Good afternoon, everyone, and welcome to the presentation of Metsä Board's January-September results. My name is Mika Joukio, and I'm the CEO at Metsä Board. Here with me are CFO Henri Sederholm and Head of IR, Katri Sundström. As always, let's first go through the presentation and then take the questions. First, Q3 in brief. Unfortunately, the third quarter did not yet bring a turnaround in the sluggish market situation. Demand for paperboard remained muted but stable. Our total delivery volumes decreased slightly from the previous quarter, but not as sharply as in the previous quarters. Volumes are still clearly below the capacity levels, and we therefore continue the production adjustment measures. The good news is that we managed to keep the average sales prices at a good level. There was a small decrease in Europe and Asia, but the situation was stable in North America.
However, a good price level was not enough to compensate losses due to low volumes, and the operating result was barely in black. Henri will go through the details later. The pulp market picked up in China. In Europe, the production curtailments among paper and paperboard producers are still slowing down demand. The positive thing is that pulp prices are on the rise in both markets. Third quarter was marked by major investment shutdowns, as both the Kemi kraftliner and Husum folding boxboard capacity expansions took place at the same time. We will look at them in more detail later in this presentation. Naturally, the startup of Metsä Fibre's new bioproduct mill in Kemi was also a significant event for the entire Metsä Group. Now, a few words about paperboard sales and the overall demand situation.
As the graph shows, paperboard delivery volumes have declined for several quarters in a row. Good thing is that the decline has slowed down. Compared to the previous quarter, deliveries in the third quarter decreased by 4%, while the decline from the same quarter last year was as much as 25%. In total, year-to-date deliveries have come down by 23% compared to 2022. Currently, consumer behavior drives the direction of paperboard demand. High cost inflation, combined with rising interest rates, are eating up consumers' purchasing power, and they are more careful about their purchasing decisions. According to statistics, the value of retail sales appears to be increasing, while the volume of products purchased has fallen. In addition, the consumption of cheaper private label products has increased. This is slightly negative for Metsä Board's paperboards, which are widely used in branded products.
Here is the situation by region and by product. Overall volumes fell in all market areas for both products. Of the single regions, North America has held up best, although even there, demand has fallen from last year's high levels. Imported carton board volumes from Asia, and especially from China, have significantly increased. So far, sales have mostly been directed to Turkey and the Middle East, as well as South America. However, increasing volumes are causing a market imbalance in other regions, like Europe, and in addition, Chinese carton board capacity has grown strongly in recent years. Our aim is to focus on customers who benefit from our paperboard's high performance in our main market areas, Europe and North America.
In addition to the high quality of our paperboards, we gain a competitive advantage in terms of security of supply and a service concept that helps our customers with various packaging challenges, such as reducing the carbon footprint of packaging, reducing plastics use, and improving production efficiency. Metsä Board's year-to-date delivery volumes in market pulp were a third lower than last year. Especially, the deliveries of CTMP were reduced because of production curtailments in paper, which is an important end use of BCTMP. Metsä Fibre's delivery volumes were down by 11%. The pulp market has started to show small signs of improvement, especially in China. Since summer, demand has been at a good level there, while in Europe and North America, demand has been more sluggish. In Europe, the main reason for weaker demand has been the large-scale production curtailments by paper and paperboard producers.
However, in softwood pulp, Metsä Group's main trade, the market balance has been maintained by a reduction in global supply. Softwood pulp supply has been reduced by availability issues with raw material in North America, global production curtailments, and permanent capacity closures. Year -to -date, market prices in softwood pulp have significantly declined compared to the corresponding period in 2022. However, during Q3, prices have been rising, especially in China. Before I let Henri move on to financials, let's have a look at how the current market situation is impacting sustainability and how we are progressing towards our targets. First, safety. Here, our target is zero accidents. Our year-to-date TRIF actual was 6.7, meaning that there is still room for improvement.
