Metsä Board Presentation material Jussi Noponen, CFO Katri Sundström, Head of IR Jefferies Industrials Conference 2017 New York, US
Contents Company highlights....... 3 Husum investment programme and update 12 Half-year 2017 Results... 19 Operating environment... 32 Sustainability. 40 Appendix 44 2
Metsä Board in brief Focus only on premium fresh fibre paperboards Strong market position: Market leader in folding boxboard in Europe and global market leader in coated white fresh fibre linerboard A growth company with good profitability Strong fibre know-how and self-sufficiency in pulp Global sales to over 100 countries and eight production units in Finland and Sweden 15% 25% 17 % Sales split in 2016 10% 50% Sales split by region in 2016 8 % Folding boxboard Linerboards Market pulp Others EMEA Americas APAC 75 % 3
Solutions for wide variety of brand applications In pack On shelf On display On the go In graphics Packaging solutions for consumer goods Retail ready tray solutions Display and point-of-sale solutions Solutions for food service Solutions for graphical uses Metsä Board s customers are brand owners, converters, merchants and corrugated box manufacturers 4
Transformation into pure-play paperboard company has increased shareholder value Enterprise value, EUR million Dividend, EUR and payout ratio, % mill. 3000 0.20 90% 2500 0.16 75% 2000 0.12 60% 1500 45% 1000 0.08 30% 500 0.04 15% 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 0.00 2012 2013 2014 2015 2016 0% Net debt Market capitalization Dividend, Dividend/EPS, % 5 Metsä Board shares (METSB, METSA) are listed on Nasdaq Helsinki
Metsä Board s paperboards have many competitive advantages Lightweighting Metsä Board s folding boxboard can be even 30% lighter compared to competing grades (SBS, WLC) Purity and safety of fresh fibre paperboards Important especially for food and food service packaging Whiteness and quality - upscale consumer experience Sustainability Fresh fibres are recyclable and renewable material Wood raw material is 100% traceable to sustainably managed northern forests Strong and recognised credentials in environmental performance, water and energy efficiency and actions to combat climate change 6
Metsä Board operates in growing paperboard market Global demand for fresh fibre paperboard is 3 4% p.a. PAPERBOARD 5-YEAR GROWTH FORECAST EMEA Americas APAC Folding boxboard (FBB) Food service board (FSB) Coated white kraftliner n/a Uncoated white kraftliner Other fresh fibre paperboards (eg SBS, CUK) Recycled paperboards (eg WLC) Source: Metsä Board s own estimate n/a +2%/a or more +1 to +2%/a -1 to +1%/a -1 to -2%/a -2%/a or more 7
Metsä Board's regional goals GROWTH IN THE AMERICAS IN THE COMING YEARS MAINTAIN THE STRONG MARKET POSITION IN EUROPE FOCUS ON PREMIUM PAPERBOARD SEGMENTS IN THE ASIA-PACIFIC REGION AMERICAS SHARE OF SALES IN 2016 17% EMEA SHARE OF SALES IN 2016 75% APAC SHARE OF SALES IN 2016 8% 8
Company s growth exceeds clearly the average market growth 2,000 Metsä Board s annual paperboard deliveries, 1,000 tonnes 1,750 1,500 1,250 1,000 750 500 250 9 0 2012 2013 2014 2015 2016 2018 target Fresh fibre linerboard Folding boxboard
Harvesting time after big investments in 2015 2016 EUR million 180 150 120 90 60 Investments in January March were EUR 19 million (Q1/16: EUR 54 million) Estimated capex in 2017 is EUR 65 70 million, mainly in maintenance 30 0 2010 2011 2012 2013 2014 2015 2016 2017E Maintenance capex Growth capex Depreciation 10 Main growth in capex in 2016: Husum investment programme, extrusion coating line and equity investment in Metsä Fibre s bioproduct mill
