Metsä Board Oyj : Annual review 2023 – printable

Metsä Board Annual review 2023

Metsä Board is a leading producer of high-quality and recyclable fresh fibre paperboards in Europe and a forerunner in sustainability.

Contents

Business operations and value creation

This is Metsä Board	2
CEO's review	4
Strategy and financial targets	6
Value creation	8

Financial development

Key figures	10
Report of the Board of Directors	12
• Sustainability statement	20
• Sustainability statement assurance report	72
Consolidated financial statements	74
Notes to the consolidated financial statements	78
Parent company financial statements	126
Notes to the parent company financial statements	129
The Board's proposal to the Annual General
Meeting for the distribution of funds	142
Auditor's Report	143
Shares and shareholders	147
Ten years in figures	151
Taxes	152
Production capacities	153
Calculation of key ratios and comparable
performance measures	155

Corporate governance

Corporate governance statement	157
• Board of Directors of Metsä Board	165
• Corporate Management Team of Metsä Board	168
Remuneration report	170
Investor relations and investor information	174

Metsä Board Sustainability review 2023

Metsä Board Sustainability review presents Metsä Board's key sustainability objectives and achievements in 2023. The review will be available in spring 2024

METSÄ BOARD ANNUAL REVIEW 2023

1

This is Metsä Board

Focus on sustainable fresh fibre paperboards

We focus on premium and recyclable fresh fibre paperboards, that help our customers reduce their plastic use. Our paper- boards made from renewable wood fibre are mainly used in consumer packaging and retail packaging solutions.

Strong position

in a growing market

We are a leading producer of folding boxboard and white kraftliners in Europe, and globally the biggest producer of coated white kraft- liners. In the USA, we are the largest supplier of folding boxboard.

The global demand for paperboards is expected to grow faster than all packaging materials on average, at an annual rate of slightly over 4%. (Source: Smithers Information Ltd.).

A forerunner in sustainability

Our products support the circular economy and they have a smaller carbon footprint compared to many other packaging materials. Our future growth is based on more efficient use of resources and raw materials. Our target is fossil free production and products by the end of 2030.

Investing in sustainable growth

Population growth, urbanisation and the replacement of plastic will increase the demand for fibre-based packaging material in the long term. We respond to this demand with sustainable investments and innovative packaging solutions. We have ambitious, science-based sustainability targets and mill-specific investment plans to achieve the targets.

We are part of Metsä Group

All our wood supply is handled by Metsä Group. The wood we use is sourced from sustainably managed forests, mainly from Finland and Sweden where renewal of forests and the biodiversity of nature is secured. Our ownership (24.9%) in Metsä Fibre secures self-sufficiency in pulp and enables the growth of paperboard business.

METSÄ GROUP

The parent company Metsäliitto	Sales	Comparable operating result	Personnel
Cooperative is composed of over	EUR 6.1 billion	EUR 488 million	9,500
90,000 Finnish forest owners.

Wood Supply and	Wood Products
Pulp and sawn	Paperboard	Tissue and
Forest Services		timber		greaseproof papers
	METSÄ WOOD	METSÄ FIBRE	METSÄ BOARD	METSÄ TISSUE
OWNERSHIP
Metsäliitto Cooperative	Metsäliitto Cooperative	Metsäliitto Cooperative	Metsäliitto Cooperative	Metsäliitto Cooperative
100%	100%	50.1%	52% (69% of votes)	100%
		Metsä Board 24.9%	The company is listed
		Itochu Corporation 25.0%	on Nasdaq Helsinki

METSÄ SPRING Innovation company

2

Financial development in 2023

Our profitability was affected by weakened paperboard and pulp market. We completed our investments as planned and secured cash flow from operations through efficient management of working capital. Our balance sheet remained strong.

