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Kemira Group's Interim Report for January-March 2008

Published on 2008-05-02. Author : SpecialChem

Kemira Group's revenue for January-March 2008 totaled EUR 683.6 million (Q1/2007: EUR 673.3 million). Demand was healthy in most areas and organic growth in local currencies was 3%. Acquisitions contributed around EUR 16 million to revenue growth, while divestments depressed revenue by EUR 6 million. The currency effect had a 3%, or EUR 20 million negative impact on revenue.

The first quarter was challenging due to the continued increases in already high raw material and energy prices, and the continued weakening of the US dollar. The raw material prices increased more than estimated earlier.. Kemira Group's operating profit, excluding non-recurring items, for January-March decreased by 43% to EUR 27.2 million (EUR 48.1 million). As a result, operating profit as a percentage of revenue, excluding non-recurring items, fell from 7.1% to 4.0%. However the profitability improved compared to the last quarter in 2007. High raw material and energy prices eroded profitability in all business areas, but paper chemicals and the polymers required for water treatment were most severely affected. Furthermore, Kemira Specialty's performance was hampered by low sales prices in euro of titanium dioxide. The currency effect had a EUR 3 million negative impact on revenue compared with Q1 a year earlier.

Financial Position and Cash flows

In January-March, the Group reported cash flows of EUR 20.2 million (-30.0) from operating activities. Net cash flow from investing activities was EUR -29.2 million (-110.8). There were no acquisitions in the first quarter. In the first quarter of 2007 the acquisitions accounted for an outflow of EUR 23.2 million. Kemira showed a negative free cash flow of EUR -9.0 million (-140.8).

At the end of March, the Group's net liabilities stood at EUR 1,015.9 million (December 31, 2007: EUR 1,003.4 million).

At the period-end, interest-bearing liabilities stood at EUR 1 072.2 million. Fixed-rate loans accounted for roughly 26% of total interest-bearing net loans. The Group's net financial expenses totaled 5.3%. The duration of the Group's interest-bearing loan portfolio on March 31 was 14 months (December 31, 2007: 13 months).

The unused amount of the EUR 750 million revolving credit facility, that falls due in 2012, was EUR 622.4 million on March 31.

On March 31, the equity ratio stood at 36 % (December 31, 2007: 39%), while gearing was 99% due to equity effect of dividends (December 31, 2007: 92%).

The Group's net financial expenses for January-March totaled EUR 11.2 million (12.2).

The Group's most important exchange rate risk arises from the USD denominated exports from the euro area. Approximately 70% of the exchange rate risk, annually equivalent to EUR 56 million, due to exposure to the US dollar, was hedged during the quarter. In addition, the company is exposed to a USD risk when USD denominated items are converted into euro in the financial statements.

Capital Expenditure Gross capital expenditure, excluding acquisitions, amounted to EUR 38.6 million (55.1) in January-March. Maintenance investments represented around 15% of capital expenditure, excluding acquisitions.

Group depreciation came to EUR 34.6 million (33.7 million).

Cash flow from the sale of assets was EUR 9.4 million (-32.5). The Group's net capital expenditure totaled EUR 29.2 million (110.8).

Research and Development

In January-March, reported research and development expenditure totaled EUR 15.5 million (EUR 16.0 million), accounting for 2.3% of revenue (2.4%). Kemira's Asian Technology Center in Shanghai was inaugurated on April 15, 2008. In addition to Asia, Kemira's network of the R&D centers includes Europe and North America. Once completed, the planned technology center in Latin America will bolster Kemira's strategy of enhancing its business in the growing markets. With the technology centers up and running, customers will receive full R&D services on all continents. Kemira engages in development work with customers and other cooperation partners, e.g. in process technology and automation. In addition, close contacts with universities and research institutions are valuable. Kemira is intensifying its cooperation with China's leading universities, the first among these being South China University of Technology in Guangzhou and Nanjing Forestry University.

Human Resources

The number of Group employees totaled 10,138 on March 31 (9,045).

Kemira Pulp&Paper

Kemira Pulp&Paper is the world's leading expert in pulp and paper chemicals, its energy and cost-efficient solutions spanning the pulp and paper industry's value chain from pulp to paper coating.

In the first quarter, Kemira Pulp&Paper's revenue remained on the previous year's level. Organic growth in local currencies was 5% but the currency effect and divested businesses brought reported growth practically to zero. The currency effect had a 3% negative effect on revenue. While pulp chemicals showed good demand, the competitive environment for paper chemicals was challenging and sales figures fell short of last year due to customer paper mill closures, particularly in Europe and North America.

As a result of higher raw material and energy prices as well as the increase in transport costs, operating profit for the period excluding non-recurring items was down by 28% from the previous year to EUR 15.6 million (21.6). These raw material price hikes reflected particularly strongly on the profitability of the paper chemicals business. However, operating profit, excluding non-recurring items, was higher than in the final quarter last year.

The start-up of Kemira's chemical plant, built next to Botnia's pulp mill in Uruguay, has gone well. Its deliveries to the pulp mill are proceeding according to plans. Furthermore, the Kemira plant has also initiated chemical deliveries to other South American customers.

In January, Kemira announced its intentions to start a new company in Indonesia, which is a growth area for the pulp and paper production. PT Kemira Indonesia launched operations in January, offering pulp and paper chemicals solutions and products to customers in South East Asia.

Source: Kemira

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