Good afternoon, everyone, and welcome to the presentation of Metsä Board's full year 2023 results. My name is Mika Joukio, and I'm the CEO at Metsä Board. Here with me are our CFO, Henri Sederholm, and the Head of IR, Katri Sundström. So let's first go through the presentation and then take the questions. First, Q4 in brief. The market situation remained quiet during Q4, and paperboard demand was even further depressed by a seasonally slower December. Our total delivery volumes fell just below 300,000 tonnes, which is significantly below our capacity level. Low ordering activity led to production adjustment measures and temporary layoffs in some of our mills in Finland. Folding boxboard prices decreased slightly, and white kraftliner prices remained stable compared to the previous quarter. Thanks to the efficient use of working capital, our cash flow remained strong.
Henri explained this further in his presentation. The pulp market remained fairly stable. The relevance of pulp has grown in Metsä Board's earnings with the startup of Metsä Fibre's new bioproduct mill in Kemi. As a reminder, Metsä Board's ownership in Metsä Fibre is 24.9%. 2023 included big investments and their completions. One of them, the folding boxboard capacity expansion in Husum, was completed in November. This investment increased Metsä Board's total folding boxboard capacity to 1.1 million tonnes, and it further strengthens our pole position in Europe. The aim is to sell the additional capacity of 200,000 tonnes in Europe and especially North America, by the end of 2025. Now, the full year development in terms of financial targets. Weak paperboard and pulp markets were reflected in earnings and return on capital employed.
Our return on capital employed fell below the targeted level of at least 12%. Despite the decline in profitability, the financial situation remains strong. Leverage was 0.7x, well below the targeted ceiling level of 2.5x. Our strong financial position enables us to pay a competitive dividend, and the Board of Directors will propose to the AGM a dividend of EUR 0.25 per share. This will mean a payout ratio of 94%. Now paperboard sales and the overall demand situation. As the graph shows, both folding boxboard and white kraftliner volumes have declined for several quarters in a row. In Q4, the delivery volumes declined from the previous quarter, totaling 299,000 tonnes. The drop was steeper for folding boxboard than for white kraftliners.
For the full year of 2023, volumes decreased by 24% or almost 450,000 tonnes. Currently, consumer behavior drives the direction of paperboard demand. High cost inflation, combined with higher interest rates, have eaten up consumers' purchasing power. Households are consuming less, and at the same time, the consumption of cheaper private label products has increased. This has been negative for Metsä Board's paperboards, which are widely used in branded products. That said, our order inflows in the beginning of this year have clearly strengthened, paving the way for an improved outlook. And here is the situation by region and by product. Overall, volumes fell in all market areas for both products. Especially in Europe, the market balance for paperboard has been affected by increased import volumes from China.
Although volumes have been directed mainly to Turkey, the Middle East, and South America, the impact is also visible in the European Union. However, our aim is to focus on customers who benefit from our paperboard's high performance in our main market areas of Europe and North America. In addition, we have a competitive advantage in terms of security of supply and a service concept that helps our customers with various packaging challenges, such as reducing plastics use and improving production efficiency. Now for the market pulp market, which also performed worse than in the previous year. Metsä Board's market pulp delivery volumes reduced by 22% year-on-year. The decrease was clearly higher for CTMP than for chemical pulp. Metsä Fibre's delivery volumes were down by 5%. In the second half of last year, pulp demand increased, especially in China.
In Europe, the reason for weaker demand has been the large-scale production curtailments by paper and paperboard producers. However, in long fiber pulp, Metsä Group's main grade, the market balance has been maintained by a reduction of global supply. The supply has been reduced due to availability issues with raw material in North America, global production curtailments, and permanent capacity closures. The average market price for pulp was lower in 2023 than in 2022. Before moving on to financials, let's have a look at our sustainability development. First, safety. Our TRIF, 6.1, improved a little from last year, but it's still too far from the target, which is zero accidents. The share of certified wood fiber of our total wood supply has clearly increased, and it was 91% in 2023.
The reaction shutdowns led to lower energy consumption, which had an impact on CO2 emissions. Both Scope 1, and especially Scope 2, CO2 emissions were clearly lower than in 2023. Sorry, in 2022. Scope 2 emissions were also affected by the relative increase in electricity produced by nuclear power. This was enabled by the Olkiluoto 3 startup in the spring. The decreased delivery volumes and the resulting low capacity utilization affected our mill's production efficiency. Both energy and water use per produced ton increased, meaning that progress was not in line with targets. I believe this development will improve when we get back to normal production. But now, I will hand over to Henri to present the financials, please.
