Kemira's Q1 pre-tax profits slump 41% on agchem decline

06 May 2003 13:00  [Source: ICIS news]

LONDON (CNI)--Finnish chemicals and paints group Kemira announced Tuesday a 41% slump to Euro26.5m ($29.7m) in first quarter pre-tax profits, due mainly to a substantial decline in agrochemicals.

Group sales in the three months to 31 March were, however, up 7% at Euro699.5m. Operating profits plunged 40% to Euro31.4m and net income tumbled 45% to Euro17.1m.

Kemira reiterated that it expects operating income in 2003 to improve from last year’s Euro45.5m. It added that all strategic business should maintain or improve their operating profits this year.

The huge dent in first quarter profits reflected an 85% dive to Euro4.1m in operating income from the GrowHow agrochemicals division. Kemira said the approximately Euro23m decline in profits was due to lower selling prices, ammonia production problems and a bad debt provision. Sales, however, were up 10% at Euro343.3m. The Food Chain Partner business unit raised its sales by 14% and volumes of compound fertilisers rose 10%. However, it faced markedly higher prices for ammonia feedstocks.

Kemira Agro Nitrogen’s profits fell by Euro7m as it had to buy ammonia at peak price due to production problems, since solved, at its UK ammonia units. Sales, however, rose significantly and volumes grew over the previous year’s poor performance in both continental Europe and the UK.

The Specialty Crop Care unit’s sales decreased substantially in Q1. The decline came from exports, partly due to the weakening dollar against the euro, as well as in European markets after a shutdown in liquid fertiliser production in the Netherlands. The full scale startup of the potassium nitrate unit in Jordan was delayed by the war in Iraq.

Profits in the animal nutrition unit were hurt by the weakening dollar and lower feed phosphate prices that resulted from strong market competition. A bad debt provision of Euro3m was made for the Hungarian operations. Sales in the unit grew due to the acquisition in South Africa.

The process chemicals unit’s Q1 profits fell due to higher natural gas and sales were flat.

For 2003, the GrowHow agrochemicals business is expected to post an operating income level close to last year’s, as rising product prices start contributing after the first quarter. Over the year, restructuring in the European fertiliser sector will also have a stabilising effect on GrowHow’s business prospects, said Kemira.

Operating income in the paper and pulp chemicals division grew 19% to Euro9.6m in the January to March period. Sales were up 11% at Euro121.1m, although the production volumes of its main client, the pulp and paper industry, continued to be depressed.

Kemira said developments in the specialty paper chemicals business and hydrogen peroxide prices has been favourable. Construction work on the new specialty paper chemicals plant on the west coast of the US and expansion of the calcium sulphate pigment plant in Siilinjarvi, Finland were progressing to plan. Capacities of the different sizing plants in Krems, Austria will also be expanded this year.

Operating income from the pulp and paper chemicals division is expected to improve for the full year, said Kemira. The acquisition of US firm Vinings will help at a time when the depressed cycle in the pulp and paper industry is expected to continue, it explained.

Kemwater, the water treatment chemicals division, suffered a 9% fall to Euro4.3m in Q1 operating income. Sales were down 4% at Euro43.2m, partly due to the exceptionally dry weather in the Nordic countries, which meant that less drainage than usual passed through water treatment plants.

Kemira expects Kemwater’s operating income to remain at a good level in 2003 as demand should continue to develop favourably.

The paints and coatings division boosted Q1 operating profits by 37% to Euro6.3m, thanks to savings resulting from the combination of the Tikkurila and Alcro-Beckers businesses as well as other productivity improvements. Sales were up 4% at Euro105.8m.

Turnover in decorative paints was 2% higher, with strong growth continuing in Russia. Industrial coatings sales grew 14% on good performances in the Nordic countries and Poland.

For the full year, operating profits from paints and coatings are expected to improve. Demand seems to be reasonably good at the beginning of the summer painting season and should not be affected significantly by the general economic slowdown, said Kemira.

First quarter operating profits in the industrial chemicals division fell 29% to Euro8m. Sales were down 2% at Euro99.4m, with volumes falling 6%. Titanium dioxide (TiO₂), pigments, which accounted for nearly half of industrial chemicals sales, had a recovery in selling prices. Demand for both calcium chloride and formic acid remained healthy. Sodium percarbonates continued to gain market share from alternative products.

Although uncertain global economic development may affect the upward trend in TiO₂ prices, Kemira expects the industrial chemicals division’s operating income to be higher in 2003.

In other activities, the Metalkat catalytic converter unit’s Q1 operating losses doubled to Euro600 000 on flat sales of Euro9m. Given that Kemira had its own electricity generation as well as holdings in Finnish power companies, the firm said the recent higher cost of electricity had not affected the firm significantly.

By: Russell Ong
+44 208 652 3214

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