Good afternoon, everyone, and welcome to the presentation of Metsä Board's Q4 and full year 2021 results. My name is Mika Joukio, and I'm the CEO of Metsä Board. Together with me here, I have our CFO, Henri Sederholm, and head of IR, Katri Sundström. Henri and I will go through this presentation, and we will open then the lines for your questions and more discussion. We have a very strong year behind us. Indeed, it was Metsä Board's best-ever performance. Our paperboard business developed particularly well, and delivery volumes were at an all-time high of more than 1.9 million tons. The same applies to production volumes, where there were also record highs. Increased volumes and higher prices pushed our sales above EUR 2 billion. Despite fast cost inflation, we managed to improve our margins remarkably.
Our comparable return on capital employed was almost 19%, which is clearly above the targeted level of 12%. Our financial situation is strong with a negative leverage. All in all, a strong performance, and I want to thank all our staff for their great work in these exceptional circumstances and all our partners for their cooperation. Our aim is to be a leader in sustainability, and this needs actions and investments. In 2021, we continued our efforts to reduce fossil CO2 emissions in our mills. For example, in the Kyrö and Simpele mills, we replaced peat with renewable energy. The first phase of the Husum pulp mill renewal will increase the mill's bioenergy production and self-sufficiency in electricity. At the end of the year, 85% of our total energy used was fossil-free.
At the beginning of the year, we sold 30% of our Husum pulp mill to Norra Skog and made a long-term wood supply contract with them, which will increase the share of certified wood fiber in Sweden. Our target is that more than 90% of all our purchased wood will be certified by 2030. To help our customers, we launched 360 Services to improve the resource efficiency and performance of packaging. In addition, we constantly collaborate with our partners to find more innovative and sustainable packaging solutions that are in line with circular economy principles. As part of Metsä Group, we created a Metsä For All vision to promote diversity, equality, and inclusion in our working community. As a recognition of our leadership in sustainability, we achieved an outstanding triple A score by CDP in all three categories: climate, water, and forest, an excellent achievement.
Finally, a few words about the European Union taxonomy. Metsä Board's main business activities, paperboard and market pulp, are currently not included in the taxonomy's technical screening criteria. As a result, the share of the company's taxonomy-eligible business, especially in terms of turnover, is low. We are reporting more about this in the board of directors report, which will be published with our annual report during week eight. Now a closer look at the Q4 . Average sales prices of our paperboards continued to improve, but delivery volumes decreased slightly from the Q3 level due to the usual seasonality impact. In addition, we still suffered from capacity limitations caused by the fire at the Husum pulp mill in the summer. Energy and chemical costs continued to rise, and logistics created challenges around the world. The worsening coronavirus situation was also reflected at Metsä Board.
However, thanks to the effective safety measures, it had no negative impacts on production or deliveries. In December, we signed an agreement to sell our fully owned subsidiary, the port operator Hangö Stevedoring, to Euroports Finland. The transaction is expected to be completed in the Q1 of this year, and it will not have a material impact on our key financials. Now the dividend for 2021. The board proposes to the annual general meeting on 24 March a distribution of EUR 0.41 per share. This is in accordance with our dividend policy of at least 50% of the net result and represents a significant increase from last year's profit distribution of EUR 0.26 per share. Here are the quarterly deliveries. The Q4 this year was very similar to the corresponding quarter last year.
If we look at the whole year development, we can see high levels in the Q1 and Q2 , with Q2 exceeding our maximum capacity of 500,000 tons per quarter. The second half of the year was then affected by capacity constraints. The fire at the Husum pulp mill's chip conveyor in June cut our paperboard production by roughly 30,000 tons. In addition, most of the maintenance work and investment shutdowns took place in the second half of the year. Full year deliveries exceeded 1.9 million tons. COVID-19 has shifted consumption from services to products. The need for food, beauty, and healthcare packaging has increased. The pandemic has also accelerated sales in e-commerce, especially in food. All these have increased the demand for both folding boxboard and white kraftliners.
In addition, plastics substitution and the reduced availability of recycled fibers have increased the demand for fresh fiber paperboards. Metsä Board's paperboard deliveries grew in all market areas and in all end use segments. Our annual delivery volumes to the Americas exceeded 500,000 tons, the target that we set in 2016 along with our Husum folding boxboard capacity expansion. Most of this capacity was originally targeted at the Americas, and especially in the U.S. Our success in the U.S. has been supported by competitive products, an efficient supply chain, and a superior customer service team. Before I hand over to Henri, let's have a look at the pulp market. In 2021, our delivery volumes declined compared to the previous year. The main reason here was the fire at the Husum pulp mill, which resulted in a production loss of 50,000 tons.
