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Kemira Oyj (HEL:KRA1V) Kemira Group Stock Exchange Release October 29, 2008, at 9.00 am (CET+1)
* Revenue in January-September 2008: EUR 2,205.1 million (January-September 2007: EUR 2,155.8 million) * Operating profit excluding non-recurring items: EUR 120.9 million (EUR 170.5 million) * Balance sheet strengthened. * Earnings per share: EUR 0.55 (EUR 0.91).
Operating Result in July-September Clearly Up from the Previous Quarter
Kemira's President and CEO Harri Kerminen:
"Kemira was able to clearly improve its operating results from the second to the third quarter. In July-September, operating profit excluding non-recurring items was EUR 56.5 million, whereas in April-June it was EUR 37.2 million. Similarly, operating profit as a percentage of revenue, excluding non-recurring items, rose from 5% to 7%. Price increases and performance enhancement measures are starting to take effect, and that is now visible in our key figures. Sales growth was also a very positive factor. Revenue was up by 7% and, when excluding the titanium dioxide business which was transferred to a joint venture set up in early September and the water soluble fertilizer business divested in 2007, sales increased by 12% compared to July-September 2007. Nevertheless, the price of raw materials and energy was very high, which eroded our profitability from the same period in 2007.
In June we announced our new strategy that focuses on water and fiber related businesses, and in line with that strategy we will now concentrate on reinforcing our balance sheet, generating positive cash flow and improving profitability. In the second stage, we will focus on strong growth by drawing on Kemira's existing competences and resources. We are seeking growth particularly in the new businesses of oil and mining, and industrial water treatment, and geographically in Asia, South America and Russia."
Kemira Group's revenue for July-September 2008 rose by 7% and totaled EUR 780.0 million (July-September 2007: EUR 729.5 million). Acquisitions contributed around EUR 6 million to revenue growth while divestments decreased revenue by about EUR 33 million. The currency exchange effect had EUR 19 million negative impact on revenue.
Raw material and energy prices as well as transportation costs were high, and Kemira was able to transfer part of the increase in variable costs to sales prices. Kemira Group's operating profit for the third quarter, excluding non-recurring items, was EUR 56.5 million (EUR 65.8 million). Operating profit as a percentage of revenue, excluding non-recurring items, fell from 9% to 7%. Variable costs, excluding the effect of acquisitions, divestments and change in volumes, grew by EUR 61 million in July-September 2008 compared to same period in 2007. The impact of high variable costs was strongest on the water treatment chemicals and paper chemicals business. Sales price increases and higher volumes increased operating profit by EUR 46 million and EUR 10 million respectively. The currency exchange effect decreased operating profit by EUR 3 million.
Operating profit for July-September came to EUR 69.8 million (EUR 79.5 million) and includes non-recurring items with a positive net impact of EUR 13.3 million (EUR 13.7 million).
Profit before tax amounted to EUR 48.8 million (EUR 68.3 million) and net profit totaled EUR 35.4 million (EUR 52.9 million). Earnings per share were EUR 0.28 (EUR 0.43).
Financial Performance for January-September
Kemira Group's revenue for January-September 2008 totaled EUR 2,205.1 million (January-September 2007: EUR 2,155.8 million). Acquisitions contributed around EUR 29 million to revenue growth while divestments decreased revenue by about EUR 73 million. The currency exchange effect had EUR 67 million negative impact on revenue. Excluding the titanium dioxide business transferred to a joint venture in early September 2008 and the water soluble fertilizer business divested in 2007, sales increased by 5% compared to January-September 2007.
Operating profit, excluding non-recurring items, for January-September 2008 was EUR 120.9 million (EUR 170.5 million) The decrease in operating profit was due to the significant increases in raw material and energy related costs. Variable costs, excluding the effect of acquisitions, divestments and change in volumes, grew by EUR 131 million in January-September 2008 compared to same period in 2007. Sales price increases and higher volumes increased operating profit by EUR 95 million and EUR 21 million respectively. The currency exchange effect had EUR 9 million negative impact on operating profit.
Operating profit for January-September came to EUR 142.1 million (EUR 186.0 million) and includes non-recurring items with a positive net impact of EUR 21.2 million (EUR 15.5 million).
Profit before tax for the January-September period came to EUR 96.3 million (EUR 151.3 million) and net profit totaled EUR 70.3 million (EUR 113.5 million). Earnings per share were EUR 0.55 (EUR 0.91).
Financial Position and Cash Flows
In January-September, the Group reported cash flows of EUR 77.1 million (EUR 113.9 million) from operating activities. Net cash flow from investing activities was EUR -11.4 million (EUR -237.3 million) of which acquisitions accounted for an outflow of EUR -140.4 million (EUR -47.2 million). Free cash flow after investments was EUR 65.7 million (EUR -123.4 million). Cash flow effect from expansion and improvement investments was EUR -87.2 million (EUR -132.9 million).
At the end of September, the Group's net debt stood at EUR 990.5 million (June 30, 2008: EUR 1,113.5 million). Kemira Oyj paid EUR 60.6 million in dividends in April. Setting up a joint venture with Rockwood Holding Inc. in the titanium dioxide business at the end of August improved the Group's cash flow by about EUR 96 million and reduced the Group's net debt by EUR 120 million, including the amount reborrowed from the pension fund that was transferred into the joint venture.
