Result improved and balance sheet strengthened compared to 2011.Completion of the Paperboard business area’s EUR 120 million investment programme includingthe increase of the annual folding boxboard capacity by 150,000 tonnes, modernization of theKemi linerboard machine’s coating section and commissioning of the Kyro biopower plant.Finalization of the strategic review of the paper business including the permanent closure of theAlizay mill and the discontinuation of the unprofitable operations at the Gohrsmühle mill.Most significant events in 2012Key figuresMetsä Board is europe’s leading producer of foldingboxboard, the world’s leading manufacturer of coatedwhite-top kraftliners, and a major paper supplier. It offerspremium solutions for consumer and retail packaging,graphics and office end-uses. the company’s sales networkserves brand owners, carton printers, corrugated packagingmanufacturers, printers, merchants and office suppliers.Metsä Board is part of Metsä Group.HigH qualitypaperboardsand papers2012 2011SalES, Eur MIllIOn 2,108 2,485OPEraTIng rESulT Excl. nOn-rEcurrIng ITEMS, Eur MIllIOn 74 59- % OF SalES 3.5 2.4OPEraTIng rESulT, Eur MIllIOn 220 -214- % OF SalES 10.4 -8.6rESulT BEFOrE Tax, Eur MIllIOn 176 -281- % OF SalES 8.3 -11.3rESulT FOr ThE PErIOd, Eur MIllIOn 173 -273rETurn On caPITal EMPlOyEd, % 12.3 -9.9rETurn On EquITy, % 21.6 -31.5InTErEST-BEarIng nET lIaBIlITIES, Eur MIllIOn 625 783gEarIng raTIO, % 128 154nET gEarIng raTIO, % 72 106EquITy raTIO, % 33.6 27.4EarnIngS PEr SharE, Eur 0.53 -0.83EquITy PEr SharE, Eur 2.62 2.23dIvIdEnd PEr SharE, Eur 1)0.06 0.00MarkET caPITalIzaTIOn 31 dEc, Eur MIllIOn 728 443grOSS caPITal ExPEndITurE, Eur MIllIOn 66 95caSh FlOwarISIng FrOM OPEraTIng acTIvITIES, Eur MIllIOn -2 83PErSOnnEl 31 dEc 3,279 4,0701)BOard OF dIrEcTOrS PrOPOSal FOr 2012
2 CEO’s review 4 Operating environment 6 Metsä Board’s strategy 8 Paperboard 10 Paper and Pulp 12 Sustainability 24 Financial Statements88 Shares and shareholders93 Parent company accounts 104 Corporate Governance statement 110 Salary and remuneration report 112 Board of Directors 114 Corporate Management team116 Quarterly data 117 Production capacities 118 Ten years in figures 119 Financial reporting 120 Contact information
CEOSREVIEW 3CEOs reviewMikko HelanderCEOThe year 2012 was a very important milestonefor our company. The strategic review that wasinitiated in 2006 to transform our companyfrom Europe’s largest fine paper producerinto the leading fresh forest fibre paperboardcompany was successfully finalized. The finalmeasures were the closure of the Alizay mill inFrance and the discontinuation of the unprof-itable businesses at the Gohrsmühle mill inGermany. As part of the transformationprocess, the company’s business name waschanged from M-real Corporation to MetsäBoard Corporation. The new name andidentity have been well received by our stakeholders.Profitable growth ofthepaperboard business continuesIn late 2012, the EUR 120 million investmentprogramme was completed when the bio-power plant at our Kyro mill was commis-sioned. As part of the programme we haveincreased our annual folding boxboard capac-ity from 785,000 tonnes to 935,000 tonnes.The new capacity will be fully available fromearly 2013 onwards. The share of modernfolding boxboard of all consumer packagingraw materials is still rather low globally, espe-cially outside Europe. We will do our utmostto replace the traditional less ecological pack-aging materials with our safe and ecologicalfolding boxboards that is an excellent way forconsumer goods companies to improve thesustainability of their operations. We willfocus even more on cooperation with ourcustomers in North America and Asia tostrengthen our position in these big markets.We will secure the availability of foldingboxboard in order to support successfully ourcustomers’ growth. There is still very goodpotential to increase the capacity of our cur-rent folding boxboard machines with moder-ate investments. Our pulp self-sufficiencycontinues at a very high level which is anessential factor in meeting the growthpotential.Another important part of the investmentprogramme was the upgrading of the coatingsection at the Kemi linerboard machine inFinland. In early 2012, we launched the newdouble coated white top linerboards, whichhas been a great success. We will graduallyincrease the share of coated grades in theKemi mill’s linerboard production.Good profitabilitytrend in 2012 butthe fullpotentialnotrealizedyetThe year 2012 started in a rather uncertainmacroeconomic situation and our results werecurtailed by the paperboard inventory reduc-tion in the delivery chain. Towards the sum-mer the situation improved as expected andpaperboard operating rates normalized.The profitability of our company improved ata similar pace. The efficiencies of the rebuiltpaperboard machines developed well andmonth after month we had more capacityavailable. The demand in the main end uses ofour paperboard, such as food, cigarette, phar-maceuticals and cosmetics, is stable by nature.All in all, the demand outlook for our paper-boards continue to be very solid both inEurope and outside Europe.As planned, the losses from the paper andmarket pulp units that were closed or restruc-tured were reduced in 2012. It is expected thatthe measures in several countries and mills toeliminate losses will improve our annual oper-ating results by approximately EUR 110 mil-lion in comparison to actual performance in2011. This was realized mostly already in 2012and the remaining losses are expected to beeliminated from the beginning of 2013.Strong futureasapaperboardfocused companyToday, Metsä Board is very heavily focused onfresh forest fibre paperboard. Our currentpaper and market pulp operations are goodcash generators for developing our paperboardbusiness further. We have one standard papermill left, Husum in Sweden, which is thelargest unit in its field in Europe and definitelyamong the most competitive. We continue tobe interested in participating the European-wide paper industry consolidation.Sustainability and corporate responsibilityare at the very core of all of our operations.Our business is run according to the principlesof the United Nations Global Compact in theareas of human rights, labour, the environ-ment and anti-corruption. Work to developour products in an even more ecological andsafe continues together with our customers.We are also constantly searching for new waysto minimize the adverse environmentalimpacts of our operations.Heavilyfocusedon freshforest fibrepaperboard.It seems that 2013 will be characterized byuncertainties in the general economy. Thesuccessful transformation from a fine papercompany into a paperboard company has,however, stabilized our business materially.Our balance sheet has also been strengthenedconsiderably. We are capable of succeeding inall macroeconomic situations. As a fresh forestfibre paperboard focused company, I am con-vinced that we have the prerequisites to be themost profitable company in our field inEurope. The main factors contributing to theimprovement of our result making further inthe future are the full utilisation of theexpanded folding boxboard capacity andfurther productivity and cost improvementsin all operations. We actively develop newproducts and innovations in our paperboardbusiness.I thank all our employees, owners, cus-tomers and other stakeholders for the year2012. Together we can develop our businesseven more successfully in the future.
4 OPERATINGENVIRONMENTOPERATINGEnvironmentPAPERBOARDThe outlook for ecological and safe paperboards is very good.The share of modern folding boxboard is still rather low globally,especially outside Europe. Currently, folding boxboard accounts forabout a third in Europe, a fifth in Asia and only a couple of per centsin North America of the total consumer packaging paperboard consumption. Safeand ecological folding boxboards offers consumer goods companies an excellent wayto improve their sustainability globally. As the global economic situation is changing,changes in the inventory levels in different parts of the supply chain are affectingshort-term delivery volumes. In 2012, the global economy continued to be weak,and customers exercised caution in inventory management. It is forecast by severalexternal institutions that delivery volumes will grow nicely in the coming years.Mineral oil residues from printing ink in recycled fibre board continue to be acentral issue. The concern that mineral oils would be transferred from packaging tofoodstuffs themselves has increased interest in fresh forest fibre based paperboard.In China, the paperboard capacity has grown considerably in recent years. Thenew capacity is needed to satisfy the growing demand in China and its neighbouringareas. It is not expected that the Chinese capacity would challenge Metsä Board’smain products, high quality and ecological consumer packaging paperboards fordemanding end-uses.PAPERRestructuring of the paper market combined with the weak globaleconomic situation created a challenging situation for papersuppliers in 2012. New media and information technology areincreasingly competing with the traditional printed media.The uncertain economic situation in Europe has weakened companies’ confi-dence and resulted in cost savings. Advertising cost cuts and increasing unemploy-ment have reduced demand for paper. Demand for uncoated fine paper hasdecreased slightly, but the demand decline in graphic papers has continued to bestrong.The paper industry has prepared for the changing environment by shuttingdown capacity, which is why the utilisation rates of uncoated fine paper mills werein 2012 higher than in the previous year. Average price of uncoated fine paperdecreased slightly in 2012.PULPYear 2012 was challenging for the pulp industry as well. At thebeginning of the year, prices started to increase, then took a down-ward turn in the summer and started to increase again in the lastquarter of the year. The price increase at the end of the year wasmainly due to low inventory levels, the seasonal increase in paper demand and aweaker US dollar. China is the leading driver of demand growth.The market situation of short-fibre pulp was better than that of long-fibre pulpand the market price gap of the two pulp grades narrowed. Nevertheless, the out-look in the long-fibre pulp market is better than that of short fibre pulp whereclearly more capacity will enter the market in the future.Demand for fresh forest fibre was strengthened by problems in the availabilityof recycled fibre and its better product safety in food packaging.Some high yield pulp capacity is about to be closed, which has improved marketbalance.PAPERBOARDHAS AVERYGOOD FUTUREOUTLOOK.
