Holmen
Annual Report 2019

Plain-text annual report

Annual Report2019 The Board of Directors and the CEO of The basis for the sustainability information Holmen Aktiebolag (publ.), corporate identity presented is the sustainability issues identified number 556001-3301, submit their annual as key in view of the materiality analysis report for the parent company and the Group conducted in 2018. The sustainability work for the 2019 financial year. The annual report is reported in accordance with the Global comprises the administration report (pages Reporting Initiative’s GRI guidelines at Core 2, 4–5, 10–11, 30–31, 33, 34–45, 77, 82–83) level. The Sustainability Report comprises and the financial statements, together with the pages 2, 5–9, 12–13, 16–38, 40–41, 44–45, notes and supplementary information (pages 47, 57, 60–62, 72, 75, 81–84, 88–89 and the 46–76). The statutory sustainability report GRI index on the website holmen.com. The in accordance with the Annual Accounts information is audited by a third party, see Act is included in the annual report (pages separate assurance report at holmen.com. 10–11, 30–31, 33, 36–38, 41). The Group’s consolidated income statement and balance This is a translation of the Swedish annual sheet and the parent company’s income report of Holmen Aktiebolag (publ.). In the statement and balance sheet will be adopted event of inconsistency between the English at the Annual General Meeting. and the Swedish versions, the Swedish version shall prevail. Holmen in brief The trees that grow, the water that rushes down the mighty rivers and the wind that blows through the treetops. This is the heart of Holmen, a business that is all about owning and refining our forests. We make optimum use of the raw material from the forest. In fact we do such a good job that nothing goes to waste. The most valuable parts of the log go towards making wood products. The smaller parts of the tree, wood from thinning work and chips from the sawmills are turned into paperboard 2 Holmen Annual Report 2019 and paper at our mills. And even the bark and sawdust is put to use, as bioenergy. But what about the water and the wind? That becomes renewable energy. The fact is that our production of hydro and wind power is set to increase, furthering the transition to a fossil-free society. And so it continues. We plant new seedlings and manage the growing forest to create ever-better forests with more raw material to refine. Lasting value Holmen creates long-term value and has fantastic potential for the future. Along- side the economic value that we create, our way of managing the forest brings significant climate benefits, along with preserving biodiversity, jobs, thriving rural communities and recreation in Sweden’s natural heritage. Our customers are able to embrace climate-smart building in wood, replace less environmentally friendly packaging with the world’s best paperboard, and print on paper with the unique properties of fresh fibre. We are proud that Holmen delivers concrete solutions to some of society’s major challenges and that our business has a positive impact on the climate. Contents 2019 The year in brief . . . . . . . . . . . . . . . . . 04 CEO’s message . . . . . . . . . . . . . . . . . 06 Strategy and targets . . . . . . . . . . . . . . 08 External factors, market and drivers . . 12 Valuing the forest . . . . . . . . . . . . . . . . 14 Forest . . . . . . . . . . . . . . . . . . . . . . . . . 16 Paperboard . . . . . . . . . . . . . . . . . . . . 18 Paper . . . . . . . . . . . . . . . . . . . . . . . . . 20 Wood Products . . . . . . . . . . . . . . . . . 22 Renewable Energy . . . . . . . . . . . . . . . 24 A sustainable business . . . . . . . . . . . . 26 Employees . . . . . . . . . . . . . . . . . . . . . 33 Corporate governance report . . . . . . . 34 Risk management . . . . . . . . . . . . . . . 40 Shareholder information . . . . . . . . . . . 44 Financial statements . . . . . . . . . . . . . 46 Notes . . . . . . . . . . . . . . . . . . . . . . . 52 Proposed appropriation of profits . . 77 Auditor’s report . . . . . . . . . . . . . . . . 78 Review of Sustainability Report . . . 81 Board of Directors . . . . . . . . . . . . . . . 82 Group management . . . . . . . . . . . . . . 84 Key figures . . . . . . . . . . . . . . . . . . . . . 85 Ten-year review, finance . . . . . . . . . . . 86 Five-year review, sustainability . . . . . . 88 Definitions, glossary and references . . 90 Calendar . . . . . . . . . . . . . . . . . . . . . . 91 Holmen Annual Report 2019 3 The year in brief A focus on the forest The interest in forest investment has been confirmed by a series of major deals involving forest properties in recent years. At year-end Holmen switched to recognising our forests based on transaction prices for comparable areas of land, which more than doubled the book value of our forest holdings to SEK 41 billion. The Group’s operating profit excluding items affecting comparability amounted to SEK 2 345 million, which is good in historical terms but down slightly on the previous year, due to lower profits in paperboard and wood products. The supply of forest raw material was higher than usual due to the summer’s European spruce bark beetle outbreak in southern Sweden. Demand from both the pulp industry and sawmills has, however, been good, enabling Forest to post profits of SEK 1 172 million, more or less matching the previous year. For Paperboard, profits were down on the previous year at SEK 435 million. Two major maintenance shutdowns impacted on profits, along with the challenge of finding a good balance between production and sales, a factor that improved towards the end of the year. Profits at Paper rose to SEK 509 million as a result of price rises implemented at the end of 2018. In 2019, price stability and running down stocks were prioritised over production volumes. Wood Products experienced a weak market balance, with excess supply driven by a glut of raw materials in Central Europe, due to the widespread European spruce bark beetle outbreak. This spike in supply led to significant price drops and profits fell to SEK 62 million. The sale of permits to erect wind turbines on our land, and higher electricity prices caused a rise in revenue from Renewable Energy of over SEK 150 million to SEK 336 million. Thanks to a strong balance sheet, the decision was taken during the year to buy back a total of 6.2 million shares for SEK 1.4 billion. Cash flow from the business was good and, despite the share repurchase and dividend appropriation totalling SEK 2.6 billion, net debt rose by only SEK 1.0 billion. Outlook. There is currently an abundant supply of wood, but over time demand for forest raw material in Sweden is expected Key figures Net sales, SEKm Operating profit, SEKm Operating profit excl. items affecting comparability, SEKm Profit for the year, SEKm Diluted earnings per share, SEK Dividend per share, SEK Return on capital employed, % Cash flow before investments and changes in working capital, SEKm Cash flow from investments, SEKm** Net financial debt, SEKm Net debt as % of equity Average no. of employees (FTE) 2019 16 959 11 115 2 345 8 731 52.6 7* 8.9 2 727 1 050 3 784 9 2 915 2018 16 055 2 382 2 476 2 268 13.5 6.75 9.7 2 500 1 005 2 807 12 2 955 *Board proposal **Net after disposals and before changes in non-current financial receivables to outstrip supply, leading to higher prices. The bark beetle outbreak in southern Sweden has temporarily disrupted the market balance in the region. Although Holmen’s forest has only been mildly affected, there will be an emphasis on dealing with the affected areas as quickly and efficiently as possible in order to limit the negative impacts. Competition has hardened in the paperboard market, but Holmen’s products have a strong position and the ambition is to gradually increase paperboard production as sales rise in the premium segment. The paper market is challenging, and prices began to fall in the second half of the year. The focus on developing fresh fibre-based products that allow customers to save on materials and costs remains in place. The considerable supply of logs in Europe is expected to continue to upset the market balance for wood products into 2020, although some indicators are pointing in the right direction. Market conditions permitting, the investment in increased capacity at Braviken Sawmill will see volumes gradually rise in 2020. Work on erecting the Blåbergsliden wind farm will continue over the next couple of years. When it is operational in late 2021, the facility is expected to generate 440 GWh per year. Work is also continuing on developing more wind power on the Group’s land. In 2019 Holmen’s positive climate footprint hit a net figure of 2.7 million tonnes of carbon dioxide. With increased forest growth and production of climate- smart products, the positive effects on the climate could be even greater in the future. 4 Holmen Annual Report 2019 The year in brief Net sales and operating margin Operating profit/loss and return SEKm 20 000 16 000 12 000 8 000 4 000 0 16 959 13.8 14 15 16 17 18 19 % 20 16 12 8 4 0 Net sales Operating margin* *Excl. items affecting comparability SEKm 2 500 2 000 1 500 1 000 500 0 15 *Excl. items affecting comparability 16 14 17 18 % 15 12 9 6 3 0 2 345 8.9 7.8 19 Operating profit* Return on capital employed* Return on equity, %* Cash flow, SEKm Net debt as % of equity 3 000 2 000 1 000 0 2 727 1 050 1 134 14 15 16 17 18 19 40 30 20 10 0 Investments Dividend Cash flow before investments and changes in working capital 9 14 15 16 17 18 19 Operating profit* Business area, % Capital employed* Business area, % 2 13 20 47 2 4 7 13 17 74 Forest Paperboard Paper Wood Products Renewable Energy Total: 2 345 SEKm 1 172 SEKm 435 SEKm 509 SEKm 62 SEKm 336 SEKm Forest Paperboard Paper Wood Products Renewable Energy Total: 43 895 SEKm 32 718 SEKm 5 589 SEKm 1 903 SEKm 1 000 SEKm 3 058 SEKm *Excl. items affecting comparability and Group-wide *Excl. Group-wide The year in brief Holmen Annual Report 2019 5 “ It is becoming increasingly clear that the forest and its products have an essential role to play in driving the transition to a sustainable society.” 