Holmen AB (publ)

Good afternoon and welcome to the interim report presentation for Holmen. From our side, we are the usual suspects, Anders. It's me, myself, Henrik Sjölund and Mr. Anders Jernhall. We will do it in the same way as we usually do. We go through the presentation and after that we're happy to take any questions you might have. But starting off with some highlights from the third quarter, it's a very nice feeling to be able to present a very strong result and especially a strong performance across all our business areas. We can see that we have had a very high production efficiency. Not only in one business area, but as I said, actually in most of them. And we know that we have a seasonally low cost, but we also see very good discipline when it comes to cost in general in our business areas. We also see that when it comes to wood products, we have a favorable market situation or a good balance. We've been able to increase prices and we have some tailwind from that. On the other hand, we do not see a specific tailwind when it comes to lower cost for pulpwood or saw locks. It's more that we've been able to run our facilities in a very efficient way and a good mix to some extent as well. During the quarter, we also closed the acquisition of Martinsons, which we will come back to. And we've also been able to distribute the dividend of 350 per share. Looking at our financial situation, after acquisition of Martinsson and also after we have given dividend, we can see that it's very, very strong. And our net debt is on a low level. And if you look at the cake, Anders, wood products are now a little bit bigger, but not very much, to be honest, compared to the rest. But a very strong situation in general. If we then move to forests, We have a situation which is a bit delicate. We see that there is a very strong demand for saw logs. On the other hand, we also see that due to COVID-19, the activity in the world as such is lower, and it has also affected the pulp mills, especially in Sweden. especially in printing paper where we have seen coming closures, but also running at a lower utilization rate, which means that there is plenty of pulpwood and wood chips and firewood. Because on top of the situation we have, we also have the spruce bark beetles we need to take care of down in the south of Sweden, which means that more wood is coming out of the forest. In general, it means that we have to find a way to get through and also to be able to source the saw logs we need for our saw mills. On the other hand, find simply place to store the pulp wood we don't need at the moment and also take care of what is not the best quality. So it's a bit different situation than what we're used to. On the other hand, it's a very strong position to have the forest land we have ourselves, and we have a lot of the situation in our own hands. Ole Noel Anders, if we summarize the financial result for the forest during the third quarter.

Maybe we should talk about the new harvesting plan before.

Sorry, we should do that. Absolutely. Last year we checked the inventory of our forest and we came to roughly the same result as last time. We built over 120 million cubic meters standing in the forest. And based on that, we also made a new calculation how much we believe we should harvest in the coming 10 years and a bit beyond that. And the conclusion is that it's roughly as we saw the situation before, but we will be able to increase the harvest of mature forest because we grow trees to produce houses and homes, not pulpwood. And that part, the mature forest, we will be able to increase not much, but from 2.2 roughly to 2.3 million cubic meters per year. the period from 2016 to, sorry, going forward from 2021 to 2030. On the other hand, in our old prediction, we thought that thinning would be on a slightly higher level than what we have been at during the last few years. And when we look forward, we see that we will stay on roughly that level, which means roughly half a million cubic meters per year, which is, as I said, a little bit lower than we previously expected. If we then go beyond... The next coming 10 years, we see a potential to increase the harvest with some 10% after that. We have not included any climate effect on the calculation, at least not in that time span. In total, it will not have an effect on cash flow, no net effect. Slight difference between harvest and thinning, but no net effect.

Now it's time for financials. It's a good result, yet another good result from the forest division, 342 million SEC. As you can see, it's lower than previous quarter, but as you might recall, we sold a forest asset in Q2 that boosted that result. We are roughly 20 million SEC higher than the normal result in Q3. And that's due to, despite the challenging wood market, we have been able to manage that situation well, run efficient operations and have costs under control, which have benefited us in quite a good result for the quarter.

It says lower selling prices. How much has that affected?

Year over year, 8% lower selling prices this year compared to last year. You might recall that prices declined in last autumn.

