- Net sales: EUR 2,142 million (2,054 million in January-September 2003), up 4%.
- Operating income: EUR 200 million (129 million), up 55%.
- Earnings per share: EUR 1.05 (0.63), up 67%.
- Cash flow after capital expenditures: EUR 190 million (22 million negative).
- Equity ratio: 49% after GrowHow spin-off.
> Tables (.pdf)
In January-September the net sales and operating income of the Kemira Group were higher than a year ago. Operating income in July-September was 87% higher than last year. The figure includes a gain of EUR 52 million on disposals of businesses (8 million last year). Excluding this gain, operating income was EUR 39 million, or close to last year’s level.
Key figures
All figures in this report have been stated in accordance with IFRS. Because of the spin-off of GrowHow in October, all the Group figures in this report are presented both excluding GrowHow (continuing operations) and together with it.
In the July-September period the Kemira Group (incl. GrowHow) had net sales of EUR 695 million, an increase of 2% on the previous year. The main factors contributing to the increase were the acquisitions made in the latter half of 2003, though the divestment of the Ecocat business earlier in the spring cut into net sales. Towards the end of the third quarter, the divestments of the Fine Chemicals and Calcium Chloride businesses were seen to conclusion. Kemira posted consolidated operating income of EUR 91 million (49 million), including an EUR 52 million capital gain on disposals of businesses and an EUR 9 million extra cost related to the stoppage of nitric acid production at GrowHow’s Ince plants in the UK. Profit before taxes was EUR 83 million, earnings per share EUR 0.52 (0.22) and per-share cash flow from operations EUR 0.81 (1.08).
The Group’s net sales in the January-September period were EUR 2,142 million, up 4% on the same period of 2003 (2,054 million). Operating income was EUR 200 million (129), representing 9% of net sales (6%). Discussions of the results by business area follow.
Income before taxes and minority interest in the January-September period was EUR 177 million (110 million), an increase of 61% on the figure a year earlier. The result includes capital gains of EUR 69 million (13 million) on the disposal of businesses and other fixed assets. Income after taxes rose by 68% to EUR 126 million (75 million). Earnings per share were EUR 1.05 (0.63). The return on capital employed was 11%. Cash flow after capital expenditures was EUR 190 million (22 million negative). Per-share cash flow from operations was EUR 1.62 (1.11). Equity per share was EUR 9.44 (8.77 at the start of 2004).
GrowHow is included in the Kemira Group figures up to the end of September. In connection with the listing of GrowHow, it was decided that Kemira would retain the water-soluble special fertilizer business. Its figures are included in the Other Units of the Kemira Group.
Kemira GrowHow’s net sales in July–September amounted to EUR 262 million (252 million). GrowHow reported an operating loss of EUR 5.3 million, as against operating income of 7 million last year. Net sales in January-September were EUR 858 million, 1% less than last year (868 million). Operating income was EUR 35 million (39 million). Fertilizer prices were higher than they were a year ago. Earnings were weakened by the rise in raw materials prices, particularly gas prices, as well as by the prolonged production disturbance at the plant in the UK, which cut about EUR 9 million from earnings.
Kemira GrowHow Oyj will report on its earnings trend in a separate stock exchange release.
The number of the Group’s employees at the end of September was 10,089 (10,626). After the spin-off of GrowHow, the Kemira Group has a payroll of about 7,130 employees.
Listing of Kemira GrowHow, distribution of shares as a dividend and sale of shares
On 4 October, an extraordinary general meeting of Kemira Oyj’s shareholders passed a resolution on distributing to Kemira’s shareholders 30,034,650 Kemira GrowHow Oyj shares, or 52.5% of Kemira GrowHow’s shares outstanding. The amount of the dividend payout was about EUR 170 million, which reduces Kemira Oyj’s shareholders’ equity. The amount of the dividend payout and its impact on earnings was calculated at a share price of EUR 5.67, which was the trading volume-weighted average price of the GrowHow share on the first day of trading, excluding opening trades that were part of the arranged sale of shares. In respect of the dividend payout, Kemira has made an application for an advance ruling on calculating the minimum amount of income tax by applying the mentioned EUR 5.67 price. Should the ruling differ from the above-presented calculation, the amount of the dividend payout and its impact on earnings will change accordingly.
