Holmen AB (publ)

Good morning, everybody, and welcome to the interim report presentation for the Holman Group. It's me, Henrik, and Anders, the usual suspects. We will go through the presentation, and after that, we're happy to take on any questions you might have. So let's start. We are happy to be able to deliver a very strong result again in the first quarter of this year. I think we've been able to navigate in a quite challenging environment, not the least with the help of our forest assets and our energy assets. And on top of that, of course, also a very strong performance by our paper division. We'll come back to that a bit later. we've been able to deliver 28% operating margin. And when we make good money, of course, it has an effect on our cash flow, which, after having paid for the investments, actually was as high as 1.8 billion SEK in the first quarter, which means that at the end of the quarter, we were essentially debt-free. And right now, after dividends, we have roughly a bit more than 2.5 billion in net debt. You know that Holmen is a company where forest is the base for everything we do and in different ways we try to make our best to extract value for our shareholders. I think it's more than ever important in times when it's quite a big fierce competition for the for the wood in the forest, we'll come back to that, but first a few words about what we've actually been able to do. In Sweden and in Holmen, during a number of years, the way we have been actively managing our forest, we have been able to actually double the amount of wood standing in the forest, storing carbon every day, every year more and more, at the same time as we've been able to increase the harvest. And Extremely important, we have also, as one of two countries in the world, been able to increase the status of ecosystems and biodiversity in our forest, which means that when other people look at us, we are the best in the world. But we'll leave that for now. It's more like a reminder and a few words about the situation in the forest and the competition for the wood, which is higher than ever. Partly affected by Russians and the war in Ukraine, where the Russians supply into, let's say, our part of the market. From Russia mainly into Finland, Finland is no longer there. At the same time also, as we see, there are some investments soon coming on stream, not the least the chemipalp mill up in the north. This means that both the competition for saw logs and pulpboard is big, it's fierce. And we can see that on the prices, and the prices have gone up quite a lot. If we compare to where we are price-wise today to a long-term trend, which includes, I think, normal inflation, we are some 30% higher. Maybe you can elaborate a little bit on that and also what higher prices means for our profitability.

I will. The higher prices have, of course, translated into higher profits. If you just look at the profit level a year ago, we are 15% above that. But if you for a moment take away the change in value and also the sale of forest land that we have from time to time, and we look at the earnings level, the cash flow, the true cash flow we have from the forest operations, they are some 35% higher than the trend levels that we use when we value our forest assets so we have seen a significant boost from higher selling prices in the cash flow that we have from our own forest assets it's a bit hard to see sometimes but it's there yeah right moving over to paperboard you know we are in a niche market where not so many players not the biggest market in the world but very interesting market

But also here we can see that demand has slowed down, especially because we were extremely high during the pandemic when customers were ordering more or less in panic. Now we see that most customers, they have a bit too much in stock and they need to destock, which has an effect on the market. It has also an effect on us. Our order book is not bad. We are normally running full, but also we feel what is happening in the market. We also see that the interest for buying our board from the customers we really want to do business with, it's high, but also they are destocking at the moment. When it comes to the price development in the market, we can see that most other grades like test liner, white line chip, also craft liner. Well, the price pressure is there and prices are on their way down. We should remember, though, we've said it many times in the niche where we are for folding box board and especially for solid bleach board. It takes time to change the price. And even though many people talk about the pulp price and the pulp price and what effect it has on our pricing, it usually doesn't have such big effect. Now we're in a situation where we have increased our prices in order to compensate for higher costs, which you will comment on this. But we should remember that pulp price not necessarily have to have an effect on our pricing. And so far, our prices are stable. When it comes to our possibilities to increase our production over time, We can agree to right now this was not the best quarter, but we see that especially for the Iggesund mill, we have the chance to increase production over time. But it takes some years, and we take it step by step in investing a bit more money than we normally do in order to... Well, increased sales and production, of course, long-term, based on, which is very important, our position, having our own forest, strong position in the wood market, but also our energy situation. All right, Ines, to try to sum up, what kind of profitability?

