Good afternoon, everyone, and welcome to the presentation of Metsä Board's results for January-March 2024. My name is Mika Joukio, and I'm the CEO at Metsä Board. Here with me are CFO Henri Sederholm and the head of IR, Katri Sundström. Let's go through the presentation first and then take the questions. As always, let's first take a summary of Q1. The year started positively with a significant pickup in the demand for paperboards. As expected, the average price of folding boxboard fell slightly compared to last year's average price. The white kraftliner price level remained fairly stable. The pulp market also improved, especially in Europe. Pulp demand was boosted by increased activity among paper and paperboard producers, which had a positive impact on European market pulp prices. There were no planned maintenance shutdowns during the first quarter, as normally.
Production volumes increased by 6% compared to the same period last year and by 28% compared to the previous quarter. In March, the positive development was interrupted by political strikes in Finland, which shut down all our Finnish mills for 2-3 weeks. The total result impact due to the strikes is estimated at EUR 25 million divided between Q1 and Q2. In Kemi Bioproduct Mill, there was a serious gas explosion in March. This also has an impact on our kraftliner mill as it is part of Kemi integrate. However, we aim to continue white kraftliner production in Kemi at a lower than normal production level during the repair works. The accident will have a significant impact on our results, and I will return to that in the near-term outlook. Finally, we decided not to invest in the folding boxboard mill in Kaskinen.
The result of the pre-engineering showed the total costs were significantly higher than initially estimated, and the project's financial targets would not have been met. Instead, we are planning investments in our existing mills, about which I will say more later. Now for paperboard sales and the overall demand situation. After several consecutive quarters of decline, our paperboard deliveries finally took an upward turn. Total deliveries in the first quarter were 364,000 tons, not far from the corresponding period last year. Compared to the previous quarter, they were up by 22%. The demand has mainly been boosted by customer restocking activities. I think it's still too early to speculate on a clear improvement in consumer demand or strengthening of purchasing power. But hopefully, we'll see more evidence of both later this year.
The good order inflow at the beginning of the year was interrupted in mid-March when trade unions launched massive political strikes in Finland. The strikes stopped the raw material shipments to the mills and closed all the ports in Finland, preventing deliveries to our customers. We had to close all our Finnish mills, resulting in an estimated loss of production of 50,000 tons in paper boards and 30,000 tons in CTMP. Here are the paper board sales split by region and by product. There were no major changes compared to the corresponding period last year. If the comparison were against the previous quarter, each region would show a clear increase, except EMEA liner boards, which remained stable. In the U.S., we have rerouted our deliveries following the collapse of the bridge in Baltimore, where one of Metsä Board's North American warehouses is located.
Our customer deliveries have not been affected, but there will be small additional costs. Market pulp delivery volumes increased compared to the corresponding period last year. In total, the demand for market pulp has clearly increased due to the higher operating rates of paper and paper board producers. The improved market situation has also been reflected in European market pulp prices, which have recently experienced a sharp upward trend. In China, demand was seasonally affected by the Chinese New Year, during which paper and paper board production is partly shut down. Going forward, the market will remain tight, especially in long fiber pulp. Supply is limited due to several overlaps, extended impacts from Finnish political strikes, global logistical bottlenecks, several planned maintenance works among pulp producers, and the long shutdown in Metsä Fibre's Kemi mill. And now for sustainability.
First, I'd like to take the opportunity to highlight our actions in terms of sustainability reporting. According to one of our strategic programs, Leader in Sustainability, we have already conducted our 2023 reporting in accordance with the CSRD, and the full report is included in the Board of Directors report. There you will find an extensive description of sustainability at Metsä Board, including several indicators related to it. Here are a few of them, the most relevant for us. First, of course, safety. Our TRIF 2.2 showed a clear improvement from last year, yet not at its target, which is, of course, zero accidents. The share of certified wood fiber was at 92%, which is over our target. Good. Fossil-based CO2 emissions decreased compared to the corresponding period last year. The steady production rate reduced emissions, even though production volumes increased.
Energy efficiency and water use are still lagging a little behind the targets, reflecting the impacts from last year when we had to adjust our production to meet the demand. Now I will hand over to Henri to present the financials.
Thank you, Mika, and good afternoon. The first quarter sales were 10% lower than in the corresponding period last year. The main contributor was lower paperboard prices. The operating result in the first quarter landed at EUR 32 million, and the operating margin was 6.5%. As Mika already mentioned, the total negative impact from the political strikes is estimated to be EUR 25 million, of which EUR 10 million-EUR 15 million was in the first quarter and the rest in the second quarter. Now let's take a closer look at the items that affected the result. First, January-March compared to the same quarter last year, and starting with the positives. The slightly reduced cost level improved the operating result. Total cost deflation, excluding pulp costs, was around 4% compared to Q1 last year. All other costs, except wood costs, reduced or remained stable.
