Metsä Group Half year financial report 2018 · • In the first half of the year, market price of...

Metsä Group Half year financial report 2018

Ilkka HämäläPresident and CEO

2 August 2018

• Sales EUR 2,904 million (1–6/2017: EUR 2,451 million)• Operating result* EUR 418 million (EUR 247 million)• Operating result of sales* 14.4% (10.1%)• Return on capital employed* 16.9% (11.5%)• The growth of sales was mainly due to higher delivery volumes

and increase in pulp and paperboard prices• The result improved thanks to increase in pulp prices and

positive development of the paperboard business • Exchange rate fluctuations had a negative effect of over

EUR 80 million on the operating result compared to the first half of the previous year

2 August 2018 Metsä Group2

Metsä Group makes a strong result

Metsä Group – Q2

*comparable

• A prefeasibility study on renewal of Kemi pulp mill was launched

• An innovation company Metsä Spring was established. Textile fibre production the first concept to be included in the portfolio

• Investments of Wood Products Industry and of Tissue and Cooking Papers continued as planned

• The market prices of long-fibre and short-fibre pulp continued to increase

• Metsä Board’s paperboard deliveries grew to a record level• Metsäliitto Cooperative distributed an interest of EUR 63.2

million on members’ capital


Events in the second quarter

Metsä Group – Q2


1,254 1,2651,204 1,248 1,255

1,3301,225 1,205

1,156 1,184 1,143 1,175 1,216 1,235 1,2601,328

1,4281,477

0

400

800

1200

1600

Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18

Sales quarterlyMetsä Group – Q2

EUR million


10592

104117

129 137149

123109

120103 107

128119

134

185

208 210

0

50

100

150

200

250

Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18

Metsä Group – Q2

EUR million

Comparable operating result

Change in comparable operating result


Metsä Group – Q2

EUR million

Comparable operating result 1–6/2017 246.9

Sales prices 305.7

Sales volumes 84.7

Exchange rates -81.4

Raw materials and energy -63.4

Employee costs -9.2

Maintenance and other fixed costs -20.0

Depreciation -31.1

Others -14.2

Comparable operating result 1–6/2018 418.0

Items affecting comparability


Metsä Group – Q2

EUR million 1–6/2018

Operating result (IFRS) 412.3

Items affecting comparability:

Metsä Board / Efficiency improvement programme at Husum mills -4.1

Metsä Board / Divestment of Teollisuuden Voima’s Meri-Pori coal-fired power plant -1.7

Metsä Board / other +0.2

Items total -5.6

Comparable operating result 418.0

11.3

13.7

11.0 11.5

16.9

0

5

10

15

20

1–6/2014 1–6/2015 1–6/2016 1–6/2017 1–6/2018


Comparable ROCEMetsä Group – Q2

%

Target >10%

2 August 2018Metsä Group9

Equity ratio

Metsä Group – Q2

37.943.2 43.9 45.0

51.2

0

10

20

30

40

50

60

12/2014 12/2015 12/2016 12/2017 6/2018

%


Interest-bearing net liabilities

Metsä Group – Q2

938

610

1,033 993841

0

300

600

900

1200

1500

12/2014 12/2015 12/2016 12/2017 6/2018

EUR million


Capital expenditure

Metsä Group – Q2

143

492

758608

980

200

400

600

800

1–12/2014 1–12/2015 1–12/2016 1–12/2017 1–6/2018

EUR million

Full year estimate


Personnel

Metsä Group – Q2

10,4109,599 9,300 9,126

9,913

0

3000

6000

9000

12000

12/2014 12/2015 12/2016 12/2017 *) 6/2018

*including approximately 1,000 summer employees

Wood supply in line with the targets

• Wood was harvested according to targets, and deliveries to customers were smooth

• Due to good harvesting and transport conditions, the stocks of wood grew close to the normal levels

• Metsä Forest delivered a total of 18.7 million cubic metres (16.4) of wood

• A total of 37% of the wood was bought digitally. In the sale of forest management services, the figure was 43%

• Metsäliitto Cooperative paid a double bonus on pulpwood to its members between March and May 2018


Sales and comparable operating result EUR million

Metsä Forest – Wood Supply and Forest Services

401378

356399

433397 376

429

490 496

7.86.5

7.78.9 8.5

4.4

5.9 5.4

8.7

5.8

0

3

6

9

12

15

18

0

100

200

300

400

500

600

Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4 Q1/18 Q2

Sales Operating result

Wood products demand good despite of the UK• The sales of engineered wood products was at the

previous year’s level. Sales of the UK business declined

• The average prices of plywood products increased compared to the previous year

• The result was negatively affected by the decline in the profitability of the UK business, costs of the new mills and cost inflation

• The finishing works are ongoing at Äänekoski veneer line. At Pärnu plywood mill the ramp-up of lines continues

• Installation of the building’s elements are progressing at the new Kerto line at Punkaharju



Metsä Wood – Wood Products Industry

121130

115 115 120 122110 108 109

119

8.2

13,2

9.08.3

10.7

8.47.6

6.96.2

5.5

0

3

6

9

12

15

0

30

60

90

120

150

Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4 Q1/18 Q2


Strong result in Pulp Industry

• The demand for pulp remained strong • The operating result of Metsä Fibre increased

clearly due to higher sales volumes and favourable price development

• In the first half of the year, market price of long-fibre and short-fibre pulp increased by 32% and 40%, respectively, compared to last year

