Holmen Annual Report 2009

Plain-text annual report

Holmen in 90 seconds Operations Strategy Holmen’s business concept is to develop and run profitable business within three product-oriented business areas for printing paper, paper- board and sawn timber as well as two raw-material-oriented business areas for forests and energy. Europe is the key market. The business area Holmen Paper manufactures printing paper for daily newspapers, magazines, directories/manuals, advertising matter and books at two Swedish mills and one Spanish mill. Iggesund Paperboard produces paperboard for consumer packaging and graphics printing at one Swedish and one UK mill. Holmen Timber produces sawn timber in one Swedish sawmill. Annual production capacity is 1 940 000 tonnes of printing paper, 530 000 tonnes of paperboard and 340 000 cubic metres of sawn timber. Holmen Skog manages the Group’s just over one million hectares of forests. The annual volume of wood harvested in company forests is some 2.5 million cubic metres. Holmen Energi is responsible for the Group’s hydro power assets and for developing the Group’s business U C T - ORIE N T E D D O R P T E R I A L-ORIE A N T E D W- M A R Printing paper Grow and develop our ﬁve business areas Forests & wood Electric power & energy Quality, productivity and cost focus Key market is Europe Proﬁtable operations and strong ﬁnancial position Committed in leadership and skilled workforce Sustainable business activities Share price Paperboard Sawn timber Financial targets within the energy sector. Normal yearly production amounts to about Holmen’s profitability shall consistently exceed the market cost 1 100 GWh of electricity at wholly and partly owned hydro power sta- of capital. The company’s financial position shall be strong with a tions in Sweden. Holmen Skog and Holmen Energi are also responsi- debt/equity ratio in the interval of 0.3–0.8. Decisions on dividends ble for the Group’s wood and electricity procurement in Sweden; these are based on an appraisal of the Group’s profitability, future invest- are important input goods for the industrial operations. ment plans and financial position. 2009 2008 2007 2006 2005 Proﬁtability SEKm Income statement Net sales Operating costs Depreciation and amortisation Interest in associates Items affecting comparability Operating profit Net financial items Profit before tax Tax Profit for the year 18 071 19 334 19 159 18 592 16 319 -15 175 -16 630 -15 548 -14 954 -13 205 -1 167 -1 337 20 12 - 557 -1 346 11 - -1 320 45 - -1 343 50 -361 1 620 -255 1 365 -360 1 006 1 051 -311 740 -98 642 2 843 -261 2 582 -1 077 2 303 -247 2 056 -597 1 967 -233 1 734 -478 1 505 1 459 1 256 Operating profit by business area Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Group central Items affecting comparability 340 419 21 605 414 -178 - 280 320 13 632 327 -159 -361 623 599 146 702 272 -56 557 754 752 80 643 197 -123 - 631 626 13 537 301 -141 - Group 1 620 1 051 2 843 2 303 1 967 Cash flow Operating activities Investing activities Cash flow after investments Key indicators Return, % capital employed* equity Debt/equity ratio, times The share Earnings per share, SEK Ordinary dividend, SEK Closing listed price, B, SEK P/E ratio EV/EBIT* * Excl. items affecting comparability ** Proposal of the Board 2 873 -818 2 054 1 660 -1 124 2 476 -1 315 2 358 -947 2 471 -3 029 536 1 161 1 411 -558 7.2 6.4 0.34 12.0 7** 183 15 13 6.1 3.9 0.48 7.6 9 193.5 25 17 10.0 9.2 0.35 17.8 12 240 13 12 10.0 9.0 0.36 17.2 12 298 17 14 9.0 8.0 0.41 14.8 11 262.5 18 15 % 15 10 5 0 SEK 375 325 275 225 175 125 05 06 07 08 09 Return on capital employed Excl. items affecting comparability Required return (before tax) Share price and total return, Holmen B 05 06 07 08 09 Share price Total return Source: Reuters EcoWin n Major shareholders L E Lundbergföretagen Kempe Foundations Handelsbanken incl. pension fund Silchester International Investors Alecta Other % of capital 28.0 7.0 3.1 10.9 3.2 47.8 100.0 26.8 % of votes 52.0 16.9 9.1 3.2 0.9 17.9 100.0 8.0 Holmen AB (publ.) • P.O. Box 5407 • SE-114 84 STOCKOLM • SWEDEN Total* Tel +46 8 666 21 00 • Fax +46 8 666 21 30 • E-mail info@holmen.com • www.holmen.com * of which non-Swedish shareholders Corporate identity 556001-3301 • Registered office Stockholm A n n u a l r e p o r t 2 0 0 9 Annual report 2009 Addresses Holmen AB Head office (Strandvägen 1) P.O. Box 5407 SE-114 84 STOCKHOLM SWEDEN Tel +46 8 666 21 00 Fax +46 8 666 21 30 E-mail info@holmen.com www.holmen.com Holmen Paper AB (Vattengränden 2) SE-601 88 NORRKÖPING SWEDEN Tel +46 11 23 50 00 Fax +46 11 23 63 04 Iggesund Paperboard AB SE-825 80 IGGESUND SWEDEN Tel +46 650 280 00 Fax +46 650 288 00 E-mail info@iggesund.com Holmen Timber AB P.O. Box 45 SE-825 21 IGGESUND SWEDEN Tel +46 650 280 00 Fax +46 650 203 80 E-mail info@holmentimber.com Holmen Skog AB (Hörneborgsvägen 6) SE-891 80 ÖRNSKÖLDSVIK SWEDEN Tel +46 660 754 00 Fax +46 660 759 85 E-mail info@holmenskog.com Iggesunds Bruk (Mill) SE-825 80 IGGESUND SWEDEN Tel +46 650 280 00 Fax +46 650 285 32 E-mail info@iggesund.com Workington Mill WORKINGTON Cumbria CA14 1JX UK Tel +44 1900 601000 Fax +44 1900 605000 E-mail info@iggesund.com Holmen Paper Hallsta SE-763 81 HALLSTAVIK SWEDEN Tel +46 175 260 00 Fax +46 175 264 01 Holmen Paper Braviken SE-601 88 NORRKÖPING SWEDEN Tel +46 11 23 50 00 Fax +46 11 23 66 30 Holmen Paper Madrid Parque Industrial La Cantueña C/del Papel 1 ES-28947 FUENLABRADA (Madrid) SPAIN Tel +34 91 642 0603 Fax +34 91 642 2470 Holmen Energi AB (Hörneborgsvägen 6) SE-891 80 ÖRNSKÖLDSVIK SWEDEN Tel +46 660 754 00 Fax +46 660 755 10 E-mail info@holmenenergi.com Iggesunds Sågverk (Sawmill) P.O. Box 45 SE-825 21 IGGESUND SWEDEN Tel +46 650 280 00 Fax +46 650 284 48 E-mail info@holmentimber.com Bravikens Sågverk (Sawmill) SE-601 88 NORRKÖPING SWEDEN Tel +46 11 23 50 00 Fax +46 11 23 62 19 E-mail info@holmentimber.com The complete list of addresses is available on Holmen’s website www.holmen.com The cover of the annual report is printed on Iggesund Paperboard’s solid bleached board, Invercote® Creato 280 gsm. It is embossed and UV-varnished. The annual report is produced by Holmen. Graphic production: Gylling Produktion Layout: AD Reklambyrå and Energi Reklambyrå Photos: Rolf Andersson and others Print: Trosa Tryckeri Translation: Translator Scandinavia AB Contents CEO’s message _____________ 1 Administration report ______44 Annual General Meeting ____86 The year in brief______________ 2 Income statement __________52 Information _________________ 87 Holmen in brief ______________ 4 Business concept, strategy and goals ___________ 6 Statement of comprehensive income ____52 Balance sheet ______________53 Definitions and glossary _____88 Addresses Holmen in 90 seconds Holmen Paper ______________ 12 Changes in equity __________54 Iggesund Paperboard _______ 16 Cash flow statement ______55 Holmen Timber _____________20 Parent company ____________56 Holmen Skog _______________22 Notes ______________________58 Proposed treatment of unappropriated earnings ____84 Audit report _________________85 Holmen Energi ______________24 Production and raw materials _______________26 The share and shareholders 28 Corporate governance report _____________________ 3 1 Board of directors __________36 Group management ________38 Quarterly figures ____________39 Ten-year review ____________40 CEO’s message C E O ’ s mEs s a gE Dear shareholder The year 2009 is certain to go down in history. The unprecedented slump in the global economy had a tangible impact on Holmen’s business areas for printing paper and consumer paper- board. A drop of more than 10 per cent in demand entailed considerable production cut- backs, which put pressure on profits. However, higher prices, lower fibre costs and more favour- able exchange rates helped to increase profits from printing paper and paperboard. Earnings per share were SEK 12.0, and although we are not satisfied with this figure, it is an improvement on the earnings per share of SEK 7.6 achieved in 2008. Return on equity totalled 6 per cent. Despite the improved profit, the Board pro- poses lowering the dividend from SEK 9 to SEK 7 per share. The reason for this proposal is that we are facing less certainty with regards to profitability; printing paper prices are under intense pressure at the same time as we are implementing major investments, such as the new sawmill at Braviken. The Board is also adjusting the dividend target to better reflect our situation. The dividend is to be based on an appraisal of the Group’s profitability, future investment plans and the goal of having a strong financial position. Printing paper Newsprint deliveries to Europe fell by 14 per cent in 2009, corresponding to a decline of nearly 20 per cent in the past two years. We believe that printing paper – mainly newsprint – is entering a phase in which structurally intensified competition from new media will adversely affect growth. This means that Hol- men Paper and the entire industry will need to modify their production structure. Holmen Paper is pursuing its plan to improve quality, realign operations to focus on more specialised niche products, shut down unprofitable pro- duction, improve efficiency and cut costs. A comment about each mill can illustrate this. At Hallsta Paper Mill, a paper machine and a recovered paper line ceased production in 2008. A major workforce reduction was implemented, and production was reorganised to increase n Facts Net sales, SEKm Operating profit, SEKm Operating profit excl. items affecting comparability, SEKm Profit for the year, SEKm Earnings per share, SEK Dividend per share, SEK Return on capital employed, %** Return on equity, % Debt/equity ratio, times Investments, SEKm Average number of employees 2009 2008 18 071 1 620 19 334 1 051 1 620 1 006 12.0 7 * 7.2 6.4 0.34 818 4 577 1 412 642 7.6 9 6.1 3.9 0.48 1 124 4 829 *Proposal of the Board. **Excl. items affecting comparability. SEKm 4 000 SEKm 4 000 3 000 3 000 2 000 2 000 1 000 1 000 0 0 Operating proﬁt Operating proﬁt 04 05 06 07 08 07 05 08 06 Operating proﬁt 04 Return on capital employed Operating proﬁt Return on equity Return on capital employed Return on equity % 20 % 20 15 15 10 10 5 5 0 0 1 620 7.2 1 620 6.4 7.2 6.4 09 09 SEKm 20 000 15 000 10 000 5 000 0 Net sales and operating margin 18 071 % 20 15 9.0 10 5 0 04 05 06 07 08 09 Net sales Operating margin, % H O L M E N A N N U A L R E P O R T 2 0 0 9 1 C E O ’ s m E s s a g E book paper manufacturing. In the stagnating market, Holmen has successfully increased vol- umes in the MF Special niche, where several new products have been very well received by cus- tomers. At Braviken Paper Mill, efficiency con- tinues to improve through measures such as staff cuts affecting about 100 people. The new pulp line, launched in 2008, has resulted in dramatic energy savings per tonne. Holmen Paper Madrid is investing in a new combined gas and steam plant to lower electricity and steam costs – two major cost items. In Madrid, the smaller paper machine is also being adapted to produce coat- ed magazine paper (LWC) rather than news- print. Wargön Mill was closed in 2008; the shutdown proceeded as planned, and the paper machine was sold at the end of the year. Consumer paperboard The market for virgin fibre board was also weak in the first part of 2009 but improved during the autumn. At year-end, Iggesund Paperboard had a strong order book. We have continued to refine our products. At Iggesund Mill, Invercote products were fur- ther enhanced for various applications. Effi- ciency improvements are also underway with the aim of lowering costs. Fossil carbon dioxide emissions were reduced by 65 per cent during the year, and more than 90 per cent of the mill’s internally generated electricity supply comes from biofuels. A new large-scale efficient treat- ment plant with the latest technology is now operational. Holmen shut down the oldest board machine at Workington Mill in December 2009 and upgraded the capacity of the remaining machine at the same time. These measures add to our competitive strength and move us towards a higher quality segment in the market. As a result of the restructuring process, the mill has an annual production capacity of 200 000 tonnes compared to its previous 250 000 tonnes. The workforce cutbacks affect about 100 people. sawn timber The recession also made its mark on the con- sumption of sawn timber. However, a shortage of raw materials, low stock levels and produc- tion cutbacks among many European suppliers resulted in a relatively favourable market and enabled Holmen Timber to increase its deliver- ies compared to 2008. Thanks to the market situation, price rises were implemented during the second half of the year. Production in the new sawmill at Braviken will start at the turn of 2010/2011, and we hope to see slightly stronger demand ahead. Forest Demand was relatively low at the start of 2009 but rose later in the year, as did wood prices. The threat of a substantial rise in Russian export duties subsided during the year, but the lower import levels appear to be a lasting devel- opment. Holmen Skog plays a key role in obtaining wood for our mills. During 2009, the organisa- tion was reinforced to meet the need for saw logs for the new sawmill, and market activities will be stepped up even more during 2010. The year in brief n Demand for Holmen’s products was weak during the year. Deliveries of news- print and virgin fibre board to Europe declined by 14 per cent and 9 per cent respectively, compared to 2008. The consumption of sawn timber also decreased. n Harvesting in Holmen’s forests increased during the year. Holmen’s hydro power production was somewhat lower than in a normal year. n Operating profit, excluding items affecting comparability for 2008, rose from SEK 1 412 million to SEK 1 620 million. Higher prices for newsprint and paperboard account for the improvement. Weak demand entailed considerable production cutbacks, which had an adverse impact on earnings. 2 H O L M E N A N N U A L R E P O R T 2 0 0 9 The ground-breaking ceremony for the new sawmill next to Braviken Paper mill on 11 august attracted a great deal of media attention and invited guests. C E O ’ s m E s s a g E Energy Holmen Energi achieved very strong operating profit, mainly thanks to good prices. Activity levels are high at Holmen Energi. A new hydro power station in the Iggesundsån river replaced three old ones during the year. The first peat deliveries left Holmen’s new extraction sites during the autumn. Several wind power initia- tives are also in progress. Our aim is to generate wind power corresponding to 1 TWh on our own forestland. The wind is being measured in several locations, and it is increasingly clear that we have many sites that may be suitable for the construction of wind farms. We are also one of the owners of the company VindIn AB, which inaugurated its first wind farm in autumn 2009. The Holmen Biorefinery Development Cen- tre is a new area of activity that will develop new products from forest raw material as well as from residual and bi-products from Holmen’s other operations. Holmen has joined forces with four compa- nies in electricity-intensive industries to form Industrikraft i Sverige AB, which signed an agreement with Vattenfall in the autumn to pro- ceed with projects to secure fossil-free baseload power for the future. Outlook for 2010 It appears that 2010 will be another tough year for Holmen Paper. There are as yet no signs of an upturn in demand, and ongoing price negotia- tions are expected to lead to lower prices for printing paper in Europe. Meanwhile, prices for recovered paper, a key raw material for us, have begun increasing. The market looks brighter for Iggesund Paperboard and Holmen Timber. Demand for timber is substantial and prices have climbed, which raises costs for Holmen Timber but creates potential for some improvement in Holmen Skog’s earnings from wood. For Holmen Energi 2010 may be another good year, because prices are largely hedged at favourable levels. The largest currency exposure, to the euro, is hedged for 2010 and 2011, and the exchange rates will be slightly more favourable than the hedging contracts that applied for 2009. The new sawmill at Braviken is one reason why investments are estimated to exceed SEK 1 500 million. An ongoing survey of addi- tional energy-related investments may keep the level of investment high. Holmen is evolving We have entered a period during which we must recast part of our Group, by which I am refer- ring to the printing paper operations at Holmen Paper. In our 400-year history, we have under- gone major change on numerous occasions. This is in itself a strength in times of transformation, but the realignment and development work is not possible without the contribution of all employees. I would like to thank you and say that together we will successfully tackle the challenges that await us. Stockholm, 19 February 2010 Magnus Hall President and CEO n The oldest board machine at Workington Mill was shut down at the end of December. Capacity was upgraded on the remaining machine at the same time. The resulting annual production capacity of the mill is 200 000 tonnes. The change entails reducing the workforce by up to 100 people. n Holmen is continuing to improve efficiency at Braviken Paper Mill as part of adapting the business area to the market. Redundancies affecting about 100 people were announced in the autumn. n A new water treatment plant was completed at Iggesund Mill. n A new hydro power station in the river Iggesundsån replaced three old ones. n Holmen marked its 400th anniversary in a variety of ways, including the publication of a newspaper supplement in three languages, a seminar on future challenges for the industry and a book about Holmen’s history. H O L M E N A N N U A L R E P O R T 2 0 0 9 3 On the actual anniversary, 18 september, the Life guards Dragoon Trumpet Corps and the mounted Royal guards gave a concert on the Holmen-torget square in Norrköping. Nettoomsättning per marknad, % 10 26* Sverige Tyskland 18 4 4 Nettoomsättning per marknad, % Frankrike Övriga världen Övriga Europa Nederländerna Italien 10 Spanien 26* 13 Storbritannien ■ Europa, 90 *Varav skog och kraft 16 Sverige 5 10 10 Tyskland Storbritannien Övriga världen Övriga Europa Nederländerna Frankrike Nettoomsättning per marknad, % Italien 18 4 4 Medelantal anställda H O L m E N i N B R i E F 13 3 511 Sverige 5 Spanien 10 Sverige Storbritannien 511 573 10 Nederländerna 112 ■ Europa, 90 *Varav skog och kraft 16 31 Frankrike Tyskland Holmen in brief Estland 22 Spanien 10 26* Medelantal anställda 18 Sverige Spanien 4 4 3 511 573 13 Storbritannien 511 5 Nederländerna 112 10 10 Frankrike Estland 31 22 Övriga Europa 45 Övriga världen 24 Övriga Europa 45 Storbritannien Övriga världen 24 ■ Europa, 90 Head ofﬁce *Varav skog och kraft 16 Production sites Sheeting units Sales, forest regions and purchasing company Övriga världen Övriga Europa Nederländerna Frankrike Italien Spanien Sverige Spanien 3 511 573 Storbritannien 511 Nederländerna 112 Frankrike Estland 31 22 Övriga Europa 45 Övriga världen 24 Medelantal anställda Huvudkontor Produktionsorter Arkning/distribution Försäljning, skogsregioner och inköpsbolag Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Head ofﬁce Production sites Sheeting units Sales, forest regions and purchasing company Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Operations outside Europe Australia Japan USA Hong Kong Singapore USA North Africa* Middle East* * Via Uni4 Marketing AB, a sales company partly owned by Holmen Timber Operations outside Europe Australia Japan USA Hong Kong Singapore USA North Africa* Middle East* * Via Uni4 Marketing AB, a sales company partly owned by Holmen Timber Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Verksamhet utanför Europa Australien Japan USA Hongkong Singapore USA Nordafrika* Mellanöstern* * Via det av Holmen Timber delägda försäljningsbolaget Uni4 Marketing AB among the largest in Europe Holmen has a total capacity to manufacture about 2.5 million tonnes of printing paper and paperboard each year. The company is Europe’s fifth largest manufacturer of printing paper, with production capacity of 1 940 000 tonnes per year. With annual capacity for 530 000 tonnes of virgin fibre-based board, Holmen is the third largest producer in Europe. The company’s production capacity for sawn timber is 340 000 cubic metres a year. Holmen is a forest industry group that manu- factures printing paper, paperboard and sawn timber and runs forestry and energy produc- tion operations. The company’s extensive forest holdings and its high proportion of energy production are strategically important resources for its future growth. PRODUCTS. Holmen focuses on printing paper, paperboard, sawn timber, forestry and energy. Holmen Paper and Iggesund Paperboard together account for 80 per cent of Holmen’s net sales. OWN FOREST PROVIDES majority of wood raw materials. Holmen’s manufacturing operations are based on renewable raw materials from sustainably managed forests. The Group owns around 1.3 million hectares of land, of which 1 million are used for forestry. The company is about 60 per cent self-sufficient for its wood needs. HYDRO POWER AND BIOENERGY. Holmen’s electricity needs are met through the Group’s wholly and partly owned hydro power and back pressure power as well as through purchased electricity. The company’s electric- ity self-sufficiency is some 30 per cent. Biofuels cover a significant part of Holmen’s thermal energy needs. MANUFACTURING IN THREE COUNTRIES. Holmen has four production facilities in Sweden and one each in the UK and Spain; some finishing takes place in the Netherlands and France. The Group runs its own sales companies in several European countries and around 90 per cent of items produced are sold in Europe. Holmen has a subsidiary for wood purchasing in Estonia. HOLMEN’S TWO CLASSES OF SHARES are listed on the Nasdaq OMX Nordic, Large Cap. Net sales by market, % Net sales by business area, % Operating proﬁt by business area, % Rest of the world Rest of Europe France The Netherlands Italy Spain 17 4 4 5 12 23 Sweden* 8 12 Germany 15 UK Europe 88 % *Of which forest and power 18 % Total: SEK 18 071 million 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 Holmen Skog Holmen Timber 2 15 3 Holmen Energi Holmen Energi 23 19 Holmen Paper Iggesund Paperboard 28 52 Holmen Paper Holmen Skog 34 23 Iggesund Paperboard 1 Holmen Timber Holmen Energi Holmen Skog Holmen Timber 41 Total: SEK 18 071 million Total: SEK 1 620 million Total: SEK 26 929 million Total: SEK 4 577 million Total: SEK 4 577 million Operating capital by business area, % 11 Holmen Paper 32 Employees by business area, % Holmen Skog Holmen Timber 10 3 Holmen Energi 0.2 The Netherlands 116 Average number of employees by country/region 15 1 Iggesund Paperboard Iggesund Paperboard 37 50 Holmen Paper 514 596 UK Spain Rest of the world 22 Rest of Europe 102 Sweden 3 227 H O L m E N i N B R i E F Raw-material-oriented business areas Holmen skog Product-oriented business areas Holmen Paper Products and markets Products: White and coloured newsprint as well as paper for direct- ories, books and magazines. Customers: Daily newspa- pers, retailers, book and magazine publishers, directory and manual publishers and printers. Mills: Hallsta Paper Mill, Braviken Paper Mill and Holmen Paper Madrid. Production capacity/year: 1 940 000 tonnes. Number of paper machines: 8. iggesund Paperboard Products: Solid bleached board and folding boxboard for consumer packaging and graphic design purposes. Customers: Converters of paperboard for packaging as well as printers and wholesalers. Mills: Iggesund Mill and Workington Mill. Production capacity/year: 530 000 tonnes. Number of board machines: 3*. * After the shutdown of BM1 at Workington Mill in December 2009. Holmen Timber Products: Pine sawn timber. Customers:Joinery and furniture industries, manufacturers of solid flooring, planing mills and builders’ merchants. Sawmill: Iggesund Sawmill. Production capacity/year: 340 000 cubic metres. Holmen plans to start production at Braviken Sawmill, with an initial capacity of 550 000 cubic metres, at year-end 2010/2011. The paper is used for newspapers, maga- zines, directories, direct advertising and books. Main market: Europe. The board is used in packaging for consumer products and for graphics ap- plications. Main market: Europe. Sawn timber is used to make products such as window frames, flooring, doors and furniture. Main market: Scandinavia, the UK, North Africa and the Middle East. Operations: Responsible for managing Holmen’s forests, for wood supply to the Group’s Swedish units and for trade in wood. Land holding: 1 264 000 hectares, of which 1 032 000 hectares comprise productive forestland. Volume of wood: 119 million forest cubic metres. Holmen Energi Operations: Responsible for the Group’s hydro power stations, coordination of its energy matters, and electricity supply to its Swedish units. Number of wholly and partly owned hydro power stations: 21. Number of partly owned wind farms: 1. Production capacity/year (hydro power): 1 100 GWh. The raw-material-oriented business areas Holmen Skog and Holmen Energi provide the product-oriented business areas Holmen Paper, Iggesund Paperboard and Holmen Timber with wood and electricity respectively. The overview shows how the products are made and how consumers come into contact with them. Net sales by business area, % Operating proﬁt by business area, % Operating capital by business area, % 12 23 Sweden* Holmen Skog Holmen Timber 2 15 3 Holmen Energi Holmen Energi 23 19 Holmen Paper Iggesund Paperboard 28 52 Holmen Paper Holmen Skog 34 23 Iggesund Paperboard 1 Holmen Timber Holmen Energi Holmen Skog Holmen Timber 41 Net sales by market, % Rest of the world Rest of Europe France Netherlands The Italy Spain 17 4 4 5 8 12 Germany 15 UK Europe 88 % *Of which forest and power 18 % Total: SEK 18 071 million 11 Holmen Paper 32 Employees by business area, % Holmen Skog Holmen Timber 10 3 Holmen Energi 0.2 The Netherlands 116 Average number of employees by country/region 514 596 UK Spain Rest of the world 22 Rest of Europe 102 Sweden 3 227 15 1 Iggesund Paperboard Iggesund Paperboard 37 50 Holmen Paper Total: SEK 18 071 million Total: SEK 1 620 million Total: SEK 26 929 million Total: SEK 4 577 million Total: SEK 4 577 million H O L M E N A N N U A L R E P O R T 2 0 0 9 5 B u s iN Es s C O N C E P T, sT Ra T Eg y aN D gOaLs Business concept, strategy and goals Holmen’s business concept is to develop and run profitable business within three product-oriented business areas for printing paper, paperboard and sawn timber as well as two raw-material-oriented business areas for forest and energy. Europe is the key market. Product-oriented business areas HOLMEN PAPER manufactures printing paper for daily newspapers, magazines, directories, man- uals, direct advertising and books at two mills in Sweden and one in Spain. With its produc- tion capacity of 1 940 000 tonnes of printing paper per year, Holmen Paper is the fifth largest producer in Europe. UPM and Stora Enso are the largest, with some 7 and 6 million tonnes respectively. In printing paper, Holmen Paper has a strong position amongst European daily newspaper publishers, who account for around two-thirds of its sales. Retailers, printers and book and directory/manual publishers are other key customer segments. Holmen Paper has a market share in Europe of just under 10 per cent in standard newsprint, while its share of the market for improved newsprint, direc- tory paper and book paper is above 30 per cent. Holmen Paper’s sales organisation is in Sweden and in sales companies on geographically important markets. IGGESUND PAPERBOARD produces virgin-fibre- based solid bleached board and folding box- board for consumer packaging and graphics applications at one Swedish and one UK mill. With its capacity of 530 000 tonnes per year, Iggesund is the third largest manufacturer in this segment in Europe. Its main competitors are Stora Enso and M-real, with around 1 mil- lion and 700 000 tonnes of virgin fibre board respectively. Iggesund’s largest customer group comprises converters who make consumer packaging, but wholesalers and printers who buy board for graphic design products are also key customers. Iggesund has a leading market position, mainly in solid bleached board in Europe. It is also a significant operator in fold- ing boxboard. Iggesund has around 20 per cent of the market in Europe for virgin fibre board. Euro-pean sales are coordinated via a central sales office in the Netherlands, with sales and technical personnel in a number of European countries. Iggesund also has its own sales com- panies in Hong Kong, Singapore and the USA. 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 Business concept, strategy and goals B u s i n e s s c o n c e p t, s t r a t e g y a n d g o a l s HOLMEN TIMBER is the Group’s third product-ori- ented business area and it manufactures sawn timber at its Swedish sawmill. Holmen Timber is a relatively small operator in Europe and has a market share of less than one per cent for sawn timber. Holmen Timber mainly sells its products to customers in Scandinavia, the UK, North Africa and the Middle East. Sawn timber is sold directly to customers via Holmen Timber’s own sales companies in Sweden and the UK and via a jointly owned marketing company. Production at Holmen Timber’s new Braviken Sawmill is scheduled to start at the turn of 2010/2011. The new sawmill will produce construction timber for the construction industry. Scandinavia, the UK and the USA will be important markets. raw-material-oriented business areas HOLMEN SKOG has responsibility for the Group’s forest assets. Holmen has forest holdings of one million hectares of productive forestland in Sweden and the volume of wood amounts to 119 million forest cubic metres. Holmen is Sweden’s fourth largest forest owner, with around 4.5 per cent of the country’s productive forestland. The volume of wood grows by 3.0 million cubic metres per year, and normally annual harvesting totals 2.5 million cubic metres. Half of the wood is sold as timber to Strategy a few customer products made from Holmen’s paper, board and wood. sawmills, around 40 per cent as pulpwood to the pulp and paper industry and about 10 per cent as biofuel for energy production. Holmen Skog is also responsible for supplying wood to the Group’s industrial operations in Sweden. H O L M E N A N N U A L R E P O R T 2 0 0 9 7 Quality, productivity and cost focusKey market is EuropeProﬁtable operations and strong ﬁnancial position Committed in leadership and skilled workforce Sustainable business activitiesGrow anddevelopour ﬁve businessareasSawn timberPaperboardPrintingpaperPRODUCT-ORIENTEDElectricpower &energyForests& woodRAW-MATERIAL-ORIENTEDB u s iN Es s C O N C E P T, sT Ra T Eg y aN D gOaLs Research and development (R&D) Holmen runs its own R&D activities, as well as partici- pating in external R&D at industry-wide level and in association with universities and colleges. The main focus is on product development and enhancing process efficiency, although forest growth and improving the efficiency of forestry are also important focuses. External R&D is carried out with various partners, such as Swedish Innventia, MoRe Research, SweTree Technolo- gies, the Royal Institute of Technology, Umeå University, Mid Sweden University, Karl- stad University, the Swedish University of Agricultural Sci- ences, Skogforsk in Sweden, the University of Manchester in the UK, and the Com- plutense University of Madrid, Spain. Self-sufficiency raw materials, % Wood Company forest HOLMEN ENERGI has responsibility for the Group’s hydro power assets as well as for developing the Group’s energy operations. Hydro power pro- duction during a normal year amounts to 1.1 TWh, making Holmen the sixth largest electricity producer in Sweden. Holmen Energi is also responsible for supplying the Group’s Swe- dish industrial operations with electricity. Development Holmen operates on large, well-established markets, namely its product markets for paper, paperboard and sawn timber, and its raw mate- rials markets for wood and energy. The Group’s goal is to expand and to remain a strong suppli- er with efficient production. Most of the growth is organic and takes place by improving products and increasing production volumes in existing product areas. Acquisitions have accounted for a smaller proportion of the com- pany’s growth. The latest major acquisition was Holmen Paper Madrid in 2000. Development also entails reorganisation and the closure of unprofitable production – measures that have characterised Holmen Paper in recent financial years. Holmen has focused on developing more advanced grades of paper to reduce the produc- tion of standard newsprint. Iggesund Paper- board is adapting production to prioritise top- quality paperboard. Sawn timber is continually enhanced in close cooperation with customers and specialised subcontractors. When comp- leted, Braviken Sawmill will be an efficient and technologically advanced sawmill for construc- tion timber. Holmen’s own wood and energy production will also be developed and grow. The silvicul- ture measures taken are expected to result in gradual increases in annual wood production (harvesting) to achieve a rise of 20 per cent in 40 years’ time. Good potential is also expected for increasing the growth rate in the Group’s forests by roughly 25 per cent in 30 years’ time by adopting new and improved silviculture methods, which will lead to higher harvesting levels in future. In energy operations, the com- pany believes that there is real potential for developing new, profitable production of wind power and biofuel. The aim is to produce 1 TWh of electricity each year from wind power on Holmen’s land. In 2009, Holmen Energi opened a development centre in Iggesund focusing on biorefining and biofuels. Holmen must satisfy its customers’ high demands for the efficient printing, converting and sawing of products to make suitable end products with customer appeal. Holmen engag- es in decentralised R&D in each business area to support business demands for product devel- opment and efficient processes. Productivity The overall objective of the Group’s operations is to offer customers attractive products of high quality and good service in a cost effective way to maintain Holmen’s position as a competitive 60 The production process This highly simplified diagram illustrates the production means, passes along a web in the machine – firstly through process in a paper and board machine. In reality, the ma- a wet section, then a press section and finally the paper/ chines differ quite significantly. The raw materials consist board is dried on the web, which at that stage runs between mainly of wood and/or recovered paper, electricity and numerous cylinders. It is finally rolled on reels and cut to the chemicals. The pulp, produced by chemical or mechanical reel or sheet sizes that the customers have ordered. Electricity Price hedges for the years 2010–2015 52 33 Wholly and partly owned hydro and back pressure power PULP PRESS SECTION PAPER/BOARD RAW MATERIALS WET SECTION 15 Not price hedged Massa DRIER Egen mekanisk och kemisk massa- produktion 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 95% Returpapper Retur frakt Egen insamling och bolag 21% 55% B u s i N E s s C O N C E P T, s T R a T E g y a N D g O a L s supplier. Large-scale, efficient production facili- ties and skilled employees yield high productiv- ity and efficient use of input goods and capital. Effective interaction between marketing, prod- uct development and production increases is essential to achieve successful long-term invest- ments, economies of scale and development. Basic volumes of certain products are com- bined with selective ventures involving improved or more advanced products for both existing and new categories of customers. Alongside efficient production processes, the cost of raw materials and transport has an important impact on competitiveness. The main raw materials in the processes for produc- ing printing paper, paperboard and sawn tim- ber are fibre, in the form of wood, recovered paper and pulp as well as energy in the form of electricity and heat. Holmen produces more than 90 per cent of the pulp and thermal energy that it requires at its own mills using a highly integrated production process. The procure- ment of other raw materials is underpinned through backward integration along the pro- duction chain by owning forests, hydro power plants and recovered paper procurement units. The Group’s Swedish facilities are around 65 per cent self-sufficient in wood, while for the whole Group (including the UK mill) self- sufficiency is around 60 per cent. The Group produces more than 30 per cent of the electrici- ty that it requires, while more than 70 per cent of thermal energy production is based on resi- dual products from the Group’s production pro- cesses. Moreover, the prices of around 55 per cent of the electricity supplies are hedged through long-term supply contracts. Significant volumes of recovered paper are purchased via wholly and partly owned paper collection companies. Financial targets PROFITABILITY. Holmen’s profitability target is a return that is consistently higher than the market cost of capital, and this target is used to govern the business. At Group level, the key ratio used to calculate profitability is Value Added; this is defined as operating profit/loss less the cost of capital and tax. It provides a simple and sufficiently fair yardstick that is continuously followed up for the Group, business areas and production units. The Group’s profitability has exceeded the cost of capital over a long period of time, although not in 2008. Holmen’s business is capital intensive and much expansion is the result of investing in additional capacity and improved production. Investments are often combined with cost rationalisation measures. To assess the profita- bility of investments, a model is used to calcu- late the present value of cash flows; that is, esti- mated future cash flows are discounted by the weighted cost of capital. Computing the cost of capital involves weighting the cost of borrowed capital and equity and multiplying the result by the capital invested in the business. The cost of equity is computed as interest plus a premium based on the level of risk for the operation, with capital invested in industrial operations being assigned a higher risk premium (5 per cent) than capital invested in forest and power assets (2 per cent). The Group’s weighted cost of capital for its operating activities is computed on the basis of short-term market interest rates and was near to 8 per cent (before tax) for industrial opera- tions in 2009. The cost of capital used for eval- uating investment projects is based on long- term market interest rates and was about 11 per cent (before tax) for industrial opera- tions in 2009. CAPITAL STRUCTURE. Holmen is to have a strong financial position that provides financial stabili- ty and enables the company to make correct, long-term business decisions that are not solely dependent on the state of the economy and external financing possibilities. The target for the debt/equity ratio is the interval 0.3–0.8, and adjustment to this target is one aspect of Holmen’s strategic planning. DIVIDEND. Decisions on ordinary dividends are based on a total appraisal of the Group’s profit- ability, future investment plans and financial position. The Board has proposed that the 2010 Annual General Meeting (AGM) resolves in favour of lowering the dividend to SEK 7 per share, corresponding to 4 per cent of equity. During the past decade, the ordinary dividend has averaged 5 per cent of equity. As a result, around 60 per cent of earnings per share have been paid out in ordinary dividends each year. In addition to ordinary dividends, Holmen paid extra dividends for the 1998, 2000 and 2003 financial years. In recent years, the AGM has authorised the Tonnes 800 600 400 200 0 % 20 15 10 5 0 times 0.8 0.6 0.4 0.2 0.0 SEK 20 15 10 5 0 Productivity Production per employee and year ’000 m3 745 282 2.6 8 6 4 2 0 04 05 06 07 08 09 Holmen Paper Iggesund Paperboard Holmen Timber Proﬁtability Return on capital employed 7.2 6.5 04 05 06 07 08 09 Return on capital employed Excl. items affecting comparability Required return (before tax) Capital structure Debt/equity ratio 04 05 06 07 08 09 Dividend per share 0.34 % 8 6 4 2 0 3.6 7 04 05 06 07 08 09 Proposal Ordinary dividend Ordinariy dividend as % of equity H O L M E N A N N U A L R E P O R T 2 0 0 9 9 B u s i N E s s C O N C E P T, s T R a T E g y a N D g O a L s Board to buy back up to 10 per cent of all the shares in the company. During 2008, Holmen bought back 760 000 class B shares, correspond- ing to around 0.9 per cent of the total number of shares on issue and around 0.3 per cent of the total number of votes. These share buy-backs were linked to the Group’s incentive scheme. There is no specific target for share buy-backs. Holmen has used them as a complement to divi- dends as a means of adjusting the capital struc- ture when conditions were deemed favourable. Share buy-backs took place in 2000 and 2008. sustainability Holmen’s development is to be based on a sus- tainable approach to profitability and use of resources. The raw materials – wood and recov- ered paper – and the products are recyclable and adapted to the ecocycle. Holmen is taking measures to make efficient use of electricity and heat, to reduce emissions of fossil carbon dioxide and to increase energy self- sufficiency. The Group is a participant in the UN’s Glo- bal Compact and thus supports international guidelines relating to human rights, social condi- tions, the environment and labour rights. Holmen’s measures to promote sustainable development are described in detail in the sepa- rate sustainability report Holmen and its World. The report satisfies the conditions for Level A, the highest of the Global Reporting Initiative’s reporting levels. FINANCIAL DEVELOPMENT. Healthy profitability and a strong financial position create good con- ditions for development that is sustainable in the long term. Holmen has a distinct role to play in a sustainable society by being a success- ful and profitable company that manufactures products from natural raw materials. This creates employment opportunities and makes it possible to buy input goods, pay taxes and pay a return to Holmen’s owners and fin- anciers. Profitability is also a prerequisite for investments that allow the company to develop in line with gradual changes in market condi- tions. In this way, Holmen’s financial targets support long-term and sustainable financial development. SOCIAL RESPONSIBILITY. Holmen’s HR activities are governed by guidelines, laws and agree- Holmen and its World describes Holmen’s activities towards sustainable develop- ment. The sustainability re- port aims to provide clear an- swers to questions asked by the Group’s stakeholders about environmental and so- cial responsibility and finan- cial