Kemira Q2 op pfts up 17% to Euro55m, sees higher full year

03 August 2004 15:24  [Source: ICIS news]

LONDON (CNI)--Finnish group Kemira announced on Tuesday a 17% rise to Euro54.8m ($66m) in second quarter operating profits, with exceptionally strong growth in water treatment chemicals and paints and coatings outweighing lower agrochemicals income.

Group pre-tax profits were up 23% at Euro50.8m on sales 8.6% ahead at Euro730m. Net income rose 16% to Euro34.4m.

At the half-way stage, Kemira's operating profits were up 35% at Euro109m, with all strategic business units contributing to earnings growth. Pre-tax profits rose 32% to Euro94m on sales up 6% at Euro1.48bn. Net income grew 27% to Euro62.3m.

Kemira, which reiterated its forecast of improved group operating profits, net income and sales this year, enjoyed spectacular second quarter growth in its Kemwater water treatment chemicals unit. Operating profits soared by 52% to Euro7.3m on sales up 51% at Euro71m.

The integration of US water treatment chemicals company Kemiron was the main reason for the improvement, said Kemira. It pointed out that margins had been squeezed in the short term by rapidly rising raw materials costs, especially for aluminium and iron. Kemira explained, however, that higher raw material costs had been partially offset by using alternative materials and by raising product prices and boosting volumes.

Kemwater's first half operating profits were up 38% to Euro12m on sales 49% ahead at Euro134m. Kemira forecast that demand for water treatment chemicals will continue to grow and full year operating income and sales are expected to be up on 2003.

General productivity improvements and higher sales in the decorative market enabled Kemira's paints and coatings business to boost second quarter operating profits by 36% to Euro19m on sales 3% up at Euro131m.

First half operating profits soared 35% to Euro27m, helped by an exceptional gain of Euro2.8m. Sales, however, were virtually unchanged at Euro234m.

Revenues from decorative paints were up 2% on higher volumes, with the Baltic region showing the strongest growth. Industrial paints sales, however, were down 4% but Kemira said profits improved, helped by the consolidation of UK operations onto a single site. Kemira explained in a conference call on its latest financial results that most of the Euro2.8m exceptional gain came from the UK restructuring through profits on the sale of land and buildings.

Kemira forecast that full year earnings for paints and coatings will be up on last year as efficiency-boosting and synergy benefits continue. Sales, however, will be flat on 2003, despite continued growth in Russia and the Baltic countries.

Second quarter operating profits from pulp and paper chemicals rose 11% to Euro6.1m on sales 14% ahead at Euro140m. Kemira chief executive Lasse Kurkilahti described the overall pulp and paper chemicals market as "very competitive" and said most of the sales increase could be attributed to the acquisitions made in North America and France in Q3 last year. He said profits growth stemmed mainly from synergy and cost-savings benefits which offset higher raw material expenses and costs associated with maintenance shutdowns.

Pulp and paper chemical profits in January to June were up 17% at Euro16.7m, while sales grew 14% to Euro277m. In its outlook for the full year, Kemira said the pulp and paper chemicals is expected to improve slowly in the second half and full year sales are forecast to exceed the Euro521m achieved last year. Operating profits, however, are expected to be in line with the Euro42m in 2003 when results were boosted by a non-recurring gain of Euro7.7m.

Second quarter operating profits from GrowHow, Kemira's agrochemicals business, were down 26% to Euro14m despite sales rising 3% to Euro297m. Kemira said volumes were down compared with April to June last year and profits growth was undermined by rising raw materials costs - especially natural gas - and production shutdowns.

First half profits, however, were up 44% to Euro39m on higher fertiliser prices, especially in the UK. Fertiliser price rises in northern Europe, however, were more moderate and Kemira said continental Europe price were on average the same as H1 last year. It said production shutdowns reduced first half earnings by about Euro10m and higher raw material costs about Euro8m, with most of the impact in the second quarter.

GrowHow sales in January to June were down 2% to Euro621m, reflecting an 8% decline in fertiliser volumes sold. Sales by the division's process chemicals unit were down 7% due to planned shutdowns to boost efficiency at the Tertre, Belgium fertiliser plant. Kemira said "production disturbances" at the Ince, UK, plant also affected process chemicals output.

Kurkilahti said the project to replace an old nitric acid plant at Uusikaupunki, Finland, with modern equipment was well underway and due onstream in Q4. However, he admitted that the joint venture potassium nitrate and feed phosphate plant in Jordan was continuing to suffer from start-up problems and remained loss-making.

For the full year, Kemira forecast that GrowHow, which it is planning to spin-off this year or in 2005, would enjoy an improvement in operating income compared with 2003 despite ongoing costs from production shutdowns. Sales are forecast to remain flat.

Kemira's industrial chemicals business managed only flat operating profits of Euro13m in Q2 despite Euro4.6m of non-recurring income compared with Euro1m last time. Sales were down 5% to Euro112m. In the first half, profits were up about 9.5% to Euro23m on sales down 2% to Euro212m.

Profits and sales were hit by lower titanium dioxide (TiO2) prices, although demand and sales for this product, which accounts for about half the division's revenues, picked up in Q2 and volumes in January to June were up 10% on H1 last year.

For the full year, Kemira forecast higher profits and sales for the industrial chemicals business.

By: Neil Sinclair
+44 20 8652 3214

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