Metsä Group Interim Report Q1/2017 Kari Jordan President and CEO 4 May 2017
Metsä Group Q1 Business developed as expected Sales EUR 1,216 million (Q1/2016: EUR 1,156 million) Operating result* EUR 128 million (EUR 109 million) Operating result of sales* 10.5% (9.5%) Return on capital employed* 12.5% (10.6%) Sales grew mainly due to increased delivery volumes Operating result improved mainly by favourable development of the paperboard business 2 *comparable
Metsä Group Q1 Events in the first quarter The market prices of long-fibre and short-fibre pulp increased The capacity utilisation rate of the folding boxboard machine started up in 2016 at Husum, Sweden, increased Metsä Tissue commenced the renewal of the recycled pulp plant at the Mänttä mill in Finland Metsäliitto Cooperative acquired the 9% share in Metsä Tissue Corporation from Jozef Antošík Metsä Wood sold its project business located in Pälkäne, Finland, to Lapwall Oy 3
Metsä Group Q1 Sales quarterly EUR million 1 400 1 200 1,254 1,265 1,204 1,248 1,255 1,330 1,225 1,205 1,156 1,184 1,143 1,175 1,216 1 000 800 600 400 200 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 Q1/17 Q2/17 Q3/17 Q4/17 4
Metsä Group Q1 Operating result EUR million 180 160 140 120 100 80 60 40 20 0 160 154 149 142 137 129 128 123 117 118 105 104103 92 84 70 131 128 120 119 110 109 107 103 107 107 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 Q3/17 Q4/17 Comparable operating result Operating result (IFRS) 5
Q1/12 Q2 Q3 Q4 Q1/13 Q2 Q3 Q4 Q1/14 Q2 Q3 Q4 Q1/15 Q2 Q3 Q4 Q1/16 Q2 Q3 Q4 Q1/17 Q2 Q3 Q4 Metsä Group Q1 Comparable operating result EUR million 160 140 120 100 89 94 87 105 92 104 117 129 137 149 123 109 120 103 107 128 80 60 53 64 68 71 73 40 20 0 6
Metsä Group Q1 Change in comparable operating result EUR million Comparable operating result 1 3/2016 109.5 Sales prices -22.6 Sales volumes 30.5 Exchange rates 1.6 Raw materials and energy -2.1 Employee costs 10.6 Maintenance and other -5.9 Others total 6.3 18.4 Comparable operating result 1 3/2017 127.9 7
Metsä Group Q1 Items affecting comparability Q1/2017 EUR million Q1/2017 Operating result (IFRS) 131.2 Items affecting comparability: Metsä Wood / sale of the project business 3.3 Items total +3.3 Comparable operating result 127.9 8
Metsä Group Q1 Comparable ROCE % 16 14 12 10 8 Target >10 % 9.7 12.3 13.5 10.6 12.5 6 4 2 0 Q1/2013 Q1/2014 Q1/2015 Q1/2016 Q1/2017 9
Metsä Group Q1 Equity ratio % 50 45 40 35 30 25 20 15 10 5 0 37.9 37.9 43.2 43.9 44.1 12/2013 12/2014 12/2015 12/2016 3/2017 10
Metsä Group Q1 Interest-bearing net liabilities EUR million 1 750 1 500 1,510 1 250 1 000 938 1,033 1,226 750 610 500 250 0 12/2013 12/2014 12/2015 12/2016 3/2017 11
Metsä Group Q1 Capital expenditure EUR million 800 700 600 500 400 300 200 492 758 Full-year estimate 100 0 214 143 127 1 12/2013 1 12/2014 1 12/2015 1 12/2016 1 3/2017 12
Metsä Group Q1 Income statement EUR million Q1/2017 Q1/2016 Change Sales 1,216.1 1,155.6 60.6 Other operating income 14.0 8.3 5.7 Operating expenses -1,036.3-990.8-45.6 Depreciation and impairment losses -62.7-66.3 3.6 Operating result 131.2 106.8 24.4 Comparable operating result 127.9 109.5 18.4 Share of results from associated companies and joint ventures 14.0-0.1 Exchange gains and losses 1.4-1.0 2.4 Other net financial items -17.1-17.8 0.8 Result before taxes 129.5 87.8 41.8 14.2 13
Metsä Group Q1 Key figures Q1/2017 Q1/2016 Muutos Return on capital employed, % 12.8 10.3 2.5 Comparable return on capital employed, % 12.5 10.6 1.9 Return on equity, % 16.3 11.3 5.0 Comparable return on equity, % 15.7 11.8 3.9 Equity ratio, % 44.1 42.8 1.3 Net gearing ratio, % 46 35 11 Interest-bearing net liabilities, EUR million 1,226 847 379 Capital expenditure, EUR million 127 143-16 Personnel at end of period 9,310 9,512-202 14
Metsä Group Q1 Cash Flow Statement I EUR million Q1/2017 Q1/2016 Cash flow from operating activities Result for the period 106.7 68.3 Adjustments to result for the period 80.6 103.0 Interest received 1.0 0.9 Interest paid -12.5-12.5 Dividends received 0.8 0.7 Taxes -19.0-25.7 Other financial items, net -9.9 0.3 Change in working capital -188.7-202.1 Net cash flow from operating activities -41.0-67.1 15
