Kemira Annual Report 2005

Annual Report 2005Annual Report 2005

Contents Profile of Kemira 1Kemira in brief 12005 in brief 2Vision, strategy, way of working 4CEO’s review 6Business areas 8Pulp & Paper Chemicals 8Kemwater 10Performance Chemicals 12Paints & Coatings 14Business areas in figures 16Personnel 18Research and development 22Social responsibility and the environment 24Paints and social responsibility 24Environmental report 28Corporate Governance 37Supervisory Board 37Board of Directors 38Management Boards 40Further information 44Major events 44Glossary 46Group companies 48Map 50Information for investors 52Financial statements 53Contents 53Board of Directors’ review 54Shares and shareholders 61Definitions of key figures 64Group key figures 2001−2005 65Consolidated financial statements 68Notes to consolidated financial statements 72Parent company financialstatements and notes 105Board proposal for the distribution of profits 113Auditors’ report 114Quarterly earnings trend 115

Kemira is a chemical group that is made up of four business areas:pulp and paper chemicals, water treatment chemicals, performancechemicals and paints. Kemira is seeking to be a global group ofleading chemical businesses with unique competitive position anda high degree of mutual synergy.In 2005, Kemira had revenue of EUR 1,994.4 million and postedoperating profit of EUR 165.5 million. Earnings per share were EUR0.73 and the return on capital employed was 9.9%. At the end ofthe year, the company had a payroll of 7,670 employees. During2005 Kemira rose to the leading position in all four of its businessareas.Pulp & paper chemicalsWe are the leading supplier of pulp and paper chemicals in theworld. Our Pulp & Paper Chemicals business area offers customizedsolutions for the chemistry needs of the pulp and paper industry.Water treatment chemicalsWe are the world’s leading supplier of inorganic coagulants. OurKemwater business area offers water treatment chemicals andcustomized solutions as well as sludge treatment chemicals formunicipal and private water treatment plants and industry.Performance chemicalsWe are the world’s leading supplier of performance chemicals inselected customer groups. Our Performance Chemicals businessarea manufactures products with a wide array of uses, such as inprinting inks, cosmetics, foods, pharmaceuticals, paints, textilesand detergents.PaintsWe are the leading supplier of paints in the geographical areasdelineated in our strategy. Our Paints & Coatings business areaoffers branded products for consumers, professional painters andindustrial uses in Northern and Eastern Europe. The Industrial Coatingsunit serves customers in the metal and woodworking industry.1

2005 in briefKemira’s growth continuesIn 2005, Kemira had revenue of EUR 1,994.4 million and posted operating profit of EUR 165.5million. Earnings per share were EUR 0.73 and the return on capital employed was 9.9%.At the end of the year, the company had a payroll of 7,670 employees.A year of good growthfor KemiraKemira’s revenue rose 18% andoperating profit was up 48%. Themain factors driving growth werethe acquisition of Finnish Chemicalsby the Pulp & Paper Chemicals businessat the beginning of April andthe Verdugt acquisition within PerformanceChemicals.Acquisitions bolsterour market positionDuring the year, Kemira carried outseveral major acquisitions. At thebeginning of April, the company purchasedFinnish Chemicals, whosemain product is sodium chlorate,which is used in pulp bleaching.The deal made Kemira the world’ssecond-largest supplier of pulp andpaper chemicals.At the beginning of April, Kemiraalso acquired the specialty chemicalcompany Verdugt. Verdugt’s productsare formic acid, propionic acid, aceticacid and lactic acid derivatives, whichare used for anti-microbial purposesand to combat fungi, notably, in thefood processing and animal nutritionindustries. The products also havespecial applications in the pharmaceuticaland chemical industry.KEY FIGURESEUR million 2005 2004* Change %Revenue 1,994.4 1,695.1 18EBITDA 284.4 232.0 23% of revenue 14.3 13.7Operating profit 165.5 111.6 48% of revenue 8.3 6.6Financial income and expenses -30.5 -12.6Income before taxes 133.5 95.3 40Net profit 91.4 63.8 43EPS, EUR 0.73 0.50 46Capital employed ** 1,662.9 1,252.5ROCE, % ** 9.9 8.6Cash flows from operations 155.6 231.0Cash flow after investments excluding acquisitions 170.8 155.4Equity ratio % 44 47Employees at end of fiscal period 7,670 7,137* Continuing operations, pro forma** 12-month moving averageThe pro forma figures for 2004 cover continuing operations, excluding GrowHow, Fine Chemicals, the calcium chloride business and Ecocat.The figures furthermore exclude non-recurring items arising from disposals of these units. To improve comparability, the non-recurring chargeof EUR 44.2 million for the water-soluble fertilizer business is not included in pro forma financial expenses for 2004.Formulae for calculating key ratios, p. 64.2

In November, Kemira announcedit was to purchase the Russian paintcompany Kraski Teks. After the transactionwas completed in February,Kemira’s paint business moved intothe leading position in Russia.In December, the company announcedit was purchasing theLanxess paper chemicals business.With this deal, Kemira will becomethe world’s leading supplier of pulpand paper chemicals. Lanxess is aglobally operating supplier of paperchemicals, whose main strength isfunctional wet-end paper chemicals.Approval by the competition authoritiesmust be obtained before thedeal can close.A sharp rise in raw materialand energy pricesPrices of raw materials and energyrose substantially during the year.The acquisitions that were madeincreased energy consumption. Theincreases in the prices of raw materialsand energy were for a large partpassed on into selling prices.Kemira – from Good to GreatIn the spring of 2005, the companylaunched a development programdubbed Kemira from Good toGreat with the aim of ensuring thatgood plans are put into action speedily.The focuses of the program arestrategy, operational performance,corporate culture and the companyidentity. During the year, 18 mee -tings were arranged as part of thethorough review of all of Kemira’sbusiness areas, strategic businessunits and largest production networks,examining their presentstate and formulating developmentplans and monitoring systems.Steady dividend payoutpolicy continuesThe Board of Directors will proposea dividend of EUR 0.36 per share forthe 2005 fiscal year, correspondingto a dividend payout ratio of 49%.For the 2004 fiscal year, a dividendof EUR 0.34 was paid per share.Net sales by business areaNet sales by regionOperating income bymain business areaPulp & Paper Chemicals 37%Kemwater 18%Performance Chemicals 22%Paints & Coatings 23%Group net sales EUR 1,994.4 millionFinland 18%Other EU 43%Other Europe 9%America 24%Asia 5%Other 1%Pulp & Paper Chemicals 34%Kemwater 16%Performance Chemicals 21%Paints & Coatings 29%Group operating income EUR 165.5 millionincluding income outside main businessareas EUR -26.8 million.Capital employed by business area**25ROCE, % by business area**Personnel by business area2015105Pulp & Paper Chemicals 43%Kemwater 13%Performance Chemicals 25%Paints & Coatings 17%Other 2%Capital employed total EUR 1,662.9 million.** 12-month moving average.0Pulp & Paper Chemicals 8,8%Kemwater 15,0%Performance Chemicals 10,0%Paints & Coatings 20,2%Group’s ROCE 9.9%.** 12-month moving average.Pulp & Paper Chemicals 28%Kemwater 19%Performance Chemicals 18%Paints & Coatings 30%Muut 5%Group personnel 7,670 (end of year).3

Vision, strategy, way of workingKemira – from good to greatKemira is seeking to be a global group of leading chemical businesses with unique position anda high degree of mutual synergy. Our success springs from a unique strategy and actionsleading towards world-class efficiency.We concentrate on what wecan do bestKemira has four equally strong businessareas that we are building outboth through organic growth and acquisitions:pulp and paper chemicals,water treatment chemicals, performancechemicals and paints. Ourbusiness areas have centered theirstrategy on correctly chosen customersegments and the ability to provideproduct and service packagesin areas where we excel.Towards continuous growthand superior profitabilityKemira’s goal is to be a global companywhose businesses have widerangingsynergy and a unique competitiveposition. We are seekingto increase the proportion of valueaddedproducts and services in ourbusiness operations. Here, researchand development are in a key position.A continuous flow of new products,coupled with expansion of ourproduct range and sales, will ensureour strong organic growth.We are building a strong marketposition also by way of M&A arrangements.Our investment decisionsare made with an eye toimproving profitability, achievinggrowth, building a strong competitiveposition and boosting synergy acrossthe Group. We are continually improvingour internal efficiency andstriving for an ever more efficientemployment of capital.Good performance bolsteredby a strong corporate cultureOur strong corporate culture encouragescooperation with both internaland external stakeholders, to workto high professional standards, tobe ambitious and to contribute tospeeding up implementation ofKemira’s strategy. We are seeking tofoster an entrepreneurial culture inwhich each and every employee canhave a say in how their job is done,develop themselves and be rewardedfor good performance.Transformation rolling aheadIn the spring of 2005 we launched aKemira-wide comprehensive developmentprogram that will propel usahead in reaching our targets.Kemira from Good to Great isa transformation program that hasbeen jointly devised by top managementand line staff with the objectiveof ensuring that good plans areput into action speedily. We are concentratingon four key areas: strategy,operational efficiency, corporateculture and the company identity.During 2005 we conducted a thoroughreview of all our business areas,strategic business units and thelargest production networks. All inall, we arranged 18 managementmeetings, at which we went throughthe present state of each businessarea and together worked out developmentplans. People from all overthe Kemira organization take part inthe program by planning and implementation.In monthly meetings withtop management, the heads of thebusinesses report to Group executiveson the progress made in carryingout the action plans and on theresults achieved to date.4

Kemira’s way of workingWe are a reliable, professionally skilled partner whose creative initiatives makeour customers’ products and manufacturing processes better and better.ReliableWe keep our promises and do our utmost to solve everyday problems. We adapt to our customers’changing needs and stand behind what we promise.CooperativeWe put time and effort into understanding our partners’ world. For us, an assignment always beginswith listening and moves ahead as we share our expertise and experience. This is how we cantogether achieve our customers’ objectives.ResponsibleWe constantly seek out ways to improve the safety of our products and processes. We want to playa positive role in social development and are doing our best to protect the environment. Doing ourpart in being a good corporate citizen goes with good business practice.ProactiveWe work unstintingly to improve our customers’ business. We plan the future and develop newapplications, ways of working and products that help our customers make big strides in accomplishingtheir own tasks.• Great profitability, continuous improvement• Continuous growth: organically and throughmergers and acquisitions• A participative, entrepreneurial corporate cultureMore ambition and more dynamics5

CEO’s reviewKemira House, Helsinki. CEO Lasse Kurkilahti at the start of a fast-paced day.We’ve set ourselves a set of targets for developingKemira. Our strategy must be crystal-clear and unique,our efficiency at the world’s best level, our corporateculture positive and change-inspiring – and there mustbe consistency in what we do and say.Going into 2006 from the No. 1 spotIn 2005 we achieved our interim targets as planned. Allour businesses will go into competition in 2006 startingfrom the pole position, right up front. The steps we’vetaken to carry out our strategic plan have raised us to theleading position in the world in most of our business areas.We intend to improve and strengthen these positions inthe years ahead. The competitive advantage derivingfrom our position is evident in the success our businessareas achieved, and above all in their future prospects.Four strong business areasIn step with the change in our market position, ourGroup’s structure has also changed. We have four strongbusiness areas that are excellently poised for future development.Competition for customers calls not only forsharp strategic planning, but also for continuous good execution.The battle against peak raw material and energyprices means that we must ceaselessly improve the efficiencyof our processes. By leveraging our internal efficiencyand flexible ways of working, we can reduce theeffect of external changes on our company’s earnings.In 2005, we did a great deal of work to speed up ourinternal transformation. Kemira’s transformation is rollingahead, but we still have a long way to go in moving fromgood to great. There are plenty of opportunities for continuallyimproving our operations. We shall seize them allacross Kemira in 2006 too.6

Kemira takes the leading positionDuring 2005 Kemira gained the leading position in all four of its business areas.The competitive advantage deriving from our position is evident in the successour business areas have achieved, and above all in their future prospects.Kemira is interesting as aninvestmentKemira’s market capitalizationshowed positive development during2005. This, in unison with Kemira’sstable dividend policy, enabled us todeliver increased shareholder value.The Finnish government gave up itsmajority holding in Kemira in the fallof 2005. Concurrently, foreign investors’proportion within Kemira’sshareholders rose steadily. Participantsin the equity and capitalmarkets have also taken note ofKemira’s position and potential.A good workplace and aninitiative-taking partnerOur personnel strength has risen asour operations have expanded. Wewant to make Kemira a workplacewhere everyone can develop in accordancewith their own inclinationsand wishes. Our jobs should be meaningful,developing and even be fun.We want our Kemira people to feelthey belong together, to derive joyfrom what they do and to be proudto work for Kemira. In everything wedo, we want to be a reliable corporatecitizen by shouldering our responsibilityas a member of society.Every day we work to serve ourcustomers. We are a proactive partner,and it is a matter of honor for usto help our customers prosper bybringing new products and solutionsto them. We also build partnershipwith our subcontractors and supplierswith the aim of building world-classefficiency in our production and deliverychain.I wish to thank our Kemira peoplefor their good performance in accomplishingso much, and for activelycarrying out our transformation. Atthe same time, my thanks go to allour customers, shareholders andpartners in cooperation, and I inviteyou all to join in on the ongoingtransformation that will make Kemirago from good to great.7

