Metsä Board Annual review 2023

METSÄ BOARD Annual review 2023

■ Capacity expansion of folding boxboard in Husum

Sales and result

and Husum paperboard mills. The completion of investments increased depreciation by around EUR 12 million from the previous year. Unused emissions allowances were sold for approximately EUR 55 million (EUR 29 million). The associated company Metsä Fibre’s share of Metsä Board’s com- parable result in January–December was EUR 28.2 million (174.7). Metsä Fibre’s result was weakened by the lower sales prices of end products, especially pulp. Pulp delivery volumes fell by around 5% from the previous year. The performance of the sawn timber business was also clearly weaker than in the previous year. Profitability was also impacted by higher wood costs and increased depreciation resulting from the completion of the Kemi bioproduct mill. Financial income and expenses totalled EUR 0.1 million (-6.6), including foreign exchange rate differences from accounts receivable, accounts payable, financial items and the valuation of currency hedging instruments, totalling EUR 2.6 million (-5.0). The result before taxes was EUR 120.9 million (524.9). The comparable result before taxes was EUR 122.6 million (514.6). Income taxes amounted to EUR 19.3 million (63.5). Earnings per share were EUR 0.27 (1.15), and comparable earnings per share were EUR 0.27 (1.13). The return on equity was 4.7% (22.5), and the comparable return on equity was 4.8% (22.0). The return on capital employed was 5.0% (21.4), and the comparable return on capital employed was 5.1% (20.9). Cash flow Net cash flow from operations in January–December 2023 was EUR 342.8 million (1–12/2022: 232.0). Working capital decreased by EUR 105.8 million (an increase of 151.4). Cash flow was supported by efficient use of working capital. Due to the weakened demand situation, the company adjusted its production to prevent an increase in inventories. In the corre- sponding period, working capital was increased by higher inventory levels of paperboard and higher inventory values due to cost inflation. Balance sheet and financing Metsä Board’s equity ratio at the end of the financial period was 67% (31 December 2022: 66), and the net gearing ratio was 7% (4). The ratio of interest-bearing net liabilities to comparable EBITDA in the previous 12 months was 0.7 (0.2). Interest-bearing liabilities totalled EUR 438.1 million (31 December 2022: 453.0). Non-euro-denominated loans accounted for 2.0% of loans, and floating-rate loans for 15.3%, the rest being fixed-rate loans. The average interest rate on liabilities was 2.6% (2.2), and the average maturity of non-current liabilities was 3.1 years (4.0). The interest rate maturity of loans was 30.6 months (36.1). Interest-bearing net debt totalled EUR 144.0 million (31 December 2022: 94.5). Metsä Board’s liquidity is good. At the end of the financial period, the available liquidity was EUR 491.6 million (31 December 2022: 556.2),

consisting of the following items: liquid assets and investments of EUR 291.6 million and a syndicated credit facility (revolving credit facility) of EUR 200.0 million. Of the liquid assets, EUR 278.4 million consisted of short-term deposits with Metsä Group Treasury, and EUR 13.2 million was cash funds and investments. Other interest-bearing receivables amounted to EUR 2.5 million. In addition to items reported as liquidity, the liquidity reserve is complemented by the EUR 200 million commercial paper pro- gramme signed in December, Metsä Group’s internal undrawn short-term credit facility of EUR 150.0 million and undrawn pension premium (TyEL) funds of EUR 229.7 million. The fair value of other non-current investments was EUR 254.4 million (31 December 2022: 345.4). The change in value was related to the change in the fair value of Pohjolan Voima Oyj’s shares. At the end of the financial period, an average of 8.6 months of the net for- eign currency exposure was hedged, including the hedging of the balance sheet position of trade receivables and trade payables. Metsä Board has investment grade credit ratings from S&P Global and Moody’s Investor Service. Metsä Board’s rating by S&P Global is BBB-, with a stable outlook. The company’s rating by Moody’s is Baa2, with a stable outlook. Investments Investments during the financial period totalled EUR 228.7 million (1–12/2022: 304.1), with growth and development investments accounting for 74%, and maintenance investments for 26%. Of total investments, the company’s own property, plant and equipment amounted to EUR 223.0 million (278.1), and leased property, plant and equipment to EUR 5.7 (26.1). In the latter, the most significant item in the previous year was the machinery and equipment for the boiler plant from the acquisition of Hämeenkyrön Voima Oy, totalling EUR 18.0 million. Metsä Board group companies are parties to legal proceedings concern- ing disputes related to obligations and liabilities under delivery contracts for major investment projects. In addition, these investment projects involve outstanding disputes, which may also lead to the initiation of new arbitration or litigation.

