Strong earnings improvement in Q1 JANUARY-MARCH 2019 Selected - - PowerPoint PPT Presentation

JANUARY-MARCH 2019

Strong earnings improvement in Q1

JARI ROSENDAL, PRESIDENT AND CEO PETRI CASTRÉN, CFO APRIL 26, 2019

Selected operational highlights in Q1 2019

• Organic growth continued – market

environment fairly good

• Profitability improved clearly –

capacity utilization rates remained good

• Investment projects proceeding well

Key financial highlights

Organic growth +2%

• Sales prices increased in all areas of our

businesses Operative EBITDA +38% to margin of 14.8%

• Favorable combination of increasing sales

prices and moderate raw material cost impact

• Supply disruptions emerged during the quarter

but mitigating actions were done quickly – some financial impact expected in Q2 due to higher raw material and logistic costs Operative EBIT +48% to margin of 7.7%

EUR million (except ratios) Q1 2019 Q1 2018 Δ% FY 2018 Revenue 647.8 613.7 +6 2,592.8 Operative EBITDA 95.6 69.4 +38 323.1

• f which margin

14.8% 11.3%

• 12.5%

Operative EBIT 50.1 33.9 +48 173.8

• f which margin

7.7% 5.5%

• 6.7%

Net profit 29.3 23.0 +27 95.2 EPS, EUR 0.18 0.14 +31 0.58

Pulp & Paper – continued sales price growth

Market environment

• Long-term market outlook positive with multiple

investments announced recently by major pulp & paper companies like APP, Hamburger Containerboard, Mondi and Nine Dragons Organic growth flat with positive pricing

• Exit of ECOX business impacted sales volumes

Operative EBITDA margin 13.3%

• Underlying profitability in focus
• *Due to IFRS 16, leasing costs are mostly in

depreciations and partly in interest expenses in 2019, positive EBITDA impact EUR +3.3 million

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 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2017 2018 2019

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

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

Industry & Water – record-high margin

Market environment

• Water treatment market solid – expecting tighter

regulation in Europe

• Oil & gas shale market growth rate moderating in

the short-term Organic growth +5%

• Our Oil & Gas business had strong organic

growth, +26% to EUR 62 million

• In water treatment, we are well positioned to

meet continued inflationary pressures Operative EBITDA margin 16.8%

• Sales prices increased while propylene-based

raw material prices decreased

• Favorable product mix
• *Due to IFRS 16, positive EBITDA impact EUR

+4.4 million in Q1 2019

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

OPERATIVE EBITDA AND OPERATIVE EBITDA-% EUR million

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

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

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

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

Investing in core product categories with higher return

• Top 4 product categories represent 80% of

Group’s revenue, above EUR 2 billion

• Our investments have focused on:

– Bleaching chemicals – Polymers – Sizing* chemicals

• Current investments projects

– Netherlands – Expansion of Oil & Gas polymers – US – Expansion of Oil & Gas polymers – China – Completion of new Pulp & Paper AKD site

PRODUCTS

◼ 25% Bleaching and pulping ◼ 20% Polymers ◼ 20% Other: e.g. defoamers, dispersants, and biocides ◼ 20% Coagulants ◼ 15% Sizing* and strength

Revenue EUR 2,627 million (LTM)

*Sizing = Resistance against water absorption

Key operative focus areas in 2019

1. Continue to pass on higher raw material costs to sales prices 2. Optimize capacity allocation 3. Modify product & service offering to cater better profitable growth 4. Improve operational excellence 5. Ramp-up CEOR* polymer capacity addition in Netherlands in H2 6. Start-up new sizing manufacturing site in China in H2 7. Construction of emulsion polymer capacity in the US

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

2021 8. Prudent cost-control in all areas

*CEOR, chemical enhanced oil recovery

PETRI CASTRÉN, CFO APRIL 26, 2019

Financials Q1 2019

Successful pricing drives improvement

69.4

Q1 2018 Sales volumes Sales prices Variable costs Fixed costs Currency impact Other Q1 2019 Adoption of IFRS 16 standard "Pre IFRS 16 comparison"

• 7.0

+34.4

• 10.5

+5.4 +6.4

• 2.4

OPERATIVE EBITDA BRIDGE EUR million

614

• 4%

+3% 648 Q1 2018 Sales volumes Sales prices Currency impact Acquisitions Q1 2019 +6%

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

Group’s organic growth +2% Operative EBITDA margin 14.8%

• Strong operational improvement mainly driven by

pricing

• 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 7.7 million

87.9

• 7.7

95.6

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 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

• 9
• 18
• 26
• 23
• 16
• 4

3 11 23 47 42 37 34

• 18
• 23
• 23
• 13

16 13 13 26 36 38 29 11 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 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 improved in Q1

ALL KEY FIGURES IN EUR MILLION

271 205 210 34 65 2016 2017 2018 Q1 2018 Q1 2019 118 124 106 16 14 95 66 44 7 14 2016 2017 2018 Q1 2018 Q1 2019

213

CASH FLOW FROM OPERATIONS CAPITAL EXPENDITURE EXCL. ACQUISITIONS

◼ Growth capex 190 150

• Q1 cash flow supported by improved profitability
• Seasonality led to negative change in NWC as in

previous years

• Kemira’s Pension Fund Neliapila returned excess

capital of EUR 15 million to Group in Q1

• IFRS 16 impact EUR +7 million on cash flow from
• perations
• In Q1 the largest growth capex projects were on-

going completion of Pulp & Paper AKD plant in China and expansion of CEOR polymers for Oil & Gas in Netherlands

