Of Metsä Board's results for the first quarter of 2021. My name is Mika Joukio, I'm the CEO of Metsä Board. Here with me, I have our CFO, Jussi Noponen, and Head of Investor Relations, Katri Sundström. Despite the coronavirus pandemic, the year 2021 started favorably for Metsä Board. We witnessed a strong demand for both folding box board and for white kraft liners in all market areas, and our paperboard delivery volumes were at record high levels. At the same time, the global pulp market strengthened and prices of long fiber pulp rose sharply, especially in China, but also here in Europe. As a result, our operating result improved to 89 million EUR, and our operating margin was as high as 18%. Production volumes for paperboard and market pulp were also at record high levels due to low maintenance and further improved production efficiency at the mills.
At the beginning of the year, we sold a 30% stake of our Husum pulp mill to Norra Skog. The deal ensures long-term availability of certified Swedish pulp wood and decreases the Husum mill's cost volatility as less wood will be imported from the Baltic countries. Along with this transaction, our net debt turned slightly negative. Earlier this year, we started a development program for Kemi paperboard mill, which will increase our annual white top kraftliner capacity by 40,000 tons. In addition, we are planning to increase our annual folding boxboard capacity by 200,000 tons in Husum, but no firm decision has been made yet. So, our paperboard delivery volumes were at a record high level and totaled 491,000 tons. Compared to the corresponding period last year, they grew by 9%, and compared to the previous quarter, the growth was 11%.
The good news is that at the end of March, our order book was at an exceptionally high level, which predicts good paperboard sales for the second quarter of the year as well. Demand was strong in all regions, which can be seen in the pie graphs on the right. The impacts of the coronavirus on paperboard demand have been mixed. We have seen strong demand in food, beverage, and pharma packaging, whereas segments like luxury packaging and graphical end uses have suffered. However, in the first quarter of this year, demand was strong in nearly all end uses. In Americas, the growth in retail and e-commerce boosted the demand for our coated white kraftliners. About the price development. In the EMEA region, the average prices of paperboards decreased slightly compared to the corresponding period last year.
In the Americas region, prices in local currencies improved. We have made several price increase announcements this year in Europe and in the Americas region. We believe the average prices for both folding boxboard and white kraft liners will rise in Q2 versus Q1. Our sales increased by roughly 5% compared to the first quarter last year. The comparable operating result was EUR 89 million, and the operating margin was 18%. And when we compare the operating result to the result of the corresponding period last year, we need to remember that the strike at the Finnish mills weakened the Q1 last year result by EUR 15 million. Nevertheless, the year-on-year improvement was remarkable. Here are listed the main items affecting the operating result in the first quarter.
The main positives were the increased paperboard volumes together with higher market pulp prices, which in turn led to a higher result share from Metsä Fibre. On the negative side, we had the FX impact roughly EUR 5 million compared to the corresponding period last year. In addition, cost inflation has accelerated. Increased logistic costs and especially higher energy prices had a negative impact on first quarter results. And strong earnings performance also boosted the return on capital employed. Comparable return on capital employed for the first quarter of 2021 was 18.3%, and rolling 12 months was 14.8%. Both above our long-term target of at least 12%. Then to market pulp. Demand for long fiber pulp has strengthened in Europe, but especially in China. Pulp demand has been supported by growing demand for fresh fiber-based tissue papers and the growing e-commerce market, which has increased paperboard consumption.
At the same time, prolonged maintenance breaks, mainly in Q4, together with unplanned production stoppages, have decreased pulp supply. The total shortage of containers has tightened the pulp market situation further. Market pulp prices have risen rapidly in both China and Europe. Then the balance sheet, which is strong at the moment. The sale of a 30% stake in the Husum pulp mill to Norra Skog decreased our net debt by EUR 260 million and made us a net debt-free company. And along with that, our leverage went to zero just before the dividend payment. As a reminder, the capital gain from the transaction is recognized only in equity. EUR 125 million was recognized as a minority interest and EUR 135 million in retained earnings. No impacts reported in the P&L. Operating cash flow in January-March was EUR 16.8 million.