Exactly. All right, moving on to paperboard. It's a very stable market. We said it many times. It takes time both to increase prices and to reduce prices. We are in a situation now where we see that most prices are stable. And we can also see that demand is developing in a fairly good way. To be honest, nobody knew, not only when it comes to paperboard, but to different business areas, what COVID-19 would do. We do see that it's a bit challenging when it comes to order intake, when tax-free is closed down. That's quite natural. But all in all, for us, we've been able to fill our order books with a good mix, especially in the third quarter. The mix is nice. And deliveries are on a quite high level, which is good. A fairly good position to be in, even though with a second wave of COVID-19, you never know for sure how things are going to develop. But so far, this is something we have been able to have in our own hands. And as I said before, production efficiency in paperboard have been quite good lately.

Yeah, and the good production efficiency and the strong product-slash-market mix have translated into nice figures both in Q2 and Q3. We commented that the Q2 result was on a high level, and now we have increased some 50 million SEC on top of that. 30 million is due to seasonally lower fixed costs when people are on vacation, and the other 20 million is due to a We have been able to reduce production costs even further due to higher efficiency, based very much on the investments we have done in the pulp mill up at the Iggesund mill. Then we maintained a very good product mix, which we also had in the Q2 report. Looking year over year, you see a 400 million profit improvement. And of course, that's from a very low level. Last year was burdened by maintenance stops and production was not running very well. This year, production is running well and we have a good product mix. But you will not forget that we have a maintenance stop in Q4, which we estimate will cost some 120 million SEC, but it's quite a big range of possible outcomes of those kinds of stops. Indeed so.

All right, a few words about paper. We knew already from the beginning when we saw the outbreak of COVID-19 that it will have an influence on paper, quite clear so. And it has had quite a big impact on especially demand development, not only in Europe, but in the whole world. And we have been used to see that we have a structural decline in printing paper as such. And we have been able to invest in product development and change our product mix more and more to what we call uncoated mechanical papers where we use the benefits of the virgin fiber we have. But, of course, also we are affected in a situation like this. We've been able to do rather well, especially in Europe, but we have seen that our overseas sales have simply vanished. And also prices overseas is on ridiculously low levels. So also we have been forced to take quite a lot of curtailments. If you look at to the extent we have been able to fill our order books, We have been running far from full. On the other hand, you can see slight improvement in the third quarter compared to the second quarter. We do see some businesses coming back to some extent. We're also quite worried about the second wave now because the first wave of COVID-19 had really severe impact on especially demand for our products. But Anders, coming from minus 60 to plus 60 between the quarters, how was that possible?

Yeah, it's a relevant question. Maybe if you should look at the underlying performance of the paper business, maybe you should look at Q3 and Q2 together. We're running roughly EBIT 0 in this division. Q2 was burdened by maintenance stops. And quite a big drop in European volumes. Q3, we have seen the European volumes coming back, giving some better product mix. But we have benefited also from 30 million SEC in seasonally lower fixed costs. And we have also been very good, very disciplined on maintenance costs in this quarter, which have boosted the profit a bit more. We do, however, have some larger maintenance expenses next quarter, not as big as in the paperboard division, but maybe 20 to 30 million higher than we had in Q3.

Thank you. Then moving on to wood products. Now it says 1.5 million cubic meters, 1 million we previously had, and now we have added also the 500,000 cubic meters from the acquisition of Martinsons. This market is interesting. Also here, we pulled a handbrake like most players in the market did in the beginning of the outbreak. After a while, we understood that it's not going to be that bad. And soon after that, we started to increase and ramp up production again, like most people have done. Remember, when it comes to the wood products market, it's not that demand is fantastic. It's really good in some markets, but not everywhere. It has more to do with less output, less supply than what we normally have seen in the market with fairly good balance. We see Canadians structurally taking out capacity. We also see players in, for example, Russia. And as I mentioned before, there is an imbalance when it comes to wood supply. Saw logs is sought for and sawmills really need it. But pulpwood, we have a little bit too much. If you have a sawmill somewhere where you are not co-located with a pulp mill, you run into problems because you can simply not get rid of or you can't sell to a decent price. Rest products like... mainly wood chips and some sawdust. So it's a market which is Not really what we normally see, but the balance. If you look at the balance right now, yes, we do see price increases coming through. We saw a really rapid price increase in the U.S., and after that it has come down a bit again. But still it's a positive momentum, which is largely to be explained by a bit less supply than what we could normally expect. And then we have, as I said, we have acquired Martinsson. As of October 1st, which we are extremely happy, I must say, that it will be a terrific fit for us having the forest up north. Now also having the sawmills and the facilities and all the people. As we said last time, it's a couple of well-invested sawmills. And it's also a part which we have not had in our company before. A lot more value added, not least the building systems, which is something new to us. So I guess soon, Anders, we will also see this in our financial result, but not yet.

