Kemira Oyj STOCK EXCHANGE RELEASE February 6, 2007 at 9:00 a.m.
Press Release on Kemira's Financial Statements for 2006
KEMIRA'S REVENUE UP 26% IN 2006
- Revenue for 2006: EUR 2,522.5 million (2005: EUR 1,994.4 million), up 26%.
- Operating profit: EUR 201.7 million (EUR 165.5 million), up 22%.
- Earnings per share: EUR 0.96 (EUR 0.73), up 32%.
- Return on capital employed (ROCE): 10.6% (9.9%).
- Full-year revenue, operating profit and earnings per share for 2007 are
expected to increase from 2006 levels.
- The proposed dividend is EUR 0.48 per share (0.36), up 33%.
OCTOBER-DECEMBER AND FULL-YEAR KEY FIGURES IN 2006
EUR million 10-12 10-12 Change, 1-12 1-12 Change,
2006 2005 2006 2005 %
%
REVENUE 669.5 521.5 28 2,522.5 1,994.4 26
EBITDA 63.2 67.2 -6 325.2 284.4 14
EBITDA, % 9.4% 12.9% 12.9% 14.3%
OPERATING PROFIT 29.6 36.4 -19 201.7 165.5 22
Operating
profit, % 4.4% 7.0% 8.0% 8.3%
Financial income
and expenses -12.7 -8.2 -37.2 -30.5
PROFIT BEFORE 15.8 26.9 -41 162.2 133.5 21
TAX
Profit before
tax, % 2.4% 5.2% 6.4% 6.7%
NET PROFIT 15.7 18.9 -17 120.2 91.4 32
EPS, EUR 0.12 0.15 -20 0.96 0.73 32
Capital 1,876.6 1,662.9 13 1,876.6 1,662.9 13
employed*
ROCE, %* 10.6% 9.9% 10.6% 9.9%
Cash flow after
investments,
excluding
acquisitions 79.5 106.8 155.0 170.8
* 12-month rolling average
The new business area names used in the press release - Kemira Pulp&Paper, Kemira
Water, Kemira Specialty and Kemira Coatings - equal the former Pulp & Paper
Chemicals, Kemwater, Performance Chemicals and Paints & Coatings.
REVENUE AND OPERATING PROFIT FOR OCTOBER-DECEMBER
In October-December 2006, Kemira Group's revenue rose by 28% year on year, to EUR
669.5 million (October-December 2005: EUR 521.5 million). In addition to organic
growth of 3%, or EUR 17 million, acquisitions contributed around EUR 140 million
to revenue growth. Divestments depressed revenue by approximately EUR 9 million.
Kemira Group's operating profit was EUR 29.6 million (36.4). Operating profit as
a percentage of revenue is typically at its lowest during the fourth quarter of
the year. In October-December 2006, it decreased from 7.0% to 4.4% due to the EUR
10.1 million higher non-recurring income a year ago, lower profitability than
Kemira's average registered by the acquired businesses, and production losses at
the Pori titanium dioxide plant in Finland in November caused by power failure.
Acquisitions contributed approximately EUR 1 million to the operating profit for
the period. Divestments weakened operating profit by less than EUR 1 million.
Kemira Pulp&Paper reported year-on-year growth of 27% in revenue for October-
December, totaling EUR 264.0 million (EUR 209.0 million). With organic growth at
4%, high forest-industry capacity utilization rates contributed to revenue
growth. The acquisition of the Lanxess paper chemicals business in April
accounted for some EUR 53 million of revenue growth. Kemira Water's revenue
climbed by 88%, to EUR 171.5 million (91.2), as a result of acquisitions. With
organic growth at 6%, acquisitions contributed roughly EUR 75 million to revenue
growth. Kemira Specialty reported a fall of 2% in revenue, to EUR 117.2 million
(119.1), due to low demand for deicer chemicals caused by mild weather conditions
in Europe. Other business operations recorded a slight increase in sales. Kemira
Coatings' revenue for October-December rose by 21%, to EUR 109.3 million (90.3).
With organic growth at 8%, the acquisition of Kraski Teks, a Russian paint
company, closed in February, enhanced revenue in particular.
Kemira Pulp&Paper reported a 4% fall in operating profit, to EUR 20.1 million,
including EUR 0.4 million in non-recurring income (EUR 20.9 million, including
EUR 0.1 million in non-recurring income). Operating profit was depressed by
integration costs from the Lanxess paper chemicals business and by the divestment
of the South Korean hydrogen peroxide business. Kemira Water's operating profit
increased by 49%, to EUR 10.3 million, including non-recurring expenses of EUR
0.5 million (EUR 6.9 million, including EUR 2.2 million in non-recurring income).
Acquisitions and organic revenue growth enhanced the operating profit. Kemira
Specialty reported an operating profit of EUR 11.1 million, including EUR 1.5
million in non-recurring income (EUR 16.2 million, including EUR 6.2 million in
non-recurring income). The profit was eroded by weak demand for deicer chemicals
and the production losses at the Pori titanium dioxide plant mentioned above.
Kemira Coatings reported an operating loss of EUR 1.5 million (operating profit
EUR 6.8 million, including non-recurring income of EUR 9.5 million). The fourth
quarter is typically the weakest for Kemira Coatings.
Raw material prices increased slightly compared to October-December 2005 levels
whereas energy prices declined. Other variable costs increased. On average,
Kemira was successful in passing higher variable costs onto its prices during the
reporting period.
As a result of continuous improvements in capital utilization, operating profit
for October-December includes capital gains on the sale of assets and other non-
recurring items, with their net effect on operating profit coming to EUR +1.0
million, compared with EUR +11.1 million reported a year ago.
Non-recurring items included in operating profit:
EUR million 10-12 10-12
2006 2005
Kemira Pulp&Paper 0.4 0.1
Kemira Water -0.5 2.2
Kemira Specialty 1.5 6.2
Kemira Coatings - 9.5
Other, including
eliminations -0.4 -7.0
Total 1.0 11.1
Net financial expenses grew to EUR 12.7 million (8.2), due to increases in loans
raised for acquisitions and higher market interest rates.
Profit before tax came to EUR 15.8 million (26.9) and net profit totaled EUR 15.7
million (18.9). Earnings per share were EUR 0.12 (0.15).
REVENUE AND OPERATING PROFIT FOR 2006
Kemira Group's revenue for 2006 rose by 26% over the previous year, to EUR
2,522.5 million (1,994.4). With organic growth at 5%, or roughly EUR 105 million,
acquisitions accounted for around EUR 416 million of revenue growth. Divestments
eroded revenue by approximately EUR 18 million.
Revenue by market area was as follows: Europe 68%, Americas 26%, Asia 5% and
Others 1%. Sales in Europe, Americas and Asia increased by 23%, 38% and 18%,
respectively.
Operating profit grew by 22%, to EUR 201.7 million (165.5), with the acquisitions
carried out enhancing operating profit by around EUR 20 million. Divestments
lowered operating profit by roughly EUR 2 million. Operating profit as a
percentage of revenue fell from 8.3% to 8.0%. Non-recurring income contributed
favorably to this ratio, whereas it was depressed by profitability lower than
Kemira's average registered by the Lanxess paper chemicals business, acquired in
April, and by the Cytec water treatment chemicals business, acquired in October.
In addition, acquisition-related integration costs lowered the ratio.
Operating profit includes capital gains on the sale of assets and other non-
recurring items, with their net effect on operating profit coming to EUR +31.2
million, compared with EUR +14.6 million reported a year ago.
Non-recurring items included in operating profit:
EUR million 1-12 1-12
2006 2005
Kemira Pulp&Paper 11.0 -3.4
Kemira Water -0.2 2.2
Kemira Specialty 3.6 6.1
Kemira Coatings 16.4 9.5
Other, including
eliminations 0.4 0.2
Total 31.2 14.6
Raw material and energy prices were considerably higher than in 2005 although
energy prices edged down towards the end of 2006. On average, Kemira was
successful in passing higher raw material and energy costs onto its prices. The
business areas differed in raw material and customer price developments.
Profit before tax amounted to EUR 162.2 million (133.5) and net profit totaled
EUR 120.2 million (91.4). Earnings per share were EUR 0.96 (EUR 0.73).
Current tax came to EUR 42.0 million (42.1), representing an effective tax rate
of around 25.9%. The fall in the tax rate was due to the utilization of tax
losses against gains on assets sold.
Revenue, operating profit and earnings per share for 2006 are in line with those
projected by Kemira's Board of Directors in Kemira's 2005 Financial Statements
and interim reports for 2006. In 2006, the Group met its annual financial
targets: a minimum of 5% organic growth in revenue, a minimum of 10% growth in
earnings per share and continuous improvement in return on capital employed.
