Good morning, ladies and gentlemen, and welcome to Kemira's 2016 full year result presentation. My name is Olli Turunen, and I'm Head of Investor Relations at Kemira. Today's presentation will be held by our President and CEO, Jari Rosendal, and our CFO, Petri Castrén. After the presentation, you will have a chance to ask questions here in the studio and also via webcast. Without further ado, Jari, please go ahead.
Thank you, Olli. Good morning. 2016 is closed and announced. It was exciting, eventful, but also a very challenging year. First half of the year, pulp and paper and M&I started out quite well and even gained some growth. During the summer and second half of the year, market environment, especially pricing, made it harder to grow in two of those segments. We still grew 2% in a full year on volume, so that's encouraging, and profitability improved clearly for those two segments. Markets continued extremely tough for oil and mining. If you remember, in February, we even saw a $27 Brent price. The market contracted during the first half of the year, especially in shale. In the summer, as reported earlier, we saw it leveling off, and then in the late months of the year, it started to increase, and this increase came from shale business.
Looking at the areas that we continue to focus on, driving growth, focusing on customers, new offerings launched. Last year, we actually launched 40 new offerings or products to the market, and we applied for 48 new primary patents. Both are records for the company. We look at new customers in new territories and then expand to new geographies, but expansion is done carefully. We've done capital investments to maintain our plants, to improve our plants, and to expand capacity to be able to grow in the future. Part of the CapEx is also going to the Akzo integration still. Acquisitions. We didn't do any acquisitions last year, but we continued to integrate the Akzo acquisition. It's really going well, and we were able to even increase the synergy savings from the Akzo integration last year. Efficiency.
We continued to look at efficiency and our network on efficiency. We closed down some units last year and announced those in Q4 also in 2015. The effect started to come in in 2016. BOOST program continues on track. We are looking there for EUR 20 million-EUR 30 million in two to three years of benefits on track. Cost control needs to be high up on our list. If you noticed, our fixed costs were down last quarter, year-over-year. That's encouraging that control is in place. Looking at the number, group revenue at previous year level due to mainly oil and mining tough markets. Pulp and paper developed well, and M&I on profitability even better. It's good to note that oil and mining revenue came down EUR 40 million last year and operative EBITDA EUR 15 million last year.
Despite that, we were able to increase the group level operative EBITDA by 5% and reach EUR 303 million, our margin was 12.8%. On our way to the targets that we have set for ourselves. EPS improved to EUR 0.60 per share, our cash flow was good and covers the proposed dividend last year. Dividend proposal, EUR 0.53 per share, which is on previous year level. I said we have diligently followed our strategic programs and reacted to the macro changes like in oil and mining when need be. I again want to show this picture that shows the actions that are ongoing, that step by step we are doing things, some of them have immediate effect, some have much slower effect.
Because of the timelines, I continue to bring this up, this picture from time to time to remind that actions are being taken. Also looking at the bigger and longer perspective. Since 2014, we have grown EUR 230 million, our operative EBITDA has increased by EUR 50 million. I think these are rather good numbers when we take into account that in those two years, 2015 and 2016, due to the adverse market development, oil and mining revenues have come down EUR 70 million and operative EBITDA EUR 30 million. I'm quite satisfied of the longer-term development, what we have had in the last couple of years. Pulp and paper, looking at the development, revenues grew due to the Akzo acquisition and some investments coming online. Volumes grew about 2%, but organic growth was -1% due to the price environment.
Gaining growth during the last part of the year was tough, profitability continued to improve. Gaining synergies, starting up the Klabin coexistent site, the new bleaching chemical plant there in March in 2016. We were able to ramp that up in six months, now it's running well. We continuously look at our capacity utilization, we were having higher capacity utilization and cost discipline and better customer focus. Operative EBITDA improved from 12.1% to 13.4%, which is a nice step and starts to be now close to our mid to long-term target of 14%-16% window, glad to see that. Pulp and paper revenue split continues healthy, 40% to the pulp value chain, 40% to packaging board and tissue, 20% to printing and writing. Markets as total for pulp and paper, we estimate our markets to grow roughly 1% a year.
