Holmen AB (publ)

Good morning, everybody, and welcome to the Interim Report presentation for the Holmen Group. It's me, Henrik, and it's Stefan, and we will take you through the presentation. And once we finalized, we are happy to take any questions you might have. So, Stefan, let's start. Yep. second quarter we were able to deliver a bit over 800 million which i think is a decent result given the situation especially when it comes to consumer products which we will come into a bit later we also If you look at only our industry, which is board and paper and our wood products, the industry where we always measure return on capital employed, we were able to deliver 15% in the second quarter. And if you look at the last 12 months, we have an average of 17% over the last 10 years, even a little bit more. Our financial position is strong. We have also distributed 2.8 billion to our shareholders during the first half of the year through dividend and buybacks. Let's change subject totally and go into the forest or more the wood market in Sweden. We have talked about increasing log cost both saw logs and pulp wood for many quarters. But I think now it's time to say that things are changing. But in the second quarter, especially saw log prices continue to go up. And remember when we buy or what we buy today and last week, we will consume that in roughly half a year or even a little bit more. as i said solo prices continue to go up especially in south of sweden and also the difference now between south of sweden and northern parts of sweden when it comes to so logs we have never had such a big price difference pulpwood leveling off in the second quarter and as we speak right now there is some price pressure on pulpwood that's quite clear but we haven't seen it yet and the same there. What we buy today, we will make use of it in our industry in roughly half a year. Stefan?

The result for the forest division was 519 million Swedish krona during the second quarter. That is an increase by some 30 million compared to the first quarter this year due to higher harvesting on our own forest. Despite this higher harvesting in Q2, we have still harvested less during the first six months of this year compared to last year and also compared to our long-term harvesting plan. That is although due to timing issues, so that means that we will increase our harvest in the second half of this year compared to the first.

Thank you. Let's continue with renewable energy and very strange situation in the second quarter. If we look at the energy market in europe as such we say that we have a seasonal effect and what do we mean by that well when there is a lot of sun in the system especially in germany the price comes down that we see this year and we also see that it has an effect on south of sweden in our case we use sc3 as the reference That has had quite a big effect, but it hasn't had any effect at all on the northern prices. They are simply historically low. We have to go back to 2020, one quarter, we had prices as low as... In the second quarter, no, the price was 10 euros per megawatt. And obviously, a lot of electricity was simply locked in in northern parts of Sweden during the second quarter. a lot of water in the system as we said more than what we usually have but there are also other effects with cables flow based etc anyway when we make use of our hydro power we do get the premium but stefan when the premium is on 10 euros it doesn't help very much

It does not, Henrik. And the energy division is loss-making during the second quarter due to the very low prices that Henrik just explained. Can also add that when we compare the result with the first quarter this year, we have seasonally lower production in Q2 in line with normal seasonal pattern.

Let's continue with wood products. Let's start with the demand side. In general right now, there is a weak market. The big three markets we have, United States, China and Europe, we see that demand is a bit slow and I guess consumer confidence is not really there. We see it, we take United States just as a reminder, roughly 100 million cubic meters are consumed in the US and 20 of them comes from Canada and roughly five from Europe as we also have some uncertainty about tariffs going forward. In China, well, we see there that the import of wood products is coming down quite a lot. And of course, the market as such, as I said, is weak. But also the supply side of the market has changed. restrictions in terms of its scarcity of log logs in in the world in general but if you look at canada especially british columbia production has come down a lot and it's beat bark beetle infestation east forest fires and also political decisions that make the production in in western canada to go down We take Germany as an example as well. During the years when we had a lot of bark beetle infestation and the Germans had to take out a lot of logs from the forest, production went up. But we can see now that those days are a bit over and also quite expensive wood together with other restrictions also here, bark beetles, et cetera, makes production come down. So demand is not very healthy, but supply is restricted as well, which meant that prices actually went up some 10% in the second quarter. But where we are right now, we feel that there is price pressure on the wood products in general, and prices will come down during the third quarter. The question is how much. Stefan, prices up in the second quarter. Did it help?

