Good afternoon, everyone, and welcome to the presentation of Metsä Board's results for January-September 2024. My name is Mika Jokio, and I'm the CEO at Metsä Board. Here with me is CFO, Henri Cederholm. So let's go through the presentation first, and then take the questions. Let's start with the Q3 summary. In the paperboard business, the third quarter remained pretty similar to the previous quarter. Our paperboard volumes increased slightly, and prices remained flat. Paperboard production volumes increased by over 100,000 tons compared to Q3 last year, and by almost 60,000 tons compared to the previous quarter. Last year, volumes were curtailed by production adjustment measures and major investment shutdowns, and in Q2 this year, the production was impacted by political strikes in Finland and the gas explosion at Metsä Fibre's bioproduct mill in Kemi.
However, the past Q3 also included many planned maintenance shutdowns, impacting not only volumes, but also profitability. Delivery volumes in market pulp fell sharply, and the main contributor was weak demand in China. Metsä Board had no deliveries to China during Q3. The gas explosion at the Kemi bioproduct mill in March led to significant production and sales losses, as well as extra costs in Q2. We have estimated that the negative impact on our operating result totaled 40 million EUR, including the impact from Metsä Fibre's result share. In the Q3 operating result, we recorded 23 million EUR in insurance compensation, including the impact from Metsä Fibre's result share. Negotiations with the insurance consortium to compensate the remaining estimated financial losses are continuing. After the review period, we renewed our dividend policy.
According to the new policy, our target is to pay a dividend of at least half the result for the financial period over time, taking into account the company's future investment and development needs. There is no major change to the previous policy. Dividends will continue to be an essential element of our capital allocation. After declines in 2022 and 2023, the trend in paperboard delivery volumes has been upwards in 2024. We have witnessed moderate growth in every quarter. In the third quarter, deliveries were 14% higher than in the same period last year, and 3% compared to the previous quarter. Year to date, delivery volumes totaled over 1.1 million tons. I think this is a good achievement, given the challenges we have faced earlier this year.
Also visible in the graph, the demand growth was rapid in the first quarter and driven by restocking activities. After that, demand growth has slowed. As a result of the higher cost of living, consumers' purchasing behavior is still rather cautious, and more consumption is directed at services than products. Here is the paperboard sales split by region and by product. Folding boxboard sales have strengthened in each market area compared to last year. EMEA, especially, has performed well, despite the fact that Asian import volumes have continued to grow. In white kraftliners, deliveries have been stable. The explosion at Metsä Fibre's Kemi bioproduct mill somewhat affected our kraftliner production and deliveries. Even though we managed to start the production with dried pulp and by using alternative energy sources quite quickly after the accident.
Now, let's move on to market pulp, which has shown a lot of volatility recently. Metsä Board's year-to-date market pulp delivery volumes increased compared to the corresponding period last year. However, volumes fell sharply in Q3, largely driven by the low activity level in China. Metsä Fibre's total delivery volumes in twenty twenty-four are somewhat behind last year. In September, Metsä Fibre announced that it will adjust the production due to the market conditions. During twenty twenty-four, demand for market pulp has been at a good level in Europe, but slower in China. However, buying activity in China has picked up in September. At the same time, pulp demand in Europe has softened slightly, mainly driven by low activity in printing and writing end uses. Unlike hardwood pulp, the supply of softwood pulp has been limited for several reasons.
First, there have been a lot of planned, but also unplanned shutdowns, as well as market-related shutdowns. Earlier this year, the political strikes in Finland limited pulp production. In addition, the global logistical bottlenecks have continued throughout the year. Softwood pulp prices have risen sharply in 2024 in Europe, but has now started to decline. In China, the price changes have been more moderate, and now the key sustainability figures and the year-to-date development. Our TRIF 3.2 has shown an improvement, but has still not reached the target, which of course, is zero accidents. The share of certified wood fiber was at 92%, which is above our target of over 90%. Fossil-based CO2 emissions, Scope 1, totaled 138,000 tons. Very much in line compared to the last year's development.