CAPITAL EXPENDITURE
Gross capital expenditure, excluding acquisitions, amounted to EUR 164.7 million
(116.4). The largest ongoing investment involves a chemical plant under
construction at the site of a pulp mill in Uruguay, with its 2006 capital
expenditure totaling EUR 41.2 million. Maintenance investments represented some
24% of capital expenditure.
The Group recorded EUR 123.5 million (118.9) in depreciation.
Gross capital expenditure, including acquisitions worth EUR 297.3 million
(285.5), totaled EUR 462.0 million (401.9). Proceeds from assets sold were EUR
102.8 million (131.5). The largest divestments included the sale of the South
Korean hydrogen peroxide business and the Kemira Coatings business area's factory
site in Stockholm. The Group's net capital expenditure totaled EUR 359.1 million
(270.4).
FINANCIAL POSITION AND CASH FLOWS
The Group maintained a good financial position and liquidity throughout the
financial year.
In 2006, the Group reported cash flows of EUR 216.8 million (155.6) from
operating activities. Working capital management remained effective and the
working capital's share of revenue fell to 15% (16%). Kemira showed a negative
free cash flow of EUR 142.3 million (negative EUR 114.8 million). Kemira Oyj paid
out EUR 43.6 million (41.1) in dividends to its shareholders.
On December 31, 2006, the Group's net debt stood at EUR 827.4 million (December
31, 2005: EUR 619.7 million). This increase was due to acquisitions.
On the same date, interest-bearing debt was EUR 903.6 million, with fixed-
interest loans accounting for about 29% of total interest-bearing loans. Pension
loans are classified as fixed-interest loans. The duration of the Group's
interest-bearing loan portfolio at the year-end was 16 months.
On December 31, 2006, equity ratio stood at 39% (December 31, 2005: 44%), while
gearing was 76% (December 31, 2005: 61%).
Net financial expenses grew to EUR 37.2 million (30.5), due to increases in loans
raised for acquisitions and higher market interest rates. Reported foreign
exchange gains amounted to EUR 0.9 million (-6.2).
Cash and cash equivalents on December 31, 2006 totaled EUR 76.1 million. The
unused amount of the revolving credit facility, falling due in 2011, came to EUR
566.8 million.
In April, Kemira and the European Investment Bank (EIB) signed a 12-year research
and development loan agreement worth EUR 100 million.
In October, 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 December 31, 2006 was EUR 15.7 million.
The revolving credit facility and a few other bilateral loan agreements include a
clause enabling lenders to call in the loan and oblige the company to prepay
outstanding loans if control over Kemira Oyj changes.
STRATEGY
In September, Kemira announced its re-focused strategy of stressing profitability
improvements.
Kemira is seeking to be a global group of leading chemical businesses with a
unique competitive position and a high degree of mutual synergy. Kemira aims at:
- Great profitability and continuous profitability improvement;
- Continuous growth both organically and through mergers and acquisitions: the
Group will focus on the expansion of business into emerging markets and the
development of customer-driven services and applications;
- Participative, entrepreneurial corporate culture; and
- Continuous increase in shareholder value.
RISK MANAGEMENT
Kemira's risk management, based on the principle of Enterprise Risk Management
(ERM), refers to the systematic and proactive identification, assessment and
management of various risk categories, such as strategic, operational, hazard and
financial risks.
Various Group guidelines and policies specify management objectives, the division
of responsibilities and risk limits. Risk ownership remains with the business or
function owner, which also assumes responsibility for its risk management. While
the Group's Risk Management function has the role of developing and coordinating
risk management and risk management networks within the Group, Kemira's Internal
Audit is in charge of assessing the Risk Management function and its measures.
Kemira performs risk identification and assessment by business area, applying the
jointly agreed risk self-assessment methodology. Risk reporting by business area
is supplemented by identifying and assessing risks associated with, for example,
various support functions, major manufacturing plants or investment projects.
Risk management action plans based on risk assessments are integrated as part of
business action plans by business area. Kemira primarily implements its risk
identification and assessment as specific projects but is currently integrating
the holistic risk assessment and management process more closely into its
business areas' processes, especially with respect to strategic planning.
In order to reap cost benefits and ensure sufficient Group-level risk coverage,
Kemira manages certain risk management activities on a centralized basis,
including the purchase of insurance cover for certain risks, such as general
third party and product liability, cargo, property and business interruption for
major production sites, as well as the hedging of treasury risks. The Group also
manages industrial and business environment, customer and technological
intelligence processes on a centralized basis.
In addition to strategic risks and hazard and financial risks, Kemira's other
major risks are associated, for example, with acquisitions, their integration,
changes in the industry, human resources, product development, sourcing and
competition.
RESEARCH AND DEVELOPMENT
Research and development expenditure totaled EUR 51.3 million (43.1), accounting
for 2.0% (2.2%) of revenue, and the year-end number of R&D personnel was 534
(415).
Knowledge of customer processes and cooperation with customers, external research
groups and universities play a key role in Kemira's research and development.
Kemira implements technical customer service and smaller-scale application
development close to its customers and its research centers in Finland and Sweden
are in charge of strategic research and long-term development. Kemira's
globalizing operations and market leaderships have widened Group R&D's
geographical scope and, as the breeding ground of the Group's business and
competitiveness, R&D has come to play a stronger role. Kemira aims to introduce
new products onto the market on an ongoing basis. In 2006, the new products'
share of revenue rose to 27% (16%) and the Group has the goal of increasing it
further.
The business units provide the required capital for development projects
connected directly with their business area, while the Corporate Center allocates
Group financing to support the strategic projects of fields defined as growth
areas and promotes the utilization of synergies across the Group.
ENVIRONMENT AND SAFETY
The bulk of Kemira's business is in the chemical industry, whose products and
operations are governed by numerous international agreements and regional and
national legislation all over the world. The Group treats its environmental
liabilities and risks in its financial statements in accordance with IFRS. The
Kemira Code of Conduct contains up-to-date environmental and health and safety
guidelines, compliance with law setting the minimum requirement. No significant
non-compliance conditions with respect to environmental and safety permits have
been brought to the management's attention.
In 2006, capital expenditure on environmental protection at company sites totaled
EUR 12.2 million (7.4) and operating costs EUR 35.4 million (33.3). Capital
expenditure of approximately EUR 26 million on the management of the Pori plant's
by-products represented the largest, single environmental investment project
launched in 2006. For the most part, Kemira will implement the investment during
2007.
Provisions for environmental remediation measures, EUR 16.8 million (22.9), are
mainly related to landfill closures and remediation projects for contaminated
soil. The decline in provisions was mainly due to the outsourcing of landfill
operations and the progress of remediation measures. No environmental liability
cases related to previous operations, which would have any significant effect on
Kemira's financial position, have been brought to the management's attention.
Corporate acquisitions and divestments did not alter the Group's overall
environmental liabilities significantly. The acquisitions of the Lanxess paper
chemicals business and the Kraski Teks paint business did not involve any
significant environmental liabilities. Kemira conducted detailed environmental
assessments at the five sites of the water treatment chemicals business acquired
from Cytec Inc., which will answer for any verifiable environmental liabilities
that may arise from these assessments.
The European Council reached a political agreement on the proposed, new EU
chemicals legislation (REACH). This regulatory framework, which is expected to
come into force in 2007, will add to the costs of registration, testing and risk
assessment of existing chemical substances sold in or imported to the EU. Kemira
currently manufactures within, or imports to, the EU area approximately 200
substances affected by registration under REACH. About ten substances will be
subject to authorization. Under the guidance of its REACH Competence Center in
Finland, Kemira has made an inventory of the substances and is preparing for
future registration. The implementation of REACH is not expected to have any
major effects on the Group's competitiveness.
The EU Emissions Trading Scheme no longer has any major direct effect on the
Group's business, owing to structural changes in the Group's energy production.
As a result of active safety management efforts, the frequency of occupational
accidents fell to 6.0 (8.4) accidents per million working hours. The financial
year saw no major industrial accidents accompanied by serious personal injuries
or environmental damage. Kemira has set a zero target for accidents for each of
its business areas and initiated the related action plans.
Kemira publishes an annual Environmental Report verified by a third party and
prepared in accordance with IFRS and the guidelines issued by the European
Chemical Industry Council (CEFIC). The report deals, for example, with emissions
and effluents, waste, environmental costs, safety and product safety as well as
the use of natural resources. The majority of the Group's sites have certified
environmental and safety management systems in place. Integrating these with
quality management and so-called Group certification is underway, with the aim of
extending the systems on a global basis.