2008 2009 2010 2011 2012Metsä BoardStora EnsoMayr-MelnhofInternational PaperCascadesHolmen2008 2009 2010 2011 20122008 2009 2010 2011 2012Portucel SoporcelMondiStora EnsoInternational PaperUPMMetsä Board900850800750700900800700600500400300OPERATINGENVIRONMENT 51,1001,000900800Production capacities in Europe: Million tonnes/yearEurope Metsä Board Metsä Boards share (%)UNCOATED FINE PAPER 10.5 0.4 4Source: Pöyry Management Consulting, Metsä BoardSource: Pöyry Management ConsultingSource: Pöyry Management Consulting0 200 400 600 800 1,000Source: Foex Indexes LtdSource: Foex Indexes Ltd Source: Pöyry Management Consulting0 400 800 1,200 1,600Production capacities in Europe: Million tonnes/yearEurope Metsä Board Metsä Boards share (%)Folding boxboard 2.8 0.9 33White top kraftliner 1.7 0.4 22Source: Pöyry Management Consulting, Metsä BoardFolding boxboard market price in Europe:Eur/tonnePulp market price inEurope: Eur/tonneShort fibre pulp Long fibre pulp uncoated fine paper market price in Europe:Eur/tonneLargest Folding boxboard Producers inEurope: Capacity, 1,000 tonnesLargest uncoated fine paper Producersin Europe: Capacity, 1,000 tonnes+ Increased packaging+ Eco-friendliness+ Costsavings generated bylightweightpackages+ Productsafety+ strong Economic growth in China+ Increased consumptionoftissue paper in Europe+ Weakavailabilityofrecycled paper+ Restructuringsand millshutdownsreduce overcapacity+ Developing printingtechnology– economic uncertainty– Economic uncertainty– decrease inthe graphic papersproduction in europe– economic uncertainty– Increasing use ofelectronicapplications– Costsavings in businessandpublicadministration functions– Decreased paperadvertising
6 METSÄBOARD’SSTRATEGY• Return on capitalemployed (ROCE) targetset at a minimum of 10 percent on average over thebusiness cycle.• Net gearing ratio not toexceed 100 per cent.Responsible profitabilityReliabilityCooperationRenewalMetsä Board will growprofitably, reaching an evenstronger position as theworld’s leading supplier ofhigh quality consumerpackaging paperboards.Metsä Board is Europe’sleading fresh forest fibre paper-board producer and a majorpaper supplier. Metsä Boardprovides high performance,premium quality paperboardsand papers for its customers inconsumer packaging, commu-nications and advertisingend-uses among others.Metsä Board is growing its paperboard businesstogether with its customers in Europe, Asia andNorth America. Metsä Boards modern, safe andecological paperboards replace traditionalpackaging materials globally that is an excellentway for consumer goods companies to enhancesales and sustainability. With regard to the paperbusiness, the aim is to improve profitability andcash flow and potentially participate the Europeanwide restructuring of the paper industry.High self-sufficiency in pulp and energy, highproductivity and its continuous improvementas well as skilfull personnel are significantcompetitive advantages for Metsä Board.FinancialtargetsValuesVisionMissionMetsä BoardsstrategySTRATEGIC TRANSFORMATIONFROM A PAPER COMPANYTO A PAPERBOARD COMPANYHAS BEEN SUCCESSFUL.
METSÄBOARD’SSTRATEGY 7JanuaryThe Premium Paper operations of the Reflex mill in Germany were sold toHahnemühle FineArt GmbH and Hahnemühle’s private shareholders. After theclosing of the transaction, Metsä Board no longer has had operations in Reflex.The company’s management and reporting structure was renewed. As of the firstquarter of 2012, the reporting segments have been Paperboard, and Paper andPulp. Pasi Piiparinen was appointed Head of the Paperboard business area as of20 March 2012.FebruaryMetsä Board established a new R&DCentre in Äänekoski, Finland. The centreconducts R&D into paperboard products,raw materials and printing technologies.The unprofitable operations of the Gohrs-mühle mill in Germany were discontinued.Metsä Board continues the Chromoluxspecialty paper and paperboard businessoperations as well as folding boxboardsheeting operations at the mill.MarchThe Alizay mill in France was permanentlyshut down.The Annual General Meeting resolved tochange the company’s business namefrom M-real Corporation to Metsä BoardCorporation.MayMetsä Board sold approximately 7.3percentage points of its holding in MetsäFibre Oy to the Japanese Itochu Corpora-tion and approximately 0.5 percentagepoints of its holding in Pohjolan Voima Oyto Metsä Fibre.Metsä Board signed an agreement onthe refinancing of the EUR 500 millioneurobond maturing on 1 April 2013.The rebuild of the board machine at theÄänekoski mill in Finland was completed.The rebuild increased the mill’s foldingboxboard capacity by 30,000 tonnes perannum to 240,000.Mostsignificantevents in2012OctoberBiopower plant at Metsä Board’sKyro mill in Finland was inaugurated.Built together with Metsä Board andtwo Finnish energy companies, thebiopower plant increases the use ofrenewable fuels and reduces thecarbon dioxide emissions of energyproduction.
PaperBOARD8 PAPERBOARDThe Paperboard business areais the leading manufacturer ofinnovative and high-quality foldingboxboards in Europe as well as the world’sleading manufacturer of coated white topkraftliners and wallpaper base. Lightweightpaperboard made of fresh forest fibre is anexcellent material for packaging foodstuffs,sweets, cigarettes, pharmaceuticals andcosmetics. The product range also includescast-coated speciality paper and paperboardChromolux. Furthermore, the business areaoffers versatile packaging services in Asia.Investment programme to increase the folding boxboard production capacity by 150,000 tonnesannually was completed. The new capacity is fully available from early 2013.The sheeting capacity of folding boxboard was increased to meet increased customer needs.The unprofitable operations at the Gohrsmühle mill were discontinued.Developments in 2012Key figures2012 2011Sales, EUR million 1,123 1,294EBITDA, excluding non-recurring items, EUR million 157 172Operating result, excluding non-recurring items, EUR million 106 114Return on capital employed, excluding non-recurring items, % 16.0 15.8Deliveries, 1,000 tonnes 1,188 1,388Personnel, 31 Dec 1,722 2,034DEMAND FORGOOD PACKAGINGIS HEAVILYINCREASING.PAperBoardIn brief
PAPERBOARD 9Did you know?Demand for fresh forestfibre cartonboards hasbeen in a rise. MetsäBoard has responded by increasingits capacity by 150,000 tonnesper year. This 20 per cent growthcorresponds to the size of anaverage European cartonboardmachine.The EUR 120 million investment programmein the paperboard business was successfullycompleted in 2012. The goal of the pro-gramme was to increase the availability ofproducts and improve service. The paperboardmachine rebuildings included in the pro-gramme were completed at the Äänekoski millin 2012 and at the Kyro and Simpele mills in2011. The investment programme alsoincluded the implementation of double-coat-ing at the Kemi linerboard mill as well as thebiopower plant constructed at the Kyro mill,which was commissioned in the autumn of2012.In 2011 and 2012, Metsä Board increasedits folding boxboard capacity by a total of150,000 annual tonnes. In accordance withthe original goal, the new capacity will be fullyavailable from early 2013.The sheeting capacity of folding boxboardhas also been increased to meet the increasedcustomer needs. The new sheeting plant at theÄänekoski mill increased the mills sheetingcapacity to 70,000 tonnes per year. A newExpress Board service for fast deliveries wasestablished at the Gohrsmühle mill, with asheeting capacity of 60,000 tonnes per year.Certain folding boxboard sales and pro-duction resources were reallocated during theyear in accordance with the strategy.The unprofitable operations of theGohrsmühle mill were discontinued in 2012.The Chromolux speciality paper and paper-board operations will continue at the mill.Measures to create a business park concept inGohrsmühle continue in collaboration withemployee representatives in order to createnew jobs in the mill site.The focus of the linerboard business oncoated grades has proven successful, and thedemand for the new double-coated kraftlinersintroduced at the beginning of the year hasbeen good.Prices of coated white top kraftliners weresuccessfully increased in 2012. No significantchanges occured in the prices of folding box-boards. The prices of wallpaper base andChromolux products were stable.In 2012, the profitability was weakened bythe lower share of Metsä Fibre results, due tolower pulp price and reduced holding in thecompany.Good demand outlookfor paperboardMetsä Board strongly focuses on ecologicaland safe fresh forest fibre paperboard with agood outlook for demand growth. Paperboardhas end uses in people’s everyday life, and theirdemand is naturally stable. Safe and ecologicalfolding boxboards offer consumer goodscompanies an excellent way to improve theirsustainability globally.The most important goal in 2013 is tofully use the additional 150,000-tonne capac-ity, which will be used to support the globalgrowth of existing customers among others.Metsä Board will have good opportunities tofurther increase the capacity of its currentfolding boxboard and linerboard machines.Metsä Board launched successfully new double coated Kemiart Graph+ and Kemiart Lite+grades in the beginning of 2012, following a rebuild of the coating section and installation of asecond coating unit at the Kemi mill in Finland. Kemiart Ultra completes the coated productrange, which includes a suitable coated liner for each printing method.The double coating provides a smoother and glossier surface, enhancing printability withimproved ink laydown, brighter colours and more accurate detail. The new grades are ideal forretail-ready packaging, point-of-sale and promotional displays and other high-end packagingapplications and they have been well received in the market.Metsä Board’s kraftliners are made of fresh forest fibres which ensure an excellentconsistency for smooth running on corrugators and printing. Despite of their light weight, theliners are strong and flexible enabling the use of lower weight grades. That again, lowers theconverter’s production costs and improves sustainability. Kraftliners also provide excellentfolding endurance compared to materials that are based on recycled elements.Superior printabilitywith Kemiart kraftlinersMetsä Board’s Kemiart kraftlinersenable lightweighting and smoothrunning on corrugators and in printing.CartonboardsCarta IntegraCarta ElegaCarta SolidaAvanta PrimaSimcoteTako gradesCoated and uncoatedwhite-top kraftlinersKemiart gradesCast-coated speciality papersand paperboardsChromoluxWallpaper baseCresta gradesIntegrated Brand Packagingservices (IBP)Graphic boardsCarta IntegraCarta ElegaCarta SolidaProducts and services
