Metsä Board Oyj (METSB) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining us, and welcome to Metsa Board's Capital Markets Day 2020. This time, fully virtually. My name is Katri Sundstrom, and I'm responsible for Metsa Board's Investor Relations and will be your moderator today. What do we have on our agenda? 5 presentations, including exciting teams and topics about Metsa Board's winning strategy, our industry-leading sustainability targets, how do we create value for our customers and our actions in innovative future packaging solutions. We will, of course, open up Metsa Board's performance during these exceptional circumstances and share our views of how we see paperboard and market pulp demand developing in long term. The day is divided in 2 sections. We will take a short break after the 3 first presentations and then continue with the rest. We try to be efficient and end up our day at 3:30, depending on the amount of your questions, of course. Questions can be submitted throughout the event using the question form and you will find that below your video window. Q&A will be after each presentation. And questions are only visible to me, and I will then address them to presenters. Since we are making forward-looking statements, I want to remind you of disclaimer and pay attention to it. But now let's start the day. And I'd like to welcome Metsa Board's CEO, Mika Joukio here to tell us more about Metsa Board's strategy and our high-level sustainability. Please, Mika.

Thanks, Katri, and good afternoon to everyone on my behalf too. So during these exceptional times, I want to thank you for joining us today. Before we move into today's official agenda, I want to say a few words about past months. What impacts COVID-19 has had on us. And also then how do we see the future. Our key priority has been and will be, of course, to ensure the safety of our workers and people. And we have managed well. As far as this COVID-19 is concerned, we have had only a few cases, below 10 so far, and production and operations have run smoothly. So operations have been running nicely. And first of all, for example, in Q2, we made a new production record in paperboard production. So we have never ever produced more paperboard than in Q2 as far as quarterly production is concerned, excellent thing. Our customer service has been fully operational. Of course, we have put some extra effort on reliability of deliveries and so on, but customer service has maintained a good level. How about then -- how do we see the markets? This year, the impact from COVID-19, I would like to say is neutral or slightly positive. Of course, in the beginning of this year, we had a strike at Finnish mills, and that boosted demand then after the strike in February and March. And then when this pandemic started in mid-March, then also that boosted our order inflow, and it was really high in April and May. But after this panic buying period, I would like to say, then the situation has normalized, and now the order inflow and demand is quite normal for us. How about then the future? Of course, it's very difficult to predict at this very moment. Nobody knows what will happen. And if and when this global -- a negative global downturn will continue, of course, that most probably will have impacts also on us. So we are not immune to global economical change. Then a recap from our previous Capital Markets Day 2 years ago. Then we mentioned that the focus is premium paperboards made from fresh fibers, and that is still the case. We are #1 in folding boxboard in Europe. We have also pole position in white kraftliners in Europe. And as far as coated white kraftliners are concerned, we are globally #1. So very good market position and a position in general for us. Then sustainability. We said last time, 2 years ago, that sustainability and its importance have increased, and that has happened. The importance of sustainability is bigger than ever at the moment. But at the same time, I would like to say that sustainability is not a separate part of the business. It's integrated in our daily work, and that's how we see that. And I will tell you more about that in my presentation. Then 2 years ago, we emphasized also the importance of profitability and especially the profitability of paperboard business. And we said that we aim for moderate growth, and that's precisely what we have been doing. We have made small or middle-sized investments in order to increase our capacities here and there. And also then improve our efficiencies. And as far as profitability is concerned, we have been able to improve by increasing prices, for example, and improving then production efficiency at the mills. But then, ladies and gentlemen, moving to topics of today. So first of all, I will come back -- I will go through our strategy. But hopefully -- and probably all of you remember that roughly 15 years ago, we made a huge strategic decision to exit paper business and focus on paperboard business. And that is precisely what we have been doing. But I will come back to that later in this presentation. Then our aim is to be the leader in sustainability. And I will tell you more about that in this presentation. But then in addition to sustainability, the innovations have increased their significance in our operations. We want to provide innovative packaging solutions to our customers. And in order to succeed in this, we need to invest and collaborate with our customers. And my colleagues will tell you more about that also later today. So starting from the strategy. I dare to say that Metsa Board has a winning strategy with clear focus on premium fresh fiber paperboards, and high level of sustainability. Our mission is packaging solutions