Metsä Group Interim Report Q3/2016 Kari Jordan President and CEO
Metsä Group Q3 Business developed as expected Sales EUR 3,483 million (1 9/2016: EUR 3,811 million) Comparable operating result EUR 332 million (EUR 415 million), or 9.5% of sales (10.9%) Comparable return on capital employed 10.5% (14.2%) Comparable operating result compared to previous year was affected by lower market price and sales volume of pulp as well as the start-up phase of the new folding boxboard production line at Metsä Board s Husum mill 2
Metsä Group Q3 Events in the third quarter Supply of wood was steady and stumpage prices remained stable Market price of long-fibre pulp increased by 2 per cent and the price of short-fibre pulp fell by 3 per cent from previous quarter Delivery volumes of Kerto LVL continued to grow strongly in Australia and North America Market situation and price levels of paperboard remained stable Metsä Wood s EUR 100 million investment programme in plywood and Kerto LVL products progressed as planned Kyro mill s wallpaper base machine was closed down in September Finnish sawmills were transferred to Metsä Fibre on 1 Nov. 2016 Construction of bioproduct mill in Äänekoski progressed as planned Nearly 75 per cent of the project was ready at the end of September Workforce per day nearly 2,000 people 3
Metsä Group Q3 Sales quarterly EUR million 1 400 1 200 1 264 1 242 1 214 1 219 1 254 1 265 1 204 1 248 1 255 1 330 1 225 1 205 1 156 1 184 1 143 1 000 800 600 400 200 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 4
Metsä Group Q3 Operating result EUR million 180 160 140 120 100 80 60 40 20 0 160 154 149 137 142 129 118 117 105 104 103 94 94 92 89 89 8788 84 73 70 63 128 123 120 109 119 107 107 103 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 Comparable operating result Operating result (IFRS) 5
Metsä Group Q3 Comparable operating result EUR million 160 140 120 130 119 100 80 60 94 89 87 63 64 68 71 73 53 40 20 0 3 6 105 92 104 117 129 137 149 123 109 120 103 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 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
Metsä Group Q3 Change in comparable operating result EUR million Comparable operating result 1 9/2015 415 Sales prices -200 Sales volumes -17 Exchange rates 14 Raw materials 29 Employee costs 26 Depreciation and others 20 Change of inventories 45-83 Comparable operating result 1 9/2016 332 7
Metsä Group Q3 Items affecting comparability Q1 Q3/2016 EUR million Q1 Q3/2016 Operating result (IFRS) 332.7 Items affecting comparability: Metsä Wood / Additional expenses related to divestment of Metsä Wood France S.A.S. -0.4 Metsä Board / Restructuring of Simpele paperboard mill -1.8 Metsä Board / Loss related to divestment of Alrec Boiler Oy -1.1 Metsä Board / Organisation of Benelux sales office -0.7 Metsä Board / Items related to paper production at Kyro -9.2 Metsä Fibre / Sales profit related to Metsä-Botnia Metsät Oy 11.7 Metsä Tissue / Cancellation of the restructuring provision 2.0 Items affecting comparability total 0.5 Comparable operating result 332.1 8
Metsä Group Q3 Comparable ROCE % 16 14 14.2 12 10 Target >10% 11.1 10.5 8 9.0 6 6.9 4 2 0 Q1 Q3/2012 Q1 Q3/2013 Q1 Q3/2014 Q1 Q3/2015 Q1 Q3/2016 9
Metsä Group Q3 Equity ratio % 50 45 40 35 30 25 20 15 10 5 0 43.2 44.0 37.9 37.9 34.7 12/2012 12/2013 12/2014 12/2015 9/2016 10
Metsä Group Q3 Interest-bearing net liabilities EUR million 2 000 1 750 1 500 1 609 1 510 1 250 1 000 938 991 750 610 500 250 0 12/2012 12/2013 12/2014 12/2015 9/2016 11
