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EDITED TRANSCRIPTKEMIRA.HE - Kemira Oyj Capital Markets Day

EVENT DATE/TIME: SEPTEMBER 21, 2017 / 10:30AM GMT

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C O R P O R A T E P A R T I C I P A N T S

Antti Salminen Kemira Oyj - Member of Management Board, Head of Region EMEA and President of Segment Industry & Water

Jari Rosendal Kemira Oyj - Chairman of Management Board, CEO, President and MD

Kim Poulsen Kemira Oyj - Member of Management Board, Head of Region APAC and President of Segment Pulp & Paper

Olli Turunen Kemira Oyj - VP of IR

Pedro Materan Kemira Oyj - SVP, Oil and Gas

Petri Castren Kemira Oyj - CFO, Head of Region Americas & Member of Management Board

Thierry Blomet Kemira Oyj - SVP, Sourcing

C O N F E R E N C E C A L L P A R T I C I P A N T S

Ben Gorman UBS - Analyst

Christian Faitz Kepler Cheuvreux, Research Division - Equity Analyst

Nick Charles Timothy Longhurst Marathon Asset Management, LLP - Portfolio Manager

Panu Laitinmaki Danske Bank Markets Equity Research - Senior Analyst

Robin Santavirta Carnegie Investment Bank AB, Research Division - Financial Analyst

(video playing) Jyrki Ovaska

P R E S E N T A T I O N

Olli Turunen - Kemira Oyj - VP of IR

Very warm welcome to Kemira's CMD 2017. My name is Olli Turunen, and I'm Head of Investor Relations at Kemira.

Today, you'll here deep-dive into our businesses and how we're delivering profitable growth. In addition to the speakers on the stage, we have thewhole management board here in the room; if not presenting, then in the audience. So let me briefly introduce those who are not presenting. First,Heidi Fagerholm. Heidi is responsible for our R&D. Heidi is leaving Kemira to join Merck. We're in the process of searching a replacement, and we'llannounce that in due course. Then Eeva Salonen, responsible for human resources; and Esa-Matti Puputti, responsible for operational excellence.So please use the opportunity to discuss with our management people during the breaks.

Welcome also you who follow the event via the webcast. You will all have chance to ask questions here in the room after presentations -- after eachpresentation, and then we will have dedicated breakout session at the end of the day.

Before we start, a word about safety. So in the case of evacuation, please use the exit behind the stage or in the back of the room. We will start withour President and CEO, Jari Rosendal. So Jari, please go ahead.

Jari Rosendal - Kemira Oyj - Chairman of Management Board, CEO, President and MD

Thank you, Olli. Welcome all on my behalf also, and good morning, and I guess, good afternoon to some on the webcast. I'm going to go throughwhere we are in our strategy execution, how our markets look like, how they will be developing and how we continue to develop the business. Wehave nothing majorly new to tell today or not big buys to tell. So it's more of an update on where we are and where we are going and certainlydriving to meet, which are unchanged.

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Looking at what Kemira is today, and this is reflecting to full year 2016 figures. So a bit under EUR 2.4 billion last year in revenue, and operatingEBITDA, which is our main KPI for profitability, was a bit over EUR 300 million, representing 12.8% margin. We operate today through 2 segments.We consolidated the former M&I and Oil & Mining into Industry & Water. That represents in last year's numbers just under 40% of our revenue andPulp & Paper a bit over 60% revenue. If we look at where the business comes from, a bit over 50% comes from EMEA. It says Europe, but that includesMiddle East, Northern Africa or Africa and Russia, for instance, and also, the 3 biggest markets by countries are mentioned there. Americas Northand South represent almost 40% and 10% from APAC.

From a product and technology point of view, we can categorize our portfolio into 5 buckets: bleaching and pulping; chemistry and technology;coagulant for water treatment; polymers for all of our businesses, whether Pulp & Paper, Water treatment, or especially, oil and gas; sizing andstrength; and then a basket of specialty smaller product lines. And in total, those product lines represent over 2,000 products in our portfolio,including product variations. We serve over 8,000 customer corporations that have 16,000 ship-to customers, and you can see examples of namesof our largest customers in our portfolio, whether Pulp & Paper, whether oil and gas, whether industrial players or municipal players.

From our EUR 2.4 billion, we have some customers that exceed EUR 100 million revenue in a year. So we don't have dominant customers, and thoseEUR 100 million exceeding customers, they have multiple ship-to addresses even globally. Some play centrally their business with us and someplay decentrally their business.

This represents and illustrates how we operate and plan our strategy on organic growth acquisitions, driving efficiency and cost discipline. Andour financial targets are above-the-market growth and reaching operating EBITDA of 14% to 16%.

In organic growth, I'll start from there. We've been investing into capacity in areas where we see further growth in the future and where we seealso our capacity being constrained, seizing opportunities in growth pockets, whether it's new geographies, new customers, new application. Someof those applications are shale and oil sands and EOR to come. APAC is a growing area. Obviously, R&D is a cornerstone. We haven't talked abouta lot of digitalization. We are not newcomers to that. We've been dealing with that quite a lot inside our own operations, how we collaborate withthe customers, and there are progress ongoing in that area going forward.

Acquisitions. We are very selective and careful with acquisitions, and you've noticed that in the last 2 years, we haven't done anything major. Sowe continue to monitor the market. And I'll talk more about that later.

Efficiency, there is inherent complexity in the environment that we work. So there's more opportunities on how we develop our efficiency,manufacturing footprint, how our operational excellence goes. And last year, we introduced our BOOST program, and now we've also adjustedour organizational structure and work on simplifying our complexity. And operating cost discipline goes without saying and is self-evident.

So these give the areas that we focus on when we look at doing the business. And here's the proof of pudding what we've been actually doing. Iwon't go through this in a detailed way, but you can see the dots under the title. Green dots represent opening or expansion of new sites; blueones, acquisitions, there's 3 smaller ones and 1 bigger one, which is the AkzoNobel one; operational efficiency actions; and then optimizing ourfootprint, meaning closing and consolidating sites.

If you look at the last year, we have done expansions on many sites. Those represent our polymer product lines or polymer technologies. And lastone is now in Q3. We have just couple of weeks ago started up our investment in Finland in Joutseno for a new chlorate line for growing pulp andpaper and are ramping that up. So that's going well. The purple ones are about operational excellence. There's modernization of our productionline in Holland. So not everything is expansion. And then the BOOST program under the BOOST program our transportation activities with Odyssey,and then the segment structure thing. So when we look at the circle, these are the steps that we do, and we mentioned, obviously, just some ofthem and the major ones of them. So you can see that what we're doing.

Now this has resulted -- this type of financial development -- in revenue and profitability. In the last couple of years, we've been able to grow ourrevenue EUR 300 million and our profitability on operative EBITDA about EUR 50 million. And why I'm saying this is, at the same time, during 2015and '16, our revenue in oil and gas went down by EUR 70 million, and our operative EBITDA went down by EUR 30 million. So still we were able to

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come up. Last 12 months, some volatility in the beginning of the year in raw materials. But mostly we look at this on a full year basis, because someof our actions hit and come on stream at certain points. So when we talk about things, we talk about longer term and full year basis.

Going to our relevant markets. So the markets that are buying our type of products, technologies and chemistries. And if you look at the long-termdrivers, they are favorable to our customers, and therefore, for us. And they're not short term, they're better sort of long term of growing middleclass, recycling, of regulation and scarcity of resources. Nothing new there. But if you look at the growth in the segments, Pulp & Paper, 1% estimatedgrowth year on -- or per annum next years to come. There, there's more growth in the pulp, packaging and tissue, board areas, and there's declinein the printing and writing area. But the average chemical consumption market growth is then 1%. We are 80% exposed to the pulp, packaging,board and tissue area, which is growing faster. And toward the last years, we've been flat on the printing and writing revenue. So therefore, webelieve we can grow faster than the market and actually have been able to prove that.

Water treatment. 2% to 3% growth in chemicals years to come on an annual basis. So steady business, not huge growth, but still a steady growth,and we've been able to match that growth.

Oil and gas, 5% to 6% now per annum. Last year, we reported that we saw 2% to 3% growth. But now the industry is back in shale and other oiland gas producers. So our customers have updated their outlook for growth and that shows 5% to 6% growth opportunity. And if you look at thetotal, then we're talking about something like 2% to 3% market growth going forward, which is quite a good basis to be in.

APAC, obviously, of the regions growing fastest and growing fastest in the Pulp & Paper, packaging, board and paper side. Also, water treatmentgrowing there. We're not that heavily exposed to APAC oil and gas, but we have some exposure there. We've been able to grow our revenue anddouble it last 2 years, partially because of our own investments to APAC, namely China and our Nanjing site there in 2013-'14. We're expanding itfurther. We've also, through the Akzo acquisition, added 4 more sites to Asia Pacific, so really going to that direction. You can see also the operativeEBITDA improving. But it is very competitive market and although our operative EBITDA has been improving, I cannot be happy about the levelyet. So we have to still work on improving that. Luckily, there's growth in the market that we can continue to improve and work on that.

Innovation, R&D drives growth, and we innovate with our customer, with our partners and in open innovation. And as I talked about digitalization,we look at our own performance and then looking at services to the customers. And we put our digitalization initiatives into 3 baskets. Digitalworkplace or digital worker on how do we equip ourselves being more efficient and having more access to information. And the operation is quiteglobal and mobile, so that's needed. And then the enterprise side on how do we drive our processes, how do we drive our systems, how do weautomate things, how we even use artificial intelligence to analyze and do those things. And that's what we're doing. Also, digital business, so howdo we bring new services or stickiness for our customers. And we have about 200 connected customers where we are online looking at what theyare doing, already giving them services of remote monitoring. And over 30,000 instruments out there that we are monitoring on what's happeningand gathering information all the time, which is then benefiting on how we develop the processes.

250 R&D experts in our 3 centers, and we actively patent. I believe we did 46 new primary patent applications last year. So that's a good step forward.

So how do we measure then that financially? And 1 KPI is looking at our innovation sales, which means revenue from products or services that wehave developed during the last 5 years. And step by step, you can see that we reached 9% last year and continue to do that and invest into ourR&D pipeline, refreshing that all the time. This is an important factor, because then we regenerate our offering to more sustainable products andofferings going forward. We invest about EUR 32 million a year into R&D and technical customer service. Technical customer service is an importantpart for launching our new products supporting the customers and also getting feedback from the customer processes and feedback on what weshould develop next and which type of issues the customers are dealing with.

