Metsä Board CorporationHalf-Year Financial Report January–June 2019Presentation material

Metsä Board CorporationHalf-Year Financial Report January–June 2020Presentation material

H1 2020 Results2

Q2 2020 in summary COMPARABLE

OPERATING RESULT

60EUR million

OPERATING CASH FLOW

72EUR million

PAPERBOARD DELIVERIES

458,000tonnes

TOTAL INVESTMENTS

43EUR million

• Paperboard demand was at a good level, and prices remained fairly stable

• All-time high production volume in paperboards

• Strong cash flow generation continued• Slower than expected environmental

permit process for the new recovery boiler at Husum pulp mill

• Excellence Centre in Äänekoski was completed

• Impacts on paperboard demand– Increased demand in food, beverage and

pharmaceutical packaging– Decreased demand in graphic end uses and luxury

products packaging • Substantial precautionary measures in place ensuring

the safety of employees and business continuity• No impacts on production. Some of the planned

maintenance works in Q2 have been postponed to H2• Weakening of global economy hinders visibility and

may negatively impact Metsä Board’s profitabilityH1 2020 Results3

Covid-19 impacts on Metsä Board’s operations

4

EXCELLENCECENTREin Äänekoski, Finland

Boosting the developmentof new paperboard and

packaging solutions

Metsä Board’s new

Total paperboard delivery volumes increased

297 328 297 293 302 299 305 300 298 310

171161

149 134 138 146 161 140 152 148

0

100

200

300

400

500

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020

White kraftliner Folding boxboard

1,00

0 to

nnes

5 H1 2020 Results

1,00

0 to

nnes

FY 2018: 1,830,000 tonnes

FY 2019: 1,791,000 tonnes

Q2 2020 vs. Q2 2019: +3%H1 2020 vs. H1 2019: +3%

Sales development by market area in H1 2020

H1 2020 Results6

EMEA434k

(432k)

Americas132k

(120k)

APAC42k

(50k)

FBB deliveries in H1 2020 (H1 2019)total 608k tonnes (601k)

71%

EMEA195k

(183k)Americas 101k (97k)

APAC5k (4k)

WKL deliveries in H1 2020 (H1 2019)total 300k tonnes (284k)

EMEA• Strong demand for food and pharma packaging• Increased total delivery volumes• FBB prices stable, WKL prices slightly down from H1 2019AMERICAS• Strong demand for food, beverage and pharma packaging;

growing e-Commerce boosting demand for WKL• Increased total delivery volumes• Higher FBB and WKL euro prices compared to H1 2019APAC• Lower delivery volumes in FBB

22%

7%

65%

33%

FBB = Folding boxboardWKL = White kraftliners

2%

All-time high quarterly production volumes with improved safety

• All-time high paperboard production volume in Q2 2020: 489,000 tonnes

• Improved energy and material efficiency of the mills reduced production costs

• Improved safety in H1 2020: – LTA1: 5.1 (FY 2019: 5.5)– TRIF: 6.8 (FY 2019: 10.2)

H1 2020 Results7

LTA=Lost-time accident frequency per million hours workedTRIF=Total recordable injury frequency per million hours worked

69 62 34

5941

60

6443

60

39

0

50

100

150

200

250

2018 2019 2020

FX and lower production costs improved profitability

Sales, quarterly EUR million

492 487 472

519 477 473

475 489

458 478

0

500

1000

1500

2000

2018 2019 2020

8

Comparable operating result, quarterlyEUR million and % of sales

EUR

milli

on

EUR

milli

on

H1 2020 Results

FY 2018EUR 252 million margin: 13.0%

FY 2019EUR 184 million

margin: 9.5%

FY 2018EUR 1,944

million

FY 2019EUR 1,932

million Operating result:H1 2020: EUR 94mH1 2019: EUR 103m

Operating margin:H1 2020: 10.0%H1 2019: 10.7%

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Sales:H1 2020: EUR 945mH1 2019: EUR 964m

• Pulp prices (PIX) in H1 2020 vs H1 2019– European NBSK (USD) decreased by 24%*

– Chinese NBSK (USD) decreased by 17%*

• Pulp demand supported by increased demand in tissue and hygiene products, with reduced availability of recycled paper but weakened by a sharp decline in printing & writing paper consumption

