Kemira Oyj Ord

Good morning and welcome everyone to Kemira's Q1 result webcast. My name is Kiira Fröberi and I'm the head of investor relations at Kemira. We published our Q1 interim report today. Both revenue and profitability declined year on year in a weak market. Here with me today, I have our president and CEO, Antti Salminen, and our new CFO, Tuomas Mäkipesko. Before we start the actual presentation, just a kind reminder that the presentation today includes forward-looking statements. Next, Antti will cover the group level performance and will also discuss the Q1 highlights. After that, Tuomas will go into a bit more detail with the financials and will also cover the business unit level performance. In the end of the event, we will have Q&A as usual, and you can ask questions through the webcast chat or by phone. But I guess now it's time to hand over to you, Antti. Please go ahead.

Thank you, Kiira. Good morning on my behalf as well. As mentioned, I will be presenting Kemira's quarter one 2026 results. And after me, Tuomas will have his first moment in spotlight in his current role as a CFO of Kemira. And Tuomas will go a bit deeper into the financials of the quarter. The quarter was really kind of described or dominated by the really weak global economy and towards the end of the quarter with the even increased geopolitical tensions and turbulence. That was the name of the game and that caused really strong headwinds for our business. As we stand here today, Brent oil trades at 105. The consumer confidence index on our main markets has been steadily below 100 points for the quarter. So very tough environment to execute the business. And as a result, our Maybe better with the slides. As a result, our revenue declined, so there was a clear decline. Organic growth as well, minus 3%. And the profitability was declining as well, 17.3% operative EBITDA performance, which is still a profitable business. So basically, I have to thank the Kemira organization for making and keeping this business profitable despite the really strong headwinds and the tough market that we are competing in at the moment. The profitability decline was most clear in packaging hygiene solutions, but also water solutions, especially the industrial side, suffered from the weak demand. And as a consequence of the weak demand, our pricing power is weakened. So basically capability to execute products. was difficult in this quarter, whereas we saw improvement in the fiber essentials part. So that's maybe the highlight of the quarter in terms of profitability. As a result of a weaker than anticipated or weaker quarter than we wanted to have, we have decided to accelerate our performance improvement actions and do some further cost cuttings as well as we have done this far. So we want to constantly improve and adapt the cost structure to the weaker top line. That's our responsibility and that's what we are doing. Also the increased raw material cost that of course was visible towards the end of the quarter and especially the transportation costs that come through very quickly from this kind of crisis had an impact already on this quarter and we started promptly to implement price increases to mitigate the impact of these cost increases. The result of those increases will be visible a bit later in the year, and I will actually later in my part talk a little bit more about the impacts of the Iran war to Kemera's business and how do we mitigate it. Balance sheet continues to be strong, and the combination of strong balance sheet and good profitability means that we continue to execute on our growth strategy. So we continue to build the future ChemEra so that we are ready when the markets are better. We executed two acquisitions in the water solutions area. During the first quarter, first the AquaBlue in US, a small Bolton acquisition to build on the industrial water services platform that we created by acquiring the water engineers business late last year. Secondly, we signed the deal on the Citra Wasser Chemie in Germany. This is strengthening our core in the profitable urban water treatment coagulants area in Europe. So basically investing both to strengthening the core and to the higher growth water solutions market in the industrial water services in U.S. We also announced our plans to build an activated carbon reactivation facility at our existing site in Tarragona, Spain. So that's another growth area that we have in our strategy and have clearly communicated the emerging, fast-growing micropollutants removal market. So this, when finalized, will complement nicely our European network of the reactivation facilities. So all in all, strong balance sheet and profitable business enable us to continue executing on the growth strategy despite of the weaknesses of the market that we saw in the quarter one. Then I look a bit more on the revenue development. So revenue clearly declined as mentioned. There was, of course, the mentioned market weakness