Good morning or good afternoon to everyone, depending on your global location. And welcome to the Presentation of Metsä Board's First Quarter Results. My name is Mika Joukio, and together here with me I have our CFO, Jussi Noponen, and Head of Investor Relations, Katri Sundström. Let's start by putting the quarter in a nutshell. At the beginning of the year, Finnish paperworkers went on a two-week strike. Obviously, this had a big negative impact on our operations and profitability, since the majority of our mills and all Metsä Fibre's pulp mills are located in Finland. However, an even larger negative impact on earnings compared to the first quarter last year was caused by the decline in market pulp prices. On the other hand, the cash flow from operations was exceptionally strong for the first quarter, EUR 80 million.
Mainly due to the coronavirus pandemic, total paperboard delivery volumes ended up higher than we earlier estimated, and despite these exceptional circumstances, our development projects, such as the Husum pulp mill renewal and the modernization of the finishing area at the Kyrö Mill, are proceeding according to plan. In March, we started the foundation work for the new recovery boiler in Husum. However, the final investment decision is still pending on the renewed environmental permit, and the board's proposal for profit distribution from last year remains unchanged, then a few words on how the coronavirus has impacted us so far. What has been positive for us is the strong demand for fresh fiber paperboards, especially in end uses like food, beverages, and pharma. Of course, we have to remember that this strength is likely to be temporary and will not last forever.
But so far, our order books have remained strong. In order to avoid close contacts, we have postponed some of the maintenance work planned in Q2 to the second half of the year. So far, our logistics have worked fairly well, and we have not faced any shortages with containers. There have been some bottlenecks in logistic capacity in Europe due to border checks and the fact that not all drivers are willing to drive to some of the affected regions. Even though the impacts from the coronavirus on Metsä Board's operations have so far been quite minor or even positive, we have to be prepared for tougher times. A global recession is starting to look quite inevitable, and Metsä Board cannot avoid its negative effects. However, our financial position is strong, and the maturity profile of our loans is healthy, and our liquidity has remained strong.
Before moving on to the results, let's have a look at Metsä Board's current product portfolio and the main end uses of our fresh fiber paperboards. Out of our 2 million tons of paperboard capacity, roughly two-thirds are folding boxboards, including the food service boards, and one-third are white kraftliners. Roughly 50% of our folding boxboards are used in food and food service packaging, and mainly in food. Some 40% are used in more general consumer goods packaging, such as pharma and cosmetics, and the rest goes to critical end uses. The majority of our white kraftliners go to various retail needs, such as shelf-ready solutions, point-of-sale displays, and fresh fruit and vegetable boxes. E-commerce represents quite a small share in our portfolio, some 10%, but yet it's growing fastest. All in all, the demand for our paperboards is very much consumer and retail-driven.
Then to the results, and let's start with the total delivery volumes of our paperboards. Strikes at our Finnish mills impacted negatively on our volumes, especially in February. However, demand accelerated towards the end of the quarter, and our first quarter deliveries ended up on a higher level compared to the previous quarter or to the same quarter last year. Total deliveries were 450,000 tons, a little higher than we had estimated. Then a closer look at paperboard sales and the drivers behind the demand in the first quarter compared to the corresponding period last year. In the EMEA region, delivery volumes in folding boxboard were stable but increased in white kraftliners. The price level in folding boxboard remained stable but declined slightly in white kraftliners. In America, total paperboard delivery volumes grew slightly.
The average selling price of folding boxboard increased, mainly due to the improved sales mix, and remained stable in white kraftliners. Both in Europe and the U.S., demand for food and pharma packaging has been strong as consumers have been stocking up on essentials. At the same time, demand for luxury products has suffered. In addition, booming e-commerce, especially in the U.S., has increased the demand for white kraftliners. In the Asia-Pacific region, which is not that big of a market for us, total paperboard delivery volumes remained roughly at the level of the first quarter last year. Our operating result in the first quarter was EUR 34 million, which was clearly lower compared to the level a year ago, EUR 62 million. The main reason for weakened profitability was the decline in the market pulp price.
Then the strikes at all our Finnish mills burdened the operating result by 20 million EUR, of which 15 million EUR hit the first quarter. All these amounts include the impacts from our associated company, Metsä Fibre. On the positive side, we had lower production costs. In particular, wood and energy prices declined compared to the last year's levels. Also, FX, after hedging, had a positive result impact compared to Q1 last year. Our first quarter sales were 472 million EUR. The decline in sales was not as big as it was in profitability and is explained by the fact that the result contribution from Metsä Fibre doesn't show in the top line. The market pulp price decline in 2019 decelerated towards the end of the year, and this year the prices have been quite stable both in Europe and in China.