6 Holmen Annual Report 2019 CEO’s message Dear shareholder The results for 2019 were good from a historical perspective, at SEK 2 345 million, particularly considering the weaker economic situation . We are pleased to see a strong performance from Paper, but the big news of the year was the market’s changing view on the value of the forest . Forest is a unique asset. Growth is constantly improving and over time we will be able to increase harvests while still leaving more wood in the forests. It is also becoming increasingly clear that the forest and its products have an essential role to play in driving the transition to a sustainable society. In recent years, the establishment of wind power has developed into a significant source of revenue. More and more people are beginning to appreciate the value of the forest, as demonstrated by the major forest purchases of recent times. This has led us to revise the recognised value of our forest assets upwards to SEK 41 billion. Our strong financial position also allowed us to buy back shares over the year, increasing the degree of forest ownership per share. Actively managed forest good for climate The market for logs and pulpwood was affected in 2019 by a European spruce bark beetle outbreak in southern Sweden. To limit the spread of the insects, more wood than normal was harvested temporarily, which drove up supply and affected prices. The price drops had a limited impact on profits from Forest, which remained good at SEK 1 172 million. Looking ahead, there is no doubt that the growing forest industry is consuming significantly more than can be sustainably harvested from Swedish forests, which is likely to cause a rise in wood prices over time. The issue of biodiversity is high on the agenda. The simplistic solution often put forward is to limit management of the forest. This clearly contradicts the ambition to stop climate change in its tracks. We are convinced that the right approach is for more forest management, not less. A regenerated forest grows better and absorbs more carbon dioxide, while at the same time the products from the forest replace plastics and other materials that are harmful to the climate. We combine increased harvests with biodiversity preservation by taking meticulous care during harvesting, and implementing active measures in areas already set aside for conservation purposes. A profitable industry Following a couple of years of solid growth, demand for paperboard dropped due to a weakening of the global economy. Prices remained stable despite tough competi- tion for new business. Major planned maintenance shut- downs and certain disruptions to production cut profits from Paperboard down to SEK 435 million. The situa- tion improved in the second half of the year and we have invested to remove bottlenecks in production, making us well placed to gradually increase sales and drive up profits. As a consequence of earlier reductions in capacity, paper prices were raised at the beginning of the year. However, the market balance deteriorated in the second half of the year, putting downward pressure on prices. We prioritised price stability over production volume which, together with good production efficiency, generated a strong result for Paper, SEK 509 million. The market for paper is set to remain challenging, but we believe in our fresh fibre-based concept and will continue to develop new products that help our customers to cut down on materials and costs. The challenges of fighting back against the spruce bark beetle in Central Europe in 2019 led to a steep increase in the supply of raw materials and wood products, which prompted tumbling prices. The price drop drove the profits of Wood Products down from a high level to SEK 62  million. Although the market situation for wood products remains weak at this time, we have excellent po- tential for profitable growth, thanks to cost-effective saw- mills and good control over the raw material. Expansion of the sawmill in Braviken will be completed in the spring, enabling production to be raised by 150 000 m3 when the market conditions are right. Wind power development on our own land Renewable Energy posted profit of SEK 336 million, primarily from hydro power. As Europe progresses towards a fossil-free energy system and rapid technical advances cut the cost of wind power, we see good opportunities to develop wind power on our own land. As a first step, we are investing SEK 1.3 billion in building Blåbergsliden wind farm, which will form a valuable complement to our controllable hydro power. In parallel with this, we are also continuing our work to obtain permits for further wind farms. Holmen brings climate benefits In 2019, our business helped to cut the amount of carbon dioxide in the atmosphere by almost 3 million tonnes, as a result of growth in the forest and our wood products replacing fossil-based building materials. The climate benefits that we bring will play an increasingly important role in the transition to a fossil-free society, as illustrated by brand owners’ growing interest in working with us to develop alternatives to plastic. Europe’s transition also opens up new opportunities for us to take the renewable energy business to higher levels without affecting the forestry. As one of Sweden’s largest forest owners, we have a great capacity to continue pushing forward and growing a sustainable future. Stockholm, 19 February 2020 Henrik Sjölund President and CEO CEO’s message Holmen Annual Report 2019 7 We grow a sustainable future Our business concept is to own and add value to the forest. Holmen’s extensive forest holdings are the foundation of our business . Using our own production facilities, the growing trees are refined into everything from wood for climate-smart building to renewable packaging, magazines and books, while at the same time we generate hydro and wind power on our own land . A business that not only creates value for shareholders and customers, but also contributes to a better climate and thriving rural communities . Forest Forest growth and future harvests will increase through active and sustain- able forest management. A strong position in the wood market will contri bute to the competitiveness of Holmen’s industries. Paperboard The paperboard business will grow based the position as a market leader in the premium segment for consumer packaging, by combining quality, service and custom products with efficient production. Paper The paper business will be developed by offering cost- and resource-efficient alternatives to traditional products for books, magazines and advertising. 8 Holmen Annual Report 2019 Strategy and targets Wood Products Sales of wood products for the joinery and construction industry will increase through refinement at large-scale production plants with good control over the raw material. Renewable Energy Production of renewable energy will increase by developing large-scale wind power on the company’s own land as a complement to existing hydro power. Strategy and targets Holmen Annual Report 2019 9 We aim to create value that stands the test of time while contributing to a better climate Forest Industry Renewable energy The forest is sustainably managed to provide a good annual return and stable value growth. The volume of standing timber and harvests in Holmen’s forests will increase over time. The industry is run with a focus on long-term profitability. The target is for a sustained return of over 10 per cent on capital employed. Renewable energy will grow by com- plementing the existing production of hydro power with large-scale wind power on our own land. Volume of standing timber, m3 growing stock per hectare productive forest land Industry’s return on capital employed, % Production of hydro and wind power, GWh 160 120 80 40 0 1948 1965 1988 2000 2019 1955 1975 1993 2010 Assessment of tax 16 12 8 4 0 11.5 14 15 16 17 18 19 1 600 1 200 800 400 0 1 109 14 15 16 17 18 19 In 2019, the total volume of standing timber was measured at 123 million m3 growing stock, solid over bark, which is 5 per cent higher than in the last measurement conducted in 2010 . The return for industrial operations within Paperboard, Paper and Wood Products exceeded the target level, reaching 11 .5 per cent in 2019 . Production of renewable energy totalled a little over 1 .1 TWh in 2019 . Investments in wind power on our own land will drive up energy production in the future . 10 Holmen Annual Report 2019 Strategy and targets Climate benefit Capital structure Dividend Climate benefit will be enhanced as a growing volume of standing timber binds increasing amounts of carbon dioxide, while our products replace fossil-based alternatives and we reduce the fossil emissions in our value chain. Furthermore, expanding wind power will contribute to the transition to a fossil-free energy system in Europe. Our financial position is to be strong in order to secure room for manoeuvre when making long-term commercial decisions. Net financial debt will not exceed 25 per cent of equity. Holmen will generate a good annual dividend for shareholders. The level is determined by the Group’s profita- bility, investment plans and financial situation. The dividend is supple- mented with share buy-backs where this is judged to create long-term value for shareholders. Climate benefit, million tonnes CO2 Net debt as % of equity Dividend per share, SEK 4 3 2 1 0 2.7 14 15 16 17 18 19 40 30 20 10 0 9 14 15 16 17 18 19 8 6 4 2 0 Proposal, SEK 7 14 15 16 17 18 19 In 2019, Holmen’s operations cut the amount of carbon dioxide in the atmosphere by 2 .7 million tonnes . Net financial debt in relation to equity amounted to 9 per cent in 2019 . Good cash flow in recent years has enabled a higher dividend and the buy-back of shares, while at the same time strengthening the financial position . The historical dividends have been adjusted because of the share split (2:1) in 2018. The Board proposes to the AGM 2020 a dividend of SEK 7 per share . Over the past five years the dividend has increased by 6 per cent annually . Strategy and targets Holmen Annual Report 2019 11  External factors, market and drivers Climate and environment drive the market As one of the greatest challenges of our age, climate change is going to increasingly impact on the global economy. The planet’s expanding population, urbanisa­ tion, digitalisation and a growing middle class are other factors driving economic development and affecting Holmen. Demand for raw materials and products that are renewable, recyclable and fossil free is on the rise, accelerated by political decisions and growing awareness among consumers. Sustainable value creation for customers and society Holmen takes care of the assets of both the forest and the land, refining them into much sought-after products. We are a partner for sustainable business, helping our customers to switch to renewable solutions. Sweden’s tough requirements concerning the environ- ment, ethics and transparency create con- fidence and trust in our relationships with customers and partners. As a Swedish for- est company, we have a great opportunity to influence our customers and society posi- tively, not least from a climate perspective. With a renewable raw material that captures carbon dioxide, we are helping to combat global warming. Our production of wood products, paperboard and paper meets a growing demand for renewable and recyclable products, and with our generation of green electricity from water and wind, we are playing an important role in the transition to a fossil-free energy supply. To increase the value and benefit of the forest, intensive work is under way to develop existing products while identifying future opportunities for renewable wood fibre. Holmen’s work on research and develop- ment is mainly focused on three areas – increased forest growth, more efficient pro- duction and developing new and existing products based on forest raw material. Growing demand for renewable and fossil­free products Although active management of our forests is increasing growth, the supply of forest raw material is limited. At the same time, global demand for both logs and pulpwood is expected to rise. Demand for paperboard and paper is being driven largely by economic and popu lation growth, as well as behavioural changes prompted by increased digitali- sation. A desire to reduce any climate impact and avoid packaging made from fossil-based plastic, which can also contribute to ocean pollution, is a strong motivator for increased use of paperboard in the packaging market. Technical advances are leading to a drop in demand for certain grades of paper, which may end up being dropped completely in the future, while demand for others is rising. Population growth, urbanisation and requirements for sustainable building are pushing up demand for wood products, although short- term demand is strongly influenced by the general economic situation. Electricity consumption is expected to climb as transport and industrial processes