At the period-end, interest-bearing liabilities stood at EUR 1,052.4 million. Fixed-rate loans accounted for 34.5% of total interest-bearing net loans. The average interest rate on the Group's interest-bearing liabilities was 5.5%. The duration of the Group's interest-bearing loan portfolio on September 30 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 492.3 million on September 30, and the amount obtained from the commercial paper markets was EUR 225 million. At the beginning of October, EUR 140 million of the revolving credit facility was drawn to pay off the commercial papers maturing in the last months of the year. In its current structure, the Group will not have any significant refinancing needs in the foreseeable future as the current loan arrangements cover its financing needs.
On September 30, the equity ratio stood at 40 % (June 30, 2008: 37%) while gearing was 87% (June 30, 2008: 99%).
The Group's net financial expenses for January-September totaled EUR 45.8 million (EUR 36.6 million). This increase was mainly caused by increased interest expenses and financial exchange rate losses amounting to EUR 2.6 million in January-September (EUR +0.7 million).
The Group's currency risk with respect to the US dollar was significantly reduced after the establishment of the joint venture in the titanium dioxide business, which started operations on September 1, 2008. In the future, the annual euro against dollar currency risk will feature a counter value of approximately EUR 10-20 million.
Capital Expenditure
Gross capital expenditure, excluding acquisitions, amounted to EUR 116.3 million (EUR 178.7 million) in the reporting period. Expansion investments represented around 43% of capital expenditure excluding acquisitions, and improvement investments around 32% and maintenance investments around 25%.
Group depreciation came to EUR 99.1 million (EUR 99.5 million).
Cash flow from the sale of assets was EUR 245.3 million (EUR -11.4 million). Cash flow from acquisitions was EUR 140.4 million (EUR 47.2 million). The Group's net capital expenditure totaled EUR 11.4 million (EUR 237.3 million).
Research and Development
In January-September, reported research and development expenditure totaled EUR 44.4 million (EUR 46.4 million), accounting for 2% (2%) of revenue.
Kemira will open a new research and development center in Atlanta, Georgia, USA. The center will be located at a technology enterprise park in association with the Georgia Institute of Technology (Georgia Tech) in Atlanta, and it will house all of Kemira's North American R&D activities from the five currently operating R&D centers which will be shut down. The new center will start up by summer 2009 and employ 85 R&D professionals. The R&D center in Atlanta is part of Kemira's R&D streamlining program, which is to be completed by summer 2009. The objective of the program is to consolidate the 17 existing R&D sites into 5 global facilities. These centers will serve the clientele in North America, Northern Europe, Continental Europe and Asia. A fifth center will be established in Latin America next year. The resulting R&D infrastructure will be strategically focused on enhancing development and commercialization of innovative technologies and products for Kemira's customers locally and globally, meeting the needs of the pulp and paper, water treatment and oil and mining industries.
In June, Kemira Oyj and the European Investment Bank (EIB) signed a EUR 100 million 12-year research and development loan agreement. EUR 50 million of the loan was drawn down in June and the rest can be drawn within 18 months after the signature. The European Investment Bank has granted the loan to support the research, development and innovation activities of the Kemira Group during the years 2008-2011.
Human Resources
The number of Group employees totaled 9,392 on September 30 (10,048).
Business Areas
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.
Kemira Pulp&Paper's revenue in July-September rose by 9% to EUR 281.9 million (EUR 259.7 million). Organic growth in local currencies was 13%. The currency exchange effect had EUR 8 million negative impact on revenue. While pulp chemicals showed sustained high demand, the competitive environment for paper chemicals was challenging. Customers have closed paper mills in mature markets in Europe and North America but at the same time are increasing production in growing markets, such as China.
Operating profit, excluding non-recurring items, for July-September was EUR 15.3 million (EUR 22.6 million). The decrease in operating profit was due to the high prices of raw materials, freight costs and energy, and the lower sales volumes of paper chemicals. Variable cost increase in July-September 2008 was EUR 21 million compared to same period in 2007. The raw material price hikes impacted particularly strongly on the profitability of the paper chemicals business. Sales price increases had EUR 9 million effect on operating profit. Higher volumes in pulp chemicals increased operating profit by EUR 7 million.
In January-September, Kemira Pulp&Paper's revenue was EUR 799.4 million (EUR 789.4 million). Organic growth in local currencies was 6%. The currency exchange effect had EUR 31 million negative impact on revenue.
Operating profit excluding non-recurring items in January-September 2008 was EUR 41.0 million (EUR 67.5 million). The decrease in profitability was mainly due to higher raw material and energy-related costs. Achieved sales price increases did not fully compensate the effect of high raw material prices and energy-related costs.
In April, Kemira signed a two-year sulfuric acid delivery agreement with Talvivaara Projekti Oy. Metal recovery in the Talvivaara mine in Sotkamo, Finland, will begin in the final quarter of 2008. The mine produces nickel, zinc, copper and cobalt. Sulfuric acid is used in the production process to regulate the acidity of the bacterial solution that acts as a catalyst in the process for dissolving metals.
On-site chlorine dioxide production, project engineered by Kemira, was launched at Celulosa Argentina's pulp mill in Capitan Bermudez in early July, coinciding with the mill's switchover to chlorine-based bleaching. Kemira will supply the chemicals needed for the chlorine dioxide production, and also hydrogen peroxide required for the mill's bleaching process. Kemira will actively participate in the development efforts related to the bleaching process.