Pulp & Paper ChemicalsThe world leader in pulpand paper chemicalsOur goal is to be the preferred supplier and technology leader in pulp and paper chemicalsworldwide. The work done in 2005 will raise us to the position of world number one in oursector.We offer a complete package for thepulp, bleaching and paper industry:chemicals, applications knowhow,service and equipment. As a reliableand innovative partner, we providetailor-made service for our customersand work to build enduring customerrelationships. We turn close cooperationand customized solutions togood effect in enhancing our customers’products and manufacturingprocesses.chase of the Lanxess paper chemicalsbusiness, which was agreed inDecember, is still subject to approvalby the competition authorities andimplementation of the other termsand conditions of the deal.Synergy and new expertiseThe Lanxess business well rounds outour product range within specialtychemicals and will strengthen ourgeographical position. By addingFinnish Chemicals to our line-up, weAcquisitions spur growthWe ended 2005 with two majoracquisitions. Following the purchaseof Finnish Chemicals and the Lanxesspaper chemicals business, Kemirawill become the world’s largest supplierof pulp and paper chemicals.Kemira’s service package spanningthe entire paper making process isunique the world round. The pur-Georgia, US. Tony Nearer gets a customer’s shipment ready Susto at the ea augue Marietta dolorerat. plant. quam nulla facin esent ut etuerat. velilisi.Ulluptat inim quisl ut lore dolorting eu feugueros8

secured a complete product palette for pulp bleaching.Our chemical plants that are to be built at the Botnia pulpmill in Uruguay, along with comprehensive agreement todeliver chemicals, are proof positive for us that customersvalue possibility to buy all the bleaching chemicals theyrequire for pulpmaking from a single supplier.World-class efficiencyWe are seeking world-class efficiency in every aspect ofour operations. We have stepped up our operations byimproving our production lines and outsourcing non-corefunctions. We have moved ahead on our growth path andimproved our profitability in spite of the rise in raw materialprices and the industrial dispute in the paper makingsector in Finland last spring. The continuous improvementof safety is a top priority for us. Integrating new businessesinto our operations and getting the most out of internalsynergies will be essential tasks for us in future yearsas well.Close to the customerOur strategy calls for a presence close to our customerson all continents, including the burgeoning markets inChina and Latin America. We have a solid position inEurope and North America. In areas where Kemira hasa strong presence, the Kemira name and brand ring adistinctly positive note. We are known as top specialistsin our field, and we intend to build on this reputation.A strong commitment to pulpand papermakingWe pioneer many developments in chemical technology.We have strong ties to the Nordic forest cluster and withthe leading pulp and papermakers around the world.We are dedicated to honing our R&D expertise with theaim of continually improving our position as a preferredstrategic partner. Our top-flight researchers are dedicatedto coming up with new and improved solutions for ourcustomers.Pulp & Paper ChemicalsCustomers: The pulp and paper industry.Market position: # 1 worldwide.Products and services: Chemical solutions for pulpand papermaking processes end-to-end.Revenue: EUR 739 million.Personnel: 2,050Main market area: GlobalNearly two hundred different products are manufacturedat the Marietta site.End-products are stored in tanks before being shippedto the customer.9

KemwaterPure water offerswide business potentialKemwater’s objective is to be the leading player within water treatment chemicals.Our local presence in many countries brings us logistics advantages and strengthens ourcustomer relationships. We are already the world’s number one supplier of coagulants.We offer products and total solutionsfor the treatment of municipal andindustrial drinking and waste water.We are specialists in treating thesludge that arises in water purification.We are known as a reliablepartner that offers competitiveexpertise, quality and prices.In 2005 we grew both organicallyand through acquisitions. A significantpart of our growth came fromEaglebrook, the North American coagulantproducer that was acquiredat the end of 2004. In relative terms,the biggest organic growth wasracked up in Latin America and Asia.Targeting profitable growthWe are seeking organic growth byexpanding our palette of productsand services and by harnessing newtechnologies. We are especially interestedin sludge treatment and industrialwaste management, where weoffer tailor-made solutions and outsourcedservices. We are scouting fornew acquisition candidates worldwidein countries where the watertreatment market is showing greaterthan average organic growth, particularlyin Latin America, Asia andRussia.New technology yieldsbetter solutionsNew technologies are important tous both in creating new products andservices and in improving existingones. In our research and development,we marshal the full scope ofKemira’s in-house resources andknowhow and the network throughwhich Kemira collaborates with leadinguniversities.Kemira has launched a number ofjoint projects with waterworks in thearea of waste sludge drying and disposal.Kemicond is a method of disinfectingsludge and removing from ita substantial amount of liquid andoffensive odors. The first plantemploying the Kemicond methodKemira’s Anders Jönsson and Lennart Petterssonvisit their customer, Lars Pedersen (center).The Copenhagen water treatment plant, Denmark.Anders and Lennart run a test using the Kemicond method.10

started up in Stockholm, Sweden at the beginning of2006. An agreement on introducing the method in 2007was signed with the waterworks in Pori, Finland.Productivity and internal synergyWe boost productivity by using recycled raw materials,tapping into new technology and optimizing our productionstructure. In 2005 we made a decision to close thecoagulant production plants in Kvarntorp, Sweden, and Esbjerg,Denmark. The production volume of these plantswill be transferred to a unit in Helsingborg that will gointo operation in 2007. The rise in raw material prices hasfurther underscored the importance of recycled materials.To this end, we leverage Kemira’s internal synergy in purchasingand logistics and by using the ferrosulphate generatedby the titanium dioxide business as a raw material.Together with Pulp & Paper Chemicals, we work outapplications and explore market potential, ever seekingnew solutions to the treatment of industrial waste water.KemwaterCustomers: Municipal and private watertreatment plants, industry.Market position: #1 in coagulants worldwide.Products and services: Water treatment chemicals andsolutions, sludge treatment.Revenue: EUR 364 million.Personnel: 1,479Main market area: GlobalAnders measures the iron content of water removed from sludge.11

Performance ChemicalsA growing market for specialty productsOur sights are set on achieving the leading position in the growing specialty product marketworldwide. We intend to move increasingly toward value-added products and non-cyclicalspecialty products.The Performance Chemicals businessarea comprises three strategic businessunits whose main products aretitanium dioxide pigments, organicacids and acid derivatives as well asbleaching chemicals for detergents.Active development work, growthand efficiency targets, coupled withthe ability to offer increasingly environmentallyfriendly products, arethe common threads linking theseunits. We are going after growthboth organically and through acquisitions.Our markets are global.Specialty products gainingshare within pigmentsIn the development of titanium dioxideproducts, we are concentrating onnew-generation printing ink pigmentsas well as specialty products for thefood processing, pharmaceutical andcosmetics industries. We are theworld’s leading supplier of pigmentsused in making printing inks. Specialtyproducts already account for abouthalf of the unit’s total sales, and oneof our strategic goals is to increasethis share still more. An extensivenew area of expertise is nanoparticles,which have a variety of usesin areas such as environmental technologyand self-cleansing surfaces.The world’s leading producerof organic acid derivativesThe acquisition of Verdugt of theNetherlands made Kemira the leadingproducer and marketer of organicacid derivatives in selected customersegments. We are also the world’ssecond largest producer of formicacid, and thanks to the investmentproject that was started in Oulu, wewill be able to lift the capacity ofKemira’s formic acid plants by 10percent in 2006. Our products areused, notably, in the textile, pharmaceutical,food-processing and animalnutrition industries and as a deicingsubstance at airports and in sensitivegroundwater areas. We are seekingnew growth through a dual thrusttoward applications that utilize biomaterialsas well as environmentallybenign solutions based on value-addedorganic acid products. An exampleof the latter is the Denoxium productfamily that is used to cut NO x emissionsin diesel exhausts.The best quality inbleaching agentsKemira’s ECOX product makes us theworld’s third-largest supplier of sodiumpercarbonate, and Kemira’s qualityhas long been considered the beston the West European market. Sodiumpercarbonate is an environmentallyfriendly bleaching agent thatis used in making detergents andcleansers. We are also working toSodium percarbonate granules are sievedto the right particle size.At the same time Eva Jönsson makes a round of checks at the plant.12

achieve strong growth in the markets outside WesternEurope and to expand our product range. Through continuousdevelopment work, we are improving the competitivenessof our manufacturing processes and are seekingout knowhow that enhances bleaching efficiency. Wewant to be the quality leader in coming years as well.Profitability, growth and focusThe actions we have taken to improve our profitabilityinclude the sharpening of customer segmentation, anincrease in production volumes and greater efficiencyin the employment of capital. Our cost structure iscompetitive, and we have succeeded in maintainingour profitability despite substantial price rises in rawmaterials and energy.Performance ChemicalsCustomers: Printing ink, cosmetics, food-processing,pharmaceutical, paint, textile and detergent industries.Market position: #1 worldwide as a supplier of titaniumdioxide for printing inks and as a producer of organic acidderivatives in selected customer groups.Products and services: Titanium dioxide pigments,organic acids and acid derivatives as well as sodiumpercarbonate.Revenue: EUR 431 million.Personnel: 1,440Main market area: GlobalHelsingborg, Sweden. Eva Jönsson, Lars Webergand Johnny Lindberg change a motor.The end-product: ECOX,a detergent bleach.13

Paints & CoatingsLeading position bolstered bystrong consumer brandsOur paint business is number one in size and profitability in Northern and Eastern Europe. Weintend to maintain this position and to strengthen it further. Our strategy is based on growth inselected product groups within decorative paints and industrial coatings. With the acquisition ofKraski Teks, our paint business nailed down the leading position in the Russian market.Our main business area is decorativepaints, which make up about 75 percentof our operations. We offerpaints and related services to consumersand professional paintersthrough a distribution network comprisingsome 4,000 paint stores in 25countries in Europe and Central Asia.Within industrial coatings, we focuson customers in the metal andwoodworking industries, to whomwe make direct deliveries and alsoserve through 250 distributors. Thepaint brands Tikkurila, Alcro, Beckersand Vivacolor are market leaders intheir own areas. In the industrialcoatings segment, products are marketedunder the Tikkurila Coatingsbrand across our entire distributionchain.Operating profit ontrack and risingKemira Paints & Coatings performedwell in 2005. The year was characterizedby high raw material prices,which still pose a big challenge forour healthy level of profitability.Owing to the seasonality of the paintbusiness, the bulk of the year’s earningscomes in the second and thirdquarters. Over the last years, whenour revenue has remained fairly unchanged,we have done a great dealof work to build for the future. Wehave divested weakly profitable businessesand boosted the efficiency ofexisting ones. This can be seen in thetrend in our operating profit, whichfor years now has been on a goodand rising trend.Growth organically andthrough acquisitionsWe are seeking growth both organicallyand through acquisitions. Thegreatest growth potential lies in theEast, particularly in Russia, where therise in the standard of living will beaccompanied by growing paint consumption.For years now, paint consumptionin Northern Europe hasbeen on a plateau. Yet even in astabilized market, growth can beachieved by coming out with novelproducts. A recent example is thewater-borne UV-curing method thatTikkurila developed for the furnitureindustry, a method that won an innovationaward at a trade fair in October2005. Our product developmentalso encompasses the renewal ofIndustrial coatings in an outdoor stress test.Päivi Syrjälä measures paint fineness with a grindometer.14

existing products to make sure that they retain theircompetitiveness.been safety walks, safety training as well as continuousoccupational safety campaigns.Going after excellent profitabilityWe have reached our goals for improving operating profit,and now have set our sights on an even higher level ofoperating profit and return on capital employed. We areaiming for world-class internal efficiency. Our objective isto manage our brands cost-effectively, reliably and in fullcompliance with environmental standards, with an eyeunfailingly on providing the best possible service for ourcustomers.Prioritizing improved occupational safetyReducing accidents is our key safety target. The mainmeans we use in improving occupational safety havePaints & CoatingsCustomers: Consumers, professionals, the woodworkingand metal industries.Market position: #1 in Finland, Sweden, Russia and theBaltic countries.Products and services: Decorative paints, industrialcoatings, advisory services.Revenue: EUR 458 million.Personnel: 2,375Main market area: Northern and Eastern EuropeVantaa, Finland. The product testing laboratory at the Tikkurila Monicolor plant.Jouni Kankaanpää and Päivi Syrjälämake sure the product passes muster.15

Business areas in figuresPULP & PAPER CHEMICALSEUR million 2005 2004 2003 2002 2001Net sales 739 566 521 485 342Costs -630 -475 -434 -409 -280Depreciation -45 -46 -45 -48 -31Operating income 63 45 42 28 31Cash flow from operations 90 84 78 52 67Capital employed (average) 713 452 453 479 308Return on capital employed, % 9 10 9 6 11Capital expenditure 256 34 73 96 32Personnel (average) 2,050 1,753 1,677 1,611 1 002KEMWATEREUR million 2005 2004 2003 2002 2001Net sales 364 285 215 176 164Costs -316 -253 -178 -147 -134Depreciation -16 -18 -13 -11 -10Operating income 32 14 24 18 20Cash flow from operations 37 40 34 32 26Capital employed (average) 223 167 135 107 84Return on capital employed, % 15 10 18 17 25Capital expenditure 57 70 53 11 18Personnel (average) 1,479 1,262 1,010 868 810PERFORMANCE CHEMICALSEUR million 2005 2004 2003 2002 2001Net sales 431 315 410 404 375Costs -356 -253 -335 -344 -294Depreciation -34 -29 -34 -33 -29Operating income 41 33 41 27 52Cash flow from operations 54 66 62 64 84Capital employed (average) 409 298 364 348 289Return on capital employed, % 10 11 11 8 18Capital expenditure 62 34 38 35 50Personnel (average) 1,440 1,318 1,670 1,775 1,535PAINTS & COATINGSEUR million 2005 2004 2003 2002 2001Net sales 458 440 439 450 445Costs -388 -382 -389 -405 -407Depreciation -14 -20 -21 -21 -23Operating income 56 38 29 24 15Cash flow from operations 57 52 26 61 -19Capital employed (average) 283 295 319 325 327Return on capital employed, % 20 14 9 8 5Capital expenditure 18 14 14 24 126Personnel (average) 2,375 2,401 2,387 2,505 2,65216

EUR millionNet salesEUR millionCapital expenditureNet sales by business unit2001 2002 2003 2004 20051 000 10800 8600 6400 4200 2300250200150100502001 2002 2003 2004 20050 %Net SalesOperating income, % of net sales0Bleaching Chemicals 51%Specialty Paper Chemicals 36%Pigments & Additives 13%EUR millionNet salesEUR millionCapital expenditureNet sales by business unit2001 2002 2003 2004 2005400 12802001 2002 2003 2004 2005300 960200 640100 3200 %Net SalesOperating income, % of net sales0Kemwater Northern Europe 24%Kemwater Continental 34%Kemwater Overseas 5%Kemwater North America 37%EUR millionNet salesEUR millionCapital expenditureNet sales by business unit2001 2002 2003 2004 2005500 15702001 2002 2003 2004 2005400 12300 9605040200 6100 33020100 %0Net salesNet sales, divested unitsOperating income, % of net salesPigments 56%ChemSolutions 32%Chemidet 12%EUR millionNet salesEUR millionCapital expenditureNet sales by business unit2001 2002 2003 2004 2005500 15400 12300 9200 6100 31501209060302001 2002 2003 2004 20050 %Net salesOperating income, % of net sales0Deco 75%Coatings 25%17

