Kemira Group Interim Report, January-June 2007 KEMIRA'S REVENUE UP BY 16% IN Q2 - Revenue in April-June: EUR 753.0 million (Q2/2006: EUR 647.5 million), up 16% - Operating profit: EUR 57.6 million (EUR 51.5 million), up 12%; up 32% when excluding the effect of non-recurring items - Earnings per share: EUR 0.27 (EUR 0.26), up 4% - Full-year revenue, operating profit and earnings per share are expected to improve from their 2006 levels KEY FIGURES AND RATIOS EUR million 4-6/2007 4-6/2006 Change 1-6/2007 1-6/2006 Change 1-12/2006** % % REVENUE 753.0 647.5 16 1 426.3 1 200.4 19 2 522.5 EBITDA 89.9 81.5 10 172.5 156.4 10 317.2 EBITDA, % 11.9% 12.6% 12.1% 13.0% 12.6% OPERATING 57.6 51.5 12 106.5 97.0 10 193.7 PROFIT Operating 7.6% 8.0% 7.5% 8.1% 7.7% profit, % Operating profit, excl. non-recurring items 56.6 42.8 32 104.7 83.0 26 170.5 Financial income and expenses -12.6 -5.8 -24.8 -12.9 -37.2 PROFIT BEFORE 45.7 45.1 1 83.0 82.6 0 154.2 TAX Profit before 6.1% 7.0% 5.8% 6.9% 6.1% tax, % NET PROFIT 33.3 32.0 4 60.6 58.6 3 112.2 EPS, EUR 0.27 0.26 4 0.48 0.47 2 0.90 Capital 1,975.5 1,824.1 1,975.5 1,824.1 1,876.6 employed* ROCE, %* 10.3% 10.4% 10.3% 10.4% 10.2% Cash flow after investments, excluding acquisitions -6.4 44.0 -124.0 2.5 155.0 Personnel at 10,588 9,695 10,588 9,695 9,327 period-end * 12-month rolling average ** Prior year correction included (see page 8) REVENUE AND OPERATING PROFIT FOR APRIL-JUNE Kemira Group's revenue for April-June 2007 rose by 16% year on year, to EUR 753.0 million (Q2/2006: EUR 647.5 million). In particular, acquisitions contributed around EUR 90.4 million to revenue growth. Divestments depressed revenue by EUR 9.1 million. Organic growth was 6%, excluding the currency effect, which had a 2% negative impact on revenue. Operating profit grew by 12%, to EUR 57.6 million (51.5), with acquisitions contributing approximately EUR 4.6 million to the figure. Operating profit includes non-recurring items, with their net effect on operating profit amounting to EUR 1.0 million positive compared with EUR +8.7 million reported a year ago. Excluding the effect of non-recurring items, operating profit totaled EUR 56.6 million (42.8), or an increase of 32% year on year. Non-recurring items included in operating profit: EUR million 4-6/2007 4-6/2006 1-6/2007 1-6/2006 1-12/2006 Kemira Pulp&Paper - 3.1 1.3 7.6 11.0 Kemira Water - 0.2 - 0.2 -0.2 Kemira Specialty - 2.1 - 2.1 3.6 Kemira Coatings - 3.3 - 3.3 16.4 Other, including 1.0 - 0.5 0.8 -7.6 eliminations Total 1.0 8.7 1.8 14.0 23.2 Profit before tax came to EUR 45.7 million (45.1) and net profit totaled EUR 33.3 million (32.0). REVENUE AND OPERATING PROFIT FOR JANUARY-JUNE In January-June 2007, Kemira Group's revenue rose by 19% year on year, to EUR 1,426.3 million (1,200.4). Acquisitions contributed around EUR 219.4 million to revenue growth, while divestments depressed revenue by EUR 17.4 million. Organic growth was 4%, excluding the currency effect, which had a 2% negative impact on revenue. Operating profit grew by 10%, to EUR 106.5 million (97.0). Operating profit for January-June includes non-recurring income, with their net effect on operating profit amounting to EUR 1.8 million, compared with non-recurring income of EUR 14.0 million reported a year ago. Excluding the effect of non-recurring items, operating profit totaled EUR 104.7 million (83.0), or an increase of 26% year on year. During the current year, the Group has particularly invested in the development of purchasing and logistics processes and IT services. The costs due to these investments are included in other operations. Earnings per share for January-June were EUR 0.48 (0.47). RESEARCH AND DEVELOPMENT In January-June, reported research and development expenditure totaled EUR 25.7 million (26.1), accounting for 1.8% of revenue (2.2%). CAPITAL EXPENDITURE Gross capital expenditure, excluding acquisitions, amounted to EUR 121.1 million (59.6) in January-June. The largest ongoing investments involve a chemical plant under construction at the site of the Botnia pulp mill in Uruguay (EUR 23.0 million) and a paint factory under construction in the Stockholm area (EUR 8.5 million). Maintenance investments represented around 28% of capital expenditure, excluding acquisitions. In the January-June period, Group depreciation came to EUR 66.0 million (59.4). Gross capital expenditure, including acquisitions worth EUR 44.6 million (102.2), totaled EUR 165.7 million (161.8). FINANCIAL POSITION AND CASH FLOWS In January-June, the Group reported positive cash flows of EUR 23.1 million from operating activities (EUR 28.3 million). The Group generated negative net cash flows of EUR 191.7 million from investing activities, of which acquisitions accounted for an outflow of EUR 44.6 million. Kemira showed a free cash flow of EUR -168.6 million (EUR -99.7 million). In April, Kemira Oyj paid out EUR 58.2 million in dividends to its shareholders. On June 30, 2007, the Group's net liabilities stood at EUR 1,067.4 million (December 31, 2006, EUR 827.4 million), this growth being primarily due to a seasonal increase in working capital and acquisitions carried out during the period. At the period-end, interest-bearing liabilities stood at EUR 1,129.6 million. The duration of the Group's interest-bearing loan portfolio on June 30, 2007, was 13 months (December 31, 2006, 16 months). At