Kemira Oyj

Financial Statements 2020 

Kemira Oyj

Energiakatu 4                                                              Tel.     +358 10 8611             Business ID        0109823-0

FI-00180 Helsinki, Finland                                      Fax     +358 108621 119             Registered office        Helsinki    

www.kemira.com

Financial Statements 2020 

Table of contents

*) Part of the audited Financial Statements 2020

www.kemira.com

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Board of Directors’ Review 2020 

In 2020, Kemira Group’s revenue decreased by 9% to EUR 2,427.2 million (2,658.8), mainly due to lower sales volumes. Revenue in local currencies, excluding acquisitions and divestments, decreased by 7%.

Operative EBITDA increased by 6% to EUR 435.1 million (410.0), mainly due to favorable development of variable costs. Good fixed cost management also contributed positively. The operative EBITDA margin increased to 17.9% (15.4%).

EBITDA increased by 8% to EUR 413.2 million (382.3).  The differences between operative and reported figures are explained by items affecting comparability, which were mainly explained by liabilities in a to-be-closed energy company.

EPS, diluted,  increased by 19% to EUR 0.86 (0.72), mainly due to higher EBITDA. The Board of Directors proposes to the Annual General Meeting 2021 a cash dividend of EUR 0.58 per share (0.56), totaling EUR 89 million (85). It is proposed that the dividend be paid in two installments.

KEY FIGURES AND RATIOS

*12-month rolling average (ROCE, % based on the EBIT).

Kemira provides certain financial performance measures (alternative performance measures) that are not defined by IFRS. Kemira believes that alternative performance measures followed by capital markets and Kemira management, such as organic growth (revenue growth in local currencies, excluding acquisitions and divestments), EBITDA, operative EBITDA, operative EBIT, cash flow after investing activities, and gearing, provide useful information about Kemira’s 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 from 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 the individual figures may deviate slightly from the sum figure presented.

In addition to the above key figures and ratios, other key figures which are describing the Group's financial performance are presented in the Other financial information section under Group key figures.

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FINANCIAL PERFORMANCE IN 2020 

Revenue decreased by 9%, mainly as volumes were negatively impacted by the economic slowdown related to COVID-19. Revenue in local currencies, excluding acquisitions and divestments, decreased by 7%. 

* Revenue in local currencies, excluding acquisitions and divestments

Geographically, the revenue split was as follows: EMEA (Europe, Middle East, Africa) 54% (50%), the Americas 35% (40%), and Asia Pacific 11% (10%). 

Operative EBITDA increased by 6% to 435.1 (410.0) despite clearly lower sales volumes. This was mainly the result of lower variable costs, including lower raw material and electricity costs, and good fixed cost management. Also, efficiencies from the new investments in China and in the Netherlands contributed positively.

EBITDA increased by 8% to EUR 413.2 million (382.3). The difference between it and operative EBITDA is explained by items affecting comparability. Items affecting comparability consisted mainly of Kemira's liabilities in a small, to-be closed energy company owned via Pohjolan Voima as well as organizational restructuring costs in Pulp & Paper and Oil & Gas. The comparison period consisted of organizational restructuring costs, a provision for an existing, old litigation as well as provisions for environmental liabilities related to a site closure in 2013. 

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Depreciation, amortization and impairments increased to EUR 197.4 million (187.9), including the EUR 14.8 million (18.5) amortization of the purchase price allocation. New investments in China and the Netherlands increased depreciations compared to previous year.   

Operative EBIT increased by 6% compared to the previous year. EBIT increased by 11%, and the difference between the two is explained by items affecting comparability. 

Finance costs, net totaled EUR -34.9 million (-39.7). Income taxes were EUR -43.0 million (-38.2) as a result of higher EBITDA, with the reported tax rate being 24% (25%). 

Net profit for the period increased by 18%, mainly due to higher EBITDA and lower net finance costs. 

FINANCIAL POSITION AND CASH FLOW

Cash flow from operating activities in January-December 2020 decreased but remained strong at EUR 374.7 million (386.2). Also cash flow after investing activities was strong at EUR 173.3 million (189.8). In the comparison period, EUR 15 million of excess capital was returned from Kemira's supplementary pension fund in Finland. 

At the end of the 2020, interest-bearing liabilities totaled EUR 919 million (955), including lease liabilities of EUR 121 million (134). The average interest rate of the Group’s interest-bearing loan portfolio (excluding leases) was 1.9% (1.9%), and the duration was 20 months (26). Fixed-rate loans accounted for 74% (87%) of net interest-bearing liabilities, including lease liabilities.

Short-term liabilities maturing in the next 12 months amounted to EUR 195 million. On December 31, 2020, cash and cash equivalents totaled EUR 160 million (143). The Group has a EUR 400 million undrawn committed credit facility maturing in 2025.

At the end of the period, Kemira Group’s net debt was EUR 759 million (811), including lease liabilities. The equity ratio was 43% (43%), while gearing improved to 63% (66%).

Kemira is exposed to transaction and translation currency risks. The Group's most significant transaction currency risks arise from the the US dollar, the Chinese renminbi, the Swedish krona and the Canadian dollar. At the end of the year, the US dollar-denominated exchange change risk was approximately EUR 86 million, of which 41% was hedged on an average basis. The Chinese renminbi-denominated exchange rate risk against USD had an equivalent value of approximately EUR 35 million, of which 47% was hedged on an average basis. The Swedish krona-denominated exchange rate risk against EUR had an equivalent value of approximately EUR 28 million, of which 68% was hedged on an average basis. The Canadian dollar-denominated exchange rate risk against EUR had an equivalent value of approximately EUR 22 million, of which 46% was hedged on an average basis. In addition, Kemira is exposed to smaller transaction risks against EUR, mainly in relation to the Chinese renminbi, Norwegian krone, Danish krone, Polish zloty, Russian ruble and UK pound sterling, and against USD mainly in relation to the Brazilian real, Canadian dollar and Thai baht, with the annual exposure in those currencies being approximately EUR 124 million.
As Kemira’s consolidated financial statements are compiled in euros, Kemira is also subject to a currency translation risk to the extent to which the income statement and balance sheet items of subsidiaries located outside Finland are reported in a currency other than the euro. The most significant translation exposure on revenue and EBITDA derive from the US dollar and the Canadian dollar. A strengthening of currencies against the euro would increase Kemira’s revenue and EBITDA through a translation effect.