In July, Kemira agreed to deliver pulp and bleaching chemicals to Mondi's production facilities located in Syktyvkar, Russia, for 2008-2010.
In June, the European Commission imposed a fine of EUR 10.15 million on Finnish Chemicals Oy for antitrust activity in the company's sodium chlorate business during 1994-2000. Kemira Oyj acquired Finnish Chemicals in 2005. The fine imposed by the Commission will not affect Kemira's cash flow.
Kemira Water
Kemira Water is the world's leading expert in municipal and industrial waste water as well as process and drinking water treatment. Kemira Water offers services, products and equipment for municipal and industrial water treatment.
Kemira Water's revenue in July-September 2008 rose by 16% to EUR 202.3 million (EUR 175.0 million). Sales were high in all areas and organic growth in local currencies was 15%. Business growth could be largely attributed to price increases enforced in response to the significant increase in raw material prices. Delivery volumes were also higher than in the corresponding period a year earlier. The currency exchange effect had EUR 4 million negative impact on revenue. Acquisitions contributed around EUR 6 million to revenue growth.
Raw material prices and transportation costs were high and had an impact on profitability, despite realized sales price increases. Operating profit excluding non-recurring items was EUR 9.0 million (EUR 14.7 million). Variable cost increase in July-September 2008 was EUR 24 million compared to same period in 2007. Sales price increases and higher volumes increased operating profit by EUR 17 million and EUR 3 million respectively.
Kemira Water's revenue in January-September 2008 rose by 13% to EUR 569.4 million (EUR 506.1 million). Organic growth in local currencies was 13%. The currency exchange effect decreased revenue by EUR 22 million. Acquisitions contributed approximately EUR 22 million to revenue growth.
Due to the unfavorable developments in raw material prices and freight costs, operating profit excluding non-recurring items decreased to EUR 21.3 million (EUR 39.8 million) in January-September 2008.
In August, Kemira announced it was investigating ownership alternatives for its subsidiary Galvatek. Galvatek specializes in planning and supplying surface treatment plants, industrial water treatment plants and maintenance services. Galvatek, with a staff of 33 and headquartered in Lahti in Finland, posted revenue of around EUR 16 million in 2007 and runs two subsidiaries, one in Sweden and one in Poland.
In September, Kemira announced its intentions to acquire a water treatment chemicals company operating in the Shandong Province of China. The acquisition will be carried out through a new fully owned subsidiary of Kemira taking over the assets of an existing privately owned company called Zibo Huaqing Water Purifying Products Company Ltd. The existing client base of the acquired company is primarily engaged in the industrial water treatment, and Kemira's plan is to expand the business to the municipal sector. The main product is poly aluminum chloride, PAC, in both liquid and solid format. In addition to the main product the company also produces iron based coagulants. It employs about 50 people.
Kemira Specialty
Kemira Specialty is the leading expert in specialty chemicals in selected customer segments, serving customers in a wide array of industries, such as the food and feed industries, through its customer-driven solutions.
Kemira Specialty's July-September revenue decreased after the titanium dioxide business was transferred to the joint venture that launched operations in early September. Revenue totaled EUR 95.8 (EUR 109.8 million). The start-up of the joint venture had a negative impact of EUR 19 million on revenue since titanium dioxide ceased to form part of Kemira's revenue at the beginning of September. Revenue from continuing business operations rose by 9%.
Operating profit, excluding non-recurring items, in the third quarter was EUR 7.1 million (EUR 8.7 million). Starting up the joint venture mentioned above and high raw material prices and energy costs contributed to the decline in revenue from last year. The start-up of the joint venture had EUR 1 million negative impact on operating profit in July-September as the result of the JV has been reported under the operating profit line since September 1. Variable cost increase in July-September was EUR 7 million compared to same period in 2007. Sales price increases had EUR 6 million effect on operating profit. The demand for formic acid and its price level remained healthy. Operating profit from continuing business operations increased by 28%.
Revenue in January-September amounted to EUR 311.6 million (EUR 323.9 million). The currency exchange effect had EUR 10 million negative impact on revenue. Revenue from continuing business operations rose by 1%.
Operating profit, excluding non-recurring items, in January-September was EUR 12.5 million (EUR 26.1 million). The currency exchange effect had EUR 6 million negative impact on operating profit.
The joint venture between Kemira Oyj and Rockwood Holdings, Inc. started operations in the beginning of September. The joint venture combines Kemira's and Rockwood's titanium dioxide business and Rockwood's functional additives business. The pro forma revenues of the joint venture for 2007 are approximately EUR 560 million. The joint venture is 61 per cent owned by Rockwood and 39 per cent owned by Kemira. The new company, which operates under the name Sachtleben, is the leading producer of specialty titanium dioxide pigments for the synthetic fiber industry, specialty titanium dioxide pigments for packaging inks and specialty titanium dioxide grades for the cosmetics, pharmaceutical and food industries. Sachtleben is also the world's largest producer of synthetic barium sulfate specialties and holds a unique position in the field of zinc sulfide pigments. Among the joint venture's competitive advantages are that both companies' titanium dioxide production is based on a same production process, and both have strong capabilities in the development of nanoparticles for specialty applications. Formation of the joint venture is part of the implementation of Kemira's new strategy.
The expansion of Kemira's formic acid plant in Oulu was completed and the plant was brought on line in July. Kemira is the world's second largest formic acid producer. This investment further strengthens Kemira's market position and makes it better equipped to respond to market needs.