development. The 2009 edition will be published in English and Swedish in March 2010 and can be or- dered on the website. The Spanish version is expected to be ready in May. In 2009, as in previous years, Holmen was included in sev- eral corporate indices for sus- tainable development and so- cial responsibility. Inclusion in such indices signifies that the company is deemed to act re- sponsibly in financial, envi- ronmental and social respon- sibility issues. Holmen is, for instance, listed among Swed- bank Robur’s Ethica and Ban- co fund families, the FTSE- 4Good Index Series, Nasdaq OMX/GES Nordic Sustaina- bility Index, OMX GES Sus- tainability Sweden Index, Storebrand’s SRI Index and SIX STARS Sustainability Index. Global Reporting Initia- tive (GRI) issues globally accepted guidelines (G3) for sustainability reporting. Holmen has adhered to these guidelines for several years, and the sustainability report for 2009 satisfies the highest reporting standard, Level A. This has also been verified by the audit firm KPMG. 1 0 H O L M E N A N N U A L R E P O R T 2 0 0 9 Employees at Braviken Paper mill. ments. The main emphasis is on skills supply, leadership and organisation. Holmen has set a number of targets for human capital, leader- ship, performance reviews, the number of industrial accidents and the proportion of female managers. Our sustainability report Holmen and its World details these targets. The results are followed up via key indica- tors and Holmen Inblick, the employee survey. Employee surveys are carried out every other year and, as of 2009, at all of Holmen’s units. The results provide a foundation for strategic HR activities and local action plans. Holmen takes systematic action to identify and develop employees with the potential to advance to more qualified tasks. Holmen’s tar- get is to fill at least 75 per cent of all manage- ment vacancies in the Group through internal recruitment. Management training pro- grammes have been expanded, in that all new managers now have a local mentor and under- go an induction course. Each year significant resources are ear- marked for skills development. All the business areas conduct numerous training programmes. The average Holmen employee receives around 40 hours of training each year. Holmen is taking long-term measures to cre- ate a stable basis for future recruitment, includ- ing close cooperation with universities and col- leges and offering summer jobs to young people. Holmen endeavours to help employees affected by company restructuring by offering B u s i N E s s C O N C E P T, s T R a T E g y a N D g O a L s relocation, early retirement and financial sup- port for training. Holmen takes joint action with the union organisations on issues concerning health, safe- ty, equal opportunities, competence develop- ment and reductions in the workforce. All poli- cies are developed together with or have the support of union organisations. ENVIRONMENTAL RESPONSIBILITY. Environmental aspects of Holmen’s business are regulated by laws and permits in each country. The organisa- tion and management of the Group’s environ- mental activities are based on the Group’s envi- ronmental policy. The policy clarifies the importance of energy and climate issues to the business. The environmental impact of produc- tion is within the limits laid down by environ- mental authorities. The Group’s forests are managed with the long-term goal of increasing wood production, while also providing a habitat for the many species living there. A new silviculture pro- gramme has been developed which is expected to be able to further boost growth in Holmen’s forests and create suitable conditions for natu- rally occurring plants and animals to flourish in the forest habitat in the long term. The Group also has the goal of increasing its extraction of biofuels from the forests in response to the growing demand from biofuel-based energy production. Holmen’s industrial and forestry operations are certified in accordance with ISO 14001. The forestry operations are also certified in accord- ance with the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification schemes (PEFC). Holmen takes a pro-active approach to meas- ures that contribute to sustainable development and help to reduce the impact on climate. Hol- men is affected by the rules in the Kyoto Proto- col regarding trading in emission rights, because the Group’s facilities have been included in the system since 2005. Holmen supports improve- ment of energy efficiency and expansion of car- bon neutral energy sources, such as hydro power, wind power and nuclear power. In Sweden and the UK, Holmen participates in voluntary energy-efficiency improvement programmes that offer energy-intensive indus- tries an alternative to energy taxes. This focuses internal attention on energy issues and is expected to increase energy efficiency and reduce climate change. The energy management systems in place at the Group’s Swedish sites and at Workington Mill were introduced at Holmen Paper Madrid in 2009. Holmen actively identifies and implements energy saving measures. The Group’s energy and climate targets, described in more detail in the sustainability report Holmen and its World 2009, are to make energy use more efficient and reduce the use of fossil fuels. For each tree that Holmen harvests, the company plants three new ones. % 20 15 10 5 0 40 30 20 10 0 % 8 6 4 2 0 Proportion of females 18.6 15.8 04 05 06 07 08 09 Managers in the Group Employees in the Group Industrial accidents with sick leave, number per 1 000 employees 31.2 20.9 04 05 06 07 08 09 Swedish entities The Group Sick leave 3.8 3.7 04 05 06 07 08 09 Swedish entities The Group Fossil carbon dioxide kg/tonne end product 200 150 100 50 0 109 60 04 05 06 07 08 09 Swedish entities The Group H O L M E N A N N U A L R E P O R T 2 0 0 9 1 1 H o l m e n P aPe r Holmen Paper Holmen Paper is the fifth largest printing paper manufacturer in Europe. Its share of the European market is 10 per cent for standard newsprint and more than 30 per cent for MF Magazine, book and directory paper. operations in 2009 Global demand for printing paper was down during the year, and European demand for printing paper fell by about 15 per cent. Deliv- eries of newsprint to Europe declined by 14 per cent compared to 2008. Combined with weak demand outside Europe, this resulted in low capacity utilisation at European producers. Despite this, little capacity was permanently shut down in the market, which put supply and demand out of balance. Demand for MF Maga- zine in Europe was 20 per cent less in 2009 than in 2008. SC paper declined by 9 per cent and coated grades by 22 per cent. n Facts 2009 2008 Net sales, SEKm 9 303 10 443 Operating profit/loss, SEKm 340 -81 Operating profit excl. items affecting comparability, SEKm Investments, SEKm 340 287 280 679 Operating capital, SEKm 8 789 10 237 Average number of employees 2 301 2 584 Share of sales in Europe, % 84 88 Deliveries, ’000 tonnes 1 745 2 044 SEKm 1 000 SEKm 1 000 750 750 500 500 250 250 0 0 1 2 H O L M E N A N N U A L R E P O R T 2 0 0 9 Operating proﬁt Operating proﬁt 340 340 04 05 06 07 08 09 % 10.0 % 10.0 7.5 7.5 5.0 5.0 3.5 3.5 2.5 2.5 0.0 0.0 SEKm 12 000 9 000 6 000 3 000 0 08 07 05 06 Operating proﬁt 04 Return on operating capital Operating proﬁt Excl. items affecting comparability Return on operating capital Excl. items affecting comparability 09 Net sales and operating margin 9 303 3.7 % 12 9 6 3 0 04 05 06 07 08 09 Net sales Operating margin Excl. items affecting comparability Holmen Paper’s operations during the year concentrated on an extensive quality drive and product development, in parallel with cost cuts and efficiency improvements. At Hallsta Paper Mill, the workforce was reduced by about 30 per cent after the closure of PM 2 and the pulp line for recovered paper in 2008. The workforce at Braviken Paper Mill will be reduced by about 100 people when a new organisation is introduced in spring 2010. At the paper mill in Madrid, work continues aimed at improving the efficiency of processes as well as cutting costs. Operating profit for 2009 was SEK 340 mil- lion, compared to SEK 280 million for 2008 (excluding items affecting comparability). The improvement was attributable to higher sales prices, but the weak market entailed extensive production cutbacks and increased sales out- side Europe. Lower costs of wood and recov- ered paper made a positive impact on profit, while energy costs rose. market Holmen Paper’s market strategy focuses on Europe and is to develop competitive products and business concepts in wood-containing printing paper for specific customer segments: daily newspaper publishers, retailers, printers, and book and directory/manual publishers. Holmen Paper’s share of the market for stand- ard newsprint is around 10 per cent in Europe. For newsprint-related niche products, such as MF Magazine, book and directory paper, Holmen Paper’s overall share of the European market is more than 30 per cent. The European market for wood-containing printing paper totalled more than 21 million tonnes in 2009, which is 4 million tonnes – or about 15 per cent – less than in 2008. NEWSPRINT. About 9 million tonnes of the Euro- pean market for wood-containing printing paper consisted of newsprint. Paid-for daily newspapers account for the majority of con- sumption. Free newspapers, which proved more susceptible to changes in the economy due to heavy dependence on advertising re venue, fell in 2009, to account for about 5 per cent of consumption. Newsprint demand is increasingly affected by the widening range of electronic media and changing media habits of consumers and adver- tisers. Investments in radio, television and the internet are noticeable among traditional news- paper publishers. Global demand for newsprint was down by 15 per cent during the year. The largest declines occurred in North America and Europe, by around 26 and 14 per cent respectively. Growth was mainly evident in Asia. Holmen Paper’s newsprint deliveries decreased by 16 per cent, somewhat more than the average, due to the closure of capacity, reorganisation to focus on other products, and falling demand. Following price cuts in 2008, newsprint prices were increased in 2009. For 2010, the prices are falling again. The market was weak throughout the year. Rising exports outside Europe partially offset weak European demand, although capacity uti- lisation for west-European suppliers ended at 84 per cent. H o l m e n P aPe r Successful TmP investment Braviken’s new line for thermo-mechanical pulp (TMP) production was brought into operation in the latter part of 2008, following investments of about SEK 500 million. One year on, the effects are clear. The energy savings, along with lower consumption of chemicals, correspond to more than SEK 90 million per year. Thanks to improved steam recycling, oil consumption has fallen dramatically, from 25 000 to 14 000 cubic me- tres per year. The pulp produced is also stronger and has enhanced optical properties. Braviken has therefore been able to produce Holmen XLNT with a grammage of as low as 36 grams, and has won mar- ket shares from SC paper with a grammage of 45 grams. The pulp production is con- tinually studied and further developed, and there is po- tential for additional improve- ments to energy consump- tion, productivity and pulp properties. Products, % End-products, % Leading producers 2009 Printing paper, capacity in Europe Coated SC 6 9 Advertising print, magazines and books Daily press 41 52 MF Special 41 44 7 Standard newsprint Directories/manuals UPM Stora Enso Norske Myllykoski Holmen SCA Burgo ’000 tonnes 0 2 000 4 000 6 000 8 000 Standard newsprint SC MF Special Coated H O L M E N A N N U A L R E P O R T 2 0 0 9 1 3 H o l m e n P aPe r european printing paper market 2009 lWc/MWc (coated paper) 6 million tonnes Substantial market- related production stop- pages were implemented at all of Holmen Paper’s mills in 2009. magazine titles are two positive driving forces. Holmen Paper has relatively small volumes in SC and coated paper, and deliveries of both fell by about 5 per cent in 2009 – without taking account of the closure of Wargön Mill. Change and development Newsprint will continue to form the founda- tion of Holmen Paper in future, but action has been taken for several years now to reduce exposure to this area and increase the focus on more advanced and selected products in the MF Special product area. Holmen Paper enjoys a strong position here with products such as Holmen Book and Holmen XLNT. Focused further development is ongoing and largely concentrates on projects for enhance- ment of MF Special. Holmen Paper constantly cuts costs and improves efficiency to adapt to the changing market. A new organisation with 30 per cent fewer employees was introduced at Hallsta Paper Mill in 2009. In September, Holmen announced staff cuts affecting about 100 people at Braviken Paper Mill; this will also entail a new organi- sation and noticeable profit impact in 2010. Variable costs are continually reviewed. As part of this, Holmen constantly improves the efficiency of its machinery and its consumption of input goods and energy. An in-house project to boost the quality of product characteristics, technical support and delivery precision was stepped up in 2009 and is making rapid progress. MF SPEcIal. This product area contains the product groups MF Magazine, book paper and telephone directory paper. Holmen Paper’s strength lies in the product group MF Maga- zine, comprising products between standard news- print and magazine paper (SC and LWC paper) on the quality scale. Holmen aims to offer alternatives to, in particular, SC paper that are cost effective and have potential for further devel- opment. Holmen Paper’s deliveries of MF Magazine increased by 5 per cent, or 20 000 tonnes, to 400 000 tonnes. The general market trend for MF Maga- zine in Europe in 2009 was a 20 per cent drop in demand. Book paper is a niche product that has become more important to Holmen Paper and is an area in which the company achieved posi- tive results of product development during the year. Holmen’s deliveries rose by 23 per cent in 2009. The European market for wood-contain- ing book paper totals about 500 000 tonnes per year. The market for telephone directory paper is dominated by a small number of strong buyers in each country. Demand was down by around 20 per cent in 2009, as were Holmen Paper’s deliveries, and the long-term market trend is negative. Holmen Paper has a market share of about 35 per cent. MaGaZINE P aPER. 2009 was also a gloomy year for magazine paper, that is, SC and coated paper. The European market fell by 17 per cent to 10 million tonnes. Magazine publishers, retailers and printers are the largest customer categories. Despite the drastic reduction in 2009, there are real hopes of some recovery propelled by investments in advertising. Increases in addressed direct mail and new Sc paper 4 million tonnes e c i r P MF Special 2 million tonnes Standard newsprint 9 million tonnes lWC/mWC Magazines Journals Weekly magazines Product catalogues Advertising print SC paper Journals Weekly magazines Product catalogues Advertising print mF Special Advertising print Supplements Books Telephone directories Standard newsprint Daily newspapers Advertising print Supplements 1 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 An example of product development: Holmen XLNT H o l m e n P aPe r n oTe r market Holmen Paper’s marketing department and technical customer service identify what the market demands from printing paper. These are key channels for obtaining infor- mation about customers’ needs and requirements for product develop- ment. Customer surveys are also used for this purpose. ProDUCT CoUnCIl Holmen Paper’s product council identifies possible product develop ment based on the busi- ness area’s strategic goals and identified market needs deemed to have good future potential. Holmen Paper has a high percentage of MF Special in its product portfolio. MF Special is one of Holmen Paper’s strategic strengths that are important to safe- guard. SC paper, which Holmen Paper only manufactures on a small scale, is also a significant product for certain end users. SC paper is a more advanced product than MF Special. Holmen Paper therefore saw the potential of developing MF Special, bringing it into a higher product class that is close to SC paper in terms of quality. The key question was: Is it possible to create a type of MF Special paper with the properties of SC paper? DeCISIonS Profitability analyses and technical prerequisites form the basis of decisions. The preliminary study showed that the project had good prospects for success. The market clearly signalled that the concept was interesting, so Holmen decided to continue the project. laUnCH after testing, the new product is ready for its market launch. Close cooperation with reference customers led to a breakthrough, which has made Holmen Paper the market leader in this type of paper. The market is very positive about this MF Special product, which has been named Holmen XLNT. Strategic goals Holmen Paper’s product portfolio must follow the strategy set by the business area. Holmen Paper’s strategy is to reduce exposure to standard newsprint, which accounts for more than half of production volume, and increase exposure to products with higher value added, such as MF Special. PrelImInary STUDy a preliminary study is initiated to identify technical possibilities and limitations as well as required investments. estimates are made to calculate the costs of the projects. SC paper has a higher gloss than MF Special products. The preliminary study investigated how to increase the gloss of MF Special paper. The paper pulp, filler and calendering process were important parameters in the study. Discussions took place with various parties, in- cluding machinery manufacturers and chemicals suppliers. ProjeCT anD PIloT TeST after a go-ahead decision, a project is started to develop the new product. Pilot testing is carried out. Qualification testing on key customers’ equipment is an important step prior to product launch. Full-scale tests were performed to test the mixture of pa- per pulp and filler when combined with various calender- ing processes used to press the paper. Holmen carried out test printing on key customers’ equipment and then made certain requisite adjustments. Gradual development work led to step-by-step improvements. FInal ProDUCT I g g eS UnD P aPe r b o a rD Iggesund Paperboard Iggesund Paperboard is the third largest manufacturer of virgin fibre board in Europe, with a market share of about 20 per cent. Iggesund Paperboard has a leading market position in solid bleached board in Europe, but is also a significant operator in folding boxboard. operations in 2009 The virgin fibre board market was weak, par- ticularly in the first half of 2009. The deteriora- tion in market conditions was caused by the economic slowdown initiated by global finan- cial unease with a slump in demand and subse- quent destocking. Overall, the European mar- ket for virgin-fibre-based board declined by 9 per cent. Deliveries from Europe to non- European markets declined by 14 per cent. n Facts 2009 2008 Net sales, SEKm 5 023 4 860 Operating profit, SEKm Investments, SEKm 419 260 320 327 Operating capital, SEKm 4 114 4 254 Average number of employees 1 669 1 670 Share of sales in Europe, % Deliveries, ’000 tonnes 85 477 89 494 SEKm 1 000 SEKm 1 000 750 750 500 500 250 250 0 0 Operating proﬁt Operating proﬁt % 10.0 % 40 7.5 30 5.0 340 419 20 3.5 9.9 04 05 06 07 08 09 2.5 10 0.0 0 SEKm 6 000 4 500 3 000 1 500 0 04 06 07 05 Operating proﬁt Return on operating capital Operating proﬁt Excl. items affecting comparability Return on operating capital 09 08 Net sales and operating margin % 20 15 5 023 10 8.3 5 0 04 05 06 07 08 09 Net sales Operating margin 1 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 Capacity shutdowns prevented capacity utilisa- tion among European producers from falling to the same extent as demand. Prices were increased during the year for both solid bleached board and folding boxboard. Iggesund Paper- board increased prices for folding boxboard in the UK market in the autumn and announced price rises in the rest of Europe for 2010. In the autumn, a decision was made to per- manently shut down the oldest board machine at Workington Mill and to upgrade the remain- ing board machine to obtain higher capacity and improved quality. The new annual capacity of the mill is 200 000 tonnes – a volume that is more appropriate for the market. The change entails personnel cutbacks affecting about 100 people. Operating profit for 2009 was SEK 419 mil- lion (320). The improvement was thanks to higher prices largely due to currency move- ments with a weaker pound (sterling) and Swedish krona but also from the price rises implemented in the second half of 2008. How- ever, production cutbacks and increased manu- facturing costs had a negative effect on earn- ings. Provisions and impairment losses result- ing from the shutdown of the board machine had a negative impact of SEK 75 million on profit during the year. market 2.6 million tonnes. For a few years, the annual market growth rate was higher than usual, around 5 per cent, but it declined in 2008 and 2009, owing to the economic slowdown and financial unease. The largest European markets for solid bleached board and folding boxboard are Germany and the UK, with 23 per cent and 14 per cent of consumption respectively. Several European markets are decreasing, with eastern Europe showing a somewhat more marked decline. In recent years Asia has overtaken North America as the largest market for virgin fibre board. Iggesund Paperboard’s share of the European virgin fibre board market is about 20 per cent, and the company is the clear mar- ket leader in Europe in the solid bleached board segment. Iggesund Paperboard concentrates its sales on two product segments: packaging board – including tobacco board as an important sub- segment – and paperboard for graphics appli- cations. The main customer categories are con- verters, who make packaging, and wholesalers and printers, who buy paperboard for use in graphics printing. Iggesund Paperboard’s Invercote and Incada brands lead the European paperboard market. Invercote solid bleached board (produced at Iggesund Mill) is the number-one brand, and Incada folding boxboard (produced at Work- ington Mill) is ranked second. Global consumption of paperboard amounts to roughly 32 million tonnes per year. The Euro- pean market for the grades produced by Igge- sund – virgin-fibre-based solid bleached board and folding boxboard – is approximately PacKaGING BOaRD. The type of virgin-fibre- based board manufactured by Iggesund Paper- board has a variety of uses, including packag- ing for confectionery, pharmaceuticals, cosmet- ics and perfume. The trend in private consump- I g g eS UnD P aPe r b o a rD lower consumption of fossil fuels Long-term environmental work has been conducted for dec- ades at Iggesund Mill. The aim is to become self-sufficient in electricity and independent of fossil fuels. The energy supply is based on heat from the mill’s own processes, and electricity, of which nearly half is produced at the mill. In 2009, carbon dioxide emis- sions from fossil fuels at Igge- sund Mill fell by 65 per cent, through energy savings and in- vestments of about SEK 100 million in greater capacity for use of biofuels. The decrease corresponds to emissions from 17 500 cars each driven 15 000 km per year. Even before these measures were taken, nearly 90 per cent of the mill’s internally generated electricity supply came from biofuel; this proportion is now rising to 95 per cent and means that manufacture of Invercote produces virtually no fossil car- bon dioxide emissions. Iggesund Mill has a surplus of thermal energy that runs the mill’s production process, dries sawn timber in Holmen Timber’s sawmill and heats more than 1 000 homes nearby. Products, % End-products, % Leading producers 2009 Virgin ﬁbre board, capacity in Europe Folding boxboard Graphics Consumer packaging 21 79 43 57 Solid bleached board Stora Enso M-real Holmen Careo International Paper Mayr-Melnhof ’000 tonnes 0 400 800 1 200 Solid bleached board (SBB) Folding boxboard (FBB) H O L M E N A N N U A L R E P O R T 2 0 0 9 1 7 I g g eS UnD P aPe r b o a rD european paperboard market 2009 tion, which declined in 2009 from a global per- spective, is one factor that has a major impact on demand for packaging; as a result, demand for board used for this purpose Sbb 550 000 tonnes Fbb 2 000 000 tonnes fell during the year. Manufacturing operations in Europe continue to migrate eastwards, part- ly due to rising private consump- tion there and partly because eastern Europe has been trans- formed, from being a net SUb 450 000 tonnes and lPb 1 900 000 tonnes WlC 3 400 000 tonnes importer of quality pack- aging, to a net exporter. The largest customer segment for packag- ing board com- Price prises converters. The demands made on packag- ing, and thus also on packaging materials, are constantly growing. Convenience, quality requirements and the need for brand-name pro- filing are giving rise to customised functions in packaging solutions. The appearance of pack- ages in stores is becoming an increasingly important factor that affects the choice of material and design. In the chocolate and con- fectionery segment, Iggesund Paperboard ben- efits from the stringent demands for packaging to be neutral in terms of odour and taste. Tobacco packaging is the largest sub- segment in packaging board. The market for tobacco packaging is stable and is characterised by a small number of large international cus- tomers who demand outstanding quality and service. Customers’ search for new design solu- tions and the need to minimise initial costs in product launches have benefitted Iggesund Paperboard as a supplier. Invercote was former- ly the main brand supplied to the tobacco industry, but Incada is now also used to pack- age tobacco products. With its two grades of paperboard, teamed with the finishing options created by the company’s lamination facilities in Strömsbruk, Iggesund Paperboard offers the market’s broadest product portfolio suited to the needs of the tobacco industry. Geographi- cally, the printing and conversion of cigarette packaging are still migrating eastwards. GRaPHIcS BOaRD. The graphics market uses paperboard for covers of publications, cards and advertising materials. The large number of end customers in the market for graphics board SBB: Solid bleached board FBB: Folding boxboard SUB: Solid unbleached board LPB: Liquid packaging board WLC: White lined chipboard (recovered/de-inked fibre board) Sbb Prestigious products Graphics products Confectionery Cigarettes Fbb Confectionery Pharmaceuticals Cigarettes Frozen goods Skin care and sanitary articles SUb, lPb Beverages Dairy products Dried goods WlC Dried goods Household products 1 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 means that the greater part of volume is sold through a wide network of wholesalers. The latter have been under intense financial pres- sure for several years, which has led to a grad- ual increase in consolidation of these players. High and uniform quality fuels wholesalers’ interest in Invercote and Incada. The properties of these paperboards make them very versatile. They are particularly in demand for graphics applications thanks to their good colour repro- duction. The graphics printing market, with its dependence on marketing activity, is the area that has been most adversely affected by the weak global economy. Development Productivity at Iggesund Paperboard’s facilities has increased. Marketing has intensified and the product mix has gradually been modified to match trends in market demand. Improvements have been achieved through several major rebuilding projects and a series of smaller investments to enhance efficiency, as well as an extensive product development programme. The new version of Invercote is a result of rebuilding board machine 2 at Iggesund Mill in the autumn of 2007, which was successfully brought on-line in autumn 2008. The new tech- nology platform is the starting point for addi- tional development towards better and more consistent quality. Intensive development is in progress to further refine the printing surface and improve mechanical properties. This aims to increase scope for new and more advanced designs for customers’ packaging, using less material, yet maintaining the same protective properties. Iggesund Paperboard has a tradition of con- tinously developing Invercote and Incada. As of 2008, Invercote is available in a coated version with a biologically degradable surface which is compostable. This makes it suitable for food packaging and beverage cartons, and sales of the paperboard picked up in 2009. In recent years, product support with related service has developed into an increasingly important part of Iggesund Paperboard’s offer- ing. This is designed to meet customers’ demands for shorter lead times and to enable customers to improve their return through the assistance of Iggesund Paperboard’s organisa- tion for market-based technical service. An example of product development: the new Invercote I g g eS UnD P aPe r b o a rD Strategic goals Iggesund Paperboard aims to offer performance products which justify a higher market price than bulk goods. This is why Iggesund Paperboard must be at the forefront of the technical development of paperboard. PrelImInary STUDy a preliminary study is initiated to identify technical pos- sibilities and limitations as well as required investments. The study includes quantification of market trends and estimated shifts in demand. estimates are pre- pared to calculate the costs of the projects. The core of the study was to be able to recreate all of Invercote’s properties, despite the fundamental structur- al change, while leaving scope for future development. Customers’ requests were key factors in the study. The development work took place at the Paperboard Devel- opment Centre in Iggesund. The experience and know- how built up over a long time enabled us to examine the results of various pulp mixtures and recipes for coatings and pigments. ProjeCT anD PIloT TeST after completion of the rebuilding project, work starts on developing the new product and pilot tests are carried out. Test printing on key customers’ equipment and evaluation with these customers are important steps prior to product launch. Firstly, the old Invercote was recreated, but with a new structure. In parallel a new version of Invercote was devel- oped with modified properties and new whiteness. Some of the tests were performed on Iggesund’s own pilot coating equip- ment. To verify the quality of the properties, the new Invercote was tested extensively among customers and end users. FInal ProDUCT market Iggesund Paperboard’s sales team and market technicians identify what the market demands from paperboard. This information often has a bearing on product properties and the customer’s production economics and is conveyed to the mills by teams of market representatives and product managers. ProDUCT CoUnCIl Iggesund Paperboard’s product council identifies potential for product development based on strategic goals, market require- ments and technical possibilities. To create opportunities for further develop- ment of Invercote, Iggesund Paperboard saw a need to catapult production technology 20 years into the future. This innovation was considered possible by creating a type of paperboard made of three layers instead of the existing five – without lowering performance. It was also important that the new product’s properties were at least as good as those of the older established grade of Invercote board. DeCISIonS Profitability analyses and techni- cal prerequisites form the basis of decisions. The preliminary study led to a project plan, which included rebuilding work on one of the two board machines at Iggesund Mill. Holmen decided to invest SEK 400 million in the rebuilding of board machine 2. laUnCH after completing test printing and obtaining feedback from key cus- tomers, the product is ready for its market launch. The new Invercote is not simply as good as the previous generation of the product. The new version is whiter, more uniform in struc- ture and has better colour reproduction proper- ties. In conjunction with the launch, new customer materials and a new website for paperboard users were introduced. The company also organised major customer events, attracting partici- pants from all over the world, to provide information about the new product. H o l m e n TIm b e r Holmen Timber Holmen Timber produces pine sawn timber at Iggesund Sawmill. The new Braviken Sawmill for spruce construction timber is being built, and production is scheduled to start at the turn of 2010/2011. operations in 2009 The market for sawn timber was weak in the early part of 2009 but gradually grew stronger due to short supply. The prices of sawn timber rose as of spring 2009, following the sharp drop from peak prices in mid-2007. Holmen Timber’s deliveries rose by 18 per cent, to 313 000 cubic metres, as a result of higher production at the sawmill in Iggesund. Building of Holmen Timber’s new sawmill at Braviken Paper Mill near Norrköping start- ed in August. The majority of the equipment and construction contract have been procured, and ground work has started. n Facts Net sales, SEKm Operating profit, SEKm Investments, SEKm Operating capital, SEKm Average number of employees Share of sales in Europe, % Deliveries, ’000 m3 2009 2008 553 21 110 396 114 57 313 499 13 19 366 110 59 266 SEKm 200 SEKm 200 150 150 100 100 50 50 0 0 Operating proﬁt Operating proﬁt 21 21 04 05 06 07 08 09 % 80 % 80 60 60 40 40 20 20 6.2 6.2 0 0 SEKm 800 600 400 200 0 08 05 06 07 Operating proﬁt 04 Return on operating capital Operating proﬁt Excl. items affecting comparability Return on operating capital Excl. items affecting comparability 09 Net sales and operating margin % 40 30 20 10 0 553 3.8 04 05 06 07 08 09 Net sales Operating margin Excl. items affecting comparability 2 0 H O L M E N A N N U A L R E P O R T 2 0 0 9 capacity, production can be increased to 750 000 cubic metres in future. Production is scheduled to start at the turn of 2010/2011, and the customer base will consist of builders’ suppliers, planing mills and manufacturers of buildings and roof trusses. Construction using wood on a large scale is increasing in Europe and worldwide. The main markets for products from Braviken Sawmill will be Scandinavia and the UK, although products will also be sold elsewhere in Europe and in the USA. The combination of Holmen Paper’s exist- ing paper mill at Braviken and the new sawmill will result in significant synergies, not only through wood sourcing but also because the sawmill can utilise the infrastructure already in place at the site. It will also open the door to efficient energy solutions, as the Group will gain access to substantial supplies of biofuels from the sawmill and forest fuels in connection with harvesting. Excess heat from the paper mill can also be used in drying the sawn spruce. IGGESUND SAWMILL. Since 2002, production at Iggesund Sawmill has risen by more than 50 per cent, to 291 000 cubic metres in 2009. This growth is thanks to optimal utilisation of dry- ing capacity and various investments, mainly in a new grading unit and a new log infeed. VALUE-ADDED PRODUCTS. Holmen Timber is working on technical sales and product renewal to increase sales of value-added products. These products are classed as industrial wood and account for around a third of total volume. The product area for finger joint window compo- nents continued to advance during the year. The new production facilities at Braviken will make Holmen Timber a one-stop supplier of con- struction and joinery timber, reinforcing the business area and providing synergies in logis- tics and sales. Recruitment of personnel began during the year; the total number of employees is estimat- ed at about 110. Operating profit amounted to SEK 21 mil- lion (13). Higher deliveries and lower raw materials costs had a positive impact, although the average price level was lower. market The consumption of sawn timber in Europe in 2009 amounted to just over 80 million cubic metres, a decline from the preceding year. Sup- ply was down more than demand, as a result of high prices for and a shortage of raw materials, sawmills’ difficulties in finding customers for wood chips, and capacity cuts. As a result, export prices – which fell in 2008 and early 2009 – rose during the second half of 2009. The Swedish sawmill industry was not hit as hard by the recession as its counterparts were in other parts of Europe, such as Finland and the Baltic countries. Although global consump- tion decreased, export volumes from Sweden rose in 2009, as a result of a better competitive position thanks to the weaker Swedish krona and the good supply of wood raw materials. At present the European market is charac- terised by low consumption and low stocks at producers, importers and end customers. In the longer term, consumption growth is expected to continue as the economy recovers. Holmen Timber’s share of the sawn timber market in Europe is less than one per cent, and the market is fragmented with numerous small operators. Iggesund Sawmill saws pine, and its customers are primarily in the joinery industry, including manufacturers of window frames, solid wooden floors and edge-glued panels, as well as planing mills. The main markets are Scandinavia, the UK, North Africa and the Middle East. North Africa and the Middle East were formerly supplementary markets but have grown to be significant. Sales to these markets take place via the sales company Uni4 Market- ing, which is partly owned by Holmen Timber. Development BRAVIKEN SAWMILL. The plan is that the new sawmill, which will be the largest in Scan dinavia, will have capacity to produce 550 000 cubic metres of spruce construction timber a year. By investing in greater drying H o l m e n T i m b e r breaking the ground for braviken Sawmill Capacity target: 750 000 cubic metres. Product: Construction timber. raw material required: 1.5 million cubic metres of spruce saw timber. main market: Europe. employees: About 110 people. Area: 40 hectares. Start of production: Year-end 2010/2011. more construction using wood In recent years, two thirds of Sweden’s 290 municipalities have started major construc- tion projects using wood for everything from blocks of flats and public buildings, such as sports halls, to entire town dis- tricts. Nearly 120 wooden bridges are built each year, mainly for pedestrians and cy- clists but also some for motor vehicles. However, the biggest increase is in use of wood for extensions and additions, where extra storeys are built onto residential properties. Modern wood construction is climate smart and competes with conventional techniques with its rational methods, short delivery times and better ener- gy and climate solutions. H O L M E N A N N U A L R E P O R T 2 0 0 9 2 1 H o l m e n S k o g Holmen Skog Holmen Skog manages the Group’s forests, which cover more than one million hectares of productive forestland in Sweden. The wood volume amounts to 119 million forest cubic metres, making Holmen Sweden’s fourth largest forest owner. operations in 2009 The Swedish forest industry’s demand for wood fell dramatically at the end of 2008, and the ongoing very low demand defined the first quar- ter of 2009. Later in the spring, the situation improved for the sawmills with a renewed increase in the need for saw timber. This led to a timber shortage during the autumn, because the supply of wood did not rise at the same rate. The situation for pulp and paper manufac- turers gradually improved during the second half of 2009, and demand for pulpwood returned to normal levels. Stocks were relative- ly low at year-end. n Facts Operating profit, SEKm Investments, SEKm 2009 2008 605 69 632 21 Operating capital, SEKm 11 384 11 415 Average number of employees 446 413 Harvesting in company forests, million m3 2.9 2.6 Productive forestland, ’000 hectares 1 032 1 033 Wood volume, million m3 119 118 SEKm 800 600 400 200 0 Operating proﬁt Harvesting 605 5.3 % 12 9 6 3 0 ’000 m3 4 000 3 000 2 000 1 000 0 2 897 04 05 06 07 08 09 Operating proﬁt Return on operating capital Excl. items affecting comparability 04 05 06 07 08 09 Harvesting in company forests 2 2 H O L M E N A N N U A L R E P O R T 2 0 0 9 The access to forest fuel – mainly branches, treetops and bark – generally remained good throughout Sweden. Buyers were well supplied in the second half of the year. The prices of pulpwood and timber fell at the start of the year. Pulpwood prices then remained virtually unchanged, while timber prices rose during the second half of the year as a result of strong demand. The prices of imported wood have varied over time in the same way as prices in Sweden. Exports of roundwood from Sweden were mar- ginal. Holmen Skog’s operating profit reached SEK 605 million (632). The deterioration was due to lower wood prices. market The Swedish forest industry consumes about 75 million cubic metres (m3sub – solid volume under bark) of wood per year. Most of the wood comes from forests in Sweden. Of the wood har- vested in Sweden, saw timber accounts for about 50 per cent, pulpwood about 40 per cent and forest fuels roughly 10 per cent. Competition for Swedish wood as a raw material is increasing, partly because of rising demand for biofuels used at thermal power stations. Wood supply The Holmen Group’s Swedish facilities con- sumed 4.1 million cubic metres of wood in 2009 (4.4 million in 2008). Holmen Skog obtained 9.9 million (10.4) cubic metres of wood, of which 5.6 million (5.7) was sold to external customers. The Group harvested 2.9 million cubic metres (2.6) in its own forests. Most of Holmen’s forests are located in northern Sweden where the Group does not have any industrial sites. Formerly, wood from these forests was largely sold to local buyers. Through logistical and swap arrangements, Holmen is using more of this wood than previ- ously in its own facilities, making it possible to reduce the proportion of expensive imported wood. Braviken Sawmill, currently under construc- tion, will use around 1.5 million cubic metres of spruce saw timber once it has reached full capacity. In preparation for this, Holmen Skog has widened the area from which it obtains wood for the Norrköping region and rein- forced its organisation. Development INcREaSED HaRVESTING OPTIONS. A significant proportion of the growth in Holmen’s forests takes place in young forests that are not ready for harvesting, so Holmen only harvests slightly more than 80 per cent of annual growth. As these young forests age, the extraction of wood can be increased to the same level as growth. The effects of the new silviculture pro- gramme, first introduced in 2006, are also not- able. It is estimated that the programme has the potential to raise the growth rate