Holmen AB (publ)

Good morning everybody and welcome to the interim report presentation for the Holmen Group. My name is Henrik Sjölund. This is Anders Jernhall. Most of you probably know us already. We'll do as we usually do. We go through the presentation and then we're happy to take any questions you might have. But today we do it in a slightly different order where we start with the business areas and we come to the report for the group at the end. But let's start with the forest and the wood market where we right now have a quite extreme situation where we also in the first quarter this year saw that wood prices continued to increase despite the fact that actually the industry was not running full. How can that be? Well, there are a few things. First of all, activity among private forest owners were not as high as normal. We also know that Sveaskog has a strategy to reduce harvesting. That's add to the situation. And then we do not have Russian volumes into the system coming from the east, which is also affecting the situation in the forest. If we then look at the industry, higher prices, if you take the sawmill industry first of all, so far, the sawmill industry has been able to more or less compensate for higher wood prices by actually the energy sector paying quite well. But going forward, when we now buy at rather high prices, we also see a difference between northern parts of Sweden and southern parts of Sweden. That will not be possible probably going forward, or it will not be possible. When it comes to the pulp industry, board and paper, it's slightly different because it's more of a challenge when it comes to volumes than the margins and to be able to distribute the extra cost over less volume simply. So the situation in the forest, prices still going up. We have both industry and forest, but if we concentrate on the forest and higher prices, that helps.

Yes, we see that wood earnings from the forest division takes another step up. Year over year, we have a 15% higher prices. But if we look over the last few years before the annual crisis, we see that Selling prices on average are some 50% higher. Of course, costs have increased somewhat, but not at all by the same magnitude. So cash flow earnings from the forest are now some 70% higher than they were before the energy prices. And the trees in the forest is also more valuable today than they were a few years ago. So all in all, that supports a higher earnings level from the forest, which where we had in the first quarter of 450 million SEC.

Going on to renewable energy. Here we had a situation in the first quarter where actually we had a real winter in Sweden for, I wouldn't say the first time, but in the Q1, it was a bit colder than what we have been used to. And a bit less water in the system also than normal, meaning a bit less hydropower production at the same time as nuclear in Sweden was not running full. On the continent, however, it was the opposite. Mild weather, nuclear working well, especially in France, at the same time as gas prices came down a bit. So for us, Anders, having most of the production up north in the cold winter, it also helps.

Yes, pricing were quite good, partly driven by low hydro situation, which meant that we produced less than we normally do in the first quarter. This is a quarter where we normally have the highest earnings. This year we had 200 million. If you go back once again before the energy crisis, first quarter result normally was 100 million SEK. Half of this difference this quarter is made up of that pricing is at a higher level than they used to be. The other half is that we have expanded our production. We have increased renewable electricity production by 50%, and we also get more paid for our products and what we do to adding renewable energy and support services to society. And if you look at our product portfolio, that now is two thirds hydro and one third wind. We get some 15 to 20 percent more paid than compared to the average spot price in the market. Not bad.

Going from support services to building in wood. Maybe we should say that there isn't enough being built in wood at the moment. The situation is simply, it's quite obvious that the construction sector is a bit too slow for this business, especially up in the Nordics and Sweden, high interest rates, etc. We are not building a lot. But it's still possible to sell the wood products, and there are some regions doing better than in this part of Europe. But prices were up a bit in the first quarter, but also at the same time as the wood cost came up. And I think the question is under higher prices, was that enough to compensate for a higher wood cost?

Well, the margin actually improved a bit, the gross margin. But we chose to take, we didn't run this almost full. It doesn't really make sense to hunt the last log in this kind of market. You get relatively little paid or fixed cost compensation for that. So we have been taking down our production pace a bit in this quarter. And we're running slightly negative EBIT, but positive cash flow in this division right now.