Yes, we had a good quarter, first quarter of this year. Henrik, you mentioned the price increases. They have been cost-driven. Cost for wood and chemicals have increased quite a lot during the last two years. And prices have increased to cover that increase of cost. So underlying margin is higher. rather unchanged in the board business but you can see we have had a few quarters with strong results if you take out the maintenance stop last quarter and but that's due to sale of excess electricity in the uk where pricing levels have been very high when you sell our excess electricity In the first quarter, prices came down quite dramatically in the UK, but our selling prices were good due to hedges we have had. We don't have any hedges going forward for the sale of UK electricity. And the gain we made on selling electricity made up half of the operating profit in the first quarter.

Thank you. There's a lot of information there. Okay, moving on to paper. Paperboard is the place you want to be because long-term there is increased demand. When it comes to paper, we know for a long period that, well, it's not increasing demand. Demand is going down structurally. Still, this quarter, you will come back to it, it was fantastic, a bit over 800 million SEK. And how is that possible? Well... We are part of the market and as I said demand is slowing down or is coming down and also we are affected of course. We take constantly market shares and we have increased prices. I think we were even a bit late with the last price increase which had an extra effect in the first quarter. But even we feel that the demand is slowing down and we are not running to 100%. We are running roughly at 80%. If we make use of the time where we're not running the machines to optimize in whatever way we can also when we do not run to make sure we do the best we can when it comes to our energy positions. We are a player, we have been successful in especially book papers and in product development in different ways and we are in this market to stay. We also have a strategy which is a last man standing strategy based on our cost competitiveness. We talked a lot about our energy situation, which is perhaps not possible to keep in the same way forever. But Swedish wood and local wood and Swedish fossil free energy is not the bad concept compared to our competitors down in continental Europe. Especially the ones, if you look at the German bar, the dark blue part, that's the capacity based on the same concept as ours, meaning local wood and German electricity prices. There we have a really strong cost competitiveness. Also, when it comes to the other ones we compete with in recycled fibers in combination to local energy, sure, electricity and energy prices have come down in continental Europe. Still, they are on a higher level than historically. And when it comes to recycled fiber prices... Well, old newspapers and magazines has also come down a bit, but it's still on quite high level. And it's a scarcity. And the cost for sorting out what you need to make use of in order to produce paper, it's also quite high. We have decided that we will... actually spend some money in making sure that we can not only make an even better book paper, especially broadening our palette, but also to be able to increase the production of our floating product we have introduced into the market. No big volumes left yet, but where we have an idea to maybe produce like 100,000 tons in a year. 33 years time from now. It's an investment of 450 million SEK roughly, and it's a way to make sure that we can run book papers more efficiently in higher grammages and also to produce the floating rates in a more efficient way. High prices, control of electricity can only mean one thing.

Another stellar performance in the paper division. As Henrik mentioned, we were a bit late on hiking the prices in Q4, which we were, on the other hand, able to maintain throughout the first quarter, which meant that we had a tailwind from higher prices in Q1. We did also see that the market became very, very soft and took more downtime than we had to do last year. When we saw that situation happening, we decided to close some of our electricity hedges, which we benefited from in the first quarter in the magnitude of 250 million SEK. in lower electricity cost due to that action. That's nothing that we will have going forward. It's a bit of a one time when we maneuver in the market.

But it wasn't the first time?

No.

Then moving on to wood products. It's a lot of discussion in the wood products market at the moment. And, you know, it has been quite a volatile journey over the years with some fantastic quarters if we go back half a year or so. And now we have a situation where demand is really not helping. High inflation, high interest rates, low activity in the building sector, especially here in the Nordic countries, maybe especially in Sweden. we see that we will not get much help from demand right now. But we have to understand also the other side of the equation, meaning the supply. In Sweden, we are running the saw mills, I wouldn't say flat, because some of the saw mills definitely have a problem to actually have access to enough saw logs, lack of raw material or very tough to get it, but almost flat. But if you come to look at continental Europe, there we've had the bark beetle infestation, which is a problem. More logs than normal have been taken out of the forest and we're now in a situation where the cost is a bit higher and supply is coming down. Same in Canada. Also there, beetle infestation and quite high cost, especially in British Columbia. And then we have Russia. And the Russian volumes, we do not see them in Western Europe at least anymore or in the U.S. Maybe for sure some is going to the eastern part of the world. But there are a few things making supply a bit lower than normal. The question is where it will go. We feel at the moment that prices are, well, at best they have bottomed out, but very difficult to know exactly what will happen. What we do know, and we're absolutely sure about that, I would say is that Wood products as an alternative to concrete and steel will for sure be interesting in the future. And our interest in expanding is absolutely still there. We also know that over time, Wood products most likely will, as historically prices will be tightly linked to the development for especially concrete and steel. And we know what EU has in mind, meaning that free allocation of emission rights will be phased out and there will be an increased cost to produce concrete over time. Joe Anders, no good demand doesn't mean any good business for the moment.