are electrified, while, at the same time, fossil energy is set to be phased out in favour of renewables. We therefore see an even greater role for our renewable electricity production in our future business. Drivers that affect Holmen’s business • Climate change • Cutting resource use and environmental impact • Population growth • Growing middle class • Urbanisation • Digitalisation Business area Products Customer segment Selected competitors Primary markets Forest Paperboard Paper Logs, pulpwood and biofuel Sawmills, pulp mills, paperboard and paper mills SCA, Sveaskog plus a number of large forest owners’ associations Sweden Premium paperboard for consumer packaging Brand owners, converters and wholesalers Paper for books, magazines and printed advertising Publishers, printing firms and retailers Metsä Board, Stora Enso Europe, Asia and North America SCA, Stora Enso, UPM Europe Wood Products Construction timber, joinery timber, wood for pallets and packaging Construction industry, joinery industry, builders’ merchants, and packaging industry Moelven, SCA, Setra, Södra, Vida and numerous foreign actors Scandinavia, UK, Netherlands, Middle East and North Africa Renewable Energy Renewable energy from hydro and wind power Nordic electricity market Fortum, Statkraft, Vattenfall, Uniper Sweden 12 Holmen Annual Report 2019 Business overviewHolmen’s forests, power plants & industries Forest holdings 1.3 million hectares total land acreage 1 million hectares productive forest land Umeälven Harrsele Tuggen Gideälven Stennäs Gammelbyforsen Björna Gideå Gidböle Gideåbacka Faxälven Linnvasselv Junsterforsen Gäddede Bågede Strömsbruk Strömsbruk Converting Plant Iggesundsån Pappersfallet Iggesunds kraftstation Iggesund Iggesund Mill Iggesund Sawmill Ljusnan Sveg Byaforsen Krokströmmen Långströmmen Ljusne Strömmar Hallstavik Hallsta Paper Mill Varsvik wind farm Stockholm Head Office Norrköping Braviken Paper Mill Braviken Sawmill Linghem Sawmill Motala Ström Holmen Bergsbron-Havet UK Workington Mill Holmen Annual Report 2019 13 Business overview  Valuing the forest The value of owning forest The forest is a fantastic asset. It provides the raw material to pro duce renewable and fossil­free products that are able to replace materials such as concrete and steel in the construction industry and plastic in a range of packaging types. In the drive towards a climate­ neutral society, the forest’s products have an obvious role to play, which will only increase demand for such assets in the future. As forestry expertise develops, the amount of forest in Sweden is constantly increasing, but the potential is limited to the areas that are accessible for forestry. The fact that Holmen owns 1.3 million hectares of land provides fantastic opportunities to create value over time. Revenue from the forest Owning forest naturally provides a chance to earn revenue when the forest is harvested. The best prices are achieved for the large logs that are turned into timber for buildings and furniture, for example. However, not all the forest can be used for timber. Smaller trees, which are mainly removed from the forest during thinning, and the narrower parts of bigger trees are instead sold as pulpwood. The pulp is used to produce paperboard and paper for packaging, books and graphical printing. Pulpwood is not quite as good a revenue source as logs, but the recent expansion in pulp capacity in Sweden has driven up the price of pulpwood in recent years, closing the price gap. In addition to logs and pulpwood, treetops and branches also have their uses and are sold as biofuel for the production of district heating and so on. Forest raw material. The growth in the forest is the result of our active and sustainable forest management. The work begins with the seed – we raise our own seedlings and for every tree we harvest, we plant at least two new ones. Optimum management of the forest enables us to encourage even more growth. Because the annual growth is greater than the harvest, the amount of wood in our forests is also increasing year on year, which means that 14 Holmen Annual Report 2019 we will gradually be able to harvest more in the future. In 2019, Holmen’s total volume of standing timber was measured at 123 million m3 growing stock, solid over bark, which is 5 per cent higher than in the last measurement conducted in 2010. Wind power. Owning forest land also provides opportunities for other revenue streams, not least by developing wind power. With our extensive forest holdings, we have a unique opportunity to identify and develop areas that are favourable for wind power, without having a negative impact on our forestry activities. At the end of 2019, Holmen decided to erect a wind farm of its own, Blåbergsliden, outside Skellefteå. Repre senting an invest- ment of SEK 1.3 billion, the site will have 26 wind turbines. During the year, we also sold a wind power project with an approved permit, which gave us a non- recurring income of SEK 80 million and will bring in annual revenue from the land lease. There are currently 152 wind turbines in use or under construction on our land. With several wind projects in various stages of development, we have an opportunity to continue expanding wind power within Holmen. Housing and quarrying. Where parts of our land holdings are located near centres of population, particularly in southern and central Sweden, and in tourist areas close to the mountains, the potential exists to develop the land for housing and holiday accommodation. Our first such site is under development outside Uppsala. Quarrying stone and gravel is another option for a landowner such as Holmen. This is of particular interest in the vicinity of major infrastructure projects such as road and rail expansion or wind farms. Major forest deals confirm the value of the forest Every year there are a large number of forest property transactions in areas where Holmen owns forest land. Most of the transactions relate to relatively small properties, and large transactions have been rare. Recently, however, several sizeable forest property transactions have taken place in both Sweden and the Baltic states, including pension fund AMF acquiring 295 000 hectares of productive forest land from BillerudKorsnäs. The prices paid in these transactions have been on a par with the prices for smaller forest properties. Holmen decided, as of 31 December 2019, to change the method of reporting forest assets, so that they are recognised at fair value, based on the prices paid for forest properties in the areas where we have our forest. As of 31 December 2019, the book value stands at SEK 41 345 million, which averages out at SEK 39 640 per hectare of productive forest land. The value varies between different parts of the country, with forest properties in southern Sweden being valued much higher per hectare as a result of a greater volume of standing timber, higher wood producing capacity, a shorter harvesting cycle and greater demand for forest land. Holmen’s forest holdings are spread across large parts of the country. The total value of our forest amounts to just over SEK 41 billion. Business overviewLarger volume of standing timber and harvests The amount of wood in our forests is growing every year. Over time, this paves the way for bigger harvests. Volume of standing timber m3 growing stock per hectare productive forest land Annual harvest ’000 m3sub/year 160 120 80 40 0 1948 1955 1965 1975 1988 1993 2000 2010 2019 5 000 4 000 3 000 2 000 1 000 0 2001- 2010 2011- 2019 2020- 2030 2031- 2040 2041- 2050 2051- 2060 2061- 2070 Harvest plan Assessment of tax Harvest Thinning Rising wood prices Wood prices have historically risen in line with inflation, which has steadily increased the cash flow from the forest. Forest property prices climbing The price of forest properties has gradually risen as a result of higher selling prices for wood and increased interest in invest- ing in forest, particularly in southern and central Sweden. Prices SEK/m3sub Price of forest properties SEK/m3 600 500 400 300 200 800 700 600 500 400 300 200 100 2003 2005 2007 2009 2011 2013 2015 2017 2019 2002 2004 2006 2008 2010 2012 2014 2016 2018 2003 2005 2007 2009 2011 2013 2015 2017 2019 2002 2004 2006 2008 2010 2012 2014 2016 2018 Real Nominal Southern Central Northern Source: LRF Konsult’s price statistics for different regions of Sweden. Allocation per region does not fully correspond to Holmen’s own allocation. New revenue opportunities Options for revenue streams other than wood harvesting have been developed. Selling permits and leasing land for wind farms generates income that was not previously available. Quarrying stone and gravel for infrastructure projects and so on is also becoming increasingly interesting, as is the development of land for housing. Holmen Annual Report 2019 15 Business overview Forest Active and sustainable forestry We take a long­term view in deve loping our forest, making sure that it produces optimum growth and provides the best possible raw material. As well as being a stable source of revenue for Holmen, the forest brings major climate benefits by capturing and storing carbon dioxide and providing us with renewable and fossil­free raw material. Strength in our own forest Holmen’s forests cover 1.3 million hectares, of which a little over a million hectares com- prise productive forest land. The strategy is to increase the revenue from and future value of the forest holdings through active and sustainable forestry with a clear focus on costs. As one of Sweden’s biggest landowners, we are largely able to supply Holmen’s Swedish production units with renewable raw material from our own sources. Economies of scale and efficient logistics give us a strong position in the wood market, which contributes to the Group’s competitiveness. Climate benefit on numerous fronts Active forestry enables us to create climate benefits on numerous fronts. A managed forest combats the greenhouse effect, since younger trees absorb significantly more carbon dioxide than older forest, where growth has tailed off. In addition, the larger the area managed, the more carbon dioxide is captured. Furthermore, the benefit to the climate becomes many times greater when the forest’s renewable products replace fossil materials. Forest that is not managed does not deliver anywhere near the same long-term benefits for the climate, not least because there is no substitution of products that are harmful for the climate. Raising awareness of the Swedish forest Forestry is of significant regional importance. It creates employment in rural areas and enables many people to live and work outside the major urban regions. The signifi- cance of forestry for both the climate and the Swedish economy makes it an issue that matters to many people. Holmen and other industry players have joined forces to make politicians, authorities and the general public aware of how vital the forest is for the climate and the importance of forestry for an emerging bioeconomy. Holmen’s knowledge forests. In a drive to strengthen links with all the forest stake- holders, during the year we launched our first knowledge forest in Kunnådalen, outside Örnsköldsvik. Kunnådalen is one of several areas of forest that we have selected to gather and spread knowledge. The purpose of the knowledge forests is to bring together politicians, researchers, environmental organisations, Sami, private individuals, journalists and industry collea- gues in order to broaden people’s under- standing of sustainable forestry. The knowledge forest in Kunnådalen is an excellent