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There’s more to Metsäthan meets the eyeMetsä Group general presentation

Metsä Group

• We are Metsä Group. We usenorthern wood to create thebusiness of the future.

• We provide our customers andconsumers with premium recyclableproducts and services.

• Our business is based onrenewable wood raw material whichis grown, procured and processedresponsibly.

The worldneeds MetsäOur products comefrom the forest

Metsä Group

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Key figures 2016

METSÄ FIBRE

Pulp andSawn Timber

Sales:EUR 1.6 billionPersonnel:1,250

METSÄ BOARD

Paperboard

Sales:EUR 1.7 billionPersonnel:2,500

METSÄ FOREST

Wood supply andforest services

Sales:EUR 1.5 billionPersonnel:900

METSÄ TISSUE

Tissue andcooking papers

Sales:EUR 1.0 billionPersonnel:2,750

METSÄ WOOD

Wood products

Sales:EUR 0.5 billionPersonnel:1,500

Renewable energy 22.3 TWh

METSÄ GROUP | Sales EUR 4.7 billion | Personnel 9,300

METSÄLIITTO COOPERATIVE | Group’s parent company | Owned by 104,000 Finnish forest owners

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Metsäliitto Cooperative, MetsäGroup’s parent company• The Cooperative has around 104,000 Finnish forest

owners as its members.– The members own nearly half of Finland's private

forests.– Any private person or community owning at least 3

hectares of forest in Finland can join the Cooperative.

• Owner-members participate in the Cooperative'sdecision-making.– Representative Council (60), Supervisory Board (34),

Board of Directors (8), District Committees– Elections every four years

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• EUR 1.2 billion investment• Annual pulp production 1.3 million tonnes (currently 0.5)

– In addition integrated production of new bioproducts• Use of wood 6.5 million m³ annually (currently 2.4)• 2,500 jobs in the whole value chain in Finland (currently 1,000)• Main markets for pulp: Europe and Asia

– Sales will increase especially in China• A unique ecosystem for bioeconomy will be developed in the

Äänekoski industry site• The mill will be ramped up during the third quarter of 2017

Forest industry’s biggestinvestment in Finland

Metsä Group’s bioproduct mill

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Wood supply andForest services

• Finland’s market leader in wood trade and forest energy• We serve forest owners and reliably deliver wood to the

Group's business areas• We annually procure around 30 million m³ of wood

– Mainly from Finland, primarily from Metsäliitto Cooperative'sowner-members

– Wood supply also in Russia, the Baltic countries and Sweden

• We offer forest owners the best way to sustainablyaccumulate wealth from the forest they own– Especially for the 104,000 forest owner-members of

Metsäliitto Cooperative

• All of our wood originates in sustainably managed forests

Metsä Forest

High-quality wood from sustainably managed forests

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• In addition to wood trade, we offer services related to forestownership, forest asset management, forest income investmentand intergenerational transfer of forest assets.

– A variety of turnkey services for owner-members

– Our services can be adapted to forest owners' needs.

– We are forerunner I developing in e-services for forest owners

• 14 wood supply districts and over 300 contact persons handlewood supply and forest services in Finland. Overall we employ600 people in Finland.

– We use contract entrepreneurs for wood harvesting and transports. Weemploy 3500-4000 entrepreneurs and their drivers.

– We also require our partners to show responsible operations and goodharvesting results

We serve Finnish forest owners

Metsä Forest - Services to industry and forest owners

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• Owner-members of Metsäliitto Cooperative can sell timber or buyforest services electronically.– Forest owners chooses the most convenient way .

• All ready >20% of roundwood sales to us were made via internet.– The share has been even higher for forest services bought, ~30

percent.

• Owner-members have access to Metsäverkko- internet service.– They can manage all issues related to their forest property .

• Metsäverkko’s mobile application works also offline.– With it forest owner can navigate oneself to a forest compartment,

plan forest work, prepare timber sale or forest service purchase,update forest data and work suggestions, add notes and photos onplans and acknowledge work as done.