As said, we grew on volumes 2%, that's encouraging. We have a complete product portfolio. We continue to improve it through R&D, maybe even some bolt-ons if we find any. That complete portfolio helps us compete in the markets against our competition. I do realize markets are competitive, we stay humble. We also will fight smart and hard to maintain and improve our position in pulp and paper. Oil and mining segment had a second difficult year in a row, as I said earlier, we even bottom in oil price at $27 in February. Revenue continued to drop by lower volumes but mainly also by prices. Operative EBITDA declined. Shale market, which was the biggest winner in this, mostly our other oil customers, our gas customers, our mining and other verticals stayed on volumes the same. Some price erosion.
Shale was the main impactor here. Shale saw the bottom in the summer. Now we are back on track. One disappointing development in EOR is that we lost the continuation of a contract in Asia Pacific. That is the current contract that we had all year last year. That is EUR 25 million of revenue that we gained from it last year. Now we have to work that back. We are continuing work on EOR. I have said earlier that we have one major company whose name or location we cannot say out loud, but we are delivering to a full field trial at the moment that will generate revenue this year, but will be dilutive because we are in a test phase. This is a tailored special product unlike the current India product, was more of a commodity. Oil sands, we have been able to deliver.
We have not been in the market before. We entered in 2015 with small volumes. We did really well last year and hope to improve also this year. Obviously, those volumes and revenues were not enough to offset the drop in shale. Here you can see the split of oil and mining, 40% to oil and gas, 25% to mining, and through distributors, polymers to other industries, 35%. Shale plays in our oil and gas market the biggest role. Last year for the full year was about EUR 60 million in revenue. This is down about 65% from the peak in 2014. The market has recovered. I am cautiously optimistic, but it is still a few months into it, so we keep on following, but things are at least going to the right direction.
We continue to push oil sands, we continue to push EOR, mining, other areas, and now obviously shale once it is returning. Municipal and industrial really had a really good year, especially in EMEA market area. APAC still being rather small for us but performing okay. Americas continued to recover. If you remember in late 2015, we had a supply disruption that was now recovering last year. Organic growth was flat but volumes grew 2%. That implies that we are keeping up with our plans. M&I is well in the 14%-16% window that we have set for the group, having had almost 15%, meaning 14.9% EBITDA level, and that has been great work from the team done. I am really pleased of their performance. The revenue split for M&I is shown here. Really no major changes in that over the last year. We continue looking at efficiencies.
How do we run this machine faster and smarter? Part of the BOOST also come in here. We continue to work on advanced water treatment offering, developing that and introducing it step by step to the market. One event I would like to bring out for M&I, there was a fire last week here in Finland in Pori at Huntsman. Huntsman is a key raw material supplier for us. We have been out for a week and up and running now. Our plant is fine, but Huntsman plant will be out for an unknown time at the moment. They have announced that they will fix it up. We are now okay after mitigation plans for the next few months, so impacts are still quite minor. It goes to show that overnight things can happen and affect us, and then we would have to talk to our insurance companies.
So far looking promising, but good to know these type of developments. If I look at focus areas of 2017. Obviously executing our business per our financial plans, completing our ongoing investment projects on time, on budget, on quality, and safely. Many of our bigger projects are completing first part of this year, middle of next year, so ramping those up is imperative. We have still one year to go to finalize the integration of the Akzo insourcing, so that needs to go well. We have 6 insourcing plants out of 10 still going. Continue to capture the benefits from our BOOST program. There, obviously, of the 20 to 30 million that we are after in efficiencies this year, the Odyssey Transportation management deal that we made last year, now we need to ramp that up and start gaining those benefits.
Cost control and efficiency high on our map and then obviously driving the turnaround of the oil and gas business. It continues to be in our focus. All in all, I think, in a challenging year, we fared out quite nicely. Lastly, the guidance for this year, Kemira expects its operative EBITDA to increase from the prior year during 2017. That's my summary of the whole year. Our CFO, Petri Castrén, will focus more on Q4 and then some of the more detailed numbers. Petri, please.