Business operations and value creation 2 This is Metsä Board 4 CEO’s review 6

In November, the investment was completed at the Husum paperboard mill that will increase the annual production capacity of folding boxboard by 200,000 tonnes. After the investment, the folding boxboard production capacity of the BM 1 will be 600,000 tonnes per year, and it is expected to be fully available on the market in 2026. The total value of the investment is approximately EUR 230 million. The investment is expected to increase Metsä Board’s annual sales by approximately EUR 200 million and improve annual comparable EBITDA by approximately EUR 50 million. The company expects to achieve the growth and improved result in full in 2026. Due to the growing logistics volumes of the Husum integrated mill, the port concept will also be renewed. The value of the investments is approxi- mately EUR 20 million and will mainly include new warehouse capacity, with completion expected in 2024. ■ ERP project As part of Metsä Group, Metsä Board is modernising its information (ERP) systems. The project will gradually improve Metsä Group’s operational efficiency and ability to create new data-driven functions, primarily for business management and customer support. For Metsä Board, the design phase started in 2021, and the system is expected to be implemented by the end of 2025. In 2023, Metsä Group’s common financial system was implemented. Metsä Board’s share of the total project value is at least EUR 80 million, most of which will be booked as investments during 2024 and 2025.

Metsä Board’s sales were EUR 1,941.9 million (2,479.6).

Strategy and financial targets

SALES SPLIT BY PRODUCT %

SALES SPLIT BY REGION %

Value creation

100 80 60 40 20 0

Financial development 10 Key figures 12

Report of the Board of Directors

20 72

• Sustainability statement • Sustainability statement assurance report

21 22 23

Folding boxboard White kraftliner Market pulp Others

EMEA Americas APAC

Consolidated financial statements

78 Notes to the consolidated financial statements 126 Parent company financial statements 129 Notes to the parent company financial statements 142 The Board’s proposal to the Annual General Meeting for the distribution of funds 143 Auditor’s Report 147 Shares and shareholders 151 Ten years in figures 152 Taxes 153 Production capacities 155 Calculation of key ratios and comparable performance measures Corporate governance 157 Corporate governance statement 165 • Board of Directors of Metsä Board 168 • Corporate Management Team of Metsä Board

The comparable operating result was EUR 122.2 million (520.7), and the operating result was EUR 120.8 million (531.5). Items affecting compa- rability totalled EUR -1.4 million in the review period. They comprised Metsä Board’s capital gains of EUR 2.7 million from the sale of a land area unrelated to business operations, and items related to the business of the associated company Metsä Fibre: A write-down related to the closure of the old Kemi pulp mill; translation differences from discontinued operations in Russia; the loss on sale of fixed asset items, and other items, totalling EUR -4.1 million. Total deliveries of paperboards were 1,373,000 (1,817,000) tonnes, of which 67% was delivered to the EMEA region, 30% to the Americas, and 4% to the APAC region. Metsä Board’s deliveries of market pulp were 394,000 (503,000) tonnes, of which 67% was delivered to the EMEA region and 33% to the APAC region. The comparable operating result was weakened by the lower price level of market pulp and lower delivery volumes. The delivery volumes of paper- board also fell significantly. Metsä Board adjusted its paperboard, pulp and BCTMP production to match the low level of demand, and production volumes remained well below capacity levels. Profitability was supported by improved average prices for paperboards, especially folding boxboard. Exchange rate fluctuations, including hedges, had a positive impact of approximately EUR 95 million on the operating result compared to the previous year. The cost level was higher than in the previous year. The greatest increase during the year was in wood costs, due to higher stumpage prices in Finland and Sweden. The change in the costs of chemicals and energy was less significant. In the second half of the year, the result was affected by major annual maintenance and investment shutdowns at the Kemi

■ Pre-engineering for folding boxboard mill in Kaskinen

Metsä Board has started pre-engineering for a new folding boxboard mill with an annual capacity of approximately 800,000 tonnes in Kaskinen, Finland. The pre-engineering includes technical design, infrastructure and logistics solutions, and tendering for the main equipment. The environmen- tal impact assessment (EIA) for the project was completed in September. The environmental permit process is ongoing. A potential investment decision could be made in 2024 at the earliest. ■ Associated company Metsä Fibre’s Kemi bioproduct mill Associated company Metsä Fibre’s new bioproduct mill in Kemi, Finland, started up in September. The new mill will produce some 1.5 million tonnes of softwood and hardwood pulp annually, as well as other bioproducts. The pulp production capacity of 1.5 million tonnes includes the existing unbleached pulp production line for white kraftliners, which will be trans- ferred to Metsä Board, with an annual capacity of approximately 180,000 tonnes. The new bioproduct mill replaced the old pulp mill in Kemi, with an annual capacity of 610,000 tonnes. The bioproduct mill will not use any fossil fuels, and its electricity self-sufficiency is 250%.

■ Development programme of Kemi paperboard mill

In September, the Kemi paperboard mill completed a development pro- gramme launched in 2021, which will increase the mill’s annual production capacity of the white kraftliner by around 40,000 tonnes. After the programme, the mill’s annual production capacity will be around 465,000 tonnes, which is expected to be fully available on the market in 2025. The programme also included a series of modernisation and bottleneck investments in the paperboard machine, which will reduce the mill’s water use by 40% and energy use by 5% per tonne of paperboard produced. As part of the programme, Metsä Board will purchase a modernised unbleached pulp production line used in kraftliner production from Metsä Fibre. The production line’s annual capacity is roughly 180,000 tonnes. The total investment value is approximately EUR 110 million.

170 Remuneration report 174 Investor relations and investor information

Report of the Board of Directors | METSÄ BOARD ANNUAL REVIEW 2023