Kemira Oyj · OMXHEX:KEMIRA
Kemira Oyj — Q2 2014 Earnings Presentation
56 slides from Kemira Oyj's earnings presentation, July 2014
Slide 1: Kemira roadshow presentation April-June 2014
Kemira roadshow presentation April-June 2014 Improving our customers’ use of water, energy and raw materials
Slide 2: Operational highlights April-June 2014
Operational highlights April-June 2014 Positioned for growth • Recovery in drilling and stimulation activity in oil & gas continued to drive demand within Oil & Mining • Pulp chemical deliveries to Montes del Plata pulp mill started in June • Exposure in South American pulp market further increasing
Slide 3: We are committed to the strategy presented in 2013
We are committed to the strategy presented in 2013 We focus on We target pulp & paper, oil & gas, mining and 1 2 above-the-market growth water treatment BUSINESS GROWTH We leverage mature We invest in markets and expand in selected emerging 3 4 innovation, expertise (knowledge) and markets GEOGRAPHY
Slide 4: Growth in pulp and paper chemicals driven by packaging board and tissue
Growth in pulp and paper chemicals is driven by higher volumes of packaging board and tissue grades Main growth drivers: Pulp and paper market growth estimate, EUR billion (CAGR: 2.2%) • Growing packaging board and tissue markets, especially in APAC • Growing pulp production in South 2.5 2.9 APAC 4.
Slide 5: Global leadership position strengthened in pulp and paper
Global leadership position strengthened in pulp and paper • Kemira to acquire AkzoNobel’s paper chemical business for EUR 153 million (closing expected Q1 2015) • Revenue of the acquired business in 2013 was EUR 243 million and EBITDA EUR 23 million • Strengthens Kemira’s position in chemicals for p
Slide 6: Growth in Oil & Mining driven by strong demand for oil and gas
Growth in Oil & Mining driven by strong demand for oil and gas Main growth drivers: Oil, gas and mining chemical market growth estimate, EUR billion (CAGR: 4.0%) • Global growth in shale (wet and gas), especially in NA, Middle East and Argentina 4.5 EMEA 4.8% • Increased activity in Enhanced Oil 3.8
Slide 7: Demand for raw water, wastewater and sludge treatment driven by legislation
Demand for raw water, wastewater and sludge treatment driven by legislation and regulatory enforcement Main growth drivers: Municipal and industrial water treatment chemical market growth estimate, EUR billion (CAGR: 2.9%) • Increasing legislation and regulatory enforcement of water quality and 1.3
Slide 8: From redesign towards growth
From redesign towards growth Organic growth • Investing in new and existing capacity • Investing in leading-edge technology • Investing in research and new products • Investing in expertise M&A is an important contributor to growth Efficiency and profitability improvements remain priorities • Manufa
Slide 9: Kemira Capital Markets Day
London Stock Exchange on Tuesday, September 9, 2014 Kemira Capital Markets Day 12:00 Buffet lunch 12:30 Presentations • Strategy review by the President and CEO, Jari Rosendal • Paper: Petri Helsky, President and Kenneth Nystén, SVP • Oil & Mining: Tarjei Johansen, President • Municipal & Industrial
Slide 10: Revenue and operative EBIT stable in continued businesses
April-June 2014 Revenue and operative EBIT stable in continued businesses
Slide 11: Q2 2014 Highlights
Q2 2014 Highlights • Flat organic revenue – Higher sales volumes in Oil & Mining and in Paper were offset by the lower sales volumes and prices in Municipal & Industrial • Operative EBITDA margin improved to 11.6% (10.8%) – Operative EBITDA was EUR 60.2 million (61.5) • Operative EBIT decreased 8% t
Slide 12: Divestments and currency exchange continued to lower revenue
Divestments and currency exchange continued to lower revenue Kemira Group revenue bridge Q2 2014, EUR million 569 1% -1% -3% 4% -10% 518 590 570 550 530 510 490 470 450 Q2 2013 Sales Sales Currency Acquisitions Divestments Q2 2014 volumes prices impact 12
Slide 13: Double-digit revenue growth continued in polymers, sizing and strength
Double-digit revenue growth continued in polymers, sizing and strength Acquisition of AkzoNobel paper chemical business is expected to increase the share of differentiated products revenue to 55% Other process chemicals Coagulants -5% -21% 12% 20% Sizing and strength +14% 14% Q2 2014 revenue: EUR 51
Slide 14: EBITDA margin improvement in all three segments