But as said, the recent price decline has had a big negative impact on both Metsä Board's and Metsä Fibre's profitability. Globally, we are still seeing very high inventory levels, especially for short fiber pulp. The effects of the coronavirus have also been seen in the pulp market. The demand for long fiber market pulp, which is our main trade, has been supported by increased demand in tissue and hygiene products. At the same time, the consumption of printing and writing paper has declined and reduced the demand for pulp, especially here in Europe. However, this in turn has reduced the availability of recycled paper and has increased the demand for virgin fiber. Several market pulp producers, including Metsä Fibre, have postponed plant maintenance work in the second quarter to the second half of this year. Then our long-term financial targets and dividend.
In the first quarter, our return on capital employed was 7.6%, far from our targeted level of at least 12%. This is mainly due to the reasons I have already explained: cheaper market pulp and strikes at the Finnish mills. Our financial position is strong. At the end of March, our net debt to EBITDA was at the level of one, so there is a lot of headroom to our ceiling target of 2.5. Our dividend policy is to distribute at least 50% of our net result to shareholders. The board's proposal of the profit distribution from 2019 is EUR 0.24 per share, which corresponds to 59% of net result. The board has confirmed this proposal, and it will be presented to the annual general meeting, which is planned to take place on the 11th of June.
Then our cash flow, which was exceptionally strong, EUR 80 million in the first quarter. There are two main reasons for this strength. First, the strong working capital growth, which is typical for the first quarter, did not occur due to production losses caused by the strikes at Finnish mills. Secondly, the lower pulp price has increased the share of Metsä Board's own board mills and correspondingly reduced the share of the associated company, Metsä Fibre, in generating cash flow. Q1 operating cash flow includes the dividend received from Metsä Fibre, EUR 22 million. So, despite the exceptional circumstances, our investment projects are proceeding according to plan. Here is a brief summary of the Husum pulp mill renewal. In March, we obtained the building permit for the new recovery boiler, and the foundation work at the site started immediately.
We are still waiting for the amended environmental permit to be issued by the Swedish authorities, which we estimate to receive earliest in Q2. Once we receive that, we can make the final investment decision on the first phase of the investment. The total investment value of the first phase is EUR 320 million. In the first quarter, the investments in this project totaled EUR 24 million. Before moving on to the near-term outlook, I will let CFO Jussi Noponen, go through our financial position. So please, Jussi, go ahead.
Thank you, Mika, and hello everyone. Jussi Noponen here. Before moving on to our financing, I'd like to remind you that Metsä Board's paperboard business is quite defensive, so the downside risk is smaller than in many other industries. As Mika has already pointed out, the majority of our paperboards are used in the packaging of essentials in segments like food, beverage, and pharmaceuticals. The consumption of these products is not so strongly dependent on economic conditions. However, should the coronavirus cause a long and deep global recession and the plunge in our paperboard demand, our strong financial position would protect us for quite some time. Firstly, the maturity profile of our debt is healthy. Last September,
we agreed on a new financing arrangement consisting of a five-year drawn loan of EUR 150 million together with a revolving credit facility of EUR 200 million, which is currently totally undrawn. As shown on this slide, our first meaningful debt repayments take place in 2025.
The financing package for the Husum pulp mill renewal has also been agreed, and we will disclose the details once the final investment decision has been made. Secondly, our liquidity is strong. In addition to the undrawn RCF, we had EUR 180 million of liquid funds at the end of March. Further, our liquidity is complemented by Metsä Group's internal credit facility of EUR 150 million and pension premium funds of EUR 190 million. So all in all, using the widest definition of liquidity, we have over EUR 700 million available, and now back to Mika.
Okay, thanks, Jussi. And then, how do we see the near term? First of all, the negative impacts of the pandemic on Metsä Board's business operations are very difficult to estimate in the long run. We don't know for how long the situation will last and what are the final impacts on the global economy and thus Metsä Board's profitability. However, at the moment, we are seeing good demand on our products, and our current order books are strong. Based on this development, we estimate that our paperboard delivery volumes in the second quarter will remain at the level of the first quarter. Also, we expect paperboard prices in all our main market areas to be stable.
