Metsä Board Oyj (METSB) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the presentation of Metsä Board's full year results for 2024. 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 go through the presentation first and then take the questions. Let's start with the Q4 summary. Despite seasonality, demand for paperboards was even lower than expected. The delivery volumes mainly in FBB decreased from Q3 levels. The average sales prices of paperboard remained stable. Due to the low demand, we adjusted our production with temporary layoffs at mills. For the whole 2024, the most significant market-related production curtailments and resulting layoffs took place in the last quarter. In December, we also conducted new change negotiations for this year 2025. With this, we are preparing to continue production curtailments and possible layoffs also this year if paperboard demand does not improve. In market pulp, a stable demand situation continued in Europe compared to Q3. In China, demand returned to normal levels. The rapid price decline in market pulp at the end of the year was more for hardwood than for softwood, which is the main grade for Metsä Group's market pulp. Metsä Fibre's Kemi bioproduct mill had a long shutdown in November, December due to the repair of the cooling towers and recovery boiler. This also impacted Metsä Board's kraftliner production and had a roughly EUR 9 million negative impact on our operating result. And finally, we booked EUR 7.5 million in insurance compensation for the last quarter related to the explosion Kemi Fibre's Kemi -- at Metsä Fibre's Kemi bioproduct mill last spring. Of the estimated total negative profit impact of EUR 40 million, we have now received EUR 30 million as insurance compensation. This shows the quarterly development of paperboard sales during the last 3 years. The decline started already in 2022. It continued throughout 2023, boosted by heavy destocking in the value chain. 2024 started promisingly, but ended lower than expected. Despite the normal seasonality in Q4, the demand was even lower than we expected. In total, the full year delivery volumes increased by 7% compared to 2023, but are still far from the levels of 2022 or earlier. As a result of the higher cost of living, consumers' purchasing behavior is still rather cautious and more consumption is directed at services than products. Here is the paperboard sales split by region and by product. Folding boxboard sales strengthened in each market compared to last year or 2023. White kraftliner sales increased in the Americas, but decreased in EMEA. Overall, the demand for both folding boxboard and kraftliner has been somewhat stronger in North America than in Europe. Increased import volumes of cartonboard from Asia have impacted the market balance, especially here in Europe, even though the imported volumes have mainly been directed at Turkey, Russia, the Middle East and Latin America. Now let's move on to market pulp. Metsä Board's market pulp delivery volumes increased slightly compared to last year. Metsä Fibre volumes, both in production and deliveries declined from 2023. This was affected by the explosion at the Kemi bioproduct mill in the Spring, later production challenges at the Kemi mill in Q4 as well as market-related downtime in Joutseno pulp mill in Q3. Demand for softwood market pulp in Europe was clearly higher in the first half of the year than in the second half. In China, demand was lower than in Europe and almost halted from the summer to early autumn. The supply of softwood market pulp has been limited due to the planned and unplanned shutdowns mentioned earlier, the political strikes in Finland and global logistical bottlenecks. In addition, there were several capacity closures in 2023. In Europe, the softwood pulp prices increased in 2024, whereas they were more stable in China. Then sustainability figures and the annual development. Our TRIF improved clearly from last year, which I find very positive, of course; however, the current level of 3.4 is still higher than target level, which, of course, is 0 accidents. The share of certified wood fiber was at 92% and above our target of over 90%. Thanks to our investments in improving energy efficiency and accelerating our path towards the fossil-free target, our fossil-based CO2 emissions Scope 1 decreased from last year. However, Scope 2 emissions were higher due to the increased production and the growing need for energy. And compared to 2023, energy efficiency and water usage per produced tonne are now moving in the right direction. But now I will hand over to Henri to present the financials. Please, Henri.