in the Group’s forests by about 25 per cent in 30 years’ time. This also means that Holmen will be able to increase harvesting by the same amount in future. The most important measures in the pro- gramme are greater use of lodgepole pine, forestland fertilisation, better seedlings and use of spruce and pine seeds from seed orchards where seed has been selected from trees with exceptionally good properties. NaTURE cONSERVaTION METHODS. Holmen is working with researchers at the Swedish University of Agricultural Sciences to develop methods of nature conservation in forests. Vari- ous ways of helping to increase the biological values of forestland are being tested as part of this collaboration. GREaTER TRaNSPORT EFFIcIENcY. Holmen expects to be able to reduce its energy con- sumption in harvesting and transport of wood by approximately 15 per cent in the next few years. This is to be achieved through various measures, including investment in harwarders – a combined machine that uses less fuel than tra- ditional forwarders and harvesters. To reduce the number of transports, a project is being run in which trucks are being modified to accom- modate an extra stack of timber on the trailer. MORE FOREST FUEl. Holmen Skog is helping to develop technology for harvesting forest fuel in response to the growing demand for this fuel. Holmen has also reinforced its own organisa- tion for extraction of and obtaining energy assortment. H o l m e n S k o g Holmen’s forest holdings Holmen production facilities H O L M E N A N N U A L R E P O R T 2 0 0 9 2 3 H o l m e n en e r gI Holmen Energi Holmen Energi is responsible for the Group’s energy assets and energy supply. Normal yearly hydro power production amounts to about 1 100 GWh of electricity and con tributes to Holmen being one-third self-sufficient in electricity. operations in 2009 Holmen Energi’s hydro power production amounted to 1 090 GWh (1 128) during the year, which was 2 per cent lower than during a normal year. Operating profit amounted to SEK 414 million (327), and the improvement mainly stemmed from higher prices. During the year, construction of the new hydro power station on the Iggesundsån river was com- pleted. The new power station replaces three old ones and has been in operation since November 2009. n Facts Operating profit, SEKm Investments, SEKm 2009 2008 414 88 327 76 Operating capital, SEKm 3 207 3 006 Average number of employees 10 10 Company-generated hydro power, GWh 1 090 1 128 SEKm 500 375 250 125 0 Operating proﬁt Production % 16 414 13.3 12 8 4 0 GWh 1 600 1 200 800 400 0 1 090 04 05 06 07 08 09 Operating proﬁt Return on operating capital 04 05 06 07 08 09 Company-generated hydro power 2 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 market A total of 134 TWh of electricity was generated in Sweden during the year, 66 TWh of which came from hydro power. The hydrological bal- ance, that is, the quantity of water stored in the Nordic countryside, was somewhat lower at year-end 2009 than at year-end 2008. The spot price fluctuated during the year, from SEK 350/MWh in May, to SEK 500/MWh in December. The average spot price in Sweden for 2009 was SEK 393/MWh. energy supply Holmen Energi is in charge of supplying Holmen’s Swedish mills with electricity. The Group’s total consumption amounted to 4 680 GWh in 2009 (5 156) – mostly used by its Swedish paper mills. Holmen’s own produc- tion, at its 21 wholly and partly owned hydro power stations and back pressure power pro- duction at the company’s large mills, corre- sponds to more than 30 per cent of the Group’s electricity consumption in Sweden; the remain- der is purchased. The Group’s exposure to fluctuations in electricity prices is limited through long-term, fixed-price supply agreements, complemented with financial price hedges (see page 64). The company’s own electricity production is priced at market prices and reduces the Group’s need to buy electricity externally. Development New sources of eNergy. Holmen Energi also has responsibility for energy development in a broader sense. As part of this mandate, in 2009 Holmen set up a unit for competence and development in biorefining and biofuels for vehicles and other applications: the Holmen Biorefinery Development Centre. It has three employees and is located in Iggesund. Wind power and peat harvesting are other key development areas, as is investigation of possible pellets production. The aim is to pro- duce 1 TWh of electricity from wind power in future. Unlike existing wind power stations, which are often located in coastal or mountain- ous areas, the sites that Holmen Energi is explor- ing are situated in forested areas on Holmen’s own land. Forestry operations within wind farms will continue more or less as normal. In 2009, wind power studies were conduct- ed on Holmen’s land in the area around Örnsköldsvik and near the mill in Hallstavik. The measuring activities are expected to be completed in the spring of 2010. With the help of a partner, preliminary wind power studies were conducted on Holmen’s land in the prov- ince of Östergötland. eNergy cooPerATIoN. In association with a number of electricity-intensive companies, Holmen runs a company called BasEl i Sverige AB, whose purpose is to improve basic industries’ access to electricity at competitive prices. In 2006 some of these companies, including Holmen, set up VindIn AB, a company that aims to develop, construct and operate wind power stations in Scandinavia. VindIn’s goal is to generate 1 TWh of electricity from wind power stations each year. The first wind farm is located at Skutskär and has been in use since October 2009. Further invest- ments via VindIn are being investigated. In collaboration with four other BasEl com- panies, Holmen has founded a company called Industrikraft i Sverige AB to enable construc- tion of its own nuclear power facilities. To this end, a letter of intent was signed with the power utility Vattenfall during the autumn to proceed with projects to secure future baseload power that does not use fossil fuels. PeAT hArvesTINg. During the autumn, the first deliveries of peat were made from Holmen’s site at Stormyran, north of Örnsköldsvik. Peat consists of plant material that, owing to a lack of oxygen, has only partly decomposed into moss and marsh. The incomplete breakdown means that much of the energy content of the biological material is retained, enabling peat to be used as fuel. Peat harvesting provides a way of utilising several of the value-creating resources that the Group has at its disposal. Stormyran’s annual future production is esti- mated at 70 GWh. eNergy sAvINgs. Responsibility for improving energy efficiency is decentralised to the mills but coordinated centrally. The new thermo- mechanical pulp (TMP) line at Braviken, launched at the end of 2008, has already led to significant energy savings. At Iggesund Mill, investments have considerably reduced oil consumption, and bioenergy now accounts for 95 per cent of the mill’s internally generated electricity supply. H o l m e n e n e r g i Faxälven Umeälven Gideälven Iggesundsån Ljusnan Motala Ström Hydro power stations H O L M E N A N N U A L R E P O R T 2 0 0 9 2 5 P r oD U C T Io n a nD r a W m a Te rIa lS Production and raw materials Holmen manufactures its printing paper, paperboard and sawn timber products in Sweden, the UK and Spain. The Group’s forest holdings and wholly and partly owned hydro power stations are located in Sweden. The figures shown here relate to 2009. Self-sufficiency – energy and fibre About 60 per cent of the wood required an nually by the Group is harvested in the company’s forests. The Group’s self-sufficiency in electricity is just over 30 per cent, including the power gen- erated at the major mills. More than 70 per cent of the thermal energy used in applications such as the drying processes when making paper and paperboard as well as sawn wood is based on residual products from the company’s production processes. At Hallsta Paper Mill, virgin fibre is the only raw material used in pro- duction, while Braviken Mill uses both virgin fibre and recovered paper. Production at Holmen Paper Madrid is based solely on re - covered paper. The paperboard mills only use virgin fibre. n Hallsta Paper mill n braviken Paper mill n Holmen Paper madrid Holmen Paper raw material: Sprucewood. Process: TMP and groundwood pulp. Products: Newsprint, MF Magazine, SC paper and book paper. Production capacity: 680 000 tonnes/year. average no. of employees: 783. Holmen Paper raw material: Sprucewood, recovered paper. Process: TMP and DIP. Products: Newsprint, coloured newsprint, directory paper and MF Magazine. Production capacity: 790 000 tonnes/year. average no. of employees: 652. Holmen Paper raw material: Recovered paper. Process: DIP. Products: Newsprint, MF Magazine and LWC Recycled. Production capacity: 470 000 tonnes/year. average no. of employees: 38. 2 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 P r oD U C T Io n a nD r a W m a Te rIa lS Internal supply of raw materials Harvesting in company forests Timber, ’000 m3 sub Pulpwood, ’000 m3 sub Hydro power production, GWh Holmen Holmen energi Skog group 1 406 1 491 1 090 1 406 1 491 - - - 1 090 Production, ’000 tonnes group Hallsta braviken madrid Wargön Iggesund Iggesund mill Workington Sawmill Newsprint, standard MF Special SC paper Coated printing paper Paperboard Market pulp Sawn timber, ’000 m3 Consumption of important input goods* Wood, ’000 m3 sub Recycled fibre, ’000 tonnes Market pulp, ’000 tonnes Chemicals, fillers and pigment, ’000 tonnes Electric energy, GWh Thermal energy, GWh 823 679 137 75 471 48 291 4 480 813 128 320 4 296 884 62 433 137 - - - - 1 265 - 41 92 1 849 - 479 229 - - - - - 1 024 340 2 57 1 589 - 282 17 - 75 - - - - 473 - 50 246 360 - - - - - - - - - - - 11 13 - - - - 254 48 - 1 378 - - 72 256 - - - - - 217 - - 400 - 85 49 326 511 - - - - - - 291 656 - - 0 19 - * Purchased from outside the production unit. Energy calculated in Madrid’s case takes account of 50 per cent interest in the Cogeneración unit for the production of electricity and thermal energy. The Group’s consumption of wood is computed net, taking account of internal deliveries of chips from Iggesund Sawmill to Iggesund Mill. energy balance, gWh electric energy Consumption at mills Production at mills* Company-generated hydro power Net Thermal energy Consumption at mills Production at mills from recovered liquors, bark and wood residues purchased fossil fuels* recovered in the TMP process External deliveries Net -4 680 384 1 090 -3 206 -5 634 2 916 1 097 1 093 115 -413 * Incl. Holmen’s 50 per cent interest in Cogeneración, Spain Fibre balance Wood, ’000 m3 sub Consumption in Sweden Consumption in the UK Harvesting in company forests Net recovered paper, ’000 tonnes Consumption in Sweden Consumption in Spain Pulp, ’000 tonnes Consumption at mills Production at mills External deliveries Net -4 080 -400 2 897 -1 583 -340 -473 -2 134 2 006 48 -80 Sensitivity analysis of raw materials Wood, recovered paper, en- ergy and chemicals account for Holmen’s principal pro- duction costs. Cost trends are mainly determined by trends in the prices of input goods and how well the Group increas- es production efficiency. A one percentage point change in raw materials costs is estimated to have the following impact on con- solidated operating profit: raw material costs Wood, net Recovered paper Pulp Electric energy, net Other energy Chemicals Sekm Impact on the result 9 8 1 11 4 14 A one percentage point re- duction in the cost of wood would thus raise operating profit by roughly SEK 9 mil- lion, after taking account of the company’s own wood production. This estimate does not consider existing electricity price hedges. For a more detailed sensi- tivity analysis, see the admin- istration report on page 47. n Iggesund mill n Workington mill n Iggesund Sawmill Iggesund Paperboard raw material: Softwood and hardwood pulpwood. Process: Sulphate pulp. Products: Solid bleached board, plastic coated. paperboard and sulphate pulp. Production capacity: 330 000 tonnes/year (Paperboard). average no. of employees: 935. Iggesund Paperboard raw material: Sprucewood and purchased sulphate pulp. Process: RMP. Product: Folding boxboard. Production capacity: 200 000 tonnes/year. average no. of employees: 483. Holmen Timber raw material: Pine saw logs. Process: Sawmilling. Products: Redwood sawn timber. Production capacity: 340 000 m3/year. average no. of employees: 99. H O L M E N A N N U A L R E P O R T 2 0 0 9 2 7 T He S Ha r e a nD S Ha r eHo lDe rS The share and shareholders Holmen was listed on the Stockholm Stock Exchange in 1936, but was called Mo och Domsjö AB at that time. The class A and B shares are listed on Nasdaq OMX Nordic, Large Cap, Stockholm. Stock exchange trading Holmen’s two series of shares are listed on Nas- daq OMX Nordic, Large Cap. During the year, the price of Holmen’s class B shares fell by SEK 10.5 (5 per cent), to SEK 183. During the same period the Stockholm stock exchange rose by 50 per cent. Holmen’s market capitali- sation of SEK 15 billion (16) represents some 0.4 per cent of the Stockholm stock exchange’s total value. Holmen’s class B shares reached their highest closing price for the year, SEK 205.5, on 28 August and the lowest closing price, SEK 135, was recorded on 1 April. The daily average number of class B shares traded was 361 000, which corresponds to a value of SEK 65 million. The daily average number of class A shares traded was 400. Some 90 per cent of the trade took place on Nasdaq OMX Nor- dic. For the past year or two, the Holmen share has also been traded on other trading platforms besides the Nasdaq OMX Nordic exchange, such as BATS, Burgundy, Chi-X and Turquoise. return During the past decade, the Holmen share has yielded a total return, including reinvested divi- dends, of around 3 per cent per year. During that same period, the Affärsvärlden General Index returned 2 per cent per year. SEK 450 400 350 300 250 200 150 100 Share price performance for Holmen class A and B and General index No of shares (000s) 30 000 25 000 20 000 15 000 10 000 5 000 0 05 06 07 08 09 Holmen class A Holmen class B Affärsvärlden General index Number of class B shares traded (000s) 2 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 Total return of Holmen class B and General index Incl. reinvested dividends, no tax taken into account Index 225 200 175 150 125 100 75 50 25 i n W o c E s r e t u e R : e c r u o S i c d r o N X M O q a d s a N d n a 00 01 02 03 04 05 06 07 08 09 Holmen class B General index (SIX Return Index) T He S Ha r e a nD S Ha r eHo lDe rS Share structure Share A B Total number of shares Holding of own B shares bought back Votes 10 1 no. of shares no. of Quota value votes 22 623 234 62 132 928 84 756 162 -760 000 226 232 340 62 132 928 288 365 268 -760 000 50 50 Sekm 1 131.2 3 106.6 4 237.8 Total number of shares outstanding 83 996 162 287 605 268 Issued call options b shares 758 300 Changes in share capital 2000–2009 2001 Withdrawal of shares bought back Change in no. of shares Total no. Change in share of shares Total share capital, Sekm capital, Sekm -8 885 827 79 972 451 2004 Conversion and subscription 4 783 711 84 756 162 Shareholder structure at 31 December 2009 L E Lundbergföretagen Kempe Foundations Handelsbanken incl. pension fund Silchester International Investors Alecta Swedbank Robur funds Second Swedish National Pension fund SHB funds Lannebo funds SEB funds Other -444.3 239.2 3 998.6 4 237.8 % of capital % of votes 28.0 7.0 3.1 10.9 3.2 1.7 1.2 1.1 1.1 1.1 41.6 52.0 16.9 9.1 3.2 0.9 0.5 0.4 0.3 0.3 0.3 16.1 Total* 100.0 100.0 * of which non-Swedish shareholders The ten identified shareholders with the largest holdings ranked by the number of votes they control. Some large shareholders may have their holdings registered under nominee names, in which case they are included among “Other”. 26.8 8.0 earnings per share (ePS) Diluted earnings per share equalled SEK 12.0 (7.6). Holmen’s diluted earnings per share aver- aged SEK 13.9 over the past five years. Dividend The Board proposes that the AGM, to be held on 24 March 2010, resolves to lower the divi- dend to SEK 7 (9) per share. The proposed divi- dend corresponds to 4 per cent of equity. The proposal to reduce the dividend is due to the lower profitability in the industry, chiefly for paper products. The Group is also implement- ing investments, such as building a new saw- mill. Decisions on dividends are based on an appraisal of the Group’s profitability, future investment plans and financial position. n The final date for trading in Holmen shares including right to dividend: 24 March 2010 n Record date for dividend: 29 March 2010 n Payment date for dividend: 1 April 2010 Share structure Holmen has 83 996 162 shares outstanding, of which 22 623 234 are class A shares and 61 372 928 are class B shares. Each class A share carries ten votes, and each B share one vote. In other respects, the shares carry the same rights. ownership structure Holmen had a total of 30 425 shareholders at year-end 2009. In absolute numbers, Swedish private individuals made up the largest category of owners: 27 497 shareholders. This corre- sponds to 90 per cent of the total number of n ownership structure Shareholder categories Percentage of capital Shareholders per country Percentage of capital no. of shares 1 – 1 000 1 001 – 100 000 100 001 – Total no. of Percentage of shares shareholders 27 988 2 356 81 30 425 7 18 75 100 Foreign shareholders Swedish institutions Luxembourg 27 51 Norway USA UK Sweden 1 2 4 6 14 73 Other countries Swedish equity funds 6 16 Swedish private individuals H O L M E N A N N U A L R E P O R T 2 0 0 9 2 9 T H E S H A R E A N D S H A R E H O L D E R S the company’s shares. Shares were bought back in 2008 to secure the company’s commitments under the terms of the incentive scheme (see below). In total, 760 000 of the company’s class B shares were repurchased, corresponding to some 0.9 per cent of the total number of shares on issue and to some 0.3 per cent of the total number of votes. The Board proposes that the 2010 AGM also authorises the Board to buy back and transfer up to 10 per cent of all shares in the company. Incentive scheme In 2008, the Group’s employees were invited to acquire call options on class B shares in Holmen at market price. As a result, 1 492 of the Group’s approximately 4 800 employees bought a total of 758 300 call options at a price of SEK 20 per option; their exercise price is SEK 224.50 per share. Each option entitles the holder to pur- chase one share during the exercise period in May/June 2013. Holmen has secured its com- mitments in the scheme by buying back shares. Analysts Analysts at 15 brokerage firms and banks moni tor Holmen’s development. This means that they publish reports containing analyses of Holmen on an ongoing basis. A list of these analysts is available on Holmen’s website. About 350 shareholders, represent- ing 87 per cent of the votes, attend- ed Holmen’s 2009 AGM. shareholders. L E Lundbergföretagen AB is the largest shareholder, with 52 per cent of the votes. Shareholders registered in Sweden own 73 per cent (72) of the share capital. Among foreign shareholders, the largest proportion of shares are held in the UK and the USA, accounting for 14 per cent and 6 per cent of the capital, respectively. Share buy-back The 2009 Annual General Meeting renewed the Board’s mandate to acquire up to 10 per cent of Data per share Diluted earnings per share, SEK 1) Dividend, ordinary, SEK Dividend, extra, SEK Ordinary dividend as % of: Equity Closing listed price Profit for the year Return, equity, % 1) Return, capital employed, % 6) Equity per share, SEK Closing listed price, B, SEK Average listed price, B, SEK Highest listed price, B, SEK Lowest listed price, B, SEK Total closing market capitalisation, SEK ’000 million P/E-ratio 2) EV/EBIT 3) 6) Closing beta value (48 months), B 4) Number of shareholders at year-end 2009 12.0 2008 7.6 2007 17.8 7 5) - 9 - 12 - 2006 2005 2004 2003 2002 2001 2000 17.2 12 - 14.8 11 - 15.1 10 - 17.5 10 30 23.6 11 - 26.4 10 - 44.7 9 60 4 4 58 6 7 196 183 180 205.5 135 15.4 15 13 0.7 4 3 20 24 15 213 280 241 320 191.5 22.7 6 10 0.8 30 425 29 745 30 499 32 189 33 320 36 899 30 902 28 544 27 279 26 355 5 5 118 4 6 186 193.5 203 242 169.5 16.2 25 17 0.5 5 4 55 10 12 192 255.5 230 271 187.5 20.4 14 10 0.7 6 5 45 14 16 188 211.5 231 266.5 192 16.9 9 8 0.6 6 4 70 9 10 196 298 302 335.5 255 25.3 17 14 1.0 6 4 37 16 18 176 238.5 226 297.5 171 19 9 7 0.7 6 4 74 8 9 189 262.5 227 266 190 22.6 18 15 0.7 6 5 67 9 10 200 240 277 316 228 20.6 13 12 0.9 6 4 66 8 10 184 230 228 264 210 19.5 15 12 0.6 1) See page 88: Definitions and glossary. 2) Closing listed price divided by earnings per share. 3) Closing market capitalisation plus financial net debt (EV) divided by operat- ing profit (EBIT). 4) Measures the sensitivity of the yield on the B share in relation to the yield on the Affärsvärlden General Index over a period of 48 months. 5) Proposal of the Board. 6) Excl. items affecting comparability and divested activities. 3 0 H O L M E N A N N U A L R E P O R T 2 0 0 9 Corporate governance report C o rPo r a Te goVe r n a nCe rePo r T Holmen AB is a Swedish public limited company, listed on the Stockholm Stock Exchange (Nasdaq OMX Nordic) since 1936. The stock exchange incorporated the Swedish Code of Corporate Governance (the Code) into its rules for listed companies in 2005. This corpo- rate governance report complies with the rules of the Code and the directions for its appli- cation. The corporate governance report has not been examined by the company’s auditor. Swedish Code of Corporate governance The Code’s rules from 2005 were revised in 2008 and cover general meetings of sharehold- ers, appointment of the Board and auditors, other aspects of the Board, company manage- ment and information on corporate governance. The Code is part of self-regulation in Swe- dish business and is based on the “comply or explain” principle. This means that a company complying with the Code may deviate from individual rules but must report the reasons for each deviation. laws and articles of association First, Holmen AB is obliged to comply with the Swedish Companies Act, the rules accompany- ing its listing on Nasdaq OMX Nordic, Stock- holm, and good stock market practice. The Code is an integral part of the stock exchange’s regulations. Holmen shall also comply with the company’s articles of association. Shareholders At year-end, Holmen AB had 30 425 sharehold- ers. See pages 28–30 for information on the share, ownership structure and other details. general meetings of shareholders The notice convening the Annual General Meet- ing (AGM) is sent no earlier than six and no later than four weeks before the meeting. The notice contains information about registering intention to attend and entitlement to participate in and vote at the meeting, a numbered agenda of the items to be addressed, information on the pro- posed dividend and the basic content of other proposals. Shareholders or proxies are entitled to vote for the full number of shares owned or represented and can notify the company of their intention to attend the AGM via the company’s website and other means. Notices convening an Extraordinary Gener- al Meeting (EGM) called to deal with the com- pany’s articles of association shall be sent no earlier than six and no later than four weeks before the meeting. Notices convening other EGMs shall be sent no earlier than six and no later than two weeks before the meeting. Proposals for submission to the meeting should be addressed to the Board and submit- ted in good time before the notice is distributed. Information about the rights of shareholders to have matters discussed at the meeting is provid- ed on the website. The 2009 AGM was held in Swedish, and the material presented was in Swedish. The notice H O L M E N A N N U A L R E P O R T 2 0 0 9 3 1 C o r P o r a T e g o V e r n a n C e r e P o r T Composition of the nomination committee representing 2009 2010 company major shareholders before agm: Independent of the: name Per Welin L E Lundbergföretagen* x (Chairman) Mats Guldbrand L E Lundbergföretagen* x (Chairman) Alice Kempe Kempe Foundations* Fredrik Lundberg Håkan Sandberg L E Lundbergföretagen* (Board Chaiman) Handelsbanken incl. pension fund* x x x x x x Yes Yes Yes No Yes No No Yes No Yes * At 31 August 2009, L E Lundbergföretagen controlled 52.0 per cent of the votes, the Kempe Foundations controlled 16.9 per cent and Handelsbanken including the pension fund controlled 9.1 per cent. convening the meeting, the agenda, the CEO’s speech and the minutes are available on the web- site. The entire Board, the Group management and the company’s auditor were present. At the meeting, shareholders had the opportunity to ask and receive answers to questions on issues such as Holmen’s environmental work, the pro- posed dividend, the plans to take part in possible future nuclear power expansion, market trends in 2009, Holmen Paper’s efficiency improvement programme and the new Braviken Sawmill. Ossian Ekdahl from Första AP-fonden and Åsa Nisell from Swedbank Robur Fonder checked and approved the minutes of the meeting. It was not possible to follow or participate in the meet- ing from other locations using communication technology. No such possibility is planned for the 2010 meeting either. It was announced on 11 May 2009 that the 2010 AGM would take place in Stockholm on 24 March 2010. Shareholders’ general meeting Shareholders nomination committee board of Directors* remuneration com- mittee Ceo Five group staff units group management Five business areas * The audit committee comprises all Board members except for members employed in the company. s r o t i d u a 3 2 H O L M E N A N N U A L R E P O R T 2 0 0 9 nomination committee The AGM decided to set up a nomination com- mittee to consist of the chairman of the Board and one representative from each of the three shareholders in the company that control the most votes at 31 August each year. Prior to the 2009 AGM, the nomination committee consist- ed of Per Welin (L E Lundbergföretagen), Alice Kempe (Kempe Foundations), Håkan Sandberg (Handelsbanken incl. pension fund) and Fredrik Lundberg (Board chairman). Member- ship of the committee prior to the 2010 AGM is unchanged, except Mats Guldbrand has replaced Per Welin as the representative of L E Lundbergföretagen. Mats Guldbrand is chair- man of the nomination committee in the run- up to the 2010 AGM. The majority of the com- mittee members are independent of the compa- ny and its management. Two are independent of the shareholder controlling the most votes, namely L E Lundbergföretagen. One member is a Board member. The nomination committee’s mandate is to submit proposals for election of Board mem- bers and the Board chairman, for the Board fee and auditing fees and, where applicable, for election of auditors. The committee’s proposals are presented in the notice convening the AGM. For the 2010 AGM, the nomination com- mittee proposes the re-election of Fredrik Lundberg (also proposed for re-election as Board chairman), Carl Bennet, Magnus Hall, Carl Kempe, Curt Källströmer, Hans Larsson, Ulf Lundahl and Göran Lundin. Lilian Fossum has declined re-election. The nomination com- mittee also proposes to the AGM that Louise Lindh be elected to the Board as a new member. The proposed Board fee is SEK 2 475 000, including SEK 550 000 for the chairman and SEK 275 000 for each of the other members. These are the same fees as in the preceding year. The CEO does not receive a Board fee. Composition of the board The members of the Board are elected each year by the AGM for the period until the end of the next AGM. There is no rule regarding the maxi- mum period a Board member may serve. The 2009 AGM re-elected Fredrik Lund- berg, Lilian Fossum, Magnus Hall, Carl Kempe, Curt Källströmer, Hans Larsson, Ulf Lundahl and Göran Lundin to the Board. Carl Bennet was elected to the Board to replace Bengt As defined by the Code, seven AGM-elected Hans Larsson Member Pettersson, who declined re-election. Fredrik Lundberg was elected chairman. At the statu- tory first meeting of the new Board in 2009, Carl Kempe was elected deputy chairman and Lars Ericson, the company’s general counsel was appointed secretary of the Board. Over and above the nine members elected by the AGM, the local labour organisations have a statutory right to appoint three members and three depu- ty members. members are deemed independent of the com- pany. Of these, five are also deemed independ- ent of the company’s major shareholders and satisfy all the criteria for experience. The largest shareholders, each controlling more than 10 per cent of the votes, are L E Lundbergföreta- gen and the Kempe Foundations. The CEO is the only Board member with an executive posi- tion in the company. Information about the members of the Board is provided on pages 36–37. The board’s activities The Board held nine meetings in 2009, four in connection with the company’s publication of its quarterly reports. At one of these meetings the Board visited Iggesund Mill and Iggesund Saw- mill. A two-day meeting was devoted to strategic business planning, and one meeting to the Group’s budget for 2010. The other two meet- ings were held in conjunction with the AGM. During the year the Board paid special attention to strategic, financial and accounting issues, follow-up of business operations and major investment matters. On two occasions the com- pany’s auditors reported directly to the Board, presenting their observations from their audit of the final accounts and the company’s internal control system. Attendance levels were very high; two members were not able to come to one Board meeting each. The activities of the Board follow a plan that intends to ensure that the Board obtains all requisite information. Each year the Board decides on written working pro- cedures and issues written instructions relating to the division of responsibilities between the Board and the CEO and the information that the Board is to receive continually on financial developments and other key events. Employees of the company participate in Board meetings to submit reports. The secretary of the Board is the company’s general counsel. C o rPo r a Te goVe r n a nCe rePo r T board members as from the 2009 agm name Function elected Committees* Independent of the: attendance company major shareholders at board meetings board members Fredrik Lundberg Chairman 1988 Remuneration committee No No 9/9 Dep. Chairman 1983 Carl Kempe Carl Bennet Lilian Fossum Member Member Curt Källströmer Member Ulf Lundahl Göran Lundin Magnus Hall Total Member Member Member, president and CEO 2009 2004 2006 1990 2004 2001 2004 Remuneration committee Yes Yes Yes Yes Yes Yes Yes No 7/9 9/9 9/9 9/9 9/9 8/9 8/9 9/9 9/9 No Yes Yes Yes Yes No Yes Yes 6/9 representatives of the employees Steewe Björklundh Member Kenneth Johansson Member Karin Norin Member 1998 2004 1999 Stig Jacobsson Dep. member 2004 Andreas Rastbäck Dep. member 2008 Tommy Åsenbrygg Dep. member 2009 * The entire Board, except for members employed in the company, form the audit committee. The Board evaluates its activities each year, and the nomination committee has been informed of the content of the 2009 evaluation. This will serve as a basis for planning the Board’s work in the next few years. group management The Board has delegated operative responsibility for management of the company and the Group to the CEO. The Board annually decides on instruc- tions covering the distribution of responsibilities between the Board and the CEO. Holmen’s Group management consists of 11 indi- viduals: the CEO, the heads of the five business areas and the heads of the five Group staffs units. Group management met on 11 occasions in 2009, dealing with matters such as earnings trends and reports before and after Board meet- ings, business plans, budget, investments, inter- nal control, policies and reviews of market con- ditions, general development of the economy and other external factors affecting the business. Projects relating to business areas and Group staff units were also discussed and decided on. Information on the CEO and other members H O L M E N A N N U A L R E P O R T 2 0 0 9 3 3 C o rPo r a Te goVe r n a nCe rePo r T results, reporting, follow-up of Group management is provided on page 38. business processes business plan, budget, forecasts and action plans Internal manage- ment processes Management at business concept, strategy and goals Internal management processes Holmen is based on the business con- cept, strategies and goals of the Group and the business areas. The CEO and Group management are accountable to the Board and are responsible for the operational activities, which are decen- tralised to five business areas. The Group staff units are in charge of coordinating certain mat- ters, such as business administration and finance, human resources, legal affairs, techno- logy and public relations. The Group uses annual, rolling, three-year business plans to break down goals and strat- egies into action plans and activities that can be measured and evaluated. These business plans are important to the long-term strategic control of the Group. The Group also uses annual budg- ets, forecasts and action plans for its day-to-day management of operations. Various business processes, such as sales, pur- chasing and production, are used to manage operational activities at business area level with a view to achieving the business targets and imple- menting the agreed action plans. The results are followed up through regular financial reports, and approved measures are reviewed through additional follow-ups. remuneration The Board has appointed a remuneration com- mittee consisting of Fredrik Lundberg and Hans Larsson. The committee held several informal meetings during the year at which it prepared matters pertaining to the remunera- tion and other employment conditions of the CEO and submitted proposals to the Board. Remuneration and other employment condi- tions of senior management who report directly to the CEO are decided by the latter in accord- ance with a pay policy established by the remu- neration committee. The Group applies the principle that each 3 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 manager’s manager must approve decisions on remuneration in consultation with the relevant personnel manager. At the 2009 AGM, the Board chairman gave an account of the Board’s proposed guidelines on remuneration to the CEO and other members of senior management. The AGM adopted the guidelines in the proposal. Information on the Board’s proposal to the 2010 AGM for guide- lines on remuneration to the CEO and other members of senior management is presented in the administration report on page 49. The 2009 AGM approved the Board fee and payment of the auditors’ fee as invoiced. In 2008, the Group’s employees were invited to acquire call options on class B shares in Holmen at market price. One third of all employees then bought a total of 758 300 call options. Holmen’s commitments pursuant to this scheme were secured by buying back some of the company’s own shares. See the section on the share and shareholders on pages 28–30 for more details. The 2009 AGM renewed the Board’s authorisation to decide on buying back up to 10 per cent of the company’s total shares. No buy-backs took place in 2009. Information about remuneration is provided in note 5 on pages 66–67. audit KPMG, which has been Holmen’s auditor since 1995, was elected by the 2008 AGM as auditor for a period of four years. KPMG has since appointed George Pettersson, authorised public accountant, as the principal auditor for Holmen. KPMG audits Holmen AB and almost all of its subsidiaries. The interim accounts are examined for the January–September period. The examination of internal procedures and control systems begins in the second quarter and is thereafter ongoing to year-end. The examination and audit of the final annual accounts and the annual report take place in January–February. The interim report for January–September is subject to review by the auditors. Holmen’s audit committee comprises all Board members except for members employed in the company, that is, the CEO and employee representatives. The Board’s reporting instructions include a requirement that the members of the Board shall receive a report each year from the audi- tors on whether the company’s organisation is structured to enable satisfactory supervision of accounting, management of funds and other aspects of the company’s financial circum- stances. In 2009 the auditors reported to the entire Board at two meetings. Over and above this, the auditors reported to the Board chair- man and the CEO on two occasions and to the CEO at another meeting. In addition to the audit assignment, Holmen has consulted KPMG on matters pertaining to taxation, accounting and investigations, and in some countries also on matters of business law. The remuneration paid to KPMG for 2009 is stated in note 6 on page 67. KPMG is required to assess its independence before making deci- sions on whether to provide Holmen with inde- pendent advice alongside its audit assignment. Internal control This section contains the Board’s annual pres- entation of how the internal control system is organised insofar as it relates to financial reporting. The presentation is based on the rules in the Code and the guidelines drawn up by working groups in the Confederation of Swedish Enterprise and FAR SRS (the organisa- tion for highly qualified professionals in the accountancy sector in Sweden). The Board’s responsibility for internal con- trol is laid out in the Swedish Companies Act, and internal control related to financial report- ing is covered by the Board’s reporting instruc- tions to the CEO. Holmen’s financial reporting complies with the laws and rules that apply to companies listed on the Stockholm stock exchange and the local rules in each country where it operates. In addition to external rules and recommendations, financial reporting is also covered by internal instructions, directions and systems, as well as internal delegation of roles and responsibilities with the object of ensuring sound internal control over financial reporting. Financial reports are prepared quarterly and monthly in the Group and its business areas, units and subsidiaries. Forecasts and extensive analyses, along with comments, are provided in connection with the reports to help ensure the accuracy of the financial reports. Financial func- tions and controllers with functional responsi- bility for accounting, reporting and analysis of financial developments operate at Group level, at business area level and at all major units. The audit includes the annual statutory audit of Holmen AB’s annual report, the statu- tory audit of the parent company and all sub- sidiaries (where so required), the audit of inter- nal reporting packages, an audit of the final accounts and a review of one interim report. The audit process also includes reviews of the internal control system. Holmen’s internal control activities aim to ensure that the Group lives up to its objectives for financial reporting (see box). These activi- ties are based on a common set of instructions and common checklists for key procedures and processes for the Group’s financial reporting. The structure adheres to guidelines issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) for small listed companies in respect of internal control over financial reporting. COSO’s guidelines contain 20 principles in five areas: control envi- ronment, risk assessment, control activities, information and communication, and follow- up. They have been modified to suit the assessed needs of Holmen’s various operations. Holmen’s greatest risks regarding financial reporting are linked to the measurement (valu- ation) of biological assets and property, plant and equipment, as well as being linked to finan- cial transactions. Holmen has no separate internal auditing function. The Board does not consider that spe- cific circumstances in the business or other condi- tions exist that justify setting up such a function. In 2008 the company introduced a type of audit procedure whereby experienced accountants and controllers in the Group visit other Group units and examine their internal control procedures. These activities were successful and were there- fore also conducted in 2009. Investor relations Holmen’s information to shareholders and other stakeholders is provided in the annual report, the year-end and interim reports, press releases, the sustainability report Holmen and its World, and the shareholders’ magazine Holmen Business Report, all of which are avail- able on the company’s website. The website also contains presentation materials for recent years and information on corporate govern- ance. The provision of information by the com- pany complies with an information policy established by the Board. C o rPo r a Te goVe r n a nCe rePo r T objectives of Holmen’s financial reporting Holmen’s external financial reporting shall: • be correct and complete, and comply with appli cable laws, regulations and recommendations • providea true and fair de- scription of the company’s business • support a reasoned and informed valuation of the business. Internal financial reporting shall, over and above these three objectives, support cor- rect business decisions at all levels in the Group. H O L M E N A N N U A L R E P O R T 2 0 0 9 3 5 b o a r D o F D I r e C T o r S Board of directors Ulf Lundahl Curt Källströmer Hans Larsson Carl Bennet Carl Kempe Fredrik Lundberg Magnus Hall Fredrik lundberg Chairman. Djursholm. Born in 1951. Member since 1988. Master of Engineering and Bachelor of Science (Econ.). D. Econ h.c. and D. Eng. H.c. President and CEO of L E Lundberg företagen AB. Other significant appointments: Chairman of the Board: Cardo AB and Hufvudstaden AB. Deputy chairman of: Svenska Handelsbanken AB and NCC AB. Board member: L E Lundbergföretagen AB, AB Industrivärden and Sandvik AB. Shareholding in Holmen: 734 724 shares. Shareholding of L E Lundbergföretagen in Holmen: 23 511 000 shares. Carl kempe Deputy Chairman. Örnsköldsvik. Born in 1939. Member since 1983. Licentiate in Engineering. DDr. h.c. Other significant appointments: Chairman of the Board: Kempe Foundations, MoRe Research AB and UPSC Berzelii Centre for Forest Biotechnology. Member of the Swedish IIASA committee. Own and related parties’ shareholding in Holmen: 385 125 shares. Carl bennet Gothenburg. Born in 1951. Member since 2009. MBA. D. Eng. h.c. Former President and CEO of Getinge. Chairman of the Board: Getinge, Elanders and Lifco. Other significant appointments: Chairman of the Board: University of Gothenburg. Board member: L E Lundbergföretagen and SSAB. Shareholding in Holmen: 100 000 shares. magnus Hall Stockholm. Born in 1959. Member since 2004. MSc (Industrial Engineering). President and CEO. Other significant appointments: Chairman of the Board of BasEl i Sverige AB and Industrikraft i Sverige AB. Deputy chairman of the Swedish Forest Industries Federation. Own and related parties’ shareholding in Holmen: 12 698 shares, 14 450 call options. Steewe björklundh Hudiksvall. Born in 1958. Member since 1998. Representative of the employees, LO. Chairman of the GS Union at Iggesund Sawmill. Chairman of Hudiksvalls Sparbank and of Bomäklarna i Hudiksvall AB. Shareholding in Holmen: 200 call options. kenneth johansson Söderköping. Born in 1958. Member since 2004. Representative of the employees, LO. Section Chairman of Paperbranch 53, Holmen Paper Braviken. Shareholding in Holmen: 500 call options. Related parties’ shareholding: 500 call options. lilian Fossum Lidingö. Born in 1962. Member since 2004. MBA. CFO and Executive Vice President Axel Johnson AB. Other significant appointments: Board member: Åhléns AB, Axel Johnson International AB, Novax AB, Servera AB, Svensk Bevakningstjänst AB, Oriflame Cosmetics S.A. and Retail and Brands AB. Shareholding in Holmen: 500 shares. Curt källströmer Stockholm. Born in 1941. Member since 2006. Banking degree. Other significant appointments: Chairman of the Board: Umeå School of Economics. Board member: Handelsbanken International, Stockholmsmässan AB, SBC AB, Wåhlin Fastigheter AB and AB Skrindan. Shareholding in Holmen: 600 shares. 