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Executives

Tero Huovinen – IR

Wolfgang Büchele – President and CEO

Jyrki Mäki-Kala – CFO

Analysts

Panu Laitinmäki – Danske Markets

Carl Frejborg – Carnegie

Artem Beletski – Enskilda

Mikael Doepel – Handelsbanken

Markku Järvinen – Evli

Kemira Oyj (OTC:KMRAF) Q2 2012 Earnings Call July 26, 2012 3:00 AM ET

Tero Huovinen

All right. Warm Welcome to Kemira’s Second Quarter 2012 Results Conference. My name is Tero Huovinen, and I am responsible for Investor Relations.

Today we will start with presentation by Kemira’s President and CEO, Wolfgang Büchele followed by a presentation by CFO, Jyrki Mäki-Kala. And as usual, we will have a question-and-answer session after the presentations.

Let’s start by Wolfgang’s presentation. Please.

Wolfgang Büchele

Good morning ladies and gentlemen. Q2 was characterized by a slight growth in revenues mostly triggered by FX gains and a very minor shortfall in EBIT in comparison to the second quarter of Q2 in 2011.

We have come home with EUR562.3 million which is a 2% growth in comparison to last year’s quarter, whereas in EBIT we fell short by EUR4 million and the EBIT margin dropped from 6.8% to 6.3%. On an earnings per share basis, we remained flat at EUR0.20 per share. We are continuing to evaluate options, there was a lot of speculation in the media going back and forth what we might do or might not do regarding our joint venture Sachtleben. We have confirmed that we have retained Lazard. Lazard is working and we will discuss with Lazard shortly together with Rockwood what they recommend us to do but additional comments I would not like to make because again we are the minority shareholder and therefore it’s on Rockwood to discuss what is going to happen with Sachtleben.

We also announced today a plant restructuring program for Kemira which we have called Fit for Growth and I will outline in my presentation what’s behind this program. First of all, we are strategically on the right track. Our share of water related business is continuing to grow. We have meanwhile reached year-to-date 2012, 78% so we are on the right track and we are continuing to implement our strategy.

We are well positioned to address key global challenges which we have identified for Kemira as the growing concern regarding the environment and you might have heard for example recent articles regarding the Baltic Sea that the warming of the Baltic Sea poses new threats, new issues with the growth of bacteria which might trigger health risks, so there is a growing concern not just in Europe but also in other parts of the world.

Water scarcity is getting more of a challenge, perhaps not equally in all geographies. Britain was literally stopping from watering the gardens at the end of last year and the beginning of this year. Now they are drowning in water, so it’s quickly changing once in a while but generally water scarcity is getting a quickly growing concern. And we have a growing demand for energy, metals and minerals especially in the emerging markets and there is a need for addressing also environmental concerns related to the production of minerals and metals and this is clearly market potential for Kemira under our strategic orientation.

We have discussed couple of times that water quality and quantity management is the strategic goal for Kemira and all the three pillars I have outlined are providing opportunities for us to develop our business further to grow, to grow profitably and it’s now on us to demonstrate that we can translate this opportunities into real business.

Clearly, we are focusing on the efficiency in industrial water and energy and raw material management and we are getting ever bigger inroads at a rather high profitability. We are working intensively on renewable biomass resources which are replacing increasingly packaging, in packaging metals and plastics, desalination is getting an ever quicker growing market for making drinking water available, not just in the African region or in the Middle East but also in Southern Europe and in Asia.

And the improved environmental status of our waterways, lakes, rivers, seas is on the global agenda and I have last time elaborated on what we are doing for example in lake restoration in Brazil and we are getting increasing queries to what extent and how we can help also in other geographies. Efficient natural resource recovery is also an ever increasing theme and we are developing our inroads also on the R&D side in order to be a partner of the respective industries.

Our key innovation topics in this context are for the time being the yield increase in desalination because it’s as you know very energy intensive and whenever you can produce more drinking water at lower energy rate, it is on the one hand an economical benefit but is also at the same time an ecological benefit. Microbes, scaling and corrosion control is in a lot of water processes as well as industrial processes a key topic which has a direct impact again on energy consumption and the reduction of energy is a business case and is not just an ecological case.