SALES

EUR million

2,500
2,000
1,500
1,000
500
0
19	20	21	22	23

COMPARABLE OPERATING RESULT EUR million

% of sales

600				30
500				25
400				20
300				15
200				10
100				5
0				0
19	20	21	22	23

TOTAL
INVESTMENTS
EUR million
350
300
250
200
150
100
50
0
19	20	21	22	23

CASH FLOW

FROM OPERATIONS

EUR million

350
300
250
200
150
100
50
0	19	20	21	22	23

SALES SPLIT BY PRODUCT	SALES SPLIT BY REGION
% of sales	% of sales

						Interest-bearing net debt/
	Folding boxboard	59		EMEA������������������������������������	66	comparable EBITDA
	�����������������  White kraftliners	24		Americas	27	0.7
	Market pulp ��������������������������	13
	Other ��������������������������������������	4		APAC����������������������������������������	7

Target <2.5

We are

2,300

Metsä Board employees in

17

countries

Paperboard capacity 2.3 million tonnes/year

END USE OF

FOLDING BOXBOARD

  Food and food service packaging

  Other consumer product packaging

  Graphical end use

We have

8 production units in Finland and Sweden.

Our main market areas are Europe and North America

Pulp and BCTMP capacity 1.7 million tonnes/year

END USE OF

WHITE KRAFTLINERS

  Various retail packaging solutions

  Other consumer product packaging

E-commerce

Our customers include international brand owners, packaging converters, manufacturers of corrugated products and merchants

We are committed to the ambitious and science-based 2030 sustainability targets that enable fossil free production and products and help our customers to contribute to their own goals. Read more about sustainable development and our goals.

Source: Metsä Board

|  METSÄ BOARD ANNUAL REVIEW 2023

3

Ready for sustainable growth

The year 2023 was challenging for Metsä Board. Our business was affected by the weaker pulp and paperboard market and high cost level. Over the year, we systematically implemented our strategic programmes and helped our customers reduce their use of plastics and the carbon footprint of packaging. The Kemi and Husum investment projects, completed in the second half of the year, and our strong financial position offer us excellent conditions for future sustainable growth. I am proud of every Metsä Board employee's work and commitment to our company's future.

The world around us has changed rapidly, and the changes have also had a strong impact on the paperboard market. The pandemic led to exceptionally steep growth in the demand for packaging materials, with restrictions on mobility shifting consumption from services to products. Since then, rising inflation and interest rates have affected consumers' purchasing power and behaviour: prices of consumer products have increased, and people now consider their purchases more carefully. Weaker consumer demand has led to major inventory adjustments in the value chain. In addition, the overall market balance for paperboards, especially in Europe, has been affected by the discontinuation of sales to Russia and increased paperboard supply from Asia to the Middle East and South America.

Notable year-over-year change in profitability

Our sales were EUR 1.9 billion, and our comparable operating result was EUR 122 million. Our comparable return on capital employed was 5.1%, compared to a record high of over 20% the previous year. Paperboard and market pulp delivery volumes were well below capacity levels, and we adjusted our production to match the low demand level. Our performance was also impacted by high cost level and a significantly lower result from our associated company Metsä Fibre compared to the previous year. However, the average sales price of our paperboards improved from 2022.

To safeguard profitability, we focused our paperboard sales on customers in our main market areas, who most benefit from sustainably produced premium fresh fibre paperboards. In the second half of the year, we temporarily laid off some of our personnel at our mills in Finland. Through efficient management of working capital, we managed to support our cash flow from operating activities, which amounted to EUR 343 million. Our balance sheet remained strong in the challenging market situation.

Competitiveness from energy and fibre self-sufficiency

The energy crisis in Europe highlighted the importance of energy self-sufficiency. Metsä Board's energy self-sufficiency is already 90%, increased by the new recovery boiler in Husum and the additional production from the Olkiluoto 3 nuclear power plant. In addition to own production, our self-sufficiency in pulp is supported by 24.9% holding in Metsä Fibre.