The end of Russian wood imports, combined with reduced wood purchases from the Baltic countries, increased the share of certified wood fiber of our total wood supply. This year, the share has been 90%. Decreased delivery volumes and the resulting low capacity utilization affected negatively our mill's production efficiency. This was clearly seen in water use and energy efficiency. Water use per produced ton was higher, and energy efficiency lower than in the base year of 2018. On the other hand, less production led to a smaller amount of direct fossil-based CO2 emissions, which were almost 20% lower than in previous year. Here, our target is that both Scope 1 and Scope 2 emissions will be zero by the end of 2030. But now, I will hand over to Henri to open the financials.
Thank you, Mika, and good afternoon. So lower volumes were reflected in the top line, yet the improved price level offset the negative impact somewhat. Total year-to-date sales were down by 19%, and in the third quarter, the decline was as much as 26% compared to the same period last year. The changes were even larger in profitability. The year-to-date comparable operating result decreased by almost EUR 300 million, or by 71%. In the comparison between the quarters, Q3 was down by almost EUR 150 million or 96% compared to the same quarter last year. Let's take a closer look at the items that affected the result. First, the quarterly comparison. The positive contributors were higher sales prices for folding boxboard and FX impact. Then the negatives.
We have already talked a lot about the low volumes, and their impact on profitability was quite remarkable, not only because of a decline in deliveries, but also due to production adjustment measures. However, the most significant negative impact in quarterly comparison came from weakened pulp prices, in addition to the decreased result share from Metsä Fibre of more than EUR 50 million. Large investment shutdowns in Kemi and Husum in the third quarter increased maintenance cost compared to last year. If we examine the whole review period from January to September, the positive contributors were clearly higher paperboard prices, the impact of FX after hedges, and increased sales of unused emission allowances. The main negative impacts derived from declined delivery volumes, both in paperboard and pulp, increased fiber and chemical costs, and clearly decreased the result share from Metsä Fibre.
Metsä Fibre's profitability was hit by lower sales volumes and prices of market pulp, higher wood costs, and the weakened profitability of the sawn timber business. Naturally, the poor result development was also reflected in the comparable return on capital employed, which fell below the long-term targeted level of at least 12%. The rolling twelve months rate was 8.8%, and year -to -date, 6.7%. Capital employed at the end of the period totaled just below EUR 2.5 billion. The weak market situation emphasized the importance of efficient working capital management. Our operating cash flow in January- September totaled EUR 219 million, which was EUR 57 million more than in the corresponding period last year. Cash flow was supported by production adjustment measures, which kept inventory levels moderate.
In addition, working capital was reduced by a decrease in the value of inventories due to the fall in pulp prices. In the comparison period last year, working capital increased due to rapid cost inflation. Operating cash flow in the third quarter was EUR 77 million, and after the investments, EUR 33 million. And finally, the financial position. Leverage has somewhat increased compared to the very low levels in 2021 and 2022, but remained at a good level, 0.7. There's still a lot of headroom to the maximum target level of 2.5. The dividend payment in 2023 already took place in the second quarter and was the highest in several years, totaling EUR 206 million. We also have sizable completed and ongoing investments this year. And now I will let Mika continue with the investment review.
Thanks, Henri. So regarding investments, there was a lot of activity during Q3. In our Kemi kraftliner mill, we completed a development program initiated in 2021. The program will increase the mill's production capacity by 40,000 tons per year and reduce the mill's energy and water consumption per produced paperboard ton. Full production capacity, 465,000 tons, is expected to be reached during next year. Target markets continue to be Europe and North America, where we already have a solid market position as a provider of high-quality coated white kraftliner. As part of the program, Metsä Fibre's unbleached pulp production line was transferred to Metsä Board. The modernized production line has an annual capacity of 180,000 tons of softwood pulp, and it's fully used in the bottom layer of the kraftliner produced in Kemi.