Kemira Coatings
Kemira Coatings. i.e. Tikkurila, is the leading expert in painting and coating solutions in Northern and Eastern Europe, providing services and branded products to consumers, professionals and the industry.
Kemira Coatings' revenue in the third quarter rose by 6% to EUR 193.7 million (EUR 182.3 million), this growth being mainly organic. Sales development was favorable in most markets both in decorative paints and industrial coatings. The slowdown in new construction and the decrease in the sales of construction material in the Baltics affected the growth of Kemira Coatings in that region. The currency exchange effect had EUR 5 million negative impact on revenue. Organic growth in local currencies was 9%.
Operating profit for July-September, excluding non-recurring items, was EUR 30.4 million (EUR 27.7 million). Variable cost increase was EUR 9 million compared to same period in 2007. Sales price increases and product mix alterations had EUR 14 million effect on operating profit.
In January-September 2008, revenue grew by 7% to EUR 544.6 (EUR 506.8 million) with the currency exchange effect decreasing revenue by EUR 4 million. Organic growth in local currencies was 8%.
Operating profit, excluding non-recurring items, in January-September was EUR 71.8 million (EUR 67.8 million). Increases in the costs of some raw materials and packaging materials had an effect on profitability.
Following its strategy of growth, Kemira Coatings will strengthen its position in the Southeast and East European paint market. In the beginning of July, a trading company by the name of Tikkurila JUB Romania established jointly with the Slovenian paint company JUB launched operations. The company is responsible for the marketing, sales and distribution of Kemira Coatings' and JUB's decorative paints in Romania. In August, Kemira Coatings announced its intentions to establish a sales company in Minsk to handle the marketing, sales and distribution of Kemira Coatings' decorative paints and industrial coatings in Belarus. Kemira Coatings has also decided on a relocation and major expansion in production of decorative paints in St Petersburg, Russia. The expansion will significantly increase Kemira Coatings' production volumes of waterborne paints and improve the cost efficiency of production in Russia. Later this year, a logistics and service center will be completed in Mytish near Moscow with the objective of considerably improving Kemira Coatings' customer service in the rapidly growing markets in this region. Both decorative paints and industrial paints businesses will be located in the center. It will also offer facilities for extensive customer training programs, which is an integral part of Kemira Coatings' marketing.
Erkki Järvinen has been appointed President and CEO of Tikkurila Oy. He is currently working as President and CEO of Rautakirja Corporation, which belongs to Sanoma Oyj. Erkki Järvinen will take up his position as President and CEO of Tikkurila during the first quarter of 2009. Jarmo Mäenpää will work as managing director until Erkki Järvinen begins work. Visa Pekkarinen, the current President of Kemira Coatings, will retire at the end of October 2008.
Kemira Oyj Shares and Shareholders
During January-September, Kemira Oyj shares registered a high of EUR 14.77 and a low of EUR 7.12, the share price averaging EUR 9.14. On September 30, the company's market capitalization, excluding treasury shares, totaled EUR 1,005.9 million.
On September 30, 2008, the company's share capital totaled EUR 221.8 million and the number of registered shares was 125,045,000. Kemira holds 3,854,465 treasury shares, accounting for 3.1% of outstanding company shares and voting rights.
Strategy Update
In June Kemira announced its new strategy, which states that Kemira will concentrate on water and fiber related businesses. In the first phase, the company will focus on reinforcing the balance sheet, generating positive cash flow and improving profitability. In the second phase, Kemira will seek strong growth.
Kemira's new organization reflecting the strategy is as follows: - Kemira's business is divided into three customer-oriented segments with P/L responsibility. Water technology is the common denominator for all the segments. The Paper segment will focus on serving customer segments in the pulp and paper industry, while the Water segment will concentrate on the customer segments in municipal and industrial water treatment. The Oil and Mining segment will further develop businesses in the expanding application areas of the oil, gas and mining industries. - Kemira is divided into four geographical areas: North America, Latin America, Asia Pacific (APAC) and Europe (EMEA). These areas are responsible for developing a common cost-effective infrastructure for the different business functions. In addition, the geographical organizations of Latin America and Asia Pacific are responsible for strategy implementation and market development. - The functions will be organized globally, and they will provide services for all Kemira businesses.
The new organization is effective as of October 1, 2008. The objective is to secure profitability improvement and growth by focusing on business development in the most profitable customer segments and applications, based on Kemira's existing competences and resources. Kemira will begin financial reporting according to the new structure from the beginning of 2009.
When Kemira announced its strategy, it also unveiled plans to separate its Coatings business, i.e. Tikkurila, from Kemira and list it on the NASDAQ OMX Helsinki Ltd. The listing is planned to take place in the first half of 2009, depending on the market conditions. With the listing, Kemira pursues an increase in overall shareholder value and focuses Kemira's business around water.
Kemira also intends to reorganize the Kemira Specialty business area. A joint venture with Rockwood Holdings Inc. started operations at the beginning of September, combining Kemira's and Rockwood's titanium dioxide business and Rockwood's functional additives business. Kemira will continue to develop the ChemSolutions business as a separate entity, ensuring its profitability and maximum cash flow.