>20% of roundwood sales electronically

Metsä Forest - Services to industry and forest owners

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Procurement and wood supply from forest to mills

• We buy most of our wood from private forest owners (90%), mainly from our co-operativemembers

• The average forest owners estate in south is around 35 - 40 hectares• The average trade of wood is about 600 m3 in stumpage sale and in delivery sale 200 m3• Our market share is one third of all the market wood• Procurement is divided as follows:

• Stumpage sales 85 % of all trades (Metsä Group has the right to harvest)• Delivery sales 15 % (Forest owner delivers the wood to the roadside)

• Wood is delivered to over 100 mills in Finland

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Measurementcharacteristisc

Characteristics of Finnish wood measuring• Timber volume is determined as real solid volume over bark• Relatively small average size of timber storages

• The wood measuring method can be chosen freely by the seller and buyer from officiallyaccepted wood measuring methods

• No systematic errors are accepted in any officially accepted method.– The required accuracy is defined by measuring method and lot size

• Timber logistics flow is very rapid from the forestto the mill due to the mechanization level (98%)in standing sales

ðWell-managed data/information is essential

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Role of measurement• Measurement is part of wood procurement process• Measurement serves needs of all stakeholders

– From forest to mill– Information to operations and processes

• Harvester measurement is done nearly 90%Ø Base of bucking, payments to seller and contractor, logistic

reasons• Mill measurement is done on most transported woodØ Base of payments to seller and contractor, material flow, storages

and control• Measurment data is used to balance costs and business processØ Costs and needs are considered in entire supply and logistic chain

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Measuring methods in wood sales• The measuring method is agreed in advance

• Measurement costs are paid by the byer• No common timber quality and dimension measurement requirements

– In standing sales buyer is responsible that harvested timber is according to quality andmeasurement requirements

– In delivery sales seller is responsible that timber is according to quality and measurementrequirements

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Method Place MeasurerBy the harvester Forest Harvester driver

Pile scaling Storage Buyer’s foremen

Weight scale Storage Truck driver

At the mill Mill/terminal Buyer’s organisation

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0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

Standing sales Delivery sales Average

Harvester At mill Weight scale At roadside

Scaling methods for forest owners 2014(round wood, privately owned forests)

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Log scaling methods

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Pulpwood scaling methods

Weightsampling

54 %Bundle

sampling24 %

Stackedmeasure

ment12 %

Imagescanning

10 %

Scaling methods at mills 2014 (round wood)

Weightsampling

39 %

3D logscanning

58 %

Stackedmeasure

ment3 %

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Wood supply -Processes andsolutions

Wood supply process - relation to ICT-solutions

Forest Purchase Harvesting Transportation Mill

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• Utilization of ICT-solutions in finnish wood supply process has been high for decades– Metsä Forest took GIS and GPS into use in late 90’s

• Solutions are developed to support the business processes – however, it would be reallydifficult to run the process without ICT-solutions

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Purchase Harvesting(round wood)

Mill

Deliverysales

TransportationHarvester

(m3)

Millscale(m3)

Weightscale(m3)

Bioenergy

MillMill scale

(MWh)

External supplier

SAP – ERP - Purchase contract numberGIS – Database – spatial data

MF Karhu – UIProduction

Entr. WoodForce

MF Kotka – UIWood purchase and forestservices

MF Otso – UILogistics

Entr. LogForce

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Simplified Wood Supply Process - IT Systems

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Dataflow from forest to mill• Purchase:

– Contract Id – estimate on the m3

– All geometry data; storage points, parcel borders andmarkers, retention tress, logistic, safety, environmetalinformation, warnings etc

• Harvesting– Work orders contain all the map data

– Use of GPS, accurate volume and assortment data onstorage-points, operative markers added if needed

• Transportation– Work orders contain storage-points and volumers, all map

data related to the contract

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Wood supply planning process

Forest Reserves Storages CustomerMaterial flow

Transportationsteering

Harvesting TransportationOperations Purchase

HarvestingplanningOperative

TransportationplanningMonthly

Annual Wood supply planning

MEA

SUR

ING

INFO

RM

ATIO

N

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Procurement planning(purchase and harvesting)

Delivery planning process / logistics• Delivery volumes are planned based on customer wood orders, Mill inventory, external

deliveries and imported wood• Monthly estimate on own wood procurement need covering all assortments• Monthly estimate is further divived into daily level

– Based on mill reception calender, logistics conditions and capacity, inventory andharvesting plan

• Operational 3 week transportation plan plan on day-level is calculated every week– Accurate logistic plan for the next week– Adjusts the monthly levels based on harvesting realizations, inventory and other

conditions.• Work orders are generated based on the logistic plan and further send to the LogForce /

transport entrepreneurs23 16.10.2017 Olli Leino