Last year, we introduced our operational excellence program, BOOST. And if you look at the complexity, I talked about the customers, about 13,000suppliers, over 60 manufacturing sites, global warehouse network, products and -- shipped to us -- shipped to customers. So it is a complexenvironment. Even if you have those numbers, it's still complex. We operate quite well, but there's a lot of opportunity with new tools and thinkingon how our processes go, and that's why in the BOOST program, we're targeting EUR 20 million to EUR 30 million of operational savings andoptimizing our net working capital.

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One of the areas is logistics and transportation. Our inbound, outbound logistics is about EUR 240 million, of course, a year; and our road transportationis roughly EUR 170 million. And last year, we entered into a contract with Odyssey, which is a company that handles over EUR 2 billion worth oftransportation services to chemical industry customers. And they are going to, in the future, run our road transportation in North America, sosourcing it and managing for us. We still pay the bills, so we don't outsource it to them, but they manage it. And we went live last spring in NorthAmerica not without hiccups. It took a while to get stable, but now we are improving steadily and starting to see gains this winter, and soon wewill also go live in Europe. And this transportation part is going to yield a good part of that EUR 20 million to EUR 30 million target start to get therun rate next year.

So all of these things that we are doing are here in the bridge on how do we go from today's level to the targeted 14% to 16% level. Akzo PaperChemical business integration is in last month. So we will complete that by the end of this year and have the full run rate starting next year of theEUR 20 million synergies. Our original target was EUR 15 million, and we were able to uptick that to EUR 20 million last year.

We consolidated our structure, streamlined our management layers and went from 3 segments to 2 segments. So that efficiency from there wasestimated to be EUR 15 million to EUR 20 million. We will have a full run rate by the end of this year on that also. And we're hitting roughly themidpoint of the EUR 15 million to EUR 20 million target level.

Investments are coming in line that we have been building now. One example is the new chlorate line in Finland, and we are ramping that upsuccessfully a bit ahead of schedule as we speak, and we will have it fully up and running. And as I said, the contracting of that new volume hasgone really well, so we can get the full benefit timing for completing that project was pretty good for us.

On a previous page, I talked about the BOOST program and the transportation. So that's the component there. And then the oil industry is recovering.So obviously, shale, oil sands and then our continued work on oil -- Chemical Enhanced Oil Recovery that are coming and then Advanced WaterTreatment to do a bit more on packaging technology and different chemistries. And Antti will talk more about that. So those are the main stepsgoing forward, obviously, running the day-to-day business and improving also smaller things and how we operate in our processes, but these arethe main steps. On the grayish color, last you can see the volatilities. So there are raw material volatility or exchange volatility and various disturbances.So those we then have to deal with, and that's why we have the 14% to 16% window always hitting -- trying to hit the 15% mark in the middle.

And talking about disturbance, we had a few weeks ago the Harvey hurricane and quite soon after that Irma, Harvey hitting the Texas area with astorm, and especially, the floods, and Irma hitting Florida and the Southeastern states of U.S. And this, obviously, hit the Texas area, but the firstpriority, of course, for us is safety of our people. And I'm happy to report that our people are safe, their families are safe. So that's good to see.There's some logistics and production issues, especially in Texas. Many refineries, as you know, chemical players had to shut down and evacuate.And after they started up, which they are now in process of doing and many have started up, then the logistics and value chains were disrupted.Our own manufacturing sites, which mostly are located in the Southeast states were not impacted. So no damage done. We had to shut down afew sites for safety reasons for a couple of days, but we are back up and running. Also, our customer sites were not impacted, so no big disruptionthere.

So limited impact as we can see. Now we're not back to normal yet in the raw material chains. But that's the situation that we are monitoring andhope to get back on track full steam in the next days or couple of weeks.

In the quarter, we had acquisitions. And I said, there are list of what we've done in the last 3, 4 years, 2 bigger ones there, the 3F Polymers and theAkzo. And we look at full integration. We look at complementing technologies and knowhow, expanding to new products. We look at consolidationof the market or expanding and strengthening our business to geographical territories where we are not that strong yet. And all of these need tobe EBITDA enhancing, hopefully, the second year -- full year after closing the deal. And as I said, we aim for full integration on what we are workingon.

2015, '16 and '17 have been a high CapEx investment plan for us, knowing that it's above our cash flow generation. So we have knowingly generatedsome debt in the system. We've been putting into chlorate, polymers, modernization technologies into sizing products and so on, and that's thesituation. Going forward, we want to balance our CapEx and cash flow, so that we don't grow our net debt anymore. I'd like to point out that allthe growth CapEx that we've been doing including the acquisitions that we're doing, are much higher in targeting operative EBITDA than the 14%

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to 16% window. So they are clearly accretive when they are coming, and you can see some of those things in the ladder going to the 14% to 16%window. So more balanced cash flow and CapEx going forward.

As a summary, we still have opportunities to invest into growing applications where we see our capacities hitting a limit. We have also opportunitiesto invest into -- invest with our customers. One example is last spring, we started up our Klabin site in Brazil where the customer invested to agreenfield pulp mill, we co-invested right next to their plant. We have those type of opportunities on top of traditional investments in Pulp & Paperand in Industry & Water. However, from now on, we will look at our CapEx spend more in balance with cash flow and not grow our net debt.

We are working on the increased efficiency, and we are working on to innovate and drive our product pipeline and certainly work hard to reachour financial targets and the 14% to 16% EBITDA, and our financial targets are unchanged.

Thank you. That was my portion, and we'll go deep dive now next, after some questions, to the other areas.


Thank you, Jari. So we will take a few questions now here in the room. And if you wish to ask questions via the webcast, please type them in, andI will then pick it up here on the iPad. Before asking your question, please state your name and company.

Robin Santavirta - Carnegie Investment Bank AB, Research Division - Financial Analyst

Robin Santavirta, Carnegie. Can you talk about M&A a little bit more and perhaps capital allocation? It seems since the Akzo acquisition actuallywas very successful for you guys, truly quite significant synergies. Any other similar type of targets around anything you're looking at? And also, Iknow there are some quite big companies, sort of much bigger than the Akzo acquisition. Could that be interesting for you guys as well?


Well, like I said, we keep our ears and eyes open and look at it all the time. So industry consolidation, adding technologies and capabilities orgeographical things. And if you think of the Akzos and the polymer deals that we have been doing, they fit that criteria, and they have to besynergistic and accretive. So that's what we are looking at. But also, what you can see, we've been very careful and not bullish about that, obviously,understanding limits of our balance sheet. So there are opportunities out there. Valuations have been high lately in many areas. So we're sensitiveto that, that we don't overextend ourselves. Going any deeper into your question is not something that I'm, obviously, not willing to do at thispoint.


And one more, if I may. Regarding your production, 2,300 product sort of areas of products you're selling and also the 63 manufacturing units, isthis something that could yield or consolidation of these that could yield some kind of profitability improvement in future? And is this a focus areafor you?


Well, it's always optimization of the footprint. And obviously, that's through to historic acquisitions and the industry being built from small localunits near the customer's sites. So that's just the nature of the beast. But if you look at what we've been doing on the action list, we've been evenshutting down, I think, 4 sites during the last couple of years. So we're continuously looking at that, how do we consolidate our manufacturing,and actually, the Akzo deal was part of that. They are now closing down 10 sites or have already closed down sites. So that's in our radar. But weregard that also as an investment. So it needs to have the criteria and payback that we are looking for or then we have alternate things. So certainlyon our radar all the time.

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Let's take one more question.

Panu Laitinmaki - Danske Bank Markets Equity Research - Senior Analyst

Panu Laitinmaki, Danske Bank. I have a question about CapEx. You aim to balance cash flow and CapEx. Does it mean that you are looking for aspecific number in terms of CapEx to sales or absolute CapEx in euros?


Petri will talk more detail on the balance sheet issues, so if I'll defer that to that. But I'm -- what I'm saying is that the time of overspending on CapExversus our cash flow now comes to more balance. And then we have to look at year-on-year, quarter-to-quarter. But I'm more looking at 2- to 3-yearbasis, albeit that we don't grow our net debt. I've often said that the leverage ratio of 2.5 is the sort of the pain point where I see as we cannotexceed or then it's just for a short while, so we can come back and know that.


Let's take one quick question here from the iPad from the audience. There is a question. Has there been increased awareness to increase watertreatment in China, now that the environmental focus seems to be tightening on the metals markets, for example?


Simple answer is, yes. Antti will cover that a bit more in his presentation, so I won't take his theme. But the focus has been quite a bit on the airquality, and now it's moving more and more to the water quality in China. But I'll let Antti to discuss that in his talk.


Excellent. Let's move on. More questions can be asked to Jari in the joint Q&A with our CFO at the end of the day. Now for -- the next speaker isKim Poulsen. Kim is known to those who followed last year's CMD. Kim, please go ahead.

Kim Poulsen - Kemira Oyj - Member of Management Board, Head of Region APAC and President of Segment Pulp & Paper

All right. Thank you, and Jari, thanks for the update. So a brief summary of our business. Top 50 accounts, EUR 1 billion. 75% in mature markets,25% in emerging markets. Growth, last 3 years, EBITDA improvement EUR 50 million in the last 3 financial years. And we are the #1 globally. Jaritalked about this -- the share of the growth business, which is pulp, board and tissue, that's 80%, and 20% is in the printing and writing. But that'smainly with, let's call them, healthy accounts with a good balance sheet. So not the weakest players in that arena.

Last year, there was Mr. Jyrki Ovaska, my former colleague and our biggest -- one of our biggest accounts, the EVP from their side, was presentinga video asking for certain improvements from us and from the cooperation with Kemira. And now we have worked 12 months on our retail customersseriously. So I'd like to play you a video what has happened in the customers' eyes in the last 12 months.

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(video playing) Jyrki Ovaska

We feel that there have been clear improvements taking place during the past year and those have been primarily in the areas of we have establishedthe top level strategic alignment practice as well as we have moved on in the finish chlorate business. The main point is also that we have done allthis under much better spirit and perception of customer friendliness on our behalf and in that respect communications clearly have improved aswell. So let's keep this good track going forward. I personally feel that UPM possibly is a silver customer currently going to be upgraded towardsthe gold customer status. So we are on the right track. We would need to have even more agility and more clock speed in the changes that we aredoing.


All right. That was Jyrki, and personally, I think they have a platinum card, but he's a little bit modest about the service levels we are giving, I'm sure.But I showed you this last year, and it all starts with the customer. We need to be the most customer-oriented company in this industry, becauseit's a competitive arena. And if we can handle those top 50 who are EUR 1 billion for us, we have a EUR 1 billion to run day in, day out. So we hadreally put focus a lot to the customers, and even I try to do it as much as I can, because without the customers, we don't need the assets, and wehave no assets to sweat without the orders. The rest I will not go through, but customer satisfaction has improved dramatically. We have been ableto manage our fixed costs. So in local currencies, the first half of this year, our costs were same or lower than last year on the same time. So basically,what we have done in the business overheads, we have killed the inflation, which is not an easy task to do. But you know, it's hard work, and Ibelieve that hard work always pays off.