CAPITAL EXPENDITURE

In January-December 2020, capital expenditure excluding acquisitions decreased by 3% to EUR 195.6 million (201.1). Capital expenditure can be broken down as follows: expansion capex 37% (49%), improvement capex 23% (19%), and maintenance capex 40% (32%).  

RESEARCH AND DEVELOPMENT 

In January-December 2020, total research and development expenses were EUR 28.9 million (30.3), representing 1.2% (1.1%) of the Group’s revenue. 

Kemira’s research and development is an enabler of growth and further differentiation. New product launches contribute to the efficiency and sustainability of customer processes as well as improved profitability. Both Kemira’s future market position and profitability depend

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on the company’s ability to understand and meet current and future customer needs and market trends, as well as on its ability to innovate differentiated products and applications. 

At the end of 2020, Kemira had 367 (365) patent families, including 1,726 (1,681) granted patents, and 964 (1,087) pending applications. During 2020, Kemira applied for 37 (37) new patents and started 12 new product development projects, of which ten were planned to improve resource efficiency. At the same time, Kemira commercialized seven new product development projects, all of which improve resource efficiency in the customer phase.

HUMAN RESOURCES

At the end of the period, Kemira Group had 4,921 employees (2019: 5,062, 2018: 4,915). Kemira had 771 employees in Finland (786), 1,759 employees elsewhere in EMEA (1,759),   in the Americas 1,467 (1,570), and 924 in APAC (947).

NON-FINANCIAL INFORMATION

CORPORATE SUSTAINABILITY PRIORITIES

Kemira has systematic procedures in place to evaluate and address the economic, environmental, and social impacts of its own operations and business relationships. Our corporate sustainability priorities are based on the most material impacts across our business model; on the increasing expectations of our customers, investors, and other stakeholders; and on our commitment to the Kemira Code of Conduct and internationally agreed sustainability principles. Kemira is a signatory of the United Nations Global Compact, committing us to implement universal sustainability principles and to respect and promote human rights, implement decent  work practices, reduce our environmental impact, and combat corruption. Kemira is also committed to operating according to the principles of Responsible Care®, a voluntary commitment created by the global chemical industry to drive continuous improvement and achieve excellence in environmental, health and safety, and security performance.

Our approach to sustainability focuses on five areas, which cover most material topics and their impact: Safety, People, Water, Circularity, and Climate.

Kemira measures progress in the priority areas through group-level key performance indicators (KPI) and targets that are approved by the Board of Directors. The relevant management processes relating to material corporate sustainability issues are continuously developed and implemented as part of our integrated management system.

SUSTAINABLE PRODUCTS AND SOLUTIONS

Kemira is committed to ensuring the sustainability of its products and solutions. Since 2018, we have tracked the share of revenue from products used to improve use-phase resource efficiency. This measurement provides a crucial linkage to our purpose and strategy.

In 2020, we also introduced a new group-level KPI to increase our revenue from biobased products and solutions from EUR 100 million currently to 500 EUR million by 2030. This will allow Kemira to reduce pressure on natural resources, and support our customers in moving away from fossil-fuel based raw materials. Kemira’s New Product Development (NPD) process evaluates the economic, environmental, and social impacts of any new product, compared to existing benchmarked solutions. Successful NPD projects must demonstrate both improved sustainability and business benefits at each decision gate to justify the project’s continuation, and ultimately the product launch.

Kemira’s product stewardship policy defines principles for the proactive management of the health, safety, and environmental aspects of a product throughout its life cycle. We also work to find less hazardous and more sustainable alternatives for raw materials. Other measures include ensuring safe transportation, handling, storage, and disposal of our products in the value chain.

RESPONSIBLE OPERATIONS AND SUPPLY CHAIN

Kemira is committed to ensuring responsible operations to protect our assets, our environment, employees, contractors, customers, and communities. Globally, we aim to bring together all of our operations under the Kemira integrated management system. The Kemira management system defines the way our organization works through the set of policies, standards, procedures, and processes. It also defines the requirements and accountabilities at each level of the organization. Kemira follows the principle that all operations under our Integrated Management System meet international standards for the

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environment, health, safety, and quality. Our energy management system is certified to the ISO 50001:2001 standard.

Ensuring workplace safety is a key priority in all our operations. We continuously strive to reduce our environmental impact. Kemira has committed to reducing its combined Scope 1 and Scope 2 emissions by 30% by 2030, from a 2018 baseline of 936 thousand tons CO2e. Our long-term ambition is to be carbon neutral by 2045 for combined Scope 1 and 2 emissions.

Kemira is committed to ensuring compliance with responsible business practices throughout our supply chain. Kemira’s Code of Conduct for Business Partners (CoC-BP) sets out principles for responsible business conduct, respect for human rights and provision of appropriate working conditions, and environmental responsibility. Compliance with the Kemira CoC-BP is required of all our suppliers and business partners. Our strategic, critical, and large-spend suppliers are requested to participate in a sustainability assessment process sustainability evaluation based on the international sustainability standards of the Global Reporting Initiative, the United Nations Global Compact, and the ISO 26000 social responsibility guidance standard. Based on the results of the assessment, the suppliers are classified into risk categories and the necessary actions are defined. Suppliers with ongoing improvement plans are always reassessed the following year, and high-risk suppliers are audited.

PEOPLE AND INTEGRITY

Culture and commitment to our employees are an important success factor in our business. Kemira’s performance management process aligns our strategic targets with each employees’ personal targets, performance evaluation competences, and development plans. The process is a part of Kemira’s leadership culture and it forms the backbone of our management system.

Our Code of Conduct is the foundation for how we conduct business at Kemira. It sets the minimum standards of expected behavior for our employees and business partners. Kemira is committed to the principles of the Universal Declaration of Human Rights and the United Nations Global Compact, and we also expect our business partners to abide by these

principles. Kemira's anti-corruption principles are included in the Code of Conduct. Kemira does not tolerate improper or corrupt payments made either directly or indirectly to a customer, government official or third party, including facilitation payments, improper gifts, entertainment, gratuities, favors, donations or any other improper transfer of value. We engage only reputable sales representatives and other third parties who share the same commitment.

