Metsä Group Interim report Q1/2016

Kari JordanPresident and CEO

3.5.2016

• Sales EUR 1,156 million (Q1/2015: 1.255 million)• Operating result* EUR 109 million (129 million)• Operating result* 9.5% (10.2%) of sales• Return on capital employed* 10.6% (13.5%) • Sales were reduced by considerable decrease in Metsä Board’s

non-core paper deliveries• Operating result was affected by the slightly decreased price of

pulp and the start-up phase of the new folding boxboard production line at Metsä Board’s Husum mill

3/5/2016 Metsä Group2

Business developed as expected

Metsä Group – Q1

*excluding non-recurring items

• Market price of softwood pulp decreased by 3% and hardwood pulp 5%

• Demand for paperboards remained at a good level in both Europe and the Americas – price levels were stable

• Nearly 20% of wood acquired from private forests was purchased electronically, and in sale of forest management services the figure was 25%

• Standard & Poor’s Ratings Services raised Metsä Board’s creditrating from BB to BB+ in February

• New folding boxboard production line started up at Metsä Board’s Husum mill in Sweden in February

• Construction of the bioproduct mill in Äänekoski progressed as planned

– At end of March, one third of the mill was complete– Wood supply for the mill began

3/5/2016 Metsä Group3

Events in the first quarter

Metsä Group – Q1

3/5/2016 Metsä Group4

Sales quarterly

Metsä Group – Q1

EUR million

1 264 1 242 1 214 1 219 1 254 1 2651 204 1 248 1 255

1 3301 225 1 205

1 156

0

200

400

600

800

1 000

1 200

1 400

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

3/5/2016 Metsä Group5

Operating result

Metsä Group – Q1

EUR million

8994

7387

10592

104117

129137

149

123109

94 89

63

88

70

160

10384

118

154142

128

107

0

20

40

60

80

100

120

140

160

180

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

Excl. non-recurring items Incl. non-recurring items

3/5/2016 Metsä Group6

Operating result excl. non-recurring items

Metsä Group – Q1

EUR million

130119

63

3

5364 68 71

89 94

73

87

10592

104117

129137

149

123

109

0

20

40

60

80

100

120

140

160

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

Change in operating result

3/5/2016 Metsä Group7

Metsä Group – Q1

EUR million

Operating result excl. non-recurring items 1–3/2015 128.6

Sales prices -47

Sales volumes -29

Exchange rates 3

Raw materials 23

Employee costs 7

Maintenance and other fixed costs 10

Change of inventories 8

Write-offs and others, total 6 -19.1

Operating result excl. non-recurring items 1–3/2016 109.5

Non-recurring items Q1/2016

Metsä Group8

Metsä Group – Q1

EUR million Q1/2016

Operating result incl. non-recurring items 106.8

Non-recurring items:

