Production and deliveries
Risk
Demand for Holmen’s products is affected by macroeconomic and political factors, among others, and the competitiveness above all of Europeans producers. Changes in demand affect the ability to achieve full production at the Group’s industries and can lead to lower income. Income may also be impacted if harvesting from our own forest needs to be limited as a result of lower demand and variations in precipitation and wind, which govern generation from hydro and wind power.
Risk management
Holmen endeavours to maintain a good cost position through large-scale production at well-invested production facilities, efficient logistics solutions and good control over the supply of wood. Together with longstanding customer relationships and strong product brands, this also increases the ability to maintain a high level of production amid more difficult market conditions. Changes in demand for wood may be met by shifting harvesting from our own forests from year to year, while production of hydro power during the year can be controlled by regulating water reservoir levels.
Comment
Thanks to our strong supply of wood and energy, Holmen was able to produce largely at full capacity in 2022, whereas many competitors on the continent had problems with raw material supplies. Blåbergsliden Wind Farm became operational at the start of 2022, which, together with the acquisition of the remaining 50 per cent of the previously partly owned Varsvik Wind Farm, increased Holmen’s renewable electricity production capacity by 40 per cent per year. For information about how changes in deliveries would affect Holmen’s operating profit, given the circumstances on 31 December 2022, see the sensitivity analysis.
Selling prices
Risk
The market balance in each product segment governs the selling price and affects income.
Risk management
Holmen has limited possibilities to make rapid changes to its product range in the event of changes in price, but it adjusts its product focus towards those products and markets deemed to have the best long-term conditions, and by having a broad customer base and offering across a number of product areas. Changes in the price of wood can be managed to some extent by shifting harvesting from year to year and changes in the price of electricity can be managed by regulating reservoir water levels in order to shift electricity generation over the year.
Comment
Paperboard and paper product prices were increased in 2022. A flagging construction market drove down wood product prices at the end of the year. Electricity prices were high, but with significant local variations. Holmen’s renewable electricity prices were on average nearly twice as high as in 2021. For information about how changes in prices would affect Holmen’s operating profit, given the circumstances on 31 December 2022, see the sensitivity analysis.
Raw materials
Risk
Wood, electricity and chemicals are the most significant input goods and price changes affect profitability. Holmen’s costs depend on the price development for input goods, as well as on how well the Group succeeds in making production and administration more efficient. There is a risk that the Group’s costs will increase if there is a shortage of raw materials, or if prices increase for input goods.
Risk management
Around half of the Group’s wood needs are covered by harvesting from the Group’s own forests, while the remainder is mainly purchased from private forest owners. The Group is largely in balance in terms of pulp as a result of the integrated production process. The paperboard business generates almost all the electricity required at its own mills, while electricity for paper manufacturing is supplied from external electricity purchases. The price risk in this consumption is managed through physical fixed price contracts and financial hedging. The Group also sells electricity from its hydro power and wind power assets to the grid. The need for thermal energy is great and is met locally through recycling and production from residual products. Chemicals are a significant input, particularly in paperboard production, but the need is declining since used chemicals are being recovered at the mills.
Comment
The electricity price in southern Sweden, where most of Holmen’s consumption takesplace, was high in 2022. Due to price hedges and Holmen’s adapting of its production to an environment with volatile electricity prices, the price increase had a limited impact on Holmen’s costs. Other important input goods, such as chemicals and wood, also increased in price during the year. For information about how changes in commodity prices would affect Holmen’s operating profit, given the circumstances on 31 December 2022, see the sensitivity analysis.
Suppliers
Risk
Deficiencies in the supply chain for inputs in terms of security of supply and quality canlead to production disruptions. Suppliers that do not meet Holmen’s requirements can also have a negative effect on operations. There is also a risk that essential raw materials are not delivered because of changes in laws and regulations or other external factors.
Risk management
Holmen endeavours to have at least two approved suppliers per area of use. In addition, Holmen’s Supplier Code of Conduct is included in all new contracts. It contains requirements on sustainable development, including by respecting internationally recognised principles on anti-corruption measures, human rights, health and safety and the environment. Since 2017, Holmen has engaged an external party, EcoVadis, to monitor suppliers regarding their compliance with the Code. Holmen is subject to the UK Modern Slavery Act and a report on this is available at holmen.com. Compliance with forest management contractor agreements is ensured through site visits in the forest and all forest management contractors are trained in forest management and labour law and are informed about where to turn if irregularities should occur.