Financial targets aim for profitable growth with efficient use of capital Financial target Change/update Target level Actual 2016 Actual 2015 Actual 2014 Comparable ROCE Unchanged >12% 8.1% 11.3% 9.1% Net debt / comparable EBITDA New target <2.5x 2.0x 1.2x 1.8x Growth in paperboard deliveries Dividend payout New target New target level Annual growth in paperboard deliveries to exceed relevant market growth * 12% 13% 10% At least 50% of the result for the period 76% 44% 57% * Estimated average market growth globally in fresh fibre paperboards is 3 4%/a 11 Previous target for net gearing (<70%) no longer in use
Husum investment programme and update
Husum investment programme Launched at the end of 2014 Two paper machines closed in 2015 One paper machine converted to produce linerboard (BM2) New folding boxboard machine (BM1) started up in February 2016 Enhancements to the pulp mill and the mill site s own port New extrusion coating line started up in April 2017 Folding boxboard production Capacity approximately 400,000 t/a Deliveries mainly to Americas and food service globally Linerboard production Capacity approximately 270,000 t/a Deliveries to Europe and Americas 13
The integrated mill model improves efficiency and sustainability of the supply chain Husum integrated mill: Certified wood resources Raw material Own pulp mill at the mill site Paperboard production (BM1) Extrusion coating line (EM1) Own deep water port Raw Pulp material Raw Paperboard material Raw Extrusion material Raw Logistics material 14
1,000 tonnes Targeted sales and sales split for new paperboard volume from Husum mill A total of 400,000 tonnes of new FBB capacity Incremental capacity in linerboard * 2,000 1,500 250 150 150 1,000 500 0 Deliveries in 2015 Folding boxboard to Americas Food service board globally Linerboard to Europe and Americas Targeted deliveries in 2018 15 * Until July 2016 the paperboard machine (BM2) produced simultaneously fine paper reels.
1,000 tonnes Most of the targeted deliveries to Americas are produced in Husum 300 250 Actual and targeted deliveries to Americas 300 250 Targeted deliveries to Americas will represent 25% of total deliveries in 2018. 200 150 100 50 0 2011 2012 2013 2014 2015 2016 2018 target Folding boxboard Fresh fibre linerboard 16
Update of Husum s folding boxboard post H1/2017 Capacity utilisation rate in FBB during H1 2017 was 70% In June, both production and deliveries were over 85% of monthly capacity The target of having the capacity in full use by end of 2018 is intact Production costs per tonne produced still higher compared to Finnish mills Geographical sales mix burdened the average price in FBB Deliveries of own PE-coated paperboards to customers have started 17
Potential to improve profitability of Husum At least EUR 100 million EBIT improvement from 2016 to 2019 120,000 tonnes 2016 of pulp Efficiency >95% with 2019 production lost in 2016 Restructuring: improvement programme FBB capacity utilisation rate normal sales price + EUR 25 million + EUR 5 million + EUR >70 million 18
Metsä Board Half-year 2017 Financials
Key financials 20 Q2/17 Q1/17 Change Q2/17 vs. Q1/17 H1/17 H1/16 Change H1/17 vs. H1/16 Sales EUR, m 474 445 +7% 919 859 +7% 1,720 EBITDA* EUR, m 68 69-1% 136 119 +14% 231 Operating result* EUR, m 44 45-2% 89 71 +25% 138 % of sales % 9.2 10.2 9.7 8.2 8.0 Result before taxes* EUR, m 37 40-8% 77 57 +35% 107 Earnings per share EUR 0.09 0.10-10% 0.19 0.13 +46% 0.25 ROCE* % 10.3 10.6 10.3 8.4 8.1 Capex EUR, m 12 19-37% 31 103-70% 162 Cash flow from operations EUR, m 37 26 +42% 63-45 77 IB Net debt, at end of period EUR, m 495 458 +8% 495 541-9% 464 Personnel, at end of period 2,581 2,450 +5% 2,581 2,762-7% 2,466 *comparable 2016