The supply and demand of long fiber pulp is expected to remain balanced, and prices are not expected to decline further. Several producers have already started to announce small price increases both in China and here in Europe, including Metsä Fibre. Due to this coronavirus, some maintenance works planned for April-June have been partially postponed to the second half of this year.
However, we don't expect any major changes to production costs. So based on these assumptions and current visibility, we estimate that our operating result in the second quarter will be better than the first quarter. Then to summarize, in the short term, the demand for Metsä Board's pure and safe fresh fiber paperboards has increased as consumers have been stocking up on essentials: food, beverages, pharmaceuticals. We believe that at some stage, this accelerated demand will slow down and possibly even start to decline. But when and by how much, that is still unclear. However, it's quite fair to assume that the negative impacts of the pandemic on the global economy will also have an impact on Metsä Board's profitability. However, I'm pleased to say that Metsä Board's financial position is strong, which will support the continuity of our business in the coming months.
Also, our development projects, such as Husum pulp mill renewal, are progressing according to plan. Right now, our main tasks are, in addition to securing business continuity, to make sure that our personnel stay safe and healthy and that we do everything we can to prevent further spread of the virus. Now, that was the presentation part of our first quarter results, and we are ready for your questions. So please go ahead.
Thank you. If you do want to ask a question, please press zero one on your telephone keypad to register. If you would like to withdraw your question, that is zero two. Once again, to register for a question, please press 01 on your telephone keypad. And our first question comes from the line of Harri Taittonen from Nordea. Please go ahead. Your line is open.
Yes, thank you. Good afternoon. You talked about the order books being on a good level. Can you remind on the folding boxboard and line about that? What is sort of the more or less normal variation between the highs and lows during the cycle and where you are in terms of length of order books at the moment against that sort of cyclical range?
The variation during the year is not very high or big because the products are not that cyclical. And the normal level practically is, let's say, 20 days, and now we are clearly above that.
Okay. Okay. Then just looking at them, I mean, it shows in your associate line that the Metsä Fibre margins, they seem to have declined by some 7 percentage points in Q1 compared to Q4. Is it sort of a, can you just comment anything about if it was because of the strike or was the sort of average price still down or what was, just to understand how this sort of associate line could develop in Q2 and Q3?
Yeah, so average prices did not decline anymore during Q1, but they were quite stable. But of course, the biggest thing was the strike at the Finnish mills because all the Metsä Fibre's pulp mills are located here in Finland.
Yes, yes. I understand, and maybe the final question just under your fairly conservative wording about the pulp price outlook because knowing that, as you said, you mentioned that several companies, including Metsä Fibre, have announced price increases in both China and Europe, and you are saying that they are probably going to go down. So just kind of could you give a flavor of, I mean, is there any sort of customer response from the ongoing price increase attempts or any sort of color on that?
So Metsä Fibre and other suppliers, they have given price increase announcements both in China and here in Europe. But of course, it's maybe a little bit too early to speculate whether they go through and how much they go through. But what is fair, I mean, what is clear is that or seems to be clear that the prices are not declining anymore. But how much they would increase during Q2 is still, of course, unknown.
Okay. Okay, okay. That's all from my side. Thank you very much.
Thank you. And our next question comes from the line of Robin Santavirta from Carnegie. Please go ahead. Your line is open.
Yes, thank you very much, and good afternoon. I was wondering about the paperboard guidance you have of flat quarter-on-quarter deliveries. In spite of that, you state that you have clearly stronger order books than you normally have, and historically, Q2 has been a stronger quarter in deliveries of paperboard quarter-on-quarter. So do you bake in some kind of slowdown for the end of the quarter, or is that just sort of a cautious guidance?
Yeah, so during Q1, of course, we need to remember that we also had a strike, which boosted, I mean, after strike, of course, then customers really ordered well, and then this pandemic came, and that was another boost. So I think maybe it's a little bit careful estimation, but I would say that realistic level is at the same level as, I mean, Q2 deliveries to be at the same level as Q1.
All right, all right. Thanks. Then in terms of this strike impact of EUR 15 million and EUR 5 million, first of all, could you just shed some light on what the EUR 5 million now in Q2 is? The strike was already quite some time ago. So what does that EUR 5 million consist of? And secondly, this EUR 15 million impact in Q1, is that only the negative part of this strike, or do you also include sort of the positive, as you said, quite some orders at the end or after the strike?
Okay, Jussi will take this.
