METSÄ BOARD Annual review 2023
The investment value of the bioproduct mill is approximately EUR 2.02 billion, composed of internal financing and debt. Metsä Board has not invested equity in Metsä Fibre to finance the project. R&D and innovation In the circular economy for fibre-based packaging material, Metsä Board’s task is to provide markets with premium fresh fibre paperboards as resource efficiently as possible, help replace fossil-based materials and reduce the carbon footprint of packaging. Ensuring and developing the recyclability and compostability of paperboards is of key importance Reducing the weight of paperboard is one of the focal areas of Metsä Board’s product development. Apart from the use of fossil free energy in production, the light weight of paperboard plays a significant role in reducing the carbon footprint. In 2023, tailored life-cycle and carbon footprint calculations and comparisons were carried out as part of the 360 sustainability services. The calculations demonstrated that Metsä Board’s folding boxboard had a clearly smaller carbon footprint than many other packaging materials on the market. The company will continue to verify life-cycle analyses according to the environmental product declaration (EPD) jointly with its partner. Lighter-weight packaging and resource efficiency also play a key role in the pre-engineering of the Kaskinen folding boxboard mill, which aims for significantly lower wood, energy and water use per tonne of folding boxboard produced than in current production units. The development of bio-based barrier coating for end-uses in food packaging is another focal area in product development. In the biobarrier programme launched in 2021, the company continued to study new alter- native products for reducing plastic. Production testing has been carried out on various product alternatives, and the company is currently exploring the most promising products for commercialisation. Metsä Board’s Excellence Centre in Äänekoski offers an active collaboration environment for the research, innovation and testing of packaging materials and solutions. In 2023, the Excellence Centre hosted 46 development workshops, organised jointly with customers, focusing on topics such as reducing the environmental impacts of packaging. Some of the workshops were organised virtually. In 2023, Metsä Board’s research and development expenses totalled EUR 7.3 million (6.1), or 0.4% (0.2) of sales. The costs include direct expenses, excluding depreciations and operational investments. Most significant risks and uncertainties Metsä Board’s risk management is systematic and proactive, and it assesses and manages business-related risks, threats and opportunities. The company’s Board of Directors is responsible for the company’s risk management and approves its risk management policy. Metsä Board systematically assesses its strategic, operational and financial risks. Key risks are accounted for in the planning processes and they are prepared for
with management measures. In addition, the Corporate Management Team reviews the most significant risks as part of its management-team work. Risks that exceed the Metsä Board’s risk-bearing capacity have been transferred with insurance, derivatives and other contracts to insurance companies, banks and other counterparties. Significant damage risks are covered with the Group’s property and interruption, liability, transport damage and credit insurance policies. Identified risks and the means by which they are managed are reported to the company’s Board of Directors and the Board of Directors’ Audit Committee at least twice a year. The following risks and uncertainties with a potential impact on Metsä Board’s business operations and profitability were identified in the risk assessments carried out in 2023.
continuity. The acceptability of single-use food and food service packaging involves regulatory risks.
continuity and put the implementation and profitability of planned develop- ment investments at risk. The discontinuation of wood supply from Russia has made the pulpwood market situation in the Baltic Sea area tighter. Challenges in the availability of wood could impact production continuity and thus the sales of the com- pany’s products and its profitability. Should the conflict in the Middle East spread, it may affect the price of oil and natural gas. Changes in the prices of electricity, natural gas or chemicals, or challenges in their availability, as well as changes in the prices of emission allowances, may have a negative impact on Metsä Board’s profitability. In addition, the availability of transport capacity and a steep increase in market prices may negatively affect the company’s profitability. Attacks on ships in the Red Sea are hampering sea transports between Europe and Asia, causing additional costs and delays in deliveries. Prolonged instability in the region’s safety situation may have a negative impact on the product deliveries of Metsä Board and its associated company Metsä Fibre and therefore on Metsä Board’s profitability. Changes in exchange rates may 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. Concentration of operations in a limited geographical area Seven of Metsä Board’s eight production units are located in Finland, and one of them is located in Sweden. Finland has a history of labour disputes in both the forest industry and the distribution chain of forest industry products. These may have a negative impact on production volumes and customer deliveries and weaken the company’s competitiveness and profitability. Labour disputes in Sweden may also interfere with Metsä Board’s production and customer deliveries and have a negative impact on the company’s business operations. Continuity risks The continuity of mills’ production may be impacted by, for instance, large- scale fires, significant equipment malfunctions, serious accidents, extreme weather phenomena and environmental damage. In addition, labour dis- putes, cyberattacks and malware, and the ensuing long-term malfunctions in IT