Holmen AB

Good morning and welcome to the Interim Report presentation for the Holmen Group. It's me, Henrik Sjölund and Stefan Laurén. We will go through the presentation and as we usually do, we take all the questions you have after the presentation. So let's start. Well, in the second quarter, first of all, the result, we were able to produce a really good result, at least a solid result, quite similar to the previous quarters. If you look at the years, though, we can see quite big changes between last year and this year, especially in the beginning of this year, we had a really good contribution from our energy division. And now in the second quarter, we also see good deliveries from board and paper. Our financial position is strong and during the first half of the year we've also distributed roughly 2.5 billion SEK to our shareholders through dividend and buybacks. Let's start with our forest division or let's say the wood market and the situation right now. It's clearly so that we have lower wood prices and if you compare the peak towards what we buy at currently it's roughly 10%. But then you should remember that we have discussed it a number of times that we also have a backpack with wood we have bought at higher prices before and it takes time to consume that. As things are today, we also had a storm in the beginning of the year. In our case, that means that in total, first of all, it was roughly 10 million cubic meters. In our area, roughly half a million, which is roughly half a year's harvesting. And in this area, of course, prices are lower than the normal market, so to say. And we have consumed a bit of storm-filled timber and pulpwood already in the second quarter, and there will be some more in the third quarter. But it's, of course, also a temporary effect, which prolongs the... It takes longer also to consume what we had in the backpack, because now we are more occupied with the storm-filled timber and pulpwood.

Stefan is there any extra cost for this when it comes to our own forest? Yes it is as we communicated earlier we will have increased harvesting cost due to the storm and that's also what we see in the result for the second quarter approximately 10 to 15 million krona higher in the second quarter than normal that partly explains the decrease in result from the forest division Also, prices came down for this division, of course, as prices are going down both for pulpwood and for saw logs. And finally, the storm has made us relocate part of our harvesting resources from the northern part of Sweden to the storm region. And there we take care of storm fellings, of course, on our own land as Henrik described, but also on other people's land that has been affected by the storm. And that makes our own harvesting a bit lower than normal. And that level will maintain throughout the year, I would say.

Thank you. Changing to something totally different, renewable energy. You know that we have had during last year and some time before as well, quite difficult situation when it comes to, or let's say, very different price levels when it comes to northern parts of Sweden, southern parts of Sweden, and not the least versus Germany. We should remember, though, last year, if you look in the Nordic system, it was roughly 20 terawatt hours more than water in the system than what we normally have. And if you look at the situation this year, it's the opposite. It's roughly 20 terawatt hours of water, less in the Nordic system. Not so much less water in Sweden, actually more in Norway. In the first quarter, as you can see, when we had really cold weather for a couple of months in most of Europe, prices went together and there was hardly any difference between Germany and the different parts in Sweden. In the second quarter, still prices are on a more reasonable level. More normal level, roughly 400 megawatt or sec per megawatt hour. But of course, the system is still sensitive to the hydrological balance and the kind of weather we have. And we are lacking a bit of transmission capacity to make sure that the electrons can be used wherever they are needed, especially within Sweden. If you look at what we have earned over the years, yes, the market is volatile, but as an average, we have made a cash flow of roughly 330 SEK per megawatt hour over the years. Will this stay in the same way? Well, I don't think so. It might take some time, and we have discussed it before, but over time, there is... especially in the northern parts of Sweden and Norway, where you have access to not only electricity, but also green electricity, which is needed for Europe. And when we look at what is about to happen, it's new industries, but it's also AI data centers, etc., which we see coming. But it's not coming tomorrow. It takes some time. We are also active ourselves, especially in Europe. helping companies to make sure that they can produce, for example, an AI center up in the northern parts of Sweden. Also in other parts, to be honest. Stefan, that means that we

Yes, considering it being second quarter of the year, we maintained quite a good profit level. As Henrik said, prices came down substantially in the second quarter from the very high levels that we saw earlier this year. But prices were on decent level and we had a quite good second quarter. The result would have been even better actually, Henrik, if it wasn't for maintenance that was conducted on the national grid in Q2 that made us curtail part of our hydropower production in Q2. Fortunately, we could save that energy in our water reservoirs so it can be produced later on this year.

