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Kemira's revenue up by 22%

Published on 2007-05-03. Author : SpecialChem

  • Revenue: EUR 673.3 million (Q1/2006: 552.9 million), up 22%.
  • Operating profit: EUR 48.9 million (45.5 million), up 7% (up 18%, when excluding the effect of nonrecurring items).
  • Earnings per share: EUR 0.22 (0.21), up 5%
  • Full-year revenue, operating profit and earnings per share are expected to improve from their 2006 levels.

Kemira Group's revenue for January-March 2007 rose by 22% year on year, to EUR 673.3 million (Q1/2006: 552.9 million). Acquisitions contributed around EUR 129.7 million to revenue growth. Divestments depressed revenue by roughly EUR 9.0 million. Organic growth was 2%, excluding the currency effect, which had a 2% negative impact on revenue.

Operating profit grew by 7%, to EUR 48.9 million (45.5), with acquisitions contributing approximately EUR 4.7 million to the figure. Operating profit includes capital gains on the sale of assets and other non-recurring items, with their net effect on operating profit amounting to EUR 0.8 million, compared with EUR 4.9 million reported a year ago. Excluding the effect of non-recurring items, operating profit totaled EUR 48.1 million (40.6), or an increase of 18%, year on year.

RESEARCH AND DEVELOPMENT

Reported research and development expenditure totaled EUR 15.2 million (11.9), accounting for 2.3% of revenue (2.0%).

CAPITAL EXPENDITURE

Gross capital expenditure, excluding acquisitions, amounted to EUR 55.1 million (27.2). The largest ongoing investments involve a chemical plant under construction at the site of the Botnia pulp mill in Uruguay, EUR 12.0 million, and a paint factory under construction in the Stockholm area, EUR 5.9 million. Maintenance investments represented around 26% of capital expenditure excluding acquisitions.

Group depreciation came to EUR 33.7 million (29.4 million). Gross capital expenditure, including acquisitions worth EUR 23.2 million (30.3), totaled EUR 78.3 million (57.5).

FINANCIAL POSITION AND CASH FLOWS

In January-March, the Group reported a negative cash flows of EUR 30.0 million from operating activities (negative cash flow of EUR 20.3 million), due mainly to seasonal fluctuations in working capital. The Group generated negative net cash flows of EUR 110.8 million from investing activities, of which acquisitions accounted for an outflow of EUR 23.2 million. Kemira showed a negative free cash flow of EUR 140.8 million (-71.8).

On March 31, 2007, the Group's net liabilities stood at EUR 964.5 million (December 31, 2006: EUR 827.4 million), this growth being primarily due to a seasonal increase in working capital and acquisitions carried out during the period.

On the same date, interest-bearing liabilities stood at EUR 1021.3 million. The duration of the Group's interest-bearing loan portfolio at the period-end was 15 months. On March 31, 2007, the equity ratio stood at 39% (March 31, 2006: 42%; December 31, 2006: 39%). while gearing was 87% (March 31, 2006: 65%; December 31, 2006: 76%).

Net financial expenses increased to EUR 12.2 million (7.1), due mainly to higher interest bearing debt and also the rise in interest rates. Cash and cash equivalents on March 31, 2007 totaled EUR 56.6 million (March 31, 2006: EUR 108,0 million).

In October 2006, Kemira signed a credit facility worth EUR 80 million, enabling six Group companies to sell certain account receivables to the finance company. The related credit risk transfers to the finance company and the receivables are derecognized from the Group companies' balance sheet. The amount of outstanding sold receivables on March 31, 2007 was EUR 15.8 million (December 31, 2006: EUR 15.7 million).

HUMAN RESOURCES

The number of Group employees totaled 9,405 on March 31, 2007 (March 31, 2006: 8734; December 31, 2006: 9,327).

KEMIRA PULP&PAPER

Kemira Pulp&Paper is the world's leading supplier of pulp and paper chemicals, its extensive solutions spanning the pulp and paper industry's value chain from pulp to paper coating.

Kemira Pulp&Paper reported year-on-year revenue growth of 22%, totaling EUR 255.3 million (209.5), due largely to the acquisition of the Lanxess paper chemicals business in April 2006. Organic revenue growth was 4%, excluding the currency effect, which had a 3% negative impact on revenue. The early arrival of spring in Finland made it more difficult for customers to purchase timber causing some downtime, that was reflected in bleaching chemicals' weaker sales volume performance. The business area was able to fully pass raw material price increases, which were more modest than a year ago, on to end product prices to their full extent.