Metsä Group Q3 Capital expenditure EUR million 1000 900 800 700 600 500 400 300 200 100 0 204 214 143 492 Full-year estimate 1 12/2012 1 12/2013 1 12/2014 1 12/2015 1 9/2016 540 12
Metsä Group Q3 Income statement EUR million Q1 Q3/2016 Q1 Q3/2015 Change Sales 3 482.7 3 810.6-327.8 Other operating income 52.3 78.8-26.5 Operating expenses -3 011.6-3 277.5 266.0 Depreciation and impairment losses -190.8-197.9 7.1 Operating result 332.7 413.9-81.3 Comparable operating result 332.1 414.7-82.6 Share of results from associated companies and joint ventures -1.4 8.5-9.9 Exchange gains and losses 0.8-3.8 4.5 Other net financial items -56.5-63.7 7.1 Result before taxes 275.5 355.0-79.5 13
Metsä Group Q3 Key figures Q1 Q3/2016 Q1 Q3/2015 Change Return on capital employed, % 10.6 14.2-3.6 Comparable return on capital employed 10.5 14.2-3.7 Return on equity, % 11.5 16.0-4.5 Comparable return on equity 11.5 16.2-4.7 Equity ratio, % 44.0 42.7 1.3 Net gearing ratio, % 40 29 11 Interest-bearing net liabilities, EUR million 991 682 309 Capital expenditure, EUR million 540 296 244 Personnel at end of period 9 451 9 824-373 14
Metsä Group Q3 Cash Flow Statement I EUR million Q1 Q3/2016 Q1 Q3/2015 Cash flow from operating activities Result for the period 211.7 263.6 Adjustments to result for the period 267.8 308.9 Interest received 2.3 2.5 Interest paid -33.1-46.7 Dividends received 1.0 3.7 Taxes -98.2-65.0 Other financial items, net 6.3-10.2 Change in working capital -181.3 53.8 Net cash flow from operating activities 176.4 510.6 15
Metsä Group Q3 Cash Flow Statement II EUR million Q1 Q3/2016 Q1 Q3/2015 Net cash flow from operating activities 176.4 510.6 Purchase of shares 0.0-0.8 Investments -540.2-295.6 Sales of assets and others 49.2 38.9 Changes in members' capital and other capital 48.9 94.2 Interest on members' capital and dividends paid -120.2-94.9 Change in long-term loans and committed facilities 64.9-190.6 Change in cash and cash equivalents -321.0 61.7 Cash and cash equivalents at beginning of the period 1 120.8 947.9 Translation differences and others 0.7-0.2 Change in cash and cash equivalents -321 61.7 Cash and cash equivalents at end of the period 800.5 1 009.4 16
Metsä Group Q3 Personnel 14 000 12 000 10 000 11 447 10 736 10 410 9 599 9 451 8 000 6 000 4 000 2 000 0 12/2012 12/2013 12/2014 12/2015 9/2016 17
Wood Supply and Forest Services
Metsä Forest Wood Supply and Forest Services Wood Supply and Forest Services EUR million Q1 Q3/2016 Q1 Q3/2015 Change Sales 1 135.2 1 153.2-18.0 Other operating income 5.4 6.2-0.8 Operating expenses -1 116.0-1 134.0 18.0 Depreciation and impairment losses -2.5-2.7 0.2 Operating result 22.0 22.7-0.7 Items affecting comparability, total - - - Comparable operating result, EUR million 22.0 22.7-0.7 % of sales 1.9 2.0-0.1 19
Metsä Forest Wood Supply and Forest Services Popularity of electronic services increases Supply of wood was steady and stumpage prices remained stable Metsä Forest delivered a total of 22.7 million cubic metres of wood (22.8) Wood was harvested as targeted and deliveries to customers' production units were carried out as planned Sales of forest management services continued at a good level Nearly 20% of wood acquired from private forests was purchased electronically Nearly 25% of forest management services was sold electronically Comparable operating result EUR million 10 9 8 7 6 5 4 3 2 1 0 8.6 Q1/14 7.0 Q2/14 4.5 Q3/14 8.1 Q4/14 8.7 Q1/15 6.9 7.0 Q2/15 Q3/15 6.3 Q4/15 7.8 Q1/16 6.5 Q2/16 7.7 Q3/16 Q4/16 20
