Metsä Group’s Comparable Operating Result in January–December 2022 was EUR 1,276 million

January–December 2022 (1–12/2021)

• Sales were EUR 6,980 million (6,017).
• Operating result was EUR 1,302 million (874). Comparable operating result was EUR 1,276 million (914).
• Result before taxes was EUR 1,270 million (832). Comparable result before taxes was EUR 1,240 million (872).
• Comparable return on capital employed was 19.5% (16.2).
• Net cash flow from operations was EUR 1,227 million (1,023).

October–December 2022 (10–12/2021)

• Sales were EUR 1,741 million (1,560).
• Operating result was EUR 316 million (221). Comparable operating result was EUR 311 million (220).
• Result before taxes was EUR 309 million (215). Comparable result before taxes was EUR 306 million (214).
• Comparable return on capital employed was 18.0% (14.7).
• Net cash flow from operations was EUR 399 million (427).

Events During the Fourth Quarter of 2022

• The average sales prices of Metsä Group’s long-fibre pulp increased in the first three quarters of the year and took a downwards turn in the fourth quarter.
• The delivery volumes of Metsä Board’s paperboards decreased compared with the corresponding period in the previous year. Average prices in euros continued to rise.
• The new recovery boiler and turbine started up at Metsä Board’s Husum pulp mill.
• Metsä Fibre’s Rauma sawmill was inaugurated in October.

Events After the Review Period

Metsä Spring invested in Fiberwood, a startup developing new kinds of thermal insulation materials from the forest industry’s side streams.

Metsä Tissue decided to increase its production of fresh fibre tissue paper at the Mariestad mill in Sweden. The value of the investment, to be implemented in 2023–2025, is approximately EUR 370 million.

Result Guidance for January–March 2023

Metsä Group’s comparable operating result in January–March 2023 is expected to weaken from October–December 2022.

Proposal of the Board of Directors on the Use of the Surplus on the Balance Sheet

Metsäliitto Cooperative’s Board of Directors has decided to propose that for 2022 interest of 7.0% (6.0% for 2021) be paid on the participation share capital invested by members, and that interest of 6.5% be paid on Metsä1 additional shares, 4.0% (5.0) on additional capital A, and 1.0% (1.0) on additional capital B. The Board of Directors also proposes that a surplus reimbursement of EUR 0.30 per m3 of industrial roundwood received from a member over the past four concluded financial periods be distributed. The surplus reimbursement will be paid primarily as Metsä1 additional shares, but in money for the part corresponding to the tax-at-source to be carried in terms of each member. If the right to the shares has been transferred to another person in accordance with the statutes of the cooperative, the interest is paid to the person who is registered as the owner on the reconciliation date 31 March 2023. The proposed payment date is 12 May 2023. If the member entitled to the surplus reimbursement resigns from the cooperative before the date of payment, this share of the surplus reimbursement will not be distributed. In total, the proposed profit distribution would be approximately EUR 101 million (80), of which the surplus reimbursement based on wood trade would be approximately 15%.

President and CEO Ilkka Hämälä:

For Metsä Group, 2022 was very strong in exceptional conditions. Metsä Wood, Metsä Fibre and Metsä Board, as currently structured, achieved record results. The year began with the global economy recovering from the disruptions caused by the pandemic. The demand for our products was strong in all our business areas, and the impacts of cost inflation, which had begun in 2021, were noticeable. Russia’s aggression against Ukraine, which turned into an unjustified full-scale war at the end of February, also required Metsä Group to quickly discontinue operations in Russia and secure the continuity of business operations in our other markets. The winding down of Russian operations had the greatest impact on wood supply. Overall, the changes significantly affected the wood markets in the Baltic Sea region. For Metsä Group, the end to birch pulpwood imports meant changes in the product structure. The limited availability of birch log wood used in the plywood industry led to production curtailments and the development of new softwood-based products. Metsä Board had been exporting around 100,000 tonnes of folding boxboard annually to Russia. The good market situation enabled this volume to be reallocated to other markets to help boost customer relationships there. The operations of our sawmill and wood supply companies in Russia were discontinued.

In 2022, the forest industry’s good economic situation boosted demand in all wood grades. The goal of reducing fossil fuel use in energy production, coupled with the high prices of emissions allowances, increased demand for energy wood. The use of roundwood for fuel surged, and increasing volumes of wood were also imported from Russia to match the need for energy wood. The end to Russian imports in the spring further aggravated the market situation. The European Union’s legislative initiatives, such as the proposed nature restoration regulation, create uncertainty in long-term wood supply. Our challenge in the coming years is to find a balance between the various expectations set for forests so that we can maintain vibrant forests that grow well, bind carbon from the atmosphere and produce renewable raw material for products that people need in their daily lives. At the same time, we need to improve the ecological status of commercial forests and develop also forest protection. As most Finnish species live in the forest, forestry measures are key to halting biodiversity loss. Metsä Group continues to develop its services for forest owners to promote both forest growth and biodiversity.

The exceptional sawn timber cycle, which began in 2021, continued until late 2022, when demand began to slow down following the decline in activity in the construction industry. Sawn timber prices returned close to their long-term trends. As log wood prices had increased during the boom, the sawn timber industry’s profitability was low at the end of the year.