No, of course. We are at a very slow point in the business cycle with a low construction demand. But we make ends meet. We have a more or less zero operating profit. Prices have stabilized at historically high levels, but so have wood costs. They are running clearly above before the boom that we enjoyed the last two years. But when you run a sawmill, you also get more paid for the chips that you sell from the sawmill to the pulp mills. So that...

keeps up the the profitability for the swedish showmills right now and then renewable energy something we need much more of if we're going to make sure that we do the green transition we talk about and you will come back to that anders but it's not only windmills that are important the hydropower is becoming more and more important and that's also seen for us If you look at the market, well, prices, electricity prices, they are not as they were during the pandemic when it was very strange or extremely high prices, especially in continental Europe. We are now in a situation where prices have come down, but they haven't come down. the level we were used to historically. And not even in the northern parts of Sweden, where we have the majority of our production. Which means that, again, a good quarter.

Yes, we recorded another strong quarter from our hydro and wind power, where we actually saw an increasing contribution from wind because of good production. As Henrik mentioned, prices are 50% higher than historically normal levels. But to be clear, also in our renewable business, we only have wind and hydropower. We run a lot of other renewable energy businesses. All our four other business areas are part of the energy business, sell things, services or goods. even the forest division, but they are reported in those business areas. So this is a clean hydro and wind power business. We can illustrate on the next slide, Henrik, what it means when you run a hydropower station. It's actually the only large scale battery there is, which means that we Yet another quarter received 20% higher prices for the hydro business than if you were to run it straight throughout the quarter. But this includes also the support services that we sell to the grid operator.

That's the extra 100 or more. Finally, to sum up maybe more what the kind of a company Holmen is. It's just nice to see that our business model works in good and bad times and the idea of growing houses and making sure that we contribute to the green transitions and also all five, I would say, business areas in our company actually contributes in different ways. All right. That concludes our presentation and we're happy to take on questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone with a question may press star and one at this time. The first question comes from Johannes Grunellius from D&B. Please go ahead.

Yes, good morning. It's Johannes here. I have two questions. The first one is on paper, obviously a very important contributor for profits for the group. There is, of course, headwind now from lower paper prices. At the same time, I mean, OPEX might come off also, Q2 versus Q1. Can you help us to elaborate a bit on how you foresee sort of profits margins for Q2 here?

Well, you're right to call out prices are going down, of course. We can't comment on the magnitude of that. And then we did have this very good maneuvering on energy once again in the Q1 that we don't expect to repeat in Q2. So that will be a headwind going into the second quarter.

When it comes to pricing, I think you should see it as we make prices from quarter to quarter.

Yes. I think I missed that one, the detail. How much was the extra power gain from power cells in Q1?

Around 250 million sec.

Okay, and that will not be repeated then?

No, not as we expected.

Yeah, okay. Then on the paper board, I think you mentioned that you were a bit late on price hikes, if I heard you correctly. Could you elaborate a little bit on the full year, how you sort of foresee where you are in terms of profits in Q1 compared to coming quarters? Where are you also in terms of, if you can mention sort of, I suppose you go on full volumes, but the market must be extremely depressed at the moment. Can you comment on that?

If I start, you mentioned we're a bit late on price. I was actually in paper where we were a bit late to increase the price that we see an effect on now in the first quarter. But paperboard, Anders, and the combination of paperboard and electricity.

Yeah, as I mentioned, 150 million SEC gain on electricity in sale of UK electricity in the first quarter. We don't expect that to be repeated in the second quarter. Yeah. And I think you asked on pricing. We have seen the price changes. They came through in the first quarter in the paperboard division. So as of now, we don't expect any changes going forward.

