Good morning everyone. Welcome to Kemira's Q4 2020 results webcast. My name is Mikko Pohjala from Kemira's Investor Relations, and with me here in Helsinki today, I have our President and CEO, Jari Rosendal, as well as our CFO, Petri Castrén. Early this morning, we published our financial statements bulletin for 2020 and delivered strong profitability in the fourth quarter of 2020. Also today, we've published the invitation to the Annual General Meeting and the dividend proposal for 2020. During this webcast, Jari and Petri will go through Q4 and 2020 in more detail, as well as give us an overview of the outlook for 2021. After the presentation, you will have a chance to ask questions either via the teleconference or then via the webcast tool. Without much further ado, Jari, please go ahead.
Okay, thank you, Mikko. Welcome everyone. What a year has 2020 been. Unprecedented in many ways and obviously all the companies have experienced, but different industries in different ways. Our organization has maneuvered through quite a number of hurdles last year, and a really big thanks to all Kemira people for a strong year last year. If we remember a bit on what anomalies we had: we had pulp and paper strikes, two, three weeks out of production in Finland in the beginning of the year. It was the biggest year in hurricanes in Americas. Also some severe typhoons in Asia-Pacific hindering our performance. Brexit planning on and off many times, and now we're dealing with that reality. Trade wars hampering some trade and overseas transactions.
Oil price, huge volatility already started in Q4 of 2019, obviously COVID-19 hit in many ways to the business. Thanks to our good performance by our organization, we were able to adapt and keep things ongoing. We reached yet another record year in operative EBITDA in 2020. Let's look at some of the highlights in last year. Improved customer satisfaction continued to go up. Improved also employee satisfaction in this situation where people are working under special arrangements or remotely. Really good operational performance and improved profitability in all lines. Obviously, COVID-19 impacted the economy and our revenues came down, but without the oil and gas impact, only 2%, which shows the resilience of our business. Operative EBITDA grew to 17.9% for the full year, which is great to see.
Our new capacity additions for AKD in China and for polymers in Netherlands added growth and our ongoing investments in U.S.A., South Korea and Uruguay will bring new growth. We also updated our dividend policy to competitive and over time increasing. Looking at the main figures for 2020. Revenue a bit over EUR 2.4 billion, down 9% year-over-year, but as said, only 2% if we count out oil and gas downturn. Q4 revenue a bit over EUR 800 million, picking up compared to Q2 and Q3, and typically seasonally, Q4 is a bit slower for us, so this shows that the markets are recovering. Good cost control, fixed cost and variable cost, and new capacities brought efficiencies and helped us reduce our variable costs as we don't toll out any more certain manufacturing steps, but we make them in-house. Not all variable cost issues are from the markets.
It's a self-help that will be permanent. Earnings per share EUR 0.86 in 2020. Strong cash flow, therefore dividend proposal EUR 0.58 per share. Last year we paid EUR 0.56, we increased it by EUR 0.02. That's the proposal for the AGM. Pulp and paper had a really good year, this segment is slower to turn a bigger ship. When we started our actions to improve profitability truly on value over volume in 2018, we saw good progress in 2019 second half of 2019, early 2020, we started to see the run rate we wanted to see, that shows in the figures. Pulp, board, packaging and hygiene products, good demand. Printing and writing clearly suffered due to the pandemic. Operative EBITDA was strong for the full year, EUR 260 million 17.9% of revenue. Q4, we saw some strong demand and sequential recovery.
We didn't see as much curtailment or maintenance shutdown as we expected in Q4. In Americas, during Q4, we made a bigger restructuring due to the ongoing decline in printing and writing demand. This was not COVID related. It was planned already earlier, but COVID only accelerated it. We have a new setup there. We also, in pulp and paper, improved our profitability nicely in Asia Pacific, which is good to see. Still work to do there, but a good step forward. Industry & Water had a tougher year than pulp and paper, mainly due to the drastic change in the oil and gas market demand. Municipal water treatment market was stable. Actually, we even grew some percentage points in municipal. Industrial water treatment was down a bit due to the lockdowns, and oil and gas down during the second half of the year.