Reported operating profit of EUR 23.0 million (26.0) included EUR 1.3 million (4.1) in non-recurring income. The Lanxess paper chemicals business was included for the first time in the first-quarter figures; this contributed to the decreased ratio of operating profit to revenue. Operating profit was lowered by the Korean hydrogen peroxide business, divested in 2006. The integration of Lanxess continues to make good progress.

KEMIRA WATER

Kemira Water is the world's leading supplier of inorganic coagulants and ranks third in water treatment polymers. Kemira Water offers customized water treatment and sludge treatment solutions to municipal and private water treatment plants and industry.

Kemira Water's revenue improved by 84%, to EUR 170.0 million (92.3), due particularly to the acquisition in October 2006 of Cytec, Galvatek and Parcon. Organic growth stood at 7%, excluding the currency effect, which had a 5% negative impact on revenue.

Operating profit grew by 86%, to EUR 11.9 million (6.4), due to company acquisitions in particular. January saw the confirmation of the second stage included in the acquisition of the Cytec water treatment chemicals and acrylamide business. The first stage in October 2006 involved the confirmation of the Cytec water treatment chemicals business transfer to Kemira, excluding the Botlek production plant in the Netherlands and the assets of subsidiaries based in Latin America and Asia- Pacific. Thereafter, the second stage involved the confirmation of the Botlek production plant's transfer to Kemira and assets in Latin America and Asia-Pacific are expected to transfer to Kemira during the second quarter of 2007. The purchase price will total roughly EUR 197 million, including the price related to the deal's second and final stage and costs related to the acquisition.

In January, Kemira agreed to acquire two Dalquim Industria e Comercio Ltda companies in Brasil. With combined revenue of around EUR 12 million, these companies manufacture inorganic watertreatment coagulants and their main customers include the paper industry and municipalities. In addition to serving the paper industry's growing needs, the acquirees focus on the treatment of municipal drinking and wastewater. Bolstering Kemira's goal of intensifying mutual synergy and strengthening its position as the world's leading supplier of pulp, paper and water treatment chemicals in the emerging market, this acquisition was completed in April.

In March, Kemira agreed to acquire Arkema's coagulants business for water treatment. In 2006, the acquired business reported revenue of around EUR 19 million. As a result of the acquisition, Kemira will become the market leader for inorganic coagulants in France and fortifies its leading position in the Spanish market.

In April, Kemira confirmed the acquisition of 80% of the shares in the Chinese company Chongqing Lanjie Tap Water Materials Co.,Ltd.. The company is a producer of inorganic coagulants and organic polymers for water treatment in the municipality of Chongqing, located in central China. Its main client base is in the local potable water production. The company's current revenue, in the range of EUR two million annually, is expected to grow rapidly in the years to come.

KEMIRA SPECIALTY

Kemira Specialty is the leading supplier of specialty chemicals in selected customer segments, serving customers in a wide array of industries, such as the cosmetics, printing ink, food, feed and detergent industries, through its customer-driven solutions.

Kemira Specialty's revenue decreased by 13%, to EUR 103.5 million (118.6). Due to developments in the US housing market and dollar, competition toughened in Europe in particular and titanium dioxide sales volumes decreased during January-March. The euro selling prices of titanium dioxide fell slightly. In addition, sales of deicer chemicals were at low levels as a result of the warmer-than-usual winter in Europe. Currency effect lowered the sales by 3%.

Operating profit was EUR 10.3 million (11.3), due chiefly to lower sales volumes and selling prices of titanium dioxide. Year on year, operating profit as a percentage of revenue improved to 9.9% (9.5%).

In March. Kemira acquired Sustainable Nutrition BV of the Netherlands from the company's management. Kemira and the acquiree have collaborated in previous years when Sustainable Nutrition has operated as Kemira's sales, marketing and product development partner in the feed industry. The acquisition will strengthen Kemira's customer knowledge in the feed industry.

In April, Kemira agreed to acquire TRI-K Industries Inc., including its subsidiary Maybrook Inc., from the company's management. The company is headquartered in New Jersey and has additional operations in Massachusetts. With a staff of 50 and revenue of around USD 20 million in 2006, TRI-K Industries Inc. is a distributor and producer of specialty ingredients for the cosmetics industry. This acquisition will provide Kemira Specialty with an excellent platform for expanding its cosmetics business, especially in the field of skin care and hair care.

KEMIRA COATINGS

Kemira Coatings is the leading supplier of paints in Northern and Eastern Europe, providing consumers and professionals with branded products. Its products consist of decorative paints and coatings for the woodworking and metal industries.