Right, right. And on volumes, I suppose you have exposure to a lot of small initial segments. So I suppose you are quite stable there on volumes. Yes.

going going forward for for the coming quarters i said before that also we feel of course that customers are destocking so even if the underlying demand is good at the moment we do feel that customers they don't need to buy as much per month per quarter as they usually do and when that is going to be over and we come back to more or less normal even though we are we also having a climate or environment which is a bit depressed at the moment it's difficult to say our order book is okay but we also said that we are not 100 happy with the production which means that the order book would have been a bit less good if we had produced exactly as we would have wanted okay that's understood thanks a lot thank you

The next question comes from Linus Larsson from SEB. Please go ahead.

Yes, hello. I beg your pardon. I actually missed the previous question here, but coming back to paper board and the bridge into the second quarter, I think you've written in the report that the The maintenance stock will have an impact of, I think, 140 million. Please correct me if I'm wrong there. And also, please, could you just repeat, what's the bridge from this energy situation? I missed that. I know you said it twice by now, but if you could please just clarify that again.

It's a bit unusual situation. We did hedges, which meant that we locked in very good pricing in the first quarter. And that will not come back. We don't have hedges for the second quarter. And that will mean a drop of 150 million sec quarter over quarter. And then you're correct. We will have a maintenance stop, quite a big one in the UK, which we expect will impact profits negatively by 140 million in the second quarter.

So Q2 EBIT in paper board is pretty much zero then?

We haven't performed in the second quarter yet, so we don't know. We'll stay back in the first quarter. We prefer to talk about that. But the math is correct, yes.

Yeah, that's understood. And then just thanks for clarifying that again. Then just on CapEx, you're announcing this investment at Braviken, 450 million. That's in 2024 mainly, if I understand you right. For the group, what's the updated CapEx guidance for 2023 and 2024, if I may?

With the ongoing and the investment plans we have, we are around 2 billion SEC, both 2023 and 2024. Each year, 2 billion a year.

Many thanks for that.

The next question comes from Martin Melby from ABG Sandal Collier. Please go ahead.

Yes, good morning. My question was about the 250 and the 150 million, but just to be double sure that we should deduct 400 million into Q4, Q2 from the Q1 number.

Yes, that's correct.

Excellent.

The next question comes from Oskar Lindström from Danske Bank. Please go ahead. Mr. Lindström, your line is open. Maybe you're on mute.

Yes, good morning. This is Oskar Lindström from Danske Bank. So just to double check here, it is 150 boosts that you had in Q1 from electricity hedges that will not be repeated in Q2. 150.

In paperboard, that's correct.

In paperboard. Yeah, paperboard. And then you will have 140 million stopped in Q2. That's correct.

That's correct.

All right, super. And I have two actual questions, and both of them are on wood products. Could you talk a little bit about the market situation in Europe, which seems to be maybe not that bad, and what you expect for the rest of the year, or maybe what you expect for Q2 at least? And then a follow-up on that is, Are you seeing any production curtailments from other producers or regions? What's keeping the market relatively balanced at this moment?

I think you almost answered the question, Oskar. You're right. It's not demand because demand is not very good. We have been able to keep up our deliveries in a good way if you look at the statistics from us. And we have been able to find some pockets perhaps where the Russians used to be delivering. That's part of it. But it's also supply, as you said. It's less supply from Canada, too high cost, less supply from some continental producers, combination of cost, and I guess also... earlier infestation of bark beetles. And you have the Russians, which are not in play when it comes to the Western world, at least. So we don't expect to be saved by demand. It's a question of understanding what will happen to supply. And we also see that in Sweden, for example, it's a very fierce competition for the raw material where some players simply don't find enough saw logs to run full. Also, we pulled the handbrake a little bit. So it's a game about where actually supply is more or less balancing the market today. It's not demand that we expect a lot from for the moment.

And do you expect this to be able to sort of continue into the rest of the year? Is there any reason why we should expect supply to tighten further?

Difficult to say. Any comment?

It's difficult, but we don't see any signs of supply increasing anywhere, I would say. We're filling holes that others have left, and that's why we do have very strong delivery volumes, both this quarter and the previous quarter.

But Oskar, you see, we just keep the nose over the water surface level right now. And I think Swedes have fairly good cost competitiveness in general. So that puts some restraint on the market as well.

All right. Thank you.

