METSÄ BOARD CORPORATION FINANCIAL … reports and... · Metsä Board sold its holding in Metsä Group Treasury Oy in September 2013. Compared to the actual figures ... volume of

Metsä Board Financial Statements 1 January – 31 December 20145 February 2015 at 12:00 noon

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METSÄ BOARD CORPORATION FINANCIAL STATEMENTS

2014


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Metsä Board is Europe’s leading producer of folding boxboard and white fresh forest fibre linerboard and a market pulp supplier. It offers premium solutions for consumer and retail packaging and graphics. The company’s sales network serves brand owners, carton printers, corrugated packaging manufacturers and merchants. Metsä Board is part of Metsä Group, and its shares are listed on the NASDAQ OMX Helsinki. In 2014, the company’s sales totalled approximately EUR 2.0 billion. The company has approximately 3,100 employees.

METSÄ BOARD CORPORATION’S OPERATING RESULT EXCLUDING NON-RECURRING ITEMS WAS EUR 136.5 MILLION IN 2014 FULL YEAR RESULT FOR 2014

• Sales were EUR 2,008.4 million (Q1–Q4/2013: 2,019.3).

• The operating result excluding non-recurring items was EUR 136.5 million (104.4). The operating result including non-recurring items was EUR 116.5 million (113.6).

• The result before taxes excluding non-recurring items was EUR 99.7 million (48.6). The result before taxes including non-recurring items was EUR 77.6 million (57.8).

• Earnings per share excluding non-recurring items were EUR 0.27 (0.17), and earnings per share in-cluding non-recurring items were EUR 0.21 (0.19).

• The Board of Directors proposes to the Annual Gen-eral Meeting to be held on 25 March 2015 that a divi-dend of EUR 0.12 per share will be paid for the 2014 financial year.

RESULT FOR THE LAST QUARTER OF 2014

• Sales were EUR 499.4 million (Q3/2014: 513.8).

• The operating result excluding non-recurring items was EUR 36.9 million (35.2). The operating result in-cluding non-recurring items was EUR 6.7 million (34.1).

• The result before taxes excluding non-recurring items was EUR 31.6 million (27.3). The result before taxes including non-recurring items was EUR 1.6 million (26.1).

• Earnings per share excluding non-recurring items were EUR 0.10 (0.07), and earnings per share in-cluding non-recurring items were EUR 0.02 (0.06).

EVENTS DURING THE LAST QUARTER OF 2014

• The demand for paperboard continued to be strong, and prices were stable.

• Metsä Board launched the final steps of transfor-mation and announced that it would grow its pa-perboard business significantly and is planning to dis-continue paper production completely.

• Metsä Board began the process to divest its loss-making Gohrsmühle mill in Germany.

• Metsä Board announced that it would renew its man-agement and reporting structure as of the first quarter of 2015.

• Moody's Investors Service upgraded Metsä Board’s credit rating from B2 to B1. The outlook of the rating is positive.

• Net debt decreased significantly and was EUR 427 million as a result of strong cash flow.

EVENTS AFTER THE REPORTING PERIOD

• Metsä Board updated its long-term financial targets in February 2015. The updated targets are return on capi-tal employed (ROCE) minimum 12 per cent from 2017 onwards and net gearing maximum 70 per cent.

NEAR-TERM OUTLOOK

• Metsä Board’s operating result excluding non-recurring items is in the first quarter of 2015 expected to improve slightly compared to the last quarter of 2014.

“The market situation for our main products continued to be strong in the last quarter of 2014. Although De-cember is a seasonally weaker month, our operating result was approximately at the same level as in the previous quarter.

The general economy continued to be weak in Europe, our domestic market, in 2014. Even so, our global pa-perboard deliveries increased by a total of 10 per cent, and price levels remained unchanged. Delivery vol-umes increased in line with our strategy, particularly in North America, where linerboard sales are growing steadily, and the launch of our ecological folding box-board has progressed extremely well.

In December 2014, we announced new measures to complete our transformation into a leading paperboard company. We are planning to discontinue paper pro-duction completely at Husum and convert the integrated mill into one of the largest fresh forest fibre paperboard units in Europe. In addition, we launched measures to eliminate the losses of the Gohrsmühle mill.


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Our main goal continues to be the profitable growth of our paperboard business. With the new capacity, we are able to serve our customers even better globally. We will also continue to develop new, even better prod-ucts in cooperation with our customers and partners.

In the coming years, we will raise our profitability to a new level while maintaining a strong balance struc-ture.”

Mika Joukio, CEO

KEY FIGURES

2014 2014 2014 2014 2013 2014 2013

Q4 Q3 Q2 Q1 Q4 Q1–Q4 Q1–Q4

Sales, EUR million 499.4 513.8 494.0 501.2 479.2 2,008.4 2,019.3

EBITDA, EUR million 56.4 60.7 55.9 69.2 56.7 242.2 214.8

excl. non-recurring items, EUR million 60.6 61.8 52.0 61.8 55.5 236.2 208.0

EBITDA, % 11.3 11.8 11.3 13.8 11.8 12.1 10.6

excl. non-recurring items, % 12.1 12.0 10.5 12.3 11.6 11.8 10.3

Operating result, EUR million 6.7 34.1 32.2 43.5 30.6 116.5 113.6


EBIT, % 1.3 6.6 6.5 8.7 6.4 5.8 5.6


Result before taxes, EUR million 1.6 26.1 23.9 26.0 19.0 77.6 57.8


Result for the period, EUR million 6.1 20.8 16.8 24.8 31.2 68.5 64.1


Result per share 0.02 0.06 0.05 0.08 0.09 0.21 0.19

excl. non-recurring items, EUR 0.10 0.07 0.04 0.06 0.09 0.27 0.17

Return on equity, % 2.9 9.8 8.0 11.6 14.9 8.1 7.5


Return on capital employed, % 1.8 9.0 8.5 11.2 8.2 7.7 7.0


Equity ratio at the end of the period, % 39.2 39.8 39.8 41.0 40.7 39.2 40.7

Gearing ratio at the end of the period, % 81 82 84 84 83 81 83

Net gearing ratio at the end of the period, % 51 57 65 69 70 51 70 Shareholders’ equity per share at the end of the period, EUR 2.56 2.60 2.54 2.62 2.59 2.56 2.59 Interest-bearing net liabilities at the end of the period, EUR million 426.7 491.1 540.1 592.6 597.2 426.7 597.2

Gross investments, EUR million 18.2 7.3 14.0 4.7 20.2 44.2 66.9

Deliveries, 1,000 tonnes

Cartonboard 229 237 226 219 210 911 872

Linerboard and Paper 255 265 250 265 251 1,035 1,027

Personnel at the end of the period 3,111 3,164 3,370 3,145 3,116 3,111 3,116

EBITDA = Earnings before interest, taxes, depreciation and amortisation

Metsä Board sold its holding in Metsä Group Treasury Oy in September 2013. Compared to the actual figures for the second quarter of 2013, this improved Metsä Board’s equity ratio by approximately 5 percentage

points and its return on capital employed by nearly 1 percentage point and reduced its gross debt by more than EUR 300 million.


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FINANCIAL STATEMENTS FOR 1 JANUARY – 31 DECEMBER 2014

SALES AND RESULT

RESULT FOR OCTOBER–DECEMBER COM-PARED TO THE PREVIOUS QUARTER

Metsä Board’s sales amounted to EUR 499.4 million (Q3/2014: 513.8). Sales decreased by 2.8 per cent. The operating result was EUR 6.7 million (34.1), and the operating result excluding non-recurring items was EUR 36.9 million (35.2).

A net total of EUR 30.1 million (-1.1) was recognised as non-recurring items in the operating result for October–December, the most significant of these being:

• An impairment of EUR 26.1 million of fixed assets in the Cartonboard business area related to the loss-making Gohrsmühle mill.

• A cost provision of EUR 13.4 million related to the planned discontinuation of paper production at the Husum mill in Sweden in the Linerboard and Paper business area.

• A sales gain of EUR 7.4 million related to the Nie-menranta property transaction in Tampere in Other operations.

The operating result excluding non-recurring items was at approximately the same level as in the previous quarter. The delivery volumes of folding boxboard, white fresh forest fibre linerboard and market pulp de-creased slightly for seasonal reasons. The delivery volume of uncoated fine paper increased, while the delivery volume of coated papers decreased. The pric-es of paperboards and market pulp increased slightly from the previous quarter as a result of the strengthen-ing of the US dollar. Sales gains from emission rights improved the result slightly.

Cash flow from operating activities amounted to EUR 82.6 million (52.0) in the fourth quarter.

The total delivery volume of the Cartonboard business area in October–December was 229,000 tonnes (237,000). The total delivery volume of the Linerboard and Paper business area was 255,000 tonnes (265,000). The combined delivery volume of Metsä Board’s folding boxboard and fresh forest fibre liner-board in October–December was 312,000 tonnes (328,000).