Increased market pulp volumes and FX had also positive impacts on results. Then, on the negative side, the main contributor was lower folding boxboard price. In addition, market pulp prices weakened, which also impacted Metsä Fibre's result. As already mentioned, the estimated impact from political strikes was EUR 10 million-EUR 15 million, and roughly the same effect was seen in the reduced sale of emission allowances. Now the comparison with the previous quarter. The main positive element was increased paperboard volumes. As Mika mentioned earlier, deliveries increased by 22%. The first quarter did not include any planned maintenance, creating a positive impact of roughly EUR 10 million compared to Q4. The operating efficiency of all the mills improved as there were no maintenance, market, or investment-related shutdowns. However, the main positive impact came from Husum's folding boxboard as the startup of new capacity took place in Q4.
The main negative differences were due to the lower folding boxboard price and the impact of political strikes. Comparable return on capital employed, quarterly level 5.7%, and rolling 12 months at 3.1% are clearly below our target of over 12%. Capital employed at the end of period totaled EUR 2.3 billion. Q1 cash flow from operations was EUR 8 million negative. It was weakened by the rapid growth in working capital due to a pickup in sales and production volumes. In the corresponding period last year, cash flow was supported by production adjustment measures to prevent an increase in inventory levels. In addition, cash flow this year included only EUR 10 million dividend from Metsä Fibre, whereas the dividend last year included in Q1 cash flow was as high as EUR 83 million. Next, the financial position.
Our net debt increased a bit and was EUR 176 million at the end of the period. Leverage also increased, mainly because of lower rolling 12 months EBITDA landing at 1.1. This is still a good level with sufficient headroom to our maximum target level of 2.5. A reminder that our own dividend payment, roughly EUR 90 million, took place in April and is therefore visible in the Q2 figures. Now I'll hand the floor back to Mika.
Thanks, Henri. So let's move on to the investments, starting with the completed ones from last year, the folding boxboard capacity increase in Husum, and the Kemi Mill development program. We are currently focusing on making full use of Husum's expanded capacity of folding boxboard. This will further strengthen our leading position in our main markets in Europe and North America. We are continuing investments in the Husum port, which should be completed this year. In Kemi, kraftliner production has been interrupted due to the gas explosion at the Metsä Fibre Bioproduct Mill's evaporation plant. The renovation of the old evaporation plant is expected to last until the end of June, and the installation of the new evaporator units is expected to take place in Q4.
During the renovation and installation works, our aim is to continue the production of white kraftliner with dried unbleached pulp at lower than normal production level. Some coated grades will also be produced in Husum. However, this may delay our target of having Kemi's expanded kraftliner capacity fully available on the market in 2025. Finally, a reminder that at the end of 2022, a new recovery boiler and a turbine at the Husum pulp mill started up. This was a EUR 380 million investment, which strengthened Husum's integrated role as an efficient and sustainable platform for the long-term development of paperboard production. Part of the costs from the investments completed last year will also be carried over to this year. As a result, our total investments in 2024 are expected to be slightly lower than in 2023.
Depreciation will naturally increase year on year due to the completions of the investments. During the review period, we also made a decision not to invest in the new Kaskinen folding boxboard mill. As a result of pre-engineering, the total cost of the project was significantly higher than originally estimated, and the project would not have met our financial objectives. Instead, we are planning growth and development investments at our current mills, which will support our strategy to grow in fibrous packaging materials and renew our industrial operations. They also support our goal of fossil-free production by the end of 2030. In Husum, we are still planning the second phase of pulp mill renewal, which means replacing existing fiber lines with new ones. Also in Husum, we have started a program for new products on the current white kraftliner production line, PM2.
The aim is to find innovative solutions for the growing food and food service packaging segment. Simpele paperboard mill will be modernized in phases over the next 10 years. This program includes renewals in the paperboard machine and the finishing area, renewals in the mechanical pulp production, and a new power plant. Yesterday, we made the first investment decision regarding Simpele's modernization, which I will open up further in my next slide. And finally, at the Kyro Board Mill, a program will be launched to improve the performance of the current barrier board and expand its end-use areas. Yesterday, we announced an investment decision to modernize Simpele's paperboard machine. This is the first part of the broader investment program planned for Simpele Mill over the next 10 years. This investment includes the renewal of the paperboard machine's pre-drying and coating sections.
