Kemira Oyj Ord

Good afternoon, everyone, and welcome to Kemera's Q4 and full year results webcast. I'm Mikko Poil from Kemera's IR. I'm here today with Antti Salminen, our president and CEO, as well as Petri Kastarin, our CFO. As you surely have seen, this morning we published our Q4 and full year results, and 2024 was another strong year for Kemera. During today, during the webcast, Antti will cover the main events from the quarter, as well as some highlights from 2024. And after that, Petri will go through the financials. After the presentation, we'll move on to the Q&A, and you can submit your questions either on the teleconference line or then submit your questions from the webcast tool, and I will moderate the questions then. With these short instructions, Antti, please go ahead.

Thank you. I'm extremely happy to be reporting here on my first full year as the CEO of Kemira on the continued strong performance of the company. In fact, the full year, 24, was the second best year ever in Kemira's history. The margin performance continued strong. volumes increased in both segments, and quarter on quarter, the prices increased during the last quarter of the year. We made a good progress in the strategic front in our growth initiatives. We continued, as we have announced during the year, with several smaller investments and one bolt on acquisition to drive the growth of the company. We published in the Capital Markets Day the new long-term financial targets, which should indicate very clearly where we aim and head with the business. And we changed the operating model. We have brand new leadership team, which started 1st of January with the really high energy and spirit and commitment to bring along the profitable growth that we aim for. We also progressed on the sustainability front. Our emission reduction targets for Scope 1, 2 and 3 were validated by the SBTI, and we are fully committed and well on track on performing on those targets and delivering on them. And of course, I mean, as the proposal for the AGM has been announced, so we continue on our track record on solid dividend growth. So that's another highlight of the announcement here. So all in all, really, really strong, solid year and going stronger forward to this year. Now, if we look at the... growth strategy and the main strategic priorities that we have defined. Expanding in water, setting the target to double the water revenue over the time. Good performance there, 3% organic growth in 2024, so on track to reach the targets. Building the leading renewable solutions portfolio also there. We increased the revenue that we derive from the renewable solutions and we're well on track to reach our 500 million target on that front. And then unlocking the new growth platforms, new markets, new technologies for us to grow. We basically have announced that we are reviewing an investment opportunity here in Finland for renewable polymers. That project is progressing very well, so expect some news on that. So all in all, on these defined growth priorities, there's been really good progress. This being chemical industry, the growth is not step growth, it's gradual growth, but we're very, very well on the track to reach our targets there. As mentioned, the strategy, even if we renewed it in the spring, it is a continuum of the previous growth strategy. So basically just clarifying and making it more crisp and clear. But we performed these growth related actions and investments over the past couple of years in very, very systematic manner. We've introduced the biomass balanced polymers into the market, and those have been a big success. We expanded the renewables partnership with our partner IFF, which basically then also the potential investment in Finland is part of this track, so basically the renewables agenda. We have invested in the growth in the water area by expanding the capacity of our existing coagulant plants in several places in Europe. And we have started our journey to capture the growth potential in the micropollutants removal by entering into the activated carbon market. So again, progressing, I would say, exactly as planned. Now, one thing that we are extremely proud of and which continues to be on good level is our customer satisfaction, i.e. net promoter score. 59 is the latest measurement, which is all time high for us, which tells a lot about our capability to serve our customers in good times and bad times and be the most reliable supplier in the industry. And I'm really, really proud about these results. And of course, also the high employee engagement that we have. So we have really committed workforce that is kind of fully behind our strategic plans and ready to deliver. Now, if we then look at the 24 financial highlights a bit on a group level, as mentioned, good solid volume growth in both segments. And this in pulp and paper, despite the kind of slowish market that we have, I think it's a great achievement. positive organic growth in the last quarter of the year. Then if you look at the oil and gas divestment adjusted revenue, full year again, solid growth there. So basically a proof case on our point on us being on a growth track and on a profitable growth track. So again, 20% EBITDA reported. I think it's a really strong result, especially in the current European economic environment and the chemical industry. So I'm really proud about the achievement and I'm pleased with what we have achieved there. Good. And Petri will dig deeper into the financials, but I'll cover a bit perspectives on both of the business segments. So basically, if you look at the pulp and paper as mentioned, and as you've seen from the results announcements of many of our key customers as well, the market was soft last year the expected recovery didn't really start and the current outlook is that that basically 25 the recovery should really start probably more towards the latter half of the year than the beginning of the year but the underlying megatrends for the kind of especially the packaging industry to be growing as the economy picks up are there. So I'm confident that this growth, also the kind of a market will become more favorable. But I think the result that we have pulled in in the soft market is extremely good. And I'm very thankful for the pulp and paper team for doing this. Good solid volume growth in 24 