that respect nature. Our main raw material, softwood comes 100% from sustainably managed Northern forests, and we are aiming for totally fossil-free production, as I will tell you later. Our vision is to be a preferred supplier of innovative and sustainable fiber-based packaging solutions, creating value for customers globally. And in this vision statement, all the words matter. So we really want to be #1. So the preferred one. And we want to supply not only paperboard, but packaging solutions, which are innovative, which are sustainable and they are fiber-based. And then we don't only want to sell if somebody would like to buy. But we want to help customers to improve their businesses. So we want to create value for customers, together with them. And we play this game globally. And our strategy is based on focus, growth and profitability. So we are focused on the premium, fresh fiber based paperboards for consumer and retail packaging. We grow together globally, together with our old and new customers. And then profitability, 2 elements, of course, efficiency, efficient operations. And then we want to prioritize the businesses that benefit from the high-performance products and services of ours. And then sustainability, it goes through the whole supply chain. All our paperboards are recyclable and majority of them are also compostable. Then a few words about the production and markets and demand. Strategy -- our strategic decision is that our production is close to our main raw material, which is wood fiber. Mills are located in Finland and Sweden, but we deliver worldwide. Europe is naturally the biggest market area for us, but also then North America is growing, and we have already a meaningful position there. And that goes for both folding boxboard and white kraftliners. About the market balance, what is the situation there as far as folding boxboard and white kraftliners are concerned? I would say that in folding boxboard, the market balance is quite stable here in Europe as well as in North America. But then in white kraftliners, there is more turbulence. Because old paper capacity has been and most probably will be converted to containerboard capacity. But then it's good to remember that our -- we are playing the game in this white kraftliner segment. And especially then the coated white kraftliners are our main line of board product. And that's a very niche market and our market position there is like 30%, 35% globally market share. So that's how I see it. Our paperboard capacity today is roughly 2 million tons. And roughly 1.3 million tonnes is folding boxboard, and then 700,000 tonnes white kraftliners. And then our pulp surplus is 600,000 tonnes based on our own production in Husum, Kaskinen and Joutseno and then our ownership in Metsa Fibre, 24.9%. Then a few words about demand. So demand of our fresh fiber paperboard is mainly driven by consumer and retail. And starting on the left-hand side on folding boxboard, you see that roughly 50% of our paperboard -- the folding boxboard goes to food or food packaging end-uses. And another 40% goes to other end uses in consumer packaging, consumer packaging end uses like pharmaceuticals, cosmetics, electronics and so on. So all together 90% goes to consumer-driven -- consumer packaging and only 10% to graphical end-uses. Then in white kraftliners, demand is strongly driven by retail. And as you can see, roughly 75% of our kraftliners are used in various shelf-ready solutions and point of sales displays. As you can also see, e-commerce is not that big for us, but it's growing. And we see growth opportunities also there. And then how our products then support sustainable consumption? So first of all, our paper boards are widely known for the light weightiness. That has been the kind of our agenda already for decades. And our intention is to continue in that path. The production of lightweight paperboard needs less wood, less energy and less raw materials, leading to a reduction of the carbon footprint throughout the whole value chain and supply chain. Then in order to enhance circular economy, our main target is that our paperboards are recycled after the use. And interesting thing is that paper and board account for almost 65% of recycled packaging material worldwide. And recycling rates for paper and board are already significantly higher than, for example, in plastics packaging. But then recycling is not always possible, as we understand and know. And then in this instance, compostability is the next alternative. And all our paperboards, except the PE-coated grades, hold an industrial compostability certification. Then moving on to our sustainability targets. Roughly a year ago, we published our new sustainability targets. And I dare to say they are industry-leading targets. One of the targets is fossil-free mills and raw materials by 2030, quite ambitious target, isn't it? Already today, 99% of raw materials measured by dry tonnes are already fossil free. But we still have that 1%. So we still have PE in our products. We are using fossil oil-based materials like latexes, for example. And we are working hard together with our suppliers, with our partners in order to then find alternatives to these fossil-free -- fossil-based materials. And I'm convinced that during this decade, we are able to also do that. Then the fossil-free target in production or energy that covers the emissions of our own production -- energy production. So that's scope one. And then the emissions of the purchased energy, so scope two. And currently, today, 83% of the energy used by our mills is fossil free. So that we have to take actions but we have those actions already in our planning. Then moving on to these actions. So how we