Vuosikertomus

0Annual Report

Oy Metsä-Botnia Ab

Botnia is among Europe’s top producers of chemical pulps

and offers the broadest portfolio of pulps to papermakers

who produce high-quality paper, packaging, and tissue

products. Our aim is to be the world’s leading supplier of

fibres and value-added services.

Our company is part of the Metsäliitto Group. UPM-

Kymmene Corporation holds a 17% shareholder stake.

When operating at full capacity, we produce about

2.4 million tonnes in our four mills in Finland. When

adding the pulps of our principals, we are responsible for

the sale of approximately 3.3 million tonnes of bleached

softwood and hardwood pulps. Of this amount, one-half

is sold to the global market and one-half to our share-

holders. In addition, we own a modern sawmill in Russia.

Our products are valuable commodities: they are

necessary for modern life, are sustainable and renewable,

and are produced in an environmentally sound manner.

We are energy self-sufficient and produce surplus bio-

energy.

12page

02page

56 page

PROCESSES

KEY FIGURES AND YEAR

2009 IN BRIEF

FINANCIAL ACCOUNTS

Management strategy and and structure 12

Technical services to support

partnership with customers 14

Utilisation rates improved at end of year 16

More than self-sufficient in renewable energy 18

Competitively priced wood raw

materials still an issue 19

New monitoring systems enhance

environmental performance 20

Sharpened focus on personnel development 22

2 Oy Metsä-Botnia Ab

4 Year 2009 in brief

6 Key figures of the group

8 Review by the President and CEO

26 Report of the Board of Directors

30 Consolidated statement of income

and cash flow statement

32 Consolidated balance sheet

34 Notes

63 Parent company income statement

64 Parent company cash flow statement and balance sheet

73 Auditor’s report

74 Corporate governance

75 Management group

76 Board of Directors

78 Environmental report

Sustainable and valuable

Emphasis on Sustainability

The pulp production process has been

continuously improved and is today

among the most sustainable and eco-

logically sound in the world. The tar-

get is re-utilize all the input materials

as much as possible and continuously

reduce the amount of waste by putting

the output materials to good use. This

includes methods to make better use of

biomass for energy production, to fully

recirculate fluid flows, and to separate

alien substances. Sustainably manag-

ing our business to meet the demands

of customers and the world at large is

not an easy undertaking, but one that

we take very seriously.

Resources that are renewable

Concern over greenhouse gases and

global warming has brought the pulp

industry to the forefront. The wood that

we take into our production process

comes from certified and sustainably

managed forests. About 50% of the

incoming wood ends up in the cook-

ing liquor and is used as fuel. Our

production processes use this fuel in

high-efficiency systems to maximize

the production of steam, which is then

used to generate electricity and pro-

cess heat. Fossil fuel use is confined

to start-ups, process disturbances,

and the lime reburning process.

Fibre characteristics

Botnia is specialized in manufactur-

ing and applying pulp grades with

different characteristics to meet the

papermaker’s requirements. We have

a unique product range consisting of

high-quality short- and long-fibre pulps.

Development work is performed co-

operatively with customers to obtain

fibre characteristics that achieve the

required characteristics for a specific

end product.

Botnia focuses the imagination and productivity of its personnel on creating pulp

with the best fibre characteristics, the least environmental impact, the maximum energy

extraction, and at the lowest cost.

2

Energy-effi cient production

We have earned our position as the

most efficient pulp manufacturer in

Scandinavia through continuous invest-

ments and improvements. We use wood

efficiently. We generate more energy

than we use, and we have an energy

efficiency programme to continuously

monitor and reduce our energy con-

sumption. Our surplus electricity is

sold to the national grid for industrial

and residential users. Excess heat is

sold to nearby integrated paper mills

or to surrounding communities for

district heating.

Competent technical support

Technical customer service is the link

between our customers and our pulp

producers. Customer service man-

agers bring their expertise to each

customer’s process to help find and

apply the best possible pulp for each

end product and to use the pulp in the

most efficient manner. In a spirit of

true collaboration, the aim is to develop

the technical fibre characteristics in

addition to operating an efficient, yet

flexible, logistics chain.

Modern logistics

To our customers, the most visible part

of Botnia’s supply chain is the delivery

of an agreed quantity of pulp, at the

agreed quality, and at the agreed time.

We use our logistics planning and re-

porting system to manage the sizable

flows of raw materials and products.

The distribution chain minimizes in-

termediate storage points and utilizes

an extensive range of transportation

options.

3

4

JANUARY FEBRUARY MARCH APRIL MAY JUNE

January7 January

Decision to curtail production

Due to the weak demand and de-

clining pulp prices, Botnia decided

to curtail production signifi cantly

at its Finnish mills.

14 January

Decision to close Kaskinen mill

The statutory negotiations related

to the Kaskinen mill were fi nalized

on 12 January, and on 14 January

the company announced its deci-

sion to close down the Kaskinen

mill completely due to its poor

profi tability.

19 March

IFC published Fray Bentos fi rst

year monitoring results

The main fi ndings of this report

show that to this point of time, all

indications are that the mill is per-

forming to the high environmen-

tal standards predicted in the EIA

(Environmental Impact Assessment)

and CIS (Cumulative Impact Study),

and in compliance with Uruguayan

and IFC standards.

22 March

10 million tonnes produced in

Äänekoski

The Äänekoski mill reached 10 mil-

lion tonnes of production.

April

27 April

Large safety rehearsal at Rauma

mill

A joint safety rehearsal with the lo-

cal rescue forces was held at the

Rauma mill. The rehearsal involved,

among other things, neutralizing

chlorine dioxide and establishing a

cleansing station according to safety

regulations. Approximately 60 peo-

ple participated in the rehearsal.