• In H2, the pulp supply will decrease due to production curtailments announced by certain producers and several annual maintenance shutdowns

H1 2020 Results9

Market pulpPulp price (PIX) development in Europe and China

Long-fibre pulp, Europe Long-fibre pulp, China (net)

Source: Fastmarkets Foex

USD/tonne

*) calculated as the difference between half-year average prices

0

200

400

600

800

1 000

1 200

1 400

0

200

400

600

800

1 000

1 200

1 400

2014

2015

2016

2017

2018

2019

2020

USD/tonne

Update on Husum pulp mill renewal

2019 2020 2021 2022

Company expects to make the final investment decision

New recovery boiler and turbine expected to be in operation

Pre-engineering

phase launched

H1 2020 Results10

Second phase: New fibre line. To be implemented during the 2020s after the first phase is fully completed

First phase: New recovery boiler and turbine

First investments made

Foundation work for new recovery boiler started

• Foundation work for the recovery boiler started in March 2020• The processing of the environmental permit has progressed slightly slower than expected• Metsä Board estimates that the new recovery boiler will start up in H1 2022 at the earliest• Investment value for the first phase EUR 320 million

30 3654

30 36 3144

9080 72

20 2343

-3

2913

26 3750

34

-50

0

50

100

150

200

250

300

-50

0

50

100

150

200

250

300

Q1/18 Q2/18 Q3/18 Q4/18 Q1/19 Q2/19 Q3/19 Q4/19 Q1/20 Q2/20

Cash flow from operations, quarterly Free cash flow, quarterlyCash flow from operations, rolling 12 months Free cash flow, rolling 12 months

EUR

milli

on

11 Free cash flow = cash flow from operations − total investments

Strong development in operating cash flow continued

EUR

milli

on

H1 2020 Results

Long-term financial targets

Comparable ROCE:Target at least 12%

11.214.4

10.4 10.7

2017 2018 2019 H1 2020

1.2 1.0 1.1 1.1

2017 2018 2019 H1 2020

Net debt/comparable EBITDA:Maximum level 2.5x

Target > 12%

Target< 2.5x

1212 H1 2020 Results

76

50 5159

2016 2017 2018 2019

Dividend policy: Payout ratio at least 50% of net result

13

Near-term outlookJuly–September 2020

H1 2020 Results

• Paperboard delivery volumes in Q3 are estimated to decline from Q2. Price levels are expected to remain stable.

• Profitability will be weakened by major planned maintenance shutdowns, e.g. at the Kemi and Husum* integrate mills. Some smaller maintenance works have also been postponed from Q2 to Q3.

• Metsä Board’s market pulp deliveries in Q3 are expected to decline from Q2

• Production costs are not expected to decline further

*shutdown in Husum in September-October

Metsä Board’s comparable operating result for the third quarter of 2020 is expected to weaken compared to the second quarter of 2020.

H1 2020 Results14

Result guidance for July–September 2020

• Our business has performed well during the corona pandemic

– Good demand for Metsä Board’s pure and safe paperboards

– High paperboard production volumes– Good profitability with strong cash flow

generation

• The extent of negative impacts of the pandemic on global economy and MetsäBoard’s business still difficult to estimate

H1 2020 Results15

Summary

Appendix

H1 2020 Results18

Key financialsQ2/20 Q2/19

ChangeQ2/20

vs. Q2/19H1/20 H1/19

ChangeH1/20

vs. H1/19FY 2019

Sales EUR, m 473 477 - 0.8% 945 964 - 2.0% 1,932

EBITDA* EUR, m 87 68 + 27% 146 157 - 7% 279

Operating result* EUR, m 60 41 + 48% 94 103 - 8% 184

% of sales* % 12.8 8.6 10.0 10.7 9.5

Metsä Fibre’s share of operating result* EUR, m 1.6 15.6 - 90% -2.6 36 - 107% 43

Earnings per share EUR 0.15 0.10 + 43% 0.21 0.27 - 23% 0.41

ROCE* % 13.9 9.7 10.7 11.7 10.4

Total investments EUR, m 43 18 + 142% 73 24 + 201% 99

Cash flow from operations EUR, m 72 31 + 135% 152 67 + 127% 201

IB Net debt, at end of period EUR, m 306 380 - 20% 306 380 - 20% 308

*comparable

Metsä Board’s pure and safe paperboards are mainly used for consumer goods packaging and various retail needs

