Strong earnings improvement in Q1...Operative EBITDA margin 14.8% • Strong operational improvement...
Transcript of Strong earnings improvement in Q1...Operative EBITDA margin 14.8% • Strong operational improvement...
JANUARY-MARCH 2019
Strong earnings improvement in Q1
JARI ROSENDAL, PRESIDENT AND CEO PETRI CASTRÉN, CFOAPRIL 26, 2019
Selected operational highlights in Q1 2019
• Organic growth continued – market environment fairly good
• Profitability improved clearly –capacity utilization rates remained good
• Investment projects proceeding well
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Key financial highlights
Organic growth +2%
• Sales prices increased in all areas of our businesses
Operative EBITDA +38% to margin of 14.8%
• Favorable combination of increasing sales prices and moderate raw material cost impact
• Supply disruptions emerged during the quarter but mitigating actions were done quickly –some financial impact expected in Q2 due to higher raw material and logistic costs
Operative EBIT +48% to margin of 7.7%
A P RIL 26 , 2019 Q1 2019 RE S ULT S 3
EUR million
(except ratios)
Q1
2019
Q1
2018
Δ% FY
2018
Revenue 647.8 613.7 +6 2,592.8
Operative EBITDA 95.6 69.4 +38 323.1
of which margin 14.8% 11.3% - 12.5%
Operative EBIT 50.1 33.9 +48 173.8
of which margin 7.7% 5.5% - 6.7%
Net profit 29.3 23.0 +27 95.2
EPS, EUR 0.18 0.14 +31 0.58
Pulp & Paper – continued sales price growthMarket environment
• Long-term market outlook positive with multiple investments announced recently by major pulp & paper companies like APP, Hamburger Containerboard, Mondi and Nine Dragons
Organic growth flat with positive pricing
• Exit of ECOX business impacted sales volumes
Operative EBITDA margin 13.3%
• Underlying profitability in focus
• *Due to IFRS 16, leasing costs are mostly in depreciations and partly in interest expenses in 2019, positive EBITDA impact EUR +3.3 million
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OPERATIVE EBITDA AND OPERATIVE EBITDA-%
EUR million
REVENUE AND ORGANIC REVENUE GROWTH (Y-ON-Y)
EUR million
372 369 363373 369 376 385 390 381
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2017 2018 2019
0% +1% +2% +5% +5% +6% +7% +4% 0%
46.0 47.8 48.555.4
42.7 45.452.3 51.2 50.7
12.4% 13.0% 13.4%14.9%
11.6% 12.1%13.6% 13.1% 13.3%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1*
2017 2018 2019
Industry & Water – record-high margin
Market environment
• Water treatment market solid – expecting tighter regulation in Europe
• Oil & gas shale market growth rate moderating in the short-term
Organic growth +5%
• Our Oil & Gas business had strong organic growth, +26% to EUR 62 million
• In water treatment, we are well positioned to meet continued inflationary pressures
Operative EBITDA margin 16.8%
• Sales prices increased while propylene-based raw material prices decreased
• Favorable product mix
• *Due to IFRS 16, positive EBITDA impact EUR +4.4 million in Q1 2019
A P RIL 26 , 2019 Q1 2019 RE S ULT S 5
22.929.3
36.0
25.3 26.634.8 36.7 33.3
45.09.6%11.8%
13.9%
9.6%10.9%
12.8% 12.9% 12.3%
16.8%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1*
2017 2018 2019
OPERATIVE EBITDA AND OPERATIVE EBITDA-%
EUR million
238 248 259 264245
272 284 271 267
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2017 2018 2019
+9% +15% +20% +14%
REVENUE AND ORGANIC REVENUE GROWTH (Y-ON-Y)
EUR million
+11% +11% +2% +5%+6%
Investing in core product categories with higher return• Top 4 product categories represent 80% of
Group’s revenue, above EUR 2 billion
• Our investments have focused on:
– Bleaching chemicals
– Polymers
– Sizing* chemicals
• Current investments projects
– Netherlands – Expansion of Oil & Gas polymers
– US – Expansion of Oil & Gas polymers
– China – Completion of new Pulp & Paper AKD site
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PRODUCTS
◼ 25% Bleaching
and pulping
◼ 20%
Polymers
◼ 20% Other:
e.g. defoamers,
dispersants,
and biocides
◼ 20%
Coagulants
◼ 15%
Sizing*
and
strength
Revenue