Thank you, Mika, and good afternoon. So lower volumes were reflected in the top line, yet the improved price level offset some of the negative impacts. 2023 sales were down by 22% compared to 2022. The decline was even larger in profitability. The comparable operating result decreased by EUR 400 million, or 77%. Then let's take a closer look at the items that affected the result. First, October, December, compared to the same quarter last year. Positive contributors were the somewhat lower energy, chemicals, and logistics costs. In addition, the FX impact was positive. On the negative side, the fall in market pulp prices had a significant impact. Naturally, this also had an impact on Metsä Fibre's result share, which went into the red in Q4. The profitability was also burdened by reduced paperboard volumes and lower prices.
In addition, due to the completion of big investment projects during the second half, depreciation was EUR 9 million higher than in same period last year. Now, let's move on to full year comparison. First, the positives. The average price of paperboards was higher in 2023, and the main improvement came from folding boxboard. FX also had a positive impact on the result, as well as the sale of unused emission allowances. On the negative side, we had lower market pulp prices and volumes, which was also reflected in Metsä Fibre's result. Metsä Fibre's result was also weakened by sawn timber business, increased wood costs, and higher depreciation due to completion of new bioproduct mill in Kemi. Our profitability was also hit by lower paperboard volumes and the resulting production adjustment measures. Cost inflation remained more moderate than in the previous year.
However, total cost inflation, excluding pulp, was still around 4%. Wood costs increased the most. 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 Q4 return was 0.4%, whereas the full year return was 5.1%. Capital employed at year-end totaled just under EUR 2.5 billion. The weak market situation has emphasized the importance of efficient working capital management, which we have drawn special attention to. The 2023 operating cash flow totaled EUR 343 million, which was over EUR 100 million more than in 2022. Cash flow was especially 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 year, working capital increased due to rapid cost inflation. Despite the large investments last year, our free cash flow was also strong at EUR 125 million. Our total investments landed at around EUR 230 million, lower than our previous estimate of EUR 250 million-EUR 300 million. Some of the investments from 2023 were carried over to this year, meaning that total investments in 2024 will be almost on a par with 2023. Next, the financial position. Leverage continues to be at a good level, 0.7x, with sufficient headroom to the maximum target level of 2.5x.
In the second quarter of 2023, we paid the highest dividend in several years, EUR 206 million. Despite this, our year-end cash funds were nearly EUR 300 million, which kept our net debt low at EUR 144 million. In December, we signed a EUR 200 million commercial paper program, which complements our liquidity reserve. But now, I'll hand the floor back to Mika.
Thanks, Henri. So as already mentioned, 2023 was marked by big investments and their completions. In our Kemi kraftliner mill, we completed a development program which increases the mill's production capacity by 40,000 tonnes per year and reduces the mill's energy and water use per produced paperboard ton. Full production capacity, 465,000 tonnes, is expected to be fully available next year. As part of the program, Metsä Fibre's unbleached pulp production line will be transferred to Metsä Board. The modernized production line has an annual capacity of 180,000 tonnes of softwood pulp, and it's fully used in the bottom layer of the kraftliner produced in Kemi. The investment value of the whole program was EUR 110 million.
At the same time, in September, our associate company, Metsä Fibre, started up their new bioproduct mill in Kemi, which replaces the old pulp mill. In Husum, we completed an investment that will increase the production capacity of folding boxboard by 200,000 tonnes. After this investment, the total folding boxboard capacity of Husum's board machine number one will be 600,000 tonnes per year, and will be fully available on the market in 2026. This investment was completed in November with an investment value of EUR 230 million. The target markets for both white kraftliner and folding boxboard continue to be Europe, Europe, and North America. And the pre-engineering for the new folding boxboard mill in Kaskinen remains ongoing. At this stage, I don't have anything new to say.
As we've said before, a possible investment decision on this project can be taken this year at the earliest, so we'll return to this topic later. Our total CapEx for 2023 was roughly EUR 230 million, and as Henri already explained, it was slightly lower than previously estimated due to timing. Maintenance CapEx was EUR 60 million. For this year, we estimate that investments will be at the same level as in 2023. Depreciation will decrease due to the completions of big investments in 2023. For 2024, so this year, estimated depreciation is around EUR 115 million. Now, for the near-term outlook. The operating environment for this year remains uncertain, and the visibility of paperboard sales development is still rather weak.
