Virgin Fibre Cartonboard– the Most Environmentally SoundPackaging Material

Mika Joukio

Capital Markets’ Day 10 June 2010

2

Content

1. Our Business

2. Strategy

3. Re-engineering

4. Profitability

5. Current Focus Areas and

Outlook

6. Our partnership with Barilla

Our Business

4

The Leading Producer in All Chosen Businesses

• High-performance, lightweight paperboards and

papers made from primary fibre for • Food

• Confectionery

• Beautycare

• Pharmaceuticals

• Cigarettes

• Consumer durables

• Graphics

• Integrated Brand Packaging (IBP)

5

M-real the Clear Leader in the Very Well Balanced Market

Biggest Folding Boxboard Producers in Europe

Capacity Share (%)

8 %

8 %

9 %

10 %

25 %

32 %

0 % 5 % 10 % 15 % 20 % 25 % 30 % 35 %

Holmen

IP

Careo

Mayr-Melnhoff

Stora Enso

M-real

6

Production Facilities

Cartonboards 795 000 t/a• Kyro, Simpele, Tako, Äänekoski

Linerboards 375 000 t/a• Kemiart Liners

Papers for flexible 55 000 t/a packaging and labels• Simpele

Wallpaper base 105 000 t/a• Kyro

BCTMP 580 000 t/a (bleached chemi-thermo-mechanical pulp)• Joutseno and Kaskinen

7

Most Modern and Efficient Production

• Production units are in good condition─ Simpele and Äänekoski major rebuilds since 2000

─ Former and coating unit investments at Kemiart

Liners in 2005-2006

─ Kyro and Tako power plant investments in 2007

• The most modern BCTMP production units

in the world

• Strategic ownership in Metsä-Botnia

• High self-sufficiency in energy including

valuable Pohjolan Voima shareholding

Strategy

9

Strategic Cornerstones

• We develop products and services targeting to further reduce the environmental impact

• Our strategic choice is high-quality virgin fibre based lightweight cartonboards

• We want to be the preferred partner to the global brand owners

• We target growth, especially in food sector

• We have strong fibre knowhow and we are fully self-sufficient in fibres

10

Board Consumption Is Growing

Lähde: Jaakko Pöyry”World Paper Markets up to 2025”

Japan

India

Eastern Europe

Latin AmericaRest of Asia

Oceania

China

Africa

Middle EastRussia

Average 2.3%/a

North AmericaWestern Europe

-1

0

1

2

3

4

5

6

7

0 20 40 60 80 100Share of consumption in 2006, %

Demand growth, %/a

Source: Jaakko Pöyry”World Paper Markets up to 2025”

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Significant Amount of Food Destroyd Before They Reach Consumers*

• Lack of packaging or inadequate packaging in distribution in developing countries causes 30% to 50% of all food to decays

• Respectively in Western Europe this figure is only 2-3%

• Deteriorated food a major cause of deaths globally

*) According to Europen - Packaging in the sustainability agenda

12

6 % Protects the Whole Process

6,5 % Source: Incpen Table for One

13

Cartonboard Has the Lowest Carbon Footprint

0

2000

4000

6000

8000

10000

12000

14000

M-real's CartaSolida

HDPE PET PLA (Biobasedpolymer)

Aluminium

kg/to

nne

Source: M-real and Sustainable Packaging Coalition - SPC

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Watch Your Weight!

For an order of 50.000 sheets (520 x 720 mm) you will need 18.720 m2 of board:

~13 mNm CD stiffness, ~500 µm thickness

M-real lightweight paperboardAverage

FBB(folding boxboard)SBB

(solid bleached board)WLC(white lined chipboard)

15

Lightweighting Improves Sustainability throughout the Whole Chain

Lightweight products use less raw materials

Reduced total amount of packaging material and lower carbon footprint

Reduction in total weight means less transported material

Less packaging waste and reduced recovery fees at the end of the chain

Efficient production saves environment

Excellent consistency means less waste in converting and packing processes

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Consumers Consider Paperboard as the MostEnvironmentally Friendly Packaging Material

Source: Korhonen Virpi, 2009. Survey on consumers’ attitudes, preferences and choices concerning packaging 1998-2009.