HUMAN RESOURCES
The number of Group employees totaled 9,327 on December 31, 2006 (December 31,
2005: 7,670), while the average payroll numbered 9,186 employees (7,717) in 2006.
This growth in staff numbers came from acquisitions carried out during the
financial year.
The year-end number of employees in Finland, elsewhere in Europe, the Americas
and Asia came to 3,020 (3,059), 4,506 (3,077), 1,514 (1,240) and 287 (294),
respectively. Kemira Pulp&Paper had 2,304 employees (2,111) on its payroll,
Kemira Water 1,846 (1,570), Kemira Specialty 1,011 (1,182), Kemira Coatings 3,494
(2,272) and Group functions 672 (535).
Salaries and wages for 2006 totaled EUR 326.2 million (278.9). Pay is determined
by national collective and individual agreements, personal performance and job
content. In the context of job evaluation, Kemira applies systems in global use,
enabling the Group to ensure fair pay, which is competitive in the market, and
provide a framework for employee performance appraisal. Basic pay is supplemented
by performance-based bonus schemes, which cover a large share of Group employees.
Kemira conducts a Group-wide employee opinion survey every year, with a view to
evaluating developments in leadership work and the climate at workplaces. The
survey assesses job satisfaction and satisfaction with working conditions,
leadership, communication, supervisory/managerial performance and performance on
unit and Group level. Its results are compared with those of previous surveys and
the corresponding surveys conducted in the industry, and are used as the basis of
various development projects. With the response rate at 80% in 2006, the survey's
results exceeded the global comparison index and showed a year-on-year
improvement in job satisfaction. In particular, communication, employee reward
systems and leadership scored better than a year ago. However, the level of
satisfaction with working conditions was somewhat lover than a year earlier.
Kemira stresses the importance of survey results handled on a local basis and the
entire staff's involvement in analyzing results and planning and implementing any
remedies.
The Kemira Code of Conduct specifies Group principles governing equality.
Accordingly, Kemira treats all people equally in recruitment and working
conditions, irrespective of race, gender, religious beliefs, political opinions
and national and social origin. Kemira aims to achieve equal numbers of
applications for vacancies by women and men, equal opportunities for competence
development and career progression, equal placement on various organizational
levels, equal pay for equal work and equality in other employment terms and
conditions. On December 31, 2006, women accounted for 29% (28%) of Group
employees and men 71% (72%).
The human resources strategy aims to promote a participative and entrepreneurial
culture. The culture module of the Group-wide development program, Kemira - from
Good to Great, defines the following action areas for strategy implementation:
leadership skills and other skill development, employee involvement, rewarding,
resources, safety, wellbeing programs and development tools. HR development tools
- employee opinion surveys, performance reviews and the 360-degree feedback
method - form the basis for HR action planning, with particular attention being
paid to the reward system's competitive and motivational aspects. Leadership and
personal development also represent an important area. Greater employee
empowerment, resource plans based on business strategies and the qualitative
elements of employment - such as the diversity of duties, opportunities for
employees to have their say in the workplace, others' support and employee
wellbeing issues - are among the key areas in HR development.
Supervisors/managers monitor and measure these success factors in cooperation
with HR professionals.
KEMIRA PULP&PAPER
Kemira Pulp&Paper is the world's leading supplier of pulp and paper chemicals,
its extensive solutions spanning throughout the pulp and paper industry's value
chain from pulp to paper coating.
EUR million 2006 2005 Change, %
REVENUE 993.3 715.3 39
EBITDA 137.1 105.5 30
EBITDA, % 13.8% 14.7%
OPERATING PROFIT 90.8 61.5 48
Operating profit, % 9.1% 8.6%
Capital employed* 819.5 702.5 17
ROCE, %* 11.0% 8.7%
Capital expenditure, excluding
acquisitions 77.6 36.7 111
Cash flow after investments,
excluding acquisitions 65.1 57.8 13
Personnel at period-end 2,304 2,111 9
* 12-month rolling average
Kemira Pulp&Paper reported year-on-year growth of 39% in revenue, totaling EUR
993.3 million (715.3), due largely to the acquisition of the Lanxess paper
chemicals business in April. Finnish Chemicals, acquired in April 2005, was for
the first time included in Kemira's accounts throughout the financial year.
Acquirees accounted for roughly EUR 226 million of revenue. Divestments weakened
revenue by approximately EUR 6 million. Excluding acquisitions and divestments,
growth was 8%. In 2005, revenue was depressed by an industrial dispute in the
Finnish pulp and paper industry (a decrease of approximately EUR 30 million).
Excluding the industrial dispute, organic growth was 4%.
Operating profit grew by 48%, to EUR 90.8 million, including non-recurring income
of EUR 11.0 million (EUR 61.5 million, including EUR 3.4 million in non-recurring
expenses). Acquirees represented around EUR 9 million of operating profit.
Divestments sapped operating profit by less than EUR 1 million. Operating profit
as a percentage of revenue rose from 8.6% to 9.1%, due to streamlining measures
and reported non-recurring income. This figure was eroded by the Lanxess paper
chemicals business, which was less profitable than other businesses within Kemira
Pulp&Paper. Operating profit was also depressed by around EUR 4 million in
integration costs related to the acquisition of the Lanxess paper chemicals
business. Raw material prices were higher than a year ago. In 2005, operating
profit was affected by the 5-week industrial dispute in the Finnish pulp and
paper industry.
In early April, Kemira closed the acquisition of the Lanxess paper chemicals
business, making Kemira the world's leading supplier of pulp and paper chemicals.
The acquiree's main range of products consists of colorants and fluorescent
whitening agents. In addition, toll-manufactured products traded for the paper
industry generate a large share of its revenue, which totaled around EUR 166
million in 2006. At a debt-free purchase price of roughly EUR 88 million, this
acquisition is projected to raise Kemira's earnings per share as from 2007.
Synergy and cost benefits resulting gradually from the combined businesses should
annually total approximately EUR 20 million in two years' time. The acquired
business has been included in Kemira Group's consolidated accounts since April 1,
2006 as part of Kemira Pulp&Paper. Integration of the operations is progressing
well.
In October, Kemira announced that it had acquired a paper chemicals agency
business from Bayer AG, as part of the integration of the Lanxess paper chemicals
business with Kemira. The Bayer agencies have been responsible for the sales and
marketing of Lanxess paper chemicals in some 20 countries, mainly in Eastern
Europe, the Far East and South America, where Lanxess did not operate. The agency
business has annual revenue of approximately EUR 35 million.
In May, Kemira announced that it would start producing hydrogen peroxide in
Uruguay by building a production plant adjacent to Metsä-Botnia's future pulp
plant, supplementing the chemicals production facility already under
construction. The plant's products comprise sodium chlorate, chlorine dioxide,
hydrogen peroxide and oxygen. Capital spending totals some EUR 80 million and the
plants will begin production during 2007.
In September, Kemira completed the divestment of its South Korean hydrogen
peroxide business to DegussaHeadwaters Korea. The primary objective of Kemira
Pulp&Paper is to serve customers in the pulp and paper industry, whereas the
Korean unit mainly catered for the needs of customers outside this industry. The
unit's annual revenue has been around EUR 20 million. The final selling price
amounted to EUR 27.5 million.
In November, Kemira announced that it would build a chlorine dioxide unit
adjacent to Cellulosa Argentina's pulp mills in Argentina. The contracting
parties also signed a long-term agreement for the supply of chemicals used in
pulp bleaching. With approximately EUR 10 million in capital spending on the
unit, its production is scheduled to begin in early 2008.
In November, Kemira bought Mondi's holding in Kemira Swiecie Sp.zo.o shares.
Kemira Swiecie was previously co-owned by Kemira (65%) and a South African paper
producer, Mondi (35%). Kemira produces crude tall oil received from Mondi and
processes it further at its Krems plant in Austria. This cooperation with Mondi
has continued in the same way after the share transaction. In addition, Kemira
Swiecie produces and sells a wide variety of other paper chemicals.
Harri Kerminen, formerly working as President, Kemira Specialty, took up his
duties as President, Kemira Pulp&Paper, on November 1, 2006. Lauri Junnila,
former President for Kemira Pulp&Paper, took charge of Kemira Pulp&Paper's
strategic expansion in Asia and South America.
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.
EUR million 2006 2005 Change, %
REVENUE 467.6 353.2 32
EBITDA 53.4 43.4 23
EBITDA, % 11.4% 12.3 %
OPERATING PROFIT 35.3 28.2 25
Operating profit, % 7.5% 8.0 %
Capital employed* 269.2 214.8 25
ROCE, %* 13.4% 13.8 %
Capital expenditure, excluding
acquisitions 19.4 18.1 7
Cash flow after investments,
excluding acquisitions 26.7 22.4 19
Personnel at period-end 1,846 1,570 18
* 12-month rolling average
Kemira Water's revenue increased by 32%, to EUR 467.6 million (353.2), with
organic growth at 11%. All market areas reported higher sales, North America
showing particularly strong growth. In addition, the acquisition of the Cytec
water treatment chemicals business and other smaller acquisitions contributed to
growth. Acquirees accounted for around EUR 75 million of revenue.