Thank you, Jari. As Jari said, I will focus more on the Q4 as Jari was sort of talking about the progress that we have done and generated through the year and actually through even a longer period of time. Wait a second. This way. Okay. The key takeaways, in my mind, for the quarter are continued profitability. We are in fact continued year-on-year profitability now for the 10th quarter in a row, and I think 10th is already worth mentioning. Also, I'd like to point out as a CFO, good cash flow. Full year cash flow now, even as we're middle of our significant investment phase, is covering fully the proposed dividend. As Jari was saying, we're clearly seeing some early signs of recovery in the oil and mining and shale in particular. Let's go and look at the numbers.
If you look at this bridge, obviously the 4% average decline in sales prices on year-on-year is clearly something that has pulled or dragged down our top-line development. As Jari was saying, even in the quarter four, we had volume growth of 2%. This was much driven by the recovery in oil and mining. Currencies for the full year were negative, but for the quarter four were positive primarily as the U.S. dollar strengthened during the quarter. Operative EBITDA improved to EUR 70 million as we were successful in managing our fixed costs. When you look at the two-year horizon, I still like to point out the seasonality pattern that we have, typically Q1 and Q4 are the weaker 2 quarters, and we typically have a better, higher profitability in quarters 2 and 3. Looking at the segments.
One thing I like to point out in Q4 on pulp and paper is the long maintenance break that we experienced with one of our key customers. The key customer has already talked about it, so that should not be a surprise to who I'm referring to it. The impact for us was not so much on top line. We were able to sell chlorate, but it had a big impact on profitability. This maintenance break was long. It actually even dragged a little bit into January, but now we're back fully online and back on the sort of a normalized level of profitability from that chlorate plant. That's fairly significant on a quarterly basis for us. Volume growth accelerated somewhat from Q4. As Jari was talking about the synergy capture that is going on well.
We're now around 70% capture rate, and we have two larger CMA contract manufacturing arrangements that are now scheduled to end in Q2 and by end of Q2, during Q2 and end of Q2. We'll expect to see a step up in that capture rate in the second half of the year. Moving to oil and mining. Clearly the much anticipated, and I think last couple of quarters, everybody had been asking us whether the shale recovery is getting visible. Now it is getting visible. Volumes grew more than 10% year-on-year, still on average at the lower sales prices. That's why the organic growth rate is only 5%. For the segment, the revenue volumes were already at 10% or double-digit growth rate, which is obviously positive.
Jari already mentioned that the CEO market is competitive and we lost a key customer, which will have an impact on 2017. At the same time, we're making good progress with this unnamed major oil company generating revenue. This revenue is dilutive to our margins during the trial phase, but obviously it's something that is for the long term is a key area as we believe in the success in the CEOR. One more comment regarding the North American shale market. You may remember that during last year, we closed one side, one small site permanently, and then we reduced operating shifts in some of our other plants. Now we're bringing back those plants to seven-day workweek. That sort of indicates that the market pickup is starting to feel real.
One needs to also be flexible when the downturn is flexible down quickly and when the upturn is to be able to ramp up production relatively quickly. Jari covered most of what happened in M&I. M&I there was nothing dramatic during the quarter. Improvement was supported by manufacturing efficiencies and for the segment, relatively good raw material pricing environment. When one compares to Q4 of 2015, I'd like to point out that's when we had the supply disruption, the worst. Most of the cost from the supply disruption in North America in Q4 and in Q1 of the last year 2016. That comparison that's why it's so favorable in Q4. Perhaps anticipating some of the questions and comments. We have been all along saying that the raw material pricing environment is relatively benign and we expect modest increases and nothing drama in it.
Q4 in this segment is sort of proving that. Outside of some of the polymer product lines, the raw material price environment continues to be relatively stable. Which sort of now brings us to this chart where we track the variable costs and the average sales prices on the right-hand chart. Now you see that again, that this anticipated raw material price increase is starting to see here. The lower line or turquoise line has now picked up. Again, in line with our expectations. We expect input costs to slowly continue to increase. There's perhaps one exception that I'll point out. We have seen in the recent month or so a bit higher jump in the propylene and ethylene prices in North America and some of the derivatives like acrylic acid, acrylonitrile increased quite a bit in North America.