And sales price is stabilizing towards the end of the year, which gives us a good start for 2025. So basically starting from this basis, I think it's a good place to start the journey for 2025. Now, if we look at the industry and water, where the markets were more robust, so basically no headwinds as such in the markets, demand clearly improved in all regions. And thus, we also reported a very solid organic revenue growth of 6% in quarter four and 3% for the full year. I think it's a great achievement and again exactly on the right path towards our longer term growth targets. And the operative EBITDA margin 22.2 is a really good number. And of course, I always like to remind about the extremely high return on capital employed for the water segment. So this is really efficient business model that we are running there. good to remember that it's also very robust and predictable business to be serving. So this is the kind of stabilizing factor in our portfolio and gives the solid grounds for kind of committing to these kind of profitability targets whilst we are after the growth. So the water business really creates the backbone for that. Now, on the sustainability front, progressed especially in the water efficiency of our operations and the scope one and two emissions according to the SPTI. So the water and climate targets, there was a really good solid progress forward. A bit more kind of modest development on the safety people and circularity area, but there also kind of the game plan is very clear and we are fully committed to this target. So going forward there as well. Then if we turn into the 25 a bit and the strategy execution now going forward. We continue, of course, the announced expansion investments and plan to complete them now in 25. But even more so, we have a really strong M&A pipeline to support the water growth especially, and we are actively working on that again. more focused on the more small to mid-sized Bolton type of acquisitions to build the presence in the activated carbon market to consolidate further the coagulant market to really kind of again this growth in the base water business which is the solid backbone of the company. So this pipeline is strong and we are working on it very actively as well as looking for any additional expansion needs in our base capacity as the markets are when the markets are asking for that. In packaging and hygiene solutions, Of course, we need to continuously have a focus on improving and keeping the profitability high. So that's kind of task number one, but also strengthening the presence in these newer openings for us, like the molded fiber market, which is globally growing much faster than the rest of the packaging market and another new growth area. So there also we need to find these new growth avenues and we're well progressing on those. When it comes to the fiber essentials business, the role of the business unit going forward will be a strong cash generation. That's the kind of primary role of the business unit. But there are also growth opportunities within this. Those are more stepwise type of growth opportunities, kind of following the big pulp mill expansions, especially in Latin America. We are actively observing that and working on those cases. So that's also one potential growth area. But let's remember that the role of the fiber-SSLs really is to be the strong gas generator for the company. And in new ventures area, we don't report that separately, but there's a lot of activity and we have invested with the organizational change a lot more into building the five years down the road agenda for us, which are the high growth businesses where we have the right to win in medium to long term and UNIT is working very actively on those. Again, this kind of alpha-glucans, the biobased polymers, is one of those platform technologies that we are working actively on and hopefully can have some news later on this year. But with these brief comments on the quarter four and the full year 24, plus some foresight into 25, I would like to hand it over to Petri to go deeper into the financials.

All right. Thank you, Antti. I will actually start by again repeating in my mind what are the key three takeaways from this report. And Antti was talking about it already, but I really want to emphasize this. One is that this was not an easy year in the chemical industry in general. This was not an easy year for our biggest customer segment. But yet, our very resilient business model is actually demonstrating a very good profitability, and as Santi said, second highest ever for the company. Regarding growth, our volumes grew through the year, and in the fourth quarter, we had 5% growth, despite the weakness in the pulp and paper industry. So, the growth is there, and again, we have a long-term target to grow faster than the market, so the growth opportunity is there. And I'll cover the components of growth a bit later. And as Antti said, we can look into the year with very much confidence. We expect that the market volumes will improve in the year. Pricing has stabilized. I'll have some proof points on that one. And generally, I think the inflationary environment is stabilizing or normalizing rather. And of course, that's a good sign, good market to go forward. I wanted to start here with the full year comment first. So let's look at the big picture first. So again, here, very important for growth strategy, 4% volume growth, again, in quite a challenging year. And this volume growth was pretty much balanced between the two segments. INW slightly higher than pulp on paper, but even pulp on paper, there was good growth. Organic growth was modestly still negative. And this was because the prices were declining about 5%. But again, if you exclude from this 5% decline, the impact of caustic and the impact of some of the electricity sensitive components, the sort of electricity impact, the full year price decline was 3%. And I know that throughout the year, many people were much more worried about our ability to hold on to the pricing and about our pricing ability. And the key point is that this price decline, which was there for the roughly 3% excluding those two segments, it has stabilized during the year. So second half very much stable and actually modest improvement in the fourth quarter. Then, of course, during fourth quarter, you