Together with the announcement of the new strategy Kemira announced a cost savings program with annual savings target of over EUR 50 million, excluding Kemira Coatings. Measures are being deployed as planned, and the savings are expected to realize in the course of 2009-2010. Measures to achieve Group-wide savings include changing the group structure, organization, and operating models. The planned savings program may also lead to a reduction of approximately 1,000 persons worldwide from Kemira's payroll, including potential sale of businesses. Streamlining of the global functions may lead, for example, to the consolidation of production sites, R&D facilities and the warehouse network. Kemira's co-determination negotiations held in five business locations in Finland were concluded on October 8, 2008. The organizational change and savings program will result in a net reduction of 298 persons in Finland.
Management Boards of Kemira as of October 1, 2008
The Strategic Management Board of Kemira Oyj is responsible for the strategy implementation. As of October 1, 2008, the Strategic Management Board comprises of: Harri Kerminen (President and CEO), Esa Tirkkonen (deputy CEO), Petri Helsky (Paper), Pekka Ojanpää (Water), Randy Owens (Oil and Mining), Håkan Kylander (EMEA), Hannu Melarti (North America), Hilton Casas (Latin America), Ronald Kwan (Asia Pacific), Jyrki Mäki-Kala (CFO, IT), Petri Boman (Supply Chain Management), Johan Grön (R&D, Technology), Jukka Hakkila (Legal, Risk Management, Internal Audit), Päivi Jokinen (Marketing), Timo Leppä (Communications) and Eeva Salonen (Human Resources).
The Operative Management Board of Kemira Oyj is responsible for operative steering of the businesses and it consists of Harri Kerminen, Esa Tirkkonen, Jyrki Mäki-Kala, Petri Helsky, Pekka Ojanpää and Randy Owens.
Outlook
Kemira Group's growth in continuing operations is expected to be moderate and primarily fuelled by organic growth in the last months of the year. Continued improvements in operational efficiency are the key to improving profitability. During the year, the high raw material prices and energy-related costs and the weak US dollar have put a strain on Kemira's financial performance. In 2008, Kemira's operating profit and earnings per share, excluding non-recurring items, are expected to remain below last year's level.
The annual cost savings target of the published worldwide cost-saving program is over EUR 50 million. Due to cost-savings and structural changes, non-recurring expenses and other non-recurring items will be recognized in the October-December result. The operating profit of the final quarter, excluding non-recurring items, is expected to grow from the previous year.
In Kemira Pulp&Paper, operational rearrangements carried out in the customer industries in North America and Europe, as well as the high raw material prices, may have an adverse impact on Kemira's pulp and paper chemicals business. Kemira Water is expected to show good organic growth, but business outlook is overshadowed by high raw material prices. In the Kemira Specialty business area, demand for organic acids and sodium percarbonate is expected to be good. Kemira Coatings expects moderate demand in most market areas during the remainder of the year. The first signals of a slowdown in new construction and the housing trade are being seen in the main market areas, which may have an impact on demand.
Economic growth is lagging and the overall economic situation is challenging for future estimates.
Helsinki, October 29, 2008
Board of Directors
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.
For further information, please contact:
Kemira Oyj Timo Leppä, Executive Vice President, Group Communications Tel. +358 10 86 21700
Kemira will hold a press conference on its January-September 2008 results for the media and analysts at its head office (Porkkalankatu 3) today, starting at 10:30 a.m. Presentation material will be available on Kemira's website at www.kemira.com
Kemira Oyj will publish a financial statements bulletin for 2008 on Wednesday, February 25, 2009 at 9:00 a.m.
KEMIRA GROUP
The figures are unaudited. All figures in this financial report have been rounded and consequently the sum of individual figures can deviate from the presented sum figure.
This Interim Consolidated Financial Statements has been prepared in compliance with IAS 34.
Changes to the accounting policies as of January 1, 2008: - IFRIC 11 interpretation of IFRS 2 Group and Treasury Share Transactions - IFRIC 12 (Service Concession Arrangements) interpretation related to service arrangements between public and private sectors - IFRIC 14 (IAS 19 - The Limit on a defined Benefit Asset, Minimum Funding Requirement and their Interaction) interpretation related to minimun funding requirements of defined benefit arrangements The Group assesses that the adoption of the revised standards will not have any material effect on its future financial statements.