the end of June, the equity ratio stood at 37% (December 31, 2006: 39%), while gearing was 98% (December 31, 2006: 76%). In the January-June period, net financial expenses increased to EUR 24.8 million (12.9), due mainly to higher interest bearing debt. Cash and cash equivalents on June 30, 2007, totaled EUR 62.2 million (June 30, 2006: EUR 110.2 million). In July, Kemira signed a 5-year bilateral bank credit agreement of USD 68 million. The loan is used in general financing needs of the Kemira Group. In October 2006, Kemira signed a credit facility worth EUR 80 million, enabling six Group companies to sell certain account receivables to the finance company. The related credit risk transfers to the finance company and the receivables are derecognized from the Group companies' balance sheets. The amount of outstanding sold receivables on June 30, 2007, was EUR 47.9 million (December 31, 2006: EUR 15.7 million). The Group's most important exchange rate risk arises from the USD denominated exports from the euro area. Approximately 60% of the exchange rate risk, equivalent to EUR 50 million, due to exposure to US dollar, was hedged. In addition, the company is exposed to USD risk when USD denominated items are converted into euro in the financial statements. Revenue for the companies located in the United States accounted for 18% of the Group's revenue. HUMAN RESOURCES The number of Group employees totaled 10,588 on June 30 (December 31, 2006: 9,327). KEMIRA PULP&PAPER Kemira Pulp&Paper is the world's leading supplier of pulp and paper chemicals, its extensive solutions spanning the pulp and paper industry's value chain from pulp to paper coating. EUR million 4-6/2007 4-6/2006 Change 1-6/2007 1-6/2006 Change 1-12/2006 % % REVENUE 260.1 257.9 1 515.4 467.4 10 993.3 EBITDA 34.9 31.9 9 70.4 68.9 2 137.1 EBITDA, % 13.4% 12.4% 13.7% 14.7% 13.8% OPERATING 23.4 20.4 15 46.4 46.4 0 90.8 PROFIT Operating 9.0% 7.9% 9.0% 9.9% 9.1% profit, % Operating profit, excl. non-recurring items 23.4 17.3 35 45.1 38.8 16 79.8 Capital 813.4 806.9 813.4 806.9 819.5 employed* ROCE, %* 11.2% 11.1% 11.2% 11.1% 11.0% Capital expenditure, excluding acquisitions 20.8 17.4 43.1 32.0 77.6 Cash flow after investments, excluding acquisitions -11.1 15.5 -18.8 21.1 65.1 Personnel at 2,401 2,405 2,401 2,405 2,304 period-end * 12-month rolling average In April-June, Kemira Pulp&Paper reported year-on-year revenue growth of 1%, totaling EUR 260.1 million (257.9). Organic growth stood at 7%, excluding the currency effect, which had a 4% negative impact on revenue. Operating profit was also lowered by the Korean hydrogen peroxide business, divested in 2006. Operating profit for the period grew by 15%, to EUR 23.4 million (EUR 20.4 million, including EUR 3.1 million in non-recurring income). Excluding the effect of non-recurring items, operating profit increased by 35% year on year. Operating profit was improved by the moderate development of raw material prices, efficient cost management and healthy demand particularly for pulp chemicals. In addition, the integration of acquired companies continued to progress according to plan. In June, Kemira announced an intent to increase the production of calcium sulfate pigment, used as paper pigment, at Siilinjärvi by 25,000 tons to 175,000 tons. The value of the investment amounts to EUR 4.9 million. Kemira's paper pigment production plants are located in Siilinjärvi, Finland, and in Besalu, Spain. The calcium sulfate technology has been developed and productized by Kemira in cooperation with the Finnish forest industry and forest research communities. Calcium sulfate pigment is used as filler and coating pigment for paper and cardboard. In January-June, Kemira Pulp&Paper's revenue grew by 10%, to EUR 515.4 million (467.4), due largely to the acquisition of the Lanxess paper chemicals business in April 2006. Organic growth stood at 5%, excluding the currency effect, which had a 3% negative impact on revenue. Reported operating profit for January-June 2007 was EUR 46.4 million (46.4), including EUR 1.3 million (7.6) in non-recurring income. Excluding the effect of non-recurring items, operating profit totaled EUR 45.1 million (38.8), or an increase of 16% year on year. 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 4-6/2007 4-6/2006 Change 1-6/2007 1-6/2006 Change 1-12/2006 % % REVENUE 185.1 102.1 81 355.1 194.4 83 467.6 EBITDA 20.0 13.5 48 38.8 23.8 63 53.4 EBITDA, % 10.8% 13.2% 10.9% 12.2% 11.4% OPERATING 13.0 9.6 35 24.9 16.0 56 35.3 PROFIT Operating 7.0% 9.4% 7.0% 8.2% 7.5% profit, % Operating profit, excl. non-recurring items 13.0 9.4 38 24.9 15.8 58 35.5 Capital 371.0 229.4 371.0 229.4 269.2 employed* ROCE, %* 12.1% 13.9% 12.1% 13.9% 13.4% Capital expenditure, excluding acquisitions 11.1 4.2 18.8 7.0 19.4 Cash flow after investments, excluding acquisitions 16.2 3.1 5.7 1.0 26.7 Personnel at 2,235 1,499 2,235 1,499 1,846 period-end * 12-month rolling average In April-June, Kemira Water's revenue improved by 81%, to EUR 185.1 million (102.1), due to the acquisition of Cytec, Galvatek, and Parcon in October 2006. Organic growth stood at 2%, excluding the currency effect, which had a 1% negative impact on revenue. During the April-June period, operating profit grew by 35%, to EUR 13.0 million (9.6), due to company acquisitions in particular. In April, Kemira bought an 