Financial income and expenses in the review period totalled EUR -5.0 million (-8.1). Foreign exchange rate differences from trade receivables, trade payables, financial items and the valuation of currency hedges were EUR 3.3 million (0.0). Net interest and other fi-nancial income and expenses amounted to EUR -8.3 million (-8.1). Other financial income and expenses include EUR 0.0 million of valuation gains on interest rate hedges (a valuation gain of 0.0).

The result before taxes for the review period was EUR 1.6 million (26.1). The result before taxes exclud-ing non-recurring items was EUR 31.6 million (27.3). Income taxes amounted to EUR 4.5 million (-5.3). Inter-nal restructuring within the Group in the fourth quarter reduced income taxes for 2014, causing income taxes to be positive for the review period.

Earnings per share were EUR 0.02 (0.06). Earnings per share excluding non-recurring items were EUR 0.10 (0.07). The return on equity was 2.9 per cent (9.8), and the return on equity excluding non-recurring items was 15.4 per cent (10.4). The return on capital employed was 1.8 per cent (9.0), and the return on capital em-ployed excluding non-recurring items was 9.6 per cent (9.2).

RESULT FOR 2014 COMPARED TO 2013

Metsä Board’s sales amounted to EUR 2,008.4 million (Q1–Q4/2013: 2,019.3). Sales decreased by 0.5 per cent. The operating result was EUR 116.5 million (113.6), and the operating result excluding non-recurring items was EUR 136.5 million (104.4).

A net total of EUR -19.9 million (+9.2) was recognised as non-recurring items in the operating result, the most significant of these being:

• Sales gains of EUR 32.1 million related to the Nie-menranta property transactions in Tampere in Non-core operations.

• An impairment of EUR 26.1 million of fixed assets in the Cartonboard business area related to the loss-making Gohrsmühle mill.

• EUR 17.4 million in damages to UPM-Kymmene relat-ed to Metsä Fibre Oy’s share transaction in 2012 in Other operations.

• A cost provision of EUR 13.4 million related to the planned discontinuation of paper production at the Husum mill in Sweden in the Linerboard and Paper business area.

• A sales gain of EUR 4.0 million related to Metsä Fibre’s divestment of Pohjolan Voima shares.

Compared to the previous year, the operating result excluding non-recurring items improved as a result of the increased delivery volumes of folding boxboard and white fresh forest fibre linerboard, decreased production costs and the weakening of the Swedish krona against the euro. Lower average prices and delivery volumes of papers had a negative effect on the operating result. The total delivery volume of the Cartonboard business area in 2014 was 911,000 tonnes (872,000). The total delivery volume of the Linerboard and Paper business area was 1,035,000 tonnes (1,027,000). The combined


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delivery volume of Metsä Board’s folding boxboard and fresh forest fibre linerboard in 2014 was 1,246,000 tonnes (1,135,000), which represents an increase of 10 per cent.

Financial income and expenses totalled EUR -39.2 million (-55.9). In the corresponding period of the previ-ous year, financial expenses increased, mainly as a result of approximately EUR 8 million in additional in-terest caused by the early repayment of the USD-denominated private note issue.

Foreign exchange rate differences from trade receiva-bles, trade payables, financial items and the valuation of currency hedges were EUR +2.7 million (-1.1). Net interest and other financial income and expenses amounted to EUR 41.9 million (54.8). Net interest in-creased by approximately EUR 5.8 million due to the early repayment of a loan of EUR 350 million and a standby credit facility of EUR 100 million as well as refinancing. Other financial income and expenses in-cluded EUR 0 million of valuation gains on interest rate hedges (valuation gain of 4.6). In financial expenses, EUR -2.2 million was recognised as a non-recurring item related to penalty interest on the damages to UPM-Kymmene.

The result before taxes for the review period was EUR 77.6 million (57.8). The result before taxes exclud-ing non-recurring items was EUR 99.7 million (48.6). Income taxes had an effect of EUR -9.1 million (+6.3). Income taxes for the review period decreased as a result of internal restructuring within the Group.

Earnings per share were EUR 0.21 (0.19). Earnings per share excluding non-recurring items were EUR 0.27 (0.17). The return on equity was 8.1 per cent (7.5), and the return on equity excluding non-recurring items was 10.4 per cent (6.5). The return on capital employed was 7.7 per cent (7.0), and the return on capital employed excluding non-recurring items was 9.1 per cent (6.4).

PERSONNEL

At the end of the year, the number of personnel was 3,111 (31 December 2013: 3,116), of whom 1,469 (1,465) people worked in Finland. In 2014, Metsä Board employed an average of 3,200 people (3,245).

INVESTMENTS

Gross investments in 2014 totalled EUR 44.2 million (2013: 66.9).

BUSINESS DEVELOPMENT

In December 2014, Metsä Board announced that it would launch new measures to complete the final steps of its transformation into a paperboard company. The company also announced that it would invest approxi-mately EUR 170 million in a new folding boxboard ma-chine at the Husum mill in Sweden. The machine has

an annual production capacity of around 400,000 tonnes, and it will start up in early 2016. It is expected to reach full production capacity by the end of 2016. Paper production at the Husum mill is planned to be discontinued for the most part at the end of 2015 and completely by the end of 2017. These measures at the Husum mill including the growing sales volumes of fresh forest fibre linerboard are estimated to have a positive effect of EUR 50 million on Metsä Board’s annual operating result compared to its actual result for 2014. Most of the improvement in the result is estimat-ed to be realised as of 2017, and it is expected to take full effect as of 2018.

In addition, Metsä Board carries out measures to elimi-nate the losses of the Gohrsmühle mill in Germany. The primary goal is to divest the mill during the first half of 2015. If the mill is not divested within this period, Metsä Board will launch other measures to eliminate the mill’s losses, which may also include a partial or full closure of the mill. The Gohrsmühle mill has around 480 em-ployees, and its main products are cast-coated speciali-ty papers and label paper. The mill’s sales in 2014 were around EUR 90 million, with an operating loss of ap-proximately EUR 20 million.

Metsä Fibre, an associated company of Metsä Board, is planning to build a bioproduct mill to replace the pulp mill in Äänekoski. The cost of the bioproduct mill is around EUR 1.1 billion. Its annual pulp capacity would be 1.3 million tonnes, which is around 800,000 tonnes higher than the current production at the Äänekoski mill. Metsä Fibre intends to make the final investment deci-sion in spring 2015, meaning that the mill would be launched during 2017. Metsä Board has decided to invest a maximum of EUR 30 million of capital in the project. Metsä Board’s holding in Metsä Fibre will re-main at 24.9 per cent even if the plans for the Äänekoski investment are realised.

Metsä Board is planning to finance these measures through its current cash and cash equivalents, credit facilities and cash flow from operating activities, and possibly through a rights offering of around EUR 100 million in the first quarter of 2015, based on an authori-sation granted by the Annual General Meeting to the Board of Directors. Metsäliitto Cooperative, the principal owner of Metsä Board, is committed to participating in the possible rights issue with around EUR 43 million in accordance with its holding.

In March 2014, Metsä Board divested its property in Lielahti in Tampere to the City of Tampere for EUR 26 million. In December 2014, it entered into an agreement on a property transaction of around EUR 7.5 million in Lielahti. A sales gain of around EUR 32 million was recognised for the transactions. Metsä Board discontin-ued high-yield pulp production in its mill in the Lielahti area and has since had no production operations in the area.


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DISPUTES

In May 2014, Metsä Board requested that the District Court of Helsinki revoke the judgment issued by the arbitral tribunal on 11 February 2014 that ordered Metsä Board to pay EUR 19.7 million in damages to UPM-Kymmene Corporation.

FINANCING

Metsä Board’s equity ratio at the end of the year was 39.2 per cent (31 December 2013: 40.7), and its gear-ing ratio was 81 per cent (83). Its net gearing ratio was 51 per cent (70).

The change in the fair value of investments available for sale during the review period was approximately EUR -0.6 million. This was mainly due to a decrease in the fair value of Pohjolan Voima shares as a result of a decrease in the market price of electricity mostly offset by a decrease in interest rates.

Defined benefit pension obligations increased by ap-proximately EUR 26.3 million, and EUR -18.6 million after taxes was recognised in other comprehensive income items. The increase in pension obligations resulted from the continued decrease in the discount rate.

At the end of the year, net interest-bearing liabilities stood at EUR 426.7 million (597.2). Foreign currency-denominated loans accounted for 0.5 per cent and floating-rate loans for 23 per cent, with the rest being fixed-rate loans. At the end of the year, the average interest rate on loans was 4.0 per cent (4.8), and the average maturity of long-term loans was 3.5 years (2.7). The interest rate maturity of loans was 27.2 months at the end of the year (18.3). During the period, the interest rate maturity varied between 17 and 34 months.