PersonnelImproving corporate culturefrom good to greatOne of the objectives of the Kemira from Good to Great program is to create a conversationaland happy corporate culture that promotes entrepreneurship and the opportunity to participate.Well-conducted work evaluation, reward schemes, training and participation activities togetherwith occupational safety and job well-being form the petals of our blossoming corporateculture.Employee opinion surveyunderpins developmentIn 2005, we conducted a Groupwideemployee satisfaction surveyfor the second time. Two-thirds ofKemira’s employees participated inthe survey, compared to about half in2004. The index depicting the staff’soverall satisfaction was significantlyhigher than comparative global figuresand has remained on the samelevel as a year earlier. The surveyfound that the employer image, theflow of information and the systemof rewards in particular have improved.We have pinpointed independentdecision-making and leadershipas areas of development. Thedisparity between the results hasgrown, with great differences foundbetween different units. Therefore,all results will be processed on thelocal level.In 2005, we employed a newGroup-wide human resources informationsystem, with the help whichwe will be able to improve our handlingof basic information on the staffand the organization, the recruitmentprocess as well as training particularsserving the needs of supervisors, thehuman resources staff and management.Improving leadership andsupervisory skills occupiesa key positionDevelopment discussions are a basictool for improving the managementof performance and know-how aswell as the functionality of the organization.Development discussionsproduce written documents outliningobjectives and plans for the improvementof know-how. About 70% ofKemira’s staff undertookdevelopment discussions last year.The revamped Group-widemanagement development programdelves in the strategy for the Groupand the business areas and its implementation.In addition to the strategy,the program deals with the managementof customer relationships,achieving objectives, improving theefficiency of operations and leader-Sari Hagman, Susanna Ruotsalainen andKirsi Uutela off to play bandy.Office cares fade away in a fast moving game.18

ship. About 100 Kemira employees participated in thedevelopment program in 2005.In order to improve supervisory skills, we have adopteda joint feedback process that is employed systematically.During the year, members of the Group managementboards as well as the management boards of business areasand the largest business locations received feedbackon their performance. During 2006, the process will beexpanded to include other supervisors in the target group.System of rewards to include more incentivesWe have introduced a system of job requirement assessmentsto be applied to all the expert tasks in all countriesof operation and informed our staff of the content of therewards. In order to increase the incentives of the rewardschemes, we have developed our bonus schemes to bettersupport the company’s objectives. The efforts put intothe improvement of these schemes were already evidentin the results of the employee opinion survey of spring2005. Kemira’s employees felt that the reward schemes’incentives were clearly better than in the previous yearand better than the global norm.Well-being through cooperationJob well-being is a concept that includes the mental andphysical well-being of the individual, know-how, workcontent, the physical working environment and the functionalityand leadership of a working community. We arecarrying out locally tailored projects promoting mentaland physical well-being at every Kemira location.The Kemira European Forum is a Europe-level body forcooperation between Group management and the personnel,and it is made up of representatives appointed bystaff working in different EU countries. The Kemira EuropeanForum convened in May, and the meeting producedactive discussion on the Kemira from Good to Greatproject and current matters concerning profitability. TheKemira European Forum’s Working Committee met threetimes during the year to discuss the ways to improvecooperation further.Helsinki. Full tilt at the bandy rink in Kemira House.Whooping it up after scoring a neat goal.19

PersonnelProactivity in initiatives formsone of our objectivesOur initiative system has a long traditionespecially in Scandinavia. Ourobjective is to encourage the staffacross the entire Group to activelyparticipate in the development of thecompany by putting forward initiativesfor improvement. Our developmentprogram aiming at increasingthe efficiency of production has increasedthe number of initiativesmade and their practical application.1,4001,2001,0008006004002000Age breakdown December 31, 2005 (permanent personnel)< 20 21–25 26–30 31–35 36–40 41–45 46–50 51–55 56–60 61–65 > 65Occupational safety remainsa topical issueA safe working environment is amatter of utmost importance to us.In developing a corporate culture thatstresses the importance of occupationalsafety, visible actions by supervisors,training and the monitoring ofresults hold a key position. Occupationalsafety training, the reportingof close calls and occupational safetyrounds are examples of practical implementationsconcerning safety atthe workplace. Occupational safety ispresented in more detail in the environmentalreport on pages 28–36.EvaluationmethodsWell-beingProgramsLeadership andother personaldevelopmentCultureParticipativeEntrepreneurialSafetyDevelopmentToolsThe ingredients of a great corporate culture at Kemira.ParticipationsystemsRewardingGeorgia, U.S. Sundown at the Marietta plant.Patty Barrett, Victor Price, Bryan Rooks,Zeke Hubbard and Victor Alcindor on a break.20

Number of personnelaverage(Permanent personnel)Personnel by genderDecember 31, 2005Personnel by countriesDecember 31, 200512,0002001 2002 2003 2004 200510,0008,0006,0004,0002,0000Female 28%Male 72%Permanent personnel total 7,472Finland 3,059Other Europe 1,264North America 1,131Sweden 957Poland 576Russia 289Asia 285South America and Mexico 109Total 7,670At the same time, Eddie Kelley and Jim Bowles keep an eye on the process.21

Research and developmentResearch underpins profitable growthResearch and development occupies a key position in channeling Kemira’s operations towardsnew products that serve our customers better. R&D is a vehicle for enhancing our presentproduction and developing our logistical and customer-specific solutions. Our R&D programsare geared to delivering world-class results, and we continually track the productivity of ourdevelopment investments.Long-term cooperation with universitiesand research institutes togetherwith strategic development projectsrun by our own research centers arethe foundation on which our R&D activitiesrest. A great deal of researchwork is nonetheless done within thedevelopment organizations of ourbusiness units in different countries.We operate in close cooperation withour customers and with other playersin the industry. Spending on researchand development amounted to 2.2percent of our revenue in 2005, andabout 570 Kemira staff were employedin a research capacity.Partnering with customersThe bulk of our R&D resources isused at our business units that arelocated close to customers. We providethe service and technical sup-port required for customer-specificapplications. Most of our R&D investmentsare devoted to performancechemicals that go into the makingof large and complex customer applications.To manage integrated solutionsfor individual customers, wehave developed the real-time Fennodosesystem that measures and controlsthe process state, optimizes thedosing of active chemicals and supportsremote monitoring.Environmental protectionleads to new businessopportunitiesWater treatment and the waste sludgesarising in the purification processopen up wide-ranging business opportunities.The Kemicond methoddeveloped by Kemira is an efficientway of disinfecting sludge, removingoffensive odors and reducing substantialamount of liquid. HyProformis a new non-chlorine product for disinfectingtreated waste water, andKemwater GFH is a technique for purifyingdrinking water by eliminatingarsenic, which constitutes a significanthealth risk. In the area of performancechemicals for the paper industry,an important developmentfocus has been methods for cleaningand recycling of paper.Plant manager Lars-Göran Frisell discusses process optimizationwith Stefan Persson and Martin Johansson.Making hydrogen peroxide is a multistageand precision process.22

For years now, Kemira’s titanium dioxide nanoparticleshave been used widely to provide UV protection – in cosmetics,for example. Our proprietary applications are alsofinding a growing range of uses in coatings. The photoactiveproperties of the nanoparticles are being evolvedfor purifying air and water as well as for manufacturingself-cleansing surfaces.Award-winning technical prowessLuminol UV and Uvitec represent a new generation systemfor industrial surface treatment lines. Tikkurila receivedthe RadTech Europe Innovation Award for developingthe UVITEC curing method by means of which waterbornelacquer is cured using ultraviolet radiation in an inan inert atmosphere (oxygen-free state). The method isan example of an environmentally sound product thatbrings customers cost savings and better quality. Themethod replaces existing solvent-based surface treatmentsubstances that are used in the furniture industry.R&D expenditure breakdownCustomerorientedproductdevelopmentand service39%Business-specificresearch projects37%Group-wide research projects24%R&D expenditure totaled EUR 43.1 million in 2005. Risk and the timeframedecrease towards the top of the pyramid and grow larger towards thebase.Benchmarking performanceOur goal is to increase our inputs into research and development.We gauge the efficiency of our research in termsof how Kemira’s product range is renewed. We determineonce every quarter the share of revenue from new productsthat have been brought to market. In 2005, just undera fifth of our revenue came from products that wererolled out during the last three years. Today, this benchmarkingcovers over half of our product output, and itwill be expanded across the entire spectrum of ouroperations.Helsingborg, Sweden. At the hydrogen peroxide plant, visitors get to take a peek at the process.Process engineer Carsten Olsson leads the way.23

Paints and social responsibilityProduct safety, eco-efficiencyand employee well-being feedinto earnings tooOur Paints & Coatings business area this year brings to a close our four-part series of reports onenvironmental and social responsibility. Our other business areas have appeared in the annualreports in previous years.Paints & Coatings pursues the objectiveof being a pioneer in developingproducts and services that enhancethe durability, utility and beauty of allkinds of surfaces. We manufacturethese products and services in such away that they can be used throughouttheir life cycle in line with environmentalprotection needs, ethically,economically and in a sociallysustainable way. The four guidingpolicies of our corporate social responsibilityare product safety, improvingthe eco-efficiency of ourproducts, strong financial performanceand the well-being of ouremployees.Environmental and safetyissues rank high in ouroperationsWe want to be a step ahead in thearea of both environmental and corporatesocial responsibility. All of ourPaints & Coatings units have undertakento abide by the environmentaland social responsibility program weformulated in 2001. In addition, inthe spring of 2003, we launched aproject to raise the level of safety atall Paints & Coatings units, at thesame time ushering in uniform safetyinspection practices. In this way,we can share good technical andfunctional practices among our varioussites. On a European yardstick,our site in Vantaa has been in theforefront of its industry in introducingenvironmental systems: an environmental,health and safety programhas been in operation since 1993.Paint protects and beautifiesPainting has a positive effect on oursurroundings. Paint products protectmaterials and structures from prematureageing, rotting and corrosion,thereby extending their useful life.Paints are also highly important foran esthetically pleasing living andworking environment. Neatly paintedbuildings blend in as part of a pleasantliving environment.Industrial coatings’ outdoor test area.Paint storability is testedin the product testing laboratory.24

The importance of managingdata on raw materialsPaint consists of binders, pigments, fillers, solvents orwater and additives. One of our products can contain upto 30–40 different ingredients. Kemira Paints & Coatingsuses nearly 2,000 different raw materials. This meansthat managing data on raw materials is an essential partof our operations, both from the standpoint of productdevelopment and product safety.Pigments impart color, hiding powerand UV protectionPigments are finely divided powders that are insolublein water and solvents and are added to paint primarilyto give it the color and hiding power we want. Pigmentsalso protect against the sun’s ultraviolet rays, and somepigments can be used, for example, to improve the corrosionresistance of paint. The most important and mostusedpigment in our products is titanium dioxide.Binders create a paint filmand provide durabilityBinders form the paint film and bind the raw materials inthe paint together. We choose the binders for our paintaccording to the properties that are desired. This gives usthe means of affecting factors such as the paint’s resistanceto weather, wear and tear and washing, and it alsodetermines the application for which the paint can beused.Fillers provide low gloss and brushabilityFillers are insoluble, finely divided powders. They givepaint the low gloss and brushability we desire.Viscosity from water and solventsWater and solvents give paint the necessary viscositythat enables the product to be applied in a thin film onthe substrate. We also blend in a variety of additives thatmake up a very small part of the manufacturing formula.These substances contribute to a smooth manufacturingprocess, paint storability and durability outdoors.The Tikkurila Monicolor plant, Vantaa, Finland. Process tenderJouni Kyrökari tracks the paint manufacturing process.Tikkurila’s paint manufacturing is fully automated.25

Paints and social responsibilityOur manufacturing processguarantees a product of evenqualityThe main stages of paint manufactureare dosing of the raw materials,pre-mixing, dispersion mixing, finishing,tinting, filtering and filling. Paintmanufacture is a highly automatedand computer-controlled process.The production process is run on abatch basis in sizes of 1,500 to10,000 liters. Some of the raw materialsare liquid and some are powders.In order to turn them into paintof even quality, the ingredients aremixed and the pigments are groundcarefully according to the qualityrequirements of each product.Initially, part of the ingredients aredosed and then mixed together. Thisresults in a thick, pasty mixture thatgoes to the grinding mill. Duringgrinding, the pigment particles areagitated to break them down anddisperse them evenly into the paint.In the finishing stage, the remainingingredients are mixed in, to give thepaint its final properties. A sample ofthe finished batch of paint is taken,and this is studied in the quality controllaboratory. When the laboratoryhas approved the batch, the paint isfiltered and then canned.Consumer choices affect thepaint’s life cycleLife cycle is a term that generally refersto the product’s entire productionand usage history. The life cyclebegins with raw materials obtainedfrom natural sources, then other productioninputs are added and theprocess continues to the manufacturingand usage stages, ultimately endingwhen the used product or itscomponents are disposed of andre-enter the environment.The life cycle of paint is closelytied to life cycle of the substrate thatis to be painted and the structure.These must be very durable: the longerthe painted product lasts, theless resources are consumed. Thisalso sets demands on the end-user,because selecting the correct paintand using it in a responsible way cutsdown on the load which the paintand thing painted exert on the environment.Principal environmentalimpacts of paintThe most important factors from thestandpoint of assessing the environmentalimpacts of paint during its lifecycle are:• An adequate supply of source substancesin nature and their renewability.• Emissions and effluents caused byraw materials and the manufactureand transport of paint products,accidents, etc.• The use of energy, water and otherresources.• Emissions, effluents, wastes andother environmental loading arisingfrom the use of products.• Environmental loading resultingfrom the disposal of painted articles.We seek to apply life-cycle evaluationsof paint products as a tool inproduct development and marketing.According to the present view, apartfrom solvent emissions (VOC, or VolatileOrganic Compounds), paintproducts, during their life cycle, havea fairly small effect on the eco-system.For example, the overall impactof production emissions and energyuse is minor. Information on substancesand how they behave in natureis continuously being updated,and this is an aid in comparing differentalternatives.In the EU area, the use of paintproducts causes VOC emissionsamounting to about 10% of totalemissions. Replacing solvent-containingpaints with water-based and solvent-freeproducts is thus clearly oneof the main objectives of our productdevelopment.Some paints, especially thoseused by industry, are classified as beinghazardous to health or the environment.Nonetheless, no productgroup, when used according to itsinstructions, is normally harmful tousers’ health. By means of clearlymarked warnings, usage safety bulletinsand customer training and advisoryservices, we ensure that usersare well acquainted with the requirementsfor safe use of our products.Our R&D team is engaged inimportant environmental andsafety workIt is a guiding principle for us that ourproducts must be safe for human usersand the environment. Our productdevelopment team is constantlylooking for ways to discontinue theuse of hazardous or harmful chemicalsand to replace them with lesshazardous ones. In our paint andcoatings business, it is R&D that carriesout the measures related to environmentalprotection and safetywork.An example of an effective innovationis Tikkurila’s UVITEC method,which won an award from theRadTech Europe association in 2005.UVITEC is a means of curing waterbasedlacquer by means of ultravioletlight in an oxygen-free state. Themethod is a more environmentallyand user-friendly alternative to solvent-basedproducts when surfacetreatingchairs and similar threedimensionalproducts, and it hasawakened wide interest in thefurniture industry.More stringent legislation andgrowing safety awarenessEnd-users, too, have recently becomemore aware of environmental andsafety considerations. Furthermore,in just a few years now, new EU legislationthat restricts the use of solvent-containingproducts will speedup the transition to the use of waterbasedand solvent-free paints.26

