Good afternoon, everyone, and welcome to this conference call and webcast presentation of Metsä Board's Q4 and full-year results of 2019. My name is Mika Joukio, and I'm the CEO of Metsä Board, and together here with me, I have our CFO, Jussi Noponen, and Head of Investor Relations, Katri Sundström, so let's start with the main events in the fourth quarter. Our operating cash flow was strong, roughly EUR 90 million, supported by a lower level of working capital. As always, seasonality had a small negative impact on the paperboard delivery volumes. In Europe, market prices were some 10% lower compared to the previous quarter. However, the box demand, especially in China, was strong, which was reflected in higher delivery volumes. The price level in China remained stable. Our profitability was supported by less maintenance and lower production costs compared to Q3.
According to our announcement on the 30th of October, we started our first investments to the renewal of the Husum pulp mill. Let's have a closer look at that project later on this presentation. And then, our board of directors proposes a distribution of EUR 0.25 per share to be paid for the year 2019. Before moving on to the results, I wanted to highlight our commitments in sustainability and actions to mitigate climate change. We have set a very ambitious target for ourselves. By 2030, our CO2 emissions have to be zero, meaning that all our mills will be fossil-free by then. In order to reach that target, we have identified the investments and other actions needed in our mills, both in Finland and Sweden. In 2019, the share of fossil-free energy out of all the energy we used was 83%.
Today, just a while ago, we announced that our emissions reduction targets have been approved by the Science Based Targets initiative. Our targets meet the most ambitious goals of the Paris Agreement and are in line with reductions required to limit global warming to 1.5 degrees Celsius. A few other sustainability highlights from 2019. In addition to our new sustainability targets launched, we also received a lot of external recognition for our actions in this field. Sustainability is strongly integrated into our research and development work. In 2019, we improved our folding boxboard portfolio, enabling brand owners to lightweight their packaging and thus reducing their carbon footprint. In September, we introduced our new plastic-free paperboard with a medium barrier against grease and moisture for food and food service packaging end uses.
In the use of processed water, we achieved a remarkable decrease of 11% compared to 2018. Our energy consumption grew slightly compared to last year or previous year. Then, the paperboard deliveries. The fourth quarter shows the impact of seasonality. That's business as usual for us. However, if we compare Q4 to the corresponding period last year, we saw a 3% growth. For the full year, the delivery volumes declined by 2%. The drop was mainly in white kraftliners. Then, a closer look at sales development by market area, starting with our main market area, EMEA. In folding boxboard, we saw stable demand throughout the year and improved prices compared to 2018. In white kraftliners, the soft market situation that started in the second half of 2018 continued until the second quarter this year. Sorry, last year, 2019. After that, demand has improved.
As seen in the graph, our volumes in white kraftliners were clearly lower in the EMEA region in 2019. However, we managed to keep the price level, which even improved slightly from 2018 levels. In Americas, our total paperboard delivery volumes were fairly stable. A small decrease in folding boxboard and an increase in white kraftliners. Market price levels for both grades were stable, but thanks to our own actions, mainly in the sales mix, the average price in folding boxboard improved clearly. In the Asia-Pacific region, somewhat softer market situation had an impact on our sales volumes. Sales and operating result. Successful price increases, especially in folding boxboard, kept 2019 sales almost at last year's level. Profitability was burdened mainly due to decline in market pulp prices.
The negative impact that pulp had on the result was only partly offset by lower pulp costs in the paperboard business. Total production costs of paperboard and pulp grew from the previous year. Wood costs did not accelerate as fast as they did in 2018, but remained on a higher level, especially in the first half of the year. FX had a positive impact on our results, EUR 48 million year on year. The fourth quarter operating result, EUR 39 million, was almost at the same level as in the third quarter. Profitability was improved by less maintenance, slightly lower wood costs, and the sales of emission rights. Negative impacts were caused by lower paperboard delivery volumes and weakened market pulp prices. Our long-term financial targets aim for profitability and strong balance sheet.
