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Good morning, everybody, and welcome to the interim report presentation for the Holmen Group. My name is Henrik Sjolund. 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 adds 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 is slightly different. Because there, it's more of a challenge when it comes to volumes than the margins and to be able to distribute extra cost over less volume simply. So the situation in the forest, prices still going up. We have both industry and forest, but Anders, 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 15% higher prices. But if we look over the last few years before the energy 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 crisis. 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 SEK 450 million.
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 bit less water in the system also than normal, meaning a bit less hydro power 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 produce less than we normally do in the first quarter. This is a quarter where we have -- normally have the highest earnings. This year, we had SEK 200 million. If you go back once again before the energy crisis, first quarter result normally was SEK 100 million. 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 2/3 hydro and 1/3 wind. We get some 15% to 20% 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, et cetera. 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 on this higher prices, was that enough to compensate for higher wood cost?
Well, the margin actually improved a bit, the gross margin. But we chose to take -- we didn't run the sawmills full. It doesn't really make sense to hunt the lost 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 picking up a bit.
And you also know that pulp price has come up a bit, and that's like the break in the system when it comes to the possibility, especially for nonintegrated players buying the pulp to go for, say, rebates or making adjustments to the price in the market. You see the graph there and pulp and folding boxboard 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 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 almost we could expect ourselves when it comes to how challenged the market is. So, Anders, 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 a year 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 a 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 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, SEK 370 million, that's equivalent to almost 20% return on capital employed in an environment with lackluster demand and in -- 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 SEK 950 million, which is again not bad, actually rather good. Again, in a situation where demand, especially demand among consumers is not where -- what we have been used to and also not building enough the construction cycle 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 reduced 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 cleaner 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 in 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 1.5 million tons of CO2 being stored in the trees that grows a little bit better for every year. And some of the forest, especially the planks, they go into wooden buildings or frames somewhere and stays there for a couple of hundred years. That adds on roughly 0.5 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, We need to buy some diesel, et cetera, 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 1.5 million tons positive or beyond net zero already today. Or you can also say, for every ton of paper or board, that's roughly 1.5 million tons that corresponds to also 1.5 million tons of stored CO2 in our total operations.
If we then just finally conclude what we do in our business model in Holmen. Well, everything starts with a land we own, where we plant trees every year. We plant trees with the aim to 80 to 100 years later to harvest, and we spend like SEK 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 SEK 1.5 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 SEK 0.5 billion to change the product mix and increase the capacity at our Iggesund paper mill -- Sawmill, sorry. And the rest, which is our process industry, board and paper. There, we -- right now, we invest actually SEK 0.5 billion again roughly in order to enhance our book quality, capacity and also to 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, you said that we had like 18%, 19% rose.
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.
[Operator Instructions] The first question comes from the line of Lindstrom Oskar with Danske Bank.
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. What is your thinking around capital allocation in particular investment plans?
I mean you've previously talked about potential investment in SCA -- together with SCA and their Rundvik sawmill, You've talked about expanding Iggesund. I mean, are both of these -- what's the status for 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. Anders?
Yes. Henrik just described ongoing projects. And then you correctly, Oskar 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 take the -- pace it a bit slower than we previously have indicated. And the discussion on saw milling, 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. But -- 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 to -- for them to get permits.
I think you follow the political discussion in media also here, how to deal with the different cities or communities and there veto right, right now.
Yes. Would you be -- 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 Martinsons 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. Just a final quick question. I mean, on forest, I mean, the energy sector, as you point out, have seemed 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? Is it...
I think you indicated 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 pit to biofuels. And we don't really see any sign of that demand slowing down, actually.
The next question comes from the line of Santavirta Robin with Carnegie.
Now I was wondering about the team market, what kind of demand outlook and price outlook is there for the high season now in Q2? Should we expect the normal sort of seasonal uptick in demand? And should we expect higher prices Q-on-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 we -- 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 to add, but...
Technically, pricing will be higher in Q2 than Q1 because we left -- March pricing was higher than January. But as Henrik mentioned, it's -- we don't really see the strong uptick in building or any signs on the demand side.
I think, yes, it's more supply now, Robin.
