Annual Report 1999 - Kemira

BOARD OF DIRECTORS’ REVIEW
The members of the Board of
Directors of Kemira Oyj in
1999 were (from the left)
Vice Chairman Timo
Mattila, Juhani Kari, Tauno
Pihlava, as from 1 June,
Chairman Heimo Karinen,
Esa Tirkkonen, Leif Ekström
and Sten-Olof Hansén.
1999 was a spotty year for the Kemira
Group. The positive trend continued for
both Kemira Chemicals and Kemira Pigments,
both of which improved their
earnings markedly. Kemira Agro suffered
from the oversupply of nitrogen fertilizers
and record-low prices. Tikkurila in turn
fared well in the Finnish and Scandinavian
market, but sales in Russia again
trailed the previous year. Similarly, sales
of Tikkurila’s CPS tinting machines fell
clearly short of the previous year’s figure.
Consolidated net sales were up 5% on
the previous year and were EUR 2,526
million (2,413 million in 1998). Operating
income was EUR 111 million (148 million
in 1998), which includes EUR 28 million
of non-recurring net costs. Operating income
was 4% of net sales.
Income before taxes and minority interests
fell to EUR 59 million, from EUR
97 million a year earlier. Taking into account
the non-recurring costs of the
structural change, the Group’s net income
before extraordinary items was
near the previous year’s level. Income after
taxes was EUR 30 million (EUR 79
million in 1998). Earnings per share were
EUR 0.23 (0.61).
The major factors that influenced the
trend in net sales were the fast growth in
the sales of Kemira Chemicals’ pulp and
paper chemicals (in part thanks to the
previous year’s acquisitions) as well as
the marked growth in the sales volumes
of Kemira Pigments’ titanium dioxide pigments.
About 82% of the Group’s net
sales came from outside Finland.
The table on page 12 shows the
breakdown of consolidated net sales
among the different business areas.
Return on equity was 3.2%. The cash
flow return on capital invested was 9%.
The Group’s gearing ratio was 95%.
The Board of Directors proposes that
a dividend of EUR 0.23 per share be paid
for the 1999 financial year, or a total dividend
payout of EUR 29.6 million.
NEW STRATEGIC FOCUS
In order to improve competitiveness and
profitability, the Board of Directors decided
to overhaul its business strategy in
such a way that in the future the Group
will concentrate on fields that have promising
growth prospects and are less dependent
on economic cycles than is the
industry average. In accordance with the
new strategy, Kemira will seek growth
within paper and pulp chemicals, water
treatment chemicals and paints. Other priority
areas are speciality fertilizers and industrial
chemicals.
For the fields falling outside the new
core business (titanium dioxide pigments
and nitrogen fertilizers) solutions that enhance
their cash flow generation potential
will be sought by way of co-operation or
ownership arrangements. The growth potential
of the Tikkurila CPS unit, which
has specialized in colour processing systems,
will be promoted by separating it
out from the paint business either by listing
it on the stock exchange or by means
of other M&A arrangements.
The arrangements concerning Kemira
Pigments have progressed the farthest
now that sale agreements have been
signed for the divestment of the plants in
the United States and the Netherlands.
Plans concerning Tikkurila CPS are also
expected to be implemented this year. It
is more difficult to set a time for the arrangements
concerning Kemira Agro’s nitrogen
fertilizer business, but the objective
is nevertheless to find a solution already
during the current year.
The cash flow from the arrangements
will be used for the accelerated expansion
of the above-mentioned growth areas,
both organically and via acquisitions.
Kemira considers eastern Central Europe,
Russia, North America, and the Far East to
be its geographical growth areas.
In connection with Kemira’s strategy
process, the Board of Directors confirmed
the new financial targets for the Group’s
profitable growth. At the same time attention
will be paid to the efficient use of
capital and to the Group’s balance sheet
structure. The objectives are set forth in
the table on page 4.
KEMIRA CHEMICALS
The Group’s fastest growing area was
again Kemira Chemicals, whose net sales
rose by 11% to EUR 697 million (630 million
in 1998). All three strategic business
units – Pulp & Paper Chemicals, Kemwa-
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