Due to the organic growth and acquisitions, Kemira Water's operating profit rose
by 25%, to EUR 35.3 million, including EUR 0.2 million in non-recurring expenses
(EUR 28.2 million, including non-recurring income of EUR 2.2 million). Acquirees
represented around EUR 3 million of operating profit. Operating profit as a
percentage of revenue fell from 8.0% to 7.5%, due the Cytec water treatment
chemicals business' lower profitability compared to that of Kemira Water, as well
as integration costs resulting from the acquisition. Year on year, raw material
and transport costs rose significantly in North America.
In early October, Kemira completed the acquisition of the Cytec water treatment
chemicals and acrylamide business. Cytec's water treatment chemicals business
consists mainly of water treatment solutions for industry and municipal water
treatment plants. This acquisition expanded Kemira's product range considerably
and reinforced its geographical position. Cytec's water treatment chemicals
business reported revenue of roughly EUR 250 million in 2006 and its
profitability has been somewhat weaker than Kemira Water's. At a debt-free
purchase price of approximately EUR 190 million, the acquisition is projected to
raise Kemira's earnings per share from 2007. A deal for acquiring Cytec's Botlek
production plant in the Netherlands was finalized in January 2007, until which
the plant acted as Kemira's subcontractor. Assets in Latin America and Asia-
Pacific are expected to transfer to Kemira during the second quarter of 2007.
In October, Kemira acquired four subsidiaries wholly owned by Parcon A/S, a
Danish distribution company. The acquirees run a strong sales and distribution
network in Denmark, their product offerings covering process chemicals and
services for water treatment and surface cleaning applications. Their combined
revenue for 2006 totaled about EUR 20 million.
In October, Kemira announced that it had acquired Oy Galvatek Ab in Lahti,
Finland, in order to strengthen Kemira's wastewater treatment and the treatment,
recycling and recovery of industrial side streams. Specializing in the planning
of industrial wastewater treatment plants and project management services,
Galvatek posted revenue of around EUR 10 million in 2006 and runs two
subsidiaries, one in Sweden and one in Poland.
In April, the Käppala sewage treatment works in Stockholm adopted Kemira's sludge
treatment solution. In June, Oulun Vesi opted for Kemira to process and dispose
of sludge from the city's wastewater treatment processes. This agreement, worth
approximately EUR 13 million, will cover 15 years and sludge processing should
begin in summer 2007.
In August, Kemira and St. Petersburg Water Works signed an agreement, extending
to 2015, for developing and producing new chemicals to be used in producing
drinking water and purifying wastewater. Related to this agreement, Kemira is
investing in refurbishing its St. Petersburg-based production line and branching
out into wastewater by building a new production line for iron-based chemicals.
In November, Kemira agreed to supply Rautaruukki's Raahe mills with a
regeneration plant (a recovery plant) for pickling acid used in pickling hot-
rolled steel. The project is Kemira's first full-scale regeneration plant
delivery to a metal-industry customer. The regeneration plant processes the iron-
containing hydrochloric acid arising from the steel pickling process and Kemira
is tasked with removing the iron from the acid and using it to make water
treatment chemicals. The purified hydrochloric acid is then led back into
Ruukki's hot-rolled steel strip manufacturing process.
In November, Kemira announced that it had signed an agreement with the
shareholders of Chongqing Lanjie Tap Water Chemicals Co., Ltd to buy 80 per cent
of company shares in Central China. The new company, Kemira Water Solutions
(Chongqing) Co,. Ltd., produces inorganic coagulants and organic polymers for
water treatment in the city of Chongqing in Central China. The company's annual
revenue, currently around EUR 2 million, is expected to grow rapidly in the years
to come. In addition to growing water treatment markets for potable water, the
company will focus on the industrial wastewater and municipal sewage treatment
sectors. The acquisition is expected to be closed during the first quarter of
2007.
In January 2007, Kemira announced that it would acquire two Dalquim Industria e
Comercio Ltda companies manufacturing inorganic water-treatment coagulants in
Southern Brazil. With combined revenue of around EUR 12 million, the acquirees'
main customers include the paper industry and municipalities. Anti-trust approval
and the fulfillment of other terms and conditions are required to close the deal.
In March 2006, Mats Jungar took up his duties as Kemira Water's President.
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.
EUR million 2006 2005 Change, %
REVENUE 456.2 408.4 12
EBITDA 77.0 80.7 -5
EBITDA, % 16.9% 19.8 %
OPERATING PROFIT 45.8 45.4 1
Operating profit, % 10.0% 11.1 %
Capital employed* 451.6 420.2 7
ROCE, %* 10.1% 10.8 %
Capital expenditure, excluding
acquisitions 30.8 34.7 -11
Cash flow after investments,
excluding acquisitions 53.6 40.5 32
Personnel at period-end 1,011 1,182 -14
* 12-month rolling average
Kemira Specialty's revenue increased by 12%, to EUR 456.2 million (408.4), with
organic growth at 3%, due in particular to favorable developments in sales of
organic acids and acid derivatives as well as sodium percarbonate used in
detergents. Remaining at the previous year's levels, titanium dioxide sales were
affected by production losses at the Pori plant in Finland due to a one-day
strike and the subsequent difficulty of re-starting production in April, planned
maintenance downtime in September and power failure in November. Acquirees
accounted for roughly EUR 35 million of revenue. Verdugt, acquired in April 2005,
was for the first time included in Kemira's accounts throughout the financial
year.
Operating profit was EUR 45.8 million, including non-recurring income of EUR 3.6
million (EUR 45.4 million, including EUR 6.1 million in non-recurring income).
Operating profit as a percentage of revenue fell from 11.1% to 10.0%, due to the
above mentioned losses in titanium dioxide production, higher energy and raw
material prices and the previous year's higher non-recurring income. The weaker
US dollar also depressed the figure, since titanium dioxide is mostly traded in
US dollars globally. Acquirees accounted for roughly EUR 3 million of operating
profit.
The titanium dioxide business generated 50% of Kemira Specialty's revenue. Market
demand for titanium dioxide was at a good level. Specialty products accounted for
53% (50) of sales. Average euro prices for titanium dioxide were only slightly
higher than in 2005, despite an increase in dollar prices in the market.
Market demand for organic acids and acid derivatives was at a good level, with
average selling prices showing an increase.
Sales volumes of sodium percarbonate, used in detergents, rose year on year.
Prices fell slightly.
In March, Kemira decided to make a capital investment of approximately EUR 26
million in the Pori titanium dioxide plant, in order to meet future environmental
permit requirements. The investment project is scheduled for completion by the
end of 2007.
In April, Kemira agreed to buy the business of IFAC from IFAC GmbH & Co KG, a
leading German development company creating applications for the cosmetics
industry. This acquisition strengthened Kemira Specialty's expertise in customer
solutions and technology for the food, pharmaceutical and cosmetics industries.
In July, Kemira announced that it had established a company with Metachem
Industrial e Comercial Ltda., a Brazilian company, in São Paolo, Brazil. The new
company in which Kemira has a 51% holding produces, markets and sells feed
additives throughout the South American market. The region is the most rapidly
growing market area for feeds and the organic acid derivatives used in their
manufacture.
In July, Kemira announced its plan to invest EUR 10 million in the expansion of
its formic acid facilities in Oulu, Finland. The expansion, which will cover
existing production lines, entails technological improvements and energy-
conservation measures. This investment will enable a capacity increase of 25,000
tons, to over 100,000 tons. The new capacity will be phased in by the end of
2007.
Pekka Ojanpää, formerly working as Executive Vice President, Procurement and
Logistics, took up his duties as President, Kemira Specialty, on November 1,
2006.
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.
EUR million 2006 2005 Change, %
REVENUE 562.8 457.5 23
EBITDA 88.9 70.0 27
EBITDA, % 15.8% 15.3%
OPERATING PROFIT 72.1 55.9 29
Operating profit, % 12.8% 12.2%
Capital employed* 310.5 282.7 10
ROCE, %* 23.7% 20.2%
Capital expenditure, excluding
acquisitions 22.5 18.0 25
Cash flow after investments,
excluding acquisitions 71.2 52.8 35
Personnel at period-end 3,494 2,272 54
* 12-month rolling average
Kemira Coatings increased its revenue by 23%, to EUR 562.8 million (457.5), with
organic growth at 6%. Growth in revenue was due primarily to the acquisition of
Kraski Teks in Russia, finalized in early February. Acquirees accounted for
around EUR 80 million of revenue. Divestments eroded revenue by approximately EUR
2 million.