Energy efficiency and water usage are moving in the right direction, but lagging behind the targets. And now, I will hand over to Henri to present the financials.
Thank you, Mika, and good afternoon. Our quarterly sales have remained fairly stable, landing at EUR 499 million in Q3. Year-to-date sales were just under EUR 1.5 billion, while in the comparison period, they were slightly above this. The positive impact from increased paperboard volumes was offset by lower prices. The operating result for January-September, EUR 73 million, was well behind the corresponding period last year, EUR 121 million. The operating margin for the review period was 4.9%. And now, let's take a closer look at the items that affected the result, starting from July-September, compared to the same quarter last year. Our paperboard deliveries increased by almost 50,000 tons and supported the operating result. Higher pulp prices had a positive overall impact on profitability, even though the cost of purchased pulp was higher.
In other variable costs, energy and chemicals became cheaper, whereas wood costs remained stable. The result share from Metsä Fibre was higher, and as already mentioned, Metsä Board's Q3 operating result includes a total of EUR 23 million in insurance compensation. This includes the impact from Metsä Fibre's result share, which accounted for almost half of the compensation. On the negative side, the main contributor was the lower folding boxboard price. Also, FX had a negative impact. Q3 maintenance costs and employee costs were higher, and finally, depreciation has increased due to major investments completed last year, then moving on to the whole review period, January-September. We have a lot of the same result elements as in the quarterly comparison. The main positives were increased delivery volumes, higher pulp prices, and lower energy and chemical costs.
On the negative side, we had lower folding boxboard prices with increased wood costs and more maintenance, and higher depreciation. The sale of unused emission allowances was 20 million EUR lower than in the previous year. Metsä Fibre's profitability was weakened by lower pulp volumes and higher wood costs, among other things. Finally, both the Kemi mill explosion and political strikes in Finland have had substantial impacts on our results. The losses caused by the explosion were partly offset by insurance claims received in Q3, although negotiations with insurance consortium are ongoing. In Q3, the comparable return on capital employed jumped to 7.3%, and for January-September, it was at 4.3%. Rolling twelve months was at 3.4%. These are still low percentages and clearly below our target of over 12%.
Capital employed at the end of the period totaled roughly EUR 2.5 billion. Our cash flow has been unsatisfactory and has declined. This year, working capital has been growing from a very low level last year-end, due to an increase in operational activity and the completion of major investment last year. In addition, dividend payments from Metsä Fibre dropped clearly EUR 10 million this year, compared to EUR 83 million last year. Combined with low profitability, this has kept operating cash flow negative for almost the whole year. The rolling 12 months operating cash flow was EUR 112 million, and free cash flow was negative EUR 25 million. Our net debt rose to roughly EUR 350 million, the highest level in the last five years.
In 2024, liquidity has decreased due to unsatisfactory cash flow and dividend payments of roughly EUR 90 million. In addition, interest-bearing debt has increased somewhat since the end of 2023. Our leverage is now at 2.0, which is still below our maximum target level of less than 2.5. That's all from the financials, so now I'll hand over back to Mika.
Thanks, Henri. So let's look at investments. Before turning on, turning to ongoing and future investments, let's recall two major investments we completed last year at Husum and Kemi. Both projects are still in their ramp-up phases. In Husum, we have increased the folding boxboard capacity by two hundred thousand tons, which we expect to be fully available on the market in twenty twenty-six. In Kemi, we increased annual kraftliner capacity by forty thousand tons, which we'll expect to be fully available on the market in twenty twenty-five. Next summer, there will be a longer shutdown at the Kemi Integrated Mill, when the new evaporator units in Metsä Fibre's bioproduct mill will be installed. During the installation, which is expected to last two months, we can utilize the same special arrangements we did this year to keep production running and ensure our customer deliveries.