paper and Pulp10 PAPERANDPULPAlizay paper mill was permanently closed down.The production and cost effectiveness of the Husum and Kaskinen mills were further improved.Metsä Board reduced its pulp surplus by selling approximately 7.3 percentage points of itsshareholding in Metsä Fibre Oy to Japanese Itochu Corporation.Developments in 2012Key figuresPaper and Pulp business areaproduces, markets and sells highquality uncoated fine papers tooffice supply companies, office machinemanufacturers and paper wholesalers. Thebusiness area also produces coated papersand is responsible for selling Metsä Boardsmarket pulp.2012 2011Sales, EUR million 907 1,132EBITDA, excluding non-recurring items, EUR million 48 17Operating result, excluding non-recurring items, EUR million -6 -39Return on capital employed, excluding non-recurring items, % -0.9 -5.4paper Deliveries, 1,000 tonnes 681 908Personnel, 31 dec 982 1,471Paper and PulpPaperBOARDMETSÄ BOARDSREMAINING PAPER ANDPULP UNITS ARE TOPCLASS IN THEIR FIELDS.PAper and PulpIn Brief
PAPERANDPULP 11Data CopyLogicModo PapersSAVE!Short fibre pulpLong fibre pulpHigh yield pulp(BCTMP)ProductsDid you know?Paper and Pulp businessarea sells approximately250,000 tonnes of A4paper annually, that’s a printingarea equivalent to twice the size ofThe Netherlands – or four times ifyou print on both sides!The strategic review of the paper business,launched in 2006, was completed successfullyin 2012.In recent years, Metsä Board has madeconsiderable investments in the productionand cost-effectiveness of its remaining paperunits. Paper manufacturing has been central-ised to the Husum mill in Sweden. The millspaper and pulp capacity has been maximisedto 1.6 million tonnes per year without addi-tional investments.Sales volumes of the high yield pulp(BCTMP) have increased and have beentargeted to long-term contract customers inEurope. The mill is a good reserve for MetsäBoard for growing the paperboard business inthe future.In spring 2012, a voluntary reindustrialisa-tion project was launched in Alizay togetherwith Metsä Board, employee representativesand local authorities. As a result of the project,Metsä Board divested the Alizay mill site,including the equipment and buildings, toConseil General de lEure, representing theFrench government, in January 2013.In accordance with its strategy, MetsäBoard reduced its pulp surplus by selling a 7.3percentage point shareholding in Metsä Fibreto Japanese Itochu Corporation. After thecompletion of the arrangement, Metsä Board’sannual pulp net surplus decreased fromapproximately 0.5 million tonnes to 0.3 mil-lion tonnes. Metsä Boards shareholding inMetsä Fibre is now 24.9 per cent.In 2012, the result was improved by con-siderably lower losses of the units closed andrestructured as well as increased pulp deliver-ies. The result was weakened by the reducedprices of pulp and office papers as well as thestrengthening of the Swedish krona.Smaller buthealthier paper businessMetsä Boards papers are primarily sold to theWestern European market, where overallpaper demand is estimated to decrease and theovercapacity situation to continue and, inmany grades, worsen. Situation in uncoatedfine paper is better than in other paper grades.The overall situation in paper manufacturingin Europe will require structural changes inthe future.Demand for pulp was reasonably strong in2012, and the global demand and supplysituation is estimated to continue to be goodin long-fibre pulp, in particular. Overall,demand for pulp will decrease in Europe andincrease in the emerging markets.After considerable restructuring andsuccessful divestments, Metsä Board now hasa considerably smaller but materially healthierpaper business, which is developed in parallelto the paperboard business. The smaller sizeprovides opportunities to operate flexibly inMetsä Board’s Husum mill in Sweden is the largest integrated fine paper and pulp mill in Europewhich annual production capacity is currently over 800,000 tonnes of paper and 750,000 tonnesof pulp. The mill’s competitiveness is mainly attributable to its large size but also to its efficientoperations. In 2012, the efficiency and productivity at the paper mill was increased further bydeveloping the existing machine and operation base.During the annual mill shut, a new reeler on PM6 and a new unwind reeler on Winder 8 wereinstalled, enabling use of the same reel spools for PM6, PM8 and the coater. Also a minor rebuildwas done at the drying section on PM8. As a result of these minor investments and a majorre-engineering of the production planning the production of different basis weights can be betterfocused on selected paper machines. PM6 and PM8 produce both office paper products andbase papers for the coater. Thanks to these changes the grade switches reduce and a materialamount of additional production volume potential is released.improved efficiencyat the husum millAn important step towards reachingthe full production potential ofthe Husum mill was taken in 2012.the challenging market. The paper and pulpoperations have good prerequisites for gener-ating good cash flow.
Co212 SustainabilityWoodWe support sustainableforest management. Ourwood is 100% traceableand it always comes fromsustainable sources.In 2012, 4.8 million cubicmetres of wood was usedby Metsä Board’s mills,64% of which was fromcertified forests.Good progress in Metsä Board toreach the sustainability targetsSupply chainWe are committed tosustainability throughout thewhole supply chain. Ourtarget is to have a SupplierCode of Conduct included inall new supplier contracts.2012: Code of Conductwas included in total 71contracts in 2012.sicknessabsenteeism ratebelowCertifiedwoodwell-beingWork safety is our top priority. Westrive for continuous developmentand our aim is to improve our lost-time accident rate by 10% each year.Our long-term target for lost-timeaccident rate is zero.We work hard to ensure a healthywork environment. Our target is tokeep sickness absenteeism rate atthe best European level and below3% at all times.In 2012, MetsäBoards lost-timeaccident frequencyrate was 13.2 andsickness absent-eeism rate 3.9.80%–30%3%Presented targets are for the whole Metsä Group of which Metsä Board is part of.
Sustainability 13Sustainabilityis the basis forMetsä BoardssuccessMetsä Board is committed to theprinciples of sustainability and takesthe economic, social and environmentalimpacts of all its operations intoconsideration.Metsä Boards main raw material is renewable andsustainably grown fresh forest fibre, the origin ofwhich is always known. All products are recyclableand they are good alternatives in replacing manycarbon-intensive products. Metsä Board’s opera-tions are located in areas with rich forest and waterresources. Energy and material efficiency have highpriority in Metsä Board – Metsä Board is a majoruser of biofuels and a large producer of bioenergy.The company is also a significant employer in manyremote areas and always an active member of thelocal communities where it operates.Metsä Board requires that its suppliers andcustomers operate responsibly, too and initiatesa direct and transparent dialogue with all mainstakeholders.Metsä Boards sustainability approach is dividedinto four themes covering the whole value chain.Sustainability programmes and targets are guidedby Metsä Group’s Sustainability Agenda.Read more about Metsä Group’s sustainability atwww.metsagroup.com/sustainability.Energyand climateWe focus on mitigating climatechange. Our target is to reducefossil CO2emissions in productionby 30% per product tonne by2020 from the 2009 level.We ensure efficient energyconsumption. Our target is toimprove energy efficiency by 10%by 2020 from 2009 level.Progress of reductionof CO2emissions andimproving energyefficiency at MetsäBoards production unitsin 2009–2012:CO2emissions -26%energy consump-tion -5.2%ethical business practicesEthical business practices are thecore of all our business operations.Our target is to have the wholepersonnel covered by the Code ofConduct training by the end of 2012.Trainings started inMetsä Board in2011 and werefinished in 2012.
14 SUSTAINABILITY — SUSTAINABILITYGUIDESALLOPERATIONSMetsä Board’s sustainability management isguided by Metsä Group’s Sustainability Prin-ciples which, in turn, are based on the UNGlobal Compact initiative and the employees’Code of Conduct. Metsä Group also has a setof policies and related instructions in place forall relevant topics, including Environmental,Human Resources, Equal Opportunities andPurchasing policies in addition to a SupplierCode of Conduct to guide supply chain ope-rations.The management of sustainability is partof the company’s normal management withMetsä Board’s CEO carrying the ultimateresponsibility.This Annual report covers Metsä Board’sselected sustainability issues and indicatorsthat are most relevant to its operations, prod-ucts and stakeholders. Metsä Group’s Sustain-ability Report 2012 provides more extensivereporting on the responsibility of both MetsäGroup and Metsä Board. The reportwill be published in March 2013 atwww.metsagroup.com/sustainability.Sustainability guidesall operationsMetsä Board participates inanumber ofassociationsandactivelytakes partinsteeringthem:The World Business Council for Sustainable Development(WBCSD)The Confederation of European Paper Industries (CEPI)The Finnish Forest Industry FederationThe Swedish Forest Industries FederationThe Confederation of Finnish IndustriesThe UN Global Compact Nordic NetworkVerein Deutscher PapierfabrikenUN’s CEO Water MandateThe forest certification associations:• Programme for the Endorsement of Forest Certification(PEFC®)• Forest Stewardship Council (FSC®)We create well-beingThe smaller the environmentalimpact, the betterWe bring forest to youWe offer sustainable choicesMetsä Boards approach to sustainabilityWe generate well-being at work, in local communi-ties, and in society at large. We also commit toglobal sustainability principles. By behaving res-ponsibly towards our employees and society, wecan improve the quality of life of our stakeholders.All human activity leaves a mark on the planet – sodoes our production. What matters is using energy,raw materials and other resources efficiently whilemaintaining low levels of emissions and waste.We at Metsä Board have reached great results butwe always want to do more.Wood is an endlessly renewable resource. We turnwood into safe and recyclable products that improveyour quality of life. Our products are a sustainablealternative for many non-renewable products andraw materials.Our fresh forest fibres come from sustainablymanaged forests. Together with our partners, weensure that when trees are harvested, new onesget planted. We secure a sustainable supply of rawmaterials for our units and a supply of renewableproducts for our customers.
