KEMIRA'S JANUARY-JUNE EARNINGS EUR 82 MILLION - RESTRUCTURING MOVES AHEAD

Kemira's core growth areas (chemicals for the pulp and paper industry, water treatment chemicals and paints) have continued to perform well. The titanium dioxide market is also strong, but the result for phosphorus chemicals and fertilizers was weak. Despite disposals of business units, the Group's net sales grew by 4%. Income before taxes and non-recurring items for the January-June period was EUR 82 million (49 million). The Board of Directors expects that full-year net income will improve on last year's result.

The Kemira Group's net sales in the January-June period of the current year were EUR 1 341 million, up 4% on the same period a year earlier (1 292 million). Growth in ongoing operations was 9%. Consolidated operating income in the second quarter was EUR 67 million (44 million). Operating income for the January-June period was EUR 103 million, an increase of 40% on the previous year and 8% of net sales (6%). Operating income includes about EUR 8 million of extra costs resulting from the strikes that hit Finland's chemical and forest industries in March-April as well as a capital gain of about EUR 12 million on the disposal of Kemira Safety. Interests in the results of associated companies amounted to a total of EUR 1.1 million. Non-recurring items from discontinuing operations include capital gains of EUR 148 million on the divestments of the Pigments units in Savannah and Rotterdam and a provision of EUR 84 million for the closure of nitrogen fertilizer production in Rozenburg. The capital gain figures involve certain provisions the final use of which will be determined later. Income before taxes and minority interests was EUR 146 million (49 million) and income after taxes was EUR 99 million (31 million). Earnings per share without non-recurring items were EUR 0.46 (0.24). Cash flow from the sale of assets was EUR 395 million. Cash flow after capital expenditures and income from the sale of assets was EUR 435 million (38 million negative). Per-share cash flow from operations was EUR 0.85 (0.26). Equity per share was EUR 8.1 (7.5) and gearing was 47% (95% at previous year end).

The average number of the Group's employees in January-June was 9 939
(10 436 at previous year end).

RESTRUCTURING

The restructuring in line with Kemira's new strategy, which was decided last autumn, has progressed according to plans. The proportion of cyclically sensitive and capital-intensive operations was reduced by divesting the weakly profitable titanium dioxide plants in Savannah, the United States, and Rotterdam, the Netherlands. The sale price was USD 403 million. Kemira Safety, which did not belong to Kemira's core businesses, was sold for USD 17 million.

To separate the nitrogen fertilizer business from the Group, Kemira Agro has carried out internal preparations and held talks with third parties. It is believed that a solution will be worked out by the turn of the year. A decision to spin off the Tikkurila CPS unit either by divesting it or listing it on the stock exchange will probably be taken in August or September. So far disposals have generated a cash flow of EUR 395 million, which can be used to strengthen the core growth areas.

The Group's core growth areas are chemicals for the pulp and paper industry, water treatment chemicals and paints. Growth will also be sought through acquisitions. In June an agreement was signed concerning the purchase of Krems Paper Chemicals. If it goes through, the deal will increase the size of Kemira Chemicals' Pulp and Paper unit by a good 10%.

KEMIRA CHEMICALS

Kemira Chemicals' net sales grew by 6% on the previous year and were EUR 365 million. Second quarter operating income was EUR 16 million (21 million). Operating income in the January-June period was EUR 38 million (40 million), representing 10% of net sales.

The Pulp and Paper Chemicals unit's net sales grew by 9%. The pulp and paper industry's production volumes have developed favourably as the year has progressed. Over the next few years Kemira's objective is to grow into one of the world's leading suppliers of pulp and paper chemicals. Kemira Chemicals concluded an agreement with Neste Chemicals Oy on purchasing its paper chemicals business. This comprises the paper chemicals arm of Krems Chemie AG of Austria and Neste's holding in CN-Paper Chemicals. Concurrently, the hydrophobation agents business of the Finnish company Oy Chemec Ab will be acquired. The price of the acquisition will be about EUR 34 million. The company has annual net sales of EUR 35 million. These acquisitions will make Kemira the world's most integrated and versatile manufacturer of paper sizings.

