Comparable operating result improves to EUR -4 million from EUR -57 million in Q4 2025, but geopolitical conflicts in Iran and Russia remain key threats to profitability

Metsä Group reported its financial results for the first quarter of 2026 on 29 April 2026, revealing a significantly narrowed comparable operating loss of EUR 3.8 million — a major improvement from the EUR 57 million loss recorded in Q4 2025. The recovery was driven primarily by a broad-based cost savings programme, though the group warned that ongoing conflicts in the Middle East (Iran) and the continuation of Russia's war of aggression pose mounting threats to its profitability outlook.

Key Financial Results — January–March 2026

Group sales came in at EUR 1,357.5 million, down from EUR 1,642.1 million in Q1 2025. EBITDA fell to EUR 114.6 million (EUR 189.5 million), while comparable EBITDA stood at EUR 127.7 million (EUR 196.9 million), representing 9.4% of sales. The comparable operating result was EUR -3.8 million (EUR 80.9 million), and the net result for the period was EUR -28.6 million (EUR 27.6 million). The comparable return on capital employed was -0.1% against a target above 12%. Net cash flow from operations was EUR -78.6 million, reflecting a seasonal build-up in working capital. The equity ratio remained solid at 55.7%, and the group employed 8,563 people at the end of March.

Across the five business segments, only Tissue and Greaseproof Papers and Wood Supply and Forest Services generated positive comparable operating results. Tissue posted a comparable operating result of EUR 15.2 million on sales of EUR 290.5 million (+5.2% margin), supported by a 9% volume increase in tissue paper. Wood Supply and Forest Services earned EUR 9.5 million on sales of EUR 629.9 million (+1.5% margin). By contrast, the Pulp and Sawn Timber Industry reported a comparable operating loss of EUR 11.5 million on sales of EUR 591.3 million (-2.0%), driven by falling pulp prices and lower delivery volumes. The Paperboard Industry lost EUR 10.8 million on sales of EUR 393.7 million (-2.7%), hit by US import tariffs on folding boxboard. Wood Products Industry posted a EUR 6.6 million loss on sales of EUR 110.9 million (-5.9%), weighed down by the commissioning of the new Äänekoski LVL mill and the wind-down of the Suolahti plywood mill.

The Iran Conflict: Rising Costs and the Closure of the Strait of Hormuz

The conflict in Iran and its effect on the Middle East is the single most prominent near-term risk factor highlighted throughout Metsä Group's Q1 2026 interim report and press release. Its impact is direct, immediate, and escalating.

The group launched a EUR 300 million cost savings and profit improvement programme in July 2025, which is proceeding on schedule — two thirds of the target is expected to be achieved in 2026, with full realisation in 2027, through savings in purchasing, logistics, wood supply chain efficiency, and fixed cost reductions.

However, management issued a clear warning tied directly to the Iran war: "If the war in Iran prolongs, the general rise in costs could significantly undermine the impact of the savings. The impacts of the conflict will become clearer over the next quarters. Rising oil prices are creating cost pressures particularly for logistics and certain raw materials."

CEO Jussi Vanhanen explicitly cited the closure of the Strait of Hormuz — a direct consequence of the Iran conflict — as a threat to the group's near-term profitability: "In the short term, our positive result development is threatened by rising logistics and raw material costs resulting from the closure of the Strait of Hormuz. We have begun to pass on the increased costs to our selling prices, but there is typically a certain delay before the impact is felt."

The closure of one of the world's most critical maritime chokepoints has driven up shipping costs globally, directly impacting Metsä Group's logistics chain and the procurement costs of energy and raw materials.

The interim report lists among the key Q1 2026 events: "The rise in oil and natural gas prices caused by the conflict in the Middle East is putting upward pressure on logistics and raw material costs." While the Tissue segment reported that the Middle East conflict's impact on energy and raw materials was "minor in the first quarter," management signalled this is expected to worsen.

Beyond direct cost inflation, the risks and uncertainties section of the report warns of broader economic damage: "The conflict in the Middle East is increasing the risk of rising oil and natural gas prices... the prolongation of the conflict could slow down global economic growth, fuel inflation and weaken consumer purchasing power, which could have indirect negative effects on demand for the Group's products."

The Sawn Timber business also noted that "geopolitical issues in the Middle East and Africa and seasonal factors have limited trade," suggesting that regional instability is suppressing market activity and reducing commercial opportunities beyond direct cost impacts.