However, in the first quarter, during the last weeks, we see paperboard demand picking up from very low levels in Q4, and our paperboard delivery volumes are expected to increase. We expect folding boxboard prices to decrease slightly and white kraftliner prices to remain flat. We are also prepared to adjust production if order inflows remain low. The total cost level is expected to remain stable. There may be a small increase in logistic costs. On the other hand, there will be some relief from the maintenance-free first quarter. Market pulp prices are expected to improve, especially in Europe. In China, demand may be affected by paper and pulp production shutdowns due to the Chinese New Year at the beginning of the year. The impact from FX is expected to be neutral in Q1 compared to Q4.
Based on all this, we expect our operating result to improve in the first quarter compared to the previous quarter. Summary. Last year was characterized by a weak market situation for both paperboard and pulp, which led to low delivery and production volumes. In a challenging operating environment, our average paperboard prices held up well and even improved in folding boxboard, but pulp prices were clearly lower than in 2022. To defend our profitability, we have optimized our sales mix and implemented temporary layoffs at our mills. Our strong cash flow has been supported by efficient working capital management. We will continue all these measures if necessary during this year. Our strong financial position enables the board to propose a dividend of EUR 0.25 per share, which corresponds to a 94% payout ratio.
Short-term uncertainty will continue as long as demand for consumer products remains low. Despite this, we will continue to develop our business and investment in sustainable and profitable growth. In addition, our order inflows in the beginning of the year has been clearly stronger than last year's average. As a result, the outlook and result guidance for the first quarter will improve. Consumers, consumer preferences favor fossil-free packaging materials, and several brand owners have committed to reducing the use of plastics in their packaging. And, population growth, urbanization, plastic replacements, plastic replacement are still strong trends that will increase the demand for fiber-based packaging in the long term. Okay, and with that, we will end our presentation part and now are ready for your questions. So thank you very, very much.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Robin Santavirta from Carnegie. Please go ahead.
Yes, hello, and thanks for taking my questions. First of all, I was wondering, related to the improved order intake in paperboards, could you specify which markets have been particularly strong, and which segments?
Yes, this question is quite easy. I mean, in all markets and in both products, I mean, white kraftliner and folding boxboard.
All right. Thanks. That is clear. Do you think that is related to improved underlying demand? Is it restocking or is it less pressure from Asian producers importing paperboards to some of the markets that you have operated in due to the Red Sea problematics?
Yeah, I think it's some of these, but of course, last quarter four, when the order intake, order inflow was quite weak, and also deliveries were at low level, then of course, especially European customers and these annual, I mean, these annual deal customers, they knew that what will be the price level of this year, i.e., lower prices, and maybe that was one reason that they didn't order last year but then started to order this year after the new, when the new prices were in place.
But then, of course, the Red Sea problems have then increased the container costs, and that might have also an impact as far as the Chinese, Asian players in Europe and elsewhere are concerned. But of course, I hope that this is sustainable. Let's see. I mean, consumer purchasing power is the key thing here, and hopefully, these reasons that I listed, they are not the only reasons, but we could also see then kind of a clear improved demand from the consumers. But as I said, it remains to be seen. It's a bit too early to say, but at least now situation, as we speak, looks good.
Thank you. Regarding the second question I have is regarding pulpwood price. What are you seeing now in Q4 compared to, sorry, Q1 compared to Q4? And what is the outlook down the road, this year, for you guys in Finland and Sweden?
Hey, Henri will take this.
Yeah. So as we saw, the pulpwood prices increased during Q4. So at the moment, we are seeing sort of a bit of a stable situation, I would say. But we are not in a position really to give a long estimate on where it's going. As we saw last year, quite strong swings also within a one year's time. So we are seeing a sort of stable situation in Q1. Some pressure still, especially coming from the energy wood are present, and also then obviously, the tight situation with the Russian imports being out of the game. So those elements are still there.
I understand. Thanks. Finally, I have a question related to Kaskinen investment. Could you comment a bit sort of regarding the decision to do this or not? Could one potential be to just postpone the investment for a year or two? It seems it could tighten up the pulpwood market further and hamper the profitability of your other mills. It also seems it could add essentially too much capacity. I understand it's 2028 or something like that, but still, is there a consideration to just postpone or to restrict the size of that investment?
