Kemira Oyj Ord

Good morning everyone and warm welcome to Chemira's Q1 2025 results webcast. My name is Mikko Pohjalan from Chemira's IR and I'm here today with our president and CEO Antti Salminen as well as our CFO Petri Kastreen. We have today published our Q1 results and we had solid profitability in a software 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 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 high-scene solutions area. On the positive side our 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 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 softer market conditions remained very good at 19.1 percent, very well within the guidance brackets that we have provided. Also, the growth strategy executes some progress 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 year 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 high-scene 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. And of course margin sequentially improved from the Q4 of 24 to this over 19 percent level. Now of course if we go deeper then into the different business units, water solutions as 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, 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 volume increase. And as a result the operative EBITDA of the business unit over 21 percent. 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 Q4. 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 24. But clearly the packaging and hygiene solutions is the business unit that suffers the most from the uncertainty on the consumer markets today. Then 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 demand on the pulp side as well but still the same sales volumes increased somewhat from the previous year sequentially sales 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 Kemira 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 the new technology acquiring Thatcher Groups 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 have been making and are 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 2930 to more than 50 million of revenue. The IFF joint venture investments in the same time frame will provide us more than 50 million 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 20 million revenue that the strong finance of the 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 the expansion opportunities driven by the strong growth in the South American bulk 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 into 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. Traditional bridge of revenue and results revenue and operative profit. So revenue declined roughly 10 million practically volumes were stable and the new venture was 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 end line that we have seen because of the contract manufacturing volume and revenue was clearly below 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 will 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 the two from Q4 to Q1 prices were essentially stable and of course I think that's a good achievement when the market 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 and therefore the real reason of why we had a softer quarter top line was that the top line 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 weak 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 can you saw that already in 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 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 cost were down 13 million against the high rate that we had in Q4. I already talked about that but I still want to emphasize that 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 the that was driven by the electricity intensive bleaching chemicals and that was really sort of against the 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 25. And of course this statement has a little bit of a disclaimer for various tariff impacts which we have seen being 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's again new record low for our leverage. Capital efficiency continues to be strong operating return on capital now slightly below 20 percent at 19.1 percent. 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. It also compares against the very strong cash flow that we had a year ago. A few other sort of events to note regarding cash flow. We also received a $10 million dollar vendor note that we had made for the purchaser of our oil and gas business a year ago. That was paid on time in February. 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 over funding of that fund gradually. Ten million was something that we took out this year. Capital expenditures again starting at the relatively low rates 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 we will be doing in the next few years. I promise to give you a little bit more color on the trade impact or tariffs impact. 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 is the case. We have 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 in both directions, they are 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 are less than 5% of our group revenue i.e. clearly less than 150 million euros and a big part of that is from Canada and the current trade from Canada is all covered by the exemption under the USMCA trade agreement. So 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 we are in some cases we are already looking at or have been looking at actually implementing alternative sourcing, meaning source from 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 is 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 a loss 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 US dollar weakness of late so now we assume that the average rate for the year will be higher than the average rate 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 good part of our profits in US dollars in the US. With that we are ready to move to the Q&A session.

Thank you very much Antti and Petri. So as mentioned you can submit your questions via the teleconference or from the webcast tool. There were a number of questions on the webcast tool but maybe we start with a teleconference then go to the webcast tool after that.

If you wish to ask a question please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question please dial pound key six on your telephone keypad. The next question comes from Ansi Roussi from SEB. Please go ahead.

Hi all and thank you for the presentation. I have a few questions and I go one by one. Firstly, so you have been maybe downplaying the role of electricity prices in earnings growth during the recent years but now it seems to be the explaining factor in Q1 sales price decline. So maybe can you confirm that sales prices won't decline more year over year in the coming quarters as the electricity price will be maybe less meaningful in the coming quarters. That's the first.

Let me address that then. I think confirm is a strong word regarding anything future oriented. But I think your analysis is absolutely correct. So the price decline is really reflecting higher electricity prices a year ago which were reflecting towards a higher prices for bleaching chemistries and of course that we didn't see in this first quarter. So yes I think you are directionally correct but I refrain from confirming anything.

That's enough thanks. And of course I have to ask about your guidance. So you comment that the market recovery is here. I think you said it is much more difficult to see now. So if you look at your EBITDA run rate and think about typical seasonality what would need to happen that you could actually reach the higher end of the EBITDA guidance range because I think it seems like maybe challenging to reach the lower end this year. So can you give us some details.

