improvement continued in Q2 JANUARY-JUNE 2019 Key points in Q2 - - PowerPoint PPT Presentation

JANUARY-JUNE 2019

Strong earnings improvement continued in Q2

JARI ROSENDAL, PRESIDENT AND CEO PETRI CASTRÉN, CFO JULY 19, 2019

Key points in Q2 2019

• Focus on value over volume

continued

• Strong profitability improvement

despite some softness in the market

• Growth investment projects in

China and the Netherlands expected to be ramped-up by year-end

Key financial highlights

Focus on value over volume

• Intention to drive profitability resulted in some

lost volumes

• Oil & Gas organic growth +30%

Operative EBITDA +32% to margin of 16.0%

• Improved product mix
• Effective price and cost management combined

with favorable raw material price development

• IFRS 16 impact EUR +8.3 million in Q2
• Favorable currency development

Operative EBIT +34% to margin of 9.1%

EUR million (except ratios) Q2 2019 Q2 2018 Δ% FY 2018 Revenue 663.6 647.6 +2 2,592.8 Operative EBITDA 106.1 80.2 +32 323.1

• f which margin

16.0% 12.4% 12.5% Operative EBIT 60.3 45.1 +34 173.8

• f which margin

9.1% 7.0% 6.7% Net profit 35.2 23.5 +50 95.2 EPS, EUR 0.22 0.14 +54 0.58

Pulp & Paper – profitability improving

Market environment

• Some short-term softness in the market

Organic growth -3%

• Intentional focus on improving product mix
• Exit of ECOX business impacted sales volumes

Operative EBITDA margin 14.4%

• Value over volume visible also in EBITDA and

EBIT leading to improved profitability

• Cost savings initiated – related one-time costs

recognized in Q2

• *IFRS 16 impact EUR +3.2 million in Q2 and EUR

+6.5 million in H1

OPERATIVE EBITDA AND OPERATIVE EBITDA-% EUR million REVENUE AND ORGANIC REVENUE GROWTH (Y-ON-Y) EUR million

372 369 363 373 369 376 385 390 381 373 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 2018 2019

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

• 3%

46.0 47.8 48.5 55.4 42.7 45.4 52.3 51.2 50.7 53.7 12.4% 13.0% 13.4% 14.9% 11.6% 12.1% 13.6% 13.1% 13.3% 14.4% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* 2017 2018 2019

+0%

Industry & Water – exceptional profitability

Market environment

• Water treatment market solid
• Oil & gas shale market growth rate slowing in the

short-term Organic growth +4%

• Our Oil & Gas business had strong organic

growth, +30% to EUR 77 million, partly driven by

• il sands tailings treatment business
• Focus on key customers

Operative EBITDA margin exceptionally high 18.1%

• Favorable product mix and polymer raw material

price development

• *IFRS 16 impact EUR +5.0 million in Q2 and EUR

+9.4 million in H1

22.9 29.3 36.0 25.3 26.6 34.8 36.7 33.3 45.0 52.4 9.6% 11.8% 13.9% 9.6% 10.9% 12.8% 12.9% 12.3% 16.8% 18.1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* 2017 2018 2019

OPERATIVE EBITDA AND OPERATIVE EBITDA-% EUR million

238 248 259 264 245 272 284 271 267 290 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 2018 2019

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

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

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

Clear improvement in safety

• We have 5,067 employees and annually 1,000-1,200

contractors working with us

• We produce some 5.3 Mton of products at 64

manufacturing sites in 28 countries every year

• We deliver nearly 1,000 shipments daily by road, rail

and sea

• Our TRIF is 2.5, including own employees and

contractors

• Our LTIF of 1.5 is among the best of the global

chemical companies*

Total Recordable Injuries Frequency # of injuries per 1 million hours (Kemira Employees and Contractors in our facilities)

Safety record on the right track – target has to be zero injuries

5.8 7.2 3.4 3.9 3.5 2.5 2014 2015 2016 2017 2018 2019 YTD

*Based on the ICCA (the International Council of Chemical Associations) database and the latest reported company data

2.7 2.7 1.5 2.2 2.0 1.5 2014 2015 2016 2017 2018 2019 YTD Lost Time Injuries Frequency # of injuries per 1 million hours (Kemira Employees and Contractors in our facilities)

HOW KEMIRA CREATES VALUE

Strategy in brief

FINANCIAL TARGETS (mid- to long-term) Above the market revenue growth • Operative EBITDA 15-17% • Gearing below 75% OUR MARKET FOCUS Chemicals for Pulp & Paper, Oil & Gas and Water Treatment #1 or #2 in our core markets Market growth estimated to be 2-3% p.a. supported by higher use of fiber-based products, resource efficiency and regulation BUILDING A GREAT CHEMICALS COMPANY Great products: 4 core areas are polymers, coagulants, sizing and bleaching chemicals which meet

• ur customers’ needs incl. resource efficiency

Great operations: Deliver reliably with consistent quality Great people: Deep application expertise and innovation capability EXECUTION – VALUE OVER VOLUME Improving product and market mix Focusing on capital efficiency Investing selectively in core product areas with higher return