The Kemwater unit's net sales rose by 8%. Operating income also improved on the previous year.

The Industrial Chemicals unit's net sales were down 7%. The markets for phosphoric acid and its value-added products as well as calcium chloride remained weak. Kemira Chemicals has started negotiations on the sale of its sodium tripolyphosphate business. Within detergent raw materials the aim is to concentrate on sodium percarbonate, an oxygen-based product that disintegrates in use without undesirable effects. Demand for the product is growing and its production will be doubled in Helsingborg, Sweden.

Kemira Fine Chemicals' sales grew by 11%. Profitability suffered owing to maintenance costs and the timing of certain deliveries.

TIKKURILA

Tikkurila's net sales rose by 11% on the previous year's figure and were EUR 196 million. Tikkurila Paints' net sales were up 8% and CPS's 28%. Tikkurila Coatings' net sales fell by 3% because Tikkurila is selling its holding in Becker Acroma and the related business in Great Britain.

Tikkurila Paints' growth came mainly in Russia, Poland and Sweden. For CPS the strongest growth in sales came from both colourants and tinting machines. Tikkurila's operating income improved significantly and was EUR 21 million (13 million), or 11% of net sales (7%). Operating income includes EUR 1.1 million of other operating income from the Coatings' arrangements in Great Britain as well as EUR 0.9 million from the disposal of the Italian company Matherson S.p.A., a previous CPS unit which manufactures colour cards.

KEMIRA AGRO

Kemira Agro's net sales were EUR 591 million, an increase of 6% on the previous year. Within the Agriculture unit the sales volume of plant nutrients grew by about 3% in western Europe. Prices of straight nitrogen products in Europe have swung to good growth from last year's level and are up by 20-50% on the prices at the end of the previous selling season. Prices of NPK compound fertilizers have also risen somewhat compared with last year. A large part of the first quarter deliveries, however, were still made at prices agreed towards the end of last year, which meant that the rise could not feed into earnings until the second quarter. The expensiveness of natural gas is also cutting into Agro's earnings, as was the prolonged shutdown at the ammonia plant in Great Britain, including related maintenance costs. Net sales of the Horticulture unit grew by about one third and Process Chemicals' net sales were at the previous year's level. Both units had good profitability. Operating income in the January-June period was EUR 11 million (7 million), or 2% of net sales. Kemira Agro has booked a total of about EUR 84 million of non-recurring expenses connected with the closure of nitrogen fertilizer production in Rozenburg.

In order to improve its position in the markets in Russia and the Baltic countries, Kemira Agro has increased its stake in the Lithuanian company UAB Kemira-Lifosa from 33% to 51%. In addition, Kemira Agro has entered into an agreement with JSC Acron of Russia concerning strategic marketing operations in the fertilizer business in the CIS countries and the Baltic Rim.

KEMIRA PIGMENTS

Kemira Pigments' net sales were down 13% on the figure a year ago, to EUR 200 million. Operating income was EUR 22 million (15 million), or 11% of net sales (7%). The average prices of titanium dioxide pigment rose by about 5% in the first half of the year compared with the same period a year ago. Sales volumes were about 20% smaller than in the same period last year because the Group divested the unit in the United States at the beginning of April and the unit in the Netherlands at the beginning of May. The divested units generated net sales in the first part of the year of EUR 97 million and posted an operating loss of EUR 4 million. The sales volumes of the remaining unit in Pori increased by 17%. Sales were brisk, especially during the second quarter. The Pori unit's average prices rose by nearly 8% compared with the corresponding period last year.

OTHER OPERATIONS

Kemira Metalkat had net sales of EUR 23 million, up 25% on the previous year. Operating income was EUR 3.4 million (2.5 million). Deliveries to Opel Corsa are about to end, causing a drop in net sales and operating income in the latter part of the year.