are turning the mills into fossil-free during this decade. The major action or investment naturally is the renewal of Husum pulp mill. In the first phase, we will get a new recovery boiler, a new turbine. And already that phase of the investment will reduce the annual use of fossil oils from roughly 13,000 tonnes to roughly 8,000 tonnes. So a remarkable reduction. But then after this in Husum, the biggest user of oil is still a lime kiln. And then in the second phase, that will be converted to use renewable fuels and after that second phase, the usage of fossil oil in Husum will be zero. Then the other actions in Finland, they are also already planned, and they concern our all mills here in Finland. And they are different ones. We are replacing, for example, beet by biomaterials and then some natural gas by biogas, as an example. But the action plan is clear. But of course, the final investment decisions have not been made. But we have a plan. How we have succeeded so far in this sustainability KPIs? And this here shows that we have succeeded well or extremely well, I dare to say, whether it's CO2 emission reduction, whether it's water usage per ton or then energy efficiency improvement per ton, the old target and the current situation shows that we have done the right things. And our intention is to continue to do so, as I already mentioned, 100% fossil-free mills and products. Then we have set a new target for water consumption, minus 30%, 2013 -- 30 -- in 2030 comparing 2018 and then 10% energy efficiency improvement in the same period of time, 2030 versus 218 -- 2018. So that is the situation. Then moving on to safety. I said that the key priority is the safety of our employees. And here, you can see that during this year, by end of June, for example, our LTA1 figure is lowest ever, excellent achievement, remembering that everyone has the right to have a safe workplace. But that is not enough. Of course, our intention and target is zero accident at all the mills and offices, and we continue hard in this area. Then moving to our public financial targets. And how we have been able to maintain shareholder value throughout -- value through good profitability and a healthy balance sheet. Starting from comparable return of capital employed. This year, by end of June, we are at the level -- at the figure, the figure is 10.7%. And remembering that we had the strike at Finnish mills and remembering that pulp business is not doing that good at the moment, I think this is good achievement. Then our financial position is strong. As you can see in the middle, at the end of June, our leverage was at 1.1x. So there is a lot of headroom with our sealing target of 2.5x. Then our dividend policy, that is to distribute at least 50% of our net result to shareholders. And last year, we paid -- or the profit distribution was EUR 0.24 per share, which corresponds then 59% of our net result from last year. And the distribution was paid according to the Board's original proposal. Then moving to Husum. So the first phase of the Husum investment is proceeding. In March, we started this foundation work for recovery boiler and turbine. And that is ongoing. And it's excellent platform then for future development of paperboard operations at Husum. So precisely where we are? Here, you can see. So we started in March, financial work. And now we are still waiting for the environmental permit from Swedish authorities. Unfortunately, the permit process has taken a bit longer than we originally expected and estimated and that prevents us from starting the installation of the new recovery boiler, but we are ready whenever we get the permit, hopefully, during the coming weeks or latest coming months. And now the estimation is that the new recovery boiler and turbine will be in operation then during first half of 2022. Then a few words about -- some words about innovation. So we will continue to develop lightweight folding boxboards and also linerboards, and barrier paperboards as alternatives to plastics. These 2 areas, lightweightening and then barrier development, they are the key development areas for us. But in addition to that, I see that innovation, as then the sustainability also needs to be integrated in company strategy and in our everyday work. So innovation is not only a new product but it's new ways of thinking, new ways of working, new ways of collaborating with customers and other stakeholders. But all in all, with this close cooperation with customers, in product development and packaging design and other innovations, we are looking for and seeking for significant scale of innovations. Harri will tell you more about this in his presentation. Then to summarize. And what I want you to remember from my presentation and these messages. First of all, we have this very clear winning strategy based on -- over the fully concentration on premium fresh fiber paperboards. And today, we can state that it has been right decision and no reason to believe something else for the future. So we will continue to implement that strategy very systematically. Then we have excellent track record in sustainability. We have made strong commitments for the future, but our track record backwards is also very, very good. And our main target -- or one of the main targets is that our all mills are fossil-free and all products are fossil-free by 2030. This is a very, very strong promise within the whole industry. And then thirdly, so future growth is secured with sustainable investments. Yes, we need to invest in order to grow, but also innovations. And we need to invest in innovations also. So ladies and gentlemen, thank you very much for your attention, and I think it's now time for questions. Thank you.

