Kemira Oyj Ord

Good morning, everyone, and a warm welcome to KEMIRA's Q1 2025 results webcast. My name is Mikko Pohjola from KEMIRA's IR, and I'm here today with our president and CEO, Antti Salminen, as well as our CFO, Petri Kastrén. We have today published our Q1 results, and we had solid profitability in a softer market environment. And we start with a presentation. Antti will cover the main points of the quarter, and after that, Petri will cover the financials. And after that, we'll obviously go to the Q&A session, and you can submit your questions either via the teleconference or then via the webcast tool, and I will then moderate. With this short intro, I'll hand it over to our president and CEO, Antti.

Good morning on my behalf as well, and as Mikko said, reporting on our Quarter one results, which were solid in terms of profitability in a softer market environment, more difficult market environment than probably expected. If we look at the highlights of the quarter one, the market uncertainty definitely increased. We can read that from news every day. And as we are tied to the consumer-related value chains, the impacts are visible in our demand, especially in the new packaging and hygiene solutions area. On the positive side, our market Very local business model makes us quite resilient against any direct impact from the tariffs, and Petri will comment that a bit more on his part. But I have a good confidence that going forward, despite of the turbulence on the market, we continue to perform on this solid profitability level. And as a proof point of that, the EBITDA margin on this software market conditions remained very good at 19.1%, very well within the guidance brackets that we have provided. Also, the growth strategy executes some progressives as planned. We have again announced during the quarter several investments, both organic and inorganic, into the growth, and I will comment those a bit more detail in a minute. And good to remind that our AGM approved the increase of dividend to 74 euro cents per share, which is to be paid in two installments. If you look at in a bit more detail the results, of course, organic revenue slightly declined in Q1, really driven by the packaging and hygiene solutions division, where the organic growth was clearly negative due to the market softness. Sales volumes were stable. And there was volume growth both in water solution and fiber essentials. Again, highlighting the robustness of especially the water business, but also the fiber essentials business. Sequentially, sales prices were stable. So again, I would say that it's a solid performance under these conditions. Of course marching sequentially improved from the from the Q4 of 24 to this over 90% level. Now of course if we go deeper than into the different business units water solutions are said very resilient robust. Strong profitability, steady demand. We see a slight increase in the market demand continuing. Sales volumes increased in both of our main product lines within the water solutions, i.e. coagulants and polymers. The main negative impact came from the contract manufacturing, a couple of bigger contract manufacturing deals that we have, which did not provide the kind of volumes that we were expecting. But the base water treatment product lines, coagulants and polymers both saw a volume increase. And as a result, the operative EBITDA of the business unit, over 21%, so really good, steady, profitable performance in the water solutions. Now then, if we look at the packaging and hygiene solutions, as mentioned already, the end market demand remained soft and remains very uncertain because of the economic uncertainty around us. Market softness was especially clear in China, but also the North American market slowed down significantly during the quarter. Both sales volumes and prices declined. But maybe on the positive side, the sales prices sequentially were stable so again no negative change in the pricing compared to the q four And of course, as a result of this market softness and soft top line, the margin decreased for the business unit. But again, clear sequential improvement from the last quarter of 2024. But clearly, the packaging and hygiene solutions is the business unit that suffers the most from the uncertainty on the consumer markets today. Looking at fiber essentials. Very solid overall performance in this business unit. Of course, the softness in the packaging market is then having some impacts on the on the demand on the on the pulp side as well, but still the same sales volumes increased somewhat from the previous year. Sequentially says volumes increased more significantly and the operative EBITDA was very strong at over 26%. So really good and robust performance in this business unit as well. Now then, if we turn to the growth strategy and growth initiative, so we just very recently announced the joint venture investment together with IFF to produce bio-based materials at industrial scale here in Finland, in Kotka. Here we are talking about new-to-the-world, renewable, bio-based polymers, building a real differentiation capability for Chemera in its markets. It's a platform technology which we can apply in many of our application fields in the packaging and hygiene solutions area in the water treatment as well. And we expect the production to start late 2027. We also have taken other steps in our growth strategy, investing into acquiring Thatcher Group's iron sulfate coagulant business in North America. Again, in the core of our water strategy, growing in the part of business that is the most resilient and best profitability of our business. Small step but one in a series of steps that we are have been making an are aiming aiming to make in order to constantly grow the water business. We also announced a. capacity increase investment into Thailand to support the APAC growth of packaging