The distribution of dividends will reduce the subscription price of shares within the stock option scheme. Before the distribution of dividends the subscription price was EUR 4.23 and the new subscription price will be EUR 2.81 (subscription price before distribution of dividends minus one fourth of the average price of the Kemira GrowHow Oyj shares on the first day of trading, or EUR 1.42).
In the arranged sale of shares, Kemira sold a total of 18,650,087 GrowHow shares, representing 32.6% of GrowHow’s shares outstanding. In addition to the shares sold in the offering to institutional and retail investors, the amount includes an option to purchase 2,860,443 additional shares that was granted to and exercised to the full by the managers of the Offering in the sale of shares. The selling price of all the shares sold (before deducting sales fees and expenses) was EUR 5.25.
Trading in the GrowHow share commenced on the Pre List of the Helsinki Stock Exchange on 14 October 2004 and on the Main List on 18 October 2004. As a consequence of the dividend payout and sale of shares, Kemira’s holding of GrowHow shares and voting rights fell to 14.9%. The value of Kemira Oyj’s holding in Kemira GrowHow Oyj as calculated on the share price on the first day of trading (EUR 5.67 per share) is about EUR 48 million.
Kemira will receive about EUR 92 million of income from the sale of shares after arranging fees, transfer taxes related to the distribution of dividends and other direct expenses connected with the transaction. Within the Kemira Group the impact on earnings of the sale of shares and dividend payout, including expenses connected with the arrangements, is about EUR 11 million negative and will affect earnings in the last quarter.
Restructuring and profitability improvement
Kemira is strengthening its four main business areas through organic growth and acquisitions. These areas are pulp and paper chemicals, water treatment chemicals, industrial chemicals and paints and coatings.
Divestments of non-core businesses and assets were made during the report period. In April, Kemira sold Ecocat Oy to Eqvitec Partners Oy of Finland, and in the early part of the year it had divested Metpela Oy, which manufactures exhaust pipes.
The divestment of Kemira Fine Chemicals Oy was seen to completion in mid-September. The transaction had a value of over EUR 70 million. The divestment of another business unit belonging to Industrial Chemicals was also completed at the end of the third quarter, when the calcium chloride business was sold to Tetra Technologies Inc of the United States for about EUR 35 million.
Kemira and PIC Engineering Oyj agreed on a transaction whereby the entire shares outstanding in Kemira Engineering Oy were sold to PIC Engineering Oyj. Kemira Engineering Oy was the Group’s internal engineering office, which served the strategic business units in designing and implementing capital expenditure projects. Kemira Engineering has a staff of about 70 employees. The transaction was completed at the beginning of October and it does not have a major impact on earnings.
Proceeds from the sale of assets in January-September were EUR 135 million (33 million).
Kemira has reduced the Group’s capital employed by divesting, during the spring, other non-core assets as well. All the strategic business units furthermore have ongoing efficiency-boosting projects that aim at improving profitability.
Continuing operations of Kemira Group
In July-September, the continuing operations of Kemira Group had net sales of EUR 507 million, an improvement of 12% on the previous year. Operating income was EUR 100 million, which was EUR 56 million or 127% higher than a year earlier. Operating income included a gain of EUR 52 million (8 million) on the sale of businesses.
In January-September, net sales of the continuing operations were EUR 1,391 million (1,258 million), or up by 11%. Operating income was EUR 174 million (96 million), EUR 78 million or 81% more than a year earlier.
*After the spin-off of GrowHow in October, the Kemira Group’s net debt has fallen to EUR 236 million and gearing ratio to 24%.