Metsä Group Q1 Cash Flow Statement II EUR million Q1/2017 Q1/2016 Net cash flow from operating activities -41.0-67.1 Purchase of shares 0.0 0.0 Acquired shares from non-controlling interests -30.7 0.0 Investments -127.5-142.9 Sales of assets and others 11.7 0.8 Changes in members' capital and other capital 18.0 13.9 Interest on members' capital and dividends paid -31.1-32.9 Change in long-term loans and committed facilities 42.0-4.3 Change in cash and cash equivalents -158.7-232.5 Cash and cash equivalents at beginning of the period 895.1 1,120.8 Translation differences and others 0.4 0.0 Change in cash and cash equivalents -158.7-232.5 Cash and cash equivalents at end of the period 736.8 888.4 16
Metsä Group Q1 Personnel 12 000 10 000 10,736 10,410 9,599 9,300 9,310 8 000 6 000 4 000 2 000 0 12/2013 12/2014 12/2015 12/2016 3/2017 17
Wood Supply and Forest Services
Metsä Forest Wood Supply and Forest Services Wood Supply and Forest Services EUR million Q1/2017 Q1/2016 Change Sales 432.6 401.2 31.5 Other operating income 0.8 2.4-1.6 Operating expenses -424.0-394.9-29.1 Depreciation and impairment losses -0.9-0.8-0.1 Operating result 8.5 7.8 0.7 Items affecting comparability, total - - - Comparable operating result 8.5 7.8 0.7 % of sales 2.0 1.9 0.1 19
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Metsä Forest Wood Supply and Forest Services Steady supply of wood and higher purchasing volumes Metsä Forest delivered a total of 8.7 million cubic metres of wood (8.3) In Finland, the supply of wood was steady, and stumpage prices remained stable Purchasing volume of wood was higher than during the corresponding period in the previous year Sales of forest management services continued to grow Comparable operating result EUR million 10,0 9,0 8,0 7,0 6,0 5,0 4,0 3,0 8.7 6.9 7.0 6.3 7.8 6.5 7.7 8.9 8.5 25% of wood bought from private forests was purchased electronically 2,0 1,0 35% of forest management services was sold electronically 0,0 20
Wood Products Industry
Metsä Wood Wood Products Industry Wood Products Industry EUR million Q1/2017 Q1/2016 Change Sales 120.2 121.4-1.2 Other operating income 3.9 0.6 3.3 Operating expenses -107.2-110.6 3.4 Depreciation and impairment losses -2.9-3.6 0.7 Operating result 14.0 7.8 6.2 Items affecting comparability, total -3.3 0.4-3.7 Comparable operating result 10.7 8.2 2.5 % of sales 8.9 6.8 2.1 22
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Metsä Wood Wood Products Industry Strong demand for wood products Delivery volumes and sales of Metsä Wood's Kerto LVL products grew, especially in North America and the Middle East Delivery volumes and sales of birch and spruce plywood products grew, particularly in Northern Europe Metsä Wood is building a birch plywood mill in Pärnu, Estonia. The new mill will begin production in the second half of 2018 Comparable operating result EUR million 14,0 13.2 12,0 10,0 9.0 8.4 8.0 8.2 8,0 7.1 6,0 4.5 4,0 8.3 10.7 Metsä Wood sold its project business located in Pälkäne, Finland, to Lapwall Oy 2,0 0,0 23
Pulp and Sawn Timber Industry
Metsä Fibre Pulp and Sawn Timber Industry Pulp and Sawn Timber Industry EUR million Q1/2017 Q1/2016 Change Sales 422.0 408.8 13.2 Other operating income 4.2 2.4 1.8 Operating expenses -350.3-325.0-25.3 Depreciation and impairment losses -21.4-25.0 3.6 Operating result 54.5 61.2-6.7 Items affecting comparability, total - - - Comparable operating result 54.5 61.2-6.7 % of sales 12.9 15.0-2.1 25
Metsä Fibre Pulp and Sawn Timber Industry Price of pulp (PIX) 2009 Q1/2017 USD 1050 950 850 750 650 550 450 350 09 10 11 12 13 14 15 16 17 Hardwood/EUR Softwood/EUR Hardwood/USD Softwood/USD EUR 1050 950 850 750 650 550 450 350 Source: Foex 26
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Metsä Fibre Pulp and Sawn Timber Industry Demand for long fibre pulp remained good Demand for long-fibre pulp was good. In China the demand was stronger than expected Comparable operating result EUR million 100,0 95.6 The price of long-fibre pulp grew about 2% and short-fibre 9% in Europe during Q1 2017 The bioproduct mill s completion rate at the end of March was roughly 90%. Commissioning and test-run phase is ongoing Production and sales volumes of sawn timber increased according to plan The prices of sawn timber increased but remained at a low level 90,0 80,0 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0,0 82.0 83.4 79.7 61.2 53.2 46.4 53.7 54.5 27
Paperboard Industry