as the main driver, but also there was a quite significant exchange rate impact on the revenues in the first quarter. Revenue declined in packaging hygiene solutions and fiber essentials. Those are the markets that get the most direct hit from the weak economy, as we have been talking about earlier as well, whereas the water solutions revenues stayed pretty close to the previous year level. It has to be mentioned as well that quarter on quarter, so the quarter of four, 25 compared to this first quarter of 26, both the sales volumes and prices actually increased. Then looking at the profitability, again, EBITDA percentage declined. Main drivers, again, being the weaker demand and the impact of that in the pricing. The biggest hit we took in the packaging and hygiene solutions where clearly the profitability was far below our targets and expectations. As you may remember, we have been progressing quite well in our profitability improvement actions in the packaging and hygiene solutions area. This was a clear setback, but we are still on the course with that program. There was a non-recurring item of quite significant inventory write-offs during the first quarter, which partly explains the shortfall there, but not completely, of course. Also, the water solutions... profitability declined, but is still very healthy. But again, as a bright moment, as mentioned, Fiber Essentials profitability actually improved to 26.7%. And as a result of this on group level, of course, then the earnings per share also declined, earnings per share being 29 euro cents per share. Then if we look at the long-term financial targets, and it's good to remember these are long-term financial targets, so we are still constantly, because of the soft market environment, tracking below our growth target. That's clear. We are still, last 12 months, within our long-term targets of profitability, despite the first quarter being below, again, We've been communicating earlier as well that there will be worse quarters, there will be better quarters. This is the long range, long-term target that we have. And with the actions that we are taking, we are confident that we will be returning back to that bracket. Then, as mentioned, let's talk a little bit about Iran and its, or war in Iran and its impacts to Khemira business. The direct impacts of the Iran war to our business are very limited. We don't really have meaningful business on that area, nor are there meaningful trade flows, I mean, end products that we would ship via the Strait of Hormuz. So the direct impact is very limited. But it's good to bear in mind that one third of our raw material base is oil derivatives. And that part of the raw material pool will get the impact from these increased oil prices. So that impact will come. in some material groups faster, in some material groups slower through. So that is an additional headwind for our business. And of course, the logistics cost impacted by this. Everybody has seen the gas prices going up and diesel prices going up. So those come through really quickly, and we saw that already in the Q1. As mentioned, we have started firm price increase actions to mitigate those impacts. We executed very well during the couple of last crises. We have very capable organization, both during COVID and then the Russians attack to Ukraine. We could mitigate the inflation on those situations very well. So I'm confident that we can do it this time as well. Of course, this time the market environment is softer, so it will not be as easy and as straightforward. But with the good customer relationships we have and the way we run the business, I think we will be able to mitigate largely the increased cost impact. And it's good to bear in mind that the price increase impact typically is visible in our P&L with the delay of one to two quarters, depending on part of the business. Then finally, outlook. We retain our outlook. So the full year revenue is expected to be between 2.6 and 3 billion euros and the EBITDA, the operating EBITDA between 470 and 570 million euros. However, we sharpened a bit or changed a bit the assumptions behind this due to the situation now in quarter one. So the end market demand has weakened and is expected to stay weak this year. So basically this weakening is very clear. particularly in the packaging and pulp markets, which take the hit typically most quickly, but also, as mentioned, in the industrial part of the water solutions business, clear volatility in the markets is seen. We, as mentioned, expect to be largely capable to mitigate the raw material cost increases, but of course the assumptions don't include any major shock or disruption into any meaning from important material flows. So these are maybe good to highlight a bit the assumptions behind the outlook as well. But with these, I will hand it over to Tuomas, who will walk you through in more detail the financials for the quarter. Go ahead, Tuomas. All right. Thank you very much, Antti.