EUR 2,627
million
(LTM)
*Sizing = Resistance against water absorption
Key operative focus areas in 2019
1. Continue to pass on higher raw material costs to sales prices
2. Optimize capacity allocation
3. Modify product & service offering to cater better profitable growth
4. Improve operational excellence
5. Ramp-up CEOR* polymer capacity addition in Netherlands in H2
6. Start-up new sizing manufacturing site in China in H2
7. Construction of emulsion polymer capacity in the US on time and in budget, start-up expected beginning of 2021
8. Prudent cost-control in all areas
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*CEOR, chemical enhanced oil recovery
PETRI CASTRÉN, CFO APRIL 26, 2019
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Financials Q1 2019
Successful pricing drives improvement
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69.4
Q12018
Sales volumes Sales prices Variable costs Fixed costs Currencyimpact
Other Q12019
Adoption ofIFRS 16standard
"Pre IFRS 16comparison"
-7.0
+34.4 -10.5 +5.4 +6.4 -2.4
OPERATIVE EBITDA BRIDGE
EUR million
614 -4%+3% 0 648
Q1 2018 Salesvolumes
Salesprices
Currencyimpact
Acquisitions Q1 2019
+6%
REVENUE AND ORGANIC GROWTH (Y-ON-Y)
EUR millionGroup’s organic growth +2%
Operative EBITDA margin 14.8%
• Strong operational improvement mainly driven by pricing
• Due to the adoption of IFRS 16 -standard, fixed costs do not include operating lease expenses in 2019, corresponding to a positive EBITDA impact of EUR 7.7 million
87.9-7.795.6
SALES PRICE VS VARIABLE COST TREND(ROLLING 12-MONTH CHANGE Y-O-Y)
-180
-120
-60
0
60
120
180
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Brent oil, USD Sales prices* Variable costs*
SALES PRICES AND VARIABLE COSTS(CHANGE Y-O-Y)
95
-3 -10
-16-20
-10
-2 -2
114
8
24
-9-18
-26 -23-16
-43
11
23
4742
3734
-18-23
-23 -13
0
1613
13
2636
38
29
11
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017 2018 2019
Net impact on EBITDA (sales prices-variable costs)
Sales prices
Variable costs
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Net impact of sales price & variable costs positive
* 12-month rolling change vs previous year in EUR million
EUR millionEUR million
Cash flow improved in Q1
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ALL KEY FIGURES IN EUR MILLION
271
205 210
3465
2016 2017 2018 Q1 2018 Q1 2019
118 124 106
16 14
95 66
44
7 14
2016 2017 2018 Q1 2018 Q1 2019
213
CASH FLOW FROM OPERATIONS
CAPITAL EXPENDITURE EXCL. ACQUISITIONS
◼ Growth capex190
150
• Q1 cash flow supported by improved profitability
• Seasonality led to negative change in NWC as in previous years
• Kemira’s Pension Fund Neliapila returned excess capital of EUR 15 million to Group in Q1
• IFRS 16 impact EUR +7 million on cash flow from operations
• In Q1 the largest growth capex projects were on-going completion of Pulp & Paper AKD plant in China and expansion of CEOR polymers for Oil & Gas in Netherlands
• CAPEX excl. acquisitions estimated to be around EUR 180-220 million in 2019
23 28
ROCE improving, adoption of IFRS 16 increased reported net debt
9.9% 9.7% 9.8% 9.7%10.3%
2016 2017 2018 Q1 2018LTM
Q1 2019LTM
634694 741
842
Dec 31 2016
Dec 312017
Dec 312018
Mar 312019
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NET DEBT (EUR million) AND LEVERAGE RATIO
OPERATIVE RETURN ON CAPITAL EMPLOYED
2.32.22.1
• ROCE improvement driven by Industry & Water
• Ongoing investment projects are expected to improve Group’s ROCE once up and running
• Increase in net debt resulted from the adoption of IFRS 16 as operating leases (EUR 129 million) are part of debt
– Excluding IFRS 16 impact, net debt would have been EUR 713 million and leverage ratio 2.1
– Improved cash flow reduced underlying debt level
• Average cost of net debt excluding leases is 2.0% and duration is 28 months
2.4
Outlook for 2019
“Kemira expects its operative EBITDA (2018: EUR 323.1 million) to increase from the prior year on a comparable basis, excluding the impact of IFRS 16 accounting change.”
