jari rosendal, president and ceo petri …...january-september 2019 excellent profitability in...

JANUARY-SEPTEMBER 2019

Excellent profitability in seasonally strong third quarter

JARI ROSENDAL, PRESIDENT AND CEO PETRI CASTRÉN, CFOOCTOBER 24, 2019

Key points in Q3 2019

• Focus on value over volume visible in financials

• Efficiency actions continued

• Strong profitability improvement again – operative EBITDA margin 17.1%

• Slowdown in oil & gas shale market accelerated during the quarter

• Some softness in the near-term market demand in Pulp & Paper

OCT OB E R 24 , 2019 Q3 2019 RE S ULT S 2

Financial highlights

Focus on value over volume

• Our actions for higher profitability resulted in some expected lost volumes

• Organic growth +6% in Industry & Water driven by North American water treatment and Oil & Gas despite slowdown in shale market in Q3

Operative EBITDA +33% to margin of 17.1%

• Effective price and cost management

• Favorable currency development

• IFRS 16 impact EUR +9.1 million in Q3

Operative EBIT +42% to over 10% margin for the first time since 2009


EUR million

(except ratios)

Q3

2019

Q3

2018

Δ% FY

2018

Revenue 689.8 669.6 +3 2,592.8

Operative EBITDA 118.1 89.0 +33 323.1

of which margin 17.1% 13.3% - 12.5%

Operative EBIT 71.1 50.0 +42 173.8

of which margin 10.3% 7.5% - 6.7%

Net profit 43.3 22.1 +96 95.2

EPS diluted, EUR 0.27 0.14 +94 0.58

Pulp & Paper – profitability improved clearly

Market environment

• Some softness and increasing amount of uncertainty about the near-term market demand

Organic growth -3%

• Intentional focus on improving product mix

• Exit of ECOX business and lower caustic soda prices (mainly trading product) impacted organic growth – underlying growth flat

Operative EBITDA margin 16.0%

• Value over volume visible also in EBITDA and EBIT leading to improved profitability

• Cost savings supporting the margin improvement

• *IFRS 16 impact EUR +3.7 million in Q3 and EUR +10.3 million in 1-9/2019


OPERATIVE EBITDA AND OPERATIVE EBITDA-%

EUR million

REVENUE AND ORGANIC REVENUE GROWTH (Y-ON-Y)

EUR million

372 369 363373 369 376 385 390 381 373

383

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2017 2018 2019

0% +1% +2% +5% +5% +6% +7% +4% -3%

46.0 47.8 48.555.4

42.7 45.452.3 51.2 50.7 53.7

61.312.4% 13.0% 13.4%

14.9%

11.6% 12.1%13.6% 13.1% 13.3%

14.4%16.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3*

2017 2018 2019

+0% -3%

Industry & Water – profitability continued at exceptionally high levelMarket environment

• Water treatment market solid

• Shale market slowdown accelerated during Q3

• Uncertainty regarding key polymer raw material in Europe due to supply disruptions

Organic growth +6%

• Improved pricing in water treatment

• Strong growth in CEOR** polymers and seasonal oil sands water treatment business

Operative EBITDA margin 18.5% in Q3

• Water treatment main driver for the improvement

• Coagulant asset in Italy and water treatment facility operations business in Finland (Operon) divested

• *IFRS 16 impact EUR +5.4 million in Q3 and EUR +14.9 million in 1-9/2019


22.929.3

36.0

25.3 26.634.8 36.7 33.3

45.052.4

56.8

9.6%11.8%

13.9%

9.6%10.9%

12.8% 12.9% 12.3%

16.8%18.1% 18.5%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3*

2017 2018 2019

OPERATIVE EBITDA AND OPERATIVE EBITDA-%

EUR million

238 248 259 264245

272 284 271 267290 307

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2017 2018 2019

+9% +15% +20% +14%

REVENUE AND ORGANIC REVENUE GROWTH (Y-ON-Y)

