CEO's review CEO's review

Preparing for growth as a water pure-play

The year 2013 was an important milestone for us – we accomplished a significant repositioning of the company to become a profitable water pure-play. We sharpened our existing strategy, and made choices regarding the role of businesses, geographical reach, growth and innovation. All of the choices reflect and support our strategy. Kemira has a unique strategy to provide chemicals for businesses related to water quality and quantity management. We help our customers improve their water, energy and raw material efficiency.

Kemira’s year 2013 was marked by launching the sharpened strategy followed by numerous actions to implement it. We divested several of our non-core businesses: our share in the Sachtleben joint venture, ChemSolutions’ formic acid business and our coagulants business in Brazil. On the other hand, we acquired key polymer assets and competencies through the 3F acquisition as well as strengthened our position in the North American pulp and paper market by acquiring Soto industries. Towards the end of 2013, we also strengthened our asset footprint by finalizing our new Nanjing facility in China, and our Dormagen coagulant plant in Germany. These will help us to strengthen our position in the Chinese paper markets, and in sustaining our leadership position in the municipal and industrial water treatment market in EMEA.

Efficiency improvements reducing complexity

We have worked hard on achieving a strong balance sheet and advancing towards the target profitability, and have made good progress due to a variety of efficiency measures. In 2012, we set a target of achieving EUR 60 million cost savings through the restructuring program Fit for Growth by the end of 2014, and we are progressing as planned. Fit for Growth measures have significantly reduced complexity, reduced our fixed cost base and strengthened our balance sheet in 2013. Beyond Fit for Growth, we improved our internal efficiency by establishing a Business Service Center in Gdansk, Poland in order to benefit from process harmonization and centralization. In addition, we implemented a new business model based on customer segmentation in Municipal & Industrial.

We also continued implementing the Lean management philosophy, which drives us towards a learning organization. Through a Lean culture, we strive for continuous improvement through processes efficiency and waste reduction – waste in this context meaning unnecessary resources, bureaucracy and unproductive time. Furthermore, the optimization of our manufacturing network resulted in 18 site and 2 production plant closures or divestments.

Sales volume growth and improved profitability

In 2013, our organic revenue growth reached 3%, driven by higher sales volumes in the Paper segment. In Oil & Mining, revenue in local currencies remained flat as recovered polymer sales volumes, especially in North America, were offset by continued market softness, which was specifically related to process chemicals used in the mining industry. The revenue of Municipal & Industrial was partly impacted by the implementation of a new business model, targeting to improve the segment’s profitability. Our operative EBIT increased 6% in 2013 driven by higher sales volumes and fixed costs savings related to the “Fit for Growth” restructuring program. Our operative ROCE (Return On Capital Employed) improved significantly to 11.9% (10.0%) during the year. In addition, we generated over EUR 200 million of cash flow from the operative activities and reduced net debt by some 15% to EUR 456 million (532).

Kemira will continue to focus on improving its profitability and reinforcing the positive cash flow. The company will also continue to invest in order to secure future growth in water quality and quantity management related businesses – a market where Kemira’s R&D expertise provides differentiation capabilities. The need to increase operational efficiency in our customer industries creates opportunities for us to develop new products, and offer solutions for both existing and potential customers.

Corporate responsibility adopted as a core element in all areas of business

Corporate responsibility and transparency are vital for a global organization, which is also seen as increased stakeholder expectations. It has become an elemental part of our management discussions, touching upon all areas of business.

In September 2013, we reviewed our corporate responsibility focus areas by conducting a stakeholder survey, which was used as the basis for defining our future development areas. During the year, we also started to evaluate our corporate responsibility performance against set targets and reporting on the progress in quarterly interim reports, which increases the transparency and traceability of our efforts. We have also successfully developed our reporting according to international frameworks and standards, and achieved a top position this year in Carbon Disclosure Project’s Nordic 260 Climate Disclosure Leadership Index. In addition, we decided to follow the Global Reporting Initiative’s (GRI) G4 sustainability reporting guidelines as one of the first companies in Finland.

From a customer and product responsibility point of view, we have made good progress in creating even more sustainable products, which is increasingly a requirement from our customers. Furthermore, Kemira’s products and solutions enable our customers to improve their own water, energy and raw material efficiency, which provides us with business opportunities as the environmental norms and standards continue to tighten globally.

As for Kemira, we follow the chemical industry legislation closely to stay on par with the most recent regulations, which is developing rapidly not only in the EU and North America, but in the emerging markets as well.

For 2014, we have revised our corporate responsibility targets and key performance indicators which will help us measure our progress and maintain our ambition for continuous improvement. We have set ourselves targets and KPIs for all defined focus areas, such as responsible business conduct, supply chain and our employees. This report provides insight into our progress on the defined focus areas as well as our commitment to creating shared value to our stakeholders.

Future growth enabled by employee input

From an organizational perspective, the repositioning of Kemira is now almost finished, and our concentration is once again turned on growth. However, achieving growth would not be possible without the invaluable input of our employees. It was a challenging year for all, bringing substantial changes. I would like to thank our employees of their great and dedicated contribution.

In addition to thanking all our employees, I would like to acknowledge our shareholders for their trust. Clearly, from a shareholder’s perspective, we continue to be a reliable investment, and are striving to constantly increase our shareholder return. Our ambitious journey towards becoming an industry and technology leader in chosen target markets will continue also under the leadership of Kemira's next CEO, Jari Rosendahl.