Latest update to short-term risks and uncertainties
There have been changes in Kemira’s short-term risks and uncertainties compared to the situation on December 31, 2021.
In its annual risk review published in conjunction with the Financial Statements Bulletin 2021, Kemira referred to geopolitical tensions in Eastern Europe and how geopolitical tensions and possible sanctions against Russia could cause disruptions in energy and raw material availability in Europe. The war in Ukraine which started in February 2022 has increased uncertainty in Kemira’s operating environment. The risks and impacts of the war in Ukraine are described in more detail below.
Kemira referred to the risks of the COVID-19 situation in its Financial Statements Bulletin 2021. The COVID-19 situation in China deteriorated during Q1 2022. The ongoing lockdowns in China could create bottlenecks for global supply chains, including raw materials and logistics, and, as a result, increase uncertainty in Kemira’s operating environment.
Financial risks are described in the Notes to the Financial Statements for the year 2021.
Risks and impacts of the war in Ukraine on Kemira
Following the war in Ukraine and subsequent sanctions against Russia and Belarus, Kemira announced its decision to discontinue deliveries to Russia and Belarus on March 1, 2022. Russia accounted for around 3% of Kemira’s sales in 2021. The majority of Kemira’s revenue in Russia came from the Pulp & Paper segment while the Industry & Water segment accounted for the clear minority. Revenue from Belarus and Ukraine was not material in 2021. The fifth EU sanctions list published on April 9, 2022 includes now also the majority of Kemira’s products.
The direct impacts from the war are expected to be limited. However, the war in Ukraine and the existing and possible future sanctions towards Russia and Belarus could result in disruptions to energy and raw material availability to Europe. Kemira sources some raw materials from Russia and Belarus. These raw material purchases represent around 1% of Kemira’s total direct purchases and logistics costs. Kemira does not purchase raw materials from Ukraine. For the time being, Kemira has secured supply of the raw materials it has previously sourced from Russia and Belarus. Should the situation deteriorate, it could have a negative impact on Kemira’s operations. Going forward, Kemira is looking for long-term alternatives to Russian and Belarussian suppliers. Kemira is also a significant user of energy with annual energy purchases globally amounting to around EUR 200 million in 2021. The majority of Kemira’s energy purchases is electricity, but some of Kemira’s manufacturing facilities use natural gas in Europe. The gas is purchased locally, but originates at least partly from Russia.
Kemira is also exposed to indirect impacts via Kemira’s customers and suppliers. High energy prices or lack of raw materials originating from the affected region could reduce or temporarily stop production at Kemira’s customers and / or suppliers, which could affect Kemira’s end market demand or supply chain. In Q1 2022 there were no significant customer or supplier shutdowns due to the war. Accelerated inflation is expected to be the most significant risk from the war in Ukraine, the impacts of which are difficult to estimate at this point. Inflation accelerated already during Q1 2022, partly due to the war in Ukraine, and inflation is expected to remain strong throughout 2022.
Kemira had limited exposure to Russia at the end of March 2022. Kemira recorded EUR 3.6 million of expected losses related to the business in Russia, mainly concerning the Pulp & Paper segment’s logistics equipment and trade receivables. Kemira has faced delays in transferring funds from Russia. Kemira’s subsidiary in Russia employed around 50 people in March 2022 and Kemira has no manufacturing facilities in the country. At the end of March 2022, net assets related to the Russian business amounted to around EUR 13 million after recorded losses in Q1 2022. Kemira had no assets or personnel in Belarus or Ukraine at the end of March 2022. For Kemira’s outlook on 2022, please refer Kemira’s January-March Interim Report to page 17.