In 2019, our comparable return on capital employed was 10.4%, a little lower than our target level of 12%. The balance sheet remained strong, leverage being at 1.1 times at the year-end. The board's proposal of a EUR 0.24 distribution for 2019 represents 59% of our net result. In Europe, the market price of long fiber pulp decreased by 16% compared to the previous year, and in China by 28%. Regardless of the sharp price decline, pulp demand, especially in China, remained strong throughout the year. In Europe, demand weakened and was still a bit sluggish at the end of the year. Global pulp stock levels peaked in the summer but have clearly declined towards the end of the year. Chinese prices showed signs of improvement in the early weeks of 2020, but right now the Coronavirus outbreak is causing uncertainty.
Our total investments in 2019 were EUR 99 million. Out of these, roughly 60% were investments in maintenance and 40% investments in development. The main items in development investments were the new sheeting line in Äänekoski, EUR 11 million, and first Capex payments to the Husum pulp mill renewal, EUR 21 million. 2020 investments depend on the timing of the environmental permit process related to Husum. Here is the development of cash flow, which clearly improved in the fourth quarter thanks to the lower working capital. The full year's operating cash flow was roughly EUR 200 million, some EUR 50 million higher than in 2018. During the next two years, free cash flow will be impacted by Capex payments to the Husum pulp mill renewal. And speaking of which, let's have a closer look at that project now. First, an overview of the renewal, which consists of two phases.
The first phase of the investment has started, and it includes installation of a new recovery boiler and turbine in the mill. However, we are still waiting for a decision from the Swedish authorities regarding the environmental permit. Once we receive that, which we estimate will happen during the second quarter this year, we will make the final investment decisions. At the end of next year, we expect to have the new recovery boiler and turbine in operation. The second phase of the renewal includes the building of a new fiber line in the mill, and that will take place sometime during this decade. The whole renewal will create a solid foundation for increasing our paperboard capacity in the Husum integrated mill in the future. In addition, it will secure cost-efficient pulp and energy production and enable us to reach our ambitious sustainability targets, which I went through earlier.
And then the renewal figures. The full investment value of this first phase is EUR 320 million, divided over the years 2019 to 2022. The largest payments will take place this year and 2021. We have not specified the investment value for the second phase, but it will be roughly at the level of the first phase. We estimate that after the first phase, annual cash flow improvements will be approximately EUR 35 million, of which EUR 30 million is EBITDA improvement and EUR 5 million lower CapEx. Increase in financing costs will be minimal. And then, how do we see the first quarter development? The Paper Workers' Union strike in Finland that lasted for over two weeks will obviously have negative impacts on our business. We estimate that it will burden our operating result by roughly EUR 20 million, affecting mainly the first quarter.
The rest of the impacts will be evident mainly in the second quarter. The strike affected negatively also on our paperboard delivery volumes, which we now estimate to be flat compared to the fourth quarter. Without the strike, they would have increased, then the overall market situation. We see stable price levels for both folding boxboard and white kraftliners, and it's not ruled out that the strike will even tighten the market situation. In pulp, we already started to see signs of improving price levels in the beginning of the year, but now, the coronavirus is causing uncertainty, especially in China, and as always, Q1, we'll have no major plant maintenance shutdowns, which will support profitability. Also, the production costs we estimate to remain stable. However, the mild winter, if it continues, might cause problems in harvesting and increase wood costs.
Due to these expectations, we estimate that our comparable operating result for the first quarter of 2020 will be weaker compared to the fourth quarter of 2019. To summarize, the fourth quarter in 2019 went pretty much as we expected. A bit lower paperboard deliveries, but less maintenance. Declining pulp prices burdened the overall profitability, even though lower pulp costs reduced the negative impact a little bit. First investments to Husum pulp mill renewal were made during the fourth quarter, a total of 21 million EUR. For this year, the investments are expected to be much higher.
The strike in Finland is now over, but it will have a significant negative impact on our results, affecting mainly the first quarter. The market outlook. We see a stable situation for high-quality paperboards in all our main markets. In pulp, we are not expecting the prices to decline anymore. However, the coronavirus outbreak is causing some uncertainty. Okay, ladies and gentlemen, that was the presentation of our Q4 and full year results. We are now ready for your questions, so please go ahead. Thank you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question today comes from Antti Koskivuori from Danske Bank. Please go ahead.