Geopolitical Risk: Russia's War of Aggression

Russia's ongoing war of aggression — while receiving less operational prominence than the Iran conflict in this particular quarter — is identified as a persistent and structural risk to Metsä Group's supply chain, particularly in the Baltic Sea region.

The Risks and Uncertainties section states directly: "The continuation of Russia's war of aggression is increasing uncertainty and keeping the wood market situation tense in the Baltic Sea region. Although prices have decreased, the cost level remains high. An increase in wood demand or the weakening of availability could again raise prices, which would weaken profitability and endanger the continuity of production."

This is a significant concern given that wood is Metsä Group's primary raw material, and the Baltic Sea region — encompassing Finland, Sweden, Estonia, Latvia, and Lithuania — is central to its sourcing operations. Russia's war has restructured timber flows in Northern Europe, removed Russian supply from Western markets, and elevated competitive pressure for Finnish and Baltic wood.

While wood prices fell in the second half of 2025, the report notes that "overall, prices for both log wood and pulpwood in Finland remain high compared to historical trends." This persistent cost elevation is partly attributable to the supply disruptions caused by Russia's exclusion from European timber markets following the invasion of Ukraine.

Both conflicts are framed together in the near-term outlook: "Geopolitical tensions and conflicts are increasing uncertainty in the global economy and driving up energy, chemical and logistics costs. Rising costs increase production costs, which puts pressure on profitability."

Metsä Group, which produces in Northern Europe but derives approximately one third of its sales from markets outside Europe, faces compounded exposure: both supply chain disruption from Russia and demand-side uncertainty from a war-affected global economy.

President and CEO Jussi Vanhanen acknowledged the dual pressures of geopolitical uncertainty and the internal progress of the cost-cutting programme:

"Metsä Group's first-quarter result improved significantly compared with the second half of 2025, but the comparable operating result showed a loss of EUR 3.8 million (Q4 2025: EUR -57 million). The improvement resulted from a broad-based cost-cutting initiative."

"Costs fell across the board: fixed costs, raw materials, wood costs, and other variable costs alike. The EUR 300 million profit improvement and cost savings programme we launched in the autumn of 2025 is proceeding on schedule."

"The impact and importance of cost discipline are further underscored by the fact that our first-quarter result was weighed down by both lower average selling prices and the weaker exchange rate for the dollar. Their combined effect compared with the previous quarter was negative by more than EUR 60 million."

"In the short term, our positive result development is threatened by rising logistics and raw material costs resulting from the closure of the Strait of Hormuz. We have begun to pass on the increased costs to our selling prices, but there is typically a certain delay before the impact is felt."

Other Key Events in Q1 2026

• Demand for market pulp was muted in both Europe and China; a market-driven shutdown began at the Joutseno pulp mill at end of Q1.
• Softwood market pulp invoicing prices fell 4% in Europe and rose 2% in China quarter-on-quarter.
• Metsäliitto Cooperative acquired a 5.1% stake in Metsä Fibre Oy from Itochu, raising its ownership to 55.2% (68.1% including indirect ownership via Metsä Board).
• Paperboard delivery volumes declined quarter-on-quarter, primarily due to US import tariffs on folding boxboard.
• The tissue paper business was reorganised, with 50 jobs cut following change negotiations concluded in March.
• Metsä Board acquired the Winschoten Sheeting and Distribution Hub in the Netherlands in February, expanding European service capabilities.
• Pre-engineering began for a carbon capture facility in Rauma targeting approximately 100,000 tonnes of wood-based CO2 per year.
• The new Äänekoski Kerto LVL mill commissioning and the Suolahti plywood mill wind-down weighed on Wood Products results.

Outlook and Strategy

Management struck a cautious tone for Q2 2026 and beyond, citing several headwinds:

• Geopolitical tensions and conflicts are driving up energy, chemical, and logistics costs, increasing pressure on profitability.
• Demand for market softwood pulp remains weak due to low consumer confidence, substitution by hardwood pulp, and structural decline in printing and writing paper demand.
• The Joutseno pulp mill market-driven shutdown continues into Q2.
• US tariffs continue to suppress folding boxboard volumes in North America; European overcapacity adds to market pressure.
• Construction activity across Europe remains weak, limiting demand for sawn timber, spruce plywood, and Kerto LVL.
• Tissue paper demand is expected to remain stable with moderate long-term growth; greaseproof paper faces Chinese competition pressure.

Metsä Group updated its strategy in March 2026 to address "uncertainty in the business environment, intensifying competition and rising costs." The updated strategy rests on three pillars: competitiveness, customer-centricity, and renewal. The group's mission is now articulated as: "Better everyday life through Nordic wood."