Water reuse is becoming a prime topic especially in the emerging markets that you are not just trying to clean the water and release it as it’s typically the practice in Europe and United States, but they immediately use water for other purposes and we are active in this business. We are having quite a number of developing projects underway in the context of SWEET in this context. Membrane bioreactor is a very interesting methodology for emerging markets to combine water treatment with energy generation especially as membrane bioreactors can be very efficiently operated also in smaller units, so you can consider future decentralized concepts based on such technologies. And energy from sludge is also getting ever more important because on the one hand land filling of sludge, disposal of sludge is only doable when the sludge from a quality perspective is suitable and is not ecologically harmful to the environment. And obviously not in every geography that’s the case.

Secondly, not in all the geographies you have the circumstances that you can use the sludge for example for land filling, so therefore the key question is how to not just burn the sludge but use the sludge for energy production in order to reuse the sludge and we are very active there. This is just a few highlights in order to set the tone what SWEET is focusing on.

We are clearly very active in the polymer field. I indicated already in my last investors briefing that polymers are a key product group for Kemira in the quarter – in the context of water quality and quantity management and we are working intensively on different polymer technologies in order to improve the extraction of resources from unconventional locations like deep sea or oil sands.

We are working in providing polymers for yield improvement as I said in scaling, in rheology modification, polymers play a vital role and we are working to increase our capacity on the one hand but also to broaden the range of polymers. We are applying and we can make available to the respective industries. We are currently mostly in the upstream oil and gas business and in the mining applications. Approximately 80% of our business in oil and mining is in the reach area meaning drilling, cementing, stimulation and liberation of oil.

Some 15% is in the production area, meaning production and injection, suspension or in the concentration of the produced oil. And just 5% is used in refining the oil. So especially in the production field there is quite a nice room to grow for us. We have possibilities, we have the respective products and we are starting to make inroads there.

We have already last time outlined that we have three strategic priorities. The first is to improve the efficiency of Kemira in order to be more responsive, to be faster in dealing with our customers and to be an even better partner in the future and that comes all down to the question of simplicity. We want to substantially grow and strengthen our position in the emerging markets, but in the same time we want to do that in a profitable manner, so E10 is a target the management of Kemira is fully committed to deliver and we have also indicated that we want to further sharpen our strategy with focus on water quality and quantity management in order to make growth above market average possible.

All the three strategic pillars have been addressed in the last three months with very intensive work of the whole management team and invited colleagues of the organization who helped the management team and I would like to take this opportunity to thank all people involved in this extensive work which even continued during the holiday season because it is the basis for our future success.

Now Fit for the Growth or Fit for Growth is addressing the first two pillars of our strategy, of our strategic priorities. It is targeting simplicity of Kemira and it is targeting the reaching of the long followed goal of 10% EBIT return. What are we doing? We plan to reduce the internal complexity by simplifying the organization, the organizational structure and to foster accelerating growth based on innovation and application.

We want to improve our internal efficiency by reducing organizational layers and at the same time, I was last time in the Q2 briefing discussing empowering the regions by putting a substantial responsibility into the regions by implementing regional business units with full P&L responsibility and accountability reporting into the segments as the basic structure element of our future organization.

And we will optimize and rebalance our manufacturing network. We have discussed briefly in the last briefing that in some businesses we have quite an extensive asset footprint and there is room for consolidation for optimization and this is part now of Fit for Growth.

We will change the organization as I said to foster accelerated growth. We will in the future therefore report four segments. We will report Paper, M&I, Oil and Mining and ChemSolutions as full segments and we will allocate the CEO costs so to speak to the segments based on allocation keys. The CEO office which currently is quite sizeable will stop to exist as of October 1st this year when the organization goes live. So in the future, the CEO office so to speak will only be literally myself and my very narrow team. And all the other resources which currently are in the CEO office will be disseminated to the segments as needed.