A few words about the market. I think it's pretty self-evident to yourselves that Asia will be the growth pocket of board and paper and tissue. Andthen when it comes to pulping, it's the Northern Hemisphere of Europe. And then it's going to be the Latin America where the fiber is, and that'swhere the investment is taking place. And then the western world, North America and Europe, is flattish at best. And bear in mind that in the next5, 10 years, APAC as a market alone will be bigger than North America and Europe together.

So I?m almost semi-joking that if you want to grow, go east and go fast. Saying that, we have more than doubled our turnover in APAC in 2.5 years.This is just a summary slide, but in EMEA, we are, I could say, undisputed leader. But, of course, leader has to work hard to stay where we are. Sowe are fighting for that market. That's our home soil, and we really base it on an exceptional customer experience.

North America, we used to be 4 or 5. Now I think, we're 2 or 3. It's very competitive, and we want to transform more from the printing and writingtowards the board. APAC, #1, but our market share is only 10%. It's a huge market, so we are looking for growth pockets, and we can still squeezeout of the existing assets and try to get it to the full utilization. South America, heavy on the bleaching parts, with 2 chemical islands, one in Klabin,one in Fray Bentos. But we do also serve the paper accounts from our factories there, but it's -- we are smallish on that market.

I think this one I can say quickly that Jari already told this, but it's been a great deal. We have had a good asset in APAC and a lot of good competitivepeople. Because this is a people business, and we have gained a lot of knowhow and sort of contacts in Asia via this acquisition. So it's been fantastic,and the synergies are coming as we have promised or even more.

APAC. I think I've more or less said this already that we are around EUR 200 million now. That equals to 10% market share on the market. Want togrow more and sort of looking for opportunities to utilize the product range we have by selling what we call the TCMs, the Total ChemistryManagement. So we are not only selling a product to a customer, we want to sell everything on that board line or paper line and take the responsibilityof the chemical process inside the customer's production process. And then we put our people on the ground and we measure it with ourKemConnects and devices. So we believe that the package, I'm sure, is the strength.

Well, this one, I think, we covered more or less, and I think this might be my last slide. But Joutseno, as Jari already said, it's -- we are in a uniqueposition to ramp it up with a full order book. So basically, we have sold the capacity before it even started. And that's a great thing to have. Andthen the project went to the budget, and technically, it has been going okay, and it's been ahead of the schedule. So basically, it's a perfectimplementation of a strategic project and also the way we have sold the capacity to ramp it up with full speed. So nothing sort of a super new, but

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steady progress, more happy customers, maybe a little bit bigger share of the wallet we have and sort of a good platform to build on the futuregrowth.

I think that was my last slide. Happy to answer any questions, if I can.

Q U E S T I O N S A N D A N S W E R S


Thank you, Kim. Let's take a couple of questions to Kim here.

Christian Faitz - Kepler Cheuvreux, Research Division - Equity Analyst

Christian Faitz, Kepler Cheuvreux. Can you tell us what the split in terms of chemical uses between new paper and recycling paper?


Can you repeat the question?


Can you tell us what the split is in terms of chemical markets in terms of recycling paper and new paper, fresh paper?


You mean like virgin fiber and the recyclable?


Yes.


Well, I can't even tell that, to be honest. We don't know it. That will be the paper companies who know it. But what we do know is that the recycledfiber there's less and less available. So eventually, the market is definitely turning towards virgin fiber and, hopefully, for plantated (sic) [plantation]virgin fiber, not like a rainforest. And picking on that point, we are working on a project where we try to reduce the weight of our board in orderto save fiber and sort of be more sustainable in a way. And that's looking pretty good. But I'm sure we're going to talk about it later. But honestly,I don't know the ratios. Sorry for that.


Next question? There are no further questions. So we will continue the discussion then in the breakout session later today.

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All right. Thank you.


Let's move on. Next, Antti Salminen. Antti used to be the Head of Municipal & Industrial segment and Antti took the profitability of that segmentto around 15%. Now he has this combined Municipal & Industrial plus Oil and Mining segment called Industry & Water. And, Antti, hopefully, youwill do the trick again to take that segment to 15% operative EBITDA. Antti, please go ahead.

Antti Salminen - Kemira Oyj - Member of Management Board, Head of Region EMEA and President of Segment Industry & Water

Thank you. Yes, so it seems that when you achieve something, the world brings new challenges onto your plate and then we need to start fromthe beginning. So that's what we're working on.

The new Industry & Water segment, I will explain very briefly some of the kind of the basic structure and business we're in and what we're planningto do and the kind of synergies that we try to create with the reorganization. But let's start with kind of the few key points regarding the business.So when we merged the 2 segments, we did not exit any of the existing kind of end customer uses. So it's really kind of we still have the samefoundation of businesses. And the kind of underlying base business in oil and gas, in water treatment, both industrial and municipal water treatment,this will help the business. There are megatrends that are supporting all parts of this business, supporting the growth. And especially, the kind ofbig exposure to the mature market and water treatment this is bringing some stability. We all understand that oil and gas markets are more volatileand then we have the very stable part of the water treatment. So these 2 parts are kind of balancing each other nicely off and building a segmentwhere we have the growth engine, the growth opportunities in the oil and gas and then we have the stable base business in the water treatment.

The new structure creates good growth and efficiency opportunities. Of course, merging the 2 segments alone brings some cost synergies. Butalso, the global reach that we had in the legacy Municipal & Industrial business is giving us good opportunities in the oil and gas part to reach outto those areas in the world where we have not been that active in that business previously.

And then the third key point is the innovation. So all the businesses where we are, the future growth will be driven by innovation, and not necessarilychemical innovation. Chemical innovation plays a part where we have good nice story, especially in oil and gas area where we have developednew chemistries to support special type of business with the customers in co-development projects. But many of the innovation will be coming,especially in the water treatment area from digitalization, adding service component into what we provide to customers and creating this advancedwater treatment type of services, and I will have an example later on that.

This is the new segment in the snapshot. So basically, in the selective business areas where we are, we are market leader. So we are market leaderin the North America and European water treatment chemicals, and we are kind of a market leader in the selected niches or pockets of the oil andgas market, not as the chemicals for the oil and gas market as a whole, but those selected strategic arenas where we have selected to play, we aimto be the leader.

You see the historical development the kind of combined numbers of the 2 segments, and I think what is important there is that you clearly seethe growth -- organic growth to which we have returned now after the drastic drop that Jari mentioned regarding the oil and gas business, whichis impacting the whole numbers. As I mentioned, the legacy Municipal & Industrial business is very steady, growing 1% to 2%, 3% max a year. Sobasically, then the ups and downs of oil and gas business are then making the big shift in the growth numbers and really happy to report that the2 quarters of this year have been a nice return to relatively fast organic growth.

The oil and gas business represents roughly 15% of the new segment, 70% of the segment business we classify broadly as water treatment, andthen we have 15%, which is the other uses into where we can use the same chemistries that we are anyway producing. So this is kind of, in a sense,nonstrategic part of the business.

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In terms of products, it's quite a nice even split of inorganic coagulants, polymers and then different types of other chemistries that we produce.

And in our case, again, EMEA is a bit more than half of the business. Americas 40%. And big part of the Americas is actually a very nice split betweenthe oil and gas business and the water treatment business, whereas EMEA is more focused on the water treatment business. APAC is only 5% ofour business portfolio, but it's seen as a clear growth platform. But we're starting from very, very small base there, and our market share in the watertreatment in APAC is really very small at the moment.

To maybe answer a bit more the question that was previously asked from Jari regarding the regulations in China, we clearly see, as Jari mentioned,that the focus of the central government is moving more to water pollution and prevention of that. And the tightening regulation will play intoour advantage there, not only from the water treatment regulations, but even more so from the perspective of the other environmental regulationsthat the government is putting in place in terms of industry. Because that is kind of creating an advantage for us, using western technology,high-standard products, high-quality products as opposed to many of the kind of local competition, which now, according to the new regulations,in some cases, even need to close down their plants, because they're not meeting the new environmental permit requirements of the authorities.

If you then look at briefly, as I mentioned, '17, 2017 is the year of returning to growth. The profitability numbers, you clearly see there in the beginningpart of this year the headwinds from the raw materials, especially the polymer-related raw materials. And now looking at the market -- raw materialmarket at this point, it looks more positive than negative. But there are, of course, always some uncertainties around that, so we can't really fullycount on that. And of course, the Irmas and Harveys of this world are not helping there.

But overall, we've been quite successful in implementing price increases for our products, both in the water treatment area and in oil and gas,actually, several consecutive price increase rounds. So that comes always a bit after the raw material impact. But we clearly see that the kind ofprice impact has been turning to positive now during the last quarter or so. So we're actually getting very nicely back on track there, and I havegood confidence on kind of us. The challenge was thrown to start kind of bringing the combined segment profitability back to those numbers thatwe saw earlier with the M&I segment.

The clear growth opportunities for us, as mentioned, are in oil and gas, they are in the advanced water treatment area of the water business andthen the APAC, where our biggest challenge today is that we don't have own products and assets in there for the water chemicals. So we're bringingin those from Europe and North America. But we've been successful even with the imported products, as clearly our position is the high-qualitykind of top-tier player there for those applications that require special competence and knowledge and products.

The new structure, as mentioned, creates both growth opportunities and efficiency opportunities. So as I mentioned, the legacy M&I business, weoperated everywhere else except for South America. So that brings a platform. We have salespeople, we have application people everywhere,whereas oil and gas was, for instance, not strategically focusing to APAC previously. So there are opportunities there that are created by the newstructure. Similarly, a few years back, the M&I walked away from South America, and we sold our assets there. So we also didn't have a sales forcethere, whereas the legacy Oil & Mining segment has a strong presence in South America. So that, again, gives us opportunities there for the watertreatment, not building new assets to replace those that we sold, but really kind of we have the sales force, we have the expertise there, and wecan play on that market with the products brought in from North America.

Then we are combining now the Kemira-level polymer-related expertise and competence into this one segment. So all the product manager,business development people, everybody who's experts in the polymers is now under one umbrella in this segment. So we create a strongercompetence base to serve both the polymer-based business there.