Comment
In 2022, 0 (2) cases regarding breach of the Supplier Code of Conduct were reported. In the event of such breaches of the Code, an active dialogue with an action plan is in place in accordance with Holmen’s procedures. Suppliers representing 88 per cent (85) of the Group’s purchasing volumes have signed the Supplier Code of Conduct. Supply chain risks relating to the climate, environment, labour legislation, human rights, business ethics and a sustainable purchasing have been mapped and an action plan has been formulated. The largest suppliers of input products are engaged in dialogues regarding the reduction of fossil emissions. The war in Ukraine and the effects of the pandemic have made it more difficult and expensive to acquire certain goods and services. Holmen has actively worked to limit the effects and has been able to avoid disruptions to production.
Customer credits
Risk
The risk of the Group’s customers being unable to fulfil their payment obligations constitutes a credit risk.
Risk management
The risk that the Group’s customers will not fulfil their payment obligations is limited by means of creditworthiness checks, credit limits per customer and, in some cases, by insuring trade receivables against credit losses. Credit limits are continually monitored. Exposure to individual customers is limited.
Comment
At 31 December 2022, the Group’s trade receivables totalled SEK 2 929 million (2 393), of which 43 per cent (34) were insured against credit losses. During the year, no credit losses on trade receivables had an impact on earnings (SEK 0 million). Sales to the five largest customers accounted for 14 per cent (14) of the Group’s total sales in 2022.
Facilities
Risk
Production can be seriously disrupted, for example, in the event of a fire, machine breakdown or natural disaster. This can lead to supply problems, unexpected costs and reduced customer confidence. Production facilities require ongoing maintenance and technical upgrades. Major maintenance shutdowns can entail higher costs and greater loss of production than planned. Investments in non-current assets can also be more costly than initially planned.
Risk management
Damage prevention measures, regular maintenance and continual upgrades can
minimise the risk of damage to facilities. Training of employees promotes participation, knowledge and awareness about these risks and how they can be countered. Holmen insures its facilities at replacement value and has insurance against interruptions in the event of unforeseen events. The Group also has liability insurance that covers sudden and unforeseen environmental damage affecting third parties.
Comment
The turbine in the biofuel boiler at Workington became fully operational again in the first quarter of 2022 after being damaged in 2021. Following the insurance investigation, Holmen was entitled to compensation for the turbine damage, minus the excess and certain costs. In 2022, Holmen invested SEK 1 225 million in the maintenance and upgrading of its production facilities. At Braviken Paper Mill, a project was launched to streamline production and treat and reuse more water and chemicals.
IT systems
Risk
Efficient IT support is required to be able to plan and manage the production and when handling sales and purchasing. Disruptions in IT support and unauthorised access to information can have significant negative effects on the business.
Risk management
Operating disruptions and unauthorised access are prevented by security measures and preventive measures in the form of appropriate physical protection, reliable server operation and secure networks. Measures and procedures are in place to minimise the risk of interruption and to manage situations if interruptions occur. Holmen is continually developing protective measures to address changes in the risk profile.
Comment
Business operations were not affected by cyber incidents in 2022. To make its systems and procedures secure, Holmen has created a new function focused on IT and cyber security. A regularly recurring IT security training course is held for employees.
Forest management
Risk
Holmen’s right to manage its own forest is crucial for maintaining its value. There is a risk that requirements to allocate areas for purposes other than forestry could increase in the future. Such a development could have a negative impact on the value of Holmen’s forest assets, and mean that forestry methods may need to change, which could reduce the harvest and increase costs.
Risk management
Land and forest management are regulated both nationally and at the EU level. In order to be able to engage in active and sustainable forestry, it is important that laws and regulations such as the Environmental Code, the Forest Inquiry, the EU’s forest strategy and LULUCF do not restrict the conditions necessary for sustainable operations. Holmen participates in national and international industry organisations to exert an influence on relevant political and regulatory issues.