And then you will get P&Ls for the four segments and you get the full transparency of Kemira when it comes to performance. We will as I said change the external reporting as of January 1, 2013 and we will provide you with restated figures for 2011 and 2012 prior to the announcement of the Q1 2013 figures so that you can then compare the performance of Kemira on a like for like basis.

The new organization will accelerate – will help us to accelerate the growth especially in the emerging markets. We have discussed last briefing that clearly APAC is the largest market for water going forward. South America is the largest market for pulp going forward and literally at this point in time both regions play rather smaller role in our portfolio and we intent to change that. We will therefore in the new organization also have application development and business development being part of the regional business units. So as I said we are getting closer to the customer, we are much more in direction within the region rather than out of Helsinki which allows us to speed up our cooperation with customers but also to tap faster into new business opportunities.

We also strengthen the original R&D organization especially on the development side in order to develop tailored solutions for regional customers within the region rather than having the long way to drill back and forth between Espoo [ph] and the regional customers which sometimes is and has proven not to be the most efficient way especially comparing to our peer groups who have very strong development capabilities in every region already today.

If you look to Kemira’s development and I am sure you have done that, then clearly we have basically not moved in the right direction when it comes to E10. And you can argue now that perhaps we were on the right track until first quarter 2011 and then everything turned around or you can argue we literally did not really get in the right direction and we were moving downwards already starting in Q1 2010. I don’t think it makes any difference but clearly there is an urgent need for change in order not just to be able to deliver on our communicated objectives. There is also a need for change to improve the capability of the company to tap into the business opportunities which are to a large extent nowadays not in Finland but in other parts of the world and with the regional business unit structure we will address that in a more direct, more responsible and more in directive manner.

We have also discussed in the context of the M&I situation in the last briefing on our asset footprint and we have enlarged this picture so we have now literally showing you how our asset footprint looks like when you take also the other segments into consideration and I would suggest it is very obvious that 74 manufacturing sites for EUR2.2 billion business is a little bit on the heavy side to phrase it carefully.

So we have looked into that and we have developed plans how we can optimize this manufacturing network in order to consolidate it and to improve our manufacturing and asset base going forward to make Kemira more profitable also on the manufacturing side basis. First pilots have been discussed and have been analyzed and based on these pilots which we run in the last three months, we have developed this context.

Now what is the outlook? In the second half, we clearly do not change our guidance even if we still have currently a shortfall we will deliver the same profitability level for 2012 what we have achieved in 2011. So that means we will come home with sales which are at the same level and EBIT which is at the same level. In the first half, we have achieved EUR1.115 million in revenues which is 1% growth. The operative EBIT is currently 10% below with EUR73.9 million in comparison to last year’s first half but considering our Fit for Growth project which will now be started to be implemented by engaging ourself in the co-determination negotiations rather shortly which are required, we are confident that we can deliver our guidance.

Of course the disclaimer as usual is that current exchange rates in oil prices prevail for the rest of 2012 and that we do not see a fundamental change in the overall economic situation which you can or cannot put a question mark on right now. There is some uncertainty but this is of course the underlying basis for this outlook.

We will on the Capital Markets Day in 2012 which takes place on the 18th of September in London in the U.K., give a presentation by Kemira management and we will also start to outline and share with you the implementation progress of Fit for Growth. We’ll then have small group meetings with Kemira management where you are able to get a deeper understanding of what Fit for Growth has been delivering so far and how far we have got on the implementation scale.

I would now like to hand over to Jyrki Mäki-Kala, the CFO to give the interim report.

Jyrki Mäki-Kala

Thank you, Büchele. Good morning on my behalf. Our CEO outlined some of the headlines already from our performance but I will go a little bit deeper with the performance of group and also the respective segments. Basically our quarter two if I just put in with three positive things and three negative things if at all. On positive side on a group level, we were able to increase sales prices more than our variable costs went up, so it was very good achievement by our sales forces globally. Our cash flow was positive in quarter two and then finally we saw some volume recovery versus our quarter one this year especially in the Municipal & Industrial segment.

So basically these were the three positive things that affected our figures in our quarter two but then on the negative side like maybe outline in several places in our interim report is that our relative prices, they are still very high and our fixed costs were too high. And then on the cash flow side, we still have work to do with our net working capital. It’s still too high compared to our sales.