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EUR
million
2014 2015 2016 2017 2018 2019
outlook
Operative
EBITDA
253 287 303 311 323 Increase
Operative EBITDA figures for 2014-2018 are ”pre IFRS-16”.
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Appendix
SEGMENT SPLIT PRODUCTS
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GEOGRAPHIES
Kemira in briefLAST 12 MONTHS: REVENUE EUR 2,627 MILLION, OPERATIVE EBITDA EUR 349 MILLION, OPERATIVE EBITDA MARGIN 13.3%, OPERATIVE ROCE 10.3%
◼ 25% Bleaching
and pulping
◼ 20%
Polymers
◼ 20% Other:
e.g. defoamers,
dispersants,
and biocides
◼ 20%
Coagulants
◼ 15%
Sizing
and
strength
Revenue by product category rounded to the nearest 5%
39%
AMERICAS
1.USA
2.Canada
3.Brazil
52%
EMEA
1.Finland
2.Sweden
3.Germany
9%
APAC
1.China
2.South
Korea
3.Thailand
◼ 58%Pulp & Paper
◼ 42%Industry & Water
CUSTOMERS
Several thousand customers
TOP 10 customers are ~25% of revenue
TOP 50 customers are ~50% of revenue
EXAMPLES OF
LARGEST CUSTOMERS
Municipalities, e.g.
Frankfurt, London, New York,
Paris, Shanghai, Singapore
#1 in
water
treatment
in NA and
Europe
#2 in friction reduction in North
American shale oil & gas
#2 globally
1,170
1,417 1,457 1,477 1,520
137
171195 198 192
2014 2015 2016 2017 2018
REVENUE BYPRODUCT CATEGORY
INV E S T OR P RE S E NT A T ION 17
REVENUE BY CUSTOMERTYPE AND MARKET GROWTH
Pulp & Paper – strong business with solid track record
MARKET ENVIRONMENT REVENUE BY GEOGRAPHIES AND
MARKET GROWTH BY REGION
CUSTOMER EXAMPLES
◼ 55%
EMEA
◼ 30%
Americas
◼ 15%
APAC
◼ 40%
Bleaching
& pulping
◼ 25%
Sizing &
strength
◼ 20%Defoamers,
dispersants,
biocides and
other process
chemicals
◼ 10%
Polymers
◼ 5% Other◼ 40%
Pulp
◼ 20%
Printing &
writing papers
◼ 40%
Board &
tissue
-1-2%2-3%1-2%Market
growth
2-3%0-1%1%Market
growth
Nouryon (pulp) #3
Solenis (paper)* #1
Kemira (pulp and paper) m.s. ~16% #2
Ecolab (paper) #4
Note: Revenue by industry, product and geography rounded to the nearest 5%
A P RIL 2019
* Solenis-BASF combined entity
Kurita (paper) #5
REVENUE AND OPERATIVE EBITDAEUR million
REVENUE BYPRODUCT CATEGORY
INV E S T OR P RE S E NT A T ION 18
REVENUE BY APPLICATIONTYPE AND MARKET GROWTH
Industry & Water – strong positions in chosen categories
REVENUE BY GEOGRAPHIES AND
MARKET GROWTH BY REGION
◼ 40%
Coagulants
◼ 40%
Polymers
◼ 20%
Other
products
such as
defoamers
and biocides
2-3%5-6%2-3%
◼ 50%
EMEA
◼ 45%
Americas
◼ 5%
APAC
◼ 65%
Water treatment
◼ 10%
Other
◼ 25%
Oil & Gas
5-6%3-4%3-4%
WATER TREATMENT
Amsterdam
Barcelona
Frankfurt
London
Oslo
Paris
Stockholm
Los Angeles
Montreal
New York City
Toronto
Melbourne
Shanghai
Singapore
OIL & GAS
Note: Revenue by industry, product and geography rounded to the nearest 5%
Market
growth
Market
growth
CUSTOMER EXAMPLES
A P RIL 2019
REVENUE AND OPERATIVE EBITDAEUR million
MARKET ENVIRONMENT
Market share
~30% in coagulants and
~20% in polymers
Main competitors in
coagulants:
• Feralco (Europe)
• Kronos (Europe)
• Chemtrade (NA)
• USAlco (NA)
Market share ~25% in
polymers used in shale
oil & gas
Main peers in polymers
(also in water treatment):
• SNF
• Solenis
• Solvay (only O&G)
MUNICIPAL (40%),
customer examples
INDUSTRIAL (60%),
customer examples
Municipal Industrial
947 956906
1,0091,073
116 116107
114
131
2014 2015 2016 2017 2018
2014-2016 figures are pro forma; combination of Municipal & Industrial
and Oil & Mining segments
