in seasonally strong third quarter JANUARY-SEPTEMBER 2019 Key - - PowerPoint PPT Presentation

JANUARY-SEPTEMBER 2019

Excellent profitability in seasonally strong third quarter

JARI ROSENDAL, PRESIDENT AND CEO PETRI CASTRÉN, CFO OCTOBER 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

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

• f which margin

17.1% 13.3%

• 12.5%

Operative EBIT 71.1 50.0 +42 173.8

• f 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

372 369 363 373 369 376 385 390 381 373 383 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 48.5 55.4 42.7 45.4 52.3 51.2 50.7 53.7 61.3 12.4% 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 level

Market 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
• perations business in Finland (Operon) divested
• *IFRS 16 impact EUR +5.4 million in Q3 and EUR

+14.9 million in 1-9/2019

22.9 29.3 36.0 25.3 26.6 34.8 36.7 33.3 45.0 52.4 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

238 248 259 264 245 272 284 271 267 290 307 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 investments

Ongoing 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

• perations, 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

• ver volume’ to ‘Active

price management’ Acquisition Organic 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

Q3 2018 Sales volumes Sales prices Variable costs Fixed costs Currency impact Other Q3 2019 Adoption of IFRS 16 standard "Pre IFRS 16 comparison"

• 6.1

+18.8 +13.0

• 3.7

+6.3 +0.8

OPERATIVE EBITDA BRIDGE EUR million

670

• 2%

+2% 0% 690

Q3 2018 Sales volumes Sales prices Currency impact Acquisitions & Divestments Q3 2019

+3%

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

Operative 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

• 9.1

118.1

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

9 5

• 3
• 10
• 16
• 20
• 10
• 2
• 2

11 4 8 24 28 32

• 9
• 18
• 26
• 23
• 16
• 4

3 11 23 47 42 37 34 23 19

• 18
• 23
• 23
• 13

16 13 13 26 36 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 million EUR million

• 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*

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 33 62 2016 2017 2018 1-9 2018 1-9 2019

213

CASH FLOW FROM OPERATIONS CAPITAL EXPENDITURE EXCL. ACQUISITIONS

◼ Growth capex 190 150

• Cash flow improvement driven by strong results
• IFRS 16 impact EUR +21 million on cash flow from
• perations 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

97 120

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 2018 LTM Q3 2019 LTM 634 694 741 744 866 Dec 31 2016 Dec 31 2017 Dec 31 2018 Sep 30 2018 Sep 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 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

2.1 2.3

* 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

• utlook

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 brief

LAST 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 1,520 137 171 195 198 192 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 1-9/2019 Estimated impact

• n FY 2019

Operative EBITDA 323.1 +25.1 Around +30

• f 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

• f cash acquired
• 2
• 43

Capital expenditure

• 51
• 34
• 150
• 190

Proceeds from sale of assets 4 1 7 3 Change in long-term loan receivables 5

• 5

Cash flow after investing activities 73 29 29 13

Currencies

Currency exchange rates had around EUR +46 million impact on revenue and EUR +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 have EUR 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

EUR million Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 2018 2017 Revenue 382.9 373.4 380.8 390.4 385.2 1,520.2 1,476.9 Operative EBITDA 61.3 53.7 50.7 51.2 52.3 191.7 197.7 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

EUR million Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 2018 2017 Revenue 306.9 290.2 267.0 271.5 284.4 1,072.6 1,009.1 Operative EBITDA 56.8 52.4 45.0 33.3 36.7 131.5 113.6 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 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