Good day, everyone, and welcome to this conference call to hear about the agreement between Metsä Board and Norra Skog, which we have announced earlier today. I am Mika Joukio, Metsä Board's CEO, and together here with me I have our CFO, Jussi Noponen. I will go through the idea behind this transaction and what impact it will have on Metsä Board's business in the long term. Jussi will then clarify the main terms of the transaction and other financial impacts from it. After the presentation part, we will open up the discussion and answer to your questions you may have. So, we have today signed an agreement to sell a 30% stake in our Husum pulp mill to Swedish forest owners cooperative Norra Skog. At the same time, Metsä Forest Sverige, responsible for our wood procurement in Sweden, has entered into a long-term wood supply agreement with Norra Skog.
What are the main benefits to Metsä Board from this transaction? First of all, it ensures a long-term availability of certified local pulpwood to Husum mill, as it will substantially reduce the volume of imported wood. In addition, it will release a significant amount of capital and thereby puts us into a good position to grow our core business, sustainable and high-quality fresh fiber paperboard. As Norra Skog becomes a minority owner to Husum pulp mill, they will in turn commit to increase significantly their wood supply to Metsä Board. So, this deal provides them with a secured wood sales channel well into the future and opens access to attractive pulp business through an ownership stake in a pulp mill. Before going into the details of the agreement, let's recap what the Husum integrated includes.
Annual production in Husum totals 650,000 tons, of which 400,000 tons is folding boxboard and 250,000 tons is uncoated kraftliner. We also have a PE coating line in there with an annual capacity of 100,000 tons. A large part of folding boxboard produced in Husum is delivered to North America, whereas the main market for uncoated white kraftliners is Europe. Our current annual pulp capacity in Husum is 730,000 tons, of which roughly 330,000 tons is sold as market pulp. Annual wood sourcing corresponding to full pulp capacity utilization is 3.5 million cubic meters. We have our own harbor in Husum, which enables efficient logistics to our main markets, North America and Europe. After the transaction, the Husum mill will continue to be managed as one integrated, exploiting synergies and achieving maximum efficiency. An expected update on Husum pulp mill renewal.
The amendment to the environmental permit has been now approved, and the final investment decision on the first phase of the investment has been made. Total investment value for the new recovery boiler and the turbine is approximately EUR 320 million, and the estimated startup will be in the first half of 2022, but now I will hand over to Jussi, who will go through the main terms of the transaction and other financial impacts.
Thanks, Mika, and hello everybody on my behalf. As Mika earlier pointed out, Husum mill will continue to be managed as one integrated, exploiting full synergies. Also, Metsä Board will continue to consolidate Husum pulp mill as its subsidiary, so there will be no changes on the P&L. As a minority owner, Norra Skog will receive 30% of Husum pulp mill's profit distribution as dividends. The enterprise value to be applied for the pulp mill at the time of closing is approximately EUR 875 million, including the completion of the ongoing recovery boiler and turbine investment. The valuation corresponds to a value of approximately EUR 1.2 billion after the completion of the second phase of the pulp mill renewal, meaning the new fiber line. The transaction will decrease our net debt by approximately EUR 260 million at the time of closing, which we expect to take place in January 2021.
Our share from the second phase of the pulp mill renewal will reduce by approximately 100 million EUR. The long-term wood supply agreement between Metsä Forest Sverige and Norra Skog will increase the share of wood procured from Sweden to Husum and substantially reduce the volume of imported wood. Norra Skog's share of total wood supply to Husum will increase from the current 20% to 50% in the long term. This, in turn, will decrease the mill's cost volatility. In addition, nearly all of the wood supplied by Norra Skog to Husum will be certified, so it will increase the certification level of wood used by Metsä Board. Prior to the transaction, our net surplus in pulp is approximately 600,000 tons per year. The net surplus consists of the difference between our own pulp production and consumption and our 24.9% holding in associated company Metsä Fibre.
After the deal, this surplus will decrease to roughly 390,000 tons. However, as we will continue to consolidate Husum pulp mill in our financial statements as a subsidiary, the sensitivity of operating result to the changes in pulp market prices will remain unchanged. A 10% increase in the market pulp price will have a positive impact of approximately 30 million EUR annually on our operating result and vice versa. And now back to Mika.