Thank you, Mika, and good afternoon. Our 2024 sales remained at last year's level, landing at roughly EUR 1.9 billion. The positive impact from increased paperboard volumes was offset by lower prices, especially in folding boxboard. The operating result for 2024 was clearly weaker than in 2023 at EUR 69 million. And now let's take a closer look at the items that affected the result starting from October, December compared to the same quarter last year. On the positive side, our paperboard deliveries increased by over 40,000 tonnes. In variable costs, energy and chemical costs were lower. In addition, there was less maintenance than a year ago. And regarding the explosion in Metsä Fibre Kemi bioproduct mill in the Spring, we received insurance compensation of EUR 7.5 million. On the negative side, we had lower paperboard prices and higher costs in wood and logistics. And as Mika already mentioned, Metsä Fibre's repair shutdown at the Kemi bioproduct mill had a negative profit impact of around EUR 9 million on Metsä Board. This was due to the extra costs of special arrangements in kraftliner production, including the impact of lost production and sales. And then the full year comparison. The main positives were increased delivery volumes, higher pulp prices and lower energy and chemical costs. On the negative side, we had lower folding boxboard prices with increased wood costs and more maintenance. Depreciation was higher due to the completion of 2 big investments in Kemi and in Husum. The sale of unused emission allowances was EUR 20 million lower than in the previous year. And the unfortunate events at Metsä Fibre's bioproduct mill in Kemi that have been mentioned several times, impacted their volumes and profitability. In addition, Metsä Fibre's result was burdened by increased wood costs and higher depreciation. Higher market pulp prices were not enough to compensate for all this. The estimated negative net impact of the Kemi mill explosion on Metsä Board's operating results in 2024 totaled around EUR 10 million, including the impact from Metsä Fibre. In addition, the political strikes at the beginning of the year had an estimated negative impact of EUR 25 million, including the impact from Metsä Fibre. In Q4, the comparable return on capital employed fell into the negative. For the full year, it was at 3.2%. These are very low percentages and clearly below our target of over 12%. Capital employed at the end of the period was roughly EUR 2.4 billion. Our cash flow has been in a steep decline this year, and it goes without saying that the current level is unsatisfactory. Operational cash flow was burdened by low profitability and growth in working capital due to an increase in operational activity and also extraordinary low level at the end of 2023. In addition, dividend payments from Metsä Fibre dropped clearly, EUR 10 million in 2024 compared to EUR 83 million in 2023. Even though cash flow improved a little in Q4, the full year level was only at EUR 38 million. Free cash flow was EUR 84 million negative. Big investments completed in 2024 had an impact on this. Our net debt was roughly EUR 350 million at the end of the year. In 2024, liquidity has decreased due to unsatisfactory cash flow and dividend payments of roughly EUR 90 million. In addition, interest-bearing debt has increased somewhat since the end of 2023. Leverage is now at the level of 2, which is below our maximum target level of less than 2.5. Our financial position is still solid despite the leverage increase, which has mainly been impacted by weakened profitability. And that's all from financials. So now I'll hand over to Mika.