Yes, so if we start from the EUR 5 million, now with the good demand and high order books, without the strike, we would have better availability of the product, and now in early Q2, our delivery volumes would have been higher. That's causing the sales loss in the second quarter and the lost profit of about EUR 5 million. And yeah, the EUR 15 million, it was the genuine impact of the strike, including the lost production in the first quarter as well as the lost sales in the first quarter.
And that also includes then if you had some kind of catch-up impact on orders. So is this also the positives and the negatives of the lost production you had in Q1 at EUR 15 million?
Well, now, of course, going forward, it's quite hard to isolate the impacts of the strike and the bounce back after the strike and now the strength of the order book caused by the coronavirus situation. But this EUR 15 million plus EUR 5 million is our best estimate on this.
I understand. That is clear. And then final question from me on maintenance cost. Should we now expect basically no financial or earnings impact from maintenance in Q2? And what should we expect for Q3 and Q4? I guess normally you have had EUR 10 million more maintenance cost in Q2 quarter-on-quarter and then basically at the same level until the end of the year, every quarter. So could you shed some light on the potential or the maintenance cost as it looks at the moment?
Yeah, so in Q2, the maintenance cost will be some millions higher than in Q1. Not 10, but anyway, some because we didn't practically have anything on Q1. But then Q3 and Q4, of course, there will be more maintenance than during the normal years because we have moved maintenance from first half of the year to the second half of the year. So it's not 10, 10, 10 this year. So it will be something a bit different.
All right. Thank you very much.
Thank you. Next question comes from the line of Mikael Doepel from UBS. Please go ahead. Your line is now open.
Yes, hi. It's Mikael Doepel with UBS. I missed your first comment on the visibility that you have right now. How long does your order book stretch right now? What is your visibility? Do you already see the full month of May, maybe into June as well?
Yeah, so I mentioned that the normal, I mean, good order book, as far as the availability for customers is concerned, is roughly three weeks or 20 days. And now we are clearly above that. So that's clear. But of course, if then something happens in the European or global economy, of course, that will affect then also our deliveries, whether they are postponing orders or whether they are canceling orders or so. But at the moment, we don't have that. At the moment, the situation is good, but you never know what will happen, for example, in June under these circumstances as we are living in.
Okay. And then in terms of the packaging demand and the strength that you are seeing, if you look across the regions, the U.S., Europe, and Asia, is there anything that stands out in any of the regions, either positively or negatively when it comes to packaging demand, either for folding boxboard or kraft liners?
Yeah, so our main markets are Europe and North America. And in both those markets, demand is good for both in folding boxboard as well as white kraftliners. In the Asia-Pacific region, we are small. We are selling all white kraftliners there, and the volumes in folding boxboard are only 5% of our total deliveries. So it's Europe and then North America. And in both markets, the situation at this very moment is good.
Okay, okay. And then just a final question on the overall cost development. I hear you saying that the production costs will be stabilizing in Q2. I would assume that there could be some cost deflation going forward. Maybe you do some cost takeouts as well. For the full year, would you expect your total cost to be up or down or flat?
Yeah, you'll see here. So yes, you are right that there is potential for some cost deflation. And now for the second quarter, we are guiding flat costs quarter-on-quarter. But for the full year, at least, we are not expecting cost inflation. How much deflation there will be, that we don't know yet, but more likely deflation than inflation.
Okay. That's very clear. Thank you very much.
Thank you. Our next question comes from the line of Antti Koskivuori from Danske Bank. Please go ahead. Your line is open.
Yes, thank you. First of all, on Husum environmental permit, I think earlier the wording was that you expect to make the final decision during Q2. Now you say earliest during Q2. Maybe it's a bit of nitty-gritty. I can understand it. But is it just a timing effect, or is there kind of more complexity or something in the process that makes you a bit more cautious on the timeline?
No, we didn't change our wording. It was also earlier. It was earliest Q2, so no changes. So we still expect that earliest by end of June, we will get that. So no change.
All right. Okay, okay. Cool. Then secondly, on FX, I guess with the current, if we look at the spot rates, it implies fairly nice support to the earnings in 2020 and 2021. Would you share a number, what you would expect to see on a support from FX in 2020, assuming that the current spot prices would prevail throughout the year?
Okay, Jussi.
No, sorry. I don't have the calculation for the full year with me now, but for the second quarter, we can say that a low single-digit millions profit improvement is coming from FX.
All right. Thank you.
Thank you. Our next question comes from the line of Linus Larsson from SEB. Please go ahead. Your line is now open.
