CEO Mika Joukio's review

CEO's review

Metsä Board's CEO Mika Joukio comments on the performance of the company.

Comment on   Financial Statements Bulletin 2018 

“Our comparable result in October–December, EUR 60.1 million, was roughly at the same level as in the previous quarter. The average prices of our paperboards increased, but delivery volumes remained on a lower level than in the previous quarters due to a seasonal decline. We estimate that the changes in delivery volumes continued to be influenced by the exceptionally strong demand during the first half of the year.

The profitability of the fourth quarter was burdened by a machinery breakdown at the Husum pulp mill and the increased uncertainty in the pulp market, particularly in China. We have a substantial market pulp position through our holding in Metsä Fibre, due to which changes in the delivery volumes and price level of market pulp have an impact on our profitability.

All in all, 2018 was a good year for Metsä Board, and we continued to grow profitably, supported by strong market trends. The production efficiency of our mills was at a good level, and nearly all of our production lines set new annual production records.

Our comparable operating result improved by nearly a third and was EUR 252 million. Our profitability improved due to higher paperboard prices, a strong pulp market and the increased delivery volumes of folding boxboard.

The prices of white kraftliner have been increased several times over the past 18 months. At the year end, we announced a price increase in folding boxboard in Europe, of which we achieved slightly over a third.

Our strategy and financial targets remained unchanged in 2018. In the short term, our growth will be more modest than in previous years, and decision-making will be strongly guided by our profitability targets and the growth of shareholder value.

Sustainable business operations are increasingly important to our stakeholders and the entire society. Our goal is to promote packaging solutions which create better consumer experiences with less environmental impact. After the financial period, we received again recognition for our sustainability from CDP.

I have confidence in Metsä Board's future. I want to thank our personnel, customers and other stakeholders for the past year."

 

 

Review in the 2018 Annual report

 
 

Market trends support fibrebased packaging solutions

Dear reader,
The year 2018 was a good one for Metsä Board, and we continued to grow profitably, supported by strong market trends. The growing responsibility for the environment experienced by consumers and brand owners, the search for alternatives to non-renewable packaging materials, increasing product safety requirements, urbanisation, and the growth of e-commerce are all increasing demand for ecological packaging materials. Our lightweight fresh fibre paperboards are an ideal solution for these needs. In cooperation with our customers, we develop new packaging solutions which enable the use of our lightweight, premium paperboards in innovative ways. All the wood raw material we use comes from sustainably managed northern forests, which guarantees the high and consistent quality of the fibre.

Focus on profitability
In recent years, our growth has clearly exceeded the average market growth. In the short term, our growth will be more modest, and our decisionmaking will be based on our profitability targets and the growth of shareholder value. Our profitability is based on superior cost efficiency and healthy sales prices driven by high-quality pulps and unique technical know-how. In 2018, our paperboard deliveries grew slightly from the previous year. Our comparable operating profit improved by nearly a third and was EUR 252 million. Higher paperboard prices and the strong pulp market improved our profitability. The production costs of paperboard increased, particularly due to the increased wood price and the acceleration of general cost inflation. Our comparable return on capital employed, 14.4%, exceeded our target level of more than 12%. Our balance sheet was strong, and the ratio of interest-bearing net debt to EBITDA was 1.0.

Sustainability is part of risk management
Sustainability is the core of our business, and responsible business operations are increasingly important to our customers and other stakeholders. In addition, sustainability is an important part of risk management, in mitigating the negative effects of climate change. We help our customers to reduce their fossil carbon dioxide emissions by offering them lightweight, sustainable and recyclable packaging materials. We also meet the other increasing requirements imposed on packaging. The origin of materials, the recyclability of packaging, product safety and purity are increasingly important, especially in food packaging. The EU Plastics Strategy and the planned restrictions on single-use plastic products challenge companies to develop alternatives that reduce the environmental impact. We continue to develop bio-based barrier solutions used especially in food and food service packaging and to evaluate their business opportunities. In early 2018, we launched a biodegradable and compostable eco-barrier paperboard. In 2018, we were once again recognised for our sustainability by third parties, such as CDP and EcoVadis. We also performed well in assessments concerning environmental issues, social responsibility and good governance, carried out by MSCI, ISS-oekom and Sustainalytics,among others.

Efficient production and highly skilled personnel increase our competitiveness
Raw materials, energy and water are used effectively in our production process, while reducing fossil carbon dioxide emissions. The production efficiency of our mills was at a good level in 2018, and nearly all of our production lines set new annual production records. By contrast, safety at work did not meet our targets. We will continue to develop our practices and guidelines further, in order to avoid all accidents. At the beginning of the year, our mills adopted the 5S method, developed on the basis of Lean thinking, aiming to increase productivity as well as safety and well-being at work. The new operating model is in use at all our mills, and we have received good feedback on it from our personnel and also achieved positive results.

Highly skilled and committed personnel play a key role in the retention of our leading market position and competitiveness. The values that guide our operating methods and management create a solid basis for our activities. The development of our personnel's know-how is a prerequisite for our success. We pay special attention to the availability and retention of competent personnel by means of various personnel development programmes and successor plans, and by investing in our employer image.

Continuous product development ensures our number one position

I am glad that we have a good reputation amongst our customers, and we are known particularly for the high and consistent quality of our products. According to customer feedback, it is the quality of our products that drives our customers to choose Metsä Board's paperboard. We want to keep on being our customers' number one choice, which is why we continue to develop our products and services. The progress made with the improved properties of BCTMP provide us with excellent opportunities to do so. In 2018, we also invested in the growth of the BCTMP capacity our Kaskinen mill.

The main targets of our research and development work are to continue the development of high-quality and lightweight folding boxboards and kraftliners, as well as to develop new products for the food service packaging segment. We work in close cooperation with international brand owners and converters to steer our R&D work in the right direction.

Market demand supports our growth

Global market trends are increasing the demand for fibre-based and lightweight packaging materials. The aim of replacing non-renewable materials with more ecological alternatives is also increasing demand for paperboard and pulp, on a global scale. Growing market demand and the price increases for paperboards in 2018 provide us with a good starting point for the coming year. Our objective is to distribute competitive dividends to our shareholders and maintain our strong financial position.

I would like to take this opportunity to extend my thanks for the past year to our customers, employees, shareholders and other stakeholders.

Mika Joukio
CEO

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