EUR million

+11% +11% +2% +6%+6% +5% +4%

**CEOR, chemical enhanced oil recovery

Capacity additions and cost savings via investmentsOngoing investments with positive EBITDA contribution in 2020

• China – New AKD sizing* manufacturing plant is in the ramp-up phase

• Netherlands – Expansion of Oil & Gas polymers close to start-up

Capacity additions under construction

• US – Expansion of Oil & Gas polymers in commercial operation in 2021

• South Korea – New dry polymer capacity for Asian market in 2021

Recently decided

• UK – Multi-million investment to double coagulant capacity in Goole to anticipate expected local market growth


PRODUCTS

◼ 25% Bleaching

and pulping

◼ 20%

Polymers

◼ 20% Other:

e.g. defoamers,

dispersants,

and biocides

◼ 20%

Coagulants

◼ 15%

Sizing*

and

strength

Revenue

EUR 2,663

million

(LTM)

*Sizing = Resistance against water absorption

Key profitability improvement actions in 2016-2019


Operative

EBITDA

1-9/2019:

16.0%

(IFRS 16

included)

Operative

EBITDA 2015:

12.1% 2017

2018

2019

2016

Start-up of Ortigueira sodium

chlorate site (BR)

Botlek modernization (NL)

BOOST operational

excellence program launch

Bradford polymer expansion

(UK)

San Giorgio polymer

expansion (IT)

Closures of Ottawa (CA) and

Zaramillo (ES), coagulants

Transportation agreement

with Odyssey Odyssey go-live

in North America

Two segment

structure operational

Start-up of Joutseno chlorate

expansion (FI)

Chevron CEOR deal &

Botlek expansion

AKD wax manufacturing JV

deal closed (CN)

Closing of ECOX detergent

production (SWE)

Polymer investment decision (US)

Major oil sands tailings water

treatment deal (CA)

Joint Venture – Dry polymers (SK)

Divestment of

coagulant asset (IT)

Divestment of

Kemira Operon

(water treatment facility

operations, FI)

Odyssey go-live in Europe

‘Value over volume’ initiated

Start-up of new AKD wax site (CN)

Cost savings in

Pulp & Paper

Move from ‘Value

over volume’ to ‘Active

price management’

AcquisitionOrganic growth / expansion of site Operational efficiencies Closure of site / divestment

Key operative focus areas

1. Active price management

2. Continue to improve customer satisfaction scores (NPS)

3. Modify product & service offering to cater better profitable growth

4. Improve operational excellence

5. Ramp-up new AKD sizing manufacturing site in China

6. Finalize CEOR* polymer capacity addition in the Netherlands

7. Construction of emulsion polymer capacity in the US

8. Prudent cost-control in all areas


*CEOR, chemical enhanced oil recovery

PETRI CASTRÉN, CFO OCTOBER 24, 2019


Financials Q3 2019

Successful pricing drives improvement


89.0

Q32018

Sales volumes Sales prices Variable costs Fixed costs Currencyimpact

Other Q32019

Adoption ofIFRS 16standard

"Pre IFRS 16comparison"

-6.1+18.8

+13.0 -3.7 +6.3 +0.8

OPERATIVE EBITDA BRIDGE

EUR million

670 -2% +2% 0%690

Q3 2018 Salesvolumes

Salesprices

Currencyimpact

Acquisitions&

Divestments

Q3 2019

+3%

REVENUE AND ORGANIC GROWTH (Y-ON-Y)

EUR millionOperative EBITDA margin 17.1%

• Focus on value over volume is bearing fruit

• Due to the adoption of IFRS 16 -standard, fixed costs do not include operating lease expenses in 2019, corresponding to a positive EBITDA impact of EUR +9.1 million in Q3 and EUR +25.1 million in 1-9/2019

