Good afternoon, welcome to the presentation of Metsä Board's Q4 and full year 2022 results. My name is Mika Joukio, I'm the CEO at Metsä Board. With me is also our CFO, Henri Sederholm. Let's first go through the presentation, we will then open the lines for your questions. I will start with Q4 in brief. Weakening demand for consumer products and destocking in the value chain were reflected in paperboard deliveries, they were lower than in the previous quarter, but also in the corresponding period last year. The average sales prices of paperboards increased, sales were therefore 15% higher than in Q4 2021 at EUR 600 million. To respond to the slowdown in demand, we adjusted our production in the fourth quarter, with production volumes clearly lower than in Q4 last year.
However, for the full year, production volumes differed little from the previous year. In fact, in pulp and BCTMP, the production volumes were at a record high in 2022. Costs continued to increase, especially in chemicals, energy, and wood. This, of course, impacted the Q4 profitability, which, after everything, remained very strong. Comparable operating result was 17% of sales. In December, the new recovery boiler and turbine started up in Husum, which will increase the pulp mill's electricity production and improve the energy self-sufficiency of the whole integrat. Once again, we have a remarkable success in sustainability. In CDP, we managed to achieve A-lists in all three categories: climate change, forests, and water. We were one of the only 12 companies that achieved a triple A out of nearly 15,000 companies scored. Excellent work.
In addition, based on our continuously strong operating results and solid credit metrics, Moody's upgraded us to Baa2 with a stable outlook. Despite an increasingly challenging operating environment, we managed to deliver a good result in the last quarter of 2022. If we then look at the full year development through our long-term financial targets, the result was excellent. Our comparable return on capital employed was almost 21%, well above our targeted level of 12%. Our balance sheet remains strong, with leverage at 0.2. The board's proposal to AGM for the dividend is EUR 0.58 per share according to our dividend policy, which is to distribute at least 50% of the net result as dividends. The paperboard sales and the overall demand situation.
The full year delivery volumes were some 6% lower than in the record year of 2021, where, due to the pandemic, demand for packaging was boosted by a shift in consumption from services to products. Yet at the beginning of 2022, paperboard demand was at a high level but declined towards the end of the year. I'd like to highlight two reasons for this decline. First, rapid cost inflation with rising interest rates weakened consumer purchasing power, leading to a fall in demand for consumer goods. Second, a massive destocking in the value chain led to a decrease in order inflow and lower delivery volumes. The fourth quarter was especially impacted by this. If you look at the situation by product and region, the biggest drop was seen in Europe and in folding boxboard. The end of sales to Russia had also an impact.
However, we managed to reallocate the 130,000 tons of folding boxboard previously sold to Russia to our other markets in Europe and North America. In H1, we increased our very low stock levels and prepared for investment shutdown in Husum later this year. In white kraftliners, the decrease in demand was more evident in uncoated grades in Europe. How do we see the paperboard demand developing going forward? In the short term, demand may remain a little uncertain. Quite how long is difficult to predict. Depends largely on a global economic situation. However, the long-term demand drivers for recyclable packaging materials, which are increasingly replacing plastics, have not disappeared anywhere. The annual growth of the global packaging market is roughly 4%, and within that, the growth of paperboard is fastest.
Now for market pulp, starting with delivery volumes for the full year of 2022. Metsä Board's market pulp deliveries grew by 1%, totaling half a million tons. Our associated company, Metsä Fibre's pulp deliveries decreased by 6%, totaling 2.9 million tons. Demand for softwood market pulp in Europe remained at a fairly low level throughout the year. In China, the demand was stable in relation to supply. Towards the end of the year, the demand declined due to the increase in production curtailments in paper and board production in both Europe and in China. Throughout the year, the supply of softwood pulp was limited due to the several production shutdowns, rapidly rising costs in energy and chemicals, and a shortage of wood, especially in North America. Bottlenecks in logistics, which have reduced supply for a long time, eased towards the end of the year.
Pulp prices, they increased from 2021. Before I let Henri move on to financials, let's take a quick look at a couple of key figures in sustainability. In safety, we saw a clear improvement compared to previous year. TRIF was 6.7, still too high compared to our target, which is zero injuries. Energy efficiency improved by 2.7% compared to the base year of 2018. The improvement was a little lower than last year, and is partly explained by the production adjustment measures at the end of the year. The use of process water has decreased by more than 12% compared to the base year of 2018. Here, Husum's pulp mill renewal will have a positive impact going forward.
The share of certified, wood out of all sourced wood was 83%, against a targeted level of over 90%. Now I will hand over to Henri to open the financials more.
