Metsä Board Oyj (METSB) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Metsä Board's January-September Results Presentation. My name is Katri Sundström, and I'm responsible for Investor Relations. With me today, I have CEO Esa Kaikkonen and CFO Anssi Tammilehto, who will take you through the results. As usual, we will open up the lines for questions at the end. You can also send questions through the chat during the presentation. Before we begin, just a quick reminder that today's presentation includes forward-looking statements and the usual disclaimer applies. With that, I'll hand over to Esa.

Thank you, Katri, and good afternoon, everyone. Let me start with the key messages. First, our Q3 profitability continued to improve despite extensive shutdowns and continued cost pressures. Second, the paperboard market balance improved, supporting higher prices as well. Third, our transformation program continued to deliver and strengthen our competitiveness. And finally, commercial momentum continued to build as we have been able to benefit from some shifts taking place in the market. Those are the key messages that we have today. Then turning to the paperboard market. The overall market balance has improved, as I stated earlier. In white-top kraftliner, market conditions have strengthened during '26. Capacity closures, especially in North America, have tightened supply and supported containerboard price increases. At the same time, demand has improved, and supply has tightened in Europe, while cost pressures have also supported price development. In folding boxboard, demand has remained roughly stable during the year. Capacity closures in Europe and North America have improved the supply-demand balance. The combination of a better market balance and continued high costs has supported pricing. And important to remember, we have been able to benefit from these market shifts as well. Our share of the European folding boxboard market increased to 29% in September from 25% at the end of Q2. Paperboard deliveries remained stable from the previous quarter, while average selling prices increased. A strong order book supported higher operating rates at our Finished paperboard mills. At the same time, extensive maintenance shutdowns and market-related downtime at Husum weighed on our profitability. Despite these headwinds, comparable EBIT improved for the fourth consecutive quarter, increasing from EUR 3 million in Q2 to EUR 6 million this quarter. Comparable EBITDA remained stable at EUR 30 million. Our transformation program also continued to progress, reaching an annual EBITDA run rate improvement of EUR 148 million. We also continued our commercial actions to strengthen our market position further. So overall, the direction is encouraging, but there is still significant work ahead to improve our profitability. Then let's move on to our business areas, starting with the Consumer Packaging. Q3 delivery volumes remained stable both year-on-year and from Q2. Year-to-date volumes declined mainly in the Americas, but recently, volumes have stabilized also there. Deliveries in Europe remained stable, increasing Europe's share of our overall sales mix. On the positive side, average selling prices increased. Then moving on to the retail packaging. Volume development has remained solid. Year-to-date, white kraftliner deliveries were up by 7% with growth in both Europe and the Americas. We continue to hold a strong position in coated white kraftliner in North America, where substitution options are limited. We have also increased our sales of coated white kraftliners in Europe. Also in white kraftliners, average selling prices have increased. Then market pulp remains the most challenging of our 3 businesses. Demand and pricing remained subdued, although supply has tightened following production curtailments and capacity closures. Metsä Fibre's Jolcheno mill has remained in market-related downtime since the end of March, also affecting our PCTMP operations at the site. Year-to-date pulp deliveries declined both at Metsä Board and Metsä Fibre. And with that, I'll hand over to Anssi to take a closer look at the financials.