We started to see some recovery in oil and gas, especially in shale. Full-year organic growth was -2% only without oil and gas, so resilient also here. The Netherlands Botlek new line for CEOR polymers really took down some of our cost base and variable cost, and also brought some added volumes to the customers. I&W operating EBITDA EUR 175 million and 18.0% from revenue, and that's a great outcome after a very challenging year. A bit closer look at oil and gas, and I'd like to remind that in 2019, oil and gas represented about 11% of the group's revenue, and in 2020, about 6.5%. Shale market bottomed in Q2 and started to recover Q3, and also that continued in Q4, which is good to see.
Oil sands tailings treatment in Canada was down a bit as customers were saving cash, should return back to more normal levels in 2021. CEOR market was solid and not impacted at all during the pandemic. As said, shale is on its way to recover, oil sands should return to normal, and CEOR continue strong going forward. I mentioned strong results in customer satisfaction. We measure this continuously and really they almost jumped to a great level last year. Main reason is that we've been able to operate, delever, and secure the availability of our products to our customers. Also our service, although more remote, was seen as on a good level. Also, our employee engagement, which we measure regularly, stepped up a notch, which is a positive surprise as half of the organization are working remotely.
Obviously we have our manufacturing people, we have a lot of logistics people, laboratory people and so on, who had to continue to work in special arrangements at their normal work location. Really good to see that people engagement went up, and that obviously then reflects to a positive attitude to solving problems and serving customers. In the Capital Markets Day in November, we announced our new targets, and target is to now focus more on growth, not only getting profitability better, obviously work on profitability also, but now on profitable growth. We intend to grow also from more sustainable and recyclable products and offerings, and developing bio-based products to replace our synthetic-based products. We have about EUR 100 million revenue today from these type of products. We intend to fivefold that in the coming years through R&D, partnering, and developing and launching new products.
Why not even some acquisitions. As an evidence of that, we announced recently two partnerships where we have exclusivity of their technologies for us to our target markets. In essence, they have technologies to develop and deliver raw materials for us that are bio-based and bio-sources. Basically, they will be the feedstock for us to then develop our products using their technologies. A good step forward and a good example what we are doing and what we intend to do going forward in our recyclability and bio strategies. We have today also updated our sustainability targets. We completed our previous targets, and they are in our annual report. Now we have five new targets where the climate target was already announced this time last year. People safety, operational safety continues to be high on our priority list.
We have improved well in the last five years, especially on people safety, and are close to 2.0 in TRIF. Now we set the next level target to 1.5, and that takes a lot of attitude and a stop, think, act type of working method to get there. People diversity and inclusion, also high on our list, and we measure that in our own people satisfaction measurements and see how people see that they are being treated and have opportunities to express themselves and advance in our organization. Water is a natural one for Kemira, water intensity and circularity continues to be on the list, and we start to monitor that even more than we have today and report that. These are the targets that we'll be following going forward. Obviously, we are working on the previous targets also that we had earlier.
As a last, we continue to go into 2021. COVID-19 is a reality for several months to go, probably to the second half of 2021. Raw material prices have now started to come up. We have announced half a dozen price increases already to mitigate that. Logistics is a challenge at the moment. Sea containers are in the wrong locations in the world, and spot logistics prices are sky high. We obviously have long-term contracts. FX is not helping us. Demand is improving. Price increases, we are working on. Utilization rates are going up, and our fixed costs especially are well in control. We continue to work on these topics and mitigate those actions and take opportunities where we can and also grow the business. Operational agility is really important to continue to serve the customers. We have a couple of bigger investment projects ongoing.
Polymer capacity in the United States, one step of it, the AMD, started up already last year and is running well. We have the EPAM lines coming, and timing for that is quite good as shale is picking up. South Korea dry polymers for the Asia-Pacific market. We have dry polymers in Europe and in America, we don't have them in Asia-Pacific, this is a good adder to our portfolio. The bleaching capacity in Uruguay, expanding that in the next years. All of these will bring profitability and growth. That concludes my 2020 summary and a feel for how we're going into 2021. I'll ask Petri to come and give more color on the figures of 2020. Petri, please.
