Holmen AB (publ)

Good morning, everybody, and most welcome to the Interim Report presentation for the Holmen Group. Today it's me, Henrik Sjölund, and Stefan Loreen. Correct name again. Now the second quarter.

Good.

We will go through the presentation, and then we're happy to take any questions you might have after the presentations. So let's start. Well, as you know, A quarter, again, characterized by uncertainty and cautious consumers, leading to a quite tough supply-demand balance for, I'd say, all forest-based industries. In our case, we also had Arctic weather up in the north, which helped us to deliver a decent result, which we will come back to in the different business areas. During the first quarter, we also paid dividends to our shareholders. 1.5 billion Swedish crowns and our financial situation after the dividend just to remind you is of course very strong and shall remain so regardless of the future a few words about the forest and normally we don't talk so much about the forest we talk about the wood market same again what we see in the first quarter is that the industry is not running full declining or say, production curtailments, especially in the pulpboard industry. We have seen pulpboard prices coming down slowly, and that continued in the first quarter. We talked a lot about saw logs as well, and we said we don't see anything happening. Also, saw log prices are coming down. We will come back to that when we go through wood products, but also there we see that saw mills are not running full in the first quarter. In our case, this is actually the same slide as we showed a quarter ago, and the reason for that is that we hardly buy anything in the market. We are fully occupied helping forest owners to take care of the wood that came down in the storm in the middle part of Sweden. We also moved some resources to take care of that. We should also remember when it comes to us that we have, shall we call it a backpack? We have harvesting rights that we have bought before. And the question and what we don't know to a full extent is how will we do during the rest of the year when it comes to the balance? How much will we harvest? in the area where we had the storm and how much will we harvest in other areas and also consuming what we had bought say some quarters ago. This is the situation we have and I can say a few words about the storm as well. 10 million cubic meters in total, roughly 300,000 cubic meters in our forest. As I said, we are relocating some harvesting resources to take care of what's lying down, not only on our land, of course, but also on other forest owners land. It will lead to some higher harvesting costs, but not very much. And as you said last time, Stefan, it will have limited effect on the result for 2026. So it's a situation where we do see that prices are coming down, but it's very difficult to know exactly when it will be seen in our P&A. I would say it will be after the summer at least. But prices were quite high, and we did harvest some in the first quarter, didn't we?

Yes, we did. The financial performance from the first division was quite good, 511 million in the first quarter. That's approximately 25 million higher compared to the same period last year. That's due to us harvesting a bit more in the beginning of this year compared to last year. Comparing the result in Q1 with Q4, we saw harvesting coming down from the very high levels we saw in Q4, but also that pulpwood decreased a bit, which also took a toll on the result in this division. Despite that, profit quarter over quarter increased. That's due to the write-down of the harvesting right that we did in the fourth quarter. Can also add, Henrik, to the storm that we will most probably harvest a bit less on our own forest during this year compared to a normal year due to the fact that we are reallocating harvesting resources to help other forest owners taking care of storm fellings this year.

Correct. let's move on to something totally different renewable energy and actually we only have one slide but you can talk a lot about this slide if you want most important part is after two years with very low prices up in the north which you can see here it's a number of quarters and we've been standing here saying electricity prices are ridiculously low up in the north We had Arctic weather in January and February, and as you can see, we had more or less the same price in south of Sweden, north of Sweden, even Germany, roughly 1,000 SEK per megawatt hours in January and February. In March, then prices came down again to something more or less the same pattern, at least, as before. But I think we have to remind ourselves also that it's quite a thin balance. Obviously in January and February Arctic weather means very cold, no wind. And the weather is important to how electricity prices actually develop. And when I say thin balance going forward, I mean that it will come more transmission capacity, but we'll have to wait a bit until 27, 28, roughly 7, 800 more megawatt hours or megawatt to be able to transmit electrons from the north to the south of the rest of Sweden. And there are also a number of projects, electricity consuming projects on its way. But until then, I think we will live with a bit of uncertainty and weather permitting when it comes to the electricity price. Stefan, high prices in January and February.

Yeah, that also means high result. Very good result, of course, from the energy division due to the high prices that Henrik just mentioned. We can also add that we did commission our Vista Liden wind farm in the end of last year and ramped it up during the first quarter. That added some production capacity to us in the first quarter, which also gave some tailwind to the result.