Okay. Thank you, Mika. And let's start with the question that goes to our ROCE. So given the positive development in ROCE and good development in first half of this year despite all the headwinds, why are you not more ambitious in the targeted level of 12%?

Yes. Of course, I mean, this 12% is not that old target. And I don't want to change that very easily, of course. Let's see how it goes. But also, naturally, nothing is carved in stone, so to say. So pretty much to see in the future. But I see now, it's a good target.

Okay. Then in terms of sustainability and plastics to paper substitution, in particular, what kind of revenue potential do you see for your packaging business in the long term?

The whole packaging business?

In terms of sustainability and plastics to paper substitution, in particular. So the sustainability you were mentioning earlier, so what kind of a potential -- revenue potential do you see in there?

Okay. It's quite difficult to kind of give you a clear number on this, but we see that this sustainability because important -- it's more and more important year after year. And then this -- what's going on in plastic side. So it's potentially -- and it's opportunity for us. But how much we are gaining that's very difficult to say. We have already seen that when we launched this eco-barrier paperboard, for example roughly a year ago, customers has taken that very, very well.

Yes. And reminding that Harri will return in his presentation to this question in particular quite well. Okay, then when and how does Metsa Board intend to invest to grow in paperboard again?

Yes, that's a very good question, and I expected that also. In management, in our planning board, we have different options how to continue growth. And as I said in this presentation and also in other meetings and presentations, our intention is to grow not only in pulp as we are investing now in Husum, but particularly in paperboard. But when, how much, what is the magnitude, what is the capacity increase then we will tell you when decisions has been made, but we are planning different options.

And are you considering M&A to drive growth in the midterm?

Of course, it's an option, but -- and we look around. But as we have seen in the past, we'd like to kind of build the additional capacity, additional revenue by ourselves. But as I said, it's also option if and when there will be opportunities.

And you mentioned Packaging Solutions as a focus area for you. Are you planning to invest into this? And if so, could you comment about the potential magnitude?

So if you think about packaging solutions, of course, our tactics and -- is to help customers understand what they can do with our paperboard. And you will hear later during this afternoon, the present -- what we have made, for example, in Aanekoski, we have a new excellent center there. And there, the intention is to help customers to get most out of our paperboard and helping them to understand what can be done and what is possible.

And how has the light weightiness of your products developed against competition in recent years?

So we have always be a pioneer. And for example, 2 years ago -- last year, actually, a year ago, we launched a new portfolio, again, which was lighter than the previous portfolio. But we have been doing that's already, as I said in my presentation, for decades, 2 or 3 decades already, we have very systematically worked in this in this topic -- for this topic.

And then replacement of PE at latex and other fossil-based materials. Are you comfortable that you can achieve this with your own measures and investments? Or are you going to collaborate with a third-party acquisitions may be to achieve this?

So as far as this barrier board development is concerned, we already, today, collaborate with the third parties. So suppliers and universities and different kind of stakeholders. But I'm convinced that we are able to do that. I mean someday to have this plastic -- totally plastic-free, latex-free product in the marketplace.

Okay. Thank you. That was all.

Thank you. Thanks.

Thank you, Mika. Okay. And we will move on. Next, we will hear how we have succeeded with this focused strategy, what Mika was talking about, and especially with our premium products and services. I want to welcome Ms. Sari Pajari-Sederholm, responsible for Metsa Board's sales and marketing. Please, Sari.