Our associated company, Metsä Fibre's pulp deliveries grew by 7% and totaled 3 million tons. In Europe, demand for long-fibre pulp was supported by increased consumption of paperboard and paper. In China, the strong demand for market pulp in the first half of the year weakened after the summer. There was several reasons for the decline. For example, government restrictions in energy use, which led to extensive production curtailments of paper and paperboard mills. In addition, high logistics costs decreased paper and paperboard exports. Demand picked up again towards the end of the year and has since remained at a good level. Now I let Henri go into more detail on the financials. Please go ahead.
Thank you, Mika, and good afternoon. Let's start with the sales and operating result. High prices and volumes pushed our full year sales above EUR 2 billion, a 10% increase compared to 2020. As we see here, profitability development has been remarkable. Operating results for 2021 was EUR 387 million, or 18.6% of sales. As Mika already mentioned, profitability was the best ever. The operating result in the Q4 was EUR 91 million, clearly higher than in the corresponding period last year, but a little lower compared to the previous quarter. However, this was in line with the guidance we gave after the Q3 results. Now the main items affecting operating results, starting with the quarter-on-quarter comparison. The main positive impact was derived from improved prices, both in paperboard and market pulp.
Higher pulp prices also boosted the result share from Metsä Fibre. We also booked the insurance claims for the Husum fire of roughly EUR 10 million in the Q4 . This partly compensated for the volume losses due to the fire during the third and Q4' s. The main negative impact came from higher costs in energy, chemicals, and logistics, and the maintenance. The negative impact from FX was EUR 16 million. High energy prices were also reflected in the price of emission allowances, and the gain from the sale of unused rights was EUR 10 million higher than in the same period last year. Now for the full year comparison. The 2021 operating result improved by 75% year-on-year. The main positive and negative items were mainly the same as in the quarter-on-quarter comparison, improved prices but higher costs.
In addition, higher delivery volumes in paperboards boosted profitability, and the gain from the sale of unused emission rights was EUR 15 million higher than last year. The strike at the Finnish mills had a negative result impact of EUR 20 million in 2020. Unfavorable FX development weakened the 2021 result by EUR 56 million, originating mostly from the US dollar and, to a much lesser extent, the Swedish krona. Now a few words about costs. The main elements in 2021 cost inflation were energy, chemicals, and logistics. Fixed costs also increased due to higher personnel costs, as well as healthcare and testing costs related to the pandemic. Energy costs were boosted especially by higher electricity and natural gas prices. In chemicals, the main increases were seen in the prices of latex and PE. Wood prices remained stable.
This year we expect cost inflation to continue. The cost pressure is on the same cost elements as in 2021, logistics, energy, and chemicals. Metsä Board's electricity self-sufficiency is now 70% and will increase to 85% after the Husum recovery boiler starts up. To mitigate the risk of rising logistic costs and the container shortage, we are focusing on careful route planning and long-term contracts with our transport partners. Wood costs are expected to remain fairly stable and fixed costs to increase slightly compared to last year. The strong earnings performance was reflected in the return on capital employed, which in the Q4 was 16.1%, and for the full year, 18.7%, significantly above our long-term target of at least 12%. Now cash flow, which also continued its strong development.
In 2021, operating cash flow was EUR 330 million, and free cash flow, taking investments into account, was EUR 116 million. Thanks to the strong cash flow, our net debt was clearly negative. Earlier this year, the sale of 30% stake in the Husum pulp mill to Norra Skog decreased our net debt by EUR 260 million. Along with this, our leverage was negative, supporting our investments in sustainable growth, about which Mika will tell you more. Over to you, Mika.
Thanks, Henri. Let's take a look at our investments. Our largest ongoing investment is the first phase of the Husum pulp mill renewal, including a new recovery boiler and a turbine. The whole investment value is roughly EUR 360 million, of which 70% has already been invested. Due to some delays in installation works, we have updated the start-up time, which we now expect to take place in September. Our previous estimate was during the first half of the year. The investment will enhance our pulp and energy production, and the anticipated positive impact on our annual cash flow will be around EUR 35 million, starting from 2023. The second phase of the investment will include a new fiber line.
Staying in Husum, in July, we made an investment decision to expand our annual folding boxboard capacity of PM One by 200,000 tons. The investment value is EUR 210 million from last year to 2024. The estimated startup for new capacity is during the second half of 2023, meaning that we need gradually to build up stock for the shutdown during this startup period. Finally, in Kemi we are expanding our annual kraftliner capacity by 40,000 tons and improving water and energy use. As part of the program, we will purchase the modernized unbleached pulp production line from Metsä Fibre. Our total CapEx for 2021 was EUR 220 million, and for this year, we expect it to be around EUR 300 million. This includes annual maintenance CapEx of EUR 50 million-EUR 60 million.
