Holmen AB (publ)

Good afternoon, ladies and gentlemen, and welcome to the Interim Report presentation for the first quarter of 2021 for the Holmen Group. Here in the studio, it's myself, Henrik Sjölund and Mr. Anders Jernhall. And we are going to go through the presentation for the different business areas we have. And once we finalize the presentations, we're happy to take all your questions. So let's start. And happy to say that we have performed a really good result for the first quarter of 849 million SEK. Especially thanks to high prices for wood products, but also higher volumes than before. And also higher efficiency in our paperboard production and also seasonally a bit more water in our hydro installations. And high prices, I should say. Should also remind ourselves that we have a solid financial position also after acquisition of Martinsson's and the payout of the dividend, which is actually today of 1.7 billion SEK. So let's go to the different business areas and start to say a few words about the wood market. We come from a situation, if you go back to last year, where we said that the market is not really in balance. After COVID had started and the first quarter last year, we had a feeling that, well, the sawmills are running almost full, but the paper industry is not. And after that, we also had a period with a lot of spruce, bark, beetle infestation volumes we had to take care of. So there was a lot of pulpwood coming out in the market. which meant that there was a good demand for saw logs, but we had simply too much of pulpwood available and not all of it of good quality either. If you look at the situation today, it has changed quite a lot. even more intense competition for saw logs because the saw mills are doing really well, as we've already understood. And they are really looking for feeding their saw mill with all the raw material they need. But also on the pulpwood side, things have changed a bit so that at least more paper mills are running full, even though we know that some of them also have closed or are about to close. But that market is more in balance. So all over Anders, the market fairly good balance, but tough competition for Zon Timber. How does that reflect our financial result?

Well, Q1 result this year was the underlying result was in line with the profit we generated a year ago. We've seen higher revenues from timber, but lower for pulpwood. These more or less evened out in the forest divisions result. This quarter we reported a gain on the sale of a forest property in the UK. It was a forest property that we bought in connection with starting up the biofuel boiler in Workington eight years ago. And we felt it was the right time to sell it now. We have one more asset close to the mill in Workington that will be sold during the upcoming 12 months. Thank you.

Paperboard. A few words about the market here as well. We say a steadily growing market at stable prices. But if you look at the situation, and again, if we look back a little bit, we talked about a lot of capacity coming in Asia, etc. But to be honest, the situation we have today is a bit different again. There is good demand in Europe, but not that good. But we see a growing demand in Asia, which has helped. And we also see that the fiber balance in the world has changed so that there are not only a feeling that the market balance is good for producers, but also that there are discussions about price increases in the market. But remember, we have said it many times before, both in times when prices are under pressure and when prices are on the way up. In the niche where we are, they move very slowly. If you look at how we have performed, we have been able to slowly but steadily improve our own efficiency. We had a period, especially a couple of years ago, when we were not happy. But if you look at the last few quarters, we have at least been doing better and better. And we have now established a production level of, in total, a bit over 550,000 tons. So Anders, better production efficiency normally means better profit, doesn't it?

Yes, indeed. And as you mentioned, Henrik, we've had a stability over the last four quarters that we haven't seen before. This has translated into a better profit level. The Q1 result of 236 million SEC reflects what we can achieve with current production cost and sales mix. We have lowered the production cost based on not only improved stability, but also some investments we made in the pulp mill where we removed bottlenecks. And we also, during the COVID year last year, were able to improve our product mix. And the ambition is to maintain this quite good product mix that we do have. What we have in the upcoming quarters are two major maintenance stops. Each will cost 130 to 140 million SEK. And that, of course, will take a toll on the profit of the paperboard division in the upcoming two quarters.