Code of Conduct training is mandatory for all our employees, and there are advisory, monitoring and reporting procedures in place to ensure full compliance with the Code. We maintain an ethics and compliance hotline for employees to enable them to report potential violations of the Code of Conduct or any other concerns.

Mandatory anti-bribery training is provided for selected groups of personnel who need to have a comprehensive understanding of Kemira’s anti-corruption principles. Awareness of anti-corruption matters is delivered through our Code of Conduct training to all employees. Kemira has conducted an ethics and compliance risk assessment to evaluate corruption-related and bribery-related risks in its operations. There were no confirmed incidents of corruption or public legal cases regarding corruption in 2020.

NON-FINANCIAL REPORTING

More detailed information is presented in the Kemira Annual Review 2020 and its annex. The non-financial disclosures are based on the Global Reporting Initiative disclosures, which are prepared in accordance with the GRI standards (2016) and externally assured by an independent third-party.

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CORPORATE SUSTAINABILITY PERFORMANCE

Sustainability targets will be updated in February 2021. New targets will be monitored starting as of Q1 /2021.

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SEGMENTS

PULP & PAPER

Pulp & Paper has unique expertise in applying chemicals and in supporting pulp and paper producers in innovating and constantly improving their operational efficiency. The segment develops and commercializes new products to fulfill customer needs, ensuring the leading portfolio of products and services for bleaching of pulp as well as paper wet-end, focusing on packaging, board and tissue. Pulp & Paper is leveraging its strong application portfolio in North America and EMEA, while also building a strong position in the emerging Asian and South American markets. 

*12-month rolling average

The segment’s revenue decreased by 4%. Revenue in local currencies (excluding divestments and acquisitions) decreased by 2%. Revenue was impacted by lower sales volumes, mainly in process and functional chemicals, due to the COVID-19 situation. A two-week industrial strike in Finland in February and lower sales prices of caustic soda (mainly a trading product) also had a negative impact on revenue.

In EMEA, revenue decreased by 3% to EUR 762.3 million (787.8) due to lower sales volumes in bleaching chemicals and process and functional chemicals. Lower sales prices of caustic soda (mainly a trading product) had a negative impact.

In the Americas, revenue decreased by 9% to EUR 455.3 million (498.7). In local currencies, revenue declined due to lower sales volumes, mainly in process and functional chemicals. Currencies had a significant negative impact. 

In APAC, revenue increased by 2% to EUR 240.0 million (236.4) due to higher volumes, particularly in sizing chemicals. Currencies had a negative impact.  

Operative EBITDA increased by 19%, due to good fixed cost management and lower variable costs, including efficiency improvements and capacity expansion arising from the new AKD wax investment in China, as well as raw material and electricity costs. EBITDA increased by 25%. The difference between it and operative EBITDA is explained by items affecting comparability, which mainly consisted of Kemira's liabilities in a  small, to-be closed energy company owned via Pohjolan Voima as well as organizational restructuring costs. Items affecting comparability in the comparison period consisted mainly of a provision for an existing, old litigation and provisions for environmental liabilities related to a site closure in 2013 

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INDUSTRY & WATER

Industry & Water supports municipalities and water-intensive industries in the efficient and sustainable use of resources. In water treatment, Kemira provides assistance in optimizing various stages of the water cycle. In oil and gas applications, our chemistries enable improved yield from existing reserves, reduced water and energy use, as well as efficiency of oil sands tailings treatment.

*12-month rolling average

The segment’s revenue decreased by 15%. Revenue in local currencies (excluding acquisitions and divestments) decreased by 13%. The decrease was driven by lower volumes following the economic slowdown and the related drop in oil prices.

In the water treatment business, revenue declined by 4%. Lower volumes were partly offset by higher sales prices. Revenue for the Oil & Gas business decreased by 46% to EUR 158.9 million (291.8) due to lower volumes, particularly in shale.  

In EMEA, revenue decreased by 1% to EUR 543.9 million (551.9). Lower prices and volumes of caustic soda (mainly a trading product) had a negative impact. Sales volumes increased in water treatment and Chemical Enhanced Oil Recovery. Currencies had a negative impact.

In the Americas, revenue declined by 28% to EUR 407.1 million (563.4), driven by lower volumes and sales prices in the Oil & Gas business, particularly in shale. In water treatment, revenue declined as higher sales prices were offset by lower sales volumes. Currencies also had a negative impact on revenue.

In APAC, revenue decreased by 10% to EUR 18.5 million (20.6) due to lower volumes in industrial water treatment.

Operative EBITDA decreased by 9% due to lower sales volumes and sales prices, which were partly offset by lower variable and fixed costs. Also, the polymer expansion in the Netherlands had a positive impact on operative EBITDA. EBITDA decreased by 9%.  

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PARENT COMPANY’S FINANCIAL PERFORMANCE 

Kemira Oyj’s revenue decreased to EUR 1,459.9 million (1,542.6) in 2020. EBITDA was EUR 126.5 million (131.2). The parent company’s financing income and expenses were EUR -205.9 million (87.3). Financing income and expenses decreased, mainly due to impairment losses on non-current assets and lower dividend distribution from Group companies. The net result for the financial year totaled EUR -199.6 million (93.5). The total capital expenditure was EUR 18.8 million (15.9), excluding investments in subsidiaries.

Kemira Oyj had 501 (2019: 507 2018: 507) employees on average during 2020.

KEMIRA OYJ'S SHARES AND SHAREHOLDERS

On December 31, 2020, Kemira Oyj’s share capital amounted to EUR 221.8 million and the number of shares was 155,342,557. Each share entitles the holder to one vote at the Annual General Meeting. 