Then now the outlook. Strong demand for our sustainable paperboards continues. We expect the paperboard volumes and average sales prices for both folding boxboard and white kraftliners to increase from the Q4 level. As always, there will be no major maintenance shutdowns during the Q1 . Cost inflation continues, especially in energy and chemicals. Global challenges in the availability of transport equipment remain, increasing logistics costs. In market pulp, we see solid demand in Europe. In China, demand has improved, but we are still a little cautious about its stability. In addition, the bottlenecks in logistics will continue to impact pulp deliveries to Asia, and we expect no major impacts from FX. Based on these assumptions, we expect that our comparable operating result in the Q1 will improve compared to the Q4 .
Now to summarize, 2021 was our best year ever, and the board of directors proposes to the annual general meeting a dividend of EUR 0.41 per share. This is significantly higher than last year. Demand for sustainably produced fresh fiber paperboards has been strong, and we expect this to continue. We are seeing no major changes in the demand-supply balance, which also supports the favorable outlook. We expect cost levels to remain high. However, we believe that most of the negative impacts will be offset by our own risk mitigation actions and the strong performance of our business. In the long term, several ongoing investments will drive our sustainable growth. Our solid financial situation provides strong support for our work. With that, we end our presentation and are now open for your questions. Thank you very much.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been 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 Linus Larsson of SEB. Please go ahead. Your line is open.
Thank you very much, and a good day to everyone. First, a question on Metsä Fibre and the Kemi investment. I noted that there is a slight,
Cost increase relating to the project, but a couple of questions relating to Metsä Fibre. Do you see any risk of delays? How should we see the timing of the startup at Kemi? That's the first question. Do you see any risk of equity injection from your side, Metsä Board? Also, actually relating to Metsä Fibre, what dividend should we expect from Metsä Fibre this year? Last year, obviously, there was no dividend at all.
Starting from the timetable. Timetable is unchanged, so startup is expected to take place Q3 of next year. Q3 next year. As far as the equity injection is concerned, at the moment, there is no reason to believe that we should do something like that. Henri continues concerning the last part of the question.
Yeah. We are also not seeing any impact on the dividend policy of Metsä Fibre on this. I think you asked about the dividend for last year. The policy has been around 50% of the net results. That would indicate about EUR 60 million dividend for Metsä Board.
Fantastic. Yeah, that's reassuring. 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.
Thank you and good afternoon. I have a question related to costs. What was the input cost inflation for the full year of 2021, and what do you expect for 2022? Do you expect input cost inflation to accelerate or remain at this level, or could you specify even a number for us?
Okay. Henri will take this.
Okay. Last year first. What we indicated in autumn was that the inflation will be at least 4% and it definitely was, and it ended up in the range of 5%-7%. Clearly higher than that we estimated early on in the year. Of course, energy costs definitely increased a lot towards the end of the year. What comes to the cost inflation this year, we are not able to give any exact figures. It's very difficult to estimate. We definitely think that it will continue and the main cost pressure is in logistics.
When it relates to the kind of bottlenecks in the availability of logistics, it's very difficult to give any number on how much we need to, for instance, buy on the spot market, this capacity, logistics capacity.
Okay. I understand. You're not willing to take a stance where the input cost inflation for the full year 2022 will exceed that 5%-7% you had in last year?
I think it's too early to say at this point.
All right. Then related to Q4, you seem to have a couple of, in a way, one-off items supporting earnings, so the CO2 allowance sales and then the insurance claims. Can you specify the CO2 allowance sales? Was that EUR 10 million in total, or was that up EUR 10 million, Q-on-Q? And if so, what is the total amount, and how should we look at 2022 when it comes to Q1 and so forth? What is the schedule? When do you sell this? Is it always in Q4, or is it also? I think in 2021 you did also sell something in 2021. How should we look upon that?
Finally, related to cost, what was the impact of the extensive maintenance shutdowns you had in Q4 on the EBIT?
Okay. Henri will take this.
Okay. Starting with the emission allowances. Last year we sold for EUR 5 million in the Q3 and then EUR 15 million on the Q4 . Altogether about EUR 20 million's worth. In 2020 it was only EUR 6 million, and that was all in Q4. What comes to this year, we are not giving exact guidance, but it's fair to assume that we would be selling roughly the same amount of allowances. Around 300,000 tons during this year, which is the surplus based on the free allocations so far. Of course, it can change between years, but that's the working assumption. As you know, the emission allowances prices have increased dramatically.