Kemira Safety was sold during the year and its figures are included in the consolidated accounts only up to the end of April. For this period Kemira Safety had net sales of EUR 5 million and generated operating income of EUR 0.1 million. The company was sold for about USD 17 million, resulting in a capital gain of EUR 12 million before taxes.

CAPITAL EXPENDITURES

The Group's capital expenditures on fixed assets were EUR 68 million (74 million). Income from the sale of shares and assets was EUR 395 million (2 million) and net capital expenditures amounted to a net positive cash flow of EUR 327 million (72 million). Full-year gross capital expenditures are estimated to be about EUR 200 million (168 million).

FINANCING

Net financing expenses in the January-June period were EUR 21 million (25 million). Foreign exchange losses amounted to EUR 0.9 million. Fixed-interest loans amounted to about 67% of the total amount of interest-bearing long-term loans (excluding pension loans, which are not considered to be fully fixed-interest liabilities).

Interest-bearing net debt was EUR 496 million, a decrease of EUR 438 million since the end of last year thanks to substantial capital gains on the sale of assets.

In accordance with an authorization granted by the Annual General Meeting, the company purchased its own shares during the summer in a total amount of 213 500 by 31 July at an average price of EUR 5.34 per share. In addition, the company has 1 million shares which it bought back last year.

FULL-YEAR OUTLOOK

The market outlook for Kemira Chemicals' Pulp & Paper unit is good, in step with the continuing strong demand in the pulp and paper industry. Since the acquisition of Krems Paper Chemicals will probably not be finalized during the summer, it will not have time to make a significant impact on this year's figures. Kemwater's earnings are expected to grow further. Earnings of the Industrial Chemicals unit will be burdened by the weak price level of phosphoric acid and its value-added products as well as calcium chloride. Chemicals' full-year operating income is expected to be near the previous year's level because Industrial Chemicals' weakening result will eat into the improvement which has been achieved by the Pulp & Paper unit and Kemwater.

If Tikkurila elects to sell the CPS unit, this will mean a reduction of about one third in Tikkurila's future annual net sales and a somewhat greater reduction in its operating income. Demand for paints appears good and Tikkurila's growth in Finland's nearby areas is continuing. Tikkurila's operating income is estimated to come in close to last year's even if the CPS unit were divested. Tikkurila's subsidiary OOO Kraski Tikkurila, which started up production in the Moscow vicinity in the spring, will give the company improved possibilities for expansion and boosting the efficiency of operations via local production.

Kemira Agro's preparations for peeling off its nitrogen fertilizer production are progressing and the objective is to work out a solution, by the turn of the year, for disposing of the business. Although the prices of nitrogen fertilizers in particular have swung to clear growth, the high price of natural gas raises raw material costs and eats up the benefit brought by higher selling prices. Furthermore, the repair shutdown at the ammonia plant in Great Britain which has continued on into July will cause production losses and additional expenses. Kemira Agro's full-year operating income is nevertheless expected to improve on last year's, though it may still be in the red. Over the longer term, China's membership of the WTO is expected to have a salutary effect on the fertilizer market when China - in line with its new participation in the WTO - has again begun to make purchases on the international markets. The trend is expected to remain positive in the horticultural and specialty fertilizer sector as well as within process chemicals.

The market outlook for titanium oxide pigment is good. The price level has remained strong and new price increases of 5-7% are expected to come into force in the third quarter. Although Kemira Pigments has sold off two thirds of its business, it is estimated to achieve a clearly better result than it did a year ago.

This year the Kemira Group's operating income excluding capital gains is expected to improve on last year's result. Net income will furthermore be improved by non-recurring capital gains on disposals of businesses as well as by lower net financing costs as net debt diminishes due to funds generated from the disposal of assets.

Helsinki 3 August 2000

The Board of Directors

All forecasts and estimates mentioned in this report are based on current judgement of the economic environment and the actual results may be significantly different.


The full report including tables can be downloaded from the enclosed link.