Thank you. Then going on with something really interesting. There is a clear COVID effect when it comes to our paper business, which is seen if you look at the demand development for printing paper. And especially if you look at 2020 and also the moving 12, including the first quarter of 2021. which also has had a quite dramatic effect on price, as you can see on the graph, especially in Europe. At the same time as this has happened, when we went into 2021, prices were going down. And that's what we also see in our result today. But at the same time as this happened, again, I have to come back to the fiber balance in the world. Because there has been or is today scarcity of fibers in total. That is why we see price increases for almost all grades coming from the forest sector. In our case, in paper, at the same time as we are struggling with coming from a period when we could not run full, we have been able during the first quarter to actually increase our utilization rate. So at the end of the first quarter, we were running our four paper machines fully booked. And as I said, this is partly due to the fiber balance in the world that there is actually scarcity of fibers today. It's also an effect of some closures. But also, if you look at the recycled fiber price today, what you pay and the price increase, which has been it's been really quick and fast rapid increase lately which means that there is far too many machines in the market but not all of them obviously are running full and the price now in asia is higher than in europe and what we do of course is that we we take some marginal orders today at slightly higher price in asia than what we have in europe then going forward We really don't know. And I think regardless who you ask, nobody can tell exactly what is going to happen with this fiber balance in the world right now. It's interesting for the moment is going in the right direction, but very difficult to predict. We have, as you know, four paper machines in Sweden. All four of them are based on fossil-free electricity and fresh virgin fibres. As Europe is about transit from being quite dependent on fossil energy to fossil-free in the green transition, I think it also makes sense to look at what kind of assets do we actually have and how are we coming out if it's going to go the way we think that all products in the future actually will have to pay for the real climate cost, meaning that it will be more expensive actually to emit fossil CO2. Maybe the combination of fossil-free electricity and fresh fiber is not that bad, but of course it depends on to what segment you're able to sell. In our case, we are in the graphics sector, but we're also looking at possibilities to at least... touch other segments like for example simpler paper bags notebook notebooks competing with or notepads notebook is something different notepads competing with wood free paper gift wrap and also a kind of middle layer paper that it's needed in the test liner and in the test liner business between the corrugated layers, which is not the biggest business, but quite interesting. It's a half step towards something different. Something to remember for the future. We will see where this takes us. It's not the biggest volume today, but we see some possibilities at least. But going back to the first quarter, Anders, summing up the financial situation of the paper business.

Yes, actually in the first quarter this year we delivered as many tons as we did a year ago but we got paid 150 million SEK less for that same quantity due to the price declines that we saw throughout 2020. Of course that have a direct impact on bottom line which meant that we made a loss in Q1 this year Compared to Q4, we saw prices decline some 6% on average, but that was to a large extent balanced by us being able to increase production, and at the end of the quarter, we were back at full capacity utilization.

Then to something really interesting today, which is wood products. Starting with the market for wood products and one must say it's a price increase we've never seen before or it takes at least many years. We have to go back many years to find something similar. A very strong market. We see very strong housing building in wood in the US, which makes that demand is quite high. But we also see a trend which we see all over, not only in Europe, but in most parts of the world, actually, when it comes to do it yourself. People spent obviously a lot of time to redecorate their houses and homes and they use a lot of wood. When it comes to how sustainable this price increase is, nobody knows. Where we are right now, at least we can see that prices are still on their way up. They are extremely high in the US right now. It's mainly spruce, but it's also pine on the way to catch up, even though there is a price difference. If we then look into the future a little bit. Of course, it makes sense from a sustainability view to build houses and homes out of wood. And we should remember again when we talk about that in the future, it will be more expensive most probably to emit fossil CO2. Housing actually accounts for quite a big part of the CO2 emissions in Europe. which should make it interesting. I think it's an interesting position, especially to be an alternative to concrete and steel, and especially concrete or cement, where we know that it's really difficult to decarbonize. And again, most probably it will have to be more expensive in the future. We have, as you know, we have grown our volume, both through... extending the capacity at the Braviken sawmill. And then we have also added on Martinsson's. And in this graph, Anders, it's only two quarters. But adding on capacity in this really good market, I mean, that should mean money, shouldn't it?

Yeah, it has been a reasonably good timing on both the adding volumes for the Braviken sawmill and the acquisition of Martinsson's. In Q1, Martinsson's contributed with some 50 million SEC in EBIT. And the remaining improvement from a zero to a 218 million SEC profit comes from... price increases in the old timber business where old Holmen wood products have seen on average 30 percent higher prices year on year and as already mentioned higher volumes based on the Braviken sawmill expansion that we finalized last spring. And compared to previous quarters, we saw almost a doubling of EBIT once again. And that was due to 10% higher selling prices.