The first requirements of the VOCdirective regulating the industrial useof solvents and the emissions causedby them came into force in 2004 andwill take full effect in 2007.For decorative paints, in turn, strictupper limits will be set on solventcontent levels in the EU area. Therequirements of the first phase willcome into force from the beginningof 2007, and more stringent requirementswill be introduced in 2010.The limits of the second phase inparticular will call for continuous R&Dwork, and some types of solventcontainingproducts will most likelyhave to be pulled off the marketonce and for all. This regulation willlargely determine the priority areasin the development of decorativepaint products over the next fewyears.In the near future, developmentwill be greatly affected by a numberof legislative projects that are in thecrucial final stages. One such projectis the REACH procedure (Registration,Evaluation and Authorization ofChemicals). These regulations maylead to the end of manufacture ofsmall-volume strategic raw materialsin the EU area for cost reasons. Thiswill also pose challenges for our ownproduct development effort.Toward better eco-efficiencyin production and deliveryprocessesThe development of our productionand delivery processes is geared toan improvement in eco-efficiency.We are improving eco-efficiency stepby step by making incremental improvements.We pay particular attentionto wastes, emissions, packaging,energy use and the safety of themanufacturing process.We strive to reduce the amount ofmaterial that is disposed of as waste,and to cut down the waste waterload, environmental stress due totransports as well as emissions frommanufacture. We accomplish thispartly by developing our manufacturingprocesses and logistics, and inpart by promoting initiatives such asthe utilization of waste materials.We minimize the use of productpackaging materials and insure thatnew types of packaging are suitablefor new uses or recycling. In transportsand user packaging, too, we doour part in furthering recycling andreuse.We are continually improving thesafety of our paint manufacturingprocess. We carry out risk surveysand gather information on practicalexperiences. We systematicallydevelop assessments of the safetylevel.Responsible operations havea positive impact on earningsWe believe that well-managed environmental,health and safety practiceshave a positive effect on our bottomline. Responsible operationsinfluence the selections made byconsumers and business customers,create a basis for enduring customerrelationships and build trust amongconsumers.Direct economic savings are realized,say, by reducing wasted materialsand waste costs, and by reducingabsences due to industrial accidents.In recent years, especially big savingshave resulted from a reduction indirect environmental costs, such asraw materials loss and the costs oftreating and disposing of wastes. Inpractice, we have realized these savingsfrom the advances made in ourprocesses and by introducing newways of working.Employees’ well-being is keyto the company’s successOur employees’ well-being is part ofour program for environmental andsocial responsibility. We devote particularattention to occupational safety,job-satisfaction, working capacity,equality, the personnel structure andprofessional and vocational growth.We are analyzing, with ever-growingeffectiveness, the causes of accidentsand hazardous situations. Wedevelop ways of working and workingconditions systematically, drawingon the information obtained, andwe furthermore make sure thatthere are safe conditions for subcontractorswho perform work at oursites.The systematic monitoring of jobsatisfaction is a prime focus. We developour people’s overall fitness,covering physical, psychic, social andprofessional working capacity. Westrive to offer our people an opportunityfor professional growth. We promotea diversified personnel structurethrough our recruitment policy,and we promote equality, respect forthe individual and the recognition ofdiversity throughout the workplace.Action plans, key projects andimplementation monitoringThe different companies making upthe Paints & Coatings business areaannually define their own objectivesand key projects for all four subareasof corporate social responsibility:product safety, improving the ecoefficiencyof our processes, financialperformance and employee well-being.In action plans worked out at thedepartment level, we work out thespecs for detailed individual projects.We track development not only withthe company’s own benchmarks butalso by means of Kemira-wide developmentbenchmarks.The biggest units in our businessarea, Tikkurila Oy in Vantaa andAlcro-Beckers AB in Stockholm,Sweden, each year publish their ownpublic environmental and social responsibilityreport.27

Environmental reportEnvironmental report 2005The Kemira Group continued to show solid progress in environmental affairs in 2005.Releases into the environment decreased substantially and the environmental business grew.The safety development, however, was below expectations.The Kemira Group continued to showsolid progress in environmental affairsin 2005. Substantial reductionsin the reported environmental releaseswere mainly associated withchanges in the Group’s businessportfolio.Capital expenditure on environmentalprotection was 28% lowerthan in the previous year at EUR 7.4million with no major projects pending.Environmental operating coststotaled EUR 33.3 million, 18% lowerthan in the previous year. Provisionsfor environmental remediation increasedslightly to EUR 22.9 million.Two major accidents occurred inSweden and Finland, resulting in significantproperty damage but nosignificant health or environmentaleffects. One contractor employeedied in a regrettable accident at thePori plant in Finland.Sales of environment-related productsand services were up by 14%compared to the previous year andtotaled some EUR 742 million, 37%of the Group’s net sales. Growth –both organic and through acquisitions– continued, especially within theKemwater business area.Product safety work focused on intensivepreparations for REACH, theEU’s proposed new chemical legislation.The Group set up a REACH CompetenceCentre in Finland and continuedthe development of global ITsystems.The Kemira Group’s 12th environmentalreport deals with Group companiesin line with financial reporting.It has been prepared, where applicable,in accordance with:• Recommendations by the FinnishAccountancy Standards Board onthe recognition, measurement anddisclosure of environmental issuesin the annual accounts and annualreports of companies, 2003• CEFIC (European Chemical IndustryCouncil): Health, Safety and EnvironmentReporting Guidelines,1998.EHS Policy andManagement SystemsThe Kemira Group launched a sharpenedEnvironmental Health and Safety(EHS) policy, with the main emphasison improving safety culture.Helsinki-Vantaa Airport, Finland.28

The Group also initiated an integrated EHS and qualitycertification and auditing process at all its sites in Finland.An agreement was made with Det Norske Veritas (DNV)concerning Group certification and audits. The agreementalso covers the transition to OHSAS 18000-certified safetymanagement systems.Highlights of activities at the sitesIn Helsingborg (Sweden), a large sulphuric acid tank suddenlycollapsed in the harbor area of the Kemira site onFebruary 4, 2005. As a consequence, approximately16,300 tons of 96% sulphuric acid was discharged intothe plant area and partly into the harbor basin and thesea. Due to presumed risk of acidic fume developmentthe emergency authorities closed certain residential areaslocated near the site for a couple of days as a preventivemeasure. The accident did not cause any significant harmto Group employees, public health or the environment.Follow-up investigations have shown that the impact onflora and fauna was essentially restricted to the harborbasin, and that recovery is taking place. Damage to plantproperty was significant, including soil and ground wateracidification close to the harbor area. Decontaminationand neutralization work is ongoing. A new sulphuric acidand liquid sulphur tank farm is also under construction. Anextensive investigation of the accident by experts and theauthorities has been conducted. The cause was a suddenrupture of a sub-surface cooling waterpipe near the tankfarm. This led to a substantial weakening of the groundsupporting the acid tank. The new pipelines have beenconstructed above-ground and the pipeline risks havebeen evaluated.The Helsingborg site made improvements to reduceemissions of nitrogen oxides from the sulphuric acid plant,and modified the absorption unit of the hydrochloric acidplant to prevent releases of wastewater into the sea.Elina Engman, Kemira’s Vice President, Energy,flies to Brussels to meet with other EU energy experts.Return flight home for the evening.29

Environmental report120100806040207 0006 0005 0004 0003 0002 0001 000Environmental index97 98 99 00 01 02 03 04 050Environmental index consist of sevendifferent releases, and of non-hazardousand hazardous waste1,000 tonnes CO 2eq.7 0006 0005 0004 0003 0002 0001 0000TonnesGreenhouse gas emissions97 00 01 02 03 04 05N 2OCO 2NO Xemissions97 00 01 02 03 04 050NO and NO 2calculated as NO 2Pulp & Paper ChemicalsIn Columbus (Georgia, USA), a newwastewater permit was issued to theplant with somewhat tighter effluentlimits. At the Fortville plant (Indiana,USA), a minor spill of sodium silicateinto a nearby ditch was cleaned up.The Washougal plant (Washington,USA) evaluated alternatives for upgradingcooling-water management.The sodium chlorate plant at Eastover(South Carolina, USA) improvedthe unloading of raw salt to preventsoil impacts. The Prince George plant(Canada) celebrated 1,000 dayswithout any lost-time accidents. TheUlsan site (South Korea) improvedenergy efficiency and water recycling.A new environmental permit wasissued to the Vaasa plant (Finland).The project for remediation of sedimentin the small lake adjacent tothe plant continued, with main remedialwork pending final approval bythe authorities. The calcium sulphatepigment business based at Siilinjärvi(Finland) received ISO 14001 certification.The Äetsä site (Finland) took anew washing-water system at its sodiumchlorate plants into full use andcontinued the closing of water systems.Some soil contaminated withmercury and waste of historic originwas sent for external treatment. Thefine chemicals plant improved its distillationand sewage systems. An explosionoccurred in the dryer of thefine chemicals plant on October, 31.The accident caused substantial propertydamage at one plant unit, but noharm to the environment or humanhealth. A thorough expert investigationof the accident is pending.The Joutseno site (Finland) improvedenergy efficiency by replacingmembrane cells in its chlor alkaliplant. Reverse osmosis equipmentwas installed for the production ofdemineralized water. An investmentwas made in the recovery of hydrochloricacid fumes resulting from theloading of tank lorries. These measuresalso reduce the level of neutralizedsalt effluents into LakeSaimaa.At Kokkola (Finland), a newly establishedservice company OnePointOy offers EHS services to companieslocated in the industrial zone. Plansfor the isolation and expansion ofwaste disposal basins were finalized.Construction work will start in April2006.KemwaterISO 14001 certification was obtainedby the Europoort plant in The Netherlandsand the Goole plant in the UnitedKingdom. The Europoort plant alsoinitiated a program for minimizingfiltrate waste. At the Cremona plant(Italy), a reverse osmosis plant wasinstalled for the treatment of condensatewater. In Kolin & Zelivka(Czech Republic), new double-wallstorage tanks for sulphuric acid wereinstalled together with upgradedsafety basins.In Harjavalta (Finland), a new gasscrubbing system was installed in thealuminium sulphate reactor line toreduce acidic emissions. New dustcollectors were also installed. KemiraIberica (Spain) improved water managementat its Tarragona and Sevillaplants and started using recycled rawmaterials at Flix.In North America, supported bycorporate audits, Kemiron made significantadvances in harmonizingthe EHS and quality functions at allKemiron and Eaglebrook plants.Additional NSF certifications werealso obtained. One small plant was30

closed, partly as a result of damagecaused by Hurricane Katrina. TheBrantford plant in Ontario (Canada)is in the process of obtaining a newpermit dealing with the preventionof hydrochloric acid discharges.Performance ChemicalsThe major environmental permit processfor the Pori plants (Finland) continuedwith public hearings. A newpermit for using river water was obtained.A EUR 1.6 million investmentin expansion of the off-site gypsumlandfill was completed. Carbon dioxideemissions were below the allowancesgranted to the site’s powerplant. The number of workplace incidentsincreased. Occasional acidicemissions from the sulphuric acidplant resulted in damage to paintworkon cars in the car park.The Tiel plant (The Netherlands)evaluated options for reducing noiseand expanding the extent of liquidtightflooring. The site is certified inaccordance with ISO 9001, ISO 14001and OHSAS 18001, as well as withfood and feed quality managementrequirements. The Barcelona site(Spain) is upgrading dust reductionmeasures at its phosphate plant.In Finland, the Oulu plants completedthe construction of a new oilstorage area with improved safetyarrangements. Some water pipeswere relocated to avoid the occurrenceof an accident similar to theone in Helsingborg.Paints & CoatingsTikkurila continued to optimize environmentalsafety by centralizing theproduction of solvent-based paintsin Russia – production in Estonia hasceased. Internal EHS audits were continuedin order to roll out best practiceswithin units. Soil investigationscontinued at Debica (Poland) andStockholm (Sweden).Environmental statisticsThe environmental data presentedhere is based on reports from 85 productionplants. As a result of acquisitions,eleven plants were reportingfor the first time. These include fivesites that mainly produce sodiumchlorate (BA Pulp and Paper), twoorganic acid/salt plants (BA PerformanceChemicals), and four plants inNorth America producing water treatmentchemicals (BA Kemwater).Three minor units were closed duringthe year.Divestments that took place in theprevious year were not accounted forin 2005, and were the cause of mostof the reductions in the corporatelevel environmental statistics.While overall production volumedropped by approximately 50% fromthe previous year as a result of divestments,the total production ofcontinuing and acquired sites increasedby approximately 21%. Theacquisition of Finnish Chemicals, acompany whose main product is sodiumchlorate, more than doubledthe Group’s use of electricity. This increaseis a result of the electrochemicalnature of the production process,even when the best available technologiesare applied.The Group’s overall environmentalindex shows a reduction of 50%from the previous year, while netsales declined by 21%. Improvementhas been continual since reportingbegan in the early 1990s. The compositionof the index was changedthis year by replacing a commonnutrient discharge phosphorus withCOD (chemical oxygen demand), andTonnes350300250200150100500Tonnes6 0005 0004 0003 0002 0001 0000Tonnes50403020100VOC emissions97 00 01 02 03 04 05COD discharges97 00 01 02 03 04 05Heavy metal discharges98 00 01 02 03 04 05Sum of eight different heavy metals31

