Holmen AB (publ)

Good morning everybody and welcome to the Interim Report presentation for Holmen. My name is Henrik and together with me I have Anders Jernhall, the usual suspects I think, most people we know by this time. And we do as we normally do, we go through the presentation and then we answer the questions you have. So let's start. Well, in the second quarter, we definitely realized that the demand in general for forest based products were a bit lower than normal based on high inflation and interest rates. And that has had an effect also on us. But still, despite that, we've been able to deliver a historic, very good result of a bit over 1.1 billion SEK. And also our cash flow has been really strong in the second quarter, meaning that we have been able to not only pay a normal dividend, but also an extra dividend in total, 2.6 billion SEK, and also buying back shares for roughly 1 billion and kept the net debt unchanged more or less through the second quarter at 2.6 billion SEK. Moving on to forest and the wood market. It's been a period now when it's been a lot of competition, not only for saw logs, but also for pulpwood. And you know the situation with Russia, which has an effect especially on the pulpwood market, that there is no raw material coming from there. And the situation in the second quarter has been that there's still a lot of fight for saw logs, for the saw mills. And I think the saw mills in Sweden, they've been, based on their cost position, running more or less full. Or as full as they've been able to if they have got hold of the saw logs, because it's been simply a bit of scarcity. And prices have continued to move up. In the pulpwood sector, also a lot of competition. But if we look at the situation in the Baltic states, as we import quite a bit from the Baltics in general in Sweden, we see that, well, at least it's coming down, slowing down, and it's not that extreme prices that we used to see. But Anders, if we look at price development, we are some 30% above the trend line right now, which also means more revenues for our forest division.

Yeah, we have seen a fantastic increase, step up increase in price levels, which have translated into a higher profit. We now earn roughly 100 million SEK more per quarter than we did going back only two years, and it shows that the very good business cycle for forest products have translated into a higher cash flow for the ones owning the forest. And we had quite a normal result in Q2. We can lump Q2 and Q1 together and get the running rate profits from the forest operations. We do not revalue our forest assets every quarter. We only revalue it in the fourth quarter every year. So we'll have to come back to that after Christmas. We will.

Okay, switching over to paperboard. It's been a... We're not used to this situation where we see that demand is actually going down quite a lot. On the other hand, to understand the market and where we are in terms of demand and also supply-demand balance, I think we have to look at 2021 and partly also 2022 where most customers were building inventories. And that we have felt for a while. And during the second quarter, we felt it again. Most players are struggling with low order intake and also, I think most players also are having market-related downtime. And also we feel that the market is weaker than usual. It's also price pressure in the market, but we should remember when it comes to our segment, folding box board and especially the solid bleach board segment, prices tend to move not that quick and also not in total correlation with the pulp price. When you look at our situation, as I said, also we have a bit lower order intake and Still, we believe that this market, even though it's a bit of overcapacity at the moment, if you look at the long-term trend, it's positive. And we have initiated now a long-term project in order to increase our cost competitiveness at the Iggesund mill, but also to increase our sales slowly in the coming, say, five, six years. Ja, Anders, second quarter.

Well, previous quarter we benefited from 150 million SEK from power hedges in UK that have of course not been repeated this year and will not be repeated in the foreseeable future. And we had a maintenance stop in the UK mill, which took away some 140 million SEC in profit. And then we have this softer market conditions that Henrik spoke about. Normally, in this part of the industry, you don't see it through lower prices, but you see that you have to take... you have to run shorter production cycles, which means that variable cost goes up and production volumes go down. And that has affected the second quarter profit in a negative way. Thanks.

Low demand for paperboard. Low demand also for paper. But here we are used to see that demand is going down year over year. The situation we have had in the second quarter is that, well, sure, demand is not that good. And also here we have to understand that the underlying demand is a bit difficult to understand exactly where it is. Of course, also here customers... They did tend to order a bit more than they needed some time ago. And there is a lot of inventories amongst our customers, as we have seen also in Paperboard. Here, as I said, cost has come down a bit on the continent for recycled fibers and also for energy, which means that there is a pressure on price. On the other hand, supply-demand balance, utilization rate in the market, is historically low. In general, for the products where we are active, it's 65-70%. which is affected by customers liquidating inventory, but still it's on a low level, which we have to keep in mind when we try to estimate the cost position for different players. Our cost position is good, has been good. But when to understand where it's going to be in the future, I think we do have a good position when it comes to last man standing strategy. But also we have to remember the low utilization rate means that the fixed cost per ton is kind of a break in the system. It's quite expensive to produce paper when you only run, say, four out of seven days, which is more or less the situation in the market for most players. We have done better than our competition. We have increased our market share, but also we take substantial downtime, which is, of course, a sign of a bit weak market. We also see something which is interesting. A very big mill in south of Germany right now, the Plattling mill owned by UPM, is announced to be closed, which is an indication of what the cost really is in different parts of Europe. Ja, even though prices are under pressure, Anders, second quarter was quite good, and on a historic level actually prices are still a bit higher than what we have been used to.