Investment value of the whole program has been revised to EUR 110 million. At the same time, our associate company, Metsä Fibre, started up their new bioproduct mill in Kemi, which replaces the old pulp mill there. As for Husum, we will increase our annual folding boxboard capacity by 200,000 tons. The investment shutdown started in the third quarter and is expected to be finished during the fourth quarter. After the investment, the total capacity of Husum's board machine number one will be 600,000 tons per year, and will be fully available on the market by the end of 2025. The investment value is EUR 230 million. We are proceeding with our pre-engineering for the new folding boxboard mill in Kaskinen, about which a possible investment decision can be made next year at the earliest.
For the full year of 2023, we expect total investments to be in the range of EUR 250 million - EUR 300 million. Maintenance CapEx will remain roughly at the level of last year, at around EUR 50 million. On the right-hand side, you can see the indicative timetable for both our ongoing and planned investments. Our planned investments include the new folding boxboard mill in Kaskinen and the second phase of the Husum pulp mill renewal, including the new fiber line. The investment values, as well as a more detailed timetable for these two projects, will be specified in the context of possible investment decisions. Now, for the near-term outlook. The operating environment remains uncertain, and the visibility of paperboard sales development is still rather weak. Rising living costs are affecting consumers' purchasing behavior and the overall demand for consumer products.
In addition, growing import volumes of cartonboard from China increase competition in Europe. Paperboard delivery volumes in Q4 may decrease slightly compared to Q3 due to the Christmas holiday slowdown. We will therefore continue to adjust production for the rest of the year. The average sales price of folding boxboard is expected to slightly decrease from Q3. White kraftliner prices are expected to remain pretty much unchanged. The total cost level is expected to remain stable. However, Q4 will include fewer maintenance and investment shutdowns than in Q3. The demand for market pulp is expected to remain at a good level in China. In Europe, the production shutdowns in the board and paper industry are expected to continue and limit demand. However, market pulp prices are expected to improve in Q4 compared to Q3. FX will have a small negative impact compared to the previous quarter.
With these assumptions, we expect our operating result in the fourth quarter to remain at the level of Q3. To summarize, so far, 2023 has been marked by low volumes, both in deliveries and in production. Short-term uncertainty will continue as demand for consumer products remains low. A change in direction would require an improvement in consumer purchasing power. In this market situation, we will continue our efforts in efficient working capital and sales mix management. This will lead to production adjustment measurements and temporary layoffs. We focus on customers who benefit from the high performance of our products and services in our main market areas, Europe and North America. In addition, we will continue our production adjustment measures to meet demand. Despite the short-term challenges, we will continue to develop our business and invest in sustainable and profitable growth.
I will end my presentation and repeat what I said earlier, the long-term demand drivers for sustainable packaging materials, which are increasingly replacing plastics, have not disappeared anywhere. With that, ladies and gentlemen, we are now ready for your questions. Thank you very much.
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 Johannes Grunselius from DNB Markets. Please go ahead.
Hello, everyone, it's Johannes Grunselius, DNB here. Thanks for the presentation. My first question is on how you view the inventory cycle adjustments in inventories, and the value chain has been pretty painful for you and your competitors. Where do you think we are in that phase? Is it largely done, or do you see more headwinds, you know, Q4, Q1 here, from further inventory adjustments? Can you elaborate on that, please?
Yes. Our opinion is that these inventory levels are now pretty much down compared to where they used to be earlier this year and during the first half of the year. So we don't kind of expect that destocking would be a kind of important factor anymore.
Okay. Interesting. Would you say that this should be logically a tailwind for you with moving into next year, for one or two quarters? Or is it difficult to call?
It's very difficult to, because, of course, I mean, the consumer behavior is the main driver here, and that's very difficult to estimate, of course.
Okay. Okay, got you. Then my second question is, Well, it's a difficult question. I understand that, but if you can elaborate a bit on how you view the cost curve in your industries, in your paperboard niches. Do you see any signs that, you know, competitors are closing down production temporarily or even on a permanent basis because they simply cannot cover cash cost at these levels?
