Finland's chemicals group Kemira has decided to spin off Tikkurila, its Coatings division. This is to take place gradually next year, in order to try and cash in any extra value that could result from a separate valuation of this business on a stand-alone basis. Kemira will focus on chemicals that relate to water treatment and to the paper industry. In the first quarter of 2008, Tikkurila was Kemira's most profitable division, with a high-single digit operating profit margin, compared with only 4% for the whole group. It had full-year sales of €625 million in 2007.
At the same time, Kemira warns on its full-year profit outlook, only a few hours after some its major customers (Stora and UPM) did the same.
Ahead of the current CFO's retirement in 2009, Kemira announces that its new CFO will be Jyrki Mäki-Kala, with effect from October 2008. Jurki was head of Pulp & Paper at Kemira. Three existing managers have been promoted to Presidents of the new core activities: Paper, Water and Oil and Mining, respectively.
You will remember that Moody's downgraded Kemira's short-term rating to not-prime last Friday, which corresponds to a long-term rating of Ba1 or lower. Indeed, credit metrics are not particularly impressive. With net debt of over €1 billion at 31 March 2008, funds from operations before changes in working capital were only €47 million in the first quarter, and cash flows after capital expenditure were negative by €18 million (-€82 million full year 2007).
Will the Coatings move help stem the trend? Only if only a small portion of the shares are distributed "for free" to Kemira shareholders and the valuation multiple achieved helps to strengthen credit metrics.
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