example of how we combine productive forest management with biodiversity. As evidence of this, we have four of Sweden’s big five predators in the area: wolverine, lynx, bear and golden eagle. Read more about biodiversity on page 32. Forestry constantly developing Our sustainable forest management techniques mean that our forests contain more wood each year, providing scope to increase the harvests over the long term. Under Holmen’s active forest management, the volume of standing timber is built up over a period of 70–90 years, with a new growth cycle beginning after harvest. The most important silviculture measures come in the years immediately after harvest, when the soil is prepared and the land is reforested through planting or sowing with fortified material. The forest is cleaned and thinned in order to select trees with the best potential for continuing their growth. Around 10–30 years before the forest is harvested, it can be fertilised to further boost growth. At least two new trees are planted for every tree harvested. Holmen’s forestry is certified according to PEFC™ and FSC® and all the wood is traceable. Holmen invests around SEK 150 million a year in future growth through silviculture and fertilisation. Together, our two nurseries produce 40 million seedlings each year, with the majority planted on the Group’s land. With active improvement measures, the new trees also grow better than the old ones. During the year, Holmen invested in a bio- based heating system at Gideå nursery and replaced the oil-fired boilers with district heating to heat the greenhouses at the nur- sery in Friggesund. These investments are an important element of our drive to make the production at our nurseries fossil free. Seedlings of the future. Together with innovation and technology development company SweTree Technologies, Holmen is taking part in an initiative to automate the production of improved seedlings, based on the method of somatic embryogenesis. This revolutionary technology makes it possible to quickly and efficiently produce seedlings with significantly higher growth, better wood quality and greater disease resistance. Control over the raw material. In 2019, we established a climate-smart and cost- effective transport solution that uses rail to carry logs from our own forests in northern Sweden to our manufacturing sites. With this level of control over the raw material, the strength of being a forest- owning manufacturing company becomes increasingly clear. European spruce bark beetle affecting the market An active construction industry and a grow- ing interest in building in wood have driven up demand for logs in recent years. Calls for different types of renewable packaging material and large-scale investments in pulp mills have also increased the competition for pulpwood, causing rising prices over several years. A spruce bark beetle outbreak in southern Sweden has, however, flooded the market with wood, which lowered the prices of logs in particular during the second half of 2019. 16 Holmen Annual Report 2019 Business overviewOperating profit/loss Key figures Comment on results SEKm 1 200 900 600 300 0 1 172 Net sales, SEKm Operating profit/loss excl. items affecting comparability, SEKm 2019 2018 6 286 5 944 1 172 1 185 Investments, SEKm* 77 357 Book value, forest assets, SEKm 41 345 18 701 Average no. of employees (FTE) 376 365 Volume from own forest, ’000 m3sub 2 714 2 831 Demand for pulpwood and logs remained good in 2019 and the profit from Forest was largely on a par with last year, amount­ ing to SEK 1 172 million. The volume harvested from Holmen’s own forest was at a normal level, while the volume from thinning was lower than normal. At year­ end Holmen switched to recognising our forests based on transaction prices for comparable areas of land, which more than doubled the book value of our forest holdings to SEK 41 billion. 14 15 16 17 18 19 * In 2018, acquisitions of forest properties amounted to SEK 317 million. Operating profit/loss excl. items affecting comparability Volume of standing timber, m3 growing stock per hectare productive forest land 160 120 80 40 0 1948 1965 1988 2000 2019 1955 1993 1975 2010 Assessment of tax Holmen’s forests Total land acreage Total forest land acreage* – of which nature conservation areas Productive forest land** Total volume of standing timber on productive forest land 1 302 000 ha 1 153 000 ha 193 000 ha 1 043 000 ha 123 million m3 growing stock, solid over bark * Analysis performed by the Swedish National Forest Inventory, according to the international definition of forest land: Land area > 0.5 hectares with a tree canopy cover of more than 10 per cent for trees capable of reaching a height of at least 5 metres at maturity. ** Forest land that can produce 1 m3 growing stock, solid over bark per hectare and year (on average during the growth period of the forest stand). Holmen Annual Report 2019 17 Business overview Paperboard Leading position in the premium segment Holmen is a market leader in the manufacture of paperboard for consumer packaging in the premium segment. The strategy is to grow globally with two of the market’s strongest brands through high quality, service and custom products. World­class paperboard for next generation packaging Holmen makes paperboard of the very highest quality for consumer packaging that requires high standards of durability and advanced design. The paperboard is marketed under two brands – Invercote and Incada – which are produced at our paperboard mills in Iggesund, Sweden and Workington, UK respectively. Invercote and Incada are leading global brands and we have customers in areas including cosmetics, confectionery, electronics, tobacco, pharmaceuticals and food. Customer­centric collaboration. With its high and consistent quality, the paperboard ensures stable results in the customer’s production process. Products are constantly being developed to meet the ever- growing demand for innovative packaging solutions. The customers’ need for support and fast deliveries is a priority area that covers everything from advice and product samples to service centres with local sheeting units and warehousing. Via support teams that maintain close contact with the market and have a deep understanding of the customer’s needs and wishes, we offer expert advice before, during and after the customer’s production process. The service offering includes environ- mental documentation plus access to analysis facilities at the company’s own accredited laboratory for sensory and chemical analysis, known as the taint and odour lab, at Iggesund Mill. Coupled with the finishing options at the lamination unit in Strömsbruk, this means that Holmen can offer custom solutions that meet the toughest requirements. Fresh fibre delivers unique properties Both Invercote and Incada are manufactured using fresh fibre, which brings multiple product benefits. Higher strength, better brightness and a neutral effect on smell and taste in contact with food are just a few of the properties that add clear value to the end product. The addition of fresh fibre is necessary to keep the recovered fibre ecocycle going, since wood fibre can only be recycled a limited number of times before it wears out and ends up as biofuel. Sustainable production. Both of Holmen’s paperboard mills hold chain-of- custody certification and all the wood raw material comes from sustainably managed forests. The plants are largely self-sufficient in renewable thermal energy. Iggesund Mill forms a bio co-location with Iggesund Sawmill, ensuring that every part of the tree is put to use on site. Wood chips from the sawmill are used as raw material for the paperboard production, while bark and wood shavings are used as biofuel to produce energy and district heating. The circle is closed when the surplus heat from the mill is used for drying processes at the sawmill. Paperboard products replacing plastic Two strong trends in the packaging market are the drive to reduce impacts on the climate and the drive to avoid plastic packaging that contributes to pollution of the oceans. Replacing fossil plastic materials with paper board cuts our customers’ carbon footprint while also reducing the amount of plastic that can end up polluting the natural environment. One company that has replaced its plastic packaging with paperboard from Holmen is Hugo Boss. In a move to emphasise its commitment to sustainability issues while at the same time giving its products a more luxurious feel that better reflects the company’s brand, Hugo Boss has chosen to replace plastic packaging with Invercote paperboard in certain product segments. New product for food packaging. 2019 has seen the launch of Inverform, a new paperboard product specifically developed to replace plastic food packaging. Inverform has high stiffness, which allows it to be a light yet stable product. A barrier ensures that the paperboard is resistant to both liquid and fat, which is a challenge when it comes to packaging for foodstuffs. Global growth in the packaging market Demand for packaging is rising in line with factors such as population growth, urbanisation and an expanding middle class with more single-person households. Demand in the various product segments varies depending on the market, but there is a general increase in demand for renewable packaging materials, particularly in the area of food and drink. Growth in food packaging can be seen primarily in Asia, the Middle East and Africa, while demand for pharmaceutical packaging is rising in all markets. Packaging for cosmetics is seeing particular growth in markets with an emerging middle class and rising living standards, such as Asia, Eastern Europe and South and Central America. Europe. We are boosting the focus on customer work and niche segments, as well as working proactively to continue growing over the long term, together with our customers. Asia. Demand for status goods is rising, with the emergence of local brands for which Holmen’s high-quality paperboard is the perfect fit. Holmen’s presence in the Asian market has grown in recent years, with service levels boosted not least by the establishment of a service centre with warehousing and sheeting in Taiwan. North America. Holmen is growing in the premium segment, with a greater presence and a better service level. Thanks to ware- housing and sheeting in three strategic loca- tions, local distribution and short delivery times are now offered from coast to coast. 