Folding boxboards, incl. food service boards

19

White kraftliners, coated and uncoated

Food and food service

Other consumer

goods (e.g. pharma,

cosmetics)

Graphic end-uses

Folding boxboard end uses*

Various retail needs (e.g. shelf-ready solutions, point-of-sale displays, fresh fruit boxes

Other consumer

goods (e.g. electronics)

E-commerce

White kraftliner end uses*

*) all data is indicative and based on Metsä Board’s own estimatesH1 2020 Results

H1 2020 Results20

Comparable operating result

Positive:+ lower production costs especially in paperboard business due to higher energy and material efficiency+ lower raw material and energy costs+ FX

Negative:- strikes at Finnish mills- Metsä Fibre’s result share

Q2 2020 vs. Q2 2019EUR 60 million vs EUR 41 million

Positive:+ lower production costs in pulp and paperboard business+ higher delivery volumes+ FX

Negative:- strikes at Finnish mills- weakened market pulp prices- Metsä Fibre’s result share

H1 2020 vs. H1 2019EUR 94 million vs EUR 103 million

0

50

100

150

200

250

2020 2021-2024 2025 2027

Bonds Loans from financial institutionsPension loans Finance lease liabilities

H1 2020 Results21

Debt and liquidity Maturity of interest-bearing debtTotal EUR 462 million

EUR

milli

on30 June 2020 • Total interest-bearing net debt was

EUR 306 million • Liquidity was EUR 353 million and

complementary items EUR 340 million• Liquid funds and investments of

EUR 153 million• Undrawn revolving credit facility

EUR 200 million, maturing in 2025• Metsä Group’s internal undrawn credit

facility of EUR 150 million and pension premium funds of EUR 190 million

Rating agency Rating and outlook Last update

S&P Global BBB- / stable 02/2018

Moody‘s Investor Services

Baa3 / stable 01/2019

Metsä Board’s credit ratings are investment grade

• Impact including hedges, actual– Q2 2020 vs Q2 2019: EUR +10 million– H1 2020 vs H1 2019: EUR +18 million

• Expected impacts including hedges– Q3 2020 vs Q2 2020: neutral– Q3 2020 vs Q3 2019: positive

Impacts from FX changes

USD56%SEK

35%

GBP7%

Other currencies

2%

Annual transaction exposuretotal EUR 1.1 billion

FX sensitivities excluding hedges

10% strengthening of foreign currency vs. EUR would have an impact on Metsä Board’s EBIT of

Currency Next 12 months

USD, $ EUR +61 million

SEK, kr EUR -37 million

GBP, £ EUR +8 million

22 H1 2020 Results

Main investments in growth and development 2014–2020E:

2020E Husum pulp mill renewal, finishing area modernization at Kyro mill

2019 Husum pulp mill renewal, new sheeting line in Äänekoski

2018 New baling line in Kaskinen BCTMP mill: 30,000 new BCTMP capacity

2017 New extrusion coating line in Husum: 100,000 t/a PE coating capacity

2015–16 New folding boxboard production line in Husum: 400,000 t/a of FBB and kraftliner production line conversion: 250,000 t/a of WKL

23

Total capex in H1 2020 EUR 73 millionFY 2020 estimate EUR 200 million

0

50

100

150

200

250

2014 2015 2016 2017 2018 2019 2020E

Capex in growth and developmentMaintenance capexDepreciation

Capital expenditure and depreciation

EUR

milli

on

H1 2020 Results

NOTE! Estimated investments in 2020 are provisional and dependent on the environmental permit process related to the Husum pulp mill renewal

358 335 388 344 335 297 380 352 308 306

1.2 1.1 1.21.0 1.0 0.9

1.2 1.2 1.1 1.1

0,0

0,5

1,0

1,5

2,0

2,5

3,0

0

100

200

300

400

500

600

12/2017 3/2018 6/2018 9/2018 12/2018 3/2019 6/2019 9/2019 12/2019 6/2020

Net debt, EUR million Net debt to comparable EBITDA (last 12 months)