Cash flow in the first quarter is typically affected by strong growth in working capital, where production volumes are at a high level. As seen in the graph, this did not happen last year because the paper industry strike limited production at all Finnish mills. Investments during the review period were 35 million EUR. And then a few slides about ongoing and planned investments. Our biggest ongoing investment is the first phase of the Husum pulp mill renewal, which we expect to be ready next year. After the review period, we increased the estimated investment value of this project from 320 million EUR to 360 million EUR. The design scope has been slightly expanded, and the original schedule of the final investment decision was also delayed due to the unexpected length of the environmental permit process.
The delay has exposed project purchases outside the main equipment deliveries to cost inflation, which has been quite significant in recent months. The second phase of this investment consists of a new fiber line, which will be decided on and implemented during the 2020s. We have started preparations for the environmental permit process. The application will follow late this year. In February, our associated company, Metsä Fibre, made an investment decision to build a new bioproduct mill in Kemi. The new mill will have an annual pulp production capacity of 1.5 million tons, and it will replace Metsä Fibre's old pulp mill in Kemi. The value of this investment is EUR 1.6 billion, and it will be fully funded through Metsä Fibre's own cash and debt. So no equity injections from owners.
Enabled by this investment, we have launched a development program for our Kemi paperboard mill, in which the annual production capacity of white top kraftliners, mainly coated, will be increased by 40,000 tons. In addition, the mill's water and energy use will be significantly improved. As part of the program, we will purchase the modernized unbleached pulp production line from Metsä Fibre in 2023. During the review period, we also launched pre-engineering to increase the annual production capacity of the Husum folding boxboard machine by roughly 200,000 tons. The readiness to make the investment decision is expected to be achieved in the summer 2021. The planned increase in production would then begin in 2023. We estimate that our CapEx for this and next year in total will be in the range of EUR 450 million-EUR 550 million.
The amount will be specified when a decision has been made on the investment concerning the expansion of folding boxboard capacity at Husum. The annual maintenance CapEx will be around EUR 50-60 million, at least for the next two years. Then the outlook. At the end of the first quarter, our order books were at a very high level, and we estimate that our paperboard delivery volumes will continue to grow. We also expect paperboard prices in local currencies to increase. As always, the second quarter will include more planned maintenance shutdowns than the first quarter. The negative impact from the maintenance shutdowns will be some EUR 5-7 million. Good demand for long fiber pulp is expected to continue both in Europe and in Asia. Seasonal maintenance shutdowns and container availability issues will reduce the global pulp supply.
The market situation will remain tight. Cost inflation accelerated during the first quarter and is expected to slightly increase further in Q2. We estimate that cost inflation for the full year 2021 versus 2020 will be around 3%, and FX impacts of the hedges will have a negative impact in the second quarter compared to the first. The difference will be around EUR 6 million, and based on this, we expect that our comparable operating result in the second quarter will improve compared to the first quarter, and to summarize, despite the prolonged uncertainty caused by the coronavirus pandemic, Metsä Board has had a good start to the year 2021. Our paperboard delivery volumes were at an all-time high, and profitability was strong. Thanks to our thick order book, our near future also looks good.
Of course, our top priorities will still be securing the health and safety of our employees, ensuring business continuity, and preventing the virus from spreading. The development of the global pulp market has also been strong, and rising market pulp prices have supported our results. Good market demand for premium and sustainable paper boards, supported by our strong financial position, enables us to continue our investments in further development and growth. And before we move into the questions part, I'd like to go through a couple of changes in our corporate management team.
Our current CFO, Jussi Noponen, has been appointed Metsä Board's Senior Vice President, Sales and Supply Chain. Sari Pajari-Sederholm, now responsible for Metsä Board's sales and marketing, has been appointed Metsä Board's EVP in strategy. Henri Sederholm will take Jussi's position as our new CFO of Metsä Board. Henri's current position is Metsä Group's SVP Group Finance. All changes are effective as of 1 May 2021, and now I believe Jussi wants to say a few words before we take your questions, so Jussi, please.
Thank you, Mika. As this is my last results call, at least for the time being, I want to use this opportunity to thank the investment community for the past five years. I will be seeing you also in the future, perhaps less frequently, but at least during the CMDs, but before saying goodbye, it is now time for your questions.
Okay, so please.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. Our first question is from Antti Koskivuori of Danske Bank. Please go ahead.