109.0-9.1118.1

SALES PRICE VS VARIABLE COST TREND(ROLLING 12-MONTH CHANGE Y-O-Y)

SALES PRICES AND VARIABLE COSTS(CHANGE Y-O-Y)

95

-3 -10

-16-20

-10

-2 -2

114

8

24

2832

-9

-18

-26-23

-16

-4

3

11

23

4742

3734

2319

-18-23

-23 -13

0

1613

13

2636

38

29

11

-5

-13

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2016 2017 2018 2019

Net impact on EBITDA (sales prices-variable costs)

Sales prices

Variable costs


Net impact of sales price & variable costs exceptionally positive

* 12-month rolling change vs previous year in EUR million

EUR millionEUR million

-180

-120

-60

0

60

120

180

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Brent oil, USD Sales prices* Variable costs*

Strong cash flow


ALL KEY FIGURES IN EUR MILLION

271

205 210

122

244

2016 2017 2018 1-9 2018 1-9 2019

118 124 106

64 58

95 66

44

3362

2016 2017 2018 1-9 2018 1-9 2019

213

CASH FLOW FROM OPERATIONS

CAPITAL EXPENDITURE EXCL. ACQUISITIONS

◼ Growth capex190

150

• Cash flow improvement driven by strong results

• IFRS 16 impact EUR +21 million on cash flow from operations in 1-9/2019

• Kemira’s Pension Fund Neliapila returned excess capital of EUR 15 million to Group in Q1

• Typically cash flow is H2-weighted, especially due to changes in net working capital

• In the first nine months, the largest capital expenditures were related to polymer expansion in the Netherlands and new AKD manufacturing site in China

• CAPEX excl. acquisitions estimated to be around EUR 180-220 million in 2019

97120

ROCE improving clearly, adoption of IFRS 16 increased reported net debt

9.9% 9.7% 9.8% 9.8%

11.5%

2016 2017 2018 Q3 2018LTM

Q3 2019LTM

634694 741 744

866

Dec 31 2016

Dec 312017

Dec 312018

Sep 302018

Sep 302019


NET DEBT (EUR million) AND LEVERAGE RATIO*

OPERATIVE RETURN ON CAPITAL EMPLOYED

2.32.22.1

• ROCE improvement driven by Industry & Water

• Ongoing investment projects are expected to improve Group’s ROCE once up and running

• Increase in net debt resulted from the adoption of IFRS 16 as operating leases (EUR 136 million) are part of debt

– Excluding IFRS 16 impact, net debt would have been EUR 730 million and leverage ratio 1.9

• Average cost of net debt excluding leases is 1.9% and duration is 27 months

2.12.3

* Leverage ratio = Net debt / last 12 months operative EBITDA

Outlook for 2019

“Kemira expects its operative EBITDA (2018: EUR 323.1 million) to increase from the prior year on a comparable basis, excluding the impact of IFRS 16 accounting change.”


EUR

million

2014 2015 2016 2017 2018 2019

outlook

Operative

EBITDA

253 287 303 311 323 Increase

Operative EBITDA figures for 2014-2018 are ”pre IFRS-16”.


Appendix

SEGMENT SPLIT PRODUCTS


GEOGRAPHIES

Kemira in briefLAST 12 MONTHS: REVENUE EUR 2,663 MILLION, OPERATIVE EBITDA EUR 404 MILLION, OPERATIVE EBITDA MARGIN 15.2%, OPERATIVE ROCE 11.5%

◼ 25% Bleaching

and pulping

◼ 20%

Polymers

◼ 20% Other:

e.g. defoamers,

dispersants,

and biocides

◼ 20%

Coagulants

◼ 15%

Sizing

and

strength

Revenue by geographies and product category represent FY 2018.