We are rather thinking this year to smooth it between the quarters more and not only sell towards the end of the year.
I understand. Thanks. That is helpful. Finally, a bit more holistic question. I understand there is extreme tightness when it comes to demand of paperboard, especially for consumer products, both in North America and in Europe. What is the reason for this? Normally paperboard demand, well, it can grow a bit more, and then it's one percentage point or something like that. Now it seems to be much higher demand growth. If so, why? Is it supply constraint? Or what is the reason that companies like Starbucks, et cetera, have difficulties to source the amount of paperboard they need?
I think there are two reasons. First of all, the demand. Pandemic impact has been so that people are buying more products than services. That's very clear. Then, of course, in the supply side, there has not been new capacity either here in Europe or then in North America. When the demand or market has grown, I think it's natural that demand supply, you know, situation is tight. Then, of course, in the supply side, we can see also the situation that Chinese producers are not present at the moment in Europe due to the very high logistic costs. Of course, then that helps European players and tightens the market.
I understand. Thank you very much.
Thank you. Our next question comes from the line of Harri Taittonen of Nordea. Please go ahead. Your line is open.
Yes, good afternoon. Maybe with the pandemic impact then with regards to the guidance for the Q1 , I'm just gonna confirm that you haven't lost any kind of production volume this year. I'm just thinking that there was quite an acceleration in the sort of sick leaves and all that during the beginning of the quarter. Sort of how meaningful is there kind of a risk in postponements of shipments, and have you allowed any of this in the guidance or?
Yeah. Concerning production, we haven't lost production due to COVID. Of course, there has been, for example, I mean, remarkable costs; millions of euros has been used for testing and so. We haven't lost a single ton. Of course that's very good and shows that we have made right things at the mills and in supply chain altogether. That is the case.
I don't know if you wanna answer it, but if you think of the difference between cost inflation and the price, average sales price improvement for the Q1 , that now part of your guidance is based on volume increase. If you just sort of ignore the volume change, would there still be a case for margin improvement because of the prices moving up more than costs, or is it possible to comment on that?
Yeah. If we compare Q1- Q4, estimation expectation is that prices will increase.
That would be kind of more than offsetting the costs, anticipated costs for the first part.
That is pretty much the case, yes.
Okay. Maybe sort of just last question on the currency, because there was quite a meaningful appreciation in the US dollar versus the euro in May to November last year. Then again, the Swedish krona weakening sort of November. When do you start to have an impact from these changes on the underlying earnings side? When does the hedging profile become any different from the previous ways you have hedged?
Okay. Henri will answer.
Yeah. Sure. It hasn't changed. We are around six months hedged. That's pretty much the kind of time lag that we are then seeing the most of the impact of the spot prices, whether they are positive or negative. That is still valid.
All right. Okay. Thank you very much.
Thank you. Our next question comes from the line of Cole S. DuPlessie of UBS. Please go ahead. Your line is open.
Thank you. A couple of questions here. Firstly on the U.S. boxboard or carton board markets. What kind of average growth rates do you expect to see over there going forward? Is this the primary target for the incremental volumes from the Husum investment?
Yes. The growth rate in the U.S. market as well as in Europe, historically it has been around, let's say 1.5%-2%. Now all this plastic replacement or and or substitution and then as I said then good, I mean, retailer business, et cetera, our estimation is slightly higher than this 2%. Whether it's three or four remains to be seen. Anyway, we see higher growth than in the past for several reasons. As far as the Husum investment is concerned, of course we target both markets, the U.S. market as well as Europe. But the main or bigger share of that increase is targeted to the U.S. market. To new customers and old customers.
Okay. In terms of the secular trends you mentioned, just as a follow-up on that, do you see those trends in the U.S. as well, you know, the plastic substitution happening? Or is that mainly a European phenomenon for now?
No, it's both/and. I think it's global. We have seen that in all our markets, okay? In Asia also, even though Asia is not a big market for us, but in Europe as well as in the U.S. market.
Okay. All right, now that's clear. Staying in the U.S., I mean, one of your competitors has announced quite a significant CapEx there to penetrate the U.S. SBS and FBB market in a few years. What is your take on that? How do you see that impacting your business in the U.S., if at all?
Yeah, I don't want to comment on competitors' moves. They do what they see fits best for them. Of course, we need to follow the development. No doubt. Then act if we need to act. At the moment, I'm not that worried about the competitors' actions, whether they are in the U.S. or here in Europe.