Yes, thank you. It's Antti from Danske. A few questions, and the first one would be on the Q1 guidance that you give for EBIT. Could you give us a bit more color on the kind of bridge quarter on quarter? What do you see there? Obviously, the strike, as you said, is going to be a big negative driver. Then you have, I guess, on the positive side, you have less maintenance and slightly more favorable effects. So how should we think about the kind of positives here going into Q1 compared to Q4? That would be my first question, if I go maybe one at a time.
Okay, so we have not kind of clearly calculated or precisely calculated what are the positives. Of course, there are positives like maintenance, as you mentioned. And then without this strike, of course, the volumes would be higher. The prices are flat. Demand is good. So the major element here is the strike, and as we have said, it's altogether EUR 20 million during the first half of this year. What I can say is that roughly, let's say, 75%, so a larger share of that is coming to Q1, so EUR 15 million roughly, and then the remaining EUR 5 million to Q2. But that is a rough estimate at the moment.
All right, thank you. And then secondly, about the folding boxboard market and the sales mix in 2020. It seems that the U.S. market is quite attractive at the moment, yet the kind of share of deliveries to U.S. came down in 2019, and it was 20%. Should we expect that share to U.S. to increase actually in 2020?
So our intention is to, of course, increase volumes both in our main markets, which are Europe and North America, and of course, so it goes without saying that the target is to increase volumes there. It's a good market. I just visited, three, four weeks ago, that market, and I can underline and emphasize that you are right by saying that that market situation there is good.
All right, very clear. Then maybe lastly, you mentioned the potential increase in wood costs if the winter remains mild. Could you talk a little bit about the potential dynamics behind this, and maybe if you can comment on your wood inventories at the moment compared to, for example, the historical levels, or what's the appropriate?
Okay. If I start with the inventories, so that is not an issue. We have wood enough to keep the mills up and running. So that is not an issue. The only issue is this very mild winter here in Finland as well as in Sweden, and that might cause some extra costs in harvesting, but it's very difficult to say how much and how many millions, but that is a certain risk, which is quite typical concerning the weather.
Yes, sure. Okay, very helpful. Thanks a lot.
Thank you. We'll now move to our next question today from Mikael Jåfs from UBS. Please go ahead.
Thank you. Good afternoon and good morning, everybody. A couple of questions. Starting off with the guidance of stable pricing. So I was just wondering if you could elaborate a bit on that. Does that take into account any mixed changes you have as well? I mean, because if you're looking at the market prices of both white kraftliners and folding boxboard in Europe, the pricing is down. At the beginning of this year, I haven't heard of any price increase in the US that would offset this. So if you could just talk a bit about how you think about the pricing vis-à-vis mixed changes when you say that you see stable pricing going into Q1.
Yeah, I think the sentence itself, the stable pricing, that says everything. So we do not have any other reason or no reason to say something else. So prices are stable here in Europe as well as in other markets. And when we say so, we don't kind of add or think any market mix or customer mix issue. For us, that is the case.
Okay. So essentially, you disagree with market statistics showing declining prices this year. In terms of the mix, do you expect to see any mixed improvements going into this year?
Our sales is constantly, of course, looking for that and trying to improve the sales mix, as we were able to do last year. Of course, that goes also for this year. But when we say stable prices, we don't kind of refer to that. But that is a continuous attempt by our sales force.
Okay. Okay. And then on the dividend, if you could just maybe shed some light around that. It was cut a bit now. When we look ahead, you have a fairly high CapEx level. And based on that, I guess you would more or less need to borrow to pay dividends going forward. How should we think about that? And also, I guess, or should we just assume that the dividends follow the earnings develop?
Okay, Mr. Jussi Noponen, we'll take this. Hi, yes. So our dividend policy is to pay a minimum of 50%, and this year's distribution will be 59%. And our intention is to stay within the dividend policy also during the higher CapEx period this year and next year.
Okay. And then just a final question. Can you say anything about the CapEx going into 2021? I think you're guiding for about, I think it's EUR 210-220 for this year. Should we assume more or less the same level in 2021?