Pulp & Paper Chemicals
The Pulp & Paper Chemicals unit offers solutions that are tailored to customers’ needs. Our operations are built around thorough expertise relating to the manufacture of pulp and paper, with an emphasis on good service and long-term customer relationships.
In July–September the Pulp & Paper Chemicals unit had net sales of EUR 145 million, an increase of 4% on the previous year. Third-quarter operating income was EUR 15 million, down EUR 4 million year on year (19 million). *The previous year’s result, however, included a non-recurring capital gain on the sale of an associated company (7.6 million). The third quarter was clearly Pulp & Paper Chemicals’ best quarter this year, though the tight competition situation has continued, and higher raw materials costs - especially for oil-based products - affect profitability. The operational result improved by 30% on the previous year, thanks to increased volumes and higher prices.
In January–September, Pulp & Paper Chemicals’ net sales grew by 10% to EUR 422 million (384 million). Operating income was EUR 32 million (34 million) and fell slightly short of the year-ago figure owing to the capital gain that was included in last year’s earnings. The return on capital employed was 9%.
At the end of September, Kemira acquired the Canadian paper chemicals company E.QU.I.P International. Via the deal, Kemira will strengthen its presence and beef up its product offerings in North America, also gaining important process chemistry know-how. The acquired company has net sales of 13 million Canadian dollars. The E.QU.I.P International acquisition is in line with Pulp & Paper Chemicals’ growth strategy. It will allow Kemira to expand its product offerings, especially within retention systems, and to strengthen its market position, with a focus on eastern Canada.
An expansion of hydrogen peroxide production is under way in Helsingborg, Sweden. A similar capital expenditure project was seen to completion at the plant in the Netherlands before the summer. These debottlenecking investments will serve to increase hydrogen peroxide production by about 10,000 tonnes a year (or 5% of the total capacity) and contribute to satisfying the rapidly growing demand for this bleaching chemical.
The production of calcium sulphate pigment that is used to coat paper is being expanded in Siilinjärvi, Finland.
Kemwater
Kemwater offers products, technology and know-how for the treatment of drinking and waste water, serving both municipal and private water treatment plants as well as industrial customers.
In July–September, Kemwater’s net sales increased by 21% to EUR 71 million (59 million). The increase was due above all to Kemiron of the USA, which was acquired in August 2003. Operating income was EUR 6.3 million, down EUR 1.9 million on the previous year. Although the sales trend has been favourable, higher raw materials costs have burdened earnings, particularly in the Nordic countries and North America. Of raw materials, the prices of aluminium hydrate, chlorine and iron in particular have risen this year. Earnings were furthermore weakened by the reorganizations that were started in Italy and will continue during the fourth quarter. Operating income was 9% of net sales in the third quarter (14%).
Net sales in January-September were EUR 205 million, 38% higher than last year (149 million). Operating income was EUR 18 million (17 million), representing 9% of net sales, an increase of 9% on the same period of last year. Kemwater has certain associated companies that are closely related to operations and provided a profit of EUR 1.9 million (1.1 million) but are reported under financing income and expenses. The return on capital employed was 17% (19%).
Kemwater strengthened its position during the summer by acquiring the water treatment business of the Zlotniki company in Poland as well as the water treatment business of Belinka KTM in Slovenia. Both acquisitions strengthen Kemira's presence in the growing water treatment chemicals market in continental Europe and the enlarged European Union in line with the Group’s strategy.
Kemwater is also carrying out a number of plant investments with the aim of stepping up organic growth in both Europe and the United States.
In Sweden, Käppala Association, which treats the waste water of half a million Stockholm residents, has placed in use the Kemira-developed Kemicond method, whereby the volume of sludge that arises in waste water treatment can be reduced and its quality improved. By raising the dry solids content of sludge, the volume of sludge can be cut to half of what it used to be. Furthermore, transports through the densely populated area as well as the final disposal needs will be reduced.