As part of the EUR 110 million investment in Kemi, we bought an unbleached pulp production line from Metsä Fibre. This transaction was closed in September, and during January-September, our total investments were EUR 121 million. For the whole year, we estimate the total investments to be EUR 175 million-EUR 200 million. The estimate has increased from the previous estimate of around EUR 150 million due to the purchase of unbleached pulp production line from Metsä Fibre, and now, our ongoing and planned investments. Earlier this year, we made an investment decision to renew the paperboard machine in Simpele. This is now ongoing, with an estimated investment value of EUR 60 million. The next steps in Simpele will be the renewals of the paperboard finishing area and mechanical pulp production, as well as a new power plant.
At the Kyyjärvi board mill, we have started a program to improve the performance of the current barrier board and expand its end-use areas. In Husum, the second phase of pulp mill renewal will include a new pulp drying machine. The first phase included the new recovery boiler and a turbine completed in 2022. Finally, in Husum, we have started a program for new products on the current BM2 two wide kraftliner production line. The aim is to find innovative solutions for the growing food and food service packaging segment. Now, the near-term outlook. Overall demand for consumer products continues to be impacted by consumers' purchasing power, and their general purchasing behavior. Seasonally slower December may have some impact on demand, and we therefore expect our paperboard delivery volumes to decrease slightly from Q3, but average sales prices to remain stable.
Total costs, excluding pulp costs, are expected to increase. In particular, wood costs and fixed costs are rising. Maintenance costs will be clearly lower than in Q3, and the positive impact from this will be at least 10 million EUR. Sales prices of market pulp fell in October, so the average price in Q4 is likely to be lower than in Q3. However, demand for softwood pulp is expected to remain stable in Europe and North America, and in China, demand is normalizing after a very slow Q3. The claim settlement process regarding the explosion at Kemi Bioproduct Mill will continue. And we expect our Q4 operating result to be weaker, unfortunately, from Q3. The guidance does not take into account the insurance compensation included in the July-September operating result, nor possible insurance compensation for Q4.
To summarize, the paperboard market has picked up from last year's very low levels. However, the strengthening of overall consumer product demand has been slower than expected, as consumers' purchasing power continues to be negatively impacted by the high cost of living. Consumption has been focused more on services than on products. The trend in variable costs has been mainly downward during this year, with the exception of wood costs, which increased by 7% from the comparison period. Fixed costs have remained more stable. Our strategy is to grow in fiber-based packaging materials and to renew our industrial operations. We implement this strategy with investments which are improving our competitiveness, accelerating our target of being fully fossil-free in production, and developing future products to replace plastics. We have renewed our dividend policy to better reflect our future investment and development needs.
At the same time, dividends remain an essential part of our capital allocation, and we aim to continue to distribute dividends of at least half the result for the financial year over time. And with that, we end our presentation and are now ready for your questions. Thank you very much for your attention.
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. The next question comes from Robin Santavirta from Carnegie. Please go ahead.
Yes, good afternoon, and thank you for taking my questions. First of all, I have a question relating to the pricing of paperboards in Q3. When I do your numbers, I end up with a setup where you would have had mid-single-digit sales price declines on average in Q3 versus Q2 in your paperboard business. First of all, is that correct? And secondly, what is the reason, where have prices and why have prices declined in paperboards, and what is the outlook for Q4?
Yes, the prices, they have not declined. The kind of difference is coming from the mix, pretty much, so that is not the truth. Concerning the Q4, our estimation is that prices remain stable.
Right. So, so weaker mix in Q3 versus Q2-
Yes.
What should we expect going into Q4 in terms of mix? Is it similar to Q3, or is it better or worse?
Similar to Q3, pretty much.
All right. The second question I have is related to capacity utilization. You have expanded capacity in Husum, you have expanded capacity in Kemi as well, in paperboards. Deliveries are still. Market demand is quite soft. What is the current capacity utilization in paperboards, and how do you plan to manage it in Q4 and in the winter? It seems EBITDA in the paperboard business is coming quite close to break even. Do you plan to curtail production due to market reasons or what is the outlook in terms of production?