Thank you. Moving on to wood products. Well, not so much has happened. Demand is still a bit weak, both in the US and in Europe. But it's not only demand that is a bit weak. Supply has also been restricted. And if you look at Canada, especially you can see the western parts of Canada, Supply is coming down, production is coming down. Germany, same, after bark beetle infestation, now volumes are coming down. And if you compare demand and supply, I think on the supply side, it's more structural. On the demand side, it's more the business cycle that is a bit weak. For the first time also, for some time, we see that lately also production levels in Sweden, at sawmills in Sweden, actually have come down. mainly because it's simply too expensive to buy the wood and the market prices does not support the price for wood in the forest. On the price side, well, normally in the springtime you have a bit of a price increase and a little bit better demand. That happened also this year. Bit weaker than normal, but 2-3% roughly prices went up in export prices for us in Sweden. In the US, prices are fairly volatile and hovering around the same level, but some weeks up, some weeks a bit down. No big difference. So to summarize that, Stefan.

Yes, of course, we're still not happy with the financial performance from the wood product division, of course, but it was at least a small step in the right direction in the second quarter as the loss decreased from a level of about 100 million Swedish kronor per quarter to 50. As Henrik said, we had somewhat higher selling prices in Q2, but also we had a stronger product mix, which is normal also for the second quarter. Finally, wood cost is coming down and that also gave some tailwind to the result for the wood product division.

Then board and paper. Starting with board. Well, demand for full inbox board or consumer packaging is going more or less sideways. I think the underlying economy is not bad, but for different reasons, it's not really taking off at the moment. But also prices more or less sideways, unchanged prices for most of our business and no big drama at all. When it comes to paper, roughly the same situation, even though we have a continuous declining demand in the market, that's quite clear. Here it's more the cost that keeps the prices level. I'll also keep the price on the same level as the last quarter. Cost is simply... quite high and also for most players it means that you can't run full and then of course the cost is also pushed up a little bit. In our case both for board and for paper our order books are fairly okay. Actually quite good. But as you know July is always a slower month when it comes to taking some downtime etc. But where we are right now the order books are not bad and we're doing a bit better than the market both in board and in paper. All in all, Stefan.

Yes, it was quite a strong performance from board and paper in the second quarter, mainly driven by high deliveries in Q2, both from paper, but also especially maybe I would say from the board part of the business, which gave tailwind to the result. Also here, we see that wood cost is coming down a bit, which also support the profit in the division in Q2.

Thank you. That's all. Then let's listen to good questions as we normally get. Welcome.

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 in the queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to disable the loudspeaker mode 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 Larsson Linus from SEB. Please go ahead.

Good morning, gents. Maybe starting off where you ended on the volume side within board and paper, and it sounds like the volume pickup that you did see in the second quarter, 5% year-on-year, also up sequentially, was mainly relating to board, if I heard you right. what drove that what products regions and what you sound rather cautious but in fact you did record a pretty healthy volume development so if you could just shed some light on that please

I can start with the split of the increase. It's quite evenly split, Linus, between the paper and the board business. As Henrik said, the order book looks quite good, to be honest, looking forward. But it was high deliveries in Q2. partly due to a bit lower volumes than normal in the first quarter. So it shifts a bit from quarter to quarter. But again, order books look quite healthy. But third quarter is generally a bit slower than the second quarter, I would say, from a delivery point of view.

As the general market, Linus, as you know, operating rates are not very high. They are on the low side, to be honest. But given that, we feel that we are running fairly full when it comes to our machines and our mills.