RESPONSIBILITYTHROUGHTHESUPPLYCHAIN — SUSTAINABILITY 15Responsibility throughthe supply chainWood supply to Metsä Boards mills by procurement area 20121,000 m3Share (%)Certifiedwood (1,000 M3)Certifiedwood (%)Sweden 2,102 44 1,456 69Finland 1,193 25 1,102 92Baltic countries 1,075 22 271 25Russia 433 9 245 57Norway 3 0 0 0Total 4,806 100 3,074 64Metsä Board requires that its suppliers operatein a responsible manner. It also supports themin adhering to high business ethics and com-mitting to sustainable operating methods andgood working practices. As part of MetsäGroup, Metsä Board implemented a SupplierCode of Conduct in all new or renewed cont-racts in June 2011. The Supplier Code ofConduct emphasises respect for human rightsand a safe working environment for all indivi-duals as well as prohibits corruption andbribery. The supplier should ensure that itssubcontractors also comply with the require-ments.The Supplier Code of Conduct is anintegral part of any agreement documentationand has been taken into account in all newand renewed contracts during 2012.knowingthe origin ofwood rawmaterialAll the wood used by Metsä Board comesfrom sustainably managed commercial forests.Regardless of whether the wood originatesfrom certified or non-certified forests, itsorigin is always known. The wood’s origin canbe traced by a Chain of Custody managementsystem operated by Metsä Group’s woodprocurement organisation. The wood origintracing system is in relation to the require-ments of the EU Timber Regulation.In 2012, Metsä Group defined five mainenvironmental targets for wood supply: main-taining biodiversity, decreasing the impacts towater, decreasing operations emissions, ensur-ing legal wood supply and ensuring the knowl-edge of its personnel and contractors. Thesetargets were brought into practice via theEnvironmental Programmes of each country.The action plans included training, rationalis-ing transportation and further developinginternal control and instructions.The majority of wood used by MetsäBoard in Finland comes from forests ownedby Metsäliitto Cooperative’s members. Thecompany’s other wood procurement countriesin 2012 were Sweden, Latvia, Russia, Estonia,Lithuania and Norway. Metsä Group has beenone of the pioneers in developing wood origintracing systems in Russia.All Metsä Board’s mills have both PEFC®and FSC® certifications. During 2012, 4.8million cubic metres of wood was used byMetsä Board’s mills, of which 64 per cent wasfrom certified forests.During the year, Metsä Board usedapproximately 1.3 million tonnes of varioustypes of pulp, of which 1.2 million tonneswere produced by Metsä Boards own mills.Through its holding in Metsä Fibre, MetsäBoard had access to 0.6 million tonnes ofchemical pulp. Some 0.1 million tonnes ofvarious types of pulp were bought from exter-nal suppliers and 0.5 million tonnes were soldoutside the company. Metsä Board requires itspulp suppliers to comply with legislation aswell as annually report the origin of the wood,forest certification and environmental data.Did you know?The wood needed forone tonne of paperboardgrows in less than onesecond in Finland. Finland64 Sweden17 OtherEU countries 11 Germany 7 Outside Europe 1Purchases per country of origin:31 Dec 2012, % 1) Pulp24 In-direct materialsand services 16 Wood 16 Chemicals,pigments, bindersand coatings 15 Energy14 Logistics 10 Other(incl. packaging) 5Purchases per category:31 Dec 2012, %1) The figures do not include wood supply.
16 SUSTAINABILITY — SUSTAINABLECHOICESSustainablechoiceslightweight of the board reduces emissionsgenerated by transport, saving both the envi-ronment and costs. In addition, lightweightpackages generate less waste. At the end oftheir life cycle, Metsä Board’s paperboard canbe recycled, burned or composted.All mills in Metsä Board’s Paperboardbusiness area have received the internationalISO 22000 food safety certification. Subcon-tractors are also required to adhere to thesame strict hygiene requirements to ensurethat paperboard is protected against contami-nation until the end of its life cycle.Metsä Board does not use geneticallymodified trees or GMO starch raw materials.Metsä Board does not approve of nanotech-nology-based new substances until sufficientinformation regarding their safety becomesavailable.Metsä Board continues the active follow-up and participation in the research to gainmore knowledge about the risks and benefitsrelated to these issues.OpenandtransparentdialogMetsä Board knows the environmentalimpacts of its products and will increaseunderstanding of them among its stakeholders.Since 2001, Paper Profile environmentalproduct declarations have been provided forall Metsä Board’s papers and boards. ThePaper Profile is a standardised tool for paperand board products to communicate theenvironmental performance of the products.The climate impact for individual prod-ucts is reported on a customer-specific basisConsumers are increasingly interested in thesustainability throughout the supply chain ofthe products they purchase. Metsä Board’slightweight paperboards and papers consumeless raw materials and have fewer environmen-tal effects in production and transport, as wellas generating less waste than average.Metsä Board’s business development isbased on customer-oriented packaging solu-tions, creating added value for customers, aswell as Super Productivity, i.e. superior prod-uct and production efficiency.In 2012, a new RD Centre focusing onthe research and development of paperboards,raw materials and printing was established inÄänekoski. The objective of the centre is tosupport customers by means of product devel-opment and innovation, to survey applicationsbased on new raw materials, and to ensure thatMetsä Board’s paperboard products continueto suit the rapidly developing printing andprocessing methods.Metsä Boards RD costs remained at theprevious years level in 2012, amounting toapproximately EUR 5 million, or 0.2 per centof sales. The company has invested heavily inimprovements in the quality and efficiency ofproducts and production machinery, which isnot included in the items categorised asresearch and development in accounting.Safeand sustainable packagingMetsä Board’s products are safe throughouttheir life cycles. The traceability of raw materi-als is especially important in paperboards thatare in contact with food. Metsä Board knowsthe origin of all the main raw materials, wood,pulp and chemicals it uses.The requirements and regulations formaterials in contact with food are only astarting point. Metsä Board’s products meeteven the strictest international standards andoften surpass the requirements of nationallegislation. Metsä Board’s paperboards do notcontain compounds that are harmful, such asmineral oils.The fresh forest fibre Metsä Board uses inits paperboards is a premium raw material:it is highly functional, light and strong, whilealso being cleaner than recycled fibre. TheDid you know?Metsä Board’s foldingboxboards are safe in foodpackaging. They are madeof fresh forest fibres, which are bynature of very high purity. Mineraloils or other harmful compoundsare not transferred from packagingto foodstuffs.
SUSTAINABLECHOICES — SUSTAINABILITY 17Did you know?Good manufacturingpractice (GMP) securesproduct safety at MetsäBoards production units. Forexample forklifts run on liquid gasor electricity and the paperboardsare not exposed to exhaust gas.through carbon footprint calculations. Cur-rently, as different corporations use differentmethods for carbon footprint calculations,they are not comparable from company tocompany. Metsä Board has reported carbonfootprint calculations since 2007. The calcula-tion adheres to the Carbon Footprint Frame-work for Paper and Board Products developedby the Confederation of European PaperIndustries, CEPI.In 2012, Metsä Board’s Paperboard busi-ness area produced its first EnvironmentalProduct Declaration (EPD) on Simcote, afolding boxboard product. EPD is a standard-ised way of quantifying the environmentalimpact of a product. EPD is based on LifeCycle Assessment (LCA) calculations and, assuch, aims to communicate the product’spotential environmental impacts during itsentire lifetime from cradle to gate. The calcu-lation is presented in Metsä Groups Sustain-ability report 2012.Eco-labels help consumers understand theenvironmental impacts of a product. MetsäBoard’s office papers have been granted theEU Ecolabel for its paper brands. To date, nosuch commonly agreed eco-label criteria existfor packaging products.In 2012, Metsä Board’s paper productswere acknowledged in the WWF Environ-mental Paper Awards for listing the majorityof its Uncoated Woodfree Papers in WWF’sdatabase of eco-rated papers, Check YourPaper.Metsä Board has been participating in theCarbon Disclosure Project (CDP) since 2007.The CDP is an independent, non-profitorganisation that encourages listed companiesto carry out transparent reporting on green-house gas emissions and climate change strate-gies. The CDP has assisted Metsä Board insetting objectives to reduce emissions andimprove its environmental performance. In2012, Metsä Board was invited by customersto participate in the CDP Supply Chain.In 2011, Metsä Board signed the CEOWater Mandate initiative which is a jointventure between the public and private sectorswith the aim to improve the efficiency of andopen reporting on water usage. The firstreport was completed in 2012.
