Kemira Oyj Ord

Good morning everyone and welcome to Kemeras Q2 2024 results webcast. I'm Mikko Pohjal from Kemeras IR and as always I'm here today with our President and CEO Antti Salminen and our CFO Petri Kastrén. As you have surely seen we've earlier today published our Q2 results with solid performance and in the webcast today Antti will cover the main events of the quarter after which then Petri will cover the key financials. And after that, we'll have plenty of time for your questions, so you can submit your question from the webcast tool or then via the teleconference. With these short intro remarks, I'll hand over to Antti.

Good morning on my behalf as well, and really happy to be reporting on my first full quarter as the CEO of Kemira. What a great company to work for operating in the heart of the sustainability transition of the world, working on the water and fiber economy. So really, really good feeling after the first half a year, roughly in this role. And as Mikko mentioned, happy to report steady, strong quarter two results for the business and we're greatly advancing on the trajectory that we have defined for the company. I feel kind of very positive rhythm in the whole company. Some highlights of the Second quarter, first of all, clearly the end market demand continued to recover on both segments, most importantly in the pulp and paper where the markets were down. So recovery is evident, which is evidenced by the volume growth. And we were able to make really strong margin and cash flow, holding on to the price as well. also started to execute with small steps on our growth strategy by investing into additional capacity, making first acquisitions on the micropollutants removal area. So progressing pretty much as planned. If we look at then some underlying factors, I'm really happy we had another round of the customer satisfaction net promoter score, which was all time high. And employee engagement also in the latest survey stayed on a really strong level. And these are really the assets we can build the future success on. Happy, satisfied customers, engaged employees. This is the basis that gives us confidence in long-term future strategy execution of the company. Now, if we look at the financials a bit, Petri will, of course, dig much deeper into the numbers. But again, volume growth was continuing and Margin improvement also very important thing year on year, both segments margin improvement, solid gas flows and really holding on to the prices very well in an environment where the raw materials are coming down. So I would say a steady good performance for the second quarter. But if we look a little bit deeper then into the segments, so pulp and paper, The end market recovery continued, volume up year-on-year 10%, significant increase and improvement there. Second quarter is seasonally a low quarter in pulp and paper due to the maintenance shutdowns of customers and our own facilities, which is evidenced in the numbers. And the price decline there was modest, but that kind of backing on the clear decline in the raw material costs. And also the comparison period in 23 still had April, which was high energy prices and caustics, so that also impacting there. But I think the pulp and paper segment did a good job in this environment to hold on to prices and pull in these really good results. And if we look at then INW, which was super strong in Q2, organic growth 3%, margin holding over the 22% level, and the return on capital employed, which we are reporting on Q1, continued over 35%. So very, very good performance there. Clearly, we see also from the markets the regulation which is driving the water treatment chemicals demand being implemented not only in Europe, but also in the US, which will again fuel growth for the future for the water segment. Then, As I mentioned in the start, we announced during the quarter a couple of investments, small investments into growth. First of all, expanding our coagulant capacity in Tarragona in Spain. This is on top of the tightening EU phosphorus recovery requirements, which drives the demand, and also on the biogas investments, which are driving also this demand. So clear growth drivers, and thus we invest to support that growth by expanding the capacity. We also announced the entry to the micropollutants removal market by a small acquisition in UK, activated carbon recovery facility, which is one of the first steps to enter really into that fast growing market. The activated carbon market for water treatment is roughly 2 billion market with over 7% annual growth rate. So really important growth area for us in Kemil. And if we then look at the overall focus areas for the rest of the year, so I think it's all about maintaining the margins, maintaining our pricing capability and investing into growth with small careful steps so that we keep the fundamental good performance of company and on top of that create the growth that we are after. But with these words, I would like to hand it over to Petri, who will go deeper into the numbers then.