I remember not too long ago when we said that we are ready to increase the production at Braviken, but let's do it when the market is ready for it. And it's just now is the time to do it and have been for a while. So I'm really happy for that. Okay, renewable energy. A lot is happening. Again, connection with the green transition. The politicians in Europe have already decided that we should reduce CO2 emissions by 35% only in 10 years. How on earth is that going to happen? Well, one thing is clear. We do need a lot more of fossil-free energy in Europe. If you look at the price development in Sweden and Germany, we can see that still Swedish and German prices, they track each other rather well. And even though Sweden is a little bit behind and should be perhaps over time. And then we have something else which is interesting. The emission rights are starting to actually come back to where they once were in the beginning of the system. And this, of course, means that it costs more to buy the rights to emit fossil CO2. Where this will go in the long term, again, we don't know exactly, but most probably it will have to be more expensive to make this change happen. Because if you look at it from a bit broader perspective, the biggest challenge we have in the world is simply that we have too much of the energy coming from oil, gas and coal. It's a really high share, a really big challenge, but also in Europe, of course, most of the energy actually comes from fossil energy. And also the electricity, behind electricity in Europe, you find fossil energy again. So we think it makes sense from simple logic to add on fossil free electricity as much as we can in Sweden as being a big landowner and having the skills and also the knowledge how to do it. And right now we are soon starting to see the first windmill in our wind farm, which is called Blåbergsliden up north in Sweden. And that will increase our energy production by roughly 35% when this is finalized somewhere late this autumn. Anders, this is a discussion about things to come, but what happened during the first quarter? It's something almost totally different.

As usual, it was winter. It was reasonably cold. And that was a normal winter, I would say. But due to the phase-out of nuclear power in Sweden, we saw spikes in electricity prices that we, as hydropower producers, could benefit from, given that we can choose when to produce the electricity. It was a good result in Q1, and that is, as always, our strongest quarter. And compared to Q4, we saw quite a large price increase. When I say that we benefited from high electricity prices in the hydropower, we also suffered more than we benefited in our paper division that encountered some 40 million sec higher electricity costs during this quarter.

That's important to note because there were some people thinking it was the other way around actually, when we almost had a crisis, but at least the scarcity of electricity in the beginning of the quarter. Thank you. Then I would like to finish off by reminding about that our company, and not only our company, but especially the forest industry has a lot to contribute with when it comes to actually making this planet a little bit better. We contribute by a bit more than 6 million tons, avoiding that CO2 comparable to 6 million tons actually reaches the atmosphere. We do it through the forest that it should grow better and better and that we leave some more trees in the forest every year. But also that we actually grow trees to build houses and homes of wood. That's a carbon sink as the forest from the wood actually stays in the buildings, but also from substitution from also planks, but also, of course, from paper and paperboard. Sooner or later during the life cycle, also these fibers will be converted into bioenergy. And then of course we have our renewable energy, which is... Not only hydropower but also more and more wind power and that figure of 1.7 will increase once we have finalized the Blåbergsliden wind farm. And then not forget actually our company, also other companies of course, but I think we've done it in a really good way when it comes to reducing our own fossil emissions. In 15 years we have reduced by almost 90% and we only have 0.4 now left. So thank you very much for that. And by that, we are happy to answer any questions you might have.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Our first question is from Christian Kotze of Nordea. Please go ahead.

Yeah, thanks, operator. And good afternoon, everyone. First on paperboard. It came a little bit below what I expected, at least. I just had a question on the cost here. Sorry if I missed you, Henrik, or if you said it already, but it seems like cost per ton, if that is a right way to measure it, went up 34% in the quarter. If you can comment a little bit about that.

I would say that costs are more or less unchanged in the paper division. It could be currency effects that plays a trick on you when you do the calculation from the reported numbers, but unchanged cost level. It's actually unchanged during the last 12 months compared to a year ago. We do have a lower cost level.

Right. And if I look at say rolling for fourth quarter EBTA on paper. And you already commented on it. You have definitely improved productivity, et cetera, and therefore you make more money. So the question is, if you look, say, three years ahead, what is your ambition to do with paperboard? Is it to further work on production efficiencies or do you have another strategy?