Revenue reported by the Decorative Paints unit was up 28%. Demand for decorative
paints remained at a good level in almost all of the main market areas.
Meanwhile, sales of locally manufactured products in Russia continued their
robust growth. The Industrial Coatings unit's sales increased in all of the main
market areas and revenue rose by 4%.
Operating profit climbed by 29%, to EUR 72.1 million, including EUR 16.4 million
in non-recurring income from the sale of a factory site in Stockholm (EUR 55.9
million, including non-recurring income of EUR 9.5 million). Operating profit as
a percentage of revenue rose from 12.2% to 12.8%, due to reported non-recurring
income and streamlining measures. Raw material prices increased from 2005 levels.
Acquirees accounted for roughly EUR 5 million of operating profit.
In February, Kemira finalized the acquisition of Kraski Teks, a Russian paint
company, making Kemira-owned Tikkurila Russia's leading decorative paint company,
with Tikkurila and Kraski Teks holding a combined share of around 22% of Russia's
decorative paints market. The integration of the acquiree with Kemira Coatings is
making good progress.
In June, Tikkurila Oy and Sto AG of Germany agreed to establish a company, OOO
Sto-Tikkurila, in Russia, co-owned on a 50-50 basis. Sto-Tikkurila's business
idea covers the manufacture and project sales of various coating systems for
facades in Russia. These products are based on Sto's technology and marketed
under the Sto brand name making use of Tikkurila's existing infrastructure and
local knowledge in Russia.
In July, Kemira increased its holding in Kolorit Paints, based in Ukraine, to
100% by buying a 49% holding from the Ukrainian co-owner, LGU. With revenue for
2006 totaling EUR 4.8 million, Kolorit Paints manufactures waterborne paints
under the Kolorit brand. The company will also market decorative paints under the
Tikkurila and Teks brands and industrial coatings under the Tikkurila Coatings
brand.
In September, Kemira announced that it had established a sales company in
Kazakhstan responsible for marketing decorative paints under the Tikkurila and
Teks brands. In the future, the sales company will also market Tikkurila's
industrial coatings.
In September, Kemira further announced that it had acquired a 100% shareholding
in Finncolor s.r.o., a sales company based in Prague, the Czech Republic, which
has acted as one of Tikkurila's importers. In 2005, Kemira Coatings recorded
revenue of EUR 3 million in the Czech paints and coatings market, of which
Finncolor accounted for around EUR 1 million.
In December, Kemira agreed to buy a 70% shareholding in OOO Gamma and OOO
Ohtinski zavod poroshkovyh krasok, two paint factories based in St. Petersburg.
Gamma is a major producer of metal industry coatings in Russia while Ohtinski
zavod poroshkovyh krasok manufactures and markets powder coatings under its OHTEK
brand. Their combined annual revenue is approximately EUR 11 million. The
acquisition will considerably strengthen Tikkurila's sales and market position in
the Russian metal-industry coatings market. The acquisition is expected to be
closed during the first few months of 2007.
OTHER OPERATIONS
The operating loss of EUR 42.3 million reported by other operations includes EUR
0.4 million in non-recurring income (a loss of EUR 25.5 million, including non-
recurring income of EUR 0.2 million).
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. They also include the water-soluble specialty fertilizers unit, which is
not part of Kemira's core business operations.
The water-soluble specialty fertilizers unit's revenue for 2006 was EUR 52.8
million (65.6) and its operating loss came to EUR 9.3 million, including EUR 5.8
million in non-recurring expenses (operating profit of EUR 0.4 million, including
EUR 4.4 million in non-recurring income). The results of the water-soluble
specialty fertilizers business's associate companies, stated below operating
profit, showed a loss of EUR 3.9 million (a loss of EUR 3.7 million). In
March, Kemira sold its shareholding (50%) in Biolchim Spa, a co-owned company
supplying water-soluble specialty fertilizers. In 2005, Biolchim reported revenue
of EUR 27.2 million, of which Kemira accounted for EUR 13.6 million. In February
2007, Kemira announced that it had sold its 50% holding in its water-soluble
specialty fertilizer associate in Jordan. Following this disposal, Kemira is not
engaged in the water-soluble specialty fertilizers business, except for selling
products of the sold co-owned company during the transition period until the end
of 2007.
In May, the European Commission imposed a fine of EUR 33 million on Kemira Oyj
for anti-competitive practice associated with the company's hydrogen peroxide
business in 1994-2000. Provisions made by the company covered this fine, paid in
August.
KEMIRA OYJ'S SHARES AND SHAREHOLDERS
On December 31, 2006, Kemira had 16,280 registered shareholders. The Finnish
State's shareholding and voting rights accounted for 48.6% (48.7%) and nominee-
registered shares 21% (17%).
The volume of company shares traded on the Helsinki Stock Exchange during the
2006 calendar year totaled 76.3 million at a total trading price of EUR 1,084.1
million. Kemira Oyj shares registered a high of EUR 17.17 and a low of EUR 11.07,
the share price averaging EUR 14.19. The share closed at EUR 17.03, showing a 26%
price increase during the year. On December 31, 2006, the company's market
capitalization, excluding treasury shares, totaled EUR 2,060 million (1,627).
During the financial year, a total of 166,011 new shares were registered
following subscriptions using warrants under the 2001 stock option program.
Following the corresponding increase of share capital, on the balance sheet date
the company's share capital totaled EUR 221.6 million and the number of
registered shares 124,967,611. The number of shares may increase by a maximum of
77,389, based on share subscriptions under the 2001 stock option program.
On December 31, 2006, Kemira held 3,979,670 treasury shares, representing 3.2% of
all outstanding company shares. In March 2006, under the authorization by the
Annual General Meeting in 2005, Kemira transferred 116,610 treasury shares to
persons covered by the share-based management incentive plan. In 2006, 8,520 of
the shares transferred as part of the incentive plan returned to the company due
to terminations of employment, in accordance with the plan's terms and
conditions.
BOARD OF DIRECTORS AND AUDITORS
The Annual General Meeting on April 11, 2006 decided that the number of Board
members be seven. The AGM elected the following Board members for 2006: Anssi
Soila (Chairman), Eija Malmivirta (Vice Chairman), Elizabeth Armstrong, Heikki
Bergholm, Ove Mattsson, Kaija Pehu-Lehtonen and Markku Tapio. The Board of
Directors met 13 times during 2006.
The AGM elected Aulis Ranta-Muotio Supervisory Board Chairman, Mikko Elo as the
first Vice Chairman and Heikki A. Ollila as the second Vice Chairman, and the
following Supervisory Board members: Pekka Kainulainen, Mikko Långström, Susanna
Rahkonen, Risto Ranki and Katri Sarlund.
The AGM elected KPMG Oy Ab, Authorized Public Accountants, the company's auditor,
with Pekka Pajamo, Authorized Public Accountant, acting as chief auditor.
AGM DECISIONS
The Annual General Meeting on April 11, 2006 authorized the Board of Directors to
decide on buying back company shares using retained distributable profits in such
a way that the number of shares to be bought back may not exceed 2,146,640. These
shares, including treasury shares already held by Kemira, may account for a
maximum of 5% of company share capital and voting rights. This authorization is
valid until April, 11, 2007. In 2006, the company did not buy back shares.
The AGM authorized the Board to decide to dispose of a maximum of 6,240,080
treasury shares. The Board of Directors may dispose of shares, waiving
shareholders' pre-emptive rights, provided that there is a cogent financial
reason for said disposal, such as financing or implementing mergers, acquisitions
and similar corporate transactions, as well as incentivizing personnel or
management, including disposals under the 2004 share-based incentive plan. This
authorization is valid until April, 11, 2007. In 2006, the Board did not exercise
this authorization.
The AGM authorized the Board to decide to increase the company's share capital by
issuing new shares, stock options or convertible bonds in one or several
tranches. As a result of such a share issue, share subscriptions based on stock
options and the conversion of convertible bonds into company shares, the
company's share capital may increase by a maximum of EUR 22.1 million. The
maximum number of new shares to be issued is 12,480,160 and the per-share stated
value is around EUR 1.77. This accounts for a total of 10% of the registered
share capital and votes conferred by the shares. This authorization is valid
until April, 11, 2007. In 2006, the Board did not exercise this authorization.