INCOME STATEMENT 7-9/ 7-9/ 1-9/ 1-9/ EUR million 2008 2007 2008 2007 2007
Revenue 780,0 729,5 2 205,1 2 155,8 2 810,2 Other operating income 18,6 6,5 39,9 19,2 45,9 Expenses -696,7 -623,0 -2 003,8 -1 889,5 -2 539,2 Depreciation and impairments -32,1 -33,5 -99,1 -99,5 -173,8 Operating profit 69,8 79,5 142,1 186,0 143,1 Financial income and expenses, net -20,7 -11,8 -45,8 -36,6 -51,9 Share of profit or loss of associates -0,3 0,6 0,0 1,9 2,1 Profit before tax 48,8 68,3 96,3 151,3 93,3 Income tax -13,4 -15,4 -26,0 -37,8 -25,8 Net profit for the period 35,4 52,9 70,3 113,5 67,5
Attributable to: Equity holders of the parent 34,4 51,8 66,8 110,5 63,7 Minority interest 1,0 1,1 3,5 3,0 3,8 Net profit for the period 35,4 52,9 70,3 113,5 67,5
BALANCE SHEET EUR million 30.9. 31.12. ASSETS 2008 2007
Non-current assets Goodwill 629,2 626,6 Other intangible assets 114,3 112,3 Property, plant and equipment 829,5 984,3 Holdings in associates 141,9 5,5 Available-for-sale investments 182,3 102,2 Deferred tax assets 13,0 5,2 Defined benefit pension receivables 34,9 34,6 Other investments 14,3 6,4 Total non-current assets 1 959,4 1 877,1
Current assets Inventories 308,3 311,2 Receivables Interest-bearing receivables 6,6 3,2 Interest-free receivables 540,8 548,1 Total receivables 547,4 551,3 Money market investments - cash equivalents 27,4 21,4 Cash and cash equivalents 34,5 31,2 Total current assets 917,6 915,1 Non-current assets held for sale 2,7 35,7 Total assets 2 879,7 2 827,9
EQUITY AND LIABILITIES 30.9. 31.12. 2008 2007
Equity attributable to equity holders of the parent 1 126,9 1 072,0 Minority interest 15,1 15,3 Total equity 1 142,0 1 087,3
Current liabilities Interest-bearing current liabilities 295,6 625,0 Interest-free current liabilities 459,0 473,6 Provisions 1,4 6,2 Total current liabilities 756,0 1 104,8 Liabilities directly associated with non-current assets classified as held for sale - 6,2 Total liabilities 1 737,7 1 740,6 Total equity and liabilities 2 879,7 2 827,9
Available-for-sale financial assets include also shares entitling to electricity from a nuclear power plant currently under construction in Finland. In previous financial statements these shares have been accounted at acquisition value. In May 2008, the market price of these nuclear power plant shares was determined by an external third party share trading transaction. Due to this, the Group has booked a revaluation of the shares, EUR 80 million, with an equity effect of EUR 59.2 million.
Non-current assets held for sale include Russian factory site.
CONSOLIDATED CASH FLOW STATEMENT EUR million 1-9/ 1-9/ 2008 2007 2007 Cash flows from operating activities Adjusted operating profit 207,4 262,3 281,1 Interests -47,6 -27,3 -36,3 Dividend income 0,1 2,1 2,0 Income taxes paid -18,2 -24,3 -35,6 Total funds from operations 141,7 212,8 211,2
Change in net working capital -64,6 -98,9 -39,1 Total cash flows from operating activities 77,1 113,9 172,1
Cash flows from investing activities Capital expenditure for acquisitions -140,4 -47,2 -66,6 Other capital expenditure -116,3 -178,7 -254,4 Proceeds from sale of assets 245,3 -11,4 -0,2 Net cash used in investing activities -11,4 -237,3 -321,2 Cash flow after investing activities 65,7 -123,4 -149,1
Cash flows from financing activities Change in non-current loans (increase +, decrease -) 203,1 60,0 53,7 Change in non-current loan receivables (decrease +, increase -) -8,6 -0,7 2,5 Short-term financing, net (increase +, decrease -) -174,4 105,8 117,8 Dividends paid -64,2 -60,4 -60,8 Other -12,3 2,7 12,3 Net cash used in financing activities -56,4 107,4 125,5
Net change in cash and cash equivalents 9,3 -16,0 -23,6
Cash and cash equivalents at end of period 61,9 60,2 52,6 Cash and cash equivalents at beginning of period 52,6 76,2 76,2 Net change in cash and cash equivalents 9,3 -16,0 -23,6
CONSOLIDATED CASH FLOW STATEMENT 7-9/ 7-9/ EUR million 2008 2007
Cash flows from operating activities Adjusted operating profit 83,1 96,2 Interests -14,8 -12,2 Dividend income 0,1 2,0 Income taxes paid 0,4 -4,8 Total funds from operations 68,8 81,2
Change in net working capital -6,3 9,6 Total cash flows from operating activities 62,5 90,8
Cash flows from investing activities Capital expenditure for acquisitions -136,5 -2,6 Other capital expenditure -28,8 -57,6 Proceeds from sale of assets 234,2 14,6 Net cash used in investing activities 68,9 -45,6 Cash flow after investing activities 131,4 45,2
Cash flows from financing activities Change in non-current loans (increase +, decrease -) 68,0 66,7 Change in non-current loan receivables (decrease +, increase -) -6,5 -1,4 Short-term financing, net (increase +, decrease -) -164,9 -110,7 Dividends paid -0,3 -0,5 Other -20,0 -1,3 Net cash used in financing activities -123,7 -47,2
Net change in cash and cash equivalents 7,7 -2,0
Cash and cash equivalents at end of period 61,9 60,2 Cash and cash equivalents at beginning of period 54,2 62,2 Net change in cash and cash equivalents 7,7 -2,0
STATEMENT OF CHANGES IN EQUITY EUR million Capital paid-in Fair value in Share excess of and other Exchange capital par value reserves differences
Shareholders' equity at January 1, 2007 221,6 257,9 62,7 -30,8 Net profit for the period - - - - Dividends paid - - - - Treasury shares issued to key employees - - - - Share-based compensation - - - - Options subscribed for shares 0,2 - - - Exchange differences - - 0,1 -4,8 Hedge of net investments in foreign entities - - - 3,2 Cash flow hedging: amount entered in shareholders' equity - - -1,5 - Acquired minority interest - - - - Transfer between restricted and non-restricted equity - - 0,1 - Other changes - - - -0,1 Shareholders' equity at September 30, 2007 221,8 257,9 61,4 -32,5