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Mid- to long-term financial targets were updated due to IFRS 16 in February 2019
Targets until
end of 2018
Revenue
Operative EBITDA-% 14-16%
IFRS 16
impact
-
Gearing
Around +1%-point
Approx. +10%-pointsBelow 60%
2017
EUR 2.5 billion
2018
EUR 2.6 billion
12.5% 12.5%
59% 62%
Above-the-market
growth
Financial
targets (mid- to long-term)
Above-the-market
growth
15-17%
Below 75%
VARIABLE COST SPLIT 2018EUR 1.6 billion
TOP 10 RAW MATERIALSBY SPEND
1. Sodium hydroxide (caustic soda)*
2. Acrylonitrile (OD)
3. Aluminium hydrate
4. Colloidal silica dispersion*
5. Amines (OD)
6. Petroleum solvents (OD)
7. Acrylic acid (OD)
8. Alpha olefin (OD)
9. Acrylic ester (OD)
10. Fatty acid
Top 10 account for 50%of Kemira’s raw material spend
OD = Oil & gas derivative
* Mainly trading materials
Q1 2019 RE S ULT S 20
EXPOSURE TO OIL RELATEDRAW MATERIALS
Kemira’s variable cost split and top raw materials
◼ 30%Oil & gas
related
◼ 70%Not oil
related
◼ 70%Raw materials
◼ 15%Electricity & energy
◼ 15%Logistics
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• IFRS 16 will affect primarily the accounting for Kemira Group’s operating leases
• Operating lease expenses are replaced by the depreciation of the right-of-use assets and interest cost associated with lease liability
• The impact on EBIT is small positive and on net profit immaterial
• No restatement of previous year figures, instead we will provide enough data for analysis
A P RIL 26 , 2019 Q1 2019 RE S ULT S 21
IFRS 16 impact on financials
EUR million
(except ratio)
FY
2018
Impact in
Q1 2019
Estimated impact
in FY 2019, around
Operative EBITDA 323.1 +7.7 +30
of which margin 12.5% +1.2 %-point +1 %-point
Impact on balance sheet
EUR million
(except ratio) Dec 31, 2018
Impact on
March 31, 2019
Net debt 741 +129
Gearing 62% +12 %-points
EUR million Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 2018 2017
Revenue 647.8 661.8 669.6 647.6 613.7 2,592.8 2,486.0
Operative EBITDA 95.6 84.5 89.0 80.2 69.4 323.1 311.3
margin 14.8% 12.8% 13.3% 12.4% 11.3% 12.5% 12.5%
Operative EBIT 50.1 44.8 50.0 45.1 33.9 173.8 170.3
margin 7.7% 6.8% 7.5% 7.0% 5.5% 6.7% 6.9%
Net profit 29.3 26.5 22.1 23.5 23.0 95.2 85.2
Earnings per share, EUR 0.18 0.17 0.14 0.14 0.14 0.58 0.52
Cash flow from operations 65.2 88.2 64.2 23.4 34.5 210.2 205.1
Capex excl. acquisitions 28.3 53.2 34.3 39.8 23.2 150.4 190.1
Net debt 842 741 744 773 678 741 694
NWC ratio 10.6% 10.2% 9.8% 9.6% 9.5% 10.2% 9.4%
Operative ROCE (rolling 12 m) 10.3% 9.8% 9.8% 9.7% 9.7% 9.8% 9.7%
Personnel at period-end 4,973 4,915 4,798 4,858 4,740 4,915 4,732
PLEASE NOTE FINANCIAL IMPACT OF IFRS 16 ADOPTION FROM THE PREVIOUS SLIDE
Key figures
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EUR million Q1 2019 Q1 2018 2018 2017
Net profit for the period 29 23 95 85
Total adjustments 79 42 220 204
Change in net working capital -30 -31 -51 -34
Finance expenses -7 -1 -30 -25
Income taxes paid -6 1 -24 -25
Net cash generated from operating activities 65 34 210 205
Purchases of subsidiaries and acquisit. 0 1 -43 0
Capital expenditure -28 -23 -150 -190
Proceeds from sale of assets 3 4 7 3
Change in long-term loan receivables 0 0 5 -5
Cash flow after investing activities 40 16 29 13
Cash flow
A P RIL 26 , 2019 Q1 2019 RE S ULT S 23
Currencies
Currency exchange rates had around EUR +18 million impact on revenue andEUR +6 million impact on the operative EBITDA in Q1 2019 compared to Q1 2018.