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Consumers Consider Paperboard as the MostEnvironmentally Friendly Packaging Material

Source: Korhonen Virpi, 2009. Survey on consumers’ attitudes, preferences and choices concerning packaging 1998-2009.

18

Consumers Consider Paperboard as the MostEnvironmentally Friendly Packaging Material

Source: Korhonen Virpi, 2009. Survey on consumers’ attitudes, preferences and choices concerning packaging 1998-2009.

19

Consumers Consider Paperboard as the MostEnvironmentally Friendly Packaging Material

Source: Korhonen Virpi, 2009. Survey on consumers’ attitudes, preferences and choices concerning packaging 1998-2009.

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The 4 R’s of M-real Cartonboards

RENEWRENEW

Renewable wood fibres

From sustainably managed certified forests

Energy from wood based biofuels

REDUCEREDUCE

Light but strong

Goodconsistencyreduces waste

Efficient use of energy, water and fibre

RECYCLERECYCLE

100% recyclable

Can also be incinerated for energy or composted at the end of the lifecycle

REPORTREPORTREPORT

Paper Profile

Carbon Footprint calculations

Products comply withinternational safetystandards

Re-Engineering

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The Most Important Actions to Improve Profitability

• Headcount reductions

• LITE4U

• Closures of Tako’s BM2 and Lielahti BCTMP mill

• Streamlining sales and customer service network

• Complexity reduction whenever and wherever possible

23

Headcount Decreased by 25 % and ProductionCapacity Increased Despite the Closures

Headcount Capacity 1000 tons

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2006 2007 2008 2009 2010E1400

1450

1500

1550

1600

Headcount Production capacity

24

Productivity at the Mills Has Improved Over 40 %

812964

1 1451 0741 067

0

300

600

900

1 200

2006 2007 2008 2009 2010E

tons

/per

son/

a

Production capacity of M-real Consumer Packaging mills compared to production personnel

25

Fixed Costs Have Decreased by 20 %

267 243 211229

0

100

200

300

2006 2007 2008 2009

Me/

a

Fixed costs excluding non-recurring items

26

Remarkable Product Portfolio Development

Avanta Ultra C

Avanta Prima

Avanta Super

Nova X

Simwhite

Simcote

Carta Solida

Carta CX

Carta Solida T

Tako CX Lite OBA

Avanta Prima CTako CX White

Avanta Ultra

Gala X

Tako CX

Carta Integra

Tako CX Lite

Tako CX Foil

Profitability

28

Today Our Profitability Is the Best in the Industry

-2 %

0 %

2 %

4 %

6 %

8 %

10 %

12 %

14 %

16 %

18 %

2006 2007 2008 Q1 / 2009 Q2 / 2009 Q3 / 2009 Q4 / 2009 Q1 / 2010

M-real ConsumerPackaging

Stora EnsoKuluttajapakkaus-kartonki

Holmen Iggesund

IP - ConsumerPackaging

*) Ilman kertaluontoisia eriä.EBIT %, excluding non-recurring items

Consumerboards

Current Focus Areas and Outlook

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Focus Areas

• Price increases in all products and at all markets

• ONWC reduction

• Development of new product innovations

• Controlled capacity expansion by debottlenecking

• Continuous improvement in all functions

• Continue studies regarding expansion to developing markets

31

Outlook

• Demand seems to continue

strong in all products

• Price increases are going

through and prices will be

slightly higher at the end of Q2

compared to the end of Q1

• We expect good profitability to

continue

Our Partnership with Barilla

33

Barilla

• Barilla is one of the leading brand owners in food sector and strategically important customer for M-real

• Co-operation started in 2008

• Today we supply Simcote for packing purposes and Chromolux for labels altogether ca. 6 000-7 000 tons/a

• We share Barilla’s vision for good packaging and we are doing our utmost to further improve safety and sustainability in packaging

DidDid youyou knowknow

... ... the wood needed for one tonne of board grows in the wood needed for one tonne of board grows in less than one second in Finland.less than one second in Finland.

Thank you - Grazie - Kiitos!