Thank you, Jari. Good morning from my part as well. I think with the financial report of 2020, we're finally putting a very difficult year behind us. Exceptional year, Q4 repeated the same themes which we have been repeating and reporting out in the previous quarters, meaning strong profitability, good cash flow, improved capital efficiency. I'll cover some of the drivers behind those. Volumes continue to be down year-on-year, sequentially, we are seeing clear improvement on that one as well. At the end, I will also cover outlook for 2021, our assumptions and sensitivities around it. Let's start with the traditional profitability bridge. Revenue did decline 8%. That's a lower rate of decline compared to the previous year. Again, sort of showing improvement during the quarter versus the previous quarters. Half of it was impacted by FX.
The other half, pretty much equally impacted by volumes and some price declines as well. Jari already mentioned that sales prices are something we are addressing because we now see the trend that the raw material prices are starting to come up. These price increases actually are global, and they're covering very large share of our products. Looking at the price decline, I think it's good to understand that about half of that decline comes from either traded products, and the most significant traded product that we have is caustic soda, or they come with contracts that we have a formula-based pricing mechanism. Those price declines reflect the historical raw material price decline, and obviously, they will then revert automatically if the raw material prices increase, as now seems to be the case.
Obviously, looking at the bridge, profitability is mostly impacted by the variable cost reduction. This number now, and Jari already talked about this, includes some of our own efficiencies, those efficiencies coming from backward integration from some of the named investments. One thing, when looking at the price impact, one should really look at the net impact of what happens not only on the variable cost side, but also offsetting the price impact of that, because that then reflects some of the formula-based and traded products. In Q4, there was one item affecting comparability, larger item, which we reported out. This is the reserve that we took for an energy company within our industrial park where we have an indirect ownership stake. There is a plan for closing that energy company.
This energy company actually provides steam for us, but perhaps [audio distortion] emissions in pulp and paper, Americas reflecting our reaction to the market demand and market changes. Year on year, we see the continuation of the trend of raw material prices of variable cost coming down. Price decrease compared to that is quite modest, and as I said, it's mostly about caustic and some of the traded products. While the historical trend on the raw material cost has been on the decline, there is a clear reversal of that. Oil price increases and general pickup in economic activity is driving some of the costs up. Let's not exaggerate that because I think that modest increases are relatively modest.
Propylene price is something that is up and can be seen in the traded products and public sources, but we are not buying propylene, but rather the derivatives that are coming out of that. Overall, the raw material environment becomes more inflationary and obviously we need to address that with price increase actions of our own. The backward integration benefits that Jari already talked about from AKD investments as well as the investment in Netherlands, they will continue to positively contribute to this chart still this year, particularly in the first half. On the supply chains, which Jari mentioned, they are operating relatively well considering the issues that we have had with economy and also with Brexit. Brexit itself is causing some harm, meaning some additional work, but our ability to deliver product has not been impacted seriously. Cash flow. Cash flow was very strong during Q4.
Actually, I was probably underestimating the cash flow when I was projecting it in the previous quarter call after Q3. Basically, if one ignores the EUR 50 million capital return in 2019, we were pretty much at the same level of 2019. Again, no issues with our receivable quality and inventory rotation continued to improve in Q4. Our accounts payable, they seasonally increase during Q4 as some of the personal payables accruals increase as well as the seasonal CapEx approval tend to be higher at the year-end. Looking at the CapEx, we came pretty much in line with our EUR 200 million estimate, ended up at EUR 196 million. Again, for 2021, we are guiding to that same EUR 200 million range. Most significant expansions in 2021 are our polymer plant in Mobile, Alabama, as well as the expansion project in Uruguay that Jari talked about.