Cash flow from operating activities amounted to EUR 210.3 million (Q1–Q4/2013: 127.1). Working capi-tal decreased by EUR 59.0 million (increase of 10.8 million).

At the end of the review period, an average of 5.6 months of the net foreign currency exposure was hedged. The degree of hedging varied between 5 and 7 months during the period.

In March 2014, Metsä Board issued a EUR 225 million unsecured bond. The bond matures on 13 March 2019, and it carries a fixed coupon interest rate of 4.0 per cent per annum. Metsä Board also agreed on a new, unse-cured, syndicated credit facility in March. The new facility consists of a EUR 150 million term loan facility and a EUR 100 million revolving credit facility, both maturing in March 2018. The proceeds of the financial arrangements were mainly used to prepay the existing EUR 350 million secured term loan maturing in 2016. The new revolving credit facility replaced the undrawn EUR 100 million revolving credit facility maturing in 2015.

The financing agreement includes financial covenants concerning the Group's financial performance and capi-tal structure. Other covenants related to the loan are regular conditions which, among other things, limit the issue of collateral, relinquishment and sale of property, subsidiaries' level of debt, material changes in the busi-ness operations and changes in the statutory majority in shareholding. Metsä Board has considerable headroom in relation to the covenants set in the credit agree-ments.

Metsä Board's liquidity has remained strong. At the end of the period under review, the available liquidity was EUR 396.0 million (2013: 208.6), of which EUR 100.0 million consisted of revolving credit, EUR 45.6 consist-ed of undrawn pension premium (TyEL) funds and EUR 250.4 million of liquid assets and investments. Of the liquid funds, EUR 14.4 million consisted of cash funds and investments and EUR 236.0 million were interest-bearing receivables comparable to cash funds and available immediately from Metsä Group's internal bank Metsä Group Treasury Oy. As of 30 September 2013, these interest-bearing receivables are recognised in financial assets on the balance sheet. In addition, Metsä Board had other interest-bearing receivables totalling EUR 6.9 million. Metsä Board's liquidity re-serve is complemented by Metsä Group’s internal un-drawn short-term credit facility of EUR 150.0 million.

In November 2014, Moody's Investors Service upgrad-ed Metsä Board’s credit rating from B2 to B1. The out-look of the rating is positive. The upgrade had no im-pact on Metsä Board’s current financing costs.

SHARES

In 2014, the highest price for Metsä Board’s A share on the NASDAQ OMX Helsinki Ltd. was EUR 4.75, the lowest price was EUR 2.95 and the average price was EUR 3.53. At the end of 2014, the price of the A share was EUR 4.60. At the end of 2013, the price of the A share was EUR 3.08, while the average price in 2013 was EUR 2.59.

In 2014, the highest price for Metsä Board’s B share was EUR 4.57, the lowest price was EUR 2.92 and the average price was EUR 3.47. At the end of the year, the price of the B share was EUR 4.47. At the end of 2013, the price of the B share was EUR 3.15, while the average price in 2013 was EUR 2.58.

The trading volume of the A share was EUR 4 million, or 3 per cent of the share capital. The trading volume of the B share was EUR 205 million, or 20 per cent of the share capital. The market value of the A and B shares totalled EUR 1,472 million at the end of 2014.

At the end of the year, Metsäliitto Cooperative owned 40 per cent of the shares, and the voting rights con-ferred by these shares amounted to 61 per cent. Inter-national investors’ holdings increased to 15 per cent of the shares.

The company does not hold any treasury shares.


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In October 2014, Metsä Board achieved an excellent ranking in the Nordic Climate Disclosure Leadership Index (CDLI), with a score of 98 out of 100. The high score indicates thorough, high-quality reporting to in-vestors and markets on issues related to climate change. Only companies listed in the Nordic countries with a score in the top 10 per cent are awarded a posi-tion in the CDLI, having shown a particularly high level of progress in reporting information pertaining to climate change.

DIVIDEND

The Board of Directors proposes to the Annual General Meeting to be held on 25 March 2015 that a dividend of EUR 0.12 per share, or a total of EUR 39,4 million, will be paid for the 2014 financial year. The distributable funds of the parent company on 31 December 2014 were EUR 388,415,184.20, of which the result for the financial year is EUR 68,018,109.20. The dividend will be paid to shareholders who are registered in the com-pany’s shareholder register maintained by Euroclear Finland Oy on the dividend payment record date of 27 March 2015. The Board of Directors proposes 8 April 2015 as the dividend payment date.

CHANGES IN MANAGEMENT

Mika Joukio, 50, M.Sc. (Eng.), started as the CEO of Metsä Board on 1 October 2014.

Joukio previously worked at Metsä Tissue Corporation, part of Metsä Group. He served as CEO of Metsä Tis-sue Corporation from the beginning of 2012. Before joining Metsä Tissue, Joukio worked as the head of Metsä Board’s paperboard business from 2006 to 2011. He has held various management positions in Metsä Board and its predecessors, Metsä-Serla Corporation and M-real Corporation, since 1990.

In December 2014, Metsä Board announced that it would renew its management and reporting structure to ensure the successful implementation of its growth strategy. As of 1 January 2015, the Corporate Man-agement Team consists of Mika Joukio, CEO; Markus Holm, CFO; Seppo Puotinen, SVP, Marketing and Sales; Ari Kiviranta, SVP, Production and Technology; Sari Pajari, SVP, Business Development and Susanna Tainio, SVP, Human Resources. Tainio is a new mem-ber in Metsä Board’s Corporate Management Team.

CHANGES IN THE REPORTING SEGMENTS

As of the first quarter of 2015, Metsä Board’s reporting segments are Paperboard and Non-core Operations. The Paperboard segment includes the folding box-board, fresh forest fibre linerboard, wallpaper base and market pulp business operations. The Non-core Opera-tions segment includes the remaining standard paper business operations at the Husum mill until their

planned discontinuation by the end of 2017 as well as the cast-coated and label paper business operations at the Gohrsmühle mill. Other operations are reported as before.

EVENTS AFTER THE REPORTING PERIOD

Metsä Board updated its long-term financial targets in February 2015 to better reflect the company’s position as a leading European fresh forest fibre paperboard producer.

The updated long-term financial targets are the follow-ing:

• Return on Capital Employed (ROCE) minimum 12 per cent from 2017 onwards

• Net gearing maximum 70 per cent

The old ROCE target was set at minimum 10 per cent and the net gearing target at maximum 100 per cent.

Metsä Board’s dividend policy remains unchanged. The aim is to pay a dividend of at least 1/3 of the Compa-ny's EPS, taking into account the net gearing target. OPERATING ENVIRONMENT AND NEAR-TERM OUTLOOK

The delivery volumes of paperboards are estimated to increase slightly in the first quarter of 2015 compared to the previous quarter. No material changes in the prices of paperboard are foreseen at the moment.

In market pulp business there are no material market related changes in sight in the first quarter of 2015.Metsä Board’s paper deliveries are estimated to increase slightly in the first quarter of 2015, while the average price of paper is estimated to decrease.

No material changes in production costs are expected in the first quarter of 2015.

Foreign exchange rates developed favourably for Metsä Board in the second half of 2014 and at the beginning of 2015. The duration of the company’s net foreign exchange hedges is approximately six months. For this reason, the positive effect of foreign exchange rates on the result is expected to be more clearly visible as of the first half of 2015.

Metsä Board’s operating result excluding non-recurring items is in the first quarter of 2015 expected to improve slightly compared to the last quarter of 2014.

NEAR-TERM BUSINESS RISKS

The global economy and eurozone economy continue to have considerable uncertainties, which may result in weakened demand, particularly for pulp and paper products, and reduced prices.

The sanctions issued by the EU and Russia, and the USA and Russia, because of the crisis in Ukraine, have not had a direct impact on Metsä Board's operations


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thus far. However, the sanctions have had indirect effects on the demand for Metsä Board’s products. For the time being, the crisis has affected the demand for wallpaper base in Russia and Ukraine. So far, however, the overall financial effect of the crisis on Metsä Board has been minor. Any additional sanctions could have a negative effect on the scope and result of Metsä Board’s business operations.

Metsä Board is focusing on the development and growth of its paperboard business operations. Business development and growth require strategic choices that involve risks. These uncertainties are related to the product portfolio, targeting of investments and selection of customer segments, for example. The growth of the paperboard business operations depends on the suc-cessful growth of sales in North America in particular. Achieving growth in sales outside the company’s do-

mestic markets involves cost risks as well as uncertain-ties related to the introduction of new products.

The forward-looking estimates and statements in these financial statements are based on current plans and estimates. For this reason, they contain risks and other uncertainties that may cause the results to differ from the statements concerning them. In the short term, Metsä Board’s result will be particularly affected by the price and demand for finished products, raw material costs, the price of energy and the exchange rate devel-opment of the euro in relation to the Swedish krona, US dollar and British pound.