18 Holmen Annual Report 2019 Business overviewOperating profit/loss and return Key figures Comment on results Net sales, SEKm Operating profit/loss excl. items affecting comparability, SEKm 2019 2018 6 229 5 785 435 689 Investments, SEKm 421 471 Capital employed, SEKm 5 589 5 316 Average no. of employees (FTE) 1 286 1 346 Deliveries, ’000 tonnes 538 525 Demand for paperboard remained at largely the same level as in 2018, but additional volumes in the market have increased competition in certain segments. Profits from Paperboard fell a little over SEK 250 million to SEK 435 million as a consequence of two major maintenance shutdowns, certain disruptions to production and higher wood costs. SEKm 1 000 750 500 250 0 % 20 15 435 10 7.8 5 0 14 14 15 15 16 16 17 17 18 18 19 19 Operating profit/loss excl. items affecting comparability Return on capital employed, excl. items affecting comparability European demand for SBB & FBB Holmen’s deliveries of paperboard Mtonnes 4 Ktonnes 600 3 2 1 0 10 11 12 13 14 15 16 17 18 19 500 400 300 200 100 0 10 11 12 13 14 15 16 17 18 19 Iggesund Mill Products: Multi-layered paperboard made from bleached chemical pulp (SBB). Brand: Invercote. Raw material: Softwood and hardwood pulpwood. Workington Mill Products: Multi-layered paperboard, surface layer of chemical pulp, core of mechanical pulp (FBB). Brand: Incada. Raw material: Spruce pulpwood and purchased sulphate pulp. Holmen Annual Report 2019 19 Business overview Paper Innovative paper products using fresh fibre Holmen develops innovative and sustainable paper products using fresh fibre. Our papers are light­ weight and resource­efficient compared with traditional alter­ natives for books, magazines and advertising. The focus lies on securing and constantly developing paper products that can be sustained over time. Fresh fibre creates sought­after products Holmen is an industry leader in the develop- ment of new products based entirely on fresh fibre, using its unique properties to challenge more traditional paper products. In contrast to recycled fibre products, fresh fibre produces paper with a naturally high brightness that delivers an improved experience of text and images. Our products have high bulk, making them thick yet light, which means that the customer gets more paper with the same feel at no extra cost. A lighter paper also leads to lower distribution costs. The customers around the world are largely publishers, printing firms and retailers looking for resource- and cost- efficient paper solutions with a focus on bulk, brightness and overall feel. Wood-containing paper has a much better cost profile than the woodfree alternatives right from the start, and Holmen’s lightweight papers make it possible to reduce the grammage without losing that all-important feeling that the paper conveys. We take a long- term approach in working to meet customer demand and create profitable seg ments for our product brands in three pro duct areas: books, magazines and advertising. Book paper. Holmen’s carbon-neutral book paper with high bulk helps customers to achieve cost-efficiencies in both produc- tion and distribution. Publishers appreciate Holmen’s wood-containing paper because it maintains the highest quality and offers product properties – in the form of a bright, smooth surface – that enhance the reading experience. Magazine paper. Holmen has a wide range of magazine papers that challenge both 20 Holmen Annual Report 2019 wood-containing and woodfree grades. The combination of high bulk and a whiteness and brightness that are unique for wood- containing paper make these products cost- effective choices with unparalleled image reproduction. Printed advertising. Holmen’s bright and bulky paper creates opportunities for retailers seeking an attractive overall cost concept – in the form of pure cost savings on both paper and distribution, or in the potential to increase the format or the number of pages or copies, without adding to the cost. Recycled paper grows in the forest Our paper is essential to the European paper recycling system, which is dependent on new fresh fibre in order to continue functioning. Pulp, paper and paperboard made from fresh fibre from Nordic forests play an important role in the European recycled fibre ecocycle. Forest resources are limited in the rest of Europe and paper manufacture is based on recycled paper to a considerably higher extent. However, paper cannot be recycled again and again forever. After a limited number of times, the fibres are exhausted. The ecocycle therefore needs a constant injection of fresh fibre from the forest. Environmental and chain-of-custody certification enables Holmen to ensure that our products always come from sustainably managed forests. Sustainability at every stage Our paper is produced at two Swedish mills, Braviken and Hallsta. Favourable locations in terms of logistics mean short distances for wood transport, and the mills are close to ports with good capacity and efficient handling. Uniquely, Hallsta Paper Mill has practi- cally zero emissions of fossil carbon dioxide. The mill’s energy solutions include recover- ing heat from the wastewater and the paper machines, selling the bark to heating plants and composting residual products to create topsoil. Braviken Paper Mill and Braviken Sawmill make an energy-efficient bio co-location. The paper mill receives raw material in the form of wood chips from the sawmill, which in turn is supplied with energy and heat from the paper mill. Surplus bark and wood shavings are sold for the production of renewable energy. High utilisation of capacity allows us to keep production efficient and flexible in order to meet varying demands. Efficient production units, continued specialisation and a strong marketing organisation make Holmen well placed to strengthen its position and offering. Successful switch to selected segments Our successful transition from newsprint to paper for books, magazines and printed advertising has reinforced Holmen’s com- petitiveness and generated high demand for our products. Targeted investments have generated higher capacity in selected product areas. With a focus on employees, processes and unique product properties, we are advancing our position in a challenging market. Stable book paper market. The market for book paper has remained on a positive trajectory in Europe and Holmen’s book paper is the leading wood-containing product for paperbacks and hardback books. Our sales continue to grow globally, with the products now established in both Asia and Latin America. A changing magazine market. Holmen is continuing to grow in a magazine market that is undergoing major change. With publishers reviewing their costs as circulations and advertising revenues shrink, our resource-efficient alternatives have proven a great success. Printed advertising for retailers. Direct mail is still considered an important communications channel for driving customers into physical stores. Since the business model for retailers is based on broad and high-frequency exposure to the end user, their needs have primarily been based on low overall cost. We have continuously developed products that meet these requirements. Business overviewOperating profit/loss and return Key figures Comment on results 2019 2018 Net sales, SEKm 5 757 5 571 Operating profit/loss, SEKm Investments, SEKm 509 187 329 173 Capital employed, SEKm 1 903 2 072 Average no. of employees (FTE) Deliveries, ’000 tonnes 855 996 860 1 036 Rising prices at the end of 2018 led to good prices for printing paper in 2019, which helped Paper’s profits climb SEK 180 million to SEK 509 million. Production was lower, since priority was given to price stability and running down stocks. Prices began to drop at the end of the year due to a deteriorating market balance. SEKm 600 400 200 0 -200 23.8 509 14 15 16 17 18 19 % 24 16 8 0 -8 Operating profit/loss excl. items affecting comparability Return on capital employed, excl. items affecting comparability European demand for paper Ktonnes 20 000 15 000 10 000 5 000 0 10 11 12 13 14 15 16 17 18 19 Coated magazine Newsprint Uncoated magazine and book Ktonnes 1 000 750 500 250 0 Holmen’s production of magazine and book paper Braviken Paper Mill Products: Paper for books, magazines, advertising and newspapers. Raw material: Spruce pulpwood. Hallsta Paper Mill Products: Paper for books, magazines and advertising. Raw material: Spruce pulpwood. 2010 2019 Holmen Annual Report 2019 21 Business overview Wood Products Wood products for climate-smart building Holmen supplies wood products to the joinery and construction industry and to builders’ mer­ chants and wood product importers. The business is being developed by increasing the value added and making better use of the wood raw material in combination with large­scale production. Building the future in wood Wood is a strong and versatile material and the only construction material that is renewable. Over the lifetime of the trees, they capture carbon dioxide, which then remains stored in the wood products that we manufacture. Building in wood is therefore significantly better for the climate than building in concrete and steel. Manufacturing concrete and steel requires substantial amounts of energy and generates sizeable emissions of fossil carbon dioxide, in contrast to products from the forest. In addition, the whole chain from manufacture to transport is much more energy-efficient and cost-effective, since wood weighs less than steel and concrete. We thus create benefit for the climate on multiple fronts. Wood offers major advantages. Several independent studies (references page 90) have shown that the use of wood in the structure of buildings has major climate benefits compared with other construction materials. A study by Linköping University presented calculations showing that an apart ment building in wood has 40 per cent lower carbon emissions than a concrete building. The study took into account raw material extraction, transport and production of construction materials. The researchers also state that if the effect of the carbon that is stored in wooden buildings is included in the calculation, the climate benefit of building in wood doubles. Efficient, large­scale production Holmen’s modern sawmills with their advanced technologies are delivering a stronger product range. Applying customer- centric working methods, Holmen is building a platform for long-term and profitable 22 Holmen Annual Report 2019 customer relations with the capacity to meet demand in different wood product markets. Proximity to the raw material combined with efficient wood purchasing is a key factor for profitability, while competitiveness is underpinned by the fact that production is co-located with the Group’s paperboard and paper mills. Holmen’s sawmills are strategically located to benefit from a transport network that reaches around the globe by rail, road and, not least, sea. A large proportion of the products are transported by ship. The highly advanced technology, which includes one of the world’s most efficient planing lines at Braviken Sawmill, paves the way for a gradual increase in value-added products and product development, with a strong focus on optimising the properties of the wood in the log to meet the customer’s requirements. We develop sawing and drying in cooperation with our customers to mini- mise wastage and maximise customer benefit. Sustainable raw material supply. Holmen’s sawmills have chain-of-custody certification, which means that all the wood can be traced back to its origin in sustainably managed forests. The wood raw material is sourced from Holmen’s own forest holdings and from other forest owners, ensuring an efficient logistics chain from forest to sawmill. A rail-based transport solution that carries logs from Holmen’s forest holdings in northern Sweden down to Braviken Sawmill strengthens our control over the raw material supply. Complete bio co­locations. The Group’s larger sawmills, Iggesund and Braviken, form co-locations with their neighbouring paperboard and paper mills. This means that every aspect of the wood raw material is made use of in a cycle in which chips from the sawmills act as raw material in pulp production and the final residual products are used as biofuel to produce energy and district heating. Steam from the mills is also used in the drying processes at the sawmills. Increased capacity at Braviken. Braviken Sawmill began operating in 2011 and has since undergone several stages of further development, including the addition of a wood treatment plant that now delivers pressure-treated wood directly to builders’ merchants. Ongoing investment in dryers and a new trimming saw