Again I'll take that because it's a little bit of a sort of a governance question. So we never sort of we don't have a habit of guiding where we are within a range. And you know that in the past whether we have been a lower or higher end we haven't guided the position in the range as long as we are within the range. I made a comment about the seasonality that we don't this year doesn't look like seasonally like the last few years when we really benefited of this high fiber essential profitability. And you see if you look at the slide six in twenty three it was a very high profitability. I think it was well over 35 percent or in that range the EBITDA range and even even a year ago it was significantly it was the highest quarter in terms of profitability or very high high quarter of profitability. So this year does not seem like it will repeat that seasonality but could potentially be much more like the pre-COVID type of seasonality when the water chemistry volumes are higher in the summer months when the hot weather is hot when it rains more there is more volume to be water treated and more chemistry is needed when the in the higher temperature. So that's a very sort of repetitive seasonal pattern that we see in the water treatment that there is a higher volume in Q2 and particularly higher in Q3.

Okay thanks and one more is about that your board has a mandate to repurchase your own shares so can you comment anything or any indication if this

will be used in the future? Well we've had the mandate for a long time the board the mandate has been always there it's a tool that we have in the toolbox. Now you've seen that we've increased the mandate in this AGM so the tool definitely is there but of course we can't comment here whether that will be used now or whenever but that's a really clearly a tool and you can look at our balance sheet and you know these are the considerations that us and the board will need to have.

Understand thank you that's all from me.

Thank you Anssi.

The next question comes from Martin from Kepler Chuvriaks. Please go ahead.

Hello good morning I also have three questions and I would like to ask them one by one. Sorry to come back to the guidance. You changed quite a bit the assumptions in your outlook i.e. you now see softer volumes now. You see increased uncertainty you say there is no recovery anymore expected in pile packaging and hygiene. The FX effects becoming negative. This all sounds negative. On top of that the earnings in Q1 were below at least market expectations and maybe also below your own expectations. So my question is why do you keep your EBITDA guidance unchanged?

If I start then you give the details but basically again I mean as Petri already earlier commented we have the guidance we don't kind any particular point on that range so that's clearly a range that we give. Yes the facts are clear and everybody who looks at news can see that the world is more turbulent and more uncertain at the moment and we can't kind of escape from that. Yet as we have several times communicated we have a big part of our business is very resilient against economic turmoil and so forth and that gives us confidence we analyze our numbers and kind of how the year looks like going forward and this gives us the confidence to report what we report.

Yeah I don't think I have much to add. I think the uncertainty has the I think it has the potential of upside surprises as well. So this seems like it's a man-made crisis so there could be a man-made solution out of this crisis as well. And so but I think the key point is the resilience of our business model.

Okay second question. Some companies in the chemical space mentioned that the demand pattern within Q1 was very volatile i.e. generally was strong, February was bad, March was quite good. Did you observe similar volatility in volumes especially in your more let's say normally volatile activities because water treatment is more stable but maybe in packaging and hygiene for example?

Well we don't typically comment within quarter changes and fluctuations so we don't do it now either. Okay thanks.

And the final question is I understood that you mentioned about water solutions that you have been disappointed about the volumes in contract manufacturing. Can you provide some background how important contract manufacturing is for that segment?

If I take that question so of course and you'll see in the description that the contract manufacturing is in the water solutions is due to this divestment of the oil and gas business so this was not a totally clean transaction. We are manufacturing some product for the purchaser and actually the purchaser manufactures some product for us. Typically or categorically the product contract manufacturing margins are significantly lower than the margins for the product that we manufacture and sell ourselves. So it has much much less relevance for profitability, those volumes. Of course they are visible in the top line. And secondly they do have a role in the fixed cost absorption. So as those volumes were lower this quarter so certainly there was some less fixed cost absorption which was impacting profitability in water. And we have all the belief that in the coming quarters those volumes will pick up.

But just the quantification is 10% of water solutions or only 5% or even lower? Say that again. Can you quantify the importance of contract manufacturing? Is it 5% or 10% of water solutions?

I don't think we quantify that. So let me think about how we can answer that in the future. I don't have that number in front of me and I'm not sure if we want to. But clearly on the profitability side it will be significantly less than on the revenue side.

Okay, thank you.

The next question comes from Andres Castanos from Burenberg. Please go ahead.