Comment
During the year, the right to use the forest in line with Swedish laws and regulations was questioned within the EU. Holmen has actively participated, both on its own and through industry organisations, in the debate to influence the EU position, including by elucidating the positive climate effects associated with a managed forest.
Damage to forests
Risk
Wild game can damage the forest when grazing, resulting in both deterioration of the quality of the trees and reduced forest growth. Insect pests are another risk factor; for example, the spruce bark beetle can damage spruce forests. Storm and snow damage, fungal attacks and forest fires are other examples of damage that must be addressed and managed in forestry.
Risk management
Holmen’s forest holdings are scattered across large parts of Sweden and the risk of extensive damage occurring simultaneously is considered to be low, for which reason the Group does not have insurance cover for its forest holdings. To reduce the extent of grazing by wild animals, active efforts are undertaken on Holmen’s land to maintain game at the correct population level. Insect pests such as pine weevils are combatted by waxing seedlings and infested forest is harvested as soon as possible to prevent spread.
Comment
The spruce bark beetle infestation continued in southern Sweden in 2022. To halt its spread, Holmen continued to prioritise the harvesting of the spruce bark beetle infested forest. Holmen is working resolutely on the spruce bark beetle infested forest, focusing on retaining as much of the wood’s value as possible and looking for a sales outlet for the damaged logs.
Climate change
Risk
The Swedish Meteorological and Hydrological Institute’s forecasts show that average temperature, precipitation and soil moisture will increase in Sweden. A warmer climate could increase the growth of our northerly growing forests with a longer growth period, more precipitation and higher levels of carbon dioxide in the air, aiding photosynthesis. It could also affect the ecosystems in that biodiversity is altered, while the risk of storm and snow damage, fungal attack, insect damage and forest fires increases. Climate change could also impact the ability to carry out harvesting, for example because of the increased risk of damage to the land.
Risk management
Holmen is developing seedlings and processes for planting, clearing and thinning to adapt our forests to a changed climate. Seeds for Holmen’s cultivation of seedlings are selected to grow and flourish in a changing climate. When planting, we choose tree species based on the specific conditions of the soil to ensure the trees can better withstand extreme weather such as storms, rain and drought. Since shorter periods of frozen ground can make harvesting more difficult in the winter, this work is being adjusted through planning and by relocating machines to areas with better conditions.
Comment
Ongoing climate risk analyses and adaptation plans are carried out to ensure healthy, resilient forests suited to a changing climate. The risk of an impact on Holmen’s sites from climate change is being managed through Holmen’s operational continuity planning. Risks concerning energy consumption and greenhouse gas emissions are managed through our ISO-certified environmental and energy management systems. Demand for Holmen’s products is rising in response to the market’s ambitions to counteract climate change, since our customers want renewable alternatives to fossil-based products.
Environment and permits
Risk
Holmen runs operations that require environmental permits. The permits specify conditions regarding permitted production volumes and permitted emissions to air and water. Production disruptions can cause breaches of emissions conditions set for the business by environmental authorities. Such breaches could affect the environment. In places where Holmen has conducted industrial operations, the need for remediation may entail future costs.
Risk management
Environmental measures are organised and conducted in accordance with Holmen’s environmental and energy policy. In the event of process disruptions, the environment takes precedence over production. Risks are prevented and managed through regular own checks, checks by authorities and environmental risk analyses, as well as through the use of certified environmental and energy management systems and chainof-custody certification. In consultation with the authorities, Holmen is conducting investigations to assess the need for remediation at former industrial sites.
Comment
In 2022, 45 (53) environment-related incidents were reported to the supervisory authorities. There were no incidents that led to long-term consequences for the environment, production or human health in 2022. Corrective measures were taken to deal with these cases, in line with the environmental management system of the operations concerned. Holmen has several wind farm project applications in progress, but the authorisation procedure often takes a long time and its outcome is uncertain.
Health and safety
Risk
Incidents and accidents at the workplace have an effect on human life and health. This could also lead to production disruptions and increased costs.