18 SUSTAINABILITY — THESMALLERTHEENVIRONMENTALIMPACTTHEBETTERThe Smaller the EnvironmentalImpact the BetterMetsä Board is continuously looking fornew ways to reduce the consumption of freshwater in its production by re-using waterefficiently. Wastewater is purified carefullybefore it is released back to waterways. Themain wastewater impacts are eutrophicationand oxygen demand caused by phosphorusand nitrogen nutrients and organic matter.Nevertheless, each mill has its own specificenvironmental permit which sets such limitsfor pollutants that insignificant harm to theenvironment occur.Metsä Board works actively to minimise andmanage all environmental impacts related toits own and its partners operations.Landfill waste levels at Metsä Board’sproduction sites have been considerablyreduced through the efficient re-use of byproducts and residues. Sorting mill wasteon-site for use as a raw material or for energyproduction as a normal practice increases thematerial efficiency and reduces the need forlandfill disposal.2012 2011Discharges to water (t)• Waste water (1,000 m3)• Chemical oxygen demand (COD)• Biological oxygen demand (BOD)• Phosphorus (P)• Nitrogen (N)• Total suspended solids74,36814,7651,529201891,60585,97317,2802,436432751,683Waste (t)• Landfill waste• Hazardous waste• Recycled waste2,820853144,1015,896344173,4522012 2011Wood-based raw materials• Wood (1,000 m3)• Pulp (1,000 t)4,805555,507160Other raw materials (1,000 t)• Pigments• Adhesives40279519107ENERGY (GWH)• Purchased fuels• Bio fuels• Fossil fuels• Purchased electricity• Purchased heat2,4546361,8182,0894574,0441,4102,6342,185497Water use (1,000 m3) 74,368 85,9732012 2011Production (1,000 t)• Paper• Pulp• Paperboard7861,2341,0901,2551,2021,0292012 2011EMISSIONS TO AIR (1,000 t)• Fossil carbon dioxide (as CO2)• Sulphur (as SO2)• Nitrogen oxides (as NO2)• Particles482,0358331,882440681,4611,1882,762332Metsä Boards material balance
2502001501005002008 2009 2010 201220112008 2009 2010 201220112008 2009 2010 20122011THESMALLERTHEENVIRONMENTALIMPACTTHEBETTER — SUSTAINABILITY 19Acidification: (SO2-eqv) tonnesGreenhouse effect: (as CO2) 1,000 tonnes Eutrophication: (P-eqv) tonnesMetsä Board’s mills are mainly located inthe Nordic countries where there is plenty ofgood quality fresh water and forests of nativetree species. Forests play a crucial role in theregion’s natural water cycle. Forests filter andclean rainwater before it enters the groundwater system or flows into rivers and lakes thusmaintaining high water quality. Sustainableforest management helps to preserve a signifi-cant part of the forested landscape and hencehelps to maintain the services that forestsprovide to the ecosystems.Improvementsatproduction unitsMetsä Boards production units are developedcontinuously in order to minimise the envi-ronmental load and risks.In 2012, Kyro mill installed a new treat-ment system for the odorous gases emittedfrom the effluent treatment plant. The collec-tion of odorous gases was also extended tocover the whole sludge treatment area. Severalimprovements were also made at the effluenttreatment process, including the installationof more efficient aerators in the biologicaltreatment and extensive maintenance of thebioreactor. Environmental noise was reducedwith replacement and maintenance of threeexhaust fans. Kaskinen mill installed equip-ment for screening bottom ash from thepower plant boiler. The screened sand isre-used as bed material in the fluidised-bedboiler, reducing the amount of waste signifi-cantly. Simpele mill was able to reduce noiseby insulating various pieces of equipment.Environmental risk surveys were updatedat Kyro and Simpele mills. Environmentalauthorities have approved the terminationnotification of Äänekoski paper mill. Kyromill has submitted a renewal for an environ-mental permit.EnvironmentalliabilitiesMetsä Board has environmental liabilitiesremaining from earlier operations at industrialsites that have been closed, sold or leased, andfrom landfill sites that are no longer in use.Metsä Board’s latest actions have related to therehabilitation of the Niemenranta area inTampere, Finland, for residential and recrea-tional use. The work on the site began in 2008and is expected to be completed by autumn2013.EnvironmentalincidentsA small number of environmental incidentswere recorded at Metsä Board’s mills in 2012.The permit limit for COD, phosphorousand nitrogen emissions to water wereexceeded at the Kyro mill between Februaryand May due to severe operational problemsin wastewater treatment. Several correctiveactions were taken, including new aerationunits in the activated sludge plant, mainte-nance of the bioreactor and adjustments in theoperation parameters. The emission limit forparticles to air from the recovery plant Alrecwere exceeded at the Kaskinen mill in Mayand June due to a broken bag filter in the fluegas treatment. The broken bag filter wasreplaced and the flue gas system checked.Additionally, minor and short-term non-compliances with environmental permitrequirements were reported at Metsä Board’sSimpele and Husum mills. The authoritieswere informed and corrective actions taken inall cases.Did you know?The water used atMetsä Boards mills doesnot reduce the amountavailable for drinking water orfood production.1,20090060030008,0006,0004,0002,0000
20 SUSTAINABILITY — DEVELOPMENTSINENERGYEFFICIENCYDevelopments inenergy efficiencyenergy Sources on primary energy levelGWh 2012 (%) 2011 (%) 2010 (%)Wood-based 6,987 55 48 50Nuclear power 2,862 23 13 21Natural gas 996 8 15 14Hydro power 621 5 8 4Coal 549 4 12 7Oil 442 3 2 2Peat 187 1 1 0In 2012, Metsä Board continued to improvethe energy efficiency of its production pro-cesses. The improvement work is supported bythe Energy Efficiency Systems that have beenin place since 2009. To be compatible with thelatest standards, all paperboard mills andHusum mill in Sweden have been granted thecertification for the new ISO 50001 EnergyManagement Systems standard. ISO 50001 isbased on the management system model ofcontinuous improvement also used for otherwell-known standards such as ISO 9001 orISO 14001.The main methods to improve energyefficiency are equipment and process modifi-cations and optimising operations. Efficiencyimprovements are an integral part of all majorinvestments in production capacity.New energy efficiency improvementpotentials are continuously studied by con-ducting energy analyses, cooperating withequipment manufacturers and developingprocedures internally. As an example, millenergy analyses were conducted for Kemi millin 2012.In 2012, altogether 11 actions were com-pleted that reduced electricity consumptionby some 67 GWh and heat by 76 GWhannually.Focus in biofuelsDuring 2012, wood-based bioenergy covered55 per cent (48% in 2011) of Metsä Board’stotal energy use, which was 12.6 TWh (14.7TWh). The majority of this bioenergy isgenerated by using by-products from MetsäBoards own production such as bark andblack liquor. The rest is generated from forestresidues originating from wood sourcing. Themajority, 91 per cent, of the total electricitypurchased was CO2neutral. The total pur-chased electricity consumption was 2.1 TWh(2.2 TWh).Bioenergycovers 55% ofMetsä Boardstotalenergyuse.The target of energy efficiency develop-ment is to reduce the specific energy con-sumption of manufactured products. In 2012,Metsä Board started a project to improve thefollow-up of energy efficiency and energycosts. The new procedure will be implementedat all mills during 2013.
DEVELOPMENTSINENERGYEFFICIENCY — SUSTAINABILITY 21sustainability data per production unitPersonnel Production Emissions to air Discharges to water Solid wasteNumber ofEMPLOYEES 1)31 DEC 2012accidentrate 2)2012Board,paperand pulp1,000 tCO2fossiltSulphur(as SO2)tNOx(as NO2)tPar-ticulatestCODtBODtPhosphorustNitrogentTotalsuspendedsolids, tWastewater1,000m3Landfillt 4)Hazardoust 4)Joutseno, FIN 54 22.6 273 19,982 - 13 12 404 18 0.24 9.5 8.5 571 13 24Kaskinen, FIN 77 32.3 252 4,959 75 170 24 2,005 147 1.5 18 236 3,169 1,055 -Kemi, FIN 103 0.0 343 3,904 - 2 - 482 20 0.80 34 93 6,512 865 13Kyro, FIN 254 16.8 209 53,449 0.024 52 - 543 110 1.2 20 196 4,438 45 14Simpele, FIN 314 24.3 227 66,127 122 25 1.8 290 23 1.3 12 44 4,392 91 59Tako, FIN 211 20.0 192 75,996 0.034 74 - 143 62 1.0 0.93 31 2,458 332 63Äänekoski, FIN 203 9.8 191 2,851 7.3 79 1.2 603 222 0.61 3.7 130 3,341 198 14Gohrsmühle, Ger 507 13.2 41 126,798 310 208 3.0 50 17 0.70 5.8 34 2,742 2.6 50Husum, swe 856 9.9 1,383 5)119,086 298 1,229 398 10,244 911 12 86 834 46,745 218 616Others 700 3)- - 8,882 22 31 0.4 - - - - - - 1.2 -Metsä Board Total 3,279 13.2 3,109 482,035 833 1,882 440 14,765 1,529 20 189 1,605 74,368 2,821 853To increase the already high share ofbioenergy, a new biopower plant was builtat Metsä Board’s Kyro mill. Inaugurated inOctober 2012, the plant was built togetherwith Metsä Board and two Finnish energycompanies, Pohjolan Voima and LeppäkoskenSähkö. The new plant produces electricityand heat and replaces the use of fossil naturalgas at the mill. It also provides heating for theneighbouring district of Hämeenkyrö.The biopower plant utilises wood-based rawmaterial - mostly bark, whole tree chips,crushed stumps and other wood fragmentstogether with other waste materials fromMetsä Group’s operations. Carbon dioxideemissions from the Kyro mill will be reducedby approximately 100,000 tonnes per year.The carbon footprints of the folding boxboardsand wallpaper base produced at the mill willbe reduced by half.Investing inbioenergyA 55 megawatt biopower plant, commissioned atthe Kyro mill, halves the carbon footprint ofthe products manufactured at the mill.1) FullTime Equivalent (FTE). 2) Losttime accident frequency rate (LTA FR): Accidents atwork per million working hours.3) Includes personnel from sales and logistics operations, managementand subsidiaries.4) reported as wetwaste.5) ofwhich approx. 709,000 tonnes pulp.