for the sorting line will increase production capacity by 150 000 m³ to 600 000 m³ per year. Following Iggesund Sawmill’s upgrade of its optical wood sorting system, the old equipment was moved to Linghem Sawmill, where it has increased precision and efficiency. Spruce supply up due to spruce bark beetle outbreak Holmen manufactures and supplies high- quality wood products to joinery and construction industry customers, mainly in Scandinavia, the UK, the Netherlands and the Middle East and North Africa (MENA). The market for wood products is global and huge streams of goods are shipped between continents. Demand largely follows the general economic cycle and has been deve- loping well for several years. By the end of 2019, however, consumption had fallen back from its historic highs. The major European spruce bark beetle outbreak has flooded the market with spruce saw logs from Central Europe in particular. This surplus of spruce has led to a steep rise in production volumes, putting pressure on prices. A spike in supply in the European market also affects the global market balance for wood products, as suppliers redirect production and deliveries. Construction market driving development. For a long time, the rise in the use of wood has largely been attributable to renovation work and extensions. Now demand is increasingly being driven by the construction of new homes, which in turn is affected by population growth, urbanisation and the aim to build sustainable cities. There is great potential for growth, mainly in high-rise buildings, and the proportion of housing built in wood is expected to rise as the capacity for industrial building in wood is expanded. New wood building techniques are also under development, which could lead to a further increase in demand. Business overviewOperating profit/loss and return Key figures Comment on results SEKm 300 225 150 75 0 % 30.0 Net sales, SEKm 1 695 1 747 2019 2018 Operating profit/loss, SEKm 22.5 Investments, SEKm 62 162 Capital employed, SEKm 1 000 Average no. of employees (FTE) Deliveries, ’000 m3 266 879 62 6.3 14 15 16 17 18 19 15.0 7.5 0.0 246 76 927 261 828 The market balance for wood products was weak during the year due to the high supply of raw material in Central Europe. Profit from Wood Products fell to SEK 62 million as a result of lower selling prices. The invest ment in additional capacity at Braviken Sawmill will be completed in 2020 and production will gradually be stepped up as market conditions allow. Operating profit/loss excl. items affecting comparability Return on capital employed, excl. items affecting comparability Consumption of wood products Holmen’s deliveries of wood products Million m3 400 300 200 100 0 10 11 12 13 14 15 16 17 18 19 Europe North America China Rest of Asia MENA ’000 m3 1 000 750 500 250 0 Braviken Sawmill Products: Spruce and pine wood products for joinery and construction. Raw material: Spruce and pine saw logs. Iggesund Sawmill Products: Pine joinery products. Raw material: Pine saw logs. Linghem Sawmill Products: Spruce and pine wood products for joinery and construction. Raw material: Spruce and pine saw logs. 10 11 12 13 14 15 16 17 18 19 Holmen Annual Report 2019 23 Business overview Renewable Energy Green energy from water and wind Holmen’s production of renew­ able hydro and wind power con tri butes to a sustainable energy supply and provides a good revenue stream over time. Building large­scale wind farms on our own land will generate good cash flow, while also helping with the transition to a fossil­free society. Europe switching to renewables The European energy market is undergoing a major transition due to the issue of climate change. Politicians have agreed that fossil energy will be phased out in the EU and replaced with renewable energy, with a milestone target that by 2030, 32 per cent of energy in Europe will come from renewable sources, compared with a figure of around 20 per cent today. In order to drive the transition and keep up the cost of fossil-based power, the allocation of emission allowances is expected to gradually be streamlined over the coming trading period of 2021–2030. Several countries have also legislated to phase out coal-fired power stations, including Italy, the Netherlands and Germany, while at the same time nuclear power is being reduced in many places. Combined with a growing population and the electrification of transport and industry, it is clear that demand for renewable energy is going to increase. Transitioning the energy system to more weather-dependent energy sources such as solar and wind power will bring major challenges, since the power supply has to be maintained every minute of every day, all year round. To avoid European industry losing its competitive edge, the transmission capacity needs to be improved both between and within countries. The Nordic electricity market The market for electricity in the Nordic region works well, with harmonised pricing that usually follows the marginal cost of coal-based power, since the market is tied in with the rest of Europe. Despite greater electricity use, the Nordic region is forecast to build up a surplus due to the expansion of wind power. The expectation is that it will be possible to export the surplus electricity to the rest of Europe via transmission capacity that is currently being expanded, which means that the price of electricity in the Nordics should continue to correlate well with prices on the continent. Holmen investing in wind power on a large scale At the end of 2019, Holmen decided to build the second of its own wind farms, Blåbergsliden, outside Skellefteå. The investment is worth SEK 1.3 billion and in a normal year the site is expected to produce 440 GWh. The authorities are currently reviewing an application for an additional wind farm in Västerbotten and permit applications for further wind power on Holmen’s land in southern and central Sweden are being prepared. During the year, we also sold a wind power project with an approved permit. Wind power growing rapidly. Wind power is the fastest growing energy type in the EU and the third largest source of electricity in Sweden. Land-based wind power is now a mature technology and electricity generation costs are among the lowest of all the options, including generation using fossil fuels. Expansion is being driven by rapid developments in the wind power industry and a new generation of more efficient wind turbines. As a major landowner, Holmen has great potential to play its part in the expansion of wind power. In 2018, we conducted a survey and wind analysis of the Group’s land holdings to identify favourable areas for future wind power installations. The analysis showed that about twenty sites are judged suitable for wind power. The development of large-scale wind power on our own land is judged to have good potential and provide a good complement to our controllable hydro power. Hydro power provides a reliable electricity supply Holmen’s energy production is dominated by hydro power from our 21 wholly or partly owned power stations located on the Umeälven, Faxälven, Gideälven, Iggesundsån, Ljusnan and Motala Ström rivers. In contrast to other renewable energy sources, hydro power is uniquely controllable. Energy is difficult to store on any great scale, but the water that is used to generate electricity can be stored in reservoirs, lakes and rivers. Hydro power stations can therefore generate both baseload power and regulating power, which is the energy needed to meet fluctuations in demand. Production is tailored to demand or changes in other electricity production by reducing or increasing the flow of water through the turbines. The climate impact of the operation is also marginal, with minimal emissions. Another benefit of hydro power is service life. A hydro power station can deliver energy for a very long time. The investment required is relatively small compared with other types of power, and the operating and maintenance costs are low since the plants are almost entirely automated. Overall, hydro power brings major benefits to society as part of the move towards a fossil-free electricity system. Strength in own energy assets In a normal year Holmen produces 1.2 TWh of renewable hydro and wind power. Holmen is a major electricity consumer and the wind power expansion will help to reduce our exposure to energy supply risks and electricity prices. Together with the renewable electrical energy that is produced at the Group’s mills, our production of hydro and wind power equates to nearly 50 per cent of Holmen’s overall energy consumption. 24 Holmen Annual Report 2019 Business overviewOperating profit/loss and return Key figures Comment on results SEKm 400 300 200 100 0 % 12 11.2 336 Net sales, SEKm Operating profit/loss excl. items affecting comparability, SEKm 2019 2018 378 336 319 181 Investments, SEKm 203 22 Capital employed, SEKm 3 058 3 052 Average no. of employees (FTE) 13 12 Own production of hydro and wind power, GWh 1 109 1 145 9 6 3 0 14 14 15 15 16 16 17 17 18 18 19 19 Profits from Renewable Energy rose by SEK 155 million to SEK 336 million. The figure was affected by higher electricity prices for our hydro power, plus the results included SEK 80 million from the sale of a permit to build a wind farm on Holmen’s land. Production of our own hydro and wind power amounted to 1.1 TWh, which is slightly lower than normal. The decision to build Blåbergsliden wind farm will lead to increased production of renewable electricity. Operating profit/loss excl. items affecting comparability Return on capital employed, excl. items affecting comparability European electricity production, GWh Electricity prices, EUR/MWh 4 000 3 000 2 000 1 000 0 1990 1995 2000 2005 2010 2015 80 60 40 20 0 2010 2012 2014 2016 2018 2013 2015 2017 2019 2011 Renewable Nuclear Fossil Nordics Germany Marginal cost of coal-based power Holmen Annual Report 2019 25 Business overviewCones are the seed capsules of coniferous trees. Spruce cones are mature in the autumn and the seeds are released in early spring. How we are growing a sustainable future How our work is governed How our business creates value “ Holmen is a forest-owning company whose business is to create lasting value over time, mitigating global warming by capture and storage of carbon dioxide and the production of climate-smart products and renewable energy.” — Louise Lindh Holmen Board member The Board of Directors sets out the strategy and targets for the Group. The business stra­ tegy is drawn up by Group management, which includes the heads of the business areas. The CEO is responsible for implementation and the heads of the respective business areas are responsible for implementation within their business area. Progress is constantly monitored via reporting on operational KPIs, backed up by qualitative analyses, as well as in quarterly meetings between Group management and the management teams of the business areas. The Holmen Sustainability Manage­ ment Group, which includes members of Group management, meets quarterly and is charged with validating and quality assuring work on sustainability with the support of sustainability experts from all the business areas. “ One success factor for stable and long-term returns for our shareholders is showing our stakeholders how we as a company contribute towards a sustainable future.” — Stina Sandell Senior Vice President Sustainability and Communications, Holmen As part of the materiality analysis conducted in 2018, we have identified the key issues where we consider that Holmen has the greatest opportunity