Good morning, everybody, and welcome to the interim report presentation for the Holmen Group. It's me, Henrik, and Stefan that will go through the presentation, and after that, we take questions like we normally do. Let's start with the result in the third quarter. Cautious customers and not a very strong market for construction, on top of that, a maintenance shut made result land on roughly SEK 550 million kronor. We will come back to the different business areas during the presentation. Before that, just to mention that we had a strong cash flow, and we are also having a very strong financial situation like before. Then let's move on to forest and the wood market. We talked about declining wood prices for some time, and when you look at the chart here, it's what we pay for the wood to our industry.
You have to remember when you look at the chart here that our prices are affected by the storm and how much we have harvested in the storm-affected areas during this period, especially this year. On average, wood prices are down roughly 10%. The big question going forward is to understand where wood prices will go from here. Right now, we have a feeling that they are more or less standing still. But when we look at especially pulpwood, for example, in the Baltic States, we do see that prices are actually ticking up a little bit. So again, the question is, where will it be when we look forward? As you know, we have a situation in Sweden today where we actually have too much of industry capacity and not enough harvesting. It's a structural deficit of wood where we stand. Then we talked about the storm.
For us, it has not a big effect on the result, Stefan. I think that's enough to say. We do reallocate quite a lot of our own resources, so we harvest a bit more in the storm-affected area, also on other people's land, other forest owners' land. But in total, for us, and especially when you look at the cost, it's no big deal.
It's not, Henrik, and if we look at the result for the third quarter, we reported an operating profit of just above SEK 440 million Swedish kronor. That's a slight decrease compared to previous quarters due to the lower selling prices for both pulpwood and timber, as Henrik mentioned. Also, harvesting cost, we're on the same level QoQ, but they are a bit inflated due to the storm that we had, and we need to take care of these storm fellings on our own forest, which is a bit more expensive than normal harvesting. Finally, I can also comment on the harvesting levels, which was slightly higher QoQ, but still, we anticipate the full year's harvesting to be a bit lower than normal, also that due to the storm that we had in the beginning of the year.
Thank you. Something totally different, renewable energy. I think we should start by commenting a little bit about the situation in Europe. We are again coming into a period where we see gas prices on the rise, and of course, it has an impact on the European cost competitiveness in total. We know that in the U.S., gas prices are on the same level as before, and we know in China, they are not even using the gas. They have the coal. But the situation for us as a producer of electricity, we had a period last year where prices in northern parts of Sweden were extremely low due to mainly too much water in the system. Now in the beginning of the year, we had, call it a fantastic quarter if you produce electricity, but prices were extremely high.
Right now we are in a situation where northern parts of Sweden, it's roughly half the price as in SE3, where we consume all the electricity. Still, SE3 is roughly half the price as we see in continental Europe. So for Europe, this is really a tough situation. But for us as producer, we will see, and it will not take that long before we will see new consumption electricity coming also up in the north, and we also have new transmission capacity coming on stream. But it will take a bit, and that's not exactly where we are now, even though prices were a bit better in the third quarter. We talked about Europe, just to remind ourselves, SE3 is partly connected also to Germany.
Sweden and Norway, they are the only places in Europe where we actually have more electricity than what we consume at the moment. We export quite a lot. But what you see on this chart is that the industry in the southern parts of Sweden, we do actually import German prices at daytime in the third quarter when the sun is shining. In the dark hours, so to say, we have a cost advantage in southern parts of Sweden versus Germany. But producing electricity up in the north, you can see we are not affected almost at all compared to SE3 and what happens in Germany. All right.
Yes, as Henrik just showed, the price for electricity is really volatile. Our energy asset has although contributed very well to the Holmen Group's overall cash flow the last couple of years. On average, we have earned SEK 325 kronor per megawatt hour in cash flow from these assets, and that's also where we trade currently on a 12-month rolling basis. Looking into the third quarter specifically, we reported an operating profit of SEK 42 million . That's lower than in the second quarter due to somewhat lower electricity price in the northern part of Sweden. The maintenance work that was conducted on the national grid in the second quarter continued to some extent also in the third quarter, which took a toll on our production capacity.