At the end of December, Kemira Oyj had 44,311 registered shareholders (33,345 on December 31, 2019). Non-Finnish shareholders held 28.6% of the shares (31.9%), including nominee-registered holdings. Households owned 18.6% of the shares (15.6%). Kemira held 2,418,440 treasury shares (2,693,111), representing 1.6% (1.7%) of all company shares. *

Kemira Oyj’s share price decreased by 2% from the beginning of the year and closed at EUR 12.94 on the Nasdaq Helsinki at the end of December 2020 (13.26 on December 31, 2019). The shares registered a high of EUR 14.24 and a low of EUR 8.02 in January-December 2020, and the average share price was EUR 11.55. The company’s market capitalization, excluding treasury shares, was EUR 1,979 million at the end of December 2020 (2,024). 

In January-December 2020, Kemira Oyj’s share trading turnover on the Nasdaq Helsinki was EUR 857 million (EUR 682 million in January-December 2019). The average daily trading volume was 301,131 (230,086) shares. The total volume of Kemira Oyj’s share trading in January-December 2020 was 93 million shares (74), 19% (28%) of which was executed on other trading platforms (BATS, Chi-X, Turquoise). Source: Nasdaq and Kemira.com.

* Further information incl. managements shareholding is found under Shares and shareholders on page 111.

OWNERSHIP DECEMBER 31, 2020 

SHAREHOLDING BY NUMBER OF SHARES HELD DECEMBER 31, 2020 

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LARGEST SHAREHOLDERS DECEMBER 31, 2020

SHARE KEY FIGURES

1) Number of shares outstanding, excluding the number of treasury shares.

2) The dividend for 2020 is the Board of Directors' proposal to the Annual General Meeting.

3) Shares traded on Nasdaq Helsinki only

Definitions of the key figures is disclosed in the section on the Definitions of key figures.

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AGM DECISIONS

ANNUAL GENERAL MEETING

Kemira Oyj's Annual General Meeting, held on May 5, 2020, authorized the Board of Directors to decide, at its discretion, upon the payment of a dividend of a maximum amount of EUR 0.56 per share, in two installments.

The Board of Directors decided on the payment of the first installment of the dividend, EUR 0.28 per share, on May 5, 2020, and the dividend was paid on May 14, 2020. The Board of Directors decided on the payment of the second installment of the dividend, EUR 0.28 per share, on October 26, 2020, and the payment date was November 5, 2020. Kemira announced both decisions in separate stock exchange releases.

The AGM 2020 authorized the Board of Directors to decide upon the repurchase of a maximum of 5,400,000 company’s own shares. This corresponds to approximately 3.5% of all shares and votes in the company. The shares will be repurchased by using unrestricted equity, either through a tender offer with equal terms to all shareholders at a price determined by the Board of Directors or otherwise in proportion to the existing shareholdings of the company’s shareholders in public trading on the Nasdaq Helsinki Ltd. (the “Helsinki Stock Exchange”) at the market price quoted at the time of repurchase. The price paid for the shares repurchased through a tender offer under the authorization shall be based on the market price of the company’s shares in public trading. The minimum price to be paid would be the lowest market price of the share quoted in public trading during the authorization period and the maximum price would be the highest market price quoted during the authorization period. Shares shall be acquired and paid for in accordance with the rules of the Helsinki Stock Exchange and those of Euroclear Finland Ltd. Shares may be repurchased to be used in implementing or financing mergers and acquisitions, developing the company’s capital structure, improving the liquidity of the company’s shares, or to be used for the payment of the annual fee payable to the members of the Board of Directors or implementing the company’s share-based incentive plans. In order to realize the aforementioned purposes, the shares acquired may be retained, transferred further or cancelled by the company. The Board of Directors will decide on other terms related to the

share repurchase. The Share repurchase authorization is valid until the end of the next Annual General Meeting. 

The Annual General Meeting authorized the Board of Directors to decide to issue a maximum of 15,600,000 new shares (corresponding to approximately 10% of all company shares and votes) and/or transfer a maximum of 7,800,000 company’s own shares (corresponding to approximately 5% of all company shares and votes) held by the company (“Share issue”). The new shares may be issued and the company’s own shares held by the company may be transferred either for consideration or without consideration. The new shares may be issued and the company's own shares held by the company may be transferred to the company’s shareholders in proportion to their current shareholdings in the company, or by disapplying the shareholders’ pre-emption right, through a directed share issue, if the company has a weighty financial reason to do so, such as financing or implementing mergers and acquisitions, developing the capital structure of the company, improving the liquidity of the company’s shares or, if it is justified, for the payment of the annual fee payable to the members of the Board of Directors or implementing the company’s share-based incentive plans. The directed share issue may be carried out without consideration only in connection with the implementation of the company’s share-based incentive plans. The subscription price of new shares shall be recorded to the invested unrestricted equity reserves. The consideration payable for company's own shares shall be recorded to the invested unrestricted equity reserves. The Board of Directors shall decide upon other terms related to the share issues. The Share issue authorization is valid until May 31, 2021.  

The AGM elected Ernst & Young Oy to serve as the company’s auditor, with Mikko Rytilahti, Authorized Public Accountant, acting as the key audit partner. 

CORPORATE GOVERNANCE AND GROUP STRUCTURE 

Kemira Oyj’s corporate governance is based on the Articles of Association, the Finnish Companies Act, and Nasdaq Helsinki’s rules and regulations on listed companies. Furthermore, the company complies with the Finnish Corporate Governance Code. The company’s corporate governance is presented as a separate statement on the company’s website. 

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BOARD OF DIRECTORS

On May 5, 2020, the Annual General Meeting elected seven members to the Board of Directors. The Annual General Meeting re-elected Wolfgang Büchele, Shirley Cunningham, Kaisa Hietala, Timo Lappalainen, Jari Paasikivi, and Kerttu Tuomas as members of the Board of Directors, and elected Werner Fuhrman as a new member to the Board of Directors. Jari Paasikivi was re-elected as the Board's Chairman and Kerttu Tuomas was re-elected as the Vice Chairman. In 2020, Kemira’s Board of Directors met 15 times, with a 99% attendance rate. 