But overall the first quarter, we recorded a small increase in sales but that was like mentioned mainly coming from the currency exchange with the weak euro currently. Our EBIT margin of 6.3%, our target is 10% on the short-term basis so we are quite far away from the 10% target and we need this like mentioned earlier, this Fit for Growth program going forward. Our cash flow, nevertheless it was positive by EUR24 million in quarter two affected by the dividends and the dividends – and the paid-in-capital coming for Sachtleben and then also Pohjolan Voima. Compared to last year of course we are behind, because last year we received quite a lot of from the share sales of our Tikkurila that took place in 2011. But overall, there were positive things but really the cost side where the one that had the biggest effect on our financials.

If you look the revenue trend in our group level going back to the last three years basically we saw that during the last two quarters basically the growth in our P&L has mostly took place through currency, not so much through volume recovery and not so much through sales price increases. Certainly there are divestments or et cetera also in the background but overall this just shows that we have things to do to get back into the growth mode in our sales line. Remember that we have this target of 3% growth in the matured markets and 7% growth in the emerging markets. So that is something we need to focus on going forward as well.

We have shown this graph to you the last quarters and basically shown you what has been done and developed during the last five years. There has been a lot of discussions that do we at Kemira has partnering power with our suppliers and our customers but I think this shows that we have been able to internally focus more on the pricing and really get the gap between how raw material prices go up and how we can affect our sales prices on a positive way. So currently you see that we are in the mode that our sales prices are little bit higher relatively compared to last year’s quarter than what has happened with the raw material prices.

So this certainly was one of the positive things that I mentioned that took place in our quarter two results. If we look the operative EBIT, it was something like EUR1.6 million below 2011 and you’ll see here really the good positive impact coming from the sales volume prices versus the variable cost. It leaves the room of roughly plus EUR5 million, but then the fixed costs like we had also in our interim report, we had pressure coming from the fixed costs mainly derived by the local or global cost inflation and we have added resources especially in Asia really to match the growth what we want to achieve in the emerging markets.

So basically these two elements sales prices, volumes and the costs basically finally derived where we ended with our EBIT in quarter two. Some of the key figures with our, I’d say balance sheet and other. Our key ratios are at reasonably good level talking about gearing our target is stay below 60%, our gearing is currently at the level of 44%. So it’s very positive thing. We have of course almost to improve like in return of capital employed currently at the level of 10%. And like mentioned earlier, our headcount went up roughly 175 persons this year when we are focusing more on the emerging markets.

Then finally when everything comes together with P&L and the balance sheet, how the cash flow looked like. Our cash flow was EUR40 million lower basically than last year. We had our increase in net working capital mainly coming from higher inventory prices and also little bit with trade receivables in some areas, we had a very heavy CapEx program going on like mentioned, we are building factory in India, China. We are restructuring business here in Europe and Spain and in Germany. So our CapEx was roughly 150% more than last year in this quarter.

So all those things basically led to position that our cash flow was below last year’s achievement and really remembering that last year we sold our Tikkurila shares nearly EUR100 million. So all this coming together, yes we had a good cash flow coming from our businesses but then quite a heavy CapEx program that we are planning to have also going forward will have an effect on our cash flow.

If we go to the segment by segment really talk about first with the paper segment, roughly 45% of our sales is coming from paper segment. They increased the revenues. It was a good achievement managing the sales prices, they saw some sales volume recovery as well reaching roughly EUR250 million sales on a quarterly basis. Their EBIT margins stays above 8% while it has been now also on the first half basis. And what’s important as well the cash flow was very positive in our quarter two this year. So basically paper segment is doing pretty well under the circumstances that variable cost and the fixed cost was also on the high side.

Paper and pulp business for us is one of the key elements of our water quality and quantity management strategy going forward. We have started to move more towards tissue and packaging and board already back in 2008. 2008 it represented roughly 22% of the sales of this segment and currently it’s already at the level of one-third. And the point here is of course at packaging and board at this year, they are the most growing parts of the paper segment and that is exactly what we are focusing on. Globally the paper and board demand is still growing globally roughly 7% a year between 2011 and 2013. So paper segment has the growth in the background as well. And that’s why for us, it’s very important to see the development where the business is going globally.