More information about longer-term risk factors can be found on pages 27–28 of Metsä Board’s 2013 Annual Report.

METSÄ BOARD CORPORATION

More information:

Markus Holm, CFO, tel. +358 (0)10 465 4913

Juha Laine, Vice President, Investor Relations and Communications, tel. +358 (0)10 465 4335

More information will be available from 1 p.m. on 5 February 2015. A conference call for investors and analysts will be held in English at 3 p.m. (EET). Confer-ence call participants are requested to dial in and regis-ter a few minutes earlier on the following numbers:

Europe: +44 (0)20 7162 0025

USA: +1 334 323 6201

The conference ID is 950756.

In 2015, Metsä Board will publish the following financial reports:

Interim report for January–March 2015 on 7 May Interim report for January–June 2015 on 6 August Interim report for January–September 2015 on 5 November


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BUSINESS AREAS AND MARKET TRENDS

CARTONBOARD BUSINESS AREA

2014 2014 2014 2014 2013 2013 2014 2013

Q4 Q3 Q2 Q1 Q4 Q3 Q1–Q4 Q1–Q4

Sales, EUR million 224.4 229.9 219.4 213.7 207.6 220.0 887.5 867.5

EBITDA, EUR million 29.1 26.8 31.3 27.6 22.4 24.8 114.8 99.9

excl. non-recurring items, EUR million 28.2 27.9 29.8 27.6 20.7 24.8 113.5 97.6

Operating result, EUR million -7.6 16.4 21.4 17.6 11.9 14.6 47.8 61.7

excl. non-recurring items, EUR million 17.3 17.5 19.8 17.6 10.1 14.6 72.3 56.9

excl. non-recurring items, % 7.7 7.6 9.0 8.3 4.9 6.6 8.1 6.6

Return on capital employed, % -6.0 12.4 15.8 13.1 8.8 10.8 9.4 11.8


Deliveries, 1,000 tonnes 229 237 226 219 209 225 911 872

Production, 1,000 tonnes 247 243 238 234 219 239 962 916

Personnel at the end of the period 1,515 1,564 1,712 1,546 1,544 1,587 1,515 1,544 The delivery and production volumes are not completely comparable due to the restructuring.


The operating result before non-recurring items for the Cartonboard business area remained at the same level as in the previous quarter and was EUR 17.3 million (Q3/2014: 17.5). The markedly decreased demand for wallpaper base in the Russian and Ukrainian markets continued to have a negative effect on the result. The delivery volume of folding boxboard decreased slightly for seasonal reasons. The foreign currency-denominated prices of folding boxboard remained sta-ble, but the strengthening of the US dollar improved the euro-denominated sales price.

The result included EUR -24.9 million in non-recurring items mainly as a result of the impairment of fixed as-sets in Gohrsmühle. The operating result for the previ-ous quarter included EUR -1.1 million in non-recurring items.

The deliveries of European folding boxboard producers decreased by approximately 4 per cent compared to the previous quarter. Metsä Board’s folding boxboard deliv-eries decreased by 3 per cent.


The operating result before non-recurring items for the Cartonboard business area improved markedly from the previous year and was EUR 72.3 million (2013: 56.9). The result improved because of higher delivery vol-umes of folding boxboard and lower production costs. The profitability of the speciality paper business opera-tions decreased slightly in 2014.

The result included EUR -24.5 million in non-recurring items. The result for the previous year included EUR +4.8 million in non-recurring items.

The deliveries of European folding boxboard producers increased by 1 per cent compared to the corresponding period last year. Metsä Board’s folding boxboard deliv-eries increased by 5 per cent.


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LINERBOARD AND PAPER BUSINESS AREA

2014 2014 2014 2014 2013 2013 2014 2013

Q4 Q3 Q2 Q1 Q4 Q3 Q1-Q4 Q1-Q4

Sales, EUR million 264.5 271.0 261.8 270.6 250.3 267.4 1,067.9 1,075.0

EBITDA, EUR million 30.3 39.2 30.2 35.1 29.6 20.9 134.8 112.8

excl. non-recurring items 43.9 39.2 27.7 35.1 35.4 20.9 145.9 114.0

Operating result, EUR million 18.1 23.7 17.2 20.1 14.6 7.2 79.1 53.1

excl. non-recurring items 31.8 23.7 14.7 20.1 20.3 7.2 90.2 54.3


Return on capital employed, % 10.8 13.6 9.6 10.9 7.7 3.7 11.5 7.0


Deliveries, Linerboard and Paper 1,000 tonnes 255 265 250 265 250 247 1,035 1,027

Deliveries, Pulp 1,000 tonnes 148 153 158 152 146 163 611 635

Production, Linerboard and Paper 1,000 tonnes 253 256 256 272 266 244 1,037 1048

Production, Metsä Board Pulp 1,000 tonnes 337 320 299 337 331 296 1,294 1,249

Personnel at the end of period 1,029 1,037 1,071 1,041 1,047 1,061 1,029 1,047 The delivery and production volumes are not completely comparable due to the restructuring.


The operating result excluding non-recurring items for the Linerboard and Paper business area improved from the previous quarter and was EUR 31.8 million (Q3/2014: 23.7). The delivery volume of white fresh forest fibre linerboard decreased for seasonal reasons, while its euro-denominated price increased compared to the previous quarter as a result of the strengthening of the US dollar. The delivery volumes of uncoated fine paper increased, with its prices remaining stable. The delivery volume of coated paper declined, with its aver-age sales price decreasing slightly. The delivery volume of market pulp decreased slightly as well, but its aver-age price increased slightly compared to the previous quarter. Sales gain from emission rights improved the result slightly.

The result includes a cost provision of EUR -13.4 mil-lion related to the planned discontinuation of paper production at the Husum mill in Sweden. The result for the previous quarter did not include non-recurring items.

The total deliveries of European uncoated fine paper producers increased by 4 per cent. Metsä Board’s de-livery volume of uncoated fine paper increased by 6 per cent.


The operating result before non-recurring items for the Linerboard and Paper business area improved marked-ly from the previous year and was EUR 90.2 million (2013: 54.3). The result improved because of the in-creased delivery volume of white fresh forest fibre liner-board, decreased production costs and the weakening of the Swedish krona in relation to the euro. The lower sales price and delivery volume of papers had a nega-tive effect on the result.

The result included EUR -11.1 million in non-recurring items. The result for previous year included EUR -1.2 million in non-recurring items.

The total deliveries of European uncoated fine paper producers increased by 2 per cent compared to the previous year. Metsä Board’s delivery volume of un-coated fine paper decreased by 11 per cent.


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SALES AND RESULT BY SEGMENT

2014 2014 2014 2014 2013 2013 2014 2013

EUR million Q4 Q3 Q2 Q1 Q4 Q3 Q1-Q4 Q1-Q4

Cartonboard 224.4 229.9 219.4 213.7 207.6 220.0 887.5 867.5

Linerboard and Paper 264.5 271.0 261.8 270.6 250.3 267.4 1,067.9 1,075.0

Other operations 71.5 73.8 71.4 70.7 76.2 72.3 287.5 300.8

Internal sales -60.9 -61 -58.7 -53.8 -54.8 -57.5 -234.4 -224.1

Sales 499.4 513.8 494.0 501.2 479.2 502.3 2,008.4 2,019.3

Cartonboard 29.1 26.8 31.3 27.6 22.4 24.8 114.8 99.9

Linerboard and Paper 30.3 39.2 30.2 35.1 29.6 20.9 134.8 112.8

Other operations -3.0 -5.3 -5.6 6.5 4.7 -1.7 -7.4 2.1

EBITDA 56.4 60.7 55.9 69.2 56.7 44.0 242.2 214.8

% of sales 11.3 11.8 11.3 13.8 11.8 8.8 12.1 10.6

Cartonboard -7.6 16.4 21.4 17.6 11.9 14.6 47.8 61.7


Other operations -3.8 -6.0 -6.4 5.8 4.1 -2.5 -10.4 -1.2

Operating result 6.7 34.1 32.2 43.5 30.6 19.3 116.5 113.6

% of sales 1.3 6.6 6.5 8.7 6.4 3.8 5.8 5.6

Non-recurring items in operating result

Cartonboard -24.9 -1.1 1.5 0.0 1.7 0.0 -24.5 4.8

Linerboard and Paper -13.6 0.0 2.5 0.0 -5.8 0.0 -11.1 -1.2

Other operations 8.5 0.0 -0.2 7.4 5.3 0.5 15.7 5.5

Group -30.1 -1.1 3.8 7.4 1.2 0.5 -19.9 9.2

Cartonboard 28.2 27.9 29.8 27.6 20.7 24.8 113.5 97.6


Other operations -11.5 -5.3 -5.4 -0.9 -0.6 -2.1 -23.1 -3.6

EBITDA, excl. non-recurring items 60.6 61.8 52.0 61.8 55.5 43.6 236.3 208.0

% of sales 12.1 12.0 10.5 12.3 11.6 8.7 11.8 10.3

Cartonboard 17.3 17.5 19.8 17.6 10.1 14.6 72.3 56.9


Other operations -12.3 -6.0 -6.1 -1.6 -1.2 -2.9 -26.1 -6.8

Operating result, excl. non-recurring items 36.9 35.2 28.3 36.1 29.3 18.9 136.5 104.4