And then there's a lot of water opportunities in oil and gas and mining businesses, and we have a lot of expertise on that in the legacy M&I business.So that's another synergy opportunity there to go deeper into the water treatment in the oil and gas and mining industries.

Of course, the structural changes that we've done, they are planned to make the decision-making faster in the segment, bringing the operationscloser to the strategic segment level decision-making. We're -- the new structure is more focused on global scaleup of new innovations, so drivingthe business -- new business development initiatives globally, not regionally. So that's another growth opportunity for us that is enabled by the

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new segment structure. And then, of course, there are the direct cost synergies from combining 2 segments. And a significant part of what we havecommunicated as the reorganization, cost savings, significant part of that number comes from the new Industry & Water segment structure.

When talking about innovation, as I mentioned, we have a well-defined innovation portfolio for the segment where we are targeting to those areaswhere we see good growth opportunities. If you look at the strategic initiatives that we have launched during the past 2, 3 years and the revenuegrowth that we are generating from those, so there's a very, very good nice growth there, and we are actually kind of getting the results of thosestrategic initiatives.

And when you look at the different innovation arenas, so these are the kind of main growth driving innovation arenas, and the numbers there referto different active new product development projects that we have on those domains. So there's a lot of activity ongoing in the enhanced oilrecovery area as well as the solid-liquid separation, which is many of those are related to sludge treatment in the wastewater operations and soforth. So clearly, the innovation will be one of the key drivers of the future growth and profitability. And already, today, roughly 12% of the industryand water segment come from innovation sales.

And this is just a brief case example of the kind of nonchemical-related innovation and advanced water treatment to remind us all that even if --as Jari said earlier, the service will not be dominant part of our business anytime soon, but the kind of services combining information technologyand chemistry will be important driver for additional growth. And kind of in B2B environment, people always ask that how do you make moneythen on these? It's easier to see the opportunities that technology creates, but how do you make money out of that? And this is just a kind ofsimplified example of what it means in practice.

When there is a wastewater treatment plant and the sludge, which is kind of the residual of the operation. A big, big part, more than half of thecost structure of that operator, comes from the disposal cost of the sludge, chemicals are a small part of that. Now if with the technology and when-- and we have proven this, with the technology and our chemistry, we can help them to significantly increase the dry solids content in the sludge,it means that they save in their energy, in their transportation, in their disposal costs, and part of that additional saving and value for the customerwe can capture as kind of a performance-based service fee for that kind of a service.

So to summarize, when we created the Industry & Water segment, I think we created a stronger platform for profitable growth, with strengthenedbusiness in the growing market areas, which are our strategic focus markets. The structure that helps us to play in these markets, to make fasterdecisions and get to the results faster. And innovation is a key driver for future growth and profitability and the -- Pedro will later on, after lunch,talk more about the oil and gas and how we have returned to growth and how we have actually returned also to improved profits in that business.Thank you.


Excellent. Let's take a couple of questions to Antti.

Unidentified Analyst

(inaudible). Very quick question on KemConnect. Which segments, which end use do you see the most interested into -- getting into those typesof solutions. That's question one. And question two very quickly. The 15% fee I have no clue about. How should we think about modeling it?


Good. So first, the KemConnect. The nice thing about KemConnect is that we've actually developed a communication platform that can be usedin all of our businesses, and we have live successful examples in paper business, in municipal water treatment, where we have not been that activethis far has been the oil and gas part of the business. But now with the new structure, we are very actively looking at opportunities in the oil andgas business as well. Basically, any industrial process dealing in a kind of liquid phase can be kind of target for that. And anywhere where we have

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the chemical expertise, we can combine that with the KemConnect measuring devices, and we have the process knowledge. So those are goodopportunities for that.


And the gain on cost, is about the same by segment?


It depends on application. So sometimes it's a gain in cost and that's a typical case will help the customer save cost. Sometimes, it's about the endproduct quality, improving that. Paper is a good example where we are, actually, with this KemConnect devices, understanding better what happensat the paper machine, and that can help improve the quality of the end product, for instance, or on ability.


Next question?


We have the other part, 15% that it's difficult to model. And it will remain difficult to model because, as I mentioned, the 15% of other -- these arereally the kind of -- I'll just give some examples of that. So the inorganic coagulants that we produce for water treatment, exactly the same formulation,the same product can be used as an ingredient in concrete manufacturing. Or it can be used in the fire retardant manufacturing either as aningredient or products in it. So it's really widespread and different dynamics driving for those different application areas. So I would not even tryto model it.


(inaudible) margin-wise?


Margin wise, it's in line with what we are doing, and some of those, actually, are very kind of relatively higher margin. Because especially in a situationwhere we need to choose whether we do something in our strategic customer base or whether we do something somewhere else, it always hasto be significantly higher profit if we choose that one.


Good.

Ben Gorman - UBS - Analyst

Ben Gorman, UBS. Just on the China water treatment point that you were making, how big, specifically, is China of your sales? And then I guess,how big is your market share, who are your main competitors? So the first part. And then in terms of your logistical challenges there, you talkedabout having to do a lot of importing. How much do you need to put down in a region?

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Well, you saw it from the numbers, China. I mean, if you just do the math from that, it's roughly EUR 25 million of the sales. With that, in the watertreatment, we have market share, which is below 1% in China. So there's a lot of opportunities to catch there. In terms of the challenges of importingthe products, we operate mostly in the main cities, which are -- I mean, Chinese infrastructure is actually very well developed in there. So the logisticsas such it's not bringing us operative challenges.

Of course, it's a cost element, but as mentioned, what has been kind of capping our growth there has been this -- because of the higher cost thatwe are importing, that the product we are limited to those high tier kind of top-tier applications where the quality customer is willing to pay thehigher price for the quality. So at some point kind of if you want to go really big time into those opportunities, then, of course, we would need tohave one way or the other production capability in there, which we actually are already, to some degree, doing because the Nanjing plant, whichis primarily a paper chemical plant, we're producing there some water treatment chemistries as well and using that already.


Couple of questions there behind.


Robin Santavirata, Carnegie. Could you talk about the oil and gas market growth outlook now for H2 and 2018? You have super strong growth inH1 and sort of strong recovery in sales. How is the underlying market now developing with the rig counts in North America? And what should weexpect, what kind of growth for the second half of the year and 2018 would be good to expect?


Pedro will be addressing those questions after lunch in more detail. What I can only say here that in order not to kind of use his time, so basicallyit looks very positive at the moment. But he will address that in more detail after the lunch.


Okay. And shortly on the -- bringing the 2 segments together, now is the cost saving EUR 15 million to EUR 20 million or is this sort of because youwere talking about synergies and/or opportunities to gain business? So that's on top of the EUR 15 million to EUR 20 million?


Yes, we have communicated that with the restructuring, overall, on Kemira level, we aim at EUR 15 million to EUR 20 million cost savings. As Jarimentioned, the run rate is at the end of this year there, and it is exactly in that range. But that's cost synergies. So all the other stuff that I talkedabout is kind of on top of those cost savings.


Okay. Let's take the next question here from the iPad. There's a question. What's the pipeline like for municipal water treatment contracts in eachregion? And what are the pricing dynamics for contracts in Asia?

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Well, I would need the rest of the day to answer that kind of conclusively. But the municipal water treatment business in North America and inEurope is typically a kind of a public type of business and the contract durations are mostly 1- and 2-year contracts, in some cases, 3-year contracts.But typically 1 or 2-year customer contracts. And, of course, Asia is less developed in that respect. So it's kind of -- there's more variety into differenttypes of contract types there. But the main Chinese cities, for instance, are pretty much following the western practice in terms of how they contractout the chemicals.


Let's take a next one here. How far are you being fully utilized in Industry & Water? And after merging the separate divisions, have you decided todirect some of the capacity into other end markets in order to boost capacity utilization rates?


We're actually, at the moment, very well utilized in our asset base. And we have to remember that the polymer assets, which Jari mentioned aboutserving all the businesses, Pulp & Paper and all parts of the Industry & Water business, we're already utilizing that capacity to serve all of ourbusinesses. So that's normal life for us. Same goes for the coagulant -- inorganic coagulant plants. So those are predominantly water treatmentchemicals. But we use the same capacity to support the Pulp & Paper business as well. So that we're already doing. If you look at the polymercapacity, it's very well utilized today. If you look at the coagulant, it's well utilized. So there's still room to grow there, but capacity utilization by nomeans is a problem for us today.


Good. There are a couple of other questions to our CEO and CFO, and I will take those when we have the joint Q&A to our CEO and CFO. So don'tworry, your questions will be answered later during the day. Questions here in the room?

Nick Charles Timothy Longhurst - Marathon Asset Management, LLP - Portfolio Manager

It's Nick Longhurst here from Marathon. Did I understand you right? You said that you shut down in Latin America a while ago in waste watertreatment? Why would you...


We divested the assets.


You divested. But you're saying now basically you've got a sales force from the other divisions.


Yes.

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So are you now selling everything through everyone? Is that what you're doing across the board?


We're not yet selling everything through everyone. And there's certain part of the sales force is kind of experts and competent on certain parts ofthe customer businesses. But what this now gives us is that we have the platform and we have started to look at these opportunities now. So wehave existing oil and mining sales force in South America. So basically, there are some good water treatment opportunities that these people cantackle there with the products produced in North America.


I guess, I was thinking this is a very technical selling type. Sort of like double-glazing, right? It's a very technical sales, I think, anyway, and I was justsurprised that you said all these people can sell that...


No.


There's like it was sort of we just changed the nameplate and...


No, it's not like that. But there's -- again, we can utilize the opportunity to a certain degree. But yes, I mean, if we really kind of full blown go there,we need to start developing back those competencies as well. So...


Very good. There are no further questions. So let's have the lunch break now, and we will continue in this room sharply 13:20, 20 past 1. Thank you.

(Break)


All right. Welcome back from the break. We will continue with Pedro Materan from Houston. Pedro joined us back in 2006 when we acquired Cytec.Pedro will talk about the exciting journey in oil and gas and how the future looks like. Pedro, please go ahead.

Pedro Materan - Kemira Oyj - SVP, Oil and Gas

All right. Thank you, Olli. Thank you everybody for being here. Really excited to come today and talk about our oil and gas business in Kemira. We'regoing to go from who we are, what we have done decently and more importantly, what we're going to be doing and focusing in the future.

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The main message that we want to put out there for all of you guys is that number one, we are back on growth; and number two, we have cleartargets to continue to grow further in this business.

First, a very small -- and a small part of Kemira. In terms of revenue, we are only 7% of the total revenue in Kemira, but we have a huge opportunityin front of us, something like EUR 2.5 billion opportunity in the market that we're playing today.