3 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 bo a rD oF D Ir eC To rS Lilian Fossum Göran Lundin Andreas Rastbäck Stig Jacobsson Steewe Björklundh Tommy Åsenbrygg Kenneth Johansson Hans larsson Stockholm. Born in 1942. Member since 1990. Bachelor of Arts. Other significant appointments: Chairman of the Board: Svenska Handelsbanken AB, Nobia AB, Attendo AB and Valedo Partners Fund 1 AB. Shareholding in Holmen: 1 000 shares. Ulf lundahl Lidingö. Born in 1952. Member since 2004. Bachelor of Arts in Legal Science and Bachelor of Science (Econ). Executive VP and Deputy CEO of L E Lundbergföretagen AB. Other significant appointments: Board member: Brandkontoret, Indutrade AB, Ramirent OYJ, Cardo AB, Husqvarna AB and SHB Regionbank Stockholm. Shareholding in Holmen: 4 000 shares. göran lundin Norrköping. Born in 1940. Member since 2001. Engineer. Other significant appointments: Chairman of the Board: Norrköpings Tidningar AB. Board member: Lorentzen & Wettre AB and Fastighets AB L E Lundberg. Shareholding in Holmen: 1 000 shares. karin norin Forsa. Born in 1950. Member since 2009 . Representative of the employees, PTK. Chairman: Unionen Gävleborg, Unionen Holmen-Iggesund and member in Unionen’s delegation ‘‘Industry 1’’. Shareholding in Holmen: 200 call options. Related parties’ shareholding: 200 call options. Karin Norin was not present for the photograph. Auditors KPMG AB. Principal auditor: george Pettersson Authorised public accountant Deputy members Stig jacobsson Iggesund. Born in 1948. Deputy member since 2004. Representative of the employees, LO. Chairman of Paperbranch 15 Iggesund. Shareholding in Holmen: 500 call options. andreas rastbäck Örnsköldsvik. Born in 1975. Deputy member since 2008. Representative of the employees, PTK. Chairman of the univer- sity graduate association at Holmen Skog. Shareholding in Holmen: 500 call options. Tommy Åsenbrygg Hallstavik. Born in 1968. Deputy member since 2009. Representative of the employees, PTK. Deputy chairman in Ledarna, Hallstavik. Shareholding in Holmen: 100 shares. H O L M E N A N N U A L R E P O R T 2 0 0 9 3 7 g r o u p m a n a g e m e n t Group management President and CEO magnus Hall Born in 1959. Joined Holmen in 1985. Own and related parties’ shareholding in Holmen: 12 698 shares, 14 450 call options. Magnus Hall has no significant shareholdings and no ownership in companies with whom the Group has important business relations. Ingela Carlsson Head of Group Public Relations. Born in 1962. Joined Holmen in 2008. Shareholding in Holmen: 4 000 call options. Lars ericson Head of Group Legal Affairs. Company secretary. Born in 1959. Joined Holmen in 1988. Shareholding in Holmen: 4 000 call options. For further information about the CEO, see page 36. Group staff units anders almgren Executive Vice President. CFO, Group Finance until 15 April 2010. Born in 1965. Joined Holmen in 1990. Shareholding in Holmen: 4 600 shares, 4 000 call options. thommy Haglund Head of Group Human Resources. Born in 1950. Joined Holmen in 2001. Shareholding in Holmen: 500 shares, 4 000 call options. Sven Wird Head of Group Technology. Born in 1951. Joined Holmen in 1995. Shareholding in Holmen: 50 shares, 4 000 call options. Magnus Hall Sören Petersson will take up the position of head of Holmen Skog on 1 February 2010. Anders Jernhall will take up the position of head of Group Finance on 15 April 2010. Business areas Brynolf alexandersson Head of Holmen Energi. Born in 1957. Joined Holmen in 2007. Shareholding in Holmen: 4 000 call options. Björn andrén Head of Holmen Skog until 31 January 2010, when he retired. Born in 1946. Joined Holmen in 1971. Shareholding in Holmen: 4 000 call options. Björn Kvick Head of Iggesund Paperboard. Born in 1950. Joined Holmen in 1983. Shareholding in Holmen: 4 000 call options. Håkan Lindh Head of Holmen Timber. Born in 1964. Joined Holmen in 1994. Shareholding in Holmen: 2 000 call options. arne Wallin Head of Holmen Paper. Born in 1954. Joined Holmen in 1988. Shareholding in Holmen: 4 000 call options. Anders Almgren Ingela Carlsson Lars Ericson Thommy Haglund Sven Wird Brynolf Alexandersson Björn Andrén Björn Kvick Håkan Lindh Arne Wallin 3 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 Q u a r t e r ly f i g u r e s Quarterly figures seKm full year iV income statement Net sales Operating costs Depreciation and amortisation according to plan Interest in earnings of associates Items affecting comparability * Operating profit Net financial items Profit/loss before tax Tax Profit/loss for the period 18 071 -15 175 -1 320 45 - 1 620 -255 1 366 -360 1 006 4 659 -3 943 -334 10 - 392 -60 332 -107 225 2009 iii 4 387 -3 636 -322 13 - 442 -55 386 -106 280 ii i full year iV 4 496 4 529 -3 806 -3 789 -332 7 - 415 -74 341 -96 245 -333 15 - 372 -66 306 -51 256 19 334 -16 630 -1 343 50 -361 1 051 -311 740 -98 642 5 043 -4 437 -333 10 - 284 -89 195 76 271 2008 iii 4 591 -3 909 -337 16 -298 64 -85 -22 -2 -24 ii i 4 826 -4 178 -339 12 -63 257 -73 185 -61 124 4 875 -4 107 -334 12 - 446 -64 383 -111 271 Diluted earnings per share, SEK 12.0 2.7 3.3 3.0 2.9 7.6 3.2 -0.3 1.5 3.2 Net sales Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Elimination of intra-group net sales group Operating profit/loss Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Group-wide costs Elimination of internal operating profit/loss Items affecting comparability * group Operating margin, % ** Holmen Paper Iggesund Paperboard Holmen Timber Group return on operating capital, % ** Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Group Key indicators Return on capital employed, % ** Return on equity, % Deliveries Newsprint and magazine paper, ’000 tonnes Paperboard, ’000 tonnes Sawn timber, ’000 m3 Harvesting own forests, ’000 m3 Own production of hydro power, GWh 9 303 5 023 553 4 799 1 628 -3 236 18 071 2 310 1 260 155 1 306 465 -837 4 659 2 348 1 223 142 1 048 363 -737 4 387 2 361 1 274 130 1 163 359 -791 4 496 2 284 1 266 127 1 283 442 -872 4 529 10 443 4 860 499 5 443 1 834 -3 745 19 334 2 854 1 194 109 1 365 501 -980 5 043 2 517 1 210 116 1 208 442 -902 4 591 2 547 1 219 124 1 433 392 -890 4 826 2 525 1 237 149 1 436 499 -972 4 875 340 419 21 605 414 -191 13 - 1 620 3.7 8.3 3.8 9.0 3.5 9.9 6.2 5.3 13.3 5.9 7.2 6.4 1 745 477 313 2 897 1 090 -34 140 19 179 138 -50 0 - 392 -1.5 11.1 12.2 8.4 -1.5 13.6 21.0 6.3 17.3 5.8 7.0 5.5 456 123 76 859 355 107 128 13 147 72 -43 16 - 442 4.6 10.5 9.5 10.1 4.5 12.1 16.7 5.1 9.1 6.4 7.8 7.0 455 118 76 704 229 150 77 5 144 59 -51 -11 - 372 6.3 6.1 3.5 8.3 6.0 7.2 5.6 5.0 7.7 5.5 6.6 6.6 437 119 80 753 203 117 73 -16 134 144 -47 9 - 415 5.1 5.8 -12.4 9.2 4.6 6.9 -17.7 4.7 19.1 6.1 7.3 6.4 397 117 81 580 304 280 320 13 632 327 -149 -10 -361 1 051 2.7 6.6 2.5 7.3 2.8 7.5 3.5 5.6 11.1 5.0 6.1 3.9 2 044 494 266 2 649 1 128 20 16 -7 179 110 -30 -4 - 284 0.7 1.4 -6.8 5.6 0.8 1.5 -7.9 6.3 14.8 4.1 4.9 6.9 539 115 63 770 311 80 127 -1 150 33 - 21 -6 -298 64 3.2 10.5 -1.1 7.9 3.2 12.1 -1.3 5.3 4.5 5.1 6.3 -0.6 493 124 66 631 176 100 61 -2 152 58 -50 1 -63 257 3.9 5.0 -1.5 6.6 4.0 5.8 -2.1 5.4 7.9 4.5 5.6 3.0 508 127 66 714 254 80 116 23 151 125 -48 0 - 446 3.2 9.3 15.3 9.2 3.2 11.1 26.2 5.3 16.9 6.4 7.8 6.4 503 127 72 534 388 * Item affecting comparability in the third quarter of 2008 relating to a provision of SEK -298 million for the closure of Wargön Mill. The second quarter of 2008 includes SEK -63 million for the closure of PM 2 at Hallsta Paper Mill and an impact on profit due to the fire at Braviken Paper Mill. ** Excl. items affecting comparability. H O L M E N A N N U A L R E P O R T 2 0 0 9 3 9 teN- y e a r r eVi e w Ten-year review seKm 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 iNCOMe stateMeNt Net sales Operating costs 18 071 19 334 19 159 18 592 16 319 15 653 15 816 16 081 16 655 15 155 -15 175 -16 630 -15 548 -14 954 -13 205 -12 570 -12 306 -12 205 -12 460 -11 843 Depreciation and amortisation according to plan -1 320 -1 343 -1 337 -1 346 -1 167 -1 156 -1 166 -1 153 -1 126 -1 045 Interest in earnings of associates Items affecting comparability * 45 - 50 -361 12 557 11 - 20 - 25 - -6 - -10 -3 - -620 Operating profit Net financial items Profit before tax Tax Profit for the year 1 620 -255 1 366 -360 1 006 1 051 2 843 2 303 1 967 1 952 2 338 2 713 2 446 -311 -261 -247 -233 -206 -212 -149 -152 740 -98 642 2 582 2 056 1 734 1 746 2 126 2 564 2 294 4 741 -1 077 -597 -478 -471 -675 -605 -108 -769 1 505 1 459 1 256 1 275 1 451 1 959 2 186 3 972 552 2 023 4 842 -101 Diluted earnings per share, SEK 12.0 7.6 17.8 17.2 14.8 15.1 17.5 23.6 26.4 44.7 Net sales Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi 9 303 10 443 10 345 10 140 5 023 4 860 5 100 5 240 553 4 799 1 628 499 5 443 1 834 589 4 775 1 590 465 4 042 1 691 8 442 4 860 460 3 858 1 480 7 814 4 877 492 3 780 1 258 7 788 4 920 510 3 613 1 337 8 164 4 850 572 3 538 1 120 8 757 4 467 712 3 982 1 108 7 618 4 186 762 4 117 1 110 Elimination of intra-group net sales -3 236 -3 745 -3 239 -2 986 -2 781 -2 568 -2 352 -2 163 -2 371 -2 638 group 18 071 19 334 19 159 18 592 16 319 15 653 15 816 16 081 16 655 15 155 569 -116 466 99 -112 2 295 2 023 524 Operating profit/loss Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Group-wide costs and eliminations 340 419 21 605 414 -178 1 620 280 320 13 632 327 -159 623 599 146 702 272 -56 747 1 664 2 410 1 389 754 752 80 643 197 631 626 13 537 301 487 809 5 586 178 1 001 18 516 193 818 -6 450 -26 455 -79 455 49 -123 -141 -113 -137 -187 -224 1 412 2 286 2 303 1 967 1 952 2 338 2 713 3 066 Items affecting comparability * Transferred operations - - -361 - 557 - - - - - - - - - - - -620 - group CasH flOw Profit before tax Adjustment items Paid income tax Changes in working capital 1 620 1 051 2 843 2 303 1 967 1 952 2 338 2 713 2 446 4 842 1 366 1 163 -334 678 740 2 582 1 797 -192 -686 629 -390 -345 2 056 1 225 -664 -259 1 734 914 -516 339 1 746 1 031 -378 -68 2 126 1 169 -727 -125 2 564 1 050 -472 356 2 294 4 741 1 679 -1 486 -248 61 -942 -388 Cash flow from operating activities 2 873 1 660 2 476 2 358 2 471 2 331 2 443 3 498 3 786 1 925 Cash flow from investing activities -818 -1 124 -1 315 -947 -3 029 -1 195 -726 -1 810 -1 669 -2 019 Cash flow after investments 2 054 536 1 161 1 411 -558 1 136 1 717 1 688 2 117 -94 Share buy-back New share issue through conversion and subscription - - -138 - - - - - - - - 474 - - - - - - -2 025 - Dividend paid -756 -1 017 -1 017 -932 -848 -3 199 -880 -800 -5 518 -977 * Items affecting comparability: Year 2000: Mainly the disposal within the Group of Modo Paper AB, an associate, for SEK 1 848 million, and the repayment of SPP funds of SEK 175 million. Year 2001: Impairment losses of SEK 620 million on non-current assets. Year 2007: Impairment losses of SEK 569 million on goodwill and of SEK 1 034 million on property, plant and equipment within Holmen Paper, a reversed impair- ment losses of SEK 60 million on non-current assets within Holmen Timber, and a positive revaluation of forests of SEK 2 100 million within Holmen Skog. Year 2008: Closure of Wargön Mill SEK accounted for 298 million and a cost of SEK 115 million was for the closure of PM 2 at Hallsta Paper Mill. Income of SEK 52 million corresponds to the effects on the result of the fire at Braviken Paper Mill. 4 0 H O L M E N A N N U A L R E P O R T 2 0 0 9 teN- y e a r r eVi e w 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 For a ten-year review of data per share, see page 30. 23 610 24 329 24 099 23 258 23 702 21 354 18 878 19 442 18 661 18 534 304 1 780 6 075 225 182 32 176 16 504 5 045 6 091 4 536 32 176 342 1 836 7 268 175 301 1 753 6 549 147 354 1 742 6 138 165 352 1 739 5 709 132 273 1 754 5 149 92 295 1 767 4 743 105 194 1 721 4 922 54 203 286 191 230 5 366 5 330 33 15 653 2 000 34 602 33 243 32 141 32 214 28 989 26 358 26 967 24 948 26 300 570 367 634 580 394 484 399 15 641 16 932 16 636 16 007 15 635 15 366 15 185 14 072 17 014 5 177 4 557 5 030 5 482 4 819 4 014 4 370 5 143 4 264 8 332 6 518 6 634 7 351 5 335 4 044 4 496 3 593 1 721 4 311 5 809 3 301 34 602 33 243 32 141 32 214 28 989 26 358 26 967 24 948 26 300 2 916 3 841 2 391 2 842 3 269 3 713 8 789 10 237 9 971 11 541 11 452 4 114 4 254 4 180 3 935 3 965 396 366 345 11 384 11 415 11 264 3 006 2 960 208 9 001 2 965 230 8 919 2 958 9 659 3 871 231 8 842 2 930 9 461 3 885 277 6 383 2 926 9 884 3 963 258 6 429 2 877 9 584 4 330 232 8 564 4 877 411 6 517 6 527 805 826 3 207 -963 26 929 -4 741 22 188 4 8 4 9 4 10 6 5 13 6 7 6 -87 -354 -630 -1 654 -412 27 623 28 090 27 297 27 437 25 415 22 997 23 169 21 044 20 793 -4 904 -4 477 -4 073 23 146 22 909 22 621 22 646 20 511 18 735 18 993 17 233 16 720 -5 181 -4 262 -4 791 -3 811 -4 676 -4 176 -242 -424 -118 65 3 7 3 7 3 8 4 6 11 5 6 4 6 12 24 12 5 15 64 8 9 8 10 9 7 14 17 12 6 19 38 7 7 8 10 9 7 13 3 12 6 16 6 6 10 7 9 8 6 17 1 12 5 20 2 7 6 8 10 8 10 20 3 15 8 25 7 8 7 10 12 10 21 17 -1 17 17 20 28 10 -11 18 26 9 neg neg 7 5 13 16 14 7 7 14 18 16 18 14 -7 15 17 12 neg 7 9 12 15 24 0.34 0.48 0.35 0.36 0.41 0.31 0.22 0.25 0.22 -0.02 seKm BalaNCe sHeet Non-current assets Deferred tax assets Shares and participating interests Current assets Financial receivables Cash and cash equivalents total assets Equity Deferred tax liability Financial liabilities and interest-bearing provisions Operating liabilities total equity and liabilities Operating capital Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Group-wide and other Operating capital Deferred tax liability, net Capital employed Key ratiOs Operating margin, %* Holmen Paper Iggesund Paperboard Holmen Timber Group return on operating capital, %* Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Group Key indicators Return on capital employed, % * Return on equity, % Debt/equity ratio Deliveries Newsprint and magazine paper, ’000 tonnes 1 745 2 044 2 025 2 021 1 764 1 731 1 655 1 528 1 525 1 560 Paperboard, ’000 tonnes Sawn timber, ’000 m3 Harvesting own forests, million m3 477 313 2.9 494 266 2.6 516 262 2.6 Own production of hydro power, GWh 1 090 1 128 1 193 536 248 2.6 934 492 229 2.3 501 195 2.6 1 236 1 054 481 189 2.7 867 453 220 2.5 410 322 2.4 415 360 2.3 1 048 1 362 1 308 Stated in accordance with IFRS from 2004. As far as Holmen is concerned, the principal difference between IFRS and previous accounting policies is that forest assets are valued and stated in the accounts at fair value, that goodwill is no longer amortised according to plan, and that the fair value of financial assets and liabilities where hedge accounting is applied is entered into the balance sheet. * Excl. items affecting comparability. H O L M E N A N N U A L R E P O R T 2 0 0 9 4 1 Annual report The Board of Directors and the CEO of Holmen Aktiebolag (publ.), corporate identity number 556001–3301, submit their annual report for the parent com- pany and the Group for the 2009 financial year. The annual report, including the audit report, comprises pages 42-85. The results of the year’s operations and the financial position of the parent company and the Group are present- ed in the administration report and the accompanying income statements and balance sheets, together with the notes and supplementary information. The Group’s income statement and balance sheet and the parent company’s income statement and balance sheet will be submitted to the Annual General Meeting for adoption. This is a translation of the Swedish Annual Report of Holmen Aktiebolag (publ). In the event of inconsistency between the English and the Swedish versions, the Swedish version shall prevail. A 123-metre long wooden bridge has been built at Iggesund Mill, partly using wood from Holmen’s forests. ContentsAdministration report 44Income statement 52Statement of comprehensive income 52Balance sheet 53Changes in equity 54Cash flow statement 55Parent company 56Notes to the financial statements 58 1. Accounting policies 58 2. Financial risk management 62 3. Operating segment reporting 64 4. Other operating income 66 5. Employees, staff costs and remuneration to senior management 66 6. Auditors’ fees and remuneration 67 7. Income from financial instruments 68 8. Taxes 68 9. Earnings per share (EPS) 70 10. Intangible non-current assets 70 11. Property, plant and equipment 71 12. Biological assets 72 13. Interests in associates and other shares and participating interests 73 14. Financial instruments 7415. Inventories 7816. Operating receivables 7817. Equity 7818. Pension provisions 7919. Other provisions 80 20. Operating liabilities 8021. Operating leases 8022. Pledged collateral and contingent liabilities 8123. Related parties 8124. Interests in Group companies 8225. Untaxed reserves 8326. Cash flow statement 8327. Key assessments and estimates 83 Proposed treatment of unappropriated earnings 84Audit report 85A dM InIs t rA tIo n r e p o r t Administration report Business overview Holmen’s operations consist of three product-oriented and two raw-material-oriented business areas, which are to be developed through organic growth and selective acquisi- tions. Europe is by far the largest market, accounting for some 90 per cent of sales. The Holmen Paper business area manufactures printing paper for newspapers, magazines, directories/manuals, advertising materials and books. The paper is manufactured at two mills in Sweden and one in Spain. Iggesund Paperboard produces paperboard for pack- aging and graphics printing at one mill in Sweden and one in the UK. Holmen Timber produces sawn timber at one saw- mill in Sweden. Annual production capacity is 1 940 000 tonnes of printing paper, 530 000 tonnes of paperboard (after structural change at Workington Mill) and 340 000 cubic metres of sawn timber. Holmen Skog manages the Group’s forests, which cover just over one million hectares; each year some 2.5 million cubic metres of wood are harvest- ed in the company’s forests. Holmen’s annual consumption amounts to about 4.5 million cubic metres. Holmen Energi’s normal yearly production amounts to some 1 100 GWh of electricity at wholly and partly owned hydro power stations in Sweden. In addition, about 400 GWh of electricity is pro- duced at the mills. Holmen consumes a total of some 4 700 GWh of electricity per year. The main part of operations in Sweden is run by the par- ent company. In turn, the latter’s operations are run by five companies acting on behalf of the parent company – one for each business area. The parent company is liable for all com- mitments entered into by these companies. Abroad, opera- tions are chiefly run by wholly owned subsidiaries. Holmen in 2009 Market. The weak economy meant that demand for news- print in Europe fell considerably in 2009 and was 14 per cent lower than in 2008. Along with weak demand outside Europe, this entailed low capacity utilisation for European producers in 2009. Deliveries of MF Magazine to Europe were 20 per cent lower in 2009 than in 2008, while deliveries of SC paper to Europe were down 9 per cent and of coated paper down 22 per cent. The long-term trend in demand for virgin fibre board in Europe has been positive. The market in Europe however was weak in 2009, and deliveries from European producers to Europe thus fell by 9 per cent compared to 2008. The situa tion improved somewhat towards the end of the year. Demand for sawn timber in Europe was substantially lower in 2009 compared to 2008, which led to considerable production cutbacks among European producers. In the When Iggesund paperboard launched its new grades of Invercote and Incada paperboard, new cover paper was also introduced for the paper- board rolls. 4 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 A dM InIs t rA tIo n r e p o r t se cond half of the year, the market improved, and stock lev- els were low. The prices of sawn timber fell from the second half of 2007 until the start of 2009, but the price trend reversed during the second half of 2009. Demand for pulpwood and timber were low at the start of the year and prices fell. Sawmills’ demand for timber climbed to a high level during the year, which led to price rises. Demand for pulpwood increased to a normal level and prices were stable. In 2009, hydro power production in Sweden was slightly below the normal level. The spot price fluctuated during the year, from SEK 350/MWh in May, to SEK 500/MWh in December. The average price was SEK 393/MWh, which was 20 per cent lower than in 2008. the average price level was lower. Operating profit for Holmen Skog amounted to SEK 605 million (632). The figure includes a SEK 16 million (-16) change in the value of the company’s forests, calculated in accordance with IAS 41. Operating profit before the change in value of forests fell by SEK 59 million, to SEK 589 million, as a result of lower wood prices, while increased harvesting in the company’s own forests had a positive impact. The extent of silviculture rose, entailing higher costs. Holmen Energi’s operating profit increased by SEK 87 million, to SEK 414 million. The rise is largely thanks to higher prices, though production was lower than in 2008 and 2 per cent below that of a normal year. Net financial items amounted to a loss of SEK 255 million reSULtS. In 2009, the Group’s sales decreased by SEK 1 263 million, to SEK 18 071 million. Operating profit amounted to SEK 1 620 million (2008: 1 051). Operating profit for 2008 included a net amount of SEK -361 million comprising items affecting comparability in the Holmen Paper business area. The improved operating profit is primarily attributable to (loss of 311). Lower market interest rates reduced the aver- age borrowing cost to 3.5 per cent (4.5), and net debt was somewhat higher on average than in the preceding year. The Group’s tax expense amounted to SEK 360 million (98), which corresponds to 26 per cent of profit before tax. Tax expense includes SEK 30 million from a successful tax dispute. higher prices of newsprint and paperboard, while weak demand led to extensive production cutbacks , which had a negative impact on earnings. Profit after tax was SEK 1 006 million (642). Earnings per share amounted to SEK 12.0 (7.6). The return on equity was 6.4 percent (3.9). Holmen Paper’s deliveries declined to 1 745 000 tonnes, compared to 2 044 000 tonnes in 2008, as a consequence of low demand and the closure of capacity. The decline mainly affected standard newsprint and coated paper, while deliv- eries of MF Magazine were higher. Holmen Paper’s operat- ing profit for 2009, was SEK 340 million (280 excluding items affecting comparability in 2008). The improvement is thanks to higher selling prices, but considerable production cutbacks and a less favourable market mix had an adverse effect on results. Lower costs of wood and recovered paper made an impact on profit, but energy costs rose. Iggesund Paperboard’s deliveries were down by 3 per cent in relation to 2008 due to lower demand. Iggesund Paper- board implemented price rises for folding boxboard in the UK market during the second half of 2009. Operating profit for 2009 amounted to SEK 419 million, which was SEK 99 mil- lion higher than in the preceding year. The price increases, along with a weaker pound (sterling) and Swedish krona, had a positive impact on results. Production cutbacks and high manufacturing costs adversely affected profit, particularly in the first half of 2009. Holmen permanently shut down a board machine (BM 1) at Workington Mill in December. Provisions and impairment losses resulting from the shutdown had a negative impact of SEK 75 million on costs. ChangeS in WOrkingtOn. In September 2009 Holmen decided to shut down one of the two board machines at Workington Mill in the UK. The machine, dating from 1967, has an annual production capacity of 70 000 tonnes of folding boxboard in the lower quality segment. Capacity was upgraded on the remaining machine at the same time. The new annual capacity of the mill is 200 000 tonnes (previously 250 000) – a volume that is more tailored to the market. The number of employees is expected to decrease by 99. The shutdown entailed costs as a result of provisions and impairment losses totalling SEK 75 million. inveStMentS. The Group’s acquisitions of non-current assets amounted to SEK 759 million (1 160). Cash flow from investing activities totalled SEK -818 million (-1 124). Sched- uled depreciation and amortisation amounted to SEK 1 320 million (1 343). The year’s investments include investment projects such as a new sawmill at Braviken, a new hydro power station in Iggesund, improved water treatment at Iggesund Mill and a new power production plant at the mill in Madrid. Production in the new sawmill at Braviken Paper Mill in Norrköping is scheduled to start at the turn of 2010/2011. Holmen Timber’s deliveries rose to 313 000 cubic metres, compared to 266 000 cubic metres in 2008. Operating profit amounted to SEK 21 million (13). Higher deliveries and lower raw materials costs had a positive impact, although CaSh fLOW. The Group’s cash flow from operating activities totalled SEK 2 873 million, of which a reduction in tied up working capital accounted for SEK 678 million. Cash flow from investing activities amounted to SEK -818 million. H O L M E N A N N U A L R E P O R T 2 0 0 9 4 5 A dM InIs t rA tIo n r e p o r t ly via the Group’s commercial paper programme, short-term bank loans and utilisation of the contractually agreed EUR 600 million credit facility. Certain other non-current liabilities were paid down. Cash and cash equivalents were deposited with banks. Standard & Poor’s lowered its long-term credit rating for Holmen from BBB+ to BBB, with a negative out- look. The short-term rating was lowered to A-3/K-2. The Group hedges parts of future estimated net flows in foreign currencies. Gains and losses on currency hedges to cover sales in foreign currencies netted a loss of SEK 408 mil- lion (loss of 336) during the year, recognised in operating prof- it. The result was primarily due to the average hedging rate for euro being SEK 9.4 during the year, compared to the average spot exchange rate of SEK 10.6. Taking account of currency hedges, the average exchange rates for the Group’s net flows were SEK 9.5 for euro and SEK 7.8 for US dollars. At year- end, some 90 per cent of the Group’s estimated net flows in euro for 2010 were hedged at an average exchange rate of SEK 9.7, for 2011 about 85 per cent were hedged at an aver- age of SEK 10.6 and for 2012 about 25 per cent at an average of SEK 10.5. Four months’ estimated flows in dollars were hedged at an average exchange rate of SEK 6.9. The fair value of currency hedges not yet recognised in the income statement amounted to a loss of SEK 45 million at the end of 2009. Prices for the Group’s estimated net consumption of elec- tricity in Sweden during the 2010–2012 period are fully hedged. For 2013–2015, prices for some 85 per cent have been hedged. The Group’s financial risk management is described in note 2. eQUitY. In 2009 the Group’s equity increased by SEK 863 million, to SEK 16 504 million. Profit for the year amounted to SEK 1 006 million, and the dividend paid was SEK 756 million. Equity has also been affected by other com- prehensive income which consists of items such as revalua- tion of pension liability, currency revaluation of loans, revaluation of transaction hedges and restatement of assets in foreign entities as well as tax on these items. In 2009 other comprehensive income amounted to SEK 613 million, which is mainly attributable to currency hedges that have expired and been recognised in the income statement, and to the fact that the strengthened Swedish krona reduced the negative fair value of transaction hedges. As of 2009 other compre- hensive income is presented in a separate “Statement of com- prehensive income” following the ‘‘income statement’’. reSearCh and deveLOpMent (r&d). The Group conducts R&D in-house at business area level and externally. The external activities are co-run with other players – often at industry-wide level – and in collaboration with universities and colleges. In 2009 Holmen opened a development centre in Iggesund, focusing on biorefining and biofuels. The Group’s total investments in R&D amounted to around SEK 100 million in 2009. the Middle east and north Africa are increasingly important markets for Holmen timber. Consignments of wood from Iggesund sawmill are unloaded in Alexandria. A dividend of SEK 756 million was paid to shareholders during the year. finanCing and finanCiaL riSk ManageMent. Holmen shall have a strong financial position that provides financial stabil- ity and enables the Group to make correct and long-term busi- ness decisions relatively independently of the state of the econo my and external financing possibilities. The target for the debt/equity ratio is an interval of 0.3–0.8, and strategic planning includes adjustment to this target. The Group’s net financial debt decreased by SEK 1 821 million, to SEK 5 683 million, during the year. The year-end debt/equity ratio was 0.34 (31 December 2008: 0.48). The equity/assets ratio was 51 per cent (45). At the end of 2009 financial liabilities amounted to SEK 6 091 million, of which SEK 2 298 million was short term. Cash, cash equivalents and financial receivables totalled SEK 407 million. The Group has a contractually agreed credit facility with a syndicate of banks that amounts to EUR 600 million and expires in 2012. Since 2009 the company has also had a bilateral credit facility of SEK 1 300 million that expires in 2016. Neither of the facilities had been used at year-end. During the year, new long-term financing was raised through an MTN loan of SEK 1 500 million with a four-year maturity. Other financing during the year was arranged main- 4 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 A dM InIs t rA tIo n r e p o r t tax diSpUteS. In the dispute concerning Holmen’s French subsidiary, the county administrative court decided in the company’s favour in December 2008. This has now come into force but had no impact on earnings. On 15 January 2010, Stockholm County Administrative Court announced its judgment on the tax case involving Holmen’s subsidiary MoDo Capital AB. Under the Court’s judgment, MoDo Capital’s depreciation deduction for the 1997 tax year is disallowed, which results in tax expense estimated at a total of SEK 640 million. Holmen has previ- ously made provision for the tax expense; it is thus not antici pated that the judgment will have any impact on the Group’s earnings. Holmen will appeal against the judgment to the Administrative Court of Appeal. Business outlook In Holmen’s product markets 2009 was a difficult year. Demand for printing paper and paperboard declined by more than 10 per cent and demand for sawn timber fell substantial- ly. This entailed major production cutbacks, which for Holmen primarily took place in Holmen Paper. Meanwhile, prices remained relatively stable and were even increased for printing paper in Europe. Costs were lower than in the preced- ing year, primarily thanks to lower fibre costs. The outlook for 2010 is less favourable, in particular for Holmen Paper; there are as yet no signs of an improvement in demand. In addition, ongoing price negotiations are expected to entail lower printing paper prices in Europe. However, the prices for recovered paper, a key raw material, have started to rise during the winter. The market for Igge- sund Paperboard and Holmen Timber improved in the sec- ond half of 2009, which may create better conditions for 2010. In the wood market, demand for timber is consider- able and prices have risen, which increases costs for Holmen Timber, but creates potential for some improvement in Holmen Skog’s earnings from wood. For Holmen Energi, 2010 may be another good year, because prices are largely hedged at favourable levels. Hydro power production depends on precipitation during the year. Exchange rates have a major impact on profits. The larg- est currency exposure, which is to the euro, is hedged for 2010 and 2011, and the exchange rates will be slightly more favourable than the hedging contracts that applied for 2009. However, the US dollar has weakened compared to one year ago, which is a negative development. Investments are estimated to exceed SEK 1 500 million for 2010. One reason is the ongoing sawmill project at Braviken. A survey of energy-related investments is in progress, which may keep the level of investment high to the extent and at the rate that these investments are decided on and implemented. Information on risks and uncertainties inCOMe. Holmen’s income is mainly generated from the sale of printing paper, paperboard and sawn timber in Europe. Changes in prices and deliveries largely depend on market equilibrium in Europe. This in turn is influenced by demand patterns there, trends in production among European pro- ducers and changes in imports into Europe, as well as by the opportunities of exporting profitably from Europe. The Group also has sizeable sales of wood from its own forests and electricity from its own power generation. However, wood and electricity are also major costs for the Group’s industrial operations. COStS. Holmen’s principal production costs are those of wood, recovered paper, energy and chemicals. In addition, the costs of deliveries, employees, maintenance and capital are significant. Cost trends are primarily determined by changes in the prices of input goods and employees, and by how successfully the Group improves the efficiency of pro- duction and administration. A one percentage point change in deliveries, prices and costs is estimated to have the following impact on operating profit:* seKm products Printing paper Paperboard Sawn timber Company’s own raw materials Wood from company forests** Company-generated electricity** seKm Wood** Recovered paper Pulp Electricity** Other energy Chemicals Distribution costs Other variable costs Staff Other fixed costs deliveries price 33 24 2 8 5 91 49 6 12 5 Costs 21 8 1 16 4 14 15 9 27 17 * Based on income and costs for 2009. ** Sensitivity regarding the Group’s net purchases – taking account of the company’s own production of raw materials – is SEK 9 million for wood and SEK 11 million for electricity. The price of the Group’s net consumption of electricity in Sweden, which corresponds to some 80 per cent of the Group’s total net consumption, is fully hedged for coming years (see note 2). CUrrenCieS. Holmen’s earnings are affected by exchange rate fluctuations, mainly because a significant proportion of the Group’s sales are invoiced in currencies other than its costs are. Currency hedging is used to reduce this exposure. Taking H O L M E N A N N U A L R E P O R T 2 0 0 9 4 7 A dM InIs t rA tIo n r e p o r t account of estimated currency flows, a one percentage point weakening of the Swedish krona in relation to the currencies below would have the following effects, without considering currency hedges: seKm SEK / EUR SEK / USD SEK / GBP SEK / other currencies net 47 11 2 7 Taking account of currency hedges, a one percentage point weak- ening of the Swedish krona would have a positive impact of about SEK 20 million on the Group’s earnings for 2010. See also note 2. intereSt rateS. Based on the duration of the fixed interest rate period and net debt at 31 December 2009, a one per- centage point change in the average market interest rate would have an impact of about SEK 20 million on earnings for 2010. As loans at fixed rates of interest mature, the expo- sure to changes in market interest rates will increase. Disre- garding the fixed interest rate period, the exposure to a one percentage point change in the market interest rate is SEK 57 million. See also note 2. keY aSSeSSMentS and eStiMateS. Note 27 provides an account of key assessments and estimates that, were they to change, could affect earnings in 2010. SeaSOnaL effeCtS. Holmen’s earnings are spread relatively evenly over the year. The main seasonal effects are that staff and maintenance costs are lower during the third quarter, maintenance costs are usually higher in the fourth quarter and that a large part of electricity production at the hydro power plants takes place during the first and fourth quarters. share information the Share. Holmen has 83 996 162 shares outstanding, of which 22 623 234 are class A shares and 61 372 928 are class B shares. The company also has 760 000 bought-back class B shares held in treasury. Each A share carries 10 votes and each B share carries one vote; in other respects, the shares carry the same rights. Neither laws nor the company’s articles of association place any restrictions on the transfer- ability of the shares. dividend. The Board proposes that the AGM, to be held on 24 March 2010, approves a lower dividend of SEK 7 (9) per share, which corresponds to 4 per cent of the Group’s closing equity. The proposal to reduce the dividend is due to the lower profitability in the industry, chiefly for paper products. The Group is also making investments, such as building a new sawmill. Holmen is reformulating its dividend target, which used to be 5–7 per cent of the Group’s equity. Instead, decisions on share dividends will be based on an appraisal of the Group’s profitability, future investment plans and financial position. Over the past ten years the ordinary dividend has aver- aged 5 per cent of equity. This means that half of earnings per share per year have been paid out by way of ordinary dividends. SharehOLderS. At the end of the year, the Holmen shares held by L E Lundbergföretagen AB (corporate identity number 556056-8817) accounted for 52.0 per cent of the total number of votes and 28.0 per cent of the capital, which means that a Group relationship exists between L E Lund- bergföretagen, whose registered office is in Stockholm, and Holmen. The Kempe Foundations’ holdings of Holmen shares amounted to 16.9 per cent of the votes and 7.0 per cent of the capital at year-end. No other individual share- holder controlled as much as 10 per cent of the votes. A list of major owners’ shareholdings is provided in the section on the Holmen share and shareholders on pages 28–30. The employees have no holdings of Holmen shares via a pension fund or similar system. There is no restriction on how many votes each shareholder may cast at the AGM. According to the company’s articles of association, the Board shall have 7–11 members, and they are elected at the AGM. The company’s articles contain no other rules regard- ing the appointment or dismissal of board members or regarding amendments to the articles. Share bUY-baCkS. The company has no specific target for share buy-backs. A mandate to buy back up to 10 per cent of the company’s shares has applied in recent years. Any buy- backs are regarded as a complement to dividend payments to adjust the capital structure when circumstances have been deemed favourable. The AGM on 24 March 2009 renewed the Board’s authorisation to make decisions to buy back up to 10 per cent of the company’s total shares. No buy-backs took place in 2009, but 760 000 B shares were repurchased in 2008 to secure the company’s commitments as part of the incentive scheme (see below). The Board proposes that the 2010 AGM authorises the Board to buy back and transfer up to 10 per cent of all shares in the company. inCentive SCheMe. In 2008 the Group’s employees were invited to acquire call options on class B shares in Holmen at market price (calculated by an independent bank). As a result, 1 492 people (one third of all employees) bought a total of 758 300 call options. The price of each option was SEK 20, and their exercise price is SEK 224.50 per share. Each option entitles the holder to purchase one share during the exercise period in May/June 2013. Holmen’s commitments in the scheme have been secured through buy-backs of own shares. 