Kemira Oyj Ord

Good morning and welcome to Kemira's Q4 and full year 25 earnings conference. My name is Kiira Fröberi and I'm the head of investor relations at Kemira. Here with me today, I have our president and CEO, Antti Salminen, and our CFO, Petri Kastreen. This will be actually Petri's last and 50th earnings webcast as Kemira's CFO. Before we start the actual presentation, I would like to remind you that our presentation today includes forward-looking statements. Next, Antti will cover our full year 25 and Q4 highlights, after which he will discuss Kemira's group-level performance. After that, Petri will talk about business unit performance and cover financials in a bit more detail. And then in the end, before the Q&A, Antti will discuss Kemiras strategic focus areas in 2026 and also talk about our financial outlook for the year. But now, Antti, the stage is yours. Please go ahead. Thank you.

Thank you, Sira. Good morning on my behalf as well. Great pleasure to present Kemiras 25 results as well as, of course, in a bit more detail, the Q4 results. And the year was challenging for us. Markets were soft and uncertain, which is visible in the numbers. So really challenging market environment, which then resulted in a clear revenue decline for the full year as well as for the Q4. But I'm very proud of the organization. We managed to maintain our profitability in a very healthy level, operative EBITDA being over 19% for the full year, which I think is a really good achievement under these market conditions. And it enabled us to continue to invest into our strategy execution. So building the future growth for the company and basically In water business, we announced earlier in the year the acquisition of water engineering in North America, which is a really good platform investment into a fast-growing water services market in North America. We also invested or started an investment project in Helsingborg, Sweden, for building activated water. carbon reactivation capacity, which is part of our strategy to step into the fast-growing micropollutants removal market. And we have now been working for more than six months with the Cambridge UK based AI material science company, GUSP AI, to significantly accelerate and basically change the way innovation is done on this area, and also that work is focusing on this fast-growing micropollutants area. So soft markets, but good profitability performance, which enables us to continue to invest into our growth initiatives. Also, our customers have been very committed, and I have to thank all the customers for the long-term partnership and commitment. We had an all-time high net promoter score, which I think tells about our capability to be dependable and trustworthy also in the volatile uncertain market environments. And our employees continue to stay very engaged, which again is the platform on which we can build the strategy execution going forward. So despite of the challenging environment, putting a lot of stress and pressure on the organization, the organizational changes that we've been going through, the organization is committed and engaged. We also made good progress on our sustainability targets. This is in the heart and core of what we do and our strategy. So we increased our score in the GDP, both in water security and climate change, reaching the A- level, which has been our target. We increased our score in EcoBuddies rating. And we continue to reduce the CO2 emissions exactly according to our SBTI commitments. Again, really solid improvement there. And on February 20th, when we will publish our sustainability statement, we will publish the new positive water impact target, which will be then guiding our way forward in terms of water stewardship. Then, if we look at the Q4 in a bit more detail, so as mentioned already, the markets were soft and this market softening and uncertainty actually accelerated towards the end of the year. As a result, the Q4 revenues were 8% below the previous year and the revenues declined in all the three business units. Operative EBITDA margin, however, solid at over 18% and actually increasing in packaging and hygiene solutions where basically we have continued the self-help program to improve the underlying profitability of the business and results are visible there. the strategy execution continued as I already mentioned and actually accelerated during the Q4 so the water engineering acquisition happened in Q4 and then we were working during Q4 on the first bolt on acquisition on this platform Aqua Blue a company which we then finalized the acquisition in early January So this is first in the row of several such bolt-ons that we are planning to build on the platform of water engineering. And we have a really healthy pipeline, which we are working on. So basically kind of executing a programmatic acquisition-driven growth in the water business there. And then the latest announcement just a couple of days ago announcing the acquisition of Seedra Wasserhemi in Germany. And this is then strengthening our position in the most profitable and resilient part of the business, i.e. the coagulant business in Europe. So basically building on the core, strengthening the water solutions business core part and strengthening our position in Western and Central Europe. So market softness accelerated in q4 but we accelerated also our actions to to continue to invest in the future growth of the company uh revenue as you see uh basically again Just the numbers kind of proofing the acceleration of the softening of the market towards the end of the year. And it's good to remember here that there's also quite significant FX impact in these numbers and Petri will soon elaborate a bit more on that. And then looking at the profitability, healthy over 18% profitability, as I mentioned in the Q4. Q4 typically is the weakest quarter for us. There's the underlying seasonality of the businesses. You see it in the previous years as well. So under these conditions, I'm happy about the ability of company to maintain this level of profitability. And especially happy to see that our self-help actions in the packaging and hygiene solutions are bearing fruit, and we have been improving the profitability of that business. there's quite some items affecting the comparability in the Q4 totaling more than 30 million euro mostly coming from the restructuring and streamlining costs so working actively to basically balance the softer top line and keep the profitability on a healthy level and those costs are there and again Petri will soon elaborate a bit more on those and it also included then the transaction cost of the water engineering transaction and then as a result of these all these the full year 25 earnings per share totaled 1 euro 18 euro cents And if we then look at, finally, the financial long-term targets that we have set so clearly, we are below the organic growth target driven by the soft demand from the markets, but we are within our target range both in terms of operative EBITDA and return on capital employed. Of course, the capital employed going closer to the target threshold There you see clearly the impact of the acquisition of the water engineering, which is then basically increasing the capital employed there. But with this, I will pass it on to Petri, who will elaborate a bit more on the financials for the very last time for Kemira.