EBITDA margin improvement in all three segments • Increased sales volumes in Paper and Oil & Mining • 15% lower fixed costs in Municipal & Industrial • Ongoing ramp up of Nanjing and Dormagen as well as recently acquired businesses increased depreciation and amortization Operative EBITDA margin Oper
Slide 15: Organic revenue in Paper continued to grow faster than the market
Organic revenue in Paper continued to grow faster than the market • Organic growth 4% as differentiated products grew over 10% • Q2 typically impacted by maintenance shutdowns • Operative EBIT was EUR 18.2 million (19.1) with 6.4% margin (6.9%) Revenue and revenue growth (y-on-y) trend Operative EBI
Slide 16: Growth in Oil & Mining driven by North American oil & gas
Growth in Oil & Mining driven by North American oil & gas • Accelerated sales volume growth of new applications and products main reason for 17% organic growth • Market softness in mining, slow progress in EMEA conventional oil & gas • Operative EBIT margin diluted by temporary raw material cost inc
Slide 17: Challenging market conditions in M&I industrial water treatment
Increasing competition and challenging market conditions in M&I’s industrial water treatment business • Business in North America showing early signs of recovery • Efficiency measures driving lower operating costs in EMEA as well as in North America • Divestments continued to impact reported revenue
Slide 18: Portfolio restructuring and working capital supported operative ROCE
Portfolio restructuring and improved working capital management continued to support operative ROCE Jun 30, Jun 30, Kemira operative ROCE* EUR million, expect ratios 2014* 2013* Revenue 2,147 2,256 12.0% 11.9% 11.9% Goodwill 495.4 557.0 11.1% 10.8% Other intangible assets 61.5 56.2 9.9% Property, pl
Slide 19: Cash flow from operations impacted by one-off cash items in Q2 2014
Cash flow from operations was impacted by one-off cash items in Q2 2014 EUR million Q2 2014 Q2 2013 H1 2014 H1 2013 2013 Operative EBITDA 60.2 61.5 117.7 125.0 251.9 Change in net working capital -10.0 -6.8 -31.2 -11.1 24.8 Cash flow from operations -2.9 38.6 10.2 78.9 200.3 Investments -34.0 -30.9
Slide 20: 2014 revenue outlook unchanged, profitability outlook revised
2014 revenue outlook unchanged, profitability outlook revised • Profitability metric changed from operative EBIT to operative EBITDA • Operative EBITDA in 2014 expected to be approximately at the same level as in 2013 • Financial targets for 2016 unchanged 2013 2014 outlook 2016 target Revenue EUR 2
Slide 21: Where water meets chemistry
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Slide 22: Appendix
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Slide 23: Kemira – global EUR 2.2 billion chemicals company
Kemira – global EUR 2.2 billion chemicals company KEMIRA HEADQUARTERS Helsinki, Finland NORTH AMERICA 30% 1,266 M&I management ASIA PACIFIC 6% Frankfurt, Germany 345 O&M management Houston, USA Regional HQ EUROPE, MIDDLE EAST Shanghai, China AND AFRICA 57% Regional HQ Atlanta, USA 2,472 Paper manage
Slide 24: Kemira manufacturing footprint
Kemira manufacturing footprint Manufacturing EMEA North America South America footprint globally (59 sites): 20 multipurpose, 30 coagulants, 9 other commodity chemicals APAC Multipurpose Coagulants Commodity chemicals Yanzhou 24
Slide 25: Our business is organized into customer-based segments
Our business is organized into customer-based segments SALES BY SEGMENT (2013) OPERATIVE EBIT BY SEGMENT (2013) OIL & MINING 14% 11% PAPER 48% 28% 53% 30% MUNICIPAL & INDUSTRIAL 8% 8% CHEMSOLUTIONS* *) Kemira closed the divestment of formic acid business on March 6, 2014. The remaining business of C
Slide 26: We support pulp and paper producers in innovation and process efficiency
We support pulp and paper producers in innovation and process efficiency 1. PAPER, Packaging, Revenue 2013: EUR 1,112.8 million board and tissue grades Operative EBIT 2013: EUR 86.5 million, 7.7% margin Expertise We have unique expertise in applying chemicals and supporting pulp & paper producers to
Slide 27: Our innovative chemicals improve yield in oil, gas and metals recovery
Our innovative chemicals improve yield in oil, gas and metals recovery 2. OIL & MINING, Business management Revenue 2013: EUR 312 million Minerals & Metals Operative EBIT 2013: EUR 17.4 million, 5.6% margin Expertise We provide a unique combination of innovative 20% chemicals and application knowled