I think we can also remind the listeners to what we said about board and paper. We'll come to that a bit later. But when you have weather like that and you have much less volatility in the electricity market, that we saw up in the north, but we also saw it in the south of Sweden. And we said also at that time that some other profitability will definitely move north from board and paper to energy. And this is exactly what we see here. All right. Going on with wood products. Well, also here we had some hopes when we came into 2025. I think I said that last time, that 2025 could be the year when things were picking up a bit and then we had a terrorist and it didn't really happen. And then in the beginning of 2026, I think we definitely saw some signals that things were starting to get better. But then we got the war in Iran and some other things making it more uncertain and people not investing in construction, et cetera. which we are in a situation where we can just see that the construction market is still rather weak. If you then take a look at the other side, not the consuming side, but the supply side of wood, Starting with Canada, we have said it a number of times that especially in the western parts of Canada, British Columbia, we have the bark beetles. We also have a lot of regulations in the state-owned forest. In Germany, you can see spike also. part of bark beetle incestation and we had to take care of they had to take care of a lot of timber or logs in the forest and after that well then logically supply comes down a bit and I think right now we are in a situation where it's not that easy to especially when it comes to spruce supply is limited In Sweden, we have discussed for a long time and said why, or it's strange, it's the only place actually where we have seen that production has just continued as before. Now, in the first quarter, we saw that production was coming down also in Sweden and also in south of Sweden, where prices have been extremely high. Now, as we speak, we also have the storm, of course, which could affect the figures going forward in the second quarter, but it's a bit early to say. But we do see that sawmills are not running full, simply as the costs for saw logs are extremely high. Our customers, when it comes to prices, well, normally in the beginning of the year, you see a little bit of an uptick in prices, which is quite normal. This year, we haven't really seen it. Maybe we've seen some tendencies, but overall, not really. And as you can see, also in the U.S., it's been very volatile, but no real price increase. So it's a fairly tough situation, Stefan, isn't it?

Yes, it is. And the operating profits from this division is still negative, pretty much in line with the previous quarters that we've seen. Slow demand in combination with still high raw material cost is the reason for this weak financial performance. I don't think it's that much to elaborate on, actually, when it comes to wood products, Henrik.

I think we will come to board and paper, but the raw material cost is a bit too high for the Swedish industry right now. That's quite clear. But it's coming down, slowly but steady. Board and paper, starting with board. Same situation as last quarter. Demand is not really ticking up. A lot of players are looking at Europe as a potential market. after discussions at least about Harris, etc., and uncertainty between different continents in the world. Prices in our segment, stable. But if you look for marginal volumes somewhere, especially if you go outside Europe, of course, it's quite fierce competition for the volumes. And as supply-demand balance is a bit weak, as we have added some capacities, well, of course, it's a fairly challenging situation to run. I don't think anyone is really running full. We are not running full either, but we have at least a healthy order book and a bit better than the market average. When it comes to paper, it's almost the same story, but for slightly different reasons. We know that demand is coming down slowly also here. Structural decline. Again, prices are fairly stable. Also, again, when you look for marginal volumes, it's a bit tougher competition, and also depending on in which segment you are. In our case, book paper and the higher you come competing with higher-priced products, the better the situation you find, and when you compete in the lower segments, it's a bit tougher competition. Also here, we have no intention to run full, but we have an order book which is fairly okay, actually. But still, in the market, in general, supply-demand balance is not good. And it hurts, of course, also fixed cost per ton when you have to distribute it over less tons than before. Maybe we should start also mentioning the electricity situation when it comes to board and paper, as we said last time that there is not the same volatility in the market, which we need to make sure that we can make use of the volatility to make some money. If you would like to comment before we take the results.

Now, I think you can see a slide to the result, actually. And as you say, Henrik, it's a weaker result this quarter, partly due to the high electricity prices that we've seen during the first quarter that affects the part of our production that is not fully hedged. Also, prices were not only high, as you say, they were also stable. That meant that we had a much tougher time to maintain these lower than normal energy cost levels that we've seen for a couple of quarters now, because that's dependent on this volatility that wasn't there during the first quarter. Also, paper prices went down a bit if we compare with the same quarter last year, and we have the weakening of the dollar that also took a toll on the results of this segment.