It will be included for Q4. And the Q3 result, as you have noted, is very strong. It's up almost 30 million sec from Q2, which was quite a good result. Half of this increase is actually the price boom that we saw in the U.S. for a brief moment during Q3 where we were able to capture that. So half of this improvement of 30 million SEC comes actually from being able to sell in the U.S. at the right point in time. Looking year-to-date, we are on par with last year, but this year we are on the upward trajectory, while last year was on the downward spiral. Log costs are, as we speak, lower right now than they were a year ago.

But no real difference between the second and third quarter?

No, no difference there.

Okay, then a few words about renewable energy. Here we have a situation in the market where we have a lot of water, obviously a lot of rain. And we have overcapacity because also in line with COVID-19, consumption has been a bit lower. And we have had plenty of production in Sweden, which means that we have not had a fantastic price yet. And we also land on exactly the same result as last quarter. But simply higher production, still low prices. And remember last year, we also sold off the rights to build a wind farm on our land. To finish with a few priorities, you understood that we are a bit concerned about the imbalance we see between saw logs and pulp wood in the wood market. We have a strong position as a forest owner, but still this is something a bit new to us. And we have had a really good production efficiency at Iggesund and Workington in paperboard. And of course, we will do everything we can to maintain that. We have to continue to work hard with product development in paper. We are affected as all the other ones. We have a good chance to do something different maybe in the future, but it comes down to product development and being able to come out with new products as well. And then we have an interesting job to do to integrate Martin Sons in the best possible way to, what do we say, make one plus one become three. That's not what I learned at school, but maybe possible. And we also have especially one wind farm in the pipeline, whereas we are, as we speak, constructing the Blåbärsliden up in the north, which is roughly half a terawatt. And we have another one next door, actually also next door to Martinsson's, actually, which is roughly the same size. And there we wait the environmental permit. And we are working hard actually on seeing if we could also build some wind farms in south of Sweden, outside Norrköping. But that comes later. We are a company, Anders. More and more we contribute to sustainable society, not least after having acquired Martinsson's, which is a nice feeling. And when we speak to people, I would say more and more I also have a good feeling about having the forest as a base and to be able, especially when it comes to building in wood, to substitute concrete and steel and to some extent also when it comes to board and paper to substitute plastic. and to be able to, in the long run, continue on the strategy we have and increase our energy division. All right, thank you very much. That's it, and we are happy to take on any questions you might have.

If you wish to withdraw your question, you may do so by pressing 0-2 to cancel. Once again, it's 01 on your telephone keypad if you wish to ask an audio question. There'll be a brief pause whilst we wait for questions to be registered. Our first question comes from Christian Koffler from Nordea. Please go ahead with your question.

Yeah, thanks, operator, and good afternoon, everyone. A couple of questions from my side. Firstly, on forestry, I think you mentioned that there would be a slightly lower harvesting, including thinning. But at the same time, you said that there is no cash flow effect. I just wondered how, I mean, if you harvest a little bit less, how can't you see any cash flow effects move up?

We are increasing final felling, and it's final felling where you get a lot of timber for the sawmills. That's where you earn the money. It's both cheaper and you get better paid for the final felling. The thinning is more you're tendering to the forest to make it grow better, and you have a very thin margin when thinning. So the net effect is zero from those increase in final felling and decreasing thinning.

You also said that you had a very good cost control in the forest in the third quarter. Was it something special there on the cost control side or should we expect that to be?

It's nothing special. You have these variations between quarters and this quarter was a very good one.