Guidance: 10% change in our main foreign currencies would approximately haveEUR 15 million impact on operative EBITDA on an annualized basis.
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◼ 43% EUR
◼ 7% Others
KEMIRA REVENUE DISTRIBUTION Q1 2019 KEMIRA COST DISTRIBUTION Q1 2019
◼ 2% SEK
◼ 3% CNY
◼ 4% CAD
◼ 37% USD
◼ 7% Others
◼ 5% CNY
◼ 4% CAD
◼ 6% SEK
◼ 29% USD
◼ 44% EUR◼ 2% BRL
◼ 2% GBP
◼ 3% GBP
◼ 2% PLN
KEY FINANCIALS
Pulp & Paper
A P RIL 26 , 2019 Q1 2019 RE S ULT S 25
*12-month rolling average
EUR million Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 2018 2017
Revenue 380.8 390.4 385.2 376.0 368.7 1,520.2 1,476.9
Operative EBITDA 50.7 51.2 52.3 45.4 42.7 191.7 197.7
margin 13.3% 13.1% 13.6% 12.1 11.6% 12.6% 13.4%
Operative EBIT 20.6 24.1 26.6 22.0 18.9 91.6 104.8
margin 5.4% 6.2% 6.9% 5.9% 5.1% 6.0% 7.1%
Operative ROCE*, % 7.7% 7.8% 8.5% 8.3% 8.6% 7.8% 9.0%
Capital expenditure (excl. M&A) 17.3 28.8 20.7 21.4 14.2 85.1 138.3
Cash flow after investing
activities
25.1 -13.5 20.6 2.3 20.5 29.9 15.7
KEY FINANCIALS
Industry & Water
A P RIL 26 , 2019 Q1 2019 RE S ULT S 26
*12-month rolling average
EUR million Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 2018 2017
Revenue 267.0 271.5 284.4 271.7 245.0 1,072.6 1,009.1
Operative EBITDA 45.0 33.3 36.7 34.8 26.6 131.5 113.6
margin 16.8% 12.3% 12.9% 12.8% 10.9% 12.3% 11.3%
Operative EBIT 29.5 20.8 23.4 23.0 15.0 82.2 65.5
margin 11.0% 7.7% 8.2% 8.5% 6.1% 7.7% 6.5%
Operative ROCE*, % 15.4% 13.6% 12.5% 12.6% 11.8% 13.6% 11.0%
Capital expenditure (excl. M&A) 11.0 24.4 13.6 18.4 9.0 65.3 51.7
Cash flow after investing
activities
27.8 23.8 26.8 6.1 -4.0 52.5 46.9
FY 2018
Revenue split by country
A P RIL 26 , 2019 Q1 2019 RE S ULT S 27
USA 27%
Canada 6%
Brazil 3%
Uruguay 2%
Other Americas 1%
Finland 16%Sweden 5%
Germany 5%
Poland 3%
UK 3%
Spain 2%
Other APAC 4%
South Korea 1%
China 4%
Russia 2%
Netherlands 2%
France 2%
Italy 2%
Other EMEA 9%
Norway 1%
Important information about financial figuresKemira provides certain financial performance measures (alternative performance measures) on non-GAAP basis. Kemira believes that alternative performance measures, such as organic growth*, EBITDA, operative EBITDA, cash flow after investing activities, and gearing followed by capital markets and Kemira management, provide useful information of its comparable business performance and financial position. Selected alternative performance measures are also used as performance criteria in remuneration.
Kemira’s alternative performance measures should not be viewed in isolation to the equivalent IFRS measures and alternative performance measures should be read in conjunction with the most directly comparable IFRS measures. Definitions of the alternative performance measures can be found in the Definitions of the key figures in this report, as well as at www.kemira.com > Investors > Financial information.
All the figures in this interim report have been individually rounded and consequently the sum of individual figures may deviate slightly from the sum figure presented.
A P RIL 26 , 2019 Q1 2019 RE S ULT S 28
* Revenue growth in local currencies, excluding acquisitions and divestments