Paper review

Paper continued to improve its profitability, with the operative EBIT margin at 8.6% (7.7% in 2011) for the year. Paper segment revenue reached EUR 1 billion and grew 5%, excluding the impact of the divestment of Kemira's North American hydrogen peroxide business in the end of 2011. The segment's Packaging & Board and Tissue product segments, in particular, both show double-digit growth in 2012. 

Although tough decisions have had to be made, it has been a good year generally for the Paper segment. Unpredictable shifts in raw material costs have not resulted in any major consequences. Oil price, which in many ways drives raw material costs, have remained on a high but relatively stable level.

An eye on efficiency

The Fit for Growth restructuring program will be a major factor in the segment’s profitability improvements going forward. The program’s impact on Paper is rather sizeable, as the overall saving target is 60 million of which Paper’s share represents roughly a third. The organization has been renewed and in that context, reductions in personnel have been an unfortunate necessity to ensure operational efficiency.

The main organizational development is the change from customer segments – pulp, printing & writing, packaging & board and tissue – to regional business units (RBU): Asia Pacific, South America, North America and Europe, Middle-East and Africa (EMEA). While customer segmentation still plays an important role, the new model enables Paper to have a clearer profit and loss responsibility below the overall segment level.

Striving for profitable growth

Profitable growth and organizational development remain at the core of Paper’s strategic focus in line with Kemira group. It is important to emphasize that the segment’s focus markets are not just the emerging markets, important as they are. Paper will also continue to focus on the mature markets, where a large part of its business is. Simply stated, the segment’s focus markets are those areas of the globe where the pulp and paper industry is substantial. This encompasses Europe, North America and Asia, China in particular. In terms of pulp, South America is also significant, hence the expansion of hydrogen peroxide capacity in Uruguay.

Enlarging the offering

In 2012, Kemira announced that its hydrogen peroxide capacity would be expanded in Fray Bentos, Uruguay by mid-2013. The company is also proceeding with its Nanjing paper chemicals production plant in China. The project is now in its pre-sales phase, in anticipation of trial production starting at the end of Q1 2013.

Paper has also been enlarging its application offering in South America. This initiative of selective application additions has been active throughout the year and the expansion will continue in the future. In China, the segment has been further consolidating its market position in anticipation of the Nanjing plant. Furthermore, Paper segment sales volumes increased to tissue customers, especially in North America. In 2013, sales to tissue customers are expected to accelerate also in China, Indonesia, South America and in Europe.

For Paper, sustainability means higher efficiency in terms of water, energy and raw material usage in its customers' processes. As an example Kemira´s Fennobond enables yield advantage resulting in 5 %–10% lighter end customer products. Chemicals helps customers also to optimize their raw material use for example fiber consumption. As fiber is such a sustainable means of generating industrial product versus alternatives such as plastic, the paper industry is well positioned to provide sustainable solutions to its customers and end-users.

As packaging producers increasingly look to lightweighting in an effort to minimize resource usage and carbon footprints further down the line, Paper is in a position to support them with strength chemicals for lighter materials. This trend has been visibly gathering pace throughout 2012.

Focus in 2013

Further profitability improvements facilitated by the Fit for Growth program, that are means of supporting segments focus on profitable growth, will be implemented in 2013. The opening of Kemira’s production plant in Nanjing will also play a major role for Paper in the years to come. Further to this, development of the offering will continue, as will commercialization of research, and spreading of the portfolio throughout the different regions.