80% shareholding in Chongqing Lanjie Tap Water Materials Co., Ltd. The company is a producer of inorganic coagulants and organic polymers for water treatment in the municipality of Chongqing located in central China. Its main client base is in the local potable water production. The company's current revenue, in the range of EUR two million annually, is expected to grow rapidly in the years to come. Acquisition of two companies owned by the Brazilian company Dalquim Industria e Comercio Ltda was completed in April. With combined annual revenue of around EUR 12 million, these companies manufacture inorganic water-treatment coagulants and their main customers include the paper industry and municipalities. In addition to serving the paper industry's growing needs, the acquirees focus on the treatment of municipal drinking and wastewater in the southern states of Brazil. The acquisition bolsters Kemira's goal of intensifying mutual synergy and strengthening its position as the world's leading supplier of pulp, paper and water treatment chemicals in the emerging market. In January-June, Kemira Water reported year-on-year revenue growth of 83%, to EUR 355.1 million (194.4). Organic growth stood at 4%, excluding the currency effect, which had a 3% negative impact on revenue. Operating profit grew by 56%, to EUR 24.9 million (EUR 16.0 million, including EUR 0.2 million in non-recurring income). 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 4-6/2007 4-6/2006 Change 1-6/2007 1-6/2006 Change 1-12/2006 % % REVENUE 110.6 107.6 3 214.1 226.2 -5 456.2 EBITDA 14.9 19.4 -23 33.0 38.4 -14 77.0 EBITDA, % 13.5% 18.0% 15.4% 17.0% 16.9% OPERATING 7.1 11.7 -39 17.4 23.0 -24 45.8 PROFIT Operating 6.4% 10.9% 8.1% 10.2% 10.0% profit, % Operating profit, excl. non-recurring items 7.1 9.6 -26 17.4 20.9 -17 42.2 Capital 443.8 456.1 443.8 456.1 451.6 employed* ROCE, %* 9.1% 11.2% 9.1% 11.2% 10.1% Capital expenditure, excluding acquisitions 15.1 5.5 24.6 10.3 30.8 Cash flow after investments, excluding acquisitions -16,9 4.7 -24.4 20.0 53.6 Personnel at 1,182 1,185 1,182 1,185 1,011 period-end * 12-month rolling average In April-June, Kemira Specialty's revenue improved by 3%, to EUR 110.6 million (107.6). Organic growth stood at 2%, excluding the currency effect, which had a 3% negative impact on revenue. Competition in the titanium dioxide market remained fierce and the average sales price for titanium dioxide was lower than in the previous year. Due to the development of the US housing market, American companies have increased the export of titanium dioxide to Europe, which has increased the price competition. In addition the development of the US dollar has improved the competitive position of American companies in Europe. The operating profit in April-June came to EUR 7.1 million (EUR 11.7 million, including EUR 2.1 million in non-recurring income), chiefly due to lower titanium dioxide sales prices. Excluding the effects of non-recurring items, operating profit decreased by 26%. In May, Kemira announced the initiation of a process to evaluate ownership alternatives for its business units Pigments and Chemidet. This process is estimated to conclude by year end 2007. The ChemSolutions business unit became part of Kemira's Pulp&Paper business on July 1, 2007, and it will continue its current operations in line with its recently outlined customer segment strategy. The Kemira Specialty business area will cease to exist if Pigments' and Chemidet's ownership changes. Kemira Pigments produces titanium dioxide in Pori, Finland, and operates a technology center in Germany and a cosmetics markets company called TRI-K Industries in the Unites States, acquired in April to expand the company's cosmetics business, especially in the field of skin care and hair care. Kemira Pigments focuses on high value-added, high growth markets such as the flexible packaging and cosmetics industries, where it holds leading market positions. Pigments' revenue in 2006 totaled EUR 230 million. Chemidet produces sodium percarbonate for the detergent industry, in Helsingborg, Sweden, its revenue in 2006 being EUR 54 million. ChemSolutions specializes in organic acids and acid derivatives for demanding customer applications, and reported revenue of EUR 170 million in 2006. In July, Kemira announced it would increase its production capacity of calcium propionate used for feed and food industries by establishing a production site in China. The site's production capacity will be 15 000 tons, and it will be ready by year end 2008 at Kemira's site in Yixing, East China. The investment also includes production capacity for feed additives mixtures. Establishment of the production facility strengthens Kemira's position as the leading producer of calcium propionate, and creates the basis for developing Kemira's market position as the leading solutions provider for the feed and food industries. In January-June, Kemira Specialty's revenue fell by 5%, to EUR 214.1 million (226.2). Operating profit stood at EUR 17.4 million (EUR 23.0 million, including EUR 2.1 million in non-recurring income). Without the effect of non-recurring items, operating profit declined by 17%. 