I think you know, Christian, that we do whatever we can. We like our assets and we are happy to invest in assets to take small steps in order to increase production. And also, remember, we are in a niche when it's not wise to go for really big changes. And from where we are today, it's not so long ago we said that we are at 500. We should be able to reach 550. Now we are at 550, maybe a little bit plus. We should stabilize that and then we will see which steps we can take. But that remains to be seen, Christian.

Okay, fine. And on the sawmills, you obviously commented on that you have extremely good markets right now. If I go back a few years, if I recall right, then you typically said that through the cycle margin of sawmill is maybe 5-6% or so. Is it something that has structurally changed in your view on sawmill market or wood product market that should make this more profitable for you?

I think there is a trend, underlying trend, which is sustainability. And there is a lot of interest in building in wood. But what is happening right now when it comes to prices are going up, and normally when prices go up, we also see that supply follows. Right now, we cannot really see that in the same way, which means that prices almost skyrocket as they do for the moment. Whether that is sustainable, short-term, mid-term, it's very difficult to predict. I don't know if you want to comment.

There are a few things that you can note that has happened during the last few years. On most recently, you have a very strong construction market going up by some consuming some 5 million cubic meter more in the US. It's very difficult to source that because everybody's running full. That creates this very large price increase. But you also have had. To be efficient in sawmilling, you need to be co-located with a pulp mill. And you have a major producing country, Canada, where you have closed down a lot of pulp mills, which means that the economics in Canada is not as good as they were, and they are producing at a lower level. So you have some... some structural factors that that improves the conditions for a sawmill operations then the key question is since it's quite a fragmented market will the saw miller be able to keep that profit level or margin for himself or herself or will it be the forest owner that picks gains the most from this strong cycle through higher price for solox yes

And do you think the entry barriers are higher today on building new sawmills? You know, getting access to the raw material and so on. Then it was like, you know, four or five years ago.

If you look at Sweden, it's not that easy to find so much more raw material for the moment. And like, as Anders said as well, a good location for a sawmill is next to a pulp mill. And in the forest. Yeah.

Fine. Thanks for that. Just shortly on paper, I recommend that you run it on negative EBIT margins. You typically say that the key for you is to run it on positive cash flows. And as long as it is running with positive cash flows, you don't really care, I guess, if it's negative EBIT or not. It's the right way to interpret it.

we care about a lot every day. Also, when it comes to paper, I can promise.

Without tilting down, I meant.

I was trying to say before that look at the position we have. It's very easy to get stuck in exactly how things were in the first quarter. I think we also have to try to understand what could it mean with this green transition when it comes to what will be the cost for CO2 emissions in the future. What will it mean, like in our case, to actually have four machines in Sweden based on fossil energy already today and the fresh fibers? Are there possibilities that are not obvious today but might become interesting hopefully in the near future? We don't say that we have all the answers, but we also try to find ways to sell into and produce products for other segments than only graphic paper.

But of course, we should have a positive EBIT over time, but we're not stressed if we, for a quarter or two or three, have a negative EBIT. We do invest less than depreciation, which means that we, anyhow, last year we had a positive cash flow, but we do actually invest in our paper mills to improve their competitiveness, which in a market where nobody wants to invest, it's not such a bad idea.

And it's very important to understand the market now to try to get a grip on the fiber balance in the world and the cost for recycled fibers, which we compete with, not only today, but also tomorrow.

Yeah, good point. And finally for me on renewable energy, I know that you have a number of prospects in Östergötland. But as I see it, If you look at demand for electricity, it's definitely coming up north. And so my question is, how do you see your own potential to really shift or grow a lot more on renewable energy up where you have forest land in the north?

We definitely have a lot of potential if you look at the land we have. And from pure logic, what should happen or needs to happen in Europe in order to manage this transition? Yes, sure. We need a lot more of green electricity or at least fossil free. But first of all, environmental permits take time. We talked about Blisterliden before, which is the next project after Blåbergsliden. We have been discussing that for... It's not been in our hands during the six last years to get the environmental permit. We've been waiting almost for six years. So it takes time, but the potential is there, of course. And then to understand exactly where the market will go with hydrogen etc. That's a bit early.