Christian, when we look at the company as such, all business areas, we see good discipline when it comes to keeping down costs.

You also said that you had a good mix in the quarter. Was that unusually positive or how should we look at that?

Good mix, yeah. In all paperboard paper and timber division, we had very strong mixes, product mixes.

It can vary over time, but of course we try to improve the mix over time, but it's not that easy. And it's a little bit more difficult to predict what kind of order intake you will have with what mix will be around the next quarter. If it wasn't for COVID-19, it would have been easier.

Right. And in paperboard, you said that prices were pretty much stable, but if I look at the sales development, it seems like sales in Swiss Krona is coming down more than delivery. So it seems that there are some downward pressure on prices, but how could you explain that?

No, the price levels are the same. There is no trend in pricing, I can say. You have the translation effects made before. 40% of our sales comes from the UK and it might be a translation effect. But if you look on the underlying price trend, it's stable.

It could also be that we sometimes take on a filler volume just to fill up the machine, then you have a lower price on that. But in Europe and our main customers, there we see a stable price development.

Right. And then finally, understanding volumes on the forest, I think you mentioned that you are slightly above 120 million cubic meters. Is that also where you expect it to be by the end of this year?

Yeah, we are at 123, if I recall correctly. And that's where you might recall that we last year did the stock taking of the forest that we do every 10th year. And so it has been calibrated. Right. Okay. Thank you very much.

Thank you.

Thank you. Our next question comes from from Credit Suisse. Please go ahead with your question.

Thank you. Clearly, your improvement is quite remarkable, and you are getting the efficiency that you've been aiming for. Should we now view this as a new normal, or is this these two quarters? You mentioned in the prior quarter there was an exceptional good operational quarter. Now you have the same, pretty much. So absent, of course, the disruptions from maintenance activities, have you now found that stable platform that you've been looking for for some time?

That's very hard to say, but I think if you go back one year roughly, we can definitely say that we did not do a good job when it came to production efficiency. Remember in the fourth quarter, we have this big maintenance stop that's always connected to quite a lot of unsecurity. We don't know exactly what's going to happen, but of course we hope that this is a new level, but I cannot guarantee.

We can add to that the problems we had a year and a half ago. It was, yes, we had production disturbances, definitely, but we also had an imbalance in the market which forced us to take orders we didn't really want to have and that created production inefficiencies. So you need to have both things, right? You need to have a solid market and a good production stability in order to deliver these kind of results that we have delivered the last two quarters.

And the pulp mill, of course, now is in good shape. There's no issues there, which I'm sure helps as well.

Yeah, you have a strong point there.

Yeah. You did overproduce relative to your deliveries, both in paper and in board. That had a meaningful contribution to cover fixed costs. And I guess we should expect that to reverse to a degree as you bring down mills for maintenance in Q4. Is that the right way to look at it?

A paper board is a bit of a stock build-up ahead of the stop that we have. Paper is a marginal stock increase. We had a stock reduction in Q2. So it's sort of more... It's no major movements in the paper division.

In total, the stock for paper is not very high, but yes, we did build some stock now.

But on the context of what you said, you should view the two quarters in context, i.e. essentially a zero result, and that's the way we should look at things heading into Q4. Is that the read?

It's quite a fair starting point. Yeah.

Yeah. And the other one, or two more, if I may. The wood product situation, of course, the US spike that you mentioned that was contributed half of the gain in wood products. Where do you see that now? It sounded like it was almost like an arbitrage you had in the temporary moment of glory in a way. Are we back to more normal activity and pricing in the U.S. now? And the other one was on Martinson. You mentioned part of Martinson would be reflected in the forest division. Does that reflect, you know, the trading of wood and et cetera? Is that what's going to come in the wood product, sorry, in the forest division and the construction and the wood products will stay in, the wood products, so to speak? And final question on that, I would assume trading margins would be appreciably lower than the production and wood products, or construction and wood products business that you're gonna have in wood products. Any guidance would be?