Thank you, Katri. And good afternoon, ladies and gentlemen, from my behalf. I would like to start by saying and confirming what Mika was saying earlier that our strategy to focus on premium fresh fiber paperboards has been a success, also from the top line and added value development perspective. Let me now take a few moments to go through with you how we have further strengthened our position in the main markets and core products. What has been the winning formula for us in doing this? And why do I think that we are in a good position to prosper also in the future? But before we dive into that, let's take a look at what I promised 2 years ago. So in 2018, I said that we are a market leader in fresh fiber paperboards. That we sell globally our products but have a regional approach that our products are competitive, and we provide value to our customers. And that our top priority is to secure healthy price levels in the markets where we operate. And what have we then done? We have further expanded our foothold, particularly in Americas, which was named as our growth market at that point. We have further developed our products. Mika mentioned, the light-weighting on the product side, and we have invested and developed world-class services to go together with the premium products. Harri will further dive into Aanekoski Excellence Center and its product -- service portfolio later on. We have also acted very responsibly to keep the market healthy in both our core grades. But in the past couple of months, of course, we've had COVID-19. And it has hit the economies and also us as individuals. COVID-19 has changed consumer behavior, and some of it will probably be permanent change. We've had segments like luxury packaging, graphical end-uses that COVID-19 has had a negative impact on. But as you can see and you heard from Mika, almost half of our end uses, almost half of our end-use is food and food service, food packaging and food service. And in that segment, COVID-19 has actually increased the demand of safe paperboards. The growth rates year-on-year are somewhere between 10%, some say even 15% compared to last year. So our strong strategic choices have made us perform well also during this turmoil of COVID-19. And now we are even stronger in our main markets and main products than before. Europe continues to be our home market. 70% of the volume, 1.8 million tonnes is delivered to European customers. Demand is driven by environmental awareness and requirement for sustainable and safe packaging for particularly on the food and Food Service segment. Market is healthy, there has been only limited capacity increases in folding boxboard and also white kraftliners. But that being said, there's extensive plans of capacity increases in both testliner and brown kraftliner, which will -- and have an impact on the market. Then to Americas. We said last time, it's our growth market. But I would already call it the other main market with a running rate of 0.5 million tonnes delivered to Americas. We've grown in Europe, even during the COVID times, but we've grown double-digit numbers in Americas during this year still. So the COVID, if anything, has accelerated the demand for safe paperboards also in Americas. There's a limited availability of lightweight carton boards in Americas. And that's a -- that is the void that we are filling with our capacity there. In Asia Pacific, we aim to serve the customers to whom sustainability is a key thing, meaning that there's a lot of Chinese capacity spread all over Asia Pacific. We do not intend to compete with the Chinese, particularly not with the prices. So we have leading market position. Mika mentioned a couple of these. We are #1 in Europe in FBB. We are also #1 in white kraftliners in Europe. Even globally in coated white kraftliners, we are #1. I see a lot of growth potential still in Americas with a premium lightweight carton board that we deliver. So we've done well, who are then the customers that we have grown with. In the packaging market, in our market, it takes 3 actually to tango or to create a perfect package. So it's the brand owner, converter and us as a board producer. 30% of our folding boxboard deliveries go via direct deals with our brand owner customers. We have long-term partnerships with some of them, we also have some newcomers from Americas, where we have succeeded. That being said, the main segment still for folding boxboards customer segment are the converters. And we work intensively with converters to provide solutions that the brand owners and the consumers want. Merchants are an important sales channel for us, particularly for graphical end-uses. Then on the white kraftliners side. We sell solely via corrugators in all of the continents. So our strategy is to provide value to our customers. And based on that value, we have built these long-term relationships. But then what is this value? What provides value to our customers? It is sustainability, reliability and innovation. These are the key competitive edges that we have as a board supplier. And we have focused on those segments where the customers benefit from these competitive edges. As Mika explained, our sustainability targets are very ambitious within this industry, and we are committed also to help our customers to reach their targets. One of the examples of helping the customer is the cherry tomato box, where we were able to, in cooperation with the brand owner and Service Institute, created a package from our echo barrier board, which actually has only 1/6 of the carbon footprint compared to the plastic solution. It's also very good for the brand image. And as a plus, it provides some extra shelf life for the tomatoes. So a lot of winning arguments. Reliability, what does that then mean? We have big brand owners, big converters that are buying our board because it is consistent quality, it is delivered in an efficient way, and it provides efficiency improvement and cost efficiency also for them. That's very important. And finally, there's innovation. Again, Mika mentioned it many times. Innovation for us means a constant improvement together with our customers and other partners to provide better solutions. Innovation can also mean cooperation in creating a package. Arctic Blue Gin box created for America's market, we'd worked together with a laminator Hazen, with a converter and designed with the brand owner, a box that has actually won today, another prize. So that's an example of joint innovation, how to reach the targets to our customers. So I say that we have sustainability, reliability and innovation as key competitive edges. But what do the customers actually think? Why do they choose us? We make annual customer satisfaction survey. And the most recent survey was done in the midst of pandemia, so during this spring. And customers gave us Net Promoter Score of 40, which was an improvement from last year's 22, a significant improvement, but I'm very happy about on behalf of the whole organization. Customers say that they choose us for quality and for good service. They consider us a provider of premium products and services. And premier here means consistent products, consistent services to fulfill their needs. Third thing that came in the recent survey was innovation. So our investments in the innovation, our activity at that front has been noticed also by the customers. Harri will talk more about that in his presentation. Then why do I think that the future will be bright also for us? There are many global trends that support the growth of fresh fiber paperboards. I picked here 3. So first, increased hygiene and safety requirements. Particularly during COVID-19, safety, safety of food has become more and more important. Before the pandemia, some of the consumers were talking about package-free solution or package-free consumption. Now I see a bit of a change there that everybody wants to keep the food that they are going to consume safe. But at the same time, they still require the package to be sustainable. So in this pure fresh fiber-based recyclable and boards are sustainable alternative. Then acceleration of e-commerce and online shopping. I bet that you are also familiar with this. There's been a lot of delivery trucks in my door during this spring. We've tried online shopping in food, for example. And that's the general trend between consumers that we are now learning to use e-commerce. E-commerce has increased significantly, 20% per year, and its forecast to do so also in the future. Our part comes in when the brand owner wants to provide something different and experience for the online shoppers. One of the examples is this Billebeino package where white top kraftliner, our white top kraftliner is used on the outer layer of the corrugated box, providing a significant brand experience for the consumer who receives the package. Thirdly, it's not only how good you are with your products and services. It's also how you act as a company. How you -- how good member you are in the global society. Customers choose sustainable brands, and the brand owners want to work with companies that are up to today's standards, ESG standards. And we have a proven track record and rewards in our performance-related to this. So we are the partner also for the future. So as a summary, we are a premium supplier and we'll continue to create value to our customers with high-quality products and world-class services. We will focus on innovation to provide solutions to customers that fit their targets, for example, on the sustainability side. And I see that there are global trends that will support the growth of the market in fresh fiber paperboards. Thank you.

