Afternoon, and welcome to the presentation of Metsä Board's January-September results. My name is Mika Joukio, and I'm the CEO of Metsä Board. With me, I have CFO Henri Sederholm and Head of IR Katri Sundström. Let's first go through the presentation, and we will then open the lines for your questions. Let's start by looking at Q3 in brief. Once again, our comparable operating result was record high. Very, very good. Exceeded EUR 150 million. This was over 23% of sales. Profitability was mainly boosted by paperboard prices, supported by strong U.S. dollar. We also did well in production, especially in folding boxboard, the production volumes were high despite the several plant maintenance shutdowns in Finnish mills. The year-to-date total production volume for paperboards was at a record high level of 1.448 million tons.
Our paperboard delivery volumes decreased slightly compared to the previous quarter, mainly in white kraftliners. Cost inflation continued to be rapid. Energy and chemical costs rose even faster than we expected. Russia's brutal war in Ukraine did not significantly affect our business. We have reallocated all Russian volumes to the new markets, and the wood and energy supply to the mills have operated without disruption. The big news of the quarter was that we have started the pre-engineering for the new folding boxboard mill in Kaskinen, Finland. However, the investment decision on that project can be expected in 2024 at the earliest. All in all, a very, very strong quarter in terms of performance and operational efficiency. Total delivery volumes in Q3 fell slightly compared to the previous quarter. Volumes in folding boxboard remained stable but declined in white kraftliners.
The first half of the year was strong in white kraftliner deliveries, and this, combined with the slowdown in consumer spending, has elevated the inventory levels of our customers. Despite the slowdown in demand, the price level of kraftliners has remained stable or even risen slightly. Customers' concerns about availability have increased as the energy crisis in Europe has got worse. Here is the sales split by region. Overall, volumes were lower than in 2021, when they were very strong. At the beginning of the year, we started to increase our inventories in folding boxboard to prepare for the investment shutdown in Husum next autumn. Now, market pulp. So far, demand for softwood market pulp has remained stable in Europe, even though the soaring energy costs have increased the downtime in tissue, graphic, and specialty paper production.
In China, demand has also been stable compared to supply, which has remained limited due to the bottlenecks in logistics as well as unplanned and planned production shutdowns. In January-September, Metsä Board's delivery volumes in market pulp have increased, whereas our associated company Metsä Fibre's volumes have remained stable. The price level was higher than in the same period last year. Now I'll hand over to Henri, who will go through the financials.
Thank you, Mika, and good afternoon. Let's start from the top line. Despite the drop in delivery volumes, both in paperboards and market pulp, our Q3 sales were nearly at the same level as in Q2 and were clearly higher than in the same period last year. Our year-to-date sales were almost EUR 1.9 billion, beating last year's corresponding period by more than EUR 300 million, or 20%. As already mentioned, the comparable operating result in Q3 was record high at EUR 153 million, or 23.6% of sales. For January-September, the operating result was EUR 420 million, already exceeding the full year result in 2021, which totaled EUR 387 million. Now, a closer look at the items that impacted our result.
We'll start with the third quarter development compared to the corresponding quarter last year. The main positive item was higher sales prices for paperboards. This was supported by a positive foreign exchange impact and especially the strengthening of the U.S. dollar. Market pulp prices also increased, resulting in a higher result share from Metsä Fibre.
The main burden derived from rapid cost inflation, especially in energy, chemicals, and logistics. Wood costs have also started to rise, but not to the same extent as other variable costs. Pretty much the same elements, both on the positive and negative sides, impacted the January-September results compared to the corresponding period last year. All in all, higher sales prices for paperboards and market pulp offset the negative impacts from rapidly increased costs.
Not surprisingly, the positive development was also reflected in the comparable return on capital employed, which reached 24.7% in the third quarter and 21.2% for the rolling twelve months. Now the cash flow. In the previous quarter, operating cash flow was already impacted by high working capital. The increase was derived from higher paperboard inventories, rise in inventory value due to the cost inflation, and the increase in trade receivables resulting from higher prices for finished products. The same working capital elements impacted the third quarter cash flow as well, although at a slightly moderate pace.
The operating cash flow in the third quarter was at EUR 66 million, and free cash flow after the investment was EUR 19 million. Operating cash flow for the last twelve months amounted to EUR 282 million. The balance sheet remained strong, with net debt at EUR 91 million and leverage at 0.2. Now, back to Mika, who will tell us about investments.