And the big question is, where is the price going? That we will see. All right, moving on to board and paper. Starting off with a couple of words about the market situation for board. We discussed quite a lot about destocking. Is it over or not? But when you look at statistics at the end of last year and also where we are right now, I think we can say that, well, destocking is over. Customers now have taken down their inventory level to quite normal levels. We also see it. Our order book is slightly better. But if you look at statistics in the graph here, of course, we are not back when it comes to demand to levels we were before, even though our order book is ticking up a bit. And you also know that pulp price has come up a bit, and that's like a break in the system when it comes to the possibility, especially for non-integrated players, buying the pulp to go for, say, rebates or making adjustments to the price in the market. you see the graph there and the pulp and folding box board is kind of coming together which helps but again i think it takes some time because the demand is not where it used to be before even though it's a bit better Paper. Well, we had a drastic drop of demand, which is... I mean, we've been used to it over the years. It's always going down. But if you look at where we are in the first quarter this year, it's more or less stable compared to where we were during last year, if you look at the running 12-month demand situation. Here, paper prices have come down a bit during the first quarter. That's clear. What we do see at the end of... Lately, I would say we do see that recycled fiber prices is ticking up a bit and we have the pulp market affecting also wood free products coming up a bit. So even though prices were sliding a bit, it's also kind of a little break in the system at least. Here in the paper, the operating rate for the industry is simply not sufficient. It's far too low. But in our case, we've been able to run, I'd say, as full as we would like to run the business, as we also need some flexibility, not the least to be able to not produce when electricity prices are really high. we have taken a bit of market share again especially in book paper we are doing really well so i'd say the situation is better than what what almost we could expect ourselves when it comes to how challenged the market is so under those two together

From the graph, you can see that the result is down, but it's down from very high levels. If you compare from four years ago, the drop is due to decline in paper prices from very, very high levels to high levels. And that we first quarter last year, we were able to sell a lot of excess electricity when we choose not to produce at very strong levels. So that explains the drop year over year. Comparing to previous quarter, there's an uptick in earnings in the reporting, but if you add back the maintenance stop we had in Q4, actually, we are a bit down on earnings levels. Prices have come down a bit, and costs, especially energy, due to rolling in new hedges into a new year, have come up a bit. Better board volumes helped us a bit in this quarter. And if you look at the number, Henrik, 370 million SEK, that's equivalent to almost 20% return on capital employed in an environment with lackluster demand and at the bottom of the cycle. It's pretty decent.

It is, yes, indeed. So if we then summarize the different business areas for the group, and look at what we were able to deliver in the first quarter it was close to 950 million sec which is again not bad actually rather good again in a situation where demand especially demand among consumers is not where it what we have been used to and also not building enough the construction cycle a week but we have kind of base earnings from hydro the forest of course and also a very good result from paper again i would say All right, then we have a few more slides, which is something you have not seen before, perhaps, but it's a way to put Holmen into context. Remember that the whole planet, and EU especially, we do have a very big challenge. We have to make sure that more of the fossil stays under the ground, and we have to make sure that we make use of what grows above the ground, like our forest, in a way where we also make a lot of consideration, especially to biodiversity. But how have we been performing in Europe? Well, when it comes to decarbonization in the industry, not much has happened. And also we have to admit that when it comes to biodiversity and ecosystems, it is a difficult situation where we need to improve. But this is Europe in general. When it comes to Sweden and Holmen, it looks quite different. On the left-hand side, you can see that we have, reduce our fossil emissions by some 90%. At the same time, the way we treat the forest and manage the forest, we've been able to increase the biodiversity index, meaning that the ecosystems actually are more or less intact or not affected by humans compared to before industrialization. Not so bad. But many people make the mistake and take Sweden as part of Europe and having the same situation as in the rest. That's that part. But Sweden, yes, we have a lot of forest. For sure we have. But we also have a fossil-free energy system which we should make use of, and which is not the case in most countries in Europe. And we do not only have a lot of wood and fossil free energy, we actually have clean air and we have a lot of water, which is again not the case in most countries in Europe. When we add that together and we look at where we are as a company when it comes to net zero and the target everybody has set for 2045 or 2050, we can see that what we do in the forest every year, we add on some one and a half million tons of CO2 being stored in the trees that grows a little bit better for every year. End. Some of the forest, especially the planks, they go into wooden buildings or frames somewhere and stay there for a couple of hundred years. That adds on roughly half a million tons more. And what do we have left then? Well, our own emissions, that's only 0.1. The 0.6 scope 3, well, we need to buy some chemicals and we need to buy some diesel, etc. to make sure that goods is transported into our industries and we ship it to our customers. All in all, it means that we are already today, we are roughly one and a half million tons positive or beyond net zero already today. Or you can also say for every ton of paper or board, that's roughly one and a half million tons. That corresponds to also one and a half million tons of stored CO2 in our total operations. If you then just finally conclude what we do in our operations, business model in Holmen. Well, everything starts with the land we own, where we plant trees every year. We plant trees with the aim to 800 years later to harvest, and we spend like 150 million to do that every year. We spend money on planting trees, but we also spend money on, shouldn't say planting, but building wind farms. Lately, we took a decision of one and a half billion to build a new wind farm in our forest. And if you look at the sawmill industry, which we, well, the trees, when we harvest, we aim at making as many planks and houses and homes as possible. Well, there right now, we invest both CLT and glulam capacity, and we also invest like half a billion to change the product mix and increase the capacity at our Iggesund sawmill. And the rest, which is our process industry, board and paper, there we right now we invest actually half a billion again roughly in order to enhance our book quality capacity and also to give give us a good chance to also produce base paper for transport packaging in an efficient way. And if you look at what we have been able to do in the process industry, Anders just said that we had like 18, 19% rows. The last 10 years in the process industry, we've been able to deliver almost 20% as an average for the last 10 years. I think that concludes what Holmen is in two minutes. So thank you and happy to take your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 who has a question may press star and one at this time. The first question comes from the line of Lindstrom Oscar with Danske Bank. Please go ahead.