The market for birch plywood suffered a notable disruption as imports of birch plywood produced in Russia came to an end due to the import ban. Limited supply led to a notable increase in prices, which Metsä Group was unable to fully capitalise on because the import of birch log from Russia ended at the same time. The market for softwood plywood was strong in the early part of the year, but weakened due to the slowdown in the construction industry towards the end of the year.

Kerto® LVL, Metsä Group’s focus area in engineered wood products, maintained a strong market position all year. We are the European market leader in Kerto LVL products, and the construction industry has a great need for resource-efficient solutions that can replace fossil-based construction materials.

The pulp market remained strong throughout the year. The price level in US dollars was high in all market areas, and pulp prices, converted to euros during favourable exchange rates, were at a record high level. Producers in the key production areas of Canada and Russia had problems with production and supply, which especially affected the Chinese market. Weaker economic development in China led to lower demand for pulp, but due to the factors mentioned above, the market balance remained good from our perspective.

The demand for Metsä Board’s folding boxboard and coated linerboards has been strong since 2020. The market remained strong, and we successfully raised product prices to match demand and the increase in cost components. This ensured a record result for Metsä Board in its current form. In the latter part of the year, the uncertainties surrounding Europe’s economy led to cautious inventory policies across the conversion chain, and we reacted to these with brief production curtailments. In the paperboard industry, the outlook for future demand remained strong.

The steep increase in European energy prices significantly affected the production costs of Metsä Tissue’s tissue and greaseproof papers. The business area’s profitability was negative during the first three quarters, but thanks to changes in the product structure and the increase in product prices, profitability was clearly positive in the fourth quarter.

Metsä Group aims to be a forerunner in the production of products made from renewable northern wood and in their supply to the global markets. The achievement of this goal requires the continuous development of our operating models, product range, cooperation with our customers and other stakeholders, and our production technology.

We began designing and deploying common business processes in 2018, and based on this, we are now renewing our ERP system. The project’s first phase in finance and materials operations was successfully deployed in late 2022 and early 2023. The project will continue until 2025.

The first stage of the Husum pulp mill’s renewal was completed in December, when the new recovery boiler and turbine generator started up. An investment to increase the paperboard production line’s capacity by 50% is also underway in Husum. It will be completed in the second half of 2023. In Rauma, test runs of the next-generation pine sawmill began in May. The mill switched to continuous three-shift production at the end of September. In Kemi, the implementation of investments in the new bioproduct mill and linerboard machine continued. The projects will be completed in the third quarter of 2023. Preparations were made for the renewal of Metsä Tissue’s Mariestad tissue paper mill. The environmental permit was obtained in November, meaning that the project was ready for decision making in February 2023. A planning process was underway for a new Kerto LVL mill in Äänekoski. When the environmental permit process is completed in early 2023, the project can move to the investment decision stage.

The implementation of all three sustainability pillars in Metsä Group’s operations calls for broad, systematic and long-term development work. The more than 90,000 forest owners who own the Group’s parent company, Metsäliitto Cooperative, are committed to contributing to the improvement of environmental, social and economic conditions in Finnish society, as well as among people around the world who need products made of renewable wood raw material.

Near-term Outlook

The demand for wood focuses on thinning sites to be harvested when the ground is unfrozen and on roundwood from delivery sales. Purchases of winter stands are made according to need and the weather conditions. In energy wood, the demand focuses on crown wood and energy wood trunks. Demand for forest management services is expected to remain good.

At Metsä Wood, the general economic downturn and the slowdown in construction activity weaken the demand for engineered wood products and improve availability of alternative materials in Europe. In the US and Australian markets, the demand for construction remains good for now. In the absence of Russian imports in the European market, the demand for birch plywood significantly exceeds supply, although the economic downturn is already affecting the outlook for the moulding and light transport equipment segments. In the UK, the demand for Metsä Wood’s timber upgrade business is expected to remain well below the pre-pandemic level in the coming months.

At Metsä Fibre, global economic development creates uncertainty about the demand for market pulp. The supply of long-fibre pulp will decrease due to the limited availability of raw material in North America. The demand for sawn timber is expected to pick up in the second quarter of 2023. Average market prices of pulp in the first quarter of 2023 are slightly lower than in the previous quarter.

In Metsä Board’s business, the decline in global economic growth and consumers’ purchasing power is creating uncertainty in the market. The near-term prospects for paperboard sales are uncertain. Paperboard delivery volumes in January–March are expected to remain at roughly the same level as in October–December. The average prices for folding boxboard are expected to increase. Cost pressures are expected to continue. Following the increase in wood prices and harvesting and transport costs last year, wood costs are expected to increase in the early part of the year compared to the previous quarter.

The business environment for tissue papers will continue to be unstable. Costs remain high, and there are challenges in the availability of raw materials. Metsä Tissue will continue to implement targeted price increases and develop its range to improve profitability.

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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:

Juha Laine – Senior Vice President, Communications, – tel. +358 10 465 4541

Source: Metsaliitto Cooperative