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 4-6/2007 4-6/2006 Change 1-6/2007 1-6/2006 Change 1-12/2006 % % REVENUE 188.7 170.3 11 324.5 288.9 12 562.8 EBITDA 31.4 29.6 6 48.5 42.8 13 88.9 EBITDA, % 16.6% 17.4% 14.9% 14.8% 15.8% OPERATING 27.3 25.0 9 40.1 34.6 16 72.1 PROFIT Operating 14.5% 14.7% 12.4% 12.0% 12.8% profit, % Operating profit, excl. non-recurring items 27.3 21.7 26 40.1 31.3 28 55.7 Capital 312.0 296.6 312.0 296.6 310.5 employed* ROCE, %* 25.4% 21.3% 25.4% 21.3% 23.7% Capital expenditure, excluding acquisitions 12.4 3.5 22.2 7.3 22.5 Cash flow after investments, excluding acquisitions 15.8 15.7 -23.9 -16.2 71.2 Personnel at 4,218 3,868 4,218 3,868 3,494 period-end * 12-month rolling average In April-June, Kemira Coatings increased its revenue by 11% year on year, to EUR 188.7 million (170.3). Organic growth stood at 9%. Operating profit for April-June grew by 9%, to EUR 27.3 million (EUR 25.0 million, including EUR 3.3 million in non-recurring income). Excluding the effect of non-recurring items, operating profit increased by 26% year on year. The rise in operating profit was due to favorable sales performance in all market areas and efficient cost management. April saw the completion of the acquisition of two Russian industrial coatings companies. Accordingly, Tikkurila bought 70% holdings in OOO"Gamma" and OOO "Ohtinski zavod poroshkovyh krasok" based in St Petersburg. With revenue of roughly EUR 8 million and a staff of 100, Gamma is a major manufacturer of metal-industry coatings in Russia. Ohtinski zavod poroshkovyh krasok, a manufacturer and marketer of powder coatings, has revenue of approximately EUR 3 million and personnel of 50. This acquisition will strengthen Kemira's position in the Russian metal-industry coatings market. In May, Kemira Coatings established a new sales company in China. Tikkurila (Beijing) Paints Co., Ltd began its operations on May 22, 2007, in Beijing. At the same time, Tikkurila acquired the sales company CEIEC-Feelings operating in China. CEIEC-Feelings' business operations and the staff of 50 persons are transferred to the new company. CEIEC-Feelings has been operating since 2002 as the importer of Tikkurila's decorative paints in China. Revenue for 2007 is estimated at approximately EUR 2 million. The completed acquisition targets at consolidating a basis for a powerful development of Kemira's market position in the rapidly growing decorative paints market in China. In January-June, Kemira Coatings' revenue went up by 12%, to EUR 324.5 million (288.9), with organic growth at 10%. In addition, revenue was boosted by the acquisition in February 2006 of Kraski Teks and the acquisition in April of two Russian industrial coating companies. Operating profit stood at EUR 40.1 million (EUR 34.6 million, including EUR 3.3 million in non-recurring income). Excluding the effect of non-recurring items, operating profit increased by 28% year on year. OTHER OPERATIONS 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. During the current year, the Group is particularly investing in harmonizing and enhancing its purchasing and logistics processes and IT services. Investments of several million euro aim at generating cost savings in the forthcoming years as well as increasing the agility and flexibility to respond to the changes in the business environment. Other operations also include the water-soluble fertilizers unit, which is not part of Kemira's core business operations. In February, Kemira sold its shareholding (50%) in Kemira Arab Potash Company Ltd (Kemapco), part of Water Soluble, to Arab Potash Company Ltd (APC). Kemira will continue selling potassium nitrate, produced by the Jordanian plant, for a one-year transition period. During the first quarter of the current year, an error was found and reported in the calculation of the provision recognized in 2006 due to the closure of the Water Soluble unit. This prior year's error was corrected retrospectively in the last quarter figures of 2006 in accordance with IAS 8. The provision was increased by EUR 8 million, decreasing the result for the last quarter by the same amount. The financial statement section in this interim report provides more detailed information on the correction of this error. KEMIRA OYJ SHARES AND SHAREHOLDERS During January-June, Kemira Oyj shares registered a high of EUR 19.20 and a low of EUR 15.26, the share price averaging EUR 17.07. On June 30, 2007, the company's market capitalization, excluding treasury shares, totaled EUR 2,133 million. On June 30, 2007, the company's share capital totaled EUR 221.8 million and the number of registered shares 125,045,000. The April-June period saw subscription of 43,690 new shares using warrants under the 2001 stock option program. The resulting share capital increase, EUR 77,482.27, was registered in the Trade Register on June 27, 2007, with trading with new shares beginning on June 28, 2007. As the 2001 stock option program ended in May, no more outstanding warrants exist for share subscription. Kemira holds 3,850,868 treasury shares, accounting for 3.1% of outstanding company shares and voting rights. OUTLOOK Full-year revenue, operating profit and earnings per share for 2007 are expected to increase from their 2006 levels. Raw material and energy prices, as well as transportation costs, are projected to behave more moderately than in 2006. Operational risks were presented in the Annual Report and no significant changes have occurred. Since the production-capacity utilization rates of Kemira