see the colors turning blue in terms of growth in pricing, so very modest increases in pricing. There was also a very modest increase in sequential from Q3 to Q4 on pricing, and basically a very small increase in pulp and paper offsetting by a small decrease in INW. So variable costs year-on-year increased again very, very modestly, again highlighting that we have returned to sort of a normal pricing environment where one should expect modest increases in costs and then, of course, correspondingly modest increases in sales prices. Volumes grew by 1% in Q4. industry growth well over 5% during the quarter, offsetting the weakness in the pulp and paper segment. Sequentially, and this is perhaps something that I need to remind every once in a while, we do have a seasonal pattern in our revenues that we do have some slowness in Q4 in both of our segments. So the decline from Q3 to Q4 in volumes very much according to our normal seasonality. Fixed costs during the quarter included somewhat higher, a larger share of miscellaneous costs. And then there were some maintenance costs due to longer than anticipated or longer than planned maintenance breaks in two of our sites. These were both INW sites, so the impact was felt on the INW side. and the impact of these fixed costs roughly in the mid single-digit millions. Last quarter, I was noting that we are trending towards relative price-cost stability, and now we have pretty much reached it. Year on year, both variable costs and sales prices impact individually were almost zero. And then, of course, the net impact practically zero. Also, consecutive quarter impact very, very small. In our view, if I sort of put my crystal ball ahead of me, we don't see anything that dramatically would change this relative price stability going into the year, other than if there was an extensive trade war or high tariffs were imposed. But even for that, again, I want to remind that most of our manufacturing And raw material sourcing is done in a country where we sell, in the case of USA or China, or within a region where we operate, in case of EU. So our material flows across borders are quite limited. There are some between Canada and USA, and there are some between China and USA, but in the scheme of things, relatively modest as we practically operate where we sell. Wanted to take items affecting comparability separately here. So this quarter, we have two items that impact comparability. First one is our reorganization program. Antti was talking about the division into our new reorganization, where we will be reporting under three segments. As a result of this reorganisation, there were some positions that were eliminated. Not a big number, all in all. The number of positions that were eliminated was in the dozens, not in hundreds. And most of these employees affected are now off... Most of them are now out of payroll, and severance costs for these have been booked into Q4. The other item affecting comparability is a single asset energy company or energy asset that we partly own in Finland. This asset is currently underutilized and we have increased the provision for this underutilization and this period of under provision actually covers for the next five years. There are very advanced plans for industrial activity on that site. And that would be utilizing steam from this facility. So there is a plan for going forward. Balance sheet, we continue to deliver ourselves. Net debt now below 300 million, including lease obligations. And leverage at 0.5, roughly at half turn. And of course, our return on capital efficiency, or capital employed, well over 20%. I want to remind again that delevering itself is not a goal in itself, but it's an outcome from good profitability and good cash flow. And of course, like Antti said, we continue to actively seek good, right M&A opportunities and organic investment opportunities. Cash flow for the year, very strong, even if not quite at the record level where we were last year or previous year. However, quarter was very strong, exceeding the year-ago fourth quarter at 165 million. There's also a note that we will get a 10 million capital return from our supplementary pension fund, Neliapila. So we'll continue to unwind the overfunding that we have in this fund. And those who are not familiar with the fund, a quick reminder. The fund has been closed since 1991 for new active members. There are about a dozen active employees still in that fund, but it has about 1,500 retirees. So it's in a run-off phase. The liabilities come down roughly 10 million a year. And like I said, it's overfunded by approximately 100 million currently. So we expect that we will gradually receive or return this overfunding as the assets and liabilities of this fund wind down. Regarding capital expenditures, significantly below at the level of, somewhat below the level of 23 at 167 million. This year, we will expect that the capex will be higher, will be more than 200 million. driven largely, but not only, by the investment that we are planning to do with our partner IFF here in Finland, that Antti was talking about, investment into the renewable solutions, Alfa Glucan investment. Dividend proposal. So the board is proposing for the AGM that will continue our track record of increasing our dividend. The board is proposing a dividend of 74 cents per share. That will be an increase of six cents from previous year. And as has been our practice in the last few years, this dividend is proposed to be paid in two installments in April and in November. Finally, on outlook, it's based on our assumption that our markets will continue to grow modestly in volumes. In water market, we see this growth fairly uniform across all regions. For our fiber essentials and for our packaging and hygiene solutions, which are successors to our pulp and paper business, the markets are expected to recover, but the recovery is expected to be stronger in the second half. Clearly, there is some uncertainty about the timing and about the strength of that recovery, as you may have seen and heard from some of our customer comments in the recent days and those. But based on these assumptions, we expect that Kemira revenue will be between 2.8 and 3.2 billion in 2025, and Operative EBITDA between 540 and 640 million. With that, I think we're ready to move to the Q&A session.