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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
2 August 2018 Metsä Group3
Events in the second quarter
Metsä Group – Q2
2 August 2018 Metsä Group4
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
2 August 2018 Metsä Group5
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
2 August 2018 Metsä Group6
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
2 August 2018 Metsä Group7
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
2 August 2018 Metsä Group8
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
%
2 August 2018 Metsä Group10
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
2 August 2018 Metsä Group11
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
2 August 2018 Metsä Group12
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
2 August 2018 Metsä Group13
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
2 August 2018 Metsä Group14
Sales and comparable operating result EUR million
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
Sales Operating result
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
2 August 2018 Metsä Group15
Sales and comparable operating result EUR million
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
Sales Operating result
2 August 2018 Metsä Group16
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
2 August 2018 Metsä Group17
Sales and comparable operating result EUR million
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
Sales Operating result
2 August 2018 Metsä Group18
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
2 August 2018 Metsä Group19
Sales and comparable operating result EUR million
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
Sales Operating result
• 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
2 August 2018 Metsä Group20
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
2 August 2018 Metsä Group21
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)
2 August 2018 Metsä Group22
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
2 August 2018 Metsä Group23
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
2 August 2018 Metsä Group24
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
2 August 2018 Metsä Group25
Textile fibres the first concept in Metsä Spring’s portfolio
Metsä Spring