Pulp&Paper's customers are expected to be high, the business area's revenue and operating profit are anticipated to grow from the previous year's levels. Kemira has successfully integrated companies acquired in 2006 as part of the Group's global pulp and paper chemicals operations, and their favorable contribution to profit performance will be reflected in the growing Far Eastern and South American markets. A chemical plant under construction at the site of a pulp mill in Uruguay will be phased in as the customer's pulp production begins during the second half of 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 the integration of acquirees in particular. Kemira Specialty's revenue and operating profit are anticipated to remain lower than their 2006 levels. Competition is expected to remain tough in the titanium dioxide market. The sales forecast for the remainder of the year is based on stable volumes versus 2006, but continuing negative impact on sales revenue from currency and USD based European imports. The business area's sales of organic acids and acid derivatives are anticipated to continue favorably in most of the areas. Sales revenue of sodium percarbonate, used in detergents, are forecasted to be slightly lower than prior year, with stable volumes and slightly lower prices. Process on the evaluation of various ownership alternatives for Pigments and Chemidet is expected to conclude during 2007. If the evaluations progress as anticipated, these businesses will be reported as discontinued businesses as of the third quarter. The ChemSolutions business unit became part of Kemira's Pulp&Paper business on July 1, 2007, and, as of the third quarter, it will be reported as such. Kemira Coatings is expected to generate higher revenue due to demand remaining at a good level in all its 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, July 26, 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 such statements contain. 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 Statement has been prepared in compliance with IAS 34. Kemira Group has corrected a previous year error in accordance with IAS 8. The nature of the error is described in the end of the report. Changes to the accounting policies as of January 1, 2007: - IFRS 7 (Financial Instruments: Disclosures) has been adopted by the Group in 2007 - Revised IAS 1 (Disclosures about capital) has been adopted by the Group in 2007 The Group assesses that the adoption of the revised standards will not have any material effect on its future financial statements. However, the resulting changes will add disclosures to the Financial Statements. INCOME STATEMENT 4-6/2007 4-6/2006 1-6/2007 1-6/2006 2006* EUR million Revenue 753.0 647.5 1,426.3 1,200.4 2,522.5 Other income from operations 5.9 13.7 12.7 21.5 59.2 Expenses -669.1 -579.7 -1,266.5 -1,065.5 -2,264.5 Depreciation -32.3 -30.0 -66.0 -59.4 -123.5 Operating profit 57.6 51.5 106.5 97.0 193.7 Financial income and expenses -12.6 -5.8 -24.8 -12.9 -37.2 Income from associates 0.7 -0.6 1.3 -1.5 -2.3 Profit before tax 45.7 45.1 83.0 82.6 154.2 Income tax -12.4 -13.1 -22.4 -24.0 -42.0 Net profit for the period 33.3 32.0 60.6 58.6 112.2 Attributable to: Equity holders of the 32.3 31.0 58.7 56.8 108.6 parent Minority interest 1.0 1.0 1.9 1.8 3.6 Net profit for the period 33.3 32.0 60.6 58.6 112.2 BALANCE SHEET EUR million ASSETS 30.6.2007 31.12.2006* Non-current assets Goodwill 629.2 581.0 Other intangible assets 117.8 108.9 Property, plant and equipment 1,008.1 987.1 Holdings in associates 8.2 8.1 Available-for-sale investments 85.3 84.3 Deferred tax assets 7.6 7.7 Defined benefit pension receivables 24.9 24.6 Other investments 9.4 9.5 Total non-current assets 1,890.5 1,811.2 Current assets Inventories 303.2 293.2 Receivables Interest-bearing receivables 2.7 9.1 Interest-free receivables 679.6 565.4 Total receivables 682.3 574.5 Money market investments - cash equivalents 26.9 35.0 Bank and cash 35.3 41.1 Total current assets 1,047.7 943.8 Non-current assets held for sale 1.9 14.4 Total assets 2,940.1 2,769.4 EQUITY AND LIABILITIES 30.6.2007 31.12.2006* Equity attributable to equity holders of the parent 1,073.0 1,069.9 Minority interest 13.1 12.6 Total equity 1,086.1 1,082.5 Non-current liabilities Interest-bearing non-current 588.8 395.1 liabilities Deferred tax liabilities 114.3 105.9 Pension liabilities 67.1 66.8 Provisions 23.9 63.3 Total non-current liabilities 794.1 631.1 Current liabilities Interest-bearing current liabilities 540.8 508.5 Interest-free current liabilities 506.0 522.9 Provisions 13.1 15.5 Total current liabilities 1,059.9 1,046.9 Liabilities directly associated with non-current assets classified as held for sale 8.9 Total liabilities 1,854.0 1,686.9 Total equity and liabilities 2,940.1 2,769.4 Non-current assets held for sale include US- and Canada-based factory sites. * Prior year correction included CONSOLIDATED CASH FLOW STATEMENT 1-6/2007 1-6/2006 2006 EUR million Cash flows from operating activities Adjusted operating profit 166.1 138.9 232.0 Interests -15.1 -15.2 -30.4 Dividend income 0.1 1.8 2.0 Other financing items 0.5 -1.3 Income taxes paid -19.5 -17.9 -45.1 Total funds from operations 131.6 108.1 157.2 Change in net working -108.5 -79.8 59.6 capital Total cash flows from operating 23.1 28.3 216.8 activities Cash flows from investing activities Capital