and hygiene solution business. Again, one in the series of many organic, smaller, well manageable capacity increase to support our growth initiatives. And if you look at these and some of the earlier announced growth investments, several different coagulant investments, for instance, in Europe, in many places. And kind of put that into context, so for the coagulants in the water business, we have invested to growth capacity that equals say 29, 30 to more than 50 million of revenue. The IFF joint venture investments in the same timeframe will provide us more than 50 million new revenue. And then the BHS related capacity investments Clearly about 20 million. So all in all, the investments we have so far already during the growth strategy execution announced and decided on are supporting well over 100 million of new revenue for us. Now, if we then look at the strategy execution going forward, so we will continue to invest in, especially in the water solutions area, to execute on the growth. Again, both organic and M&A type of investments are to be expected, and we are confident on retaining the strong financial performance of this business. Packaging and hygiene solutions, obviously the focus now will very heavily be on the margin improvement opportunities, both from the top side, but especially from the cost side. So clearly, improvement actions have been started on that area. And then on fiber essentials, continue to perform and maximize the cash flow, but also actively looking at expansion opportunities driven by the strong growth in the South American pulp business. And on the new ventures area, of course, now one key step is the announcement of the IFF joint venture investment into Finland, so the execution of that is high on the agenda, but also more and more we are turning the new venture from developing new opportunities into generating new revenues from these new adjacent markets, and that work continues. all the time. So these are the main focus areas regarding the strategy execution going forward. And with these brief remarks on the Q1 performance, I will turn it to Petri to comment more detailed on the financial numbers.

Thank you, Antti, and good morning from me as well. I typically try to draw your attention in the opening to a couple of things, and it is very much about the same things as Antti already talked about. The resilience of our business model, and then, as Antti promised, I will give you a bit more detail on the tariff impacts, or how we actually believe that the direct impact of tariffs is relatively non-material to us. The real issue is the indirect impact. So traditional bridge of revenue and results, revenue and operative profit. So revenue declined roughly 10 million. Practically, volumes were stable. and as the volume decline in PHS. And Antti talked about the weakness in packaging market. So that volume weakness was offset by volume growth that we had in water solutions and also in fiber essentials. In water solutions, again, as Antti already mentioned, Our volume growth was below the trend line that we have seen because of the contract manufacturing volume and revenue was clearly expectations below the previous quarters during this quarter. Packaging market was a disappointment. Going into the quarter, we were hoping to see some signs of market recovery. Those signs are much more difficult to see now. And we'll be eagerly also hearing and listening to the remarks from our customers, some of whom are reporting at this time. Sales price declined slightly more than 2% year on year. But again, if we look at the sort of trend and trajectory of that price decline, that price decline took place last year. Quarterly or sequentially, from Q4 to Q1, prices were essentially stable. And of course, I think that's a good achievement when the market is, or demand is on the soft side. Then if we look at on the profitability bridge, it looks like the sales price decline is the key driver. However, one must note that the sales price year on year was very much driven by the electricity intensive pulp chemicals. And those were following the price of electricity. particularly here in Nordics. Therefore, the real reason of why we had a softer quarter topline was that the topline was weak, particularly on the packaging side. I will also say a few words about our seasonality. Pre-COVID, pre-Ukrainian crisis or war, our typical seasonality was that the Q1 and Q4, sort of the winter quarters, were weaker in terms of revenue and profitability. And this was particularly because on the water side, the consumption of coagulants is lower. However, during these few last years, we have sort of gotten used to a different type of a quarterly rhythm because the electricity has been so high, cost of electricity has been so high during the winter months, and we have been able to take advantage of that. due to our favorable sourcing of electricity. And this has sort of overwhelmed the sort of underlying seasonality, which was there. Now this year, because it was such a mild winter in the Nordics, in Finland, and also very windy, electricity prices were low. So we really didn't get the benefit on the fiber side that we have typically received during the winter months. And you saw that already, you can see that in the fiber margins and you saw the seasonality in the slide that Antti showed, I think it was slide number six. So at least this year, it looks like we are starting with a different type of a seasonal pattern. Fixed cost increase was four million year on year or about three percent rate, which is sort of in line with the global inflation. maybe even slightly below it against the global inflation. And it's good to note that fixed costs were down 13 million against the high rate that we had in Q4. I already talked about, but I still want to emphasize that I wouldn't read too much to the fact that the net impact