We performed a decent result, to say the least. Another stellar quarter from the paper division. You probably recall that we in the previous quarter benefited 250 million SEK from power hedges, closure of power hedges. That has not been repeated and will not be repeated. What we have seen this quarter, we have seen selling prices going down somewhat, impacting the profit negatively. But on the other hand, we actually do have a seasonality in our electricity hedges, which means that we have a benefit of 100 million sec lower electricity cost due to the seasonality in our hedges between Q2 and Q1. We expect somewhat increasing hedge levels in Q3 and Q4, but not a full 100 million sec up.

Thank you. Then to something which is not so easy to estimate exactly where we are. It looks like we have a lot of inventories when it comes to wood products. And there is some in the market. Well, if we look at, first of all, the price for wood products, sure, if we compare to last year in 2021, prices have come down quite a lot. Lately, during the second quarter, they have been broadly stable. And If you look at demand, well, demand is not very good in Europe. It's not taking off really in the US. And if you look at the building activity in particular in Sweden, it's really low. Still, Swedish sawmills are running more or less full as long as they can get hold of raw material, the saw logs they need to run. But to understand the balance of the market, supply is extremely important. And in this case, we have seen that Canada, for example, or not the least, first it was bark beetles, then bad weather, and now, unfortunately, terrifying forest fires all over the country, meaning supply from Canada has come down quite a lot. It also means that European producers of wood products have kept their market share in the U.S., Also in Europe, if you look at continental Europe, we know it's been a problem with bark beetle infestation and that has an effect on supply, not only short term, but more so a bit longer term. And up in Sweden, as I said, or in the Nordics here, we have produced quite a lot. But it's not easy to know where prices will go in the future, at least short term. A bit longer term, we do know that wood products tend to be priced according to or follow with good correlation when it comes to the concrete pricing. And concrete, well, everything speaks for that concrete will become more expensive over time. So this position to expand wood products feels like a good idea, good strategy. And the question is, of course, will higher concrete prices, when it translates in higher wood product prices, will it be in the pockets of the sawmill operators or the forest owners? That's still to be seen. And also a question, where should you be if you invest and you expand in wood products? Well, as I said, many countries have their problems. I didn't mention Russia, but Russia, we don't see Russian wood products in the Western world. We don't see so much of them even in Northern Africa and Middle East, but for sure there is Russian products going, especially into China and some neighboring countries. But where to be? Well, Canada has a problem. Russia is out of play. Continental Europe has a problem with bark beetle infestation. So I think Sweden and Finland is not bad when it comes to where to be in the wood products market. Prices down, but not that bad, but expensive wood.

That's true. The visuals here look awful with a significant drop in profits, but in reality it was mega profits in the previous two past years. Now we're maybe, given where we are in the cycle, we actually have return on capital in the wood products business around 7%, which is not bad for a commodity. type of product is selling to a segment, the construction segment, which is almost at all time lows. And that we actually do make a profit is that this part of the world is one of the where you have access to fiber at relatively acceptable costs. So a okay quarter to where we are in the cycle.

I totally agree. Then renewable energy. We need a lot more of this. If we start by looking at the electricity cost and the situation during the second quarter, we can see that electricity prices were a bit lower in the northern parts of Sweden where we have most of our production. And the energy situation as such in Europe was calming down and prices came down a bit. What we do know is that both short-term and long-term we need a lot more green electricity. Remind ourselves, still the world is totally fossil-fueled and it's not much different when we look at Europe. So for a company like us, we've said it many times, we believe it makes sense to try to increase our production of renewable energy in our own company. Speaking about that, we actually got the permit for at least 14 wind turbines at Blisterliden, where we will have to do our homework to see if we're going to take the investment decision. It feels like a good idea, but costs have come up, so we have to take a closer look at it. And that would mean that we could increase our production by some 15% in, let's say, 2026. Did we make any money in the second quarter?