Good morning. A couple of questions from me. The first one is on your balance sheet, which, I mean, remains very strong. And as you said, you're at the trough of the cycle. So hopefully cash flow will improve from here on. You know, what is your thinking around capital allocation and in particular investment plans? I mean, you've previously talked about potential investment in SCA, together with SCA in the Rundvik sawmill. You've talked about expanding Igesund. What's the status of both of these projects? And how much is it possible for you to invest in wind power, given long permit processes?

That was three questions, Oskar.

Henrik just described ongoing projects and then you correctly Oscar points out things that we have been talking about the expansion of the board mill in Iggesund given market conditions we will still invest in developing that mill but maybe focus more on quality rather than volume and pace it a bit slower than we previously have indicated. And the discussion on sawmilling, it's an interesting area for us to expand in, but it's an ongoing project that we are looking into. And wind, there are tremendous opportunities, but as you mentioned, it takes time. to get permits. We feel that we are picking up pace, and we have one that are due for investment decision a year from now. And then we have some further projects in the pipeline, but it takes some more time for them to get permits.

I think you follow the political discussion in media also, how to deal with the different cities or communities and their veto right right now.

Yes. Would you be open? I mean, you've acquired sawmills in the past. Is this something that you see that there's further opportunities for you to acquire sawmills in Sweden?

Our focus is normally to invest in our existing facilities. We know them best. But if, like Martinsson acquisition, suited us perfectly in the middle of our forest, then we look at those kind of opportunities. But it's not our primary strategy to grow through acquisitions.

Wonderful. Thank you. Just a final quick question. I mean, on forests, I mean, the energy sector, as you point out, seem to have continued to pay high prices for wood fuel. Is that likely to continue, given what's happening with energy prices in general, that they've come down quite a lot? I'm a little bit surprised that the energy sector is still buying a lot of wood chips. Why is that?

I think you indicate that it's not really logic, and I think we totally agree on that. Perhaps it doesn't continue, but it's also... I mean, I think it's about risk. They want to know that they have access to the fuel and that plays a role as well.

And the momentum of going towards biofuels is quite strong even on the continent. It's quite an efficient way to produce renewable energy. and go away from fossil energy on the continent. And we have also switched from in the Nordics away from peat to biofuels. And we don't really see any sign of that demand slowing down, actually.

All right. Thank you. Thank you.

The next question comes from the line of Santa Virta, Robin with Carnegie. Please go ahead.

Yes, good morning and hello everybody. I was wondering about the SON team market. What kind of demand outlook and price outlook is there for the high season now in Q2? Should we expect the normals of the seasonal uptick in demand? Should we expect higher prices Q and Q? And if that is the case, is it simply seasonality in terms of pricing?

