Paper
The total revenue of the Paper segment in 2011 is consistent with the previous year, and this in spite of the fact that we have according to our strategy divested significant parts of the business. The remaining elements of our segment have demonstrated substantial growth both in efficiency and sales.
Segment overview
From early 2011 until well into the summer, the paper industry was tangibly on the recovery track from the previous downturn. However, a developing climate of economic concern both in North America and Europe precipitated some impact on our customers’ businesses. Companies began focusing more on their inventories – a trend that leads to destocking, which has an obvious effect on order patterns. Such destocking became visible from the beginning of the fall onwards.
Another dominant challenge was the increase in raw material costs during most of the year. Energy and oil costs were also relatively high in 2011, and these facts combined have made it necessary for us to implement price increases.
All in all, Kemira’s Paper segment was able to make good on its strengths in 2011. As one of the very few companies strongly dedicated to serving the pulp and paper industries, our focus has been rewarding even if the total market in North America and Europe is not performing on the same level. Despite unfavorable circumstances, we have been able to develop our business for the better.
Developing our offering
Developments in our offering have taken various forms. For the production of tissue paper, for example, we have developed our offering significantly, beginning commercialization in North America, where we introduced the complete application model at key customer mills. Similar initiatives are now being taken in EMEA, with future plans to spread the practice to APAC and South America in place.
Beyond customer segmentation, we are also developing our product lines with particular geographic emphasis. By taking product lines that perform successfully in one territory and transferring product, production and application knowledge to other regions, we are able to strongly target new sales. This practice is being conducted across all regions – not exclusively in emerging markets.
In 2011, we decided to target selected additional applications in each region. For example, in South America, we have selected pulp defoamers as one such development area – a logic that should help us prioritize sales efforts while gradually raising the standard of our offering region by region.
Finally, we adapted Kemira’s production by means of certain strategic divestments, including our Canadian hydrogen peroxide plant in Maitland, and our calcium sulphate pigments facility in Siilinjärvi, Finland. We will continue hydrogen peroxide production in Europe and South America, and continue to build on our strengths there.
Investment in emerging markets
In terms of paper production, the amount of investment in new capacity in APAC has been immense. If we consider the outlook for China specifically, most observers expect that the country’s economy will not be as dramatically affected by economic turmoil as in other regions, meaning that also the paper market will be less affected. Exports may be weakened however, and as packaging is overwhelmingly used for goods bound for other shores, a period of financial instability elsewhere may have an effect on that business.
Our capabilities to serve the Chinese and Asian paper and board markets will be significantly strengthened by our investment in a chemical plant in Nanjing, which will provide localized production for an increased range of applications. The facility’s ground-breaking ceremony took place during the fall, and production is scheduled to begin during 2012.
It should be noted that while our aim continues to be the development of sales in Asia and South America, we also have potential to increase our business in mature markets. As our competitors have conducted mergers and acquisitions, the emergent trend is such that they appear to have less focus and commitment to serve the paper industry – a significant opportunity for Kemira.
Paper and sustainability
Pulp and paper making is a very water-intensive industry. The core of our offerings is in products and applications that improve the raw material and energy efficiency as well as sustainability of our customers’ paper machines’ wet-end, their pulp processes, as well as water quality and quantity management.
Wood fiber’s status as a sustainable commodity is a superb business enabler, and in fact a key feature which is not enough emphasized even by paper producers themselves. Across the board, in all industries, very few raw materials are as sustainable as that which paper depends on. By educating decision makers and the general public about this fact, we believe that the paper industry can make significant advances.
Currently, we might say that electronic media pose a challenge to the paper industry, and the future outlook will ultimately depend on the consumer. However, the increasingly relevant trends in online retail certainly have positive ramifications for the packaging industry – in other words, the issue is far from one-sided.
Future aims
Our defining aim for 2012 will be to further improve profitability. From 2008 onwards, we have been repositioning ourselves and clarifying the application portfolio, a process which has included restructuring and some divestments. With this stage now completed, the Paper segment sees the new phase as one of growth, with the emphasis on profitability. We will also further strengthen the wide scope of products and application know-how, covering the pulp process and the paper wet end.
Key Figures 2011
- Customers: Pulp and paper industry.
- Market Area: Global.
- Products and Services: Chemical solutions for the entire process from pulp manufacture to paper production and to water treatment.
EUR million
- Revenue 973.3
- Operating EBIT 75.4
- EBIT 79.5
- Operative EBIT,%, 7.7
- EBIT, % 8.2
- Capital expenditure 43.5
- Cash flow after investments, excluding interest and taxes 90.9