Kemira Oyj’s Board of Directors has appointed two committees: the Personnel and Remuneration Committee, and the Audit Committee. The Personnel and Remuneration Committee is chaired by Jari Paasikivi and has Timo Lappalainen and Kerttu Tuomas as members. In 2020, the Personnel and Remuneration Committee met four times, with a 100% attendance rate. The Audit Committee is chaired by Timo Lappalainen and has Kaisa Hietala and Jari Paasikivi as members. In 2020, the Audit Committee met five times, with a 100% attendance rate.

STRUCTURE

There have been no acquisitions or divestments during the year that would have impacted the company structure.  

SHORT TERM RISKS AND UNCERTAINTIES

PRICE AND AVAILABILITY OF RAW MATERIALS AND COMMODITIES

Profitable growth is a crucial part of Kemira’s strategy. A significant and sudden increase in the cost of raw materials, commodities, or logistics could place Kemira’s profitability at risk if Kemira is not able to pass on such increases to product prices without delay. For instance, considerable changes in oil and electricity prices could materially impact Kemira’s profitability. Changes in the raw material supplier field, such as consolidation or decreasing capacity, may also increase raw material prices. Furthermore, significant demand changes in industries that are the main users of certain raw materials may lead to raw material price fluctuations. In 2020, raw material prices were significantly impacted by the COVID-19-

related economic slowdown and the related drop in oil prices. The price of raw materials, particularly oil-derived raw materials, declined particularly during H1 2020. As the economic outlook started to improve towards year-end, there was some slight upward pressure on raw material prices. Raw material sourcing remained in continuous focus in 2020.

Poor availability of certain raw materials may affect Kemira’s production and also profitability if Kemira fails to prepare for this by mapping out alternative suppliers or opportunities for process changes. Raw material and commodity risks can be effectively monitored and managed with Kemira's centralized Sourcing unit.  Risk management measures include, for instance, forward-looking forecasting of key raw materials and commodities, synchronization of raw material purchase agreements and sales agreements, captive manufacturing of some of the critical raw materials, strategic investment in energy-generating companies, and hedging a portion of the energy and electricity spend. Kemira’s joint venture with the fatty acid chloride producer Tiancheng in China is an example of helping to ensure the availability of key raw materials by backwards integration into the supply chain. In 2020, COVID-19 did not cause any significant disturbances in the availability of raw materials.

SUPPLIERS 

The continuity of Kemira’s business operations is dependent on accurate and good-quality supply of products and services. Kemira currently has in place numerous partnerships and other agreements with third-party product and service suppliers to secure its business continuity. Certain products used as raw materials are considered critical, as the purchase can be made economically only from a sole or single source. In the event of a sudden and significant loss or interruption in such supply of raw material, Kemira’s operations could be impacted, and this could have further negative effects on Kemira. Ineffective procurement planning, supply source selection, and contract administration, as well as inadequate supplier relationship management, create a risk of Kemira not being able to fulfill its promises to customers. In 2020, the COVID-19 pandemic lead to lockdown restrictions in a number of countries, and as a result, many industries were forced to close down temporarily. The chemical industry, Kemira included, was classified as an essential industry in many countries and was not impacted by the lockdown restrictions. Kemira was able to handle any

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potential disruption in its supply chain during the pandemic, and Kemira’s manufacturing and supply chain operated without major interruptions throughout 2020.

Kemira continuously aims to identify, analyze, and engage third-party suppliers in a way that ensures security of supply and competitive pricing of the end products and services. Collaborative relationships with key suppliers are developed in order to uncover and realize new value and to reduce risk. Supplier performance is also regularly monitored as a part of the supplier performance management process. Due to the high risk environment related to suppliers of the chemical industry, risk management and mitigation in this area is of continuous high focus.

HAZARD RISKS  

Kemira’s production activities involve many hazard risks – such as fires and explosions, machinery breakdowns, natural catastrophes, exceptional weather conditions, environmental incidents – and the consequent possible resulting liabilities, as well as the employee health and safety risks. These risk events could derive from several factors, also including (but not limited to) unauthorized IT system access by a malicious intruder causing possible damage to the systems and consequent financial losses. A systematic focus on achieving set targets, certified management systems, efficient hazard prevention programs, promotion of an active safety culture, adequate maintenance, and competent personnel play a central role in managing these hazard risks. In addition, Kemira has several insurance programs that protect the company against the financial impacts of hazard risks.

CHANGES IN CUSTOMER DEMAND

A significant unforeseen decline in the use of certain chemicals (e.g. chemicals for packaging and board production) or in the demand for customers’ products and operations could have a negative impact on Kemira’s business. A significant decline in certain raw material and utility prices (e.g. oil, gas, and metals) may shift customers’ activities towards areas where fewer chemicals are needed. Also, increased awareness of and concern about climate change and more sustainable products may change customer demands, for instance, in favor of water treatment technologies with lower chemical consumption. On the other hand, possible capacity expansions by customers could increase the chemical consumption and challenge Kemira’s current production capacity.

In order to manage and mitigate this risk, Kemira systematically monitors leading and early warning indicators that focus on market development. Kemira has also continued to focus on the sustainability of its business and is further improving the coordination and cooperation between the Business Development, R&D, and Sales units in order to better understand the future needs and expectations of its customers. Timely capital investments as well as continuous discussions and follow-ups with customers ensure Kemira’s ability to respond to changes in demand. Kemira’s geographic and customer industry diversity also provide partial protection against the risk of changed customer demands.

In 2020, Kemira revised its strategy with an increased focus on biobased products to respond to changes in customer demand and expectations. In 2020, Kemira also started several partnerships in order to innovate and commercialize new biobased products. Profitable growth is one key aspect of Kemira’s revised strategy, and biobased products are expected to play a significant role in Kemira’s growth ambitions. Due to sustainability pressure, there will also be a shift in the Pulp & Paper industry, and it is expected there may be new and/or increased uses of pulp- and fiber-based materials. This is an area Kemira is continuously monitoring.

ECONOMIC CONDITIONS AND GEOPOLITICAL CHANGES

Uncertainties in the global economic and geopolitical development are considered to include direct or indirect risks, such as a lower-growth period in global GDP and possible unexpected trade-related political decisions, both of which could have unfavorable impacts on the demand for Kemira’s products. Certain political actions or changes, especially in countries that are important to Kemira, could cause business interference or other adverse consequences. Current examples of these risks are related to Brexit and trade wars.