4 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 A dM InIs t rA tIo n r e p o r t Guidelines for determining salaries and other remuneration to members of senior management The Board proposes that the 2010 AGM resolves in favour of the following guidelines for determining salaries and other remuneration for senior management. See note 5 on page 66 for the guidelines adopted by the AGM in 2009. These guidelines refer to terms and conditions of employ- ment for the CEO and other members of senior manage- ment, namely the business area managers and heads of Group staff functions who report directly to the CEO. SaLar Y and Other reMUneratiOnS. The remuneration for the CEO and the senior management shall consist of a fixed, market-based salary. Other benefits, mainly car and accomo- dation, shall, insofar as they are provided, represent a limited part of the remuneration. No variable remuneration shall be paid. penSiOn. The normal retirement age shall be 65 years. The company and the employee shall be mutually entitled to request that pension be drawn from 60 years of age. Any pen- sion drawn before 65 years of age shall be either defined benefit or defined premium. Pension drawn after 65 years of age shall be in accordance with the ITP plan. Over and above this, the employee may also be entitled to a supplementary old age pen- sion. In this case, there shall be a gradual transition from the existing arrangement with a defined benefit pension to one in which the pension is defined premium. nOtiCe and SeveranCe paY. Discontinuation notice should nor- mally be one year if it is given by the company, and six months if it is given by the employee. In the event of notice being given by the company, severance pay can be paid corresponding to no more than 24 months’ salary. For new contracts, salary during the period of notice and severance pay shall not exceed a total of an amount equivalent to two years’ salary. inCentive SCheMe. Any decision on a share and share price based incentive scheme for senior company personnel shall be made by the AGM. reMUneratiOn COMMittee. A remuneration committee appointed from among the members of the Board shall pre- pare business pertaining to the CEO’s salary and other con- ditions of employment and submit proposals on such issues to the Board for decision. Detailed principles for determining the salaries, pension rights and other remuneration to senior management shall be laid down in a pay policy adopted by the remuneration committee. departUreS in individUaL CaSeS. The Board shall be entitled to depart from these guidelines in individual cases should spe- cial reasons exist. In the event of such a departure, informa- tion thereon and the reasons therefore shall be submitted to the next Annual General Meeting. employees hOLMen’S hr pOLiCY focuses on developing leadership, the organisation and employees. HR work is governed by laws, contracts and internal policies. Holmen’s combined HR poli- cies constitute the Group’s approach to staff policy, and the company has worked with strategic goals for its HR activ- ities for several years. the chief safety representative at Iggesund Mill talks to one of the operators. H O L M E N A N N U A L R E P O R T 2 0 0 9 4 9 A dM InIs t rA tIo n r e p o r t The Group’s average number of employees in terms of full-time equivalents was 4 577 (4 829) in 2009. The change is due to staff cuts at Hallsta Paper Mill and the closure of Wargön Mill. the nUMber Of indUStriaL aCCidentS per 1 000 employees resulting in more than eight hours of absence fell to 31 (38) in the Group. Holmen aims to reduce the number of acci- dents to fewer than 10 per 1 000 employees by 2011. No fatal accidents have occurred involving any of the company’s employees for a very long time. tOtaL SiCkneSS abSenCe continued to decrease at Holmen’s units as a result of various measures; it fell to 3.7 per cent (4.3) in the Group in 2009. the prOpOrtiOn Of feMaLe ManagerS at Holmen’s units is increasing year after year and equalled 16 per cent (13) in 2009. The proportion of women employed in the Group was 19 per cent. The aim is for the proportion of female manag- ers to correspond to the proportion of women employed. Fourteen women are members of the management teams of the Group, business areas and mills. Two of Holmen’s Board members are women, one of whom was elected by the AGM and the other is an employee representative. See note 5 and pages 36-38 for more details. eMpLOYee SUrveY. The Holmen Inblick employee survey was conducted in 2009. It showed that Holmen has become a better workplace since the previous survey in 2007. Com- pared to process industries in Europe, Holmen is well above average. Many employees are committed to their work situa- tion, which is illustrated by the response rate of 78 per cent. Holmen earmarks significant resources each year to develop employees’ skills. This mainly comprises increasing professional competence and giving employees the opportu- nity of advancing to more qualified positions. WOrkfOrCe redUCtiOnS. In September Holmen decided to shut down the older board machine at Workington Mill in December 2009. As a result, Holmen reached an agreement with the trade union organisations to reduce the number of employees by 99. The organisation in Braviken is undergoing an overhaul to improve efficiency. Following trade union negotiations, Holmen decided to make staff cuts that affect 95 employees. By February 2010 a total of 35 people had accepted the offer of a company pension or retirement pension, and 17 were offered employment at Holmen’s new sawmill at Braviken. Negotiations with the other employees had not yet been con- cluded at that point. environmental information The environmental aspects of Holmen’s business are regulated by laws and permits in each country. The allocation of environ- mental responsibility and the organisation and management of environmental activities are based on the Group’s environmen- tal policy. At the production sites, various types of rules are integrated as key elements in the planning of production and investments. Holmen’s environmental policy focuses on the sig- nificance to the business of energy and climate change issues. The environmental standards at Holmen’s facilities are high. This is a result of investments made in process and treatment equipment, continuous improvements implement- ed within the framework of the environmental and energy management systems at the facilities and statutory supervi- sion conducted by authorities. The environmental activities largely comprise the plan- ning of issues relating to environmental conditions set by rel- evant government authorities. The main environmental impact of Holmen’s facilities consists of emissions to air and water and the occurrence of noise and waste. As considerable attention is currently being given to energy and climate change, fossil fuels and biofuels are of great interest. Holmen actively aims to use electricity and heating efficient- ly, reduce emissions of fossil carbon dioxide and increase its self-sufficiency in terms of energy. Several projects, studies and corrective measures related to the environment were carried out in 2009. The following are a sample. • • • • A line for energy-efficient manufacture of thermo- mechanical pulp (TMP) was inaugurated at Braviken Paper Mill in 2008. Compared to the previous line, the electricity required fell by 15–20 per cent in 2009. The target is a 30 per cent reduction. A new plant for chemical flotation has been in operation since the end of the year next to the existing plant (from 1977) for wastewater treatment at Iggesund Mill. This will ensure good conditions in the aquatic environment outside the mill for a long time to come. The Group’s total fossil carbon dioxide emissions fell by about 35 per cent from 2008 levels. Emissions were halved at the Swedish units. This was the result of gradually replacing oil with biofuels and improving energy efficiency. Since 2005, fossil carbon dioxide emissions have dropped by almost 65 per cent in the Swedish operations. Several studies were conducted in consultation with the environmental authorities at industrial sites which have been contaminated by business activities that have been discontinued and where Holmen has run operations. In 2009, studies relating to the sawmills in Stocka, Håsta- holmen and Lännaholm and the sulphite mills in Strömsbruk, Domsjö and Loddby had reached various stages. A survey concerning the mechanical pulp mill in Bureå was initiated during the year. 5 0 H O L M E N A N N U A L R E P O R T 2 0 0 9 • Operations at Wargön Mill were closed down at the end of 2008. During 2009, work was carried out to assess the presence of pollutants on the factory site and in buildings. This work will be concluded in 2010. aCtivitieS in SWeden. At the turn of 2009/2010 Holmen was engaged in environmentally hazardous activities at five facili- ties that require environmental permits pursuant to the Swedish Environmental Protection Act or the Swedish Envi- ronmental Code. The permits include conditions on emis- sions allowed to air and water. The permits per facility are shown below: Hallsta Paper Mill Braviken Paper Mill Iggesund Mill Skärnäs Terminal Iggesund Sawmill permits according to: environmental protection Act environmental Code in 2000 in 2003 in 1994 in 2002 in 1999 Holmen also has a production unit in Strömsbruk with operations that the company is obligated to report to author- ities. The sales from these units accounted for 58 per cent of the Group’s net sales. In 2009, the first steps were taken to apply for a new envi- ronmental permit pursuant to the Environmental Code at the paperboard mill in Iggesund. Corresponding work was launched during the year for Iggesund Sawmill. No other per- mits of significance need to be renewed or revised in 2010. Holmen is building a sawmill adjacent to Braviken Paper Mill. The county administrative board granted a permit under the Environmental Code in 2009 and issued related conditions for the construction of the sawmill and the operations that will be run there. Holmen Energi produces electricity at Holmen’s wholly and partly owned hydro power plants. The permits, held by all the units, for water operations (regulations in the Environ- mental Code) include environmental conditions. In 2006 a decision by the Environmental Court gave the go-ahead to construct a new power station on the River Iggesundsån. This power plant has been in use since the end of 2009 and replaces three old power stations on the site. Reviews of past water rights decisions may be requested under the Environmental Code. In the case of the river Ljusnan, on which Holmen Energi co-owns a few hydro power plants, such a review is now underway for expansion of production capacity. In river Faxälven’s mountain lakes, of which Holmen also has partial ownership, a review has started for regulation of lake Limningen. The storage reservoir is on both Swedish and Norwegian ground. The Group’s mills are participating in the EU trade in car- bon dioxide emission rights. The Swedish mills are also active in the trading of electricity certificates. The operations at the company’s facilities in Sweden were A dM InIs t rA tIo n r e p o r t certified at the turn of 2009/2010 in accordance with ISO 14001 (environmental management system) and SS 627750 (energy management system). The forestry operations were certified in accordance with ISO 14001, Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification schemes (PEFC). During the year there were a number of cases of exceeded threshold values, complaints and incidents in the industrial and forestry operations. None of them had any environmental impact or effect on earnings, and they were all resolved by means of corrective measures in accordance with the opera- tions’ environmental management systems. aCtivitieS OUtSide SWeden. Of the Group’s operations out- side Sweden, the facilities in Workington, the UK, and in Madrid, Spain, have some kind of environmental impact. The sales from these facilities accounted for 21 per cent of the Group’s net sales. In 2002, Workington Mill received an environmental per- mit for its activities pursuant to the EU’s IPPC Directive. In 2006, Holmen Paper Madrid received an environmental per- mit pursuant to the same Directive. The mills in Workington and Madrid are certified in accordance with ISO 14001. An energy management system was introduced and certified at the mill in Madrid in 2009. Workington Mill has been running its business in accordance with a certifiable energy management system since the begin- ning of 2008. sustainability report Holmen’s HR and environmental activities in 2009 are described in the sustainability report titled Holmen and its World 2009, which will be published at the end of March 2010. It will also be published on the website, where links to supplementary environmental information will be available. Together, these constitute Holmen’s complete sustainability report for 2009. the majority of seedlings planted in Holmen’s forests come from the company’s own nurseries. H O L M E N A N N U A L R E P O R T 2 0 0 9 5 1 A d m i n i s t rA t i o n r e p o r t Income statement GroUp, seKm Net sales Other operating income Change in inventories Raw materials and consumables Staff costs Other operating costs Depreciation and amortisation according to plan Impairment losses Change in value of biological assets Interest in earnings of associates operating profit Finance income Finance costs profit before tax Tax profit for the year Attributable to: owners of the parent company Earnings per share (SEK) basic diluted Average number of shares (million) basic diluted note 3 4 5 6, 21 10, 11 10, 11 12 13 7 7 8 9 9 2009 18 071 600 -381 -9 017 -2 662 -3 709 -1 320 -22 16 45 1 620 12 -267 1 366 -360 1 006 1 006 12.0 12.0 84.0 84.0 2008 19 334 755 106 -10 929 -2 965 -3 885 -1 343 -57 -16 50 1 051 17 -328 740 -98 642 642 7.6 7,6 84.3 84.3 Statement of comprehensive income note GroUp, seKm profit for the year other comprehensive income Cash flow hedging Revaluation of derivatives recognised in equity Transferred from equity to the income statement Transferred from equity to non-current assets Actuarial gains and losses in respect of pensions, incl. special employer’s contributions Translation difference on foreign operation Hedging of currency risk in foreign operation Tax attributable to other comprehensive income 8 total other comprehensive income total comprehensive income Attributable to: owners of the parent company 2009 1 006 567 343 -1 15 -256 254 -310 613 1 619 1 619 2008 642 -1 272 309 -1 -169 445 -541 452 -778 -135 -135 5 2 H O L M E N A N N U A L R E P O R T 2 0 0 9 Balance sheet GroUp at 31 december, seKm non-current assets Intangible non-current assets Property, plant and equipment Biological assets Interests in associates Other shares and participating interests Non-current financial receivables Deferred tax assets total non-current assets Current assets Inventories Trade receivables Current tax receivable Other operating receivables Current financial receivables Cash and cash equivalents total current assets total assets equity Share capital Other contributed capital Reserves Retained earnings incl. profit for the year total equity attributable to the owners of the parent company non-current liabilities Non-current financial liabilities Pension provisions Other provisions Deferred tax liabilities total non-current liabilities Current liabilities Current financial liabilities Trade payables Current tax liability Provisions Other operating liabilities total current liabilities total liabilities total equity and liabilities note 10 11 12 13 13 14 8 15 16 8 16 14 14 17 14 18 8, 19 8 14 20 8 19 20 For information on the Group’s pledged collateral and contingent liabilities see note 22. A d m i n i s t rA t i o n r e p o r t 2009 27 12 473 11 109 1 770 10 151 304 25 845 2 850 2 712 22 490 74 182 6 331 32 176 4 238 281 -70 12 056 16 504 3 472 320 1 102 5 045 9 939 2 298 1 911 102 274 1 149 5 733 15 672 32 176 2008 106 13 142 11 080 1 824 11 87 342 26 593 3 434 3 144 141 548 88 653 8 009 34 602 4 238 281 -672 11 795 15 641 3 223 354 1 080 4 819 9 475 4 756 2 282 14 277 2 157 9 486 18 960 34 602 H O L M E N A N N U A L R E P O R T 2 0 0 9 5 3 A d m i n i s t rA t i o n r e p o r t Changes in equity GroUp, seKm opening equity 1 Jan 2008 Comprehensive income Dividends paid Buy-backs of company’s own shares Premiums received for issued call options Closing equity 31 dec 2008 Comprehensive income Dividends paid Closing equity 31 dec 2009 reserves Share capital Other contri b uted capital Translation reserve 4 238 - 4 238 - 4 238 281 - 281 - 281 39 56 94 -68 26 Hedge reserve -55 -712 -767 670 -96 Retaind earn ings incl. profit for the year 12 429 521 -1 017 -153 15 11 795 1 017 -756 12 056 Total equity 16 932 -135 -1 017 -153 15 15 641 1 619 -756 16 504 5 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 Cash flow statement A d m i n i s t rA t i o n r e p o r t note 26 26 GroUp, seKm operating activities Profit before tax Adjustments for non-cash items Depreciation and amortisation according to plan Change in value of biological assets Change in provisions Other* Paid income taxes Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Change in inventories Change in trade receivables and other operating receivables Change in trade payables and other operating liabilities Cash flow from operating activities investing activities Acquisition of property, plant and equipment Disposal of property, plant and equipment Acquisition of intangible non-current assets Acquisition of biological assets Disposal of biological assets Increase in non-current financial receivables Repayment of non-current financial receivables Acquisition of shares and participating interests Disposal of shares and participating interests Cash flow from investing activities Financing activities Raised long-term loans Repayments of long-term loans Change in current financial liabilities Change in current financial receivables Buy-back of company’s own shares Premiums received for issued call options Dividends paid to the owners of the parent company Cash flow from financing activities Cash flow for the year Opening cash and cash equivalents Exchange difference in cash and cash equivalents Closing cash and cash equivalents 2009 1 366 1 320 -16 15 -157 -334 2 195 621 445 -389 2 873 -747 28 0 -5 5 -107 3 -6 12 -818 1 492 -584 -2 672 -1 - - -756 -2 522 -467 653 -4 182 2008 740 1 343 16 310 128 -192 2 345 -373 -40 -273 1 660 -1 135 23 -8 -12 12 0 0 -5 2 -1 124 927 -109 31 17 -153 15 -1 017 -289 247 394 12 653 * Other adjustments primarily consist of currency effects and the marking to market of financial instruments, profit/loss from associates, impairment losses and reversals of impairment losses on non-current assets as well as gains/losses on sale of non-current assets. Change in net financial debt Opening net financial debt Cash flow Operating activities Investing activities (excl. non-current financial receivables) Buy-back of company’s own shares Premiums received for issued call options Dividends paid Actuarial revaluation of pension liability Foreign exchange effects and changes in fair value Closing net financial debt 2009 -7 504 2 873 -714 - - - 756 13 405 -5 683 2008 -5 977 1 660 -1 124 -153 15 -1 017 -162 -746 -7 504 H O L M E N A N N U A L R E P O R T 2 0 0 9 5 5 A d m i n i s t rA t i o n r e p o r t Parent company inCome stAtement, seKm note 2009 2008 CAsH FLoW stAtement, seKm note 2009 2008 13 436 14 382 447 -368 -6 791 -1 929 -3 907 -27 861 1 156 0 18 -436 8 1 607 388 1 995 -331 1 664 596 101 -8 252 -2 320 -4 296 -24 186 15 1 91 - -867 -575 -56 -630 195 -436 2009 1 664 2008 -436 operating activities Profit/Loss after financial items Adjustments for non-cash items Depreciation and amortisation according to plan Change in provisions Other * Paid income taxes Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Change in inventories Change in operating receivables Change in operating liabilities Cash flow from operating activities investing activities Shareholders’ contribution paid Acquisition of property, plant and equipment Disposal of property, plant and equipment Acquisition of intangible non-current assets Disposal of intangible non-current assets Increase in external non-current financial receivables Repayment of external non-current financial receivables Acquisition of subsidiaries -1 470 Disposal of subsidiaries 516 403 -1 -242 677 323 -1 302 -845 2 341 -1 281 26 1 607 -575 27 24 -98 31 -323 451 624 -167 1 244 357 523 392 -298 1 861 -329 -40 8 - - -1 -2 - - - - -299 -128 87 18 -228 -49 15 -8 0 0 0 -208 0 -5 1 Acquisition of shares and participating interests Disposal of shares and participating interests Cash flow from investing activities -363 -482 Financing activities Raised external long-term loans Repayments of external long-term loans Change in other financial liabilities 26 Change in other financial receivables Buyback of company’s own shares Premiums received for issued call options Dividends paid to the owners of the parent company Group contributions received Group contributions paid Cash flow from financing activities Cash flow for the year Opening cash and cash equivalents Closing cash and cash equivalents 1 492 -563 -4 124 1 132 - - 927 -106 386 1 -153 15 -756 -1 017 866 - -1 952 -454 542 88 656 -4 703 239 303 542 * Other adjustments primarily consist of currency effects and the marking to market of financial instruments, impairment losses on non-current assets as well as gains/losses on sale of non-current assets. Net sales Other operating income Change in inventories Raw materials and consumables Staff costs Other external costs Depreciation and amortisation according to plan operating profit Income from interests in Group companies Income from interests in associates Interest income and similar income Impairment losses on financial non-current assets Interest costs and similar costs profit/Loss after financial items Appropriations profit/Loss before tax Tax profit/Loss for the year 3 4 5 6, 21 10,11 7 7 7 7, 24 7 25 8 stAtement oF CompreHensiVe inCome, seKm profit/Loss for the year other comprehensive income Cash flow hedges Revaluation of derivatives recognised in equity Transferred from equity to the income statement Transferred from equity to non-current assets Tax attributable to other comprehensive income total other comprehensive income total comprehensive income 5 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 BALAnCe sHeet, at 31 december, seKm Assets non-current assets Intangible non-current assets Property, plant and equipment Financial non-current assets Shares and participations note 2009 2008 BALAnCe sHeet, at 31 december, seKm equity and liabilities equity 10 11 15 76 Restricted equity 2 590 2 575 Share capital Statutory reserve 13, 24 14 411 15 591 Revaluation reserve Non-current financial receivables 14 2 629 2 722 Non-restricted equity total non-current assets 19 645 20 963 Retained earnings incl. hedge reserve Current assets Inventories Operating receivables Current tax receivable Current investments Cash and cash equivalents total current assets total assets 15 16 8 14 14 2 142 2 371 2 629 2 764 - 74 88 117 88 542 4 675 6 140 24 320 27 103 Profit/Loss for the year total equity Untaxed reserves provisions Pension provisions Tax provisions Other provisions Deferred tax liability total provisions Liabilities Non-current financial liabilities Current financial liabilities Current tax liabilities Operating liabilities total liabilities total equity and liabilities pledged collateral and contingent liabilities Pledged collateral Contingent liabilities A d m i n i s t rA t i o n r e p o r t note 2009 2008 17 4 238 1 577 100 4 238 1 577 100 3 112 1 664 2 989 -436 10 691 8 468 25 2 363 2 751 18 8, 19 19 8 14 14 8 20 22 22 43 45 559 538 64 45 650 272 1 185 1 031 5 652 1 916 94 6 464 4 713 - 2 419 3 676 10 081 14 853 24 320 27 103 2009 2008 6 688 6 766 CHAnGes in eqUity, seKm Share capital Statutory reserve Revaluation reserve Hedge reserve Retained earnings Profit/Loss for the year Total equity restricted equity non-restricted equity opening equity 1 Jan 2008 Appropriation of profits Total comprehensive income Group contributions received Dividends paid Buy-backs of company’s own shares Premiums received for issued call options 4 238 1 577 100 19 -845 Closing equity 31 dec 2008 4 238 1 577 100 -826 Appropriation of profits Total comprehensive income Group contributions received Dividends paid Closing equity 31 dec 2009 677 4 238 1 577 100 -149 5 049 -548 472 -1 017 -153 15 3 815 -436 638 -756 3 261 -548 548 -436 -436 436 1 664 10 435 - -1 281 472 -1 017 -153 15 8 468 - 2 341 638 -756 1 664 10 691 H O L M E N A N N U A L R E P O R T 2 0 0 9 5 7 n o t e s Notes to the financial statements Amounts in SEKm, except where otherwise stated note 1 Accounting policies The accounting policies for the Group presented below have been applied con sistently to all periods included in the Group’s financial statements except where otherwise stated below. The Group’s accounting policies have been applied con sistently to the reporting by and the consolidation of the parent company, sub sidiaries and associates. Compliance with standards and statutory requirements The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the interpretative recommendations issued by the International Financial Reporting Interpretations Committee (IFRIC), which have been approved by the EU. The Swedish Financial Reporting Board’s recommenda tion (RFR 1.2 Supplementary Accounting Rules for Groups) has also been applied. The parent company applies the same accounting policies as the Group except in the cases that are commented on separately under each section. The parent company’s accounts are prepared in accordance with RFR 2.2 Accounting for Legal Entities. The differences between the policies applied by the parent com pany and those applied by the Group are due to restrictions in the possibilities of the parent company to apply IFRS as a consequence of the Swedish Annual Accounts Act, Tryggandelagen (a Swedish act safeguarding pension obligations), and in some cases due to tax reasons. Valuation principles applied in preparing of the financial statements of the parent company and the Group Assets and liabilities are stated at acquisition cost, except for biological assets and certain financial assets and liabilities, which are valued at fair value. In the parent company biological assets and financial liabilities are not valued at fair value. Functional currency and reporting currency The functional currency is the currency used in the primary financial environ ments in which the companies conduct their business. The parent company’s functional currency is the Swedish krona, (SEK), which is also the reporting cur rency of the parent company and the Group. This means that the financial reports are presented in Swedish kronor. Assessments and estimates in the financial statements Preparing the financial statements in accordance with IFRS requires the compa ny’s management to make assessments and estimates, as well as to make as sumptions that affect the application of the accounting policies and the recog nised amounts for assets, liabilities, income and costs. The actual outcome may deviate from these assessments and estimates. The estimates and assumptions are reviewed regularly. Changes in estimates are recognised in the accounts for the period in which the change is made if the change only affects that period, or in the period the change is made and in later periods if the change affects current and coming periods. See also note 27 Key assessments and estimates. Changes in accounting policies The following section describes the amended accounting policies that the Group has applied since 1 January 2009. Other IFRS amendments effective as of 2009 have had no material impact on the Group’s accounts. Presentation of the financial statements The Group has applied the amended IAS 1 Presentation of Financial Statements since 1 January 2009. As a result of the amendment, income and costs previous ly recognised directly in equity are instead now recognised in other comprehen sive income, which Holmen presents in a separate statement titled statement of comprehensive income, directly following the income statement. Another result of the amendment is that Holmen has added a statement of changes in equity. Comparative periods have been adapted throughout the annual report to follow the new presentation. The changes only affect presentation, so no amounts have been restated – neither regarding earnings per share nor other line items in the fi nancial statements. segment reporting The Group has applied the new IFRS 8 Operating Segments since 1 January 2009; this replaces IAS 14 Segment Reporting. IFRS 8 introduces a management perspective on how to define and present operating segments. The standard has been applied in accordance with its transitional provisions, by adapting the data for the comparative year to the requirements in IFRS 8. Application of IFRS 8 has not entailed any change to segmentation at Holmen, because the segments identified according to IAS 14 are those that Holmen’s president and CEO follows up. The company continues to apply the same accounting policies in its operat ing segments as in the consolidated accounts, i.e. IFRSs, so none of the recog nised amounts have changed from those previously recognised. Disclosures about financial instruments As a result of amendments to IFRS 7 Financial Instruments, disclosures applicable as of 1 January 2009 affect Holmen’s financial reporting, starting with the annual re port for 2009. The amendments mainly comprise new requirements on disclosures about financial instruments measured at fair value on the balance sheet. Each in strument is classified as belonging to one of three levels depending on the quality of the input data in the measurement. The classification determines which disclosures to state about the instruments and how to disclose them; level 3, with the lowest in put data quality, is subject to more disclosure requirements than the other levels. These disclosure requirements primarily affected notes 7 and 14. The IFRS 7 amendments also entail certain changes to liquidity risk disclosures. Pursuant to the transitional provisions in IFRS 7, comparative data have not been stated during the first year of application for the disclosures required by the amendments. Borrowing costs The Group has applied the amended IAS 23 Borrowing Costs since 1 January 2009. As a result of the amendment, the Group capitalises borrowing costs in the acquisition cost of qualifying assets with a commencement date of 1 January 2009 or later. Previously, borrowing costs affected profit/loss in the period to which they were attributable instead of being capitalised. The amendment is be ing applied prospectively, in accordance with the transitional provisions in IAS 23. For a more detailed description of this accounting policy, see the section titled Finance income and costs further on in this note. new and amended accounting policies applicable as of 2010 A number of new or amended IFRSs are not effective until the coming financial year, and Holmen has opted not to apply any of these standards in advance. Similarly, there are no plans to apply any of the new or amended standards in ad vance that come into effect in financial years after 2010. New or amended IFRSs applicable as of 2010 are not estimated to have any material impact on the finan cial statements. Parent company In addition to the amended accounting policies stated above for the Group, the following changes affected the parent company in 2009. Recommendation RFR 2.2. Accounting for Legal Entities, issued by the Swedish Financial Reporting Board, states that the amended version of IAS 1 Presentation of Financial Statements shall be applied with certain exceptions. One effect for the parent company compared to previous reporting is that a statement of com prehensive income has been added after the income statement. Another effect is that Holmen has added a statement of changes in equity. segment reporting The Group’s operations are divided into operating segments, based on which 5 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e s parts of the operation the company’s highest executive decisionmaker follows up, known as the management approach. The segmentation criterion is based on the Group’s business areas. This agrees with the Group’s operating structure and the internal reporting to the CEO and the Board. The items recognised in the in come, assets and liabilities of the operating segment are measured in accord ance with the income, assets and liabilities that the company’s highest executive decisionmaker follows up. See note 3 for more details of the classification and presentation of operating segments. Classification etc Substantially, noncurrent assets, noncurrent liabilities and provisions consist solely of amounts that are expected to be recovered or paid more than 12 months after the balance sheet date. Substantially, current assets and current liabilities consist of amounts that are expected to be recovered or paid within 12 months of the balance sheet date. Consolidation principles subsidiaries A subsidiary is a company over which the parent company, Holmen AB, exer cises control. Control means the right directly or indirectly, to formulate a com pany’s financial and operative strategies with the object of obtaining economic benefits. In the determination of whether one company has control over another, potential shares with an entitlement to vote and that can be exercised or convert ed at short notice are taken into account. The consolidated financial statements are prepared using the acquisition meth od, whereby the parent company indirectly acquires the assets and assumes the liabilities of the subsidiary, valued at fair value. The difference between the acqui sition cost of the shares and the fair value of the acquired identifiable net assets is treated as goodwill. The subsidiary companies’ income and costs, and their assets and liabilities, are stated in the consolidated financial statements as of the date when the Group gains control (acquisition date) until such time as the Group no longer has control. IntraGroup receivables and liabilities, transactions be tween companies in the Group and therewith related unrealised gains are elimi nated in their entirety. Associates Shareholdings in associates, in which the Group controls a minimum of 20 per cent and a maximum of 50 per cent of the votes, or otherwise exercises a signifi cant influence, are stated in accordance with the equity method. The equity method means that the carrying amount of the shares in the associ ates stated in the consolidated accounts corresponds to the Group’s interest in the associates’ equity and any fair value adjustments arising upon consolidation. The Group’s interest in the net earnings of associates after tax attributable to par ent company owners adjusted for any amortisation or reversal of acquired fair value adjustments. respectively is stated in the consolidated income statement as “Interest in earnings of associates”. Dividends received from the associates reduce the carrying amount of the investment. Unrealised gains arising as a con sequence of transactions with associates are eliminated in relation to the owned share of capital. When the Group’s interest in the recognised losses of the associates exceeds the carrying amount of the interests stated in the consolidated accounts’ the value of the interests is written down to zero. Losses are also offset against unsecured longterm financial balances that, in financial terms, consist of part of the owning company’s net investment in the associates. Any further losses are not recog nised unless the Group has provided guarantees to cover losses incurred by the associates. The equity method is applied until such time as the significant influ ence no longer exists. Foreign currency transactions denominated in foreign currencies Transactions in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Monetary assets and lia bilities in foreign currencies are translated into the functional currency at closing rates. Exchange differences arising on such translations are stated in the income statement. Nonmonetary assets and liabilities that are stated at historical acqui sition cost are translated at the exchange rates prevailing on the transaction date. Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and other fair value adjustments arising on consolidation, are translated in the consolidated fi nancial statements, from the foreign operation’s functional currency, to the Group’s reporting currency (Swedish kronor) at closing rates. The income and costs of foreign operations are translated into Swedish kronor at an average rate that is an approximation of the exchange rates prevailing on the date of each transaction. Differences arising during the currency translation of foreign opera tions and the related effects of hedging net investments are recognised in other comprehensive income and are accumulated in a separate component of equity called the translation reserve. In the disposal of a foreign operation, the accumu lated translation differences attributable to the business are realised, less any currency hedging, in the consolidated income statement. The company opted to value the accumulated translation differences attributable to foreign operations at zero at the time of the changeover to IFRS. Companies operating on behalf of the parent company The parent company’s business is largely conducted through companies operat ing on its behalf: Holmen Paper AB, Iggesund Paperboard AB, Holmen Timber AB, Holmen Skog AB and Holmen Energi AB. The parent company is liable for all commitments entered into by these compa nies. All income, costs, assets and liabilities, which arise in the operations con ducted by the companies, are recognised in Holmen AB’s accounts except most parts of investments made as well as some sale of forest properties, that are in stead recognised in some of the Group’s subsidiaries. Income net sales Net sales refers to invoiced sales (excluding value added tax) of products, wood and energy. The amount recognised is reduced by discounts, and similar reduc tions in income, and also includes exchange differences related to the sales. Sales are recognised after the critical risks and benefits associated with owner ship of the sold goods have been transferred to the buyer, and there is no remain ing right or possibility to retain actual control over the sold goods. other operating income Income from activities not forming part of the company’s main business is stated as other operating income. This item mainly comprises sales of biproducts, rent and land lease income, income from allotted electricity certificates, income earned from emission rights and gains/losses on sales of noncurrent assets. State grants are recognised in the balance sheet as deferred income when it is reasonably certain that the grant will be received and that the Group will satisfy the conditions associated with the grant. Grants are distributed systematically in the income statement in the same way and over the same periods as the costs the grants are intended to cover. State grants related to assets are recognised in the balance sheet as a reduction in the carrying amount of the asset. Finance income and costs Finance income and costs consist of interest income and interest costs, dividend income and revaluations of financial instruments valued at fair value, as well as unrealised and realised currency gains and losses. Interest income on receiva bles and interest costs on liabilities are calculated by using the effective interest method. Interest costs include transaction costs for loans, which have been dis tributed over the duration of the loan; this also applies to any difference between the funds received and the repayment amount. Dividend income is recognised when the dividend is established and the right to receive payment is judged to be certain. Interest costs normally affect profit/loss in the period to which they relate. Borrowing costs attributable to the purchase, construction or production of qual ifying assets are to be capitalised as part of the asset’s cost. A qualifying asset is H O L M E N A N N U A L R E P O R T 2 0 0 9 5 9 n o t e s an asset that takes a substantial period of time to get ready for intended use. Borrowing costs for significant investment projects are capitalised in the Group. Note 11 describes the method applied. taxes Income taxes comprise current tax and deferred tax. Income taxes are recognised in the income statement except when underlying transactions are recognised in other comprehensive income or directly in equity, in which case the associated tax effect is also recognised in other comprehensive income or directly in equity. Current tax is the tax to be paid or received for the year in question, using the tax rates that have been decided on, or to all intents and purposes have been decided on at the balance sheet date. This also includes any adjustment to current tax at tributable to previous periods. Deferred tax is calculated using the balance sheet method on the basis of temporary differences between carrying amounts and values for tax purposes of assets and liabilities, applying the tax rates and rules that have been approved or announced at the balance sheet date. Temporary differ ences are not taken into account in goodwill arising upon consolidation, nor in tempo rary differences attribut able to interests in subsidiaries and associates that are not expected to become liable to taxation in the foreseeable future. In the parent company’s accounts, untaxed reserves are recognised inclusive of deferred tax liability. Deferred tax assets in respect of taxdeductible temporary differences and loss carryforwards are recognised only to the extent that it is likely they will be uti lised and entail lower tax payments in the future. Deferred tax assets and deferred tax liabilities in the same country are recognised net. earnings per share The calculation of earnings per share (EPS) is based on the Group’s profit for the year attributable to the parent company’s owners and the weighted average number of shares outstanding during the year. In calculating diluted EPS, the earnings and the average number of shares are adjusted to take account of the effects of any potential ordinary shares having a diluting effect, which during reported periods stem from call options acquired by employees within the frame work of the incentive scheme. The dilution effect of options affects the number of shares and only arises when the exercise price is lower than the listed price, and is larger the wider the spread between the exercise price and the listed price. Financial instruments Financial instruments are valued and recognised in the consolidated financial state ments in accordance with IAS 39. The parent company applies the same policies, subject to the restrictions referred to in Chapter 4 Section 14 of the Swedish Annual Accounts Act. A financial asset or liability is stated in the balance sheet when the company be comes a party in accordance with the contractual conditions of the instrument. A financial asset is removed from the balance sheet when the rights referred to in the contract have been realised or mature, or when the company no longer has control over them. A financial liability is removed from the balance sheet when the undertaking in the contract is performed or expires in some other way. Spot transactions are stated in accordance with the settlement date principle. Bank balances, loan receivables and trade receivables are measured at amor tised cost. Impairment testing is performed continually, using objective criteria for such assets. Impairment losses are recognised for the asset if impairment is established. However, a provision is made if a loss is anticipated. Criteria taken into account when making a provision may include nonpayment of invoices or other indications that the debtor is experiencing financial difficulties. Shares and participating interests not related to Group companies or associates are meas ured at cost. Measurement at fair value could not be applied, because reliable market values could not be established. Financial liabilities are valued initially at the value of funds received after deduction of any transaction costs. Normally, the liabilities are valued regularly at their amor tised cost using the effective interest method. In those cases where funds received fall short of the amount to be repaid, the difference is allocated over the duration of the loan using the effective interest method. Loans hedged against changes in value and loans recognised on the basis of the fair value option are initially recog nised excluding any transaction costs and on an ongoing basis at their fair value. The fair value option has been applied to one loan with the object of arriving at a fairer presentation of results and thereby reflecting changes in the value of the in terest rate swap that belongs to the loan. In the parent company, no loans were measured at fair value. Profit/loss from financial instruments is recognised in net financial items or operating profit/loss, depending