Holmen AB

Good morning, everybody, and welcome to the year-end report presentation for Holmen. We are the usual suspects. It's Anders Jernhall and myself, Henrik Sjölund. And we do, as always, we go through the presentation, and then we're happy to take any questions you have. But let's start with a comment about 2023 and the last quarter. Well, it's another really good performance and result if you look at the total year, despite some challenging market conditions during the year. Especially in the fourth quarter, we felt that market conditions were a bit tougher and also a rather big maintenance stop in the bore division. In those times, it's a nice feeling to have stable earnings, not least from our forest division and in the fourth quarter also hydropower, which we will come back to a bit later. Given the good performance during 2023 in our strong financial position, the board of directors in Holmen have proposed to the annual general meeting to increase the ordinary dividend from 8 to 8.50 and also to give an extra dividend of SEK 3. If we look just shortly on our financial position, in 2023, we have not only paid an ordinary dividend, an extra dividend, we bought back shares for a bit over a billion SEK. We also invested a bit over one and a half billion SEK in our industry. And still we have a net debt situation where we have less than two billion SEK of net debt. So the situation is very strong. And let's move into our business areas then. And starting off with our forest division. And a few words about the wood market. And I think we have shown this slide for a number of quarters now, Anders. And the situation is a bit the same as before, where prices are moving up. But in the fourth quarter, we do see that saw log prices are still increasing. And just a few number of days ago, we saw an announcement of another price increase in southern Sweden. But if you look at the pulpwood market, maybe it's more correct to say that pulpwood prices were more or less stable in the fourth quarter. If we then take a look at can the industry really afford those prices we have right now? Well, if we look at the sawmill operators and we take the market price for wood products net or less what sawmills pay for saw logs, we see that the margin left is more or less on line with what it has been historically. On the other hand, if we look at pulp mills and the structural change and what has happened in the pulp mill industry during a number of years and the price for pulp less the cost for pulp wood, we see that there is actually some margin left. They could pay even more for the pulp wood. Also looking at prices, where they are now, and if we go back some 20 years, we can see that prices have actually increased, not only in line with inflation, but a bit more than inflation over the last 20 years. So higher prices, Anders, that normally means more money when it comes to our forest division.

That's correct, Henrik. Over the last year, the higher prices have translated into a roughly 100 million SEC pickup in profit levels per quarter. And if we go back as long as Henrik did 20 years ago, the cash flow from the forest are more than double that they were 20 years ago. And of course, this higher price level have supported the transaction prices for forest properties in the market. And in our case, the value of our forest assets based on the forest transactions have increased another 8% to 56 billion. And since we introduced this market-based valuation method end of 2019, the value has increased by 15 billion SEC. And to make ourselves comfortable with the valuation we have in our books, we already at the start of 2019 asked an external valuation firm to travel through all our forest holdings and do an assessment of the market value in each district where we have our forests. So they have over a five-year period. traveled through the forest, looked at the quality of the forest, the forest roads, closeness to forest industry, and looked at the local market prices in each individual spot. And they have made an assessment of the value, which normally every year has arrived at a value a few percentage points above the value we have in our books. Last year, actually, for the area they researched, they arrived at a 20% higher value, but that was because in 2022, prices were a bit inflated in Sweden. Looking at our method, which we think is a good method, we have three years worth of statistics and transaction prices, which gives stability to our pricing. If you compare our three-year average, It's still below if you only would look at the last 12 months transactions. So if you look at the last 12 months transactions, which most market participants or the statistics that are published look at, that gives a higher value than the 56 billion SEC value we have in our balance sheet. Talking about forest transactions, it's actually a very transparent market in Sweden. We have a government agency, Lantmäteriet. They have developed a valuation model, and that's a DCF model, discounted cash flow model. And that model is used by all the market participants, buyers, sellers, and brokers. And the government agency also issues a guidance on the price levels in different parts of Sweden and the costs for different forestry management actions. Everybody inputs these data into this model and then they put in the price they are prepared to pay for the forest property and they get the real yield in return from the model. And for 2023, that real yield on average compiled by this government agency was 2.6%. It's actually the highest yield when buying a forest property for the last 15 years. And as you can see from the graph that we show right now, the real yield on forest properties in Sweden never followed nominal yields, nominal government bond yields down. They've rather been quite stable. And if you had the 2.6% real yield expectation for a forest property with the information Henrik gave you on a 1.5% price increase in real terms over the last 20 years, well, you could expect a 4% real yield when buying a forest property today. That's not bad, Henrik. It feels like the forest could be even more expensive. Yes. And can you earn any more money rather than just harvesting?

Yeah, you're talking about the trees, but you can not only grow trees. As you know, you can also grow wind farms or windmills in the forest. But it all comes down to the possibility of getting environmental permits, as we have discussed quite many times standing here as well. Now we have two permits. And those permits would mean that we could increase our production by 40% of renewables. The first one is Blisterleden, which comes up for decision in the board during the first quarter, which could add on like 360 gigawatt hours. The question when it comes to windmills, I should say also that the other one, Stormelberget, would come up for decision roughly one year later. Everything we do in Holmen is almost a bet on the green transition in some way. Also, this is a bet that there will be a need for more green electricity in the future. And it makes sense to build it in the forest. As you said, it's not only the trees. You can actually combine trees and windmills in a very good way. It doesn't take... It's no effect on forestry itself by having windmills. The question is, which is being discussed a lot also in media these days, will there be too much of electricity in north of Sweden and not enough consumption? If you look at what the players have said themselves in terms of how much consumption will be added during the next, say, 10 years, it's a lot. That says that it should not be too much of excess capacity at the same time as there will also be a build-out of transmission capacity to other parts of Sweden. which means that the risk is not that high. And sooner or later, if green steel or hybrid wouldn't happen, I guess there will be other industries being interested in investing in some kind of industry projects where they need a lot of electricity as then prices will be cheaper for a while. But, Anders, this is wind, and in the fourth quarter, it wasn't much of wind. It was cold, and the weather was something different.