% of sales 7.4 6.9 5.7 7.2 6.1 3.8 6.8 5.2


Page 12/30

2014 2014 2014 2014 2013 2013 2014 2013

EUR million Q4 Q3 Q2 Q1 Q4 Q3 Q1-Q4 Q1-Q4 Operating result, excl. Non-recurring items, % of sales

Cartonboard 7.7 7.6 9.0 8.3 4.9 6.6 8.1 6.6


Group 7.4 6.9 5.7 7.2 6.1 3.8 6.8 5.2

Return on capital employed, %

Cartonboard -6.0 12.4 15.8 13.1 8.8 10.8 9.4 11.8


Group 1.8 9 8.5 11.2 8.2 5.1 7.7 7.0

Return on capital employed excluding

non-recurring items, %

Cartonboard 13.7 13.2 14.7 13.1 7.5 10.8 14.3 10.9


Group 9.6 9.2 7.5 9.9 7.9 4.9 9.1 6.4

Capital employed, EUR million

Cartonboard 482.6 529.5 531.3 549.5 530.0 552.6 482.6 530.0


Unallocated and eliminations 407.2 317.2 310.3 296.1 281.1 243.6 407.2 281.1

Group 1,525.4 1,555.1 1,531.4 1,581.5 1,550.9 1,572.6 1,525.4 1,550.9 The capital employed for a segment includes its assets: goodwill, other intangible assets, tangible assets, biological assets, investments in associates, inventories, accounts receivables, prepayments and accrued income (excluding inter-est and taxes), less the segment's liabilities (accounts payable, advance payments, accruals and deferred income (ex-cluding interest and taxes).

DELIVERIES

2014 2014 2014 2014 2013 2013 2014 2013

1,000 tonnes Q4 Q3 Q2 Q1 Q4 Q3 Q1-Q4 Q1-Q4

Cartonboard 229 237 226 219 209 225 911 872

Linerboard and Paper 255 265 250 265 250 247 1,035 1,027

Market Pulp 148 153 158 152 146 163 611 635

PRODUCTION

2014 2014 2014 2014 2013 2013 2014 2013

1,000 tonnes Q4 Q3 Q2 Q1 Q4 Q3 Q1-Q4 Q1-Q4

Cartonboard 247 243 238 234 219 239 962 916

Linerboard and Paper 253 256 256 272 266 244 1,037 1,048

Metsä Fibre pulp 1) 143 140 132 147 146 141 562 572

Metsä Board pulp 337 320 299 337 331 296 1,294 1,249

1) Corresponds to Metsä Board's ownership share of 24.9% in Metsä Fibre.


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CALCULATION OF KEY RATIOS

Return on equity (%) =(Result before tax - direct taxes) per (Shareholders' equity (average))

Return on capital employed (%)

=

(Result before tax + interest expenses, net exchange gains/losses and other financial expenses) per (Share-holders' equity + interest-bearing borrowings (average))

Equity ratio (%) = (Shareholders' equity) per (Total assets - advance payments received)

Gearing ratio (%) =(Interest-bearing borrowings) per (Shareholders' equity)

Net gearing ratio (%) =

(Interest-bearing borrowings - liquid funds - interest-bearing receivables) per (Shareholders' equity)

Earnings per share =(Profit attributable to shareholders of parent company) per (Adjusted number of shares (average))

Shareholders´equity per share =(Equity attributable to shareholders of parent company) per (Adjusted number of shares at the end of period)


Page 14/30

FINANCIAL STATEMENTS

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Three months ended Year ended

December 31 December 31

EUR million Note 2014 2013 2014 2013

Sales 2, 6 499.4 479.2 2,008.4 2,019.3

Change in stocks of finished goods and

work in progress 11.0 27.7 10.3 31.9

Other operating income 2, 6 20.6 18.6 69.6 53.0

Material and services 6 -368.4 -373.4 -1,449.4 -1,513.6

Employee costs -69.0 -56.8 -252.6 -241.0

Share of results of associated companies

and joint ventures 6 12.4 11.6 43.7 37.1

Depreciation, amortization and impairment losses -49.6 -26.2 -125.6 -101.3

Other operating expenses -49.7 -50.1 -187.9 -171.8

Operating result 2 6.7 30.6 116.5 113.6

Share of results of associated companies

and joint ventures -0.0 0.0 0.3 0.1

Net exchange gains and losses 3.3 -0.9 2.7 -1.1

Other net financial items 2, 6 -8.3 -10.7 -41.9 -54.8

Result before income tax 1.6 19.0 77.6 57.8

Income taxes 3 4.5 12.2 -9.1 6.3

Result for the period 6.1 31.2 68.5 64.1


Page 15/30

Three months ended Year ended


EUR million Note 2014 2013 2014 2013

Other comprehensive income

Items that will not be reclassified to profit or loss Actuarial gains/losses on defined pension plans -8.2 2.1 -26.3 -4.8

Income tax relating to items that will not be reclassified

2.7 -0.6 7.7 1.5

Total -5.5 1.5 -18.6 -3.3

Items that may be reclassified to profit or loss

Cash flow hedges -4.4 -7.7 -11.2 -7.6

Available for sale financial assets 8 -0.8 -3.1 -0.6 -41.5

Translation differences -7.7 -6.4 -15.1 -9.0

Share of other comprehensive income of

associated companies and joint ventures -2.0 -0.7 -4.4 -3.8

Income tax relating to components of other comprehensive income 1.1 10.5 2.4 19.9

Total -13.8 -7.4 -28.9 -42.0

Other comprehensive income, net of tax -19.3 -5.9 -47.5 -45.3

Total comprehensive income for the period -13.2 25.3 21.0 18.8

Result for the period attributable to

Shareholders of parent company 6.1 31.1 68.5 63.9

Non-controlling interests 0.0 0.1 0.0 0.2

Total comprehensive income for the period attributable to

Shareholders of parent company -13.2 25.2 21.0 18.6

Non-controlling interests 0.0 0.1 0.0 0.2

Total -13.2 25.3 21.0 18.8

Earnings per share for result attributable to shareholders of parent company (EUR/share) 0.02 0.09 0.21 0.19

The accompanying notes are an integral part of these unaudited interim condensed financial statements.


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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

As of December 31

restate

EUR million Note 2014 2013

ASSETS

Non-current assets

Goodwill 12.7 12.7

Other intangible assets 15.1 22.6

Tangible assets 4 737.7 833.8

Investments in associated companies

and joint ventures 223.1 208.7

Available for sale investments 8 233.3 233.8

Other non-current financial assets 6, 8 11.2 15.3

Deferred tax receivables 17.3 10.5

1,250.4 1,337.4

Current assets

Inventories 339.8 332.9

Accounts receivables and other receivables 1, 6, 8 308.2 332.5

Cash and cash equivalents 1, 6, 8 250.4 94.2

898.4 759.6

Total assets 2,148.8 2,097.0

SHAREHOLDERS' EQUITY AND LIABILITIES

Shareholders' equity

Equity attributable

to shareholders of parent company 841.4 849.6

Non-controlling interests 0.0 0.0

Total equity 841.4 849.6

Non-current liabilities

Deferred tax liabilities 78.2 84.5

Post-employment benefit obligations 112.2 92.6

Provisions 5 24.7 8.6

Borrowings 8 580.8 647.9

Other liabilities 8 7.8 11.0

803.7 844.6

Current liabilities

Provisions 5 10.1 28.4

Current borrowings 6, 8 103.2 53.4

Accounts payable and other liabilities 6, 8 390.4 321.0

503.7 402.8

Total liabilities 1,307.4 1,247.4

Total shareholders' equity and liabilities 2,148.8 2,097.0

The accompanying notes are an integral part of these unaudited interim condensed financial statements.