on the purpose of the holding. Derivatives and hedge accounting All derivatives are valued at fair value and are recognised in the balance sheet. More or less all derivatives are held for hedging purposes. Cash flow hedges’ effective share of changes in value is recognised in other comprehensive income until the time when the hedged item influences the in come statement, when the accumulated changes in value are transferred from other comprehensive income to the income statement to meet and match the hedged transaction. In the case of hedging investments, the acquisition cost of the hedged item is instead adjusted when it occurs. The ineffective part of the hedge is recognised directly in the income statement. For the hedging of fair value, the change in the value of the derivative is recog nised directly in the income statement. Changes in the value of the hedged item are recognised in a corresponding way. Changes in the value of hedges relating to net investments in foreign businesses are recognised in the income statement for the parent company and in the other comprehensive income for the Group. Accumulated changes in value are re tained in Group equity until the business is disposed of, when the accumulated changes in value are recognised in the income statement. In the case of deriva tives that do not fulfil the criteria for hedge accounting, the changes in value are recognised within operating profit/loss or within net financial items, depending on the purpose of the holding. Computation of fair value The fair value of financial instruments traded on an active market is based on list ed market prices and belongs to measurement level 1 as per IFRS 7. Where there are no listed market prices, fair value has been computed using discounted cash flows. In calculating discounted cash flows, all variables used in the calculation – such as discount rates and exchange rates – are taken from market listings where possible. These measurements belong to level 2. Other measurements, for which a variable is based on the company’s own assessments, belong to level 3. Holmen’s transactions mainly belong to level 2, except for one transaction classi fied as level 3. Currency options were measured using the Black & Scholes formula. Intangible non-current assets Goodwill represents the difference between the acquisition cost of business combinations and the fair value of the acquired assets, assumed liabilities and contingent liabilities. Goodwill is valued at acquisition cost less any accumulated impairment losses. Goodwill arising in connection with the acquisition of associ ates is included in the carrying amount of the interest in such companies. Research costs are expensed when they are incurred. Development costs are only capitalised in the case of major projects to the extent that their future finan cial benefits can be reliably assessed. Other development expenditure is recog nised in the income statement as costs when incurred. Development costs rec ognised in the balance sheet are stated at their acquisition cost less accumulated amortisation and impairment losses. Intangible noncurrent assets also include patents, licences and IT systems. Intangible noncurrent assets are amortised over periods of between five and ten years, except for goodwill. Any goodwill is allotted to cashgenerating units and is tested for impairment annually. The Group does not currently recognise any goodwill. Property, plant and equipment Property, plant and equipment are stated at acquisition cost after deduction of accumulated depreciation and any impairment losses. Property, plant and equip ment that consist of parts with different useful lives are treated as separate com 6 0 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e s ponents of property, plant and equipment. Additional expenditure is capitalised only if it is estimated to generate financial benefits for the company. The key fac tor determining whether or not additional expenditure is capitalised is if it relates to the replacement of identified components or parts thereof, in which case the expenditure is capitalised. The cost is also capitalised in cases where a new component is created. Any undepreciated carrying amounts for replaced compo nents or parts of components are retired and expensed in connection with the replacement. The carrying amount of an item of property, plant or equipment is removed from the balance sheet in connection with retirement or disposal of the asset or when no future financial benefits can be expected from the use of the asset. The gain or loss arising on the retirement or disposal of an asset consists of the difference between the selling price and the carrying amount of the asset, less any direct selling costs. Gain and losses are recognised in the accounts as other operating income/costs. Inventories Inventories are valued at the lower of acquisition cost or production cost after de duction for necessary obsolescence, or net realisable value. The acquisition cost of inventories is calculated by using the First in, First out method (FIFO). The net realisable value is the estimated selling price in operating activities after deduc tion of the estimated costs of completion and effecting the sale. The acquisition cost of finished products manufactured by the company comprises direct pro duction costs and a reasonable share of indirect costs. Emission rights received are initially recognised at market price when allotted among inventories and as deferred income. During the year the allocation is rec ognised as income at the same time as an interim liability, corresponding to emis sions made, is expensed. employee benefits Depreciation according to plan is based on original acquisition cost less any impairment losses. Depreciation takes place on a straightline basis over the estimated useful life of the asset. Land is not depreciated. Pension costs and pension commitments Commitments to pay premiums to defined contribution plans are recognised as a cost in the income statement as and when they are earned. the following useful lives (years) are used: Machinery for hydro power production Administrative and warehouse buildings, residential properties Production buildings, land installations, and machinery for pulp, paper and paperboard production Machinery for sawmills Other machinery Forest roads Equipment 20–40 20–33 20 12 10 10 4 The Group’s net commitment in respect of defined benefit plans is calculated separately for each plan by estimating the future benefits the em ployees will have earned by virtue of their employment in current and earlier periods; these benefits are discounted to their present value and any unrecognised costs in respect of employment during earlier periods and the fair value of any plan assets are de ducted. The discount rate is the interest rate at the balance sheet date for a first class corporate bond with a duration corresponding to the Group’s pension com mitments. If there is no active market for such corporate bonds the market inter est rate for government bonds with a corresponding duration is used instead. The calculation is performed by a qualified actuary using the projected unit credit method for the part of the pension commitments that is defined benefit. If there is any indication that the carrying amount is too high, an analysis is made in which the recoverable value of single or inherently related assets is determined at the higher of the net selling price and the utility value. The net selling price is the es timated selling price after deduction of the estimated cost of selling the asset. The utility value is measured as expected future discounted cash flow. An impairment loss consists of the amount by which the recoverable amount falls short of the car rying amount. Impairment loss is reversed if there has been any positive change in the circumstances upon which the determination of the recoverable amount is based. A reversal may be made up to, but not exceeding, the carrying amount that would have been recognised, less depreciation, if there had been no impairment. Leasing In the consolidated accounts lease agreements are classified as finance leases or operating leases. The leasing of noncurrent assets for which the Group is substantially exposed to the same risks and benefits as if the asset were directly owned is classified as finance leases. The leasing of assets over which the lessor substantially retains ownership is classified as operating leases and the leasing charge is expensed. Within the Group all lease agreements are classified as oper ating leases. Biological assets The Group divides all its forest assets for accounting purposes into growing for ests, which are recognised as biological assets at fair value, and land, which is stated at acquisition cost. Any changes in the fair value of the growing forests are recognised in the income statement. Holmen’s assessment is that there are no relevant market prices availiable that can be used to value forest holdings as ex tensive as Holmen’s. They are therefore valued by estimating the present value of expected future cash flows from the growing forests. See note 12. In the parent company, biological assets are valued in accordance with RFR 2.2. This means that biological assets classified as noncurrent assets are recognised at acquisition cost adjusted for revaluations taking into account the need, if any, for impairment in value. Felling rights are stated as inventories. They are acquired with a view to secure Holmen’s raw material requirements through harvesting. Any measurable biologi cal change does not occur between the acquisition date and harvesting. When the present value of the commitments and the fair value of plan assets are being determined, actuarial gains and losses may arise, either as a result of the actual outcome deviating from earlier assumptions or because the assumptions are changed. Actuarial gains and losses are recognised directly in other compre hensive income. When the benefits provided by a plan are improved, the proportion of the im provement in the benefit that is attributable to the employees’ employment dur ing earlier periods is recognised as a cost in the income statement and is distrib uted on a straightline basis over the average period until the benefits have been fully earned. If the benefit has been earned in full, a cost is recognised directly in the income statement. In the parent company’s accounts, different grounds are used for computation of defined benefit pension plans than those referred to in IAS 19. The parent com pany complies with the provisions of the Swedish pension security law (Tryggandelagen) and the Swedish Financial Supervisory Authority’s regulations, because this is a condition for the right to make deductions for tax purposes. The main differences in relation to the rules in IAS 19 relate to how the discount rate of interest is established, the computation of the defined benefit commitment on the basis of the current pay level without any assumption regarding pay incre ments in the future, and the recognition of all actuarial gains and losses in the in come statement when they arise. When there is a difference between how the pension cost is arrived at in the legal entity and in the Group, a provision or a receivable is recognised in the consoli dated accounts in respect of special employer’s contribution tax based on this difference. The present value of the provision or receivable is not calculated. termination benefits Termination benefits in connection with the termination of employment contracts are only recognised in the accounts if it is shown that the Group has an obliga tion, without any reasonable possibility of withdrawing it, as a result of a formal, detailed plan to terminate an employment contract before the normal date. When benefits are paid in the form of an offer to encourage voluntary departure, a cost is recognised if it is likely that the offer will be accepted and the number of em ployees who will accept the offer can be reliably estimated. H O L M E N A N N U A L R E P O R T 2 0 0 9 6 1 n o t e s short-term benefits Shortterm benefits to employees are calculated without being discounted and are recognised as a cost when the related services are provided. Incentive scheme The Holmen Group’s incentive scheme that runs from 2008 until 2013 is not sub ject to the rules in IFRS 2 Sharebased Payment, because the employees were invited to acquire call options at their market price. equity Consolidated equity comprises share capital, other contributed capital, translation and hedge reserves and retained earnings, including profit/loss for the year. Other contributed capital refers to premiums paid in conjunction with share issues. The translation reserve consists of all exchange differences that arise in the translation of foreign operations’ financial statements that are prepared in a currency other than Swedish kronor. The translation reserve also includes exchange differences arising in connection with the revaluation of liabilities and derivatives that are clas sified as instruments for hedging a net investment in a foreign operation, including tax. The hedge reserve comprises the effective proportion of the accumulated net change in the fair value of a cash flow hedging instrument attributable to underlying transactions that have not yet occurred, including tax. Retained earnings comprise all other parts of equity, including profit/loss for the year. Holdings of shares bought back are stated as a reduction in retained earnings. Acquisitions of the company’s own shares are stated as a deduction, and pro ceeds from the disposal of the company’s own shares are stated as an increase. Transaction costs are charged directly to retained earnings. Group contributions and shareholder contributions for legal entities Group contributions and shareholder contributions are recognised in the parent company in accordance with statement UFR 2 of the Swedish Financial Reporting Board. Shareholder contributions are recognised directly in equity of the recipient and capitalised under shares and participating interests of the donor to the extent that no impairment in value applies. Group contributions are recog nised on the basis of their financial implications. For example, this means that Group contributions paid or received in order to minimise the Group’s total tax are recognised directly in retained earnings after deduction of their current tax effect. Miscellaneous The figures presented are rounded off to the nearest integer or equivalent. The absence of a value is indicated by a dash (). note 2 Financial risk management The Group’s and the parent company’s financial activities and financial risk man agement are centralised within Group Finance. The activities are based on a finan cial policy established by the Board and are characterised by a low level of risk. The purpose is to minimise the Group’s capital costs by using suitable means of financ ing and to manage and control the Group’s financial risks effectively. The most im portant aspects of this management are described below. Credit risks related to the Group’s customers are managed by the relevant business areas and are de scribed in Note 16 Operating receivables. The parent company’s equity comprises share capital, statutory reserves, re valuation reserves, retained earnings and profit/loss for the year. Currency risk The parent company’s statutory reserve consists of previous compulsory provi sions to the statutory reserve plus amounts added to the share premium reserve before 1 January 2006. The parent company’s revaluation reserve contains amounts set aside in connection with the revaluation of property, plant and equipment or noncurrent financial assets. Retained earnings comprise all other parts of equity, such as hedge reserves and transactions as a result of share buy backs. The parent company applies the same accounting policies as the Group for these items; see above. Provisions A provision is recognised in the balance sheet when the Group has a legal or in formal commitment as a consequence of a past event and it is likely there will be an outflow of financial resources to settle the commitment and a reliable estimate of the amount can be made. A provision to cover restructuring is recognised once the Group has established a detailed and formal restructuring plan and the re structuring process has either begun or been publicly announced. Provisions are made for environmental measures that relate to earlier activities when contamination arises or is discovered, it is likely that a payment obligation will arise, and the amount can be estimated reliably. Reserves to cover future silvicultural fees are calculated on the basis of interpre tations of the applicable forestry laws and regulations whenever it is likely that a payment obligation will arise and once the amount can be assessed to a reason able extent. Contingent liabilities A contingent liability is recognised when there is a potential commitment that originates in past events, the existence of which will be confirmed only by one or more uncertain future events, or when there is a commitment that is not recog nised as a liability or provision because it is not likely that an outflow of re sources will be required. transaction exposure A significant proportion of Holmen’s sales revenue is in currencies different from its costs. To reduce the effect of exchange rate fluctuations on earnings, Holmen hedges its net flows, mainly using currency forward contracts, sometimes sup plemented by currency options. The net flows in euro, sterling and US dollars for the coming four months are always hedged. These normally correspond to trade receivables and outstanding orders. The Board can decide to hedge flows for a longer period if this is deemed suitable in light of the products’ profitability, com petitive position and the currency situation. At the beginning of 2009, the Group had currency hedges for the majority of estimat ed payment flows in euro for 2009 and some of the flows in sterling and US dollars. Gains/losses on currency hedges are recognised in operating profit/loss as and when the hedged items are recognised and in 2009 they amounted to a loss of SEK 408 million (loss of 336). At yearend 2009 about 70 per cent of the estimated net currency flows for 2010 were hedged, some 60 per cent of those for 2011 and roughly 20 per cent of estimated flows for 2012; see the table. transaction exposure at 31 December 2009, seKm* 12 months estimated net flows 4 700 1 100 250 650 2010 Hedges 2011 Hedges 2012 Hedges seKm rate** % seKm rate** % seKm rate** % 4 200 9.70 90 3 600 10.63 85 1 100 10.45 25 350 6.94 30 50 11.44 20 50 6 700 4 650 3 600 1 100 EUR USD GBP Other total * The figures in the table have been rounded off. ** This rate equals the average hedging rate. The fair value of outstanding transaction hedges at 31 December 2009 amounted to SEK 93 million (1 123); SEK 48 million (123) was recognised in the income statement for 2009, and the remainder in other comprehensive income as hedge accounting is applied, of which SEK 162 million for 2010, SEK 108 million for 2011 and SEK 10 million for 2012. Currency exposure arising when investments are paid for in a foreign currency is 6 2 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e s distinguished from other transaction exposure. Normally, 90–100 per cent of the currency exposure associated with major investments is hedged. The fair value of hedges for investment purchases is recognised in other comprehensive in- come until the hedge expires. Then, the gain/loss is added to the cost of the non- current asset that was hedged. At 31 December 2009 there were no outstanding hedges for investment purchases. During the period SEK 1 million affected the acquisition cost of hedged items. translation exposure The Group’s reported profit/loss is affected by changes in exchange rates when the profits/losses of foreign subsidiaries are translated into Swedish kronor. This exposure is normally not hedged. The Group’s equity is affected by changes in exchange rates when assets and liabilities of foreign subsidiaries are translated into Swedish kronor. The need to hedge this exposure (known as equity hedging) is judged from case to case and is arranged on the basis of the value of net as- sets upon consolidation. The hedges take the form of currency forward contracts or foreign currency loans. net assets and equity hedges at 31 December 2009, seKm EUR GBP Other net assets equity hedge 4 314 4 148 1 382 32 456 - Gains on equity hedges amounted to SEK 254 million (loss of 541) in 2009 and are recognised in other comprehensive income as hedge accounting is applied (after deduction of tax SEK 187 million). In the parent company accounts, this gain is rec- ognised in the income statement. The translation of net foreign assets had a nega- tive impact of SEK 255 million (positive: 445) on consolidated equity. The fair value of outstanding equity hedges at 31 December 2009 was SEK -159 million (-456), of which SEK -193 million relates to loans and SEK 34 million to financial derivatives. The accumulated change in value resulting from an equity hedge is recognised in the consolidated income statement if the hedged foreign operation is disposed of. The effect of changes in exchange rates on consolidated operating profit is de- scribed in the administration report on page 48. A one percentage point depre- ciation in the Swedish kronor exchange rate would have a negative impact of SEK 82 million on equity, including translation of foreign subsidiaries’ accounts. Interest rate risk The Group’s financing costs are influenced by changes in market interest rates. The fixed interest period for the Group’s financial assets and liabilities is normally short. The Board can decide to lengthen the period in order to limit the effect of a rise in in- terest rates. During the year, the average fixed interest rate period varied between 19 and 22 months and was 22 months at the end of 2009. Derivatives in the form of in- terest rate swaps and FRAs are used to manage the fixed interest period without al- tering the underlying loans. At 31 December 2009 the fair value of these instruments was a negative amount of SEK 60 million (negative: 132), which is recognised in oth- er comprehensive income as hedge accounting is applied. This value is expected to be recognised in the income statement during 2010 and later. The fixed interest peri- od of the net debt, the breakdown by currency and the average interest rate for vari- ous fixed rate periods are shown in the table below, in which derivatives that affect the currency distribution and fixed interest period of the liabilities are taken into account. Fixed interest period, net financial debt, at 31 December 2009, seKm SEK EUR GBP Other currencies total -1 yr 1-3 yrs 3-5 yrs >5 yrs other -1 525 51 - -1 533 - -3 944 -2 787 -736 -55 -361 -280 66 -9 66 - - - - - - -43 -6 -271 -1 net financial debt -5 683 -2 679 -736 -1 588 -361 -320 Average interest rate, % 2.7 4.5 4.5 3.9 7.0 The Other column refers to pension provisions; see note 18. The effect of a change in market interest rates on consolidated operating profit is explained in the administration report (page 48); a one percentage point increase in market interest rates would have a SEK 19 million impact on equity. Financing risk Holmen’s net financial debt at 31 December 2009 amounted to SEK 5 683 mil- lion, of which financial liabilities and interest-bearing pension provisions equalled SEK 6 091 million, cash and cash equivalents SEK 182 million and financial receivables SEK 225 million. As part of Holmen’s strategy, the company is to have a strong financial position that provides financial stability and enables the Group to make correct and long- term business decisions relatively independently of the state of the economy and external financing possibilities. The target for the debt/equity ratio is the interval of 0.3–0.8, and strategic planning includes harmonisation with this target. At the end of the year the debt/equity ratio was 0.34. Standard & Poor’s lowered its long-term credit rating for Holmen from BBB+ to BBB with a negative outlook. The short-term rating was lowered to A-3/K-2 at the same time. Holmen’s financing mainly comprises bank loans, bond loans and the issue of commercial paper. Holmen’s Swedish commercial paper programme has a frame- work amount of SEK 6 000 million. Commercial paper with a time-to-maturity of up to one year can be issued in both Swedish kronor and euro. At 31 December 2009 a negative amount of SEK 945 million was outstanding. Holmen’s medium term note (MTN) programme, for issuing bonds, has a framework amount of SEK 4 000 million. Bonds with maturities of 1–15 years can be issued in both Swedish kronor and euro. At 31 December 2009 a negative amount of SEK 2 693 million was out- standing. During the year new long-term financing was raised through MTN loans of SEK 1 500 million and an agreement for a new credit facility of SEK 1 300 million was signed. Other financing during the year was arranged mainly via Holmen’s commercial paper programme, utilisation of the contractually agreed EUR 600 mil- lion credit facility and short-term bank loans. At 31 December 2009 Holmen had not used any of its credit facilities. The maturity structure of financial liabilities and assets included in net financial debt and sources of financing are shown in the table below. The table displays carrying amounts where expected interest payments are not included. 2010 2011 2012 2013 2014- total Financial assets Deposits with credit institutions Cash and cash equivalents Derivatives Other financial receivables total financial receivables Financial liabilities MTN loans Loans from banks and other credit institutions Commercial paper programme Bank account liabilities Derivatives - 182 51 23 256 6 - - 2 8 2 - - 1 3 2 - - 1 3 9 - - 128 137 21 182 51 154 407 510 - 330 1 493 361 2 693 551 945 251 41 115 113 1 021 - - 28 - - 6 - - 3 2 - - - 1 802 945 251 78 total financial liabilities 2 298 143 448 2 517 363 5 770 Contracted credit facilities 6 180 1 300 7 480 Financing risk refers to the risk that future funding and refinancing of maturing loans may become difficult or expensive. Holmen reduces the risk by maintaining a good spread of maturities for the liabilities and by using contractually agreed credit facilities. Holmen has a contractually agreed credit facility from a syndicate of banks that amounts to EUR 600 million and expires in 2012. Since 2009 the company has also had a bilateral credit facility of SEK 1 300 million that expires in 2016. Both facilities are available for use, provided that the Group’s debt/equity ratio is less than 1.5. The Group plans its financing by forecasting financing needs over the coming years based on the Group’s multi-year business plan, budget and forecasts that are regularly updated. H O L M E N A N N U A L R E P O R T 2 0 0 9 6 3 n o t e s Raw materials Credit risk The Group is exposed to price fluctuations for its products and significant input goods; see page 47 in the administration report. OTC trade in financial contracts exists for certain paper and pulp products. Holmen did not trade in such contracts during the year. The price risk for energy can be hedged, but hedging opportunities for other input goods are limited.The Group mainly hedges the risk of fluctuations in electricity prices. To reduce exposure to electricity price changes, the Group uses physical supply agreements at fixed prices as well as financial hedges. Decisions on hedging elec- tricity prices are made by the Board. In 2009, Holmen’s net purchases of electricity amounted to 3 200 GWh, of which about 2 600 GWh in Sweden. The prices for the Group’s estimated net consumption of electricity in Sweden dur- ing the 2010–2012 period are fully hedged. For 2013– 2015 the price of about 85 per cent has been hedged. The hedges predominantly consist of physical fixed price contracts. Gains on financial hedges are recognised in the income statement upon maturity and totalled SEK 64 million (27) for 2009. The fair value of outstand- ing financial hedges totalled SEK 57 million (88) at 31 December 2009. This amount has been recognised in other comprehensive income as hedge accounting is ap- plied, of which SEK 22 million for 2010, SEK 25 million for 2011 and SEK 10 million for 2012. See page 47 for how changes in raw material prices affect the Group’s profit. A one percentage point increase in the price of electricity would have a negative impact of SEK 2 million on equity. note 3 operating segment reporting The Group’s financial transactions give rise to credit risks in relation to financial counterparties. The risk of a counterparty not meeting its commitments is limited by selecting creditworthy counterparties, by limiting the exposure to each coun- terparty and by using ISDA and FEMA agreements. At 31 December 2009, the Group had outstanding derivative contracts with a notional amount of about SEK 16 billion and a fair value of SEK -61 million net. Calculated in accordance with the Swedish Financial Supervisory Authority’s regu- lations for financial institutions (FFFS 2007:1), Holmen’s total counterparty risk on derivative contracts would amount to SEK 263 million at 31 December 2009. The maximum credit risk for other financial assets is estimated to correspond to their notional amount. Credit risks in relation to the Group’s customers are managed by each business area and are described in note 16 Operating receivables. Insurance Holmen insures its facilities against property damage and consequential loss. The excess varies from one facility to another, but the maximum is some SEK 30 million for any one claim. The Group’s forest holdings are not insured. They are widely dispersed over large parts of the country, and the risk of large-scale simultaneous damage is judged not to justify the cost of insuring the holdings. 2009 Net sales External Internal Other operating income Operating costs Depreciation and amortisation according to plan Impairment losses Change in value of biological assets Interest in earnings of associates operating profit/loss Operating profit/loss excluding items affecting comparability Operating margin excluding items affecting comparability,% Return on operating capital excluding items affecting comparability, % Operating assets Operating liabilities Operating capital Investments Holmen Paper Iggesund Paperboard Holmen timber Holmen skog Holmen energi Group- wide and other elimina- tions total Group 9 303 0 238 -8 363 -878 - - 41 340 340 4 4 10 186 1 397 8 789 287 5 023 0 262 -4 484 -361 -22 - - 419 419 8 10 4 781 666 4 114 260 553 0 127 -632 -31 - - 4 21 21 4 6 483 87 396 110 2 745 2 054 119 447 1 182 14 -4 303 -1 208 -27 - 16 - 605 605 13 5 12 646 1 262 11 384 69 -21 - - - 414 414 25 13 3 342 135 3 207 88 - - 37 -225 -3 - - - -191 -191 419 1 382 -963 2 - 18 071 -3 236 -197 3 446 0 - - - 13 13 -392 -392 0 0 - 600 -15 769 -1 320 -22 16 45 1 620 1 620 9 6 31 465 4 536 26 929 818 6 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 Sweden UK Spain Other total net sales by product area Newsprint and magazine paper Paperboard Pulp Sawn timber Wood Power Other total 2008 Net sales External Internal n o t e s Group Parent company Group Parent company non-current assets per country 2009 2008 2009 2008 net sales by market 21 415 21 619 17 006 18 231 Sweden 550 598 3 364 3 877 52 59 - - - - - - UK Germany Spain 25 380 26 153 17 006 18 231 The Netherlands Group Parent company Italy France Rest of Europe Rest of the world total 2009 2008 9 144 10 177 4 865 4 677 137 548 128 499 2009 7 043 2 879 240 548 2008 7 966 2 699 224 496 2 745 3 064 2 695 2 997 447 185 550 241 1 32 0 0 18 071 19 334 13 436 14 382 2009 4 211 2 083 2 676 1 427 771 728 848 2008 4 940 1 943 2 597 1 909 771 786 953 2009 3 749 1 328 2 296 288 675 449 555 2008 4 308 1 189 2 237 390 661 531 612 3 011 2 316 3 411 2 024 2 313 1 784 2 829 1 624 18 071 19 334 13 436 14 382 Other operating income Operating costs Depreciation and amortisation according to plan Impairment losses Change in value of biological assets Interest in earnings of associates operating profit/loss Operating profit/loss excluding items affecting comparability* 280 Operating margin excluding items affecting comparability, %* Return on operating capital excluding items affecting comparability, %* Operating assets Operating liabilities Operating capital Investments 3 3 12 123 1 886 10 237 679 Holmen Paper Iggesund Paperboard Holmen timber Holmen skog Holmen energi Group- wide and other elimina- tions total Group 10 443 0 350 -9 970 -896 -57 - 47 -81 4 845 15 260 -4 433 -368 - - - 320 320 7 8 4 914 661 4 254 327 499 0 138 -593 -34 - - 3 13 13 3 4 439 73 366 19 2 997 2 446 129 550 1 284 12 -4 898 -1 500 -26 - -16 - 632 632 12 6 12 796 1 382 11 415 21 -19 - - - 327 327 18 11 3 149 142 3 006 76 - - 37 -196 0 - - - -149 -149 568 2 222 -1 654 2 - 19 334 -3 745 -172 3 916 - - - - -10 -10 -557 -557 - - - 755 -17 673 -1 343 -57 -16 50 1 051 1 412 7 5 33 432 5 809 27 623 1 123 * Items affecting comparability relate to a SEK 298 million cost of closing down Wargön Mill, SEK 115 million to cover costs associated with the closure of PM 2 at the mill in Hallsta, and a SEK 52 million positive effect on profit of the fire at Braviken. The business area Holmen Paper manufactures printing paper for daily news- papers, magazines, directories/manuals, advertising material and books at two Swedish mills and one Spanish mill. Iggesund Paperboard produces paperboard for consumer packaging and graphics printing at one Swedish and one UK mill. Holmen Timber produces sawn timber at one Swedish sawmill. Annual produc- tion capacity is 1 940 000 tonnes of printing paper, 530 000 tonnes of paperboard and 340 000 cubic metres of sawn timber. In the Holmen Group, the business areas are responsible for management of operational assets and liabilities. Operating capital in each segment includes all assets and liabilities used by the business area, such as non-current assets, inventories, operating receivables and operating liabilities. Financing and tax issues are managed at Group level, so financial assets and liabilities – including pension liabilities – and current and deferred tax assets and tax liabilities are not allocated to the business areas. Holmen Skog manages the Group’s forests, which cover just over one million hectares. The annual volume of wood harvested in company forests is about 2.5 million cubic metres. Holmen Energi is responsible for the Group’s hydro power assets and for developing the Group’s operations in the energy sector. Normal yearly production amounts to some 1 100 GWh of electricity at wholly and partly owned hydro power stations in Sweden. Holmen Skog and Holmen Energi are also responsible for supplying the Group with wood and electricity in Sweden, which are important raw materials for the industrial operations. Intra-Group sales between segments are founded on an internal market-based price. The “Group-wide and other” segment comprises Group staff units and Group-wide functions that are not allocated to other segments. No profit items below operating profit are allotted to the business areas. Income from external customers is allocated to individual countries according to the country in which the customer is based. H O L M E N A N N U A L R E P O R T 2 0 0 9 6 5 n o t e s note 4 other operating income Sales of by-products Emission rights Electricity certificates Sales of non-current assets Rental and tenancy income Silviculture contracts Other total Group Parent company 2009 186 2008 253 2009 111 2008 181 24 71 31 22 52 215 600 18 72 29 19 44 320 755 25 63 8 19 52 169 447 22 65 12 16 44 257 596 Of the sales of by-products in the Group, SEK 124 million (160) relate to rejects from production, SEK 34 million (53) to sawdust, bark, chips etc, and SEK 28 mil- lion (40) to external sales of energy. The Group has been allotted emission rights which, for the most part, have been used for its own production. The surplus resulted in a recognised profit of SEK 24 million (18). Income from electricity certificates received from the production of renewable energy at the Group’s Swedish mills amounted to SEK 71 million (72). note 5 employees, staff costs and remuneration to senior management Incentive scheme Any decision on a share and share price based incentive scheme for senior com- pany personnel shall be made by the AGM. Remuneration committee A remuneration committee appointed from among the members of the Board shall prepare business pertaining to the CEO’s salary and other conditions of em- ployment and submit proposals on such issues to the Board for decision. Detailed principles for determining the salaries, pension rights and other remu- neration to senior management shall be laid down in a pay policy adopted by the remuneration committee. Departures in individual cases The Board shall be entitled to depart from these guidelines in individual cases should special reasons exist. In the event of such a departure, information there- on and the reasons therefore shall be submitted to the next Annual General Meeting. Incentive scheme The 2008 AGM approved the Board’s proposal to introduce an incentive scheme for the Holmen Group’s employees; it has applied in the Group since May 2008. In the scheme, the employees were invited to acquire call options on class B shares in Holmen at market price (calculated by an independent bank). As a result, 1 492 of the Group’s approximately 5 000 employees bought a total of 758 300 call options at a price of SEK 20 per option. The exercise price of the options is SEK 224.50 per share. Each option entitles the owner to acquire one share during the exercise period in May/June 2013. Holmen’s commitment within the scheme has been secured by means of a buyback of shares in the company. Group Parent company 2009 2008 2009 2008 IFRS 2 Share-based Payment is not applicable, because the employees acquired the options at market-based price. Wages, salaries and social security costs Wages, salaries and other remuneration 1 866 2 054 1 292 Social security costs 720 807 583 1 546 693 AGM’s guidelines for determining salaries and other remuneration to senior management The 2008 AGM decided on the following unchanged guidelines for determining the salaries and other remuneration of the CEO and other senior management, namely the business area managers and heads of Group staff functions who report directly to the CEO. salary and other remuneration The remuneration of the CEO and the senior management shall consist of a fixed market-based salary. Other benefits, mainly car and accommodation, shall, inso- far as they are provided, represent a limited part of the remuneration. No variable remuneration shall be paid. Pension The normal retirement age shall be 65 years. The company and the employee shall be mutually entitled to request that pension be drawn from 60 years of age. Any pension drawn before 65 years of age shall be either defined benefit or de- fined premium. Pension drawn after 65 years of age shall be in accordance with the ITP plan. Over and above this, the employee may also be entitled to a supple- mentary old age pension. In this case, there shall be a gradual transition from the existing arrangement with a defined benefit pension to one in which the pension is defined premium (contribution). notice and severance pay Discontinuation notice should normally be one year if it is given by the company, and six months if it is given by the employee. In the event of notice being given by the company, severance pay can be paid corresponding to no more than 24 months’ salary. 6 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 Remuneration of Board and senior management Board A fixed Board fee shall be paid to the members of the Board elected by the AGM, except for the CEO, who does not receive any Board fee. For 2009, the fee amounted to SEK 2 475 000 (2 475 000). The chairman received a fee of SEK 550 000 (550 000), and each of the other members (except for the CEO) received SEK 275 000 (275 000). senior management The CEO’s salary and other benefits for 2009 amounted to SEK 6 768 603 (6 769 821). In 2009, the total pension cost attributable to the CEO (ITP cost and the cost of benefits over and above ITP), calculated in accordance with IAS 19, amounted to SEK 3 263 711 (3 050 305). No variable remuneration was paid. In 2009, the salaries and other benefits of the other senior management, i.e. the five business area managers and the heads of the five Group staff units who re- port directly to the CEO, amounted to a total of SEK 18 206 318 (17 768 644). The total pension cost (ITP cost and the cost of benefits over and above ITP), calculated in accordance with IAS 19, for this group amounted to SEK 10 897 672 (8 570 257) in 2009. No variable remuneration was paid. For senior management the company is required to give 12 months’ notice and the employee six months. In the event of notice being given by the company, ter- mination benefits corresponding to between one and two years’ salary are paid, depending on age. For the CEO, a termination benefit of two years’ salary is paid. All members of senior management are employed by the parent company. Pension commitments in respect of the Board and senior management Holmen’s pension commitments over and above the ITP plan for the CEO amounted to SEK 15 million (13) at 31 December 2009 and for other members of senior management to SEK 63 million (54), calculated in accordance with IAS 19. The Group also has a SEK 7 million (7) commitment for one Board member, Göran Lundin, former CEO of Holmen. The pension commitments are secured using plan assets managed by an independent pension fund. n o t e s 2009 2008 note 6 Auditors’ fee and remuneration Average number of full-time equivalents Average number of full-time equivalents Of whom women Of whom women The audit firm KPMG was elected by the 2008 Annual General Meeting as Holmen’s auditors for a period of four years (2008–2011). KPMG audits the books of Holmen AB and almost all of its subsidiaries. 