Environmental report1,000 tonnes3 0002 5002 0001 5001 0005000EUR million20151050EUR million6050403020100Non-hazardous wastegeneration97 00 01 02 03 04 05Environmental capital spending97 00 01 02 03 04 05Environmentaloperating costs97 00 01 02 03 04 05by adding hazardous waste into theindex calculation. These changes improvethe way that the index reflectsthe Group’s current environmentalfootprint. Corresponding index valueshave been recalculated for pastyears.The Group’s reported carbon dioxideemissions fell by approximatelyone million tons (56%) as a result ofdivestments. A further reduction inemissions is expected as the Grouphas sold two power plants in Finlandwhich represented a major componentin the remaining sources of CO 2.The direct impact of Kemira’s operationson climate change will thereforebe limited. Emissions of inorganicgases such as sulphur dioxide and nitrogenoxide also fell substantiallyfor the reasons explained above.Emissions of volatile organic compounds(VOC) remained unchangedeven when the associated businessoperations expanded.All reported wastewater componentsshowed a clear downwardtrend. The changes were once againdue to the Group’s divestment of businessesand also a result of the lowfigures reported by acquired plants.The Group’s generation of nonhazardouswaste fell by more thanone million tons as a result of the divestmentof fertilizer operations. Currently,the by-products of titaniumdioxidepigment production at Pori(Finland) represent the only significantvolumes of waste produced bythe Group. Recycling efforts in 2005were successful, and the prospectsfor increasing co-product sales aregood.Compared to the previous year,hazardous waste generation fell by50%, primarily as a result of thedivestment of certain fine chemicaloperations.Environmental costsCapital expenditure on environmentalprotection measures in 2005 declinedto EUR 7.4 million. Significantinvestments in environmental projectsare currently planned only atPori (Finland), and are waiting for approvalof a permit application by theauthorities. Environmental operatingcosts in 2005 totaled EUR 33.3 million,18% less than in the previousyear. The reduction was primarily theresult of divestments by the Group.In overall terms, environmentalcosts represented 1.7% of theGroup’s net sales. This is the lowestobserved figure since the beginningof the reporting in the early 1990s.Environmental businessSales of environment-related productsand services totaled approximatelyEUR 742 million, 14% higherthan in the previous year. Sales byBA Kemwater increased more than20% in global terms, with particularexpansion in North America. BA PerformanceChemicals achieved growthin the environmental applications oforganic salts, as well as in the salesof products based on co-productsand waste. Within BA Pulp & Paper,sales of both hydrogen peroxide andspecialty chemicals for environmentalapplications increased slightly. Seepages 24–27 of this report for developmentsin BA Paints and Coatings.Product safety and REACHKemira continued to develop and rollout a global SAP-based product safetyIT system. This improves MSDSmanagement, and helps in meetingthe challenges presented by REACH.Kemira contributed actively to thedevelopment of tools for REACH, aswell as to the extensive stakeholderdialogue concerning this subject.32

(REACH deals with the registration,evaluation, testing and risk assessmentof substances manufactured ormarketed in the EU, as well as withauthorization of the most harmfulsubstances).Kemira established a REACH CompetenceCenter in Finland to managethe forthcoming REACH registrationand authorization procedures withhelp from all the Group’s businessunits.Acquisitions expanded Kemira’sproduct range and increased thenumber of substances that may haveto be registered under REACH. TheGroup’s inventory of substancesmanufactured in or imported into theEU was updated during 2005. At thetime when this report was written,the Group manufactured or importedmore than 100 such substances,about a quarter of which are currentlycovered by voluntary industry consortiain the so called ICCA HPV program.It will be possible to utilize theresults of this work in the REACHregistration process at a later date.Kemira is acting as a lead companyin one such consortium. The numberof substances produced by the Groupthat are subject to the authorizationprocedures proposed in REACH islimited. Pending or future businessacquisitions or divestments couldchange these figures to a considerableextent.Significant product liability cases,accidents or unforeseen limitationsconnected with the use of Groupproducts were not encountered duringthe year.of improvement. The main cause forthe upturn was Group’s acquisitionand divestment activity, with most ofthe newly-acquired sites having higherfigures and divested sites beingamong the best safety performers.The number of incidents at particularmain sites in Finland was also relativelyhigh in 2005.A fatal accident occurred at KemiraPigments (Pori, Finland) on November,15. A contractor’s employee diedwhen cleaning equipment with highpressure water jet during maintenancework. The largest accidents atGroup sites are described above.Kemira continued to develop theGroup’s harmonized safety reporting,incident management and training.As a response to the accidents reportedabove, the Group also decidedto initiate regular process safetyevaluations in all its business units.Environmental risks,liabilities and legal casesSee Notes to the Consolidated FinancialStatements, page 98.Corporate responsibility (CSR)Social responsibility issues that concernGroup personnel are discussed onpage 18–21. A separate review of corporateresponsibility in BA Paints &Coatings can be found on pages24–27.Growth of environmentalbusinessEUR million800700600500400300200100097 00 01 02 03 04 05Per million working hours201612840Lost time incidents97 00 01 02 03 04 05Hazardous waste treatment in 2005SafetyThe frequency of occupational incidents(LTA 1) increased to 8.4 (6.7 in2004) after several consecutive yearsOn-site incineration 10%Off-site incineration 23%Off-site landfilling 16%Recycling 27%Other treatment 24%33

Environmental reportEnvironmental and safety management systems at production sites in 2005Site Environment SafetyKrems, Austria ISO 14001 1Sao Paolo/Sao Bernardo do Campo, Brazil ISO 14001Telêmaco Borba, Brazil ISO 14001 OHSAS 18001 2Kolin and Zelivka, Czech Republic ISO 14001Prerov, Czech Republic ISO 14001 OHSAS 18001Esbjerg, Denmark ISO 14001 OHSAS 18001Tallinn Vivacolor, Estonia ISO 14001Harjavalta, Finland ISO 14001Joutseno, Finland ISO 14001 OHSAS 18001Kokkola, Finland ISO 14001 DNV ISRS 3Kuusankoski, Finland ISO 14001 OHSAS 18001Oulu, Finland ISO 14001 DNV ISRSPori, Finland ISO 14001 DNV ISRSSiilinjärvi, Finland ISO 14001Vaasa, Finland ISO 14001 DNV ISRSVantaa, Finland ISO 14001, EMAS 4Äetsä, Finland ISO 14001 OHSAS 18001Lauterbourg, France ISO 14001Pigrol Farben GmbH/Ansbach, Germany EMASRheinberg, Germany ISO 14001Ube city, Japan ISO 14001Ulsan, Korea ISO 14001Rozenburg, Netherlands ISO 14001Tiel, Netherlands ISO 14001 OHSAS 18001Fredrikstad, Norway ISO 14001Police, Poland ISO 14001Swiecie, Poland ISO 14001 OHSAS 18001Wroclav, Poland ISO 14001Estarreja , Portugal ISO 14001Bistrita, Rumania ISO 14001Fundulea, Rumania ISO 14001Barcelona, Spain ISO 14001Flix, SpainISO 14001, EMASSantander, SpainISO 14001, EMASSevilla, SpainISO 14001, EMASTarragona, SpainISO 14001, EMASHelsingborg, Sweden ISO 14001Kvarntorp, Sweden ISO 14001Stockholm, Sweden ISO 14000Goole, United Kingdom ISO 140011) International Organization for Standardization, Environmental management system standard.2) Occupational Health and Safety, management system standard.3) Det Norske Veritas, International Safety Rating System.4) European Union, Eco-Management and Audit Scheme.34

Environmental data for the Kemira group2000 2002 2003 2004 2005Releases into water, tonnesChemical Oxygen Demand (COD) 1 749 159 173 309 79Nitrogen (N) 948 753 686 542 96Phosphorus (P) 1,176 16 19 15 7Suspended solids, 1,000 tonnes 403 0.9 1.1 1.3 0.9Metals (Hg+Cd+Pb+Cr+As+Cu+Ni+Zn) 6.8 2.8 3.6 4.0 2.0Releases into air, tonnesParticulates 895 850 801 257 128Sulphur dioxide (SO 2) 2 4,359 4,580 4,436 4,330 3,036Nitrogen oxides (NO 2) 3 5,455 3,950 4,038 2,864 1,152Carbon dioxide (CO 2), 1,000 tonnes 2,992 2,369 2,364 1,828 805Volatile organic compounds (VOC) 4 268 199 186 136 130Volatile inorganic compounds (VIC) 5 2,663 2,581 2,627 1,310 24Waste 6 , tonnesHazardous wastes, total 5,719 5,858 8,473 10,310 5,290— Off-site landfill 518 1,038 1,356 3,621 1,316— Off-site incineration 4,292 3,752 5,390 4,892 1,933— On-site landfill - 29 64 94 35— Other treatment 909 1,040 1,663 1,704 2,006Non-hazardous wastes, 1,000 tonnes 2,277 2,289 2,299 1,903 653Natural resourcesFuel consumption, ktoe 7 1,571 523 533 427 292Fuel consumption as raw material, ktoe - 740 757 560 81Purchased electricity, TJ 5,300 4,654 4,633 4,137 9,594Purchased heat, TJ - 794 982 907 1,177Cooling water volume, million m 3 , approx. 387 336 349 239 202Waste water volume, million m 3 , approx. 34 15 15 13 5.4SafetyNumber of accidents 8 per million working hours 12.7 9.7 7.3 6.7 8.4Reference data, EUR millionGroup net sales 2,486 2,612 2,738 2,533 1,994Environmental capital expenditure 8.9 12.3 9.5 10.3 7.4Environmental operating costs 39.3 47.3 46.7 40.4 33.3Total environmental costs, % of net sales 1.9 2.3 2.1 1.8 1.71) Estimate. In this case, partly caused by inorganic discharges.2) All sulphur compounds calculated as SO 2.3) Nitric oxide and nitrogen dioxide calculated as NO 2.4) VOC is a sum of volatile organic compounds. Does not include VOCsources in ammonia production.5) Sum of ammonia, hydrogen chloride and six other simple inorganiccompounds.6) Reported figures do not include mining by-products, on-siteincineration, waste which is further processed into products at thesites, or sold as a co-product to external recycling. Figures are onwet basis.7) 1,000 tonnes of oil equivalent.8) Accidents causing an employee absence at least one day (LTA1).Includes only figures for production sites in 2000.35

Environmental reportAssurance statementAt the request of Kemira Oyj, we have reviewed the information, systems and methodologies behind the data andstatements presented in the Environmental Report 2005 of Kemira Oyj. The report is the responsibility of and has beenapproved by the Board of Directors of Kemira Oyj. The inherent limitations of completeness and reliability of the dataare set out in the report. Kemira Oyj complies in its environmental reporting, where appropriate, with the FinnishAccountancy Standards Board’s recommendation on the recognition, measurement and disclosure of environmentalissues in the annual accounts and annual reports of companies (14.01.2003) and the CEFIC Health, Safety and EnvironmentalReporting Guidelines (1998).The assurance work was undertaken in accordance with the International Standard on Assurance Engagements (ISAE)3000 principles. We planned and carried out our work to provide moderate assurance on the reliability of presenteddata that was subject to assurance.Our review has consisted of the following procedures:• enquiries of management responsible for compiling the report;• an examination of relevant supporting information for data and statements presented;• a review in more detail of the systems for collection and processing environmental data at operating level atone site in Finland and at one in the Netherlands, selected by us.Based on our activities undertaken, nothing has come to our attention that causes us to believe that the presented dataand statements in the Environmental Report 2005 of Kemira Oyj would not appropriately describe the condition anddevelopment of the issues presented in the Environmental Report of Kemira Oyj.Helsinki, February 7, 2006KPMG OY ABHannu NiilekseläAuthorized Public AccountantOlli MiettinenAdvisor, Sustainability Services36

Corporate GovernanceThe corporate governance of KemiraOyj is based on the Finnish CompaniesAct and the Articles of Association.Kemira Oyj’s shares are listedon the Helsinki Stock Exchange andthe company complies with the rulesand regulations which the stock exchangeissues concerning listed companies.The company also complieswith the Helsinki Stock Exchange’srecommendation on CorporateGovernance.The Kemira Group’s general operatingprinciples, mutual responsibilitiesand lines of responsibility are definedin the Kemira Code of BusinessPractices, which also includes a CorporateGovernance section. Kemira’score values and ethical principles underpinthe company’s corporate governanceand the way the companyinteracts with its main stakeholders.According to the Articles of Associationof Kemira Oyj, the company’saffairs are managed by a SupervisoryBoard, a Board of Directors and amanaging director, who is called theChief Executive Officer. A managingdirector’s deputy who is called theDeputy Chief Executive Officer hasbeen appointed for the company.Kemira Oyj’s Articles of Associationcan be found on the company’s websitewww.kemira.fi under Investors.General meetingThe general meeting of the shareholdersof Kemira Oyj is the Group’shighest decision-making body, and itis convened at least once a year. TheAnnual General Meeting must beheld each year by the end of May.The Annual General Meeting passesresolutions on the tasks within itscompetence under the CompaniesAct, such as approval of the financialstatements and dividend payout,granting of release from liability tothe members of the Board of Directorsand the managing director aswell as the election of the SupervisoryBoard, the Board of Directors andthe auditors and furthermore theemoluments and fees which they arepaid. A notice of a general meetingmust be published in at least twonationwide newspapers specifiedby the Board of Directors no earlierthan two months and no later than17 days prior to the meeting.Shareholder-appointedNomination CommitteeOn April 5, 2005, the Annual GeneralMeeting passed a resolution accordingto which a Nomination Committeeappointed by the company’s majorshareholders would prepare proposalsconcerning the members ofthe company’s Board of Directorsand directors’ remuneration for presentationto the next Annual GeneralMeeting.The members appointed to theshareholders’ Nomination Committeeon December 20, 2005, were ChiefCounsellor Pekka Timonen of theMinistry of Trade and Industry (Chairman),Mikko Koivusalo, Head of CapitalMarket Investments of Varma MutualPension Insurance Company, andOlli-Pekka Laine, Managing Directorof Tapiola Mutual Pension InsuranceCompany. Anssi Soila, Chairman ofthe Board of Kemira Oyj, will serveas an expert member of the NominationCommittee.Supervisory BoardThe Supervisory Board is composedof a minimum of eight and a maximumof ten members elected bythe Annual General Meeting for theperiod that ends at the close of thenext Annual General meeting. TheAnnual General Meeting elects onemember as the chairman and a maximumof two vice chairmen. Membersare paid monthly remunerationand meeting fees in accordance withthe resolutions passed by generalmeetings of shareholders (page 87).Travel expenses are compensatedaccording to the company’s travelingcompensation regulations.The authorities and duties of theSupervisory Board are limited to thestatutory authorities and duties underthe Companies Act. These includeoverseeing the managementof the company’s affairs by theBoard of Directors and the managingdirector as well as delivering to theAnnual General Meeting its statementon the financial statementsand the auditors’ report. The SupervisoryBoard can furthermore issue instructionsto the Board of Directors inmatters of wide-ranging importanceor which are important in principle.During the financial year the SupervisoryBoard met four times and theaverage attendance rate of themembers was 91%.The 2005 Annual General Meetingelected the following persons to theSupervisory Board: Members of ParliamentAulis Ranta-Muotio (b. 1946),Chairman of the Supervisory Board,Mikko Elo (b. 1943), First Vice Chairman,Heikki A. Ollila (b. 1950), SecondVice Chairman and Susanna Rahkonen(b. 1968); Industrial CounsellorRisto Ranki (b. 1948), professionalboard member Pekka Kainulainen(b. 1941), Managing Director MikkoLångström (b. 1940), and teacherKatri Sarlund (b. 1965).The employee representativeshave the right to be present at meetingsof the Supervisory Board but donot vote. The employee representativeswere Terttu Saukko-Vähämäki(b. 1958), Shipping and Safety Manager,Jouni Kukkonen (b. 1947), ResponsibleForeman, Reino Holappa(b. 1951), Chief Shop Steward, andTeuvo Virtala (b. 1952), process tender.Deputy representatives wereJuha Outila (b. 1962), research assistantand Pauli Lehtonen (b. 1949),vehicle driver.37