Q2 2017 in summary Good demand for high-quality paperboards continued Stable or rising market price levels Metsä Board s paperboard deliveries up by 11% from Q1 2017 The average price of folding boxboard was burdened by Husum s geographic sales mix Steady working capital despite the strong sales growth New extrusion coating line in Husum started up 21
1,000 tonnes All-time high in paperboard deliveries 500 Folding boxboard White fresh fibre linerboard 400 300 130 141 137 131 142 148 148 143 163 173 Growth in total paperboard deliveries: +11% Q2/17 vs. Q1/17 200 100 204 213 224 224 227 250 266 245 265 304 +18% H1/17 vs. H1/16 +12% FY16 vs. FY15 0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 22 FY 2015: 1.4m tonnes FY 2016: 1.6m tonnes
EUR million EUR million Sales and operating result Sales EUR million Comparable operating result EUR million and % 500 400 300 200 50 40 30 20 8.0 % 8.5 % 7.7 % 7.8 % 10.2 % 9.2 % 12% 10% 8% 6% 4% 100 0 436 423 440 422 445 474 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 10 0 35 36 34 33 45 44 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 2% 0% H1 2016: EUR 859 million +7% H1 2017: EUR 919 million H1 2016: EUR 71 million +25% H1 2017: EUR 89 million 23
Impacts on operating result Q2 2017 vs. Q1 2017 and H1 2017 vs. H1 2016 50 40 30 20 10 0 Comparable operating result, EUR million Q2 2017 vs. Q1 2017 45 44 EBIT-% 10.2 EBIT-% 9.2 Q1 2017 Q2 2017 90 80 70 60 50 40 30 20 10 0 Comparable operating result, EUR million H1 2017 vs. H1 2016 89 71 EBIT-% 8.2 EBIT-% 9.7 H1 2016 H1 2017 + Growing delivery volumes in paperboard and positive development in market pulp - Geographic sales mix of Husum s FBB and product mix of Husum s white linerboards, maintenance at Finnish mills + Positive development at Finnish paperboard mills and in market pulp, positive impact from FX rates including hedges - Increased latex price 24 WTKL = white-top kraftliner FBB = folding boxboard
Return on capital employed, % 18% 16% 14% 12% Target >12% 10% 8% Q2/17: 10.3% 6% 4% 2% 0% Q1/13 Q2/13 Q3/13 Q4/13 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 Comparable ROCE, % 25
EUR million Cash flows clearly positive Working capital remained nearly unchanged despite the strong growth in Q2 300 250 200 250 188 214 256 247 193 185 150 100 50 0-50 -100 126 119 118 115 89 78 33 70 93 98 23 66 67 56 55 26 9 8 45 8-15 49 17 7 37 25-22 -22-50 -76-69 -73-60 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 26 Cash flow from operations, quarterly Cash flow from operations, rolling 12 months Free cash flow, quarterly Free cash flow, rolling 12 months
Stable balance sheet 600 Net gearing, % 44% 54% 49% 44% 44% 45% 0.6 0.5 600 Interest-bearing net debt / comparable EBITDA 2.0 2.1 2.1 2.0 3.0 Financial target: <2.5x 2.0 1.9 2.0 400 32% 0.4 0.3 400 1.2 200 0.2 200 1.0 0.1 0 333 464 541 488 464 458 495 2015 2016 6/16 9/16 12/16 3/17 6/17 0 0 333 464 541 488 464 458 495 2015 2016 6/16 9/16 12/16 3/17 6/17 0.0 Interest-bearing net debt, EUR million Net gearing, % Interest-bearing net debt, EUR million Interest-bearing net debt / EBITDA (rolling 12-month) 27
Debt structure and liquidity 30 June 2017 Interest-bearing debt, total EUR 640 million Available liquidity, total EUR 343 million Bonds 134 23 111 149 223 Loans from financial institutions Pension loans Finance leases and other loans Other short-term loans 102 100 141 Cash and cash equivalents Revolving credit facility Unraised pension loans 28 Average maturity of long-term loans on 30 June 2017 was 2.0 years.