Thanks, Mika. Good afternoon. Let's start with sales. As Mika already pointed out, despite the drop in delivery volumes, our sales were clearly higher, both in the quarterly comparison Q4 versus Q4, as well as in the full year comparison. This is mainly explained by higher paperboard sales prices, which on average improved by 25% compared to last year. Comparable operating result for full year was EUR 521 million, corresponding to an operating margin of 21%. Although the last quarter in 2022 was weaker than the two previous quarters, profitability was still strong. Operating margin was 17%. Now, a closer look at the items that impacted the result, starting from Q4 compared to the same period last year. Operating profit improved by 10%, and the biggest positive contributor was improved sales prices, mainly in paperboards.
FX impact and the result share from Metsä Fibre also had a positive impact. The main negatives were derived from significantly higher costs, especially in energy and chemicals. Logistics and wood costs were clearly higher than in the previous year. Lower delivery volumes in both paperboard and pulp also weakened profitability somewhat. Moving on to the full year comparison. Comparable operating result EUR 521 million clearly exceeded the 2021 level. Also here, the biggest improvement came from higher sales prices boosted by the strong US dollar. In 2022, we sold unused emission allowances worth EUR 29 million, which is a little more than last year's EUR 21 million. For this year, 2023, we are planning to continue the sales in every quarter. Costs increased in every category. Cost inflation was particularly fast in chemicals and energy.
In chemicals, price increases were most notable for caustic soda, peroxides, starch, and latexes. Energy costs were driven especially by higher electricity prices. Logistics costs increased due to the limited availability of transport capacity and higher fuel prices. Wood costs increased not only due to the higher wood prices, but also higher harvesting and transport costs. In paperboard, profitability was weakened by higher pulp prices, but the overall impact of pulp on Metsä Board's result was clearly positive. All in all, the total cost increase excluding pulp was some 20% year-on-year. Operating cash flow for 2022 was EUR 232 million, EUR 100 million lower than in 2021. The increase in working capital was EUR 150 million, whereas in 2021 it decreased by EUR 50 million.
Around half of the increase was derived from a rise in the inventory value of paperboard due to cost inflation. Other factors behind the increase were a higher paperboard inventory level and an increase in trade receivables resulting from higher prices for finished products. Cash flow after investment was a negative EUR 41 million. Just a reminder about upcoming possible dividend payments. The first quarter typically includes the dividend Metsä Board receives from Metsä Fibre, whereas the company's own dividend payment is scheduled for the second quarter. Now for the financial position, which remains strong with net debt at EUR 94 million and leverage at 0.2. Plenty of headroom to our targeted level, a maximum of 2.5. This position creates a solid platform for our ongoing and planned growth projects about which Mika will tell you more. Back to you, Mika.
Thanks, Henri. Now let's take a look at our ongoing investments. In Husum. The new recovery boiler and turbine started in December. This will increase the pulp mill's electricity production, which will reduce energy and maintenance costs and improve the production efficiency of the whole Husum integrat. It will also improve the integrate's energy self-sufficiency and take us closer to our 2030 target of 100% fossil-free production. Increased energy production will also be needed later this year when the capacity expansion of folding boxboard will ramp up. The annual production capacity will increase by 200,000 tons, after which the total capacity of Husum's board machine number one will be 600,000 tons per year. The added capacity is expected to be full in the market by the end of 2025.
In Kemi, we will increase our white kraftliner capacity by 40,000 tons, after which the total capacity of Kemi's kraftliner machine will be 465,000 tons, sorry, per year of coated white kraftliner. The investment will also improve the mill's energy and water efficiency. Here, our initial investment estimate was EUR 67 million, but due to the high-cost inflation, among other things, it will most likely end a little bit higher. In total, our capital expenditure was EUR 304 million in 2022, of which annual maintenance CapEx was roughly EUR 50 million. On the right-hand side, you can see the indicative timetable for both our ongoing and planned investments. We have started pre-engineering for the new folding boxboard mill in Kaskinen with an annual capacity of 800,000 tons.
Pre-engineering includes technical and infrastructure design and logistics solutions, tendering for the main equipment, and permit processes. The possible investment decision can be made in 2024 at the earliest. In addition, we will continue the Husum pulp mill's renewal during this decade by replacing the mill's old fibre lines with a new one. Investment values for these two projects will be specified in the context of possible investment decisions. Now let's move on to the near-term outlook, which isn't very easy to predict. Slower-than-expected economic growth, continued inflation, and weakening consumer demand are all creating uncertainty in the operating environment. The visibility of paperboard sales development is rather weak. However, we expect the paperboard delivery volumes in Q1 to remain roughly at the level of Q4.