Thanks, Henri. And then we move on to investments. As the graph shows, the big investments are behind us. In 2024, the volume of total -- value of total investments was EUR 175 million. Estimated investments this year are in the range of EUR 100 million to EUR 150 million. Now let's take a closer look at what we are planning, but also what is currently underway. Last year, we made an investment decision to renew the paperboard machine in Simpele. This investment is proceeding as planned, and we expect it to be completed in the autumn this year. The investment value is EUR 60 million. This investment will significantly improve the quality of Simpele's folding boxboard and reduce its carbon footprint. It will take the whole mill closer to fossil-free production. The next steps in Simpele will be renewals of the paperboard finishing area and mechanical pulp production as well as a new power plant. At our Kyro board mill, our intention is to improve the performance of the current barrier board and expand its end-use areas. This is now in the pre-engineering phase. In Husum, the second phase of pulp mill renewal will include a new pulp drying machine. And finally, also in Husum, we have started a pre-engineering project in cooperation with Metsä Tissue to investigate potential change of product produced on Husum's BM 2. This is a long-term project and production of white kraftliner will continue at full capacity at least until the possible investment shutdown of BM 2. Then the near-term outlook. Overall demand for consumer products continues to be impacted by consumers' purchasing power and their general purchasing behavior. We expect our paperboard delivery volumes to grow from Q4 levels. Average sales prices will remain stable. Total costs, excluding pulp costs, are expected to stay flat. And as always, Q1 will not include any major planned maintenance. In softwood market pulp, we see stable demand both in China and Europe. Metsä Fibre's result share is expected to improve from Q4, and we expect our Q1 operating result to improve from Q4. To summarize, 2024 was the second tough year for us in a row. Paperboard sales were lower than expected and profitability was burdened by the high cost level. In addition, we faced several unexpected events that were beyond our control. The market situation will remain challenging. Consumers are still a little shy in their purchasing decisions and consumption is directed more at services than products. In addition, new capacity, which is growing faster than demand can cause an imbalance in the market, especially in Europe. Good news is, however, that we have a solid financial position even though we have recently carried out big growth investments. Through our future investments, we will continue to improve the competitiveness of our mills and products and accelerate our way to fossil-free production. We keep focusing on customers who benefit from the performance of our high-quality paperboards. However, ensuring cost competitiveness and profitability is more than important than ever, and it requires stronger measures to improve it. And regarding this, after the review period, we announced our plans to close our Tako mill and enhance the operational efficiency at our Kyro mill to improve our competitiveness and profitability. Due to the weak market situation and rapidly rising costs, both mills were loss-making in '23 as well as '24. Production has remained well below capacity, and the mills have had to implement several temporary layoffs. The change negotiations at both mills are now ongoing, and they are expected to last at least 6 weeks. If the plan is implemented, production at Tako mill would end in 2025. For our customers, this wouldn't have an impact as Metsä Board's overall capacity for folding boxboard would be sufficient to meet current demand. But this is pretty much all I can say about this at this stage. We will now wait until negotiations are concluded. No decisions on personnel reductions or mill closure will be taken before then. And with that, we end our presentation and are now ready for your questions. Thank you very, very much.

The next question comes from Robin Sebastian Santavirta from Carnegie.

Firstly, I have a question related to the current market environment. What are you seeing in terms of demand certainly related to paperboards in Europe at the moment? Any signs of improving order intake or -- and demand? And related to that what is the outlook for folding boxboard pricing in Europe and North America this winter and spring?

Yes. Concerning the order inflow and the demand, in general, we see that Q1 will be better than Q4. Of course, that is always the case, almost always the case. And maybe we don't see as clear -- as high a change as last year when Q4 -- I mean, Q4 '23 was really low and then Q1 last year was really good. So maybe we don't see that high change. But anyway, we have seen improved order inflows both -- I mean, both from Europe as well as from other markets. And based on that, then our estimation is that the volumes will increase in Q1 comparing Q4. But then concerning the prices, the prices are estimated to remain flat or even slightly, slightly better in Q1 than Q4. And that goes for both white kraftliner as well as folding boxboard as well and also for Europe and for North America.

Mika, can you shed some light on folding boxboard annual contracts? Are there any increases in those? Or is this North American prices going up or so that we would understand the dynamics, what has happened with the annual contracts for folding boxboard?

Yes. The annual contracts for folding boxboard in Europe, the volumes are higher than last year, and the prices are pretty much flat. And I think that this is really good achievement, remembering and knowing the market and demand and supply situation all in all globally. But that is pretty much the case in Europe.

All right. The second question I had related to -- if I look at your Q4 paperboard deliveries, they're something around 15% lower than the past 5 years in Q4. And then you have more capacity and GDP and consumption is higher than 5 years ago. So what is the key reason for paperboard demand being significantly lower compared to 5 years? Is it the import from Asia that sounds to be rather small? Is it the sort of cyclical element of weak consumption? Or is there a structural change? What is the key reason?

Do you mean in Europe or in general?

In Europe?

In Europe, of course, we -- the demand has been worse than, for example, in the U.S., no doubt. All in all, it's actually difficult to say how much demand has increased because we have only our own figures, and we don't know precisely what kind of volumes are coming outside Europe. Of course, we have some sources where we are able to estimate that. But I would say that all in all, the biggest kind of factors are these Asian producers, even though the volumes in Europe, as you said, they are not that significant as elsewhere, Turkey, Middle East, Africa and so on. But some volumes have also been seen here. And then the overall kind of situation in Europe, we know what has happened in Germany. Economy is not as strong there and also other countries are struggling. So all in all, the situation in Europe, as I said, is worse than in some other markets, but we have managed quite well.