Corporate GovernanceBoard of DirectorsThe Annual General Meeting electsthe chairman, vice chairman and othermembers of the Board of Directors.In accordance with the Articlesof Association, the Board of Directorscomprises a minimum of four and amaximum of eight members. OnApril 5, 2005, the Annual GeneralMeeting elected seven members tothe Board of Directors. The term ofoffice of the members ends at theclose of the next Annual GeneralMeeting following their election.In 2005 the Board of Directors met12 times and the attendance ratewas 100%.Members are paid monthly remunerationand meeting fees in accordancewith the resolutions passed bygeneral meetings of shareholders(page 87). Travel expenses are compensatedaccording to the company’straveling compensation regulations.According to the Articles of Association,the duties of the Board ofDirectors are to attend to the taskswithin its competence under theCompanies Act. The Board of Directorsis in charge of Corporate Governanceand the due arrangement ofthe company’s affairs. The Board ofDirectors prepares the matters to bedealt with at general meetings ofshareholders, decides on conveninggeneral meetings and attends to theimplementation of resolutions ofgeneral meetings. In addition, theBoard of Directors grants and cancelsauthorizations to sign the company’sbusiness name.The Board of Directors decides onmatters which, in view of the scopeand type of the company’s operations,are uncommon or wide-rangingin impact. These are, notably, approvalof the Group’s objectives andthe strategy that is formulated forachieving them, approval of operationalplans, the definition and approvalof control principles, approvalof the company’s organizationalstructure, approval of the managingdirector, his deputy and the compositionof the Management Boards, andoverseeing and assessing their performance.The Board of Directors also attendsto the other tasks within its competenceunder the Companies Act. TheBoard of Directors is responsible forduly organizing the company’s accountingand overseeing the managementof its funds. The Board ofDirectors is responsible for seeing toit that the company’s financial statementsgive correct and sufficient informationand that the consolidatedfinancial statements have been preparedin conformity with InternationalFinancial Reporting Standards(IFRS) and the financial statementsof the parent company in conformitywith the acts and regulations in forcein Finland (FAS). The meetings of theBoard of Directors examine themonthly trend in the company’searnings. The Board of Directors discussesthe company’s audit with theauditor. The Board of Directors evaluatesits activities and ways of workingon an annual basis. The Board ofDirectors has drawn up written rulesof procedure defining the abovementionedduties and procedures.Board committeesThe Board of Directors of Kemira Oyjhas two permanent committees:an Audit Committee and a CompensationCommittee.The Audit Committee is made upof members elected by the Board ofDirectors from amongst their number,who are independent of the company.The task of the Audit Committeeis to assist the Board of Directors inmaking sure that the financial reportingand asset management process isoverseen properly, and that the systemof internal control, the audit process,and Kemira’s operations are arrangedin compliance with laws andregulations and the Kemira Code ofBusiness Practices, which has beenconfirmed by the Board of Directors.The task of the Audit Committee is toassess the correctness and adequacyof financial statement information,the efficacy of internal control andrisk management as well as the independenceof the external auditorsand the work they perform. The AuditCommittee operates in accordanceKaija Pehu-LehtonenHeikki Bergholm, Eija Malmivirta and Ove Mattsson.38

with the procedures and principlesconfirmed by the Board of Directors.In 2005, Heikki Bergholm chaired theAudit Committee, whose other memberswere Eija Malmivirta and AnssiSoila. The Audit Committee met sixtimes during 2005.The Compensation Committee iscomprised of members elected bythe Board of Directors from amongsttheir number, who are independentof the company. The Board of Directorshas approved procedures andprinciples for the committee, accordingto which it deals with mattersconcerning management compensationand reward schemes for the personnel.In 2005, the committee waschaired by Anssi Soila, the othermembers being Ove Mattsson andMarkku Tapio. The CompensationCommittee met four times during2005.The company has an internal controlsystem, the purpose of which isto ensure that financial reporting isreliable and that the established rulesand business practices are observed.The internal control system is supportedby approved policies and procedureswhich are observed at allGroup companies as well as by an internalaudit function whose staff operatein accordance with the proceduresand principles confirmed by theBoard of Directors and in accordancewith its annual plan. During the yearthe Internal Audit discusses its auditplan and observations with the company’selected auditors. The InternalAudit reports directly to the chief executiveand communicates its observationsand recommendations to theAudit Committee of Kemira Oyj.The company’s risk managementprinciples are discussed on pages98–100.Members of the BoardAnssi SoilaM.Sc. (Eng. & Econ.), b. 1949, Chairmanof the Board. A member of theKemira Oyj Board of Directors since2000, Chairman since 2003. Chairmanof the Board: Sponda Oyj andMedone Oy. Vice Chairman andmember of the Board: Normet Oy.Member of the Board: AspocompGroup Oyj, Lindström Oy and Å&RCarton AB. In 1973–1999 he was employedby Kone Oy, for the final fiveyears as its President.Eija MalmivirtaM.Sc. (Eng.), b. 1941, Vice Chairmanof the Board. A member of the KemiraOyj Board of Directors since2000, Vice Chairman since 2003.Member of the Board: VR-Group Ltd,National Emergency Supply Agency,Finnish National Theatre Ltd. Directorof Neste Oil Trading 1982–1996.Neste Oy, Executive Vice President1990–1996. Main shareholder inMerei Energy Oy Ltd and Chairman ofthe Board of Directors 1996–2002.Elizabeth ArmstrongPh.D., b. 1947. A member of the KemiraOyj Board of Directors since2003. With 30-years experience inthe chemical industry and 15-years insenior management positions (Cyanamid,Cytec Industries, Zeneca, Avecia);most recently as President ofNeoResins (1996–2005) and Chairmanof the Board for Image Polymers(1996–2005).Heikki BergholmM.Sc. (Eng.), b. 1956. A member ofthe Kemira Oyj Board of Directorssince 2004. Chairman of the Board:Componenta Oyj, Lakan Betoni Oy.Member of the Board: Suominen Corporation,MB Funds Oy. Researcherand Development Manager with IndustrialisationFund of Finland LtdKemira House, Helsinki. A moment before the Board of Directors’ meeting.Anssi Soila and Elizabeth Armstrong.Markku Tapio39

Corporate Governance1980–1985. CFO of Lassila & TikanojaGroup 1985–1986, business unit director1986–1997, Deputy Managing Director1997–1998 and Managing Director1998–2001. Managing Directorof Suominen Corporation since 2002.Ove MattssonPh.D., b. 1940. A member of the KemiraOyj Board of Directors since2003. Chairman of the Board: AromaticAB, Exel Oyj and XCounter AB.Member of the Board: Arctic IslandLtd, Biotage AB and Mydata AutomationAB. President of Casco Nobel AB1978–1991. President and CEO of NobelIndustries AB 1991–1994. Memberof the Board of Management ofAkzo Nobel nv and COO of AkzoNobel Coatings 1994-2000.Kaija Pehu-LehtonenM.Sc. (Eng.), b. 1962. A member ofthe Kemira Oyj Board of Directorssince 2004. Site Manager of the Raumapulp mill of Oy Metsä-Botnia Absince 2001. In expert and managerialpositions with Kymmene Oy andMetsä-Botnia since 1986.Markku TapioB.Sc. (Pol. Sc.), b. 1948. A memberof the Kemira Oyj Board of Directorssince 2003. Head of the State ShareholdingsUnit of the Ministry of Tradeand Industry. Chairman of the Board:Altia Oyj. Employed by the Ministryof Trade and Industry since 1979.All members of the Board of Directorsare independent of the company.Member Markku Tapio is employedby the Ministry of Trade andIndustry of the state of Finland, thebiggest shareholder of Kemira Oyj.Managing DirectorThe managing director and the managingdirector’s deputy are appointedby the Board of Directors. Accordingto the Articles of Association, the taskof the managing director is to manageand develop the company andthe Group in accordance with the instructionsand regulations issued bythe Board of Directors. The managingdirector of Kemira Oyj is LasseKurkilahti, B.Sc. (Econ.). The managingdirector’s deputy is Esa Tirkkonen, M.Sc. (Eng.). Conditions of the managingdirector’s agreement are discussed onpage 87. Persons belonging to thecompany’s management, includingparties closely associated with them,are not involved in substantial businessrelationships with the company.AuditorsThe Annual General Meeting electsas auditors a minimum of one anda maximum of three auditors. Oneof the auditors must be a firm of independentpublic accountants approvedby the Central Chamber ofCommerce. The auditor of Kemira Oyjis the firm of public accountantsKPMG Wideri Oy Ab, with HannuNiilekselä acting as principal auditor.Audit fees are detailed on page 81.Management BoardsKemira Oyj has strategic and operationalmanagement boards. The StrategicManagement Board examinesmatters from the perspective of theGroup as a whole, its business portfolioand its support functions withthe aim of ensuring Group-wide profitabilityand growth. The OperationalManagement Board reviews mattersfrom the perspective of the Group asa whole and the business areas withthe aim of ensuring the profitabilityand growth of the business areasand the entire Group.Members of theManagement BoardsLasse KurkilahtiB.Sc. (Econ.), b. 1948, Chairman ofboth Management Boards. Presidentand CEO of Kemira Oyj since 2004.Member of the Board: Fortum Corporation,Elisa Corporation and Lassila &Tikanoja plc. President and CEO ofNokian Tyres plc 1988–2000, ofRaisio Group plc 2000–2001 and ofElcoteq Network Oyj 2001–2004.Esa TirkkonenM.Sc. (Eng.), b. 1949, Vice Chairmanof both Management Boards. DeputyTimo Leppä and Mats Jungar. Raija Arasjärvi and Lasse Kurkilahti. Pekka Ojanpää40

President since 2001, Kemira’s ChiefFinancial Officer since 2000. Memberof the Board: Kemira GrowHow Oyj,Industrial Power Company Ltd, NorthernPower Company Ltd. At KemiraUusikaupunki plant from 1974, PlantManager 1979–1980. Purchasing Director,Agricultural Division 1980–1990. In charge of Kemira Agro1990–1993. Member of the Board ofDirectors of Kemira Oy/Oyj 1990–1999, also in charge of finance andtreasury since 1995.Raija ArasjärviM.Sc. (Econ.), b. 1957, Executive VicePresident and member of both ManagementBoards. Group Controllersince 1995. With Coopers & Lybrand/Salmi, Virkkunen & Helenius 1983–1989. Controller with Kemira 1989–1994, Assistant Vice President 1994–1995.Jukka HakkilaLL.M., b. 1960, Group General Counseland member of both ManagementBoards since October 2005. LegalCounsel at Finnish Export CreditLtd 1988–1995, Senior Legal Counsel1995–1996, Chief Legal Counsel, businessmatters 1996–1998. At LeoniaCorporate Bank: First Vice President1998–1999 and Senior Vice Presidentat Leonia Bank New York 1999–2000,Chief Representative at Sampo BankNew York 2001–2002, Vice Presidentat Finnish Export Credit Ltd 2002,General Counsel at Elcoteq NetworkOyj 2002–2005.Mats JungarM.Sc. (Econ.), b. 1966, President ofBA Kemwater and member of theOperational Management Boardsince March 1, 2006. Assistant Controller,Business Controller and FinanceDirector with Partek CargotecGroup 1992–2001 in Sweden andFinland. Product Line President ofHiab Loader Cranes in Cargotec2001–2006.Lauri JunnilaM.Sc. (Eng.), eMBA, b. 1959, Presidentof BA Pulp & Paper Chemicalsand member of the OperationalManagement Board since October2005. Technical Consultant at ArhippainenGullichsen engineering bureau1990–1991, in managerial andand mill director positions at Metsä-Botnia’s pulp liner mills in Kemi1991–1998, Director of European officepaper mills and Head of CartonboardDivision at M-real Corporation1999–2004, Senior Vice President,Strategy and Finance at Metsä-BotniaOyj 2004–2005.Harri KerminenM.Sc. (Eng.), MBA, b. 1951, Presidentof BA Performance Chemicals since2000 and member of the OperationalManagement Board. With Kemirasince 1985, project manager in plantconstruction projects in Finland, Sweden,Belgium and the US 1989–1994.Manager of the Oulu plant 1994–1996. Vice President HR of KemiraChemicals Oy 1996–2000.Timo Leppä.M.Sc. (Eng.), CEFA, b. 1957, ExecutiveVice President, Group Communicationssince 2001 and member ofboth Management Boards. Researcherwith Teknos Oy 1983–1985. Marketresearcher with Kemira 1985–1988, business analyst 1988–1997and in charge of Corporate Planning1997–2001.Kemira House, Helsinki. The Management Board in session.Jukka Hakkila and Timo-Pekka Räty.Esa Tirkkonen41