For folding boxboards, we expect higher average sales prices in Q1, whereas for market pulp, the prices are slightly lower compared to the previous quarter. Cost pressure will continue, especially wood costs are expected to increase. Due to the startup of Husum's new recovery boiler and turbine in December, depreciation will be some EUR 10 million higher in Q1 compared to Q4. A positive impact from FX and no major maintenance shutdowns will support profitability. With these assumptions, we expect our operating result in the first quarter to remain roughly at the level of Q4. To summarize. In 2022, our profitability was at the record high. Comparable operating result was EUR 521 million or 21% of sales.
With our successful price increases in paperboards, we managed to more than offset the rapidly rising costs, as well as the slowdown in paperboard demand and decline in delivery volumes. Nevertheless, uncertainty continues in the operating environment, driven by global economic challenges and weakening consumer purchasing power. In the near term, the visibility of sales as well as cost development is rather weak. Despite the challenges, we focus on developing our business, investing in sustainable and profitable growth to increase shareholder value further in the future. The board's proposal for the 2022 dividend is EUR 0.58 per share. This is in line with our dividend policy and reflects our confidence of future success. With that, we end our presentation and are now ready for your questions. Thank you very much.
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 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. The next question comes from Linus Larsson from SEB. Please go ahead.
Thank you very much. Hello, everybody. My first question is relating to your first quarter guidance and the building blocks and assumptions that are baked into that guidance statement. You do quantify the depreciation increase of EUR 10 million. What else would you be able to quantify? In that context, for instance, how much do you expect would cost to increase in the first compared to the fourth quarter? Also, how much of a success have you had with regards to your folding boxboard price renegotiation? A few questions relating to your first quarter guidance, please.
Okay. Before Henri will open up these pluses and minuses, I would like to say that the annual volume and price negotiations, they have been successful, and we have been able to then also have price increases for these annual deals 2023 compared to 2022. That is the basis why we say that the prices are expected to increase in Q1 compared to Q4, especially in folding boxboard. Henri will open more about these pluses and minuses.
Okay. Well, if we start with the positive, what we can sort of quantify a little bit is the maintenance impact, which is going to be around EUR 10 million positive against Q4. What comes to the FX impact, also, let's say EUR 5 million-EUR 10 million positive against Q4. What we will not be able to quantify at this stage is the impact of the price increases, but that's something to mention also on the positive side here. On the negative, as you mentioned, the depreciation - EUR 10, and then the kind of cost inflation impact is also something that we are not able to specify at this stage. Obviously, wood prices we mentioned separately, but the cost pressures will continue also. As we know, energy prices are very volatile, even though they have decreased now somewhat. Those are the elements.
Is it fair to assume that you're expecting increasing variable costs for non-wood input as well?
That's a fair assumption.
Okay. Thank you. Then, if I may just on CapEx, do you provide a CapEx guidance for the full year?
Okay. Henri will.
Yes. The guidance is EUR 250 million-EUR 300 million, slightly lower than last year.
Great. Where are we when it comes to the phase two in Husum? You've concluded the recovery boiler investment, but when it comes to the fibre line, what's the timing of that part?
Yes. The recovery boiler and turbine started up in December, and now the fine-tuning kind of period is ongoing at the moment. Concerning the second phase, as you said, the new fibre line, we do not have the exact date or year here, but it will be then. Now, now we see it so that it will be during the second half of this decade. Of course, depending on a lot what we will do concerning the Kaskinen investment. Kaskinen, anyway, that decision will be made or target is to make that decision first. Later.
Oh, I see.
Later during this decade.
Okay. Now, that's some time away then. I understand. Thank you very much. That's very helpful.
Thanks.
The next question comes from Johannes Grunselius from DNB Markets. Please go ahead.
Yes. Hi, everyone. I have a question on your volumes or shipments for the fourth quarter. You indicate to us, I think, that they will be largely flat. I mean, you have, obviously free capacity. Are you deliberately avoiding volumes and sort of prioritizing price in this market situation, or how should we think about that? Could you potentially sell more volumes and have a positive P&L effect, but your reasoning is that it's more important to keep prices? Can you elaborate on that, please?
Yeah. It's in a way mixture, but of course the prices are in good level and our intention is not to go down with prices and of course then the shutdowns or standstills are a kind of natural result of that. That is our approach.
Yeah.
Mm-hmm.