Yeah, at this point, we still continue this pre-planning in all, or pre-engineering in all fronts, whether it's, it's. We are waiting for the environmental permit, and we calculate the costs, the investment costs. They are not ready yet, and so on. So we are preparing that as previously, but the numbers are not in place yet. But to be honest here, of course, the final price tag will, of course, tell a lot, I mean, concerning the timing of the possible investment and so on. But we don't have that final price tag yet, and for that reason, it's too early to say. Sorry about that, but as I said in my presentation, that we will tell you ASAP, we know more.
All right. Thank you very much.
The next question comes from Linus Larsson from SEB. Please go ahead.
Hello. Thank you for taking my questions. First, another one on the folding boxboard market and what you're guiding for the first quarter. On pricing, you talked about slightly declining folding boxboard prices. Could you maybe just elaborate a bit on that? How you've managed to negotiate your full year price contracts and, and also how shorter-term pricing is developing, please?
Yeah, starting from white kraftliner, the pricing is quite stable, and then folding boxboard. Of course, I can't give any precise figures. I can only say that the annual deals negotiations, the kind of result was that the prices are slightly lower, this year comparing last year, especially here in Europe. But, as you understand, I can't tell you more specific numbers or percentages.
Right. But then you've been quite, I mean, if you compare with, like, RISI numbers, where you can see benchmark folding boxboard prices down double digits, you haven't seen that any declines in that sort of magnitude then?
No comment.
Okay. And then on the CapEx guidance, you're guiding for almost as high CapEx in 2023 and as in, sorry, in 2024 as in 2023. And how much is carryovers from completed projects, the big projects that you were running during 2023?
Okay, Henri will open this meeting.
Yeah. So, so during last autumn, we guided between 250 and 300, even closer to 300, assuming certain strategic project payment milestones would be reached, but those have been postponed for this year. So the postponement impact is some EUR 60 million-EUR 70 million. So that makes the difference. So we are not really increasing the CapEx total, but just, it's just a timing question.
Okay, and the ERP project is some, what? EUR 40 million this year.
That's the correct ballpark.
Okay. Great. Will there be a dividend at all from Metsä Fibre this spring?
That remains to be seen, but of course, Metsä Fibre's profitability from last year was far from where it used to be, so that will be anyhow quite a small number, if any.
Okay. Those were my questions. Thank you very much.
Thank you.
The next question comes from Laurent Vergnault from CreditSights. Please go ahead.
Hi, good afternoon. Thanks for taking my question. I have two, actually. The first one is on working capital. Should we expect further inflow in the first half of this year, or at least in first quarter? Maybe you can give a sense of any possibility of just reducing your inventories further. And second question is more longer term, but the possibility that the company increases paperboard capacity on recycled grades in the future to be in a better position in Europe with, you know, regards to more constraining regulations, and that would probably lead to higher demand for recycled packaging but versus virgin grades.
Yeah, if I take the second question first. So at the moment, we don't have any plans to step into the recycled paperboard grades. So our strength is here in the primary fiber, virgin fiber paperboard grades, and as said, no plans to change that. But then Henri will take this working capital topic.
Yeah. So, unfortunately, we are not giving any exact estimate on that but if the business activity increases, that will mean that the working capital will increase somewhat. However, we will be very carefully looking at the production levels that we are not unnecessarily increasing the inventories. The potentially increasing receivables and then the payables are mostly offsetting each other. So it's a matter of the inventories, which we will increase somewhat when the business activity increases.
And maybe if I add one comment, and that is that, of course, if the order inflows are getting better, that automatically means then higher inventories, no doubt. But of course, the key thing is that we get the inventories turnaround, and that's precisely what we are planning to do.
Understood. Thank you very much.
The next question comes from Andrew Jones from UBS. Please go ahead.
Hi. I just want to follow up on what you've said already about volume recovery. Listening to Stora's call, clearly they were far more downbeat than you appear to be so far. I'm just wondering where you see the differences in terms of the markets you're supplying or, like, what would explain such a different take on the outlook for 1Q? And just to drill more into the import situation, I mean, you said that it was all, it was a bit of everything, but with the registry issues, you know, clearly limiting, you know, shipments in most places, I mean, these Asian imports that you've been talking about, I mean, have you noticed customers specifically, like, starting to call, you know, call up Metsä as opposed to, you know.
Looking for imports out of Asia, is that a material catalyst that you think could help to really drive volumes in the next few months?
Okay. Of course, I don't comment what our competitor is doing, but I know that our order inflows have improved, and that means that the operating rate in the first quarter obviously will be higher than average last year. Based on all these customer satisfaction surveys, our one strength has been product quality, and obviously we are the biggest folding boxboard player, as well as then white kraftliner player in Europe. So our position is strong, our quality it seems in customer's eyes very, very good. Then our service level and the whole service concept is also based on the surveys that have got excellent scores.