Corporate GovernancePekka OjanpääM.Sc. (Econ.), b. 1966, Executive VicePresident, Procurement and Logistics,and member of both ManagementBoards since 2005. In sales and logisticsmanagerial positions with NokiaCorporation 1994–1998, ManagingDirector of Nokia Hungary 1998–2001, Director/VP Sourcing & Procurement,Nokia/ElectromechanicsSLM 2001–2004.Visa PekkarinenM.Sc. (Econ.), eMBA, b. 1951, Presidentof BA Paints & Coatings since2000. Member of the OperationalManagement Board. Sales Managerwith Valio 1980–1983. MarketingManager with Saarioinen 1983–1988.With Kemira since 1988: Head of BUDecorative Paints of Tikkurila Oy1988–1996, Managing Director ofTikkurila Oy since 1997.Timo-Pekka RätyM.Sc. (Econ.), b. 1966, Executive VicePresident, Information Technologysince 2006, member of both ManagementBoards. Management consultantat SIAR-Bossard 1991–1994.Management consultant at MecrastorOy 1994–1998. Manager at AndersenConsulting 1998–2000 and SeniorManager 2000. Development Directorat Finland Post Corporation 2000–2005.Helena TammiM.Sc. (Agr. & For.), b. 1956, ExecutiveVice President, Human Resourcessince 2004. Member of both ManagementBoards. Trainer with KeskoOy 1987–1989. Product manager,Valio Oy 1989–1996, Manager ofValio’s Helsinki plant 1996–2000, incharge of Human Resources withValio 2000–2004.Hannu ToivonenD.Sc. (Tech.), b. 1947, Executive VicePresident, Research & Technologysince 2000. Member of the StrategicManagement Board. Researcher andacting Director of Kemira’s Espoo ResearchCentre 1973–1987. Head ofBU Speciality Chemicals 1988–1994and Manager of the Vaasa plant1988–1997. Technology Director ofKemira Chemicals Oy 1997–2000.In 2005, other members of the ManagementBoards also included TomasForsgård, Lennart Johansson and JuhaniLindholm. Tomas Forsgård heldthe position of EVP, Strategy and Performanceand was a member of bothManagement Boards until December6, 2005, after which he took over theposition of SVP of SBU Chemidet apart of BA Performance Chemicals.Lennart Johansson was President ofthe BA Kemwater and member ofthe Operational Management Boarduntil October 31, 2005. In addition tohis primary responsibilities, LennartAlbertsson was responsible for BAKemwater before Mats Jungar. JuhaniLindholm held the position of Presidentof BA Pulp & Paper Chemicalsand was a member of the OperationalManagement Board until September2005.Details of the stock option schemeand share-based incentive plan formanagement are given on page 82.Kemira Corporate CentreThe Corporate Centre sees to the exploitationof the Group’s internal synergiesand manages and coordinatescertain Group-wide functions. Formore information:www.kemira.com.InsidersIn accordance with the Finnish SecuritiesMarket Act, Kemira Oyj’s insidersconsist of insiders with a duty toreport, permanent company-specificLauri Junnila, Hannu Toivonen and Raija Arasjärvi.Visa Pekkarinen42

insiders and project-specific insiders.Insiders with the duty to report are,on the basis of their position, themembers of the Supervisory Boardand the Board of Directors, the managingdirector and the deputy managingdirector, the members of thecompany’s Management Boards andthe auditor or the principal auditor ofthe independent firm of public accountants.Kemira Oyj’s permanentcompany-specific insider group comprisescertain other persons who arespecified separately by the Board ofDirectors.Kemira Oyj complies with the insiderguidelines issued by the HelsinkiStock Exchange, according towhich it is recommended that insiderstime their trading in the company’sshares during periods when themarkets have the fullest possible informationon factors influencing thevalue of the company’s share. In linewith this principle, Kemira Oyj’s insidersmust not trade in the company’sshares during the 30 days prior topublication of the company’s interimreport or financial statement bulletin.Kemira Oyj’s insider register ismaintained by the Kemira CorporateCentre, which updates the public insiderregister of the Finnish CentralSecurities Depository Ltd with informationconcerning insiders with aduty to report.Provided in the list are insiders’shareholdings in Kemira Oyj at January 1, 2006. Shareholdings include the personalshareholding and the holdings of related parties as well as holdings incompanies wherein the person has significant influence or control. Persons belongingto Kemira’s public insiders did not hold any share options at January 1,2006. The updated shareholding information can be found on the company’swebsite www.kemira.com under Investors, Share, Insiders.Name Position SharesAlbertsson Lennart Deputy President, BA Kemwater 1 420Arasjärvi Raija EVP, Group Controller 3 500Armstrong Elizabeth Member of the Board 0Bergholm Heikki Member of the Board 5 000Elo Mikko Member of the Supervisory Board 0Hakkila Jukka EVP, Group General Counsel 0Junnila Lauri President, BA Pulp & Paper Chemicals 0Kainulainen Pekka Member of the Supervisory Board 2 300Kerminen Harri President, BA Performance Chemicals 5 680Kurkilahti Lasse President and CEO 18 200Leppä Timo EVP, Group Communications 2 950Långström Mikko Member of the Supervisory Board 12 100Malmivirta Eija Member of the Board 2 700Mattsson Ove Member of the Board 19 300Niilekselä Hannu Responsible auditor 0Ojanpää Pekka EVP, Purchasing and Logistics 0Ollila Heikki Member of the Supervisory Board 0Pehu-Lehtonen Kaija Member of the Board 0Pekkarinen Visa President, BA Paints & Coatings 6 880Rahkonen Susanna Member of the Supervisory Board 0Ranki Risto Member of the Supervisory Board 920Ranta-Muotio Aulis Chairman of the Supervisory Board 300Räty Timo-Pekka EVP, IT 0Sarlund Katri Member of the Supervisory Board 0Soila Anssi Chairman of the Board 25 800Tammi Helena EVP, Human Resources 2 840Tapio Markku Member of the Board 0Tirkkonen Esa Deputy President and CEO 8 175Toivonen Hannu EVP, Research & Technology 2 840Jukka Hakkila, Visa Pekkarinen, Timo Leppä and Harri Kerminen.Esa Tirkkonen and Helena Tammi.43

Major eventsJANUARYKemira receives Statementof Objections from the EUCommissionThe Commission of the EuropeanUnion issued Kemira a Statement ofObjections on its hydrogen peroxidebusiness, stating that Kemira is suspectedof having been in breach ofEU competition legislation during1994–2001.FEBRUARYSulphuric acid accident atKemira’s plant in SwedenAt the Helsingborg plant in Sweden,a tank rupture occurred, resulting inthe spillage of about 11,000 tons ofsulphuric acid in the plant area andinto the sea. Serious bodily injurywas averted and there were no majorenvironmental impacts.Kemira increases themanufacture of calciumsulphate pigment in FinlandKemira decided to expand its manufacturingcapacity for calcium sulphatepigment that is used in coatingpaper from 110,000 tons to 150,000tons. The new production line wentinto operation in Siilinjärvi at the beginningof 2006.APRILKemira acquires pulp andpaper chemicals manufacturerFinnish ChemicalsKemira signed an agreement in Februaryon purchasing the entire sharesoutstanding in Finnish Chemicalsfrom Erikem Luxembourg for EUR345 million. The competition authoritiesapproved the transaction inMarch, and it was completed onApril 1, 2005 in accordance with theagreement. The deal made Kemirathe world’s second-largest supplierof pulp and paper chemicals.Kemira acquires Dutchspecialty chemicals companyVerdugtIn February Kemira reached anagreement on purchasing the Dutchspecialty chemicals company Verdugtfrom CVC Capital Partners, an internationalprivate equity company, andfrom the company’s line managementfor a price of EUR 145 million.After the transaction was completedin early April, Kemira became theworld’s leading producer and marketerof organic acid derivatives inselected customer segments.General Meeting: Anssi Soilato continue as chairman of theBoardThe Annual General Meeting reelectedAnssi Soila as the chairmanof the Board of Directors and EijaMalmivirta as vice chairman. Theother directors re-elected to seats onthe Board were Elizabeth Armstrong,Heikki Bergholm, Ove Mattsson, KaijaPehu-Lehtonen and Markku Tapio.MAYKemira acquires all ofAmerican water treatmentchemicals manufacturerKemironKemira strengthened its position inthe North American water treatmentchemicals market by purchasing theremaining 40% stake in KemironCompanies, a manufacturer of watertreatment chemicals. Kemira thusgained a 100% holding in the company.Kemira sells all of its KemiraGrowHow sharesKemira sold all of its remainingshares in Kemira GrowHow Oyjto institutional investors.JULYKemira sells its holding in theKefco water-soluble fertilizerbusinessKemira and other shareholders soldtheir stakes in Kemira Emirates FertilizersCompany (Kefco), which operatesin Dubai. The new owner is theChilean company SQM Nitratos.OCTOBERJukka Hakkila appointedKemira’s Group GeneralCounsel, and member ofKemira’s management boardsJukka Hakkila, LL.M., took up his dutiesas Kemira’s Group General Counseland member of the managementboards. He also is secretary to KemiraOyj’s Board of Directors, SupervisoryBoard and Management Boards.Lauri Junnila appointedPresident of BA Pulp & PaperChemicals and member ofKemira’s management boardLauri Junnila, M.Sc. (Eng.) and eMBA,took over as head of Kemira’s Pulp &Paper business area. He is also amember of Kemira’s OperationalManagement Board.Kemira chosen chemicalssupplier for the BotniaUruguay pulp millKemira was chosen to supply chemicalsfor the Botnia Uruguay pulp mill.Kemira will build chemicals plants atthe Uruguay pulp mill. Kemira’s totalcapital expenditure will be about EUR44

60 million. For Kemira, the Uruguayproject is the first strong referenceshowing that customers value possibilityto obtain, from a single supplier,all of the bleaching chemicals theyneed for pulp production.Tikkurila sells its coil coatingbusiness to TeknosTikkurila, part of the Kemira Group,signed an agreement on sale of itscoil coating business to TeknosGroup.Kemira wins RadTech Europeinnovation awardTikkurila received the RadTech Europeinnovation award for the UVITECmethod it has developed. The methodreplaces existing solvent-bornecoating methods that are used in thefurniture industry.NOVEMBERDecision made to start paperchemicals production in ChinaKemira decided to start production ofpaper chemicals in China. Productionwill get started in the city of Yixing atthe existing Kemira water chemicalsplant during the first half of 2006.During the next years, Kemira willseek to increase its sales of paperand water treatment chemicals inChina several fold.agreement will be in effect for tenyears.Kemira establishes REACHCompetence Center at itsresearch center in EspooAt the research center in Espoo, Finland,Kemira set up a REACH CompetenceCenter as part of its preparationsfor the entry into force of theEuropean Union’s new chemical legislation(REACH). The REACH CompetenceCenter will have a centralizedresponsibility for the risk assessment,registration and permit applicationsconcerning the substances which Kemiramanufactures or imports in theEU area, and the center will developinformation systems for managingKemira’s product safety.Kemira becomes the world’sleading supplier of pulp andpaper chemicalsKemira signed an agreement to purchasethe Lanxess paper business forEUR 88 million. The deal will raise Kemirato the position of the world’sleading supplier of pulp and paperchemicals. The deal is contingent onapproval by the competition authoritiesand fulfillment of the otherterms and conditions related to thetransaction.JANUARY 2006FEBRUARY 2006Kemira acquires Kraski Tekspaint company in Russia andbecomes Russia’s leadingpaint companyKemira made in November 2005 anagreement to purchase the KraskiTeks paint company in Russia. Afterthe transaction was completed inFebruary Kemira-owned Tikkurila becameRussia’s leading paint company.The debt-free purchase price is40 million US dollars.MARCH 2006Mats Jungar appointedPresident of BA Kemwater andmember of Kemira’smanagement boardMats Jungar, M.Sc. (Econ.), took uphis duties as head of Kemira’s Kemwaterbusiness area and member ofthe Operational Management Board.For all of Kemira’s pressreleases, see:www.kemira.comDECEMBERPori water utility to useKemira’s Kemicond methodThe waterworks of the City of Pori,Porin Vesi in Finland, chose the newKemira-developed Kemicond methodfor treatment of the sludge arising inwaste water purification. Sludgetreatment will begin in 2007 and theTimo-Pekka Räty appointedKemira’s Executive VicePresident, InformationTechnology, and member ofKemira’s management boardsTimo-Pekka Räty, M.Sc. (Econ.), tookup his duties as Executive Vice President,Information Technology, andmember of the management boards.45

GlossaryAcetic acidAn organic acid. Important raw materialof the chemical industry. Used,notably, in the manufacture of plastics,binders, pharmaceuticals, odorantsand printing inks. It is manufacturedmainly from methanol usingcarbon monoxide gas.Aluminum oxide, Al 2O 3An important raw material of thealuminum industry. Manufacturedmainly from bauxite. Also used inthe manufacture of aluminum chemicals;for example, in the form of aluminumhydroxide in the productionof water treatment chemicals andpaper chemicals, as a filler, in catalystsand in ceramics.AuditA systematic, independent and documentedinspection or evaluation inwhich operations are compared withgiven requirements or guidelines. Anaudit can be performed by an externalparty or by an internal expert.Calcium sulfate pigmentA paper coating pigment that is manufacturedfrom gypsum, i.e. calciumsulfate, and is sold by Kemira underthe product name CoCoat.Carbon dioxide, CO 2A basic gas that is part of the naturalcycle and reinforces the greenhousegas effect in the atmosphere. Theprincipal exhaust gas from the combustionof fossil fuels. As a product, ithas a variety of uses as an industrialgas for cooling, food processing,welding, pressurization or as a solvent.CEFICThe umbrella organization of theEuropean Chemical Industry. (ConfédérationEuropéenne des Fédérationsde l’industrie Chimique).CoagulantA chemical that is used to removeboth solid and dissolved impuritiesfrom water. A coagulant binds to theimpurities and converts them intolarger solids that easily can be removedby sedimentation, filtration offlotation.CODChemical Oxygen Demand.A quantity connected with wastewaters. It mainly serves to measurethe ability of organic substances toconsume oxygen in water.EHSEnvironment, Health and Safety.Environmental disclosureA yearly report by a company on environmentalreleases from its operationsand on their environmental impacts,liabilities, costs, legislativecompliance and other related environmentalissues of major importance.It is becoming an increasinglyintegral part of the financial reporting.Environmental reportA company’s public report that isvariable in content and deals withenvironmental issues connected withthe company’s operations. It is publishedeither separately or as part ofthe Annual Report at discretionaryintervals.Formic acidAn organic acid. It is manufacturedmainly from carbon monoxide (synthesisgas) and water. It is usedmainly in silage additives as well asin the textile, rubber and pharmaceuticalindustries.Greenhouse gasesGases that contribute to globalwarming of the atmosphere, themost important of which are carbondioxide, methane and laughing gas(nitrous oxide).GrindometerAn instrument for gauging the degreeof fineness-of-grind. It indicatesthe depth of the groove in which theindividual particles – or agglomerates– in the product stand out from thesmooth surface. The results are readout in micrometers (μm).Hydrochloric acidAn acidic solution of hydrogen chloridegas in water. A strong inorganicacid that is manufactured on a largescale. A number of manufacturingmethods exist, and significantamounts of hydrochloric acid are alsorecovered as an industrial byproductor in the purification of gases. It hasextensive uses, notably, in the chemicaland metal industries.Hydrogen peroxideA reactive oxygen containing chemicalthat is used especially in environmentallysound pulp bleaching, as adisinfectant and in environmentalapplications. Its raw materials arehydrogen and atmospheric oxygen.ICCAInternational Council of ChemicalAssociations.InorganicNot arising from organic (biological)materials. In practice, the chemistryof all substances except those containingcarbon with hydrogen bonds.ISO 9001An international standard definingthe requirements of quality managementsystems.ISO 14000An international standard that definesthe requirements of an environmentalmanagement system.46