Yes, totally agree. Just a couple of words, maybe, because... In this quarter, I think our business model with different business areas kind of helping each other depending on the situation has really been favorable for us and also making it possible to deliver a result which is fairly okay, even though we would have liked to make more money as always, of course. I think by that we are fine, and we are happy to take on any questions you might have.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one 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 two. Questioners on the phone are requested to disable the loudspeaker while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from Ioannis Maspoulas and Morgan Stanley. Please go ahead.

Yes, good morning. Thank you very much for the presentation. Just a few questions from my side. Starting with the first one, on board and paper, we saw volumes coming down between 6% to 7% sequentially and year over year. Could you provide a rough split between board and paper segments? And you talked about the softer demand overall, but... Is the lower volume just a function of retreating from the spot market, or are there any adjustments to contract business as well? And I'll stop here for the first one.

Well, when it comes to deliveries compared to the first quarter last year, it's mainly paper that came down when it comes to deliveries. Just a slight decrease in the board segment, but that's just normal ups and downs, I would say. So it's more the challenging paper situation that Hendrik described that causes the lower deliveries.

But it's no dramatic. You will see if you look at the different quarters that there are some changes between them. It's No, it's not a big thing, to be honest.

Thank you. Thanks for the color. Second question, just again on graphic paper. We've seen some modest increase in the market over the past couple of months while we had chemical and transport costs going higher. How should we think about the margin evolution here for Q2 and Q3, and do you expect to see more price hikes are coming through over the next few months to restore profitability?

I think you're absolutely right. There are some discussions and some prices are coming up a little bit. And at the same time, as you say, we also have a lot of vessels going through Africa or around Africa, etc., and a lot of containers being stuck on the oceans, meaning that container freights and freights in general are going up. I think we have to... If you go back to the pandemic where we had prices coming up, they came up a lot. We had a slightly different situation then. We didn't have the LNG terminals to the same extent in Europe. We had a different price level for recycled fibers. And it was a different situation. And we are not there yet, at least. And then we will see what happens. But right now, yes, we do discuss, but you know how life is. It's changing day by day when you follow what happens, especially in Iran. But if it continues to be a scarcity of energy, then normally simply the cost for oil producers come up, and then it will be compensated normally. But we are not really there yet.

Thank you. Thanks for that. And last question from me, just on the wood price development. You mentioned that saw logs have started to turn and output price continue to come down. How should we think about the cost into your industries for the second quarter on output? What sort of improvement or percentage improvement shall we expect? And then on the sawmill business, when should we expect the lower wood costs to be reflected in the P&L?

Well, it's quite hard to distinguish because it depends on how much we will be harvesting in the storm area compared to the harvesting rice that we bought earlier. It is declining. Both pulpwood prices and saw log prices are coming down, but it's a quite gradual decrease, so we cannot provide you with any percentage number. They're coming down, but it takes some time and goes slowly.

But we also have the harvesting rights in kind of our backpack, which we have to consume, which we have bought to a slightly different price, of course. But after the summer, not before.

Okay. So for the wood segment, then, shall we expect wood costs to still go up sequentially in the second quarter or potentially turn more stable or even slightly down?

rather stable or slightly down.

Very clear. Thanks so much. Thank you. Thank you.

The next question comes from Linus Larson with ICB. Please go ahead.

Yes, good morning. Thank you very much. Continuing on board and APER and just trying to understand the impact of aspects of energy, energy costs in the quarter. The EBIT of $168 million was $286 million lower than in the fourth quarter. How much of that was relating to, how should we say, aspects of energy? And also going forward, I'm aware that you had very high spot prices for electricity, at least in the part of the first quarter. Now that's easing for seasonal reasons. Given how you've been able to play the market in the past, what should we expect in board and paper with regards to energy optimization in the second quarter and beyond?