Weak economic development may result in customer closures or consolidations, resulting in a diminishing customer base. The liquidity of Kemira’s customers could become weaker, resulting in increased credit losses for Kemira. Unfavorable market conditions may also increase the availability and price risk of certain raw materials. Kemira’s geographical and customer industry diversity provides only partial protection against these risks. Kemira continuously monitors geopolitical movements and changes and aims to adjust its business accordingly. For example, the Brexit-related risk has been continuously monitored, and

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several actions have been taken to mitigate the risk. Trade war-related risks are actively monitored and taken into account. 

Kemira discussed the the impact of the COVID-19 pandemic in detail in its Interim Reports during 2020. The impact of COVID-19 on Kemira and Kemira's end-market demand is described in more detail on page  17.

COMPETITION

Kemira operates in a rapidly changing and competitive business environment that represents a considerable risk to meeting its goals. New players seeking a foothold in Kemira’s key business segments may use aggressive means as a competitive tool, which could affect Kemira’s financial results. Major competitor or customer consolidations could change the market dynamics, and possibly also change Kemira’s market position. 

Kemira is seeking growth in product categories that are less familiar and where new competitive situations prevail, particularly in biobased products. In the long term, completely new types of technology may considerably change the current competitive situation. This risk is managed at both Group and segment levels through continuous monitoring of the competition. The company aims to respond to its competition through the active management of customer relationships and continuous development of its products and services to further differentiate itself from the competitors and to be competitive.

ACQUISITIONS

Acquisitions are one potential way to achieve corporate goals and strategies, in addition to organic growth. Consolidations are driven by chemical manufacturers’ interests in realizing synergies and establishing footholds in new markets. Acquisitions and/or partnerships may also be needed in order to enter totally new markets. However, the integration of acquired businesses, operations, and personnel also involves risks. If integration is unsuccessful, the results may fall short of targets for such acquisitions.  

Kemira has created M&A procedures and established Group-level dedicated resources to actively manage merger and acquisition activities and to support the execution of its business transactions. In addition, external advisory services are being used to screen

potential merger and acquisition targets, and to help execute transactions and post-merger integration.

INNOVATION AND R&D

Kemira’s research and development is a critical enabler of organic growth and further differentiation. Kemira’s future market position and profitability depend on its ability to understand and meet current and future customer needs and market trends, and its ability to innovate new differentiated products and applications. Furthermore, new product launches contribute to the efficiency and sustainability of Kemira’s or its customers’ processes, as well as to the improved profitability. Failure to innovate or focus on disruptive new technologies and products, or to effectively commercialize new products or service concepts may result in non-achievement of growth targets and may negatively impact Kemira’s competitive situation negatively. 

Innovation- and R&D-related risks are managed through effective R&D portfolio management, in close collaboration between R&D and the two business segments. There is close coordination and cooperation between the Business Development, R&D, Sales and Marketing units in order to better understand the future needs and expectations of Kemira's customers. With continuous development of innovation processes, Kemira is aiming for more stringent project execution. Kemira maintains an increased focus towards the development of more differentiated and sustainable products and processes, and is also continuously monitoring sales of its new products and applications.

CHANGES IN LAWS AND REGULATIONS 

Kemira’s business is subject to various laws and regulations, which have relevance in the development and implementation of Kemira’s strategy. Laws and regulations can generally be considered as an opportunity for Kemira, as regulation drives, for example, the treatment of water. However, certain legislative initiatives supporting, for instance, the use of biodegradable raw materials or biological water treatment, limiting the use of aluminum, may also have a negative impact on Kemira’s business. Significant changes, for instance,  in chemical, environmental or transportation laws and regulations may also impact Kemira’s profitability through an increase in production and transportation costs. At the same time, such changes may also create new business opportunities for Kemira. 

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Inclusion of new substances in the REACH authorization process may also bring further requirements to Kemira, where failure to obtain the relevant authorization could impact Kemira’s business. In addition, the changes in import/export and customs-related regulations create needs for monitoring and mastering global trade compliance in order to ensure, for instance, compliant product importation. 

Kemira continuously follows regulatory developments in order to maintain its awareness of proposed and upcoming changes of those laws and regulations that may have an impact, for instance, on its sales, production, and product development needs. Kemira has established an internal process to manage substances of potential concern and to create management plans for them. These plans cover, for example, the possibilities to replace certain substances if they become subject to stricter regulation. Kemira has also increased its focus and resources in the management of global trade compliance. 

Regulatory effects are also systematically taken into consideration in strategic decision-making. Kemira takes an active role in regulatory discussions whenever this is justified from the perspective of the industry or business. Currently, for example, there are lots of regulatory discussions ongoing in the EU, as the EU is undergoing a major review of its water legislation and directives. This may have a positive demand-related impact for Kemira in the future, due to the need for water to be treated more carefully.

TALENT MANAGEMENT 

To secure competitiveness and profitable growth, as well as to improve operational efficiency, it is essential to attract and retain personnel with the right skills and competences (e.g. R&D, sales, IT, customer service and marketing competences). Kemira is continuously identifying people with high potential and key competencies for future needs. Through systematic development and improvement of compensation schemes, learning programs, and career development programs, Kemira aims to ensure the continuity of skilled personnel also in the future.

A detailed description of Kemira’s risk management principles is available on the company’s website at www.kemira.com. Financial risks are described in the Notes to the Financial Statements for the year 2020. 

IMPACT OF COVID-19 PANDEMIC AND RELATED ECONOMIC SLOWDOWN ON KEMIRA

The COVID-19 pandemic and the related economic slowdown had a limited impact on Kemira’s operations in 2020. In several countries with government-imposed restrictions on economic activity, the chemical industry and Kemira's customer industries were almost always classified as essential industries and, as a consequence, were exempt from government lockdown restrictions. Throughout 2020, Kemira's manufacturing facilities and supply chain operated without significant disruptions. If the COVID-19 situation were to deteriorate in 2021, there could be potential disruption to Kemira's manufacturing and logistics network, as well as to the availability of raw materials.  