With new technology, we can replace the use of fossil fuels in paperboard production, which in turn takes us closer to our 2030 fossil-free target. The investment will improve the quality and performance of Simpele's folding boxboard, which is mainly used in food and pharma packaging. These are end uses where the quality and safety criteria of the paperboard are extremely strict. Further, our cost competitiveness will increase as production efficiency increases. The estimated completion of the project is during the second half of 2025, and the value of the investment is estimated at EUR 60 million. Now the near-term outlook. The solid demand situation for fresh fiber paperboards is expected to continue in the second quarter. Demand is supported by restocking in the value chain. In addition, Q2 is a seasonally stronger quarter in paperboard sales.
We expect our paperboard delivery volumes to increase slightly from Q1, and average sales prices to remain stable. There will be more plant maintenance in the second quarter than in the first, with an estimated negative result impact of around EUR 10 million. The average market pulp price is expected to improve, driven by European peak prices. The global market situation for long fiber pulp remains tight, as supply is limited by the Kemi accident, pulp producers' annual maintenance shutdowns, and global logistics bottlenecks. The negative result impact of the political strikes in Finland in Q2 is expected to be roughly at the same level as in Q1, at EUR 10 million-EUR 15 million. The negative result impact of the gas explosion in Kemi is estimated at EUR 30 million-EUR 40 million in Q2, depending on the schedule for the repair work and restart of kraftliner production.
Metsä Board and Metsä Fibre have standard property and business interruption insurance policies on which claims will be made later and whose financial impacts are not included in the estimate. Based on this, we expect our operating result to weaken from the previous quarter. The summary. As we already stated in connection with our full year results in February, the order activity improved at the beginning of the year, which we expect to continue at least in the coming months. The first quarter was hit by political strikes. The effects extended into the second quarter. The explosion at the Kemi Bioproduct Mill will impact Metsä Board's kraftliner production. It will have a significant impact on the Q2 results, which are not expected to include any insurance compensations yet. We have recently announced plans for new investments at our current mills to be implemented over the next 10 years.
With these investments, we are improving our competitiveness, accelerating our target to be fully fossil-free in production, and developing future products to replace plastics. Yesterday, we made an investment decision to renew the Simpele paperboard machine. The investment will significantly improve the quality of Simpele folding boxboard and increase the mill's cost competitiveness. We will keep you updated with both our ongoing and upcoming investments as soon as plans are finalized. And with that, we end our presentation and are now ready for your questions. Thank you very much.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Andrew Jones from UBS. Please go ahead.
Hi. Just a question on the market, I guess. I mean, we were talking a lot about Asian imports at the back end of last year, and clearly your volumes picked up a lot in the first quarter. But I'm just curious, is that all demand-driven restocking, or have you seen less Asian imports in some of your markets? And how do you see that trend evolving as we go through the rest of the year? Obviously, some of those large machines in Asia are clearly still ramping up. Do you see imports becoming a threat again later on in the year? Is that something that concerns you greatly? Thank you.
Yeah. Yeah. The activity of the Asian producers in Q1 was a bit, I mean, slightly lower than in 2023 on the average. But of course, they still are in the areas where we operate also, like Turkey, like Far East, like Latin America. But maybe the Red Sea situation has also then kind of been a challenge for them, and we have seen slightly lower volumes. As far as the year-end or later this year is concerned, it's difficult to speculate what will happen when the new machines will start up. And probably then we might see new volumes, but I think it's too early to say, and I don't want to speculate with that.
Okay. Fair enough. Just on the upturn in volumes that you've seen, I mean, are there any particular sectors that have been driving that upturn? How do you compare maybe the sort of underlying market demand trend versus maybe a bit of restocking? I mean, how do you assess that uptick between the fourth quarter and the first quarter in terms of demand?
Yeah. So far, we have seen restocking here. No doubt. That's clear. And then the activity in the North American market is a little bit better than here in the European market. But I think it's still too early, remembering also then the impact from the strikes, political strikes, and shutdowns of the mill. So it's a bit too early to say, has there really been a pickup in real demand? Hopefully, that has taken place and will take place, but at the moment, it's a bit too early to say.