Mm-hmm. Thank you, Stefan. Changing subject again to wood products. I said in the beginning already that the construction market is not very strong. Actually, if you look at infrastructure, it's not a bad situation, but when you look at house starts and building permits for homes, look at U.S., it's not going in the right direction right now. It is rather weak and interest rates are pretty high. Same situation in Germany. This is, of course, demand. If we then have a look at supply, we can see that, in Western Canada, in British Columbia, production of wood product has been going down for quite some time, and it's on a rather low level. In Germany, I'd say it's a hangover after the spruce bark beetles. This is supply in those two important countries.
If we look at Sweden, we've said that it's only place in Europe where we still produce a lot of wood products. That's in Sweden. Now we also see that during this year, production has come down quite a lot also in Sweden. If you look at prices then, more or less, I would say they are flat at best at the moment where we are right now.
It's not so easy to make money, is it, Stefan?
No, but a bit easier than it was a year ago. We now see that the loss is coming down in this division, and that's due to the lower wood cost that we have. Unfortunately, not enough still to report a positive EBIT, but it's moving in the right direction. As Henrik said, demand is not there, and therefore, we took a bit extended production shuts during the vacation period, as we always do. But this year, we extended them to some extent. That also meant that our deliveries in the quarter were lower than normal due to the lower production.
Mm. Thank you. Board and Paper. We also said that in the beginning of the presentation that consumers are still a bit cautious. Demand in Europe is moving more or less sideways. It is not changing very much. Not yet. You should be in different market segment than this one where you are totally dependent on people like us spending our money, and obviously, we are not spending that much. In our case, when it comes to our order book, actually, it is healthy. It is not bad at all. In our case, we lost production during the third quarter when we had a maintenance shut. Overall, for the industry in board, still there is too much capacity. That is clear. So if you look at the capacity ratio, how we are making use of all the factories in Europe, it is still rather low.
We are running at a better utilization rate, and as I said, the order book is not bad. If you look at prices, there is a lot of discussions with customers right now. There is also announcements of price increases, mainly from 1st of January. Also, we have announced price increases in this segment, but we are currently discussing with our customers. If you look at paper, it is pretty much the same basic situation that we have too much capacity, not enough demand. But also here, in our case, we are fairly happy with the level we are running. We are not running totally full. That has not been the case for quite some time. Also here, order books are okay. Here we discussed electricity prices before, which is energy prices in continental Europe.
Of course, it puts a burden on a lot of players right now as energy, it is expensive and it seems to stay expensive for some time. Also, here we discuss prices, of course, with our customers, but it is a bit earlier stage, and we will see where that land. It is too early to say. Stefan?
Yes. The result in the third quarter was lower than what we saw in Q2, mainly due to the maintenance stop, as Henrik mentioned in the beginning of the presentation. That took a toll on our result of some SEK 150 million Swedish kronor. Also, we saw deliveries were a bit lower in Q3 compared to the high levels that we saw in Q2. But it is in a normal range of deliveries, and it is also partly affected by this maintenance shut in the Iggesund mill.
Absolutely. Last but not least, you might saw this morning that we also informed you together with the press release of the result that we are splitting our business area forest into two. One for taking care of our own forest and the other part supplying the industry with wood. Thank you very much. We are happy to take on any questions you have.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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 stay with the loudspeaker mode while asking a question. Anyone with a question may press star and one at this time. We have the first question coming from Ravi Ephrem from Citi. Please go ahead.
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Thank you. Two questions. Firstly, on your announcement today morning on splitting the forest division into two operations. Can you give us a sense as to how the SEK 10 billion of approximate revenue and the SEK 2 billion of EBIT kind of splits between the two divisions you are thinking of? How does margins and returns look in these two different businesses that you are talking about? Second question related to that, again, is this a precursor for some kind of corporate activity? Is that how we should think about it in terms of selling a stake or realizing the value of the business in the capital markets? Thank you.
Maybe I could answer the first one with the turnover. We report the turnover for the combined business area today, and we also show the turnover from our own forest. In the new business area, Holmen Forest, we will only report the turnover that is related to our own forest. That will be no change if you look at that number. Also, the EBIT from the business area, that is more or less purely from our own forest, so there will be no result in the new division. It can vary slightly between quarters going forward, but over time it will be a zero game, so to say.