May

2 May

Fray Bentos reached its produc-

tion target

The Fray Bentos mill produced one

million tonnes of pulp during the pe-

riod May 2008 - April 2009, reaching

the planned production at its design

capacity.

20 May

Joutseno mill improved its

energy effi ciency

During the yearly shutdown, exten-

sive maintenance work was car-

ried out in the recovery boiler and

in the superheater, as well as in the

evaporation area. These measures

improved the energy effi ciency of

the Joutseno mill, and it is estimated

that the self-suffi ciency rate of the

mill will rise to 200 percent. The

amount of electricity sold from the

mill equals the average usage by a

town with 80,000 inhabitants.

February27 February

Appointments at Botnia’s mills

Camilla Wikström was appointed

Mill Manager of the Äänekoski

mill as of 1 June, and Pertti

Hietaniemi Mill Manager of the

Fray Bentos mill as of 1 October,

2009.

27 February

Damages to Fray Bentos mill

pipelines

An incident occurred at the Fray

Bentos mill’s transfer line for

weak malodorous gases when the

mill was started up after a main-

tenance shutdown. There were

damages caused to the pipeline,

but no injuries to personnel nor

any impact to the environment.

March

6 March

Decision to liquidate A/S Baltic

Pulp

The joint stock company A/S Baltic

Pulp was established in 2000 to

investigate opportunities to build a

pulp mill in Latvia. Botnia owned a

67% share. Botnia announced previ-

ously in November 2006 its proposal

to the Latvian government that the

suspended pulp mill project should

be discontinued, and on 6 March

2009 it was decided to liquidate the

joint venture company.

11 March

Kaskinen mill shut down

The shutdown process of the

Kaskinen mill was commenced on

11 March. There were 223 persons

involved in the statutory negotiations

related to the shutdown. Permanent

jobs were secured for 56 persons

at Botnia’s other mills or at the mill

integrate. Additionally, there were

over 50 temporary jobs available.

Botnia also participated actively in

the cooperation project with the mu-

nicipalities in the area to fi nd alter-

native employment opportunities.

16 March

Rauma mill selected as the safest

mill in 2008

The yearly recognition was given for

the third time. The Rauma mill was

selected as the safest of Botnia’s

mills thanks to the low frequency of

work-related accidents. Other fac-

tors infl uencing the selection were,

among others, the high amount of

reported safety observations.

Year 2009 in brief

5

JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER

July

15 July

Letter of intent signed for

Botnia’s new ownership structure

Metsäliitto Group decided to fo-

cus even more clearly on selected

core functions and strengthen its

operations in them by signing a

letter of intent regarding the di-

vestment of its Uruguay-based

function to UPM-Kymmene Corp.

In the same connection, it was

agreed that UPM will reduce its

ownership in Botnia to approxi-

mately 17%, with the majority

transferring to Metsäliitto. Botnia

will act as an agent for M-real’s

and UPM’s market pulps.

August

17 August

Decision to streamline operations

at Kemi integrate

Operations of the Kemi site were

streamlined by integrating the man-

agement of the pulp and board mills.

Lauri Verkasalo from Metsä-Botnia

was appointed Mill Manager. At the

same time, a study to further im-

prove the effi ciency of the Kemi site

was started. The statutory negotia-

tions ended on 7 October 2009, re-

sulting in reduction of 29 jobs at the

Kemi mill integrate.

29 August

Open doors at Äänekoski and

Joutseno mills

The Äänekoski and Joutseno mills

welcomed local citizens to get to

know the mill’s operations and

ask questions related to the mill’s

performance.

October

7 October

Major accident rehearsal at

Joutseno mill

A major accident rehearsal was

held at the Joutseno mill, to simu-

late a serious chlorine dioxide leak.

Several local rescue forces and

the local police participated in the

rehearsal.

19 October

Mikael Westerlund appointed

CFO

Mr. Mikael Westerlund, M.Sc.

(Econ.) was appointed Senior Vice

President, Finance and member of

the management group of Botnia as

of 19 October 2009.

22 October

Agreement on Botnia’s new

ownership structure signed

Negotiations between Metsäliitto

Cooperative, M-real Corporation

and UPM-Kymmene Corporation

on the new ownership structure of

Botnia and the divestment of the

Uruguay operations to UPM were

fi nalized and the agreement on the

arrangement signed on 22 October

2009. With the arrangement,

Metsäliitto Group will strengthen

its position as a producer of Finnish

long-fi bre pulp and will exit the

production of short-fi bre eucalyp-

tus pulp.

December

8 December

Botnia became a subsidiary of

Metsäliitto Cooperative

The ownership arrangement an-

nounced at the end of October

was concluded on 8 December.

Following the conclusion of the ar-

rangement, Metsäliitto Cooperative

became the majority shareholder

of Botnia.

8 December

Botnia’s new Board of Directors

The extraordinary sharehold-

ers’ meeting selected new board

members. The Board of Directors

consists of the following persons:

Kari Jordan, Hannu Anttila, Martti

Asunta, Mikko Helander, Juha

Mäntylä, Jyrki Salo, and his person-

al deputy member Tapani Sointu.

9 December

Changes in Botnia’s structure

The divestment of Uruguay opera-

tions, the increased amount and

share of market pulp, and the more

effi cient utilization of Metsäliitto

Group synergies were the reasons

for the statutory negotiations. Based

on the review, there were changes

in the structure of the company. The

emphasis of development resources

was directed on sales and technical

development of the mills. The em-

ployment relation of 23 employees

was terminated.