Our group is a small group, we only have around 30 commercial people around the world, but these are one of the best. Number one, they arehighly capable; number two, they are highly motivated. And more importantly, they focus on a couple of key accounts. We have around 200accounts globally, and this comes from operators in the oil and gas industry, all the way to service companies.

We focus on a couple of areas in oil and gas. We focus in the areas, the number one, we see are sizable; number two that we believe they havepotential for growth, but more importantly, in the areas that we can win.

When you look into the geographical areas. Number one, we have 75% of our business in the Americas, why? That's where the majority of theopportunity is for any chemical company that work in oil and gas. Secondly, if you look, for example, into the drilling market, drilling rigs, 52% ofthe drilling rigs in the world are located in North America. So naturally a place to be, a place to compete.

Secondly, when you look into our specialty chemicals, we're focused and we're strong. We're strong on polymers. We're the second biggest producerin the world. And obviously, we got to leverage that capability into the oil and gas markets. So that's why we have the majority of our focus on thepolymers, in peptide polymers side.

The third part is in terms of applications. We focus on the areas that are highly intensive in term of use of water. When you look into the wholespectrum on the oil and gas market from production all the way to a refinery. When you go to the upstream market, that's the area where themajority of the water is being used. Just to give you an example, the world produced around 98 million barrels of oil every day. And you know howmuch water we produce associated with that? 3x that. So 300 million of barrels of water are been produced when you extract this oil fromunderground. So a huge opportunity for us, all that in upstream, and that's why we put all of our efforts on that area.

One thing to remember. Now under the Industry & Water group, we have all the capabilities and the knowledge from the water technologies. Andwe're mixing, we're mixing that with the oil areas when many of the applications, that you will see in a minute, are related to water. Going to whatwe've done most recently. Obviously, everybody is aware of the downturn that we had in the market a year or 2 back, the biggest in history.

The team had shown how resilient they are. Number one, surviving during this downturn. But number two and more importantly is developingthe business on new areas, while the market was going through this downturn. That's how we got to 47% of growth areas in the first half of theyear versus previous year.

And if you look into the oil and gas price, we have been in a market that have been relatively stable. So from that perspective, the team has donean outstanding job on trying to -- continue to develop and diversify the business, especially into our areas, the chemical EOR and in the Oil Sandsarea that I'll explain in more detail in a minute.

The 3 main differentiating points that we have are related to: bringing increases -- process efficiency; secondly, reduction in cost; and then third ismanaging the environmental concerns or issues that certain customers have.

But more importantly, the umbrella how we do all these is related to our innovation. Just to give you an idea, more than 10% of our revenue todayin oil and gas is coming from products that we have developed in recent years.

With that, let's take a look a little bit about all the changes, right. And Antti was talking about the new organization.

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So, obviously, oil and gas is under the Industry & Water umbrella, but what this is bringing is 3 key points for us. Number one, we're moving frommanaging the business on a regional basis into a global way. And important part of that is that's what our customers are doing. So we're gettingmore aligned with what the customers are doing.

Number two, we are heavily weighted on the upstream applications, basically how you reach the oil. And we're moving now slowly but sure fromupstream to midstream. What that means? That means that we're diversifying obviously, but more importantly, we're reducing our dependencyon this oil price going up and down. If you continue to move downstream in the value chain of oil and gas, you get a more stable business. Sostrategically, that's an important move that we are doing to have a more stable business.

How we're doing this? We are setting up 2 units: One unit called oilfield chemicals and the second one oilfield services, both of them havingsignificant opportunity more than EUR 1 billion and market opportunity for Kemira, but they are totally separating in terms of how they approachthe market and how they operate. One, mostly focusing on the upstream, the normal downstream, deep drilling, cementing, shale.

The second one, mostly Oil Sands production and chemical EOR. Then when we look into the type of customers that we're working on. Oilfieldchemicals is all about service companies. The companies that add value to our chemistries. And our offerings to them is pretty simple, it's ourmanufacturing and innovation capabilities.

When you look into the oilfield services area, it's totally different because this is all about dealing with operators. And more importantly, what weare offering there is not chemicals, is a total packaged solution for what their needs could be. We expect to continue to grow in a moderate wayin the oilfield chemicals. But then in the oilfield services get a little bit more of a strong growth area.

Looking into the first area of focus that we have. This is the base of what we have been doing and this is the first one when we started to diversifya couple of years back is called shale. And importantly, the link of shale with what Kemira does is it is heavily water intensive. When you're lookingto, for example, what they do when they do this process, which is basically injecting water down the formation, getting to this formation andliterally breaking it or fracking it. You've heard about fracking, I'm sure. So basically, when you do that process, you are helping to produce eithernatural gas or oil faster and easier. So that's the water connection, right. So we have a -- as an example, in one of these applications, you may beusing 5 million to 10 million gallons of water in one of those applications. What that represents for us? That they use chemicals associated with it,and it's around only 1% of this volume of water. And from that you assign a small portion is related to our special chemicals. But even when I'mgoing from a big number to smaller numbers, you can see that only in polymers the market potential for us on this application is more than EUR200 million. We are well positioned in this area, we have around 30% of the market in North America. And this is an area that you have heard a lotin the past in the downturn. And it was supposed to be one of the areas that we'll either go down or even disappear in terms of an opportunity.

Well, that's not the fact. That's not what happened. It's not the case because of 3 things: number one, the consolidation in the market; number two,more efficiencies in one and each of these processes; and number three, that all these companies are now focusing on the areas that they cangenerate more cash even at $20 a barrel price. So we will continue to develop this area. Obviously, recently we have more than doubled our businessin the first half of the year. And then when you're looking to how we continue to do this is based on only one main factor is on our innovationcapabilities. We bring technology to the market. Every 6 months, we bring a new product to the market. And that's what keeps us ahead of everybodyelse.

Now looking into chemical EOR. Many of you have heard about this before. You understand clearly why Kemira is in this area. Again, significantamount of water being pumped down the hole, basically to, in a way, push additional oil out of that reservoir. So that's the concept. But at the endof the day, it's significant amount of water that is being used, that has some additive, in this case, chemicals and for us that means polymers.

And on the polymers side, you'll see market that is available for all 6 days. It's around EUR 500 million. The big difference between chemical EORand shale is the timing. Shale, you can get in, you can get out really fast. Chemical EOR, it takes a long time to get in. It also takes a long time to getout. So we got to be sometimes patient with this application.

But the important part, this application will continue to grow because as much as people think that there is enough oil out there or there is enoughoil, but maybe not the easy one. And the -- one of the easiest way to extract oil these days from what you know where it is, it is waiting to be pumped

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out is basically using a chemical EOR. We have been changing our offering here, moving from only the chemical side to all the way to the totalsolutions, meaning we offer equipment, chemicals and the service associated with it.

And we expect -- we have high expectations on this business. Hopefully, 5 years from now, we're going to be targeting to be at around EUR 100million on this area.

Getting into the newest kid here, which is the Oil Sands. Again, another process that use significant amount of water to process or produce oil. Justto give you a reference. Canada produce around, in this application, more than 2 million barrels of oil a day, and you need 3 barrels of water toproduce that oil. So 6 million barrels a day of water that you need to use, you need to treat, you need to manage in some way and that's whenKemira comes and play a role.

We see a significant potential there. We have the opportunity to continue to grow there, especially on the environmental side meaning the tailingsthat are coming out of this process, that's something that no matter what happens with that industry it needs to be treated and that's where Kemiraplays a role.

We've been progressing pretty nicely in the last 2 years. We are happy to report that we're around -- at the beginning of this year, we grew fromEUR 0 million to EUR 20 million in revenue in that area. And we have exciting things coming our way, as an example, we just recently signed acontract to -- one-time in terms of equipment that we're offering to one of our big customers. And this is multi-dollar agreement. So it's an evolution.We expect to continue to grow in this area, especially focused on the big operators on this industry.

Looking into a little bit more in the short term. We expect to continue to strengthen our position. We expect to continue our growth trend. Wealso will be putting additional efforts on increasing our profitability. We have been a challenge for everybody in the industry in recent years. Butnow moving from red to black. We are going to be adapting to that as well, meaning improving our margins there. We don't have a lot of people.We don't expect to have a lot of people either, but we're going to continue to hire selectively and more importantly, continue to develop ourpeople.

And then last, but not least, our main differentiator is related to innovation. So in the coming months, we're going to bring to the market a coupleof new products. We expect good results from that. And then also, we have a couple of key field trials that most likely will be the base for a coupleof big projects in the future.

As a summary, I think that we feel that we're well positioned to continue to growth in the selected niches areas that we have selected. We expectto continue to move from the first phase, which was between 2009 to 2017, which was basically grow a little bit, prove the concept and that wasunder the umbrella of Oil & Mining.

And now together, under the umbrella as well of Industry & Water, we expect to move forward. Again, the main differentiator will be related toour capability for innovate and do that in 3 main areas: shale, chemical EOR and Oil Sands. And hopefully, continue to grow and help our customersto extract more.

Thank you.


Thank you, Pedro. Let's take a couple of questions to Pedro.

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Ben Gorman - UBS - Analyst

Ben Gorman, UBS. In terms of the key competitors in CEOR and Oil Sands, are they basically the same people? And in terms of these businessesbeing margin accretive, if you've got the sort of same competitors, what makes it a higher-margin industry? And higher barriers to entry intosomewhere, adding value today?


Yes. Thank you. Yes, if we were only talking about polymer, for example, yes, in term of competitors, they are similar. They are the same actually.But the key here is how we differentiate as a company. If we compare Kemira with the others, our biggest tool here is our capability to adapt ourpolymers to their new solutions. These are not static applications, it starts static, but then with time you need to adjust your chemistry, highertemperature, higher pressure, salinity and all the things. So in those areas, you need to continue reinvent the wheel in a way, and that's what wedo in Kemira, and we do it really well.


Panu Laitinmaki from Danske Bank. I have a question on sale of polymer market growth of double digits. So what is driving this? Is it the sale frackingvolumes are growing, and how that reacts to the rig count which -- where the increase has kind of stopped in the past 2 months or so? And -- oris it like higher penetration of your production in the fracking process, which a couple of years ago, was estimated to be 60%, 70%? So is it -- isthere room to grow?


Yes. Absolutely. Well, thank you. I think that starting with the -- what have changed, right? Number one, well, it's obviously we have a little bit of agrow in the market, right, in terms of demand in the last 12 months. So that's one thing that is obvious, right. The second thing that is not obviousis that the operations have changed. They have become more efficient in many ways. And luckily enough, these efficiencies are linked to many ofour products. So when they get more efficient, which is good to reduce the overall cost, they're using more of our work products. And then thethird part, which relates to additional growth is that we've been able to position these new products that we have more competitive versus otheralternatives that are in the market, I think that you have heard before about the water, for example. So all these factors are helping us in a way togrow this business in recent years.