3 227 589 3 465 608 Remuneration to KPMG 2009 2008 2009 2008 Group Parent company Audit assignments Other assignments total Other auditors total 8 5 13 0 13 7 4 11 0 11 4 1 5 - 5 4 1 5 - 5 Audit assignments refers to the examination of the annual report and accounting records, the administration by the Board and the CEO, other duties that are incumbent on the company’s auditors, the provision of advice or other support resulting from observations in connection with the audit or the performance of such other duties. All other activities are defined as other assignments. Over and above the audit assignment, Holmen has consulted KPMG on tax and accounting issues and for various investigations. - 3 1 2 20 34 22 514 5 8 116 7 2 6 - 2 - 1 6 8 8 53 1 4 46 4 1 4 596 119 6 8 1 350 4 577 2 2 261 850 46 3 3 3 22 31 17 511 5 7 112 6 2 5 573 7 11 1 364 4 829 5 1 2 2 6 6 8 54 1 4 30 3 1 3 106 3 3 238 846 Parent company Sweden Group companies Sweden Australia Belgium Denmark Estonia France Germany UK Hong Kong Italy The Netherlands Poland Portugal Singapore Spain Switzerland USA total Group companies total Group The year’s decrease in the number of parent company employees is mainly an effect of redundancies in connection with the closure of Wargön Mill, and staff cuts in connection with the restructuring programme at Hallsta Paper Mill. Proportion of women, % 2009 2008 2009 2008 Board (excl. deputy members) Senior management 17 9 8 9 17 9 8 9 Group Parent company Group Parent company sickness absence in sweden, % 2009 2008 2009 2008 Total sickness absence Long-term sick leave (>60 days) Sickness absence, men Sickness absence, women Employees below 29 years of age Employees between 30 and 49 years of age Employees aged 50 years and above 3.8 1.7 3.8 3.7 2.4 3.1 4.7 4.6 2.7 4.5 5.3 2.5 4.0 5.7 3.8 1.7 3.8 3.7 2.4 3.1 4.7 4.6 2.7 4.5 5.3 2.5 4.0 5.7 H O L M E N A N N U A L R E P O R T 2 0 0 9 6 7 n o t e S note 7 Income from financial instruments Finance income Dividend income from Group companies Gains on sales of Group companies Gains on sales of shares and participating interests Net profit/loss Assets and liabilities measured at fair value via profit/loss for the year - Held for financial risk management* - Other Interest income total finance income Finance costs Impairment losses on value of shares in Group companies Net profit/loss Assets and liabilities measured at fair value via profit/loss for the year - Held for financial risk management* - Other Cash and cash equivalents Other financial liabilities total net profit/loss Interest costs ** Finance costs net financial items Group Parent company 2009 2008 2009 2008 - - - 5 0 7 12 - - - 1 156 - - 2 0 14 17 5 0 13 1 174 15 0 1 2 0 88 106 - - -436 - -38 23 31 1 18 -284 -267 -255 -19 -2 -15 53 17 -345 -328 -311 114 -176 - 31 102 247 -239 -428 746 0 -15 -322 -513 -354 -867 -761 * Refers to the held-for-trading category in accordance with IAS 39. ** SEK -63 million (21) in the Group refers to interest costs on liabilities measured at fair value via profit/loss for the year. Those in the parent company amounted to SEK -63 million (21). The net gains and losses stated in net financial items mainly relate to currency re- valuations of internal loans, hedging of internal lending, currency revaluations of cash and cash equivalents, and hedging of cash and cash equivalents. They also include the revaluation of loans measured at fair value via the income statement and interest rate swaps used to hedge loans at fixed rates of interest. The parent company’s net financial items also include currency revaluation of external loans and forward contracts that hedge net investment in foreign operations. These items are recognised in the Group in other comprehensive income. The fair value of the interest component in currency forward contracts and value changes in accrued interest and realised interest in fixed-interest-rate swaps are recognised on an ongoing basis in net interest items. Changes in the value of the loan that is measured at fair value in accordance with the fair value option affected earnings by SEK 23 million (-2), of which changes in market interest rates accounted for a decrease in value of SEK 8 million (de- crease of 19). The accumulated change in value of SEK 73 million (50) is recog- nised in the income statement. Changes in the value of the swap that belongs to the loan measured at fair value using the fair value option had a negative impact of SEK 5 million on earnings. The change in the value of the loan that has been hedged in respect of its fair value had a SEK 3 million impact on profit (decrease of 8) while related interest rate swaps lowered profit by SEK 3 million (increase of 8). There were no changes in value for loans in the parent company. The income from financial instruments included in operating profit is shown in the table below: Exchange gains/losses on trade receivables and trade payables Net loss on derivatives stated in working capital Group Parent company 2009 2008 2009 2008 -26 232 -7 223 -343 -309 -403 -243 Interest income on trade receivables Interest costs on trade payables 1 3 0 0 1 3 0 0 The derivatives included in operating profit relate to hedging of trade receiv- ables and trade payables as well as financial electricity derivatives. note 8 taxes taxes stated in income statement Current tax Deferred tax total Group Parent company 2009 -474 114 -360 2008 -488 390 -98 2009 -307 -24 -331 2008 137 57 195 The 2009 tax rate for the Group was 26.4 per cent and was mainly affected by the company winning a tax dispute and through loss carry-forwards not recorded. See the table below. Recognised profit before tax Tax at applicable rate Difference in tax rate in foreign operations Non-taxable income and non-deductible costs Standard interest on tax allocation reserve Effect of not stated loss carry-forwards and temporary differences Tax attributable to previous periods Change in tax rate on deferred tax asset/liability Provision to cover uncertain tax disputes Other effective tax 6 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 SeKm 1 366 -359 2 -2 -15 -30 31 0 0 13 -360 2009 % SeKm 740 26.3 -0.1 0.1 1.1 2.2 -2.3 0.0 0.0 -1.0 26.4 -207 2 -2 -23 16 -4 331 -225 14 -98 Group 2008 % 28.0 -0.2 0.2 3.0 -2.1 0.6 -44.7 30.4 -2.0 13.2 Parent company SeKm 1 995 2009 % SeKm -630 2008 % -525 0 188 -15 -8 29 0 0 0 26.3 0.0 -9.4 0.8 0.4 -1.4 0.0 0.0 0.0 177 0 2 -23 0 1 37 0 1 28.0 0.0 0.3 -3.6 0.0 0.2 5.9 0 0.1 -331 16.6 195 30.9 n o t e S tax attributable to other comprehensive income Group 2009 Cash flow hedges 910 -240 670 -964 Before tax Tax After tax Before tax Parent company 2009 After tax Before tax Tax After tax Before tax -712 919 -242 677 -1 148 2008 Tax 253 2008 Tax 302 After tax -845 Translation differences on foreign operations Hedging of currency risk in foreign operations Actuarial revaluations other comprehensive income -256 - -256 445 - 445 254 15 -66 -4 188 11 -541 -169 151 48 -389 -121 - - - - - - - - - - - - - - - - - - 923 -310 613 -1 230 452 -778 919 -242 677 -1 148 302 -845 taxes as stated in balance sheet Deferred tax assets Loss carry-forwards Pension provisions Deferred tax liabilities stated net among deferred tax assets Other total deferred tax assets Current tax receivable total tax receivables Group Parent company 2009 2008 2009 2008 307 68 -72 1 304 22 326 347 73 -85 7 342 141 483 - - - - - - - - - - - - 117 117 Deferred tax liabilities Non-current assets Biological assets* Property, plant and equipment Tax allocation reserve Transactions subject to hedge accounting Other, including deferred tax assets stated net among deferred tax liabilities total deferred tax liabilities Provisions for taxes Current tax liability total tax liabilities Group Parent company 2009 2008 2009 2008 2 922 1 600 618 -34 2 914 1 512 721 -268 -61 -61 5 045 4 819 692 102 692 14 644 -4 - -53 -49 538 45 94 5 839 5 525 678 635 -4 - -295 -64 272 45 - 317 * For parent company this relates to forestland. Change in the net of deferred tax assets and deferred tax liabilities 2009 Biological assets* Property, plant and equipment Pension provisions Loss carry-forwards Tax allocation reserve Other Deferred net tax liability Opening balance -2 914 -1 597 80 347 -721 328 -4 477 * For parent company this relates to forestland. Stated in the income statement Stated in other com- prehensive income Translation differences and other -8 52 1 -31 103 -3 114 - - -4 - - -240 -244 - -126 2 -10 - 0 Group Closing balance -2 922 -1 672 78 307 -618 86 -135 -4 741 Parent company Stated in the income statement Stated in other com- prehensive income -9 0 - - - -15 -24 - - - - - -242 -242 Opening balance -635 4 - - - 359 -272 Closing balance -644 4 - - - 102 -538 H O L M E N A N N U A L R E P O R T 2 0 0 9 6 9 n o t e S 2008 Biological assets* Property, plant and equipment Pension provisions Loss carry-forwards Tax allocation reserve Other Deferred net tax liability Stated in the income statement Stated in other com- prehensive income Translation differences and other 186 189 -15 -13 31 12 390 - - 51 - - 250 301 - 10 -9 12 - -1 13 Opening balance -3 100 -1 796 53 348 -753 68 -5 181 Group Closing balance -2 914 -1 597 80 347 -721 328 -4 477 Parent company Stated in the income statement Stated in other com- prehensive income 41 -1 - - - 17 57 - - - - - 302 302 Opening balance -677 5 - - - 40 -632 Closing balance -635 4 - - - 359 -272 * For parent company this relates to forestland. For information on biological assets see Note 12. Deferred tax liability in respect of property, plant and equipment is primarily attributable to depreciation in excess of plan. For information concerning provisions for taxes see Note 27. The deferred tax income recognised in the Group’s income statement relates pri- marily to a change in temporary differences and utilisation of loss carry-forwards. The amount recognised in Other comprehensive income includes deferred tax re- lated to negative changes of SEK 239 million in hedging reserves (positive 253) and negative impact of SEK 4 million from actuarial revaluations (postitive 48). Of the deferred tax asset in respect of the carry-forwards of unused tax losses, a sum of SEK 94 million relates to loss carry-forwards with no time limitations regarding when they may be utilised. Other loss carry-forwards expire if they are not utilised 2015–2022. The carry-forwards of unused tax losses and temporary differences for which deferred tax assets have not been recognised in the income statement or balance sheet amount to SEK 1 950 million, of which SEK 200 mil- lion expire in 2011 and SEK 330 million expire 2022–2024. Whether a deferred tax asset is recognised or not depends on an assessment of how likely it is that the Group will be able to utilise it by offsetting it against future taxable profits. note 9 earnings per share (ePS) note 10 Intangible non-current assets Group 2009 2008 Total number of shares outstanding, 1 January 83 996 162 84 756 162 Accumulated acquisition cost Buy-back of company’s own shares during the year total number of shares outstanding, 31 December - -760 000 83 996 162 83 996 162 Opening balance Investments Change in emission rights Re-classification Average number of shares, before dilution 83 996 162 84 298 573 Disposal and retirement of assets Effect of options - - Translation differences Average number of shares, after dilution 83 996 162 84 298 573 total Profit for the year attributable to shareholders, SEKm 1 006 642 Accumulated amortisation according to plan Average number of shares before dilution 83 996 162 84 298 573 Opening balance Basic ePS for the year, SeK 12.0 7.6 Amortisation for the year Profit for the year attributable to shareholders, SEKm 1 006 642 total Translation differences Average number of shares after dilution 83 996 162 84 298 573 Diluted ePS for the year, SeK 12.0 7.6 Closing residual value according to plan Group Parent company 2009 2008 2009 2008 170 0 - -69 0 -3 98 64 9 -2 71 27 89 8 70 -1 - 5 170 46 13 4 64 77 - - -58 - - 19 1 3 - 4 10 8 58 - - - 77 0 0 - 1 106 15 76 Intangible non-current assets mostly consist of rights to use electricity grids of SEK 6 million (8) and IT systems of SEK 17 million (24). These assets were largely acquired from external sources. They have determinable useful lives and are amortised over 5–10 years. No goodwill applies. In 2009, emission rights were reclassified from intangible non-current assets to inventories. Shares in the company were bought back in 2008 to secure the company’s com- mitments as part of the incentive scheme for the Holmen Group’s employees as decided by the 2008 AGM. A total of 760 000 class B shares were bought back, which corresponds to approximately 0.9 per cent of the total number of shares outstanding, and to approximately 0.3 per cent of the total number of votes. The average price paid for these shares was SEK 201.70 per share. In all, 758 300 call options were issued at a price of SEK 20 per option. The exercise price of the options is SEK 224.50 per share. Each option entitles the owner to acquire one share during the exercise period, May/June 2013. The exercise price of SEK 224.50 exceeds the average share price for 2009 (SEK 180 per share). The options will therefore have no dilution effect as defined in IAS 33, and were excluded from the calculation of diluted EPS. If the average listed price in the future exceeds the exercise price, these options will give rise to an estimated dilution effect, which is calculated in accordance with IAS 33. 7 0 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e S Total 2008 31 796 1 134 1 -87 474 Total 2008 414 49 0 -25 438 279 24 -23 280 2 417 0 2 417 note 11 Property, plant and equipment Group 2009 2008 2009 2008 2009 2008 2009 2008 2009 Forestland Buildings, other land and land installations Machinery and equipment Work in progress and advance payments to suppliers Accumulated acquisition cost Opening balance Investments Re-classifications Disposal and retirement of assets Translation differences 100 100 5 906 - - - 0 - - - 0 95 181 -19 -93 total 100 100 6 071 5 561 127 49 -5 175 5 906 27 092 25 865 546 72 -708 -239 867 147 -82 294 26 763 27 092 221 107 -128 - -1 199 - - - - - - - - 270 140 -195 - 5 33 319 748 126 -726 -333 221 33 134 33 319 - - - - - - - - 20 176 18 813 1 311 1 329 22 - - -716 -133 57 - - -79 56 20 661 20 176 - - - - - - - - - - - - - - - - 2 775 2 618 17 401 16 194 141 - - -31 -15 -22 137 1 170 1 193 6 - - -3 16 22 - 31 -701 -112 51 - - -76 40 2 849 2 775 17 812 17 401 100 100 3 222 3 131 8 952 9 690 199 221 12 473 13 142 Forestland Buildings, other land and land installations Machinery and equipment 2009 2008 2009 2008 2009 2008 2009 Accumulated depreciation and impairment losses Opening balance Depreciation for the year according to plan Impairment losses for the year Reversal of previous impairment losses Re-classifications Disposal and retirement of assets Translation differences total Closing residual value according to plan Parent company Accumulated acquisition cost Opening balance Investments Re-classifications Disposal and retirement of assets total Accumulated depreciation according to plan Opening balance Depreciation for the year according to plan Disposal and retirement of assets total Accumulated revaluations Opening balance Disposal and retirement of assets total 79 0 - 0 79 - - - - 72 7 - 0 79 - - - - 2 416 0 2 416 2 417 0 2 416 137 6 - 0 143 125 1 0 126 1 0 1 18 138 2 - -3 137 125 1 -1 125 1 - 1 13 222 33 - -24 231 155 23 -24 155 - - - 203 40 0 -22 222 154 23 -21 155 - - - 438 40 - -24 454 280 24 -24 281 2 417 0 2 417 Closing residual value according to plan 2 496 2 495 Assessed tax values Assessed tax values relate to assets in Sweden Forest and agricultural properties Buildings, other land and land installations total 77 66 2 590 2 575 2009 14 517 3 056 17 573 Group 2008 14 520 3 049 17 569 Parent company 2009 2008 6 795 28 6 823 6 798 28 6 826 The Group’s impairment losses regarding property, plant and equipment are stated in the income statement in the line item Impairment losses. Holmen closed a board machine at Workington Mill in 2009 that belongs to the Iggesund Paperboard busi- ness area. This resulted in impairment losses on property, plant and equipment of SEK 22 million. For 2008, impairment losses on non-current assets referred to the closure of operations at Wargön Mill in the Holmen Paper business area. The year’s investments were reduced by SEK 2 million (23) as a result of the sup- port received from the Swedish Energy Agency of SEK 40 million in total for the construction of a new pulp line at Braviken Paper Mill. The Group’s investment commitments for approved and ongoing projects amounted to SEK 1 581 million (452) at 31 December 2009. The company’s capi- talised borrowing costs were SEK 1 million in 2009 and are recognised as Work in progress and advance payments to suppliers. An interest rate of 3 per cent was used to determine the amount. The assessed tax values are determined by the Swedish Tax Agency by means of a property assessment and are then used for determining the property tax charge. No property tax is charged on forestland. H O L M E N A N N U A L R E P O R T 2 0 0 9 7 1 n o t e S note 12 Biological assets Forest assets are recognised in the Group as growing forest, which is stated as a biological asset at fair value, and land, which is stated at acquisition cost. Holmen’s assessment is that no relevant market prices are available that can be used to value forest holdings as extensive as Holmen’s. The valuation is therefore made by calculating the present value of future expected cash flows from the growing forests. This calculation of cash flows is made for the coming 100 years, which is regarded as the harvesting cycle of the forests. The cash flows are cal- culated on the basis of harvesting volumes according to Holmen’s current har- vesting plan and assessments of future price and cost changes. The cost of re- planting has been taken into account, because re-planting after harvesting is a statutory obligation. In total, Holmen owns 1 032 000 hectares of productive forestland, with a volume of 119 million forest cubic metres (m3 total volume over bark) of standing timber, of which 67 000 hectares with 12 million forest cubic metres of standing timber have been set aside as nature reserves. According to the current harvesting plan, which came into effect in 2000, harvesting during the 2000–2009 period is to amount to an average of 2.5 million m3 of timber and pulpwood per year. The same plan states that the annual harvesting for the 2010–2019 period will be more than 1 per cent higher. The harvesting volume is then planned to increase gradually and then stabilise at about 3.0 million m3 per year in about 40 years’ time. This corresponds to an average increase in harvesting of 0.4 per cent per year. Just over 50 per cent of the wood harvested consists of timber that is sold to sawmills, and the remainder mainly consists of pulpwood, which is sold to the pulp and paper industry. A new harvesting plan is estimated to be complete in 2011 and may entail different harvesting rates. In 2009, the cash flow from the growing forests decreased to SEK 522 million (622), mainly as a result of lower prices. On average, the cash flows in 2001–2009 amounted to approximately SEK 491 million per year. Holmen based its valuation of 31 December 2009 on the prices prevailing at the end of the year. An assump- tion has been made that prices will fall somewhat in 2011, see the graph below. From 2011 and thereafter, long-term price assumptions have been used, with an annual increase of 1 per cent until 2035 and thereafter a rise of 2 per cent a year. The cash flow forecast for 2010–2016 is shown in the figure below. Costs are es- timated to increase from present-day levels by about 2 per cent per year. The price and cash flows for the period 2017–2035 are estimated to increase by 0.5 per cent per year, after which they are expected to increase broadly in line with the assumed level of inflation of 2 per cent. Average price Historical and forecast Index 2004 = 100 Cash ﬂow Historical and forecast SEKm 140 120 100 80 60 40 20 0 -04 -06 -08 -10 -12 -14 -16 700 600 500 400 300 200 100 0 Not 11 Biologiska tillgångar -04 -06 -08 -10 -12 -14 -16 The cash flows are discounted using an interest rate of 5.5 per cent (2008: 5.5) after tax. The discount rate was calculated on the basis of the Group’s target for its debt/equity ratio (on average 0.55), an assumed long-term, nominal risk-free interest rate of 4.5 per cent, a risk premium of 1 per cent for borrowed capital and of 2 per cent for equity. Tax is taken into account at a rate of 26.3 per cent. Deferred tax, i.e. the tax that is expected to be charged against the earnings from harvesting in the future, has been calculated on the total value of growing forests. The value of the forest assets was estimated at the end of 2009 at SEK 11 109 million, i.e. the value of the estimated cash flows before tax. The attribut able deferred tax liability was estimated at SEK 2 922 million. The net carrying amount after tax of the growing forests was thus SEK 8 187 milliion. The change in the value of the growing forests can be divided into: Group Opening balance Acquisition of growing forest Sales of growing forest Change due to harvesting Change in fair value Other changes Closing carrying amount 2009 2008 11 080 11 073 5 0 -552 568 8 12 -2 -622 606 13 11 109 11 080 The net effect of the change in fair value and the change as a result of harvesting is stated in the income statement as Change in value of biological assets. In 2009 this item amounted to SEK 16 million (-16). The table below shows how the value of forest assets would be affected by changes in the most significant valuation assumptions: Group Annual change, + 0.1% per year Harvesting rate Price inflation Cost inflation Change in level, +1% Harvesting Prices Costs Discount rate, +0.1% Change in value (SEKm) Before tax After tax 420 420 -250 160 280 -150 -250 310 310 -190 120 200 -110 -180 Annual change refers to the annual rate of change used in the valuation of each parameter. For example, an increase of 0.1 per cent means that the annual price inflation will be increased from 1.0 per cent to 1.1 per cent in the calculations. Change in level means that the level for each parameter and year changes. For example, a 1 per cent price increase means that the wood prices which the calcu- lations are based on are raised by 1 per cent for all years (change of level). 7 2 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e S note 13 Interests in associates and other shares and participating interests Group Parent company Group Parent company Associates Carrying amount at start of year Investments Disposals Re-classifications Interest in associates’ earnings Dividends received Translation difference Impairment losses 2009 1 824 4 -15 3 45 -80 -12 - 2008 1 745 0 -2 0 50 - 30 0 2009 2008 other shares and participating interests 2009 2008 2009 2008 77 4 0 3 - - - - 77 0 -1 0 - - - 0 Carrying amount at start of year Investments Disposals Re-classifications Translation difference Impairment losses Carrying amount at 31 December 11 3 - -3 0 0 10 7 4 0 0 0 - 11 11 2 - -3 - 0 9 6 4 - 0 - - 11 Carrying amount at 31 December 1 770 1 824 84 77 The parent company’s opening balance includes accumulated impairment losses of SEK 34 million. There was no impairment during the year. Dividends received refers to the associate Peninsular Cogeneración S.A. Parent company and Group holdings of shares and interests in associates There were no material impairment losses on the value of other shares and participating interests during the year. 2009 Carrying amount at parent comp. SEK thousands Value of holding in Group accounts, SEK thousands 2008 Carrying amount at parent comp. SEK thousands Value of holding in Group accounts, SEK thousands Interest %* Corporate ID No. Registered office No. of shares Interest %* Brännälvens Kraft AB 556017-6678 Arbrå Gidekraft AB Harrsele AB 556016-0953 Örnsköldsvik 556036-9398 Sundsvall Uni4 Marketing AB 556594-6984 Stockholm Industriskog AB Pressretur AB 556193-9470 Falun 556188-2712 Stockholm PÅAB, Pappersåtervinning AB 556142-5116 Norrköping Vattenfall Tuggen AB 556504-2826 Lycksele VindIn AB 556713-5172 Stockholm Baluarte Sociedade de Recolha e Recuperação de Desperdicios, Lda, Portugal Ets Emilie Llau S.A., France Alcochete Lorp-Sentaraille Peninsular Cogeneración S.A., Spain Madrid Other shares owned by the parent company 5 556 990 9 886 1 800 25 000 334 500 683 200 13.9 9.9 49.4 36.0 33.3 33.4 50.0 6.83 14.28 2 678 4 500 50.0 24.0 50.0 - 99 - 1 856 37 - 109 74 755 6 910 - - - - 36 400 99 1 481 898 11 596 37 - 109 74 755 7 224 41 736 24 257 92 031 - 13.9 9.9 49.4 36.0 33.3 33.4 50.0 6.83 - 50.0 38.0 50.0 total * Percentage of shares and percentage of votes for total number of shares are the same. 83 767 1 770 143 Parent company and Group holdings of shares and participating interests in other companies Corporate ID No. Registered office No. of shares Interest %* Parent company Industrikraft i Sverige AB 556761-5371 Stockholm SweTree Technologies AB 556573-9587 Umeå VindIn AB 556713-5172 Stockholm 100 000 73 500 - 20.0 2.7 - Miscellaneous shares owned by the parent company total Group Miscellaneous shares total * Percentage of shares and percentage of votes for total number of shares are the same. 2009 Carrying amount at parent comp. SEK thousands Value of holding in Group accounts, SEK thousands 2 800 6 280 - 389 9 469 9 469 2 800 6 280 - 389 9 469 348 9 816 Interest %* 20.0 2.7 7.1 The holdings in Brännälvens Kraft AB, Gidekraft AB, Harrsele AB and Vattenfall Tuggen AB refer to hydro power assets and the holdings in VindIn AB refer to wind power assets. The holdings entitle the Group to buy some of the electricity produced at cost price, so the associates only earn a limited profit. Purchased electricity is sold to external customers at market price, and the earnings are stated in the Group accounts in the Holmen Energi business area. Brännälvens Kraft AB, Gidekraft AB, Vattenfall Tuggen AB and VindIn AB are classified as associates even though the holdings are less than 20 per cent, since shareholder agreements provide significant influence over each company’s activities. The holding in VindIn AB was reclassified in 2009, from shares and participating interests in other companies, to associates. Summarised financial information on associates owned by the Group and parent company respectively is Income Profit/loss Assets Liabilities Equity specified on the right. The table shows the owned interest in each associate. - 99 - 1 856 37 - 109 74 755 - - - - 38 76 895 36 400 99 1 481 898 7 725 37 - 109 74 755 - 42 049 41 019 140 270 38 1 824 399 2008 Carrying amount at parent comp. SEK thousands Value of holding in Group accounts, SEK thousands 1 200 5 640 3 410 587 1 200 5 640 3 410 587 10 837 10 837 10 837 372 11 209 Group Parent company 2009 2008 2009 814 40 763 447 315 861 51 728 362 366 378 -2 209 156 53 2008 320 4 200 156 44 H O L M E N A N N U A L R E P O R T 2 0 0 9 7 3 n o t e S note 14 Financial instruments Group 2009 Financial instruments included in net financial debt non-current financial receivables Deposits with credit institutions Derivatives Other financial receivables Current financial receivables Accrued interest Derivatives Other financial receivables Cash and cash equivalents Current deposit of cash and cash equivalents Bank balances non-current liabilities MTN loans Loans from banks and other credit institutions Derivatives Current liabilities Commercial paper programme Bank account liabilities Current portion of longterm loans Derivatives Accrued interest Other current liabilities Financial instruments not included in net financial debt Other shares and participating interests Trade receivables Derivatives (recognised among operating receivables) Trade payables Derivatives (recognised among operating liabilities) Items recognised at fair value via profit of the year Loans valued at fair value Derivatives Derivatives with hedge accounting Trade receiv ables and loan receivables Available forsale assets Other liabilities Total carrying amount Fair value 371 371 17 17 19 19 2 50 34 34 37 37 22 22 223 208 21 131 151 6 17 23 17 165 182 2 712 21 131 151 6 51 17 74 17 165 182 21 131 151 6 51 17 74 17 165 182 2 183 2 183 2 205 1 252 3 435 945 251 623 54 12 1 252 37 3 472 945 251 994 41 54 12 1 252 37 3 495 945 251 994 41 54 12 1 886 2 298 2 298 10 10 2 712 2 712 225 225 1 911 1 911 258 1 911 258 non-current financial receivables consist of noncurrent interestbearing deposits with credit institutions, financial receivables from other companies, which, substantially, are interestbearing, and prepayments relating to committed credit facilities. Over and above this, the figure includes the fair values of non current derivatives. The parent company’s receivables from Group companies include a significant share of interestfree receivables between Swedish, wholly owned Group companies. Current financial receivables consist of fixed income investments and lending for durations of up to one year, accrued interest income and unrealised transla tion gains. Current financial receivables substantially have fixed interest periods of less than three months, and thus involve a very limited interest rate risk. Cash and cash equivalents refers to bank balances and investments that can be readily converted into cash for a known amount and with a duration of no more than three months from the date of acquisition, which also means that the interest rate risk is negligible. Cash and cash equivalents are placed on deposit with banks or in current deposit accounts at banks. The average rate of interest on the Group’s financial assets in 2009 was around 1.5 per cent (3.3). Loan liabilities, accrued interest costs, unrealised translation losses and fair values of derivatives are stated as financial liabilities. 7 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e S Items recognised at fair value via profit of the year Loans valued at fair value Derivatives Derivatives with hedge accounting Trade receiv ables and loan receivables Available forsale assets Other liabilities Total carrying amount Fair value - - 394 394 - 32 32 31 31 - 13 13 60 60 14 135 34 26 29 55 6 16 34 23 243 410 653 - - - 126 126 95 95 144 1 056 - - - - - - 26 32 29 87 6 65 26 32 29 87 6 65 16 16 88 88 243 243 410 410 653 653 1 266 1 266 1 282 1 423 2 689 1 467 146 567 161 2 260 4 602 1 817 139 3 223 1 825 139 3 247 1 467 1 467 146 567 155 161 2 260 4 756 146 567 155 161 2 260 4 756 11 3 144 11 3 144 3 144 157 157 2 282 2 282 1 191 2 282 1 191 Group 2008 Financial instruments included in net financial debt non-current financial receivables Deposits with credit institutions Derivatives Other financial receivables Current financial receivables Accrued interest Derivatives Other financial receivables Cash and cash equivalents Current deposit of cash and cash equivalents Bank balances non-current liabilities MTN loans Loans from banks and other credit institutions Derivatives Current liabilities Commercial paper programme Bank account liabilities Current portion of longterm loans Derivatives Accrued interest Other current liabilities Financial instruments not included in net financial debt Other shares and participating interests Trade receivables Derivatives (recognised among operating receivables) Trade payables Derivatives (recognised among operating liabilities) Substantially, financial liabilities are interest bearing. The parent company’s liabi lities to Group companies include a significant amount of interestfree liabilities between Swedish whollyowned Group companies. Note 7 states the impact on profit from revaluation of these items; the effect of changed assumptions was immaterial. Other items measured at fair value belong to measurement level 2 as per IFRS 7. Liabilities valued at fair value amount to SEK 573 million (598). The amount repayable in respect of these liabilities is SEK 538 million. The maturity structure and average rate of interest for the Group’s liabilities are shown in note 2. A total of SEK 1 916 million of the parent company’s liabilities mature within one year. In addition to the financial assets and liabilities identified above, pension liabilities (see note 18) are also included in net financial debt. The loan measured at fair value using the fair value option and its related swaps comes under measurement level 3 as per IFRS 7, because interest payments and loan repayments partly depend on inflation assumptions for the current year. The fair value in the tables above has either been taken directly from listed market prices or by calculating the discounted cash flows. In cases where the latter met hod is used, all variables used in the calculation, such as discount rates and ex change rates, are taken from market listings. The difference between fair value and carrying amount arises because certain liabilities are not valued at fair value in the balance sheet, but are stated at their amortised cost. In the case of trade receivables and trade payables the carrying amount is used as the fair value, as this is judged to be an accurate reflection of the fair value. When it has not been possible to determine a reliable fair value for shares and participating interests, they have been excluded from the tables. H O L M E N A N N U A L R E P O R T 2 0 0 9 7 5 Items recognised at fair value via profit of the year Loans valued at fair value Derivatives Derivatives with hedge accounting Trade receiv ables and loan receivables Available forsale assets Other liabilities Total carrying amount Fair value - - - - - - - - - - - - 51 51 - - 19 19 2 50 - - - - - 37 37 22 22 190 248 - 2 602 27 2 629 6 17 23 - 88 88 1 988 - - 9 - - - - - - 2 602 27 2 629 6 51 17 74 - 88 88 2 602 27 2 629 6 51 - 17 74 88 88 2 183 2 183 2 205 1 240 2 193 5 615 945 249 619 54 7 1 240 2 193 37 5 652 945 249 619 41 54 7 1 240 2 193 37 5 675 945 249 619 41 54 - 7 1 875 1 916 1 916 9 1 988 1 988 192 192 1 489 1 489 1 489 298 298 n o t e S Parent company 2009 Financial instruments included in net financial debt non-current financial receivables Deposits with credit institutions Derivatives Receivables from Group companies Other financial receivables Current financial receivables Accrued interest Derivatives Receivables from Group companies Other financial receivables Cash and cash equivalents Current deposit of cash and cash equivalents Bank balances non-current liabilities MTN loans Loans from banks and other credit institutions Liabilities to Group companies Derivatives Current liabilities Commercial paper programme Bank account liabilities Current portion of longterm loans Derivatives Accrued interest Liabilities to Group companies Other current liabilities Financial instruments not included in net financial debt Other shares and participating interests Trade receivables Derivatives (recognised among operating receivables) Trade payables Derivatives (recognised among operating liabilities) 7 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e S Items recognised at fair value via profit of the year Loans valued at fair value Derivatives Derivatives with hedge accounting Trade receiv ables and loan receivables Available forsale assets Other liabilities Total carrying amount Fair value Parent company 2008 Financial instruments included in net financial debt non-current financial receivables Deposits with credit institutions Derivatives Receivables from Group companies Other financial receivables Current financial receivables Accrued interest Derivatives Receivables from Group companies Other financial receivables Cash and cash equivalents Current deposit of cash and cash equivalents - - Bank balances non-current liabilities MTN loans Loans from banks and other credit institutions Liabilities to Group companies Derivatives Current liabilities Commercial paper programme Bank account liabilities Current portion of longterm loans Derivatives Accrued interest Liabilities to Group companies Other current liabilities Financial instruments not included in net financial debt Other shares and participating interests Trade receivables Derivatives (recognised among operating receivables) Trade payables Derivatives (recognised among operating liabilities) - - - 32 32 65 65 - 13 13 154 154 33 - - - 126 126 1 1 105 137 1 098 2 663 27 2 690 6 16 23 226 316 542 - - - - - - 2 343 11 - - 32 2 663 27 2 722 6 65 32 2 663 27 2 722 6 65 16 16 - - 88 88 226 226 316 316 542 542 1 262 1 262 1 282 1 404 3 660 6 325 1 404 3 660 139 6 464 1 412 3 660 139 6 493 1 467 1 467 1 467 143 567 125 2 255 4 558 143 567 155 125 2 255 4 713 143 567 155 125 2 255 4 713 11 2 343 2 343 138 138 1 738 1 738 1 738 1 235 1 235 H O L M E N A N N U A L R E P O R T 2 0 0 9 7 7 n o t e S note 15 Inventories Group, SeKm Total trade receivables Group Parent company Of which overdue > 15 days * 2009 2008 2009 2008 Of which overdue > 30 days ** 2009 2 712 120 92 2008 3 144 144 88 Raw materials and consumables Timber and pulpwood 830 211 885 297 Finished products and work in progress 1 081 1 454 577 737 534 182 756 541 534 237 1 118 684 * incl. overdue > 30 days. ** excl. bad debts/provisions recognised in profit/loss. note 17 equity Felling rights Electricity certificates and emission rights total 152 62 129 56 2 850 3 434 2 142 2 629 Share capital The year’s impairment losses on inventories adversely affecting profit for the year amount to SEK 70 million (26) for the Group and to SEK 40 million (28) for the parent company. In 2009, emission rights were reclassified from intangible non current assets to inventories. note 16 operating receivables Parent company Registrered share capital Class A Class B total number of shares Bought back class B shares 31 Dec 2009 Quotient value Number 50 50 22 623 234 62 132 928 84 756 162 760 000 SEKm 1 131.2 3 106.6 4 237.8 Trade receivables Group companies Associates Other total trade receivables Current receivables Group companies Associates Other Derivatives Prepayments and accrued income total other operating receivables Group Parent company 2009 2008 2009 2008 46 64 2 666 2 712 3 080 3 144 114 46 1 828 1 988 162 64 2 118 2 343 9 160 225 96 490 5 220 157 166 548 0 5 113 192 72 383 5 143 138 135 421 total operating receivables 3 202 3 692 2 371 2 764 Trade receivables are stated after deduction of anticipated and actual credit losses. The Holmen Paper business area’s trade receivables correspond to 58 per cent of the Group’s total trade receivables, while those of Iggesund Paperboard account for 27 per cent. The Group’s trade receivables mainly relate to European customers. Trade receivables denominated in foreign currencies are valued at closing rates. The fair values of derivatives relate to hedges for future cash flows. Customer credit risk. The risk that the Group’s customers will not fulfil their pay ment obligations is limited by means of credit worthiness checks, internal credit limits per customer and, in some cases, by insuring trade receivables against credit losses. At 31 December 2009 some 50 per cent (54) of the Group’s trade receivables were insured against credit losses. Holmen’s exposure to individual customers is limited and in 2009 sales to the five largest customers accounted for just under 11 per cent of the Group’s total turnover. During the year, losses on trade receivables had a negative SEK 14 million (nega tive: 1) impact on earnings.The provision for anticipated credit losses on trade re ceivables amounted to SEK 21 million (13) at 31 December 2009 and it has been recognised net together with trade receivables. During the year the provision was reduced by SEK 0 million (22) as a result of actual credit losses, and was in creased by SEK 8 million (2) as a result of changes in the provision for anticipated credit losses. At 31 December 2009 trade receivables of SEK 120 million (144) had been due for payment for more than 15 days, excluding trade receivables for which provi sions had been made. The maturity structure of these items is shown in the next table: total number of shares outstanding 83 996 162 Issued call options, B shares 758 300 Share capital Parent company Registrered share capital Class A Class B total number of shares Bought back class B shares 31 Dec 2008 Quotient value Number 50 50 22 623 234 62 132 928 84 756 162 760 000 SEKm 1 131.2 3 106.6 4 327.8 total number of shares outstanding 83 996 162 Issued call options, B shares 758 300 The company’s share capital consists of shares issued in two classes, class A, each of which carries ten votes, and class B, each of which carries one vote, but there are no other differences in rights between the two share classes. At 31 December 2009 the Group’s own shareholding was 760 000 shares (760 000). None of the Group’s own shares were sold during the year. The Board proposes that the AGM, to be held on 24 March 2010, approves a dividend of SEK 7 per share. The proposed dividend totals SEK 588 million. The preceding year, the dividend paid was SEK 9 per share (SEK 756 million). Assets and liabilities measured at fair value according to Chapter 4 Section 14a of the Swedish Annual Accounts Act had a negative impact of SEK 132 million (1 294) on parent company equity. In the Group, valuation of derivatives and other financial instruments had a negative impact of SEK 96 million (1 291) on equity. Holmen’s profitability target is a return that is consistently above the market based cost of capital. Decisions on ordinary dividend are based on an appraisal of the Group’s profitability, future investment plans and financial position. The aim is to have a robust financial position with a debt/equity ratio in the interval of 0.3– 0.8. Neither the parent company nor the subsidiaries are subject to external capi tal requirements, except for Holmen Försäkring AB, the Group’s insurance com pany that insures Group companies internally, which complies with the Swedish Financial Supervisory Authority’s regulations on the ratio between equity and risk. For more details about the Group’s capital management, see the administra tion report on pages 46 and 48. 