14 December

Results from the safety culture

survey

A safety culture survey was con-

ducted amongst Botnia employees

during the autumn. The results

show that Botnia has emphasized

the correct things in the improve-

ment actions, but still there is much

more to do. The employees want

even more involvement from the

supervisors and felt that still unnec-

essary risks are taken. Botnia has

set an ambitious target “0 accidents

in 2012” and is moving well towards

this target, as the frequency of

work-related accidents was halved

during 2009.

6

KEY FIGURES OF THE GROUP

Key figures of the group

Continuing operations 2009 2008 Change (%)Sales EUR million 886 1,184 -25

Operating result excl. non-recurring items

EUR million -30 36

% of sales -3 3

Operating result EUR million -107 36

% of sales -12 3

Result from continuing operations before tax

EUR million -107 24

% of sales -12 2

Result for the period EUR million 200 172

Net liabilities / % of sales 32 47

Equity ratio % 46 64

Net gearing % 72 35

Return on capital employed % -13 2

Return on capital employed excl. non-recurring items

% -4 2

Gross capital expenditure EUR million 10 61 -84

Personnel 31.12. 1,111 1,267 -12

7

KEY FIGURES OF THE GROUP

Result before tax, excluding non-recurring itemsEUR million

-50

0

50

100

150

200

250

2005 2006 2007 2008* 2009*

0

10

20

30

40

50

60

70

80

2005 2006 2007 2008* 2009*

Equity ratio%

2005 2006 2007 2008* 2009*

Net gearing EUR million %

0

500

1000

1500

2000

0

10

20

30

40

50

60

70

80

Shareholders’ equity Interest bearing liabilities

Net gearing, %

* Continuing operations

2005 2006 2007 2008* 2009*

ROCE, excluding non-recurring items%

-6

-3

0

3

6

9

12

15

SalesEUR million

0

250

500

750

1000

1250

1500

2005 2006 2007 2008* 2009*

0

500

1000

1500

2000

2005 2006 2007 2008* 2009*

PersonnelTotal

8

YEAR 2009 IN BRIEF

”We are expanding our role in sales and technical support of market pulps.”

Review by the President and CEO

Looking back, we all now have a better understanding of the causes for the collapse of the world’s

financial systems. Living through that situation day-by-day, however, presented our personnel with

extraordinary challenges. We made the tough decisions together, streamlined to capitalize on our

core strengths, and are moving forward again.

While our short-term profitability suffered, we have taken corrective actions to obtain a stronger

competitive position and to secure long-term profitability.

The year in review

At the end of 2008, we saw global pulp inventories increasing, which resulted in a rapid deteriora-

tion of pricing in 2009. We took considerable downtime until inventory levels were in line with mar-

ket demand. We closed our Kaskinen mill, primarily due to the mill’s cost structure and the lack

of competitively-priced hardwood over the long term. By closing Kaskinen, we hope to secure the

profitability of our other Finnish mills. On the positive side, our Fray Bentos mill in Uruguay oper-

ated throughout the year quite efficiently, exceeding its nominal production capacity.

From mid-year on, we have experienced improvements in the market. Asian customers began

buying pulp again, initially at low prices, but pricing has steadily im-

proved. Inventories have normalized and we are now producing at

normal operating rates. If we compare ourselves to other Northern

hemisphere producers, we are in a very competitive position.

In July, a preliminary agreement was announced and in October,

negotiations were completed on the new ownership structure of Botnia

and divestment of the Uruguay operations to UPM. The transaction was completed in December, and

Botnia became a subsidiary of Metsäliitto Cooperative. After the transaction, Metsäliitto Cooperative

owns about 53%, M-real about 30%, and UPM about 17% of Botnia.

A renewed focus

This new arrangement means that Botnia will strengthen its position as a producer of Finnish long-

fibre pulp. While we are exiting the production of short-fibre eucalyptus pulp, we are expanding our

role in the sales and technical support of market pulps produced by us, UPM, M-real, and Cenibra.

Our corresponding sales volume will increase to about 3.3 million tonnes for 2010. We offer a wide

portfolio and large volumes of pulp for world markets and to our owner companies’ mills.

REVIEW BY THE PRESIDENT AND CEO

9

REVIEW BY THE PRESIDENT AND CEO

Challenges

Our biggest production challenge remains the long-term raw material flow to our mills – in terms of

fibre availability and cost. To meet this challenge we are working closely together with Metsäliitto’s

wood procurement specialists. Additionally, to improve our

profitability in general, we are deepening our integration with

Metsäliitto in the areas of administration and support services.

Our biggest sales challenge is to enhance the coverage

and expertise of our technical support for our customers. We produce a fibre commodity that can

be used in many, many different end products and it is our mission to support all our customers in

applying our fibres in the best way.

Our mill efficiencies are good and our energy-efficiency is excellent. Today in Finland, close to

10% of our turnover comes from our by-products (electricity, district heating, bark fuels, crude tall

oil, turpentine, etc.). In addition to energy conservation, we are looking to expand our role in the

production of bioenergy to replace fossil fuels. This is part of our commitment as a responsible,

sustainable supplier.

Ilkka Hämälä

”We aim at efficient operations and are committed to sustainability.”