Industrial Chemicals
Industrial Chemicals’ products are used in paints, printing inks, cosmetics, detergents, silage, textiles and leather. Fine Chemicals as well as the Calcium Chloride unit were sold off towards the end of September.
In July–September the Industrial Chemicals unit had net sales of EUR 98 million, and was at the level of the same period of last year. *The disposals of Fine Chemicals Oy and the calcium chloride business were seen to completion during the autumn, generating a total capital gain of EUR 52 million. The units have aggregate annual net sales of about EUR 100 million. Operating income excluding the above-mentioned capital gain was EUR 14 million, an increase of 59% on the previous year.
In January–September the Industrial Chemicals unit’s net sales were EUR 310 million, down 1% on last year. Operating income was EUR 89 million (30 million). Stripping out the above-mentioned capital gains, operating income was EUR 37 million, an improvement of EUR 7 million on the figure a year earlier. The return on capital employed was 29% including the proceeds from divestments, and 14% (11%) without these.
The Titanium Dioxide Pigments unit is clearly the largest Industrial Chemicals business unit. The average selling prices in euros of titanium dioxide pigments in January-September were 8% lower than in the same period of last year. Demand picked up in the second quarter and the good demand situation has also continued during the third quarter. Sales volumes in January-September were up 12% on the same period of 2003.
Demand for formic acid has remained stable after a slow first part of the year. Sales volumes of sodium percarbonate, which is used as an environmentally friendly bleaching agent for detergents, rose to the normal level towards the end of the second quarter and demand has held up well during the third quarter. The divested Calcium Chloride and Fine Chemicals units are included in the figures up to the time of the sale, i.e. for nearly all of the third quarter.
Paints & Coatings
Paints & Coatings is a modern paint manufacturer whose brands are well known in its home markets. The Coatings unit serves customers in the metal and wood industry.
In July-September the Paints & Coatings unit had net sales of EUR 123 million, on a par with the previous year. Operating income too was in line with the same period of last year, or EUR 15 million (15 million), representing 12% of net sales.
January–September net sales were EUR 356 million (355 million). Although net sales were at the previous year’s level, operating income rose by 20% to EUR 41 million (34 million), or 12% of net sales. Measures aiming at stepping up productivity have been carried out for a number of years now at the unit and their results are showing up in terms of improved operating income. The return on capital employed was 13% (8%).
Net sales of the Decorative Paints unit in January–September were 2% higher than last year. Sales volumes were up on the previous year, especially in the Baltic countries.
The Industrial Coatings unit saw its net sales dip by 3% in the January–September period, but operating income and profitability improved. The drop in net sales was partly due to the plant in the Netherlands that was closed last year as well as to arrangements carried out in the UK. Demand has nevertheless been stable in the Industrial Coatings unit’s main market area, the Nordic countries.
At the end of September, Paints & Coatings acquired a 51% holding in the Ukrainian company Kolorit Paints. Based in Kiev, the company manufactures water-based lacquers and paint products, and it has sales of about USD 2 million a year. The deal will strengthen Kemira’s position in Ukraine, where paints have been exported for a couple of decades now. Paints & Coatings’ strategy is to grow within the countries of eastern Europe and the former Soviet Union.
Other units
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 help to offset electricity costs in Nordic countries. Changes in the price of electricity thus do not have a significant effect on Kemira’s energy costs.
Other Units also includes the water-soluble speciality fertilizers business that was separated out when GrowHow was listed. The unit had net sales in January-September of EUR 106 million and reported operating loss of 2.9 million. The unit’s earnings are burdened mainly by start-up difficulties at the plant operated by the Jordanian joint venture. The results of associated companies are included in the financial expenses figures.
Capital expenditure
Efficient employment of capital has been a prime focus. Gross capital expenditures in the cash flow statement were EUR 139 million (186 million). The proceeds of disposals of assets and businesses amounted to EUR 135 million (33 million). Full-year gross capital expenditures, excluding any further acquisitions, are estimated to be about EUR 180 million (236 million).