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 that, any kind of split or comments you made sort of for us to understand what kind of earnings the paperboard business had and what kind of earnings the paper business -- any kind of color you could share there?
The color we can share that roughly 3/4 of the earnings is from the paper side and 1/4 is from the board side in that -- in the first quarter.
All right. Finally then on paperboard, 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 destocking 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 demand level, also utilization rate in the industry, well, I think we need consumer spending to become a bit better to really see -- really say that it has changed.
The next question comes from the line of Kopfer Christian with Handelsbanken.
All right. Just one quick question from my side on board and paper. I think, Anders, was -- you're saying that you have reached the bottom of the cycle, well, that you are on the bottom of the cycle? And does that mean that you don't see 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 and is not sliding downwards. We still have some price pressure on paper. But as Henrik mentioned, the board side, it seems to have bottomed out on the price side.
Right. And then finally for me on the forest side, SEK 450 million on EBIT for forest. So there were no specific one-off items or nothing like that in the first quarter?
No, it's a clean result. So you could say that's representing -- SEK 450 million is representing the earnings levels at the current pricing of forest wood logs and pulpwood.
We have another question from the line Grunselius Johannes with DNB Markets.
Johannes here. I have a few 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 it 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 was -- there is some overcapacity in the market. We could -- most players could produce a bit more. And folding boxboard, well, when pulp prices were very low, the cost for producing folding boxboard 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 costs for producing folding boxboard 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. Yes, 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 the industry could go for price hikes also on folding boxboard.
We normally -- we can't comment on that kind of forward-looking. But could be cost driven, yes.
Yes. Okay. Fair enough. And I mean, since board is now merging in the new business division, but could you help us a little bit to understand the volumes. What I'm after is that do you have I suppose, a lot of more additional capacity in your mills compared to where you are operating at the moment?
There is -- we're not running -- on the board division, we're not back to where we should be in a normal market situation. We are running at a higher level than in Q4, but we are -- there's still some way to go before we are at full capacity.
Yes. And then just a final question also on board and board and 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.
The next question comes from the line of Larsson Linus with SEB.
Coming back to the forest and this strong Q1 EBIT, SEK 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 3 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 [indiscernible] and Mellanskog has increased their list prices. So it's an indication that the direction of pricing is still upwards, How much, at what pace? Difficult to say. And we don't really have much seasonality. Q2 may be a bit stronger in harvesting. And Q3, we have more silviculture spendings.
Okay. And then on board and paper, the new super division. 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? Any color on that would be helpful.
You're pointing -- wood costs are on the rise. There is a bit delay in wood cost for our industrial division. So they will go up a bit in the second quarter. Energy-wise, we are -- have a new year with new levels of hedging prices. It's -- there's no major change to be expected in the coming quarters on the energy side, but we have a new level, more or less.
And 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 reported?
We don't -- energy hedge gains is more that we lock the cost than we actually -- it was quite a volatile pricing quarter, 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. You can expect that we -- if we have volatility in pricing, we can earn that in the second quarter as well.
Taking down production simply.
Or being rather being prepared to take down. You rarely have to take down, get paid just to be standby.
The next question comes from the line of Melbye Martin with ABG Sundal Collier.
My questions have been answered by now. Thank you.
We have a question now from the line of Hathorn Cole with Jefferies.
I'd just like an update on how logistics have been impacting the various divisions, I'm thinking more about paperboard at the moment. How you see imports from either China or your exports and how you're adapting to that. And the second one is on the pulpwood and sawlog dynamics up in the Nordics. And I'd just like to hear your thoughts. I mean, we've seen wood costs rise a lot. The industrial businesses are under pressure.
I mean, the reason 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?
Should we start by the Red Sea?
Yes.
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 a 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 at consumer boards, it's more that the volume component is a bit too low to get the profitability that you need. So -- and we showed that in the last press conference, that actually as a share of wood, 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 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 follow-up, which is on the CapEx. Do you have the CapEx guidance number for '24, '25 that you might be able to share with us?
We will be a bit above SEK 2 billion this year, between SEK 2 billion and SEK 2.5 billion and around, will be at the same level at '25 based on the wind power expansion we're doing.
[Operator Instructions] 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 and have a nice day and see you soon again. Bye-bye.