Hello. I wanted to ask about maybe the new normal margin in fiber essentials. Can you provide some commentary about the current level and what is to be expected in the next quarters where power prices will be lower?

I think you look at Q1 margin and if I say that there was no sort of help from high electricity costs, so that's as good of a proxy as going forward as any.

And of course you can look at the seasonality from previous years. Obviously there were some specific items in Q1 last and Q2, but obviously that gives you some kind of guidance on what the previous years in fiber essentials have looked like.

But clearly this business is by the EBITDA margin alone it's the highest business that we have and it needs to be because it is most capital intensive business.

I also wanted to ask about what drove negative volumes in packaging. It seems like a clear underperformance versus everything else. It's about lucy market share, it's about stock dynamics. Can you give us a little bit of color of what is going on in the packaging and hygiene volumes front? Thank

you. Definitely. We have not lost market share at any region. Our market share is firm and we have been able to hold on to that. It's about the ultimate demand in the value chain. What drives our chemical demand in the packaging segment is the demand for packaging materials. Basically those numbers you can look at them when you look at our customers and what they report. Basically it's to a high degree driven by the softness in the consumer sentiment in China and then the turbulence and disruption in the global trade flows because China has been the manufacturing hub, i.e. the packaging hub of the world. All this has impacted the demand and there's very low levels of inventories in those value chains. Basically whatever disturbance there is in the end consumer demand very quickly reflects into demand in our end.

Simply put some of our bigger packaging customers took down downtime during the quarter. Okay, thank you.

There are no more questions at this time so I hand the conference back to the speakers.

Thank you. I have a couple of questions from the webcast. One of these from Joani Sandvall from Nordair was answered already on the contract manufacturing that we have covered. Then a second one from Joani Sandvall. Given the current market conditions how successful announced price increases are and how do you expect variable costs to develop sequentially? If we start from the sales price season.

It's of course always impossible to say how successful any price increases will be. We have proven over the past years that we have actually quite good and effective pricing processes and systems and market positions. So we have been able to implement the price increases that we have been after. Of course, especially in the packaging and hygiene solutions area where the market is soft, it is the most difficult environment to implement price changes. Then again, we have to understand that for instance the impacts coming from the tariffs are impacting everybody in the value chain, all the competition as well. So impossible to say, but I would be confident on our capability on getting at least some of the announced price increases into the actual prices.

Regarding variable costs, we already noted that we expect across the basket a relatively stable environment. It is stable.

Thank you. Then I will continue with a question from Quentin Destriel. The volumes declined sequentially in packaging and hygiene solutions while they increased for the fiber essentials division. Given the fact that your client bases are similar in these two divisions, what explains the difference? Are the sales mix of customers shifting to more commoditized product categories?

Let's correct first that it's not the fact that, depends how you say similar, but the client base is not the same. It's important to remember that the fiber essentials product goes into the pulp manufacturing and pulp is used as a feedstock or raw material for many different types of wood fiber based products. Packaging being one of those, hygiene products being one of those, the printing and writing crates and other paper crates, molded fiber being one of those. Basically, pulp has much wider usage and then of course pulp also travels across the continents quite well. We are well positioned, especially in the Nordics and in Latin America in terms of our fiber essential business. You can't just draw the direct link between those. It's more kind of indirect and of course at some time interval there might be connections. If there's a continued depression of the packaging demand, then it will be somehow visible. But there's not the direct link and the customers are not exactly the same.

Thank you. Then I'll continue with a question from Andrew Noyle. Could you talk about Chemeros PFAS removal ambitions and predict when this business will be a material contributor to revenue as well as earnings?

Again, one of these crystal ball questions that are impossible to answer in terms of when it will be material. The business is already there and we have revenue streams coming out of it. There are several technologies that are applied. The regulation is changing all the time. We are working both with the so-called traditional technologies used in our investments and plans in terms of activated carbon, which is the most used technology at the moment. We are also working with many technology startups in terms of developing completely new technologies for that domain. And we are actively following how the regulation in different regions develops. It is going to be a major important part of the business. But when exactly and how important? Impossible to say today.

Good. Thank you. There are no more questions from the webcast tool and I think there are no more questions from the teleconference either. So this concludes the Q1 webcast. Thank you for participating. Thank you for the questions. If there are any further follow up questions after this, please reach out to me and we're happy to help. Thank you and have a good weekend. Thank

you.