Yes, thanks, and congratulations on a strong result, and congratulations for Jussi for the new position. First question for me would be on cartonboard prices. Overall, it seems that there's fairly little resistance at the moment for price increases overall in the sector. Is it fair to assume that this is also the situation for folding boxboard and the announced EUR 85 per ton price increase? That would be the first one. Thanks.
Okay, so concerning the price increases, we have here in Europe, we have given two price increases for white kraft liners and one price increase for folding boxboard. Concerning the folding boxboard, of course, quite a remarkable share of our deals are annual deals where the prices are fixed. So this increase is not possible for all customers, but we do our best. And then as far as the Americas market is concerned, there we have given two price increases for white kraft liner and also two price increases for folding boxboard. But how much remains, I can't estimate and give you an exact figure how much will go through because, I mean, negotiations are still ongoing.
Yeah, sure. Okay, all right, thanks. Then second on the kind of the annual maintenance schedule that you have, it's fairly tilted to Q4. If you could give a number for each of the quarters, how the maintenance cost will evolve now in the three of the remaining quarters of the year.
Okay. So rough figures, so first of all, Q2 is around EUR 5-7 million compared to Q1, as I said already in the presentation. And then Q3, again comparing to Q1, that's in the area of EUR 10-15 million. Then Q4, then EUR 15-20 million because this year Husum investment shutdown will be fully in Q4. Then we also have other, for example, Metsä Fibre, Äänekoski bioproduct mill, as well as then our Kyrö paperboard mill. Investment shutdown will be then in Q4. So these are the scales.
Excellent, thank you. So those were my questions. Thank you.
Thank you. Our next question is from Linus Larsson of SEB. Please go ahead.
Thank you very much. If I may follow up on the folding boxboard pricing, it's quite unusual that you launch price hikes this time of the year. I guess that's a reflection of an exceptional market that we're in. Nevertheless, could you please quantify what amount, what volume is potentially up for negotiation this time around?
You mean in folding boxboard or white kraft liners? Folding boxboard?
Yes. No, no. In folding boxboard, I'm aware you have some full-year contracts and maybe other setups as well, but how much could be renegotiated on price terms going into, say, the second or the third quarter?
Yeah. In Americas, if I start from Americas, then our volume is between 250,000 and 300,000 tons, I mean, annually. And that is pretty much kind of there we don't have annual deals. We have prices which are until further notice or validities until further notice. So there practically the whole volume can be renegotiated. But then in Europe, the situation is different, and here quite a remarkable share of the volume is or has fixed annual prices. So that's pretty much.
And roughly, you gave a very precise figure there on Americas, but in Europe, how many thousand tons roughly could potentially be renegotiated for the second half of the year?
I don't have the figure for you at this point. Only the figure for Americas, but not for Europe.
Okay, fair enough. Then also just a completely different topic on wood supply. Now, with the Norra Skog partnership in place, what kind of cooperation can we expect? What synergies and what changes are you able to implement at this stage, and what might that mean in terms of supply costs?
The cooperation has started, as we know, when we closed the deal in the 4th of January this year. The operations in Husum are pretty much still, I mean, they are pretty much similar as before. We are running the integrated as one integrated, even though then the ownership of the pulp mill and paperboard mill is different. But then, of course, the benefits for us will be that then there will be less imported wood from Baltic countries, especially, and then the cost volatility will be, of course, lower.
But we see the full kind of impact only after the second investment phase of Husum pulp mill, so when we have the new fiber line. But of course, already now and before that investment, we can see positive development, and especially then the security of the wood supply is better now.
Okay, and then just a final question, if I may, on pulp. This is chiefly a question relating to Metsä Fibre, but I'm sure you can answer it as well. What's the latest developments in terms of realized pricing for Metsä Fibre Pulp in China? Is it on a net realized basis? Rising? Is it declining? Is it stable?
Yeah, during this year, they have risen. And now the gross prices are at the level of 1,000. And net prices, of course, slightly lower, but that is the situation there. And in Europe, the prices are still going up.
And for net pricing for Metsä Fibre, it's still rising. Now we're some way into, we're towards the end of April, and should I understand you that net pricing is still on an upward trend?
Yes, that has been the case.
Thank you.
Thank you. Our next question is from Robin Santavirta of Carnegie. Please go ahead.
