fertilizers were 4-11% higher at the beginning of 2004 than they were a year ago. Of raw materials, ammonia was again markedly more expensive than it was a year earlier.
Kemira GrowHow is replacing its old nitric acid plant in Uusikaupunki with a modern facility. The plant has been built using the latest technology, taking into account both environmental considerations and efficient energy use. The new nitric acid plant will improve further the cost-effectiveness and competitive ability of the Uusikaupunki plants, whilst enhancing their environmental performance. According to plans, the new plant will start up in autumn 2004.
The Kemira Agro Nitrogen unit supplies fertilizers to agricultural customers in Great Britain and continental Europe. The unit’s net sales increased substantially from the figure of year 2002. Sales volumes grew strongly compared with the weak year 2002, both in continental Europe and Great Britain. The bulk of the deliveries in the best sales season, the start of the year, were made at cheaper prices than in 2002, and this caused a delay on the effect of improving market prices. The production difficulties at the ammonia plants in Great Britain in the first quarter of 2003 cut about EUR 8 million from operating income because the unit had to purchase ammonia at a high market price. Prices of nitrogen products at the beginning of 2004 are about 18% higher in continental Europe and 24% higher in Great Britain than they were a year ago. The price of natural gas – the most important raw material – was higher than in 2002.
The Specialty Crop Care unit markets tailor-made plant nutrients to farmers of speciality crops worldwide. The unit’s sales and profitability declined appreciably compared with 2002. This was attributable above all to exports outside Europe, which suffered from the fall in the dollar against the euro. The sharp rise in transport costs ate into profitability. The new potassium nitrate plant in Jordan, which operates as a joint venture, was started up successfully after the Iraq war ended, but its capacity utilization has so far been low and it is operating at a loss. As a departure from previous practice, the associated company’s loss is now reported under financial income and expenses in accordance with IAS reporting standards.
The Animal Nutrition unit supplies feed phosphates and acids to the animal feed industry worldwide. The acquisition made in South Africa increased the unit’s net sales markedly compared with the year 2002. The unit’s operations have been loss-making because fierce competition has depressed feed phosphate prices. In order to improve the profitability of feed phosphates, GrowHow has discontinued the manufacture of dicalcium phosphate at the loss-making units in Helsingborg, Sweden, and Durban, South Africa. With the winding down of gross overcapacity, the price level has stabilized and there are signs of an incipient rise. The sales and profitability of the Kemphos unit, whose principal product is phosphoric acid, declined owing to the weak dollar against the euro.
Sales of nitrogen-based chemicals to different sectors of industry were down on the 2002 figures due to the maintenance shutdowns that were made at the ammonia plants. Because of the higher price of natural gas, profitability was somewhat below the 2002 level.
OTHER UNITS
Ecocat, which manufactures catalytic converters for motor vehicles, reported net sales of EUR 52 million (34 million) and operating income of EUR 4.2 million (an operating loss of 2.4 million in 2002).
Kemira itself generates electric power and furthermore owns participations in Finnish energy companies, making it more than self-sufficient in the electricity it consumes in Finland. Sales of the excess electricity on the market thus act as an internal hedge of electricity costs in other countries.
Kemira sold its 15% holding in Oy Forcit Ab to the company’s other shareholders. Forcit produces explosives and dispersions in Finland.
CAPITAL EXPENDITURES AND R&D
The Group’s gross capital expenditures in the cash flow statement amounted to EUR 236 million (243 million), including acquisitions, or 8% of net sales. Depreciation on fixed assets amounted to EUR 170 million. The proceeds from sales of fixed assets and shares were EUR 36 million (21 million). The Group’s investments in environmental protection came to about EUR 10 million (12 million).
The Group spent about EUR 48 million on research and development, or about 2% of net sales. Most of this was funded by the business units and the rest was covered by the corporate parent. The business units funded the development activities directly connected with their operational areas. The corporate parent supported the strategic projects of the designated growth business areas and enhanced the utilization of synergy within the Group.
In addition to the R&D-teams within the business units, the Group’s R&D-organization includes the research centres in Oulu and Espoo and three competence centres. The research centres are resource pools that are used and financed mostly by the businesses and to some extent also by the corporate parent. The competence centres are virtual organizations based on networks of outsourced resources at universities and research institutes. Corporate financial resources were allocated to the activities of the competence centres with the aim of supporting the development of core areas across the Group.
ENVIRONMENTAL PROTECTION
The company publishes each year an Environmental Report verified by a third party. The Group’s Business Principles contain specific guidelines concerning the environment, health, and safety. Certified environmental and safety management systems are implemented at more than 90% of the major production sites.
Sales of environmentally benign products are an important part of the Group’s operations, representing about 22% (20%) of net sales in 2003. Capital expenditures on environmental improvements at the sites totalled EUR 10 million (12 million), and environmental operating costs amounted to EUR 47 million (47 million). The environmental provisions for remedial activities were EUR 17.6 million, or at the same level as in 2002.