Long-term debt and financial costs Maturity schedule in long-term IB debt Net financial costs and average interest rate 300 258 60 4.6 5.0 225 174 45 4.2 4.5 150 75 0 82 100 102 42 1 2 2017 2018 2019 2020 2021 >2022 30 15 0 3.8 3.3 3.3 56 39 32 31 12 2013 2014 2015 2016 H1/2017 4.0 3.5 3.0 Long-term interest bearing liabilities, EUR million Net financial costs, EUR million Committed undrawn credit facilities, EUR million Average interest rate at the end of period, % 29 Metsä Board s credit ratings: Standard & Poor s: Rating BB+, Outlook: Positive Moody s: Rating Ba2, Outlook: Stable
FX exposure and sensitivities Impact of FX rate changes including hedges Q2 2017 vs. Q1 2017: EUR -1.5 million H1 2017 vs. H1 2016: EUR 11 million Annual transaction exposure EUR 1.1 billion 35 % 5 % 2 % USD 58 % SEK GBP Other currencies FX sensitivities excluding hedges 10% strengthening of foreign currency vs. EUR will have an impact on Metsä Board s EBIT of Currency USD, $ SEK GBP, Next 12 months EUR +70 million EUR -40 million EUR +7 million 30 Hedging policy: 100% of balance sheet position and 50% of annual net FX flows
Near-term outlook Price levels in FBB are expected to be stable, several linerboard producers have announced price increases. Pulp market expected to remain in balance. Metsä Board s Q3 paperboard delivery volumes are expected to stay flat compared to Q2 Focus on improving the geographic sales mix in Husum s folding boxboard and increase the share of North American sales, in particular Start up phase of Metsä Fibre s new bioproduct mill is expected to have only a minor negative impact on Metsä Board s Q3 result Result guidance: Metsä Board's comparable operating result for the Q3/2017 is expected to improve slightly compared to the Q2/2017. 31
Operating environment
Global trends driving growth in packaging Growing consumption Stronger demand for sustainable packaging Greater significance of resource efficiency drives circular economy and life-cycle thinking Increasing regulation brings additional obligations Social responsibility throughout the value chain 33
Metsä Board has a strong position in Europe Largest Folding Boxboard Producers in Europe Total capacity: 3.7M tonnes Largest White Fresh Fibre Linerboard Producers in Europe Total capacity: 2.2M tonnes Metsä Board 36% Metsä Board 31% Stora Enso 20% Smurfit Kappa 22% Kotkamills Oy 11% Mondi 14% Mayr-Melnhof 9% BillerudKorsnäs 10% International Paper 7% SCA 7% Others 17% Others 15% 0 300 600 900 1200 1500 0 200 400 600 800 34 Sources: Company information, Pöyry Management Consulting Oy Q2/2017
Metsä Board's growth drivers in Europe GROWTH IN THE AMERICAS IN THE COMING YEARS AMERICAS SHARE OF SALES IN 2016 17% MAINTAIN THE STRONG MARKET POSITION IN EUROPE EMEA SHARE OF SALES IN 2016 75% EUROPE A leading market position with strong, FOCUS long-lasting ON customer relationships PREMIUM especially with brand PAPERBOARD owners SEGMENTS IN Safety THE is increasing ASIA-PACIFIC significance in food REGION packaging Paperboard is a strong alternative to plastics and aluminium Growing APAC e-commerce increasing SHARE OF demand SALES IN 2016 for high-end white-top 8 % kraftliners 35