to contribute to a sus tainable future. The analysis included interviews and workshops with about 50 stakeholders, such as employees, cus­ tomers, investors, authorities, politicians, univer sities and voluntary organisations. The materiality analysis is partly based on the ten principles of the UN Global Compact, the UN’s Sustainable Develop­ ment Goals and the mega­trends and factors in the wider world that are affecting our customers and our industry. The result of the analysis forms the basis for our three focus areas: • We contribute to a better climate. • We help our customers in their sustainable business. • We are committed in our employees and our local communities. Holmen has a genuinely sustain­ able business. With growing, healthy forests, renewable energy production, resource and energy­ efficient production of climate­ smart products and a value­driven company culture, we have major opportunities to do our part in creating a sustainable future in line with the UN’s Sustainable Development Goals. A holistic approach to sustainability “ We have a holistic approach to respon- sible business and our work draws on the UN Global Compact. We see it as natural to support its ten principles on human rights, social and environmen- tal responsibility, and anti-corruption.” — Henrik Sjölund President and CEO of Holmen Holmen has been part of the UN Global Compact and its corresponding Nordic network since 2007. We report to the organisation each year on our work in line with the ten principles and set out the progress made. Information on how Holmen complies with and works in line with the principles of the Global Compact is available at holmen.com. 26 Holmen Annual Report 2019 A sustainable businessFocus areas Our three focus areas sum up how our business creates value for the climate, customers and employees. Together they create value for our shareholders and for society as a whole. 1. We contribute to a better climate Our growing forests capture and store increasing amounts of carbon dioxide, while also providing us with renewable alternatives to fossil materials. The growth in the forest is the result of our active and sustainable forestry, which creates healthy forests, rich in plant and animal species. Younger trees grow more quickly and absorb much more carbon than older forest whose growth has slowed. And because we harvest less than the annual growth, the amount of wood in our forests is increasing year on year. Alongside the phasing out of fossil fuels and increased production of our own renewable energy, the positive climate effects are set to further improve in the future. The contribution made by our production to the UN’s Sustainable Development Goals: 2. We help our customers in their sustainable business As demand for renewable and fossil­free products grows, we offer our customers sustainable alternatives to fossil­based materials. The products can also be reused and recycled, increasing their benefit and reducing the burden on the environment. Good profitability and a stable capital structure mean we have the opportunity to be a reliable, long­term business partner for our customers. Those who do business with us can rest assured that our production methods are sustainable and that we are transparent about the way we work. With our long­term focus, we know that the future demands innovative thinking today. Therefore, we invest in product development and smart solutions, in close collaboration with customers and suppliers. The contribution made by our business to the UN’s Sustainable Development Goals: Targets Targets in focus areas 2 and 3 are set by the respective business areas. The targets are followed up by Group management on a quarterly basis. For key figures, see pages 88–89. • Climate benefit Climate benefit is to increase as a growing volume of standing timber binds increasing amounts of carbon dioxide, while our products replace fossil-based alternatives and we reduce the fossil emissions in our value chain. Furthermore, expanding wind power will play its part in the transition to a fossil-free energy system in Europe. Holmen’s climate target from 2005 expired in 2020 and we are proud to have cut the use of fossil fuels at our mills by 87 per cent. Holmen’s ambition is for future targets to be in line with the Paris Agreement and follow the Science Based Targets (SBT) model. • Climate-smart products Offer and develop renewable alternatives to fossil raw materials and products. • Sustainable value chain Our business areas contribute to the target as relevant to their business, and as a whole they are to work towards: – Higher production of certified forest raw material and greater biodiversity to ensure that all species that live in the forest are able to thrive. – Lower fossil emissions from our mills and transport, less energy consumption per unit produced and lower water consumption, as well as ensuring a continued low impact on the aquatic environments surrounding our production plants. – A sustainable supply chain. 3. We are committed in our employees and our local communities At Holmen, the focus is very much on innovation and development, and we want our employees to develop and grow with us. In our work towards a sustainable future, this means investing in employees’ skills, a sound corporate culture and a healthy workplace. Naturally, we therefore work actively to encourage health and prevent injury, promote diversity and combat discrimination. Holmen plays a significant role as an employer in several locations and the business has considerable regional significance. It creates employment in rural areas and helps enable people to live and work outside the big cities. We can achieve so much more with employees and local communities that are flourishing. The contribution made by our organisation to the UN’s Sustainable Development Goals: • A safe working climate A friendly working climate where no-one experiences bullying or harassment. • A healthy working environment Low levels of sickness absence and a zero vision for workplace accidents. • Attractive employer Inclusive workplace where everyone is given the same opportunities to develop. • Skilled employees Develop our employees and work to improve talent management in our industry. • Dynamic organisation Encourage diversity. Holmen Annual Report 2019 27 A sustainable business A climate-positive business Holmen’s operations contribute major climate benefit and reduce the amount of carbon dioxide in the atmosphere. For 2019, Holmen’s positive climate footprint amounted to 2.7 million tonnes. Our growing forests capture CO2 Holmen’s forests grow more than the amount we harvest each year. This means that the amount of wood in our forests is increasing and that every year more than 1 million tonnes of carbon dioxide is captured in that net growth. Growing trees absorb carbon dioxide and store it in their trunks and branches. Spruce and pine grow the most in their first 100 years. As growth tails off, so does the amount of carbon they capture. When the trees become old and die, they rot and the stored carbon dioxide is released back into the atmosphere. This is part of the earth’s natural ecocycle. The regular inventories of our forests show that Holmen’s forest holdings are mainly made up of trees that are 0–80 years old, in other words, the age range in which growth is greatest. Wood replaces concrete and steel 725 000 tonnes of carbon dioxide is bound in the wood products that Holmen produced in 2019. The wood products bind carbon dioxide throughout their lifetime and also contribute a substitution effect by replacing construction materials with a greater climate impact, such as concrete and steel. The wood products that Holmen manufactured in 2019 helped to replace climate­negative materials that would have had emissions equating to 1 060 000 tonnes of fossil carbon dioxide. End­of­life wood products and paper­ board and paper products also make excellent biofuels. Where fossil fuels are replaced with end­of­life products, biofuels or by­products from production, emissions of fossil carbon dioxide are avoided. However, because such a substitution is outside Holmen’s operations, it has not been included in this calculation. Reduced fossil emissions from our industries Back in the 1980s, we started planning for a transition from using fossil energy in our industries and today we have switched to mainly using fossil­free electricity and renewable energy from biofuel. Emissions of fossil carbon dioxide from the produc­ tion have thus also fallen considerably, and amounted to 70 000 tonnes in 2019, a re­ duction of just over 85 per cent since 2005. Annual emissions of fossil carbon dioxide from forest machinery, manufacture of input goods and transport to and from our units are estimated at 325 000 tonnes. Together with emissions from production facilities, this represents the negative climate impact of Holmen’s operations. 1.3 + 1.8 – 0.4 = 2.7 Million tonnes CO2 Million tonnes CO2 Million tonnes CO2 Million tonnes CO2 total 2019 The forest The annual increase in volume of standing timber in Holmen’s forests is estimated to absorb 1 270 000 tonnes of CO2. The wood Our wood products stored 725 000 tonnes of CO2 in 2019 and replace climate-negative construction materials equivalent to 1 060 000 tonnes of CO2. Production & transport Emissions of fossil CO2 from our production amounted to 70 000 tonnes in 2019. Other emissions, including from transport, amounted to an equivalent 325 000 tonnes of CO2. Climate benefit For detailed reporting of Holmen’s climate impact in 2019 for Scope 1, 2, and 3, plus references, see pages 88–89. 28 Holmen Annual Report 2019 A sustainable business 5% Branches, tops, bark and wood shavings become renewable bioenergy. 45% The narrower parts of the tree and wood from thinning are ground or boiled down into pulp that then becomes paper or paperboard. 