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UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Equity attributable to shareholders of parent company

EUR million Note Share capital

Trans-lationdiffer-ences

Fairvalue

andother

reserves

Reserve for invested unre-stricted equity

Retained earnings Total

Non-control-

linginter-ests Total

Shareholders' equity, 1 January 2013 557.9 35.9 174.0 284.8 -201.9 850.7 5.5 856.2

Comprehensive income for the period


Other comprehensive income net of tax total -10.0 -32.0 -3.3 -45.3 -45.3

Comprehensive income total -10.0 -32.0 60.6 18.6 0.2 18.8

Share based payments 0.1 0.1 0.1

Related party transactions

Dividends paid -19.7 -19.7 -0.5 -20.2

Disposal of subsidiary

Aquisition of interest in a subsidiary from non-controlling interest -0.1 -0.1 0.0 -0.1

Shareholders' equity, 31 December 2013 557.9 25.9 142.0 284.8 -161.0 849.6 0.0 849.6

Equity attributable to shareholders of parent company

EUR million Note Share capital

Trans-lationdiffer-ences

Fairvalue

andother

reserves

Reserve for invested unre-stricted equity

Retained earnings Total

Non-control-

linginter-ests Total

Shareholders' equity, 1 January 2014 557.9 25.9 142.0 284.8 -161.0 849.6 0.0 849.6

Comprehensive income for the period


Other comprehensive income net of tax total -19.0 -9.9 -18.6 -47.5 -47.5 Comprehensive income total -19.0 -9.9 49.9 21.0 0.0 21.0

Share based payments 0.3 0.3 0.3

Related party transactions

Dividends paid -29.5 -29.5 -29.5

Shareholders' equity, 31 December 2014 557.9 6.9 132.1 284.8 -140.3 841.4 0.0 841.4

The accompanying notes are an integral part of these unaudited condensed financial statements.


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UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Year ended Year ended Three months ended

December 31 December 31 December 31

2014 2013 2014

EUR million Note restate

Result for the period 68.5 64.1 6.1

Total adjustments 7 82.8 73.8 29.5

Change in working capital 59.0 -10.8 47.0

Cash flow from operations 210.3 127.1 82.6

Net financial items 7 -9.3 -45.6 -7.8

Income taxes paid -2.8 0.7 -0.5

Net cash flow from operating activities 198.2 82.2 74.3

Acquisition of other shares -1.5 -1.5 -1.5

Investments in intangible and tangible assets -42.5 -60.5 -18.7

Disposals and other items 6,7 47.5 -231.0 12.2

Net cash flow from investing activities 3.5 -293.0 -8.0

Aquisition of interest in a subsidiary from non-controlling interest -0.1

Changes in non-current loans and in other financial items 6,7 -15.5 -102.9 -17.8

Dividends paid -29.5 -20.2 0.0

Net cash flow from financing activities -45.0 -123.2 -17.8

Changes in cash and cash equivalents 156.6 -334.0 48.5

Cash and cash equivalents at beginning of period 6,7 94.2 428.5 202.5

Translation difference in cash and cash equiva-lents -0.4 -0.3 -0.6

Changes in cash and cash equivalents 156.6 -334.0 48.5

Cash and cash equivalents at end of period 6,7 250.4 94.2 250.4

The accompanying notes are an integral part of these unaudited condensed financial statements.


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NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

NOTE 1 – BACKGROUND AND BASIS OF PREPARATION

Metsä Board Corporation and its subsidiaries comprise a forest industry group whose main product areas are fresh forest fiber cartonboards, office papers and spe-cial papers. Metsä Board Corporation, the parent com-pany, is domiciled in Helsinki and the registered ad-dress of the company is Revontulenpuisto 2, 02100 Espoo, Finland. Metsä Board’s ultimate parent compa-ny is Metsäliitto Cooperative.

This unaudited interim report has been prepared in accordance with IAS 34, Interim Financial Reporting, and it should be read in conjunction with the 2013 IFRS financial statements. The same accounting policies have been applied as in the 2013 IFRS financial state-ments with the following exception:

Depreciation of machinery and equipment during the financial year has been specified further between the quarters where applicable in order to correspond with the allocation of the use of the economic benefit of the asset.

Metsä Board has reclassified interest-bearing receiva-bles comparable to cash funds and available immedi-ately from Metsä Group's internal bank Metsä Group Treasury Oy from 30 September 2013 on as Cash and cash equivalents. Metsä Board disposed its 51 per cent shareholding in Metsä Group Treasury Oy to Metsäliitto Cooperative on 30 September 2013.

The Group has adopted the following new standards, amendments to existing standards and interpretations on 1 January 2014:

IFRS 10 Consolidated Financial Statements and sub-sequent amendments: IFRS 10 builds on existing prin-ciples by identifying the concept of control as the de-termining factor when deciding whether an entity should be incorporated within the consolidated financial state-ments. The standard also provides additional guidance to assist in the determination of control where this is difficult to assess. The new standard did not have any impact on consolidated financial statements.

IFRS 11 Joint Arrangements and subsequent amend-ments: In the accounting of joint arrangements IFRS 11 focuses on the rights and obligations of the arrange-ment rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. In future jointly controlled entities are to be accounted for using only one method, equity method, and the other alternative, proportional consolidation is no longer allowed. The new standard did not have any impact on consolidated financial statements.

IFRS 12 Disclosures of Interests in Other Entities and subsequent amendments: IFRS 12 includes the disclo-sure requirements for all forms of interests in other entities, including associates, joint arrangements, struc-

tured entities and other off-balance sheet vehicles. The new standard will expand the notes the Group provides for its interests in other entities.

IAS 28 Investments in Associates and Joint Ventures (revised 2011): Following the issue of IFRS 11 the revised IAS 28 includes the requirements for joint ven-tures, as well as associates, to be equity accounted.

Amendments to IAS 32 Financial Instruments: Presen-tation: The amendments provide clarifications on the application of presentation requirements for offsetting financial assets and financial liabilities on the statement of financial position and give more related application guidance.

Amendments to IAS 36 Impairment of Assets: The objective of the amendments is to clarify that the scope of the disclosures of information about the recoverable amount of assets, where that amount is based on fair value less costs of disposal, is limited to impaired as-sets.

Amendments to IAS 39 Financial Instruments: Recogni-tion and Measurement: The amendments made to IAS 39 provide an exception to the requirement to discon-tinue hedge accounting in certain circumstances where a derivative, which has been designated as a hedging instrument, is novated from one counterparty to a cen-tral counterparty as a consequence of laws or regula-tions.

All amounts are presented in millions of euros, unless otherwise stated.

This interim report was authorized for issue by the Board of Directors of Metsä Board on 5 February 2015.

NOTE 2 – SEGMENT INFORMATION

The Corporate Management Team is the chief opera-tional decision-maker, which monitors the business operations based on the operating segments.

Metsä Board Corporation renewed its management and reporting structure as of 1 January 2014 to better reflect the company’s strategy and to create a better platform for growth in the folding boxboard and kraftliner busi-nesses. The company operates through two business areas which are also be the company’s reporting seg-ments from 1Q 2014 reporting onwards: Cartonboard and Linerboard and Paper.

Cartonboard business area includes Kyro, Simpele, Tako and Äänekoski folding boxboard mills, Kyro wall-paper machine and Joutseno BCTMP mill located in Finland as well as Gohrsmühle mill in Germany. Liner-board and Paper business area includes Husum mill in Sweden as well as Kemi kraftliner and Kaskinen BCTMP mills in Finland.

Accounting for the 24.9 per cent ownership in Metsä Fibre Oy remains unchanged. The associated company


Page 20/30

result of Metsä Fibre will continue to be allocated to business segments based on their respective pulp consumption. About 60 per cent of the result impact of Metsä Fibre ownership is expected to be booked in Linerboard and Paper business area and the rest in the Cartonboard business area.

The sales of the reportable operating segments are mainly generated by sales of board and paper, but Linerboard and Paper operating segment includes sales of pulp to external customers.

The accounting principles for the segment information are equal to those of the Group and all inter-segment sales are based on market prices.

Segment sales

Yaer ended December 31 Year ended December 31

2014 2013

EUR million External Internal Total External Internal Total

Cartonboard 887.0 0.5 887.5 867.4 0.1 867.5

Linerboard and Paper 1,059.2 8.6 1,067.8 1,065.6 9.4 1,075.0

Other operations 62.2 225.3 287.5 86.3 214.6 300.9

Elimination of in-tersegment sales -234.4 -234.4 -224.1 -224.1

Total sales 2,008.4 0.0 2,008.4 2,019.3 0.0 2,019.3 Operating result by operating segments

Year ended Year ended


EUR million 2014 2013

Cartonboard 47.8 61.7

Linerboard and Paper 79.1 53.1

Other operations -10.4 -1.2

Operating result total 116.5 113.6

Share of profit from associated companies 0.3 0.1

Finance costs, net -39.2 -55.9

Income taxes -9.1 6.3

Result for the period 68.5 64.1 Non-recurring items totaled EUR -22.2 million, EUR -19.9 million in operating result and EUR -2.2 million in financial items.

