BUSINESS OPERATIONS AND VALUE CREATION
Coronavirus pandemic The coronavirus pandemic is easing, but may still cause uncertainty in the global economy and Metsä Board’s business environment. A prolonged pandemic could reduce the demand for Metsä Board’s products and cause disruptions in the company’s production or supply chains.
rates, a decrease in real income caused by high inflation, a further decrease in households’ purchasing power and an extended energy crisis in Europe. All of these factors may have a negative impact on the demand for Metsä Board’s products, business continuity or the company’s profitability. Changes in the operating environment Metsä Board operates in an industry where the balance between supply and demand, and any changes to it, impact the demand for and prices of end products. New operators entering the market, alternative products or changes in consumer behaviour may have a negative impact on the demand for Metsä Board’s paperboards. An increase in competitors’ capacity or the expansion of product ranges may lower the price level of end products and negatively affect Metsä Board’s profitability. If paperboard imports from Asia and the Americas to Europe increase faster than demand, this may lead to an imbalance in the market situation. Any significant changes in exchange rates may also influence products’ market balance and companies’ competitiveness. Changes in regulation, such as the EU’s climate and environmental policy and tighter new requirements to limit carbon dioxide, sulphur or other emissions, may weaken Metsä Board’s profitability or hamper business continuity. The acceptability of single-use food and food service packaging involves regulatory risks. Significance of the Chinese market China is a significant market area especially for Metsä Fibre. China’s economic growth has slowed down in recent years due to the country’s strict coronavirus policy, problems in the real estate market and tighter business regulation. Increased geopolitical tensions may also influence China’s future economic growth. Problems in China’s industrial sector may increase the problems and costs of global supply chains. The relations between the EU and China are burdened by bilateral sanctions and differing views on multiple issues. Should the growth of the Chinese economy slow down further or the relations between the EU and China deteriorate, this could affect the demand for market pulp or paperboards on the Chinese market and consequently affect the company’s profitability. International trade restrictions and geopolitical risks Potential changes in the industrial and trade policies of leading industrial- ised countries, the materialisation of geopolitical risks or an escalation of geopolitical crises may lead to more extensive trade restriction measures or the use of international sanctions. The possible consequences of these include a further slowdown in the recovery and growth of the global economy and even a curtailment of global trade flows. Any sanctions and restrictions on international trade may affect the demand for Metsä Board’s products and the company’s profitability. Pulp market situation Structural changes in customers’ pulp use, increasing competition and new production capacity in the global pulp market may have a negative impact on pulp delivery volumes and market prices and thereby on Metsä Board’s profitability. The market price of pulp strengthening (weakening) by 10% would have a positive (negative) impact of roughly EUR 30 million on the company’s operating result.
■ Operational risks
Cost and availability risks of production inputs Significant or unforeseen changes in the cost of Metsä Board’s most important production inputs – wood, energy and chemicals – and any problems with their availability, may reduce profitability, threaten business continuity and put the implementation and life-cycle profitability of planned development investments at risk. The discontinuation of wood supply from Russia may result in production curtailments at mills, especially due to the availability of birch, affecting the sales of the company’s products and profitability. An extended energy crisis and limited availability of natural gas, volatile electricity market prices or changes in the prices of emissions allowances may have a negative impact on profitability. In addition, the availability of transport capacity and a steep increase in market prices may negatively affect the company’s profitability. Changes in exchange rates may also have an effect on the costs of some production inputs. The Group aims to hedge against these risks by making long-term supply agreements and related derivatives contracts. Sustainability Promoting sustainability supports Metsä Board’s business and its development, but risks also arise from climate change and biodiversity loss in particular. At Metsä Board, these risks involve especially forests as well as the use of energy and water, and if materialised, the risks could have a negative impact on Metsä Board’s business. Climate risks are divided into 1) transition risks, i.e., the risks arising from the transition to a low-carbon economy and 2) physical risks, which involve changes in temperatures and precipitation, and which will arise if climate change is not mitigated. The most important transition risks include increasing regulation, as well as market and reputation risks, if the company fails to effectively respond to the changed market environment. The regulation aiming to combat cli- mate change and reduce greenhouse gas emissions may result in demands for new technology and impact the pricing of energy and greenhouse gas emissions, thereby increasing costs. In addition, safeguarding carbon sinks and the biodiversity of forest nature with increasing regulations causes risks for using forests. The supply and demand of products in a low-carbon economy may also differ from the current situation. Physical climate risks can be further divided into acute weather phenom- ena and more permanent changes. Extreme weather phenomena – such as storms, drought and floods – may cause disruptions in production or impede the transport of raw materials and products. In the long term, both an increase in the frequency of droughts and increased precipitation and floods may weaken the availability of the process water needed by mills and result in production suspensions. The risk is mitigated by the fact that all Metsä Board mills are located in northern areas with ample water. As the
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