expenditure -165.7 -161.8 -462.0 Proceeds from sale of -26.0 33.8 102.9 assets Net cash used in -191.7 -128.0 -359.1 investing activities Cash flow after investing -168.6 -99.7 -142.3 activities Cash flows from financing activities Change in long-term loans (increase +, decrease -6.7 43.8 173.4 -) Change in long-term loan receivables (decrease +, increase 0.7 0.7 1.5 -) Short-term financing, net (increase +, decrease 216.5 139.6 33.8 -) Dividends paid -59.9 -45.1 -46.3 Other 4.0 14.7 -0.2 Net cash used in financing 154.6 153.7 162.2 activities Net change in cash and cash equivalents -14.0 54.0 19.9 Cash and cash equivalents at end of 62.2 110.3 76.2 period Cash and cash equivalents at beginning of period 76.2 56.3 56.3 Net change in cash and cash equivalents -14.0 54.0 19.9 4-6/2007 4-6/2006 Cash flows from operating activities Adjusted operating profit 84.5 79.4 Interests -9.5 -9.1 Dividend income 0.1 0.9 Other financing items -1.1 Income taxes paid -11.7 -7.3 Total funds from operations 63.4 62.8 Change in net working -10.3 -14.2 capital Total cash flows from operating 53.1 48.6 activities Cash flows from investing activities Capital expenditure -87.4 -104.3 Proceeds from sale of 6.5 27.8 assets Net cash used in -80.9 -76.5 investing activities Cash flow after investing -27.8 -27.9 activities Cash flows from financing activities Change in long-term loans (increase +, decrease -125.6 -4.3 -) Change in long-term loan receivables (decrease +, increase -0.7 -) Short-term financing, net (increase +, decrease 216.5 65.5 -) Dividends paid -59.9 -45.1 Other 3.2 14.1 Net cash used in financing 33.5 30.2 activities Net change in cash and cash equivalents 5.7 2.3 Cash and cash equivalents at end of 62.2 110.3 period Cash and cash equivalents at beginning of period 56.5 108.0 Net change in cash and cash equivalents 5.7 2.3 STATEMENT OF CHANGES IN EQUITY Capital paid-in in Share Share excess of Other Fair value capital issue par value reserves reserve 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 0.2 0.1 for shares Exchange differences Hedge of net investments in foreign entities Cash flow hedging: amount entered in shareholders' 10.7 equity Acquired minority interest Transfer between restricted and non-restricted equity 0.3 Other changes Shareholders' equity at June 30, 2006 221.5 0.1 257.8 3.1 75.0 Shareholders' equity at January 1, 2007 221.6 0.0 257.9 3.1 59.6 Net profit for the financial year Dividends paid Treasury shares issued to target group Share-based compensation Options subscribed 0.2 for shares Exchange differences 0.1 Hedge of net investments in foreign entities Cash flow hedging: amount entered in shareholders' -0.3 equity Acquired minority interest Transfer between restricted and non-restricted equity Other changes 0.3 Shareholders' equity at June 30, 2007 221.8 0.0 257.9 3.5 59.3 Exchange Treasury Retained Minority differences shares earnings interests Total Shareholders' equity at January 1, 2006 -33.9 -27.5 520.7 13.7 1,019.2 Net profit for the 56.8 1.8 58.6 financial year Dividends paid -43.5 -1.5 -45.0 Treasury shares issued to target group 0.7 -0.7 0.0 Share-based compensation 0.6 0.6 Options subscribed 0.3 for shares Exchange differences -3.8 -0.1 -3.9 Hedge of net investments in foreign entities 3.8 3.8 Cash flow hedging: amount entered in shareholders' 10.7 equity Acquired minority interest -0.5 -0.5 Transfer between restricted and non-restricted equity -0.3 0.0 Other changes -0.8 -0.1 -0.9 Shareholders' equity at June 30, 2006 -33.9 -26.8 532.8 13.3 1,042.9 Shareholders' equity at January 1, 2007 -30.8 -26.8 585.3 12.6 1082.5 Net profit for the 58.7 1.9 60.6 financial year Dividends paid -58.2 -1.7 -59.9 Treasury shares issued to target group 0.9 -0.9 0.0 Share-based compensation 0.8 0.8 Options subscribed 0.2 for shares Exchange differences -1.6 0.2 -1.3 Hedge of net investments in foreign entities 2.8 2.8 Cash flow hedging: amount entered in shareholders' -0.3 equity Acquired minority interest 0.2 0.2 Transfer between restricted and non-restricted equity 0.0 Other changes 0.4 -0.1 0.6 Shareholders' equity at June 30, 2007 -29.6 -25.9 586.1 13.1 1,086.2 At the end of the year 2006 there were 3,979,670 treasury shares. Of the shares that were granted in connection with the share-based incentive plan 15,341 were returned to Kemira in 2007. A total of 144,143 shares were issued to key persons based on the incentive plan on February 23, 2007. The total equivalent book value of the shares issued amounted to approx. EUR 255,133. The issue does not materially affect the distribution of ownership and voting power in the company. Kemira had in its possession 3,850,868 of its treasury shares at June 30, 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 1-6/2007 1-6/2006 2006* Earnings per share, basic and 0.48 0.47 0.90 diluted, EUR Cash flow from operations per 0.19 0.23 1.79 share, EUR Capital expenditure, 165.7 161.8 462.0 EUR million Capital expenditure / 11.6 13.5 18.3 revenue, % Average number of shares 121,136 120,817 120,877 (1000), basic *) Average number of shares 121,195 121,030 121,051 (1000), diluted *) Number of shares at the end of the period (1000), basic *) 121,194 120,911 120,988 Number of shares at the end of the period (1000), diluted *) 121,194 121,040 121,204 Equity per share, attributable to equity holders of the 8.86 8.52 8.85 parent, EUR