Metsä Board's growth drivers in Americas GROWTH IN THE AMERICAS IN THE COMING YEARS AMERICAS SHARE OF SALES IN 2016 17% MAINTAIN FOCUS ON THE STRONG PREMIUM AMERICAS MARKET PAPERBOARD POSITION Local production IN not able to meet rising SEGMENTS trend of IN EUROPE lightweighting THE ASIA-PACIFIC REGION Non-integrated converters looking for alternative board suppliers Paperboard a strong alternative to plastics especially in food service applications EMEA APAC SHARE Growing OF SALES e-commerce IN 2016 increasing demand for 75 high-end % white-top kraftliners 8 % SHARE OF SALES IN 2016 36
Global cartonboard* market is 36 Mt/a of which folding boxboard market is about 9 Mt/a North America 6 Mt/a EMEA 8 Mt/a Avg. growth rate for folding boxboard is 3 4%/a Folding boxboard Other fresh fibre grades (e.g. SBS, CUK) Recycled grades Lat.Am. 2 Mt/a APAC 20 Mt/a * Excluding liquid packaging board, food service board, liner and uncoated recycled board. 37 Source: Metsä Board estimates
High threshold for new producers to enter high-quality paperboard segment High investment costs Limited availability of high yield pulp (e.g. BCTMP) Global brand owners and corrugated box manufacturers not willing to change paperboard suppliers easily in the high-quality segments High speed packaging lines very quality sensitive Requirements for unified brand look and feel globally Sustainability and product safety aspects Skilled people and organizations a crucial success factor 38
Market price development in folding boxboard and white-top kraftliner in Europe EUR/ tn 1200 1100 1000 900 800 700 600 500 2009 2010 2011 2012 2013 2014 2015 2016 2017 Folding boxboard White-top kraftliner 39 Sources: RISI, Inc. & FOEX Indexes Ltd
Pulp price development (PIX) EUR 1050 1000 950 Softwood, USD USD 1050 1000 950 900 850 800 750 700 650 600 550 500 Softwood, EUR Hardwood, EUR Hardwood, USD 900 850 800 750 700 650 600 550 500 450 400 350 '10 '11 '12 '13 '14 '15 '16 '17 450 400 350 40 Source: Foex Indexes Ltd
Sustainability
The circular economy of a durable and safe package Pure paperboard helps to store the packaged product safely. Fresh fibre is a pure and safe, renewable raw material. Our paperboards are recyclable and biodegradable, or they can be used for energy production. Durable paperboard protects the packaged product effectively. We only use carefully selected and safe raw materials in our products. We follow good manufacturing principles (GMP). All of our products meet the requirements of relevant international legislation. 42
Metsä Board s sustainability targets WOOD THE SHARE OF CERTIFIED WOOD >80% PERFORMANCE 2016 81% BIOENERGY SHARE OF TOTAL PURCHASED ENERGY 51% WELL-BEING SICKNESS ABSENTEEISM <3% PERFORMANCE 2016 4.1% CLIMATE FOSSIL CO 2 EMISSIONS PER PRODUCT TONNE 2009 2020-30% PERFORMANCE 2016-45% LOGISTICS ENSURE THE SUSTAINAINABILITY OF MAIN LOGISTIC FLOWS PERFORMANCE 2016 2017 100% SAFETY AT WORK LOST-TIME ACCIDENTS FREQUENCY ANNUALLY -10% PERFORMANCE 2016-18.9% ENERGY ENERGY EFFICIENCY IMPROVEMENT 2009 2020 PERFORMANCE 2016 7.8% RESOURCE EFFICIENCY 12% -17% PROCESS WATER USE PER PRODUCT TONNE 2010 2020 PERFORMANCE 2016-14% 43
Metsä Board scored again high in CDP in 2016 CDP Water A List For the second year in a row Metsä Board was globally the only forest company chosen to the A List CDP Climate A List Only 9% of the companies were chosen on the list CDP Forest programme Leadership status CDP Supply chain programme Metsä Board participates together with its customers L Oréal nominated Metsä Board to its best performer as packaging material supplier in 2015 44