Wood Products Industry
Metsä Wood Wood Products Industry Wood Products Industry EUR million Q1 Q3/2016 Q1 Q3/2015 Change Sales 631.6 664.3-32.7 Other operating income 7.0 4.4 2.6 Operating expenses -594.4-643.7 49.3 Depreciation and impairment losses -23.3-23.6 0.3 Operating result 20.9 1.4 19.5 Items affecting comparability, total 5.5 22.5-17.0 Comparable operating result, EUR million 26.4 23.9 2.5 % of sales 4.2 3.6 0.6 22
Metsä Wood Wood Products Industry Growth in delivery volumes of Kerto LVL products Delivery volumes of Kerto LVL continued to grow strongly in Australia and North America. Demand was strong in other markets too Profitability of sawing operations was weaker than in comparison period due to declined prices Deliveries of sawn pine timber remained clearly below the deliveries of the comparison period. Delivery volumes and sales in plywood products decreased Investment programme of EUR 100 million related to the Kerto LVL and plywood operations announced in June progressed as planned At the beginning of November Metsä Wood's sawmills in Finland transferred to Metsä Fibre Comparable operating result EUR million 16 14 12 10 8 6 4 2 0 8.6 Q1/14 14.4 Q2/14 6.2 Q3/14 8.0 7.9 Q4/14 Q1/15 10.2 Q2/15 5.9 Q3/15 7.5 Q4/15 5.8 Q1/16 14.4 Q2/16 6.2 Q3/16 Q4/16 23
Pulp Industry
Metsä Fibre Pulp Industry Pulp Industry EUR million Q1 Q3/2016 Q1 Q3/2015 Change Sales 962.9 1 071.1-108.2 Other operating income 20.5 12.9 7.6 Operating expenses -762.0-778.0 16.0 Depreciation and impairment losses -44.9-49.3 4.4 Operating result 176.6 256.7-80.1 Items affecting comparability, total -11.7 - -11.7 Comparable operating result, EUR million 164.9 256.7-91.8 % of sales 17.1 24.0-6.9 25
Metsä Fibre Pulp Industry Price of pulp (PIX) 2008 Q3/2016 USD 1050 950 850 750 650 550 450 350 1050 950 850 750 650 550 450 350 '08 09 10 11 12 13 14 15 16 Hardwood/EUR Softwood/EUR Hardwood/USD Softwood/USD Source: FOEX Indexes Ltd EUR 26 Metsä Group
Metsä Fibre Pulp Industry Currency-denominated market prices of pulp on a lower level than previous year Currency-denominated market prices of longfibre pulp were 8% and of short-fibre pulp 9% lower than in corresponding period previous year Price of long-fibre pulp in Europe was USD 794 per tonne at the beginning of January and USD 810 at end of review period Price of short-fibre pulp was USD 781 and USD 664 respectively Metsä Group s sawmills in Finland transferred to Metsä Fibre on 1 November to utilise the industrial synergies even better Construction of bioproduct mill in Äänekoski progresses as planned Comparable operating result EUR million 100 90 80 70 60 50 40 30 20 10 0 54.9 Q1/14 36.3 Q2/14 51.8 Q3/14 64.5 Q4/14 78.7 Q1/15 92.5 Q2/15 85.5 Q3/15 80.5 Q4/15 63.7 Q1/16 52.0 49.2 Q2/16 Q3/16 Q4/16 27 Metsä Group
Paperboard Industry
Metsä Board Paperboard Industry Paperboard Industry EUR million Q1 Q3/2016 Q1 Q3/2015 Change Sales 1 298.5 1 545.3-246.8 Other operating income 28.6 37.8-9.2 Operating expenses -1 151.5-1 339.7 188.2 Depreciation and impairment losses -81.9-78.5-3.4 Operating result 93.8 164.9-71.1 Items affecting comparability, total 10.9-20.1 31.0 Comparable operating result, EUR million 104.7 144.8 40.1 % of sales 8.1 9.4-1.3 29
Metsä Board Paperboard Industry Prices of folding boxboard and white-top krafliner in Europe 2010 Q3/2016 EUR/tonne 1100 1050 1000 950 900 850 800 750 700 650 600 2010 2011 2012 2013 2014 2015 2016 30 Folding boxboard White-top kraftliner Sources: Pöyry Management Consulting and FOEX Indexes Ltd.