And your remarks about sideways development, is that like on an absolute level for board and paper on aggregate? Is that type? sideways in the third quarter, or is it more like what you just said, that Q3 might be somewhat weaker on the volumes?

I can only comment on the second quarter. It was a strong quarter. Then we'll see if we can repeat exactly the same numbers in Q3. We need to come back on that. But it's no, as Henrik said, no major drama in the order book that changed things dramatically on either the upside or the downside.

Cool. And then on the wood costs, lower log prices weren't visible in the P&L for the wood product business. I reckon there were other costs maybe increasing. In the third quarter, should we start to see, I mean, what's the trajectory on unit costs Q3 on Q2 in wood products and board and paper for that matter?

It's hard to comment on exact numbers. We saw that prices for both saw logs and pulpwood were decreasing in the second quarter, partly due to us consuming quite a lot of storm fellings in the quarter. As Henrik mentioned, we have this backpack with harvesting rights that we bought at higher prices. And what price we will see in Q3 is quite a lot dependent on the mix between storm fellings, what we bought recently and what we bought earlier. But the trend is that it is decreasing both on pulpwood side and saw log side. But it's very tricky to give you an exact number, Linus. Single digit figures, of course, low single digit, I would say in Q3.

We are consuming the Stormfeld wood in Q2. We did some, and in Q3 we will consume more, of course, but it will prolong what we have in the backpack to be able to consume that as well.

Yeah, yeah. Partly what I'm getting at is other sources of potential cost inflation with regards to Iran and oil and logistics, chemicals, etc. Are you seeing that as an accelerating trend potential problem in the second half or have you kind of dealt with that. Are we past that?

Chemicals are still coming. It's going to be a bit more expensive in the Q3. Logistic cost, I would say that we are on the level as they are for the moment in the second quarter, so we don't see any increase there. But chemicals to some extent, but it's not major numbers we talk about, but we have not seen the full effect in Q2.

Okay, understood.

Thank you very much. Thank you, Linus.

The next question comes from the line of Arthur and Cole from Jefferies. Please go ahead.

Good morning. Thanks for taking my question. A couple from my side. Just to follow up on the forest division, I mean, you talk about limited effect on results for 2026 on SiteX. Is that just... the fact that you are doing what you can to offset the higher harvesting costs from the felling of other forests. I'm just trying to understand what the limited effect on 2026 is referring to.

No, what we mean with the limited effect is, of course, we will have higher harvesting costs. We have said approximately 30 to 40 million Swedish kronor higher for the full year. That will take a toll on the full year result. But the reduced volume that we see, the lower harvesting, that will not have that much of an impact on the P&L since we have the change in value of forest, which partly offset that decreased harvesting. So that's what we mean with the limited effects. That's the volume part of things.

We pushed some of the harvest a bit forward. That's all we do. But we have some more cost when the trees are laying down rather than standing up.

That's helpful. And then you haven't talked about... You know, in the board and paper business, I think Holman's doing more kind of mechanical interliner or craft liner on the container board side. Can you just give some color on the commerciality of that product? I mean, it's relatively new and niche product. And is that supporting some of the volume growth of the business?

Yeah, it's a good question. I think it's a bit too early because the volumes aren't substantial yet. There's a lot of interest for the product. We're happy with that, but we're not selling enough to give any kind of guidance or talk about volumes yet. Still to come.

Thank you. And then if I look at the charts that you provide from the Woodstat data, I mean, the production... in Germany is off substantially, right? I mean, we've seen several players curtail, including Mercer. They're also taking economic downtime on some of their softwood pulp mills. Just some context you could provide from what you're hearing coming out of Central Eastern Europe, and when do you think we'll be in a position where inventory levels for sawn wood products are in a good position?

I think first of all, what I said before was that when it comes to the demand side, it doesn't need much to make things go our way. A bit better demand, a bit more activity in the construction side of the business. That's going to happen. The question is only when will it happen? The other part, when it comes to supply, as things are in the world or Europe, etc., I think it's a bit structural. It's not that easy to increase supply. So we will see what happens when things are picking up, but I would guess that you would see that supply are a bit stressed.

