Metsä Group’s Comparable Operating Result in January–June 2022 was EUR 574 Million

January–June 2022 (1–6/2021)

• Sales were EUR 3,416 million (2,942).
• Operating result was EUR 589 million (379). Comparable operating result was EUR 574 million (416).
• Result before taxes was EUR 564 million (354). Comparable result before taxes was EUR 550 million (391).
• Comparable return on capital employed was 18.3% (15.0).
• Net cash flow from operations was EUR 456 million (374).

April–June 2022 (4–6/2021)

• Sales were EUR 1,822 million (1,542).
• Operating result was EUR 248 million (243). Comparable operating result was EUR 330 million (242).
• Result before taxes was EUR 235 million (232). Comparable result before taxes was EUR 317 million (231).
• Comparable return on capital employed was 20.5% (17.2).
• Net cash flow from operations was EUR 321 million (279).

Events during the second quarter of 2022

• The average sales prices of softwood market pulp increased in both China and Europe compared to the previous quarter.
• Demand for Metsä Board’s paperboards remained strong. The euro-denominated average prices of paperboards increased compared to the previous quarter.
• The operations at the demo plant for 3D fibre packaging, owned by Metsä Group and Valmet, begun in Äänekoski.
• Juha Jumppanen, EVP of Metsä Forest, which is in charge of Metsä Group’s Wood Supply and Forest Services, and Jaakko Anttila, EVP of Metsä Wood, which is in charge of Metsä Group’s Wood Pproducts Industry, were appointed to Metsä Group’s Executive Management Team as of 1 August 2022.

Russia’s attack on Ukraine: Impacts on Metsä Group’s business operations

Russia’s attack on Ukraine has affected Metsä Group’s business operations. Operations at the Svir sawmill, the company’s only production unit in Russia, have been discontinued, as has wood procurement from the country. Product deliveries to Russia and Belarus have also been halted. In the second quarter of 2022, Metsä Group recognised a write-down of EUR 87.5 million related to the discontinuation of business operations in Russia.

The replacement of Russian wood has progressed as planned. Russia’s military aggression and the ensuing sanctions have a bearing on energy matters. The most challenging question is the availability of natural gas needed in production and the management of related costs particularly in tissue paper mills in Central Europe. Measures aimed at replacing natural gas are progressing as planned.

The coronavirus pandemic

Metsä Group follows and complies with the guidelines issued by the authorities regarding the coronavirus. In May, the company lifted its coronavirus restrictions in response to the improved pandemic situation. Metsä Group’s recommendation for remote working will remain valid until the beginning of August in duties that allow for it. The company will then adopt a model combining remote and in-person work. Metsä Group’s resources have remained normal during the coronavirus pandemic. Production and deliveries have run normally, barring a few exceptions.

Metsä Group’s comparable operating result is in July-September 2022 expected to be roughly at the same level as in April-June 2022.

President and CEO Ilkka Hämälä:

“The operating environment in the first half of the year was characterised by several exceptionally severe threats and risks. The coronavirus pandemic has proved to be a protracted phenomenon worldwide, and we must now adapt to it and learn to live with it. In China, one of Metsä Group’s main markets, extensive lockdowns aimed at containing the pandemic were seen in the first half of the year, which had direct and indirect impacts on our business operations. Russia’s brutal and unlawful attack on Ukraine led to extensive measures in Metsä Group. Among other things, we discontinued our operations in Russia and rearranged wood use and procurement, following the end of wood procurement from Russia. The steep increase in energy prices, affecting our tissue paper business in Central Europe, also called for adjustment measures. Amid these upheavals, demand remained strong in our main product groups and market areas. We managed to counter the impacts of cost inflation entirely or partly through our pricing. Overall, the result for the first half of the year was very strong. In terms of operating profit, the second quarter was the best in Metsä Group’s history.

Metsä Group is carrying out investment projects that are affected by both the pandemic and Russia’s actions through either cost inflation or the availability of materials and components. The test run of Metsä Fibre’s next-generation sawmill in Rauma began as planned in May, and continuous production will begin in the third quarter. The start-up of the recovery boiler and turbine at Metsä Board’s Husum mill has been postponed from the planned second quarter to the fourth quarter. This is mainly due to the delay in installation work caused by resource shortage. The pandemic has also affected this. Metsä Fibre’s bioproduct mill in Kemi is progressing according to schedule towards the launch of production a year from now. Cost inflation has increased the project’s original cost estimate by 15–20%. Metsä Tissue is preparing an investment to renew the Mariestad mill, while Metsä Wood is planning to expand LVL production in Äänekoski. Metsä Board increases its folding boxboard capacity at the Husum integrated mill and in May, Metsä Board announced that it is exploring opportunities for a further folding boxboard capacity incrsease investment either in Finland or Sweden.