We have absolutely no idea to sell off the forest or the industry. We simply do this in order to make sure that we have enough capacity to focus on where we think there is a potential for us, and that's in the forest. As a consequence, we move wood supply into a separate business area, we call it, but it's actually a cost center be carried by the industry.
Thank you.
Thank you.
The next question comes from Larss on Linus from SEB. Please go ahead.
Yes. Thank you very much and good morning to everyone. Maybe just a follow-up on the previous question. If you could just elaborate somewhat how you hope to capitalize on your forest asset and make the most of it. I understand this split is one step in that direction, but could you share some more thoughts on that, please?
I think the starting point is that it has been simply too big of a task to carry out, both thinking doing the absolutely best we can when it comes to our own forest and also making sure that we do everything perfect and as well as we can when it comes to supplying the industry with wood. It is a way to make sure that we can focus on our own forest and forest land. That is where it starts. Exactly what it will be, it is a bit too early to say when it comes to potential, but of course, there is potential in doing so. Do you want to comment?
No, I think you covered it.
Great. No, that sounds exciting. Then maybe on Board and Paper, and you did comment on the maintenance stop, which was, from what I can tell, very much in line with what you had expected and guided for, yet the result there was weaker than consensus had expected. So maybe if you could share some guidance on that as well. Historically, we have, for instance, talked about the dynamics of energy and how you have been very successful in managing and optimize your position in that part of the market. So if you could just drill down a little bit on the profitability aspect in the third quarter and how you see this aspect on energy maybe in particular.
Well, the energy situation was more or less on a normal level, Linus, as it has been for the last couple of quarters. Of course, when you compare to where we were one year ago, it is a different situation for us. The result in Q3 was also affected, as I said, by the lower deliveries. They came down from a very high level in the second quarter to a bit lower level, which also took a toll on our result. It is hard to comment on the deviation against consensus. Those are the main drivers for the profitability in the third quarter.
Then maybe if I may follow up just on what you said on volumes. They were down, I think, 7% year-on-year. How do you see volume development into the fourth quarter for Board and Paper, respectively?
Well, it is no drama when it comes to changes in deliveries. The change that you see compared to last year is mainly due to lower paper deliveries. That is a declining market, but if you look quarter-over-quarter, the changes are quite limited, and it is very hard to anticipate the exact number that we will report for the fourth quarter. We do not see any drama, Henrik. Our order books looks-
Order books are okay.
-pretty much the same as they did in the end of second quarter.
Okay. Thank you very much.
The next question comes from Pallav Mittal from Barclays. Please go ahead.
Hi. Good morning. I have a couple of them. Firstly, on renewable energy, can you quantify the impact from the curtailment that you're talking, the grid-related curtailment, and how long does that curtailment last? Does it last into Q4 and maybe even the first half of next year? Also, can you talk about how much of your wind and hydro output is hedged for the next few quarters?
Well, first, the maintenance on the national grid took a toll on our result of maybe SEK 5 million-SEK 10 million in the third quarter. We do not see any effect in the fourth quarter from those activities, even though they can pop up because we do not plan those work, the state-owned company does. We do not have any more information right now for how it will look like for the next year. Can also comment that even if it affects our result in the short term, it is a good thing that capacity is being increased on the grid connection to the southern part of Sweden. So in the long term, this is something that is good for Holmen.
It is increasing the transmission capacity between SE3 and SE2, which is needed, as you saw from the previous slide.
The second question, I might have caught it wrong, but if it was concerned our water levels in the reservoirs, they are more or less on a normal level right now. So that is all we can say.
No, I was talking about any hedges that you have for your wind and hydro.
Okay, sorry. I completely missed it. It is very limited. It is approximately 5%-10% of our production that is being hedged. More or less all of our energy production is sold to spot prices.
Sure. If I can then ask on your wood product segment. Clearly, there is some benefit coming in from lower log costs. There is no momentum in prices and demand is subdued. Are you planning any curtailments in terms of production or any changes in your footprint? When do you expect to come back to profit?
The second question is soon.