Good. Are there further questions here in the room? If not, let's move on.

Thank you, Pedro.


Thanks.


And we will continue with Thierry Biomet. Thierry is our expert about sourcing. He has done a long and successful career in sourcing. He joined usin 2013. And prior to that he worked with PPG and DuPont. Thierry, please go ahead.

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Thierry Blomet - Kemira Oyj - SVP, Sourcing

Thank you, Olli. So glad to have the opportunity to present to you how sourcing is contributing to Kemira's business performance. Together withmy team, we are responsible of EUR 1 billion of direct material. It's a lot of money. So the way it is managed requires high strategic intent to makesure that we support the business in intimate manner. Our mission is first to make sure that we keep Kemira competitive, that's essential. But wealso drive high performance from our suppliers and in a sustainable manner. That is connected to managing risk. I mentioned EUR 1 billion, youcan make your maths on the graph. About 65% of that is directly raw material. And I'm going to focus on that part today to explain to you, why wehave to have a strategic way to manage it, and how we do it.

Only 30% of that raw material spent is connected to oil. The rest is either mineral connected to the mining industry or vegetable. We talked aboutharvesting natural resources or further process chemicals.

It is true that when you look at the top of our raw materials, half of them have a strong connection to the oil and the petrochemical value chain.The others, they belong to the other categories I mentioned.

You will see that in the coming slides, why this KPI that is on the left side is of essential importance. We have gone a long way already in improvingand reducing our dependency on a sole or single source of supply. Up to the point that most likely by the end of the year, we should be evengetting below 8% of our raw material spend that would be in this peculiar situation.

The second thing that we can highlight as one of our KPIs is we've been working hard to improve overall Kemira's working capital by extendingthe suppliers payment term from the low 30 days to most likely we're going to hit the number of 50 days by the end of this year. These are examplesof multiple focused KPIs that are driving our action. One of the fundamental characteristics of the business and how we can improve our businesssegments to increase their profitability is managing 2 environments: one that is volume related, and I will explain to you more in detail what itmeans. And one is price related. There are different dynamics that need to be mapped out and strategized. If we focus first on the volume aspect.It's all about supply/demand dynamics. And I don't want to give a lecture of business economics. I just want to illustrate how important it is in theindustry we're working. We have 2 different time horizons where we have potential very significant shift in supply and demand balance. One is thelong term. It means that the chemical industry goes through cycles of downturn, no appetite for reinvestment to boost capacity expansion untilthere is enough visibility on demand and then demand starts to pick up and then there is reinvestment economics that are starting to be thereand people are reinvesting. And we go through this cycle of overcapacity and tightness. And we have to navigate in those cycles. They are inherentto the industry, and we have to anticipate as much as possible.

The other aspect is more short term. We have variation of supply/demand that are connected to all kinds of short-term situation. Could be mechanicalfailures, could be natural events like we have been mentioning today, the Harvey, as an example. And those have -- could have massive effect onthe availability of the raw materials we buy. So how do we manage that? First of all, Kemira mostly acts under contract. We do very little spotbusiness. The second thing is that, we are carefully studying the timing and the length of our contracts to make sure that they are adapted to thosecycles. And back to the first KPI that I've shown you, multiple sources is the rule of the game.

Pricing. We talk about an industry and especially, the oil-related part of our raw material portfolio. There is heavy price dynamics. It's very volatile.We have here, on the graph, an example of not a long-term view, you can see already the swings that we see in our industry. I illustrated here anexample. We start from oil that has gone up 68% over a certain time horizon. This oil is one of the primary, you crack it and you produce propylene.You have already a dilution of the effect of the price volatility. And then you go down -- one step downstream in the chain. You use propylene 1.1ratio to manufacture Acrylonitrile then you have another dilution of the effect. And then you use the Acrylonitrile to manufacture polymer thatKemira is supplying to its customers, and then you have another level of dilution. The understanding of those steps is essential to make sure thatfirst, there is a fair value offering by the suppliers; and second, we are having a close understanding of the margins of the upstream part of thevalue change.

How do we do that? We have a value chain cost modeling for most of the important raw materials. We have absolute precision on those elements.And together we do business, and that's the essential part. We monitor, we react or we productively manage those cycles. And for sure, sometimesthey are pretty dynamic and of big order of magnitude.

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So it's essential. It's a big contribution to the performance of the cooperation of the business segments, and how well we're moving forward toeven further improve on what we are doing. We continue to reduce the exposure, the targets to go below 5%. We will remain with some chemicalsthat are only produced in the world by one company. But we should limit that as much as possible. We work with preferred suppliers as much aspossible because that's giving us a proper cover, this is what we need and what the risk we may have. And we've key suppliers, we are -- we havelaunched a program that is called vendor value program, no rocket science, but it's meant to make sure that these suppliers are helping us throughall kinds of additional value proposition that they can formulate. It could be new product introduction ahead of the rest of the market, it could bedifferent supply-chain setups that we can work together to improve our cost, and we have precise numbers and targets in savings that can beassociated to those programs. And continue to do that in a very efficient manner within our -- with our team so that we can grow together withthe business with limited resources doing the best that is needed. That's how sourcing helps improve the performance of Kemira through themanagement of this EUR 1 billion of direct materials. Thank you.


Thank you, Thierry. Questions?


I was just wondering, how you manage to contract most of your chemical purchases versus spot because to my knowledge, there's very limitedcontract, at least official contracts in place. So how do you do that? Can you explain that a little bit more?


Sure. The first thing is that you set the stage probably with the people you interact with, meaning the suppliers. It's a give and take. And the outcomeof that is that, you need to be billing enough from -- as a business in terms of growth profile, in terms of importance for their portfolio. And if youare successful in raising the attention and having clarity on the give and take for getting the business, often you end up being able to formulate itunder contract. And most of those contracts are under Kemira's terms and conditions that are pretty straightforward, clear and giving also for thesupplier a very clean view on how things should be handled, what are the performance that are expected and what is also our level of commitment.


Next question.


Robin Santavirta, Carnegie. You said, spot, no spot but contracts. So what's the length, the average length of the contracts in key raw materials?And then related to that, how is that linked with the sales prices and changes in the sales prices?


Okay. So the exact number to your question is 2.3 years. Sorry, for the, precision. It's looks like an accountant, but this is something we -- that is ofimportance for us, so we track it. So it's 2.3 years on average. And the way the contracts for the key raw materials are formulated, there could beeither a fixed price for the whole period of the contracting period or there could be all kinds of different indexation that are reflecting the valuechain cost structure. So for example, it's not untypical that the acrylonitrile, as an example, the one I have shown, you have as part of the price someindexation to the upstream feedstocks, such as propylene, reflected into the pricing mechanism. And that's also a way to control the margin becauseyou have the formula and you fix the other, which is the margin and the fixed cost of the supplier.

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Is the 2.3 year. I guess, that's a frame agreement on volume or something like that. But I was just -- if how often do you check the -- or how oftenis -- are you allowed to change or the seller of the raw material allowed to change the raw material price that cannot be every 2.3 year that mustbe...


No, well...


So I'm -- when I'm after is that the margin impact if raw materials go up or I can see that ethylene and propylene price, for example, at the momentare surging in the U.S. When will that be visible for you guys? And then when will you be able to raise your sales prices on the basis of thesedynamics?


Fair enough as a question. So back to the -- distinguish between the fixed price, there could be fixed price for 3 years on certain product. We havesome of those contracts or there could be quarterly price for the most dynamic once. Why? Because we want to make sure that we are in sync withthe market and the cost structure, and as well as also the suppliers will never accept to take more than a quarter or 6 months or a year whateverthe chemicals engagement because also they don't have the visibility. So when they are on a quarterly index formula, for example, for sure, theprice will vary according to the cost components on a quarterly basis. And that's the agility I was referring to about the way we manage thatinternally within Kemira and together with the business, to make sure that we are managing it in a way to protect and enhance our gross margin.


Okay. Let's then take a question here from Johannes Grasberger. Do you think Kemira is somehow in a worse position compared to the blue chipsin terms of sourcing? Or is it actually sort of the company size does not matter that much here?


Well, we need to be humble with those kinds of questions. The proof -- the ultimate proof to answer the question is when you make an acquisitionand then you compare facts and then you position yourself. Whatever the company's respective size was, you can get to the ultimate comparison,let's say, for a given raw material where you're buying it on average, less expensive or more expensive than the company you got. So this is theultimate proof. The recent acquisition we have made in Kemira -- in Kemira's history have demonstrated that, they were very, very few number ofraw materials that the company we acquired had their pricing than we had. So that's one. Okay, it's on limited scope because this is what Kemiraacquired, so it's maybe not big Blue Chip and we didn't acquire the assets for sure. So how do we compare with the bigger companies? Sometimessize matters for sure. We cannot deny that. It has certain effects. So somebody buying 10x bigger quantities then we do might get a better priceand terms. But also sometimes, it's not about the size and it's about being the preferred customer of choice for the supplier, meaning reliable,contracted, predictable and sustainable customer and outlet for their units and their business. And that's where Kemira certainly has maybe a goodfeat for many suppliers and sometimes coming at par with much bigger companies in terms of accessing those raw materials at competitive costs.

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Thank you. Jari is also available during the breakout sessions. Let's move on. Our next speaker is our CFO, Petri Castren. Petri is known to many ofyou. So Petri, please go ahead.

Petri Castren - Kemira Oyj - CFO, Head of Region Americas & Member of Management Board

Good afternoon from my part as well. So I will close today, and I will try to summarize actually in couple of the key points that had been raisedalready in questions to Thierry and Jari as well. And those are primarily on what's the correlation between variable costs and the sales prices. Let'slook at the trends and think of whether that's a prediction of the future. And secondly, a bit more on the guidance, and hence, indirectly, what'sthe impact to the cash flow. But before going into that, so let's look at first on trend lines and trends on the 2 segments. So you see, a 5-year trendof Pulp & Paper improving its profitability, although the last 12 months profitability has been impacted by this raw material pricing, and I'll comeback to that with a separate slide. But clearly, the trend has been improving, and we have number of actions that both Kim and Jari talked about,about the actual synergies, about the new capacity that we are bringing online in chlorate and some of the savings that we are getting from the-- from the reorganization. So these are all concrete actions that will be yielding improvements in the coming -- in the future.