• n capital employed

Key operative focus areas in H2 2019

1. Active price management 2. Modify product & service offering to cater better profitable growth 3. Improve operational excellence 4. Ramp-up CEOR* polymer capacity addition in the Netherlands 5. Start-up new AKD sizing manufacturing site in China 6. Construction of emulsion polymer capacity in the US

• n time and in budget, start-up expected beginning of

2021 7. Prudent cost-control in all areas

*CEOR, chemical enhanced oil recovery

PETRI CASTRÉN, CFO JULY 19, 2019

Financials Q2 2019

Successful pricing drives improvement

80.2

Q2 2018 Sales volumes Sales prices Variable costs Fixed costs Currency impact Other Q2 2019 Adoption of IFRS 16 standard "Pre IFRS 16 comparison"

• 6.6

+23.4 +4.8

• 0.5

+5.7

• 0.8

OPERATIVE EBITDA BRIDGE EUR million

648

• 4%

+2% 0% 664 Q2 2018 Sales volumes Sales prices Currency impact Acquisitions Q2 2019 +4%

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

Operative EBITDA margin 16.0%

• 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 +8.3 million in Q2 and EUR +16.0 million in H1

97.8

• 8.3

106.1

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

• 180
• 120
• 60

60 120 180 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Brent oil, USD Sales prices* Variable costs*

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

9 5

• 3
• 10
• 16
• 20
• 10
• 2
• 2

11 4 8 24 28

• 9
• 18
• 26
• 23
• 16
• 4

3 11 23 47 42 37 34 23

• 18
• 23
• 23
• 13

16 13 13 26 36 38 29 11

• 5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2017 2018 2019 Net impact on EBITDA (sales prices-variable costs) Sales prices Variable costs

Net impact of sales price & variable costs positive

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

EUR million EUR million

Cash flow has improved clearly

ALL KEY FIGURES IN EUR MILLION

271 205 210 58 122 2016 2017 2018 H1 2018 H1 2019 118 124 106 41 34 95 66 44 22 34 2016 2017 2018 H1 2018 H1 2019

213

CASH FLOW FROM OPERATIONS CAPITAL EXPENDITURE EXCL. ACQUISITIONS

◼ Growth capex 190 150

• Cash flow supported by improved profitability
• Kemira’s Pension Fund Neliapila returned excess

capital of EUR 15 million to Group in Q1

• IFRS 16 impact EUR +14 million on cash flow from
• perations in H1
• Typically cash flow is H2-weighted, especially due to

changes in net working capital

• In H1 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

63 68

ROCE improving, adoption of IFRS 16 increased reported net debt

9.9% 9.7% 9.8% 9.7% 10.8% 2016 2017 2018 Q2 2018 LTM Q2 2019 LTM 634 694 741 773 921 Dec 31 2016 Dec 31 2017 Dec 31 2018 Jun 30 2018 Jun 30 2019

NET DEBT (EUR million) AND LEVERAGE RATIO* OPERATIVE RETURN ON CAPITAL EMPLOYED

2.3 2.2 2.1

• 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 mainly from the

adoption of IFRS 16 as operating leases (EUR 135 million) are part of debt

– Excluding IFRS 16 impact, net debt would have been EUR 786 million and leverage ratio 2.2

• Average cost of net debt excluding leases is 1.9%

and duration is 27 months

2.5 2.5

* 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

• utlook

Operative EBITDA 253 287 303 311 323 Increase

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

Why invest in Kemira

Profitable growth

Operative EBITDA improved by +35% and

• perative EBIT +40% in H1 2019

1 2 3

Attractive dividend

Stable dividend and competitive yield

Sustainable investment

Excellent sustainability performance (EcoVadis rating: Gold)

Appendix

SEGMENT SPLIT PRODUCTS

GEOGRAPHIES

Kemira in brief

LAST 12 MONTHS: REVENUE EUR 2,643 MILLION, OPERATIVE EBITDA EUR 375 MILLION, OPERATIVE EBITDA MARGIN 14.2%, OPERATIVE ROCE 10.8%

◼ 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

◼ 58%

Pulp & Paper

◼ 42%

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 1,520 137 171 195 198 192 2014 2015 2016 2017 2018

REVENUE BY PRODUCT CATEGORY

REVENUE BY CUSTOMER TYPE 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

• ther 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%

* Solenis-BASF combined entity

Kurita (paper) #5 REVENUE AND OPERATIVE EBITDA

EUR million

REVENUE BY PRODUCT CATEGORY

REVENUE BY APPLICATION TYPE 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

REVENUE AND OPERATIVE EBITDA

EUR 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

• il & 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

947 956 906 1,009 1,073 116 116 107 114 131 2014 2015 2016 2017 2018

2014-2016 figures are pro forma; combination of Municipal & Industrial and Oil & Mining segments

VARIABLE COST SPLIT 2018 EUR 1.6 billion TOP 10 RAW MATERIALS BY 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%

• f Kemira’s raw material spend

OD = Oil & gas derivative * Mainly trading materials

EXPOSURE TO OIL RELATED RAW 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

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%-points

Below 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

• perating 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 H1 2019 Estimated impact