Yes we did. Yet another graph that shows a significant decline in profits but you have to keep in mind we have had a few super quarters behind us. Normally in the second quarter we earn roughly 30 million sec or 40 million sec. This time we earned 100 million more. That's despite actually very low production volumes. We have very low winds and very low production in our hydropower stations. We had good prices in the northern part of Sweden, but what has changed since a few years ago and before the energy crisis, if we show the next slide, is that we earn, actually this quarter, we earned some 300 SEK per megawatt hour extra on our hydropower by our ability to time production to when prices are higher. that we deliver service to keep the frequency in the Swedish grid at 50 Hertz, and that people are willing to pay for the transition to a green economy. So it's a significant change in how valuable the hydropower is compared to before the energy crisis.

This is as much as we normally earn from selling electricity? Yeah. Fantastic. Before we take on the questions, just a quick reminder of what kind of a company we are and what we have achieved. This is extremely important for our business idea to make sure that we can manage our forest in a sustainable way. And actually we can in Sweden. That's one of the few places in the world where actually biodiversity is in a good shape, not deteriorating. There are so many misunderstandings about this when we meet people. And also, what kind of a company we are. Well, the business idea, we talked about wood products, etc., is really to grow houses with a long-term perspective, to grow trees, to be able to harvest and build as many houses and homes out of wood as possible, some 80 to 100 years. And we take care of everything that comes out of the forest, and that makes sense. And a company that can actually contribute with 7 million tons of positive CO2 effect is not bad. And that will increase if we, for example, invest in blister laden in the future or increase production of wood products, etc. So thank you for that. And we are happy to take any questions you might have.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 or their touch on 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 who has a question may press star and one at this time. Our first question comes from Larsen Lyons from CENT. Please go ahead.

Thank you very much, and a very good morning to everyone. Maybe following up on renewable energy, you touched upon it just now. It looks as if the premium that you get, the price premium, was actually higher in the second quarter than in any quarter of last year. So maybe if you could expand a bit on that, it seems that the hedging rate is still pretty low. So the explanations are what you touched upon, I presume. Is then the second quarter more representative in that way than any of the preceding four quarters?

When we're talking about getting paid to stabilize the grid, yes, those revenues have increased. We don't know for how long. We know that batteries are coming into this market at the same time as the demand increases. for these kind of services are increasing by the month. So it's difficult to forecast what the sort of steady state revenue addition will be for this product. I can add to that that actually we sell as much or actually even more services from our paper division to stabilize the grid and earn more money on the paper side than we actually do in the energy side. It's partly underpinning our competitive position in the paper division. Then you have the second element, it's the ability to time, which in the third quarter is normally, on the hydropower stations, normally not as good as they are in the second quarter because you have to run the stations when you have a lot of rain coming.

And so if we... If we talk about grid stabilization services and income from that, what was it in renewable energy and what was it in paper in the second quarter?

We will not quantify it, but it's significant additions to both divisions.

And staying with paper, Just to understand, as you said, it was a very strong result in the second quarter given market conditions. Could you help us bridge the developments into the third quarter, please? You said that we will not see a full reversal of that 100 million benefit that we saw Q2 and Q1 from electricity hedging seasonality. But how much of a reversal will we see in the second quarter? And also, On paper pricing, if you could update us on contract length and the speed of decline that we may see in the third compared to the second quarter. And adding to that, of course, on the volume side, how do you see production developing Q3 and Q2, please?

I'll take the easy part of the question, the electricity side of it. We'll have a somewhat increase in electricity prices in Q3. It's more of a step up in the fourth quarter due to the seasonality of how the hedges have been done. But on the other hand, we have lower fixed costs normally in the third quarter, and maybe these two effects are roughly the same size. Then over to Henrik for the more difficult one.

Linus, I think when it comes to pricing, we were a bit late in Holmen to increase prices. A little bit later than the market. And we benefited, you can say, from that in the first quarter. And we've been a little bit late also to reduce prices, maybe. But to know exactly where prices are going, that is not difficult. If you look at the utilization rate in the market, prices should have collapsed totally a long time ago. But it hasn't happened. And partly... The explanation is partly that when you run with such low utilization rate, of course, your fixed cost per ton is very high. We've been running with slightly higher utilization rate or operating rate in our own business than the market in general. But some players, well, they have a huge problem with also the fixed cost per ton. And then we know that energy and recycled fibers for the moment are a bit lower, meaning that variable cost is a bit lower on the continent. And also you have a mix on the continent of recycled fiber-based producers, the majority, and some fresh fiber-based producers like Plattling just recently announced that they will shut down fairly new machines, really new machines actually. So trying to understand exactly where prices are going. But so far, it's been kind of a break in the system. No collapse, but definitely price pressure in the market.