Coming to Municipal & Industrial, it had a rough quarter behind quarter four and quarter one like we have reported earlier. We saw the volume recovery in quarter two versus quarter one. So the volumes are slightly coming back in the areas of Eastern Europe and North America. South Europe still remains on the lower side. So we are seeing the issues in Spain like you all know what is going on there, so it’s still an issue from our point of view. The revenues went up roughly 4% compared to last year and the operative EBIT came down to a level of 13% with roughly 7.3%. Of course it’s not headache when I think about our 10% target on a group level, but it improved and I think that was the important thing for us to see in quarter two and also the cash flow turned positive because the profitability improved.

M&I, it’s really about the cost efficiency. It’s about optimizing the network. There are roughly 40 different – 50 different coagulant sites globally and you’ll see that the trend with the EBIT ever since 2009 it has gradually come down to a level of 5.6%. So we need to improve the profitability in this business in this segment and the management team certainly knows what they have to do to make sure that we get to the right level in the terms of the profitability.

Oil and mining; stable revenue, profitability improved. The quarter two figures were impacted by minus 6% of certain agreement and certain let’s say product sales that we touched – skipped because they were low margin, you will see that the top line dealing went up 10% like it used to go looking for quarter one in last year, but overall you’ll see the impact in our operative EBIT, it went up to the level of EUR10 million which is 12% EBIT margin. And year-to-date we are at the level of 13%. So it’s a very good achievement what they have been managed to do and also our cash flow turned positive here.

Again oil and mining, it was about higher sales prices, but we saw for example the natural gas price in U.S.A affecting the top line growth. So there are issues also in sense where the markets are with oil and mining but overall the financial results were very good. The last four years basically with oil and mining ever since we established this segment, it has been a growth story in the terms of sales and in the terms of profitability, going from 6% to 13% today in oil and mining is a good achievement. Demand is of course is very favorable. Oil and gas, metal and mining, there are areas wherever those activities globally if you look where the business setup is today but we’ll have to be on the growth mode with this business because this is one of the cornerstones for Kemira strategy going forward.

Then we go to this next area of other. And really like mentioned earlier ChemSolutions will be one segment that we are going to report starting 1st of January next year. ChemSolutions’ had a rough quarter in quarter two mainly affecting by two major factors coming from the high raw material prices mainly heavy oil and also some raw materials for propionate, acetate and also formic acid and also we had a extended maintenance break in Oulu that affected our figures in quarter two.

Overall, the top line growth for ChemSolutions was pretty flat and year-to-date they are basically at the same level as last year. At the addition to ChemSolutions in this segment called others is then the group expenses that increased like the other fixed costs in also in Kemira due to some R&D programs that we have started and also some strategic projects in the background have created this increase in our fixed costs.

ChemSolutions really the new segment for next year, basically three different kind of businesses Food & Feed, Chemicals & Pharma and also De-icing. Looking back to years 2009, 2010 and 2011, EBIT margin has been at the level of 11% to 15% and now this year like I said rough ride with the first quarter because there was basically no de-icing season and then now this issues in quarter two with the higher raw material prices and the Oulu shutdown that we had in May.

But going forward, management team is very much aware what they need to do to make sure we get back to the right track. Our CEO already mentioned about the JV Sachtleben and the discussion about that, but just very briefly where we have gone to this point. We owned a 39% stake of the JV Sachtleben, the investment bank from U.S. Lazard has been nominated to look the strategic options whether it’s sale of the business, listing of the business et cetera. Joint venture renewed their facility agreement in June and we are (inaudible) as Kemira and also Rockwood the other partner received dividend and paid-in-capital in June, we got roughly EUR40 million. And then Sachtleben and also acquire assets in June in Germany of company called Crenox GmbH so in a way they have further strengthened their position as a specialty titanium dioxide producer globally.

Basically we are this point when our investment bank Lazard is evaluating the possibilities so basically we have no other news in that sense concerning the Sachtleben position. All right, so that’s basically from my side.