I understand. Final question I have is, related to pulpwood costs. You call out for total cost to be stable in Q1 versus Q4. Can you shed some light on the pulpwood market in Finland and in the Baltics and Sweden as well? We're seeing sort of spot prices have stabilized. What do you see yourself? And what do you expect for the winter and the spring?

Yes. All in all, the situation will remain tight, no doubt, no doubt. Are we able to -- or do we going to see higher prices or lower prices? It's difficult to say. We pay market price for the wood, and that's it, but the situation will remain tight. And let's see then what will happen during the winter and coming spring.

The next question comes from Joni Sandvall from Nordea.

Maybe I'll start with the Finnish strikes, which are ongoing currently, obviously, not directly impacted by you, but we have heard something about, for example, about chemical availability. So have you seen any impact from this and what to expect for the coming weeks?

Yes. So far, we haven't seen any negative impact. So we have raw materials enough to produce our products. Of course, if the situation is getting more difficult, then, of course, one possibility is that we will see something. But at the moment, we haven't -- or so far, we haven't. And as far as then the deliveries are concerned, we have made some preparations to move volumes outside Finland, so closer to the customers already during the course of the last 2, 3 months in order to be prepared if something would happen then, later this year. But at the moment, no disturbances so far.

Okay. Okay. Yes, that's clear. Then maybe a question on related to Kemi and Husum ramp-ups, especially, I would say, Kemi after there is still the maintenance to come. So when do you expect to get the full plant volumes or capacity out from Kemi?

Yes. Kemi is running very well, actually. I mean, this linerboard machine, but it's clear that the pulp mill bioproduct mill will have an investment shutdown in June, let's say, 5 weeks starting late May and ending early July. And that, of course, affect also linerboard production. Last year, we learned how to produce linerboard even though pulp mill would be down, and now we have capabilities and possibilities to do that also this year, but it remains to be seen how much we will produce during that shutdown, of course, depending on the market situation. But my estimation is that we have a full capacity available at the end of this year, so that next year then '26, we would be able to run full speed as targeted in the investment.

Okay. Okay. That's clear. Then maybe a quick question on the Tako and Kyro situation. You have said that those have been negative EBIT contributors now for '23 and '24. So can you give any indication how much negative EBIT has been coming from these 2 facilities?

Maybe Henri will take this. I know the figures, but it's...

Okay. Well, yes, thanks for the question. Unfortunately, we are not giving out sort of mid-level profitability figures in more detail.

Okay. Okay. Lastly, on the FX impact now neutral sequentially going into Q1. So should we expect that given strengthening of USD then see pretty much full effect of this in Q2?

I would say that Q2 is perhaps a little bit too early as we have sort of 7, 8 months hedging horizon. So I would say right now in the second half of this year.

The next question comes from Antti Koskivuori from Danske Bank.

Two questions from my side. You talked about the paperboard market potential imbalance now when we get new capacity in the European market. Could you a little bit elaborate your view on that? Now obviously, you're doing actions or planning actions in Tako. But how do you view the situation? Do you think that more is needed? Or how the kind of imbalance or potential imbalance will be resolved? And the second question, this relates potentially to the first one. Your exports to U.S. in paperboard, of course, have been quite notable. Now with potential tariffs, do you see potentially some of that volume being rerouted back to Europe?

Yes. If I take the imbalance of the market situation first. Thank you for the questions. I think the root cause for this imbalance clearly is the Asian producers. And why? The reason is that the area where they are sending their paperboard, folding boxboard, I mean, this Turkey -- several times mentioned Turkey, Middle East and so on, they've been the areas and markets where the European producers, they have delivered -- they -- overcapacity because in Europe, there has been overcapacity in falling boxboard for several years, no doubt. And that's why we as well as other players, we are delivering our products outside Europe. But now this playground. I mean, this outside Europe is quite tight. And for that reason, then the demand and balance situation in Europe, especially has become very tight. But I don't want to speculate how much more curtailments are needed in addition to this possible Tako closure. Of course, the market shows and then overall demand and supply will show that. But that is my comment concerning that this imbalance in Europe. Then the U.S. tariffs, we have a very strong position in coated white kraftliner as well as the folding boxboard in the U.S. market. And at this point, I don't want to -- and actually, it doesn't lead anyway if I speculate what kind of consequences the tariffs would have. So let's see if we face the fact, then we need to, of course, act accordingly. But what are the acts they are on the planning board at the moment.