22 SUSTAINABILITY — INVESTMENTSINPERSONNELS WORKCAPACITYANDCOMPETENCEOccupational safety and well-being2012 2011 2010Sickness absenteeism (%)1)3.9 4.6 4.7Work injuryabsenteeism (%) 0.2 0.2 0.3Losttime accident frequency rate(per million worked hours) 13.2 16.1 15.8Reported near misses (per 100 employees) 22.9 24.7 38.01) Per cent of potentialworking hoursPersonnel per countryPersonnel 31Dec 20121)Personnel 31Dec 20111)Netemploymentchange 2012Average ageof employees31 Dec 2012Finland 1,536 1,648 -112 44.5Sweden 887 888 -1 47.2Germany 577 966 -389 47.0Other countries 279 568 -289 42.1Total 3,279 4,070 -791 45.41) FullTime EquivalentINVESTMENTS IN PERSONNELsWORK CAPACITY AND COMPETENCEAt the end of 2012, the number of MetsäBoard’s employees was 3,279. The number ofemployees was 791 lower than the year before.In 2012, the reorganisation of the paper busi-ness launched in 2011 was completed. Thisincluded closing the Alizay mill, discontinu-ing the unprofitable operations at theGohrsmühle and Reflex mills as well as closingÄänekoski paper machine 2.At the Gohrsmühle mill, Metsä Board willcontinue Chromolux specialty paper andpaperboard operations and has started foldingboxboard sheeting operations. In addition,Metsä Board has been developing a so-calledbusiness park concept with various partiesfrom the city and ministry in order to createnew jobs in the mill site. A good example ofthe successful implementation of the businesspark concept is the Reflex mill, where MetsäBoard was able to divest business units todifferent companies, saving more than 200jobs. Metsä Board has had no operations atthe Reflex mill since February 2012.Together with the local authorities, MetsäBoard helped redundant employees find newjobs. As much as possible, the employees wereoffered new positions within the company orin Metsä Group’s other business areas. Forexample, number of employees from theclosed paper machine at Äänekoski weretransferred to other Metsä Group units.PROACTIVEWELL-BEINGATWORKMetsä Board actively cares for the well-beingand work capacity of its personnel, andaddresses risks related to these proactively.During the year under review, the companycontinued to apply the early support model,implemented the year before, as part of theunified operating method. The model consistsof operating models for early support andwork capacity evaluation as well as a personalwork capacity plan. The operating model willgenerate a more caring working environmentand enable increasingly equal treatment of allemployees.Personnel surveys are one of Metsä Board’smost important tools in identifying how theworking environment supports personnel intheir daily tasks. Follow-up of measures basedon the personnel survey completed the year
INVESTMENTSINPERSONNELS WORKCAPACITYANDCOMPETENCE — SUSTAINABILITY 23At the end of 2010, Healthy at Work project was launched at Metsä Board’s Kemi mill, aiming tosolve issues related to work and well-being at work as early as possible and so prevent severeproblems in personnel work capacity.A new operating model was created for the mill in order to identify matters threateningperformance at work, and cooperation was developed with the occupational health services andinsurance companies. The project covered the entire Kemi paperboard and pulp mill integrate, orapproximately 300 people, most of whom work shifts in production.The project, which ended in January 2013, produced the expected results at the mill: sicknessabsenteeism was reduced, proactive monitoring of work capacity was activated, and, forexample, the number of job trials increased. In addition, cooperation with insurance companiesbecame closer, and an early support model was instilled in managerial work. Promoting well-being at work actively will continue in Kemi even after the end of the project.Healthy at workin KemiKemi mill started tosystematically put an earlysupport model into practice.before continued at various mills and saleslocations in 2012. Based on the previousstudy, the decision was made to ensure oppor-tunities for the entire personnel to participatemore actively in the development of theirworking environment. The next survey, whichwill be the third one organised in the com-pany, is scheduled for early 2013.Sickness absenteeism and accidents atwork are prevented with proactive actions andkey figures related to them are followed up onmonthly. Supervisors receive support in theirwork from local HR organisations. Thanks tothe systematic and persistent work, sicknessabsenteeism has decreased considerably (3.9%in 2012 and 4.6% in 2011). An example of asuccessful local project in developing well-being at work is the Healthy at Work projectcompleted at the Kemi mill.SURVEYINGAND IMPROVING COMPETENCEMetsä Board systematically surveys the com-petence of its personnel. Competence surveysare based on self-evaluations performed byemployees. Survey results can be used for thedevelopment of unit- and function-specific aswell as personal competence. The competencesurvey is an effective and concrete tool forimproving the quality of development discus-sions, among other things. In 2012, surveyswere completed at the Kemi, Joutseno, Kaski-nen and Simpele mills, among others.Taking care of personnel competence is anessential factor in terms of the success ofinvestment projects. In the extensive invest-ment projects carried out at Metsä Board, thedevelopment of personnel competence wassupported by machinery and process trainingas well as long-term training leading to adegree.In 2011, Metsä Board, as part of MetsäGroup, implemented common operatinginstructions to ensure that the entire companyadheres to the shared ethical principles. In2012, studying these operating instructionscontinued. Personnel used an online learningenvironment to study six key policies (Codeof Conduct, equality policy, personnel policy,corporate safety policy, information securitypolicy, and sustainable development princi-ples). In addition to this, designated targetgroups studied policies and Codes of Conductcentral to their own operations.In 2012, the Simplifier programme focus-ing on the development of business andleadership skills of middle management wasorganised for the third time. Metsä Board’spersonnel also participated in Metsä Group’smanagement development programme Chal-lenger. In addition to these programmes,Metsä Board conducts other managementcoaching programmes, several programmesleading to vocational degrees and designspersonal development programmes for per-sonnel.Metsä Board anticipates future resourceneeds by means of retirement forecasts. Basedon these forecasts and personnel competencesurveys, Metsä Board develops its recruitmenttraining to meet future needs. The Productionsupervisor and specialist recruitment trainingprogramme organised in 2011–2012 wasaimed at future managers. The programme,implemented in cooperation with MetsäFibre, helped recruit skilled employees formanagerial positions in production and main-tenance. A recruitment programme wasdesigned for production employees, whichwill be launched with Metsä Fibre in 2013.
2 CEO’s review 4 Operating environment 6 Metsä Board’s strategy 8 Paperboard 10 Paper and Pulp 12 Sustainability 22 Financial Statements 98 Corporate Governance statement 104 Salary and remuneration report 106 Board of Directors 108 Corporate Management team 110 Shares and shareholders 114 Quarterly data 116 Production capacities 117 Ten years in figures 118 Financial reporting 120 Contact information 26 Report of the Board of Directors 201234 Consolidated statement ofComprehensive income35 Consolidated balance sheet36 Statement of changesin shareholders’ equity37 Consolidated cash flow statement38 Notes to the consolidatedfinancial statements88 Shares and shareholders92 Calculation of key ratios93 Parent company accounts– Income statement94 Parent company accounts– Balance sheet95 Parent company accounts– Cash flow statement96 Parent company accountingpolicies97 Notes to the parent companyfinancial statement102 The Board’s proposalfor the distribution of profits103 Auditor’s report
4,0003,0002,0001,00003002001000-100-200-3002001000-100-2002008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012Sales: EUR million Operating result: EUR million Operating result, excluding non-recurringitems: EUR million26 REPORT OF THE BOARD OF DIRECTORS 2012MARKET SITUATION IN 2012The year 2012 began in an uncertain economic situation, which iswhy delivery volumes of Metsä Board’s main products were lower thannormal. No material weakening was observed in consumer demand forfolding boxboard, but inventory levels, which were reduced in differentparts of the delivery chain, decreased folding boxboard manufacturers’delivery volumes at the beginning of the year. The situation improvedgradually towards the summer, and utilisation rates normalised. Overallin 2012, total deliveries by folding boxboard manufacturers in Europeremained at the same level as in the previous year. The price level offolding boxboard remained unchanged, on average, during 2012. MetsäBoard, which is the market leader in the industry in Europe, increasedits folding boxboard production capacity by approximately 150,000tonnes in 2011 and 2012, supported by the strong longer-term demandoutlook. The delivery volumes of linerboard were at a good levelthroughout 2012, and prices were higher at the end of the year.Demand for paper continued to decline in Europe. Nevertheless,the situation with uncoated fine paper, Metsä Board’s most importantpaper type, was better than with other paper grades. All in all, deliveriesby European uncoated fine paper manufacturers decreased by three percent in 2012, compared to 2011. The decline in demand for coatedpapers was faster than that of uncoated fine paper in 2012. The price ofuncoated fine paper increased in the first half of 2012 but decreased inthe second half. The prices of coated papers declined in the second halfof the year, in particular.Demand for chemical pulp and high yield pulp (BCTMP) was at agood level in 2012.The price of pulp in US dollars declined slightly around mid-2012but started going up again at the end of the year, primarily in long-fibrepulp. The price difference between short- and long-fibre pulp grewsmaller in 2012. The price of chemi-thermomechanical pulp was at theprevious year’s level, on average, in 2012.In all, production costs did not change materially in 2012.In 2012, the average exchange rate of the euro weakened comparedto the US dollar, British pound and Swedish krona.RESULT FOR THE REVIEW PERIODMetsä Board’s sales amounted to EUR 2,108 million in 2012 (2011:2,485 and 2010: 2,605). Comparable sales were down 10.7 per cent.Sales excluding the impact of units and product groups closed ordivested increased more than 3 per cent. The operating result wasEUR 220 million (2011: -214 and 2010: 146), and the operatingresult excluding non-recurring items was EUR 74 million (2011: 59and 2010: 173). The result before taxes excluding non-recurring itemswas EUR 30 million (2011: 0 and 2010: 92). The result before taxesincluding non-recurring items was EUR 176 million (2011: -281 and2010: 48).Revenue decreased as a result of closing unprofitable paper businessoperations and restructurings.The non-recurring items of the operating result stood at EUR 146million (2011: -274 and 2010: -27), the most significant of them being:• A sales gain of EUR 85 million under “Other operations” relatedto the sale of Metsä Fibre’s 7.3 percentage point holding to ItochuCorporation.• A sales gain of EUR 59 million before taxes (after taxes, EUR 44million) under “Other operations” related to the sale of the 0.5percentage point holding in Pohjolan Voima to Metsä Fibre.• A EUR 11 million reverse of impairment charges in the Paper andPulp business area related to classification of Alizay mill as non-current assets held for sale.• A EUR 6 million reversal of a restructuring provision and otherprovisions in the Paperboard business area related to restructuring ofproduction at the Gohrsmühle mill.• A EUR 8 million cost provision under “Other operations” related tothe cleaning expenses of a land area in Tampere.• A EUR 4 million restructuring provision in Paper and Pulp relatedto the streamline programme at the Husum mill.• A EUR 4 million cost provision under “Other operations” relatedto the cleaning expenses of the land area of an industrial property inNurmes.Report of the Board of Directors 2012
151050-5-10-151.00.50-0.5-1.0-1.5-2.02001000-100-200-300-4002008 2009 2010 2011 2012 2008 2009 2010 2011 20122008 2009 2010 2011 2012Return on capital employed: % Earnings per share: Eur Result from continuing operationsbefore tax: EUR millionREPORT OF THE BOARD OF DIRECTORS 2012 27In 2011, net non-recurring items recognised in the operating resultstood at EUR -274 million, the most significant of them being:• EUR 113 million in cost provisions, impairment losses and write-downs in the Paper and Pulp business area connected to the plan toclose the Alizay pulp mill.• EUR 58 million in cost provisions, impairment losses and write-downs in the Paperboard business area connected to the plans todiscontinue the unprofitable operations of the Gohrsmühle mill.• A EUR 54 million loss in the Paper and Pulp business area con-nected to the divestment of the Hallein pulp mill.• EUR 31 million in cost provisions and writedowns in the Paper andPulp business area connected to the plans to discontinue the unprof-itable operations of the Reflex mill.• EUR 26 million of impairment losses, write-downs and cost provi-sions in the Paperboard business area connected to the restructuringmeasures at the Äänekoski mill, including the shutdown of papermachine 2.• A EUR 10 million income item in “Other operations” related to thesale of properties in Finland.Compared to the previous year, the operating result excluding non-recurring items was improved by the increased delivery volumes of fold-ing boxboard and linerboard, the reduction of losses from the units tobe closed and restructured, as well as the strengthening of the US dollarand the British pound. The operating result was weakened by the lowerprices of pulp and office papers as well as the stronger Swedish krona.In 2012, the total delivery volume of the Paperboard business areawas 1,188,000 tonnes (2011: 1,388,000 and 2010: 1,586,000). Thetotal delivery volume of the paper business amounted to 681,000tonnes (2011: 908,000 and 2010: 994,000). The delivery volumes arenot comparable due to the restructuring measures.Financial income and expenses totalled EUR -44 million (-60).Foreign exchange rate differences from trade receivables, trade payables,financial items and the valuation of currency hedging were EUR +5million (3). Net interest and other financial income and expensesamounted to EUR -49 million (-63). Pohjolan Voima Oy paid adividend of EUR 6 million in the period under review. Other financialincome and expenses included EUR 12 million of valuation gains oninterest rate hedges (valuation gain of 2). EUR 8 million of the gainresulted from the termination of the IFRS hedge accounting related tofair value hedging after a US dollar-based loan and associated currencyand interest rate swaps matured in June.The result before taxes for the period under review was EUR 176million (2011: -281 and 2010: 48). The result before taxes and exclud-ing non-recurring items was EUR 30 million (2011: 0 and 2010: 92).The impact of income taxes was EUR -3 million (2011: +8 and 2010:-21). The reduction in the corporate tax rate in Sweden from 26.3 percent to 22 per cent in 2012 decreased the taxes by approximately EUR10 million.Earnings per share were EUR +0.53 (2011: -0.83 and 2010: 0.09).Earnings per share excluding non-recurring items were EUR 0.13(2011: 0.02 and 2010: 0.23). Return on equity was 21.6 per cent (2011:-31.5 and 2010: 2.8), and 5.5 per cent (2011: 0.9 and 2010: 7.6) exclud-ing non-recurring items. The return on capital employed was 12.3 percent (2011: -9.9 and 2010: 5.7); 4.7 per cent (2011: 3.4 and 2010: 7.6)excluding non-recurring items.PERSONNELThe number of personnel was 3,279 at the end of December (31December 2011: 4,070 and 31 December 2010: 4,538), of whom 1,536(2011: 1,648 and 2010: 1,783) people worked in Finland. In 2012,Metsä Board employed an average of 3,552 people (2011: 4,428 and2010: 4,772). In 2012, salaries and wages totalled EUR 156 million(2011: EUR 292 million and 2010: 209). The increase in employeecosts and in other operating expenses relates to the plans to discontinuethe unprofitable operations of the Gohrsmühle and Reflex mills, to theplans to shut down the Alizay paper mill and to the restructuring meas-ures at the Äänekoski mill, including the shutdown of paper machine 2.