Secondly, if you look at what's happening in the water and industry or Industry & Water. They are 2 -- obviously, 2 distinct businesses, and the oldMunicipal & Industrial water, which for a reason, can be proud of delivering it to the 15% EBITDA margin in 2016 or very close to it. Clearly, thatwas -- and we have said that that's sort of a -- on the -- at the level where one cannot expect significant improvement from that level. So that wasa good achievement. But on the other hand, and Pedro was sort of describing the situation in oil and gas, that has been a difficult market in 2016.It continued to carry to '17 with a difficult pricing environment, but clearly is now on the road to recovery to really moving that business fromseverely diluting to margins as it was in 2016. The second half of 2016 was less than 5% EBITDA to really enhancing the margins as it should be.

Actually, by the way, I would like to add here one sort of a note that Pedro mentioned in passing that when we are becoming an equipment supplierto Canadian Oil Sands that this is sort of a onetime thing that we are doing. We are not manufacturing the equipment ourselves, so it's a back-to-backarrangement. But it does enhance our revenues in the second half of the year by some close to EUR 20 million. It will become a profitable business,but not -- somewhat diluting to our margins. So when you see that -- this, please note that. And that's obviously not repetitive, but it's a strategicsale. Because that sort of a transaction allowed us to lock in the customer, and obviously, the model for us is that we deliver this lending equipmentor delivery equipment, then it's our chemicals that will be used in the operations.

But let's look at the raw material prices and sales prices. And this is a slide that you, who follow us regularly, have seen this. And I don't spend toomuch time on this one. I just want to show that there is 10 years of very tight correlation between variable costs and sales prices. And typically, it'sthe way that the variable costs drive changes in sales prices. Typically, the lag is 2 to 3 quarters. And you will see the upswing in the variable costsat the end of the time horizon. So let's focus on 2016 and '17, what has happened in the 6 quarters. And this is a new picture, and we try to impactthe net impact or highlight -- show the net impact of what's happening in the costs and pricing. So light blue is variable costs. And actually, as yousee it, as long as it is below 0, the prices or costs are declining and then the slope actually -- whether they decline or -- is decelerating or accelerating.So until Q2 of 2017, we had an environment where wrong set of prices internally were declining. And that resulted in a deflationary-pricingenvironment where we tended to see sales prices declining.

Much of the decline in sales prices in 2016 was really linked to the raw materials. There were some areas where we have seen increased competition,but for the large part, it was this raw material price driven.

In Q1 this year, we saw the -- which one of the -- 1% from the audience was already alluding to the propylene and ethylene price spike, particularlyin North America. So that impacted our variable costs significantly.

If you look at the gray area, which then shows the net of the 2 impacts, the year-on-year change in prices and the year-on-year change in the costs,you see that for 2016, the net impact was roughly 0. So we had some tailwinds in the beginning of the year-end, then started to see headwinds atthe end of the year. But if you combine the last 2 quarters, that's EUR 35 million headwinds in the first part of 2017. That's pretty dramatic. And thisis EBITDA, this is not revenue. This is profit. And this comes directly from the quarterly variance analysis that we provide. So that's the environment

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where we have been in the first part of the year. And again, if you sort of flip back to the tight correlation that I showed in this chart, there is sortof a promise of statistically reversion to the mean. So I'll just leave it at that. So we have to sort of have this tight correlation.

Secondly, of course, you saw Thierry's trucks. Thierry was showing the petrochemical prices, and they have come down from the spike of spring.So even as we had had a new environment with the hurricane impact and we see again another increase in propylene and ethylene prices in thelast month and this month's price clearing. Generally, the raw material pricing environment is more stable than it was in the first part of the year.

Second, lot of questions obviously have become -- have been asked about our pricing power, whether us -- whether we are able to pass on theseprices to the marketplace. It doesn't come easily. But as I said, this is something that we are working on it and have been working on and havemade similar price increase announcements throughout the year, and obviously, are working towards that.

So the last point, which we would like to hear is that, yes, we expect that this headwind will alleviate in the coming quarters. So it's not a time line,a precise time, when it will alleviate, but it certainly -- we expect and see already signs that this headwind is alleviating.

Second topic I like to raise here and talk a little bit more is our capital expenditures. So the CapEx programs that are mentioned here, they arealmost EUR 200 million of CapEx in the first 3 bullet points, of building new chlorate capacity in Brazil, building new chlorate capacity in Finland.It has come at a very good time to the market, like, again, Jari and Kim mentioned. Clearly, enhancing our financial returns both from EBITDA aswell as capital employed point of view. We are bringing all the promised synergies from the AkzoNobel Paper Chemicals acquisition. We neededto invest some EUR 40 million of CapEx to bring the manufacturing synergies there. And the manufacturing synergies were significant part of thatEUR 20 million or so synergy benefits. Same time, we're also investing on polymer capacity in Europe to really be in a position to take advantageof the growth that we anticipate in oil and gas, including Chemical Enhanced Oil Recovery. So it makes us better positioned to take that position-- take advantage of the opportunities. So as Antti said, this has been a big phase of almost roughly EUR 200 million per year of CapEx, which weare -- have had a focus and we are looking to bring it down. So give you a guidance that next year CapEx will be reduced to something in the rangeof EUR 160 million to EUR 180 million. Still a number that is perhaps above the industry norm, but this also already includes capacity expansion inoil and gas.

I am not going to be specifying what capacity expansion it is, and it is still a dynamic market, so we're looking at the opportunities before we makethe final decisions. That's also why the range is relatively wide, but this is -- that's the guidance for next year. After that, we see us going moretowards the industry norm. Industry norm is about 5% to 6% of revenue in CapEx. Having said that, we still want to say that we maintain flexibilityto do on top of that some strategic bigger investments.

Kim showed a slide of significant opportunities in chlorate. So chlorate lines are pretty expensive to build. They can be very strategic, very goodreturns from financial point of view. Similarly, Pedro was talking about EUR 100 million or more opportunity in Chemical Enhanced Oil Recoveryto take fully advantage of that opportunity. If that opportunity really becomes big, we will need to add more capacity. So those type of a big-ticketinvestments would be then on top of this 5% to 6% CapEx guidance. But those investments have at least 3 common characteristics. One is thatthey are strategic investment areas. We have looked very carefully that they are financially rewarding, meaning that they are both EBITDA andreturn on capital point of view enhancing our returns. And third, they can be de-risked to a large extent. If you think about -- I think -- almost theultimate is the chlorate line, chemical line in Brazil. You have really a firm 15-year offtake agreement. That's de-risking the cash flows quite a bit.And so even if we don't get quite to that level, we will then de-risk it knowing that we will have commitments of really solid opportunities beforethat, so these are not on-spec-type acquisitions -- or I'm sorry, capital expenditures. Then maybe another point that if we do M&A, M&A is not partof this 5% to 6% of CapEx ratio.

So looking at our capitalization. So from 2012 to '14, we were roughly slightly below 2x leveraged, EUR 250 million EBITDA; roughly EUR 500 million,again, very big brush EUR 500 million net debt company. From that, we have now, again, with a very big brush about EUR 300 million of EBITDA,so some EUR 50 million EBITDA improvement. And if we sort of assume the normal seasonality that we are, we can also use a big brush and talkabout EUR 700 million of debt set, so that's EUR 200 million of net debt that has been increased from that time and generating EUR 50 millionadditional EBITDA, and at the same time, paying EUR 85 million of dividends per year. So the additional debt that Jari mentioned that we havetaken and now has really yielded returns. How we fund ourselves? And obviously, there are number of our lending partners here in this room, soour appreciation and thanks to all of you. So we have used quite diversified lending sources, so we are relying on capital markets by issuing bonds.

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We have bilaterals with banks and multi-lateral institutions. We like to also keep enough financial flexibility by maintaining a revolving credit line,which on this picture is unfortunately pictured in a wrong year. It actually matures in 2020, but nevertheless, it's -- that's there.

So summarizing our equity story, it's really continued to improve the profitability. Jari went through the bridge, as we call it, clear tangible actionsthat we have underway, with an improved or increased focus on cash flow through capital -- tighter capital allocation, which the principles -- whichI just went through. So with that, these are the targets how we continue to drive towards the 14% to 16% range while maintaining a conservativefinancial profile and attractive shareholder or the shareholder-friendly dividend policy along the way. So with that, I'll stop, and I think it's Jari andI both jointly taking questions from the audience.


Yes, we will take questions to Jerri and Petri, but also there are couple of questions on the iPad from the webcast audience, one to Pedro and oneto Kim. So I'll pick those up also, and -- but let's kick it off with the questions to CEO and CFO. If not anyone here in the room yet, couple of questionsfrom here, from me (inaudible). Could you please quantify the financial impact of the hurricanes?


We said it's limited, but -- so thing is unfolding. We had check bounce -- customers had check bounce and we had raw material, sort of, lack of rawmaterial not stopping because -- fully because of that but not running full capacity. Still keeping it so that's not a material effect as of we knowtoday. Hopefully, Maria is not doing next hit, so.


Little bit related to that, there is a question. Given that your EBITDA is down during the first half and the headwinds from the hurricanes and FX,how confident are you in reaching the full year guidance? And what do you see as the key risks relating to this?


Well, we didn't change our guidance, so that shows that we are holding to it. And we have said, since February of this year, that it will be tail-weighted.If you look at the bridge that I showed and Petri just talked about, many of those things are kicking in , in the second half of this year. And ourorganizational structure change is one of that, that there was no effect whatsoever in the first half. So with those dynamics that Petri talked about,we sort of knew we were going this way in the year, and now we are tail-weighted and going back. So we maintained our guidance.


Good. Let's take the next question to Kim. There is a question about Pulp & Paper. What do you think will happen with chlorate prices in Finlandnow that the ultimate plant is fully sold out and there is possibly more pulp in capacity to be built? Would that be something that impacts yourprofitability?


Well, I don't think. Really, actually, we steer the product line globally. And we ship from [tres bien] to India, Africa, anywhere. So it's only oneadditional mill, and we will steer the pricing globally, so it will not impact. Two, profitability, yes, but to the price levels, most likely not.

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Maybe I'll add to that. So the reason that it sold out, part of the product can be made into a dry product, so we can export it to the world markets,and obviously then we optimize and who do we sell and how do we run that and there is seasonality also. So now Kim is sitting on a number ofassets, which make it possible to balance where we want to do it. And contracts, typically our long-term contracts, we didn't talk about that. Weare talking 1- to 3-year contracts in clubbing, in this case, 15-year contracts, so.


Let's take the next question to Pedro about oil and gas. Have you seen increased interest towards CEOR now that it seems perhaps that oil pricesare not increasing that much anymore, as U.S.A. is becoming self-sufficient on energy and electric cars are coming, which would reduce appetitefor exploring new oilfields?