Very good question. Yes, shall we start with the Q4? There we had someone of approximately 120 million Swedish kronor from emission rights and green certificates. That's not included in the first quarter's results, so that explains part of the decrease in results. When it comes to the energy situation, I would say, Henrik, that we had quite a normal cost level when it comes to energy in the first quarter. High prices affected the part that was unhedged, and we managed to gain some earnings from the volatility on the electricity market, but not at all on the same extent that we have seen a couple of quarters ago.

Would you like to add anything? No, no. We need volatility, and there wasn't much volatility in the first quarter. That's clear. And the other ones, items you have explained. Good question, Linus. Not easy to know exactly how to answer it, I'm afraid.

But how has the second quarter started in that regard?

Pretty much the same as in the first quarter, to be honest. Prices have came down, but volatility is still limited.

Okay. Okay. And then maybe on effects, what, I mean, if we look sequentially, Have we seen the worst in SX? I mean, given your hedging profile, et cetera, have we seen the worst, or is it still deteriorating, or could you give us a feel for where we are in that cycle?

More or less, we've taken the full effect of the weakening of the dollar, but as you know, it moves quite rapidly from day to day, so it's hard to say where it will be in Q2. But the main part of the weakening of the dollar is included in our result. And as you know, the euro is hedged for two years. So we'll see how the dollar will develop going forward. But I think we've seen the worst so far.

Yeah, yeah. Good to know. And then just finally, I mean, you're in very good shape, actually, given the circumstances. Doing really well at the trough of the cycle, which we believe where we're at now. What's your thinking in capital allocation and in particular buybacks at this stage?

I think it's quite normal that all companies, also we, of course, we think carefully before we invest a lot in the industry in these days. Then we have to always keep our things in shape. And we usually say that it's less than a billion.

Yes, that's a normal CapEx level. That's where we are. And no news when it comes to the share buybacks. We have the mandate from the AGM, but the board needs to decide on any further buybacks before executing, if so. But the mandate is there.

That's a good start. Excellent. Thank you very much. Thank you.

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

Good morning. My question on board and paper was answered, but I could do another one. So what do you foresee of price changes for Q2 regarding board, paper, and lumber, please?

I think in board, if you start there, you know what we usually say when it comes to our long-term business in our niches where we are. It takes a long time to change prices. And that's where we are also today. Then when it comes to marginal business, then it is a fierce competition, of course. And a lot of people are looking at Europe as a potential market. That's clear. But you have to distinguish between the long-term business and spot business. Paper, it's not easy to say where it's going. It's also there for us. It's pretty much stable. And what we have to understand to understand what can happen is look at recycled fiber prices coming up a bit. Other cost is also coming up. We discussed chemicals before. And the overall supply-demand balance in the business is not very high. So it hurts when cost comes up and you can't just reduce prices. Most players can't. There is no margins to play with. that is holding back because normally when you are in a situation when you have over capacity normally prices go down but that's not what we have seen really then we have to look at a different it's cost for energy it's cost for chemicals it's cost for recycled fibers on the continent and for us it's of course cost for wood and electricity In Sweden, what I said before is that, of course, if you look at our cost competitiveness overall, not only us, but all of us, producing up here now, raw material costs, they need to come down. And that's also the difference between when you had a pandemic. Then our raw material costs were lower. Wood costs were lower. It's coming, but it takes some time.

Okay, thank you.

Thank you.

The next question comes from Pallav Mittal with Barclays. Please go ahead.

Hi, good morning. So you were talking about some fierce competition for marginal volume on the board side of things, especially outside Europe. But can you just talk a bit more about that dynamic, and are you seeing any changes due to the Middle East conflict in terms of trade flows in and out of Europe?

That's a good question, thank you. But maybe I should be a bit more detailed when I explained it before. We don't see a lot of competition from, for example, Asian producers trying to sell to our customers in Europe. But as an industry, as a total of the European industry, we are dependent on being able to export also to the U.S. and to China to make it easy. And there we see more competition when we, what we normally export to other parts of the world. And that's normally also where we do our spot business, or let's say not long-term business, but marginal business. For us, some is also long-term, but then it's a different ballgame.

Thank you.

Thank you. As a reminder, if you wish to register for a question, you may press star and one.

Gentlemen, there are no more questions. All right, then thank you very much for good questions, good discussions, for taking the time also to talk to us and look forward to see you soon again. Thank you very much.

Thank you.