Equity ratio, % 37.1 39.7 39.2 Gearing, % 98.3 73.9 76.4 Net liabilities, EUR 1,067.4 770.2 827.4 million Personnel (average) 9,826 8,949 9,186 4-6/2007 4-6/2006 Earnings per share, basic and 0.27 0.26 diluted, EUR Cash flow from operations per 0.44 0.40 share, EUR Capital expenditure, 87.4 104.3 EUR million Capital expenditure / 11.6 16.1 revenue, % Average number of shares 121,180 120,876 (1000), basic *) Average number of shares 121,195 121,032 (1000), diluted *) Number of shares at the end of the period (1000), basic *) 121,194 120,911 Number of shares at the end of the period (1000), diluted *) 121,194 121,040 *) Number of shares outstanding, adjusted by the number of shares bought back. REVENUE BY BUSINESS 4-6/2007 4-6/2006 1-6/2007 1-6/2006 2006* AREA EUR million Kemira Pulp&Paper 260.1 257.9 515.4 467.4 993.3 Kemira Water 185.1 102.1 355.1 194.4 467.6 Kemira Specialty 110.6 107.6 214.1 226.2 456.2 Kemira Coatings 188.7 170.3 324.5 288.9 562.8 Other and Intra-Group 8.5 9.6 17.2 23.5 42.6 sales Total Group 753.0 647.5 1,426.3 1,200.4 2,522.5 OPERATING PROFIT BY 4-6/2007 4-6/2006 1-6/2007 1-6/2006 2006* BUSINESS AREA Kemira Pulp&Paper 23.4 20.4 46.4 46.4 90.8 Kemira Water 13.0 9.6 24.9 16.0 35.3 Kemira Specialty 7.1 11.7 17.4 23.0 45.8 Kemira Coatings 27.3 25.0 40.1 34.6 72.1 Other and -13.2 -15.2 -22.3 -23.0 -50.3 eliminations Total Group 57.6 51.5 106.5 97.0 193.7 CHANGES IN PROPERTY, PLANT AND 1-6/2007 1-6/2006 2006 EQUIPMENT EUR million Carrying amount at 987.1 865.0 865.0 beginning of year Acquisitions of -14.4 27.1 151.9 subsidiaries Increases 105.3 61.1 154.4 Decreases -3.1 -3.0 -42.0 Depreciation and -55.7 -51.4 -106.3 impairments Exchange rate differences and -11.1 -57.6 -35.9 other changes Net carrying amount 1,008.1 841.2 987.1 at end of period CHANGES IN INTANGIBLE ASSETS 1-6/2007 1-6/2006 2006 EUR million Carrying amount at 689.9 629.7 629.7 beginning of year Acquisitions of 42.2 39.5 71.8 subsidiaries Increases 14.7 6.1 18.1 Decreases -0.3 0.0 -0.4 Depreciation and -10.3 -8.0 -17.2 impairments Exchange rate differences and 10.8 -9.2 -12.1 other changes Net carrying amount 747.0 658.1 689.9 at end of period CONTINGENT 30.6.2007 31.12.2006 LIABILITIES EUR million Mortgages 61.5 64.8 Assets pledged On behalf of own 17.6 19.5 commitments Guarantees On behalf of own 12.2 6.4 commitments On behalf of 34.3 32.6 associates On behalf of others 3.4 1.4 Operating leasing liabilities Maturity within one 14.4 14.9 year Maturity after one 113.5 118.1 year Other obligations On behalf of own 0.3 0.4 commitments On behalf of 2.3 2.3 associates Major off-balance sheet investment commitments Major amounts of contractual commitments for the acquisition of property, plant and equipment on June 30, 2007 were EUR 33 million for the construction of the chemical plant in Uruguay and EUR 13 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. 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. 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 by direct and indirect purchasers of hydrogen peroxide and persalts in US federal and 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. 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. RELATED PARTY Related party transactions have not changed materially after annual closing 2006. DERIVATIVE INSTRUMENTS EUR million 30.6.2007 31.12.2006 Nominal Nominal value Fair value value Fair value Currency instruments Forward contracts 327.8 3.2 389.4 5.5 of which hedges of net investment in a foreign 19.6 2.2 operation Currency options Bought 37.4 -0.1 42.8 Sold 39.5 0.1 45.3 0.2 Currency swaps 150.0 5.4 115.9 8.4 Interest rate instruments Interest rate swaps 117.6 5.7 109.2 4.7 of which cash flow 92.8 5.2 83.8 4.2 hedge Interest rate options Bought Sold Bond futures 10.0 10.0 -0.2 of which open 10.0 10.0 -0.2 Other instuments Fair value Fair value Electricity forward contracts GWh 924.2 8.9 GWh 1,227.0 10.4 of which cash flow hedge GWh 924.2 8.9 GWh 1,227.0 10.4 Propane swap contracts Tons Tons 1,000.0 -0.1 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. BUSINESS COMBINATIONS 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 the Group to significantly broaden its 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 is approx. EUR 197 million but the amount is subject to the adjustment of net working capital. Capitalized acquisition costs directly attributed to the combination were 3.2 million June 30, 2007. The acquisition was financed with Kemira Group's own cash assets and through existing financing agreements. In addition to the purchase of the business (asset purchase agreement) which was closed October 1, 2006, Kemira signed a share purchase agreement to buy the shares of Cytec Manufacturing BV. The closing and payment of the share purchase was on January 11, 2007. Kemira has also signed transition service agreements with nine Cytec companies 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 and paid gradually starting on July 1 and ending on September 1, 2007. The control over the whole Cytec water treatment business was transferred to Kemira on October 1, 2006. The purchase price allocation of the Cytec water treatment business has been made for the June 30, 2007 financial statements. The fair values of the business combination's intangible assets consist of global patents, customer related assets and manufacturing