The AGM decided that a Nomination Committee be set up for Kemira to prepare
proposals for Board member candidates and Board emoluments to the next AGM. The
AGM also decided that Kemira's three largest shareholders, registered in the book-
entry securities system on November 1, 2006, be members of the Nomination
Committee who agree to said membership. In November 2006, the following persons
were elected to the Nomination Committee: Pekka Timonen, Chief Counselor,
Ministry of Trade and Industry (Chairman); Risto Murto, Senior Vice President,
Chief Investment Officer, Varma Mutual Pension Insurance Company; and Jussi
Laitinen, Senior Vice President, Investments, Ilmarinen Mutual Pension Insurance
Company. Anssi Soila, Kemira Oyj's Board Chairman, is acting as an expert member
of the Nomination Committee.
CHANGES IN GROUP STRUCTURE
During the financial year, Kemira carried out a number of corporate acquisitions
and business divestments.
Kemira finalized the acquisition of Kraski Teks, a Russian paint company, in
early February and that of the Lanxess paper chemicals business in early April.
In early October, Kemira completed the acquisition of the Cytec water treatment
chemicals and acrylamide business. In addition, the financial year saw a number
of smaller acquisitions and the closure and merger of several companies. Sections
specific to each business area cover acquisitions in greater detail.
PARENT COMPANY'S FINANCIAL PERFORMANCE
The parent company posted revenue of EUR 266.1 million (235.6) and an operating
loss of EUR 53.1 million (operating profit of EUR 26.9 million). The parent
company bears the cost of Group management and administration as well as a
portion of research costs.
Parent company's net financial expenses came to EUR 3.8 million (13.3). Profit
before tax was EUR 2.6 million (60.3 million) and capital expenditure totaled EUR
30.4 million (26.2), excluding investments in subsidiaries.
DIVIDEND PROPOSAL
The Board of Directors will propose a per-share dividend of EUR 0.48 for 2006,
corresponding to a dividend payout ratio of 50%. For the financial year 2005,
Kemira paid out a dividend of EUR 0.36 per share. According to the Board's
proposal, the dividend record date is April 19, 2007, and the payment date April
26, 2007.
OUTLOOK FOR 2007
Kemira Group expects to continue its growth in 2007, as a result of both the
previous acquisitions and organic growth. It is projected that demand for
Kemira's products will remain at a healthy level and the largest production
plants' capacity utilization rates will remain high. Raw material and energy
prices as well as transportation costs are projected to behave more moderately
than in 2006. Due to efficiency improvements in production and other operations,
the introduction of new products and the Group-wide development program, Kemira -
from Good to Great, full-year revenue, operating profit, and earnings per share
for 2007 are expected to show an increase from 2006 levels.
It is projected that capacity utilization rates in the Kemira Pulp&Paper's
customer industry will remain at good levels in 2007 and the business area is
expected to increase its revenue and operating profit from 2006 levels (excluding
EUR 11.0 million in non-recurring income included in operating profit for 2006).
As the acquired Lanxess paper chemicals business's integration proceeds, the
acquiree is expected to improve its profitability. This acquisition, entailing
new customers and products, coupled with entry into new emerging markets in South
America and Asia, will contribute to higher revenue and operating profit. A
chemical plant under construction at the site of a pulp mill in Uruguay should be
completed in the second half of 2007, but will not yet contribute markedly to
Kemira's revenue or operating profit for 2007.
Kemira Water is expected to increase its revenue and operating profit from 2006
levels, due in particular to the previous acquisitions, and demand for its water
treatment chemicals is anticipated to remain at a good level. During 2007, Kemira
Water will focus on integrating the acquired companies. On the basis of
experiences of the current customers, sludge treatment and outsourcing services
for industry will see further development.
Kemira Specialty expects to increase its revenue and operating profit. It is
projected that demand for titanium dioxide will be at the 2006 level. Specialty
pigments are expected to increase their share of Kemira's total sales. The
business area's sales of organic acids and acid derivatives are anticipated to
continue to show favorable development. It is projected that formic acid product
prices will rise further. The sales volume of sodium percarbonate, used in
detergents, will remain at the 2006 level and prices are estimated to decrease
slightly resulting from tough competition.
Kemira Coatings is expected to generate higher revenue due to demand remaining
healthy 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 included in operating profit
for 2006), spurred by favorable developments in sales and recent years'
restructuring.
Helsinki, February 5, 2007
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 contained in the forward-
looking statements.
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 Consolidated Financial Statement has been prepared in compliance with IFRS.
Kemira adopted January 1, 2006 revised business-area-specific accounting practice
applying to companies with several business areas
using products from the same production site. This change simplifies the
treatment of joint products by shifting from intra-Group sale to shared
product costs. In addition, some production and service units have been
transferred between business areas. These changes had
an effect on segment information by business area but not on Group-level figures.
Business-area comparatives for 2005 have been adjusted
to match this new accounting practice.
INCOME STATEMENT 10-12/2006 10-12/2005 2006 2005
EUR million
Revenue 669.5 521.5 2 522.5 1 994.4
Other income from operations 17.6 53.7 59.2 69.3
Expenses -623.9 -508.0 -2 256.5 -1 779.3
Depreciation -33.6 -30.8 -123.5 -118.9
Operating profit 29.6 36.4 201.7 165.5
Financial income and expenses -12.7 -8.2 -37.2 -30.5
Income from associates -1.1 -1.3 -2.3 -1.5
Profit before tax 15.8 26.9 162.2 133.5
Income tax -0.1 -8.0 -42.0 -42.1
Net profit for the period 15.7 18.9 120.2 91.4
Attributable to:
Equity holders of the parent 14.8 18.7 116.6 88.5
Minority interest 0.9 0.2 3.6 2.9
Net profit for the period 15.7 18.9 120.2 91.4
KEY FIGURES 10-12/2006 10-12/2005 2006 2005
Earnings per share, basic and
diluted, EUR 0.12 0.15 0.96 0.73
Cash flow from operations
per share, EUR 0.90 0.58 1.79 1.29
Capital expenditure, EUR million 257.1 38.4 462.0 401.9
Capital expenditure / revenue, % 38.4 7.4 18.3 20.2
Average number of shares (1000),
basic *) 120 950 120 705 120 877 120 628
Average number of shares (1000),
diluted *) 121 099 121 085 121 051 121 024
Number of shares at the end
of the period (1000), basic *) 120 988 120 714 120 988 120 714
Number of shares at the end
of the period (1000), diluted *) 121 204 121 057 121 204 121 057
Equity per share, attributable to
equity holders of the parent, EUR 8.92 8.33
Equity ratio, % 39.4 43.8
Gearing, % 75.9 60.8
Net liabilities, EUR million 827.4 619.7
Personnel (average) 9 186 7 717
*) Number of shares outstanding, adjusted by the number of shares bought back.
REVENUE BY BUSINESS AREA 10-12/2006 10-12/2005 2006 2005
EUR million
Kemira Pulp&Paper 264.0 209.0 993.3 715.3
Kemira Water 171.5 91.2 467.6 353.2
Kemira Specialty 117.2 119.1 456.2 408.4
Kemira Coatings 109.3 90.3 562.8 457.5
Other and Intra-Group sales 7.5 11.9 42.6 60.0
Total Group 669.5 521.5 2 522.5 1 994.4
OPERATING PROFIT BY BUSINESS AREA 10-12/2006 10-12/2005 2006 2005
EUR million
Kemira Pulp&Paper 20.1 20.9 90.8 61.5
Kemira Water 10.3 6.9 35.3 28.2
Kemira Specialty 11.1 16.2 45.8 45.4
Kemira Coatings -1.5 6.8 72.1 55.9
Other and eliminations -10.4 -14.4 -42.3 -25.5
Total Group 29.6 36.4 201.7 165.5
BALANCE SHEET
EUR million
ASSETS 31.12.2006 31.12.2005
Non-current assets
Goodwill 581.0 558.1
Other intangible assets 108.9 70.9
Property, plant and equipment 987.1 864.9
Holdings in associates 8.1 9.2
Available-for-sale investments 84.3 83.7
Deferred tax assets 7.7 6.8
Defined benefit pension receivables 24.6 15.3
Other investments 9.5 7.7
Total non-current assets 1 811.2 1 616.6
Current assets
Inventories 293.2 219.2
Receivables
Interest-bearing receivables 9.1 7.0
Interest-free receivables 565.4 431.8
Total receivables 574.5 438.8
Money market investments - cash equivalents 35.0 28.3
Bank and cash 41.1 28.0
Total current assets 943.8 714.3
Non-current assets held for sale 14.4 -
Total assets 2 769.4 2 330.9
EQUITY AND LIABILITIES 31.12.2006 31.12.2005
Equity attributable to equity holders
of the parent 1 077.9 1 005.5
Minority interest 12.6 13.7
Total equity 1 090.5 1 019.2
Non-current liabilities
Interest-bearing non-current liabilities 395.1 404.0
Deferred tax liabilities 105.9 100.5
Pension liabilities 66.8 55.4
Provisions 55.3 94.6
Total non-current liabilities 623.1 654.5
Current liabilities
Interest-bearing current liabilities 508.5 272.0
Interest-free current liabilities 522.9 356.7
Provisions 15.5 28.5
Total current liabilities 1 046.9 657.2
Liabilities directly associated with non-current
assets classified as held for sale 8.9 -
Total liabilities 1 678.9 1 311.7
Total equity and liabilities 2 769.4 2 330.9
Non-current assets held for sale include US- and Canada-based factory sites and
assets of OnePoint Oy located in Kokkola, Finland.