turned from almost stable in Q4 to minus 15 or negative 15 during this Q1. And I'm talking about the net impact between the year-on-year price change and the year-on-year sales price change of course variable cost changes again because so much of that was driven by the electricity intensive bleaching chemicals and that was really sort of against a higher comparison period And again, as noted sequentially, we are now in a fairly stable pricing environment and also variable cost we project to be quite stable across the basket of raw materials that we buy during 2025. And of course, this statement has a little bit of a disclaimer for various tariff impacts, which we have seen been changing fairly frequently. Regarding balance sheet, of course, we have continued to deliver ourselves, net debt now including operating leases at 216 million and leverage very low at 0.4 turns. I think that again, new record low for our leverage. Capital efficiency continues to be strong operating return on capital, now slightly below 20% at 19.1%. Cash flow solid in a typically weaker quarter or seasonally weaker quarter. Typically we pay our annual incentives during the Q1. We also have a significantly higher share of payables that we pay out during Q1. It follows the rhythm of having a higher amount of capital expenditures and capital expenditure approvals in Q4 and therefore the Q1 tends to be seasonally weakest from the cash flow point of view. This also compares against the very strong cash flow that we had a year ago. Few other sort of events to note regarding cash flow. We received repayments of $50 million vendor note that we had made for the purchaser of our oil and gas business a year ago. So that was paid on time in February. And we also received, again, another 10 million capital return from our supplementary pension fund here in Finland. This pension fund is in a wind-down phase. It has been closed over 30 years for new members. And as the... liabilities are winding down, we are unwinding the overfunding of that fund gradually, and 10 million was something that we took out this year. Capital expenditures, again, starting at a relatively low rate, at the same rate of last year. However, we expect that the capex will be higher this year, approximately 200 million for the full year. And again, the biggest driver for the increase in capital expenditures during the year is the joint venture, with IFF, which we announced in March, and which Antti was already talking about. I promise to give you a little bit more color on the trade impact or tariffs impact. So we have 58 plants globally. And most of what we sell, we manufacture within the same country or within the same region. We also source most of the raw materials within the same country or region, depending on what's the case. We've analyzed the impact from these tariffs as they have been announced. We have a sort of a constant evaluation of that. And our assessment is that really the overall net direct impact is not material, as the cross-region trade flows are so small. For example, trade flows between China and USA and both directions, and actually pretty much equal in size in both directions, combined are less than 20 million euros in 2024. All trade flows going into the USA, less than 5% of our group revenue, i.e. clearly less than 150 million euros, and a big bulk of that is from Canada. And the current trade from Canada is all covered by the exemption under the USMCA trade agreement. So at least as of this speaking, those trade flows are not subject to the tariffs. And so the direct impact of tariffs, as you see, is quite small. And of course, then we have mitigation actions. So in some cases we are already looking at, or have been looking at, have been actually implementing alternative sourcing, meaning sourced from a different location. We have alternative products that we can offer to our customers if the product is impacted significantly by the tariffs, or the cost of product impacted significantly by tariffs. And then we will be passing price increases. to our customers. And of course, the ability to pass these price increases depending on the competitive situation, how the competition is impacted by tariffs, whether it's impacted by more or less. Today, we issued a minimum 5% price increase notice for all products sold in the US for our water solutions and packaging and hygiene solutions starting in May. Of course, the indirect impacts are much more difficult to estimate, but as most of the water solutions business is water treatment, that by its nature is very resilient. We have seen the volumes actually being very resilient in previous economic downturns and upturns, not very much. And of course, the demand for packaging. chemicals is likely to be much more impacted by if there is a downturn or if there is a longer term decline in consumer confidence. So we have kept our outlook unchanged, but we have adjusted some of our assumptions for the year. So the main changes in the assumptions are softer volume demand, particularly for our packaging markets. Water treatment market, however, we expect to grow in all regions. On the positive side, if you will, the raw material environment, we expect to remain quite stable. And if you remember at the beginning of the year, we were describing it as a stable or slightly inflationary. So now we see a more moderate pricing environment, or let's turn it another way, less risk for inflationary pressures on the cost side. reflecting u.s u.s dollar weakness of late so now we assume that the average rate for the year will be higher than the average rate for for last year and as a reminder for that we don't have much of transaction exposure through the currency exposure comes to us through translation impact of course we earn a good part of our profits in U.S. dollars in the U.S. With that, we are ready to move to the Q&A session.