Kemira Coatings increased its revenue by 15% year on year, to EUR 135.8 million (118.6). Due to the warm spring and its premature arrival, all market areas showed a good sales performance. Organic growth stood at 12%. In addition, revenue was boosted by the acquisition in February 2006 of Kraski Teks. Showing a favorable sales performance in all market areas, the Decorative Paints unit improved its revenue by 16%. The Industrial Coatings unit's sales increased by 6%.

Operating profit rose by 33%, to EUR 12.8 million (9.6), due to a good sales performance and efficient cost management.

In April, Kemira announced the confirmation of the purchase of holdings in two Russian industrial coatings companies. Accordingly, Tikkurila bought 70% holdings in OOO "Gamma" and OOO "Ohtinski zavod poroshkovyh krasok" based in St Petersburgh. With revenue of roughly EUR 8 million and a staff of 100, Gamma is a major manufacturer of metal-industry coatings in Russia. Ohtinski zavod poroshkovyh krasok, a manufacturer and marketer of powder coatings, has revenue of approximately EUR 3 million and personnel of 50. This acquisition will strengthen Kemira's position in the Russian metal-industry coatings market.

OTHER OPERATIONS

In February, Kemira sold its shareholding (50%) in Kemira Arab Potash Company Ltd (Kemapco) to Arab Potash Company Ltd (APC). Kemira will continue selling potassium nitrate, produced by the Jordanian plant, for a one-year transition period.

During the current year, an error was found in the calculation of the provision recognized in 2006 due to the closure of the Water Soluble unit. This prior year's error was corrected retrospectively in the last quarter figures of 2006 in accordance with IAS 8. The provision was increased by EUR 8 million decreasing the result for the last quarter by the same amount. The financial statement section in this interim report provides more detailed information on the correction of this error.

In March, Kemira sold all of its shares in OnePoint Oy, a provider of infrastructure and production support services in the Kokkola Industrial Park, to Kokkolan Voima, in accordance with a letter of intent signed in December 2006. Other operations include corporate expenses not charged to the business areas, such as some research and development costs and the costs of the Kemira Corporate Center.

OUTLOOK

Full-year revenue, operating profit and earnings per share for 2007 are expected to increase from their 2006 levels. Raw material and energy prices as well as transportation costs are projected to behave more moderately than in 2006. Operational risks were presented in the Annual Report and no significant changes have occurred.

Since the production-capacity utilization rates of Kemira Pulp&Paper's customers are expected to be high, the business area's revenue and operating profit are anticipated to grow from the previous year's levels. Kemira has successfully integrated companies acquired in 2006 as part of the Group's global pulp and paper chemicals operations and their favorable contribution to profit performance will be reflected in the growing Far Eastern and South American markets. In March, Kemira Pulp&Paper concluded two new significant supply agreements, which will boost the business area's organic growth. A chemical plant under construction at the site of a pulp mill in Uruguay will be phased in as the customer's pulp production begins during the second half.

Kemira Water is expected to increase its revenue and operating profit from 2006 levels, due in particular to its previous acquisitions, and demand for its water treatment chemicals is anticipated to remain at a good level. During 2007, Kemira Water will focus on the integration of acquirees in particular.

Kemira Specialty's revenue and operating profit are anticipated to be in line with their 2006 levels, despite first-quarter market developments. Competition is expected to remain tough in the titanium dioxide market. Although demand for titanium dioxide is projected to increase slightly this year, its euro prices are anticipated to remain lower than a year ago. Specialty pigments are expected to further increase their share of Kemira's total sales. The business area's sales of organic acids and acid derivatives are anticipated to show favorable development in most of the areas. Sales of sodium percarbonate, used in detergents, should remain at their 2006 level and prices should decline slightly.

Kemira Coatings is expected to generate higher revenue due to demand remaining at a good level in all market areas, with the strongest growth anticipated in Russia and other CIS countries. Operating profit for 2007 is expected to grow year on year (excluding EUR 16.4 million in non-recurring income in operating profit for 2006), spurred by favorable developments in sales and recent years' restructuring.

Kemira is a chemicals group made up of four business areas: Kemira Pulp&Paper, Kemira Water, Kemira Specialty and Kemira Coatings. Kemira is a global group of leading chemical businesses with a unique competitive position and a high degree of mutual synergy. In 2006, Kemira recorded revenue of around EUR 2.5 billion and had a payroll of 9,000 employees. The company operates in 40 countries.

All forward-looking statements in this review are based on the management's current expectations and beliefs about future events, and actual results may differ materially from the expectations and beliefs such statements contain.

Source: Kemira Group


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