No surprises - Kemira report 33% decline in net profit for the third quarter 2008.

The 3Q08 financial results reported by Kemira were as predicted with no real surprises.  Pre-tax profits fell to EUR 48.8 mio from EUR 68.3 mio in the same period last year (net profit declined 33% to EUR 35.4 from Eur 52.9 mio last year).  High raw material and energy costs were blamed.  July to September net sales rose 7% to EUR 780 mio from about EUR 730 mio a year ago.

For the pulp and paper chemical activities, Kemira reported a rise in revenue from July to September of 9% (EUR 259.7 mio) with an organic growth in local currencies of 13%.  Operating profit, excluding non-recurring items, declined to EUR 15.3 mio (-32%).  The reasons for the decline were given as:

• Currency exchange (-EUR 8 mio)
• Competitive environment - by this they probably mean that producers in the USA, China and India had an advantage, especially in the growth markets.  This has made it difficult for Kemira to offset their increasing costs by raising prices.
• Closure of paper mills - pulp and paper production has increased over the same period and as Kemira point out, the market has declined in Europe and North America and increased in the growing markets (especially China) where Kemira has not been as competitive against strong local companies.
• High raw material, freight and energy costs - there was some gain in raising prices (EUR 9 mio) and an increased volume (EUR 7 mio) but European paper chemical producers continue to find it hard to compete.  

From January to December, 2008, Kemira's pulp and paper chemical business has seen a moderate revenue growth to EUR 799.4 mio (+ 1%) and a decline in operating profit to EUR 41.0 mio (-39%).

The one significant non-recurring item was the EUR 10.15 mio fine imposed by the European Commission on Finnish Chemicals (acquired by Kemira) for their part in the sodium chlorate cartel.

It will now be interesting to see how once largest pulp and paper chemical producer manages the threat from the now larger combination of BASF and Ciba speciality chemicals.  Kemira will remain big in pulping chemicals but are now dwarfed by the new BASF when it comes to speciality chemicals used in papermaking.  The biggest threat to these larger European chemical companies will continue to come from the smaller, lower-cost, flexible companies emerging in the growth markets.