Thank you, Esa, and good afternoon, everyone. Let's now turn to the financials and have a bit of a deeper look at the numbers. So the third quarter sales were EUR 402 million, down from the previous quarter and from the same period last year. But looking at the first 9 months, sales were EUR 1.23 billion, which is almost EUR 150 million lower than last year. This decline was quite evenly split between lower volumes, lower selling prices, and adverse currency effects. But despite the lower sales, profitability continued to improve. And the comparable operating profit increased to EUR 6 million, marking the fourth consecutive quarter of improvement. This is very encouraging, especially considering the extensive maintenance and market-related shutdowns that Esa already mentioned. When we then look at the year-to-date comparable operating results, they improved by more than EUR 40 million to close to break-even levels. Lower prices and adverse currencies were significant headwinds, but these were more than offset by substantial improvements in the variable and fixed costs. Also, lower wood and chemical costs contributed to the improvement, together with the measures that were implemented under the transformation program, the closure of the Tako mill, and lower maintenance costs. These were also items that improved the situation, and the fixed costs were at a lower level compared to the previous year. And then if we look at the quarterly comparisons year-on-year, our comparable operating result improved by around EUR 50 million, again, driven mainly by substantially lower variable and fixed costs. Higher paperboard deliveries and production also contributed positively to the year-over-year comparison. When we then look at the quarter-to-quarter comparison, a slight improvement, as shutdowns weighed on volumes. You can see the red bar over there. And this was largely offset by lower variable costs that also included roughly EUR 10 million of tariff refunds. Other items also contributed positively, with emission allowance sales around EUR 5 million higher than in Q2 as the levels continue to be feasible. And then, if we look at the transformation program at a bit more detailed level. The program continues to deliver. As mentioned, it's a 10-quarter program, and it's delivering already tangible earnings benefits. By the end of Q3, the implemented actions represented an annualized EBITDA run rate of around EUR 150 million against our EUR 200 million target overall. The realized EBITDA impact was EUR 54 million in the quarter, bringing the cumulative impact to almost EUR 100 million overall. It's good to note, of course, that the cost savings are measured against the average cost structure of the period from the second half of '24 to the first half of '25. Of course, we continue to reduce variable and fixed costs and improve our efficiency in both sourcing and logistics. Good to note also that the commercial actions are progressing, with the earnings impact expected to become more visible next year. Then to cash flow. Our cash generation improved in the third quarter, and this was supported by the recovery in both earnings and a positive contribution from working capital, namely inventories. Cash flow from operations was EUR 22 million, and the cash flow after investing was even stronger at EUR 32 million, reflecting the very low level of investments during the quarter as we remain focused on capital discipline and other positive investment cash flow items. Looking ahead to Q4, cash flow is expected to weaken, reflecting an increase in working capital as we don't want to jeopardize our customer commitments, mostly related to retail packaging and the Kemi maintenance shutdown. Then, if we have a look at the balance sheet items, our liquidity still remains strong at EUR 546 million, and this also includes the fully undrawn EUR 250 million revolving credit facility. Our interest-bearing net debt is roughly EUR 600 million, and the refinancing of the next year's bond maturity has already been secured through a bridge facility. And the net debt decreased to a bit over EUR 300 million, while our leverage then improved to 4.6 as earnings recovered. We are still above our long-term leverage target, which is 2.5, but we are clearly moving in the right direction, with a lot of work ahead of us. Our investment-grade rating from Moody's has remained unchanged, and we also discontinued our S&P credit rating during the quarter. And that's all from me at this point in time. And back to you, Esa.

Thank you, Anssi. Then some words about Husum because that's obviously our focus also going forward. Let me be clear here. Husum is still loss-making, and the current performance is not where we need to be. Utilization remains the key challenge. However, performance is improving; namely, our transformation program measures, together with the lower wood costs, are supporting profitability currently. Additional seating capacity that we established earlier this year in Winschoten, Netherlands, is supporting higher utilization of Husum's folding boxboard capacity in Europe, while our commercial actions are supporting improved pricing and product mix as well. The further improvement potential remains significant, as you can see from this slide on the right side. The higher production and delivery volumes, further transformation program benefits and operational efficiencies, as well as improved paperboard market balance and pricing, can all support further improvement in Husum's profitability. And then our near-term outlook. Looking at the next 3 to 6 months, the overall operating environment and the improved paperboard market balance should continue to support the pricing environment. Cost pressures are still there, partly reflecting continued geopolitical tensions, as we all know. And despite the recent movements in the U.S. dollar and SEK, our hedges are expected to keep the currency impact limited over the next 3 to 6 months. Then, turning more specifically to Metsä Board, cash flow-based steering remains our key priority, although Q4 operating cash flow is expected to be lower than in Q3, as Anssi explained earlier. Paperboard volumes are expected to decrease seasonally, while earlier price increases should support profitability. The tariff refunds recorded in Q3 will not recur in Q4. Maintenance costs, on the other hand, are expected to be lower despite the extended annual maintenance shutdown at Kemi. And finally, Metsä Fibre's result is expected to improve from Q3. And looking beyond the near term, let me briefly come back to our strategy and the priorities. You see some of the key numbers that we are following; this will also in the future. Our priorities remain clear: safety, organizational renewal, customer-driven growth, and above all, restoring profitability and operational efficiency. As the numbers show, we still have a lot of work ahead of us, and our focus is firmly on executing the strategy. On the commercial side, we are now working more closely with the brand owners who need to ensure regulatory compliance while responding to consumer demand for more sustainable packaging. Together with our partners, we provide packaging solutions that are material-efficient, sustainable, and compliant with the evolving regulations as well. Our design studio in Milan, as well as in Finland and the U.S., and expanded seating capacity in Winschoten strengthen our service offering and bring us closer to brand owners and their packaging needs. The recognition received by the Sephora Packaging Council is a good example of what this collaboration can deliver. Together, these developments strengthen our commercial position and support our ambition to grow in European premium consumer packaging. To sum up, we are moving in the right direction. Profitability and cash flow are improving, and the paperboard market balance has become more supportive. At the same time, Husum and the weak market pulp environment continue to weigh on our performance. Our priorities are clear: improve Husum's profitability, maintain strict financial discipline, and capture the commercial opportunities ahead. We will also continue the disciplined execution of our transformation program and Lead the Pack strategy. There is still significant work ahead, but we are confident in our ability to deliver further improvement and build a stronger foundation for sustainable profitability, as we have shown in our earlier quarters as well. But that's the picture from us now. Thanks for listening. And with that, we are very happy to take your questions.[Operator Instructions]

The next question comes from Linus Larsson from SEB.

