Metsä Board. Final Steps of Transformation to a Paperboard Company. Mika Joukio, CEO 10 December Metsä Board

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1 Metsä Board Final Steps of Transformation to a Paperboard Company Mika Joukio, CEO 10 December 2014 Metsä Board

2 Metsä Board Grows Its Paperboard Business, Plans to Fully Exit Paper Production and Considers a Rights Issue Major growth step in the folding boxboard business thanks to EUR 170 million investment in a new production line and related infra at Husum mill in Sweden Planned discontinuation of Husum mill s paper production mostly by the end of 2015 and fully by the end of 2017 New measures to eliminate losses of Gohrsmühle mill in Germany Renewed management and reporting structure Measures expected to be financed by current liquidity, operating cash flow and potentially also by a rights issue 2

3 New Measures Finalize Metsä Board s Successful Transformation Market growth Fresh Forest Fibre Paperboard 2006: New strategy : Numerous divestments, closures and restructuring measures 2015: Completion of the transformation European paper The leading fresh forest fibre paperboard company in Europe ROCE % 3

4 Investment in Husum the Most Cost-Competitive Alternative to Increase Capacity Metsä Board s biggest mill integrate Skilled personnel Large two line pulp mill State of art coating technology Efficient power plant Own harbour Good existing other infrastructure Proximity to large forest areas

5 Husum Mill Will Have Two Production Lines and It Becomes a Leading Fresh Forest Fibre Paperboard Unit in Europe New folding boxboard machine, BM1 EUR 170 million investment Production capacity approximately 400,000 t/a Start up in early 2016 Full production capacity reached by end 2016 Current PM8 to be converted to a linerboard machine, BM2 Only minor investment needed Production capacity approximately 300,000 t/a Start up in spring 2015 Husum s linerboard sales run rate over 100,000 t/a at the moment Current state of art off-line coating machine serving both paperboard machines All in all, Husum s fresh forest fibre paperboard capacity will be approximately 700,000 t/a 5

6 Husum s New Paperboard Volumes to Be Sold Mainly Outside Europe Husum s new folding boxboard volumes planned to be sold mainly to North America and to the food service segment globally New linerboard volumes expected to be sold both in Europe and North America, increasingly also to new applications e.g. in food packaging If the demand supply situation so requires in the coming years, Metsä Board has possibilities to adjust its production accordingly 6

7 Metsä Board is Growing Especially in North America Where Paperboard Volumes Have Grown Over 40% in 2014 FBB deliveries to North America, 1,000 tonnes % Metsä Board s FBB, that is even over 30% lighter than other paperboards, has proven its strong competitiveness Share of FBB in North American cartonboard consumption currently only 5% compared to 35% in Europe 5 0 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 FBB volume target in North America is over 300,000 t/a in mid-term Fresh forest fibre linerboard deliveries to North America, 1,000 tonnes % 120 Kemi s coated fresh forest fibre linerboards are clear market leaders and quality benchmarks in North America Growth further accelerated by Husum s light weight liners Linerboard volume target in North America is over 250,000 t/a in mid-term E

8 Very Good Growth Potential in the New Food Service Segment Market growth 4%/a Global market about 2.5 million tonnes The leading responsible brands are favoring more and more paperboard in food service solutions Metsä Board s FBB lighter in weight than typical paperboards in food service end use Volume in 2014 over 20,000 tonnes. Mid-term target over 150,000 t/a 8

9 Husum s Entire Paper Production Is Planned to Be Discontinued Mostly at the end of 2015 and full exit by the end of 2017 Paper production at two machines planned to be ceased by end 2015 Combined paper capacity roughly 600,000 t/a Related statutory negotiations to commence in December 2014 Uncoated fine paper business reel production will be continued at the BM2 until the linerboard sales volumes reach the full capacity 9

10 Metsä Board s Pulp Self-Sufficiency Remains Strong Husum s combined softwood and hardwood pulp capacity is approximately 750,000 t/a. After the planned measures market pulp volumes are expected to be roughly 350,000 t/a In addition to chemical pulp produced at the site, the new folding boxboard production at Husum will use majority of the BCTMP produced at Kaskinen mill in Finland Metsä Board s associated company Metsä Fibre plans a bioproduct mill in Äänekoski, Finland with an investment cost of approximately EUR 1.1 billion with net capacity increase of approximately 800,000 t/a Final investment decision planned for spring Operations would then commence during 2017 Capital invested by Metsä Board would be maximum EUR 30 million (pro rata) All in all, Metsä Board s pulp balance is expected to be approximately +500,000 t/a from 2018 onwards All market pulp is softwood chemical pulp Reserve to grow paperboard business further in the future while maintaining self-sufficiency in pulp 10