24

Strong balance sheetNet debt at EUR 306 million, leverage 1.1x

Net debt / EBITDA target level: <2.5

EUR

milli

on

H1 2020 Results

H1 2020 Results25

Net financial costs in H1 2020 were EUR 7.5 million

31 36 22 15 8

3.8 3.3 3.3

3.32.5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

0

10

20

30

40

2016 2017 2018 2019 H1 2020

Net financial costs, EUR millionAverage interest rate at the end of period, %

EUR million %

• Net financial costs, including foreign exchange differences, in H1 2020 were EUR 7.5 million (H1 2019: 8.6)

• Average interest rate on loans at the end of the review period was 2.3% and the average maturity of long-term loans was 6.1 years

• Annual financial costs expected to increase by EUR 2 million with the Husum pulp mill renewal

Debt structure and liquidity on 30 June 2020

249182

8

23Bonds

Loans fromfinancialinstitutions

Pension loans

Finance leasesand other loans

8

153

200

Cash and cashequivalents

RCF, unraised

Interest-bearing debt EUR 462 million

Available liquidity*EUR 353 million

Average maturity of long-term loans on 30 June 2020 was 6.1 years.

26 H1 2020 Results

* Liquidity is complemented by Metsä Group’s internal undrawn short-term credit facility of EUR 150 million and undrawn pension loans of EUR 190 million

27 Read more about our ambitious sustainable targets for 2030 on our webpage H1 2020 Results

External recognition and commitments to Metsä Board on its actions in sustainability

A ‘Prime’ status In ISS ESG Corporate Rating .

‘Platinum’ in EcoVadis’ CSR ranking. Included in the top 1% of companies assessed in the manufacture of corrugated paper and paperboard and of containers of paper and paperboard industry.

Metsä Board has been on the CDP Climate A List every year since 2016. Metsä Board has A-in the CDP Water and Forest Programmes and in the Supplier Engagement Rating.

Metsä Board as a part of Metsä Group is committed to the UN Global Compact corporate responsibility initiative and its principles in the areas of human rights, labour, environment and anti-corruption. Metsä Board also supports the UN’s Sustainable Development Goals, the SDGs.

Metsä Board’s GHG emission reduction targets are approved by the Science Based Targets initiative.

AAA in the MSCI ESG Ratings assessment (on a scale of AAA–CCC)

An overall ESG Risk Rating score of 17.6 and at low risk of experiencing material financial impacts from ESG factors.

Link to MSCI Terms and Conditions

“Advanced” in Vigeo Eiris ESG assessment.

H1 2020 Results28

Market cap and foreign owners30 June 2020

Ownership distribution30 June 2020

Market cap and ownership distributionMetsä Board’s A- and B-shares are listed on Nasdaq Helsinki

0

5

10

15

20

25

0

500

1 000

1 500

2 000

2 500

3 000

12/2015 12/2016 12/2017 12/2018 12/2019 6/2020

Market cap, EUR millionShare of foreign owners, %

Metsäliitto Cooperative

48%

Domestic institutional investors

19%

Domestic private

investors19%

Foreign owners

14%

EUR million

29

%

H1 2020 Results

500

600

700

800

900

1000

1100

1200

500

600

700

800

900

1000

1100

1200

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Folding boxboard

White-top kraftliner

30

Price development of folding boxboard and white kraftliner in Europe

EUR/ tonne

Sources: Fastmarkets RISI & Fastmarkets FOEX

EUR/ tonne

H1 2020 Results

350400450500550600650700750800850900950100010501100115012001250

350400450500550600650700750800850900950

100010501100115012001250

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 20

Source: Fast Markets Foex

USD or EUR USD or EUR

31

Price development of pulp in Europe (PIX)Long-fibre (SW) and short-fibre (HW) pulp

Long-fibre, USD

Long-fibre, EUR

Short-fibre, EUR

Short-fibre, USD

H1 2020 Results

Price development of roadside pulpwood in Finland and Sweden

Pulpwood roadside prices in Finland, EUR/m3 Pulpwood roadside prices in Sweden*, SEK/m3

Sources: Luke (Natural Resources Institute Finland) and Skogsstyrelsen (The Swedish Forest Agency)

H1 2020 Results

150170190210230250270290310330350370390

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Spruce BirchPine

32

2022242628303234363840

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Spruce Birch Pine

FX rates development: EUR/USD and EUR/SEKEUR/USD

33

EUR/SEK

H1 2020 Results

1,05

1,07

1,09

1,11

1,13

1,15

1,17

1,19

10

10,2

10,4

10,6

10,8

11

11,2

11,4