Metsä Wood / Additional expenses related to sale of Metsä Wood France S.A.S 0.4

Metsä Board / Restructuring of Simpele paperboard mil 2.3

Non-recurring items, total +2.7

Operating result excl. non-recurring items 109.5

3/5/2016

Metsä Group9

ROCE, excluding non-recurring items

Metsä Group – Q1

%

Target>10%

5.7

9.7

12.3

13.5

10.6

0

2

4

6

8

10

12

14

16

Q1/2012 Q1/2013 Q1/2014 Q1/2015 Q1/20163/5/2016

3/5/2016 Metsä Group10

Equity ratio

Metsä Group – Q1

%

34.737.9 37.9

43.2 42.8

0

5

10

15

20

25

30

35

40

45

12/2012 12/2013 12/2014 12/2015 3/2016

Metsä Group11

Interest-bearing net liabilities

Metsä Group – Q1

EUR million

1 6091 510

938

610

847

0

250

500

750

1 000

1 250

1 500

1 750

2 000

12/2012 12/2013 12/2014 12/2015 3/2016

3/5/2016

Metsä Group12

Capital expenditure

Metsä Group – Q1

EUR million

204 214143

492

1430

100

200

300

400

500

600

700

800

900

1–12/2012 1–12/2013 1–12/2014 1–12/2015 1–3/2016

Estimate forfull year

3/5/2016

Income statement

Metsä Group13

Metsä Group – Q1

EUR million Q1/2016 Q1/2015 ChangeSales 1 155.6 1 254.3 -99.6

Other operating income 8.3 15.4 -7.1

Operating expenses -990.8 -1 083.2 92.4

Depreciation and impairment losses -66.3 -69.4 3.1

Operating result 106.8 117.8 -11.1

Operating result exclunding non-recurring items 109.5 128.6 -19.1

Share of results from associated companies and joint ventures -0.1 6.1 -6.2

Exchange gains and losses -1.0 3.5 -4.5

Other net financial items -17.8 -21.3 3.5

Result before income tax 87.8 106.1 -18.3

3/5/2016

Key figures

Metsä Group14

Metsä Group – Q1

Q1/2016 Q1/2015 ChangeROCE, % 10.3 12.5 -2.2

excluding non-recurring items 10.6 13.5 -2.9

ROE, % 11.3 16.7 -5.4

excluding non-recurring items 11.8 18.8 -7.0

Equity ratio, % 42.8 39.0 3.8

Net gearing ratio, % 35 41 -6

Interest-bearing net liabilities, EUR million 847 887 -40

Investments, EUR million 143 36 107

Personnel at the end of period 9 512 10 391 -879

3/5/2016

Cash Flow Statement I

Metsä Group15

Metsä Group – Q1

EUR million Q1/2016 Q1/2015

Cash flow from operating activities

Result for the period 68.3 88.6

Adjustments to result for the period 103.0 105.9

Interest received 0.9 0.9

Interest paid -12.5 -18.6

Dividends received 0.7 3.4

Taxes -25.7 -14.5

Other financial items, net 0.3 -3.2

Change in working capital -202.1 -127.1

Cash flow arising from investing activities -67.1 35.4

3/5/2016

Cash Flow Statement IIEUR million Q1/2016 Q1/2015Net cash flow from operating activities -67.1 35.4

Purchase of shares 0.0 0.0Change in shares of non-controlling interest 0.0 0.0Investments -142.9 -35.5Sales of assets and others 0.8 5.0Changes in members' capital and in other capital 13.9 68.3Interest on members' capital and dividends paid -32.9 -24.9Change in long-term loans and committed facilities -4.3 -15.6

Change in cash and cash equivalents -232.5 32.7

Cash and cash equivalents at beginning of period 1 120.8 947.9Translation differences and others 0.0 1.4Change in cash and cash equivalents -232.5 32.7