Shareholders' equity at January 1, 2008 221,8 257,9 68,2 -41,1 Net profit for the period - - - - Dividends paid - - - - Available-for-sale assets - change in fair value - - 59,2 - Share-based compensation - - - - Exchange differences - - -0,2 -13,0 Hedge of net investments in foreign entities - - - 2,3 Cash flow hedging: amount entered in shareholders' equity - - -0,7 - Transfer between restricted and non-restricted equity - - 0,9 - Other changes - - - - Shareholders' equity at September 30, 2008 221,8 257,9 127,4 -51,8
Treasury Retained Minority shares earnings interests Total
Shareholders' equity at January 1, 2007 -26,8 585,3 12,6 1 082,5 Net profit for the period - 110,5 3,0 113,5 Dividends paid - -58,2 -2,2 -60,4 Treasury shares issued to key employees 0,9 -0,9 - 0,0 Share-based compensation - 1,3 - 1,3 Options subscribed for shares - - - 0,2 Exchange differences - - 0,2 -4,5 Hedge of net investments in foreign entities - - - 3,2 Cash flow hedging: amount entered in shareholders' equity - - - -1,5 Acquired minority interest - - 0,4 0,4 Transfer between restricted and non-restricted equity - -0,1 - 0,0 Other changes - - - -0,1 Shareholders' equity at September 30, 2007 -25,9 637,9 14,0 1 134,6
Shareholders' equity at January 1, 2008 -25,9 591,1 15,3 1 087,3 Net profit for the period - 66,8 3,5 70,3 Dividends paid - -60,6 -3,6 -64,2 Available-for-sale assets - change in fair value - - - 59,2 Share-based compensation - 0,6 - 0,6 Exchange differences - - 0,3 -12,9 Hedge of net investments in foreign entities - - - 2,3 Cash flow hedging: amount entered in shareholders' equity - - - -0,7 Transfer between restricted and non-restricted equity - -0,9 - 0,0 Other changes - 0,5 -0,4 0,1 Shareholders' equity at September 30, 2008 -25,9 597,5 15,1 1 142,0
Kemira had in its possession 3,854,465 of its treasury shares at September 30, 2008. The number of treasury shares was the same as at the end of the year 2007. Their average acquisition share price was EUR 6.73 and the treasury shares represented 3.1% of the share capital and of the aggregate number of votes conferred by all the shares. The equivalent book value of the treasury shares is EUR 6.8 million.
KEY FIGURES 1-9/ 1-9/ 2008 2007 2007
Earnings per share, basic and diluted, EUR 0,55 0,91 0,53 Earnings per share excluding write-downs, basic and diluted, EUR 0,55 0,91 0,87 Cash flow from operations per share, EUR 0,64 0,94 1,42 Capital expenditure, EUR million 256,7 225,9 321,0 Capital expenditure / revenue, % 11,6 10,5 11,4 Average number of shares (1000), basic * 121,191 121,155 121,164 Average number of shares (1000), diluted * 121,191 121,194 121,194 Number of shares at the end of the period (1000), basic * 121,191 121,193 121,191 Number of shares at the end of the period (1000), diluted * 121,191 121,193 121,191
Equity per share, attributable to equity holders of the parent, EUR 9,30 9,25 8,85 Equity ratio, % 39,7 38,9 38,6 Gearing, % 86,7 88,0 92,3 Interest-bearing net liabilities, EUR million 990,5 998,9 1 003,4 Personnel (average) 10 145 10 008 10 008
7-9/ 7-9/ KEY FIGURES 2008 2007
Earnings per share, basic and diluted, EUR 0,28 0,43 Earnings per share excluding write-downs, basic and diluted, EUR 0,28 0,43 Cash flow from operations per share, EUR 0,52 0,75 Capital expenditure, EUR million 165,3 60,2 Capital expenditure / revenue, % 21,2 8,3 Average number of shares (1000), basic * 121,191 121,193 Average number of shares (1000), diluted * 121,191 121,193 Number of shares at the end of the period (1000), basic * 121,191 121,193 Number of shares at the end of the period (1000), diluted * 121,191 121,193
* Number of shares outstanding, excluding the number of shares bought back.
REVENUE BY BUSINESS AREA 7-9/ 7-9/ 1-9/ 1-9/ EUR million 2008 2007 2008 2007 2007
CHANGES IN PROPERTY, PLANT AND EQUIPMENT 1-9/ 1-9/ EUR million 2008 2007 2007
Carrying amount at beginning of year 984,3 987,1 987,1 Acquisitions of subsidiaries - 5,0 14,3 Increases 97,0 155,2 215,7 Decreases -5,3 -4,1 -2,5 Disposal of subsidiaries -168,4 - -7,8 Depreciation and impairments -83,6 -84,0 -133,2 Exchange rate differences and other changes 5,5 -45,1 -89,3 Net carrying amount at end of period 829,5 1 014,1 984,3
CHANGES IN INTANGIBLE ASSETS 1-9/ 1-9/ EUR million 2008 2007 2007
Carrying amount at beginning of year 738,9 689,9 689,9 Acquisitions of subsidiaries 3,1 19,0 32,2 Increases 19,4 22,4 30,4 Decreases -0,1 -0,3 -0,3 Disposal of subsidiaries -8,1 - -0,1 Depreciation and impairments -15,5 -15,5 -40,6 Exchange rate differences and other changes 5,8 28,6 27,4 Net carrying amount at end of period 743,5 744,1 738,9
CONTINGENT LIABILITIES 30.9. 31.12. EUR million 2008 2007
Mortgages 43,4 62,1 Assets pledged On behalf of own commitments 5,8 6,0 Guarantees On behalf of own commitments 8,4 8,3 On behalf of associates 1,3 1,4 On behalf of others 0,6 2,8 Operating leasing liabilities Maturity within one year 22,2 22,4 Maturity after one year 116,8 129,0 Other obligations On behalf of own commitments 4,2 0,4 On behalf of associates 2,1 2,3
Major off-balance sheet investment commitments
Major amounts of contractual commitments for the acquisition of property, plant and equipment on September 30, 2008 were EUR 4 million for the investment of Kemira Coatings in Russia.