We have not, and we still do not have a published official guidance for our return on capital or capital efficiency. For a long time, I sort of considered that 12% is a good ratio and realistic for us, particularly as we have about EUR 500 million of goodwill in our balance sheet. Now we have reached this 12%, and certainly gives some satisfaction of having achieved that. With strong cash flow and improved profitability, we continue to deliver the company. Sorry, I need a little bit of drink. Net leverage compared to if you use pre IFRS 16 ratios at 1.6x is about 0.6x reduction from 2018. 0.6x reduction, and obviously this sort of a deleveraging does give opportunities for either for growth and supporting our growth initiative that Jari was talking about, whether these investments are inorganic or organic investments.
During the year, we updated our profitability target, meaning the operative EBITDA at 15%-18%. We increased the high end of that range. We also updated our dividend policy during our Capital Markets Day. Talking about dividend, consistent with that updated dividend policy and also reflecting the good profitability and strong cash flow, the board is now proposing that we increase our dividend by EUR 0.02 to EUR 0.58 from EUR 0.56. This dividend will be paid in two installments like it was during 2020. What is different this year, however, is that the board is not withholding discretion on the payment of the second tranche. What to look for in 2021? I think the consensus base case is economic recovery, global economic recovery accelerating in the second half of the year.
We are sort of concurring with this base case. Obviously, has a lot of uncertainties around COVID, whether the vaccines are available in the timelines that the market and everyone expects, and efficiency of those. Let's not forget about the supporting factors that we have. The North American restructuring will provide some fixed cost savings. A part of the COVID-related fixed cost savings will continue. For example, travel was down significantly during 2020, but not yet in Q1. We will see benefits on that side. Also, our headcount was down for the year by almost 150 employees. Obviously, our fixed costs run rate going into 2021 will be lower than starting 2020. Current trends also in the market are positive. In Q4, the volumes were better, and currently we see no reason to worry about that trend reversing.
Oil price has picked up even in recent weeks after the year end and benefiting shale. If one looks at the prices that are paid for pulp and packaging grades, those prices are obviously supporting our customers and their production volumes. Remember, our business is really driven by the production volumes of our customers in the pulp and paper segment. On the negative side, FX rates at current rates does provide or do provide some negative headwinds against us. If the current rates were to prevail for all of 2021, that would be roughly EUR -10 million on the EBITDA range, so that EBITDA number. That does give some measure of the FX headwind that we are seeing. Nevertheless, that is sort of what we are expecting today and is based, for example, into our EBITDA guidance.
Something that you may want to consider that when you model for us next year is that approximately EUR 20 million of this zero margin energy sales will not repeat itself anymore in 2021 or thereafter. In I&W, there was one customer where we changed our business model so that rather than be a contract manufacturer for them, now we've become a tolling partner for them. That has zero margin impact itself, but it actually does reduce reported revenue by roughly EUR 10 million. There's roughly EUR 30 million of revenue decline going forward in 2021 that has no margin impact. With that, I think I'll turn to our outlook
You see the assumptions that are mentioned here on the right. I think I already covered them pretty much base case for economic recovery. Obviously, we expect no major disruptions to our own operations or major disruptions to supply chains because of COVID or any other reason. With that, we expect revenue to return to growth measured by local currencies and eliminating M&A impact. Profitability by EBITDA measure, we expect to be at the same level or slightly lower than in 2020. In the context of EBITDA or operative EBITDA, we have now defined slightly to mean less than 5%. With that, I think we're ready to move for Q&A.
Good. Many thanks, Jari and Petri. You can submit your questions via the webcast or then via the teleconference. Maybe we turn to the operator first.
Thank you. As a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Our first question comes from Martin Roediger from Kepler Cheuvreux. Please go ahead. Your line is now open.
Yes, thanks. I start with the guidance. What are the parameters for the high end of the guidance range, so the flat EBITDA? What are the parameters for the low end of the guidance range, i.e., up to - 5% in operative EBITDA? That would be our first question.
It is the how the market will develop and how the demand will pick up. We see some negative development in some of the raw materials, but we see positive development also in the demand picture. No sort of huge parameter mathematics in here, but please also keep the comparable FX in mind. Should we meet as we target, obviously, meet the EUR 435 million operative EBITDA? We actually have improved our performance in that situation as the FX situation tends to work against us in translation.