If you take the price level in the U.S. to start with. If you take the current price level, and we obviously do not know where it will end up, but where we are right now, it's slightly above the level we have in Europe. We don't have any huge volumes going into the U.S., as it also depends on how we are harvesting the spruce bark beetle-infested trees down in the south of Sweden. That's mainly that part that we ship to the U.S., according to those specifications. And the rest, Anders...

Yes, you're correct. The wood trading part, the sourcing of logs that will be moved into the forest division, and that's a very thin margin. It's mostly, I could say, almost a zero-sum game. And the construction systems, building systems, and the wood products, sawn wood products, will be managed in our wood products division. Did I miss any part of your question? I think the last one.

I think not. Just the clarity on the U.S. prices, slightly above European prices. Where are they versus where they were in Q3 when you saw the benefit?

You can almost take away all that benefit, most of the benefit. We can't expect it in Q4. That's a simple answer.

But it's changing so quickly.

I got that. And what about activity in rest of the world? Are you seeing any issues now with COVID in that particular activity in construction?

It's like I said before, it's a split picture. Many markets are doing fine, and especially during the third quarter, we have seen really good demand from a number of markets. But we also have seen, of course, really low demand from the markets, which have been more or less closed down or locked down. And if you take Northern Africa, Middle East, etc., it's not a very high activity.

Got it. Thank you and a really solid quarter. Thanks.

Thank you. Our next question comes from Linus Lawson from SEB. Please go ahead.

Thank you very much and congratulations on a really strong set of results. Did I hear you right that you said that seasonality in the third quarter was 30 plus 30, so 30 million each in seasonality? paper and paper board. Did I get that right?

Yes, you got it right. It's slightly higher than a normal level but we've been very disciplined on taking out vacation and etc.

Yeah, that's indeed higher than normal so my follow-up question is obviously what's the negative seasonality Q4 on Q3 then?

It will be a reversal of the 60 million SEC. We will go back to the normal state in Q4.

Yeah. Gotcha. Okay. And then maybe just one or two more questions on Martinsson. Now that you've closed the deal, you have full visibility. We have now a fantastic third quarter or a strong third quarter behind Martinsson. And so when we try to understand what Q4 is like, how has Martinsson's behaved in this type of market environment, what kind of expectations should we have for the combined entity in the fourth quarter?

We don't have that slide in this presentation, but if you look back in the Q2 presentation, we showed you the historical performance of Martinsson's. And you can see that it's clearly a much more stable business than our wood products business. And that's due to 75-80% of the sales are in Sweden, which have a much more stable pricing picture, and also a lot of value-added products, which has a more stable margin over time. So you shouldn't expect to see the same uptick in financial performance from the Martinsson mills as you can see from the old Holman mills.

Especially the Braaviken mill with the big volumes takes advantage of a market situation like now.

Yeah. Great. Thank you very much for that. And then just one final question on the maintenance schedule. So this year you have one big maintenance shut in at the Iggesund mill, 120 million you said in the fourth quarter. Have you set the schedule for 2021 by now? Will you have both that kind of a stop and the Workington stop, which you didn't have this year, or what's the schedule looking like?

Yeah, we will have a stop in the Workington in Q2, which will be slightly larger than normal, actually, due to overhaul of our...

biofuel burner and then we have the normal stop for Iggesund most likely a year from now yeah and so the Iggesund is the same it's 120 like now we'll see yeah we had a period depending on yeah

Linus, we had a period when we went from 12 months between the stops to 18 months, even looked for 24, but we have come back to 12 as we had to. When we had a couple of inspections back, we were forced to, we couldn't wait more than 12 months to have the inspection. We'll see what comes out, but most probably it will be another 12 months and then a new inspection.

And at the Workington mill, we haven't disclosed the numbers yet. We'll have to come back to that. But it's a big stop. It's eight years since we commissioned our turbine at that mill, so it's a big overhaul after eight years.

So it's something clearly bigger than the normal 70 to 80 million?

We'll have to come back to exactly how much bigger the financial impact is.

Okay, great. Thank you very much.

Thank you. Our next question comes from Robin Santaveta from Carnegie. Please go ahead with your question.

Thank you very much. Just a question on Martinsson. Could you reveal what is sort of the middle or long-term model for synergies or for that company's We can see the history, but I would assume you have now a pretty clear idea about the synergies and where Martisson and profitability can end up for you guys.

