Sustainable profitable growth continues CFO Seppo Parvi SVP, Investor Relations Ulla Paajanen-Sainio
Disclaimer It should be noted that and its business are exposed to various risks and uncertainties and certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by believes, expects, anticipates, foresees, or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the group s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the group s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the group s products and the pricing pressures thereto, price fluctuations in raw materials, financial condition of the customers and the competitors of the group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the group s principal geographic markets or fluctuations in exchange and interest rates. All statements are based on management s best assumptions and beliefs in light of the information currently available to it and assumes no obligation to publicly update or revise any forward-looking statement except to the extent legally required. 2
The renewable materials company Everything that s made with fossil-based materials today can be made from a tree tomorrow 3
at a glance Leading producer of board, pulp, wood products and paper We know the origin of all the wood we use. 100% comes from sustainable sources. 30 countries 10 BEUR sales 2017 14.3% Operational ROCE excl. Beihai operations 2017 12.3% EBIT margin Q2/18 1.3 Net debt to operational EBITDA Q2/18 71% of sales from growth businesses in 2017 We employ 26 000 people
We are well-positioned for profitable growth Consumer Board Packaging Solutions Biomaterials Wood Products Sales + + + + - Sales 2017 EUR and % of group s sales 2.5 BEUR 1.3 BEUR 1.5 BEUR 1.7 BEUR Market growth 2016 2030 for virgin board: Europe 1.8%, North America 1.2%, Latin America 3.3%, China 4.3%, Rest of Asia 3.4%, Africa 2.5% High quality SC fluting 1-3%; Kraftliner 2 3% excl. North Am; Testliner 3 4% Eastern Europe 1st Qtr 2nd Qtr Market pulp 2.5% or 1.7 Mt/year; Fastest growth 3rd Qtr in textiles (3%) and hygiene (3.6%) 4th Qtr Global sawn softwood 2 3%, European new construction 3.5% Paper 2.9 BEUR 29% Declining 3 5% annually 25% 12% 15% 17% 5
Forest assets Northern and Southern hemisphere Fair value of 3.3 BEUR forest areas as 1 May 2018 Bergvik Skog, Sweden 2.3 million ha of land in Sweden, 100 000 ha in Latvia (ownership of 49%) Tornator, Finland 600 000 ha of land in Finland, 60 000 ha in Estonia, and 12 000 ha in Romania (ownership 41%) Guangxi, Southern China (leased) 83 000 ha of land of which 77 000 ha planted Note: Fair value of Biological assets and Group s indirect share of forest assets is as of 31 Dec 2017, in total 3 333 MEUR 6 Veracel plantations, Brazil 226 000 ha of land of which 80 000 ha eucalyptus plantations (ownership of 50%) Montes del Plata, Uruguay 247 000 ha of land of which 147 000 ha planted (ownership of 50%) In addition, leased plantations: - Laos: trial plantation, 3 000 ha - Russia: 370 000 ha
intends to acquire forest assets of Bergvik Skog To secure our competitive raw material supply in the long term would transform 49% ownership to approximately 70% of the value of the forest assets in Bergvik Väst Financial impacts estimate for Bergvik Väst consolidated as a subsidiary Cash out effect of 250-300 MEUR Debt would increase by 800 MEUR Net debt to operational EBITDA ratio would increase by 0.6 Capital employed would increase by 1 BEUR resulting a decrease in ROCE of 1%-point 7
Profitable growth Improving sales and innovation Montes del Plata Mill investment Beihai Mill investment Varkaus Mill conversion Murów sawmill investment Varkaus LVL investment Imatra de-bottlenecking Sunila bio-refinery Innovation Centre Helsinki Innovation Centre Stockholm NXP JDA Launch of first MFC product Intelligent packaging Launches of: Performa Brilliance by CKB Nude by Natura Life by Fibre Cup Multicopy Zero by FlyoBrite by Bio-based lignin Lineo by Biocomposites - DuraSense by Product & Sales Management, S&OP, CRM Accelerator programme Asset transformation Innovation & customer focus 8