• The balance between supply and demand in sawn timber has improved clearly. The prices increased by 14% compared to last year



Metsä Fibre – Pulp and Sawn Timber Industry

409 423389

416 422 427475

552601

629

61.253.2

46.453.7 54.5

70.8 68.4

125.9144.9

164.9

0

30

60

90

120

150

180

210

0

100

200

300

400

500

600

700

Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4 Q1/18 Q2



Price of pulp (PIX) 2010–Q2/2018

Metsä Fibre – Pulp and Sawn Timber Industry

400

500

600

700

800

900

1000

1100

1200

1300

400

500

600

700

800

900

1000

1100

1200

1300

´10 ´11 ´12 ´13 ´14 ´15 ´16 ´17 ´18

Hardwood/EUR Softwood/EUR Hardwood/USD Softwood/USD

USD EUR

Source: Foex

Paperboard deliveries at record level in the second quarter

• Paperboard deliveries grew by 6% in the first half of the year

• Sales and profitability grew thanks to increased deliveries and prices of paperboard. Also, the higher pulp production and delivery volumes of Metsä Fibre improved profitability

• Several planned maintenance shutdowns weakened the result of the second quarter

• Cost inflation affected the result in the beginning of the year. Exchange rate fluctuations after hedging had a negative effect of almost EUR 30 million on the operating result



Metsä Board – Paperboard Industry

436 423 440 422445

474 479451

492519

35.0 35.8 34.0 32.8

45.2 43.550.4

54.4

69.0

59.2

0

15

30

45

60

75

90

0

100

200

300

400

500

600

Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4 Q1/18 Q2



600

700

800

900

1000

1100

1200

2011 2012 2013 2014 2015 2016 2017 2018

Folding boxboard White-top kraftliner Sources: RISI, Inc. & FOEX Indexes Ltd

Prices of folding boxboard and white-top kraftliner inEurope 2011–Q2/2018EUR/ tonne

Metsä Board – Paperboard Industry

Tissue and Cooking Papers’ production efficiency is being improved• The growth in Metsä Tissue’s sales was primarily

due to increased sales volumes• The result was weakened by the price of pulp

and the weakening of the Norwegian krone, Swedish krona and UK pound

• A new converting line for consumer products is being built at the Žilina mill in Slovakia

• A new away-from-home converting line is under construction at the Raubach mill in Germany

• The modernisation of the baking paper machine in Düren, Germany, continues



Metsä Tissue – Tissue and Cooking Papers

246 249 247 249 252 251 250261 259 256

13.5 13.2

15.8

20.6

17.616.3 16.8

23.3

12.3 11.5

0

5

10

15

20

25

30

0

50

100

150

200

250

300

Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4 Q1/18 Q2


• Demand for wood focuses on regeneration and thinning felling that can be harvested in the summer and, in energy wood, on crown wood

• Demand for wood products is expected to remain strong, which improves order books of plywood in particular. Demand of the distributor customers in the UK is expected to decrease

• The pulp and sawn timber markets are expected to remain strong. Supply and demand of pulp are in balance, so any interruptions in production will have an immediate effect on the market situation

• Demand for the paperboard is expected to grow and the market prices remain stable in local currencies. Deliveries are expected to remain at the same level as in the second quarter

• In the tissue and cooking paper markets, demand is expected to remain stable in all market areas


Summary

Outlook for the business areas

• Metsä Group’s comparable operating result is in the third quarter of 2018 expected to be roughly at the same level as in the second quarter of 2018


Near-term outlook

Summary

• Replacing the current pulp mill with a new bioproduct mill– Clearly larger in terms of production capacity, wood consumption and

impact on employment

– The self-sufficiency in electricity would be considerably higher

– The bioproduct range would be expanded

OR• Extending the life cycle of the current mill

– Modernising several departments

– Maintaining production capacity roughly unchanged (620,000 t/a softwood and hardwood pulp)

– Maintaining wood consumption roughly unchanged (3 million m3/a)


Prefeasibility study on renewal of Kemi pulp mill

Renewal of Kemi pulp mill

• Availability of wood raw material and development potential of Kemi’s infrastructure and logistic connections are in focus

• The prefeasibility study is led by Timo Merikallio, who was responsible for the planning and construction of the bioproduct mill in Äänekoski, started up in August 2017

• Decisions on a possible launch of the environmental impact assessment and environmental permit procedures would be made in summer 2019


The prefeasibility study completed in summer 2019

Renewal of Kemi pulp mill

• Metsä Group has moved to the new era in its innovation activity with the establishment of Metsä Spring

• Metsä Spring will, together with partner organisations, invest in new endeavours to identify and develop new business opportunities in sustainable forest-based bioeconomy and circular economy

• Niklas von Weymarn has been appointed CEO of the company. He transfers from the position of VP, Research in Metsä Fibre


Metsä Spring – A new innovation company Extensive cooperation a prerequisite for innovations

Metsä Spring

• Metsä Spring is planning a greenfield demo plant of an industrial scale integrated to the bioproduct mill in Äänekoski

– Capacity 500 tonnes per year

– International planning team

– Investment decision in 2018

• The environmentally-friendly production method is based on direct dissolution using novel compounds for the pulp dissolution stage

– The raw material is a non-dried paper pulp

– More sustainable production than current production methods of textile fibres


Textile fibres the first concept in Metsä Spring’s portfolio

Metsä Spring

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