Did not. Unfortunately, we have an operating profit of 20 million Swedish krona in the second quarter. And as Henrik said, we had price increases of 10%, but that was completely offset by higher wood cost during the quarter.

And again, just to remind ourselves, big difference between the low cost in south of Sweden and northern parts of Sweden. Bigger than ever. Let's change and switch to board and paper. Starting with board, also here our customers, you can see that demand is, well, it's a little bit better than 23, but it's not back to where we were before the pandemic or not even close actually. Also here consumers are a bit waiting and the confidence is obviously not really there. this market we also have some new capacity and also here some uncertainty when it comes to tariffs who will deliver to the us etc right now what we deliver in terms of board well we have the 15 tariff we have to take care of when we deliver into the us also some not direct but indirect effects not big but they are there prices are stable during the second quarter in our case our order book is i would say it's rather healthy we are not running absolutely full we do take some market related downtime also depending on a bit that actually our production is going a bit better so we we can produce a bit more but we can't sell everything but most of it so the position is is quite good When it comes to paper, you know about the situation in the industry, very low utilization ratios. I'd say nobody's running totally full. also here we have to expect demand to come down a little bit over over the years but you can see moving 12 versus last year it's no drastic change so far this year prices are also more or less stable some price pressure sometimes but no big things In our case, we run with higher utilization rate than the industry average. The industry average today, it starts with a seven or low eight, 75-80%. We run roughly at 80-85%. And to be honest, running at 80-85%, that suits us rather well, because it also gives us a possibility to act on a volatile electricity price. And Stefan, that has some impact also on our result.

It has first need to comment on the maintenance shut that we had in the Workington mill in Q2, which affected the result in Q2 by some 150 million Swedish krona. We also had slightly lower delivery and production in Q2 compared to Q1. The positive side, as Henrik mentioned, is that we've been able to run our paper mills in a really efficient way in a volatile electricity market. And that meant that we have lowered our energy cost by approximately 250 to 300 million Swedish krona during the second quarter compared to a normal level.

Thank you. That's about that. Took us 10 minutes. It's not so bad, huh? We are happy to take any questions you might have. Please.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and then 1 on their 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 then 2. Anyone who has a question may press star 1 at this time. Our first question comes from Larsen Linus, SEB. Please go ahead.

Thank you very much and very good morning to everyone. Maybe following up on what you just said about board and paper and the second quarter benefit that you saw from your optimisation in terms of energy efficiency, I think you said 250 to 300 million kroner. What are you seeing in the third and fourth quarter in terms of such opportunities?

It's hard to predict Linus. What we see in the market today is that nothing has changed compared to the first and the second quarter. But how well we will be able to execute on this in the same way as in the second quarter is hard to predict. But the market behaves pretty much in the same way as it has done the last six months. So I think it's the best answer I can give you.

And would you say that during the colder part of the year you actually have better opportunities and higher volatility compared to what a second quarter typically looks like?

No, I wouldn't say that. And the volatility that we speak about is the intraday volatility. The price is set every hour or every quarter of an hour intraday. And that is the volatility that we can make use of. So it's not the big swings between weeks or months or so. It's rather short-term volatility.

Within the same day.

Within the same day.

Sure, thanks. And then maybe jumping to forest and looking just at your harvesting scenario. But in the first and the second quarter, actually, it's down year and year, which has been a drag on earnings all else being equal. What are you seeing for the remainder of the year and for the full year in terms of harvesting levels?

Well, as I said, we have had lower harvesting than normal during the first part of the year. We believe that we will increase harvest during the second part of the year so that we will have approximately the same harvesting level as we've seen the last couple of years.

Great. I missed that. Thanks for repeating that. If I didn't hear that properly the first time you said it. And then maybe just to finish off on wood products, Going into the third quarter, you already said that you're expecting lower prices. Maybe if you could elaborate a bit on that. Are you seeing a full reverse of the price increases that you saw in the second quarter? And also, are you expecting further cost increases sequentially in the third quarter from higher saw log costs? And if so, to what degree?