These are our drivers for accelerating renewable growth Biocomposites Intelligent packaging 7% of our sales came from NEW products and services In 2017 High-quality packaging solutions Bio barriers Building components and systems Future biochemicals Next generation liquid and food packaging 9
Renewable products to replace fossil-based materials Lineo TM by Wood-based lignin is a renewable, non-toxic, traceable material Today as a replacement for oil-based phenolic materials in glues for example in plywood and paper lamination DuraSense TM by for wood-based biocomposites Raw material for markets where plastics dominate Use in products, such as disposable cutlery, furniture, as well as storage and logistics goods signed a joint development agreement with the Finnish start-up Sulapac To license its materials and technology To begin the development of fully renewable caps and closures for liquid packages 10
Consumer Board s virgin fibre board grades 2.6% CAGR until 2030 +1.8% (5.3 mt) +1.2% (6.9 mt) +4.3% (7.3 mt) +3.3% (1.4 mt) +2.5% (0.2 mt) +3.4% (3.3 mt) Virgin fibre board grades: Coated Unbleached Kraft (CUK) Solid Bleached Sulphate (SBS) Liquid Packaging Board (LPB) Folding Box Board (FBB) Food Service Boards (FSB) Source: Pöyry 11
Fibre-based beverage carton has 45% lower CO 2 emissions than a PET plastic bottle The new board has 24% less negative influence on the climate compared to the old one Liquid packaging board market size ~5 Mt 12
Future growth is coming from innovations in renewable materials in Consumer Board Micro-fibrillated cellulose (MFC) Bio-barriers based on MFC Biocomposites 13
We have strong market position and growth in our home packaging markets in Packaging Solutions Europe China Using virgin fibre boards from Beihai and Europe Nordics Nordics 0.7 BEUR 0 1% CAGR #1 107%* Source: analysis Note: CAGR 2016 2026 * Relative market share, measured as a share of largest competitor 14 Poland & Baltics 1.5 BEUR 3 5% CAGR #2 85%* Corrugated packaging Russia Russia 1.7 BEUR 3% CAGR #4 62%* China Russia 1.8 BEUR 5 6% CAGR #5 ~20%* Corrugated & consumer packaging
Conversion opportunity at Oulu Mill Potential reduction of paper capacity by 20% A feasibility study to convert to board grades expected to be concluded by the end of 2018-early 2019 The potential 700 MEUR investment would include Brown-based cartonboard line (450 000 t/a) Kraftliner line (400 000 t/a) Integrated kraft pulp (500 000 t/a) Integrated new CTMP plant (350 000 t/a) Products CUK Kraftliner Production of the potential new lines would start 2020 The other option is to continue the current fine paper production 15
Biomaterials is differentiating pulp mix - Skutskär fluff investment in Sweden completed Maximize value from eucalyptus pulp Today Target 2020 21% 15% 37% 42% Improve competitiveness of our Nordic mills (Fluff and dissolving) 42% Softwood Hardwood Fluff/dissolving 43% 16
Balanced market expected in pulp 2007-2017 2018-2022 Hardwood and softwood average capacity growth (Mt/year) + 1.4 Mt/y (90% ratios) + 0.56 Mt/y Announced capacity growth 2018 2022: 2.8 Mt (0.56 Mt/year) Cash cost CIF Europe (USD/tonne) 1 000 900 800 700 600 500 400 300 200 Best in class Cash cost by country Solid Not sustainable 0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 Pulp (softwood and hardwood) delivered cost Cumulative capacity, thousand tonnes/y Softwood 0.8Mt Source: Hawkins Wright (April 2018) Hardwood 2.0Mt Pulp demand 2018 2022: + 1.6 Mt/year (2.5% CAGR) No new major projects announced 17
Developing new technologies for using wood fibre in textiles Regenerated cellulose Development of new technologies for using wood fibre in textile Growing interest from global brand owners increases demand for renewable fibres Leverage on existing assets Textile value chain Synthetic fibres (98.3 B USD market) 68.2% 25.0% Cotton (63.5 B USD market) Raw Material 2016 volume (CAGR 16-21) Synthetics: 64.8 Mt (+3.75%) Cotton: 22.8 Mt (-0.5%) Wood fibres: 6.5 Mt (+5.5%) Dissolving pulp (6.1 B USD market) - Tree to Textile - Spinnova - Ioncell-F - CCA Wood based fibre (15.8 B USD market) Yarn Fabric (439 B USD market) Brand Owners Textile industry 2016: 100 Mt 2022: 124 Mt Source: Hawkins & Wright, RISI, The Global Textile Material Markets April 2016 18
