Investing.com -- Moody’s Ratings has confirmed Metsä Board Corporation’s Baa2 long term issuer rating today, but has adjusted the outlook from stable to negative.

This change was prompted by Metsä Board’s sustained underperformance relative to Moody’s expectations for the Baa2 rating category. Metrics such as an adjusted EBIT margin of 3.2% for the year ending March 2025, compared to the expected 10%, and a leverage of 3.4x gross debt/EBITDA versus the 2.0x required for the Baa2 rating category, have not met the stable Baa2 rating criteria. The company also experienced a negative free cash flow of €260 million during the same period.

Metsä Board’s performance is likely to be challenged over the next 12-18 months in meeting the threshold set for the Baa2 rating category. The company, a significant exporter to the US, is also vulnerable to the ongoing uncertainty around US import tariffs.

After a period of strong earnings growth, with Moody’s adjusted EBITDA increasing by 121% from 2019-2022 to €611 million, Metsä Board has seen a substantial decline in EBITDA since 2022. This downturn was more severe and extended than anticipated. In 2024, Moody’s adjusted EBITDA decreased by 20% due to lower paperboard prices, increased wood costs, political strikes in Finland, and a reduced earnings contribution from associated company Metsä Fibre.

The negative trend in earnings and cash flow persisted into the first quarter of 2025, despite a higher contribution from Metsä Fibre and lower energy and chemical costs.

Despite expectations of positive contributions from capacity investments made at the Husum and Kemi mills during 2021 – 2023, related costs are likely to impact 2025 results. Metsä Board is not expected to meet the Baa2 rating category expectations in the near term. However, the company’s liquidity position is expected to remain strong, with no further dividend distribution projected for 2025 following a €25 million payment in Q1 2025.

Metsä Board’s market leadership in high-quality, fresh fibre paperboard packaging in Europe, its good level of vertical integration into energy and pulp, growing demand from largely non-cyclical end-markets, and its integration into the wider Metsä Group, are primary supports for its rating.

However, the rating is limited by its modest size and lower product diversification compared to most Investment Grade rated peers in paper packaging, a financial policy that allowed net leverage to increase up to 3.4x in Q1 2025, and a lack of rating commitment.

The negative outlook reflects concerns that management will be challenged to improve profitability and free cash flow within the next 12-18 months to a level required to uphold the current rating category. The company’s high exposure to the US market, which accounted for 22% of revenue in 2024, and the current uncertainty around import tariffs, are expected to create margin pressure.

Positive rating pressure could emerge if Metsä Board achieves further significant improvements in its business profile, scale and diversification, and if it meets certain financial benchmarks. Conversely, negative rating pressure could arise if the company fails to meet these benchmarks on a sustained basis.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.