10

10page

PROCESSES

page

Management strategy and structure 12 Technical services to support

partnership with customers 14 Utilisation rates improved at end of year 16 More than self-sufficient in renewable energy 18 Competitively priced wood raw

materials still an issue 19 New monitoring systems enhance

environmental performance 20 Sharpened focus on personnel development 22

11

10

12

MANAGEMENT STRATEGY AND STRUCTURE

Management strategy and structure

To be the most valued partner for fibres and value-added

services to our customers, we must fully understand

our customers’ needs and follow the changes in their

business environment. Every Botnia employee is em-

powered to keep the customer at the centre of focus.

Three Core Processes direct our operations and are the

platform for executing our strategy:

• Our Management process creates and imple-

ments the strategy which is driven by our custom-

ers: who they are, how they are developing, and

what they need to succeed.

• Our Customership process comprises the full range

of activities about how we interface with custom-

ers, how we supply them, and how we support their

business.

• Our Sourcing and Operations process entails how

we internally operate our business: from sourc-

ing of raw materials, to how we physically produce

our products, and everything that we must do in order

to be an effective and sustainable engine of

production.

The other dimension in our structure is the concept of

Competence Centres. The processes define the targets

and procedures which are implemented by the personnel

placed in competence centres. The implementation of

our strategy comes down to day-to-day improvements to

ensure that we have a competitive raw material supply

and can process these raw materials in competitively

cost-efficient mills, while serving competitive markets.

Responsible stewardsBotnia recognizes the impact that its business has on

employees, communities, and the environment. We are

committed to integrating responsible practices into daily

business operations, and to report on the progress we

have made. The foundation for this is the ability to make

a sustainable profit in an ethical and productive way.

Sustainably managing raw materials to meet the

demands of the world’s population, while also meeting

the demands of our stakeholders and the environment,

is not an easy undertaking. It requires cooperation, col-

laboration, firm policies, and a holistic view:

• Sustainable enterprises generate profits, which

in turn generate the resources for reducing envi-

ronmental impact and improving living standards.

Our responsibility is to strengthen our economic po-

sition while being sensitive to the needs of

stakeholders.

• We intend to live up to our responsibilities as a

global citizen and a local neighbour in the commu-

nities where we operate. Integrity, sound values,

Botnia has built a structure and way of working that is driven by customer requirements and is

as streamlined as possible. At the moment, we are deepening our integration with the Metsäliitto

Group, especially in the areas of human resources, communications, IT, energy management, and

environmental services which we share with other Metsäliitto Group business areas.

Botnia’s operations are based on

customer needs. Our work is guided

by our values: reliability, renewal

and cooperation, which help us to

achieve sustainable results.

Core processes and Competence Centres

Management

Customership

Sourcing and Operations

Cu

sto

me

r

Businessdevelopment

Businesssupport and

steeringProduction

Sales and marketing

13

MANAGEMENT STRATEGY AND STRUCTURE

and a long-term approach offer clear business

benefits.

• Eco-efficiency allows us to use our resources more

productively - from raw materials to energy to

labour - thus offsetting the cost of reducing envi-

ronmental impact. This makes us more competitive.

Our sustainability rests upon our ability to produce

pulp using processes that are economically efficient,

conserve energy, and are safe and ecologically sound

throughout their life cycle. Our processes must be

operated so that wastes and any potential ecologically

incompatible by-products are reused, reduced, elimi-

nated, or recycled on-site.

In addition to creating a working environment where

our employees are valued and organized to enhance

their safety, all the communities related to any stage

of our product lifecycle (from production to disposal

of the final product) must be respected and enhanced.

Transparent reportingOpen dialogue with our stakeholders is essential. Botnia

is committed to supporting the 10 universally accepted

principles of the United Nations Global Compact (UNGC),

a strategic initiative for businesses that are committed

to aligning their operations with these principles.

Wherever possible, we follow the Global Reporting

Initiative (GRI) guidelines and protocols for reporting

environmental and personnel information. GRI is a

multi-stakeholder process which publishes a set of

common, globally applicable CSR/sustainability re-

porting guidelines.

We issue information about our activities and objec-

tives through several platforms. Our customer maga-

zine, Botnia Echo, appeared twice in 2009. Our staff

magazine, Pulp & Us, appeared four times in Finnish

and in Spanish. In Russia, a magazine for employees

and stakeholders is produced jointly by Svir Timber

and the local organisation of the Metsäliitto Group. Our

web site was available in Finnish, English, Spanish, and

Russian languages.

14

TECHNICAL SERVICES TO SUPPORT PARTNERSHIP WITH CUSTOMERS

Technical services to support

partnership with customers

Regardless of the pulp grade, the key demand from every

customer is for reliability: predictable, on-time delivery

of pulp that is of consistent, high quality. It is this reli-

ability that is at the forefront of the Botnia brand. Each

customer is served by Botnia specialists responsible for

managing and developing the relationship: deeper and

broader than just the sales and marketing representa-

tive. In order to ensure that Botnia’s total expertise is

available to the customer, the customer responsibility

chain also consists of production, research and devel-

opment, technical service, sustainability and logistics

professionals.

Product portfolioThe range of pulps available to the market from Botnia

is extremely wide. Producers of high quality fine papers,

magazine and specialty papers, various board grades,

and tissue can find what they need from a single source.

Botnia’s own product range from its four mills in

Finland extends from Northern softwood grades (re-

inforcement and standard softwood pulps) to Northern

hardwood (birch) grades. In addition, we serve as sales

agents for

• BCTMP, Northern softwood and birch pulp, and

bleached TCF sulphite from M-real,

• southern eucalyptus pulp from UPM and Cenibra,

and

• northern hardwood and softwood grades (both

ECF and TCF) from UPM.

Good reputation amongst customersThe Botnia brand is being purposefully built as a busi-

ness-to-business brand and enjoys a good reputation

among pulp-using companies. There are excellent op-

portunities to increase brand awareness among a new

customer base as Botnia increases its share of various

market pulps.