Kemicond methodA Kemira-developed sludgetreatment method that efficientlydisinfects sludge, removes offensiveodors and reduces substantialamount of liquid.Lactic acidAn organic acid that is used e.g.in feeds to improve storability andenhance utilization of the nutritionalcontent.MSDSMaterial Safety Data Sheet.A statutory data sheet to customers,presenting a summary of a chemicalproduct’s hazardous properties, classificationand use of instructions.NanoparticleAn extremely small particle, typicallybelow 0.1 micrometer in diameter.1 nanometer = 0.000000001 meter.Nitrogen oxidesMainly nitrogen monoxide (NO) andnitrogen dioxide (NO 2). Nitrogen gasesthat are formed mainly as emissionsin combustion. Nitrogen oxidescause acidification and impair airquality.OHSAS 18000A standard defining the requirementsof a system for managing occupationalhealth and work safety. Preparedon the basis of British standardBS 8800. So far, a comprehensive internationalISO standard has notbeen prepared for an occupationalhealth and work safety system.Organic acidAn acid with main molecule comprisingof carbon and hydrogen. Generally,these are weak acids often appearingnaturally also in plants andanimals.Organic saltsSalts formed by organic acids. Manufacturedby mixing organic acids andbase substances. Examples are formates,propionates and acetates.Propionic acidAn organic acid that is used in feedsto improve storability and enhanceutilization of the nutritional content.RadTech Europe (RTE)A European association founded in1988 with the task of promoting theuse of technologies connected withultraviolet radiation (UV) and electronbeams (EB). The UVITEC method developedby Tikkurila received an innovationaward from the associationin the fall of 2005.REACHRegistration, Evaluation and Authorizationof Chemicals. The acronym forthe proposed, extensive reform ofchemical legislation in the EU.Sodium chlorateSodium salt containing oxygen andchlorine. Manufactured electrochemicallyfrom natural sodium chloride.Used mainly as a source material ofchlorine dioxide that is required inbleaching.Sodium percarbonateA bleaching raw material in detergents.It is manufactured from sodausing hydrogen peroxide. In Kemira,the product name is ECOX.Sodium silicateAlso known as waterglass. Chemicallytreated quartz sand. Manufacturedmainly by means of alkaline sodiumcarbonate. An important raw materialin the chemical industry, with avariety of uses in detergents, glues,paper chemicals, paints and oil production.Sulfuric acidA widely used inorganic acid that ismanufactured from sulfur dioxidegas. The raw gas is obtained, for example,from ore-roasting or by burningelemental sulfur.Sulfur dioxideAn industrial gas which is used mainlyby the forest industry. It is also anacidification-causing emission that isproduced mainly when sulfur-containingfuels are burned.Titanium dioxide pigmentA white pigment. An important rawmaterial in paint, paper, plastic andprinting ink. Manufactured in a complexprocess from titanium dioxidecontainingores and from slag bymeans of a sulfate process or a chlorideprocess, and by using numerousadditives.UVITEC methodA method developed by Tikkurila bymeans of which water-borne lacqueris cured using ultraviolet radiation inan inert atmosphere (oxygen-freestate). The water-borne UV-curingmethod can be used for replacingsolvent-borne coating methods thatare used in the furniture industry forchairs and other 3D objects. Tikkurilawon an award for UVITEC in the fallof 2005.Water chemicalA chemical used in treating water.VOCVolatile Organic Compounds. Primarilysolvents that can evaporate intothe atmosphere in normal conditions.47

Group companiesJanuary 1, 2006= Production = Marketing = Holding = ServiceCompanyKemiraGroup’sHolding %City/CountryType ofbusinessCompanyKemiraGroup’sHolding %City/CountryType ofbusinessKemira OyjHelsinki, FinlandPulp & Paper Chemicals, Kemwater, Performance ChemicalsKemira Kemi AB 100.00 Helsingborg, SwedenKemira Ibérica S.A. 100.00 Barcelona, SpainKemira Kopparverket KB 100.00 Helsingborg, SwedenKemira Chemicals (UK) Ltd 100.00 Harrogate,United KingdomKemira Chemie GmbH 100.00 Alzenau, GermanyKemira Chemie Ges.mbH 100.00 Krems, AustriaKemira Chemicals B.V. 100.00 Rozenburg,The NetherlandsKemira Chemicals Holding Oy 100.00 Helsinki, FinlandKemira Chimie S.A.S.U. 100.00 Lauterbourg, FranceKemira Chemicals. Inc. 100.00 Kennesaw, GA,United StatesKemira Chemicals Brasil Ltda 100.00 Telêmaco Borba,BrazilKemira-Ube Ltd 50.00 Tokyo, JapanKemira Chemicals100.00 Shanghai, China(Shanghai) Co. Ltd.Finnish Chemicals Oy 100.00 Helsinki, FinlandFinnish Chemicals Corporation 100.00 Delaware, United StatesFinnchem USA. Inc. 100.00 Delaware, United StatesHD Tech Inc. 50.00 Ontario, CanadaHTC Augusta Inc 100.00 Delaware, United StatesHuron Federal LLC 50.00 Delaware, United StatesHonkalahdenteollisuuslaituri Oy50.00 Joutseno, FinlandPulp & Paper Chemicals, KemwaterKemira Chemicals AS 100.00 Gamle Fredrikstad,NorwayKemira (Yixing) Co.. Ltd 100.00 Yixing City, ChinaKemwater, Performance ChemicalsKemira Chimica S.p.A. 100.00 Milano, ItalyPulp & Paper ChemicalsKemira Uruguay S.A. 100.00 Montevideo, UruguayKemira Paper Chemicals Oy 100.00 Helsinki, FinlandKemira-Swiecie sp. z o.o 65.00 Swiecie, PolandZAO Kemira-Novo 47.00 Novodvisk, RussiaKemira Cell sp.z.o.o 55.00 Ostroleka, PolandKemira Kimya Sanayi ve 51.00 Istanbul, TurkeyTicaret A.S.Kemira Chemicals Korea 100.00 Ulsan, South-KoreaCorporationKemira Chemicals Canada Inc. 100.00 Maitland, CanadaKemira SpecialtyChemicals. Inc.100.00 Kennesaw, GA,United StatesKemwaterKemira KTM d.o.o. 100.00 Ljubljana, SloveniaKemwater Cristal S.A. 78.45 Bucharest, RumaniaKemwater Chimbis S.A. 76.05 Bistrita, RumaniaAliada Quimica de50.10 Estarreja, PortugalPortugal Lda.Kemifloc a.s. 51.00 Prerov, Czech RepublicKemifloc Slovakia S.r.o. 51.00 Sol, SlovakiaKemwater Närke AB 91.67 Kumla, SwedenKemira Miljö A/S 100.00 Esbjerg, DanmarkKemipol Sp. z o.o. 51.00 Police, PolandKemwater Brasil S.A. 66.70 São Paulo, BrazilKemwater de México.51.00 Tlaxcala, MexicoS.A. de C.V.Kemwater ProChemie s.r.o. 60.10 Bakov nad Jizerou,Czech RepublicAkvab AB 100.00 Lund, SwedenKemira Chemicals S.A./N.V. 100.00 Wavre, BelgiumZAO Kemira Eko 100.00 St, Petersburg, RussiaAS Kemivesi 100.00 Tallinn, EstoniaKemwater Services Oy 100.00 Helsinki, FinlandKemira Water Chemicals Inc. 100.00 Bartow, United StatesKemiron Companies. Inc. 100.00 Bartow, United StatesKemiron. Inc. 100.00 Bartow, United StatesKemiron-Trans. Inc. 100.00 Fontana,United States48

CompanyKemiraGroup’sHolding %City/CountryType ofbusinessCompanyKemiraGroup’sHolding %City/CountryType ofbusinessKemiron Pacific. Inc. 100.00 Fontana/Mojave,United StatesKemiron North AmericaCorporation100.00 Houston,United StatesKemiron Atlantic. Inc. 100.00 Savannah, GA,United StatesKemiron NorthWest. Inc. 100.00 Spokane, United StatesKemiron Gulf. Inc. 100.00 Houston, United StatesMidland Resources Inc. 100.00 St, Louis, United StatesKemiron Equipment. LLC 100.00 Bartow, United StatesKemiron Agua Mansa. LLC 100.00 Agua Mansa,United StatesKemiron Great Lakes. LLC 100.00 East Chicago,United StatesEaglebrook InternationalGroup. Ltd100.00 Matteson,United StatesEaglebrook Inc. 100.00 Matteson, United StatesEaglebrook Inc. of Canada 100.00 Varennes Qs, CanadaPerformance ChemicalsKemira Kemax B.V. 100.00 Rozenburg,The NetherlandsKemira ChemSolutions b.v. 100.00 Tiel, The NetherlandsClearway LLC. 100.00 Newark, United StatesVerdugt Spain SA 100.00 Barcelona, SpainDroiban Energia A.I E. 90.00 Barcelona, SpainKemira Pigments Oy 100.00 Helsinki, FinlandKemira Pigments Asia 100.00 Singapore, SingaporePacific Pte. Ltd.Kemira Pigments Latin 100.00 Santiago, ChileAmerica Comercial Ltda.Paints & CoatingsTikkurila Oy 100.00 Vantaa, FinlandTikkurila Paints Oy 100.00 Vantaa, FinlandAS Tikkurila-Vivacolor 100.00 Tallinn, EstoniaUAB Tikkurila-Vivacolor 100.00 Vilnius, LithuaniaZAO Finncolor 100.00 St, Petersburg, RussiaOOO Kraski Tikkurila 100.00 Moscow, RussiaTikkurila Kft. 100.00 Budapest, HungarySIA Tikkurila-Vivacolor 100.00 Riga, LatviaTOB Kolorit Paints 51.00 Kiev, UkraineTBD S.A. 100.00 Debica, PolandAlcro-Beckers AB 100.00 Stockholm, SwedenAB Lövholmsgränd 12 100.00 Stockholm, SwedenAlcro Parti AB 50.00 Stockholm, SwedenTikkurila Norge A/S 100.00 Oslo, NorwayTikkurila Danmark A/S 100.00 Bröndby, DanmarkPigrol Farben GmbH 100.00 Ansbach, GermanyHolmbers Färg i Skövde AB 91.00 Skövde, SwedenFärg AB Gamol 100.00 Uddevalla, SwedenFärgmästaren i Eskilstuna AB 100.00 Malmö, SwedenSIA Tikkurila Coatings 100.00 Riga, LatviaTikkurila Coatings Oy 100.00 Vantaa, FinlandTikkurila Coatings Sp. z o.o. 100.00 Debica, PolandTikkurila Coatings AB 100.00 Stockholm, SwedenTikkurila Coatings B.V. 100.00 Rozenburg,The NetherlandsTikkurila Ltd 100.00 West Bromwich,United KingdonZAO Tikkurila Coatings 100.00 St, Petersburg, RussiaOtherKemira GrowHow A/S 100.00 Fredericia, DanmarkBiolchim S.p.A. 50.00 Bologna, ItaliyKemira GrowHow España S.A. 100.00 Madrid, SpainKemira GrowHow S.A. 100.00 Ribecourt, FranceKemira SpecialtyCrop Care B.V.100.00 Rozenburg,The NetherlandsSpruce Vakuutus Oy 100.00 Helsinki, FinlandOnePoint Oy 100.00 Kokkola, FinlandKemira NetherlandHolding B.V.100.00 Rozenburg,The NetherlandsKemira InternationalFinance B.V.100.00 Rozenburg,The NetherlandsKemira Services Holland B.V. 100.00 Rozenburg,The Netherlands49

Kemira’s global footprintKemira is the leading player worldwide in all its business areas. We are present on allcontinents, in 40 countries after the pending acquisition of Lanxess paper chemicals business.Our markets are global. Our paint business focuses on Northern and Eastern Europe.50

Pulp & Paper ChemicalsKemwaterPerformance ChemicalsPaints & Coatingswww.kemira.com51

Information for investorsFinancial reportsKemira will publish the following financialreports on its 2006 financialyear in Finnish, Swedish and English:May 4, 2006 Interim ReportJanuary-MarchJuly 27, 2006 Interim ReportJanuary-JuneOctober 31, 2006 Interim ReportJanuary-SeptemberFebruary 2007 Financial StatementBulletinMarch 2007 Annual ReportInterim Reports, press releasesand Annual Reports are publishedin Finnish and English on Kemira’swebsite, www.kemira.com. On ourwebsite, readers can register to receivepress releases by e-mail andorder the company’s Annual Reports.Printed Annual Reports can be orderedfrom Kemira Oyj, Group Communications,tel. +358 10 8611, fax+358 10 862 1797, e-mail postitus@kemira.com.Investor relations activitiesThe purpose of Kemira’s investor relationsis to provide capital marketswith open and reliable informationabout the company and its operatingenvironment in order to give a factualview of Kemira as an investmentto companies and individuals operatingon the market. All parties on themarket must be equally and fairly informed,and all crucial informationmust be simultaneously and publiclyavailable.Kemira’s investor relations functionis responsible for investor relationsand day-to-day communications. TheGroup’s top management is activelyinvolved in investor relations and isregularly available to representativesof the main capital markets.The company observes a 30-dayclosed period prior to the publicationof the financial statement bulletinand interim reports during whichKemira’s management are not availablefor meetings with representativesof capital markets.Investor relationsTimo Leppä, Executive Vice President,Communications, tel. +358 10 862 1700,e-mail: timo.leppa@kemira.com.Päivi Antola, IR Manager,tel. +358 10 862 1140,e-mail: paivi.antola@kemira.com.Investment analysisThe following banks and brokeragefirms are known to have prepared aninvestment analysis of Kemira in2005:Alfred BergCarnegieCazenoveCrédit Agricole CheuvreuxDeutsche BankeQ BankEnskildaEvli BankFIMHandelsbankenJPMorganKaupthing BankMandatumMorgan StanleyOpstockStandard & Poor’sÖhmanThe contact information of analystsmonitoring Kemira can be found onthe company’s website atwww.kemira.com under Investors,Share.Annual General MeetingTime: Tuesday, April 11, 2006 at4.00 p.m.Place: Marina Congress Center, Katajannokanlaituri6, Helsinki.Attendance is open to shareholderswho by March 31, 2006 havebeen entered in Kemira Oyj’s ShareholderRegister which is kept by FinnishCentral Securities Depository Ltd.Shareholders wishing to attend themeeting must give notification oftheir intention to attend no later thanby April 6, 2006, 4 p.m. Finnish timeusing one of the following means:- on Kemira’s website at www.kemira.com- by letter sent to Kemira Oyj, ArjaKorhonen, P.O. Box 330, FI-00101Helsinki- by faxing +358 10 862 1780 or- by calling +358 10 862 1703 onweekdays from 9 a.m. to noonand from 1 to 3 p.m.Shareholders wishing to be representedby a proxy are requested todeliver a Power of Attorney togetherwith their notification.Decisions taken in the Annual GeneralMeeting will be published afterthe meeting without delay using astock exchange release.Dividend payout in 2006Dividend ex-date April, 12Record date ofdividend payout April, 18Dividend payout April, 25The Board of Directors proposes tothe Annual General Meeting that adividend of EUR 0.36 per share bepaid for the 2005 financial year.Changes of addressKemira’s shareholders are kindly requestedto report changes of addressto the bank where they have theirbook-entry account.Basic share informationTrading codeKRA1V (OMX)ISIN CodeFI0009004824Listing date November 10, 1994Trading lot size 100Number of shares 124 801 600SectorMaterialsIndustry groupMaterialsIndustryChemicalsSub-industry Diversified chemicals52