systems, employees falling ill due to infectious diseases, availability issues concerning the most important raw materials and disruptions in the logistics chain may suspend the entire business or parts of it. Interruptions in production or the supply chain may influence the continuity of customer service and delivery reliability. If such interruptions continue for a long period of time, the resulting financial losses may be very substantial and result in the permanent loss of customers. The company has prepared contingency plans for these risks. Business development The development and growth of Metsä Board’s business requires strategic choices that involve risks. The uncertainties in question involve the selection and timing of growth investments, for example, as well as the development of sales and the customer portfolio. The growth of the paperboard business and the introduction of new production to the market are dependent on successful sales. The commercialisation of new products involves uncertainties that, should they be realised, could have a negative
Business operations and value creation 2 This is Metsä Board 4 CEO’s review 6
Impact of the Chinese economy China is an important market area especially for Metsä Board’s associated company Metsä Fibre, as nearly half its market pulp is sold to China. Chi- nese economic growth has slowed down due to challenges in the country’s real estate market and tight corporate regulation. Domestic consumer demand has also weakened. In addition, demographic factors and increas- ing geopolitical tension may affect China’s future economic development. Should relations between the EU and China deteriorate, or the Chinese economy and domestic consumer demand slow down further, these may have a negative impact on the demand for market pulp or paperboards on the Chinese market and consequently on Metsä Board’s profitability. Problems in China’s industrial sector may increase the problems and costs of global delivery chains. 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 demand and market prices and thereby on Metsä Board’s profit- ability. The market price of pulp strengthening (weakening) by 10% would have a positive (negative) impact of roughly EUR 50 million on the compa- ny’s operating result. This sensitivity includes the impact on the associated company Metsä Fibre, in which Metsä Board has a 24.9% holding. Geopolitical risks Russia’s continued military aggression in Ukraine has maintained global geopolitical tension and has had a negative impact on the economy. The impact of Russian sanctions and countersanctions, as well as the risks caused by the crisis, affect areas such as the costs and availability of production inputs, energy infrastructure and cybersecurity. The ultimate effects of Russia’s attack on the world economy and the Group’s business will only become clear over a longer period. Potential changes in the industrial and trade policies of leading industri- alised countries, the materialisation of geopolitical risks or an escalation of geopolitical risks may lead to more extensive measures restricting trade 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. Sustainability Sustainability-related risks and their impacts on the company are sepa- rately discussed in this report’s Sustainability statement.
Strategy and financial targets
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Value creation
Financial development 10 Key figures 12
■ Strategic risks
Report of the Board of Directors
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• Sustainability statement • Sustainability statement assurance report
Development of the world economy The uncertainty surrounding global development and growth continues. The higher cost level and the resulting rise in interest rates have slowed down economic growth worldwide and especially in Europe. Consumers’ low confidence in the economy and weaker purchasing power have reduced the demand for consumer products. Consumers are becoming increasingly price-sensitive and are choosing less expensive products. If prolonged, the situation may further reduce the demand for fresh fibre paperboards and market pulp and negatively affect Metsä Board’s profitability. Central banks sought to curb inflation with several interest rate increases in 2023. While expectations of interest rate cuts have picked up, interest rates may also remain at the current level or even increase. This could have negative impacts on the economy, the most significant of which are a continued weak growth outlook and a prolonged risk of recession, a lower real income due to high inflation, and a further decrease in consumers’ purchasing power. All of these factors may have an unfavourable impact on the demand for Metsä Board’s products, business continuity or the company’s profitability. Changes in the competitive and 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 reduce the price of end products and negatively affect Metsä Board’s profitability. Paperboard imports from Asia to the Middle East, Turkey and South America have rapidly increased. This has also affected the market balance elsewhere in Europe. If paperboard imports increase faster than demand, they could also cause an imbalance in the company’s other market areas and affect the prices of end products and the company’s profitability. Any significant changes in exchange rates may 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
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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
170 Remuneration report 174 Investor relations and investor information
■ Operational risks
Cost and availability risks of production inputs Significant or unforeseen changes in the prices of Metsä Board’s most important production inputs – wood, energy and chemicals – and any problems with their availability, may reduce profitability, threaten business
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Report of the Board of Directors | METSÄ BOARD ANNUAL REVIEW 2023
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