The liabilities of OnePoint Oy are included in liabilities directly associated
with non-current assets classified as held for sale.
CONSOLIDATED CASH FLOW STATEMENT 2006 2005
EUR million
Cash flows from operating activities
Adjusted operating profit 232.0 258.3
Interests -30.4 -31.2
Dividend income 2.0 5.5
Other financing items -1.3 -24.5
Income taxes paid -45.1 -45.5
Total funds from operations 157.2 162.6
Change in net working capital 59.6 -7.0
Total cash flows from operating activities 216.8 155.6
Cash flows from investing activities
Capital expenditure -462.0 -401.9
Proceeds from sale of assets 102.9 131.5
Net cash used in investing activities -359.1 -270.4
Cash flow after investing activities -142.3 -114.8
Cash flows from financing activities
Change in long-term loans (increase +,
decrease -) 173.4 -370.8
Change in long-term loan receivables (increase -,
decrease +) 1.5 5.8
Short-term financing, net (increase +,
decrease -) 33.8 191.1
Dividends paid -46.3 -43.2
Other -0.2 3.3
Net cash used in financing activities 162.2 -213.8
Net change in cash and cash equivalents 19.9 -328.6
Cash and cash equivalents at end of period 76.2 56.3
Cash and cash equivalents at beginning of period 56.3 384.9
Net change in cash and cash equivalents 19.9 -328.6
STATEMENT OF CHANGES IN EQUITY
Capital
paid-in
in excess Fair
Share Share of par Other value
capital issue value reserves reserve
Shareholders' equity
at January 1, 2005 220.7 0.1 257.5 2.8 49.0
Net profit for the
financial year - - - - -
Dividends paid - - - - -
Shares available for sale
- change in valuation - - - - 4.1
Treasury shares issued
to target group - - - - -
Share-based compensation - - - - -
Options subscribed for shares 0.6 -0.1 0.3 - -
Exchange differences - - - -0.1 -
Hedge of net investments
in foreign entities - - - - -
Cash flow hedging: amount entered
in shareholders' equity - - - - 11.2
Acquired minority interest - - - - -
Transfer between restricted
and non-restricted equity - - - - -
Other changes - - - 0.1 -
Shareholders' equity
at December 31, 2005 221.3 0.0 257.8 2.8 64.3
Shareholders' equity
at January 1, 2006 221.3 0.0 257.8 2.8 64.3
Net profit for the
financial year - - - - -
Dividends paid - - - - -
Treasury shares issued
to target group - - - - -
Share-based compensation - - - - -
Options subscribed for shares 0.3 - 0.1 - -
Exchange differences - - - - -
Hedge of net investments
in foreign entities - - - - -
Cash flow hedging: amount entered
in shareholders' equity - - - - -4.7
Acquired minority interest - - - - -
Transfer between restricted
and non-restricted equity - - - 0.3 -
Other changes - - - - -
Shareholders' equity
at December 31, 2006 221.6 0.0 257.9 3.1 59.6
Exchange Treasury Retained Minority
difference shares earnings interests Total
Shareholders' equity
at January 1, 2005 -47.4 -28.2 473.3 28.2 956.0
Net profit for the
financial year - - 88.5 2.9 91.4
Dividends paid - - -41.1 -2.1 -43.2
Shares available for sale
- change in valuation - - - - 4.1
Treasury shares issued
to target group - 0.7 -0.7 - 0.0
Share-based compensation - - 0.7 - 0.7
Options subscribed for shares - - - - 0.8
Exchange differences 21.8 - - 4.1 25.8
Hedge of net investments
in foreign entities -8.3 - - - -8.3
Cash flow hedging: amount entered
in shareholders' equity - - - - 11.2
Acquired minority interest - - - -19.6 -19.6
Transfer between restricted
and non-restricted equity - - - - 0.0
Other changes - - - 0.2 0.3
Shareholders' equity
at December 31, 2005 -33.9 -27.5 520.7 13.7 1 019.2
Shareholders' equity
at January 1, 2006 -33.9 -27.5 520.7 13.7 1 019.2
Net profit for the
financial year - - 116.6 3.6 120.2
Dividends paid - - -43.6 -2.8 -46.4
Treasury shares issued
to target group - 0.7 -0.7 - 0.0
Share-based compensation - - 1.1 - 1.1
Options subscribed for shares - - - - 0.4
Exchange differences -1.5 - - 0.4 -1.1
Hedge of net investments
in foreign entities 4.5 - - - 4.5
Cash flow hedging: amount entered
in shareholders' equity - - - - -4.7
Acquired minority interest - - - -2.3 -2.3
Transfer between restricted
and non-restricted equity - - -0.3 - 0.0
Other changes - - -0.4 - -0.4
Shareholders' equity
at December 31, 2006 -30.9 -26.8 593.4 12.6 1 090.5
At the end of the year 2005 there were 4,087,760 treasury shares. Of the shares
that were granted in connection with share-based incentive plan 8,520 were
returned to Kemira in 2006.
A total of 116,610 shares were issued to key persons based on the incentive plan
on March 28, 2006. The total book equivalent value of the shares issued amounted
to around EUR 207,000.
The issue does not materially affect the distribution of ownership and voting
power in the company.
Kemira had in its possession 3,979,670 of its treasury shares at December 31,
2006. Their average acquisition share price was EUR 6.73 and proportion of the
share capital 3.2%. They
represented 3.2% of the aggregate number of votes conferred by all the shares.
CONTINGENT LIABILITIES 31.12.2006 31.12.2005
EUR million
Mortgages 64.8 74.9
Assets pledged
On behalf of own commitments 19.5 17.5
Guarantees
On behalf of own commitments 6.4 -
On behalf of associates 32.6 61.5
On behalf of others 1.4 4.2
Operating leasing liabilities
Maturity within one year 14.9 12.3
Maturity after one year 118.1 111.9
Other obligations
On behalf of own commitments 0.4 -
On behalf of associates 2.3 2.5
Litigation
The Group has extensive international operations and is involved in a number of
legal proceedings incidental to these operations.
The group does not expect the outcome of any legal proceedings currently pending
to have a materially adverse effect upon the group's consolidated result,
taking into account provisions.
Kemira Chemicals, Inc. has received a grand jury subpoena to produce documents in
connection with an investigation by the United States
Department of Justice's Antitrust Division, relating to the hydrogen peroxide
business in the US. Kemira Oyj, Kemira Chemicals, Inc. and
Kemira Chemicals Canada, Inc. have recently received claims or were named in
class action lawsuits filed in US federal and state courts and in Canada
by direct and indirect purchasers of hydrogen peroxide and persalts.
In these civil actions it is alleged that the US plaintiffs suffered damages
resulting from a cartel among hydrogen peroxide suppliers.
The existence of the United States Departments of Justice's Antitrust Division's
investigations and the European Commission's ruling in a case
of infringement of competition law in May 2006 are relied upon in support of the
allegations.
DERIVATIVE INSTRUMENTS
EUR million
Nominal Fair Nominal Fair
value value value value
Currency instruments
Forward contracts 389.4 5.5 314.7 -5.4
of which hedges of net investment
in a foreign operation 19.6 2.2 24.7 -3.1
Currency options
Bought 42.8 - 94.1 -0.3
Sold 45.3 0.2 111.2 -0.6
Currency swaps 115.9 8.4 121.9 -0.1
Interest rate instruments
Interest rate swaps 109.2 4.7 160.4 2.9
of which cash flow hedge 83.8 4.2 69.6 3.3
Interest rate options
Bought - - 10.0 -
Sold - - 15.0 -0.2
Bond futures 10.0 -0.2 10.0 -0.1
of which open 10.0 -0.2 10.0 -0.1
Fair Fair
Other instuments GWh value GWh value
Electricity forward contracts 1 227.0 10.4 1 884.0 17.3
of which cash flow hedge 1 227.0 10.4 1 884.0 17.3
Tons
Propane swap contracts 1 000.0 0.1 - -
The fair values are based on market valuation on the date of reporting for the
instruments which are publicly traded. 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.