Cash and cash equivalents at end of period 888.4 982.0Metsä Group16

Metsä Group – Q1

3/5/2016

Metsä Group17

Personnel

Metsä Group – Q1

11,44710,763 10,410

9,599 9,512

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

12/2012 12/2013 12/2014 12/2015 3/2016

3/5/2016

Wood Supply and Forest Services

Wood Supply and Forest Services

Metsä Group19

Metsä Forest – Wood Supply and Forest Services

EUR million Q1/2016 Q1/2015 Change

Sales 401.2 411.8 -10.6

Other operating income 2.4 2.5 -0.2

Operating expenses -394.9 -404.7 9.8

Depreciation and impairment losses -0.8 -0.9 0.0

Operating result 7.8 8.7 -1.0

Non-recurring items, total - - -

Operating result excluding non-recurring items 7.8 8.7 -1.0

% of sales 1.9 2.1 -0.2

3/5/2016

Electronic services become more popular• Supply of wood was steady and stumpage

prices remained stable• Metsä Forest delivered a total of 8.4 million

cubic metres of wood (8.3)• Wood was harvested as targeted and

deliveries to customers' production units were carried out as planned

• Majority of wood was purchased from Metsäliitto Cooperative's members

• Nearly 20% of wood acquired from private forests was purchased electronically

• 25% of forest management services was sold electronically

Metsä Group20

Operating result excl. non-recurring itemsEUR million

Metsä Forest – Wood Supply and Forest services

8.6

7.0

4.5

8.18.7

6.9 7.06.3

7.8

0

1

2

3

4

5

6

7

8

9

10

Q1/

14

Q2/

14

Q3/

14

Q4/

14

Q1/

15

Q2/

15

Q3/

15

Q4/

15

Q1/

16

Q2/

16

Q3/

16

Q4/

16

3/5/2016

Wood Products Industry

Wood Products Industry

Metsä Group22

Metsä Wood – Wood Products Industry

EUR million Q1/2016 Q1/2015 ChangeSales 208.7 209.4 -0.7

Other operating income 0.8 1.0 -0.2

Operating expenses -198.0 -195.7 -2.3

Depreciation and impairment losses -6.2 -6.8 0.7

Operating result 5.4 7.9 -2.5

Non-recurring items, total 0.4 - 0.4

Operating result excluding non-recurring items 5.8 7.9 2.1

% of sales 2.8 3.8 -1.0

3/5/2016

Increased sawn timber deliveries to Asia and North Africa

• Deliveries of sawn spruce and pine timber to North Africa and deliveries of sawn spruce timber to Asia increased

• Profitability of sawing operations weakened as a result of reduced prices of sawn timber

• Sales of construction and industrial products increased slightly

• Delivery volumes of Kerto® LVL products grew in particular to Australia and North America

• As a result of statutory labour negotiations, amount of personnel at Kerto® LVL and plywood mills reduced by 48 employees

Metsä Group23

Operating result excl. non-recurring itemsEUR million

Metsä Wood – Wood Products Industry

8.6

14.4

6.2

8.0 7.9

10.2

5.9

7.5

5.8

0

2

4

6

8

10

12

14

16

Q1/

14

Q2/

14

Q3/

14

Q4/

14

Q1/

15

Q2/

15

Q3/

15

Q4/

15

Q1/

16

Q2/

16

Q3/

16

Q4/

16

3/5/2016

Pulp Industry

Pulp Industry

Metsä Group25

Metsä Fibre – Pulp Industry

EUR million Q1/2016 Q1/2015 ChangeSales 323.4 330.4 -7.0

Other operating income 2.2 7.2 -4.9

Operating expenses -239.6 -237.4 -2.1

Depreciation and impairment losses -22.4 -21.4 -1.0

Operating result 63.7 78.7 -15.0

Non-recurring items, total - - -

Operating result excluding non-recurring items 63.7 78.7 -15.0

% of sales 19.7 23.8 -4.1

3/5/2016

Metsä Group26

Price of pulp (PIX) 2007–Q1/2016

Metsä Fibre – Pulp Industry

USD EUR

Source: FOEX Indexes Ltd

350

450

550

650

750

850

950

1050

350

450

550

650

750

850

950

1050

'08 ´09 ´10 ´11 ´12 ´13 ´14 ´15 ´16

Hardwood/EUR Softwood/EUR Hardwood/USD Softwood/USD

3/5/2016

Demand for softwood pulp remained at forecast level – prices decreased• Currency-denominated market prices of

softwood pulp decreased 13% in January–March compared to corresponding period previous year. The average market prices of hardwood pulp increased 2%

• US dollar strengthened by approximately 2% and variable costs decreased compared to the corresponding period previous year

• Decrease in price of softwood pulp pushed result lower than in the corresponding period previous year

• Construction of bioproduct mill in Äänekoskiprogressed as planned

Metsä Group27

Operating result excl. non-recurring items EUR million

Metsä Fibre – Pulp Industry

54.9

36.3

51.8

64.5

78.7

92.585.5

80.5

63.7

0

10

20

30

40

50

60

70

80

90

100

Q1/

14

Q2/

14

Q3/

14

Q4/

14

Q1/

15

Q2/

15

Q3/

15

Q4/

15

Q1/

16

Q2/

16

Q3/

16

Q4/

16

3/5/2016

Paperboard Industry

Paperboard Industry

Metsä Group29

Metsä Board – Paperboard Industry

EUR million Q1/2016 Q1/2015 ChangeSales 435.6 525.7 -90.1

Other operating income 6.0 8.0 -2.1

Operating expenses -368.1 -464.5 78.4

Depreciation and impairment losses -22.9 -26.1 3.3

Operating result 32.7 43.1 -10.5

Non-recurring items, total 2.3 0.1 2.2

Operating result excluding non-recurring items 35.0 43.2 -8.3

% of sales 8.0 8.2 -0.2

3/5/2016

Metsä Group30

Prices of folding boxboard and white top krafliner in Europe

Metsä Board – Paperboard Industry

EUR/tonne

Source: Pöyry Management Consultingand FOEX Indexes Ltd.