The lowest observed level of occupational incidents was achieved thanks to increased efforts in safety management. Apart from a roof fire at the Pori plant, no major accidents occurred.
The much debated proposal for new EU chemicals legislation (REACH) is expected to lead to substantially higher costs of registration, testing and risk assessment for chemical substances marketed in or imported into the EU. At present, Kemira manufactures or imports about 120 substances potentially covered by REACH.
The approved EU directive on greenhouse gas trading will be applied to energy production at five Kemira sites. Maximum CO2 emission allowances should be allocated to individual sites in 2004, with trading assumed to begin in 2005.
Kemira has evaluated the potential business consequences of these two major legislative changes and expects no material adverse effects.
The Group continually pays close attention to ensuring that its operations are safe and that its plants run without disturbances. Functions and operations are evaluated by both internal and external experts. During the year the 13 largest production sites were inspected in this connection.
FINANCING
The Group’s financial position remained stable. Interest-bearing net debt at the end of 2003 stood at EUR 760 million (768 million).
Cash flow before financing was EUR 19 million (67 million). Cash flow from operations was EUR 219 million (290 million). Net operating capital increased by EUR 23 million (59 million), mainly owing to acquisitions. The Group’s equity ratio was 44% at the close of the year (43%). The gearing ratio (net debt as a ratio of shareholders’ equity) was 69%.
Net financing expenses amounted to EUR 26 million (24 million). This figure included losses of EUR 2.7 million on the results of associated companies (income of 5.5 million). Foreign exchange differences (net) yielded a gain of EUR 7.6 million. The proportion which fixed-interest loans represented within the total amount of the Group’s interest-bearing loans was about 33% at the end of the year. Pension loans are considered to be floating rate loans. The change in the market value of interest rate hedging instruments was a profit of EUR 2.6 million.
The revolving credit facility arranged in 1997 was replaced in June by a new EUR 506 million revolving facility which was signed for a five-year period with a syndicate of 11 banks. In addition, a bilateral EUR 35 million loan with a 10-year maturity was signed. The amount of short-term loans increased by EUR 84 million. At the end of the year, liquid funds amounted to EUR 78 million and unused agreed credit facilities totalled about EUR 316 million.
PARENT COMPANY’S FINANCIAL PERFORMANCE
The parent company’s net sales come only from the sale of energy in Finland, both within and outside the Group. The parent company had net sales of EUR 23 million (23 million). The parent company reported an operating loss of EUR 9.7 million (a loss of 36 million). The parent company bears the cost of Group management and administration as well as part of the research costs.
The parent company’s net financial income amounted to EUR 33 million (127 million). The figures for the comparison year 2002 included significant intra-Group items: Tikkurila Oy’s dividend of EUR 172 million and a write-down of EUR 56 million on internal loans. Income before taxes and changes in provisions was EUR 86 million (185 million). Capital expenditures amounted to EUR 3.4 million, including increases in the equity of subsidiaries.
The parent company’s operations will expand from the beginning of 2004 because Kemira Chemicals Oy was merged into it on 1 January 2004.
PERSONNEL
The Group employed an average of 10,536 people, or 159 more than in 2002, mainly due to the corporate acquisitions made in the United States. Of the total personnel, an average of 5,940 people were employed by Group companies outside Finland.
The parent company had an average payroll of 285 employees, 28 more than a year ago.
A large part of the Group’s personnel are covered by various bonus systems that vary from country to country. In addition, the Group has a stock option scheme for top management. The terms and conditions of the stock option programme which the Annual General Meeting approved in 2001 were fulfilled at the end of 2003 and the Board of Directors has confirmed the programme.
During the year under review the following persons served on the Board of Directors of Kemira Oyj up to the Annual General Meeting held on 8 April 2003: Sten-Olof Hansén (Chairman), Niilo Pellonmaa (Vice Chairman), Ritva Hainari, Eija Malmivirta, Anssi Soila and Matti Packalén. The Annual General Meeting elected Anssi Soila as the new chairman and Eija Malmivirta as vice chairman. Matti Packalén was elected to a new term on the Board of Directors. The persons elected as new members of the Board of Directors were Markku Tapio of the Ministry of Trade and Industry as well as Elizabeth Armstrong and Ove Mattsson, both of whom have strong experience within the international chemical industry. The Board of Directors’ term of office commences from the Annual General Meeting and continues up to the next Annual General Meeting. None of the members of the Board of Directors is an employee of the Group.
Tauno Pihlava has served as the Chief Executive Officer from the beginning of 2000. The Board of Directors has decided to appoint Lasse Kurkilahti, M.Sc. (Econ.) as his successor and the new Chief Executive Officer of Kemira Oyj as from the beginning of February 2004.
Contributions of about EUR 17 million were paid to the Finnish pension funds (43 million in 2002). The reduction was due on the one hand to improved investment income and, on the other, to a reduction in the pension liability due to an amendment to pension legislation.