Okay. The capacity utilization rate at the mills that you mentioned, I mean, Husum board machine number one, and then, I mean, the folding boxboard line and then the Kemi mill. They are running full because they are in the ramp-up phase. Of course, they are not having the full capacity yet, but as far as the operating rate as such is concerned, they are running pretty full. But then the other mills, the situation is worse. During the first quarter, we were very close to kind of full capacity utilization, as you may remember. But then Q2 and Q3, then the order inflow got weaker, and for that reason, we have taken already downtime, so curtail production, and our...
We will do so also during Q4 if the order inflow remains weak. So we take downtime, and possible also is that we have temporary layoffs. So we have negotiated this, so it's possible to have these layoffs still during Q4. But that is pretty much the situation. So
Yeah. I understand.
Yeah, Husum and Kemi, they are speeding up, and then the other mills, other production lines, they are taking downtime.
Yep. Yeah. And if I may, our last question is related to pricing, again, related to paperboards. I read that one of your continental European competitor, the largest one, said last quarter that there's essentially a price war when it comes to consumer board in Europe at the moment, and essentially somebody needs to shut production in order with the current demand situation to get prices up. Would you subscribe to that kind of sort of comment that it's a bit of a price war set up in virgin fiber consumer boards, or is that sort of something you don't see or-
Mm
Or believe simply it's a soft market?
Yeah, I wouldn't say so. At least we are not in war with anybody. We said that the prices will be... our prices will be stable during Q3 and also then same statement for Q4. So I don't kind of underline that statement.
I understand. Thank you very much, Mika. Thanks.
The next question comes from Andrew Jones from UBS . Please go ahead.
Hi, Jones. Bit of a follow-up to the last question about what's needed to actually stabilize the market. I mean, this situation clearly isn't sustainable. We, you know, thought we were on a bit of a recovery track earlier in the year, now we're sort of seeing that go the other way. Clearly, capacity needs to come out in this market, given how low operating rates are. And looking at the RISI cost curve, it appears that you're generally you have a number of assets close to the top end of that mill, including like Tako, and Äänekoski, and I think Kyro as well. They're all above the eightieth percentile according to that. Now, first of all, do you think that's accurate?
And secondly, you know, and if it's not a lot, you know, a larger player like yourselves taking out capacity, like, how can you rely on anyone else to do so? I mean, clearly, something has to change. I mean, are you cognizant of that, and do you think that, you know, you would have to be the player to take that action?
Yeah, you're right that we have curtailed production capacity, and if situation continues to be as today or during Q3, we will continue to do so at the mills. Not necessarily in Husum or Kemi, but other mills in Finland, and at the moment, of course, we don't have any plans to kind of close down any production lines. We take these temporary layoffs knowing that the situation at the market is not normal. I mean, the purchasing power of the consumers is still weak or it's uncertain. People are not using their kind of money for products as much as earlier. They are using it for services and so on.
That probably will change when the purchasing power is getting better, remains to be seen. Then, of course, the Chinese are still quite strongly in, for example, in Turkey, in Middle East, and that kind of markets, and when then the situation in China is getting better, I mean, the purchasing power of the Chinese people is getting better and the economy is getting better in China, that probably will change the situation. But at the moment, we don't have any plans to kind of close any capacity.
Mm-hmm. Okay. I mean, I just observing those trends you've talked about, I mean, clearly-
Mm
We could do with improvement in consumer demand, but the structural issues and higher wood costs, I don't think are going away. I think also, you know, in looking for an improvement in China might be optimistic, given we might have a Trump presidency coming down the road to whack tariffs on the country. I mean, those large Chinese mills are still ramping and, you know, we should be seeing more capacity going into next year.
I mean, it doesn't feel like any of this is changing. So I mean, someone's got to close something, and again, you know, you've got a number of mills there, and taking out some fixed cost, I would imagine that, you know, probably improves your margins, and I guess would also help the shape of the industry. But I don't know. I think, yeah, I guess there's no question there, but I think it's food for thought at least. Just one follow-up on the financials, just for 4Q, any strong.
Oh, can you just talk us through the moving parts in terms of the delta for the FX move, for the additional maintenance, for, you know, any sort of, I mean, you said there was no real mix effect, but can you just put some numbers around some of those factors you called out?