Thank you, Jussi, and before summarizing, I'd like to highlight the impacts of this deal on our future business plans. This deal enables us to continue profitable growth in fresh fiber-based packaging materials according to our strategy. As I have earlier said, we have investigated several options in paperboard business aiming at organic growth, developing the product offering, and improving the cost efficiency. Now these plans can be accelerated towards decision-making faster than we had previously anticipated. The cash released by the transaction and the avoided future investments totaling over 350 million EUR will enable a significant reallocation of our development investments to paperboard, and then to summarize the key takeaways from this transaction. First, cooperation with Norra Skog ensures long-term availability of local pulpwood for Husum integrated mill. It will decrease the share of imported wood and that way reduce mill's cost volatility.
It will also increase the overall certification level of wood used by Metsä Board. Our target is that by 2030, the share of certified wood fiber is over 90%. Secondly, and what is strategically important, the deal releases capital and enables us to focus on growth in our core business, fresh fiber paperboard. By the time of closing this transaction, we are practically a net debt-free company and therefore able to accelerate our investment planning towards decision-making. So, ladies and gentlemen, that was the presentation part of this transaction, and we are now ready to answer your questions. Please.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypad now to enter the queue. Once your name is announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Antti Koskivuori of Danske Bank. Please go ahead, your line is open.
Yes, thank you and congratulations on the deal. It seems to make a lot of sense. I basically have two questions or two themes, if you will. First, on the growth opportunities, just wondering if you could kind of shed some light on which grades you see as the most lucrative at this point. What type of investment are you looking at, more like a de bottlenecking type of investment or actually building a new machine? And thirdly, when should we anticipate the decisions to be made? Now you said they are likely to be accelerated, but what's the timeline we should think about? That would be the first question. I'll come to the second one after the answer.
Yeah, of course, starting from the grades, of course, the most lucrative in our portfolio is folding boxboard and then coated White kraftliner, like we are producing at our Kemi mill. Of course, we think about growth in these grades, but we also have analyzed and will analyze other grades. What they are remains to be seen, but the analysis phase is ongoing. And then as far as the kind of what type of investment, I have said several times and repeated here that we go through different options, whether they are a rebuild of existing lines or then something totally new. So it can be either/or. And then timing, I don't want to say any exact time, but of course our intention is to continue to grow in paperboard businesses. And as you surely know, our current asset portfolio is pretty much fully utilized.
So we would like to move quickly, but what does it mean in practice remains to be seen.
All right, thank you. Then the second question on the Husum pulp mill rebuild and the timing of the second phase of that, the fiber line investment. Does this deal accelerate the second phase somehow? Now you said quite basically you said that that will be done during 2020. Is there any update on the timeline at this point?
No, not at this point. Of course, if and when we are planning these investments in paperboard side, they have also a kind of impact on the second phase. But at this point, the good kind of guessing is that in the mid-2020s, around that time, the second phase will be implemented.
All right, thank you very much.
Thank you. Our next question comes from the line of Robin Santavirta of Carnegie. Please go ahead, your line is open.
Yes, thank you very much. Now, first of all, in terms of the wood raw material procurement you have at the moment, how much are you importing from the Baltics to Husum and how much from the local market in Sweden? And how will that relation change on the back of this agreement you have?
Yeah, during the last years, roughly one third of the wood used in Husum or at Husum has been imported on the average, and of course, now there will be a significant change then after this, especially when we have the second phase of investment implemented, so it will reduce significantly.
All right, thanks, and you said it's less volatile, the price level, I guess, in Sweden, but is it lower over time? What would you say?
Yeah, so if you think about the last years, so on the average, the imported wood has been, of course, more expensive than the local one due to the transportation, etc. So when the share of the local wood will be bigger, of course, then the volatility will be also lower, not that high. It's quite logical, I would say.
Sure, thank you. Then regarding the next step you have in front of you, you talk about organic growth in paperboards. Does that exclude M&A? You're not at all looking at potential M&A either in the Nordics or in North America?
I think that has been asked also earlier, and my answer has always been that, of course, we keep our eyes open and all the possibilities are, of course, very carefully then analyzed and so on. But I would say that at this point, of course, we focus clearly more on the organic growth by ourselves.
Good, thanks. And now that we have you on the line, can you also ask about the paperboard market you are seeing in Europe, the development at the moment? Can you just sort of update us what is the current demand environment and supply environment?
Yeah, at the moment in our both grades, White kraftliners as well as then the folding boxboard demand is good, both in Europe as well as in North America, and we see that the demand-supply situation in both grades, I mean, folding boxboard and coated White kraftliners is healthy at the moment, and order inflows and order books are in a good level.
All right, thank you very much.
Thank you. Just as a reminder, participants, if you do wish to ask a question, please dial 01 on your telephone keypads now. The last question in the queue so far comes from the line of Harri Taittonen of Nordea. Please go ahead, your line is open.