Question-and-Answer Session

Tero Huovinen

Thank you, Jyrki. And it’s time to take some questions. Let’s start from the floor. And please state your name and company.

Panu Laitinmäki – Danske Markets

Panu Laitinmäki, Danske Markets. I would have a question about raw material costs. There was quite significant spike in spot prices of many raw materials such as propionate [ph] in early 2012 and that probably impacted your costs with a lack of few months. So my question is, did you see the full impact from this early 2012 spike in raw material prices already in Q2 or is Q3 even tougher and if you could also comment if that overall direction of raw material cost in Q3 is up or down year-on-year? Thanks.

Wolfgang Büchele

First of all as I outlined already last time in April, raw materials hit us with a quarter delay. So that’s why we saw now in Q2 the impact of the spike of Q1. And you remember perhaps that for the first quarter I commented we are based on the raw materials levels of Q4 2011, that’s why we expected already for Q2 a further increase in our raw material cost.

And what you also could see now slowly they start to decline. We haven’t seen that yet to the full extent in Q2. We start to see that now in Q3.

Panu Laitinmäki – Danske Markets

Thanks. I would also have another question about ChemSolutions. Could you perhaps quantify how much was the impact from the maintenance break in the quite significant drop in earnings in Q2? Thanks.

Jyrki Mäki-Kala

Yes, if we think about the ChemSolutions because they had a few weeks shutdown in Oulu. Of course we delivered products to our customers to inventories and through third-party suppliers but the impact we are talking about few million euros in the EBIT level just because of the shutdown. And the lost margin of course that we couldn’t produce and we sold purchase material to our customers.

Tero Huovinen

And next question.

Carl Frejborg – Carnegie

Yes, Carl Frejborg from Carnegie. Just again on maintenance, I remember when we discussed the Q1 report, you said in Municipal & Industrial you had some extra maintenance some problems. The question is, are they all solved by now or because you have a better result or is there something else?

Wolfgang Büchele

They are literally solved.

Carl Frejborg – Carnegie

Thanks.

Wolfgang Büchele

Which I indicated by the way already last briefing that we are not expecting now that this is trailing on. We have used the fact that we had some issues to check all our other plants and that’s why I can state it’s been really solved.

Artem Beletski – Enskilda

Artem Beletski, Enskilda. A couple of questions regarding your cost savings program, so first of all, how much cost savings are you expecting to materialize during this year and whether this full impact will be visible in 2013? And maybe second question is regarding cost related to this program so EUR85 million is P&L impact so what kind of cash flow impact are you expecting?

Wolfgang Büchele

We obviously want to achieve savings of EUR60 million in order to deliver E10 and we have as we have stated in our press release consider that approximately EUR85 million of special items will be needed and we will account them in the next four quarters. At this point in time, as the co-determination agreements have not been concluded, as the negotiations have not even been started, I would not like to speculate what share will be achieved in 2012 and what in 2013. And I also would not like to speculate how much of the special items will be accounted for in 2012 and what in 2013, but in the Capital Markets Day, we will give you more insight because by then we expect that we have concluded quite the majority of the co-determination negotiations.

But you can be assured that we have clear ideas on how we want to optimize our production network and that we have clear ideas how in the context of the new organization which is based on business units as I explained, we will reduce the workforce which we also have quantified in the press release and up to 600 people will be reduced globally thereof up to 250 in Finland. We have clear ideas, but it requires now a detailed discussion with the respective workforce labor representatives in legally required co-determination negotiations and only after that, we can give you more flavor to that. But we are able to do that in the Capital Markets Day.

Artem Beletski – Enskilda

Okay. Thank you. So we will have to wait for CMD?

Wolfgang Büchele

Obviously. But I hope that you understand the reason why you have to wait.

Mikael Doepel – Handelsbanken

Yes, Mikael Doepel with Handelsbanken. Few questions, firstly in terms of chemical pricing, your own selling prices. What are you seeing right now given that we see some of the raw materials at least coming down could suspect that there is some pressure there?