Litigation
The Group has extensive international operations and is involved in a number of legal proceedings incidental to these operations.
Kemira Oyj, Kemira Chemicals, Inc. and Kemira Chemicals Canada, Inc. have received claims or were named in class action lawsuits filed by direct and indirect purchasers of hydrogen peroxide and persalts in US state courts and in Canada. In these civil actions it is alleged that the US plaintiffs suffered damages resulting from a cartel among hydrogen peroxide suppliers. To avoid further litigation costs Kemira Oyj and Kemira Chemicals Canada Inc. have made a settlement agreement in the US direct purchaser class action in an US federal court and settled with some others. As regards the other claims and suits, the proceedings continue.
The European Union Commisson ordered in June 2008 Finnish Chemicals Oy to pay EUR 10.15 million fine for competition law infringements by sodium chlorate producers during 1994-2000.
RELATED PARTY
Related party transactions have not changed materially after annual closing 2007.
DERIVATIVE INSTRUMENTS EUR million 30.9.2008 31.12.2007 Nominal Fair Nominal Fair value value value value Currency instruments Forward contracts 342,9 -2,8 942,9 -1,4 of which hedges of net investment in a foreign operation - - - - Currency options Bought 0,0 0,0 65,5 0,1 Sold 8,1 -0,3 57,8 0,2 Currency swaps 147,3 3,5 147,2 6,5
Bond futures 10,0 -0,2 10,0 0,2 of which open 10,0 -0,2 10,0 0,2
Other instuments Fair value Fair value Electricity forward contracts, GWh 763,2 8,6 833,6 10,0 of which cash flow hedge, GWh 763,2 8,6 833,6 10,0
The fair values of the instruments which are publicly traded are based on market valuation on the date of reporting. Other instruments have been valuated based on net present values of future cash flows. Valuation models have been used to estimate the fair values of options.
Nominal values of the financial instruments do not necessarily correspond to the actual cash flows between the counterparties and do not therefore give a fair view of the risk position of the Group.
QUARTERLY INFORMATION 2008 2008 2008 EUR million Q3 Q2 Q1
Revenue Kemira Pulp&Paper 281,9 253,6 263,9 Kemira Water 202,3 187,6 179,5 Kemira Specialty 95,8 108,8 107,0 Kemira Coatings 193,7 205,7 145,2 Other and intra-Group sales 6,3 -14,2 -12,0 Total 780,0 741,5 683,6
Operating profit Kemira Pulp&Paper 14,5 10,1 15,6 Kemira Water 8,9 5,5 9,2 Kemira Specialty 21,2 1,6 3,8 Kemira Coatings 30,4 29,7 11,7 Other including eliminations -5,2 -7,6 -7,3 Total 69,8 39,3 33,0
Operating profit, excluding non-recurring items Kemira Pulp&Paper 15,3 10,1 15,6 Kemira Water 9,0 5,5 6,8 Kemira Specialty 7,1 1,6 3,8 Kemira Coatings 30,4 29,7 11,7 Other including eliminations -5,3 -9,7 -10,7 Total 56,5 37,2 27,2
QUARTERLY INFORMATION 2007 2007 2007 2007 EUR million Q4 Q3 Q2 Q1
Revenue Kemira Pulp&Paper 253,6 259,7 267,0 262,7 Kemira Water 180,3 175,0 173,2 157,9 Kemira Specialty 102,0 109,8 110,6 103,5 Kemira Coatings 118,4 182,3 188,7 135,8 Other and intra-Group sales 0,1 2,7 13,5 13,4 Total 654,4 729,5 753,0 673,3
Operating profit Kemira Pulp&Paper -1,8 23,8 23,3 22,9 Kemira Water 3,8 14,7 13,1 12,0 Kemira Specialty -13,9 10,0 7,1 10,3 Kemira Coatings -5,9 38,9 27,3 12,8 Other including eliminations -25,1 -7,9 -13,2 -9,1 Total -42,9 79,5 57,6 48,9
Earnings per share (EPS): Equity ratio, %: Net profit attributable to Total equity x 100 / equity holders Total assets - prepayments of the parent / received Average number of shares
Cash flow from operations: Gearing, %: Cash flow from operations, Interest-bearing net after change in liabilities x 100 / net working capital Total equity and before investing activities
Cash flow from operations Interest-bearing net liabilities: per share: Interest-baring liabilities - Cash flow from operations / money market investments - Average number of shares cash and cash equivalents
Equity per share: Return on capital employed Equity attributable to equity (ROCE), %: holders of the parent at Operating profit + share end of quarter / of profit or loss of associates x 100 / Number of shares at (Net working capital + end of quarter property, plant and equipment available for use + intangible assets + investments in associates) *
* Average
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