Okay. All right. Well, that's fair. Then there's a final question. I just started to think about your commentary there in the presentation about being a bit volume-constrained in the second half of last year. Now, there were, of course, reasons for that, the conveyor belt and then the maintenance and all of that. But when we look into this year, I mean, you've been fairly fully booked, I guess, throughout 2021 overall. Do you see room to grow your volumes on a year-over-year basis still? Do you have that capacity to continue to grow, you know, mid-single digits this year?
Yeah. As you mentioned, last year, we had these constraints like fire at Husum and then these maintenance shutdowns. Concerning this year, then, of course, we hope that we don't have any fire or so, but then this year we have less investment shutdowns than last year. For example, last year, we had investment shutdowns at Kyro mill as well as Äänekoski mill. Not that long, but anyway, a couple of week, for example, in Kyro and one week in Äänekoski. That won't be the case this year. Also our estimation is that this year we don't need that long two-week shutdown at Husum mill because we will take this new boiler in use then in September, and that shouldn't require very long shutdown. We have more capacity.
If you think about the sales, last year in January, when the year started, our stocks, our inventories were clearly higher than this year. Last year, that was the starting point. You might remember that we invoiced or we sold during the first half of last year, more than we produced. That then, of course, came from inventories. In the second half of last year, we had these maintenance shutdowns and the fire. When starting this year, the inventory level is quite low. There are several reasons. Our target is to grow this year in volume.
Yeah. You see a need to replenish your inventories as well, I guess. That's gonna limit external sales to some extent. Is that?
That's true, but it is not remarkable in the big picture.
Okay. All right. That's fair. Thank you very much.
Thank you. Just as a reminder to participants, if you do wish to ask a question, please dial zero one on your telephone keypads now. Currently, the last question in the queue is from Johannes Grunselius of DNB Markets. Please go ahead. Your line is open.
Hello, everyone. It's Johannes here. Most of my question have been answered at this stage, but maybe you can give some color on the order books you are saying in the report are very strong. If you could indicate for how many weeks of business are you booked at, and what's the normal situation at this time of the year?
Yes. The normal order book or the I mean, the good order book as far as the production planning, et cetera, is concerned, is three-four weeks, so around 24-25 days. That is the optimal, and that is quite typical also in the past. Today the situation is not that. Order books, both in white kraftliners as well as folding boxboard, they are clearly higher than this three-four weeks.
Okay.
Of course, that creates.
But it-
Creates challenges in the supply chain.
Right. Okay. Are they sort of twice as long as normal? Or maybe you don't wanna comment that, but just to get a feel.
You can use that figure.
Yeah, okay. Got you. I was just wondering also on the sort of pricing side. Because obviously we saw price hikes in the market coming at the end of 2021, a bit early here in 2022. Should we expect sort of, I mean, is it fair to assume that you will enter the Q2 with higher prices than in Q1 because of the normal timeline on price hikes? Could you help me understand the dynamics?
That is a little bit too early to speculate because as I said, the Q1 prices will, our estimation is that they will be higher than Q4, but then what will be the difference between Q2 and Q1, I wouldn't like to speculate on this.
Okay. All right. Got you. Perhaps a final question. Since the market are very strong at the moment demand-wise.
Do you see any opportunities for changing your mix a bit, perhaps pushing out more, you know, flagship products with sort of higher quality or avoiding some markets and selling more in some other geographical markets? Or maybe this is not how your business is working, but can you comment on that, please?
Yeah, of course. In the past and also in the future and today, we are optimizing the customer mix, we are optimizing the product mix so that we are able to maximize or optimize then the profitability. Of course, we need to remember that we can't change customers all the time or also this is kind of a long-term play and long-term game and. We do what we can concerning the product mix and customer mix and market mix in order to then maximize the profitability.
Right. Okay. That's my question. Thank you very much.
Thank you. We've had one further question come through. That's a follow-up from Harri Taittonen of Nordea. Please go ahead. Your line is open.
Yes. A quick follow-up regarding the emission rights, and just sort of a technical question in a way, how are they booked in your current sort of books? Or are they booked at some sort of meaningful value? I'm just thinking if you continue selling, how should we look at the kind of gains from the current market price versus the book value? That's why I'm curious about what sort of value is the basis in your balance sheet for those.
All right. Henry will tell you.
Yeah. This is very simple. They are booked at zero value as it's based on the free allocation. It's pure capital gain when selling.
Well, that's easy to remember. Thanks.
Yeah.
Thank you. As there are no further questions on the phone, so I'll hand back to our speakers.
Okay. Thank you. Thank you all participants and good questions. I just then wish you a good continuation of the day and the week. Thank you. See you next time.