As Antti said, we made good progress in our strategy execution during the year and also during the first quarter. The other headline, I think, from this report, of course, is that the market has been weak, but we have been able to defend and protect our profitability quite well. I'll go directly to the variance analysis next. Headline revenue decline, 8%, really three components that Antti already mentioned. It's all negative now. Volumes were declining. Negative FX impact mostly. It's the weakening of the U.S. dollar, which everybody knows about it and everybody has paid attention to it. But, yes, it has been impacting us quite severely. And also a little bit on the product pricing as well, about 1% on average for the quarter. Of course, these are the same components that impact profitability. In addition, there was a little bit of a higher variable costs impacting primarily our fiber essentials, and I will come back to that when I talk about the business unit comments. Fixed cost savings that Antti already alluded to regarding packaging and hygiene solutions where we really have had headcount reductions. But obviously, there have been fixed cost saving actions throughout the company that we have been doing to really protect the profitability during the quarter and for the year. Full year story, same components again. Of course, there you have the addition that there is still the tail in the comparison period of the oil and gas business. So if you eliminate that part, the comparable decline 5%. And again, biggest contributors being the volume development and the US dollar weakening. Then if we look at the big year in totality, And we look at sort of the various components. Obviously, it's clear that the volume decline is more impactful during the second half of the year. So there was an acceleration in the business decline. And again, I will come back to those during the business comments. Sales prices actually have been relatively stable over the year. But in the first part of the year, the year-on-year comparison was quite negative. But if you look at the one-year comparison, meaning Q4-25 to Q4-24, it's 1% decline. So overall, we are in a pretty stable pricing environment. It's really a volume issue that we are dealing with. And, of course, this slide actually tells the same story. Prices and variable costs have significantly stabilized during the last four or five quarters. So you'll see that there's a fairly flat line when we had this huge peak during the COVID and supply chain problem years. Energy costs were sky high in 21, 22, but we are sort of putting that period of time into history and we are now in a much more stable environment. And our crystal ball, as far as we can say or see, doesn't really indicate much of changes to this. I mentioned this comment after Q3, but I do it again. So it's really a volume game now for us. Volume increase is the key to driving up our profitability now. And for us, that is largely market dependent. And it applies to all of our business units. We have capacity available in most of our plants. And so any additional volume we can progress or process without really adding any fixed costs to our structure. This means that if and hopefully when the markets improve, the operating leverage will help us with the bottom line. Having said that, you'll see that in the assumptions, we are not yet foreseeing really a market recovery at this time. Antti mentioned the items affecting comparability. We are taking action because of the lower volumes. So we're taking action on our manufacturing assets. We're ramping down our production entirely in our T-SPORT UK site, resulting in an asset write-down, restructuring, and closing provisions. We're also making an efficiency and automation investment in our Botlex site, resulting in a reduction of manual work and there are related restructuring costs related to that as well. Unfortunately, we had to take a 12 million environmental provision for a site that had been closed long time ago, many years ago, more than a decade ago. in Finland where we actually disagree with the authorities of how the land remediation should be done. The land has been remediated and the polluted land impacted soil has been taken away, but there's a difference of opinion how that soil should be treated. We'll probably continue that dispute for a while, but we have now taken the provision for that. for the worst-case scenario. Let's put it this way. All in all, this restructuring, streamlining, and transaction costs add up to 32 million within EBITDA and 43.8 million within EBIT. And of course, the impact of that is driving EPS down for the quarter to just 7 euro cents per share. And for the year 118 below previous years of 161. Next I'll go to the business unit commentary as I promised. And I'll start with the water solutions. So first of all, let's start with a reminder of the basics. So in water solutions, we do have seasonality. So our particular municipal customers do treat less wastewater during the winter months, and they require less of our chemicals, so that creates the seasonality that is within our water solutions business. Having said that, revenue was weak, particularly it was weaker in the industrial side. The revenue was down 9%. That's quite a significant decline, but more than half of that is attributable to our contracting volumes that we receive from our oil and gas business acquirer. And their customer has had an operational issue, so it's not a loss of customer, it's not a loss of business, but an operational issue that has dragged on longer than anybody expected. There was also some general weakness on the industrial side. Industrial production in general has been weak, in particular in Europe, and there are many processes where there are some waste waters created that impact us in the industrial side. Urban water service in Europe was very stable. It is a very resilient business. There was a 4% organic decline in North America and, of course, in your terms, clearly bigger in our numbers. So lower volumes impact the overall profitability so that the operative EBITDA declined. by 7%. Still, operating margin at 18.5% for the business unit, slightly below the level of that last year. Next, comments on PHS, packaging and hygiene solutions. So, challenging market continued. And year and year, the market was clearly softer and volumes impacted. organic revenue declined 6%. Profitability has been