With the challenges and opportunities brought by

the wider product portfolio, there is still the desire to

intensify the Botnia brand. Superior customer ser-

vice, efficient logistics, unwavering technical support,

and attention to details are elements that we want our

customers to connect to the Botnia brand.

Technical servicesWhen developing customerships, we seek to create the

right conditions for joint development – of both our own

products and of the customer’s end products. The more

significant a supplier that Botnia is to the customer, the

more important it becomes to find innovative and last-

ing methods of cooperation. The relationship is much

deeper than just a sales or marketing contact. It is de-

signed to ensure that Botnia’s total expertise is available

to that customer if needed.

By focusing resources on customer-oriented de-

velopment work, we offer in-depth fibre expertise and

services related to the use of fibre (e.g. the selection

of the right pulp and the refining of the pulp to ensure

its optimum performance on a paper machine). This

The Customership process is responsible for developing customer relationships, marketing and selling pulp,

delivering pulp, and providing customers with technical support services for Botnia’s wide portfolio of pulp

products including Botnia’s own pulps and other high-quality market pulps.

Botnia offers its customers an ex-

tremely wide range of pulps from

its own and its principals’ mills.

Additionally, we offer our technical

and logistical expertise to bring va-

lue to our customers’ business.

15

is the role of the specialists in our Technical Customer

Service organization.

Our customer service managers are an important

link between each customer and Botnia.

The service manager must be aware of what his/her

assigned customers are doing in terms of production,

grades, and future plans to find the best possible pulp

for their end product. In a spirit of true collaboration,

the aim is to develop the technical fibre characteris-

tics in addition to operating an efficient, yet flexible,

logistics chain.

Market developmentOne-half of our own production is directed to the pa-

per mills of our shareholders (UPM, M-real, and Metsä

Tissue). The other half of our production and all of the

pulp that we represent from UPM, M-real, and Cenibra

is sold to the market - mainly in Europe and Asia. Pulp

marketing is handled by our sales offices in Germany

and China, as well as our extensive agent network.

Asia in general, and China particularly, has been a

bright spot for sales. The market for all grades of pa-

per is growing and the demand for pulp is strong. The

consumption of printing/writing grades is declining in

the mature markets of North America and Europe, but

there is some growth in packaging grades and tissue.

Product developmentDevelopment work is focused on optimizing the raw

material mix and modifying fibre characteristics to

meet anticipated customer requirements. Improving

the consistency of pulp quality is an on-going priority.

The goal is that no shipments to customers will deviate

from specifications.

Customer satisfactionSince 2000, Botnia has used an outside expert to moni-

tor the development of its customer-driven business

model with annual surveys.

The survey conducted in 2009 shows that customer

confidence in Botnia remains high. We received our

highest grades from customers for communications and

for reliability of delivery. This is impressive considering

that 2009 was a year marked with taking downtime to

adjust our production and inventories to meet with the

changed market situation.

TECHNICAL SERVICES TO SUPPORT PARTNERSHIP WITH CUSTOMERS

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Pulp deliveries1,000 tonnes

2005 2006 2007 2008 2009

Shareholder Market pulp

Sales by market areas

Finland Other EU countries

Other Europe Other countries

16

UTILISATION RATES IMPROVED AT END OF YEAR

Utilisation rates improved at end of year

At the end of the year, the divestment of our Uruguay

operations (plantations and pulp mill) to UPM-Kymmene

Corporation was finalized. With this divestment, and

after the closure of Kaskinen, we will focus on being the

premiere supplier of Finnish long-fibre pulp through

our mills in Joutseno, Kemi, Rauma, and Äänekoski.

Up and down productionGlobal events caused all pulp producers, including

Botnia, to take downtime to adjust inventory levels and

preserve pricing. It is estimated that approximately seven

million tonnes of pulp were removed from the market

in this way, of which three million tonnes permanently

through mill closures.

The key to operating a pulp mill successfully is

maintaining a consistently high production rate with

minimal disturbances. Mills are most efficient and

produce the best quality when run as close as possible

to their nominal capacity.

Actual production in Finland was 1,959,277 tonnes

(compared to 2,363,086 tonnes in 2008). Capacity uti-

lisation of the mills early in the year was a dismal 74%

(compared to 87% for all of 2008).

After August, however, there have been no production

curtailments due to the market situation. In the fourth

quarter of 2009, capacity utilisation in Finland was 93%.

The operating situation was completely different for

the Fray Bentos mill in Uruguay. Up to the transfer to

UPM-Kymmene in December, the production reached

970,000 tonnes of bleached eucalyptus pulp (compared

to 935,000 tonnes in 2008). Capacity utilisation at Fray

Bentos was 99%.

ChallengesIn 2010, our focus is on the four operating mills in

Finland. We continue to have the major challenge

of long-term wood availability at competitive prices.

Yet, we must ensure that we are globally competitive

and improve the efficiency of our operations. This is

certainly achievable. In the fourth quarter of 2009,

we set new production records at Äänekoski, Kemi,

and Joutseno.

Several concurrent efficiency programmes are un-

derway to decrease chemical consumption in the mills

and nominal wood consumption from the mill gate to

the finished goods warehouse.

One of the metrics we monitor is overall process

availability, i.e. the percentage of planned time that

production systems are online and available for pulp

production. We have set a high target on this, and have

programmes underway to increase the total availability

of our mills.