Innovations taking wood to new heights in Wood Products Trafalgar Place, Elephant and Castle, London Ris de Orangis, Paris France International House, Barangaroo Sydney Peter-Rosegger Strasse, Graz, Austria Joensuu Tower, Joensuu, Finland Crome Court UK Geological Research Base Svalbard Wine Museum Bordeaux 19
Short construction times, high functionality and increased well being perfect for schools 20
Clear improvement year-on-year Summary financials Q2 2018 Change% Change% EUR million Q2/18 Q2/17 Q2/18- Q2/17 Q1/18 Q2/18- Q1/18 Sales 2 664 2 528 5.4% 2 579 3.3% Operational EBITDA 466 359 29.8% 504-7.5% Operational EBITDA margin 17.5% 14.2% 19.5% Operational EBIT 327 219 49.4% 369-11.3% Operational EBIT margin 12.3% 8.7% 14.3% Profit before tax excl. IAC 285 153 86.2% 333-14.4% EPS excl. IAC, EUR 0.31 0.19 64.7% 0.35-10.6% EPS (basic), EUR 0.28 0.19 46.3% 0.35-20.6% Operational ROCE 15.5% 10.3% 50.5% 17.7% -12.4% Cash Flow from Operations 357 365-2.2% 229 55.7% Net debt/last 12 months operational EBITDA 1.3 1.9 1.3 21
Fourth consecutive quarter above the strategic target of 13% Operational ROCE 22
Strategic targets in good progress still more potential Group strategic targets Q2 17 Q2 18 Dividend To distribute 50% of net income over the cycle Growth* To grow faster than the relevant market 7.1% (YoY) 5.4% (YoY) Net debt to operational EBITDA <2.0x new target 1.9 1.3 Fixed costs to sales <20% 25.6% 23.5% Debt to equity <60% new target 49% 40% Operational ROCE >13% 10.3% 15.5% Divisional strategic targets Q2 17 Q2 18 Consumer Board Operational ROOC > 20% 13.9% 13.1% Packaging Solutions Operational ROOC > 20% 18.3% 25.6% Biomaterials Operational ROOC > 15% 9.8% 18.6% Wood Products Operational ROOC > 20% 25.5% 31.7% Paper Cash flow after investing activities to sales > 7% 10.6% 5.7% * Excluding Paper 23
Guidance for Q3 2018 Compared to Q2 2018 Sales are estimated to be similar to the amount of 2 664 MEUR recorded in Q2/2018 Operational EBIT is expected to be in line with the 327 MEUR recorded in Q2/2018 The impact of annual maintenance shutdowns is expected to be approximately 5 MEUR lower than in Q2/2018. Second quarter maintenance impact was 15 MEUR higher than initially forecast. The Nordic wood supply situation is expected to continue tight due to the risk of forest fires affecting harvesting conditions. The wood supply impact is expected to be approximately 10 MEUR negative in the Q3/2018. These impacts are included in the above outlook Annual maintenance Q3 2018 Q2 2018 Consumer Board Imatra and Ingerois mills Beihai Mill Packaging Solutions Ostrołęka Mill Heinola and Varkaus mills Biomaterials Sunila Mill Enocell Mill Paper Veitsiluoto Mill Oulu Mill 24
Sustainable profitable growth continues Sixth consecutive quarter of sales growth Fourth consecutive quarter of double digit operational EBIT margin Operational ROCE above the strategic target of 13% for the fourth consecutive quarter sets new targets levels for Net Debt / Operational EBITDA (<2.0) and Debt/equity Ratio (<0.6) Wood sourcing still challenging Moving from asset transformation to innovation and sales transformation 25
Welcome to CMD on 7 November 2018 in Helsinki Followed by Packaging Solutions visit in Design Studio Lahti and SC fluting mill in Heinola on 8 November 2018 26
Sponsored ADR Programme has established a sponsored Level I ADR programme in the US. The ADRs trade on the premier tier of Over-The-Counter ( OTC ) market in the US. Details are as follows: Ticker Symbol CUSIP Ratio ADR depositary SEOAY 86210M106 1 ADR : 1 Ordinary Shares Citibank Share price information www.citi.com/dr or www.otcqx.com Please contact the Citibank s dedicated ADR broker desks: Scott Pollak (New York) Mike Woods (London) Tel: +1 212 723 5676 Tel: +44 20 7500 2030 Email: scott.h.pollak@citi.com Email: michael.woods@citi.com 27