The bottleneck is not the availability of good locations with strong winds. The bottleneck is the authorities very slow management of applications.

I think you can say today that the politicians in Europe have decided that we are in a hurry and have set really tough targets to what to achieve within 10 years. Even the politicians in Sweden have agreed to those targets and said, yes, we should be in the forefront. But if you look at the authorities and how they act today in order to make it happen, it's a totally different pace, much slower. And that needs to change.

Right. But do you think you will shift focus of the speak? Okay, you already have focus in the north, but do you think you will even more focus on the north rather than finding opportunities in the southern parts of the country?

We take it stepwise. We are doing this process in the southern part and then moving focus back towards the middle part of Sweden and the northern part.

For different reasons, it makes sense to add capacity in the south. After somebody pulled the plug from Ringhals, at least half the plug. And also, if you look at how we're going to develop the society. And also given, of course, that most of the excess energy we have up in the north will be consumed by green steel, etc.

Makes sense. Thank you very much, Lars. Thank you.

Thank you. Our next question is from Lars Schellberg of Credit Suisse. Please go ahead.

Thank you. Just a couple of questions. When you're looking at the wood products business, again, you highlighted, of course, again, who's going to keep the profit. What do you see now in SOLOG price trends? And also, if you can comment on the actual gain that you made in the UK and what you expect for the next transaction there. And also interested in the new products you're talking about in Holman Paper. The interliner is, of course, as you said, it's a niche thing maybe. But do you need to make any investment to enable you to capture these new potential opportunities that you've highlighted in the presentation today?

Should we start by the wood market and then you take the English forest? Yeah. Okay. If you look at the wood market as such, yes, we see that there is a big competition for the Zoologs, of course, and prices are on their way up. You can see that also from price announcements. For example, Södra last week announced higher prices. And I mean, that makes sense, doesn't it? When the sawmills have such good margins and are looking to, if possible, increase capacity just a little bit and they need raw material. So yes, saw log prices will most probably go up and they are on their way up right now.

We will see some impact in Q2, but not that much. It's more Q3 that will be impacted by higher log prices.

And then the forest we sold in the U.K.? ?

Yes, as I mentioned in the presentation, our underlying result for Q1 this year was on the same level as last year. It's a slightly larger plot that we will put up for sale this autumn. Remains to be seen what kind of profit level we will have on that sale. I can't give you any guidance today.

When it comes to other products for our paper division, as you said, interliner, that's something which is an intermediate where you do not need to invest a lot of money. You just have to change some settings on the machine. To be honest, we don't know what that market will look like in the next year or two to three years. We can only see that due to lack of fibers, there's been an interest to find an alternative. and this paper that we supply and some others also supply it makes sense you can first of all you can still produce the test liner floating if you have that or the corrugated board and But that's not the big shift. If you want to go into a totally different segment, then you have to invest big money, or at least you have to invest a lot of money. What we do and what I showed before, that's where we are without investing any real money, so to say, by just altering the recipe a little bit and going for different segments. But we're looking at what the future will bring. And we are also looking at what we should do. But we are not ready to guide you what steps we will take. Not yet.

And just to be clear, that interliner is a mechanical fiber-based? In our case, yes, it's mechanical. I just wanted to come back a bit to the woodwork. Solar prices, of course, last year was a massive culling increase due to the bark beetle infestation. Is that not happening this year? Is the positioning a lot better this year?

If the weather keeps on or if it continues to be as cold as today until mid-July, then it will not happen. But most probably, we hope that it will not be as bad as the last year or the year before. But we really don't know.

Mid-May we will know, but today it's too early.

It's too early, yes. Cold today doesn't help, but if it's really this cold all the way out to mid-summer, then it helps.

Final question from me is, you had some reasonably heightened maintenance activity in the paper division last year. Is that going to happen this year as well, that we should be aware of?

Sorry, what was the question, Lars?

Maintenance activity in the home and paper division. You had some reasonably big things last year, but you haven't called any this year.