The impact of COVID-19 on customer demand varied by segment. In Pulp & Paper, demand for chemicals remained resilient in pulp, board and tissue, while demand for printing and writing chemicals declined due to the COVID-19 situation and the related economic slowdown. In Industry & Water, demand in municipal water treatment was solid, while industrial water treatment was somewhat impacted by the economic slowdown. In Oil & Gas, demand for shale during Q2 2020 was virtually non-existent following the drop in oil prices and low demand. Shale market activity started to recover modestly in Q3 2020 from the market lows seen in Q2 2020, and the sequential recovery continued in Q4 2020. 

It is difficult to precisely estimate the final impact on Kemira’s customer demand. Some further impact on Pulp & Paper, including beyond printing and writing chemicals, could become visible if GDP estimates for 2021 are lowered further. In Industry & Water, industrial water treatment is expected to be more impacted than municipal water treatment if GDP estimates for 2021 are lowered further. In Oil & Gas, the modest sequential shale market recovery, which started in Q3 2020, continued during Q4 2020. The final impacts on Kemira's end markets will depend on the pace of economic recovery, the development of the pandemic and the speed of vaccinations globally. New COVID-19 variants could result in further deterioration of the situation and result in additional restrictions on economic activity before the vaccines are rolled out more broadly globally. This in turn could lead to widespread decline in customer demand. For Kemira's 2021 outlook, including assumptions behind the outlook, please refer to the section "Outlook" on page 20.

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Kemira has set up regional crisis management teams to monitor the COVID-19 situation regionally, as the development of the COVID-19 pandemic varies by region. The aim of the crisis management teams is to mitigate the impact on Kemira in order to ensure our and our customers' business continuity. Business travel continues to be restricted, and Kemira has taken several steps to ensure employee safety at its locations. To mitigate the impact on its supply chain, Kemira reviews alternative suppliers on a continuous basis to ensure smooth operations in all circumstances.  

Kemira has strongly recommended remote working for employees for whom it is possible, and the transition to remote working has been smooth. As government-imposed lockdown restrictions on economic activity will gradually be relaxed and recommendations for remote working will be lifted, Kemira has taken steps to ensure a gradual and safe return to offices, while also complying with social distancing measures and local government recommendations. Kemira has supported leaders and employees in the adoption of remote working during the COVID-19 pandemic.  

In Q2 2020, Kemira restructured its Oil & Gas business to better meet the market conditions and lower market demand following COVID-19 and the related drop in oil prices. As a result, Kemira booked restructuring expenses of EUR 1.9 million during Q2 2020. Other actions have also been taken to better meet current and expected market conditions.   

Kemira has assessed the impact of the uncertainty caused by the COVID-19 pandemic on its financial position and considered the values of assets and liabilities that contain significant accounting estimates that require judgment or that may have been particularly affected by the COVID-19 pandemic. Kemira has performed its annual goodwill impairment testing. The goodwill impairment testing calculation has been taken into account in, for example, the estimated effects of the COVID-19 pandemic on future cash flows. Based on these calculations, no indications of goodwill impairment were identified. The value of Pohjolan Voima Group's shares is EUR 211 (243) million. The value of the shares decreased by EUR 33 million during Q1 2020. Fair values of PVO shares did not change materially at year end. The effects of the COVID-19 pandemic are reflected on the discount rate used in the calculation of the fair value and on the electricity price forecast.

The COVID-19 pandemic has been considered in the assessment of expected credit losses and the model credit loss percentages have been updated to reflect the current situation. The higher credit risk has increased the amount of expected credit losses recognized for Oil & Gas customers. However, Kemira's realized credit losses on trade receivables have not increased during the financial year.

Kemira had ample liquidity and an EUR 400 million undrawn committed credit facility at the end of December 2020.

DIVIDEND AND DIVIDEND POLICY

On December 31, 2020, Kemira Oyj’s distributable funds totaled EUR 565,621,554, of which net profit for the period was EUR -199,602,896. No material changes have taken place in the company’s financial position after the balance sheet date. 

Kemira Oyj’s Board of Directors proposes to the Annual General Meeting to be held on March 24, 2021 that a dividend of EUR 0.58 per share, totaling EUR 89 million, be paid on the basis of the adopted balance sheet for the financial year that ended on December 31, 2020. The dividend will be paid in two installments. The first installment, of EUR 0.29 per share, will be paid to shareholders who are registered in the company’s shareholder register maintained by Euroclear Finland Oy on the record date for the dividend payment: March 26, 2021. The Board of Directors proposes that the first installment of the dividend be paid out on April 8, 2021.The second installment, of EUR 0.29 per share, will be paid in November 2021. The second installment will be paid to shareholders who are registered in the company’s shareholder register maintained by Euroclear Finland Oy on the record date for the dividend payment. The Board of Directors will decide the record date and the payment date for the second installment at its meeting in October 2021.The record date is planned to be October 28, 2021, and the dividend payment date November 4, 2021 at the earliest. 

Kemira updated its dividend policy on November 19, 2020. Kemira’s dividend policy aims to pay a competitive dividend that increases over time.

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EVENTS AFTER THE REVIEW PERIOD

UPGRADED OUTLOOK FOR 2020

On January 12, 2021, Kemira upgraded its outlook for 2020 following good demand and cost management in Q4 2020.

Kemira’s upgraded outlook (published January 12, 2021)

Kemira expects its operative EBITDA in H2 2020 to be above H1 2020 (H1 2020: EUR 214 million), and expects the full-year 2020 operative EBITDA to increase from 2019 (2019: EUR 410 million).

Previous outlook (published October 9, 2020)

Kemira expects its operative EBITDA in H2 2020 to be below H1 2020 (H1 2020: EUR 214 million), but expects the full-year 2020 operative EBITDA to increase from 2019 (2019: EUR 410 million).