Thank you, Sari. And moving on to Q&A. So starting with the competition on premium products, given the better profitability of your premium products and especially the coated white kraftliners, do you see more competition in this field? And is the market strong enough to absorb the new capacity from, for example, from our neighbor country?

From our neighbor country, Eastern neighbor country.

No, sorry Sweden.

Oh, Sweden. Sweden. We have other operators on the premium segment also. And -- but there seems to be a rather high hurdle to enter, particularly the premium segment. And that's why I'm confident that we will be competitive also in the future. There is competition. There are products coming on stream. But I think that I still think that we've had the winning formula and we've been able to maintain our position and market share despite of the new capacity.

And with regard to the U.S. markets and folding boxboard, how big is the core market that you are targeting? And how big of a share do you think you can capture in the long term?

Our market share in Americas is still very small. The market is dominated by SBS and white line chipboard, recycled board. That's exactly what we are hitting or targeting with our light weight and safe boards. There's still a lot of room to grow depending on what you count in -- it's millions of tons. So a lot of room still.

Okay. And then about pricing, are you planning to increase the paperboard prices for next year?

We have, like always, annual negotiations during the autumn time. Situation has been rather peaceful so far, but it remains to be seen. I want to emphasize here that we don't change the prices. Our products are not priced based on raw material prices. We -- it's a demand-supply balance that affects the price.

Okay. Thank you. Sari.

Thank you.

And next, we're going to have a look to the future. Ari Kiviranta responsible for development in Metsä Board will tell us about Metsä Board's R&D, innovation and customer collaboration. And he will also reveal some exciting new projects in the pipeline. Please, Ari.

All right. Thank you, Katri. And ladies and gentlemen, welcome to the wonderful and exciting world of fresh fibre packaging materials and paperboards. Well, innovation was mentioned a few times already in Mika's and also in Sari's presentation. So I have a lot of pressure here. So to explain you about that and what we are doing in that field. But let's see what we can do. I will tell you how we develop future packaging together with our partners. But before we go -- before I go into the details, so let's take a look at the picture you have on the screen. And what do we have there? There is the -- our new Excellence Center in Äänekoski. Äänekoski in Central Finland is a unique concentration of various Metsä Group's industries. And in the heart of all this is our new Excellence Center. Why do I call them displays unique? Well, first of all, we have a lot of technical competence in the Excellence Center. But what makes it unique is that it is in the middle of a very big industrial site. There's a brand-new bioproduct mill in the site. There's a paperboard mill there. And there are some other things -- production units there as well as something else. So it's a very big concentration of know-how in paper and pulp industry. And as said, our Excellence Center is in the middle of it. So very good location. Right. Well, what else will I tell you more than just the Excellence Center. I will talk about the innovative packaging solutions. I will also say a few words about this significant scale of innovations. And then finally, talk about the cooperation with our partners. But before doing that, let's go back to the Excellence Center and see if there's a video of it, let's see if it works. [Presentation]

