10/25/2022

Short term risks and uncertainties

Risks

Kemira is exposed to risks that may arise from its own operations or from changes in the operating environment.

Kemira’s most significant risks relate to the following themes:

  • Price and availability of raw materials and commodities
  • Suppliers
  • Hazard risks
  • Changes in customer demand
  • Economic conditions and geopolitical changes
  • Competition
  • Acquisitions
  • Innovation and R&D
  • Changes in laws and regulations
  • Talent management
  • Climate related risks

All risks mentioned above are described in more detail in Kemira’s Financial Statements Bulletin 2021 on page 21.

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 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, particularly
related to energy availability. The risks and impacts of the war in Ukraine are described in more detail below.

Kemira also referred to the risks of the COVID-19 situation in its Financial Statements Bulletin 2021. The COVID-19 situation in China was volatile during January-September 2022. Previous and possible upcoming lockdowns in China could create further bottlenecks for global supply chains, including raw materials and logistics, and, as a result, increase uncertainty in Kemira’s operating environment.

Kemira sources large share of its electricity in Finland at production cost (Mankala principle) through its partial ownership in the electricity producing hydro and nuclear assets of Teollisuuden Voima and Pohjolan Voima. Significant long-term disruptionsto the production levels in these assets could have an adverse financial impact for Kemira.

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. Revenue from Belarus and Ukraine was not material in 2021. The fifth EU sanctions list published on April 9, 2022 included the majority of Kemira’s products. Kemira announced on May 6, 2022 that it will exit the Russian market. At the end of September 2022, Kemira had no operative business or personnel left in Russia.

The direct impacts of the war on Kemira have been and are expected to be limited. In 2021, 1% of Kemira’s total direct purchases and logistics costs were related to purchases from Russia and Belarus. Kemira does not purchase raw materials from Ukraine. For the time being, Kemira has secured the 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. In 2022, Kemira has worked to find long-term alternatives to Russian and Belarussian suppliers. The war in Ukraine and the sanctions against Russia and Belarus have resulted in disruptions to energy availability to Europe, particularly in natural gas. Kemira is 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 production facilities use natural gas in Europe. The disruptions in energy availability did not have a material impact on Kemira’s operations between January and September 2022. Kemira is preparing for various scenarios should energy, particularly natural gas, availability be further disrupted in Europe in the coming quarters.

Kemira is also exposed to indirect impacts via Kemira’s customers and suppliers. In particular, high energy prices or disruptions in energy availability 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 Q3 2022 some of Kemira’s customers in the EMEA region curtailed or temporarily closed production due to high
energy prices. Accelerated inflation is expected to be a significant risk from the war in Ukraine. Inflation, particularly related to energy, has accelerated strongly during 2022 and inflationary pressures are expected to remain strong for the remainder of 2022.

Kemira had limited exposure to Russia at the end of September 2022. During January–September 2022, Kemira recorded EUR 5.8 million of losses related to its exit from Russia. After recorded losses in January–September 2022, net assets related to the Russian business amounted to around EUR 10 million at the end of September 2022 and consisted mainly of cash and cash equivalents. Kemira is looking at various options to repatriate funds from Russia. The cash in Russia is denominated in Russian roubles. Kemira had no assets or personnel in Belarus or Ukraine at the end of September 2022. For Kemira’s outlook on 2022, please refer Kemira’s January-September 2022 Interim Report to page 19.