Very good. Thanks, Antti. So really, when you look at the quarter, I think three things are important. Revenues, we increased revenues, again, adjusted for the oil and gas divestment. Profitability improved, both in absolute and relative terms. And like Antti was saying, we had really nice volume growth both year on year, or actually more significant year on year, and then also during consecutive quarters. And I will elaborate on this a little bit more. And on this bridge now I will focus on sort of apples to apples comparisons of meaning for the business that after the adjusting for the oil and gas divestment. Volumes grew considerably. So as Antti already mentioned, the pulp and paper volume growth was approximately 10%. And also, INW grew very nicely around mid-single digits. So the volume growth for the whole group was at 7% year on year. The sales price declined by 6%. As Anssi mentioned, caustic prices and some of the electricity prices were really impacted a year ago in April, so beginning of Q2 in 2023. And if we exclude just the impact of caustic, then the price decline would have been 4%. And the 4% price decline is well within the sort of what we built into this year and what we have been expecting for the year. So within our expectations. And also on the profitability bridge below, you see that the 52 million price decline was almost entirely offset by 48 million variable cost decline. So all in all, we didn't give up margins. So in that sense, as Antti was saying, we defended prices well, we defended our margins in this environment where actually the variable costs were slightly decreasing rather than being just stable. Volume growth was then obviously delivering the profitability improvement and more than offsetting the fixed cost increase, resulting in 7 million EBITDA improvement year on year, or 5%. Some comments on volume and price development against Q1. Volumes grew very nicely in INW quarter-on-quarter, high single-digit quarter revenue, volume growth. remain roughly flat in pulp and paper. And Antti was talking about what I think is sort of a new seasonal trend within our pulp and paper business, that we do have some weakness seasonal weakness in Q2. And this is driven by the maintenance breaks, both our customers as well as our own during Q2. And the second point is that the seasonally, the electricity cost is typically lower in Q2, particularly here in Nordics, and that impacts the chlorate pricing, particularly here in Nordics, and that's visible in revenues as well as profitability in Q2. This is now a third quarter in a row when the impact from variable cost versus sales prices is relatively modest. And I call modest 10 million or below that. And this is, of course, a type of environment which is much easier for us to manage our business. It's much easier to have the customer interaction on pricing and therefore preferable over a very volatile pricing environment or inflationary variable cost environment, which we went through a few years ago. And again, as I said earlier, the modest negative net impact was more than offset with volume growth in the business. And again, we are expecting that volume growth throughout the year. And also, typically, I give out some type of an outlook for variable cost environments for the rest of the year, and it looks to be relatively stable for the rest of the year as well. A few comments on balance sheet. We continue to delever ourselves, leverage now at 0.6 turns and Operative ROSI return on capital employed well over 20%. Average interest rate is increasing with increasing interest rates. But if we look at the actual interest expense or net interest expense that we pay down, it's significantly down due to lower debt, and actually we are earning interest income for cash deposits. So net finance costs were 6.6 million versus about 12 million a year ago. On the balance sheet, also noteworthy that we paid out from cash resources and some short-term borrowings the 200 million bond that matured during the quarter in May without the need to refinance it with new long-term financing. One more thing I bring up from Antti's slides. His first slide mentioned that the EPS was impacted by our decision to close our legal entity Argentina. So the overall impact from closing the legal entity was negative 7 million, meaning roughly 4 euro cents per share. Of this approximately 7 million impact, 2.5 million was above the line, meaning impacting EBITDA. And then the rest of it was between tax lines and financial income lines and reflecting the currency adjustment and some write downs of assets as a result of the decision to close that legal entity. And again, this approximately 2.5 million, which is in the EBITDA line or above the EBITDA line, is an operative item impacting our operative EBITDA. Regarding cash flow, Q2, cash flow continues to be very strong. We have now generated more than 200 million of operative cash flow during the first half of the year. Our capex follows our seasonal patterns, meaning there is low during the first half of the year, but we expect that the full year capex will be approximately at last year's level or slightly above that. On Outlook, we upgraded the Outlook in June. a month ago, and now we are repeating that outlook and the assumptions behind the outlook. Gradual volume recovery of our end markets is expected to continue, and input costs to remain relatively stable. I think those are the key assumptions behind the outlook that I mentioned here. And now just repeating that revenue is expected to be between 2.8 and 3.2 billion, and operative EBITDA between 540 and 640 million. Finally, I'd like to provide an advertisement. We have the Capital Markets Day in Helsinki on September 26th this year. Already a good number of people have registered, and we thank you for that. But I encourage for those of you who are planning to attend or want to attend but haven't registered, please do so. We obviously want to see as many people as possible in person, but that this CMD can also be followed and attended by live webcast as well. With that, I think we're ready to move on to the Q&A session. Thank you.