Hopefully yesterday. The first one, whether we would curtail our production, we are constantly looking into it, and we have done a lot. Especially the big sawmill in the south, we are taking down capacity quite a lot, actually. We are constantly looking at also the sawmills up in the north.
Okay, thank you.
Thank you.
The next question comes from Cole Hathorn from Jefferies. Please go ahead.
Morning. Thanks for taking my question. I would like to focus on graphic paper and consumer board. If we start with the graphic paper side, could you just talk about your relative energy advantage versus the continental European players and how you are managing that energy advantage at the moment? Secondly, on graphic paper, how do you think about the market development now that we have Sappi and UPM trying to combine into a JV, but effectively a little bit of paralysis until that deal is completed? Just wondering your thoughts on the outlook into 2027. Thank you.
Thank you. Very good questions. If you take paper in general, as I said in the beginning, we have an overcapacity that we are all aware of. It is not based on a better balance that would push up prices, but you are into something which is extremely important, that is the cost for energy when it comes to paper. We, to some extent, also compete with recycled fiber-based production, and there you have the cost element. What has become a bit more difficult to see through is what they actually pay on the continent. Before it was the gas price times two plus emission rights, you knew what the cost would be. But now with all the government subsidizing the industry, it is a bit more difficult.
Clearly, the energy cost we have today put cost pressure, which normally would lead to cost-based price increases in the market. But we are not really there yet. What was the other? UPM, Sappi. You are absolutely right. I think we all wait for the EU Commission to make up their mind whether that deal will go through or not. I think it is needed for the industry as such. That is quite clear. On the other hand, of course, you can close down capacity also without creating a new company. But I think we are all waiting. What we know is I think what everyone knows. That is hopefully we have a decision beginning of next year.
Consumer board, there is a lot of oversupply there. There is cost.
Yeah
I suppose uncompetitiveness versus China versus Europe overall, which is challenging. But the price increase that the industry is trying to push through, is this just pure cost push, just trying to offset some of the chemicals, et cetera? Are we thinking that applies just on the annual contracts on the beginning of the year?
You are right again. Yes. It is cost pressure mainly, because the balance here is not good enough. Normally you need to be at an utilization rate of roughly 90%. We are not really there. As I said before, our order book is healthy, but of course it is a big fight for orders. When it comes to China, we do not really see the Chinese coming into Europe, but I think if you look for a spot deal today in China, you do compete with the Chinese, and that is quite tough. As you said, cost, yes, that is behind. It is transportation, logistics, it is chemicals, as you mentioned. Also we have had a very high fiber cost for the industry for quite some time, even though it has come down a little bit now at the end. So cost, yes.
Henrik, you have also shifted some more volumes, traditional graphic paper into, I suppose like a virgin kraftliner or interliner. Just wondering, is that business growing? Is it becoming a bit more material? Just love your
Yes, it is growing, but from a low level and not yet on a level where it makes sense to talk about it in terms of whether it will have a real effect on our result. It is a bit early.
Too early.
But we are positive and we think it will work. Customers are happy with the ones that are using our products, but it's not big enough volumes yet.
Okay, then, just last follow-up on the splitting of the forest division. You called out that the forest management and owned forest sales is basically where you make the majority of your profit, and you're splitting out the cost center, which is the procurement of the wood. But when you're thinking about managing your own forest and you've always said you wanted to keep owning the forest-
Yes
-are you splitting the forest out so that you can look at new revenue streams? So developing data centers on the land, more like Weyerhaeuser and some of the U.S. companies do, further land development to generate revenue? Or is this splitting it out to say, we want to do the revenue generation plus grow this forest base over time? Are you thinking there's going to be more consolidation within your forest holdings over time?
You had a number of ideas what we could do with the forest. I think they are all relevant, to be honest. This is a way to simply make sure that we have enough resources and do whatever can be done in order to extract value from the forest and the land. You're right about that. But it's too early to talk about what exactly we will do. Of course, we look into data centers, et cetera. We have land in the right spots. We have access to power, but it's too early to talk about. We have to materialize it first.
I understand. Thank you.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. There are no more questions at this time. I would now like to turn the conference back over to Henrik Sjölund for any closing remarks.
Thank you very much. Very good discussion, good questions, and look forward to see you soon again. Thank you.
Thank you