28 REPORT OF THE BOARD OF DIRECTORS 2012INVESTMENTSIn 2012, gross investments totalled EUR 66 million (2011: 95 and2010: 66). Metsä Board’s most significant investments in 2012 wererelated to increasing the capacity of the folding boxboard machine inÄänekoski, increasing the paperboard sheeting capacity in Äänekoskiand Gohrsmühle, the Kyro mill bio power plant and improving theefficiencies of the paper machines at the Husum mill.STRUCTURAL CHANGESMetsä Board’s restructuring process from a paper company into theleading paperboard company in its field has been completed. Thestrong paperboard business together with the Husum paper and pulpmill is a solid foundation for further profitability improvement. Thefocus of the operations has increasingly shifted from restructuringto development, as demonstrated by the investments in the Simpele,Äänekoski, Kyro, and Kemi paperboard mills in 2011–2012. As a resultof the completed investments, Metsä Board’s annual folding boxboardcapacity has grown from 785,000 tonnes to 935,000 tonnes. MetsäBoard’s total annual paperboard production capacity is approximately1,310,000 tonnes including the annual 375,000 tonnes productioncapacity of white-top kraftliner. Production reorganisation completedin Husum made it possible to increase annual pulp production to750,000 tonnes and paper production to more than 800,000 tonnes.The Husum mill was granted a new environmental permit matching itsincreased production potential at the end of 2012.In 2011, Metsä Board announced it would divest the Hallein milland restructure its coated paper business. Announcements made in thefirst quarter of 2012 included the divestment of the Premium Paperoperations of the Reflex mill as well as the completion of negotia-tions with employees on shutting down the Alizay mill and on thediscontinuation of the unprofitable operations at the Gohrsmühlemill. Overall, the positive impact of these measures on the company’sannual operating result excluding non-recurring items is estimated to beapproximately EUR 110 million positive compared to the actual figuresfor 2011. The positive effect on earnings was realised mostly in 2012and is estimated to be realised in full starting from 2013. Material non-recurring items related to the measures were recognised in 2011.At the Gohrsmühle mill, Metsä Board will continue Chromoluxspeciality paper and paperboard operations and has started folding box-board sheeting operations. Measures to create a business park conceptin Gohrsmühle continue in collaboration with employee representa-tives in order to create new jobs in the mill area.In the second quarter of 2012, Metsä Board sold approximately7.3 percentage points of its holding in Metsä Fibre Oy to the JapaneseItochu Corporation for EUR 138 million, and approximately 0.5percentage points of its holding in Pohjolan Voima Oy to Metsä Fibrefor EUR 64 million. Metsä Board sold its 7.3 percentage point holdingin Metsä Fibre in order to reduce its pulp surplus as well as to furtherstrengthen Metsä Fibre’s operations in the growing Asian market, inparticular. After the divestments, Metsä Board owns 24.9 per cent ofMetsä Fibre and approximately 2 per cent of Pohjolan Voima. The salesof shares have a negative impact of approximately EUR 15 million onthe company’s annual operating result compared to the actual figures in2011.The new biopower plant owned by Pohjolan Voima andLeppäkosken Sähkö was commissioned at Metsä Board Kyro mill. Thenew biopower plant and replacing natural gas, which was being usedpreviously as fuel at the mill, with wood based renewable fuels willreduce Metsä Board’s annual energy costs by approximately EUR 6million compared to the 2011 level. In addition, the carbon footprintof products from the Kyro mill approximately halved.M-real Corporation’s Annual General Meeting held in the springof 2012 changed the company’s business name to Metsä BoardCorporation and amended the company’s line of business to cor-respond to its current business operations more accurately.PENDING DISPUTESUPM-Kymmene Corporation initiated arbitration proceedings againstMetsä Board. The proceeding is a result of the transaction completed inMay 2012, in which Metsä Board sold 7.3 percentage points of its hold-ing in Metsä Fibre Oy to the Japanese Itochu Corporation for EUR 138million.In the arbitration proceedings, UPM is primarily claiming EUR58.5 million in damages and secondarily the reimbursement of analleged unjustified benefit of EUR 58.5 million jointly from MetsäliittoCooperative and Metsä Board. The claim is based on an alleged breachof the co-sale clause under the Metsä Fibre shareholder agreementsigned in 2009.5,0004,0003,0002,0001,00002008 2009 2010 2011 2012Non-currentassets Inventories Othercurrentassets Average Assets and capital employed: EUR million
REPORT OF THE BOARD OF DIRECTORS 2012 29Metsä Board denies UPM’s claim as unfounded in its entirety andis not making any provisions because of it. The claim has no impact onthe transaction with Itochu or cooperation between the parties, and isnot associated with commercial agreements entered into with Itochu.The end result of the dispute initiated by UPM will be communi-cated later, after the Arbitration Court has issued its resolution on thematter.RESEARCH AND DEVELOPMENTIn 2012, Metsä Board’s research and development activities focusedincreasingly on customer-oriented product development of paper-boards. In February, a new RD Centre opened in Äänekoski, wherethe company already had skilled personnel as well as a modern labora-tory and product development equipment.A business development organisation was established in thePaperboard business area with the aim of safeguarding the competitive-ness of the paperboard business in the rapidly developing packagingmarket.The development work follows signals from the market and cus-tomer feedback. Metsä Board continues to develop and manufacturelightweight yet durable paperboard for packaging.All Metsä Board mills accomplished sizeable savings in variablecosts by means of a special development programme. The programmefocused on optimising the use of raw materials and energy, in particular,where considerable savings can also be accomplished in the future.Metsä Board’s RD costs remained at the previous year’s levelin 2012, amounting to approximately EUR 5 million, or 0.2 percent of sales (2011: 5 and 0.2 per cent, and 2010: 5 and 0.2 per cent,respectively).ENVIRONMENTAL FACTORSKey principles in managing environmental impacts at Metsä Boardinclude being proactive, continuous improvement and open communi-cation. Metsä Board’s production units are developed continuously inorder to minimize the environmental load and environmental risks.Certified ISO 9001 and ISO 14001 quality and environmentalsystems are in place at all Metsä Board’s production units. The produc-tion units also have an occupational health and safety system (OHSAS18001) and ISO 50001 energy management system.Since 2001, Paper Profile environmental product declarations havebeen provided for all Metsä Board papers and paperboards. The climateimpact for individual products is reported on a customer-specific basisthrough carbon footprint calculations. Metsä Board has reduced itsemissions into the atmosphere by introducing low-sulphur fuels andreplacing fossil fuels with wood-based fuels. In 2012, a new biopowerplant started its operation at Metsä Board’s Kyro mill. The plantproduces electricity and heat and replaces the use of fossil natural gasat the mill. It also provides heating for the neighbouring district ofHämeenkyrö. Carbon dioxide emissions from the Kyro mill will bereduced by approximately 100,000 tonnes per year. The carbon foot-prints of the folding boxboards and wallpaper base produced at the millwill be reduced by half.In the year under review, Metsä Board started to carry out productlife-cycle assessments (LCA). The lifecycle assessment also includes anassessment of the water footprint.Metsä Board has environmental liabilities remaining from earlieroperations at industrial sites that have been closed, sold or leased, andfrom landfill sites that are no longer in use. These liabilities mostly con-cern soil contamination or the closing and inspection of landfill sites.Metsä Board has aimed to decrease its environmental liabilities relatingto contaminated land areas with implementing rehabilitation projects.At the end of the year, provisions for environmental managementwere approximately EUR 18 million, mostly related to the Niemenrantaarea in Tampere, Finland, Alizay mill in France and a land area of anindustrial property in Nurmes, Finland. Metsä Board’s environmentalcosts totalled EUR 20 million (2011: 26) in 2012. The environmentalcosts are mainly comprised of operating and maintenance expensesfrom environmental protection equipment, expenses relating to wastemanagement and environmental insurance policies and depreciation ofcapitalised environmental costs.WOOD SUPPLYMetsä Board is committed to using sustainable raw materials in its pro-duction. The most important raw material for its products is renewable,recyclable and energy-efficient wood that originates from sustainablymanaged forests and is procured sustainably.Metsä Board’s parent company Metsäliitto Cooperative is respon-sible for Metsä Board’s wood supply. The majority of wood used byMetsä Board in Finland comes from forests owned by Metsäliitto120100806040200160120804004030201002008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012Equity ratio: % Gearing ratio: % Net gearing ratio: %