Okay, Henri will take this.
Yeah. So what we commented on, on the paperboard delivery volumes, they are expected to decrease slightly on a seasonal basis compared to the last quarter. And as Mika already referred to, the prices are expected to remain stable. Costs are expected to increase somewhat mainly based on wood and fixed cost increase. There's sort of the annual maintenance shutdowns at the mills are less than in the previous quarter. And then of course the market pulp situation. Sales prices dropped in October, and we expect that the demand will stay stable in Europe and North America. But then in China, the kind of low demand level has started to normalize at end of Q3. So that remains to be seen.
But I think those are the main elements. The effect, FX, I forgot to mention, that will be slightly negative.
Okay. Thank you.
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.
Yeah, I'll go up one if no one else is asking. On the CapEx for next year, any changes to your plans in light of declining profitability? Could we see a lower CapEx spend in 2025?
We are always sort of critical in all our CapEx decisions. Obviously, no sort of material changes. We have certain plans in place that we are looking at, but obviously we have no sort of major projects decided at this stage. Of course, next year CapEx level, unless there will be new decisions, it looks like it could stay lower than this year anyhow. That, of course, remains subject to the new project decisions.
Okay, thank you.
The next question comes from Robin Santavirta from Carnegie. Please go ahead.
Yes, thanks. It's Robin again. Just a quick one related to the insurance repayment you received now in Q3. Do you mind splitting it out, how much was, you know, Metsä Board, and how much was Metsä Fibre? I'm mindful it might be in the report, but there's a large number of reports out today, so that split would be helpful. And then, what is the outlook for Q4 in terms of insurance payment? I do understand that you don't have the exact number, or what should we expect, more repayment to be booked in Q4?
Okay, Henri will take this also.
Yeah. Yeah, Robin, it. The split is about fifty-fifty, you can assume, between Metsä Board and Metsä Fibre. And, unfortunately, we cannot indicate anything relating to timing of the remaining claims. What we can say is that, while you remember but that the damage is totaled about 40 million EUR, and now we have received 23 million EUR, so you get a ballpark of what we are talking about. Also remembering that we have a certain own risk period from the total damages, so it's fair to assume that more than half has been now already received. But what comes to the remaining part and the timing of that, unfortunately, we don't have that information, and don't want to really speculate on the timing.
All right. And, Henri, could you comment on this next year, the two-month production curtailment when you replace the damaged part? I assume that will also be repaid by insurance. Is that then expected that we should expect to be paid next year, I would assume?
Yes, our understanding is that also that period will be covered by the business interruption insurance, so obviously then the damages will remain to be seen at that time, so that we cannot anticipate, but our expectation is that the insurance will cover that period as well.
All right, thanks. And if I may, a final one, perhaps a bit of a tricky one, related to pulp demand and Europe? Could we see prices starting to increase already now in softwood pulp in China? And, what do you experience in Europe? Is it still price pressure that you see here?
Yeah, probably we have seen the kind of bottom in China. We haven't seen any clear increase, but I mean, they are not declining, and in Europe, they still have declined, as you probably know, and let's see then the price difference of our pulp or our type of pulp, comparing China and Europe, there is still a difference, and that might create some pressure on European prices. Remains to be seen, but in China, they are not declining anymore.
And Mika, can I ask this: if you compare your softwood pulp platform, which at the whole is quite... I mean, you have a few very efficient pulp mills, I mean, of Metsä Fibre. Has others competitive on a global scale in softwood pulp? Is there sort of places in the world where they produce clearly lower cost softwood pulp, and where would that then be?
I think as far as the efficiency is concerned, Hanko and Kemi, they are the best ones.
But also when it comes to wood raw material cost.
Okay, that's another story, of course. Then you need to check what is the pulpwood price in other areas. But as far as the production efficiency is concerned, no doubt, these two mills are really top.
For sure. I understand. Thank you.
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, everybody, for active participation, and I wish you a good continuation for the day. Thank you.