Metsä Board’s share of profit on sale of Pohjolan Voima shares disposed by Metsä Fibre was EUR 4.0 million of which EUR 1.5 million includes in Cartonboard busi-ness area and EUR 2.5 million in Linerboard and Paper business area. In addition Cartonboard business area includes other non-recurring items EUR -26.0 million. The most significant non-recurring item was an impair-ment of EUR 26.1 million of fixed assets related to the loss-making Gohrsmühle mill. Linerboard and Paper

includes a provision of EUR 13.4 million related to reor-ganization recognized in Metsä Board Sverige AB.

Other operations includes non-recurring items total EUR +13.2 million, EUR +15.4 million in operating result and EUR -2.2 million in financial items. Metsä Board recognized EUR 32.1 million profit on sale relat-ed to divestment of property in Lielahti, Tampere in Finland. The Court of Arbitration had its judgment on 11 February 2014 related to the arbitration proceedings raised by UPM-Kymmene on 2 November 2012. Other operations include EUR 17.4 million expenses in oper-ating result and EUR -2.2 million in financial items re-lated to the judgment.


Page 21/30

Assets by operating segments




Cartonboard 736.6 752.0

Linerboard and Paper 846.2 930.2

Other operations 369.6 366.1

Elimination -78.3 -66.7

Unallocated 274.7 115.4

Total 2,148.8 2,097.0

Segment assets include goodwill, other intangible as-sets, tangible assets, investments in associated com-panies, inventories, accounts receivables and prepay-ments and accrued income (excl. interest and income tax items).

NOTE 3 – INCOME TAXES

Tax expense in the interim condensed combined in-come statement is comprised of the current tax and deferred taxes. Income taxes for the year ended 31 December 2014 and 2013 are as follows. Income taxes for the review period decreased as a result of internal restructuring within the Group. The change in the Finn-ish corporate tax rate from 24.5 per cent to 20 per cent in December 2013 reduced deferred tax liabilities by EUR 0.8 million. In addition, approximately EUR 7.1 million was recognized as deferred tax receivables in the last quarter of 2013 for tax losses and provisions.




Taxes for the current period 7.6 5.3

Taxes for the prior periods 0.1 -2.1

Change in deferred taxes 1.2 -9.5

Total income taxes 9.1 -6.3

NOTE 4 – CHANGES IN PROPERTY, PLANT AND EQUIPMENT

The following shows the components of changes in property, plant and equipment for the year ended 31 December 2014 and 2013:




Carrying value at beginning of period 833.8 894.4

Capital expenditure 42.6 52.9

Decreases -2.2 -5.9

Depreciation, amortization and impairment losses -121.0 -98.4

Translation difference -15.5 -9.2

Carrying value at end of period 737.7 833.8

Depreciation, amortization and impairment losses of property, plant and equipment for year ended 31 De-

cember 2014 includes in Cartonboard business area impairment charges of EUR 24.8 million as a result of


Page 22/30

the weak profitability of the Gohrsmühle mill as well as reverse of impairment charges EUR 0.3 milion million related disposal of old paper machine in Simpele mill in Finland. Depreciation, amortization and impairment losses for year months ended 31 December 2013 in-cluded in Cartonboard business area a reverse of im-pairment charges of EUR 2.5 million due to sale of old

impaired paper machine at Äänekoski mill. In addition Other operations included an impairment charge of EUR 0.2 million related to canceled disposal of old paper machine in Simpele mill in Finland. The paper machine was classified in December 2012 as asset held for sale according to IFRS5, Non-current assets as held for sale and discontinued operations.

NOTE 5 – PROVISIONS

The following is a summary of changes Metsä Board’s provisions during the year ended 31 December 2014.

Environmental Other

EUR million Restructuring obligations provisions Total

At 1 January 2014 6.7 20.0 10.3 37.0

Translation differences -0.2 -0.4 -0.3 -0.9

Increases 12.9 0.0 1.7 14.6

Utilized during the year -4.5 -8.7 -1.6 -14.8

Unused amounts reversed 0.0 0.0 -1.1 -1.1 At 31 December, 2014 14.9 10.9 9.0 34.8

The non-current portion of provisions was some EUR 24.7 million and the current portion some EUR 10.1 million, total provisions being EUR 34.8 million. The non-current portion is estimated to be paid mainly by the end of the year 2017. The most significant increase of provision was a provision of EUR 12.9 million related to reorganization recognized in Metsä Board Sverige AB in Linerboard and Paper business area.

NOTE 6 – RELATED PARTY TRANSACTIONS Metsä Board’s Board of Directors, the Corporate Man-agement Team, Metsäliitto Cooperative and its subsidi-aries and Metsä Board’s associated companies are considered related parties. Metsä Board enters into a significant number of transactions with related parties for the purchases of inventory, sale of goods, corporate services as well as financial transactions. Product and service transfers and interest between Metsä Board and the related parties have been made at arm’s length prices.

Transactions between Metsä Board and related parties for the year ended 31 December 2014 and 2013 are as follows:

Transactions and balances with parent and sister companies




Sales 69.1 76.2

Other operating income 4.9 5.6

Purchases 674.5 714.3

Share of result from associated companies 43.7 37.1

Interest income 0.4 4.7

Interest expenses 1.0 1.8

Non-current receivables 0.0 3.8

Current receivables 14.3 20.0

Cash and cash equivalents 236.0 81.3

Non-current liabilities 0.0 0.0

Current liabilities 77.1 81.2


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Metsä Fibre's net result is included within operating result line item "Share of result from associated compa-nies" and transactions with Metsä Fibre are included in transactions with sister companies.

Metsä Fibre paid a dividend of EUR 24.9 million to Metsä Board during the year ended 31 December 2014.

Due to the disposal of the holding in Metsä Group Treasury Oy to Metsäliitto Cooperative in September 2013 current receivables and liabilities have decreased. The disposal of the holding in Metsä Group Treasury

Oy decreased also the level of non-controlling interests by some EUR 5.2 million.

Metsä Board has reclassified interest-bearing receiva-bles comparable to cash funds and available immedi-ately from Metsä Group's internal bank Metsä Group Treasury Oy from 30 September 2013 on as Cash and cash equivalents. Metsä Board disposed its 51 per cent shareholding in Metsä Group Treasury Oy to Metsäliitto Cooperative on 30 September 2013.

.

Transactions with associated companies and joint ventures




Sales 0.7 0.2

Purchases 7.7 7.0

Non-current receivables 0.3 0.3

Current receivables 0.2 0.2

Current liabilities 1.2 0.9

NOTE 7 – NOTES TO CONSOLIDATED CASH FLOW STATEMENT Adjustments to the result for the period

Year ended Year ended Three months ended

December 30 December 31 December 31

EUR million 2014 2013 2014

Taxes 9.1 -6.3 -4.6

Depreciation, amortization and

impairment charges 125.6 101.3 49.6

Share of result from associated

companies and joint ventures -43.9 -37.2 -12.4

Gains and losses on sale of fixed assets -40.4 -10.6 -11.6

Finance costs, net 39.2 55.9 5.1

Provisions -6.7 -29.3 3.4

Total 82.8 73.8 29.5

Net financial items

Net financial items in consolidated cash flow statement for the year ended 31 December 2014 include a divi-dend of EUR 24.9 million paid by Metsä Fibre.

Disposals and other items

Year ended 31 December 2014 Disposals and other items, EUR 47.5 million, include EUR 44.6 million dis-posals. The most significant disposals were disposals of property in Finland EUR 35.1 million and disposal of

emission rights and electricity certificates EUR 8.8 million.


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NOTE 8 – FINANCIAL INSTRUMENTS

Financial assets and liabilities classified according to IAS 39 for the year ended 31 December 2014:

Financial assets 31 December 2014

EUR million

Fair value through profit&loss

Available for sale financial assets

Loans and other re-ceivables

Derivatives at hedge accoun-ting

Amortised cost

Total carrying amount

Fair value

Available for sale financial

assets 233.3 233.3 233.3

Other non-current financial

assets 11.2 11.2 11.2

Accounts receivables and

other receivables 307.5 307.5 307.5

Cash and cash equivalent 250.4 250.4 250.4

Derivative financial instruments 0.0 0.0 0.0 0.0

Total financial assets 0.0 233.3 569.1 0.0 802.4 802.4

Financial liabilities 31 December 2014

EUR million Fair value through profit&loss


Amortised cost

Total car-rying amount

Fair value

Non-current interest-bearing financial

liabilities 580.8 580.8 605.9


liabilities 1.4 1.4 1.4

Current interest-bearing financial

liabilities 103.2 103.2 105.0

Accounts payable and other financial

liabilities 332.9 332.9 332.9


Total financial liabilities 2.8 23.7 1,018.3 1,044.8 1,071.7


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Financial assets and liabilities classified according to IAS 39 for the year ended 31 December 2013:

Financial assets 31 December 2013

EUR million

Fair value through profit&loss

Available for sale financial assets

Loans and other re-ceivables


Amortised cost

Total carrying amount

Fair value

Available for sale financial

assets 233.8 233.8 233.8


assets 15.3 15.3 15.3

Accounts receivables and

other receivables 331.0 331.0 331.0

Cash and cash equivalent 0.0 94.2 94.2 94.2

Derivative financial instruments 0.6 0.6 0.6

Total financial assets 0.6 233.8 440.5 674.9 674.9

Financial liabilities 31 December 2013

EUR million Fair value through profit&loss


Amortised cost

Total car-rying amount

Fair value

Non-current interest-bearing financial

liabilities 647.9 647.9 664.0



Current interest-bearing financial


Accounts payable and other financial

liabilities 279.7 279.7 279.7


Total financial liabilities 2.0 13.5 983.9 999.4 1,017.0

Accounts receivables and other receivables do not include advance payments, deferred tax receivable and periodizations of employee costs.