So that's obviously one reason that we are seeing improvement now. And then one reason, of course, is that we have this project at Husum where we and both in Kemi, where we increase capacity. And of course we had and we have plans to whom we sell this higher volume. And now those volumes are kind of we see those volumes also as far as the Husum order inflow and the Kemi inflow are concerned. So we have new customers, we have new volumes from old customers, and.
And then as far as the kind of overall, overall, how would I say, situation concerning the European players are concerned, as said, the Red Sea problems, they, they might lead to the situation that we don't see that much, that much, Chinese paperboard or Asian paperboard in, in, in our market, Turkey, for example, or Middle East. And, and that, that, of course, helps not only us, but the whole, all, all European players, as far as the kind of sales outside the European Union is concerned. But that's it.
But is it a, I mean, most of the things that you said there were sort of true last year, you know, in terms of your service quality and the product quality and, a nd, you know, yes, while you have more capacity coming on from Husum, it wasn't like you were shorter capacity to produce last year. So I mean, I'm trying to understand really what's changed. You know, it, has, have you seen, i s it, is it, you know, I'm trying to get a guess whether it's restocking or whether you're seeing, like, a notable uptick in actual consumer activity?
Yeah.
Or if the main effect is just the, you know, fall away in Asian imports.
Mm-hmm.
Like, what's the bigger factor?
Yeah, that's only one topic. But then, I mean, we saw it so that the destocking probably ended sometime late summer, latest early autumn. Then after that, it was just purely the consumers' purchasing power that really impacted also our business. Of course, we were not able to increase our volumes before the startups of the investments. It's good to remember that this Husum investment or the rebuilt production line started up only late November, and Kemi started up late September. Now we can see these new volumes coming in.
Of course, our sales force, they have fight hard and in order to find new customers and in order to find new volumes from old customers, both in Americas market as well as then here in EMEA and also in Asia- Pacific region. So actually, this shows that our sales force has made something right.
Okay. Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Laurent Vergnault from CreditSights. Please go ahead.
Hi again. I have a follow-up question actually on the, on volumes. I was wondering if, these volumes coming from new capacity, are they contracted volumes or, or are they simply going to the spot market for now? And, and also overall at the group level, would you be able to, to share a split of, contracted versus spot volumes for paperboard?
Practically, we don't have any spot volumes as such. So these volumes that we are getting to Kemi and Husum, in this case, they are contracted volumes. And of course, spot volumes also need low prices, and that is not our favorite in this case. So as said, we have planned very carefully concerning these new volumes from Husum and Latuwa now. Now they are then coming in, but not only them, I mean, also other mills are busier now than they used to be last year on the average.
Guys, super helpful. Thank you. And, how often are they renegotiated? In an annual basis or monthly basis?
The white kraftliner volumes, they are not annual basis. They are until further notice prices in general, and then roughly 30%-40% of our foreign export volumes are then based on annual deals.
Super helpful. Thank you very much.
Thank you.
The next question comes from Robin Santavirta from Carnegie. Please go ahead.
Yes, thanks. Just a follow-up question related to Metsä Fibre. Quite weak performance in Q4, although one would expect to have higher ASP in your pulp sales and also this new Kemi pulp mill, one would expect better profitability Q4 versus the start of the quarter in Q3. So was there something sort of particular burden Metsä Fibre's Q4 earnings, and what is the outlook going forward?
There were no kind of particular things. There, of course, there are normal start-up challenges as when starting up the mill and ramping up the mill, but nothing kind of extraordinary or so. It's just a normal situation, pretty much. And then, of course, we expect improving result also from pulp side. And obviously, then normally the second quarter is quite strong in mechanical wood, in sawn goods, timber, which is the other business of Metsä Fibre. So we see that the prices of pulp will improve in Europe. And then, of course, one question mark is that what will happen after the Chinese New Year, as far as the pulp prices in China are concerned?
It's good to remember that the volumes in China, for example, second half of last year, they were at a good level, and prices started to improve. But then what happens now then after the Chinese New Year remains to be seen. But all in all, I'm positive and that we will get kind of better profits also from Metsä Fibre when moving forward this year.
All right. Thanks.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay. Thank you, everybody, for a very active participation and excellent questions. And I wish you a nice continuation of the day and also nice wintertime. Here we have now, like, minus 18 degrees, so winter is at its best, and let's everybody enjoy that. Thank you!