If you take the saw log cost, first of all, yes, what we buy today is a bit higher than our average what we have that we will consume during the next half year. And that's for the sawmills down south in southern parts of Sweden. We also decided to take down production capacity at both Braaviken and most probably also the Lingham sawmill. I think we said that in the last report. And when it comes to prices, we can just say that normally during the springtime, there is a tick up in price. And that happened this year as well. But the market is not really there to support the prices we have. So right now there is pressure. How far it will go, I can't really say. And if you look at the future prices in the US, they are... up one week and down the next week. Right now it's a bit up, but very difficult to predict. And also together with the tariffs, it makes it even more difficult to predict. That wasn't much of help, I hear myself saying, but... No, that's fair enough.

Thanks for trying. Thanks.

Our next question comes from Kjellberg Lars Stifel. Please go ahead.

Thank you. I just want to continue a bit on first with would cost you. You said, Henrik, that there was some pressures coming through in the pulpwood market, but have yet to see it. So when should we expect to see market prices falling and what sort of pressure are we talking about? I'm also interested to hear your thoughts on sort of the competitive environment in the global market, the consumer board, appreciating you have very niche high quality grade, but it feels as if commodity paperboard in general is under some pressure. And of course, some of your peers have highlighted Asia as a real hotspot. So if you can talk us through a bit what you were seeing in your Asian exports and that competitive pressure, and especially with the European excess supply that we're seeing, And now with tariffs coming in, repatriation of overseas tons is already starting to become an issue.

The last question, we haven't seen that yet. And maybe also in our segment, we are, if not protected at least, it's a bit different. We don't have a lot of deliveries to Asia that we do with Asian customers. But I do agree too that it's very difficult to take spot orders in Asia today, even with the quality we have. The big volumes we have going to Asia, that's normally done with European or North American customers. You are right, there is some overcapacity in the market. It's been overcapacity in Asia for quite a long time. Recent investments also in Europe, for example, Stora Enso and not too long ago also Metse Board. We will see what happens. But of course, there is some uncertainty now regarding how much can be sold into the US and what tariffs will it be. So I feel quite... I think our position is really good when it comes to doing it in a good way in such a difficult market, given the segment we are in and the customers we have. But to grow and take new customers spot orders is difficult and also not very good prices. Did I miss any of your questions? The pressure on the wood side. Well, for sure, something I didn't mention before when we talked about pulpwood is that Russia, of course, had an influence on pulpwood and supply of pulpwood into our region before, and that's now, it's not there. Same when it comes to saw logs, of course. In total, Russian saw mills is not contributing to the supply. But going back to pulpwood, what we see is that... Customers that we have buying pulpwood from us are still keen on having the pulpwood, but we also see that the industry is not running full. And to be honest, there is enough pulpwood in the market in Sweden today. And we see price pressure, how far it will go and how long it will take, difficult to say, but same for us as for most of the customers or our competitors as well. It takes a while. What we buy today, remember again, we consume it in roughly half a year's time.

I understand. And final question for me is, you know, your portfolio when it comes to the paper side seems to be performing better. It tends to do that. But also seeing some emerging pricing pressure on publication paper in general. Are you seeing the same in your more niche grades?

Oh, it's again the same that the business we have ongoing and the customers we have, especially in some niches, well, it's more stable, but we are also affected by what's happening in general in the market. And again, to take spot orders or some publication papers, very difficult today. So when we say that we run 80, 85%, well, we would have liked to be at 90, but that's difficult to go from, let's say, 85 to 90. And again, it suits us also when it comes to taking advantage of a volatile electricity market.

Understood. Thank you so much.

Thank you.

Our next question comes from Cole Hathron, Jefferies. Please go ahead.

Good morning. Thanks for taking my question. I'd just like to follow up on the wood products market. I'd like to understand how you see the ability to manage your cost employees when the market's a bit softer and when the soil logs between southern Sweden and northern Sweden are elevated. Just how you're managing the costs in a challenging environment. And then I'd also like your views on how the higher duties on Canada are potentially impacting the US market and how you play in that space. How do you see the outlook there into the US for single-family homes and how the Canadian import tariffs might impact the US market? Thank you.