That's a little bit early.

You know, we have bought a company that is very well run. It has shown ability to be profitable yet be able to have quite a high growth pace. And we hope to be able to continue to that journey to show a good growth and a stable profitability.

synergies is not really the reason why we bought Martinsson's but it integrates well with our own forest holding up north so maybe we shouldn't expect any material synergies or any material profitability improvement of that company as it's well run already now so to say is that the correct way to

Right now, I think that's the correct way to see it, yes.

Yep, good. Then the paper business, significant improvement in profitability now in Q3, a bit better deliveries. What are you seeing at the moment? We forget about what might come with lockdowns, but what are you actually seeing in order intakes in September and October? Is that in line with the average performance in Q3 or is it weaker or better?

I think you have to see it already from the beginning of COVID-19 when everything went down a lot and we didn't really know. And after that, after the summer, we have seen some improvement. But remember that there's also seasonality when it comes to when our customers in paper actually order. This is the time of the year when they should order a lot. Not only for the fourth quarter, but also for the first quarter next year, depending on what magazines, retail business, etc. it is about. So, yes, we see an uptick when it comes to order intake. But what that means, we really don't know. it's better than at the worst point. At the same time, we have structural decline, so we see some rebound, but how far that will take us, we really don't know. For us, it's, of course, extremely important to do the best we can and also take some market shares, take advantages of the products we have and try to win new business and to wait and see a little bit what comes after COVID-19.

All right, I understand. Then... In terms of forest valuation for forest transaction prices in the market in your area this year, what should we expect now when we go into Q4? Is it basically stable year over year or should we expect you to increase the fair value of the forest on the back of some higher transaction prices?

It's too early to say that. We will come back in the Q4 report when we have done the valuation exercise.

But is this something you do every quarter, or is it once a year at the end of the year?

It's once a year at the end of the year.

I remember we bring in also some historic data, the last three years.

Yeah. Final one.

How should we view, you sort of frequently state that your balance sheet is very strong. Clearly that is the case. What is more important for Holmen? Is it at this stage now growth or is it then payback to shareholders in some way?

like we don't have a problem with having a strong balance sheet and of course we are doing everything we can to to expand our business when it makes sense it's not that easy in all business areas but like now when we bought martinson's that makes sense when we invest in in wind we are we are building a wind farm right now we think that's a logic step also for us and make sense long term and and then we will see

I understand. Thank you. Thank you very much.

Our next question comes from Martin Melfine from ABG. Please go ahead.

Yes, good afternoon. Two questions. Martin, you said EBIT last year was like 50 million. What is that number year to date in 2020?

I think EBIT, we stated January to August was 50 million SEC. Last year, full year, EBIT was 100 million.

Okay. And then regarding, you described the oversupply situation on pulp wood, and prices have dropped like 25-30% already. Are you here seeing another price decline at the start of next year? Or are prices already low enough?

I think you will see a number of different prices. Firewood, for example, will be really, really cheap. And good quality pulpwood, well, normally when you have oversupply, prices go down. How far it will go is hard to say, but we have a situation simply where we have more than we need, and the ones driving the wood out of the forest, that's the sawmills at the moment. Exactly where it will go, we'll have to see.

And this firewood segment or quality you describe, is that something you buy so you'll get a better mix, or how is that segment over time?

No, but it's something you get, especially when you take out the forest, the spruce bark beetle infested trees down in south. You have some trees are too dry. They are not good enough to be used by the sawmills or the pulp mills, and then they end up being burned for producing hot water. And then that's a different specification and a different price. It's nothing we want to have, but it's something that happens right now. And also, if you look at sawdust, etc., it's normally sold to producing energy.

All right.

Thank you. Our next question comes from Oskar Lindström from Danske Bank. Please go ahead.

Hi. So three questions from me, all regarding paperboard and a little bit of overlap maybe to some previous questions. But the first one is you've had a couple of quarters now with good production. You say the market is rather good as well. Are you worried that there are any sort of high inventories in the value chain which have been built up now in the first quarter? well, during the Corona crisis that your customers have maybe bought a little bit too much just to be on the safe side and that we might see some destocking in the quarters ahead?