39%

AMERICAS

1.USA

2.Canada

3.Brazil

52%

EMEA

1.Finland

2.Sweden

3.Germany

9%

APAC

1.China

2.South

Korea

3.Thailand

◼ 57%Pulp & Paper

◼ 43%Industry & Water

CUSTOMERS

Several thousand customers

TOP 10 customers are ~25% of revenue

TOP 50 customers are ~50% of revenue

EXAMPLES OF

LARGEST CUSTOMERS

Municipalities, e.g.

Frankfurt, London, New York,

Paris, Shanghai, Singapore

#1 in

water

treatment

in NA and

Europe

#2 in friction reduction in North

American shale oil & gas

#2 globally

1,170

1,417 1,457 1,477 1,520

137

171195 198 192

2014 2015 2016 2017 2018

REVENUE BYPRODUCT CATEGORY

Q3 2019 RE S ULT S 18

REVENUE BY CUSTOMERTYPE AND MARKET GROWTH

Pulp & Paper – strong business with solid track record

MARKET ENVIRONMENT REVENUE BY GEOGRAPHIES AND

MARKET GROWTH BY REGION

CUSTOMER EXAMPLES

◼ 55%

EMEA

◼ 30%

Americas

◼ 15%

APAC

◼ 40%

Bleaching

& pulping

◼ 25%

Sizing &

strength

◼ 20%Defoamers,

dispersants,

biocides and

other process

chemicals

◼ 10%

Polymers

◼ 5% Other◼ 40%

Pulp

◼ 20%

Printing &

writing papers

◼ 40%

Board &

tissue

-1-2%2-3%1-2%Market

growth

2-3%0-1%1%Market

growth

Nouryon (pulp) #3

Solenis (paper)* #1

Kemira (pulp and paper) m.s. ~16% #2

Ecolab (paper) #4

Note: Revenue by industry, product and geography rounded to the nearest 5%

OCT OB E R 24 , 2019

* Solenis-BASF combined entity

Kurita (paper) #5

REVENUE AND OPERATIVE EBITDAEUR million

REVENUE BYPRODUCT CATEGORY

Q3 2019 RE S ULT S 19

REVENUE BY APPLICATIONTYPE AND MARKET GROWTH

Industry & Water – strong positions in chosen categories

REVENUE BY GEOGRAPHIES AND

MARKET GROWTH BY REGION

◼ 40%

Coagulants

◼ 40%

Polymers

◼ 20%

Other

products

such as

defoamers

and biocides

2-3%5-6%2-3%

◼ 50%

EMEA

◼ 45%

Americas

◼ 5%

APAC

◼ 65%

Water treatment

◼ 10%

Other

◼ 25%

Oil & Gas

5-6%3-4%3-4%

WATER TREATMENT

Amsterdam

Barcelona

Frankfurt

London

Oslo

Paris

Stockholm

Los Angeles

Montreal

New York City

Toronto

Melbourne

Shanghai

Singapore

OIL & GAS

Note: Revenue by industry, product and geography rounded to the nearest 5%

Market

growth

Market

growth

CUSTOMER EXAMPLES

OCT OB E R 24 , 2019

REVENUE AND OPERATIVE EBITDAEUR million

MARKET ENVIRONMENT

Market share

~30% in coagulants and

~20% in polymers

Main competitors in

coagulants:

• Feralco (Europe)

• Kronos (Europe)

• Chemtrade (NA)

• USAlco (NA)

Market share ~25% in

polymers used in shale

oil & gas

Main peers in polymers

(also in water treatment):

• SNF

• Solenis

• Solvay (only O&G)

