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, 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 has remained volatile during H1 2022, but the situation improved during Q2 2022. Previous and possible upcoming 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. 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 June 2022, Kemira’s exit from Russia was progressing well.
The direct impacts from the war on Kemira 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. 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 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 production facilities use natural gas in Europe. The gas is purchased locally, but originates at least partly from Russia. Kemira is preparing for various scenarios should energy, particularly gas, availability be disrupted in Europe in the coming quarters.
Kemira is also exposed to indirect impacts via Kemira’s customers and suppliers.Particularly 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 H1 2022 there were no material customer or supplier shutdowns due to the war in Ukraine. 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, particularly related to energy, accelerated during H1 2022, partly due to the war in Ukraine. Inflationary pressures are expected to remain strong throughout 2022.
Kemira had limited exposure to Russia at the end of June 2022. During H1 2022, Kemira recorded EUR 6.3 million of losses related to the exit from Russia. After recorded losses in H1 2022, net assets related to the Russian business amounted to around EUR 11 million at the end of June 2022 and consisted mainly of cash and cash equivalents. Kemira is looking at various options to transfer funds from Russia. The cash is denominated in Russian roubles. Kemira had no assets or personnel in Belarus or Ukraine at the end of June 2022.For Kemira’s outlook on 2022, please refer Kemira’s January-June 2022 Half-year Financial Report Interim Report to page 18.