Slide 28: With our chemistry we enable the whole range of water treatment
With our chemistry we enable the whole range of water treatment 3. MUNICIPAL & INDUSTRIAL, Other Revenue 2013: EUR 659 million Operative EBIT 2013: EUR 45.8 million, 6.9% margin 10% Expertise We enable our customers to improve their water 25% treatment efficiency by providing value adding support an
Slide 29: Our strategic focus
Our strategic focus INNOVATION We invest in innovation and expertise. BUSINESS FOCUS We provide expertise and chemicals for water-intensive industries. GROWTH We target profitability and above-the- market growth. GEOGRAPHICAL FOCUS We strengthen position in mature markets and expand selectively in e
Slide 30: Expanding to leadership in target markets
Expanding to leadership in target markets 2017–2020 Expand Become leader in target markets. 2015–2017 Accelerate Grow in emerging markets through new 2014–2015 products & services. Focus Achieve a sustainable 2012–2013 position in key Redesign markets. Reach target profitability by implementing “Fit
Slide 31: Focus on paper, oil & gas, mining and water treatment
Focus on paper, oil & gas, mining and water Kemira in the value chain of WQQM* treatment Expertise and tailored combinations of chemicals for water- intensive industries Improving our customers’ water, energy and raw material efficiency *) Water Quality and Quantity Management 31
Slide 32: Differentiated products' revenue share increasing to 50%
Differentiated products’ revenue share increasing to 50%, after the announced portfolio changes In differentiated products 40% we are looking for 50% innovation-driven growth above the market. Higher value to customer means higher margins. In commodity products we 60% 50% are aiming to maximize prof
Slide 33: Kemira revenue split into differentiated and commodity products
Kemira revenue split into differentiated and commodity products Differentiated product lines Commodity product lines %-of total revenue Polymers Sizing and Defoamers, Coagulants Bleaching Miscellaneous Jan-Jun 2014 strength dispersants, chemicals commodity biocides and other products process chemica
Slide 34: Leverage mature markets and expand in selected emerging markets
Leverage mature markets and expand in selected emerging markets • Innovation driven growth in mature markets • Emerging market revenue expected to grow from 14% to 16% in 2016 Paper, O&M and M&I Paper, O&M and M&I Paper (China, Indonesia and South Korea) O&M and Pulp & Paper O&M (Middle East and Afr
Slide 35: M&A strategy focusing to strengthen market position in core segments
M&A strategy focusing to strengthen market position in the core segments • 41% gearing in Q2 2014 provides capacity for inorganic growth • Strict M&A criteria for focused growth – Must strengthen our market position and/or our technologies/competencies – EBIT accretive in second full year after clos
Slide 36: Capital allocation focuses on high growth product lines
Capital allocation focuses on high growth product lines Capex split average 2010-2012 Capex split in 2013 35% 50% 50% 65% Commodity products Differentiated products 36
Slide 37: Innovation revenue target EUR 250 million in 2016
Innovation revenue target EUR 250 million in 2016 Revenue from new products or from products into new applications launched within the past 5 years Targeting to double innovation revenue from CONTRIBUTING TO 2013’S INNOVATION REVENUE 5% in 2012 to ~10% of total sales in 2016 Paper • Expanding Fennob
Slide 38: Key financials
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Slide 39: Key figures and ratios
Key figures and ratios EUR million (except ratios) Q2/2014 Q2/2013 % H1/2014 H1/2013 % 2013 Revenue 518.2 569.3 -9 1,048.1 1,130.2 -7 2,229.1 Operative EBITDA 60.2 61.5 -2 117.7 125.0 -6 251.9 of which margin 11.6 10.8 - 11.2 11.1 - 11.3 Operative EBIT 37.0 40.0 -8 73.3 82.2 -11 164.2 of which margi
Slide 40: Kemira group revenue growth trend
Kemira group revenue growth trend 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012 2013 2014 Organic revenue in local currencies Acquisitions Currency Divestments Reported revenue 40
Slide 41: Sales prices and variable costs trend
Sales prices and variable costs trend 200 150 100 50 0 -50 -100 -150 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2007 2008 2009 2010 2011 2012 2013 2014 Brent oil, USD Sales price* Variable costs* *) 12-month rolling change vs previous year, meur, excl. Tikkurila
Slide 42: Operative EBIT bridge in Q2 2014