Good question. We just need to keep in mind that -- first of all, chemically, these are long, long-term projects and almost all of them that are alreadymoving forward. They are going to continue to move forward regardless of what's happening in The United States. Secondly, they keep gettingmore efficient. One of our technologies is helping to do that, and with that, they'll even accelerate their interest on chemical EOR. So I think that --I don't see a substantial negative effect in the interest or demand for those applications.


Okay. There's a question in the back of the room.


A quick follow-up to that and on the oil and gas as well. And no one wants to talk about the Oil Sands at the moment. So just what are you seeingin terms of the volume-wise? You got EUR 2 million still produced today from Oil Sands. How are you seeing that going forward?


Yes. Well, Oil Sands was one of those areas that were supposed to be out after everything that happened 2 years back. And like any other industrythey found their way, right? Number one, the CapEx is already there. So it is easier just to keep it moving forward to keep these plants operatingthat you are shutting now. So we need to keep that in mind. So the only option that they have is to do what they have done. Number one isconsolidation with many companies to reduce costs, and secondly, looking to the efficiency. So they had been working really hard on those areas.And again, Kemira had been an important part on getting involved onto these areas and help these companies to reduce their cost. So if you lookat public information, they are more than 2 million barrels of oil still being produced. It can go all the way to 3 million, obviously, depending onwhat source do you use, but I think that they are stable, and most likely, will continue. And the last piece that we need to highlight is that whenyou go to Oil Sands, it's a general term, there are 2 ways to extract this bitumen, this oil. One is the standard mining process, and that's the onethat we are referring that will stay there for a long time, because the CapEx is already there. But then there is other technologies, in situ technologiesthat are cheaper, easier and faster that they are developing. So for me, again, Oil Sands will continue to be there for a long time, and I don't foreseethat being lower than 2 million to 3 million barrels a day.


And if I may add to that. So we don't bank that the production capacity will go up. We are very much dealing with tailings treatment, water treatmentin there, and there, the regulation is going up. And they even have to now retreat their old tailings ponds. And that's what we are then after with

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our knowledge of water treatment with our polymers and so on. We're partially in the production phase but mostly in the tailings and watertreatment phase.


Couple of questions, first Panu and then Robin.


Panu Laitinmaki, Danske. What is the earnings contribution from the chlorate expansion that was completed ahead of schedule? Just trying tothink of the magnitude of this positive thing.


Nice. I'll go Panu there because that's so deep to our market knowledge, but it is a nice contribution, and Petri clearly said and I've said that thecapital employed, the return is really healthy and the EBITDA contribution is healthy. So hopefully, we find good opportunities of making Klabinand Joutseno. But obviously, we have to be balanced with the market, so that we don't ourselves destroy the market.


Actually, I meant the contribution for this year.


This year? Well, we are ramping up, so not a huge one, but some millions.


Okay. And I would actually have a second question, going back to the raw material price lack that you are seeing. So if you mostly do contractswith quarterly updates, do you already have a visibility to what you will pay for most of the stuff you'll buy at the end of this year?


Thierry, now careful, because we've got all kinds of ears and eyes out there.


Yes, yes, I'm sure. Well, giving a precise number is difficult to your question. As you have seen, we have a number of moving parts that are influencingwhat's happening. There was a trend to go in soft lending towards the end of year. So how much the spike we see at the moment, clearly, on certainterritories, meaning North America and certain chemicals being ethylene and propylene will last, that's a big question mark. Things are returningto operation in almost normal in a pre-fast manner at the moment. So the fundamentals being those, the spike is very opportunistic and shouldnot last very long. But whom am I to predict the future.

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There is a question to our CFO about CapEx, but Robin you had raised your hand, so please go ahead, first.


Yes, I was wondering if you can provide a short update on the situation with Huntsman or Venator for this year and perhaps the expectation for2018 as well?


Okay. No real dramatic update since we updated on -- really after Q2. So we will continue to manage. We have mitigating actions that we are --how we are sourcing the raw materials. So we are -- first of all, we have now assurances that we have enough raw material, so that we can producethe coagulants that are needed in the marketplace. So there should not be revenue drop from that sense from coagulants. The revenue drop thatwe have from passing on the electricity sales, that will continue through 2017 and will gradually diminish in 2018 depending on how quicklyHuntsman or Venator brings the facility and body online. The additional costs that we need to bear because of this workarounds and mitigationactions, those are impacting profitability. And like I said, in the past, we had this business insurance -- business interruption insurance that coversour losses up to EUR 10 million. So the gross margin loss that we expect to get from -- in 2017, other than the deductible, which is EUR 250,000,will be covered from the insurance, so no impact other than that in 2017. The insurance cover is 18 months or EUR 10 million. So depending onhow long it will take before Venator brings the facility online and before we get the fresh cuprous from that, there might be a time where we mayrun out of cover. That really depends on the success of the mitigation actions that depends on related timing, when Venator brings the facilityonline. And we really don't have an estimate and don't try to -- want to put a guesstimate on that number, but it's something.


Good. And just briefly, if I may, on the run rate of the cost reduction from the segment -- from 2 segments we brought together this year in Q3 andQ4, should we expect already a material impact or is it mainly for 2018?


Well, the full impact will be 2018. So really, like we said, we calculated the benefits that we are getting by the end of this year. So the fact that means-- full year impact, next year. I can think some benefit -- very little benefit in the second quarter. We'll have some benefits in third quarter, a bit morewhether that's fully linear for modeling purposes, you may use that, but really the full benefit is in 2018.


Okay. Our sell-side analyst are very active asking questions. So couple of questions from here to CFO. Assuming no plant expansions in 2018, wherewould the CapEx then land at? And is it correctly calculated that assuming EUR 200 million CapEx for 2018, that would include around EUR 60million to EUR 70 million CapEx for a new unmentioned plant in oil and gas?


I'm not sure if I get the mic to work. Anytime you give up something, you'll get the next layer of the onion that has to be peeled. I don't think youcan do that backward engineering quite like that. So the EUR 60 million for oil and gas expansion is not the correct answer, and I'm not going togive the right answer either. But it's not quite that, it's a bit more complicated than that. And I'll not either give out the answer on what the CapExwould be without that because that would then give the answer on how much we intend to invest, and I think we don't like to give out that numbernow. If you look at my charts, I think you see how much is maintenance and improvement CapEx. It doesn't have a number next to it. But you saw

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the chart, you can figure out that it's perhaps EUR 110 million is a run rate. EUR 100 million to EUR 110 million is the pure maintenance andimprovement CapEx. So that's a number that we can give out, and we also separate that in our reports, how much we put on maintenance andimprovement CapEx. Is that good enough answer?


It's good. Okay. Second one, in the Jari's presentation, it was mentioned that cash flow and CapEx would be more balanced going forward andthere is less appetite to increase net debt from here. Would you stick to this even with the full EUR 200 million CapEx spending for 2018?


Well, obviously, the whole thing depends on how we see the cash flow generating from -- for all of the activities and when it is balanced. But Iexpect our base CapEx without these exceptional sort of onetime investments, those, in level, should be coming down in the future years in relativeterms. As we have said, we have been running at EUR 200 million level on average 3 years now, so down from there. Then it comes from timing.And this is why it gets sort of, "Do we start an investment 1st of January or 1st of July, it impacts 12 year period -- 12-month period. So these arethe things that we need to then look at. But if you look at the next 2 or 3 years, the level should come down from the EUR 200 million or cashgeneration up, which is also expected. So balanced and not growing our net debt. And don't look at quarters, don't look at halves, look at thelonger period.


Very good. Okay. Before I'll instruct about the breakout sessions. We will conclude with the concluding remarks by CEO. So Jari, please concludethe event, and then we will end the webcast, and I'll instruct you about the breakout session.


Okay. Thank you all. So we have covered sort of the general business area, which I talked about, then Antti and Kim going through the 2 segments.Then having a deep dive in the oil and gas and definitely to the raw material sourcing side of things and Petri looking then at the financial dimensionof those. And hopefully, you have a better picture now where the business is and where it's going and what our main plans are, and as said, nothinghuge new to report. We are executing the plan as it is and adapting as need be. If I look at what has changed since last year when we were here inthis same hall, definitely, the oil and gas industry is back, and they report to be viable at the 50% barrel level, making cash and being able to invest,and certainly, the shale industry in North America has proven that. At the end of 2014, we were running at 1,900 drilling rigs, drilling is an indirectthing, making holes and then some of them were fracked, but it gives some indication. Summer of '16, we saw a level of 400 from almost 2,000 to400. And now we are at 950 or 960 rigs. So in one year, it has over doubled. The other thing is that productivity has gone up in a big way. Thereused to be stats out there for everyone to see. And in '14, the average drill time was about 21 days for a rig for those 2,000 rigs. Today, it said to be7 to 10 days. So those 956, 960 rigs are much more efficient than 2 or 3 years ago, and that's the core thing that is out there. So oil and gas is backand -- in a different thing recovering. We still have work to do to get our business right, our pricing right, our margins back onto the level we wantto see them, but that's going to the right direction.

Let me talk about the dynamics and the raw materials and prices. So we saw those flattening out and normalizing during the summer and earlypart of Q3, and in a big picture, we see that continuing. There might be a U.S. kind of a thing for some time on back of the hurricanes, but that's alocalized short-term thing, not a long-term thing. The organizational structure is now streamlined, and we are fit for fight and having internalsynergies and faster decision makings and took some management layers out, benefiting also to the cost side, but more -- I'm looking for theefficiency of the organization to compete in the market. Lot of the expansions that we have initiated during the last 2 or 3 years are coming tofinalization. You also know chlorate -- one of those are starting to yield into our productivity and more revenue, definitely, more profit.

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Operational excellence. Various aspects we are doing there are progressing. And not always easy, but we definitely are looking now that thetransportation will contribute starting next year in a nice way to our BOOST program. And then you heard the R&D initiatives and where we arelooking that and pushing to renew portfolio, bringing new, more sustainable products and solutions to the market. Our financial targets have notchanged. We continue to develop -- deliver the business. And also on the M&A side, we are careful but our ears and eyes are open. But as you haveseen, we haven't done anything in the last 2 years, and we will focus now on cash flow and the cap expenditure. There will be timing issues, butas a general rule, they should come to balance and our net debt should not go up in the years to come. So full focus now next on focusing onreaching and delivering that 14% to 16% operating EBITDA.

Next, we will move onto the breakout sessions, and then you have various rooms where we will circulate around. Many of you know the system.So then there is opportunity to have more questions after the session. Thank you very much.

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