Obviously this is something that we are reacting to. We already announced last month in January a across the board polymer increase in Americas of 5%-15%. This is again how the market reacts. Typically, again, if you look at the correlation between those charts, you see that there is typically about two quarters, one to three-quarter lag between when the trend reverses in the raw material prices before it goes to pricing. We have made all in all some five price increase announcements in December and January, but it's too early yet to be sort of saying how these are being accepted and how they're going through. I think the coming quarters will give us more indication on that. Moving on to CapEx. CapEx for the year 2013, we are clearly in the middle of a high investment phase.
The biggest project obviously at the early part of the year, we finished the chlorate plant in Ortigueira serving Klabin Pulp Mill in Brazil. This was the peak year for the insourcing or integration CapEx for the Akzo acquisition. Then I'll name the third one, Joutseno, where we add in chlorate capacity. As Jari was alluding to that CapEx program is going well. It's actually slightly ahead of schedule, and that's why somewhat higher CapEx in 2016, particularly high CapEx in Q4. Number of CapEx acceptances accelerated this normal seasonal high quarter even higher in 2016. A lot of that investment obviously is going into expansion. Almost half of the CapEx is now expansion investment. This is how we are building for future growth. As said, we expect about around EUR 200 million of CapEx in 2017 as well.
CapEx was perhaps one reason why we had a very favorable net working capital development in Q4. Of course, a lot of that CapEx was very much tail-ended in the year and tail-ended even in December, so helped our cash flow for the quarter. We have this seasonality in our cash flow. We tend to have stronger cash flow in the second half of the year, and that's why cash flow is better judged on a full year basis than on individual quarters. Even as we look at the full year operating cash flow, some EUR 23 million improvement, and obviously as mentioned, the free cash flow now covers the dividend. Looking at the balance sheet metrics, we continue to have a very well-diversified and quite nice maturity profile for our debt. Gearing actually remained or actually came down from 2 point-- I'm sorry.
Gearing remained at 54%, where the leverage ratio actually came down from 2.2% to 2.1%, and net debt even reduced, which is a good achievement as we are middle of this investment phase. Jari mentioned this again, highlighting the dividend and the thinking behind that. We have a dividend policy that we pay a stable and a competitive dividend. Stability now demonstrated that it has been EUR 0.53 six years in a row. It is still very competitive at 4.4% yield when one compares against EURO STOXX Chemicals, which are yielding 2.3%, or Helsinki Stock Exchange, which is somewhere at 3.5%. We think that this is a good dividend proposal for the AGM, and obviously up to the AGM to decide, and we accept obviously to be approved. I will stop there, and now we are ready to take questions both for Jari and I.
Thank you for my part.
All right. Let us take questions here in the room first, and please state your name and company. Anssi. Wait for the microphone.
Thank you. Anssi Kiviniemi from SEB. I have couple of questions. First, let us start with oil and mining. Now that we have seen the pickup in shale activity and double-digit volume growth, what is your visibility going forward and do you expect the growth to accelerate or remain at decent double-digit level?
Well, volume growth in the last quarter was 10%. It was partially also filling up stock for the operators that are starting up. That's one indicator. We are still cautious on how the trend will go. I don't expect it to explode really fast, but it's good to see that we are back on recovery, and let's now then follow the political environment and the pricing also. WTI is still $51 today. Should something then happen during the next months and years, that has an effect. It's good to see now this change happen.
Okay, on the environment currently in U.S. and especially the pricing, what kind of actions you see that the customers are currently doing? Are they price shopping? Another question, what is the competition? Are now your competitors trying to kick in the volumes, or what is the situation on that side?
Well, sensitive area always to talk about competition in detail. As Petri said, we have announced price increases 5%-15%. We have had some pushback, obviously from the buyers. It seems to be going through and the market can understand this propylene-ethylene situation and that the oil price has now stabled to the 50s. Price increases we are some of them getting through.
Thanks. You highlighted that you have lost one contract in CEOR. Could you elaborate a little bit more on the reason? Was it about the product, or was it about the price, or was it about logistics? What was it?
Well, that was the Indian deal that we had been delivering for a bit over a year, there was a competition for the next contract. We weren't successful in that. Many components, many of which you mentioned obviously were also far away, but that was a commodity product, as I call it, in polymer. It's not so easy to fight in that, but clearly a disappointment that we couldn't keep that contract.