And then maybe just following up on that, we've obviously seen the fires in France. I'm just wondering... Do you think there is going to be any material impact to either the wood product markets near term and long term? I imagine there might be an excess supply of saw logs near term, but I don't have a context of how relevant the French sawmill market is in that region.

I haven't seen any exact figures how much they estimate that will be need to be harvested short-term due to fires but normally you can take care of wood from forests which have had a fire and then of course exactly as you say you increase supply for a while but I can't answer how much it will impact the total market when it comes to the French forest fires

Thank you, that's helpful. And then last one, and I'll hand across, but Stefan, is there anything that you're calling out quarter on quarter into the third? a quarter that we need to be aware of. You talked about slightly lower delivery volumes in board and paper, but also maintenance. Anything else that you're calling out that we should be aware of into 3Q?

No, as you know, the maintenance shot will take a toll on the result of 150 million Swedish kronor in Q3, which is quite a normal level for that kind of shutdown. Then we need to come back to the delivery side of things when we publish the Q3 report and see if we were able to maintain this good level or not.

Thank you.

Thank you.

The next question comes from the line of from Barclays. Please go ahead.

Hi, good morning. Thanks for taking my question. So just to follow up on the board and paper segment, over the last couple of quarters, you have mentioned more pressure from imports, especially from Asia. Can you just talk a bit about that dynamic? Are you seeing any changes because of the situation in the Middle East? And is that also having an impact on your deliveries in Q2 and maybe potentially in Q3 as well? So that's the first one.

I think for us, to begin with, we haven't really said that we experience a lot of competition from Asia in Europe. It's more deliveries to Asia where we could see some more competition, especially if you look for marginal business. But for contractual business, also in Asia, we don't really see that as a big problem right now. Then we know that Asian producers, they have increased capacity and need to export, for example, also to Europe. But so far, there are no big volumes coming into Europe. Not in our segment.

Got it. And then if I could just ask in terms of. the benefit from volatility in energy prices that you have experienced over the last few quarters. Can you quantify or directionally help us understand how it has helped the board and paper segment in Q2 versus Q1 and maybe the last year when you were having 200-200 million SEK benefit per quarter?

I would say that we are back on a normal energy situation in Q2. So there's no major impact from that volatility that we saw last year. So more or less normal energy cost in that division.

Okay, thank you.

Thank you.

The next question comes from the line of Lindstrom Oscar from Danske Bank. Please go ahead.

Yes, I've got two questions left. The first one is on board and paper where you talk about fairly full and quite okay order books. Is this an improvement over what you saw at the beginning of the year? That's my first question.

A bit. Perhaps a bit better than what we expected. But as you know, it's a tough market. It's clearly overcapacity. But right now our order books are okay. It's not one thing. It's many small things contributing to that.

And what are some of the main things? I'm giving you an opportunity to boast here a little bit about your products.

I hear that, Oskar. We have many, many customers, Oskar, and we are not the least in the luxury segment where we do see that what we do is having some effect, but it's not easy and it's not given, not at all. But the true answer right now is that the order books are okay.

All right. Good to hear. And my second and remaining question is on the energy side. You said here initially that you're helping, if I remember correctly, electricity consuming industries to develop themselves, to establish themselves in northern Europe. Sweden or northern Nordics. Could you say a bit more about that? You mentioned data centers.

Obviously, Oskar, if you're a company like us, having a lot of land and making use of the land and also... helping the electricity system as it takes so long for transmission capacity to be built out and have a better balance between the different electricity areas in Sweden. It's an interesting business for us. We are not fully there yet, but we will tell you when we have done our first part of the business. Access to power, access to land in a part of Europe where also the electricity is fossil free. It's a good start and an interesting business over time.