Okay, starting with what we can do in order to take down cost. I said before that we have already taken down production capacity at our Bravik and the big sawmill in south of Sweden. And to be honest, it's not very difficult. It's possible it takes two, three months and then you have taken out most of the cost you have. It's salary cost mainly. That's doable. And what we do in order to understand which strategy to go for is that we have always to make a forecast for what wood products price will we have in six to eight months time from now. when we buy the saw logs in the forest that's what we need to understand and as i said before we see some price pressure and that's why we also we also see that so logs are extremely expensive in south of sweden so we we do take down production a bit and wait and see When it comes to the US, well, nobody knows exactly what will happen to the tariffs. We have 5% roughly of our production going into the US right now. And we take measures in order to be able to stop if it's not possible to continue to deliver. But as I said before, You are absolutely right. Canada is extremely important to understand what's going to happen between Canadian wood products going into the US. Will it be more Canadian export or will it be Europe having the upper hand? Well, that comes down to the tariffs finally, and that we don't know yet. And we have to sort out also these two, three, two tariffs for, especially for Canada before we know the situation, I think. You can also see it in the future prices. Sorry.

Henrik, and then maybe just as a follow-up on Russia, Ukraine, obviously the U.S. president's meeting today. I'm just wondering if you've got any thoughts there, if there was a peace deal, how might a resolution impact any of your markets? Just some speculative thoughts, if you care to give any. Thank you.

i think if there will be peace given the both solo prices and pulpboard prices we see in sweden today or in sweden finland norway in our region for sure there will be wood coming into our system somehow and put pressure on on prices but we haven't seen peace yet thank you

Our next question comes from Perry James, Citi. Please go ahead.

Good morning. Thanks for the presentation. I'd just like to ask about paperboard again. You said demand is still below the pre-pandemic levels. What are you actually hearing from customers on the ground? Do you have a sense as to whether there's any inventory build or even destocking or changing order patterns at the moment? Or should we really see these figures as reflecting underlying demand, do you think?

2023, huge destocking. That was not the real consumption that we see in the statistics for 2023. Now, I don't think there is any of that. But when you talk to customers, they're always optimistic, of course. But reality is that we are not back yet. And the consumer confidence in general is not really that great. I think we need the overall economic cycle to improve a bit to make things look better. And we are happy with what we have. We are doing well in this market, but it's a challenging market. And there is a lot of uncertainty, obviously, because Quite a lot of, quite big volumes were thought about being able to sell, being sold into the US and we don't know now. It's not mainly us, but our competitors.

Okay, thank you.

Our next question comes from Lindström Oskar, Danske Bank. Please go ahead.

Good morning. Two sets of questions from me. The first one is on the board segment. Have any of the recent tariff deals or changes impacted your markets, or do you expect them to impact your markets? That's my first question.

Not yet. To be honest. Do you have any expectations here? I think it's too early to say what the final outcome will be. We have the 15% now that we know when we sell into the US. And there is ongoing discussions who should pay the 15%. But it's not finalized.

I realize what your position is. My second question is, yeah, let's move on. My second question is on forest land book valuation. First off, have you seen any, how has the forest land transaction market developed in the first half of the year? as far as you can see it. I realize it's lower activity during the first half of the year compared to the second, but still, you know, the summer should be a fairly active season. What's your impression?

As you say, Oskar, it's very hard to draw any conclusions on the first half year's statistics. The samples are just too small to draw any conclusions. We don't see any major shift so far in the price level compared to last year. But it's quite early to say, and as you say, not that many transactions being done in the first half year.

Thank you. And then I've been thinking around sort of methodology for setting the book value of the forest lands. As far as I could read the accounting recommendations, I mean, the proxy or the first proxy should be sort of if there's any listed forest land that compares to your forest land. Now, there isn't. in Sweden, so that's the reason why you look at comparable transactions. If we were to have a listed forest land, pure forest land company in Sweden, would the valuation of that company be the proxy that you would use for your book valuation?

I think you need to consider the differences in the characteristics of different forest properties. We don't value the 1.1 million hectares of productive forest land that we have. We rather value each and every of the 4,000 properties that we have. And doing that by a proxy from a listed company, I think would be quite tricky. So that's why we use the methodology that we have today, and we'll probably use going forward as well, due to the different characteristics of the forest.