Yes, we see some tendencies of that, yes.

Of destocking or still?

No, they stocked up a little bit. You have a little bit more of inventories at the customers than at normal, but it's also different from segment to segment.

On top of that, you do have a sort of Brexit stocking up effect definitely in the market. But we've had that in the past, so it's nothing major, but there is an element of that.

Should be temporarily.

All right. And do you think this destocking might come in the end of the year here or should we expect that more next year?

That's hard to say. Let's say that we see some tendencies right now.

All right. My second question here also on paper board is you talk about a better product mix and how stable should we expect that to be? I mean, is it a consequence of active decisions on your part? Or is it just sort of you've been lucky, customers have ordered your high margin products, this could end any time? Or sort of what's the story behind a better product mix?

But it's not only a product. It's also a sales mix to which markets we sell. If we could, we would sell everything into Europe or most of it, but we can't. And that varies a little bit over time. And in the third quarter, we were able to have a good mix. And we didn't need to take on filler orders, if you call it that, which has a different price.

Could you, I mean... I realize the distinction might be simplified, but let's say overseas, outside of Europe orders are the ones with lower margin for you. What percentage of your volumes in paper board... have been to overseas markets in, let's say, the third quarter as opposed to a normal quarter.

If you took paper, that's a generalization you can make. But board, we have some quite nice volumes going outside Europe that have a good margin as well. It's a mix of huge differences. Yes. Our ambition is to maintain this mix, but it's not completely in our hands. We need the customers to want to maintain that relationship as well.

And your earlier question about maybe there is some destocking, then of course we have to change the mix a little bit until that's over.

Right, but it's not as if you have launched new products and taken out some old ones from your offerings. for any such actions which is behind this mixed change?

No, it's not.

No. And then my final question is, I mean, you mentioned lower pulpwood prices when you talk about the forest division. Has this had any impact on your paper board and I guess paper divisions yet or should we expect it to come?

Year over year, we have a positive effect, especially in paper, not so much actually in paperboard. We source a different mix for the paperboard division. Quarter over quarter, we have hardly any effect.

And should we expect there to be more effect in coming quarters, given what the market looks like right now, the spot market? I realize there's some delay in your input costs.

We have had the effect year over year. That effect will remain quarter over quarter. Even if we look ahead, we don't really see any significant effect coming in.

And this should also hold true for the forest division. Your sales price is there.

Yeah.

So a fairly stable situation going forward.

As we trade right now, yes, but you don't know what will happen a quarter or two from now. No.

All right. Actually, if I may, just a fourth question here on the paper division. You described it rather well, I thought, about sort of foreign demand disappearing in the second quarter and a little bit of it coming back in the third quarter, but of course a lot of uncertainty due to resurgent COVID-19. What will you do with this division if the foreign demand doesn't come back in any significant way? Can you run these mills at reduced levels indefinitely, or what are your options here for adjusting your costs?

I think you partly answered the question yourself. No, nobody can run on a too low utilization rate in the long run. But I think where we are right now, we have to understand where COVID will take us. And we also need to understand the combination of COVID-19 and structural decline and also what our possibilities are. Because we work hard on product development. We do research. we do new business but if that will be enough to run full already next year or after that we don't really know and if it comes to the worst well that's too early to say then then we have to take out capacity but that's not our idea and and when you talk about new product development

Would that be non-publication paper grades or are we talking more conversion to improve newsprint and book paper?

Both, but we concentrate on graphic paper right now.

All right. Thank you. Those were the questions I had.

Thank you. Our next question comes from Cole Horton from Jefferies. Please go ahead.

Good afternoon. In the forest division, you called out 8% lower selling prices year on year. Please, should you provide some color on how you see the pulpwood and saw log prices potentially developing over, say, the next 12 to 24 months, given there's increased targeted harvesting for the spruce beetles and probably some faster decline in graphic paper demand? I mean, does this mean more subdued pricing near term for longer?