Okay, thanks Henri. Now an update on ongoing investments. In Husum, we are expecting the new recovery boiler and turbine to start up in November, so pretty soon. Knowing the energy situation in Europe, it's good timing because it will increase our bioenergy production and increase energy self-sufficiency. With this, our total electricity self-sufficiency will increase from 60%-75%. Further, the self-sufficiency will increase to 85% when Olkiluoto 3 will start, hopefully during December.
The overall investment value has increased slightly from our earlier estimate, totaling now EUR 380 million. The capacity expansions of folding boxboard in Husum and white kraftliners in Kemi are proceeding as planned, and we expect them to start up in second half of next year. During Q3, we announced that we had started the pre-engineering for the new folding boxboard mill in Kaskinen.
The planning is based on an annual capacity of 800,000 tons, 100% fossil-free production, and world-class resource and operational efficiency. This is pretty much everything we can say about this project at this stage. More information will be provided when and if the investment decision will be made in 2024 at the earliest. The near-term outlook.
Paperboard delivery volumes are expected to remain stable. However, it's good to remember that the seasonally weaker December may impact the order activity. Paperboard prices are expected to increase somewhat. The strengthening U.S. dollar will further support this. Demand for softwood market pulp is expected to be stable with limited supply. Cost inflation shows no significant signs of slowing down, and the overall weakening of global economy, combined with the erosion of consumer purchasing power, creates, of course, uncertainty.
Higher costs, especially in energy and chemicals, will burden profitability. In addition, maintenance costs will be higher in Q4 than in Q3. With these assumptions, we expect our operating result to weaken in Q4 compared to Q3. Still, I would like to remind that Q3 was best ever practically, and Q4 will be excellent also. Then to summarize. Once again, we had a strong quarter thanks to our successful sales and efficient production.
With this, we managed to offset the negative impacts from rapid cost inflation. We expect the solid demand for premium paperboards to continue even though there are increased uncertainties in the operating environment. The slowdown in consumer spending, together with elevated inventory levels of our customers, could have a negative impact on demand. However, at the same time, there are concerns about the availability if the energy crisis in Europe escalates.
Despite the current challenges, our strategic focus is on the future growth. According to our strategy, we want to grow in fiber-based packaging materials, and for that we have started a pre-engineering to increase our folding boxboard capacity. Before we open the lines for questions, I'd like to remind you of our approaching Capital Markets Day on November tenth.
The day's agenda includes an update on our business and operating environment, as well as our strategy to grow in fiber-based packaging materials. It's possible to attend the event either virtually or on-site in Helsinki. More information on this and the registration you will find on our website and investors pages. With that, we end our presentation and are now ready for your questions. Thank you very much, and please, questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. If you are using speakerphone, please make sure your mute function is turned off. Voice prompt on phone line will indicate when your line is open. Please state your name before your question. The next question comes from Robin Santavirta from Carnegie. Please go ahead.
Yes, good afternoon. This is Robin Santavirta from Carnegie. I have a few questions. If I start with the question related to paperboards. I was wondering, what are you seeing when it comes to current order intake in Europe and also in North America? How would you sort of describe the current level if you compare it to the summer or the spring levels? Is there a difference between Europe and North American activity? That's the first question, please.
Mika Joukio here. Yes, the order inflow now is slightly lower than it used to be in spring or summertime. If and when comparing then the Americas and Europe, the activity level in Americas, especially North America, is higher at the moment than here in Europe.
Is the lower activity level because of high inventories, or is it because the end demand of your customer has weakened? What is your analysis?
Our analysis clearly is that the main reason is high inventory levels throughout the whole supply chain.
Right. Thanks. The second question I have related to pulp, clearly, very strong earnings in Q3 when it comes to your pulp business. What should we expect going forward? Maybe if I phrase the question like this: Have you already agreed on price declines in either Europe or China? Or should we expect prices to remain at the Q3 level in Q4?
We need to remember that the pulp price level has been very, very high, almost historical high, but anyway, very, very high. In Europe, we have seen maybe EUR 10-30 kind of adjustments and pretty much similar level in China. Still the price level is very good. Also then the demand is. We expect that the Q4 demand will be quite good.
All right. Thank you. Then the final question I have is related to cost, and particularly related to your wood raw material, pulpwood cost. What you call it now, as I understand, some increases for the end of the year, but I guess it was quite stable in Q3. You're essentially seeing quite limited amounts of cost inflation from your key cost item, pulpwood. Now, isn't the market quite tight now in the Baltic Sea region? How do you see sort of the winter, A, when it comes to availability, if we have a wet start to the winter, or B, when it comes to the sort of price level and I guess that then comes to as a cost with the lag going into 2023.
What should we expect for the winter and the spring?