MUNICIPAL (40%),

customer examples

INDUSTRIAL (60%),

customer examples

Municipal Industrial

947 956906

1,0091,073

116 116107

114

131

2014 2015 2016 2017 2018

2014-2016 figures are pro forma; combination of Municipal & Industrial

and Oil & Mining segments

VARIABLE COST SPLIT 2018EUR 1.6 billion

TOP 10 RAW MATERIALSBY SPEND

1. Sodium hydroxide (caustic soda)*

2. Acrylonitrile (OD)

3. Aluminium hydrate

4. Colloidal silica dispersion*

5. Amines (OD)

6. Petroleum solvents (OD)

7. Acrylic acid (OD)

8. Alpha olefin (OD)

9. Acrylic ester (OD)

10. Fatty acid

Top 10 account for 50%of Kemira’s raw material spend

OD = Oil & gas derivative

* Mainly trading materials

Q3 2019 RE S ULT S 20

EXPOSURE TO OIL RELATEDRAW MATERIALS

Kemira’s variable cost split and top raw materials

◼ 30%Oil & gas

related

◼ 70%Not oil

related

◼ 70%Raw materials

◼ 15%Electricity & energy

◼ 15%Logistics

OCT OB E R 24 , 2019


Mid- to long-term financial targets were updated due to IFRS 16 in February 2019

Targets until

end of 2018

Revenue

Operative EBITDA-% 14-16%

IFRS 16

impact

-

Gearing

Around +1%-point

Approx. +10%-pointsBelow 60%

2017

EUR 2.5 billion

2018

EUR 2.6 billion

12.5% 12.5%

59% 62%

Above-the-market

growth

Financial

targets (mid- to long-term)

Above-the-market

growth

15-17%

Below 75%

• IFRS 16 will affect primarily the accounting for Kemira Group’s operating leases

• Operating lease expenses are replaced by the depreciation of the right-of-use assets and interest cost associated with lease liability

• The impact on EBIT is small positive and on net profit immaterial

• No restatement of previous year figures, instead we will provide enough data for analysis


IFRS 16 impact on financials

EUR million

(except ratio)

FY

2018

Impact on

1-9/2019

Estimated impact

on FY 2019

Operative EBITDA 323.1 +25.1 Around +30

of which margin 12.5% +1.3 %-point Around +1 %-point

Impact on balance sheet

EUR million

(except ratio) Dec 31, 2018

Impact on

Sept 30, 2019

Net debt 741 +136

Gearing 62% +11%-points

PLEASE NOTE FINANCIAL IMPACT OF IFRS 16 ADOPTION FROM THE PREVIOUS SLIDE

Key figures


EUR million Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 2018 2017

Revenue 689.8 663.6 647.8 661.8 669.6 2,592.8 2,486.0

Operative EBITDA 118.1 106.1 95.6 84.5 89.0 323.1 311.3

margin 17.1% 16.0% 14.8% 12.8% 13.3% 12.5% 12.5%

Operative EBIT 71.1 60.3 50.1 44.8 50.0 173.8 170.3

margin 10.3% 9.1% 7.7% 6.8% 7.5% 6.7% 6.9%

Net profit 43.3 35.2 29.3 26.5 22.1 95.2 85.2

Earnings per share, diluted, EUR 0.27 0.22 0.18 0.17 0.14 0.58 0.52

Cash flow from operations 121.3 57.2 65.2 88.2 64.2 210.2 205.1

Capex excl. acquisitions 51.5 39.9 28.3 53.2 34.3 150.4 190.1

Net debt 866 921 842 741 744 741 694

NWC ratio (rolling 12 m) 11.1% 10.9% 10.6% 10.2% 9.8% 10.2% 9.4%

Operative ROCE (rolling 12 m) 11.5% 10.8% 10.3% 9.8% 9.8% 9.8% 9.7%

Personnel at period-end 5,036 5,067 4,973 4,915 4,798 4,915 4,732

Cash flow


EUR million Q3 2019 Q3 2018 2018 2017

Net profit for the period 43 22 95 85

Total adjustments 73 66 220 204

Change in net working capital 15 -5 -51 -34

Finance expenses -6 -11 -30 -25

Income taxes paid -3 -7 -24 -25

Net cash generated from operating activities 121 64 210 205

Purchases of subsidiaries and business acquisitions, net of cash acquired

0 -2 -43 0

Capital expenditure -51 -34 -150 -190

Proceeds from sale of assets 4 1 7 3

Change in long-term loan receivables 0 0 5 -5

Cash flow after investing activities 73 29 29 13

Currencies

Currency exchange rates had around EUR +46 million impact on revenue andEUR +18 million impact on the operative EBITDA in 1-9/2019 compared to 1-9/2018.