Uptime improvement is largely a function of a mod-

ern maintenance programme. We outsource the main-

tenance of our mills to a separate company (which we

hold an equity stake in) that is totally focused on main-

tenance. We have undertaken several programmes to

identify bottlenecks to availability (equipment issues,

Sourcing and Operations is responsible for procuring raw materials and producing products that meet

customer quality requirements. Frequent shutdowns to adjust inventories and the closure/divestiture of

production assets have made this a challenging year in terms of productivity and profitability.

Botnia’s Finnish pulp mills are

modern and effi cient, and they are

operated by competent, multi-skilled

personnel.

17

UTILISATION RATES IMPROVED AT END OF YEAR

operating issues, or maintenance issues) and are

eliminating them one by one.

One very important aspect of this is the multi-skill

operational model in our production units, where pro-

duction workers are responsible for running a broader

range of processes and also are carrying out preventive

maintenance tasks and repair work. By being trained

about upstream and downstream processes, the opera-

tors have a “bigger picture” knowledge of production.

This helps them handle process disturbances better

and overall production losses are decreased.

Worker safetyA very important focus for Botnia is safety. Since our

goal is to become the best pulp producer in the world,

it follows that we should also have the best workplace

safety levels. We put clear targets in place for safety and

we have a highly functioning safety management system.

In 2008, our safety record was average among Finnish

pulp producers (22 work-related accidents per million

working hours). For 2009, we set the target to decrease

this number to half, which we achieved. While this is a

marked improvement, it is still unacceptably high when

compared to our challenging long-term target.

Our stated goal is to reach a target of zero work-re-

lated accidents by the year 2012. It is the line foreman’s

task to prevent all accidents. This includes frequent

discussions with workers and daily walk-throughs to

identify potential safety problems.

We also have placed computerized systems in each

mill where any employee can enter a safety observa-

tion – a potentially unsafe situation where we need to

take corrective action. Some are small details, others

are near-misses that require immediate response. We

encourage our own employees and the employees of

our partners to make note of anything they see that is

potentially unsafe and then we are systematically elimi-

nating these issues through focused maintenance, ad-

ditional training, changes in procedures, or any other

actions targeted to avoid this potential danger.

Russian sawmillOOO Svir Timber, Botnia’s Russian subsidiary, has a

modern sawmill located at Podporozhye in the Leningrad

administrative district. Botnia also owns two wood har-

vesting companies to supply Svir Timber with roundwood.

Svir Timber’s nominal design capacity is 200,000 cu-

bic metres of spruce sawn goods per year. The market

situation for sawn goods has continued its downward

trend in 2009. Actual production of the sawmill in 2009

was 193,000 cubic metres.

Production 2009

* Mill manning

** 2009 1-11

*** 2009 1-3

Pulp mills, 1,000 tonnes

Year 2007 2008 2009 2010 2009Fray Bentos** 99 935 970

Joutseno 583 523 470 650 159

Kaskinen*** 404 400 82

Kemi 550 515 490 590 198

Rauma 519 493 476 630 123

Äänekoski 462 432 441 500 159

Total 2,616 3,298 2,930 2,370 639

Capacity utilisation % 92 87 86

Svir Timbersawn goods 1,000 m3 188 171 193 200 131

Capacity Personnel*

18

10

Modern pulp mills are signifi cant

producers of bioenergy. The wood

raw material is used as effi ciently

as possible for pulp and energy, and

the mills produce more energy than

they need.

More than self-sufficient in renewable energy

At Botnia’s Finnish mills, the energy efficiency work has

already several years of tradition, and in 2008 we certified

our energy efficiency system. The certified energy efficiency

system (EES) means that we continuously seek improvement

actions and systematically implement them.

In a pulp mill, energy-efficiency is directly related to

having a sustained, high production rate. All of the production

systems and auxiliaries are most efficient when operating

at their design speeds and capacities. This is impossible

to achieve when processes are frequently shut down and

started up again, as was the case during our numerous

production curtailments in 2009.

In 2009, an energy efficiency audit and analysis was

conducted at the Joutseno mill. Audits at the other mills

have been conducted in previous years. With the audits

and analyses, several improvement areas have been

found. Many times, these improvements can be made

with small investments, yet our energy efficiency can

improve significantly. For example, in 2009 we replaced

the superheater tubes in the recovery boiler at Joutseno to

improve steam parameters. This increased the production

of bioenergy at the mill significantly. In 2009, the Joutseno

mill reached 173 % self-sufficiency rate, even though the

year was marked with significant production curtailments

and unstable production.

Botnia’s pulp mills produce energy from wood raw material significantly over their own need. The production process

consumes mainly bioenergy from own production; fossil fuel use is confined to the lime kiln process and extraordinary

situations at the mill. All Botnia’s mills have a certified energy efficiency system, which means that we systematically

decrease our own consumption and increase the production of surplus energy. In 2009, the share of Botnia’s mills

was 17% of the entire wood energy production in Finland.

In Rauma, the preheaters for primary air in the boiler

were changed, which increased electricity production. At

all mills, the utilisation of secondary heat was improved

and the automation of upper level processes developed.

In Äänekoski, there was a change in screening to increase

the mass density and reduce the energy consumption.

Additionally, a project was started at all mills aiming

at more close connection of the monitoring of energy

efficiency to the mill’s automation systems. This enables

the operators to constantly monitor the energy efficiency of

their department and take immediate corrective measures.

MORE THAN SELF-SUFFICIENT IN RENEWABLE ENERGY

19

10

Competitively priced wood raw materials

still an issue

Wood is our most important raw material. We make sure

that all wood coming to our mills is from sustainable

sources and we know its origin. In our mills we use the

wood raw material as efficiently as possible.