And in your case, what kind of contracts do you have for the time being? Oh, they are short.

They are not very long anymore.

Like on a monthly basis, practically speaking.

It differs. If you take some segments like book paper, for example, surely it's longer. But... say quarterly contracts roughly and then you have to take on some extra orders to make sure that you have a better booking situation or a realistic booking situation to run with high efficiency and then surely it's from week to week depending on what business you take on.

And when you look at your production planning for the time being in the paper division do you expect the same lower or higher production Q3 and Q2?

We are running at roughly the same level as we have for some while now, where we do take a lot of market-related downtime, and we make sure that we don't increase our stock levels. And it's hard to know. It depends on the order intake that we have, but it's fairly stable. It's more the price per share.

Got it. That's very helpful. Thank you very much.

The next question comes from Robin Santauerta from Carnegie. Please, go ahead.

Thank you very much and good morning. Now, I have first a question related to this inventory destocking that we have in the supply chain. At the moment, you mentioned paper board and some also in paper. I guess this has continued now since the end of last year, and looking at the volumes that you and your peers report, certainly it cannot only be underlying sort of weakness. It must be some destocking as well. But how should we view this, you know, in H2? When essentially do you sort of guesstimate that this destocking could end? Do you see any sort of signs of this already now, or do we need to wait until 2024 to see this? That was a tricky one.

I think what we have to keep in mind, you're totally right. The underlying demand, if you take paperboard where it's more obvious, We had a period historically where demand was increasing in Europe by, say, 1% to 2%. And during the pandemic, the statistics showed that it was like maybe 4%, 5%. And that wasn't realistic. That we see now that most of that or a lot of it actually went into higher inventories because people were simply scared that they wouldn't get the volume. How long it will take? Well, we try to find out by looking at our customers' warehouses when we have a chance, but it's not that easy to know. But I'm quite sure that long term or a bit further off, we'll see some growth. But if it will be what most people thought, like 3-4%, that's not sure. Maybe we come back to something which is more realistic, like maybe 2%. But when it will end, I actually don't know. Do you know? Definitely not.

Do you see a potential for short-term restocking at some stage? Normally, when you go down really low in your inventory levels, there's a bit of a surge initially in demand, and then it stabilizes. Is this something that can happen early next year? Or is it just sort of a slow transition from, you know, this excessively weak delivery volumes and demand to sort of more normal levels?

I agree. I agree with the reasoning that could definitely happen. And when we speak to our customers, especially in the premium segment, we do feel that they have a sound business, but they do have to run down the stocks before they start ordering in a normal way again. We are not really there yet.

I understand. Thanks. Related to the pulpwood and log sort of market, we look at Scandinavia, I guess we could sort of put the Baltics in there as well. It's quite a big sort of market. And I understand we have the Russian border now closed that reduces a bit the sort of supply On the other hand, when I look at the Nordic companies, the operating rates are exceptionally low at the moment in all segments in this industry. What is keeping the log and demand and prices so high and the market so tight? I can see in Finland prices are coming off now

every week but in sweden they're still apparently going up why is this sort of dynamics and what should we expect you know for the rest of the year and 2024. this is a market that has tried to find an equation that didn't add up for a year now and the only way to solve that equation when russian volumes went uh work went out of uh question was to reduce um demand reduce production and maybe that's where we are now you maybe physically have a balanced market but that is relying on uh all the pulp mills taking downtime and they are not built for taking a downtime And you have new pulp beans starting up later this year. So when this cycle turns, we don't know when, there will not be enough pulpwood in this market for everybody to run full. Temporarily, of course, you could have some excess supply, which we see signs of in the Baltics. But you also have to keep in mind, you don't buy this volume spot. You buy it six, eight months forward. So you have to guess on when the market is turning, and are you going to say to your foresters, stop buying logs now, or pulpwood, logs everybody buys. And that's a big question. Of course, this is a market that could quiet down for a while, but the underlying problem is there. There's not enough wood in the Nordics as long as Russia is out of the game.