Guidance: 10% change in our main foreign currencies would approximately haveEUR 15 million impact on operative EBITDA on an annualized basis.


◼ 41% EUR

◼ 7% Others

KEMIRA REVENUE DISTRIBUTION 1-9 2019 KEMIRA COST DISTRIBUTION 1-9 2019

◼ 2% SEK

◼ 4% CNY

◼ 4% CAD

◼ 38% USD

◼ 6% Others

◼ 5% CNY

◼ 5% CAD

◼ 6% SEK

◼ 31% USD

◼ 42% EUR◼ 2% BRL

◼ 2% GBP

◼ 3% GBP

◼ 2% PLN

KEY FINANCIALS

Pulp & Paper


*12-month rolling average


Revenue 382.9 373.4 380.8 390.4 385.2 1,520.2 1,476.9


margin 16.0% 14.4% 13.3% 13.1% 13.6% 12.6% 13.4%

Operative EBIT 32.1 24.0 20.6 24.1 26.6 91.6 104.8

margin 8.4% 6.4% 5.4% 6.2% 6.9% 6.0% 7.1%

Operative ROCE*, % 7.9% 7.6% 7.7% 7.8% 8.5% 7.8% 9.0%

Capital expenditure (excl. M&A) 25.4 23.3 17.3 28.8 20.7 85.1 138.3

Cash flow after investing activities

44.6 36.2 25.1 -13.5 20.6 29.9 15.7

KEY FINANCIALS

Industry & Water


*12-month rolling average


Revenue 306.9 290.2 267.0 271.5 284.4 1,072.6 1,009.1


margin 18.5% 18.1% 16.8% 12.3% 12.9% 12.3% 11.3%

Operative EBIT 39.0 36.3 29.5 20.8 23.4 82.2 65.5

margin 12.7% 12.5% 11.0% 7.7% 8.2% 7.7% 6.5%

Operative ROCE*, % 18.4% 16.9% 15.4% 13.6% 12.5% 13.6% 11.0%

Capital expenditure (excl. M&A) 26.0 16.5 11.0 24.4 13.6 65.3 51.7

Cash flow after investing activities

37.9 5.7 27.8 23.8 26.8 52.5 46.9

FY 2018

Revenue split by country


USA 27%

Canada 6%

Brazil 3%

Uruguay 2%

Other Americas 1%

Finland 16%Sweden 5%

Germany 5%

Poland 3%

UK 3%

Spain 2%

Other APAC 4%

South Korea 1%

China 4%

Russia 2%

Netherlands 2%

France 2%

Italy 2%

Other EMEA 9%

Norway 1%

Important information about financial figuresKemira provides certain financial performance measures (alternative performance measures) on non-GAAP basis. Kemira believes that alternative performance measures, such as organic growth*, EBITDA, operative EBITDA, cash flow after investing activities, and gearing followed by capital markets and Kemira management, provide useful information of its comparable business performance and financial position. Selected alternative performance measures are also used as performance criteria in remuneration.

Kemira’s alternative performance measures should not be viewed in isolation to the equivalent IFRS measures and alternative performance measures should be read in conjunction with the most directly comparable IFRS measures. Definitions of the alternative performance measures can be found in the Definitions of the key figures in this report, as well as at www.kemira.com > Investors > Financial information.

All the figures in this interim report have been individually rounded and consequently the sum of individual figures may deviate slightly from the sum figure presented.


* Revenue growth in local currencies, excluding acquisitions and divestments

jari rosendal, president and ceo petri …...january-september 2019 excellent profitability in...

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