I don't want to comment on what competitors are doing. I just simply say that we have taken downtime, we have had temporary layoffs, and most probably other players do the same. But as said, I don't-
Have a kind of precise information on that.
Yeah, okay. My final question is, I mean, on the positive side, your prices on your core product seems to be holding up very, very good, given market circumstances. Could you just give us a sort of a feeling for how one should think about earnings contribution from incremental tons here? Is fixed, you know, is maybe the margins on incremental tons on your core products, like 50% in that ballpark region? It would be interesting to hear your thoughts there.
I don't want to talk too much about prices. Our intention is to keep healthy price levels. That has been our target during this year, and that will be our target also during Q4 as well as then for next year. So prices, of course-
Okay
Prices, of course, play a very, very important role as far as the profit and loss calculations are concerned.
Okay. Okay, thanks for explanations. Thank you.
The next question comes from Linus Larsson from SEB. Please go ahead.
Thank you very much, and a good day to everyone. On CapEx and 2024, I'd like to hear your thoughts, or maybe even an estimate on the total number for the full year 2024, and your general thinking around potential project at Kaskinen and Husum part of phase II. Are those projects, I mean, is it at all possible that they will start burdening cash flow already in 2024, or is that only potentially later on?
So concerning CapEx this year, it's somewhere between 250 and 300, as presented already in the presentation, and then next year, next year, CapEx will be lower. How much lower remains to be seen, but at this point, I would say clearly lower. And then concerning these, these big investment plans that we have for Kaskinen and Husum fiber line, at this point, I would say that no major, major CapEx can, will be seen next year concerning those investments. Of course, first, we need to make decision, and only after that, then we will use money for those.
Thanks. And then maybe getting back to pricing, and I understand there are limits as to what you can and would like to say around folding boxboard price negotiations. But maybe you could at least remind us about the amount of sales that is affected by full year contracts and what's really up for renegotiation at the end of the year. And also maybe if you could, in any way, comment around the price dynamics. I mean, costs are still high. Demand is, for the time being weak, profitability is low. What are the h ow is that going to play out in negotiations? If you could just, in any way, comment around that would be interesting, of course.
Yeah, the annual kind of deal negotiations here in Europe, they are ongoing as we speak, and it's too early to say what will be the result. And then, I have earlier said that the prices are pretty much based on demand and supply, but of course, the costs also play a certain role. Intention is not only to make paper board, but the intention is to make money, as I have said several times, and that need to be remembered when we have these price negotiations, whether they are here in Europe or they are in North America.
Right. Thanks. And the sales affected of these negotiations?
Sorry, sales? Could you repeat?
Yeah. How much of the business are we talking about that is subject to full-year folding boxboard price negotiations?
Yeah, in the North America, they are only partly quite small part is like annual deals. And then here in Europe, maybe 50% roughly is the figure.
Okay. Great. Thank you very much.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Andrew Jones from UBS. Please go ahead.
Hi, and thanks for the presentation so far. I just wanted to ask about this volume trend, because volumes in paperboard down 25% year-on-year. From what you said earlier, it sounded like you're not seeing destocking be an issue in that. So are you saying that destocking had no effect on that, on that year-on-year decline in the third quarter? And could you, you know, disaggregate, like, how we should think about that decline? Is it? You know, how much is destocking, if any of it? How much is underlying demand? And how much is just losses to imports that you've called out in the, in the release?
So I think it's, if we, if we listen to sort of Huhtamaki or others where, you know, they'll, they might say that coffee cups and things like that are down, you know, a few percent. We're not talking, you know, that scale of demand erosion. Like, where is that coming from in the underlying market? And if there's no destocking having an effect on that anymore, you know, that sounds like really bad news for the underlying market. I mean, what are your expectations for an improvement in the coming months? I've got a follow-up after that, if you could kick off there. Thanks.