Yeah. So Mikael Jåfs here. So at this point, pretty much at the same level. Of course, it's a bit too early to say, but anyway, that kind of assumption can be used.
Okay. Good. Thank you very much.
Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, please signal by pressing star one on your telephone keypad. We'll now take a question from Linus Larsson from SEB. Please go ahead.
Thank you very much. A couple of questions on the strike that has just recently ended. And when you guide on the EUR 15 million plus EUR 5 million impact in the first and the second quarter, could you please say how much is directly impacting Metsä Board and how much is only through Metsä Fibre? That would be my first question, please.
Okay. So that is quite easy to answer. So at this, when the pulp prices are where they are, of course, the lion's share of the loss is coming from paperboard, so Metsä Board.
Okay. Great. And then when it comes to the ramp-up, could you maybe comment on how the ramp-up is progressing? Are all of your production lines running at this stage, and are they running at even full capacity? And maybe if you would also be able to provide some rough figures on how many tons you estimate have been removed from the market during this labor conflict.
Okay. So at this point, my latest information is that all the mills are running. The first mills already started early night shift yesterday, and then the last ones this morning or afternoon. So all the mills are running, and so the situation has been normalized. Concerning the volumes, so we lost some 60,000 tons of paperboard altogether, together with, I mean, folding boxboard and white kraftliner, so 60,000, and then 35,000 tons of BCTMP in Metsä Board. Metsä Fibre figures I don't have here, but Metsä Board figures are as I presented.
Excellent. Thank you. And then maybe just one final follow-up on the price discussion when it comes to folding boxboard. Could you comment, please, on the visibility that you have now on folding boxboard? Have you concluded your negotiations for the 12-month contract that you have, and what proportion of your business is on that sort of validity, please?
Yeah. In Europe, the business kind of very much is based on annual deals, and those deals have been done. And I don't have the figure how many %, of course, then in the U.S. as well as in Asia-Pacific. It's kind of different. There are also annual deals, but then there are shorter deals. But pretty much normal situations, so deals have been done. And as I said, price-wise, our estimation is quite stable.
Okay. Great. Thank you very much.
Thank you. We'll go to our next question now from Harri Taittonen from Nordea. Please go ahead.
Yes, good afternoon. Where do you see your own kind of inventory levels? Because you had a positive cash flow contribution from working capital reduction, but some peers have had, I'd say, that even much stronger surprises on that side, and looking at the kind of inventory as a percentage of sales, it still kind of looks to be higher than a couple of years before, but where do you see the potential in this sort of working capital and inventory efficiency, and are we now at the level that we should kind of anticipate going forward?
Okay. Jussi will take this. Typically, the first half of the year is negative in terms of working capital cash flow. So working capital typically increases in the first half of the year, and then in the second half of the year, it's released. And we were quite satisfied with the working capital performance in the fourth quarter. But if you are asking is there further potential from working capital, I would say yes, some, but it will not materialize in the first quarter or second quarter despite the small impacts from the strike.
Exactly. So it would be more like an annual estimate, if any. And then, okay, well, you talked about prices a lot already, but just sort of continuing from there, that there have been this sort of price increases announced to our linerboard, but you haven't sort of followed that trail, or?
No, no, no. So last year, if you think about our price levels in white kraftliners, of course, they went down slightly last year for the whole industry. But now the estimation of forecast is stable, as I said, both in folding boxboard and linerboard.
Exactly. Yeah. Okay. Fair enough. Finally, anything that you can add color on the environmental permit process? I mean, any sort of data points or sort of dates that you are kind of looking at or that we should be looking for?
You mean in Husum?
Yes.
In Husum, yeah. So far, everything has gone as planned. So no negative surprises, and the construction work is just about to start. Earth-moving work has started. So an estimation is that we will get the permit then during the second quarter. So no negative surprises so far.
Okay. Okay. Thank you very much. Thanks.
Thank you. It appears we have no further questions at this time. I'd now like to turn the conference back over to you for any additional or closing remarks.
Okay. Mikael Jåfs here, so thank you very much for everybody for your interest and attention, and have a nice day. Thank you.