People need products made of wood in their daily lives. Products and the industry must evolve to meet the challenges caused by the climate crisis and the general resource scarcity. The products used in daily life must be produced with an ever-smaller amount of resources, including energy and fibres. This is our guiding principle when developing operations, whether related to mill investments, the efficiency of logistics chains or the contents of products. Efficient resource use is a key foundation of the circular economy.

The commercial use of forests has come under pressure to change from EU legislation, national policies and the media. It is obvious that forest use needs to be reformed. Work aimed at adapting forest management to better safeguard biodiversity will not begin today; it began years, or even decades, ago with the establishment of forest certification systems. Its positive trends can be seen in the results of the national forest inventories, which have been carried out in Finland for a century. We have learned to examine forests as a larger system and have come to understand the significance of forest land for carbon storage. This has contributed to changes in operating models, especially concerning peatlands. It is necessary to identify forest environments of high protection value and bring them under the scope of protection. This isdone through public and voluntary measures. A well-managed healthy forest grows and binds carbon.

Forests and their multiple meanings are important to Finland and the Finnish identity. Metsä Group works daily to support the three pillars of sustainability: ecological, social and economic sustainability must be achieved so that they work in unison.”

Near-term outlook

The demand for wood supply focuses on thinning sites harvested when the ground is unfrozen. Metsä Forest also procures regeneration sites. Both crown wood and energy wood trunks are purchased as energy wood. The demand for forest management services remains good.

Concerning Metsä Wood’s Kerto LVL and plywood products, the economic impacts of Russia’s attack on Ukraine, the consumers’ declining trust and the increase in market interest rates resulting from rising inflation will lead to decreasing demand for construction in Europe. In the US and Australian markets, the demand for construction remains strong for now. In Metsä Wood UK, the demand for further processing is expected to be notably weaker in the next few months.

The demand for Metsä Fibre’s softwood pulp is expected to continue at a good level in relation to supply in the coming months. The demand for sawn timber which decreased in the summer is expected to pick up across all the markets in the autumn. The impact that a Russia’s prolonged war in Ukraine will have on the global economy creates uncertainty concerning long-term market development.

Events in the third quarter include the start-up of the new Rauma pine sawmill, the annual maintenance shutdown of the Kemi pulp mill and the shutting down of sawmill operations in Kyrö as a result of change negotiations.

The demand for Metsä Board’s fresh fibre paperboards is expected to remain good in the company’s main market areas in Europe and North America. Demand will be supported by long-term megatrends such as the replacement of plastic with renewable packaging materials. The slowdown in global economic growth and the weakening of consumers’ purchasing power create uncertainty in the market. The July–September delivery volumes of Metsä Board’s paperboards are expected to be approximately the same as in April–June. According to estimates, the average prices of folding boxboard and white kraftliners will continue to rise. Cost inflation is expected to continue, especially in chemicals and energy. Logistics costs will remain high due to challenges in the availability of transport equipment and high fuel prices. Wood costs are expected tobe higher in second half than in first half of the year

The tissue paper business environment is currently very unstable. Especially energy costs are rising rapidly, and challenges are seen in the availability of raw materials. To restore profitability, Metsä Tissue will respond to increasing costs with price increases and surcharges. Metsä Tissue temporarily shut down production for one day at the Kreuzau mill in Germany and the Zilina mill in Slovakia due to extremely high energy costs. Profitability will continue to be monitored daily, and high energy costs may cause further temporary production shutdowns in the future.

For the full half year results, click here.

About Metsä Group

Metsä Group is leading the way in advancing the bioeconomy. We invest in growth, bioproduct development and a fossil free future. The raw material for our products is renewable wood from sustainably managed northern forests. We focus on the growth sectors of the forest industry: wood supply and forest services, wood products, pulp, fresh fibre paperboards, as well as tissue and greaseproof papers. Metsä Group’s annual sales amount to approximately EUR 6 billion, and we have around 9,500 employees in 30 countries. Our international Group has its roots in the Finnish forests: our parent company is Metsäliitto Cooperative which is owned by nearly 100,000 forest owners.

Contact:

Vesa-Pekka Takala – EVP, CFO Metsä Group – tel. +358 10 465 4260

Source: Metsaliitto Cooperative