PROPOSALS OF THE NOMINATION BOARD TO THE ANNUAL GENERAL MEETING 2021 (published January 15, 2021)

The Nomination Board proposes to the Annual General Meeting of Kemira Oyj that seven members be elected to the Board of Directors and that the present members, Wolfgang Büchele, Shirley Cunningham, Werner Fuhrmann, Timo Lappalainen, and Jari Paasikivi, be re-elected as members of the Board of Directors. The Nomination Board also proposes that Matti Kähkönen and Kristian Pullola be elected as new members of the Board of Directors. In addition, the Nomination Board proposes that Jari Paasikivi be re-elected as the Chairman of the Board of Directors and Matti Kähkönen be elected as the Vice Chairman. 

All the nominees have given their consent to the positions and are independent of the company’s significant shareholders, except for Jari Paasikivi, who is the Chairman of the Board of Directors of Oras Invest Oy, which owns over 10% of Kemira Oyj’s shares.

Of the current members of the Board of Directors, Kerttu Tuomas, who has served on the company's Board of Directors since 2010 and as Vice Chairman of the Board of Directors since 2014, and Kaisa Hietala, who has served on the Board of Directors since 2016, have

announced that they will no longer be available for re-election to the next term of the Board of Directors.

Matti Kähkönen, M.Sc. (Engineering), b. 1956, served as President and CEO of Metso Corporation in 2011-2017 and Senior Advisor in 2017-2019. In 1999-2011, Matti Kähkönen held several executive positions in the Metso Group. Prior to 1999, he held several managerial and business development positions at Neles-Jamesbury and Rauma-Repola. Matti Kähkönen chairs the Board of Directors of Neste Corporation and Neste’s Personnel and Remuneration Committee. In addition, he is the Chairman of the Board of Directors of the Finnish Fair Corporation and Chair of the Supervisory Board of the Ilmarinen Mutual Pension Insurance Company. Matti Kähkönen is a Finnish citizen.

Kristian Pullola, M.Sc. (Econ) b. 1973, has served in multiple executive and managerial positions in finance and treasury at Nokia Corporation, most recently as Executive Vice President and CFO and as Member of the Group Leadership Team in 2017-2020. Kristian Pullola is a Member of the Board of Directors and Chairman of the Audit Committee of Ilmarinen Mutual Pension Insurance Company and a Member of the Board of Directors at Antilooppi, a real estate investment company. He is a candidate for Terveystalo Oyj’s Board of Directors at the spring 2021 Annual General Meeting. Kristian Pullola is a Finnish citizen.

The Nomination Board notes that the proposed changes in the composition of the Board of Directors, if implemented, will lead to a situation where the composition of the company's Board of Directors does not comply with the diversity principles adopted by the company with regard to the gender criterion.

The goal of the Nomination Board is to keep this situation short-lived and to rectify it as soon as possible.

The Nomination Board proposes that the remuneration paid to the members of the Board of Directors remain unchanged. The remuneration paid to the members of the Board of Directors would thus be as follows: The annual fee for the Chairman would be EUR 92,000 per year, for the Vice Chairman and the Chairman of the Audit Committee EUR 55,000 per year, and for the other members EUR 44,000 per year. A fee payable for each meeting of the

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Board of Directors and the Board Committees would be EUR 600 for members residing in Finland, EUR 1,200 for members residing elsewhere in Europe, and EUR 2,400 for members residing outside Europe.

It is proposed that travel expenses be paid according to Kemira's travel policy.

In addition, the Nomination Board proposes to the Annual General Meeting that the annual fee be paid as a combination of the company's shares and cash in such a manner that 40% of the annual fee is paid with the company's shares owned by the company or, if this is not possible, shares purchased from the market, and 60% is paid in cash. The shares will be transferred to the members of the Board of Directors and, if necessary, acquired directly on behalf of the members of the Board of Directors within two weeks from the release of Kemira's interim report for January 1 - March 31, 2021. It is proposed that the meeting fees be paid in cash.

The Nomination Board has consisted of the following representatives: Annika Paasikivi, President and CEO of Oras Invest Oy as the Chairman of the Nomination Board; Pauli Anttila, Investment Director, Solidium Oy; Reima Rytsölä, Deputy CEO, Investments, Varma Mutual Pension Insurance Company; and Annika Ekman, Head of Direct Equity Investments, Ilmarinen Mutual Pension Insurance Company as members of the Nomination Board, with Jari Paasikivi, Chairman of Kemira's Board of Directors, as an expert member. 

OUTLOOK FOR 2021

Revenue

Kemira's revenue in local currencies, excluding acquisitions and divestments, is expected to increase from 2020 (EUR 2,427 million).

Operative EBITDA

Kemira's operative EBITDA is expected to be at the same or at a slightly (less than 5%) lower level than in 2020 (EUR 435 million).

ASSUMPTIONS BEHIND OUTLOOK

COVID-19 pandemic continues to cause uncertainty in 2021, but Kemira's end market demand is expected to recover gradually from 2020 in line with forecasted economic growth. Demand, particularly in the oil and gas market, is expected to recover. The outlook assumes no significant disruptions to Kemira's operations. Currencies are expected to have a negative impact on operative EBITDA.  

FINANCIAL TARGETS   

 Kemira aims for above-market revenue growth with an operative EBITDA margin of 15-18%. The target for gearing is below 75%.

Kemira updated its financial targets on November 19, 2020.  Kemira’s target for operative EBITDA margin was updated to 15-18% (previously 15-17%), while other financial targets remain unchanged. 

Helsinki, February 10, 2021

Kemira Oyj  

Board of Directors   

All forward-looking statements in this review are based on the management’s current expectations and beliefs about future events, and actual results may differ materially from the expectations and beliefs such statements contain.

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Consolidated
Income Statement

The above Consolidated Income Statement should be read in conjunction with the accompanying notes.

Consolidated

Comprehensive Income

Items in the Consolidated Statement of Comprehensive Income are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in Note 2.8. Other comprehensive income.

The above Consolidated Comprehensive Income should be read in conjunction with the accompanying notes.

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Consolidated Balance Sheet

The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.

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Consolidated Statement of Cash Flow

1) Other adjustments relate mainly to non-cash adjustments in provisions. In 2019 a surplus return of EUR 15 million was paid by Pension Fund Neliapila.

The above Consolidated Statement of Cash Flow should be read in conjunction with the accompanying notes.

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Consolidated Statement of Changes in Equity