600650700750800850900950

100010501100

2015 2016

Folding boxboard White top krafliner

3/5/2016

Husum’s new folding boxboard production line still in start-up phase

• Paperboard deliveries increased and price levels remained stable in January–March

• Sales were reduced by planned considerable decrease in paper deliveries

• Operating result weakened by start-up of Husum’s new folding boxboard production line, which is why the mill’s production volumes of pulp and paperboard were low

• Result for the review period was also affected by changes in pulp price

• Remaining fine paper production is expected to end as early as in 2016

Metsä Group31

Operating result excl. non-recurring items EUR million

Metsä Board – Paperboard Industry

36.1

28.3

35.2 36.9

43.247.0

54.6

35.1 35.0

0,0

10,0

20,0

30,0

40,0

50,0

60,0

Q1/

14

Q2/

14

Q3/

14

Q4/

14

Q1/

15

Q2/

15

Q3/

15

Q4/

15

Q1/

16

Q2/

16

Q3/

16

Q4/

16

3/5/2016

Tissue and Cooking papers

Tissue and Cooking papers

Metsä Group33

Metsä Tissue – Tissue and Cooking papers

EUR million Q1/2016 Q1/2015 ChangeSales 246.2 253.7 -7.5

Other operating income 0.9 1.1 -0.3

Operating expenses -223.9 -239.9 16.0

Depreciation and impairment losses -9.7 -9.9 0.2

Operating result 13.5 5.1 8.4

Non-recurring items, total - 10.7 -10.7

Operating result excluding non-recurring items 13.5 15.8 -2.3

% of sales 5.5 6.2 -0.7

3/5/2016

Volume decrease reduced sales

• Reduction in sales is primarily due to the decrease in sales volumes, which was still affected by phasing out of tissue paper operations in Russia

• Operating result was decreased by increased fibre costs and the weakening of the Norwegian krone and the British pound against the euro, in particular

• Metsä Tissue started production at Krapkowice and Kreuzau mills on the production lines moved from Vorsino

Metsä Group34

Operating result excl. non-recurring items EUR million

Metsä Tissue – Tissue and Cooking papers

11.8

9.7

19.621.1

15.8

7.6

13.2

18.6

13.5

0,0

5,0

10,0

15,0

20,0

25,0

Q1/

14

Q2/

14

Q3/

14

Q4/

14

Q1/

15

Q2/

15

Q3/

15

Q4/

15

Q1/

16

Q2/

16

Q3/

16

Q4/

16

3/5/2016

Summary

Outlook for the business areas 1/2Wood Supply and Forest Services• Wood demand will target felling sites to be harvested when the ground is unfrozen and, in terms of energy

wood, crown wood • Sales of forest management services are expected to remain goodWood Products Industry • Market balance and sales prices of sawn timber are expected to improve• Market situation in North Africa will create uncertainty in the demand for pine sawn timber• Demand for Kerto® LVL products is expected to continue to be brisk and competition in plywood products

to remain tensePulp Industry• Global economic uncertainty and changes in currency market will impact Metsä Fibre's operating

environment• Demand for pulp has remained stable, and there are no signs of significant changes in the market

Metsä Group36

Summary

3/5/2016

Outlook for the business areas 2/2Paperboard• Metsä Board's paperboard deliveries are expected to grow in April–June from the first quarter of 2016.

Demand for paperboards is expected to remain stable in both Europe and America • Market prices of folding boxboard and white fresh forest fibre linerboard are expected to remain stable• Full production capacity of Husum’s new folding boxboard line will be reached by the end of 2016

Tissue and Cooking papers• In the tissue and cooking paper markets, demand is expected to continue stable in all market areas• Demand for tissue paper is expected to increase in eastern Central Europe, in particular, and demand for

cooking papers is expected to grow in Asia

Metsä Group37

Summary

3/5/2016

• Metsä Group’s operating result excluding non-recurring items is in the second quarter of 2016 expected to be roughly at the same level as in the first quarter of the 2016

3/5/2016 Metsä Group38

Near-term outlook

Summary