If I take first the wood procurement situation, of course, when we discontinue to take wood from Russia, which was altogether 9% of our overall consumption or need, and then we don't at the moment buy from Baltic countries due to the price levels. Our procurement is from Finland and Sweden. We have increased our activities, and I'm convinced that we are able to or Metsä Group is able to supply all wood we need to our mills. I'm confident. As far as the price or cost inflation is concerned, Henri will tell you more detail.
Yeah, sure. I would still say that the cost inflation of wood is clearly lower than the cost inflation of our other key raw materials and cost elements. It is clearly started picking up, as we have mentioned, on the second half, but still we see that the overall inflation for this year will be lower than the other cost elements.
How should we look into 2023 then? I guess there's a bit of a lag before sort of the higher prices come through the P&L. Is it something sort of working? I can see statistics of quite significant increases in both Sweden and Finland at the moment, and the direction in both countries are actually up, in some cases steeply up. Shouldn't this be visible in your P&L sort of with a lag of some time?
That's right. There is some time lag, but we are not yet giving any guidance on sort of next year's cost level, as there are so many uncertainties at the moment.
All right. I understand. Thank you very much, Mika and Henri.
The next question comes from Johannes Grunselius from DNB. Please go ahead.
Hello everyone, this is Johannes Grunselius with DNB. I have two questions. The first one is on FX. You obviously have exposure to the dollar, Swedish krona, and that provides you a very nice tailwind, which we saw in the third quarter. Could you help us a little bit. You know, give some color on the magnitude on the tailwind, let's say for 2023. If currency rate stays where they are, what kind of magnitude should we expect for that next year, please?
Yeah. You know, we are hedging the currencies for 6-8 months. That's about the time lag that it takes before the kind of current spot rates hit our P&L in full scale. We are gradually going to the levels that we are seeing today. The first half of next year will already be clearly better rates than the second half of this year and then further improve for the second half of next year, considering that the spot rate would stay as it is today. Of course things can change. As we see now, there will be definitely a gradual improvement when we start next year.
Sure. Understand you are exposed both to the spot and then you have your hedging level, but the hedging level are turning gradually better, right? That's why I'm asking you on some kind of color or possible, you know, range on the tailwind, but maybe you don't wanna disclose that one.
We are not going into the details at this stage. We'd rather sort of comment closer to the time. We can say only generally that it will be improving.
Yes, yes. Fair enough. My other question is on the expansion, when it comes to new folding boxboard volume, Husum. You provide some indication of the annual effect, and that's highly appreciated. Should we anticipate some sort of significant effect second half of next year already or is that more coming 2024? That's my question.
Yeah. Concerning this Husum investment, folding boxboard investment, the startup will be sometime, I mean, in September, October next year. The standstill will be at the moment we estimate like 45 days, and then after that, the startup period. Of course the volumes won't increase next year. Then it's understandable that we are building the stocks inventories at the moment. Then as far as the
Yeah.
2024 is concerned, of course depends on the startup curve. Our
Yeah.
Our estimation is that the rebuilt line will reach the target capacity by end of 2025 so that the full capacity, the 600,000 tons could be reached then latest, 2026 totally.
Okay, that's helpful. Since you have built inventories now, you will take down operations in Husum to prepare for the expansion. Will it actually mean a sort of a technical short-term effect which is negative on the PNL? How should we think about that in the third quarter?
Okay.
Thank you.
Henri will evaluate that. Yeah. There will be an investment shutdown, which will be sort of more than a month next year. That will have an impact, but we will give more guidance on that later next year. That will definitely.
Okay.
Have an impact.
Okay.
Yeah.
Maybe that could be booked technically as a CapEx or is it more of a P&L effect as you see it now?
Well, we don't have the details for you at this stage, but of course.
All right.
We are trying to cover also the kind of sales volumes from the inventories for that period. Surely there will be also some cost elements involved.
Okay. Okay. Thank you so much.
Yep.
The next question comes from participant from UBS. Please go ahead.
Hi gents. Couple of questions from me. First of all, just for a bit more precise guidance on Q4, you've talked about flat paperboard volumes. Can you give us some indication as to, you know, what the market pulp volume's likely to be like in Metsä Board and in Metsä Fibre? That's the first one. Secondly, just, you know, I don't know if you can guide that precisely, but, your costs were pretty stable in Metsä Fibre in this quarter. Obviously, that wood cost is coming through on a lag. But could you kind of maybe give us some form of sort of range of quarter-on-quarter cost inflation you might be expecting in the fourth quarter for both the board business and Metsä Fibre? Just finally on the FBB mill that you're planning, the 800,000 tons.