All right. Then you talk about obviously quite low visibility in the volumes, but you're still guiding for flat volumes. Is that based on sort of your current order backlog, what you have now, and can you elaborate a bit on that, please?
Yeah, that is based on our backlog, but also then our kind of estimate concerning the February and March deliveries. Th at's pretty much based on our understanding.
Final question for me, at least here. I mean, if you separate the U.S. market and European market on the folding boxboard and maybe also white kraftliner, how do you see these two geographical markets developing? I suppose U.S. is stronger. It would be interesting to hear your thoughts there.
Yeah, the situation in the U.S. Comparing to Europe, it's quite similar actually. The U.S. is slightly stronger, as you said, but the differences are not very big one, big ones.
Okay. Okay. Thank you very much.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. Please state your name and company. Please go ahead.
Hi, this is Andrew Jones from UBS. Just a question on the reasons for the volume weakness. To what extent is it being influenced by potentially pressure from imports elsewhere? I was wondering if with the easing logistics costs for shipping from places like China, are you seeing any rise in imports or any pressure from that additional capacity we're seeing in China in your markets? Thank you.
Yeah. First of all, the reasons for this demand situation, I already went through those in the presentation. It's kind of consumer purchasing power or and cost inflation and then weakening consumer purchasing power. Then on the other hand, the kind of stock level from producers to retailers. That inventories are quite high, for that reason, the kind of destocking has taken place. Then, yeah, Chinese, they are a little bit more active now in the certain parts of geographical parts of I mean, EMEA area as they used to be. I think the reason is quite evident that.
As you said, the container prices from China to Europe or to China, wherever kind of westbound is cheaper now than, for example, a year ago. We have seen more volumes, for example, in Turkey as an example. Not remarkable ones, but anyway, we have seen the Chinese be more active.
Okay. Do you expect that pressure to increase later in the year, or do you think it will be a bit of a round together?
That's very difficult to predict, because that's largely dependent on then the kind of local consumption and demand in China. That has always been the case. The Chinese, they are coming and going to EMEA region, depending on the currencies, depending on the local situation in China, et cetera. I think visibility here also is quite, is not very clear.
Mm-hmm. Okay. Thank you.
The next question comes from Robin Santavirta from Carnegie. Please go ahead.
Yes, thank you very much and, hello, everybody. Now, first question is related to paperboard deliveries in the quarter, which after quite strong performance in many quarters now recently was now in Q4, quite weak. Actually, going back, I think the last time you had this kind of paperboard deliveries was Q4 in 2016. I was just wondering whether that reflects in your mind more customer inventory destocking now in Q4. If that is the case, do you still see that increasingly or decreasingly, or whether that reflects simply sort of weak underlying demand?
Again, both reasons are valid. Kind of this destocking, but also then the end demand. It's good to remember also here that let's say a year ago and first half of last year, the demand was really, really, I mean, high. Everybody most probably by purpose then increased their inventories because I mean, the delivery times were long and then customers, they thought that they need to secure the volumes also in a bit kind of a longer period. As a result of that, then the inventory levels were very high in roughly in Q3 last year.
Then after that, the customer started to destock and at the same time also seasonally, December is always low. Then the order inflows got thinner and for that reason we also curtail our production somewhat. Now after the year turn, early January was pretty much similar situation, but now we see some improvement here and there concerning the order inflow and end demand. Coming weeks and months will tell what is the kind of real reality in that.
I understand. Thank you for that detail. That is good to hear. The second question I have is related to input costs, and you provided a bit of background and input to that. I was wondering if you could say something about logistic cost, chemical cost, and energy cost now, going into this year, we can see spot prices of different kind of various, you know, logistics coming down quite significantly. We can see some chemical prices already in spot level coming down, and we can certainly see power prices and energy prices basically plummeting at the moment.
Still sort of I understand when I listen to you and some of your peers, it seems as this is at least not to the start of the year, having a positive impact, rather the opposite. Could you describe a little bit sort of why that would be if it's not as you agree for a certain period of time, when you buy, you know, chemicals or logistics? If so, what is that sort of timeline so we understand how we should then look at perhaps H2 when it comes to these cost items of chemicals, logistics and energy?
Okay. Henri will open up this.
I think our comments on the difficulty of predicting the near-term future definitely apply to this kind of cost outlook as well. One of the kind of main drivers being the kind of development of the energy costs, which still are quite volatile even though they have decreased as you said. The potential of continuing volatility definitely makes us a bit cautious. If the kind of energy cost will remain at more moderate levels than they have been lately, then it will pass on to the kind of indirect impacts to the logistics cost as well as to the chemical cost. The energy prices are very decisive here. In chemical cost, we have different kind of agreements when it comes to the length.