Okay, thanks. Moving to Pulp and Paper. 17 quarters of positive EBITDA development on that division, now you bring us this kind of main component there was the maintenance break. Could you give us a little bit indication of the magnitude of the effect?
The magnitude is probably that without the maintenance break, the fourth quarter would have been on at the full year's level in terms of profitability.
Okay, thanks.
More than half a point of margin.
Okay. That's pretty clear. Perhaps last question. You highlighted that you have pretty good cost control, and they have been supporting your profitability and there's BOOST program and other kind of interesting developments, strategic developments you are currently executing. What is the outlook for 2017? Should we expect the fixed cost to come down? I know there are effects and other things also that play into that game, but should we expect the boost from that side or is it stable or how should we look at it?
Well, there are many items out there that are moving, like you mentioned, effects and volumes and customer stoppages and so on. Let me put it this way, our guidance that we will increase our profitability.
Okay, thanks.
If I may add to that BOOST program. The word boost, I don't know if you've referred to a BOOST program or in general as a verb being put in terms of boost, but the BOOST program savings, which we are targeting, that comes mostly in variable costs. There's very little fixed cost savings as such. That's just a clarification.
Yeah, that's a good point.
Yeah. Great. Thanks.
Good. Next question from Marco.
Marco Rönn, Evli. You gave no revenue guidance for 2017. Should we read something into that or how do you sort of came to that decision?
Look, there's so many variables as I said earlier. We're simplifying the guidance and obviously one component is increased revenue to improve our profitability. As we saw last year, we were improving our profitability by 5% with no revenue growth. It's not an indication, it's a simplification of our guidance.
Okay. Working capital. You've been able to release cash from working capital now two years running. Do you see this sort of progression continuing this year?
We certainly aim to do that. If you remember when we announced the BOOST program, we said that over the couple of years, BOOST program itself is trying to release or targeting to release EUR 50 million of inventory. We are having some EUR 240 million or thereabouts is the inventory level. We're only sort of starting to see the benefits from the inventory management. Clearly in the area of inventory management, we have opportunities still to be had. Also when I'm looking at payables, clearly that is one of our strategic sourcing targets, is to look at the payment terms of our contracts. There's an overall aim to stretch those somewhat, not dramatically, but continue to do that. In terms of our receivable turnover, that is generally is quite good. I think we were below 10% net working capital to revenue.
That's a good ratio on its own right now. Still, we are aiming to improve it even that.
Sure. Good. Thanks. Maybe on the businesses, I guess, you now say that you had EUR 60 million of sales to the shale business last year, and you had double-digit volume growth in Q4. In any case, I guess we can all agree that the profitability of that oil and mining business remains unsatisfactory. The base that the shale is growing from is relatively small. Do you think it's sufficient to grow that base or how do you see the path for oil and mining to sort of come back to satisfactory profitability?
Certainly we can't be satisfied with the outcome of oil and mining and that's the downside of very cyclical businesses which that is. Yes, as I said, I'm cautiously optimistic on the shale. You heard that one year our deal EUR 25 million is not there this year. I expect that we can make that up from oil sands and other areas and start to get the pricing level more healthy. I'm optimistic we've seen the bottom and we rather improve from here. As I said, it won't be a rocket that shoots up very fast.
Just on the EOR deal, that sort of ends at end of 2016, and that's sort of completely gone 2017.
Yeah.
Last deliveries have been delivered.
Last deliveries have been delivered, I'm not sure if we had any bookings for this year, but probably none.
Okay. Lastly, pulp and paper, you had some competition issues in Asia and China. How's that developing now?
It doesn't get any harsher. It hasn't gotten any easier. That's why I say we stay humble and fight smart and hard. We've managed to make some counterattacks also. Battle is out there.
Okay, good. Thank you.
Thank you. Operator, let's take questions over the phone.
Thank you. Again, ladies and gentlemen, if you would like to ask a question over the telephone today, please press star one. We will take our first question from Panu Laitinmäki from Danske Bank. Please go ahead.
