Metsä Board, part of Metsä Group, has on 1 December 2020 signed an agreement to sell a 30 percent stake in its Husum pulp mill in Sweden. The buyer is the Swedish forest owners’ cooperative (ekonomisk förening) Norra Skog, with whom Metsä Forest Sverige, responsible for Metsä Board’s wood procurement in Sweden, has simultaneously entered into a long-term wood supply agreement.
Investment decision for the first phase of the Husum pulp mill renewal
The amendment to the environmental permit for the Husum mill has been approved, and Metsä Board has made the final investment decision on the first phase of the pulp mill renewal. The first phase of the investment includes a new recovery boiler and turbine and its total value is approximately EUR 320 million. Expected start-up for the new recovery boiler and turbine will be in H1 2022.
The main terms of the transaction with Norra Skog
The valuation of the Husum pulp mill (enterprise value) to be applied in the transaction at the time of closing is approximately EUR 875 million, including the completion of the ongoing recovery boiler and turbine investment. The valuation corresponds to a value of approximately EUR 1.2 billion after the completion of the second phase of the pulp mill renewal, i.e. the new fibre line. The transaction will decrease Metsä Board’s net debt by approximately EUR 260 million at the time of closing, and additionally reduce Metsä Board’s financial contribution in the second phase of the pulp mill renewal by approximately EUR 100 million. The closing of the transaction is expected to be in January 2021.
Impacts on wood supply
The long-term wood supply agreement between the parties will increase the share of certified wood procured from Sweden and substantially reduce wood imported from the Baltic countries. The increased share of the wood procured from Sweden will reduce the mill’s cost volatility. In addition, the cooperation with Norra Skog further strengthens the Husum pulp mill’s wood availability and hence makes the mill an excellent platform for further development of Metsä Board’s paperboard business.
Impacts on the company’s self-sufficiency in pulp and financial reporting
Prior to the transaction, Metsä Board’s net surplus in pulp is approximately 600,000 tonnes per year. The net surplus consists of the difference between Metsä Board’s own pulp production and consumption and a 24.9 percent holding in its associated company Metsä Fibre. Norra Skog’s 30 percent minority stake in the Husum pulp mill will reduce Metsä Board’s annual net surplus in pulp by approximately 210,000 tonnes. Metsä Board will continue to consolidate the Husum pulp mill in its consolidated financial statements as a subsidiary, so the sensitivity of operating result to changes in pulp market prices will remain unchanged. A 10 percent increase (decrease) in the market pulp price will have a positive (negative) impact of approximately EUR 30 million annually on the company’s operating result. The capital gain from the transaction will be reflected directly in the group’s equity and no impacts will be reported in the income statement. The gain from the share sale transaction is tax free.
The transaction accelerates the development of Metsä Board’s paperboard business
Metsä Board’s strategy is to continue profitable growth in fresh fibre-based packaging materials. The cash released by the transaction and the avoided future investments, totalling more than EUR 350 million, will enable significant reallocation of the company’s development investments to paperboard. The company has prepared investments aimed at improving the profitability and growth of its paperboard business. Now the company is in the position to accelerate project planning towards decision-making. The planned projects aim at organic growth, developing the product offering, and improving the cost efficiency.
“With this transaction between Metsä Board and Norra Skog, we will ensure the wood supply of the Husum mill far into the future and get a partner to share the investments related to the renewal of the pulp mill. At the time of closing of the transaction Metsä Board is practically a net debt-free company. This provides an excellent platform to grow our core business – sustainable and high-quality fresh fibre paperboard,” says CEO Mika Joukio.