• CAPEX excl. acquisitions estimated to be around

EUR 180-220 million in 2019

23 28

ROCE improving, adoption of IFRS 16 increased reported net debt

9.9% 9.7% 9.8% 9.7% 10.3% 2016 2017 2018 Q1 2018 LTM Q1 2019 LTM 634 694 741 842 Dec 31 2016 Dec 31 2017 Dec 31 2018 Mar 31 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 129 million) are part of debt

– Excluding IFRS 16 impact, net debt would have been EUR 713 million and leverage ratio 2.1 – Improved cash flow reduced underlying debt level

• Average cost of net debt excluding leases is 2.0%

and duration is 28 months

2.4

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 2,627 MILLION, OPERATIVE EBITDA EUR 349 MILLION, OPERATIVE EBITDA MARGIN 13.3%, OPERATIVE ROCE 10.3%

◼ 25% Bleaching and pulping ◼ 20% Polymers ◼ 20% Other: e.g. defoamers, dispersants, and biocides ◼ 20% Coagulants ◼ 15% Sizing and strength

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

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%

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

• 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 in Q1 2019 Estimated impact in FY 2019, around Operative EBITDA 323.1 +7.7 +30

• f which margin

12.5% +1.2 %-point +1 %-point Impact on balance sheet EUR million (except ratio) Dec 31, 2018 Impact on March 31, 2019 Net debt 741 +129 Gearing 62% +12 %-points

EUR million Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 2018 2017 Revenue 647.8 661.8 669.6 647.6 613.7 2,592.8 2,486.0 Operative EBITDA 95.6 84.5 89.0 80.2 69.4 323.1 311.3 margin 14.8% 12.8% 13.3% 12.4% 11.3% 12.5% 12.5% Operative EBIT 50.1 44.8 50.0 45.1 33.9 173.8 170.3 margin 7.7% 6.8% 7.5% 7.0% 5.5% 6.7% 6.9% Net profit 29.3 26.5 22.1 23.5 23.0 95.2 85.2 Earnings per share, EUR 0.18 0.17 0.14 0.14 0.14 0.58 0.52 Cash flow from operations 65.2 88.2 64.2 23.4 34.5 210.2 205.1 Capex excl. acquisitions 28.3 53.2 34.3 39.8 23.2 150.4 190.1 Net debt 842 741 744 773 678 741 694 NWC ratio 10.6% 10.2% 9.8% 9.6% 9.5% 10.2% 9.4% Operative ROCE (rolling 12 m) 10.3% 9.8% 9.8% 9.7% 9.7% 9.8% 9.7% Personnel at period-end 4,973 4,915 4,798 4,858 4,740 4,915 4,732 PLEASE NOTE FINANCIAL IMPACT OF IFRS 16 ADOPTION FROM THE PREVIOUS SLIDE

Key figures

EUR million Q1 2019 Q1 2018 2018 2017 Net profit for the period 29 23 95 85 Total adjustments 79 42 220 204 Change in net working capital

• 30
• 31
• 51
• 34

Finance expenses

• 7
• 1
• 30
• 25

Income taxes paid

• 6

1

• 24
• 25

Net cash generated from operating activities 65 34 210 205 Purchases of subsidiaries and acquisit. 1

• 43

Capital expenditure

• 28
• 23
• 150
• 190

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

• 5

Cash flow after investing activities 40 16 29 13

Cash flow

Currencies

Currency exchange rates had around EUR +18 million impact on revenue and EUR +6 million impact on the operative EBITDA in Q1 2019 compared to Q1 2018. Guidance: 10% change in our main foreign currencies would approximately have EUR 15 million impact on operative EBITDA on an annualized basis.

◼ 43% EUR ◼ 7% Others KEMIRA REVENUE DISTRIBUTION Q1 2019 KEMIRA COST DISTRIBUTION Q1 2019 ◼ 2% SEK ◼ 3% CNY ◼ 4% CAD ◼ 37% USD ◼ 7% Others ◼ 5% CNY ◼ 4% CAD ◼ 6% SEK ◼ 29% USD ◼ 44% EUR ◼ 2% BRL ◼ 2% GBP ◼ 3% GBP ◼ 2% PLN

KEY FINANCIALS

Pulp & Paper

*12-month rolling average

EUR million Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 2018 2017 Revenue 380.8 390.4 385.2 376.0 368.7 1,520.2 1,476.9 Operative EBITDA 50.7 51.2 52.3 45.4 42.7 191.7 197.7 margin 13.3% 13.1% 13.6% 12.1 11.6% 12.6% 13.4% Operative EBIT 20.6 24.1 26.6 22.0 18.9 91.6 104.8 margin 5.4% 6.2% 6.9% 5.9% 5.1% 6.0% 7.1% Operative ROCE*, % 7.7% 7.8% 8.5% 8.3% 8.6% 7.8% 9.0% Capital expenditure (excl. M&A) 17.3 28.8 20.7 21.4 14.2 85.1 138.3 Cash flow after investing activities 25.1

• 13.5

20.6 2.3 20.5 29.9 15.7

KEY FINANCIALS

Industry & Water

*12-month rolling average

EUR million Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 2018 2017 Revenue 267.0 271.5 284.4 271.7 245.0 1,072.6 1,009.1 Operative EBITDA 45.0 33.3 36.7 34.8 26.6 131.5 113.6 margin 16.8% 12.3% 12.9% 12.8% 10.9% 12.3% 11.3% Operative EBIT 29.5 20.8 23.4 23.0 15.0 82.2 65.5 margin 11.0% 7.7% 8.2% 8.5% 6.1% 7.7% 6.5% Operative ROCE*, % 15.4% 13.6% 12.5% 12.6% 11.8% 13.6% 11.0% Capital expenditure (excl. M&A) 11.0 24.4 13.6 18.4 9.0 65.3 51.7 Cash flow after investing activities 27.8 23.8 26.8 6.1

• 4.0

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