But isn't the solution where we already partly see the high cost smaller plants that are shutting down, not only temporarily, but for good?

That can also happen, but I guess that would be more logic to see when you have the new capacity coming up.

Right. I understand. Thank you very much for those answers.

Thank you, Robin.

The next question comes from Lars Kelberg from Credit Suisse. Please go ahead.

Thank you. I'm just going to stay a bit on the wood side. You continue to invest for growth. You're thinking about a sawmill up north in Iggesund. You're expanding that. How does that resonate with what you just said about wood shortages? And also, how do you think about the energy sector, which, of course, we're competing for wood, meaningfully asked, other sources of energy were really high. But are you seeing any signs of that part of the wood demand abating, meaning that energy is not going to be the big incremental wood taker? When it comes to pricing, you discussed that a bit on printing paper. I'm curious about, it feels as if order intake is so low. Is that part of the issue here that your customers don't want lower prices as of yet because they're sitting on inventory? And if so, does that resonate into new order intake? Those orders are coming in at lower pricing points. So how should we think about that? Is there incremental pressure as actually volumes were to pick up? Could that be an issue in itself when orders... And the final point I just want to ask a bit on, again, on paper, now you are running slow, which I guess you will have more electricity to help the grid out. Would it actually be beneficiary for you to operate at higher levels, given that you'd lose that electricity component? Would you make us think about that?

Thank you. Maybe I can start with the wood market. What I'm talking about, pulpwood, that is a market that is in shortage. That's a market... You don't import saw logs from Russia. You only import pulpwood and chips. So actually, this sawmilling business is strengthened when there's a scarcity of pulpwood and chips in this market. So you're completely right. You have to be very, very careful to not overheat the log market. We have experienced that ourselves when we built the Braavik and sawmill. So we... We have first-hand knowledge on how careful you have to be when you gradually increase. And you have to gradually increase your sawmill capacity. And that's sort of our primary focus is to keep stability on that market. But this business concept of a sawmill is strengthened by the shortage of the pulpwood.

that is my comment on the wood and then you have absolutely also remembering that given the position we have in the wood market also based on the forest we have and the position as such and with more so milling capacity also you have more the top of the trees comes out and also the wood chips etc which actually helps our sourcing to our own paper and board mills When it comes to paper, it was both price and electricity, etc. I think when you run a mill like we do, again, when you look at the market, like 65% operating rate, that's not enough. You can't run a mill like that. So you will have a number of players now running. simply too low and some running with higher operating rates like we do. Surely we take downtime, we as well, but not that much. We don't take as much so we can't run with fairly good efficiency at least. What will happen in the market? Well, I think, as I said before, right now it's kind of a break to a collapse in price that so many players are still there. But we do see that meals are closing and we have seen quite a lot of closures. And where it will go, well, that's not so easy to understand. When it comes to our possibility to help the grid, I think it doesn't matter so much whether we run totally full or if we run 80%. Yeah.

But to comment on your question, you're correct. We are taking more downtime now than we need to in order to be able to optimize the electricity price. To stabilize the grid, we don't need to take downtime. But if we're running at 80% now, we don't really know where the optimum is, maybe 90%, but we are unlikely to go back to full capacity utilization in paper. That business bundle is gone. Now we need to take downtime, but we take too much downtime now due to the softness of the market.

And also it's important for us to, we have learned a lot, to be able to be flexible. And if you run full, you are not that flexible. Where we are now, I think when it comes to flexibility, it's quite good, actually. But of course, we would benefit from a better market. And when you look at customers, whether they have taken down inventories, etc., yes maybe we will see that things are getting a little bit better when we come further down the road but remember that we have a structural decline in the market as well and that will continue and the question on energy sector demand for wood is that something you're seeing up or down or

I agree with your logic. Given where gas prices have gone down, the energy market has become much quieter. There should not be this much demand from the energy sector for fuel wood, but still there is. It doesn't really make sense, but still what we see in the market is a very strong demand for fuel wood. But logic says that it should fade away.

Yes.

All right. Thank you.

The next question comes from Oscar Lindström from Danske Bank. Please go ahead.