7 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e S note 18 Pension provisions Holmen has defined benefit occupational pension plans for its salaried employ- ees in Sweden (ITP plan) and for most of its employees in the UK. These plans provide benefits based on final salary and period of employment. The scheme in the UK has been closed for new entrants since the end of June 2004. Since then, new employees have been offered a defined contribution pension scheme. Occupational pension plans for “blue-collar” employees in Sweden are defined contribution plans. The commitments arising out of the pension schemes in the UK are placed in trusts. The defined benefit commitments over and above the ITP plan for Group management in Sweden are secured by means of a pension fund. These commit- ments are recognised in the consolidated accounts as defined benefit plans in accordance with IAS 19. Most of the defined benefit pension commitments on behalf of salaried employees in Sweden are secured by means of insurance poli- cies with Alecta. As Alecta cannot provide sufficient information to permit the ITP plan to be stated in the accounts as a defined benefit plan it is stated in accor- dance with statement UFR 6 of the Swedish Financial Reporting Board as a de- fined contribution plan. The year’s premiums for pension insurance policies taken out with Alecta amounted to SEK 37 million (24), of which SEK 35 million (22) relates to old age and family pensions. These are included among staff costs in the income statement. Alecta’s surplus can be allocated to policyholders and/or the persons insured. At the end of 2009, Alecta’s collective consolidation level was 141 per cent (112). Of the Group’s total commitments, SEK 53 million (68) refers to those that are not funded, while the rest are wholly or partially funded commitments. Of the parent company’s commitments, SEK 43 million (58) are secured under the act on safe- guarding pension obligations, Tryggandelagen. Plan assets by type are as shown below: Plan assets Equity Bonds Current fixed income investments Group Parent company 2009 2008 2009 2008 611 691 84 457 617 125 52 85 0 35 89 1 1 385 1 199 137 125 The plan assets do not include any financial instruments issued by Group companies or assets used by the Group. Key actuarial assumptions, Group (weighted average), % Discount rate Expected return on plan assets Pay increases in the future Inflation in the future 2009 31 Dec 2008 31 Dec 5.5 5.5 4.2 3.4 5.4 4.9 3.9 2.9 Pension costs Defined benefit plans Staff cost Finance income Finance costs Total defined benefit plans stated in income statement Defined contribution plans Staff cost total recognised in income statement Group Parent company 2009 2008 2009 2008 The expected return on fixed income securities was estimated on the basis of highly rated long-term bonds; in the case of shares, a risk premium was added. -17 0 -28 -20 2 -7 -45 -25 7 0 -3 4 -10 - -1 -11 -145 -190 -104 -129 -132 -128 -92 -103 A discount rate of 4.2 per cent (4.0) and salary levels at the balance sheet date were used for calculating the amount of the parent company’s pension commitment. Five-year figures, Group 2009 2008 2007 2006 2005 Present value of commitments -1 706 -1 553 -1 769 -1 866 -1 818 Fair value of plan assets Net 1 385 -320 1 199 1 521 1 510 1 400 -354 -247 -356 -418 Adjustments based on experience Defined benefit commitments Plan assets -11 131 -3 -237 4 -6 15 32 The Group’s payments into the funded defined benefit plans in 2010 are expected to amount to SEK 51 million. The year’s actuarial adjustment for the Group was SEK 15 million (-169), in- cluding the cost of associated special employer’s contribution of SEK 2 million (7), which was recognised in other comprehensive income. The accumulated actuarial revaluation amounts to a cost of SEK 113 million (128). The change in the defined benefit commitments and the change in plan assets are specified in the table below. Most of the commitments relate to the pension plans in the UK. Group Parent company 2009 2008 2009 2008 Commitments Commitments at 1 January -1 553 -1 769 -189 -183 Cost of employment during current period Interest costs Actuarial gains/losses Premiums paid by employees Pensions paid Transferred from provisions Settlements Exchange differences -21 -87 -118 -7 105 -13 4 -16 -20 -88 75 -7 89 -36 6 198 -6 -3 - - 31 -13 - - 0 -1 - - 24 -36 6 - Commitments at 31 December -1 706 -1 553 -180 -189 Plan assets Fair value of assets at 1 January 1 199 1 521 125 135 Expected return Actuarial gains/losses Real return (parent company) Premiums paid by employer Premiums paid by employees Pensions paid Exchange differences Fair value of assets at 31 December Pension provisions, net 59 131 - 53 7 -74 11 1 385 -320 83 -237 - 54 7 -63 -167 1 199 -354 - - 19 - - -8 - 137 -43 - - 10 - - - - 125 -64 H O L M E N A N N U A L R E P O R T 2 0 0 9 7 9 n o t e S note 19 other provisions Group Carrying amount at start of year Provisions during the period Utilised during the period Translation differences Closing carrying amount Of which non-current part of the provisions Of which current part of the provisions Parent company Carrying amount at start of year Provisions during the period Utilised during the period Closing carrying amount Of which non-current part of the provisions Of which current part of the provisions Provisions for taxes Silviculture provision Other provisions 2009 2008 2009 2008 2009 2008 2009 692 - - - 692 692 - 45 - - 45 45 - 426 267 - - 692 692 - 45 - - 45 45 - 153 100 -93 - 161 71 90 153 100 -93 161 71 90 141 101 -88 - 153 54 99 141 101 -88 153 54 99 511 145 -132 -3 522 338 184 496 30 -128 398 269 129 193 391 -74 0 511 333 178 46 522 -72 496 320 177 1 357 246 -224 -3 1 375 1 102 274 695 130 -221 604 386 218 Total 2008 759 759 -162 0 1 357 1 080 277 231 623 -160 695 419 275 Holmen has made a provision of SEK 692 million to cover disputes and uncer- tainties relating to taxes. Holmen has one large tax case still in progress, affecting MoDo Capital, a Holmen subsidiary. In January 2010, the County Administrative Court did not rule in favour of the company, resulting in tax expense estimated at a total of about SEK 640 million. The provision for taxes covers this expense; it is thus not anticipated that the expense will affect the Group’s earnings. Holmen will appeal against the judgment to the Administrative Court of Appeal. The silviculture provision relates to a provision to cover coming reforestation measures to be taken after completion of final harvesting. The measures are normally carried out within three years after harvesting. Other provisions primarily relate to obligations to restore the environment, as well as staff costs and restructuring costs. In 2009 production ceased on Workington’s BM1 board machine, and major staff cuts were initiated at Braviken Paper Mill. In 2008, operations ceased at Wargön Mill, and production was dis- continued on the PM 2 machine and the line for recovered paper at Hallsta Paper Mill. By the end of 2009, provisions of SEK 254 million had been made to cover the costs of these restructuring measures. note 20 operating liabilities note 21 operating leases Group Parent company 2009 2008 2009 2008 In 2009, the Group’s lease payments amounted to SEK 25 million (23), and the parent company’s to SEK 9 million (12). The Group’s lease agreements relate to forklift trucks. No new lease agreements of any significance for the business were entered into during the 2009 financial year. No leased equipment was rented out. The breakdown of future lease payments is as follows: Group Parent company 2011 –2015 2010 2016– 2010 2011 –2015 2016– Future lease payments Present value of future lease payments 21 21 19 18 - - 8 7 0 0 - - The contracts have remaining durations ranging from 1 to 5 years. The Group’s future lease payments for existing lease agreements amounted to SEK 33 million at the end of 2008. Those in the parent company amounted to SEK 6 million. Apart from lease agreements, Holmen has time charter contracts in respect of five ships that are used to distribute the company’s products. The contracts were entered into in 2006 and 2008 and run for a remaining 1 to 7 years. Trade payables Group companies Associates Other total trade payables Current liabilities Associates Other Derivatives Accruals and deferred income - 39 - 62 1 872 1 911 2 220 2 282 129 0 1 360 1 489 - 253 258 637 2 237 1 191 727 - 203 298 429 930 136 - 1 602 1 738 2 193 1 235 509 1 938 total other operating liabilities 1 149 2 157 total operating liabilities 3 060 4 439 2 419 3 676 All trade payables are due for payment within one year. Accruals and deferred income in the parent company mainly consists of staff costs of SEK 207 million (225) and discounts of SEK 46 million (60). Fair values of derivatives relate substantially to hedging of future cash flows; see notes 2 and 14. 8 0 H O L M E N A N N U A L R E P O R T 2 0 0 9 n o t e S note 22 Pledged collateral and contingent liabilities Pledged collateral value Contingent liabilities 2009 2008 2009 2008 Property mortgages Other collateral Total pledged collateral Total pledged collateral 2009 2008 Surety on behalf of Group companies Other contingent liabilities total - 140 140 - 671 671 602 86 688 444 321 766 Group Parent company Group For own liabilities Financial liabilities total Parent company For own liabilities Financial liabilities total 6 6 6 6 15 15 - 0 21 21 6 6 25 25 6 6 The parent company’s surety on behalf of Group companies relates mainly to surety for loans in the subsidiary Holmen Energi Elhandel AB. On the basis of the Swedish Environmental Code, the Swedish environmental authorities may raise the issue of soil tests and site restoration at discontinued units. Responsibility for restoring the environment is determined from case to case, often with the aid of a reasonability assessment. Holmen has environment- related contingent liabilities that cannot at present be quantified, but that could involve costs in the future. note 23 Related parties Of the parent company’s net sales of SEK 13 436 million (14 382), 0.8 (0.9) per cent relates to deliveries to Group companies. The parent company’s purchases from Group companies amounted to SEK 143 million. There are significant financial receivables and liabilities between the parent company and its Swedish subsidiaries, which do not carry interest. The parent company has a related party relationship with its subsidiaries (see note 24). L E Lundbergföretagen AB is a large shareholder in Holmen (see page 29). Holmen rents office premises for SEK 7 million (7) from Fastighets AB L E Lundberg, which is a group company within L E Lundbergföretagen AB. In 2009, Fredrik Lundberg, who is CEO and principal shareholder in L E Lundbergföretagen, received a fee of SEK 550 000 as Board chairman of Holmen. Transactions with related parties are priced at market-based conditions. The equity holdings in associates that produce hydro and wind power entitle the Group to buy the electricity produced at cost price in relation to the shareholding, which means that the associate only earns a limited profit. Purchased electricity is sold to exter- nal customers at market price, and the earnings are stated in the consolidated accounts within the Holmen Energi business area. In Spain, energy and recovered paper are purchased from associates. transactions with related parties Group Associates Parent company Subsidiaries Associates Sale of products to related parties Purchase of products from related parties Other (e.g. interest, dividend) Liability to related parties Receivable from related parties 2009 220 103 220 2008 190 134 190 2009 273 143 0 2008 384 291 - 2009 1 1 146 1 2008 1 2009 39 2008 64 41 1 2 322 3 813 0 2 2009 194 2 716 87 2008 104 2 842 104 For fees and remuneration paid to members of the Board see note 5. H O L M E N A N N U A L R E P O R T 2 0 0 9 8 1 n o t e S note 24 Interests in Group companies Parent company Accumulated acquisition cost Carrying amount at start of year Purchases Shareholder contribution Sales Closing balance at 31 December Accumulated revaluations Carrying amount at start of year Closing balance at 31 December Accumulated impairment losses Carrying amount at start of year Impairment losses for the year Closing balance at 31 December Closing carrying amount 2009 2008 17 426 17 397 - 323 -1 073 208 228 -407 16 676 17 426 2 299 2 299 2 299 2 299 4 222 4 222 436 - 4 658 4 222 14 318 15 503 The parent company’s impairment losses on participating interests in Group companies are recognised in the income statement in the line item Impairment losses on financial non-current assets, and refer to holdings in Swedish subsidiaries. Several mergers took place within the Group during the year, aiming to simplify the company’s structure in Sweden; Iggesund Kraft AB, Junkaravan AB and MoDo Holding AB were merged with Holmen Energi Elhandel AB. In conjunction with the mergers, Holmen AB transferred its shares in the relevant subsidiaries to Holmen Energi Elhandel AB, reported in the line item Sales (negative: SEK 1 073 million). The transfer took place at the carrying amount. Parent company’s direct holdings of interests in subsidiaries Corporate ID No. Registered office No. of shares Interest, %* Carrying amount SEK thousands Interest, %* Carrying amount SEK thousands 2009 2008 Holmen Paper AB 556005-6383 Norrköping Iggesund Paperboard AB 556088-5294 Hudiksvall Holmen Timber AB Holmen Skog AB Holmen Energi AB Fiskeby AB 556099-0672 Hudiksvall 556220-0658 Örnsköldsvik 556524-8456 Örnsköldsvik 556000-9218 Norrköping Holmen Energi Elhandel AB 556537-4286 Stockholm Holmens Bruk AB 556002-0264 Norrköping Holmen Försäkring AB 516406-0062 Stockholm AB Iggesunds Bruk Iggesund Kraft AB Junkaravan AB MoDo Capital AB MoDo Holding AB 556000-8053 Hudiksvall 556422-0902 Örnsköldsvik 556227-3630 Örnsköldsvik 556499-1668 Stockholm 556537-6281 Örnsköldsvik Skärnäs Terminal AB 556008-3171 Hudiksvall Other Swedish Group companies total Swedish holdings Holmen France Holding S.A.S., France Iggesund Decoupe France, S.A., France ** Holmen UK Ltd, UK Holmen Paper UK Ltd ** Iggesund Paperboard (Workington) Ltd ** Holmen GmbH, Germany Holmen Suecia Holding S.L., Spain Holmen Paper Madrid S.L. ** Cartón y Papel Reciclado S.A. (Carpa), Spain ** Paris Valence Workington London Workington Hamburg Madrid Madrid Madrid 100 1 000 1 000 1 000 1 000 2 000 000 1 000 49 514 201 10 000 6 002 500 - - 1 000 - 4 800 40 000 - 1 197 100 - - 9 448 557 - - Iggesund Paperboard Asia Pte Ltd, Singapore Singapore 800 000 Iggesund Paperboard Europe B.V., the Netherlands Amsterdam Iggesund (Paper & Board) Services B.V. ** AS Holmen Mets, Estonia Other non-Swedish Group companies total non-Swedish holdings total Utrecht Tallinn 35 - 500 * Percentage of shares and percentage of votes for the total number of shares are the same. ** Indirect holding. 8 2 H O L M E N A N N U A L R E P O R T 2 0 0 9 100 100 100 100 100 100 100 100 100 100 - - 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 83 100 646 160 100 4 286 121 45 304 3 932 558 - - 71 552 - 2 913 3 211 8 988 402 5 192 - 1 518 959 - - 655 3 577 265 - - 4 273 207 733 - - 15 029 5 329 106 14 317 508 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 83 100 646 160 100 4 286 121 45 175 3 932 558 61 361 549 125 96 588 462 372 2 913 90 836 10 173 793 5 192 - 1 518 959 - - 655 3 577 265 - - 4 273 207 733 - - 15 122 5 329 199 15 502 992 note 25 Untaxed reserves Parent company 2009 Appropriations 31 Dec Accumulated depreciation and amortisation in excess of plan Intangible non-current assets Property, plant and equipment total tax allocation reserve Assessment of tax 2004 Assessment of tax 2005 Assessment of tax 2006 Assessment of tax 2007 Assessment of tax 2008 Assessment of tax 2009 Assessment of tax 2010 total 4 9 13 0 0 520 490 570 55 715 2 350 2 363 0 5 5 -518 -590 715 -393 -388 31 Dec 2008 4 4 8 518 590 520 490 570 55 2 743 2 751 note 26 Cash flow statement Group Parent company Interest paid and dividends received 2009 2008 Dividends received Interest received Interest paid total - 7 -287 -280 - 14 -335 -320 2009 1 156 19 -272 903 2008 15 87 -331 -229 Change in current liabilities The change in current liabilities mostly relates to borrowing within the Group’s commercial paper programme and to utilisation of the Group’s long-term committed credit facility. In 2009, a number of different short-term loans amount- ing in total to SEK 8 760 million (9 327) were raised within the Group’s commer- cial paper programme, and SEK 9 295 million (11 398) was repaid. Several dif- ferent short-term loans amounting in total to SEK 1 880 million (2 702) were raised in 2009 within the Group’s long-term credit facility, and SEK 4 131 million (516) were repaid. For a specification of cash and cash equivalents see Note 14. note 27 Key assessments and estimates When preparing financial reports the company’s management is required to make assessments and estimates that have an effect on the stated amounts. The assessments and estimates that, in the view of the company’s management, are of importance for the amounts stated in the annual report, and for which there is a significant risk that future events and new information could alter these assess- ments and estimates, mainly include: Biological assets Holmen’s assessment is that no relevant market prices are available that can be used to value forest holdings as extensive as Holmen’s. The valuation is therefore made by calculating the present value of future expected cash flows from the growing forests. The most material estimates made relate to how much harvest- ing can be increased in the future, what changes there will be in pulpwood and timber prices, how high inflation will be, and what discount rate is used. Note 12 provides a sensitivity analysis for the valuation of changes in these estimates. The carrying amount of biological assets at 31 December 2009 was SEK 11 109 million and the attributable deferred tax liability SEK 2 922 million, to give a net value of SEK 8 187 million. n o t e S tax Holmen has one large tax case still in progress, affecting MoDo Capital, a Holmen subsidiary. In January 2010, the County Administrative Court did not rule in favour of the company, resulting in tax expense estimated to total SEK 640 million. The provision for taxes covers this expense; it is thus not anticipated that it will have any impact on the Group’s earnings. Holmen will appeal against the judg- ment to the Administrative Court of Appeal. See notes 8, 19 and 22. Net deferred tax assets of SEK 307 million are recgonised in the consolidated accounts on the basis of the assessment that it will probably be possible to utilise them to reduce tax payments in the future. Over and above this , at year-end the Group had loss carry-forwards and fiscal temporary differences corresponding to tax of some SEK 570 million not stated in the consolidated accounts on the grounds for assessment that utilisation must be likely. See note 8. Pensions The Group’s provision for pensions amounts to SEK 320 million on the basis of defined benefit pension commitments valued at SEK 1 706 million and plan assets of SEK 1 385 million provided to cover them. The value of pension com- mitments is estimated on the basis of assumptions regarding discount rates, inflation, future pay increases, and demographic factors. These assumptions are normally updated each year, which has an effect on the size of the recognised pension liability and equity. Together with assumptions regarding the expected return on plan assets, these assumptions will have an influence on the coming year’s recognised pension cost. See note 18. environment Provisions have been made to cover environmentally-related measures associ- ated with former activities based on estimated future site-restoration costs. Moreover it is judged that the company has a responsbility for environ mental measures that cannot at present be quantified but that could involve costs in the future. See note 22. Restructuring In 2009 production ceased on Workington’s BM 1 board machine, and major staff cuts were initiated at Braviken Paper Mill. In 2008, operations ceased at Wargön Mill, and production was discontinued on the PM 2 paper machine and the line for recovered paper at Hallsta Paper Mill. By the end of 2009, provisions of SEK 254 million had been made to cover the costs of these restructuring meas- ures. The uncertainty regarding the amount of the provision relates primarily to the cost of restoring the mill site and how much income will be received from the sale of machinery. Restructuring costs normally arise as a consequence of changes in the business. The Group makes minor changes on an ongoing basis, and costs associated with these are not normally specified separately. No major changes have been announced, but, should the situation alter, further provisions may become necessary. Impairment testing Holmen has an obligation to carry out regular impairment testing to determine the need to state new impairment losses and/or reversals. In 2007 impairment losses of SEK 1 603 million were recognised on goodwill and property, plant and equipment within the Holmen Paper business area. This impairment was based on estimates of recoverable amounts using assumptions regarding future changes in prices, volumes and costs, as well as the estimated market cost of capital. Changes in conditions may have an effect on the estimated recoverable amount applied in connection with future impairment tests. Uncertainty about trends in the demand for and price of newsprint is greater than usual. H O L M E N A N N U A L R E P O R T 2 0 0 9 8 3 P r oPo s e d t r e a t m e n t o f u n aP Pr oPr i a t e d e a r n i n g s Proposed treatment of unappropriated earnings The following unappropriated earnings of the parent company are at the disposal of the Annual General Meeting: Net profit for the 2009 financial year Retained earnings brought forward The Board of Directors propose that an ordinary dividend of SEK 7 per share (83 996 162 shares) be paid to shareholders and that the remaining amount be carried forward SEK 1 664 178 896 3 112 287 430 4 776 466 326 587 973 134 4 188 493 192 4 776 466 326 The Board of Holmen AB has proposed that the 2010 Annual General Meeting resolves in favour of paying a dividend of SEK 7 per share, a total of SEK 588 million, which is a reduction of SEK 2 per share compared to the previous year. The proposed dividend means that 4 per cent of the Group’s equity at 31 December 2009 will be paid out by way of dividend. The proposal complies with the Board’s policy, in that decisions on dividend are to be based on an appraisal of the Group’s profitability, future investment plans and financial position. The proposed dividend corresponds to 58 per cent of the net profit for 2009. The Board has established that the Group shall have a strong financial position with a debt/equity ratio – defined as net financial debt in relation to equity – in the interval between 0.3 and 0.8. The debt/equity ratio at 31 December 2009 was 0.34. Payment of the proposed dividend would raise the debt/equity ratio by around 0.05. Holmen AB’s equity at 31 December 2009 amounted to SEK 10 691 million, of which non-restricted equity was SEK 4 776 million. The Group’s equity on the same date amounted to SEK 16 504 million. Complying with IFRS, no distinction is made at Group level between restricted and non-restricted equity. The Board considers that payment of a dividend of the amount proposed is justifiable in view of the demands made on the company and the Group by the na- ture, extent and risks associated with the business in terms of the amount of equity required, and taking into account the need for consolidation, liquidity and financial position in other respects. The financial position will remain strong after payment of the proposed dividend and is considered to be fully adequate to enable the company to fulfil its obligations in both the short and the long term, as well as to finance such investments as may be necessary. The Board and CEO declare that the annual report was prepared in accordance with generally accepted accounting principles in Sweden and the Group’s fi- nancial statements were prepared in accordance with the international accounting standards referred to in the European Parliament’s and Council’s regulation (EG) No. 1606/2002 of 19 July 2002 concerning the application of international accounting standards. The annual report and the Group’s financial statements provide a true and fair picture of the performance and financial position of the parent company and the Group. The administration report for the parent compa- ny and the Group provides a true and fair picture of the development of the operations, financial position and performance of the Group and the parent com- pany and also describes material risks and uncertainties to which the parent company and the other companies in the Group are exposed. The annual report and the Group’s financial statements were approved for publication by the Board in its decision of 22 February 2010. The Group’s income statement and balance sheet and the parent company’s income statement and balance sheet will be presented for adoption at the Annual General Meeting that will be held on 24 March 2010. Stockholm, 22 February 2010 fredrik Lundberg Chairman Kenneth Johansson Board member Carl Bennet Board member Carl Kempe Deputy chairman steewe Björklundh Curt Källströmer Board member Board member ulf Lundahl Board member göran Lundin Board member Karin norin Board member Lilian fossum Board member Hans Larsson Board member magnus Hall Board member and Chief Executive Officer Our audit report was submitted on 24 February 2010. KPMG AB george Pettersson Authorised public accountant 8 4 H O L M E N A N N U A L R E P O R T 2 0 0 9 au d i t rePo r t Audit report To the Annual General Meeting of the shareholders in Holmen Aktiebolag. Corporate identity No. 556001-3301 We have audited the annual report, the Group’s financial statements, the accounting records and the administration of the Board of Directors and the CEO of Holmen AB for the year 2009. The annual report and the Group’s financial statements are included in the printed version of this document on pages 42–84. The Board of Directors and the CEO have responsibility for these accounts and the administration of the company as well as for the application of the Swedish Annual Accounts Act when preparing the annual report and the application of international financial reporting standards IFRS as adopted by the EU and the Swedish Annual Accounts Act when preparing the Group’s financial statements. Our responsibility is to express our opinion on the annual report, the Group’s financial statements and the administration on the basis of our audit. We carried out our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable but not absolute assurance that the annual report and the Group’s financial statements are free from material misstatement. An audit inclu- des examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the CEO and significant estimates made by the Board of Directors and the CEO when preparing the annual report and the Group’s financial statements as well as evaluating the overall presentation of the information in the annual report and the Group’s finan- cial statements. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any Board member or the CEO. We also examined whether any board member or the CEO in any other way acted in contravention of the Swedish Companies Act, the Swedish Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual report were prepared in accordance with the Swedish Annual Accounts Act and gives a true and fair view of the company’s financial position and the result of its operations in accordance with generally accepted accounting principles in Sweden. The Group’s financial statements were prepared in accor- dance with international financial reporting standards IFRS as adopted by the EU and the Swedish Annual Accounts Act and give a true and fair view of the Group’s financial position and the result of its operations. The administration report is consistent with the other parts of the annual report and the Group’s financial statements. We recommend to the Annual General Meeting of shareholders that the income statements and balance sheets of the parent company and the Group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the administration report and that the members of the Board of Directors and the CEO be discharged from liability for the financial year. Stockholm, 24 February 2010 KPMG AB george Pettersson Authorised public accountant H O L M E N A N N U A L R E P O R T 2 0 0 9 8 5 an n u aL ge n e r aL me e t i n g Annual General Meeting dividend The Board has proposed that a dividend of SEK 7 (9) per share be paid to shareholders. The Board has proposed Monday 29 March 2010 as the record date for entitlement to dividend. Provided the Annual General Meeting resolves in favour of the proposal, the dividend is expected to be distributed by Euroclear Sweden on Thursday 1 April 2010. Shareholders are requested to inform their account operator of any change of name and/or address. annual report The Annual Report for 2009 will be posted in the week starting 8 March to shareholders who have indicated their wish to receive it in this way. New shareholders will be informed in connection with the distribution of the share- holder magazine Holmen Business Report, how to order and cancel printed and electroni- cally transmitted financial information via the website under Shareholder service. sustainability report Holmen and its World 2009 will be published at the same time as the Annual Report and will describe Holmen’s holistic approach to the environment, social responsibility and financial development. The complete sustainability report for 2009 is available on the website. The report will be posted in the week starting 15 March to shareholders who have indicated their wish to receive it in this way. availability and languages The financial information and Holmen and its World 2009 are available on the website in both English and Swedish. Holmen and its World is also available in Spanish. All material is available on the website, where you can also place orders and start subscriptions. You can also do this via: The 2010 Annual General Meeting of Holmen AB will be held at “Vinterträdgården”, Grand Hôtel (the Royal entrance), Stockholm, at 4.00 p.m. CET on Wednesday 24 March. Participation in annual general meeting Shareholders who wish to participate in the Annual General Meeting shall be entered in the register of shareholders maintained by Euro- clear Sweden AB no later than Thursday 18 March 2010, and shall notify the company by no later than Thursday 18 March 2010 at: Holmen AB Group Legal Affairs P.O. Box 5407 SE-114 84 Stockholm Sweden Notification may also be made via the compa- ny’s website www.holmen.com or by telephone +46 8 666 21 11 or by fax +46 660 759 78. Shareholders whose shares are registered in a nominee name should temporarily re-register their shares in their own name with Euroclear Sweden so that this takes effect no later than Thursday 18 March 2010 to be entitled to participate in the Annual General Meeting. Holmen AB Group Public Relations P.O.Box 5407 SE- 114 84 Stockholm Sweden Phone +46 8 666 21 00 Fax +46 8 666 21 30 e-mail: info@holmen.com 8 6 H O L M E N A N N U A L R E P O R T 2 0 0 9 Information two reports for 2009 Holmen’s shareholders are the main target reader- ship for the annual report, which is published in both English and Swedish. It is posted in the week starting 8 March to shareholders who have indi- cated their wish to receive it in this way. In addition to its annual report Holmen also publishes a sepa- rate sustainability report entitled Holmen and its World. This is written for a broad readership, including customers, employees, school pupils and local residents where Holmen has large facilities. The sustainability report is published in Swe- dish and English in connection with the Annual General Meeting. A Spanish version is published in May. The annual report and the sustainability report are avaliable at and can be ordered from Holmen’s website. i n f o r m a t i o n online press conferences The interim and year-end reports are presented at press and teleconferences in English. The conferences can also be accessed live on Holmen’s website. Holmen Business report The interim reports are presen- ted in our shareholder maga- zine Holmen Business Report, which is published along with the quarterly reports. The magazine also includes the CEO’s comments, news and articles on current Holmen events. Holmen Business Report can be ordered via Holmen’s website www.holmen.com and it is published in Swedish and English. Website You can follow Holmen’s progress throughout the year by visiting the company’s website: www.holmen.com New information was added during 2009, primarily based on the needs and interests of shareholders and investors. Extensive historic data, such as the price trend of the Holmen share over the years and dividend history, are available under the headings Investors and share holders, The share. Shareholders can also easily calculate the return that they have received on their own shareholding. The website gives visitors access to analysis tools for the income statements of the Group and its business areas. The cash flow statement and key indicators are also presented. Additionally, you can read about the Group’s financing, ratings and maturity structure of loans and get access to press releases, printed matter and other published information. reporting schedule For 2010 Holmen will publish the following financial reports: Interim report, January–March Interim report, January–June Interim report, January–September Year-end report for 2010 6 may 11 august 26 october 2 february 2011 For 2011 Holmen will publish the following financial reports: Interim report, January–March Interim report, January–June Interim report, January–September 6 may 17 august 26 october Annual General Meeting 2011 30 march H O L M E N A N N U A L R E P O R T 2 0 0 9 8 7 de f i n i t i o n s a n d gLo s s a r y Definitions and glossary definitions Capital employed Cash flow after investments debt/equity ratio earnings per share (ePs) equity/assets ratio financial assets net financial debt Operating capital reduced by the net sum of deferred tax assets and deferred tax liabilities. Average values are calcu- lated on the basis of quarterly data. glossary Biofuel/biorefining diP/de-inked Pulp Cash flow from operating activities, less cash flow from investing activities. fBB/folding Box Board Net financial debt divided by the sum of equity and minority interests, if any. fsC Profit for the year divided by the weighted average number of shares outstanding, adjusted for buy-back of shares, if any, during the year. Diluted EPS means that any diluting effect from outstanding call options has been taken into account. Equity plus minority interests, if any, expressed as a percentage of total assets. Non-current and current financial receivables and cash and cash equivalents. Non-current and current financial liabil ities and pension provisions, less financial assets. items affecting comparability See the ten-year review on page 40. operating capital operating margin return on capital employed return on equity return on operating capital Total assets, less financial receiv ables, cash and cash equivalents, deferred tax assets, operating liabilities, tax provision and other provisions. Average values are calculated on the basis of quarterly data. Operating profit/loss (excl. items affecting comparability) expressed as a percentage of net sales. Operating profit/loss (excl. items affecting comparability and transferred operations) expressed as a percentage of the average capital employed. Profit for the year, expressed as a percentage of the average equity calculated on the basis of quarterly data. Operating profit/loss (excl. items affecting comparability and transferred operations) expressed as a percentage of the average operating capital. 8 8 H O L M E N A N N U A L R E P O R T 2 0 0 9 Renewable fuels, such as wood (including liquors, bark and crude tall oil). Pulp manufactured from de-inked recovered paper. Multi-layered paperboard made from mechanical and chemical pulp. Forest Stewardship Council. An inter- national forest certification system to promote use of the world’s forests in ways that are acceptable according to three sets of criteria: environmental, social and economic. Mechanical pulp produced by grinding wood against a grindstone. Lightweight coated wood-containing paper. Mainly used for magazines, manuals and directories. groundwood pulp LWC/Light Weight Coated mf special/machine finished Includes standard and coloured newsprint. mWC/medium Weight Coated Medium weight coated wood-containing PefC paper. Used for magazines, manuals, directories and advertising print. Programme of the Endorsement of Forest Certification schemes. An international forest certification system. In Sweden the PEFC and FSC standards are broadly identical. rmP/refiner mechanical Pulp Pulp produced from the refining of chips sBB/solid bleached board sC/super Calender sulphate pulp with or without chemical or thermal treatment. Multi-layer paperboard made from bleached chemical pulp. Super calendered paper. Uncoated, glazed magazine paper. Chemical pulp that is produced by cooking wood under high pressure and at a high temperature together with white liquor (sodium hydroxide and sodium sulphide). tmP/thermo-mechanical Obtained by heating spruce chips and then grinding them in refiners. Virgin fibre board Paperboard produced from fibre that has not previously been used to make paper- board or paper, in contrast to recycled fibre/recovered fibre. Addresses Holmen AB Head office (Strandvägen 1) P.O. Box 5407 SE-114 84 STOCKHOLM SWEDEN Tel +46 8 666 21 00 Fax +46 8 666 21 30 E-mail info@holmen.com www.holmen.com Holmen Paper AB (Vattengränden 2) SE-601 88 NORRKÖPING SWEDEN Tel +46 11 23 50 00 Fax +46 11 23 63 04 Iggesund Paperboard AB SE-825 80 IGGESUND SWEDEN Tel +46 650 280 00 Fax +46 650 288 00 E-mail info@iggesund.com Holmen Timber AB P.O. Box 45 SE-825 21 IGGESUND SWEDEN Tel +46 650 280 00 Fax +46 650 203 80 E-mail info@holmentimber.com Holmen Skog AB (Hörneborgsvägen 6) SE-891 80 ÖRNSKÖLDSVIK SWEDEN Tel +46 660 754 00 Fax +46 660 759 85 E-mail info@holmenskog.com Iggesunds Bruk (Mill) SE-825 80 IGGESUND SWEDEN Tel +46 650 280 00 Fax +46 650 285 32 E-mail info@iggesund.com Workington Mill WORKINGTON Cumbria CA14 1JX UK Tel +44 1900 601000 Fax +44 1900 605000 E-mail info@iggesund.com Holmen Paper Hallsta SE-763 81 HALLSTAVIK SWEDEN Tel +46 175 260 00 Fax +46 175 264 01 Holmen Paper Braviken SE-601 88 NORRKÖPING SWEDEN Tel +46 11 23 50 00 Fax +46 11 23 66 30 Holmen Paper Madrid Parque Industrial La Cantueña C/del Papel 1 ES-28947 FUENLABRADA (Madrid) SPAIN Tel +34 91 642 0603 Fax +34 91 642 2470 Holmen Energi AB (Hörneborgsvägen 6) SE-891 80 ÖRNSKÖLDSVIK SWEDEN Tel +46 660 754 00 Fax +46 660 755 10 E-mail info@holmenenergi.com Iggesunds Sågverk (Sawmill) P.O. Box 45 SE-825 21 IGGESUND SWEDEN Tel +46 650 280 00 Fax +46 650 284 48 E-mail info@holmentimber.com Bravikens Sågverk (Sawmill) SE-601 88 NORRKÖPING SWEDEN Tel +46 11 23 50 00 Fax +46 11 23 62 19 E-mail info@holmentimber.com The complete list of addresses is available on Holmen’s website www.holmen.com The cover of the annual report is printed on Iggesund Paperboard’s solid bleached board, Invercote® Creato 280 gsm. It is embossed and UV-varnished. The annual report is produced by Holmen. Graphic production: Gylling Produktion Layout: AD Reklambyrå and Energi Reklambyrå Photos: Rolf Andersson and others Print: Trosa Tryckeri Translation: Translator Scandinavia AB Contents CEO’s message _____________ 1 Administration report ______44 Annual General Meeting ____86 The year in brief______________ 2 Income statement __________52 Information _________________ 87 Holmen in brief ______________ 4 Business concept, strategy and goals ___________ 6 Statement of comprehensive income ____52 Balance sheet ______________53 Definitions and glossary _____88 Addresses Holmen in 90 seconds Holmen Paper ______________ 12 Changes in equity __________54 Iggesund Paperboard _______ 16 Cash flow statement ______55 Holmen Timber _____________20 Parent company ____________56 Holmen Skog _______________22 Notes ______________________58 Proposed treatment of unappropriated earnings ____84 Audit report _________________85 Holmen Energi ______________24 Production and raw materials _______________26 The share and shareholders 28 Corporate governance report _____________________ 3 1 Board of directors __________36 Group management ________38 Quarterly figures ____________39 Ten-year review ____________40 Holmen in 90 seconds Operations Strategy Holmen’s business concept is to develop and run profitable business within three product-oriented business areas for printing paper, paper- board and sawn timber as well as two raw-material-oriented business areas for forests and energy. Europe is the key market. The business area Holmen Paper manufactures printing paper for daily newspapers, magazines, directories/manuals, advertising matter and books at two Swedish mills and one Spanish mill. Iggesund Paperboard produces paperboard for consumer packaging and graphics printing at one Swedish and one UK mill. Holmen Timber produces sawn timber in one Swedish sawmill. Annual production capacity is 1 940 000 tonnes of printing paper, 530 000 tonnes of paperboard and 340 000 cubic metres of sawn timber. Holmen Skog manages the Group’s just over one million hectares of forests. The annual volume of wood harvested in company forests is some 2.5 million cubic metres. Holmen Energi is responsible for the Group’s hydro power assets and for developing the Group’s business U C T - ORIE N T E D D O R P T E R I A L-ORIE A N T E D W- M A R Printing paper Grow and develop our ﬁve business areas Forests & wood Electric power & energy Quality, productivity and cost focus Key market is Europe Proﬁtable operations and strong ﬁnancial position Committed in leadership and skilled workforce Sustainable business activities Share price Paperboard Sawn timber Financial targets within the energy sector. Normal yearly production amounts to about Holmen’s profitability shall consistently exceed the market cost 1 100 GWh of electricity at wholly and partly owned hydro power sta- of capital. The company’s financial position shall be strong with a tions in Sweden. Holmen Skog and Holmen Energi are also responsi- debt/equity ratio in the interval of 0.3–0.8. Decisions on dividends ble for the Group’s wood and electricity procurement in Sweden; these are based on an appraisal of the Group’s profitability, future invest- are important input goods for the industrial operations. ment plans and financial position. 2009 2008 2007 2006 2005 Proﬁtability SEKm Income statement Net sales Operating costs Depreciation and amortisation Interest in associates Items affecting comparability Operating profit Net financial items Profit before tax Tax Profit for the year 18 071 19 334 19 159 18 592 16 319 -15 175 -16 630 -15 548 -14 954 -13 205 -1 167 -1 337 20 12 - 557 -1 346 11 - -1 320 45 - -1 343 50 -361 1 620 -255 1 365 -360 1 006 1 051 -311 740 -98 642 2 843 -261 2 582 -1 077 2 303 -247 2 056 -597 1 967 -233 1 734 -478 1 505 1 459 1 256 Operating profit by business area Holmen Paper Iggesund Paperboard Holmen Timber Holmen Skog Holmen Energi Group central Items affecting comparability 340 419 21 605 414 -178 - 280 320 13 632 327 -159 -361 623 599 146 702 272 -56 557 754 752 80 643 197 -123 - 631 626 13 537 301 -141 - Group 1 620 1 051 2 843 2 303 1 967 Cash flow Operating activities Investing activities Cash flow after investments Key indicators Return, % capital employed* equity Debt/equity ratio, times The share Earnings per share, SEK Ordinary dividend, SEK Closing listed price, B, SEK P/E ratio EV/EBIT* * Excl. items affecting comparability ** Proposal of the Board 2 873 -818 2 054 1 660 -1 124 2 476 -1 315 2 358 -947 2 471 -3 029 536 1 161 1 411 -558 7.2 6.4 0.34 12.0 7** 183 15 13 6.1 3.9 0.48 7.6 9 193.5 25 17 10.0 9.2 0.35 17.8 12 240 13 12 10.0 9.0 0.36 17.2 12 298 17 14 9.0 8.0 0.41 14.8 11 262.5 18 15 % 15 10 5 0 SEK 375 325 275 225 175 125 05 06 07 08 09 Return on capital employed Excl. items affecting comparability Required return (before tax) Share price and total return, Holmen B 05 06 07 08 09 Share price Total return Source: Reuters EcoWin n Major shareholders L E Lundbergföretagen Kempe Foundations Handelsbanken incl. pension fund Silchester International Investors Alecta Other % of capital 28.0 7.0 3.1 10.9 3.2 47.8 100.0 26.8 % of votes 52.0 16.9 9.1 3.2 0.9 17.9 100.0 8.0 Holmen AB (publ.) • P.O. Box 5407 • SE-114 84 STOCKOLM • SWEDEN Total* Tel +46 8 666 21 00 • Fax +46 8 666 21 30 • E-mail info@holmen.com • www.holmen.com * of which non-Swedish shareholders Corporate identity 556001-3301 • Registered office Stockholm A n n u a l r e p o r t 2 0 0 9 Annual report 2009

Continue reading text version or see original annual report in PDF format above