My second question is on the start of the business in 2021. We have already seen or heard several other chemical companies which have indicated at the start within Q1 has been in line with the trajectory seen in Q4. Is that the same for Kemira as well, or is it somewhat different?
No change in the run rate of the business. Obviously, there are some seasonalities through winter and so on, but nothing that has changed the picture. We saw sequential recovery of demand in second half and expect to also grow this year.
Thank you.
Thank you. Our question comes from Anssi Kiviniemi from SEB. Please go ahead. Your line is now open.
Hi, guys. It's Anssi from SEB. A couple of questions from my side, and sorry if the questions have been already answered. I missed a part of the conference call, so sorry about that. First of all, kicking off with the emission right compensation. How much did this support the result?
Well, it's the third quarter and fourth quarter every year. It's a couple of million, but not a meaningful number.
Okay, thanks. Mandatory raw material question. What are you currently seeing ahead? How much will be raw materials up this year if let's assume that the spot rates continue as they are currently?
Well, some raw materials are now creeping up, and that's not only a pricing question, it's also availability question. Some value chains are not operating as they should. If you think of the North American road transportation and traffic, that is down still due to COVID-19. Refineries are not making as much gasoline and diesel, and then they're not making ethylene and propylene. These are the anomalies that we see. We see some creep up, and mostly that creep up is expected to happen in the first half of the year and then flatten out, and therefore, we have also issued six price increases, if I remember right, the last weeks and months. That price increase impact is sort of close to half of our revenue. We need to just push them through now.
Okay, thanks. On the logistics situation, there are disturbances between Asia and Western markets, but we are also seeing higher truck rates, for example, in the U.S. Will this be additional headwind for you guys when we enter 2020? Kind of how do you see that situation developing?
Definitely spot freights are up significantly. There we have to plan carefully and book well ahead. If the booking time in Asia Pacific was a week or two, now we're talking a month or two ahead of bookings so that you can manage that cost. Sea containers, as I said, are in the wrong location in the world. We see some from that, but mostly we are also contracted already for our delivery lanes. In North America for I&W, we have our own truck fleet, which helps in this situation. Some from that, I would say the biggest issue right now is the U.K. border and the Brexit. There, especially from U.K. to Europe, that is more of a hassle to cross the border now and there times and costs are up. We are watching that carefully.
Our organization is very good at this, but something that needs to be carefully monitored.
Good, thanks. The oil and gas. Could you talk a little bit about the situation there? We are seeing, let's say, better fundamentals for your customers to start investing once again. How do you see the activity, and what should we expect from that business when we enter into 2021?
The North Sea CEOR never saw a change. That demand continued on a good trend, and we expect it to continue also on a good trend. Our new line in Netherlands is helping us as a self-help. That is unchanged and continues this year. Oil sands, the tailings treatment, which starts in April, May, and goes until September, October in Canada, that will recover close to the 2019 levels. Was down for the reason that customers were saving cash last year. That improves. Shale, we have sequentially seen going up. That's the demand picture, and certainly WTI being close to $60 is helping the customers.
Good. The last question is on the FX impact. I missed it. Did you give out an explicit figure that is included in your guidance, or what was it?
Yes, Anssi, I mentioned that at current rates, the FX is about EUR -10 million impact to us year-on-year for 2021 versus 2020.
Okay, that's all from me. Thank you.
We have a number of questions, operator, from the webcast tool. Maybe I'll take them here in between and let the queue form in the teleconference. If we start with the first question, this is, Jari, for you. How would you estimate the Biden administration, what kind of impact will it have on fracking and on Kemira's operations in the shale market?
Well, one needs to look at it as a whole picture and not as pockets, but I see it as a neutral to positive type of a development. There are initiatives on the water side that are happening and on the water safety and regulation, which are positive for us. I don't think the oil sands situation goes anywhere. Oil prices have now developed nicely. We are operating in our shale in the sort of hotspots of the shale business, meaning mainly Permian Basin, and I don't see a big change in that due to the administration change.
All right. Thank you. We have a couple of financial related questions. These are related to temporary cost savings from the pandemic. Have you quantified how much fixed costs were reduced in 2020 related to the pandemic, such as traveling? This may be better for you.