May I ask a follow-up question on the first one and the potential imbalance. Now we know that capacity is growing, both in Asia as well as in Europe. Are you worried more of the Asian capacity growth than in Europe? Or how do you see the market? I mean we are getting a lot of capacity in both areas, I guess. Do you expect the Chinese volumes to be increasingly visible in the European market going forward?

I don't think so because in Europe, our customers, brand owner customers as well as then converter customers, they really prefer our excellent services, whether they are availability services, technical services, sustainability services, design services and so on. And our Asian competitors, they don't have this. So that is clearly our strength. And -- but I mean, if you only think the volumes, of course, I'm more worried about the Asian volumes than European volumes. Big -- but volumes are huge.

The next question comes from Linus Larsson from SEB.

I'm curious to hear more about the pre-engineering study at Husum and the potential conversion of the board machine # 2. So First of all, could you just describe in a bit more detail what you're planning to do? Would you then cease linerboard production on that machine altogether? And also now that you're looking at this together with your sister company, Metsä Tissue, is there in your preliminary plans some change of ownership? Would this be -- who would own the potentially rebuilt machine? And then thirdly, what order of magnitude of CapEx we should associate this potential project with?

Okay. First of all, the product -- so the product concerning this preplanning project and board machine #2 or in the future, maybe paper machine #2, the product is both greaseproof papers as well as so-called food service papers like papers, which are used in fast food applications, for example. And that is growing quite nicely between 3% and 4% annually. But it's both for kind of packing and cooking type of greaseproof papers, siliconized as well as then this food service and also food packaging grades. These are the grades that we are looking at. And then the ownership, that is far too early to speculate who will own the production line. After we have seen the results of the pre-engineering, I mean, the exact investment sum and all these business plans and cases, then we need to come back to this topic. But at the moment, it goes very nicely hand-in-hand with Tissue and Metsä Board, this project. And then Q1 next year, we will hear the results. And what is the CapEx? That's too early to speculate also. It won't be tens of millions of euros. It will be more, but how much more remains to be seen. The final solutions are still anyway open. There are several options. So it doesn't make sense to speculate too much about the CapEx as we speak because pre-engineering is just about to start only.

And you mentioned this capacity figure, 80,000 tonnes. How big a part of the machine would that account for just to understand.

Concerning the overall market, you mean?

No, of the machine, is that -- would you dedicate the whole machine to these new products or would you...

Yes, yes. Okay. At the moment, we have the understanding that also then linerboard would be able to produce on that line. This 80,000 tonnes is only for papers. But of course, we are looking for -- during the pre-engineering, then we look also options that we could possibly depending on the price tag to continue to produce also linerboard, but that is still open.

[Operator Instructions] The next question comes from Andrew Jones from UBS.

A couple of questions. I mean, first of all, on this greaseproof papers and foodservice market. Can you just give us an idea for how big the market is, how significant this project is to it? And maybe give us an idea for where operating rates are in that market today? Because obviously, we know we've suffered from overcapacity in most packaging grades in recent times. Have you identified this product because operating rates are significantly higher? And can you give us an idea for what other viable projects are out there and what -- how you see the supply and demand shaping up in the next few years if demand grows, as you say, at 3% to 4%? That's my first question. I'll follow up with a second in a minute.

Okay. Of course, this foodservice papers or food packaging papers, they are produced on kind of so-called swing machines quite often. So it's very difficult to say what kind of operating rate. We only know that what is the rough operating rate of our own GBB. I mean, Metsä Tissue's machines and those operating rates are good. I mean that business is doing nice as we have also communicated earlier today. I mean, Metsä Group has communicated earlier today. So that business is doing fine. And all in all, this siliconized greaseproof paper market is roughly 300,000 tonnes, 300,000 to 400,000 tonnes and then this foodservice segment is clearly more than that, let's say, close to 1 million, maybe 700,000, 800,000 tonnes. So we are talking about remarkable machine in that segment, no doubt, but it would be then the most cost efficient and so on. So the cost competitiveness would be excellent. But that is the magnitude.