OWNERSHIP
The Finnish Government’s holding in Kemira was 56.2% at 31 December 2003. Foreign institutional investors owned 5.9% of the shares and Finnish institutions and mutual funds 27.7%. Private investors’ holdings amounted to 6.8% of the shares outstanding.
The company holds 4,190,000 of its own shares (treasury shares), or 3.4% of the entire shares outstanding. The Board of Directors does not have an authorization from the Annual General Meeting to purchase the company’s own shares or to float convertible bonds or stock options or new shares except to the extent as may be provided for by the stock option programme for management that was decided in 2001 (a maximum of 2,850,000 shares). The Annual General Meeting authorized the Board of Directors to transfer on treasury shares following this purchase as well as to sell them via 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 will be in force for one year from the passing of the resolution by the Annual General Meeting. The Board of Directors has decided to request that the Annual General Meeting grant it a new authorization to transfer treasury shares and to exercise the authorization for the shares to be subscribed for on the basis of the 2001 stock option programme and as part of the bonuses to be paid to the personnel fund for 2003. A maximum of 2.8 million shares are to be used for these purposes.
CHANGES IN THE GROUP STRUCTURE
A number of companies or participations were established, acquired or divested during the year. The major changes have been discussed in the surveys of the business areas. The biggest change was the merger of Kemira Chemicals Oy into Kemira Oyj which was carried out on 1 January 2004 with the aim of streamlining the organization.
IMPROVEMENTS IN PROFITABILITY
During the past 18 months, Kemira has launched a number of projects aiming at improving profitability. These relate to improving logistics, purchasing and efficiency at the plants and include the establishment of the Group-wide Kemira Service centre. The aim of these projects is to achieve total savings of over EUR 100 million during the next 2-3 years compared to the year 2002, and they concern all strategic business units. The projects have got off to a good start and a number of efficiency-boosting projects are already in progress at the largest production sites. During 2003 we achieved about a quarter of the 100 million euro cost-savings target. We shall reach about half of the target sum during 2004 and all of it by the end of 2005.
As part of the 100 million euro savings programme, in Helsingborg, Sweden, it was decided to reduce potassium sulphate and calcium chloride production and to wind up production of dicalcium phosphate. The costs of the structural change amounted to about EUR 9 million, about half of which consists of the write-down on assets, the other half representing other costs. GrowHow is pushing ahead with its plans to downsize its personnel in Finland by 170 employees by 2005, starting from the beginning of 2003. In Great Britain, the Coatings unit’s negotiations with the staff concerning the combining of two sites were seen to completion towards the end of the year.
OUTLOOK FOR 2004
Pulp & Paper Chemicals. The low business cycle in the pulp and paper industry is estimated to continue. Kemira has strengthened further its foothold in both North America and continental Europe via the acquisitions discussed above. Pulp & Paper Chemicals has also expanded its range of products and services. Both net sales and operating income are expected to improve on the figure of 2003 despite the challenging operating environment.
Kemwater. Demand for water treatment chemicals is expected to show further favourable development. There will be cost pressures on raw materials, particularly those based on aluminium and iron. The purchase of a majority holding in Kemiron Companies of the United States will increase Kemwater’s net sales significantly, and operating income is also believed to improve on 2003 as a result of this acquisition.
Paints & Coatings. The strong growth of the Paints & Coatings unit is expected to continue in Russia, with demand normalizing in the Nordic market area. Net sales are expected to grow. This, together with measures aimed at improving profitability, is expected to generate higher operating income in 2004.
Industrial Chemicals. The outlook for Industrial Chemicals remains positive. After the drop last year, world consumption of titanium dioxide pigments is expected to head upward, and all the major producers have recently announced price increases. They are nevertheless not expected to be able to make any mentionable impact on first-quarter figures. The outlook for the unit’s other products is good. The structural changes and the improvement in the cost-effectiveness of production are set to step up operational efficiency. It is believed that both net sales and operating income will improve on the 2003 figures.
Kemira GrowHow. GrowHow’s year 2004 has started on a note of markedly higher prices in the fertilizer markets in continental Europe and Great Britain. World grain stocks are at an exceptionally low level, which has lifted grain prices, thereby also supporting prices of fertilizers in the customary fashion. The rise in the capacity utilization rate for the joint venture in Jordan is believed to improve profitability this year. On the other hand, the prolonged high level of natural gas and ammonia prices are raising production costs. Exports outside Europe and the phosphoric acid business are still suffering from the effects of the weak dollar against the euro and from increased freight costs. In the animal feed markets, prices are expected to start heading upward, but are still low. GrowHow’s net sales and operating result are estimated to improve on the year 2003.
Kemira Group. The Kemira Group’s net sales are estimated to increase and operating income to improve on the figure reported for 2003.
Kemira will go over to IAS/IFRS reporting from the beginning of 2004. The IFRS opening balances and comparison figures for 2003 will be published as a separate bulletin. The biggest changes relate to the reporting of personnel benefits (mainly pension funds) as well as the valuation of certain shares.
Helsinki, 10 February 2004
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.