CEO Mika Joukio's review

CEO's review

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

Comment on Half-Year Financial Report 2019  

"Our comparable operating result in April–June was EUR 41 million, which was weaker than in the first quarter, as expected. The result was burdened by the continued weakening of the pulp market and several planned annual maintenance shutdowns at our mills in Finland. Metsä Board's total paperboard deliveries increased slightly. The demand and price levels for folding boxboard remained stable. In the Americas, we have achieved good results by optimising sales mix, and the average price of our folding boxboard has improved significantly in this region within a year. The weaker linerboard market, particularly in Europe, has slightly affected the average price of our white kraftliner sales in comparison with last year.

Our comparable operating result in January–June was EUR 103 million. Our operating result was supported by the favourable price development of paperboards, particularly folding boxboard, as well as a favourable foreign exchange effect. However, our profitability was burdened by lower delivery volumes, higher production costs and by the decline in pulp prices that started in China in autumn 2018 and later spread into Europe. Our profitability will continue to be burdened by lower pulp prices, at least during the coming months.

In April, we announced that we will launch a pre-engineering phase for a significant investment to gradually renew the Husum pulp mill in Sweden. The renewal would improve the cost-efficiency and reliability of production of the Husum integrated mill, as well as increase electricity generation based on renewable sources of energy. In addition, it would create favourable conditions for the long-term development of the paperboard capacity of the Husum integrated mill. We are now waiting for the Swedish authorities' decision on continuing our current environmental permit for the production of up to 750,000 tonnes of pulp annually. We expect to make the final investment decision in the fourth quarter of this year, at the earliest.

After the review period, we announced our new, ambitious sustainability targets for 2030. We will continue our work towards a low-carbon society, and we aim for completely fossil-free production, together with Metsä Group by 2030. We will also continue our work to develop plastic-free barrier solutions for food service use in particular.

Early into the second half of the year, there is still uncertainty concerning the operating environment, particularly in terms of pulp and linerboards. However, the market situation for folding boxboard is favourable, according to many our customers as well. In addition, we have received a great deal of positive feedback from our customers on our recently renewed and improved folding boxboard portfolio.

Finally, I would like to take this opportunity to thank our employees, customers and other stakeholders for the first half of 2019."

 

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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