BUSINESS COMBINATIONS
Ooo Kraski Teks
Responsible for the paints and coatings business of the Kemira Group, Tikkurila
acquired 100% of voting instruments of Ooo Kraski Teks, one of
the largest players in the Russian decorative paints market, on February 3, 2006.
Tikkurila and Ooo Kraski Teks will together form a strong player in
the rapidly expanding Russian decorative paints market. Through this acquisition,
Tikkurila increased its market share to 20%
and achieved a clear position as a market leader. Tikkurila's portfolio can now
offer strong brands in all price segments.
With a debt-free price of EUR 33 million, the acquisition was paid in cash and
financed using group's existing financing agreements. Of the
purchase price, EUR 19.8 million at fair value was allocated to trademarks under
intangible assets, EUR 3.8 million to buildings under PPE and
the related deferred tax liabilities of around EUR 5.6 million were recognized
under goodwill. Using the Relief-from-Royalty method, the fair value of
trademarks was determined by the present value of avoided royalty payments. The
building's fair value is based on external expert opinions.
Fair Carrying
values amounts
recorded prior
on to
business business
combi- combi-
nation nation
Intangible assets, trademarks 19.8 0.0
Property, plant and equipment 9.4 5.6
Inventories 3.6 3.6
Trade receivables and other receivables 3.1 3.1
Cash and cash equivalents 1.5 1.5
Total assets 37.4 13.8
Interest bearing current liabilities 11.1 11.1
Other liabilities 2.9 2.9
Deferred tax liabilities 5.6 0.0
Total liabilities 19.6 14.0
Net assets 17.8 -0.2
Cost of business combination (net) 23.4
Goodwill 5.6
Acquisition cost 23.4
Cash and cash equivalents in subsidiary acquired -1.5
Cash outflow on acquisition 22.0
In February-December 2006, Kraski Teks posted revenue of EUR 79.9 million and the
effect of the acquisition on operating profit totaled EUR 5.2 million.
The Paper Chemicals business of Lanxess
Kemira acquired the global assets of Paper Chemicals Business of the Lanxess
Group 1.April 2006. The main products of this division are
optical brighteners, sizing agents and colorants for paper industry. Kemira has
now a full-range of paper chemicals products to global paper industry. The
acquired division has two production units, one in Leverkusen Germany and the
other in Bushy Park, South Carolina, USA and it also
outsources a significant portion of its products to customers from third party.
This deal makes Kemira the biggest supplier of pulp and paper
chemicals to global pulp and paper industry and also strengthens Kemira´s
position in the emerging markets.
The acquisition price was around EUR 79 million. The acquisition was financed
with the Kemira Group's own cash assets and through
existing financing agreements.
Fair Carrying
values amounts
recorded prior
on to
business business
combi- combi-
nation nation
Intangible assets 0.0 0.0
Property, plant and equipment 16.6 16.6
Inventories 33.0 32.6
Trade receivables and other receivables 34.8 34.8
Cash and cash equivalents 0.0 0.0
Total assets 84.4 83.9
Deferred tax liabilities 0.1 0.0
Long-term liabilities 10.8 10.8
Other liabilities 3.5 3.5
Total liabilities 14.3 14.2
Net assets 70.0 69.7
Cost of business combination (net) 81.2
Goodwill 11.2
Acquisition cost 81.2
Cash and cash equicalents in subsidiary acquired 0.0
Cash outflow on acquisition 81.2
Goodwill of EUR 11 million arose on the acquisition. The goodwill was based on
anticipated improved earnings trend of the acquired business
and achieving significant synergy benefits.
During Apr. 1 - Dec. 31. 2006 the acquired business had revenue of EUR 165.8
million and operating profit of EUR 0.5 million.
The Cytec water treatment business
Kemira acquired the Cytec Industries, Inc.'s water treating and acryl amide
business on October 1, 2006. Cytec's water treatment chemicals
product line consists of water treatment solutions for industrial and municipal
water treatment plants. The acquisition includes five production
plants of which three are located in the US (Mobile/Alabama,
Longview/Washington, and Fortier/Louisiana), and two in Europe
( Bradford /UK and Botlek/the Netherlands ).
The acquisition of Cytec's water treatment chemicals business is in line with
Kemira's growth strategy. It also enables us to significantly
broaden our current product portfolio and gain greater geographical presence in
key markets and inside key customer segments. The
acquired business' market regions include the US, South America, Asia and Europe.
The total price of the acquisition was around EUR 189.2 million subject to the
adjustment of net working capital. The acquisition was financed
with the Kemira Group's own cash assets and through existing financing
agreements.
As part of the acquisitions, in addition to the purchase of the business (asset
purchase agreement) which was closed 1 October, 2006,
Kemira signed the share purchase agreement to buy the shares of Cytec
Manufacturing BV. The closing of this phase was 11 January 2007.
Kemira has also signed with nine Cytec companies the transition service
agreements concerning certain transition services with respect of
the products of the business (Overseas units). The assets related to these
transition service agreements will be transferred to Kemira within
six months from closing.
The control over the whole Cytec water treatment business was transferred to
Kemira on October 1, 2006. The assets and liabilities are
included in consolidated financial statements on December 31, 2006. The purchase
price allocation of the Cytec water treatment business has been made on a
provisional basis for the financial statements December 31, 2006.
The assets and liabilities of Manufacturing BV were measured in the 2006
financial statement to the value of the payments plus the remaining
payment of EUR 16.3 million which was paid at the closing on 11 January 2007.
The final IFRS-compliant valuation of the business acquisition will be completed
upon the closing of the acquisition's phases and the
completion of net working capital adjustments.
The revenue of the acquired unit for October 1 - December 31, 2006 totaled EUR
67.7 million and operating profit EUR 2.8 million.
Aggregate of other business combinations
Kemira made the following aqcuistions in 2006; Finncolor s.r.o. (100%), Gropa A/S
(100%), Roma 8660 Skanderborg A/S (100%),
Scandinavian Tanking System A/S (100%) and Storage and Production System A/S
(100%), Oy Galvatek Ab (100%), Bayer Agencies Paper
chemical business and the IFAC business.
In the following aqcusitions Kemira increased its previous ownership (the
percentage of voting equity instruments acquired 2006); Kemwater
de México, S.A de C.V (49%), Kemwater Närke Ab (8,33%), Kemwater ProChemie
s.r.o.(35%), TOB Tikkurila (49%), Holmbergs Färg i Skövde
Ab (9%), Kemira-Swiecie Sp.z.o.o (35%).
These business combinations are individually immaterial.
Fair Carrying
values amounts
recorded prior
on to
business business
combi- combi-
nation nation
Trademarks and trade names 1.5 0.0
Other intangible assets 3.7 0.2
Property, plant and equipment 10.2 5.5
Other investments 0.2 0.2
Inventories 10.4 8.3
Trade receivables and other receivables 11.6 11.6
Cash and cash equivalents 2.7 2.7
Total assets 40.3 28.4
Deferred tax liabilities 2.9 0.7
Long-term liabilities 2.6 3.4
Other liabilities 16.6 16.6
Total liabilities 22.1 20.8
Net assets 17.9 10.5
Cost of business combination (net) 32.6
Goodwill 14.7
Acquisition cost 32.6
Contingent purchase price -2.5
Cash and cash equivalents in subsidiary acquired -2.7
Cash outflow on acqusition 27.4
The effect of the business combinations on revenue and profit
Kemira's revenue for Jan. 1 - Dec. 31, 2006, would have been EUR 2.787 million
and operating profit EUR 218 million
if all the business combinations carried out during the period had been completed
at January 1, 2006.
For further information, please contact:
Timo Leppä, Executive Vice President, Group Communications, tel. +358 (0)10 86
21700
Päivi Antola, Investor Relations Manager, tel. +358 (0)10 86 21140
Kemira will hold a press conference on its October-December 2006 results for the
media and analysts at its head office (Porkkalankatu 3) today, starting at 10:30
a.m. A conference call in English will be held at 1:00 p.m. We kindly request
that participants call us around 10 minutes before the conference begins, on +44
(0) 20 7162 0025.
Kemira will publish its Annual Report for 2006 in week 10 and Interim Reports for
2007 on May 2, July 26, and October 31.
Kemira Oyj
Group Communications
Susanna Aaltonen
DISTRIBUTION
Helsinki Stock Exchange
Major media
Press Release on Kemira's Financial Statements for 2006: KEMIRA'S REVENUE UP 26% IN 2006
| Source: Kemira Oyj