Thank you very much. I have two questions related to costs. Now, first of all, if I look at Q1 and the paperboard business, or if I deduct Metsä Fibre, it seems as if the cost per ton for the paperboard business has declined quite a lot year-on-year and even quarter on quarter. Why is that? What is the key driver driving down the cost per ton in the paperboard business in Q1?
Maybe Jussi takes this.
You have to remember that the comparison period was the strike quarter last year, so that comparison does not give exactly the right picture. So what we say in the outlook that we expect a 3% cost inflation year-on-year for the full year this year versus the full year last year, that gives a far more fair picture about the situation.
Okay, but in Q1, if you look at the key items of the paperboard business, probably pulp wood, pulp energy, logistics, how have these developed now during the start of the year?
There have been remarkable fluctuations in individual cost components, some going sharply up and some going slightly down, and for that reason, we want to simplify the answer and stick to that 3% cost inflation guidance.
All right, and that probably is a little bit more back-end loaded, that 3%, or how should we view that number?
Most of that was already in the first quarter result, and some further inflation we expect for the second quarter, and the second half of the year, we expect to see a slight cost deflation.
And you said cost deflation. What items should we expect your costs to decline in the second half of this year?
As I said earlier, we want to keep the communication about this matter simple and stick to the overall figure.
I understand. Okay, so that's clear. Then just a final question on the paperboard volumes, really strong now in Q1, as you state, and then you say record order book. What is the key driver of this, and how are you performing compared to the market development? And I'm especially curious about the European market.
So as I already mentioned, the order books are record high at all the mills and all the production lines. So that's why we are estimating that the volumes will increase in Q2 compared to Q1. What has happened here in Europe is that the Chinese, as well as then the Latin American producers, they have withdrawn from the European market to their own home markets, and that has tightened the situation in certain parts of Europe and partly also the Middle East. So that has been the case.
So of course, the main drivers, I mean, it's quite difficult to we have seen extremely good order inflow from food and pharmaceutical segment, but also during Q1, we saw improvement in other end uses, so also in graphical and cosmetics, for example. So now almost practically all segments are doing fine, and the customers are busy.
I understand. Thank you very much.
Thank you. Our next question comes from the line of Johannes Grunselius from Kepler Cheuvreux. Please go ahead.
Yes, hello everyone, it's Johannes here. My first question is on the inventory situation in Europe. Do you feel that clients are buying ahead of price hikes and are ordering materials and so forth? Or could you give some thoughts or your intelligence on that, how you see inventories? And are you a bit worried that sort of this very strong situation could reverse because of a change in the inventory cycle? That's my first question.
Yeah, based on our understanding and based on the discussions I had also with our customers, that is not the, I mean, people are not building inventories at the moment. So there is a real consumption behind this demand. So of course, there is always a risk, but I don't see that very remarkable at this point.
Yeah. And then you had the discussion on the earlier question there about, let's say, non-European players withdrawing volumes from the European market. Is it possible to put any numbers on that just to get a sense for the positive magnitude in the market balance from this?
I don't have the numbers for you, but you can find them, I think, from some public sources even. But they are remarkable. They are high. Yes. Maybe then on your Q2 outlook, I mean, there are a couple of positive things here. One is obviously higher pulp price. You're guiding for better volumes, also price hikes for paperboard. Would it be possible for you to give some color which of these three elements, or if there are any other elements, are most important for the uplift in the earnings for the quarter over quarter? No, no. Those are the most important positive things, of course. And there is some negative, for example, currencies. They will have a negative impact in Q2 compared to Q1. But that you mentioned, they are the key drivers in the positive side.
Yes, okay. Because I was wondering also a bit on the volume side, because you showed stellar volumes in Q1. How much more can you sort of lift volume from here? Because there must be some kind of limit, right, before you hit the full capacity utilization. Is it possible to give any indication where the absolute maximum is and where you think you will be in Q2?
I think the maximum is coming from production, of course. And in Q1, we produced more than we delivered to customers. So we have still potential, let's say, some tens of thousands of tons during Q2, depending on where the inventories go.
Yeah, yes. But I mean, if I look at the last two quarters, it's not a new level of production in your system. You still have the same volumes constraints. Or could you tweak out more volumes from here? That's what I'm wondering.
Now, during the first quarter, the production volumes were record high. Of course, it's possible to make a new record, but of course, the improvement is not that big. But luckily enough, the production really has been good the whole year, last year as well as then the first quarter of this year.