No, not any significant. But in Q4 is always a quarter or normally always a quarter where we'll have more maintenance lumped together than other quarters. And that will be the case this year as well. But it's nothing in the neighborhood of the paperboard maintenance tops. But it could be 20, 30 million SEC, something in that neighborhood.

Very good. Thank you very much.

Thank you. Our next question is from Robin Santiverta of Carnegie. Please go ahead.

Yes, thank you very much, and good afternoon to everybody. Now, first on this fiber scarcity theme that you alluded to earlier in the call, it's quite interesting. I guess you could also argue that the fact of the matter is that we have quite strong economic recovery at the moment. And then we have a little bit of supply impact from COVID-19. What are the other elements? I know there are structural elements, and I guess most of us believe in them quite strongly even, but the magnitude of increases in this industry is quite sharp. Many of them must be cyclical. So do you agree on this or do you believe the key driver is more a fundamental shift in supply and demand or is it at the end of the day a bit more cyclical still?

I think normally there is always a correction sooner or later, but to what extent that correction and when, it's very difficult to say. But there are a few things that have happened that we know of. Of course, we know that China have closed the door when it comes to recycled fiber imports. That fiber takes other routes today. Maybe that means that some of the fibers disappear. We know that there is quite high demand for tissues. which goes down in the toilet, which doesn't help the system. We have closed quite a lot of virgin-based capacity, which doesn't feed the system anymore. Nobody knows exactly how many times actually those fibers are being reused in the system. We say five to seven, but do we really know? I don't think so. so if we have reached a tipping point when where there is simply not enough fiber to collect and produce more products of don't know but something has happened which means at least for the moment there isn't enough and there is not lack of paper or board machines it's a lack of raw material today But where it will go, Robin, it's very difficult to say. I agree with you that normally there is always a correction, but exactly how, it's difficult to say.

Yeah, it will be very interesting to sort of follow this, I guess, backward integration with forest assets and fresh fiber supplies is not, at the end of the day, a bad place to be. Now, another question I have on the paper board business of yours. I know you have long contracts. You also apparently launched some price increase announcement during this spring. So how should we look upon this? How big proportion of the contracts can you increase during this year? Is this something that will go into 2021? to or even even further and another question on paper board now with the uh bigger maintenance uh coming up and working working working on and it gets soon uh is there bigger risk that there's sort of complication now with kobe 19 or is it sort of uh is it business as usual to do maintenance in this environment so those two on paper board thanks

We have quite a high share of long-term contracts in the paper board division, so the impact this year on the price movements will be quite limited. It's more the question how much will the impact be for next year. But as we always comment, this market prices are very slow moving. They hardly move up or downwards and it goes very, very slowly. And the second thing on the COVID, of course, it's more difficult to make these kind of major maintenance shots in the COVID times. It becomes more costly to do them. The cost increases just to run them in a safe and prudent manner.

We did it in a really good way in 2020 when we had the big maintenance shot at Iggesund, but Now, the big one, the first big one is in Workington, and one can, of course, only hope that we all got vaccinated until it's time to have the big maintenance shut at the Iggesund mill after the summer. But this one coming up, I mean, that's. Of course, we are we do everything we can to make sure that it should not happen anything, but there is always a risk in a pandemic that's of course.

yeah sure thanks and then finally just a quick one the balance in terms of energy so production versus con consumption could you provide some kind of guidance or input on on on that

After we have taken the Blåbärsliden wind farm into production, we will be 50% self-sufficient in terms of electricity.

Good. Thank you. That's all.

Thank you. Our next question is from Linus Larsson of SED. Please go ahead.

Thank you very much and a good day to everyone. I'd like to follow up on the wood product side. Spectacularly strong market, spectacularly strong results on back of that. And you did comment a bit, it sounds as if you don't expect the raw material costs to increase. significantly in the second quarter? How do you see pricing? What have you agreed for the second quarter? And also on the volume side, what are you planning for in terms of production and deliveries in the second quarter?

I think, first of all, Linus, that we are running as much as we can. And we have been doing so after we pulled a handbrake last spring, which was wrong for a few weeks. After that, we have tried to run or produce as much as possible. Where the saw log prices will go, we see that prices are on the move. They are increasing, which is not strange at all. And what will happen to the prices for wood products? That is really difficult to know where it's going. Right now, they are going up. That's as far as we can tell.