Wolfgang Büchele

Obviously yes, we see some pressure especially from the larger polymer customers because obviously they see that the raw material prices come down dramatically and you also have of course seen from our historic curves that obviously we have some possibility to resist, so we do not have to give in right away but yes over time we clearly have to follow the prices. So we are currently in the phase of expanding the margin and then we will somewhere towards the end of the third quarter, we have to start and follow the market.

Mikael Doepel – Handelsbanken

Okay. And a question on Sachtleben and the earnings that we saw there in the second quarter of this year. At least that was a little bit surprised about how weak the earnings were compared for example to the first quarter of this year. Can you quantify – where there any kind of special items booked in Sachtleben’s results in Q2?

Jyrki Mäki-Kala

Yes, of course, Sachtleben, Rockwood is a major holder and they will come up with their profit I think in the early part of August if I remember.

Wolfgang Büchele

1st of August, yes.

Jyrki Mäki-Kala

So I would not like to speculate what was behind, but basically like you read from the material that is available concerning the global market of titanium dioxide, they are seeing some issues with the volumes and prices currently. So that you can think what is going on in the market.

Mikael Doepel – Handelsbanken

Okay, thank you.

Tero Huovinen

Next question.

Markku Järvinen – Evli

Markku Järvinen, Evli. Couple of questions, you said basically you are now launching a new strategy of sorts [ph], do you intent to strengthen the focus in water business and it’s year-to-date 78% I believe so do you think you can further increase the focus without divestments?

Wolfgang Büchele

Let’s put it that way. First of all, just to clarify we are not coming up with a new strategy. Let me repeat what I already said in the Q1 briefing. We are sharpening the strategy. So that means we are not changing our strategy, we are just even strengthening the focus. And yes I feel we still have room to grow beyond 80% especially because the larger growth elements in the future will be in the water segment so that’s why we can get to above 80% of water related – water quality and quantity management related share in our business without divestments.

Markku Järvinen – Evli

Okay. Then I think you said that you intent to increase your focus on South American pulp business. What’s the role of let’s say the Nordic pulp business and could you give some more flavor on what you intent to do with the South American pulp business?

Wolfgang Büchele

Well obviously as you are definitely aware, there are new pulp mills to be built in South America. There are plans underway and we are very successful with our in-plant so to speak which we have built in Fray Bentos in order to deliver directly bleaching chemicals and to retain full chemical management for UPM pulp mill in Fray Bentos. And we want to participate in the same way with the same concept in other pulp mill projects which are coming and are underway in South America for the next year.

Markku Järvinen – Evli

Okay, thank you. And one further question, could you give an update on the ongoing investment projects?

Wolfgang Büchele

Well as I indicated and there is no change. We will go into trial operation with Nanjing in Q3 and we will definitely by the beginning of Q4 a full commercial operation of our Nanjing plant. India is going into operation also now in Q3 and we are planning at this point the official inauguration somewhere in late September, beginning of October whereas the construction in Spain has started and Dormagen, the new M&I plant is in final stage of designing. So construction will start somewhere beginning of Q4 and then it will come – the two Spanish and the German plants will come on stream towards the end of next year.

Markku Järvinen – Evli

Thank you.

Tero Huovinen

All right, let’s take next question from the call. Operator, is there any questions?

Operator

Thank you. (Operator Instructions)

Tero Huovinen

Okay, I suppose there are no questions.

Operator

We have no questions at this time, please continue sir.

Tero Huovinen

Okay. All right, is there any questions from the floor still?

Mikael Doepel – Handelsbanken

Yes, Mikael Doepel with Handelsbanken again. Question for Jyrki I guess, you mentioned the working capital and then the current level of working capital in the sales for example as being too high. Do you have any targets for that?

Jyrki Mäki-Kala

Certainly we have a target in the terms of absolute percentage and also days of outstanding the three elements of the working capital. We have been running working capital in the earlier years let’s say at the level 11 point something and we are currently on rolling places close to 14. So we have still role to improve.

Tero Huovinen

Okay. Thank you, any further questions? If not, I think that concludes the conference today. Thank you very much for participating.

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