I'm just curious about, you know, where you expect to place those volumes in the long term because it seems as though, you know, the market probably isn't growing enough to accommodate both that and the project from Stora Enso, in addition to quite a lot of new capacity coming out of Asia in the near term. Where, where do you see that material going, and what gives you confidence that the market will be large enough to take it? Thank you.
Okay. First of all, the Q4 volumes. As we said, paperboard volumes, our estimation is that they will be flat or stable comparing Q3.
Of course, there is always the kind of slowdown in December, but still our estimation is that comparing Q3, the volumes will be flat. As far as pulp is concerned, the last quarter normally is quite strong in pulp business and especially December and remains to be seen. Of course, there are certain uncertainties, but we are positive as far as pulp volume development, both here in Europe as well as in China are concerned. If I jump to this, before Henri will tell you more about this cost inflation, but then Kaskinen volumes. Of course the sales plan is part of the planning. Of course, we have had already some plans before this announcement.
Our main market is Europe and North America, and our intention is to continue to grow there also then based on the Kaskinen volumes. We need to remember that if and when everything I mean, if everything goes very very positive, then the earliest possible startup actually would be 2026, which would mean if and when we could be able to make decision then next year. The project period is at least two years. Then we have the startup period. When the kind of remarkable and significant volumes are at the marketplace, it can be easily 2027, so it remains to be seen. Our target is to...
Our strategic goal is to grow in fiber-based fiber packaging materials in long term also. This is quite long-term play, so to say. The inflation. Henri.
Yeah. The cost inflation.
Sorry.
Yeah. No, I was just gonna say, I mean, what's your internal assumption for I mean, A, you know, how big is the European FBB market now? How much growth do you expect over the next sort of four years? Because as I say, it's a large amount of capacity between yourselves and Stora Enso, clearly.
Yeah. We are not looking only folding boxboard market. Of course, there are white-lined chipboard, there are SBS, and we compete, so to say, also against them, and not only against folding boxboard. Folding boxboard is very, very competitive grade comparing white-lined chipboard or SBS as far as the lightweighting and kind of resource efficiency is concerned. We look the bigger picture than only folding boxboard, both here in Europe as well as in North America.
Okay. That, that's fair enough. Thank you.
Inflation, please.
The cost inflation Q4 against Q3 will be at least as rapid as Q3 against Q2. That's what we can say about it. We are not sort of quantifying the exact impacts, but we can say that it's at least as rapid.
Yeah. Okay, great. That's clear. Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
Okay. No, no further questions. Thank you very much for your. Sorry, there is one.
Please state your name and company. Please go ahead.
Thank you. It's Linus Larsson with SEB. Just maybe on the Husum recovery boiler startup, and if you could guide us as to what the impact might be on either in the fourth quarter, please.
Yeah. Now it seems that the startup will be in November, anyway in the last quarter. Our plan is that there won't be any kind of remarkable shutdown. It's pretty much like plug and play when we are changing from the oil boilers to new boiler. Not remarkable kind of profit and loss impact.
Great. Thanks. That's reassuring. On the third quarter, the minority charge was somewhat bigger than in previous quarters. I just wanted to double-check if there were any one-off or funnies, or if that's just purely on the Husum partner results.
Yes, purely the latter.
Thanks for that clarification. If I may just go back to the previous discussion on the potential Kaskinen investment. It's like you said, it's a big potential machine. I'm just a bit curious, not necessarily how you place those volumes in the market, but more like what the concept would be, what kind of. I mean, the way you would operate that machine would presumably be quite different from other folding boxboard machines in your company. I don't know, it's early days, but what how are you thinking around that to make it cost efficient?
Mika Joukio here. That is one element in this pre-planning all in all how we operate the mill. Of course, we have some ideas already. Intention and target clearly is that it will be world-class efficiency and resource efficiency as well as the production and operating efficiency. That is the kind of main target and main thing in our pre-planning. It was not by accident that we decided to have that mill in the Kaskinen. We have excellent area, excellent site there. It's by the sea, it's very close to the harbor, et cetera. There are all the elements in order to achieve this world-class resource efficiency.
As said, as you mentioned also, it's a bit too early to comment more because planning is ongoing and just actually started.
Yeah. No, I'm sure we'll come back to that. In this context, when it comes to financing the CapEx, anything you can say around that? I mean, by that stage, your pulp or your stake in Metsä Fibre will imply a lot more pulp capacity with also Kemi up and running. Is that part of the equation that you may sell down in Metsä Fibre? Or do you see your pulp position there as important for, I don't know, even more growth in paperboard going forward or something else?