Yeah, as I said, we don't see that destocking at this moment wouldn't anymore take place. Maybe, earlier in Q3 and late Q2, that was still the case, but at the moment, we don't see that anymore. And of course, this tough competition, which is then coming also pretty much from China. The Chinese producers, they are very active now here, and that can be seen on the volumes of the European players, where typically like Turkey, Middle East, Latin America, they have been the areas where the European producers have exported volumes. And now the competition due to the Chinese and Asian players, it's much tougher than it used to be. So that's very important.
And then the Russian volumes, we are not selling anything, not a single ton to Russia anymore, of course, and we used to sell more than 100,000 tons annually there. So all these together, plus then the consumer purchasing behavior, that leads to the situation where we are at the moment.
Okay, but, I mean, just to push back on that a little bit, I mean, in terms of those import volumes, can you try and quantify how much of an effect that's actually had on volumes, in sales volumes, the likes of yourselves and other European producers? I mean, how significant an issue-
No, I don't.
- Is this in your addressable market?
Yeah, I don't have the clear figure for that, but they are remarkable volumes, remarkable volumes. We are talking about hundred-
Wow!
Hundreds of thousands of tons.
Yeah, you, you're talking about the delta year on year?
Yeah. You remem-
Wow.
You may remember that these Asian players, they were not very active during the, for example, during COVID, when container prices were sky high from.
F rom China to Europe, for example, and now the container prices are lower, and they have a lot of extra capacity there. So then that-
That has led to the situation where we are.
Yeah, and we've still got large Asian mills ramping up and commissioning now. You know, there's more volume to come there. I mean, it doesn't sound to me like that's slowing down. I mean, is that your expectation? Could it accelerate further, and could that mean that 2024, potentially, volumes could be, could be weaker still?
Yeah, I think that pretty much also then is I mean, depends on the Chinese consumption, how that will develop. And because-
O f course, if that will develop positively, then the consumption in China, paperboard, carton board, would be higher, and that would lead to the situation that then the export volumes would be lower. But of course, we need to remember that there are also new capacity coming in China. So this is-
Yeah, and
Let's see, let's see what will happen.
Yeah, on a separate question on the Recycling and Reuse Directive and the vote that we had this week, could you give us a feeling for how you see that impacting your end markets and potentially these growth rates that you've talked about in the past for folding boxboard? I think you've talked about somewhere between 3% and 4% per annum growth in the market. I mean, this seems like a reasonable headwind, if there's restrictions on, on, say, you know, single-use food applications. So, I mean, what do you assess the, the impact to be on your long-term volume growth, and how does that impact on your decision around Kaskinen, which is obviously adding a huge amount of capacity into a market which seems to be in an atrocious state right now with medium-term headwinds coming through?
Yeah, of course, it's a little bit too early to kind of evaluate what kind of impact that directive could have, because there are now quite mixed views on that. But the share of food service board of Metsä Board to European market is not very big.
Okay.
And remembering that, then the impact is not necessarily that important. But of course, that is not only food service packaging, it's also overall packaging, and then remains to be seen what will be the impact of that at the end of the day in different member countries and so on. I think the-
Discussion is still ongoing. But of course, we follow that very, very carefully, and let's see.
I just wonder, is there any circumstance under which you don't do Kaskinen? Because all of these data points are sounding extremely bearish, and you seem to be proceeding as planned with the development. I mean, what stops you doing it?
Yeah. So the pre-planning of Kaskinen is ongoing, and we are-
We are working in different fronts, whether it's logistics, whether it's environmental permit, whether it's technology, and so on, and all these infra things, in order to be ready, if ready, ready for decision-making then, when, when, when the time is right. And it's very difficult to say when the time is right. And, and of course, then the final, final price tag plays a very important role also concerning decision-making. We don't have the final, final price tag yet, but whenever we have it, then, of course, it's, it's, we, we need to evaluate very carefully whether, whether it, it's, doable or not. But we are moving in all fronts as planned at the moment.
Okay, thank you.
The next question comes from Cole, from Jefferies. Please go ahead.