That's a very difficult question to answer. I think you have to take Sweden in some perspective in that case. Long term, I believe Sweden will be an import country, which means we will most probably consume more than what we can harvest sustainable in Sweden over time. Right now, you're right, we have had some closures or will have closures of paper capacity. We've also seen lately quite a lot of investments in pulp capacity. And right now, pulp is also a product which is a bit oversupplied. So we are in a very special situation. But We really don't know where it will go, but I'm convinced if you go beyond the 24 months, you will come back to a situation where most probably Sweden will need to import to fill the demands from the players here. But meanwhile, we have an oversupply. It will then be a balance between what will be taken by the pulp mills and what will be taken in terms of firewood, for example, for bioenergy, etc. There will be a new balance, but right now it's not there.

That's very helpful. And then just to follow up on that, I mean, are you doing anything different with the harvesting for spruce beetles to kind of screen that wood and where you sell it to the customers is the first point, just carrying on on that forest. And then separately on wood products, you talk about the potential to replace concrete and other items in building materials medium term. And I know the EU Green Deal is supportive of more CO2 efficiency in buildings. How do you see that theme playing out longer term in wood products?

Thank you. Last question. Replacing concrete and steel with building in wood, we believe that makes sense. And that's also partly why we believe the investment in Martinsson is a very good step to take part of that development, especially when it comes to building in wood, higher buildings, multi-story buildings, etc., When it comes to the wood we take out right now from the forest just to make sure that we stop the infestation of spruce bark beetles. Well, yes, we do screen it and we divide it into different qualities. As much as possible, we bring into our own pulp mills when it comes to pulp wood. And if the timber, the saw logs are in enough good shape, well, then you can run it through the saw mills and sell it to quite normal prices, sometimes even better prices. But if it's too old or too dry, then you end up with firewood. And then, of course, it's a different value added. Hardly any.

Thanks for the cutout.

Thank you. Just as a reminder, if you do wish to ask an audio question, you may do so by pressing 01 on your telephone keypad. Once again, it's 01 on your telephone keypad if you wish to ask an audio question. Our next question comes from Marco Jardim from Handelsbanken. Please go ahead with your question.

Yes, good afternoon. I had a few additional questions here. Paper pricing, this list price has moved down for H2 compared to H1. Is this now fully visible in your Q3 earnings or is there some sort of contractual lag here?

there is a contractual lag we see an impact in q3 of lower prices that has been weighted up by a better product mix us selling more to europe rather than overseas but clearly with there will have some impact in q4 pricing will go down a bit in q4 due to the lag effect and uh

And do you expect to see the full effect in Q4 or does it also run into 21?

We negotiate constantly with our customers. Some are yearly contracts, some are quarterly contracts, etc. It's too early to say. And we are discussing right now for 21.

Okay. Very good. Very good. Then still on paper, there have obviously been some closures during or closure announcements during q3 the ca and utm um do you expect to gain volume due to those closures and have you sort of seen increased interest already i think we should remember that these machines are still running but sure we uh

It's good news that they disappear from the market, and especially when it comes to SCA, they have nothing else to replace it with in their company. So that's clearly an opportunity. When it comes to UPM, most probably they will try to find place on other machines to support the customers. But it's good news, but we need more for balance in the market. Very good.

And then finally, just on the expansion that you've done at Pravik, where does that now stand? Have you sort of taken that into full utilization or is that still to come next year? What's the situation there?

You mean a ramp up of the sawmill?

In September, we started to ramp it up and we should in Q4 be quite close to reaching the new level.

600.

Yeah, the 600,000 level.

So do you think there's sort of seasonal demand will be sufficient to sort of increase volumes due to the new capacity or how does it look?

Normally this would not be the right season to ramp up a sawmill, but the market is, there's a lack of wood products right now. So from our perspective, it's a good timing.

And also when it comes to prices, normally the fourth quarter is not the quarter where you increase prices, but it might happen this time.

Okay, sounds good. Very good. Thank you very much.

Thank you. There appears to be no further questions, so I'll hand back to the speakers for any other remarks.

Okay, thank you very much for taking your time to listen to us and very good questions. Thank you and have a nice day.