Appendix
Metsä Board s folding boxboard has a three-layer structure Metsä Board s folding boxboards are produced from BCTMP or mechanical pulp, which is used in the middle layer (3) to make the board bulky and light. The two outer fibre layers (2 and 4) are made of chemical pulp, which maximizes the strength of the board. Coating layers (1) can be one or several and on top or both sides. 46
Metsä Board s cost structure in 2016 Personnel 14% Other fixed 15% Logistics costs 16% Total costs in 2016 were EUR 1.6 billion, of which 30% were fixed costs and 70% variable costs Other variables 3% Wood 26% 47 Energy 12% Chemicals, pigments and fillers 14%
Metsä Board s production units Integrated mills Husum, Sweden Kemi 400,000 t/a folding boxboard 270,000 t/a white linerboard 730,000 t/a chemical pulp 410,000 t/a white linerboard 620,000 t/a chemical pulp by Metsä Fibre Äänekoski Joutseno 240,000 t/a folding boxboard 530,000 t/a chemical pulp by Metsä Fibre 320,000 t/a BCTMP 690,000 t/a chemical pulp by Metsä Fibre Non-integrated mills Kyro (Kyröskoski) Simpele 190,000 t/a folding boxboard 280,000 t/a folding boxboard Tako (Tampere) Kaskinen 210,000 t/a folding boxboard 340,000 t/a BCTMP Husum Taking into account Metsä Group s pulp production, Metsä Board s pulp balance is 400,000 t/a long Kaskinen Kyro Tako Kemi Äänekoski Joutseno Simpele 48
Metsä Board s associated company Metsä Fibre builds a Bioproduct Mill in Äänekoski Finland INVESTMENT, EUR 1.2 billion WOOD USAGE, m 3 /a 6.5 million CERTIFIED WOOD 90 percent CAPACITY, tonnes/a 1.3 million METSÄ BOARD INVESTED EUR 24.9 MILLION IN EQUITY COMPANY S PULP BALANCE WILL GROW BY 200,000 TONNES/A. ELECTRICITY, Wh/a 1.8 tera ELECTRICITY SELF SUFFICIENCY 240 percent START UP 08 2017 49
METSÄ GROUP Sales EUR 4.7 billion Personnel 9,300 METSÄLIITTO COOPERATIVE Group s parent company Owned by 104,000 Finnish forest owners METSÄ FOREST METSÄ TISSUE METSÄ WOOD METSÄ BOARD METSÄ FIBRE Wood Supply and Forest Services Tissue and cooking papers Wood Products Paperboard Pulp and Sawn Timber Sales: EUR 1.5 billion Personnel: 860 Sales: EUR 1.0 billion Personnel: 2,700 Sales: EUR 0.5 billion Personnel: 1,520 Sales: EUR 1.7 billion Personnel: 2,500 Sales: EUR 1.6 billion Personnel: 1,230 Metsäliitto Cooperative holding 100% Metsäliitto Cooperative holding 100% Metsäliitto Cooperative holding 100% Metsäliitto Cooperative holding 42%, 61% of votes Metsäliitto Cooperative holding 50.2%, Metsä Board 24.9%, Itochu Corporation 24.9% 50
Metsä Board Corporate Management Team Mika Joukio CEO Chairman of CMT since 2014 Share ownership 261,884 Jussi Noponen CFO Member of CMT since 2016 Share ownership: 50,000 Sari Pajari SVP, Marketing and Sales Member of CMT since 2011 Share ownership: 45,740 Ari Kiviranta SVP, Development Member of CMT since 2014 Share ownership: 16,236 Susanna Tainio SVP, HR Member of CMT since 2015 Share ownership 20,505 Harri Pihlajaniemi was appointed SVP, Production, and a member of the Corporate Management Team on 6 June 2017. He will start by 6 September 2017 at the latest. Share ownerships are B-shares 51
Contact information Katri Sundström VP, Investor Relations Tel +358 400 976 333 katri.sundstrom@metsagroup.com www.metsaboard.com 52