Risk management
Good health and safety is a priority at all levels of the Group. Certified management systems, Group-wide targets relating to work accidents, continual training of personnel to increase risk awareness, procedures for risk observation and incident and accident reporting, and risk assessment of tasks and work by contractors are examples of activities to achieve a high level of safety in the workplace.
Comment
In 2022, the rate of industrial accidents was 7.6 per 1 million hours worked (5.6). See also page 47. The most common accidents were slips, trips and crush injuries. The most significant areas of risk involve work with overhead cranes and vehicles with people in movement. The focus during the year was conducting preliminary investigations into industrial accidents before the end of shifts in order to directly address any dangers.
Talent management
Risk
Skilled and motivated employees are key to being able to conduct long-term business operations with good profitability. There is a structural shortfall in many industrial positions.
Risk management
Holmen is continually working to enhance the employer brand in the eyes of existing and potential employees. Systematic marketing to targeted groups through digital channels, combined with in-person meetings in the form of careers fairs and sponsorship collaborations, are helping to increase awareness of Holmen and attract and retain talented employees.
Comment
Annual surveys show that new hires rate Holmen highly as an employer. During the year, managers were trained in competency-based recruiting in order to improve their recruitment success rate and increase diversity among new employees. Holmen received accolades in 2022 such as a top 20 ranking in the Ranstad awards, the title Karriärföretag (career company) 2023, and a top 10 place in Universum’s ranking of Sweden’s Best Employers (Sveriges Bästa Arbetsgivare).
Business ethics risks
Risk
Nationally and internationally, customers and partners place requirements on Holmen as a stable and reliable supplier that has good business ethics and clear sustainability principles. Deviations from principles and policies could have a negative impact on reputation and business relationships.
Risk management
Holmen’s Code of Conduct, business ethics policy and associated guidelines provide clear guidance on how to maintain good business ethics when dealing with external contacts in various markets. Holmen’s Code of Conduct also provides guidance on human rights, workers’ rights and the environment. These areas are clarified in Holmen’s policies and related guidelines. Managers and employees in sales, marketing, purchasing, finance, HR, information, market communication, projects and Group staffs have all received training in all aspects of Holmen’s Code of Conduct.
Comment
No identified or reported cases concerning deviations from the business ethics policy or the parts of the Code of Conduct or Supplier Code of Conduct regarding business ethics issues were reported in 2022. In August 2022, new versions of the Code of Conduct and the Supplier Code of Conduct were adopted. Office workers and managers at Holmen are trained in the Code of Conduct every three years. No corruption lawsuits against the organisation or its employees were ongoing in 2022.
External risks
Risk
Holmen is active in a global market and sells products to many countries around the world. Because of this geographical spread, Holmen is exposed to political risks, conflicts, natural disasters, epidemics and pandemics. Moreover, Holmen is obligated to comply with laws and regulations where Holmen conducts business, including in areas such as the environment, real estate, labour law and taxation. Changes in laws and regulations may affect conditions for Holmen’s operations and lead to increased costs for regulatory compliance.
Risk management
Holmen participates in national and international industry organisations whose
purpose is to handle the monitoring of social trends, advocacy and put forward Holmen’s position and view on relevant political and regulatory issues. Contact is established with local representatives and the general public in areas where the Group has operations. This takes place, for example, through consultation and information meetings and through meetings with decision-makers. More unforeseeable risks that may arise, such as shutdowns as a result of disease outbreaks, war or political unrest, are managed through ongoing external monitoring. To maintain optimum preparedness and active crisis management, Holmen is engaged in close dialogue and coordination with industry organisations, customers and suppliers.
Comment
Following the war in Ukraine, Holmen has taken a number of measures to safeguard its employees and guarantee its raw material supply, logistics and IT security. Holmen has marginal direct exposure to Ukraine, Russia and Belarus, but we continuously analyse the consequences the war might have for our operations, in both the short and long term. We comply with the sanctions adopted. In 2022, Holmen continued to take action to minimise the impact of the coronavirus pandemic, with a focus on the health and safety of our employees. Holmen has been active in promoting the growth of sustainable energy production, and bio-based and fossil-free activities, through dialogue, consultation responses, preparedness and advocacy work, on its own and together with industry organisations.