Good morning. Two sets of questions from me. The first one on wood products. You mentioned your mills in Sweden running relatively full or Swedish mills running relatively full. Canadian supply being restricted because of wildfires now. And then you talked about Central Europe. Could you say a little bit more about sort of the – and you mentioned the pine beetle and the impact of that. Could you say a little bit more about sort of what you're seeing near-term for supply out of Central Europe? Is it sort of lower harvesting levels due to less pine beetle infestations that's impacting? Or is there a large scarcity of wood in Central Europe for other reasons impacting? uh... supply uh... so that's that's my first question what's happening in central european would supply and then the second one is on on paper board uh... uh... we're seeing quite a lot of new paper board capacity being planned by different producers uh... potentially being planned anyway i mean is there enough demand if you look a couple of years out or Do you see that there needs to be capacity closures in order to accommodate this new capacity? And then what's sort of your – where do you fit in this space?

in this development but those were my two questions all right starting with continental europe i think oscar you're right right now actually we do not see that especially the germans that they produce less wood products it's more something that will need to happen as they have been forced to harvest more than their historic levels or sustainable levels in the forest Right now, we don't see it, but it will have to happen. Exactly when is hard to say. In Canada, we do see supplies going down quite a lot. We also see that in the US South, well, there it's increasing a bit, but we also see the Europeans being able to keep their market share in the US because of the Canadians supply. not supplying as much as they normally do. So when it comes to wood products overall, yes, it's supply demand where supply is extremely important to the balance right now.

On your second question, Oscar, for a long-term operator like us with a base in the forest that actually add value to our own forest, we think this kind of business cycle that we're in right now, it's good. because people sober up and postpone plans that were based on a bit, maybe too optimistic view on the market, as Henrik mentioned, that growth rate in paper should be 4-5% per year. It means people add... add a bit too much capacity and hence a cooling down on this sector is good because it enables a better capacity utilization further out. And the cancellations that you have seen most lately from the other day, that's good. We think it's good in this kind of market.

Definitely so. And I think most players were a bit too optimistic, like we already said, when also forecasting institutes were saying like 3%, 4%, maybe 5%, where we have only seen 1% to 2%. And we'll see what we come back to when things come back to normal again. Yeah, I do agree. Most people were overoptimistic.

It doesn't affect our plans. We have the lowest cost position. We have our own forest. We have our own energy. So we are the low cost producer if you look at us as a group.

But what we do in paperboard also, what we have in mind to do when we initiate this product, it's slowly increasing volumes in a segment where we know we have a very strong position. It's no really big volumes.

Maybe if I may, just a follow-up question then on paperboard. I mean, you made a loss now in the quarter, and this was, I guess, primarily driven by the... But the maintenance stop, but if we adjust for the maintenance stop, I mean, it was still quite a low result, if I may say so, given that prices remain at high levels. So you mentioned a negative impact from not only sort of low volumes or lower volumes per se, but also from not being able to sort of run longer production runs and sort of having a more chopped up production process. Could you... sort of give an estimate of the impact of sort of low volumes on earnings in paperboard in Q2?

If we previously had 200 million SEC as a normal quarterly result, we're maybe 100 million below that based on the softness of the market running short production cycles, not being able to take the orders we want to take and lower. Of course, we also have to take time down in this kind of market.

And you talked a little bit about this sort of impact of destocking. Where do you think destocking is in paperboard? I mean, are we in the worst of it right now, or do you see more of it ahead than you've passed?

Difficult to say. I think we are past the peak, but it's not over.

All right. Thank you.

The next question comes from . Please go ahead.

Yes, hello. It's Johannes here. I want to come back to a question on paper, and if you can help me to kind of reconcile the second quarter results, because if I simply take the reported EBIT from Q1, and I deduct, let's say, 250, because I think that was profit from power sales, and now I'm thinking about 100 million delta or a hundred million uplift from the seasonality you talked about in hedging. I come to basically similar EBIT quarter over quarter, but I also know from your report that prices seems to be six, seven percent down in your books. So it must be some lower cost or could it be better operations or something like that that explains why profits aren't falling more in the second quarter?

It's always difficult to go into deltas. But what I can say is that the performance in Q2 is pretty normal. But what we have ahead of us is somewhat increasing electricity bill in Q3 and a step up in the fourth quarter as well.

Okay. I was just thinking if it might be lower prices of chemicals or something like that or something, you know, change in the second quarter.

I can comment upon the cost inflation we do have. We do see lower cost of chemicals, but on the other hand, wood costs are going up. And these are more or less balancing each other out. But it's... Yeah.