All right. Thank you. Those were my questions.

Thanks, Oskar. Our next question comes from Yanis Masoualis, Morgan Stanley. Please go ahead.

Thank you very much for the presentation. And just a few questions left from my side. The first one, going back to the topic of part good costs, given that you have, as you mentioned, six-month visibility on what fits into your industries, could you provide us an indication on what sort of part good cost development you expect for Q3 and Q4? Then second question also, could you quantify the reduction in wood products output you expect for the balance of the year, given the measures you're taking at this point? And then third question on the buyback where you bought back 1.8 million shares out of the 3 million shares you have decided to repurchase through to the next AGM. My understanding is that the authorization could be up to 10% of the share, Is there potential for the board to scale up the current buyback? And if so, would that be taken as an ad hoc decision? Thank you.

Shall we start with the last question of share buybacks? We have a mandate from the board to buy back 3 million shares. We have so far executed on 1.8 million of those. How we will behave going forward, we will see how things develop during the third quarter, and we need to come back to that one when we present the Q3 report, I would say. Theoretically, the board can make another decision to increase share buybacks. That's totally correct. Then I think you had a first question about wood product volumes in Q2, Q3, Q4. The measures that we are taking now in the southern part of Sweden will approximately take down production volumes by some 50 to 75,000 cubic meters on an annual basis from beginning of September or during the autumn. So it will gradually be taken down during the autumn.

And then what's the price of pulpwood, what we foresee going forward?

Yeah, we don't give any estimate on that one. As Henrik mentioned, what we consume during the next half year is based on what we actually acquired the first half year. Exactly. More or less. More or less.

But there are no drastic changes in the pulpwood prices right now. But there is some pressure.

Okay, thank you for that. And just one follow up, if I may, on the operating profit split between board and paper. Could you give us a rough indication for Q2 and the first half of the year?

Well, it's not fair since we had the maintenance shot in Workington during the second quarter. So most of the profit from board and paper within the second quarter was from the paper division due to this maintenance shot.

Which we have every second year at Workington.

Exactly. I can also take the opportunity to remind you that we will have a maintenance shot in the Iggesund mill in the third quarter this year. That's an annual shot.

Yes.

Okay, great. Thanks very much.

Thank you. Our next question comes from Robin Santoverto, BNB Paribas. Please go ahead.

Yes, thank you. BNB Carnegie. So, regarding the board and paper segment, could you explain this 250 to 300 million decline in energy cost in the quarter? That seems like a very big number, especially as I understand, you have hedged a large part of the energy consumption in that segment. Is it more than 80%? So how do you utilize in practice this intraday volatility to get such gains? I thought you had previously said that you're not offering secured power in the daily balancing market, which to me would explain this kind of setup. I think we have spoken about that before. So a bit more detail on that, thanks.

Well, what we do is that we take opportunity of the intraday volatility in the electricity market and not on the spot market, which is a daily traded market. So it's the short-term volatility in the market that makes it possible for us to create this kind of result. And also the whole setup of the electricity market as such. It suits us quite well with the production capacity that we have and the machines that we have. So we're very flexible on how to run the production.

The intraday is obviously exceptionally large and how a lot of industrial companies operate is that if they have secured power and the price intraday is exceptionally high and they can run down their production, then they basically sell those contracts in the intraday market that like prices up to 5000 euros per megawatt hour. Is that not what you do?

Partly, so to say. It's a really complex area to explain, but it is the volatility within the day that makes us able to shut down production when needed and increase when needed, depending on the actual electricity price for the moment.

Maybe a separate call later on?

Maybe.

