Metsä Board Oyj - Company Announcement

Metsä Board grows its paperboard business, plans to fully exit paper production and considers a rights issue to partially finance the final steps of transformation

Metsä Board Corporation Stock Exchange Release 10 December 2014 at 1 p.m. EET

Metsä Board Corporation, part of Metsä Group, is introducing the final steps of
transformation to a paperboard company and invests approximately EUR 170
million in a new folding boxboard machine at its Husum mill in Sweden. The
production capacity of the new machine is approximately 400,000 tonnes per
annum and it will start up in early 2016. Full production capacity is expected
to be reached by the end of 2016. Husum mill's paper production is planned to
be discontinued mostly at the end of 2015 and fully by the end of 2017. These
measures in Husum, including also the increasing fresh forest fibre linerboard
sales volumes, are expected to improve Metsä Board's operating result by
approximately EUR 50 million per annum mostly in 2017 and fully from 2018
onwards compared to 1-3Q 2014 annualized performance. 

Metsä Board is also planning new measures to eliminate losses of its Gohrsmühle
mill in Germany. The primary target is to divest the mill during the first half
of 2015. If the divestment does not materialize in the set time frame, Metsä
Board will introduce other measures to eliminate the unit's heavy losses.
Gohrsmühle mill has approximately 480 employees and its main products are cast
coated and label papers. The mill's annual sales amount to approximately EUR 85
million and annualized operating loss to EUR 20 million based on the 1-3Q 2014
performance. 

Metsä Board's associated company Metsä Fibre is planning to build a bioproduct
mill with an investment cost of approximately EUR 1.1 billion to replace the
current pulp mill in Äänekoski, Finland. The planned pulp capacity of the mill
is 1.3 million tonnes leading to a net capacity increase of approximately
800,000 tonnes compared to the existing pulp production at the site. Metsä
Fibre targets to make the final investment decision in spring 2015 and
operations at the mill would commence during 2017. According to preliminary
plans, the amount of capital invested by Metsä Board in the project would be
maximum EUR 30 million. Metsä Board's ownership share in Metsä Fibre remains at
24.9 per cent also after the planned Äänekoski investment. 

These planned measures are expected to be financed by current liquidity,
operating cash flow and potentially also by an approximately EUR 100 million
rights issue, based on the Board of Directors' authority granted by the AGM.
The potential rights issue is targeted to be implemented in 1Q 2015. The
company's principal shareholder Metsäliitto Cooperative is committed to a pro
rata investment of approximately EUR 43 million in the potential rights issue. 

Metsä Board will renew its management and reporting structure to support
successful implementation of the new growth and restructuring actions and to
strengthen its position as the leading paperboard company. A separate stock
exchange release related to this topic has been published today at the same
time as this release. 

“These final steps of our transformation to a paperboard company allow us to
grow significantly our core business and exit the weak paper production. Our
profitability will be raised to a new improved level without compromising the
solid balance sheet,” comments CEO Mika Joukio. 

Growth of paperboard business and planned exit from paper production

Metsä Board's strategy is to grow profitably its fresh forest fibre paperboard
business and reduce its exposure in the declining paper businesses. Measures
announced today strengthen the company's market leadership in fresh forest
fibre paperboards and enable an exit from the weak paper operations. Thanks to
these new measures Metsä Board's total paperboard capacity will increase from
1.4 million to over 2 million annual tonnes by 2018. 

“We have experienced good growth in our folding boxboard and linerboard
businesses in recent years. Demand for our sustainable, safe and
cost-competitive folding boxboards has recently increased especially in North
America. In order to continue profitable growth, we must increase folding
boxboard production capacity. After extensive planning work, we have decided to
invest in the new folding boxboard machine at Husum, which is our biggest mill
integrate including a large two line pulp mill, state of art coating
technology, an efficient power plant, and own harbor. This is a very
cost-competitive alternative to increase our capacity,” continues Joukio. 

After the investment at Husum, Metsä Board's total folding boxboard capacity
will be approximately 1.3 million annual tonnes. The new folding boxboard
capacity in Husum, approximately 400,000 tonnes per annum, is planned to be
sold mainly to markets outside Europe, especially to North America, and also to
the food service segment globally. Metsä Board entered the food service segment
in early 2014. If the demand supply situation so requires in the coming years,
Metsä Board has possibilities to adjust its production accordingly. 

Metsä Board started to produce uncoated fully bleached fresh forest fibre
linerboards at Husum mill in 2013 and expanded to coated grades in 2014. At the
moment, the linerboard sales volume run rate is over 100,000 tonnes per annum.
Husum's linerboard annual production is planned to be increased to close to
300,000 tonnes by 2018. These volumes are expected to be sold both in Europe
and North America increasingly also to new applications e.g. in food packaging. 

Metsä Board plans to discontinue standard paper production at Husum mostly by
the end of 2015. Total paper capacity planned to be ceased is approximately
600,000 tonnes annually. Personnel impacts will be clarified in the statutory
negotiations that will be commenced immediately. 

After the investment and the planned paper capacity closures, there will be two
paperboard machines at Husum mill: 

- Board Machine 1 with annual folding boxboard production capacity of about
400,000 tonnes. 

- Board Machine 2 (current Paper Machine 8) with annual linerboard capacity of
about 300,000 tonnes. Uncoated fine paper business reel production will be
continued in the Board Machine 2 until the linerboard sales volumes have been
grown to the full capacity of the machine. 

The annual pulp production capacity at Husum is approximately 750,000 tonnes
per annum including both softwood and hardwood grades. In addition to chemical
pulp produced at the site, the new folding boxboard production at Husum will
use majority of the BCTMP produced at Kaskinen mill in Finland from 2016
onwards. 

Financial implications

Based on growth of the folding boxboard and linerboard businesses as well as
the planned discontinuation of Husum's paper production, Metsä Board's annual
sales is expected to remain rather stable. The positive impact of the new
measures in Husum on Metsä Board's annual operating result excluding
non-recurring items is expected to be approximately EUR 50 million compared to
1-3Q 2014 annualized performance. Profitability improvement impact is expected
to materialize mostly in 2017 and fully from 2018 onwards. Investment shutdown
and accelerated depreciations of the paper capacity planned to be discontinued
in Husum is forecast to impact operating result in 2015 negatively by roughly
EUR 20 million. 

Linerboard and Paper business area's 4Q 2014 operating result will include
approximately EUR 14 million in non-recurring costs related to planned
discontinuation of paper production at Husum mill. Cartonboard business area's
4Q 2014 operating result will include approximately EUR 27 million fixed asset
impairments due to the weak performance of Gohrsmühle mill. A separate stock
exchange release related to all non-recurring items in 4Q 2014 has been
published today at the same time as this release. 



METSÄ BOARD CORPORATION

For further information, please contact:

Mika Joukio, CEO, tel. +358 10 465 4300

Markus Holm, CFO, tel. +358 10 465 4913

Juha Laine, Vice President, Investor Relations and Communications, tel. +358 10
465 4335 

Metsä Board organizes a conference call and webcast presentation for investors
and analysts today 10 December at 4 p.m. (EET). Conference call participants
are requested to dial in and register a few minutes earlier on the following
numbers: 

Europe: +44 (0)20 7162 0077
USA: +1 334 323 6201

The conference ID is 950178.