Yes, thank you very much. Follow up on the Husum project. You say second quarter of this year at the earliest for a final. Go ahead. I wonder if you could also say what your base case is and how much of Husum CapEx that is baked into the EUR 210 million that you are guiding for as CapEx for the full year for the group.
So I didn't quite so we are proceeding according to original plan. So there is no change. And also how much we are using this year, at the moment, we don't see any major change. And the amount included in the estimate is between EUR 140 million and EUR 150 million for this year.
Okay, great. And that's pretty much independent on whether there is a go ahead as per the 30th of June or a quarter or so later than that because you already started the project up at Husum?
It's not totally independent. So the timing of the permit and the final investment decision, that may influence the CapEx estimate.
Okay. And is it your base case that by the 30th of June, you will have a decision, or what's your assumption on your plan right now?
So we will have the decision ASAP we get the acceptance of this amended environmental permit. So the decision will be made after that. But we go on full speed at the moment in Husum. So we believe that it will come.
Good. And as for CapEx in 2021, Jussi, what could you say at this stage?
Again, dependent on the timing of the permit, but if you mean for the Husum project, you can estimate roughly the same magnitude as for this year.
Okay. And for the maintenance part of the group as well?
Also fairly unchanged, yes.
Great. Very good. Then also on your volume guidance, just to follow up on what you're saying regarding the second quarter, could you just touch upon that and comment it split by folding boxboard and kraft liner or various end users, if you like? I'm sure the picture varies a bit depending on the different parts of your paperboard business.
Yeah, it's pretty much same split as in Q1. Let's say 300,000 and 150,000. Altogether, 450,000.
Okay, okay, okay. And when it comes to end users, do you see some segments where you see a weakening now and elsewhere continued strength?
Yeah. As I said in the presentation, the food segment and then the pharmaceutical segment, they are probably strong. But then this kind of luxury packaging, like cosmetics, for example, they are suffering a little bit. So that's quite typical in this kind of situation.
Great. Excellent. Thank you very much.
Thank you. Next question comes from the line of Markku Järvinen from Handelsbanken. Please go ahead. Your line is open.
Yeah, it's Markku Järvinen from Handelsbanken. Just still wanted to ask about the maintenance. Did you say that in Q2 you will have no maintenance? Is that zero for Q2?
No, no, no. We will have maintenance in Q2 compared to Q1, but we have also moved a lot of maintenance from Q2 to Q3 and even Q4. But we don't have as much maintenance during Q2 as, for example, last year.
But more than Q1. Could you give a number for that impact?
A few million or below five. Less than five. Compared to a normal Q2, some millions lower this year.
Okay. Good, good. And sorry, compared to a normal year, it's a.
Yeah, normal. So comparing normal Q2, so of course it's lower. But comparing Q1, it's higher.
Okay. But you're saying it's going to be a few million less than five, the maintenance impact in Q2?
Yeah, yeah. So between zero and five.
Good. Okay. Very good. Very good. And is that including the maintenance by Metsä Fibre, or when are they doing the maintenance at their partners?
They have also moved their maintenance annual shutdowns to H1, second half of the year.
So all of Metsä Fibre maintenance will be in H2?
Not totally all, but practically the big ones are all there.
Okay, okay. Very good. Very good. I think my other questions have been answered, so thank you very much.
Thank you. Once again, if you would like to raise up to four questions, it's zero one on your telephone keypad. And as we have no more questions, I now hand back to our speakers for any closing comments.
Okay. Thank you, everybody, for active participation. And at this point, of course, I wish you, first of all, nice Vappu. Try to stay at home and not on the streets. Go as far as possible from the big cities. There is one more question, or?
Yeah, if you would like to take that question, it comes from the line of Cole Hathorn from Jefferies. Please go ahead, Cole. Your line is open.
Okay. Thanks for taking the question. Just one on logistical challenges. Could you just talk a little bit about how you're managing the logistical challenges shipping to your customers and managing your supply chain at the moment?
Yeah. So as we said in the presentation, we don't have any major hiccups in logistics. Of course, in some areas, I mean, between the borders, between the countries, for example, there might be some challenges, but they are quite minor. We are pretty close to normal situation. We don't have any shortage of the containers, for example, and so no major problems there.
Very clear. Thank you.
Okay. Then I continue.
Thank you.
Then I continue. I started by saying that thank you very much for active participation. And then I would like to wish you nice Vappu first of May. It's not the normal, so we need to stay home and try to be just with the family members and so on. Have a nice continuation of the day, and please stay. I wish you that everybody is staying safe and healthy. Thank you.