Afternoon. Thanks for taking my question. Just like a little bit of color on the white kraftliner market. It seems the trends of volumes are diverging from the boxboard side, and I'd just like to hear you know what's driving the kind of the incremental improvement in the white kraftliner side. Are you seeing a demand from the retail-ready converters, or are there any end markets that are pulling through some of those volumes on the white kraftliner business? And if you could also give some color by region, that would be helpful.
Yeah. The white kraftliner that we are producing, it's widely used in retail and also in consumer packaging. So I think the same reason which is now or that we have struggled with the folding boxboard, I think the same reason goes for white kraftliner pretty much. So if I remember right, 75%-80% is used in retail or then food packaging. So it's pretty much comparable with our folding boxboard.
Is there a difference in kind of the order books and what you're seeing between kind of the boxboard side and, you know, the containerboard or the kraftliner grades?
Not re-
I'm sorry.
Not, not really, no.
Okay. And then, is there anything that you're seeing on the import front that may be impacting those, or export front that may be impacting the kraft liner side?
Of course. Of course, the impact of the white kraftliner impact of the export is not as, how would I say, remarkable as in folding boxboard. But then we need to remember that this coated white kraftliner market is quite small all in all, and our market share of that is pretty high. So that is not that vulnerable, so to say, as folding boxboard. But as I said, the order inflows are pretty much similar as far as-
Okay
W hite kraftliner and folding boxboard are concerned.
Great. Thank you.
The next question comes from Johannes Grunselius from DNB Markets. Please go ahead.
Yes, Johannes here again. I just want to take the opportunity to take a second or another question on Metsä, your share in Metsä Fibre. Now, with the new mill up and running, as I understand it, how much I mean, is it any apart from the volume change, incremental volumes, how is this impacting the cost of the operations? If you can give us some idea how to think about that. Also, I've seen in the third quarter, you had a - EUR 4 million in contribution from Metsä Fibre. I know Metsä Fibre also consists of quite meaningful wood products operations. Could you give a sense what the wood product contributed with in the third quarter? Thanks.
Yeah, maybe I'll take this, but before that, then it's sawn wood business that they are in. They are not that much on the w e have then separate business area in Metsä Group, which is producing wood products like b ut then-
Maybe, Henri, continue.
Yeah, so obviously, the new bioproduct mill in Kemi is more cost efficient than the old one. We don't have figures to give, but that's definitely the case. It doesn't directly change our linerboard cost structure in Kemi, so it's coming then through the associated company result of Metsä Fibre.
Sure. Okay. Could you remind us about the nominal capacity, how that has changed now with the new mill in place?
The new capacity is 1.5 million tons.
You took out something of 600, didn't you? Or 700,000 tons-
Yes.
Something like that, right?
Yes, that's right.
Yeah. And at least you can confirm there is a meaningful change in the OpEx per ton, given the new product set, production setup, right?
Yes.
Okay, fair enough. Thank you.
The next question comes from Cole, from Jefferies. Please go ahead.
So thanks for taking the follow-up. I just wanted to ask on the pulp wood costs in Finland and Sweden. I mean, we've seen some of the statistics, particularly the weekly data in Finland coming off a fair amount more than, you know, what we've seen in Sweden. There seems to be a bit of diverging commentary between various companies on where wood costs are going. Do you have any view on the differences in kind of the wood cost development between Sweden and Finland at the moment, considering you've got operations on both sides?
Yeah. So, we have seen both, both sort of going down a little bit, but then again, when we look at our PNL impact, it will take quite some time before the kind of stumpage price changes come through to our sort of PNL because of the long lead times from forest to the end product. So that's why we are not really seeing the impact that fast in our own profitability. But we have seen some sort of small decline in wood prices in both markets.
Great. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers.
Okay, Mika Joukio here. So thank you very much for your, for your good, good questions, good comments, and all in all, your attention, and I wish you good continuation of the day. Thank you!