And if I may just ask a follow up on this, and I realize, you know, you haven't announced anything that's going to limit, but would you, do you foresee a model where you're sort of leasing land and supplying energy? Or would you also be owners and sort of in these types of businesses? Again, I'm thinking a little bit the analogy to the wind power, where you start off leasing and then you move into owning.

The base case is to sell a bit of land for a totally different price than if you grow trees.

Great. Thank you. Those were my questions today.

Thank you.

The next question comes from the line of Mel by Martin from ABG. Please go ahead.

Yes, good morning. You hint about this expensive backpack you have of failing rights. Could you give some indications where the average price in sec per cubic meter is on that portfolio compared to the current market prices?

No, we don't display that, Martin. It's higher than the current market price, and it will take time to consume it, but it will be a mix of what we purchased a year ago, what we purchased last quarter, and also the storm fellings. So we don't have any numbers on it.

Is it significant?

Is it significant? It depends on what you compare it to. The wood market is quite complicated for the moment when you have the storm in the middle part of Sweden where we see substantially lower prices than in other parts of Sweden. So it depends on what you compare it with. Wood cost would have been cheaper if we did not have the backpack.

It takes time to come down to the level at what we buy wood for today. But it's going to happen. It's just a question of how much time it takes. And it takes a little longer with the storm. But on the other hand, we buy a bit cheaper now.

Okay. And do you care to give any comments about prices for Q3? We've seen the list prices going slightly up on carton board, paper. Do you agree on that?

And what about lumber? As you know, our paper board business especially is quite sticky when it comes to prices. They hardly move, to be honest, if you compare to market prices. So that part of the business is stable. As Henrik said, on wood products and also on paper, it's quite flattish prices as we see it today.

But you're right. The announcements we have seen is mainly Kraft Liner and Test Liner.

Which we don't produce.

We don't produce that.

Okay, last question. You flag lower harvesting in 2027 based on the storm, but the storm seems pretty modest for you. And we shouldn't model any EBIT effect, is that what you're saying? Also for 2027?

More or less so. It's not the effect on our own land that is actually causing us to decrease our own harvesting. It's that we make use of our harvesting resources to take care of storm fellings on other people's land. And the amount of harvesting resource out there is limited. So then we need to take a step back on our own harvesting and prioritize other people's land and use the wood from that in our own industry. I see.

Thank you. Thank you.

The next question comes from the line of from . Please go ahead. Hello.

Thank you for the presentation. Just a few questions left on my side. The first is the follow-up on this discussion before the four is the volume side of things and the fact that you've indicated that H1 all harvest volumes were 15% below plan and you expect that weakness to proceed next year. Can you give us an indication of what sort of volumes you are modeling for 27 and whether we're going to see any increase year over year and related to that, whether extra harvest costs will be similar to what we saw in 2026. That's the first one.

Yeah, what we've said about 2026, if we start with that one, is that we will probably harvest some 300,000 to 400,000 cubic meters less on our own land. Then we need to see how it will affect 2027, because we will not be we will not have finished the storm felling operations during this year. So it will roll over to 2027 where harvesting levels also will be lower. Maybe not to the same extent as what we've seen for 2026, but we need to come back to that during the autumn when we see how these storm fellings play out during the coming quarter.

Okay, thank you for that. Second question, board and paper, you talked a lot about volume development in autoboats. Could you give us a sense of operating rates across the two segments in the second quarter?

We operate better than market, of course, Henrik.

I think you know that operating rate in the market is maybe 75%. Not better than that. But we are on a much higher level at the moment.

Not running full, but still on much better levels.

Paper is more difficult. That's... It's also different because on paper nobody's running full, I think, today. We are aiming at 85-90%.

So just to elaborate a bit on that, could you talk about the operating rates in board and in paper? I just want to get a sense on where the two segments are running at at the moment.