Wood, our main raw material, accounts for more than a quarter of our total costs. The discontinuation of wood supply from Russia led to a tighter wood market in the Baltic Sea region, and pulpwood prices increased in Finland and Sweden in 2023. Our wood supply is handled by Metsä Group, which is Finland's largest buyer of wood. Wood is only procured from sustainably managed forests, where growth exceeds use. In the spring of 2023, Metsä Group adopted regenerative forestry principles which improve forests' carbon storage, biodiversity and ability to adapt to climate change. In accordance with the principles, the state of forest nature is not only improved, but the improvement is also demonstrated with measurements.

A year of significant investments

Over the year, several significant investments were completed. At the Kemi kraftliner mill, we completed a development programme to increase the production capacity of the white kraftliner and improve the mill's energy and water efficiency. Similarly, the modernisation of the folding boxboard production line in Husum will increase our annual folding boxboard capacity and improve the mill's production efficiency. Moreover, Metsä Fibre's new bio- product mill started up in Kemi. It is the largest investment in the history of the Finnish forest industry. The mill produces softwood and hardwood pulp more cost-effectively and offers world-class production, environmental and energy efficiency.

4

In our operations and development efforts, we have systematically done the right things, which will have a positive impact on our business in the future.

Concrete actions to ensure sustainability

In the circular economy of fibre-based packaging materials, our task is to provide the market with fresh fibre paperboards as resource efficiently as possible, contribute to the replacement of fossil-based materials and reduce the carbon footprint of packag- ing. Lighter-weight paperboards and resource efficiency are the key areas in our product development, and they also form the basis for future investments. We aim to reduce wood, energy and water use per tonne of paperboard produced compared to our current production units. In 2023, we implemented measures and investments at our mills in line with our strategic programmes, which aim to make our production entirely fossil free by the end of 2030. These measures will continue as planned in the coming years.

Ready for future growth

Our goal is to continue to grow in fibre-based packaging materials and to renew our industrial operations. Population growth, urbanisation and plastic replacement remain strong trends that will increase demand for fibre-based packaging in the long term.

Consumer preferences favour fossil free packaging materials, and several brand owners are committed to ambitious targets to reduce plastic use in their packaging. Our competitiveness is boosted by high quality of our paperboards, reliable deliveries, and a service concept, which helps our customers improve their material efficiency and reduce the environmental impact of their packaging.

Although our business environment still involves uncertainties, I am confident about Metsä Board's future. In our operations and development efforts, we have systematically done the right things, which will have a positive impact on our business in the future. Our strong financial position will support us in this growth. The Board of Directors proposes a dividend of EUR 0.25 per share for 2023.

I would like to thank Metsä Board's employees for their great work and all our customers, shareholders and other partners for their trust and good cooperation.

Mika Joukio

CEO

CEO's review  |  METSÄ BOARD ANNUAL REVIEW 2023

5

Our strategy highlights solutions that promote the circular economy

We are a leading European producer of premium fresh fibre paperboards and a forerunner in sustainability. Our decision making is guided by our financial and sustainability targets and the ambition to increase shareholder value. Our goal is to maintain a strong financial position and distribute a competitive dividend to our owners.

Purpose

Advancing the bioeconomy and circular economy by efficiently processing northern wood into first-class products.

Vision

Preferred supplier of innovative and sustainable fibre-based packaging solutions, creating value for customers globally.

Strategy

We grow in fibre-based packaging materials and renew our industrial operations.

Megatrends

Population growth

Climate change

Digitalisation

Urbanisation

Biodiversity loss

Values

Reliability

Cooperation

Responsible profitability

Renewal

6

Operating environment supports

growing demand for fresh fibre paperboards

• Population growth, urbanisation and rising living standards drive packaging
• Regulation and consumer preferences favour fossil free packaging materials
• The requirements of the circular economy become more specific and drive the development of the industry
• Availability and quality of recycled fibre is declining
• Global e-commerce continues to grow

Our strategic programmes

We implement our strategy through five strategic programmes that drive sustainable growth in fibre-based packaging materials and industrial efficiency.