Operative EBIT bridge in Q2 2014 Kemira Group operative EBIT bridge, EUR million 40 1.4 -4.9 1.4 2.5 -2.9 -0.5 37 Q2 2013 Sales volumes Sales prices Variable costs Fixed costs Currency impact Others, incl. Q2 2014 acquisitions and divestments 42
Slide 43: Expansion, maintenance and improvement CAPEX trend
Expansion, maintenance and improvement CAPEX trend EUR million 160 140 134 135 120 98 100 76 Expansion 80 60 40 20 Maintenance and improvement 0 2010 2011 2012 2013 43
Slide 44: Kemira's aim is to remain below gearing of 60%
Kemira’s aim is to remain below gearing of 60% 60% 50% 42% 41% 41% 40% 39% 38% 30% 20% 2010 2011 2012 2013 YTD 2014 44
Slide 45: Paper
Paper January-June 2014 EUR million Q2/2014 Q2/2013 % H1/2014 H1/2013 % 2013 Revenue 282.0 278.0 1 562.4 545.9 3 1,112.8 Operative EBITDA 30.8 30.3 2 63.9 60.7 5 131.1 of which margin 10.9 10.9 - 11.4 11.1 - 11.8 Operative EBIT 18.2 19.1 -5 40.1 38.4 4 85.9 of which margin 6.4 6.9 - 7.1 7.0 - 7.7 Ca
Slide 46: Oil & Mining
Oil & Mining January-June 2014 EUR million Q2/2014 Q2/2013 % H1/2014 H1/2013 % 2013 Revenue 97.6 79.9 22 189.6 156.2 21 311.5 Operative EBITDA 11.7 7.3 60 22.4 16.0 40 32.7 of which margin 12.0 9.1 - 11.8 10.2 - 10.5 Operative EBIT 7.1 3.5 103 13.4 8.6 56 17.4 of which margin 7.3 4.4 - 7.1 5.5 - 5.6
Slide 47: Municipal & Industrial
Municipal & Industrial January-June 2014 EUR million Q2/2014 Q2/2013 % H1/2014 H1/2013 % 2013 Revenue 138.6 178.0 -22 276.3 342.8 -19 659.4 Operative EBITDA 17.7 21.1 -16 32.2 35.0 -8 68.3 of which margin 12.8 11.9 - 11.6 10.2 - 10.4 Operative EBIT 11.7 15.9 -26 20.5 24.5 -16 45.8 of which margin 8.
Slide 48: Market and product specifications
Market and product specifications 48
Slide 49: Paper and Oil & Mining driving growth
Paper and Oil & Mining driving growth Business focus Kemira’s relevant market (EUR 22 billion in 2013) will grow to EUR 27 billion in Paper: Growing above market, 2020 (CAGR 3.2%) targeting wet-end chemistry market leadership 2.9% 6.6 O&M: Growing above market 5.5 4.0% 10.8 M&I: Improving profitabil
Slide 50: Paper segment - Demand for sizing and strength chemicals growing fastest
Paper segment - Demand for sizing and strength chemicals is growing fastest globally Pulp and paper industry trends increasing Market size, EUR billion (CAGR: 2.2%) chemical demand: • Increased use of recycled fibres • Hardwood replacing softwood in virgin 1.8% pulp 1.8 1.3% 1.6 • Lightweighting of
Slide 51: Paper segment - Technology and market leader in paper wet-end chemistry
Paper segment - Technology and market leader in paper wet-end chemistry RAW CUSTOMER INTERMEDIATES PRODUCTS APPLICATIONS CUSTOMERS MATERIALS IDUSTRIES Electricity Tall oil rosin Sodium chlorate Pulping Pulp All the major Sodium chloride AKD Wax Hydrogen peroxide Bleaching Packaging global paper (sal
Slide 52: Oil & Mining segment - Strong market growth across all product lines
Oil & Mining segment - Strong market growth across all product lines Market size, EUR billion (CAGR: 4.0%) • High oil price spurs demand for identifying new sources 2.2 • Global growth of shale gas and wet 1.9 shale 1.7 5.0 • Declining ore grades require improved 4.3 processing 3.8 • Increasing envi
Slide 53: Oil & Mining segment - Winning market share with innovation chemicals
Oil & Mining segment - Winning market share with competitive combination of innovation chemicals and application knowledge RAW INTERMEDIATES PRODUCTS APPLICATIONS CUSTOMERS MATERIALS Acrylonitrile Acrylamide Polymers Friction Reduction Pumpers Acrylic acid Cationic monomer Dispersants & Formation &
Slide 54: Legislation and regulatory enforcement driving demand for water treatment
Legislation and regulatory enforcement driving demand for raw water, wastewater and sludge treatment Demand drivers for raw and waste water as well as sludge treatment chemicals: • Legislation and regulatory enforcements determine required treated water and sludge quality standards • Water reuse is
Slide 55: Municipal & Industrial - Technology and market leader in water treatment
Municipal & Industrial - Technology and market leader in raw and waste water as well as sludge treatment • Kemira is the only major supplier producing major water treatment chemicals, polymers and coagulants – thereby enabling comprehensive application support • Cost competitiveness through backward
Slide 56: Where water meets chemistry
ag __ Where water ~ meetschemistry” — f ts f % - | Kemira