Certifi ed woodMany of Botnia’s customers regard the certification of

wood raw material as very important, and they require

a certified chain of custody. The Metsäliitto Cooperative

is a forerunner in promoting forest certification and

sustainable forestry.

Most of the wood procured from Finland for Botnia’s

Finnish mills is certified to the Finnish Forest Certification

System (FFCS) standard, which is endorsed by the in-

ternational Programme for Endorsement of Forest

Certification (PEFC) organization. In addition to the PEFC

Chain of Custody, both Metsäliitto and Botnia have been

awarded a Forest Stewardship Council (FSC) Chain of

Custody and Controlled Wood certificate.

Wood for Svir Timber in Russia has also received a

FSC chain of custody certification. The sawmill provides

wood chips to Joutseno mill’s production.

In 2009, certified wood accounted for approximately

80% of wood consumed by Botnia’s mills. Verifying the

origin of imported wood used by Finnish mills is the

responsibility of Metsäliitto, which tracks the origin of

all wood shipments that it delivers and regularly audits

the wood procurement processes, also at its subcon-

tractors’ sites.

In the Nordic region, forest products are highly sus-

tainable and renewable resources because they originate

from well-managed land. Botnia, through Metsäliitto,

has established a supply chain that is transparent and

demonstrates a commitment to sustainability and cor-

porate responsibility.

By creating a transparent supply chain and im-

plementing socially and environmentally responsible

policies, we hope to demonstrate our accountability

and commitment.

At full capacity, Botnia’s mills need12.5 million cubic metres of wood per year. Reserving and procuring wood

for planned production is an important part of Botnia’s production planning system. Our wood is procured and

delivered by Metsäliitto Cooperative. The bulk of it is obtained from Finnish forests. In 2009, Botnia’s mills con-

sumed 10.1 million cubic metres of wood (12.2 million cubic metres in 2008), of which wood from Finland ac-

counted for 85% (79% in 2008).

1,000 m2

Softwood pulpwood 5,615.5

Hardwood pulpwood 2,352.8

Sawmill chips 2,137.9

Total consumption 10,106.2

Wood consumption 2009 - Botnia Finnish pulp mills

COMPETITIVELY PRICED WOOD RAW MATERIALS STILL AN ISSUE

20

NEW MONITORING SYSTEMS ENHANCE ENVIRONMENTAL PERFORMANCE

New monitoring systems enhance

environmental performance

Environment and sustainabilityEco-efficiency links financial and environmental perform-

ance to create more value with less ecological impact.

It enables us to use our resources more productively

while offsetting the cost of reducing environmental im-

pact. This makes us more competitive.

Helping us to achieve ecological balance are tech-

nologies which move from costly end-of-pipe solutions

to technologies which prevent pollution in the first place.

Our processes use the by-products of preceding processes

as raw material for the next, thus eliminating waste.

Supplier/partner trainingSince many of our support services are outsourced to

subcontractors and partners, we completed training at

all our mills in Finland to ensure these partners under-

stand the importance of environmental compliance and

their role in securing it. These outside partners include,

among others, maintenance personnel, cleaning staff,

transportation of solid waste, landfill companies, and

the companies that calibrate our continuous monitor-

ing systems.

Emissions monitoring onlineAt the beginning of this year, we implemented a new sys-

tem for monitoring air emissions from our mills. Each

mill had its own system for monitoring air emissions, but

this information was not instantly available online. With

the new system, operators have instant visibility into the

overall emissions and can make adjustments as necessary.

The most critical parameters they monitor are the treat-

ment of malodorous gases (which is, on average, 99.9%

for strong malodorous gases, and 98.5% for weak malo-

dorous gases). These odours are a major inconvenience

for people living in the immediate surroundings of pulp

mills and therefore eliminated in the process.

Botnia’s environmental policy commits every em-

ployee to knowing how his or her own actions affect

the environment and what should be done. To properly

equip our employees with knowledge, all mills conduct

regular training about working practices and processes.

The proactive way of working, and fast implementation

of corrective actions, make a large impact on each mill’s

environmental performance.

Industry report cardIn 2009, a Masters candidate from the University of Oulu

wrote a thesis about environmental management sys-

tems. She interviewed Botnia personnel and then peo-

ple from our partner/supplier organizations as well as

customers. She repeated this same analysis for other

industrial companies and governmental organizations.

Botnia remains committed to continuously enhancing its environmental performance. Even though our mills

are among the best environmental performers, we strive for continuous improvement. We want to ensure our

mills are compatible with the surrounding communities, and we are actively reducing the amount of waste or

inefficiencies in our production processes.

We use best available techniques

and our mills are among the best

environmental performers in the

world.

21

NEW MONITORING SYSTEMS ENHANCE ENVIRONMENTAL PERFORMANCE

The feedback was such that Botnia ranked considerably

higher than other industrial organizations in terms of its

environmental standards, its ability to manage compli-

ance, and the personal responsibility that employees

take for environmental performance.

Best Available Techniques (BAT)In 1996, the European Union (EU) adopted a set of com-

mon rules for permitting and controlling industrial in-

stallations in a Directive from the Industrial Pollution

Prevention and Control (IPPC) bureau. The IPPC is

responsible for updating and revising their reference

document on the best available environmental tech-

nologies (called a BREF).

The BREF for the pulp and paper industry is now

under discussion for revision. New limits for air emis-

sions, mill effluents, and solid waste will probably be

created and published by the end of 2010.