30 REPORT OF THE BOARD OF DIRECTORS 2012Cooperative members in Finland. The company’s other wood procure-ment countries in 2012 were Sweden, Latvia, Russia, Estonia, Lithuaniaand Norway.Wood procurement and forest management are governed by anenvironmental policy, as well as the Group’s principles of corporateresponsibility. These are implemented using certified quality and envi-ronmental systems and an annually updated environmental programme.Wood procurement complies with local legislation and regulationsissued by the authorities and in certified forests criteria concerning for-est certification.All of Metsä Board’s mills are both PEFC and FSC certified. Thewood Chain of Custody allows for the verification of the share of certi-fied wood in the products. During the year under review, approximately4.8 million cubic metres of wood were delivered to Metsä Board’s mills,64 per cent of which was obtained from certified forests.FINANCINGMetsä Board’s equity ratio at the end of the year was 33.6 per cent (31December 2011: 27.4 and 31 December 2010: 32.1) and gearing ratiowas 128 per cent (2011: 154 and 2010: 135). The net gearing ratio was72 per cent (2011: 106 and 2010: 83).The change in the fair value of investments available for sale wasapproximately EUR -72 million in the period under review, mainly inrelation to the fact that a portion of Pohjolan Voima Oy’s shares weresold to Metsä Fibre Oy in April. In addition, the fair value of PohjolanVoima Oy’s shares decreased due to the change in the market price ofelectricity.At the end of the year, net interest-bearing liabilities totalled EUR625 million (783). Foreign-currency-denominated loans accounted for5 per cent; 72 per cent were floating-rate, and the rest were fixed-rate.At the end of the year, the average interest rate on loans was 4.6 percent and the average maturity of long-term loans 1.1 years. The interestrate maturity of loans was 9.9 months at the end of the year. During theperiod, the interest rate maturity varied between 9 and 15 months.Cash flow from operations amounted to EUR 39 million(Q1–Q4/2011: 108). Working capital decreased by EUR 18 million(decreased by 81). In the cash flow statement, the net financial expensesfor the period include a dividend of EUR 33 million (45) paid by MetsäFibre and a dividend of EUR 6 million (0) paid by Pohjolan Voima Oy.At the end of the period under review, an average of 4.8 months ofthe net foreign currency exposure was hedged. The degree of hedgingvaried between four and five months during the period. Approximately3 per cent of the non-euro-denominated equity was hedged at the endof the period under review.In May, Metsä Board signed a syndicated credit agreement for atotal of EUR 600 million. The credit agreement is used to refinance theEUR 500 million eurobond, which will mature on 1 April 2013, andto further strengthen Metsä Board’s liquidity. The credit consists of animmediately available EUR 100 million revolving credit facility andloans totalling EUR 500 million that may be drawn at the end of March2013. The immediately available credit facility will expire after threeyears. Of the loans, EUR 150 million (bridge financing) will mature on30 June 2014 and EUR 350 million on 31 March 2016. The credit isunsecured until the loans are drawn. The annual financing expense ofthe credit, calculated for the entire loan period and all fees included, isapproximately 6.5 per cent. Metsä Board has considerable headrooms inrelation to covenants set in the credit agreements.Metsä Board’s liquidity has clearly strengthened due to the creditagreement signed in the period under review and the reduced holdingin Metsä Fibre Oy and Pohjolan Voima Oy. At the end of the periodunder review, available liquidity was EUR 576 million, of which EUR100 million consisted of the revolving credit facility signed in May2012, EUR 48 million consisted of undrawn pension premium (TyEL)funds and EUR 428 million of liquid assets and investments. At the endof December, EUR 299 million of the liquid assets and investments areassets deposited by other Metsä Group businesses in Metsä Finance. Inaddition, Metsä Board had other interest-bearing receivables totallingEUR 56 million. To meet its short-term financing needs, the Grouphad at its disposal uncommitted domestic and foreign commercialpaper programmes and credit facilities amounting to EUR 525 million.In 2012, Metsä Finance has purchased from the market Metsä BoardCorporation’s bond of EUR 500 million for a nominal value of EUR50 million. The purchases were market-priced. The loan will mature on1 April 2013.6543210150125100755025060050040030020010002013 2014 2015 20172016 2018 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012Repayment of non-current loans(2013–2018): EUR millionInvestments, continuingoperations: % of salesGross Investments: EUR million
REPORT OF THE BOARD OF DIRECTORS 2012 31SIGNIFICANT RISKS AND UNCERTAINTIESMetsä Board assesses its strategic, operative, financial and liability risksas part of its continuing operations. The risks are reported to the Boardof Directors at least twice per year and, if needed, in Interim Reportsand the financial statements bulletin published by the company. Inaddition, the company carries out risk assessments as part of the annualplanning and strategy process. The risk assessment carried out in theannual planning process focuses on identifying sales and cost risks, andthe risk assessment in the strategy process reviews risks related to theimplementation of the company’s business strategy. The company’smanagement team reviews the company’s most significant risks regu-larly as part of its management work. The risk assessments carried outduring 2012 identified the following risks and uncertainties with apossible impact on Metsä Board’s financial performance and ability tooperate.Uncertainty in the development of the overall economyIn the main markets, demand for paper and paperboard mainly followsgeneral economic development.The development of the euro area, in particular, significantly affectsthe demand for and profitability of Metsä Board’s main products.There are still considerable uncertainties associated with the develop-ment of the global economy.Cyclical nature of operations andchanges in the competitive environmentMetsä Board operates in a cyclical line of business where the balancebetween supply and demand has a significant impact on the prices ofpaperboard and paper products, in particular. Any future decrease indemand or increase in supply may have unfavourable effects on the mar-ket balance and, therefore, on the company’s profitability. New playersor products and materials entering the market, capacity increases orproduct range expansions by competitors may lower the prices of MetsäBoard’s products. On the other hand, potential capacity closures in theindustry or consolidation of the industry may result in increased prices.Changes in regulations, such as the EU’s climate and environmentalpolicy and increasing new requirements to limit carbon dioxide, sul-phur or other emissions may increase production costs and thereby havea negative impact on profitability.Centralisation of operations in a narrow geographical areaAll Metsä Board’s paperboard mills and all pulp mills except one arelocated in Finland. Finland has a history of several labour disputes inboth the forest industry and in the distribution chain of forest industryproducts. These labour disputes have hindered the operations of theindustry, particularly in production and deliveries to customers. Shouldproduction and deliveries be disturbed due to labour disputes inFinland, Metsä Board has no opportunity to manufacture paperboardoutside Finland. This may impair the company’s competitiveness andprofitability. The bulk of Metsä Board’s paper production takes placeat the Husum mill in Sweden. Correspondingly, labour disputes inthe Swedish forest industry or distribution chain could impair MetsäBoard’s ability to deliver paper, and therefore the company’s profitabil-ity could weaken.Retention of customers and customers’ solvencyThe retention of customer relationships may be at risk in certainextreme situations. Severe delivery problems or persistent problemsrelated to the quality of delivered goods may endanger the stability ofcustomer relationships. Furthermore, factors beyond the company’scontrol, such as labour disputes in fields critical to deliveries in Finland,may endanger the stability of customer relationships.The management of the credit risks involved in commercial activi-ties is the responsibility of Metsä Board’s centralised credit control andbusiness areas. The credit control function together with the businessareas defines the credit limits and terms of payment for differentcustomers. A significant part of the credit risks are transferred furtherto credit insurance companies by means of credit insurance contracts.Metsä Board’s customer credit risk was at a normal level in 2012.Measures are taken to reduce the risk further by intensifying internalcredit control and its processes. The main principles for the company’scredit control are defined in the credit policy approved by the com-pany’s Board of Directors.Changesin consumer habitsChanges in the market, such as new electronic communications tech-nologies, the development of marketing channels, and consumer trendsmay have an adverse effect on the demand for Metsä Board’s paper andpaperboard products.Business developmentMetsä Board has completed a considerable restructuring of the paperbusiness. In the future, the company will focus on developing andgrowing its packaging business. Developing and growing the businessoperations requires several strategic choices to be made which involverisks. The uncertainties in question are associated, for example, with theproduct range, investment allocation or selection of customer segments.Metsä Board has been investing in expanding its folding boxboardcapacity in recent years. The goal is to sell the new capacity partly toexisting customers who have global operations in market areas outsideof Europe. Expanding sales outside of the company’s home marketareas involves cost risks and uncertainties related to introducing newproducts to the market.Price risks of production and logistics costsA radical and unforeseen rise in the price of production inputs impor-tant for Metsä Board’s operations, such as wood, energy and chemicals,as well as transportation costs or problems with their availability, mayreduce profitability and threaten the continuity of operations. MetsäBoard works to hedge against this risk by entering into long-termdelivery agreements and related derivative contracts.In addition, a steep increase in transportation and other logisticscosts may affect Metsä Board’s profitability. The company may also