As a reminder, if you wish to register for a question, please press star and one. The next question comes from Robinson from Carnegie. Please go ahead.

Thank you very much, and good morning, everybody. I have a question just to continue on wood products. You say you have good deliveries. That's good news, but what about prices going forward? There's a bit of a mixed message. I can see at least the Finnish export prices going up now a few months in a row, but I can see the U.S., lumber prices are not picking up, actually declining. So should we expect prices for you guys or in Europe on timber prices to go up?

Robin, it's not easy to know where they're going. You're right. The US is up one week, down the next week, etc. And I said before that we feel we are maybe at the bottom at best, but it's not easy to know.

When you calculate our average price in Q1, just to be clear, compared to Q4, it's up, but that's not due to price increases. It's a better sales mix from our perspective. So prices have in Q1 been sidelined with the latter part of the Q4.

All right, I understand. In terms of, sorry if you have answered this already, I was a bit late to the call, unfortunately, but in terms of paper board, what do you see on demand and volumes? We've seen some peers with quite, sort of complaining about quite heavy customer inventory, destocking. Is that what you see as well? If so, when do you expect it to end? Or are your sort of segments niche enough to not have that dynamics?

We are very happy with the niche where we are, but unfortunately also our customers are destocking. I think that goes in general right now. So the order stock is a bit lower than normal. It's not really, really bad. We haven't taken any market-related downtime, but we have not also produced at our very best. It could have been a bit better. So we also wait to see when customers start destocking. Then we see a lot of interest and potential, but that comes later. So sales potential in the future looks good, but right now we also feel D-stop.

All right. Could you just remind us about the price structure? I guess you have quite long price agreements, but we can still see increased prices quite significantly recently. So is there then sort of price pressure now already this year or is something that due to this sort of contract structure we need to sort of wait to see if prices... move next year or the year after that? How does that work?

Thank you. You see price pressure and also see reduced prices in the statistics when it comes to different products like white line chip or test liner and craft liner. But you also see that folding box board and even more so in solid bleach board prices have not moved. And that's historically quite normal. Also, when pulp prices goes up and down, that price tend to stay stable. We don't know where it's going, but we know that our prices are stable for the moment.

And you can add that our price increases have just covered the cost increases for chemicals and wood. And wood prices are still on the rise. So the cost pressure is not really... It's not easing. It's not easing.

Yeah, I'm coming to that story with a lot of questions, but I guess that is quite an important topic. So how do you see, Paul, would some of your peers say prices have stopped going up? Others say they will continue up. I can certainly see weekly prices in Finland go up every week.

Yes.

Finland is very close to Sweden. Okay. But how should we see, I mean, historically, pulp prices trade down once pulp and paper board paper prices turn down. Now it doesn't seem, at least now, to be the case. So how should we expect? I mean, is this just a lag or will it not happen this time? Yeah.

You still have very strong margins making pulp and that's the wood and the difference between pulp price and wood prices is still way off historical levels and there's a scarcity of wood in the Nordic since the closure of the Russian volumes and we still see last week we saw a forestry association hike prices in Sweden so we don't feel that the situation is stabilizing on the wood market.

It seems to be the case. And the final one I have on paper, so we covered the 150 in paper board from electricity, but in paper, how does the dynamics work? So you sort of have a hedge at a very low price and where you do not produce, you can essentially close that hedge and make money because the hedge level is below the spot price. That's sort of how it works.

We constantly work in numerous ways on the energy market. If you're in paper and any materials business, you need to be on your toes with respect to the energy market. It has been so turbulent, especially the second half last year. So when you see that you will not consume as much electricity as you had bought, there were opportunities in the market that we took advantage of.

And that amounted to 250 million in Q1. Probably the same amounts or even more in Q3, Q4 last year.

Q4 was not that much because we had maintenance stops and the market was quite difficult, but we benefited in Q2 and Q3, but from other effects than the effect we had in Q1. So this is a market where you have to be on your toes all the time. But we don't expect to repeat right now because it's a bit more stable market we are in right now.

I understand. Sorry for many questions, but the good answers. Thank you very much. Have a good Friday.

Same to you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the management for any closing remarks.

Thank you very much for taking your time. Good questions, good discussions, and have a nice day and a nice weekend. See you soon. Bye-bye.