Thank you. I would have two questions. Firstly, on paper and its growth outlook, a bit related to the previous question on APAC, where you have reported falling sales for two quarters, -5% in Q4. Could you talk a bit more what is happening there? Then on an overall level in the paper business, do you expect the pricing to improve so that you could actually achieve positive organic growth in 2017? What have you seen in terms of pricing trends? Thank you.
Well, I think the pricing trend first, based on the big picture, we are stabilizing out depending on how aggressive the competition continues to be this year. 1%, roughly, and not putting any decimals behind it, is the global target market for us, which we are looking to or which we see the market will grow. Obviously, printing and writing is continuing globally to go down. Then packaging board and tissue going up. In the front end of the value chain, pulp is going up. You can see there are pulp mill plans announced left and right now. That's positive to us. Obviously, one question is what happens to the market then on a longer run. I think our position on a global scale is the same.
Then the printing and writing, I'd like to point out that even if it's coming down 3%-6% a year, you have seen that we are growing in revenue, and it's been 20% of our portfolio the last three years. That mathematically means that we are also there gaining market share. That's going well. APAC has come down and it's still rather small volume. Single EUR millions and timings of deals and so on have an impact, but there the pricing environment has been the most aggressive. That's been the trend of APAC.
Add up.
Okay, thank you. My second question. Sorry.
No, I was sort of proposing maybe a little bit of addition to the price discussion because we have, like I mentioned in my opening remarks, that we have made five increase announcements to the market. One was the polymers in North America, Americas, that I talked about. There we see sort of a market clearly picking up and sort of alluding to that we are expanding production by bringing new shifts. Is our competition. There's clearly a market demand. In some of the other areas where the price increases have been given, the market is not growing as fast as we are seeing in North America, for example. Clearly there it's perhaps a bit more difficult and takes perhaps a little longer to get those price increases through.
With those apply to AKD Wax and ASA sizing products, which are part of the pulp and paper products. Sorry, I was interrupting your question.
Thank you. My second.
Yeah.
This was related to the raw materials. Could you help us understand about the overall trend that you are seeing? Clearly, you are saying that the input costs are coming up and prices are still under pressure. If I look at the kind of various analysis that you give after 9 months, the raw material, when you kind of get a negative market margin impact from this before you can raise prices. Related to this, how do you see the sustainability of M&I's margins, which were at 15% EBITDA level last year?
Yeah. If I try and start on that one. I was sort of trying to preempt that question with my raw material slide where I show that, yes, we have now seen the increase. If you look at the two curves, whatever slide that was, already raw material prices are increasing. Typically there is the couple quarters of lag before those market reacts and sort of accepts the price increases that typically are a result of that. Regarding M&I, Municipal & Industrial in particular, I also made the comment that we have expected that the raw material pricing environment is sort of benign, i.e., smallish increases, maybe 1% across the basket of our raw materials per quarter. That's sort of what we have expected to see, and that we expect to be manageable.
Yes, that may put some pressure on M&I top margins. You see that there are some quarters when we had more than 16% EBITDA margin, we're not planning dramatic decrease in the profitability level. Clearly, Oil and Mining has its duty to drive the business, both top line and bottom line as well, and the current situation, the raw material pricing environment does not change that. Where we need to do a bit more drastic situation is in the polymer product line, where, as I said, some of the propylene prices in North America and the derivative prices have increased 10%-20% in the last month or so. That has a clearly direct impact on our gross margins, that's where we are reacting.
As I said, the market is there, I expect that the price increases will go through relatively smoothly in the big picture.
In M&I, where the question was about 70%-75% of the raw material base is non-oil replaced. It's a small part that is there and don't be scared of the 20%-30%. That's not directly to us. That's some early stages of our raw material input. We buy semi products in there, the increase to us is much smaller. We've known this situation, in our polymers we're going shorter contracts rather than longer contracts so we can roll them over with new prices earlier. There's mitigation plans ongoing. The other thing is that we have, for instance, coagulants, polymers, and other specialty chemicals bundled in more and more. None of our competitors can do all of those three. It's a different game also in the negotiations, not only price per kilo type of an approach.
There are many components coming into this. Like you've been saying almost a year now that prices will start eventually come up. Now we start seeing, but slowly.