May I please start off with the folding boxboard market? There was a statement in the report about an improved market balance. And it sounds like you're also referring to folding boxboard in that context. So, could you maybe put a bit more about that and how you see prospects for your upcoming price negotiations for the European customers in 2027, please?

Thank you, Linus, for your question. First of all, the market balance, generally speaking, I would say that year-on-year, we roughly look at the capacity adjustments of 1 million tonnes; if you take the SBS and FBB market, half of that roughly in the U.S. and the rest in Europe. So, that's practically the ballpark number. So, I think it's rather significant if you look at the folded carton market, generally speaking. And then if you add the WLC market, it's even higher, and that market is also our addressable market. So in that sense, I would say that the situation, we can say that it has improved. And that, of course, what we have been saying as well that our annual volumes that we are committing and have a framework agreement with the customers on the prices and volumes is amounting roughly to 40% of our FBB volumes. And I think that this situation, together, of course, we see that there is high cost pressure as well on the market players. And thus, we see that we are heading to annual negotiations in a much better position than we were a year ago. So that's the situation currently. What comes out of the negotiations, I cannot give any forecast or projections at this point in time, but they will continue for a while, and you will certainly be hearing more news in the next quarterly report or annual report that we will be publishing.

And I noticed that on a sequential basis, you actually had declining variable costs, and that's supposed to be some of your Nordic peers. I'm certain that, compared to many of your Continental European peers, most probably see rising variable costs in this market environment. So are you sensing any change? I mean, one might suggest that there is a market share shift to the north in this fossil energy cost increase that we're now seeing. Is that how you see it already at this stage?

Yes, very good and topical question. We see clearly that the Nordic players are in a better position, and so are we in relation to our, let's say, variable costs and especially energy, as we are 90% self-sufficient and also fossil-free, more than 90% fossil-free. So we are in a better position, of course, there. And now, while we have seen the shifts in the market and some difficulties even among the players and difficulties in supply. So clearly, those discussions that I have had with the customers are that reliability is #1 currently for the brand owners. They will not be jeopardizing the reliability of the supplies, and this is giving a good ground for the discussions going forward. And whether it then plays out to be better for the Nordic players is difficult to say at this point in time, but I feel that we are in a better position than a year ago.

And then maybe finally, you are saying that there is an improving market balance, yet your own operating rates in paperboard remain low. And obviously, you took a bit of downtime in the third quarter. I mean, given how low your operating rates for shipments-to-capacity ratios are in the group as a whole, I presume that they are very low in the Husum operations. I'm just a bit curious, and you have taken measures; you mentioned a couple. To bridge this gap, I mean, what is left to be done that you can do with your own measures? Are there more acquisitions like Winschoten, or can you even more aggressively cut costs? Or is it a pretty big gap to fill?

Well, I think that we have been explaining this earlier as well. And our situation: we have a really strong order book, or strong order books in the Finnish mills, and the mill that is suffering from the low capacity utilization is Husum. But currently, we are in a situation where we are not in a hurry. So we are more for the healthy business and seeing that what are the capabilities for Husum to deliver the best potential results for the group as well. So we are taking that step by step. And of course, all the measures that we have in the transformation program are actually aiming to also improve the situation in Husum. On commercial excellence side, Husum is one of those core things that are always in the center of the things when we are thinking that where we are producing our products. But generally speaking, saying this is that this new capacity it's not very easy to bring into the market because, the fact that I have been explaining earlier, all of these mills are already part of some packaging infrastructure either in the U.S. or in Europe. And this is making it very, very difficult to actually bring these new capacities into the market and have all of these, let's say, qualifications before they can then penetrate to these end users. And we are looking at the end users; what we have said is that our focus segments are food and pharma currently, both in Europe and in the U.S. So I think that we have time. We are patient. We are building the momentum because this mill is the Husum PM1 is the biggest FBB, let's say, machine in the market and also one of the most competitive ones. So we are building momentum, and we are patient on this one. At the same time, you were asking about other measures, like the structural things and other actions, in order to improve the situation in Husum. We have said that we are also open to inorganic growth in respect of the FBB and consumer packaging. And this is exactly what it means also can be one part of the solution, as you were pointing out rightly so.

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

Maybe a little bit of follow-up on the Husum situation. Thinking about the U.S. export opportunities currently, we have seen the SBS prices continuing to increase in the U.S. Does this actually open any new export opportunities from Husum to you?