Okay. Right, right. And then sort of a broader group question on your hedges. And... I appreciate the information in the annual report, but we are sort of half into 2023. But I think you mentioned in the report or highlighted in the report that you entered this year with 90% hedging for your industry's consuming power. Is this still the hedging ratio? And if you can give us some idea of how we should think about power prices for your industry for the coming quarters, everything else equal. And also just to confirm that you remain unhedged on Holmen Energy, on your sort of external production of power.

The only significant power consumption we have is in paper. And there we are fully hedged for our expected consumption for the rest of this year. And we are 65% hedged if you measure against full production, which means that if we continue to run 80%, we're higher hedged than that. next year yeah but we don't really know how much we will run next year and then i can confirm that that we have a quite low hedge ratio for our uh for the remainder of the year for our hydropower production and no hedges for 2024. right right but it sounds i'm i'm thinking your your power price level should be quite stable for the sequential quarters in paper am i right there yeah they they are up somewhat

Okay, okay. Good. Maybe I can also take the opportunity and ask you on paper board because your volumes are holding up a lot better than peers, which then is more exposed to maybe food and segments. If you could maybe talk a little bit about your breakdown on your addressable market and how you see the differences in the key and segments.

I think I mentioned before that when we talk to our customers, we feel that we are quite confident that over time we will be able to increase our sales. But we also hear the same things from most of our customers that's right now. Well, we must wait a bit to order our normal volumes. We have too much in stock and their business model is sound. It works. And yeah, So that's good to know for the future when we expand a little bit. But, of course, right now we are in this situation where we are affected by the market or slow demand as all the other ones. But also remember that in different segments, some segments we are more stable than other ones. And like you said, some segments are down quite a lot. Where we are in the premium segment, normally it's maybe a little bit more stable. But we do feel the market conditions as well right now.

Right, right. How much is your exposure to, roughly, to food and segments?

Very little. Almost nothing.

Very little, okay. Right, right. Okay. That's my question. Thanks a lot.

Thank you.

As a reminder, if you wish to register for the question, you may press star N1. The next question comes from Harry Taitonen from Norway. Please go ahead.

Yes, hi. Good morning. One question on the wood product still. I mean, the margin to 9% improvement from 6% in the first quarter. I think you talk about the impact of sort of the limited supply, but I think some of your peers have been more talking about it being seasonal improvement in the second quarter, because I think quite a lot of your peers also saw some improvement in the second quarter margins. But how much would you put down to seasonality and how much to the supply restrictions also? I think it's relevant because we are entering kind of season with lower Q3 and all that. So that would be good to hear your views on. Thank you.

You're right that there is a seasonal element in the wood products business. The Q2 is a normally good delivery season. where people expect to be able to sell more. And you have a slowing down, especially in the fourth quarter, I would say. So there is some seasonal element, but the underlying driver of this is that the demand is weak and the price levels are held up by the supply.

Great. Just another question, if I may. Just on that wind power projects uh seems that the permitting process is going uh getting some speed and you got the blister lead and permits and you have some other projects in the pipeline as well so if there's some change in the permitting procedures or can can we expect more permits coming up and also you referred that costs are up i mean are you referring to the What are the cost increases that you referred to that might be affecting the investment decision next year?

I can start with the cost. Of course, CAPA, it has become more expensive to buy turbines. How much? We don't know. We will initiate that negotiation process right now. But on the other hand, when you look at the case of investing in wind, when we made our first decision in December 2019, it was a lot of eyebrows raised at that point in time. It was not that a clear-cut case from the outside, at least, to do it. Now it's much more evident that we need and the society needs this wind and a lot of people are prepared to pay a premium to buy green electricity so that you have additional revenues that have come even to wind. we'll make a thorough evaluation as we always do on an investment case but our direction is that we do want to expand our wind power business of course definitely permitting is not it's an interesting topic of course but i think if you look at sweden right now trying to join nato the war in ukraine etc

The military has not made it easier to get permits. And if you take Blister Liden as an example, actually the wind farm was projected to be twice as big. And now we can do half of it, we can see, because of the military saying, no, can't use that part of the land, not for the moment at least. And it's a lot of unsecurity when it comes to the military. And then we have the communities with their veto right, which hasn't been changed yet. But everybody understands, also our government, that we need a lot more of green electricity. The question is how to get there. This case took us 10 years? 12. 12 years. So luckily we have a lot in the pipeline, but impossible to say how the permitting process will change.