Okay. Thank you. I would still have one follow-up, if I may. About the Huntsman plant shutdown in Finland. Did I understand correctly that it had some impact to you, but it was temporary and relatively minor?
Yeah, well, we were out for a week, that was an example of these type of disruptions, which we have insurances for also. The fire was fairly substantial. They haven't announced when they will be back online but they will fix it. That's what they've announced. We've now secured our raw material for next months to come and are mitigating then longer term and obviously talking to Huntsman of their plans to repair the plant.
Okay, thanks a lot.
We will now take our next question from Mikael Doepel from Handelsbanken. Please go ahead.
Thank you. Just first of all, with regards to the price hikes that Petri alluded to earlier, the five price hike announcement that you have made in December and January, how big part of group sales does these products represent?
I should have anticipated that question, Mikael. It's clearly not the majority, but it's not insubstantial either. I would say 20% of our revenue, roughly. Tero is pointing out it's actually 30% of revenue, thank you Tero for the help from the field. Thereabouts.
Okay, good. Moving on to the Oil and Mining business. First of all, just to clarify, how much were the volumes up in Q4? I think Petri said that they were over 10%, Jari said 10%. Do you have a figure for that?
I do have a figure, I don't think we've given it precisely. We have said double digits. Let's put it this way, it's a small double-digit number.
Yeah, Mikael, if I may add so.
Okay.
About 10% for the Oil and Mining segment. That's what we've said for the segment. The shale business, then you would have to calculate with the figures that you have. We haven't disclosed the precise figure.
Yeah.
There's volatility in the other lines in Mining and so on, so it's not steady deliveries day in, day out. There can be those components, but the biggest component came from the shale recovery. Like I said, the newcomers, when the rigs go up and then they go into completion of those new holes, there are new players coming in, so they have to stock up. This can be a bit higher peak. We don't know that yet.
Yeah, sure. In terms of the EOR deal that you lost, you said that it had an annual revenue of EUR 25 million, if I heard you correctly there. Could you give any indication on what was the earnings impact? Also, you said that you expect to compensate this lost revenues through oil sand deals and other businesses as well as price increase in terms of revenue lost. Do you also expect to be able to recover the earnings lost on that deal? What was the earnings impact from that?
We don't give out that type of thing for obvious competitive reasons, let's put it this way, that the margin level was below our normal margin level because we're talking high volumes and a fairly commoditized product. The earnings impact is not in line with the group average. Obviously we have a fight to gain back that EUR 25 million and then some, I'm optimistic we can do it this year.
When we take it down to the operating profit level, which was still loss-making of about EUR 2 million in the quarter. Would it be fair to assume now, given that the volumes are likely to recover and continue to recover quite a bit, would it be fair to assume that that could actually reach breakeven already in Q1 this year on the EBIT level for the full division?
That's not the sort of guidance we have been giving and not starting now. I think we're just giving commentary on what's happening in the marketplace and what we are seeing. I'd like to leave it at that. I think we've given quite strong signals that we see recovery in the shale area now, and we sort of talked about several components in our oil and gas which are less or more profitable. Clearly Jari said that the Cairn revenue was below average profitability, below average gross margin in the segment. We have this new field trial, which is clearly dilutive to our gross margins on average gross margins. Something must be above average, otherwise the math doesn't work up. Typically, the North American shale business has been quite good. Now I'm sort of referring to a few years of horizon.
Even in the most difficult times last year, the gross margins in that business were healthy. Not fantastic, but healthy. That's why there might be a recovery.
It's not a steady business, so it's like batch buying from those players and then some of the middlemen. There can be volatility from week to week, day to day, definitely quarter to quarter. As I said in my talk that it's still a few months, so we can't draw a trend line yet. We can only look at what the history has been and still looking optimistically to it, but being careful about it.
Good. Fair enough. Thank you very much.
Thank you.
We will now take our next question from Johannes Grasberger from Nordea. Please go ahead.