But in general, if you look at the statistics, then it's a theoretical figure based on what is being consumed in Europe from European suppliers and also what is being shipped outside Europe. Then the operating rate for European paper board producers are roughly 75% on average. Our aim is a lot higher than that. And as we said, with the order book we have right now, we are running fairly full. Not 100%, but fairly full. on paper it's roughly the same or even a little bit lower depending on which grade you look at and there nobody is running full we are running we are aiming i would say at 85 90 we've been there for for a long time and also there the order book it's okay so that's roughly where we are and then it must be quite big differences between different mills and different suppliers etc

Very clear. Thank you very much. And just a last question. You talked about this new sort of Craftliner product that you are rolling out, clearly low volume at this stage. But could you talk about the main end markets that you're focusing on today? And what's the plan on one to two year view as you start producing more and selling more into the market?

Europe is the main market, for sure. But I don't want to comment on the volumes. I think we need to prove that we can sell and supply a bit bigger volumes before we talk about the potential. Of course, we have an idea, but it's too early to talk about.

Thank you very much. Thank you.

You too.

The next question comes from the line of Grunseling Jonas from SB1 Market.

Please go ahead. Yes. Hi, Stefan and Henrik. Two questions for me here. The first one is on CapEx. If you can update us on how we should think about CapEx, not only for 26, but also for 27, 28, if it's like only maintenance CapEx or what you see, and if you can give us some numbers there, please.

Well, we have indicated for this full year a bit more than 1 billion. I would say that we don't have any major plans for the next year either. So I think you can use that figure for 2027 as well.

Okay, that's good to know. The other question I have is more on if you can help us understanding what happened with the networking capital in the second quarter. It was a big build-up of of capital, and if you foresee that to sort of revert into the third quarter.

The reason is mainly due to very good deliveries in the end of the quarter, which increased our customer receivables. So it's just an effect from higher sales volume. Hopefully that will be maintained because that means that we are selling more product. But if we come down in volume, it will be partly reversed.

Okay, that's good to know. Okay, that's all. Thank you.

Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is a follow-up question from the line of Arthur Cole from Jefferies. Please go ahead.

Morning. Thanks for taking my follow-up. It's a bit of a difficult question, but I'm hoping you can give me some context on it. And the one thing I feel people haven't asked on for a long time is around the Russian pulp paper and sawmill industry. And I'm not asking on wood potentially coming into the Nordics. I'm asking on What is the tail risk of potentially some of their sawmills or pulp mills ultimately having production issues or downtime because they are not being maintained, staff issues, or potentially not having the harvesting equipment to actually get the lumber to their sawmills or pulp mills? Do you have any kind of context, or is that something that Holman thinks about? And I'm thinking more on the sawmill and global lumber side. Maybe you could just give some context of how many harvesters you produce a year, where you get that from, any context you can give on that. I know it's a very difficult question, but any help?

I think it's a very good question. We think about exactly the same issues ourselves. What we do see, and we don't have all the statistics, but what we can see is absolutely that Russia has not stopped producing wood products. Absolutely not. And a lot is going east rather than west, as it should, given the restrictions. I think you're right. It's difficult to get spare parts, etc. So it will, of course, have an impact. And as we are in this industry having overcapacity in most areas, It helps a bit now what the effect will be once there will be availability of spare parts, etc. Again, I think there will be a bigger impact with wood coming from Russia going west again when that time comes. Even though it's mainly been saw logs, not so much pulpwood, but still for sure that will have some kind of impact.

Thank you. And then maybe for a little bit of color there, but for harvesters and the products that you're buying for your own forest operations, who are the main suppliers? Were there any domestic Russian suppliers, or would it all have been Europeans and effectively Japanese suppliers?

I frankly don't know exactly what kind of... It's a good question.

I don't know of any Russian ones. I only know about the ones we use. They are not Russian, for sure not.

Perfect. Thanks a lot. I hope on the difficult question.

I don't know if it's much of a help, but good questions. Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Henrik Jörlund. for any closing remarks.

Thank you very much for taking your time and very good questions. Look forward to see you soon again. Thank you and have a good day.