But once we have built them, we have them for another 25 to 30 years as a revenue stream. We're at a very low OPEX level. They are very good for it. And I can add the comment, as you know, we made an expansion a year and a half ago. We both acquired outstanding shares in Varsvik and we commissioned Blåbärsliden. Over the last year and a half since we did that, which is less than a year and a half, we actually have already received the cash flow equivalent to almost a third of the capex. That was way better than our investment plans. Sometimes you have to be lucky as well, but it's also an illustration. It's so difficult to forecast, but this is a long-term asset that should give good cash flow over a 25-30 year cycle to our shareholders.

Absolutely. Thank you.

Thank you.

Excellent. Our last question comes from Cole Harper from Jefferies. Please go ahead.

Morning. Thanks for taking my question. I'd just like a little bit more commentary on the lumber and wood products market. Are you seeing anything different on the U.S. housing market or any signs of kind of demand uptick for your export business there at all or not at this stage? Thank you.

If you start by the U.S., the U.S. market is not bad, but it's not really taking off. We have kept the position in the U.S. for some time, and as things look right now, and as I said, less board products from Canada into the U.S., we will most probably keep our position for long term. What was the other question? You had one more?

And then You made an interesting comment earlier around effectively availability of pulpwood and saw logs in the different regions across Europe. Am I right in interpreting it saying that having a good saw mill with availability of saw logs in the Nordics will still be well-placed versus Central Eastern Europe, whereas there are going to be certain paper or more downstream pulp areas packaging businesses using pulpwood that may be more under pressure in the Nordic region. given the lack of fiber supply from Russia?

I think Sweden, Finland are two really good places to be when it comes to, also if you own a lot of forest like we do and having the position in the wood market, it's a good place to be, definitely. And in continental Europe, as you know, it's been mainly the infestation of the spruce bark beetle that has been a problem lately.

And we can add to that, if you look in continental Europe, where you have higher energy costs, maybe you're forced to close down your paper operations, like the illustration of the Platteville enclosure. It was a huge buyer of pulpwood and chips. Of course, that worsens the economics of a sawmill in that region. We don't really see that in the Nordics. On the contrary, we see more demand for pulpwood and chips coming on stream. It's a business with slim margins normally, and you have to be in a good ecosystem if you're going to thrive in that business.

Thank you. We have a follow-up question from Robin from Carnegie. Please go ahead.

Hi, guys. Just a final one I have on wood asset or forest asset, I should say, transaction prices in Sweden and on your area. I know you do not... do revaluation on a bi-annual basis, but rather at the end of the year. But I guess you operate in this market and you have a quite good sort of view about what is going on. So could you share sort of what is your view about transaction price levels compared to, for example, last year at the moment? And what should we expect for the second half and in 2024?

Last year was a bit of an exceptional year in terms of demand for forest assets. There were actors that were prepared to pay quite good premiums, especially for forest estates in legal entities. This year, we see that there is a normal, I would say, the normal demand for forest properties. And when we measure the value of our forest properties, of course, we look over a longer time horizon, which means that in our models, the two transactions are not that heavyweight. It's more of a longer-term average we do have. So, in short, what we see good demand in the market, but we don't see that overheated situation that there was last year.

So I guess the best guess is then prices a bit down from the high levels last year, this year.

You have to have a series of transactions to say what the price level is. That's why we use three years average. And the price levels we see in the market now is definitely higher than they were in the beginning of our measurement period.

I understand. I agree. Thank you very much.

We'll be back at the end of the year or beginning of next year. With that question. Yeah.

Our last follow-up question comes from Johannes Groselvis from DNB. Please go ahead.

Hello again. Yeah, I have a final follow-up, and that is if you can help us a bit with the latest CapEx update for this year and possibly next year, since you're doing something on the development and growth side as well in the company that would be useful to get the latest update. Thanks.

This year CapEx will likely land a bit short of two billion SEK. Difficult to give if I put the wind to the side because it's difficult to say how much that will be if we take a decision next year between one and a half and two billion next year. We do run expansion both in paperboard paper and wood products to add both production volume and product quality.

Okay, that's good. Thank you.

Thank you. Was that the last question?

Yes, this was the last question.

All right. Thank you very much. Very interesting questions. Hope we've been able to answer in an okay way, at least. Some of them were quite difficult, actually, and we can't always. Thank you very much for taking the time. See you soon again. Thank you.