It could be huge because that number is quite big and it's quite difficult for us to try to estimate the future as well. The second question I have is regarding pulpwood pricing. I was just wondering with this potential piece, who knows whether it will come or not. I'm a Finn, we do not trust Russians, so who knows. But I was just wondering, do you believe that there's a bit of a speculative component in the current pulpwood pricing in Scandinavia? Meaning that if I look around, I can see a lot of industrial production being like, not running at the moment, I guess, capacity utilization, if you take Finland and Sweden together, in paper, paper, paper, board, pulp, maybe even saw milling is is clearly lower than pre-war. I guess we have harvesting now also increasing, but still I can see in H2, I understand it's now maybe turning, but in H1, pulpwood pricing has simply continued to increase. So I was wondering, because it will take a long time before Russian wood draw material come into the Baltics or then even Finland and Sweden at later stage, but could there be a setup where simply a piece would be sort of as an information value and for the parkwood market a negative and and only that information could trigger lower prices could that happen i agree with most of what you say robin about the market and the situation i i think many

Consumers of pulpwood, they are still a bit scared for not having enough wood from the days when it was really fierce competition for the pulpwood. Maybe that makes it go a bit slower than what it should. But it's enough pulpwood available right now. You are absolutely right. But if it's speculation or not, I don't know more than you do, I think.

Let's see what happens. Thank you very much. Thanks.

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

Yes, good morning. Could you expand upon why the harvesting from the own forest is running 15% below last year? Because prices are very good to harvest your own forest, I guess.

Well, it's mostly operational reasons where we have the harvesting resources located in areas in the beginning of the year at plots where we didn't have much own forest, rather harvesting rights. So it's more of an operational efficiency issue rather than anything else. And that's also why we will increase harvest in the second half of 2025.

On our own land.

On our own land, exactly.

Okay, there's nothing wrong with the forest plan as such.

It doesn't need to be adjusted to the real world. Just operational.

But your observation is correct. Sounds good. And last question for me. I see that Riis is starting to quote folding box board prices down. Is that realistic for you in the second half or is it more flat prices? So far, flat. Excellent. Thank you.

Our next question comes from Mittal Balav, Barclays.

Hi, good morning. Balav Mittal from Barclays. I have three questions. So firstly, on the renewable energy segment, we have now seen that the energy prices have remained low for quite some time. So are there any changes to your plans on the wind power expansion projects that you have?

Yes, no more windmills. You're absolutely right. No, but the situation up in the north of Sweden, when it comes to the market and how it works and what the electricity price will be in one year's time, it's very difficult to make a forecast, to be honest. But with those prices, no new projects will come on stream. I can't imagine. So we will finish what we have, of course, and make the best use of it. But as long as it is like it is now, we will not build any new wind farms.

Sure. Secondly, if you could, and I know you've already spoken about this, but can you help us understand what proportion of your production on the board side of things is for exports to the U.S.? ? So far, with existing tariffs of 15 percent, how have your order books been impacted?

We only have like 5% going into the US. So that has not changed and we don't have any plans to change it yet, at least. But of course, we are trying to push through the extra cost we have to make somebody else taking it. I think everyone is doing the same right now. It's like an extra tax. Somebody has to pay. The idea, it should be us, but we think it should be someone else.

sure and lastly just a clarification so you are highlighted a 100 million benefit in your board and paper ebit from the lower energy cost in q1 and you have benefited in q2 as well so can you quantify that benefit uh that you see in q2 and should we expect that to continue in q3 and q4

The effect in Q2 was approximately 250 to 300 million Swedish krona lower than normal levels. It's hard to predict how things will develop during the second part of the year. So far, we see that market behave in the same way at this moment as it has been done during the first half of the year. How we will be able to execute is hard to say, but the rationale and the market environment as such is the same as when we earn those money.

Just if I could follow up on this, how does this 250 to 300 million lower than normal levels compared to the 100 million benefit in Q1? Just trying to understand the difference between Q1 and Q2 benefit.

The benefit in Q1 was 100 lower than normal, Q2 250 to 300 lower than normal.

Okay, thank you.

As a reminder, if you wish to register for a question, please press star followed by one. Ladies and gentlemen, that was the last question, and this concludes today's Q&A session. I would now like to turn the conference back over to Henrik Sboilund, President and CEO, for closing remarks.

Thank you very much. Good questions, good discussion, and for taking the time to discuss with us. Look forward to seeing you soon again. Bye-bye.