So there we go, Excellence Center. And now if I can change the slide, let's see. Yes, so what do we have in the Excellence Center? First of all, well, we have some space that's not very, very exciting, but there's 1,500 square meters of space. And it includes R&D laboratory, where we have state of art measuring equipment, more than 100 different things that we can do in the lab, different measurements, different analytics, then in addition to that, we have the packaging design studio, as you could see in the video. So we can make different packages, try different designs, try different layouts, all that stuff, very exciting. Third point, we have also very good possibility to use computer simulations for packaging design and packaging performance. So what does this mean in practice? For instance, if a customer comes into us and say, "Hey, I'm using this paperboard right now in my packages, why don't we try something of your product? And we don't even have to make the package as we just make a few measurements on the paperboards. We can simulate what -- which one of our products would fit well there, how much lightweighting we can do and so. Very useful tool. In addition to that, we have a customer feedback center there, which is also very good because every now and then, we might get also some -- well, not so nice feedback from the customers, and we have to analyze that was it our fault? Was it our paperboard? Was it something else, and this is also very good. We can go directly from the customer feedback center to the lab, talk with the guys, analyze it, and we have the answers quickly there. And of course, in that center, we can also utilize our global network of experts. So we do have a lot of technical staff in the market, and we can make a very good network with them, too. So a lot of things available. Right. So that's Excellence Center. And then I move on and you heard already lightweighting many times in Mika's presentation, and you heard it also in Sari's presentation. And as you heard, this is an old story, old stuff, but it is still very important. And I just want to give you an example why it is so important, just a concrete thing. So every day, when we talk about our folding boxboards, about 160 million packages are made out of Metsa Board paperboards. And if we can decrease the weight of paperboard by just 1%, it, of course, means that they are kind of a 1.6 million packages are made kind of a free. So what does it mean yearly? It means that more than 500 million packages are made, I said free from the same amount of raw material, and that's a huge amount. And therefore, it's easy to understand why this lightweighting is still important. Even the small change makes a big, big difference. And the lightweight paperboards, of course, they create less waste and prevent over packaging. And as you heard, we just made a step about a year ago with lightweighting with very good results that was an important project for us, and the customer feedback of it has been also very, very positive. And lightweighting does matter, but so does also the recyclability. And it is very clear that the consumers, they prefer, we all prefer more sustainable materials. And well, for instance, about 80% of the European consumers would rather choose carton board packaging over plastics, if that's possible. I mean that there are certain end users, especially in the area of food, where you need the so-called barrier properties. And therefore, it's not that easy to change from one material to the other, but you have to have also some properties there that you can do it. And if and when we can make the barrier properties without plastics, that will be great. And it's also because the plastic-free products are recyclable. So it all fits in the picture very well. There was already a question about this, what we have on this slide. And it's about the size of the market. But let me explain this figure a little bit more in detail. First, on the x-axis, we have different barrier properties like grease resistance, moisture resistance and water resistance. The reason why they are in this order is very simple. It is that the grease resistance is actually quite easy to produce. And when you move more to the right, it becomes more difficult. So they are in that order, therefore. And then when you look at these, what kind of a product need different barrier properties? The simple things are like packing fruits or vegetables, biscuits, soaps, there, quite often, grease resistance is what you need and also some moisture barriers. And that's what we already have done. We have the one product that Mika mentioned, this eco-barrier board, so Metsä Board Prime FBB EB. That gives already pretty good barrier properties against those. The market size, and this is very optimistic. I mean that when you read 2 million tonnes there per year, it means that then we would take all of it, not only the things that are packed now in paperboard, but also everything that's packed in plastics. And you can see that when you go to more demanding barrier properties, the market size becomes even bigger. The thing here is that these difficult barrier properties, of course, as I say, they are difficult to produce. With certain materials like plastic they are naturally there, for paperboards, we need the barrier coatings to make that. And we are working on this. As you can understand, we have started with the simple ones, with the grease barrier, with moisture barrier. And we are working our way towards the more demanding end users, more technically demanding products. And this is what we have in the pipeline. I will not say exact numbers about the timescale and so -- but you can believe we are working on this. And this is, as you heard already earlier, one of our 2 top R&D projects. Alright. Well what else do we do in R&D? Some of you might think that, "Hey, I have heard this story before, lightweighting and barrier. Yes, everybody is doing that. So are they doing anything else?" And the answer is that actually, we are doing something else too. And if I start the different types of project that we are doing together with our partners, other than customers or other suppliers, I'll start from the left-hand side with these joint ventures. And just show you 1 example. This nice, I don't know what you want to call it, glass or cup for champagne. And of course, you think that, hey, this is not a big -- you are talking about the significant scale of innovation. This is not significant. So champagne glasses, so you don't need them too many in the world. But this is something that we need to do, and it's also very important for us. Experiment different things, experiment also smaller things. And show that what can be done with the paperboard. Then we are -- if I take the other end of the spectrum and say that we are in a project called ExpandFibre. We are there together with Fortum and Metsä Group and that's a big project. Metsä Group is investing a lot of money into new innovations. One of -- and using a tool called Metsä Spring there. Metsä Spring is the innovation company of Metsä Group and Metsä Spring is, for instance, building a new pilot plant for textile fibre-based on wood in Aanekoski. And that's part of the program. We are there in too. And our part of that is partly barrier development, plus then something that you see in the middle, which is called a 3D fibre packaging solutions. And this is a brand-new project. We announced it or Metsä Spring announced it only was it 2 weeks ago. And the [ INI ] is produced 3D fibre packaging directly from pulp. And we are aiming, therefore, for high-volume market segments. You know these kind of solutions earlier. So when you go to the grocery store and you buy egg so they are in these kind of things, but there's something very new in here. First of all, it will be high-quality products. And secondly, it will also -- the target is that we can produce this efficiently. And that's a very important thing. And that's why we have also a machine supplier partner in the project. Without that, it would not work. And it shows also the way we've work. Another way of working for us, we work a lot with the customers, but we work also a lot with suppliers. Somebody asked, I guess, about this latexes. So how do we get rid of latex? So are we confident that we can do it alone? No possibility, but we are working with our suppliers there, too. And this project -- coming back to this 3D fibre packaging solution. It was started some months ago, it was published 2 weeks ago. It will be a EUR 20 million project. And the target is that there's a pilot plant running in Aanekoski again within about year. So next year, there will be a pilot plant in Aanekoski testing these. Good. Now I come to my summary. First of all, well, I have talked a lot about innovation and partner collaboration. I don't have to say too much about that, but that's the way how we want to do innovation, in-cooperation with various partners. Our R&D work is driven by sustainability, barrier boards, for instance, a very good example about that. And then finally, we aim for significant scale in innovations. Of course, we try to -- want to try smaller things, but we always keep in our heads that when we do something, it has to have a certain relatively big scale. So thank you very much for your attention. That was my part.