Metsä Board Paperboard Industry Paperboard Industry EUR million Q1/2017 Q1/2016 Change Sales 444.5 435.6 8.9 Other operating income 3.2 6.0-2.8 Operating expenses -378.9-386.1 7.2 Depreciation and impairment losses -23.6-22.9-0.7 Operating result 45.2 32.7 12.5 Items affecting comparability, total - 2.3-2.3 Comparable operating result 45.2 35.0 10.2 % of sales 10.2 8.0 2.2 29
Metsä Board Paperboard Industry Prices of folding boxboard and white-top krafliner in Europe 2011 Q1/2017 EUR/ tonne 1100 1050 1000 950 900 850 800 750 700 650 600 2011 2012 2013 2014 2015 2016 2017 Folding boxboard White-top kraftliner Source: Pöyry Management Consulting ja FOEX Indexes Ltd 30
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Metsä Board Paperboard Industry Delivery volumes increased and profitability improved Operating result was improved mainly by increased folding boxboard and linerboard delivery volumes Comparable operating result EUR million 60,0 54.6 Average prices of the paperboards produced in Finland remained roughly at the level of the comparison period 50,0 40,0 43.2 47.0 35.1 35.0 35.8 34.0 32.8 45.2 Capacity utilisation rate of Husum's folding boxboard machine in Sweden was appr. 70%. The aim is 75% during 2017, corresponding appr. 300,000 tonnes New extrusion coating line at the Husum mill started up in April 30,0 20,0 10,0 0,0 31
Tissue and Cooking Papers
Metsä Tissue Tissue and Cooking Papers Tissue and Cooking Papers EUR million Q1/2017 Q1/2016 Change Sales 252.0 246.2 5.8 Other operating income 0.6 0.9-0.3 Operating expenses -225.5-223.9-1.6 Depreciation and impairment losses -9.5-9.7 0.2 Operating result 17.6 13.5 4.1 Items affecting comparability, total - - - Comparable operating result 17.6 13.5 4.1 % of sales 7.0 5.5 1.5 33
Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Metsä Tissue Tissue and Cooking Papers Operating result of Tissue and Cooking Papers improved Metsä Tissue s sales grew primarily due to increased delivery volumes Operating result was positively impacted by the higher sales volume, the lower market price of fresh fibre and the strengthening of the Norwegian krone Result was impacted negatively by the price increase of recycled fibre and the weakening of the Swedish krona and the British pound Metsä Tissue commenced the renewal of the deinking plant at the Mänttä mill. It will increase production efficiency and prolong the pulp plant's lifetime Comparable operating result EUR million 25,0 20,0 15,0 10,0 5,0 0,0 15.8 7.6 13.2 18.6 13.5 13.2 15.8 20.6 17.6 34
Summary
Summary Outlook for the business areas 1/2 Wood Supply and Forest Services Wood demand will focus on felling sites to be harvested when the ground is unfrozen and, in terms of energy wood, mainly on crown wood The sales of forest management services are expected to remain good Wood Products Market demand for wood products will remain good, and this will be reflected in the order book level, which will be higher than in the previous year, particularly in Kerto LVL products The outlook for plywood products is likewise positive. Construction in the UK is expected to remain at a good level, and delivery volumes in the second quarter are expected to grow, supported by the season Pulp and Sawn Timber Demand and supply in the pulp markets are well-balanced in both the Asian and European markets Demand for spruce sawn timber will remain good in all of the main markets, with demand in China being particularly strong The oversupply situation in pine sawn timber has eased off, and market balance has improved 36
Summary Outlook for the business areas 2/2 Paperboard Global demand for high-quality consumer packaging paperboard made from fresh fibre is expected to continue to grow Metsä Board's paperboard deliveries in April June are expected to grow from the previous quarter. The growth is supported by Husum's new folding boxboard production Tissue and Cooking Papers In the tissue and cooking paper markets, demand is expected to remain stable in all market areas Demand for tissue paper will increase particularly in Eastern Central Europe, and demand for cooking papers in Asia 37
Summary Near-term outlook Metsä Group s comparable operating result is in the second quarter of 2017 expected to be roughly at the same level as in the first quarter of 2017 38