Metsä Board Paperboard Industry Result development affected by start-up of Husum s new folding boxboard production line Total delivery volume of folding boxboard and white fresh fibre linerboard increased 13% compared to corresponding period previous year Sales were reduced due to the planned major decrease in paper deliveries Operating result was weakened by start-up of Husum s new paperboard production line which affected production volumes of pulp and paperboard and lower average price of start-up volumes as well as fluctuations in pulp prices Wallpaper base machine at Kyro mill was closed down in September Comparable operating result EUR million 60,0 50,0 40,0 30,0 20,0 10,0 0,0 36.1 Q1/14 28.3 Q2/14 35.2 36.9 Q3/14 Q4/14 43.2 Q1/15 47.0 Q2/15 54.6 Q3/15 35.1 35.0 35.8 34.0 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 31
Tissue and Cooking Papers
Metsä Tissue Tissue and Cooking Papers Tissue and Cooking Papers EUR million Q1 Q3/2016 Q1 Q3/2015 Change Sales 741.6 751.9-10.3 Other operating income 2.5 2.9-0.4 Operating expenses -670.0-706.4 36.4 Depreciation and impairment losses -29.7-30.8 1.1 Operating result 44.5 17.7 26.8 Items affecting comparability, total -2.0 18.9-20.9 Comparable operating result, EUR million 42.5 36.6 5.9 % of sales 5.7 4.9 0.8 33
Metsä Tissue Tissue and Cooking Papers Improved sales mix and lower costs increased operating result from previous year Sales mix improved and costs of energy and logistics were lower than in previous year Sales were reduced primarily by lower sales volumes as a result of discontinuation of the tissue paper operations in Russia. Also the exchange rate changes reduced sales During the third quarter, a greaseproof paper machine in Mänttä was renewed SAGA Baking Form, containing no plastic or aluminum, made from corrugated board and baking paper to the Finnish market Comparable operating result EUR million 25,0 20,0 15,0 10,0 5,0 11.8 9.7 19.6 21.1 15.8 7.6 13.2 18.6 13.5 13.2 15.8 0,0 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 34
Summary
Metsä Group Q3 2016 Summary Outlook for the business areas 1/2 Wood Supply and Forest Services Wood demand will focus primarily on spruce logs, thinning sites to be harvested when the ground is unfrozen and, in energy wood, on crown wood Uncertainties related to Act on the Financing of Sustainable Forestry will have a negative impact on demand for forest management services Wood Products Industry Competition is intensifying as a result of new investments In sawn timber, demand in Asia will support the market balance of spruce sawn timber. In pine sawn timber the oversupply will continue Demand for board products is expected to experience slight seasonal weakening. Construction in the UK is expected to remain at a good level Pulp No signs of considerable changes in market conditions. New capacity will enter the markets, but global demand for pulp is expected to continue to growing. The capacity utilization rates of Metsä Fibre's pulp mills are expected to be at a good level in the last quarter of the year 36
Metsä Group Q3 2016 Summary Outlook for the business areas 2/2 Paperboard Demand for high-quality fresh fibre paperboards is expected to remain good in both Europe and the Americas. Metsä Board's paperboard deliveries in October December are expected to remained at the same level as in the previous quarter Market prices of folding boxboard and fresh fibre white linerboards are expected to remain stable or increase slightly Metsä Board's fourth-quarter result will be weakened by the annual maintenance shutdown at the Husum integrated mill Tissue and Cooking Papers Demand is expected to remain stable in all tissue and cooking paper market areas Demand for tissue paper is expected to increase particularly in eastern Central Europe, and demand for cooking papers is expected to grow in Asia 37
Summary Near-term outlook Metsä Group s comparable operating result is in the last quarter of 2016 expected to be roughly at a similar level as in the third quarter of 2016 38