Hello, gentlemen. It's Johannes from Nordea. Most of the questions were actually asked already, but I still have a couple of things to come up with. I'm just thinking here that have you kind of seen that perhaps some of the oversupply in other North American end segments is now reducing now that the demand from oil segments is coming up? I suppose the competitors would direct some of their volumes to their, say, core segments, and that would dry out oversupply from segments that you operate in. I suppose that could have some positive additional impact on the Oil and Mining division. If I remember right, that the plants that in North America sell to the part of A or M&I are actually as a cost base in Oil and Mining. Is that a correct read through? That's the first question.
Well, the logic is correct, but it's too soon to say. No, we haven't seen any indication. The pickup related to the available capacity has been still rather small. If you think that 65% of our business disappeared partly from price and partly from volume. It's probably been the same for our competitors. No indication of that yet.
Kind of a follow-up on that one. You talked about the price increases. I'm just curious because the increase in rig count has been quite dramatic in a very short period of time. Would it not be quite natural to assume that it's quite easy to raise prices in this kind of environment when basically the volumes are just around the corner to pick up because what we only need to see is actual production volumes to come up, but basically the production capacity is already ramped up. In this kind of environment, to me, it's quite natural to assume that prices will increase eventually.
I'm actually thinking here if I should hire you as a sales manager to come and raise the prices for us. It's never easy, even in a situation when the market is tight. We're hardly talking about a tight market yet from a capacity utilization point of view. Our message is that the time of discounts has ended and flattened out. Now we are ready to go back to the customers with price increases, not because of the tight capacity yet in a sense, but more of the input prices coming back and taking sort of the overly high discounts out. If you want a salesman job and come and raise our prices for 25%, let's talk.
Okay, fair enough. Maybe one follow-up on that one. You mentioned that some sort of restock might be happening kind of at the same time while the ramp-up is coming up. Do you have any visibility on any kind of inventory levels in the market or is this just kind of a sort of cautious assumption that something in terms of restocking might be happening at the moment?
It's just a logical assumption that if the Completion crews after the drilling rig have been dormant for a while. They're not sitting on inventory. When they start to become active, then they start filling up their inventory. More going into action. It's just a logical assumption. We don't have visibility to that.
maybe a difficult follow-up question again, but if you take the volumes that you saw for shale in the fourth quarter and compare those to a volume level that you saw back when the oil prices were around $120 or so, would you say that the fourth quarter volumes, even though there might have been some restock, were still significantly below those levels?
Significantly below. If you look at that, we had a 65% drop from the peak in shale in 2014. We're significantly starting from a lower base.
My two final questions would be one additional one for oil and mining. Have you seen any pickup in volumes towards the mining segment? That's the first one, and the last one would be on the Chinese environmental investments. I think I perhaps asked this question also in the third quarter report, but in China, there were quite recently very sizable investment targets announced for environmental investments and I'm just thinking whether you have seen any kind of change in the mindset for the Chinese to take care of their water purification as well, in addition to what they're doing with their clean air or dirtier today, but maybe clean in the future.
Let me take the last one first, and if Petri takes the first one. In China, yes, they have announced investments, but those are plant investment and machinery investment mostly. Once then those ramp up, it can create demand for us. I'd like to remember that in China and Asia-Pacific, we, in M&I, in the municipal water treatment, we are only in specialty products. We are not in the commodity coagulant. That part is there. We have gained some cities or parts of cities in China and outside of China, and the growth has been there ongoing, but from a really small base. We want to accelerate that, but progress is there. Petri, the other one.
Talking about the market in the other two sub-segments within the oil and mining segment, I think Jari already commented also on the full year that both WPA, which is our water and process additives, this is the polymers that we typically sell to industrial applications, that we don't touch directly, relatively stable in the Q4, and similarly mining. We haven't seen any sort of big mining market pick-up that would have resulted in pick-up in revenue, relatively stable.
In mining, we are directly related to the production tons. How much ore they feed into the mine, we are related to that same logic as in pulp bleaching. We're related to the tons, not necessarily to the market prices and so on. If they mine, we deliver polymers.
Fair enough. Thank you. That's all from me.
Thank you.
There are no further questions from the telephone. I would now like to turn the call back to your host for any additional or closing remarks.
Thank you. We're ready to conclude the complete set. Thank you for your participation, and have a good day.
Thank you.
Thank you.