Accounts payable and other financial liabilities do not include advance payments, deferred tax liability and periodizations of employee costs.

In Metsä Board all interest-bearing liabilities are valued in the balance sheet at amortised cost based on effec-tive interest method. Interest bearing receivables are classified according to the IAS standards. Fair values in the table are based on present value of cash flow of each liability or assets calculated by market rate. The discount rates applied are between 0.8– 3.1 per cent (31 December 2013: 0.9–4.1).


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Fair value hierarchy of financial assets and liabilities for the year ended 31 December 2014

EUR million Level 1 Level 2 Level 3 Total

Financial assets at fair value

Financial assets at fair value through

profit or loss, non-current 0.0

Available for sale financial assets 0.4 232.9 233.3

Financial assets at fair value through profit

or loss, current 0.0

Derivative financial assets 0.0

Financial liabilities measured at fair value

Derivative financial liabilities 10.2 16.3 26.5

Financial assets not measured at fair value

Cash and cash equivalent 250.4 250.4

Financial liabilities not measured at fair value

Non-current interest-bearing financial liabilities 605.9 605.9

Current interest-bearing financial liabilities 105.0 105.0

Fair value hierarchy of financial assets and liabilities for the year ended 31 December 2013

EUR million Level 1 Level 2 Level 3 Total

Financial assets at fair value

Financial assets at fair value through

profit or loss, non-current 0.0

Available for sale financial assets 0.3 233.5 233.8

Financial assets at fair value through profit

or loss, current 0.0

Derivative financial assets 0.6 0.6

Financial liabilities measured at fair value

Derivative financial liabilities 10.8 4.7 15.5

Financial assets not measured at fair value

Cash and cash equivalent 94.2 94.2

Financial liabilities not measured at fair value

Non-current interest-bearing financial liabilities 664.0 664.0

Current interest-bearing financial liabilities 54.9 54.9


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Financial assets and liabilities measured at fair value based on Level 3

Year ended

December 31


Opening balance 233.5 269.3

Total gains and losses in profit or loss 0.0 0.0

Total gains and losses in other comprehensive income -0.6 -41.5

Purchases 0.0 5.7

Settlements 0.0 0.0

Closing balance 232.9 233.5

Financial assets and liabilities measured at fair value have been categorized according to IFRS 7

Level 1 Fair value is based on quoted prices in active markets

Level 2 Fair value is determined by using valu-ation techniques that use observable price information from market

Level 3 Fair value are not based on observable market data, but company's own assumptions

The fair values of electricity, natural gas and gas oil derivatives are determined by using public price quota-tions in an active market (Level 1).

The fair values of currency forwards and options are determined by using the market prices of the closing date of the reporting period The fair values of interest rate swaps are determined by using the present value of expected payments, discounted using a risk adjusted discount rate, supported by market interest rates and other market data of the closing date of the reporting period (Level 2).

For financial instruments not traded on an open market, the fair value is determined by valuation techniques. Consideration is used when choosing the different techniques and making assumptions, which are mainly

based on circumstances prevailing in the markets on each closing date of the reporting period (Level 3).

The valuation techniques are described in more detail in the Annual report.

The greatest item at fair value not traded on an open market is the investment in Pohjolan Voima shares, reported under available-for-sale financial assets. The valuation techniques are described in more detail in the Annual report. The WACC used on 31 December 2014 was 2.48 percentage points (31.12.2013: 3.90) and 6.48 percentage points (6.90) for the Olkiluoto 3 under construction. The acquisition cost of shares in Pohjolan Voima Oy is EUR 39.1 million (39.1) and the fair value EUR 228.7 million (232.4).

The carrying amount of available-for-sale financial assets would be estimated to be EUR 0.6 million lower or EUR 0.6 million higher should the rate used for dis-counting the cash flows differ by 10% from the rate estimated by the management. The carrying amount of available-for-sale financial assets would be estimated to be EUR 28.1 million higher or EUR 28.1 million lower should, if energy prices used for calculating the fair value differ by 10% from prices estimated by the man-agement.


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Derivatives 31 December 2014

Nominal Fair Fair

EUR million value value value

Assets Liabilities Total Fair Cash Derivatives/hedge

value flow accounting

hedges hedges not applied

Interest forward agreements

Interest rate options

Interest rate swaps 265.3 3.4 -3.4 3.2 -6.6

Interest rate derivatives 265.3 3.4 -3.4 3.2 -6.6

Currency forward agreements 564.1 11.4 -11.4 -10.0 -1.4

Currency option agreements 169.5 1.4 -1.4 -1.4

Currency swap agreements

Currency derivatives 733.6 12.8 -12.8 -10.0 -2.8

Electricity derivatives 62.8 6.7 -6.7 -6.6 -0.1

Pulp derivatives 22.3 0.1 -0.1 -0.1

Other commodity derivatives 10.8 3.6 -3.6 -3.6

Commodity derivatives 95.9 10.3 -10.3 -10.3 -0.1

Derivatives total 1,094.8 26.5 -26.5 3.2 -26.8 -2.9


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Derivatives 31 December 2013

Nominal Fair Fair

EUR million value value value

Assets Liabilities Total Fair Cash Equity Derivatives/hedge

value flow accounting

hedges hedges hedges not applied

Interest forward agreements

Interest rate options

Interest rate swaps 277.2 2.7 -2.7 2.5 -5.3

Interest rate derivatives total 277.2 2.7 -2.7 2.5 -5.3

Currency forward agreements 411.9 0.6 0.6 0.0 0.6

Currency option agreements 52.6 0.0 0.0

Currency swap agreements 43.5 2.0 -2.0 -2.0

Currency derivatives total 508.0 0.6 2.0 -1.4 -1.4

Electricity derivatives 76.5 10.8 -10.8 -10.8 0.0

Pulp derivatives

Other commodity derivatives

Commodity derivatives total 76.5 0.0 10.8 -10.8 -10.8 0.0

Derivatives total 861.7 0.6 15.5 -14.9 2.5 -16.0 -1.4

NOTE 9 – COMMITMENTS AND GUARANTEES The following shows securities and guarantees for the year ended 31 December 2014 and 2013:




Liabilities secured by pledges, real estate

mortgages and floating charges 180.5 582.3

Pledges granted 78.8 535.3

Floating charges 3.0 603.0

Real estate mortgages 232.8 832.8

Total pledges and mortgages 314.6 1,971.1

As security for other own commitments 32.4 31.3

On behalf of associated companies and joint ventures 0.2 0.3

On behalf of others 0.1 0.1

Total 347.3 2,002.8

Securities and guarantees include pledges, real estate mortgages, floating charges and guarantee liabilities. Metsä Board holds operating leases for certain vehicles and equipment. Leasing liabilities are part of the table above.

The decrease of commitments is related to the fact, that Metsä Board Corporation issued in March 2014 a EUR

225 million senior unsecured bond. The bond matures on 13 March 2019. Metsä Board has also signed an agreement on a new unsecured syndicated credit facili-ty in March 2014. The new facility consists of a EUR 150 million term loan facility and a EUR 100 million revolving credit facility, both maturing in March 2018.


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The proceeds of the new loan arrangements were mainly used to prepay the existing EUR 350 million secured term loan maturing in March 2016. The new revolving credit facility replaced the undrawn EUR 100

million secured revolving credit facility maturing in May 2015.

Open derivative contracts




Interest rate derivatives 265.3 277.2

Currency derivatives 733.6 508.0

Other derivatives 95.9 76.5

Total 1,094.8 861.7

The fair value of open derivative contracts calculated at market value at the end of the review period was EUR -26.5 million (EUR -14.9 million 31 December 2013).

NOTE 10 – EVENTS AFTER BALANCE SHEET DAY

Metsä Board updated its long-term financial targets in February 2015. The updated targets are return on capi-tal employed (ROCE) minimum 12 per cent from 2017 onwards and net gearing maximum 70 per cent.

Documents

METSÄ BOARD CORPORATION FINANCIAL … reports and... · Metsä Board sold its holding in Metsä Group Treasury Oy in September 2013. Compared to the actual figures ... volume of