Okay. Thanks for taking my question. Very useful.
Thank you. Our next question is from Mikael Doepel of UBS. Please go ahead.
Thank you. Firstly, I have basically two questions. Firstly, on the Husum, the bottlenecking. So you gave the CapEx estimate for 2021 and 2022 of between EUR 450 million and EUR 550 million. And based on your commentary, I would assume that there is some of that bottlenecking baked into that. But I was wondering if you could clarify a bit what the size of that particular investment could be in total.
It's a little bit too early to say precisely. We have said earlier that it's somewhere probably between EUR 100 million and EUR 200 million, but where that finally will land, the calculation and planning is ongoing, and then we know better. Remains to be seen. But that is the magnitude. So not as much as the kind of new production line. No, no.
And the full kind of effect of that is baked into the CapEx indication for 2021 or 2022?
There is some carryover expected for 2023.
Yeah, of course, depending on when we are finally able to make a decision.
Right, right. Okay. And then just finally on the Husum minority stake booking on your balance sheet, could you just briefly explain how that's going to be booked now? I heard Mika mentioning something on that in the commentary here in the beginning, but if maybe you could just clarify a bit more how it's going to be booked and why it's not really showing up as a minority on your P&L?
Okay, Jussi will clarify.
Yeah, I think the balance sheet impacts, as were stated by Mika, they are as they are. So there is not much more to say. So there is a minority interest and a positive impact on retained earnings on the balance sheet. And in terms of P&L, you are right that in the P&L itself, the minority is not deducted. But then after the P&L statement, if you flip to page 15 of our Q1 release, there is a table at the bottom of the page how the non-controlling share has been deducted when calculating EPS.
All right. But I mean, and when you book that into equity, I guess it has to come off in some way there as well on your balance sheet, the minority share, right?
Sorry, I did not understand the question.
No, I mean, because you reduced the minority impact from your EPS, but I guess that reduction should also be reduced from your net profit, which should reduce what you flow into your equity and balance sheet. Or is that not the case?
Perhaps, Mika, we can take this offline to clarify. So we will revert.
Okay, good. Thank you very much.
Thank you. Our next question is from Harri Taittonen from Nordea. Please go ahead.
Right, good afternoon, Mika and Jussi. Just a couple of quick questions already partly touched upon, but related to this volume, and just curious from the technical point of view that with your guidance for the second quarter also, that means that production for the six-month period will be, I mean, well, roughly sort of million tons on record high. And just if you assume that demand holds on like it is for the second half, I mean, what would be the second half technical potential? How much lower would it be compared to the first half, given the maintenance and things like that? Just to get a feel of the potential there for the second half.
Yeah, I don't have the exact figure for you, but we know that these big maintenance shutdowns will take place, as you said, the second half, like Kemi and Husum, for example. Of course, there will be then losses or curtailments, so to say. I would say somewhere around 15-20 thousand tons, maybe all in all, depending on how the startup will go after shutdowns, etc., and so. Then we remember that Q1 production was really, really good. I mean, several production records and so.
We should not use the traditional rule-of-thumb method to extrapolate from here, simply.
Yeah, of course, you can, but that probably then the answer is not right.
No. Okay. The other sort of small just to note is that in the other operating expenses, the number was, was it EUR 27 million in Q1? It looks like it has been more like mid-30s last year per quarter, and it was -EUR 37 million a year ago. Was that because of the strike and the maintenance, and this was just kind of a so that this other line will be kind of moving up to that mid-30s again, or was there something else?
Maybe Jussi can—
no, sorry. Again, such a detailed question that let's hurry take that offline as well.
Sure, sure. Okay. No, thank you.
Thank you.
Thank you. Just as a reminder, if you wish to ask a question, press 01 on your keypad. There'll be a brief pause while we register any further questions. We have another question from Johannes Grunselius from Kepler Cheuvreux. Please go ahead. Please go ahead. Your line is now open. There are no further questions at this time, so I'll hand back over to our speakers.
So no questions anymore. Okay. All right. Thank you very much for your attention, and I would like to use the opportunity to thank Jussi also for this CFO time and wish him good luck and success for new position and new challenges, so thank you very much, and thank you all for your attention also, and have a nice day and see you next time.
Thank you also from me.