Okay. And just on the second quarter, just to remind us of some of the moving parts, I mean, obviously, you're talking about higher volumes on the folding boxboard side. Clearly, white kraftliner volumes will be down because of the Kemi effect that you've said is a EUR 30 million or EUR 40 million impact. Do you have any estimate actually around the volume of white kraftliner in the quarter? And then just on some of the other moving parts, you've flagged higher maintenance. For memory, I think that was about EUR 10 million headwind, but can you just clarify that? And also, Metsä Fibre, I mean, it was a negative contribution this quarter, but I guess with the Kemi explosion, despite the higher pulp price, I'm guessing that probably gets worse.
Can you just talk us through some of those moving parts as to how we should think about the second quarter?
Yeah. If I start concerning the maintenance, so typically in Q1, it's quite a maintenance-free quarter. And then Q2, the maintenance activities will increase, and that is the case also this year. Of course, during the strikes and shutdowns, we were able to do some maintenance, but I mean, anyway, there are more plant maintenance shutdowns in Q2 than in Q1, and those will have a negative impact of EUR 10 million in Q2 compared to Q1. But then concerning Metsä Fibre.
Yeah. So as you know, we are not giving sort of profit guidance on Metsä Fibre's results. We are just commenting on the elements impacting. So average pulp prices are expected to improve clearly from the first quarter, as we have said. Obviously, the Kemi explosion impacts heavily Metsä Fibre's result on the second quarter. And our guidance on the impact of the Kemi situation includes also our share of Metsä Fibre's impact, which then totals EUR 30 million-EUR 40 million. But we are not giving sort of separate guidance on Metsä Fibre's profitability.
No worries. Thanks. I'll get back into the queue. Thank you.
The next question comes from Cole Hathorn from Jefferies. Please go ahead.
Good afternoon. Thanks for taking the question. Just on the white kraftliner market, I mean, with your volumes out of the market and we're seeing price increases in the brown grades as well as brown grade export prices into Europe going up, I'm just wondering what you're doing on the price developments in white kraftliner, because I imagine if it's a tighter market, you've got to be pushing the pricing lever, particularly given the Nordic wood costs. And then I'd just like your thoughts on the Kemi mill issues as well as the strike impacts on pulp wood. Could you give any color on the short-term impacts of the strike on pulp wood? As I know, there were logistics, rail, as well as a lot of downtime on those kind of short-term pulp wood dynamics. So just like your thoughts there. Thank you.
Okay. White kraftliner prices, we also announced a price increase here in Europe, and it quite nicely went through, but that was pretty much only for 140 grades. So having this kind of situation as we have at the moment with Kemi, so we don't see that those prices will pick up at least during the Q2. Let's see what will happen then in the H2. And then as far as the pulp wood prices are concerned, yes, there is a clear tendency that wood prices are going up. I can't say how much, but anyway, the tendency is upwards, not downwards.
Maybe just following up on the pulp wood, were there any shorter-term dynamics where just availability, logistics issues that may have impacted that further? There might be a little bit of short-term relief coming in the market. I'm just wondering if there's more than the tight supply-demand situation of the wood fiber baskets, I'm wondering if there's kind of a logistic and operational impact with the strikes that may have made it slightly worse.
Yeah. Concerning Metsä Board and Metsä Fibre, we are sure that we get wood enough, no doubt. So there won't be any shortages. But of course, I don't speculate what other competitors are doing.
Thank you.
The next question comes from Cole Hathorn from Jefferies. Please go ahead. As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Andrew Jones from UBS. Please go ahead.
Hi, gentlemen . Just on the CapEx profile, now that Kaskinen is not happening and you've got these additional investments phased in, can we talk about how the overall CapEx envelope looks over the next couple of years, this year into 2025, 2026, just so we can reframe those expectations? Thank you.
Yeah. Thank you for the question. Henri will take this.
Okay. So if we think about the elements, our sort of maintenance CapEx level continues at around EUR 50 million-EUR 60 million per annum. And then we have also stated the renewal of the ERP system, which is expected to be at least EUR 80 million, which is divided between 2024 and 2025 mainly, as we currently know, which would be around sort of EUR 40 million per year. And then, as Mika mentioned in the presentation, we have a significant amount of sort of CapEx, which are still related to the projects that ended last year for this year. And some new investments also announced, for instance, Simpele. So putting that all together amounts to around EUR 200 million for this year. We are not giving guidance still on next year, but that probably will follow then later on this year when we know exactly which projects are starting.
We announced a number of different things that we are looking into, and that will clarify then a bit later on.
Okay. That makes sense. But presumably, the trend will be down from 2024, I would guess, right?
Well, we cannot really speculate at this point. Let's see what it depends on, the projects that are decided.
Okay. That's clear. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay. Thank you, all participants, and I wish you a nice continuation for the day. See you next time. Bye-bye.