Premium supplier

Effective innovation

Safe and efficient operations and organic growth

Leader in sustainability

Motivated people

We invest in sustainable and profitable growth

With the investments, we implement our strategy to grow in fibre-based packaging materials, improve the production and resource efficiency of our mills and reduce the carbon footprint of our products. We have set ambi- tious, science-based sustainability targets and mill-specific investment plans to achieve our goals by the end of 2030. Some of the investments required by these plans have already been implemented. These measures will also help our customers to reduce their emissions and further increase our competitiveness.

In 2023, we completed a development programme at our Kemi paperboard mill that will increase the annual production capacity of white kraftliner by 40,000 tonnes and improve the mill's energy and water efficiency. As part of the development programme, we will purchase a modernised unbleached pulp production line from our associated company Metsä Fibre for use in paperboard production. At the same time, Metsä Fibre completed its new bioproduct mill in Kemi, which will increase our surplus in pulp by an amount corresponding our share of ownership in Metsä Fibre. In Husum, an investment related to the modernisation of the production line for folding boxboard was completed, which will increase annual production capacity by 200,000 tonnes and improve the production

Our financial targets

COMPARABLE RETURN	INTEREST-BEARING NET
ON CAPITAL EMPLOYED	DEBT / COMPARABLE
%	EBITDA

DIVIDEND / NET RESULT

efficiency of the mill. The increase in production capacity is expected to be fully available on the market in 2026.

During the 2020s, we will make an investment decision to renew the fibre line at the Husum pulp mill. In addition, we have pre-engineering ongoing for a new folding boxboard

25
20
15
10
5
0	20	21	22	23
19
Target > 12%

2.5
2.0
1.5
1.0
0.5
0
-0.5	20	21	22	23
19
Target < 2.5

100
80
60
40
20
0	19	20	21	22	23
	Target > 50%

mill in Kaskinen. The pre-engineering work is still ongoing and an investment decision can be made in 2024 at the earliest.

Business operations and value creation  |  METSÄ BOARD ANNUAL REVIEW 2023

7

We create value and well-being for several stakeholders

We are continuously looking for opportunities to grow profitably and sustainably, and to generate value for our stakeholders with our operations. We help our customers achieve their sustainability targets with our paperboards and our expert services that support the circular economy.

Resources

People and partnerships

• 2,300 employees in 17 countries
• 36 apprentices
• Active cooperation with local communities and educational institutions

Production and supply chain

• More than 3,400 suppliers
• 8 production units in Finland and Sweden
• Deliveries to approximately 100 countries

Natural resources

• 6,3 million m3 of sourced wood of which 91% is certified
• Total energy consumption 7.6 TWh of which 90% is fossil free
• Water intake 102 million m3
• 254,000 dry tonnes of purchased pigments, adhesives and other raw materials

Intangible assets

• R&D expenditure EUR 7.3 million
• An Excellence Centre in Äänekoski, Finland, and a satellite centre in Norwalk, the United States
• Recoqnition for premium quality paperboards

Economic capital

• Capital invested EUR 2.5 billion
• Approximately 62,000 shareholders in B series and 10,000 in A series

Business model

We produce resource-efficient fresh fibre paperboards from renewable raw materials, which support the principles of the circular economy and offer an alternative to fossil-based packaging materials. We are part of Metsä Group, and benefit from its unique value chain, from pure northern fibre to premium end products. We have high energy self-sufficiency, and our holding in our associated company Metsä Fibre ensures our over self-sufficiency in pulp. Our production is located in Finland and Sweden, and we have sales around the world. Our main markets are Europe and North America.

OUR SALES IN 2023

EUR 1,942 million

FOLDING BOXBOARD

59% (of sales)

WHITE KRAFTLINERS

24% (of sales)

MARKET PULP

13% (of sales)

OTHER

4% (of sales)

8