I think it's not only demand. Demand is not very strong, that's clear. But supply is not given either. We see in Sweden that there is quite fierce competition for the wood. But it's actually the same in many other areas in the world. And yes, we did see prices coming up a bit in the first quarter. But where it's going, the market is not so easy to read. I don't know if you would like that, but...

Technically, pricing will be higher in Q2 than Q1 because March pricing was higher than January. But as Henrik mentioned, we don't really see the strong uptick in building or any signs on the demand side.

I think, yeah. It's more supply now.

I understand. I guess we need to have a stronger construction market to really get the demand going. In terms of the board and paper, the new segment, could you help? I'm sorry if I missed any kind of split or comments you made for us to understand. what kind of earnings the paper board business had and what kind of earnings the paper business had. Any kind of color you could share there?

The color we can share that roughly three quarters of the earnings is from the paper side and one quarter is from the board side in the first quarter.

All right. Thanks. Finally, then on paper board, I guess I heard you said that demand has improved but not yet very strong. Could you just Sort of help us understand whether the current demand reflects the underlying demand. You said no de-stocking anymore, but we have heard some companies speak about restocking as well. What are you experiencing at the moment?

But like I said, when we talk to our customers, destocking seems to be over and they have inventory levels at more or less normal levels. If they are starting to restock again, I really don't know. But also when we look at our own order book, well, sure, it looks better by default almost when you have had the situation with destocking for some time. But again, if you look at statistics and the demand level, also utilization rate in the industry, well, I think we need consumer spending to become a bit better to really say that it has changed.

I understand. Thank you very much.

The next question comes from the line of Hopfer, Christian, apologies, with Handelsbanken. Please go ahead.

All right, thanks for that. Good morning, everyone. Just one quick question from my side on board and paper. I think Anders, it was you saying that you have reached the bottom of the cycle, or that you are on the bottom of the cycle. Does that mean that you don't see, you know, prices for the business unit as a whole coming down further here in the second quarter?

That was more a general remark where it seems to maybe that the consumer cycle has bottomed out on the market. It's not sliding downwards. We still have some price pressure on paper. But as Henrik mentioned, the board side, it seems to have bottom out on the price side.

Right. And then finally, for me, on the forex side, 450 million on EBIT for forest. So there were no specific one-off items or anything like that in the first quarter.

It's a clean result. So you could say that's representing 450 million is representing the earnings levels at the current pricing of forest wood logs and pulpwood. Yeah. Thank you very much.

Thank you, Stjern.

We have another question from the line of Grunfilius Johannes with D&B Markets. Please go ahead.

Yes. Hi, everyone. Johannes here. I have two questions. My first question is on your board business and pricing. I mean, it seems that prices are picking up in packaging in general, but not so much on folding box, but it seems that could actually be some price pressure. How come that? Can you give some color on that and explain that, please?

But I think to start with, there is some overcapacity in the market. Most players could produce a bit more. And folding box board, well, when pulp prices were very low, the cost for producing folding box board were also lower, which means it's sometimes interesting to work with a price to gain more business. What we see now when pulp prices are going up, that means that the cost for producing folium box board is also increasing. And the possibility to reduce the price is not there in the same way anymore, at the same time as the market is ticking up a little bit at least.

Okay, yeah, that's helpful comments. But would you say, I mean... would you say that we could come to a situation in the short term where, where the industry could go for price hikes also on falling box sport?

We normally, we can't comment on, on that kind of forward looking.

Yeah. But fair enough. Could be cost driven.

Yeah. Yeah. Okay. Fair enough. And, um, I mean, since, since, uh, board is now emerging in the new business division, but, uh, Could you help us a little bit to understand the volumes? What I'm after is that if you have, I suppose, a lot of more additional capacity in your mills compared to where you're operating at the moment.

There is, we're not running, we're not on the board division, we're not back to where we started. should be in a normal market situation. We are running at a higher level than in Q4, but there's still some way to go before we are at full capacity.

Yeah. And then just the final question also on Borden and Borden, the paper division. numbers were pretty solid here, I would say, at least compared to my expectations. Were there anything unusual in the numbers whatsoever in the Q1? I mean, electricity trading or something like that?