It from a few months to shorter and also to longer term. That varies. Also in logistics, we have elements that come through quicker, such as sort of fuel costs, but then some other agreements are for longer term. It's a kind of a mixed picture. Anyhow, if the energy cost will remain moderate, then the outlook will improve. At this stage, we are still kind of quite uncertain about the development. The wood cost we already discussed about. I think that's the summary.
Sure. Thank you. I understand. The final question I have is related to the paperboard expansion in Husum that you will have, I guess, capacity sort of production ramping up as of Q3 this year. I'm a bit concerned that this sort of resource impact of the ramp-up, I mean, surely that will be a profitable production increase for you in the mid and long term. Could you help us to understand sort of Q3, Q4 this year, whether we should model lower volume, delivery volumes from Husum? Whether we should model clearly even higher sort of fixed cost or starting cost and depreciation as well? Just thinking that so that we don't have that surprise then ahead also. All information you have on that one is valuable.
Okay. The, as you said, then the kind of startup after the roughly 45 days standstill then will take place late Q3 or early Q4. Of course, after that, then there is a startup period, ramping up period. Obviously the production volumes this year will be lower than last year. For that reason, we are building these inventories in order to then also serve customers during the standstill and then also during the ramp-up, startup period. Of course, our target is that already next year, then the volumes are higher than... Our production volumes are higher than last year, and then by end of 2025, we have reached the full capacity.
Production volumes this year will be due to the shutdown and then the startup period lower than this year. How much remains to be seen. I don't have a figure for you here. For that reason, we have built and will build the stocks in order to serve the customers.
How should we look at this startup sort of? Remember sort of last time you expanded Husum, it was a much bigger project, but that was quite a sort of costly start, and then it was a very successful ramp-up once you sort of got all the volume seen. The surprise is for the market investors and analysts are first negative and then positive. To avoid that kind of situation, what any kind of color you could give on, you know, profitability impact, earnings impact, you know, Q3, Q4, or this year overall?
Yeah. Of course, the nature of this investment, so this capacity expansion is different than the earlier one or the first one. Here we are just getting the machine longer and having more drying capacity, and for that reason, then we are able to increase the production volumes. On the other hand, we can also in the beginning then adjust the production so that we, I mean, depending on what kind of orders we have in hand, so we don't have to by purpose take everything we have in order to start up the machine. It's different nature. Henri had something concerning the volumes.
Yeah. I think just about the kind of investment shutdowns profit impact. This year, Q3 will be the kind of heaviest one, which would be the impact around EUR 20 million against Q1 with no sort of a major maintenance, and Q2 and Q4 around EUR 10 million negative impact. That's what I wanted to add there. The depreciation impact will be lower than what comes to this pulp mill renewal startup now, which will be about EUR 20 million per year increase.
Perfect. Thank you very much, Henri and Mika. Thanks.
Thanks.
Thanks.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Johannes Grunselius from DNB Markets. Please go ahead.
Yes. Hi again. Johannes. Could you give us some color on your latest thinking about the pulp market, please? You mentioned in the report that you see some price weakening, but that sort of is something we also see from spot prices that we should expect pulp prices to be slightly lower. Any comments you can give beyond Q1?
Yeah, it's difficult to estimate the beyond Q1, but of course, last year was very strong both in Europe and in China. Now we know that there has been kind of a market-related standstills in paper business as well as in the paperboard business in Europe, I mean. Of course that has and will have obviously impact on pulp market here. The prices will be lower in Q1 comparing to Q4, but very difficult to say then what will happen in Q2 depending on the overall situation in Europe. In China, on the other hand then, the situation is different because then there are also restrictions in supply.
The demand and supply situation is a little bit better there, not because of the market itself, but also then the kind of supply side has impact on that. Visibility to Q2 or Q3 is very difficult at the moment concerning pulp as well as paperboard.
Yeah. Got you. Any thoughts there on the inventory situation, I mean, when you talk to traders and when you talk to your clients in the Asian markets?
I don't have the figures for you here, but we can revert to. later if you like.
It was more I'm not after any specific numbers, but if your feeling is that sort of inventories in the Asian pulp market is kind of normal or even slightly lower than normal or any thoughts there, please?
Describe normal.
Okay. Okay. Thanks.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay. Mika Joukio here. Thank you very much for your active participation. I wish you excellent Thursday evening and hear you next time. Thank you.