11 Gohrsmühle Mill s Heavy Losses Targeted to Be Eliminated Main products cast coated and label papers Approximately 480 employees Estimated annual sales about EUR 85 million and annualized operating loss EUR 20 million based on 1-3Q 2014 performance Main target is to divest the mill during the first half of 2015 If the divestment will not materialize in the set time frame, other measures to eliminate the heavy losses will be introduced 11

12 Significant Financial Improvements Thanks to the New Measures Based on growth of paperboard business and discontinuation of Husum s paper production, Metsä Board s annual sales is expected to remain rather stable Operating result excluding non-recurring items expected to improve by approximately EUR 50 million compared to 1-3Q 2014 annualized performance Mostly in 2017 and fully in 2018 Investment shutdown in Husum is forecast to impact operating result in 2015 negatively roughly by EUR 20 million Additionally, elimination of Gohrsmühle mill s losses would improve Metsä Board s annual operating result by approximately EUR 20 million. Reduction in annual sales would be approximately EUR 85 million 12

13 Financing of the Planned Measures Partly financed through a rights issue of approximately EUR 100 million, based on the Board of Directors authority granted by the AGM Possible implementation in 1Q 2015 Metsäliitto Cooperative is committed to a pro rata investment of approximately EUR 43 million Other financing sources are current liquidity sources and operating cash flow Metsä Board s balance sheet continues to be strong also after the new measures Investments Planned discontinuation of Husum s paper production Potential negative cash impact due to the elimination of Gohrsmühle mill s losses 13

14 Management Structure Renewed to Enable Successful Implementation of the New Growth and Restructuring Measures Management structure changed from business area to a function based model Reporting segments are from 1Q 2015 onwards the following: Paperboard Non-core operations Paperboard segment includes folding boxboard, fresh forest fibre linerboard, wallpaper base and market pulp businesses Non-core operations include Husum and Gohrsmühle mills paper businesses Reporting under Other operations as well as accounting for the 24.9 per cent ownership in Metsä Fibre Oy will remain unchanged. The associated company result of Metsä Fibre will be allocated to Paperboard Financial statements 2014 will be based on the old reporting segments The restated historical figures will be released during February

15 Metsä Board Corporate Management Team as of 1 January 2015 CEO Mika Joukio SVP, Production and Technology Ari Kiviranta SVP, Marketing and Sales Seppo Puotinen SVP, Business Development Sari Pajari CFO g Markus Holm SVP, Human Resources Susanna Tainio 15

16 EUR -34 Million in Net Non-Recurring Items Expected to Be Booked in 4Q 2014 Operating Result Main items: EUR 27 million impairment of fixed assets in the Cartonboard business area due to the weak performance of Metsä Board Gohrsmühle mill EUR 14 million cost provision related to planned discontinuation of standard paper production at Husum mill EUR 7 million sales gain related to Niemenranta property in Tampere, Finland Guidance for Metsä Board s 4Q 2014 operating result remains unchanged. The operating result excluding nonrecurring items is in 4Q 2014 expected to be roughly the same as in 3Q 2014 Metsä Board will announce the full year 2014 results on 5 February

17 Metsä Board Strengthens Its Market Leadership Largest Folding Boxboard Producers in Europe +43% Largest White Top Fresh Forest Fibre Linerboard Producers in Europe +41% Current Post-measures Current Post-measures 935 (34%) / 42% 495 (27%) / 34% Stora Enso 21% (25%) Smurfit Kappa 25% (28%) Mayr-Melnhof 11% (13%) BillerudKorsnäs 15% (17%) IP 7% (8%) Mondi 13% (14%) Holmen 7% (8%) SCA 10% (11%) ,000 1,200 1, Capacity: 1000 tons/a Capacity: 1000 tons/a 17 Note: Share of production capacity post-measures shown in percentages; Share of production capacity currently shown in parenthesis Sources: Metsä Board, Pöyry Management Consulting Oy

18 Business Structure Improving Materially. Great Platform to Develop Business Further and Create Value for Customers and Owners Sales distribution 3Q 2014 Target sales distribution as of 1Q 2018* Market pulp 15% Paperboard 61% Market pulp 20% Paper 24% Paperboard 80% *Indicative. Assumes that Metsä Fibre Äänekoski bioproduct plant is built. 18

19 Key Investment Highlights of the Renewed Metsä Board Final steps in transformation to a paperboard company in process Strong growing core in high-quality paperboards European market leader in folding boxboard and global market leader in coated white top kraftliner Good growth outlook, especially in North America Best in class profitability and efficient operations due to strong productivity improvements in recent years Good cash flow generation and solid balance sheet Technology leader in the core segments with well invested asset base 19

20 Thank You! QA Make the most of Metsä Board 20 Metsä Board Metsä Group