And you know that the... The producer stocks are more or less depleted. Nobody have stocks because everybody, the demand is so high. So it's very difficult to satisfy customer demands. The key question here is how was the stock level at the merchant's level? How much have they stocked up ahead of the big sale season during the spring? That would be the key determining factor of what happens to prices short term.

And at the current moment, as far as we know, they are at normal levels still.

Right, right. Now, I mean, what's remarkable is that it's the first quarter that is so spectacularly strong and really seasonality kicks in in the second quarter. So that's my question for Are you still seeing rising prices?

We have had frozen saw logs partly during the first quarter. Yes, we have had that, but we have done our best to increase production and to produce as much also during the first quarter, despite cold weather, I promise.

Right. Good. And then also follow up on paper, which did impressively well in the first quarter i mean volumes and change year and year is quite an achievement in this kind of market and you touched upon it already but how has this possible who who have you taken market share from i mean what type of producers have lost market share or is it the I mean, has the non-graphic paper products had any material impact as of yet? Or how can you explain this strong volume development in this type of market?

no other products has no great influence on us yet what we did was that we first of all we decided not to sell as much as as we could have done in europe and we kept a bit open and of course we were not running full in any way but we kept quite a lot of open when we negotiated And we have taken on some business, especially from Asia, marginal business, which are, at least at the moment, better priced than the current fixed prices in Europe. And again, that's linked to a bit of fiber scarcity, actually.

In paper now, how much is non-European volume, would you say?

We haven't commented upon that, but I guess you can read it out from the quarterly report, the segment information.

Okay. Great. Thank you. Maybe, Linus, we should also add that not all business are priced at the same level and has been under the same pressure when it comes to the different segments we have also in graphic paper. There are quite big differences.

But just then, I'll just bring it up. I mean, are there some contracts which are still, I mean, are there still prices declining into the second quarter?

No, not in a significant manner.

No.

So we have taken the negative effects of the price declines that year.

Right. Gotcha. Thanks.

Thank you. Our next question is from Johannes Grinslis from Kepler Chevro. Please go ahead.

Yes. Hello, everyone. It's Johannes here. So most of my questions have been answered already, but maybe you can touch upon what you see in terms of cost inflation, and maybe you can help us or give some comments on recycled paper. Is that something that impacts you in any material way? Because those costs are up significantly, obviously.

You might recall that we were hit by cost inflation, I think, three years ago, 2017, where we were taken a bit by surprise at chemical costs. Pulpwood rose quite a lot. And since then, we have been working on to take down those costs and we're almost back, not really fully back at pre-2018 levels. Now we see that we have hit the bottom on the cost side. And as you see in most areas, we do see a cost inflation starting to ignite.

When it comes to recycled fibers, we do not use any recycled fibers ourselves. But the cost for recycled fibers in the market is quite important for the cost competitiveness of some of our products at least. And of course, right now we see that the cost or the price for recycled fibers is going up quite a lot. Both what goes into the graphics sector but also what goes into test liner and floating. So indirectly, it has an effect on us.

Okay, understood. I thought you were blending in some recycled fiber in the paper business, but you probably did that a long time ago and not anymore then.

You are correct.

Yes, okay, good. On the cost side, what are you seeing in terms of freight cost? How much are they up and is it a concern for you to get sort of available container capacity?

It has been a challenge during the, I would say, the last 15 months to get a hold of container capacity. Costs have increased. And that situation maybe have become a bit worse during the Q1. It have had some negative impact on the profit.

Some uncertainty, of course, when you have that container ship in the Suez getting stuck in the middle of the channel. Most of that has been resolved, but not all.

All right, all right. Okay, thank you very much.

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

Good afternoon. I have questions on three business areas, wood products, renewable energy and paperboard. I'll take the wood products first. And here's actually two questions. The first one is how important were sales to the United States in the first quarter? If you could quantify that, please. And will you be able to repeat that in Q2? Do we see it as a one-off? And then the second part on wood products is you mentioned lower harvesting levels in 2020. in Canada, or Western Canada, I presume, due to years of pine beetle infestations. Are there any signs that we will see similar reduction in Central Europe in coming years due to the pine beetle infestations there? That was my first question.