Yes, good afternoon, Harri Taittonen, Nordea. I mean, in the previous call, there was some talk or discussion also regarding your stake in Metsä Fibre and the potential reduction of that. And just sort of because now, in a way, the situation still remains that you are quite heavily long sort of in pulp, and that might increase when the Kemi line finally starts a few years down the line. But now, can you sort of give color on why you kind of chose this option instead of the Metsä Fibre? If you can sort of elaborate on that a bit. And is this sort of current balance something that you see to be lasting, or is this kind of a process which might go on further later on, or how would you say?
Yes, I see it so that these are not two different options, whether it's the ownership in Metsä Fibre and then what we are doing now at the moment with Norra Skog in Husum. I think it's still, I mean, it's not out of question to have a different kind of ownership on Metsä Fibre in the future. It's still an option also. So I do not see that these two things, I mean, Husum and Kemi, they would be two alternatives. They are two separate options and possibilities. And if then we see that we could utilize this then concerning Kemi, then it remains to be seen what will happen.
Exactly, exactly. Okay. And then, I mean, just sort of double-checking regarding the price, because it works out to be something like EUR 1,200 per ton of capacity, which is kind of fairly attractive, I'd say. I mean, so just double-checking, is there something else included in the transaction, or is it simply the pulp capacity?
Okay, Jussi will take this. Yes, it is correctly calculated for the interim stage of the mill renewal when the recovery boiler and the turbine have been built. Then the valuation of the whole mill is EUR 875 million. And as I said earlier, when the second phase of the renewal has been completed, then the corresponding EV value would be about EUR 1.2 billion. So that translates to about EUR 1,600 per capacity ton.
Yes, yes. Good, good. Finally, was there any comment on capital gain related to this? What will you be booking in Q1?
It was noted that as it continues to be a subsidiary, the capital gain will not be recognized through the P&L statement. But in terms of the balance sheet impacts on a pro forma basis calculated on the end of September balance sheet, for instance, our equity ratio would increase from 59% to 63%, and net gearing go down from 21% to 1%, and net debt to EBITDA from 1.0 to 0.1 times EBITDA.
Great, fantastic. Thank you.
Thank you. And we've had one further question join since the last one, and that's from Linus Larsson at SEB. Please go ahead, your line is open.
Thank you very much. Just follow-up question on potential further investment at Husum on the paperboard side. That's at least one of the projects that you have discussed with us previously. I think you've said that there is the bottleneck and potential of 100 or 200,000 tons of paperboard on that site. Whether if you could comment on that again, maybe correct me if I'm wrong. And also say whether that type of expansion would be possible in parallel with the phase one and/or phase two of the pulp mill investment on that site.
Yeah, Mika Joukio here. So yes, you are right. There is an opportunity to increase the capacity of board machine number one, so the folding boxboard line, roughly by 200,000 tons. And that is still true, so to say. And of course, that is one option that we have calculated in our planning. And I would say that that investment would be possible to do at the same time as the first phase. I think that is possible. Of course, depending on the price tag and delivery times of technology.
Yeah. And just hypothetically, I understand that is one of many options that you have, but what type of CapEx range would we be looking at in such a project? And what's the time horizon you said that you have now reached a situation where you are able to accelerate growth again in your paperboard business? But what's the, in that specific case, what's the best possible time frame for this particular case?
I mean, you mean particular case? You mean this board machine number one?
Exactly.
Oh.
It's right.
Okay. But as I said, this is not the only option. Of course, we calculate different options also in Finland, not only in Husum. We need to remember that we have seven mills also in Finland. And so the options are not only in Husum. So it's too early to say the timing or so, and whether this PM1 capacity increase would be the one that we will choose. So sorry to say, but too early to comment on this.
Sure. And then just one more follow-up. You said early on this call that you would consider not only folding boxboard and coated White kraftliner, but also other grades. Could you maybe frame that just a little bit to say what areas you are potentially looking at in terms of other grades?
Yeah. Again, sorry to say to you, but it's too early to say. Of course, we all know what are these grades that are in the paperboard family. But unfortunately, it's too early to comment on this.
But at least you are talking about paperboard that much we can say.
Yes. Our intention is not to go back to paper.
No, okay. Okay. That's good to hear. Thank you.
Thank you once again. If there are any further questions, please dial zero one on your telephone keypads now. Okay. If there are no further questions coming through at this time, I'll hand back to our speakers for the closing comments.
Okay, ladies and gentlemen, thank you very much for your interest. And I wish you a good continuation of the day. And of course, most importantly, stay safe. See you next time.