When we have the more precise figure, I mean, the CapEx figure, then of course one part of the pre-planning is to also plan the financing. Then there are elements as you mentioned also which can be thought, but at this point it's a bit too early to say because we don't know the exact sum of money and we have also other investments. For example, our maintenance investment level is at the level of EUR 50 million-EUR 60 million a year that need to be taken into account and also other possible investments. We are in the planning phase, but obviously and clearly financing is one element, no doubt.
Thank you.
The next question comes from Robin Santavirta from Carnegie. Please go ahead. Robin Santavirta, Carnegie, your line is now unmuted. Please go ahead.
Thank you very much. Two questions to you, if I may. First one is on the CapEx, you call it EUR 300 million this year. That's useful information. How should we look upon 2023 CapEx? Is it the same range, a bit lower or any kind of, sort of, comments on that would be appreciated.
Henri will take this.
Yeah. It will be in the same region, slightly lower is likely outcome.
All right. Thank you. Then if I just can come back to this, Husum expansion, that you have next year. Clearly sort of that will be a quite nice earnings driver for you, then in 2024 and 2025. Just thinking about the stop then, 45 days is a long time. I guess Husum generates more than half of Metsä Board's earnings. And if that is at all offline 45 days, is it the whole complex, also the pulp production? Or can you produce pulp and dry it and sell it to the market? Or is it all of Husum sort of out of play for 45 days?
If so, aren't we talking about tens and tens of EUR millions in earnings impact then sure temporarily but still then in next year's Q3?
Of course, Board Machine number 2 can operate normally during the shutdown, and pulp mill can operate almost normally. We have the pulp drying machines, they are in operation and then BM 2. But as you probably remember, our pulp production capacity is such that we need to have everything up and running.
Yes
BM 1, BM 2 and drying machines in order to run full at the pulp mill. We need to curtail a little bit then this pulp production during the shutdown. Drying machines and BM 2, they are running full.
Okay. I understand. Not all of the complex. Any kind of guidance for that sort of before the event is always useful. There's obviously time to that.
No.
That's all from me. Thank you.
Yeah. Okay. No, no kind of estimation at this point.
No, no. Yeah.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from participant from UBS. Please go ahead.
Okay. I think.
Hi. Given one or two more questions, I want to just ask about these investments in FBB in Asia. I believe, you know, yourselves and, you know, Klabin have been a bit more, sort of, what's the word? Not too concerned about that volume ending up in your markets. Given the size of those investments in China, I think there's, like, over 3 million tons of FBB coming through in the next year. You know, I mean, can that be absorbed in China or is it, you know, are you likely to see those volumes showing up in Europe or North America?
You know, will customers be willing to risk taking that new product or, you know, is it, you know, do your existing customer relationships mean that, you know, that sort of switch is unlikely? Like, how do you see the impact of those volumes on your markets?
During the past, let's say, 20 years, the Chinese producers, they have been here in Europe every now and then they are going back to Asia, depending on the kind of local demand. You are right in saying that there will be overcapacity. There is already overcapacity now in China compared to the kind of local demand. At the moment, they are not here, probably due to the container prices. Historically, they've been coming and going, mainly in the eastern part of Europe, Turkey, and so. As far as the U.S. is concerned, they are mainly in the West Coast, not that much in the East Coast where we are active.
We don't see that even though it's, of course, big volume that they are building there, but we don't see that as a kind of big risk for our plans and operations.
Do you see the quality being vastly different from what's on the market from yourselves and your competitor in Europe and North America? Or do you see it being fairly substitutable as a product with-
Yeah, of course.
With your own?
I wouldn't like to kind of evaluate the quality level of the competitors. What I can say only is that our quality is best in class in folding boxboard as well as then in coated white kraftliner, and that we have noticed when we have made comparisons. Of course, we follow the quality of the competitors very carefully, but maybe you better ask some customers or converters about the quality and not us as a competitor.
Yeah. Yeah, true. I guess there's also, like, a large, I guess cost differential as well in terms of, you know, they're importing a lot of their raw materials and, you know, presumably at a large cost disadvantage. I mean, do you have any sort of way of quantifying that, or is there any sort of estimate that you would have in terms of what the sort of relative cash cost of a Chinese producer would be compared to yourselves?
I don't have the figures for you. We prefer to play our own game. Of course, we look around, but we concentrate on our own ball and try to get that ball into the goal. That's our philosophy.
Yeah. Yeah. No, fair enough. Yeah. Well, thanks a lot. Cheers.
There are no more questions at this time, so I hand the conference back to the speakers.
Okay. Thank you everybody for very active participation. Good questions, and hopefully you got some good answers also. Thank you, and I wish you a good continuation for the day and the week. Thanks. Bye-bye.