So this is essentially my first webcast as Kemeras CFO, and I am naturally happy to have started in the position in April now. And I'm also pleased to meet some of the new analysts and all the familiar ones in this session as well. So hello, everybody there. I will add a bit more financial data to Antti's overall summary of the quarter's development and cover also the business unit performance here in this section. Let's start with the Q1 revenue and EBITDA development there. Revenue declined altogether 32 million euros, most of which was caused by the negative currency effect of 26 million euros, primarily in the USD. Revenue was on the other hand supported by 14 million euros from the completed acquisitions. So the organic revenue growth was minus 3% driven by the lower prices and volumes. In the profitability bridge it's visible that the impact of cost inflation was limited in Q1 and in fact we were able to partly absorb it in variable costs. Instead, the lower prices and volumes came through to Operative EBITDA. The Operative EBITDA margin was 17.3%, which is obviously a disappointment. While the market continues uncertain and volatile, we are taking actions related to our cost base to ensure that it is aligned with the current market environment. This is something that we continually do in the company and decided to accelerate these measures as we announced this morning. We have now entered in an environment where cost inflation has accelerated following the war in Iran. We are increasing prices accordingly, but the delta is now negative, as you can see in the graph. In the past, we have been fairly successful in passing on the effects to our sales prices, and also this time we are taking determinate measures on it. As Antti already explained, in our case it usually takes up to two quarters before the customer price increases are fully visible in our financials. So there is most likely some headwind from this time lag in Q2. Next, moving forward to the business unit financials. Let's start with the water solutions. The demand environment is impacted by the economic uncertainty and it's more visible in the industrial side of the business, whereas the urban market continues stable. There is also some seasonality in the water solutions business, and Q1 is usually a weaker quarter compared to the Q2 and Q3. This is driven by, for example, the weather conditions, as in the summer months, there is in general more need for water treatment versus winter time. Excluding FX impact there in Q1, the total revenue remained stable and organic revenue declined 2% against the good comparison period. The operative EBITDA was 18.4%, which was below previous year's level, and the decline was mainly driven by pricing and higher costs. The costs included also a couple of one-of-like items that happened to take place in Q1. Let's have a look at the packaging and hygiene solutions next. Packaging and hygiene solutions continued to be impacted by the economic uncertainty and low consumer confidence. But on the positive side, the market did not weaken further from the previous quarters. Our volumes remained stable, and sales prices declined only slightly quarter on quarter. Year on year, volumes were flat, but the prices were lower. APAC, and there especially China, continued weak in Q1, mainly driven by very competitive environment and overcapacity in the region. EBITDA declined to 10.1%, mainly driven by pricing. Our profitability improvement initiative continues, and the implementation of the new operating model progresses as planned. We have already achieved cost savings from them, but in Q1, the negative top-line development more than offset their impact. We haven't completed all the identified profitability improvement measures yet. As we stated also earlier, this is more of a gradual process and we continue to drive improvement also going forward. Then finally covering fiber essentials business. Market environment continued soft in the pulp industry, although there was sequential improvement driven by the cold winter and related high electricity prices in the Nordics. Despite the better Q1, overall visibility to the market development remains low and the market continues subdued. Market prices for some base chemicals like caustic and sulfur continued low. Organic revenue declined 2% versus a strong comparison period. The decline was driven by volumes, partly offset by positive pricing development in our bleaching business. Sequentially, volumes and prices actually increased. In operative EBITDA, margin improved to 26.7%, as Antti already mentioned, driven by the higher prices. But let's then return to group level and look at the balance sheet a bit. As Antti said, we continue to have a strong balance sheet, which enables investments in long-term profitable growth. As you can see, there was basically no change in the net debt versus the Q4. Year on year, the net debt has increased to its current level due to the completed share buybacks and acquisitions. During the Q1, we bought back almost 38 million euros worth of shares. And we started the buyback program in February and have progressed as planned. The current program is limited to maximum 5 million shares or 100 million euros. Return on capital employed has come down a little bit with lower EBIT as profitability has been impacted by the challenging market environment. Also, the acquisitions have impacted the capital employed. That explains part of the development there. The net working capital continues stable. It increased slightly both year on year and sequentially. But at the same time, we were able to manage our inventories well and reduce the levels during the period. Cash flow from the operations was 92 million during the quarter, a significant improvement over the last year's Q1. Also, the last 12 months' cash flow from the operations increased clearly from Q4 last year, being now at the level of 450 million euros. When it comes to the capex spend, there is no change to our guidance. So we will still expect our capex to increase slightly over the last year's level. Finally, to conclude the key points from the Q1. So although the market environment continues to be challenging, there was really no sequential decline in demand in any of our business units. So our demand continued stable. Cost inflation has increased, but its impact on our Q1 results was still quite limited. And we started immediately to implement price increases to mitigate the impact of the increased costs, but it takes some time before the price increases impact is visible in our P&L. And finally, we are taking measures to lower our cost base to ensure it is aligned with the current market environment. We have today announced also that we start cooperative negotiations and aim to reduce some 150 roles globally. So this concludes our presentations and Kiira, I would hand it over to you.