• n FY 2019, around

Operative EBITDA 323.1 +16.0 +30

• f which margin

12.5% +1.2 %-point +1 %-point Impact on balance sheet EUR million (except ratio) Dec 31, 2018 Impact on June 30, 2019 Net debt 741 +135 Gearing 62% +12%-points

EUR million Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 2018 2017 Revenue 663.6 647.8 661.8 669.6 647.6 2,592.8 2,486.0 Operative EBITDA 106.1 95.6 84.5 89.0 80.2 323.1 311.3 margin 16.0% 14.8% 12.8% 13.3% 12.4% 12.5% 12.5% Operative EBIT 60.3 50.1 44.8 50.0 45.1 173.8 170.3 margin 9.1% 7.7% 6.8% 7.5% 7.0% 6.7% 6.9% Net profit 35.2 29.3 26.5 22.1 23.5 95.2 85.2 Earnings per share, EUR 0.22 0.18 0.17 0.14 0.14 0.58 0.52 Cash flow from operations 57.2 65.2 88.2 64.2 23.4 210.2 205.1 Capex excl. acquisitions 39.9 28.3 53.2 34.3 39.8 150.4 190.1 Net debt 921 842 741 744 773 741 694 NWC ratio (rolling 12 m) 10.9% 10.6% 10.2% 9.8% 9.6% 10.2% 9.4% Operative ROCE (rolling 12 m) 10.8% 10.3% 9.8% 9.8% 9.7% 9.8% 9.7% Personnel at period-end 5,067 4,973 4,915 4,798 4,858 4,915 4,732 PLEASE NOTE FINANCIAL IMPACT OF IFRS 16 ADOPTION FROM THE PREVIOUS SLIDE

Key figures

EUR million Q2 2019 Q2 2018 2018 2017 Net profit for the period 35 24 95 85 Total adjustments 69 53 220 204 Change in net working capital

• 22
• 32
• 51
• 34

Finance expenses

• 17
• 11
• 30
• 25

Income taxes paid

• 8
• 10
• 24
• 25

Net cash generated from operating activities 57 23 210 205 Purchases of subsidiaries, acquisitions and assoc. comp.

• 2

2

• 43

Capital expenditure

• 40
• 40
• 150
• 190

Proceeds from sale of assets 1 1 7 3 Change in long-term loan receivables 5

• 5

Cash flow after investing activities 17

• 13

29 13

Cash flow

Currencies

Currency exchange rates had around EUR +31 million impact on revenue and EUR +12 million impact on the operative EBITDA in H1 2019 compared to H1 2018. Guidance: 10% change in our main foreign currencies would approximately have EUR 15 million impact on operative EBITDA on an annualized basis.

◼ 42% EUR ◼ 7% Others KEMIRA REVENUE DISTRIBUTION H1 2019 KEMIRA COST DISTRIBUTION H1 2019 ◼ 2% SEK ◼ 4% CNY ◼ 4% CAD ◼ 37% USD ◼ 6% Others ◼ 5% CNY ◼ 5% CAD ◼ 6% SEK ◼ 30% USD ◼ 43% EUR ◼ 2% BRL ◼ 2% GBP ◼ 3% GBP ◼ 2% PLN

KEY FINANCIALS

Pulp & Paper

*12-month rolling average

EUR million Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 2018 2017 Revenue 373.4 380.8 390.4 385.2 376.0 1,520.2 1,476.9 Operative EBITDA 53.7 50.7 51.2 52.3 45.4 191.7 197.7 margin 14.4% 13.3% 13.1% 13.6% 12.1 12.6% 13.4% Operative EBIT 24.0 20.6 24.1 26.6 22.0 91.6 104.8 margin 6.4% 5.4% 6.2% 6.9% 5.9% 6.0% 7.1% Operative ROCE*, % 7.6% 7.7% 7.8% 8.5% 8.3% 7.8% 9.0% Capital expenditure (excl. M&A) 23.3 17.3 28.8 20.7 21.4 85.1 138.3 Cash flow after investing activities 36.2 25.1

• 13.5

20.6 2.3 29.9 15.7

KEY FINANCIALS

Industry & Water

*12-month rolling average

EUR million Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 2018 2017 Revenue 290.2 267.0 271.5 284.4 271.7 1,072.6 1,009.1 Operative EBITDA 52.4 45.0 33.3 36.7 34.8 131.5 113.6 margin 18.1% 16.8% 12.3% 12.9% 12.8% 12.3% 11.3% Operative EBIT 36.3 29.5 20.8 23.4 23.0 82.2 65.5 margin 12.5% 11.0% 7.7% 8.2% 8.5% 7.7% 6.5% Operative ROCE*, % 16.9% 15.4% 13.6% 12.5% 12.6% 13.6% 11.0% Capital expenditure (excl. M&A) 16.5 11.0 24.4 13.6 18.4 65.3 51.7 Cash flow after investing activities 5.7 27.8 23.8 26.8 6.1 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 figures

Kemira provides certain financial performance measures (alternative performance measures)

• n 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

• f individual figures may deviate slightly from the sum figure presented.

* Revenue growth in local currencies, excluding acquisitions and divestments