Of course. While we haven't called it out, travel savings alone 2020 versus 2019 were more than EUR 10 million for us. It will be actually interesting to see once we are in a post-COVID world, at what rate will those costs return, because I think many of us are actually thinking about our travel plans and travel behavior differently. For example, right now, we do not expect that 2021 would see the return to the 2019 levels. However, 2021 will see a somewhat higher travel expense than in 2020. That is in our base case as we expect that we are getting towards more normalcy, particularly in the second half of the year. I think that's really the travel.
Another financial question. Could you sort of remind us what was the amount of possible financial support you received related to the pandemic in 2020?
There was some, but not a whole lot. We got some, for example, in China, some reductions in social benefit costs, and some isolated helps like that, but no significant government help globally. We're really talking about even as we consolidate all of that.
Very low single million number, EUR 1 million , EUR 2 million, EUR 3 million, something like that.
Thank you, Petri. One more question from online at this point. This is a continuation to the raw material question. What is the magnitude of the price pressure that you're seeing in your raw material basket as a whole?
Yeah. It varies. If you think of the basket, there are things that are flat, there are things that are going down, and there are things that are on a rising trend. Then remember our self-help on it and also then FX, because we do buy dollar-based raw materials that we then sell in euro. It's a complex thing, but we are not talking about huge jumps. There might be some individual products that there are significant short-term jumps, but it goes to the downside also, but not huge, but some that we need to recognize.
Good. Thank you, Jari. There are no more questions from the tool, so I'll hand it over back to the operator if there are further questions on the line.
Thank you. We have a question from Harri Taittonen from Nordea. Please go ahead. Your line is now open.
Yes. Hi, good morning. The question on the shale business, now with this increased capacity coming on stream, how much, if you put to perspective the potential volume that you can do after the capacity expansion compared to where you were before the COVID-19 crisis started, just to give a feel of how much bigger this business could be before the crisis started?
Okay, maybe a bigger picture of our Mobile Alabama investment. There's two plants that we built there. One is AMD plant, and we went from an old copper-based AMD plant, closed that down, and then opened this new bio-enzyme-based plant, reflecting again our bio initiatives. That AMD is a raw material for polymers. That took our cost point down also on efficiency. Again, some self-help items. We have an EPAM line coming that adds capacity, but it's also the latest technology for EPAM. Efficiencies go up, but capacities also go up, and we have several tens of percentages of added capacity to offer to the market after it's up and running and the demand has recovered, as we've seen right now.
Okay. Basically the timing of the ramp-up, or what could be the timeline for assuming the market takes the volume, when would that-
We'll start ramping it up in a few months, depending on the COVID situation and people travel capabilities, and then second half is the ramp-up time. We have hired some of the people already. They are in training, and we can run it. We would prefer running that line and getting it up and running because it's obviously more efficient than some older lines. It's also how we run the balance of production.
Okay. Basically, there is a little bit of expenditure. You're seeing a small negative impact before the startup related to the training.
That's ongoing, so that's not meaningful. The AMD line has started up successfully, so no issues there. There can be situations where we make a non-spec product, and there might be some one-time write-off cost of inventory then. Hopefully it goes well because the process is well-known for us. It's not new.
Good. Just another question on the FX, the EUR 10 million you mentioned at the current rates. Can you give a feel, how much is it more like repatriation of profits, or is it more like a transactional export related to exports from your lab to the dollar change?
The currency exposure for us is mostly translation.
Exactly.
There is in the backup of our deck, there is actually the currency split down. So our cost base and.
Yeah.
The revenue base actually match quite well. We don't transport that much across continents. It comes mostly from translation.
Exactly. That's helpful. Many thanks.
Thank you. There appear to be no further audio questions.
All right. Thank you for the question. There seem to be no questions from the webcast tool either. Warm thanks for everyone for participating and for the questions. As a reminder, we publish the Q1 results on Tuesday, 27th of April. If there are any further questions, please do reach out to me, and have a nice afternoon. Thank you.