If we can start with the U.S. question, it's sort of 5% of our business volume-wise that goes to the U.S. I can't see that it's any change near time.

Remember that we started up that partly because we saw the Spruce Park beetle infestation and we knew that We might do better if we have an open channel also to the US, which then later on turned out to be a wise decision. And we have no clue what's going to happen with the spruce bark beetles this year. But of course, it makes sense to keep that channel open for us.

Can you increase volumes to the United States significantly?

I think the way you have to optimize the sawmill, the sourcing, and it's quite complicated. We have maximized from an economic perspective our sales to the U.S. given that we get so ridiculously well paid when selling to U.S. We sell as much as we can.

Sounds easy, but just to run spruce pine and then U.S., it's like pine number two. It's not that easy.

Right. Okay. I just wanted to get a feel for the flexibility in that sort of in those volumes. My second question is on renewable energy. You're now building out your wind power assets. And could you please provide sort of an estimated earnings impact for the wind power operations? Um, that that's one part. And then also I'm thinking a little bit about sort of the book value of the, um, of the, uh, of the wind power, the renewable energy. Uh, I mean, does that reflect the sort of, uh, under the market value of these operations or do you see a need to adjust those book values?

I can start with answering your question by a question. What will the electricity price be for the period you want to result? Kidding. We will depreciate the wind farm over 25 years, and the cost for running the wind farm is roughly 100 sec per megawatt hours. And our annual production, the normal year, is 440 gigawatt hours. And then you have to put in the electricity price you expect there to be. You will get the EBIT. That, of course, will be quite a large variation between years. If you look back to the last 10 years, you have had an average electricity price in Sweden of 350 sec per megawatt hour. But I can't give you or provide you with the guidance on the EBIT, but I can give you those parameters that I just gave.

Perfect. And that 100 kronor per megawatt hour, that is including the depreciation?

No, it's before depreciation. That's the cash cost on grid connection and maintenance and other stuff that you have to pay. But it's predominantly grid cost and maintenance. And then the other question, the book value of our hydropower assets doesn't reflect, it's a book value, doesn't reflect the market value. And so far we still do cost accounting for the hydropower division and we do not have any plans to go over to a market valuation on our hydropower.

Right. My final question is a fairly quick one on paperboard. You mentioned the positive mix change. Could you tell us a little bit more about that mix change, when it came, and what exactly it was, and how much of the improvement in earnings that we've seen in recent quarters could maybe be attributed to the mix changes?

We saw that change happening in Q2 last year. Not an exact date, but from the last 12 months, we have enjoyed a better product mix. We lost some good business and gained other business due to the pandemic. And if you look at the quarterly level, I would have said that... A year and a half ago, 170 million SEK was normal paperboard quarterly earnings. Now, the last 12 months, we have earned 230 million SEK a quarter, which is a good level. Maybe 30-40% of the improvement in earnings is due to a better mix, and the rest is due to our cost reductions due to the pulp mill investments.

I'm sorry, what was the nature of the product mix? Are they different products or different customers? And why did that change? Was it your initiative?

Well, let's say it's a better product-customer mix. The combination.

And was that something you initiated? I'm basically looking to see how sustainable is that improved mix.

You might recall that we actually were a bit in imbalance if you go two years back between production and sales. And now we have a management team of this division that actually have gotten things in balance. So you can't pinpoint one individual factor to this.

But also the fact that they were... It's not a corona impact that you've got somebody who's paying outrageous prices for some special product and wants... things get back to normal, you know, sales of that product or to that specific customer will disappear. That's what I'm trying to just... I don't think you have to be afraid of that.

No.

Okay.

And also we have worked hard on our quality, which is the basis for over time improving the mix.

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

Thank you.

There are no further questions at this time, so I'll hand back over to our speakers.

All right. Thank you very much. Very good. Interesting questions. Some of them really hard to answer as well, but still. And thank you for taking the time and hope to see you soon again. Maybe also in real life, not only through the camera. Thanks again. Bye bye.