At Botnia, our approach is to be proactive in focus-

ing discussion about the revision on the things that we

believe really encompass the BAT. It is our belief that a

mill’s total environmental impact should be described

in a precise way – a complete picture of the mill’s air,

water, and solid waste output and not just one or two

key measurements in each area.

Systematic risk assessmentThe shutdown of our Kaskinen mill presented us with

many challenges, including the handling of environ-

mental issues. Environmental permits are required in

order to shut down operations.

We constantly improve our environmental manage-

ment system to have better knowledge for systematic

Environmental Risk Assessment, which is very impor-

tant. This permits us to be proactive every day, every

investment, every year, and every shutdown to improve

our work. We clearly understand that our responsibility

lasts not only for the life of the mill, but for many years

even after a mill is closed.

22

SHARPENED FOCUS ON PERSONNEL DEVELOPMENT

Sharpened focus on personnel development

The key areas of focus within the Human Resources

organisation are the systematic development of per-

sonnel throughout the organisation, increasing com-

petence in certain key departments, the enhancement

of multi-skilling, a renewed emphasis on workplace

safety, and a higher level of integration within the

Metsäliitto Group.

Development of personnelEvery employee is encouraged to participate at some

level in a development programme. There are ab-

breviated sessions of such programmes as the Botnia

Business Academy, which was initiated in 2007.

Academy sessions cover topics such as understanding

our customers’ perspectives, economics and finance,

cost-efficient pulp production; environmental issues,

customer service; and management/leadership is-

sues. In 2009, this programme travelled to all mill

locations to increase the basic business knowledge

of all interested personnel.

Human Resources is continuing its programme to

identify and develop Key Personnel for future business

needs. To manage our challenging business, Botnia

needs increasingly in-depth business skills and mana-

gerial talent. To meet these challenges, a new devel-

opment programme for middle management will be

launched in 2010.

The first step is an evaluation and assessment proc-

ess for each individual to create a competence profile.

Based upon this profile, we arrive at a tailored devel-

opment plan with defined targets for the next three to

five years.

A new updated training system will be implemented

during the first quarter of 2010. This system includes

the entire training and develoment offering in Botnia,

divided into four different categories: introductory pro-

grammes, blue collar, white collar, and management

training programmes.

Developmental measurementSince 2003, we have conducted annual surveys to meas-

ure how effectively we are implementing our strategies

internally and how our employees feel about their work-

ing conditions. Employees are asked to evaluate the

quality of development discussions, as well as feedback

on leadership and management practices.

The year 2009 was a period of radical change for Botnia’s human resources. The closure of the Kaskinen mill,

the divestment of the mill and forestry operations in Uruguay and the restructuring due to these changes have

required significant adjustments to meet the challenges of the new realities.

Competent and multi-skilled per-

sonnel is the foundation for our suc-

cess. We offer our employees versa-

tile possibilities to develop.

0

2

4

6

8

10

Personnel survey, overall index %

2006 2007 2008 2009

Trainees and summer workers

* Decrease in number is caused by

the transfer of maintenance services

to BMS.

0

100

200

300

400

500

2005 2006* 2007 2008 2009

Long-term Short-term

0

500

1000

1500

2000

2005 2006 2007 2008* 2009*

PersonnelTotal

23

SHARPENED FOCUS ON PERSONNEL DEVELOPMENT

The feedback from these surveys guides us in per-

sonnel development. One area identified for improve-

ment is the annual performance and development

review for each employee. In 2010, there will be much

more emphasis on creating specific development plans

which improve competence and provide opportunities

for advancement.

Job rotationWith the goal of circulating and sharing knowledge in-

side the company and in the entire Metsäliitto Group,

we actively support job rotation to expose our people

to various operations and situations. This encourages

company-wide cooperation and a broader view of our

business – in addition to offering new challenges and

opportunities for individuals.

Technical and sales competenceWith the increased tonnage and additional pulp products

now being offered to the market, Human Resources is

assisting the organization in developing the competen-

cies of the sales people and customer service engineers.

Support for multi-skilling in the millsAll of Botnia’s mills utilize the concept of multi-skilling

– where production workers are responsible for run-

ning a broader range of processes and also carrying

out defined maintenance and repair tasks.

Multi-skilling is supported by training programmes.

Participants can choose specific courses or can elect

to complete the entire programme, which leads to fur-

ther vocational qualifications, more versatile tasks and

through that has a positive impact on compensation.

During 2009, 139 people received this training.

Workplace safetyAll Botnia mills have defined safety targets and use

unified criteria for monitoring workplace safety. Late

in 2008, we began a new initiative to drive the frequency

of work-related accidents to zero by the year 2012. To

support this ambititious goal, a new safety observation

system has been employed that seeks to pre-emptively

detect even small sources of potential danger and pre-

vent accidents before they occur. Accompanying this

are programmes to reinforce positive attitudes and ac-

tions of all employees.

Organizational integrationHuman Resources is contributing to the overall cost

efficiency of the Metsäliitto Group by integrating its or-

ganization with other members of the Group, particu-

larly M-real. There is a level of higher cooperation, a

combining of expertise and support services, and a re-

newed focus on support for managers in the Botnia and

M-real organizations to help deliver bottom-line results.

No. of accidents at work*

* No. / million work hours, includes

also 0-work accidents (mills)

0

5

10

15

20

25

2005 2006 2007 2008 2009

Safety observations and near misses*

0

1000

2000

3000

4000

5000

*) New safety monitoring system

adopted in 2007 to pre-emptively

record even minor risk factors.

Since 2008 also safety observations

are recorded.

2005 2006 2007 2008 20090,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

Training days*

* Average number of training days

per employee

2005 2006* 2007 2008 2009