No, it was a clean quarter from that perspective. Okay. Yeah, very clear. Thank you so much.

Thank you.

The next question comes from the line of Larsson Linus with SCB. Please go ahead.

Thank you very much, and good morning to everyone. Coming back to the forest and this strong Q1 EBIT, $452 million, you say it's representative at current pricing. Is it so that you're expecting higher prices in the second quarter? And also, is there any kind of seasonality that we should add to the picture when we look at the coming three quarters, please?

We can't comment on that, but everybody can read in the papers that there has been price increases made by some of the forestry associations. Both Södra and Mellanskog has increased their list prices. So it's an indication that the direction of pricing is still upwards. how much it's at what pace it's difficult to say and we don't really have much seasonality um q2 maybe a bit stronger in in harvesting and q3 we have more silviculture spendings thank you and then on board and paper the new super division uh if we look at the cost

outlook, let's say, in the second quarter, what's worth keeping in mind on the fiber side, but also what's on the energy side now, to what extent are you hedged, are you sitting on some lucrative energy hedge contracts in those operations, and that would be helpful.

You're pointing out wood costs are on the rise. There is a bit delay in wood costs for our industrial division, so they will go up a bit in the second quarter. Energy-wise, we have a new year with new levels of hedging prices. There is no major change to be expected in the coming quarters on the energy side, but we have a new level more. more or less.

When was that? Well, if we look at the first quarter, let's say, what are the energy hedge gains, if any, in the EBIT?

we don't this energy hedge gains is more that that we uh lock the cost and then we actually it was quite a volatile pricing quarter um which we benefit from we can stop production when pricing is high but it's also actually the most important thing is that we get quite well paid for selling our support services for the paper division um we uh You can expect that if we have volatility in pricing, we can earn that in the second quarter as well. Taking down production simply. Or rather being prepared to take down. You rarely have to take down. You get paid just to be standby.

Right, right. That's helpful. Thank you very much.

The next question comes from the line of Mail by Martin with ABG Sandal Collier. Please go ahead.

My questions have been answered by now. Thank you. Thanks, Martin.

We have a question now from the line of Hatton Cole with Jefferies. Please go ahead.

Morning. Thanks for taking my questions. I'd just like a an update on how logistics have been impacting the various divisions. I'm thinking more paper board and how you see imports from either China or your exports and how you're adapting to that. Then the second one is on the pulpwood and saw log dynamics up in the Nordics. And I'd just like to hear your thoughts. I mean, we've seen wood costs rise a lot You know, the industrial businesses are under pressure. I mean, the region has become a little bit less cost competitive globally. So I'm just wondering, what do you think, in your view, needs to happen to the industry here? Do we need capacity closures to kind of balance the supply-demand dynamics? Or do we need to ultimately price up the structurally higher costs in the region? Thank you.

Shall we start by the Red Sea? Yeah. For us, remember that the trees are growing in Sweden, so for us it's not so much importing, but we do have some exports to that part of Asia where container freights have gone up due to the Red Sea conflict or the problems with the Red Sea. But on the other hand, there is a lot of container production going on in the world, meaning that most probably it will not be a huge impact. It's not the big impact on our business or our freight cost when we export. It costs some money, but not a lot.

And your second question, and it's a relevant question, of course, but if you look at the margin per ton, it's quite at a good level for most players in the industry. But if you look in consumer boards, it's more that the volume component is a bit too low to get the profitability that you need. And we showed that in the last press conference that actually as a share of selling prices, it's not out of sync with history because selling prices have risen so much as well. So we don't really see a... a problem for Scandinavia. Normally everybody is able to pay more for the wood and you can look at our industrial divisions that actually generate quite a good return despite the very high pulp wood prices.

And then maybe just a simple follow-up which is on the CAPEX. Do you have a CAPEX guidance number for 24, 25 that you might be able to share with us?

We will be a bit above two billion this year between two and two and a half and around two billion. We'll be at the same level 2025 based on the wind power expansion we're doing.

Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to management for any closing remarks.

Thank you very much for taking the time and for good questions and a good discussion. Have a nice day and see you soon again. Bye-bye.