knowhow. Business combination has been done preliminarily since the business transfers of the Overseas units are still on-going according to the plan. Carrying Fair values amounts recorded on prior business to business combination combination Intangible assets 15.5 Property, plant and 91.0 54.7 equipment Inventories 35.0 33.3 Trade receivables and 34.9 34.9 other receivables Cash and cash 0.3 0.3 equivalents Total assets 176.7 123.2 Interest bearing current liabilities Other liabilities 12.9 12.8 Deferred tax liabilities 1.8 Total liabilities 14.7 12.8 Net assets 162.0 110.4 Cost of business 197.3 combination (net) Goodwill 35.3 Acquisition cost 197.3 Overseas units -12.5 Cash and cash equivalents -0.3 in subsidiary acquired Cash outflow on 184.5 acquisition The revenue of the acquired unit for January 1 - June 30, 2007 totaled EUR 143.9 million and operating profit EUR 5.5 million. DEFINITIONS OF KEY FIGURES Earnings per share Equity ratio, %: (EPS): Net profit attributable to Shareholders' equity x 100 / equity holders of the parent / Total assets - prepayments Average number of shares received Cash flow from Gearing, %: operations: Cash flow from operations, Interest-bearing net liabilities x 100 after / change in net working Shareholders' equity capital and before investing activities Cash flow from operations Net liabilities: per share: Cash flow from operations Liabilities - bank and cash - / Average number of shares money market investments Equity per share: Return on capital employed Equity attributable to (ROCE), %: equity holders of the parent at Operating profit + share end of quarter / of associates' Number of shares at results x 100 / end of quarter (Net working capital + property, plant and equipment available for use + intangible assets + investments in associates) *) *) Average PRIOR PERIOD ERROR An error was discovered related to the financial statements of 2006 and has been corrected retrospectively according to IAS 8. The error was related to the calculation of the provision made for the closure of the Water Soluble business unit and as a result of this the provision was reported 8 million euro too low. This has been corrected to the fourth quarter result of 2006. The income statement of full year 2006 and the balance sheet at December 31, 2006 were changed as follows: INCOME STATEMENT Reported Corrected EUR million 2006 2 006 Revenue 2,522.5 2,522.5 Other income from 59.2 59.2 operations Expenses -2,256.5 -2,264.5 Depreciation -123.5 -123.5 Operating profit 201.7 193.7 Financial income and -37.2 -37.2 expenses Income from associates -2.3 -2.3 Profit before tax 162.2 154.2 Income tax -42.0 -42.0 Net profit for the 120.2 112.2 period Attributable to: Equity holders of the 116.6 108.6 parent Minority interest 3.6 3.6 Net profit for the 120.2 112.2 period KEY FIGURES Reported Corrected 2006 2 006 Earnings per share, basic and diluted, EUR 0.96 0.90 BALANCE SHEET Reported Corrected EUR million ######## 31.12.2006 Equity attributable to equity holders of the parent 1,077.9 1,069.9 Total equity 1,090.5 1,082.5 Provisions 55.3 63.3 Total non-current 623.1 631.1 liabilities Retrospective restated quarterly figures are presented as appendix to this interim report. QUARTERLY EARNINGS PERFORMANCE 2006 (Unaudited figures) 1-3 4-6 7-9 10-12 Total Revenue Kemira Pulp&Paper 209.5 257.9 261.9 264.0 993.3 Kemira Water 92.3 102.1 101.7 171.5 467.6 Kemira Speciality 118.6 107.6 112.8 117.2 456.2 Kemira Coatings 118.6 170.3 164.6 109.3 562.8 Other and intra-Group sales 13.9 9.6 11.6 7.5 42.6 Total 552.9 647.5 652.6 669.5 2,522.5 Operating profit Kemira Pulp&Paper 26.0 20.4 24.3 20.1 90.8 Kemira Water 6.4 9.6 9.0 10.3 35.3 Kemira Speciality 11.3 11.7 11.7 11.1 45.8 Kemira Coatings 9.6 25.0 39.0 -1.5 72.1 Other including eliminations -7.8 -15.2 -8.9 -18.4 -50.3 Total 45.5 51.5 75.1 21.6 193.7 Financial income and expenses -7.1 -5.8 -11.6 -12.7 -37.2 Share of associates' results -0.9 -0.6 0.3 -1.1 -2.3 Profit before tax 37.5 45.1 63.8 7.8 154.2 Income tax -10.9 -13.1 -17.9 -0.1 -42.0 Net Profit 26.6 32.0 45.9 7.7 112.2 Attributable to Equity holders of the parent 25.8 31.0 45.0 6.8 108.6 Minority interests 0.8 1.0 0.9 0.9 3.6 Net Profit 26.6 32.0 45.9 7.7 112.2 Earnings per share, diluted, EUR 0.21 0.26 0.37 0.12 0.90 Capital employed, rolling 1,876.6 ROCE, % 10.2 % For further information, please contact: Kemira Oyj Timo Leppä, Executive Vice President, Group Communications Tel. +358 (0)10 862 1700 Kemira Oyj Andreas Langhoff, Investor Relations Manager Tel. +358 (0)10 862 1140 Kemira will hold a press conference on its January-June 2007 results for the media and analysts at its head office (Porkkalankatu 3) today, starting at 10:30am. A conference call in English will be held at 1:00pm. We kindly request that participants call us around 10 minutes before the conference begins, on +44 (0)20 7162 0025. Kemira is a chemicals group made up of four business areas: Kemira Pulp&Paper, Kemira Water, Kemira Specialty and Kemira Coatings. Kemira is a global group of leading chemical businesses with a unique competitive position and a high degree of mutual synergy. In 2006, Kemira recorded revenue of around EUR 2.5 billion and had a payroll of 9,000 employees. The company operates in 40 countries.
Kemira Group Interim Report, January-June 2007: KEMIRA S REVENUE UP BY 16% IN Q2
| Source: Kemira Oyj