But do you anticipate -- if you take into account that growth, can the market absorb what sounds like quite a large addition in a market of that size?

Maybe not in the one go, but then steady growth and remains to be seen. The one part of this pre-engineering, of course, is a business plan also. I mean, more precise. Of course, we have some business plans or Metsä Tissue has, but they will be sharpened and defined then during the course of the year.

And I mean, obviously, it's too early to say given you haven't done the engineering yet, but would you be open to actually just closing that line if you thought that the supply and demand outlook in that market isn't quite to your liking. I mean, it seems to me like there's generally too much capacity broadly in packaging and some more closures are probably welcome. So is that option on the table? Or are you -- do you think you're more likely than not to make this conversion?

I think it's too early to speculate. I wouldn't say anything at this point.

Okay. And just on the folding boxboard market, I mean, can you give us an idea of where you think operating rates were in the industry in the fourth quarter given that weak demand outlook? I mean, do you think your decline was indicative of what we have seen in the broader market? Or I mean, do you think you've lost or gained share? Like -- and where do you think operating rates were? And I guess a follow-on to that, we've obviously seen some capacity takeouts potentially, I mean, yourselves at Tako, RDM Group on the sort of recycled side despite obviously Oulu coming through this year, I mean, do you -- where do you see sort of operating rates sort of shaking out at this year if we take into account those moving parts we've seen so far?

Yes. I don't know if I -- thanks for the question, but it was a bit several points actually. But starting from the operating rates, the last quarter of last year, that was the worst. They were if the average year was like 75% to 80%. So then the last quarter was clearly below that. But now the situation is better and our annual deals are higher for this year than last year, which means that the operating rates will also be higher this year, especially in folding boxboard. I think the white kraftliner is in better, better situation concerning that. And then, of course, if Tako mill would be closed down, then of course, the operating rates of the other mills would improve, no doubt, because we would have capacity to take -- keep the customers if the demand would be at the current level.

Okay. And further to that, I mean, if I take into account the full Husum expansion running when that's fully ramped up and assuming no disruption from strikes and things like that, even without Tako, I reckon utilizations for the group would still be around 80% of volume numbers for this year, suggesting maybe you could maybe take out some more capacity potentially. I mean if you look at your group of mills, I mean, potentially Kyro looks to be relatively high cost. You've talked about wanting to optimize that mill. But if the market doesn't improve, is there potential for maybe another mill to shut at some point in the next year, 18 months? Or is that off the table?

At the moment, we are only -- we are planning this Tako. Tako, a possible closer and then operational improvements, efficiency improvements at Kyro mill. So we don't have any plans to kind of to curtail production more. And we need -- but anyway, of course, we need to remember that Husum is still in the ramp-up phase. We are not running this kind of 600,000 level yet. We are ramping up. And then, of course, the demand and the market situation will then play, of course, significant role. But it's too early to speculate. And at the moment, we don't have any other plans than the announced ones.

And if I may add that we also have temporary layoff possibilities. So that's good to remember.

[Operator Instructions] The next question comes from Joni Sandvall from Nordea.

Maybe one follow-up, given the possible closure of Tako and what's happening now. Could you give any indication of depreciation level going forward?

Henri will take this.

Yes. The depreciation for this year will be close to last year level, so between EUR 105 million to EUR 110 million. Tako depreciations are only a few millions, so no big impact there.

Okay. Okay. And this is coming pretty much linear now from the Q1 onwards?

Yes. Although we have this -- when we have the Husum annual maintenance shutdown, we have a little bit lower depreciation during that quarter. So it's not 100% linear during the year, but not far from that.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Okay. Mika Joukio here. Thank you very much for your questions, for your active participation. And I wish you a good continuation for the day and remaining week. Thank you.