Thank you, Ari. Very interesting topics. Now the questions. So presumably, fibre-based packaging remains a more expensive alternative to plastics in typical end uses. Could you comment on this? What is the typical price ratio from the customer's point of view that makes paperboard more viable alternative?

What should I say there? I would like to leave this question to somebody else, sorry. For instance, Sari could answer that. But yes. I'm not sure about that. So better not comment.

Okay. Then has the coronavirus pandemic impacted customers' interest in sustainability and innovative products?

Well, I would say so that the simple answer is no. On the other hand, what we can see now, well, I forgot to say 1 thing, which is very important, it is that during the pandemic. So we have been able to run our R&D project, I would say, very normal. And for instance, the Excellence Center and all the labs and so they have been working very normally there. Of course, this pandemia so situation means that the cooperation with the customers becomes a little bit more difficult because you cannot make customer visits, they don't allow you to go to their plants, and it's more difficult to work with new products with customers. So that's, of course, but sustainability agenda as such, I guess, it has not vanished anywhere. So it is still there.

Okay. And now presumably, this refers to this 3D fibre product that are replacing the plastics, do you think this will have an impact on group earnings in the coming years? Or is it too early to say? So how are these products priced?

It's too early to say because now what we are doing or what Metsä Spring is doing here, it's, first of all, it's a technical study to see that is it possible to produce good quality products at a reasonably good productivity. And then all these things come after that. So now in this first phase, it's a question of developing the technology, see it that it works, and those things come then later.

Okay. And then still the same subject. How big is the current market you are targeting? And what kind of revenue potential do you see in the longer term?

Good. That's a very good question. I mean, that it depends on how widely you define where do we want to target. And by the way, who is going to target. So this is done by Metsä Group now this study. Of course, it's very important for us because we are working with the packaging customers and so. But it can be real big, it can be relatively big. I don't give any exact numbers about that, but we are not talking about mickey mouse money.

Okay. Which are the most difficult end users for paperboards to replace plastic-based products?

Okay. That's also a good question. Those are the products where you need many various different barrier properties. So easy ones are those where you say that, okay, I need also only a grease barrier. That's kind of easy. Or if I just need water barrier. But when you say that, okay, in addition to that, I want to have high aroma barrier, I want to have high oxygen barrier and so, those are the most difficult ones. And when you think about products, so for instance, fresh food is one of those, of course. Yes.

Okay. And if customers already prefer nonplastic products and producers know how to do it, have the technology. So why commercializing is taking so long?

Yes. Again, a very good question. I think there are many reasons. One of the basic things is that although there's a lot of interest for these products in the market. But on the other hand, how many tons are sold. There's a very big conflict between them. There's a lot of interest. But on the other hand, the market still is quite small. Secondly, the technology, how to produce these things. It exists, but it's not easy. And it's for anybody in the industry, it will be very difficult for anybody to say and -- come and say that, okay, I will put this online on my paperboard machine and that's it. So we can produce the properties. It's not that easy. And the third point, of course, is that, well, there was a question about the price and cost difference between paper-based packaging or fibre-based packaging and plastic, for instance, the new barrier materials can be relatively expensive. That's also 1 part in the game.

Okay. And which industry needs more than other to have fibre-based packaging? Which industry is your priority to serve first?

Now I didn't understand. Yes.

I think it's more about the end users of our products. So if we think, Mika went through earlier about how much folding boxboard goes to food and food service packaging, consumer goods and retail. So I think that's the answer in there.

Yes, exactly. Yes.

And how much is the spend on R&D? So how much is R&D to sales ratio?

Well, of course, there is a standard definition. How do you define it and at us, it's about 0.2%. Now you think that okay, good, this number is really low. It's relatively standard number in the forest industry. In some other industries, of course, they are spending 5% or something of the turnover in R&D at us, it is around 0.2%.

And then still about the barriers. So who do you consult to evaluate that these new barriers are better? So do we have any external consultants who you would mention?

No, not like that. We do a lot of work ourselves. And of course, we also work with our customers. So that's the way how we do it. And then as I said, we do cooperate a lot with our suppliers, is it then machine suppliers, or is it then also the raw material suppliers? So that's the network where we get it.

Okay. Thank you, Ari.

Thank you.

And now it's time for a short break. We'll take a 5-minute break. So we'll be back at 13:41. See you then. [Break]