protected by the measures that we have taken. We also have received and gained some new customer wins, so that has been helpful, but the underlying market has been really soft. But the important point is that the market has now seems to have just bottomed out. It has not gotten any worse since Q3, if not any better either. We saw, in fact, very little volume or very little price changes from Q3 to Q4. Profitability in Q4, slightly lower than in Q3, mainly due to product mix type of issues. I think I commented that the product mix in Q3 was favorable. Now it was less favorable than Q3. than in Q4, Q4 was less favorable than Q3. And we're not done with the profitability improvement action. So we are just implementing the new operating model as of beginning of this year. And we will be seeing benefits of that in the coming quarters as that is being implemented. Regarding regions, fair to say that APAC continues to be the biggest challenge. We see a particularly weak market in China with weak demand and with the local oversupply situation leading to much depressed prices and volumes. Regarding fiber essentials, environment has been weak for pulp chemicals, particularly here in the Nordics, which is a key market to us. Also market prices for base chemicals have remained low. For example, caustic soda is relatively important for us. For fiber essentials, there we have seen some price, I'm sorry, variable cost increases, raw material cost increases in the second half of the year. It's really isolated to sulfur products, but the increase has been quite significant. And that's the sort of one area where there is significant increase. significant inflationary pressures. And it's enough that it's visible in the fiber essentials margins to some extent in the second half of the year. So again, looking at the full year, the volume decline, it's really in the second half of the year. And you see that the quarterly revenues have fallen to 132, 134 million range, whereas before that, we were clearly in the 145, 150s per quarter run rate. And as the drop through impact is quite significant, these are good gross margin products, but high fixed cost operating plans. so the volume any volume increase would have a obviously positive impact to our profitability should and if and when that hopefully happens all right moving to balance sheet now during 25 our net level debt level has increased due to the acquisition of the water engineering and, of course, the share buy program that we had on the second half of the year. The smaller addition is that we actually inaugurated our new R&D facility in Espoo here in Finland with a 15-year lease, so that's added to our lease liabilities and reported as a part of debt obligations. Rosie, that Antti was already talking about, return on capital employed, has come down to 16.5% due to this water engineering acquisitions. But, of course, it's also heavily impacted by the reported EBIT or operative EBIT that we have. And those two components clearly impacting there. Cash flow from operations. 127 million during the quarter and 373 million for the year. Maybe a comment on the cash flow components. So, on networking capital increased from previous year. We perhaps were not quite successful in reducing our inventory levels with reduced volumes as the business was experiencing. So, obviously, trade payables are coming down, but if inventory levels remain roughly at the same level, it does reflect as an increase in net working capital. And therefore, inventory levels will now need to be and are in the focus for us going into 26. There is some opportunity to tighten the inventory rotation. CapEx fell just about where we expected and how we got it, slightly below 200 million in 25. And now we estimated any for 26, it will increase slightly. We have some growth investments ongoing. And then we are doing these modernization investments. I mentioned the potluck, but we have a few others as ongoing as well. dividend we have a strong track record of increasing our dividend and now we are proposing a increasing our dividend to 76 euro cents to our annual general meeting this increase is consistent with our dividend policy of paying a competitive dividend as well as increasing the dividend over time And in recent years, the dividend has been paid into installments and we'll continue that practice. In addition to increasing our dividend, we're continuing to return capital to our shareholders through share buyback program. The purpose is to continue to optimize our capital structure. We have received almost universally positive feedback for the program that we initiated last year, and we feel that it's important that we continue to serve the interests of our diverse shareholder base. However, this is not limiting our desire or our ability to continue to execute our growth strategy. And again, it's evidenced by the two acquisitions that we have already done or announced. Well, the first one is already completed, but the second one that we announced yesterday will continue to invest into organic growth opportunities when they are as well as inorganic growth opportunities. And again, this acquisition of Sitra Asekemi for 75 million euros approximately is a proof point of that. I will turn next to Antti, but before I do, I reflect a little. So this, as Kiira said, it is my 50th and it's my last quarterly announcement. As announced, I will leave my position as Kemera CFO at the end of March, so March 31st will be my last day of work. Looking back, I'm really proud of what Kemera has been and what Kemera has become during those 12 and a half years. Kemera is much stronger, much better company, and I believe that Kemera has a really bright future. In this forum with you, our analysts and investors, there's one group of Kemera employees that I want to thank, and it's the IR officers I had the privilege of working with during the years. So when I joined, started working with Tero Huaminen, then continued work with Olli Turunen, then up to quite recently with Mikko Pohjola, and now most recently with Kiira. Kemera's IR team has always been top-notch, and it's been my intention only to recruit the best that I can find in the market, and I've been successful with that, and we've been able to maintain a top-notch IR practice for Kemera. And I'm really proud of that, and besides, the team has always been fun to work with. So thank you all. With that, now I'll turn to Antti.