Financing and taxes
The Group’s financial position strengthened remarkably. Interest-bearing net debt at the end of September was EUR 545 million, or EUR 180 million less than at the end of 2003. The spin-off and Initial Public Offering (IPO) of GrowHow in October reduced Kemira’s net debt further by EUR 309 million to EUR 236 million, including the effect of the sale of shares.
Cash flow from operations was EUR 194 million, or about EUR 63 million stronger than a year ago. Cash flow after capital expenditures was EUR 190 million (22 million negative). The main reasons for the improvement were the increase in operating income and lower working capital as well as disposals of non-core assets.
The spin-off and IPO of GrowHow have a significant effect on Kemira’s balance sheet. In October, equity was reduced by EUR 182 million to 958 million, including the effect of the direct cost of the arrangements on earnings. The Group’s equity ratio was 45% at the end of September (41% at the end of 2003) and improved to 49% owing to the GrowHow spin-off and IPO in October. Gearing (net debt as a ratio of shareholders’ equity), which was 47% at the end of September (68% at the end of 2003), declined to 24%. At the end of September, liquid assets amounted to EUR 164 million (EUR 78 million at the beginning of the year) and unused agreed credit facilities totalled EUR 389 million. The proceeds from the sale of GrowHow’s shares will further improve the position by over EUR 90 million.
The attached tables show the income statements, balance sheets and cash flow statements of Kemira’s continuing businesses. The discontinued business (spun-off GrowHow) is shown separately.
The share of associates’ net income in the January–September period was a loss of EUR 3.1 million (loss of 1.1 million). Other net financing expenses were EUR 21 million (19 million). A loss on foreign exchange of EUR 1.1 million was booked (a gain of 5.2 million). The proportion which fixed-interest loans represented within the total amount of the Group’s interest-bearing loans was about 40% at the end of September. Pension loans are considered to be floating rate loans.
Full-year outlook
The low business cycle in the client industry of Pulp & Paper Chemicals is forecast to improve gradually towards the end of the year. Some positive messages have come in from the industry recently. Following the acquisitions made in 2004 and 2003, the unit has strengthened its geographical presence and expanded its portfolio of products and services, especially in North America. Pulp & Paper Chemicals’ full-year net sales are expected to grow. Despite tough competition, operating income is expected to improve on last year, excluding the capital gain of EUR 7.6 million included in last year’s figure.
Demand for water treatment chemicals is expected to show further favourable development. The use of alternative raw materials, rising sales and better selling prices will compensate only in part for the rise in raw materials prices. Net sales are estimated to increase on last year and operating income is set to come in slightly ahead of last year.
The present units of Industrial Chemicals are expected to post higher net sales than they did a year ago. Average prices of titanium dioxide pigments have been lower than they were last year. A pick-up in demand is nevertheless clearly apparent, and prices too are expected to strengthen gradually. The second half of the year is expected to be better for the titanium dioxide units than the first half. Demand for formic acid and sodium percarbonate, which is used in detergents, is also believed to remain stable. Because of the disposals that have been made, net sales of the Industrial Chemicals unit are likely to be lower than they were a year ago. It is nevertheless expected that operating income will improve on the previous year, even when the capital gains from the divestment of business units are excluded.
Sales of paints and coatings are expected to be at last year’s level. Sales in Russia and the Baltic countries will continue to grow, with an emphasis on locally produced paints, especially in Russia. Earnings will be lifted as efficiency-boosting and synergy benefits kick in, and operating income is expected to improve compared with last year.
Net sales of the Kemira Group will be lower than last year due to the divestments that have been carried out. The comparable net sales of the continuing business are expected to grow year on year. Operating income and net profit of both the total Kemira Group and the continuing business are believed to show an increase compared with 2003.
Helsinki, 3 November 2004
The 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.