50% The large logs that make up approximately half of the harvest go to sawmills, where they become building materials in the form of construction timber and joinery products. Distribution of by­products and waste, % 0.1 0.2 17.9 81.8 Stansad mittcirkel: Dela upp pajen , använd Banhanterare Minus övre. Kopiera dit mittcirkeln för varje pajslice markera båda sedan Minus övre To energy production, internally/externally Utilised or sent for material recovery Waste sent to landfill Hazardous waste 81.8 17.9 0.1 0.2 We use the whole harvest Holmen owns and adds value to the forest in a business model that is almost entirely circular. With climate­smart products made from renewable and fossil­ free raw materials, we create value in a sustainable cycle. A circular bioeconomy A bioeconomy combined with circular ecocycles is the cornerstone of Holmen’s sus­ tainable business. It is also key to attaining sustainable development. In a bioeconomy, we produce and consume products from renewable materials, in other words mate­ rials that grow on the surface of the planet. By replacing finite raw materials with bio logical alternatives, we are fostering sustainable production and consumption. Because the biological raw material can also be used in circular ecocycles, where the products are reused and recovered, the benefit is maximised and the environmental burden minimised. Constantly growing raw material Holmen’s two nurseries produce more than 40 million seedlings each year, with the majority planted on the Group’s own land. After 70–90 years, as the tree’s growth slows and its capacity to absorb and store carbon falls, the forest is mature enough to be harvested. We saw as many planks and boards as technically possible from the trees we harvest. About half of the harvest consists of large logs that are used to produce construction material used for houses and furniture, for example. The narrower part of the tree and wood from thinning represents about 45 per cent of the harvest and is used with sawmill waste products in the form of wood chips, to manufacture paperboard and paper. The remainder comprises branches, Using the whole tree Wood – Planks and boards Chips – Pulp Bark – Bioenergy Wood shavings – Bioenergy tops, bark and wood shavings, which are used to produce bioenergy. Nothing goes to waste. Everything is used. Reusing water Holmen’s industries use surface water from lakes and watercourses, partly to transport and wash fibres in the mills. The same water is used many times before it is cleaned in several steps in different combinations of mechanical, biological and chemical treatment. This sees us working to ensure that the ecosystems in the aquatic environments surrounding our mills are healthy and thriving. By­products become new resources Holmen’s production plants are among the most resource­efficient in the world. Over the years, we have effectively reduced our use of energy, water and chemicals, and we recover and reuse the waste that arises. For example, wood waste products from the sawmill are used to generate electrical and thermal energy in the mills, organic material from the water treatment process is sold on as natural fertiliser, and steam from the mills is used in the drying processes at the integrated sawmills. As a joint owner of the collection and recovery companies that operate recovery of paper and paperboard in Sweden, we take responsibility for the final phase of our value chain. Holmen Annual Report 2019 29 A sustainable business Active environmental activities Modern wind turbines have a total height of 200–250 metres, measured from the ground to the top of the blade. Holmen’s environmental activities involve constantly reducing environmental and climate impact, and ensuring that the Group complies with the environmental rules and conditions set. Environmental responsibility For Holmen, environmental and energy concerns play a natural role in planning production and investments. Operations are characterised by resource­efficient use of renewable raw material and energy, and by protecting the environment, applying the precautionary principle. Energy, chemicals and fibre are recovered as far as possible, in order to minimise the environmental impact of production. The section on Risk management on page 41 outlines Holmen’s preventive work on eco­related risks and how they are managed. The main environmental impact from the industrial sites takes the form of emissions to air and water. Information on production and priority environmental parameters is presented on pages 88–89. Holmen’s environmental work is character­ ised by constant improvement measures within the framework of certified environ­ mental and energy management systems (see page 31), which ensure compliance with legislation and requirements set by authori ­ ties. Responsibility for the management systems rests with the respective business area, as does environmental responsibility. 30 Holmen Annual Report 2019 Permits At the end of 2019 Holmen was running production operations that require environ­ mental permits at seven facilities. The permits specify conditions regarding permitted pro­ duction volumes and permitted emissions to air and water. Six of the facilities are located in Sweden and one is in Workington in the UK. The facilities’ turnover amounted to 80 per cent of the Group’s net sales in 2019. The EU’s Industrial Emissions Directive (IED) from 2013 required that pulp, paper and paperboard mills comply with tougher emissions requirements by October 2018. The environmental status of Holmen’s Swedish mills is good and the mills meet the new criteria. The mill in Workington has been granted a derogation whereby the mill is to have invested in measures to en­ sure that the emission requirements for wa­ ter are met by 2021. Iggesund Mill gained a new environmental permit in October 2018 with associated conditions regarding in­ creased production of pulp and paperboard. The permit was utilised on 1 January 2019. At Braviken Paper Mill the production of bright products will gradually be stepped up. This is an important reason behind the decision to apply for a new environmental permit for operations in early 2020. In 2018 Holmen gained an environmental permit to build over 400 GWh of wind power production on Holmen land in Västerbotten. An application for a permit to build additional wind power operations in Västerbotten on the same scale is under examination. New environmental legislation, primarily for hydro power, entered into force on 1 January 2019. The legislation means that hydro power operators who do not comply with modern environmental criteria will need to apply for a review under the Swedish Environmental Code before the end of 2039. In 2019, Holmen Energi registered Holmen’s facilities with the national plan for the revision of the hydro power plant licences. Jointly owned facilities have been registered by the respective main owner. A sustainable businessEnvironmental permits for the Group’s production facilities Iggesund Mill, Environmental Code1) 2018 Workington Mill, IED 2017 Hallsta Paper Mill, Environmental Protection Act 2000 Braviken Paper Mill, Environmental Code2) 2002 Iggesund Sawmill, Environmental Code 2014 2010 Braviken Sawmill, Environmental Code Linghem Sawmill, Environmental Code 2003 1) Port activity at Skärnäs Terminal, alongside Iggesund Mill, is included in the environmental permit. In addition, operations subject to notification requirements take place at the production unit in Strömsbruk. 2) An application for a new environmental permit will be submitted to the Land and Environmental Court in early 2020. Discontinued operations In consultation with the environmental authorities, studies are being conducted at contaminated discontinued industrial sites where Holmen has operated in the past. In 2019, studies were in progress at different stages regarding the former sawmills Håstaholmen, Stocka and Lännaholm, the sulphite mills at Strömsbruk, Domsjö and Loddby, the former groundwood mill in Bureå and two landfill sites, one in Kvillsfors and one at Hults Bruk. The land and the buildings at the former Håstaholmen Sawmill in Hudiksvall have been remediated and in 2019 remediation began of polluted sediment in the aquatic area outside the industrial site. The land and the buildings at the former surface treatment plant at Iggesund have been remediated. In 2019 the concluding phase of remediation work took place on the site, in which polluted groundwater is undergoing a treatment process. The work is expected to be complete in early 2020. Exceedances and complaints Emission allowances and electricity certificates The environmental manager within each operation handles any incidents that occur. Close dialogue with the mills’ local residents is important in order to identify and address any views on operations at an early stage. 35 (32) environment­related incidents were reported to the supervisory authorities during the year. The nonconformities were not of a significant nature in terms of environ mental impact or impact on profits. Corrective measures were taken to deal with these cases, in line with the environmental management system of the operations concerned. Within the EU Emissions Trading Scheme, Holmen has been awarded emission allow­ ances up to 2020. As a result of investment in bio­based energy production and energy savings at the facilities, the use of fossil fuels has fallen considerably in recent years. Surplus allocated emission allowances have been able to be sold. In 2019, Holmen applied for allocation of emission allowances for the period 2021– 2030. The Group has produced renewable electricity for many years. This has brought in income as we obtained electricity certificates for our production, which have been sold to electricity distributors, who have used them in turn because a proportion of their customers’ electricity needs to come from renewable origins. In the UK, electricity distributors have to meet a certain quota for renewable electricity, and producers of renewable electrical energy receive green Renewables Obligation Certificates in proportion to the amount of electricity generated. The mill in Workington obtained such green certificates in 2019. Management system certifications Production facilities1) Environment ISO 14001 Energy ISO 50001 Quality ISO 9001 Health and safety OHSAS 18001 Iggesund Mill2) Workington Mill3) Hallsta Paper Mill Braviken Paper Mill Iggesund Sawmill4) Braviken Sawmill4) 2001 2003 2001 1999 1999 2011 2005 2015 2005 2006 2006 2011 1990 1990 1993 1996 1997 2011 2016 2005 2012 2015 2017 2017 The years given in the table are the years when the certification was first issued. The certifications mean that procedures are in place for planning, implementation and follow-up, as well as measures to enable continuous improvement in the work on the various management systems. Certifications can be viewed at holmen.com/certificates. 1) Holmen’s forest operations are certified in accordance with environmental management system ISO 14001. Forest operations are also certified under criteria issued by PEFC™ and FSC® respectively and have chain-of-custody certification (Controlled Wood), which means an assurance that non-certified wood also comes from controlled sources. All the facilities at which wood raw material is used have chain-of-custody certification. 2) The certifications include the production unit in Strömsbruk and operations at Skärnäs Terminal. 3) Workington Mill has been certified under the food safety management system ISO 22000 since 2019. 4) From 2011 the certification is a joint certifica- tion for the two sawmills. For Linghem Sawmill, which was acquired in 2017, work is in pro- gress to incorporate its operations under the certification of the other sawmills. Holmen Annual Report 2019 31 A sustainable business The crab spider Misumena vatia exists throughout Sweden but can be hard to spot, as it changes colour depending on its surroundings. Preserving biodiversity The Swedish forest is an impor­ tant resource that binds carbon dioxide and provides renewable alternatives to fossil material. It is also home to numerous plants and animals. To keep managing the forest over the long term, we need the natural environment to be healthy and thriving. Forest management for a sustainable society To successfully make the transition to a fossil­free society, we depend on more renewable material from nature. And to do so while retaining thriving ecosystems, the surface of the planet needs to be managed more widely and sustainably. We think it makes sense and is fully possible to manage the forest so that it provides more raw material while preserving its ecosystems. More knowledge means better forests Holmen has been managing forests since the seventeenth century. Biodiversity has not historically been a priority issue in the forest industry, but huge changes have taken place in the last thirty years. Since the early 1990s, when the spotlight was shone on the question of nature conservation, we have learned a great deal about how we can improve biodiversity while simultaneously increasing forest growth. We are constantly working to be even better and recognise that biodiversity is mainly benefitted by 32 Holmen Annual Report 2019 the way we manage our forests, not by the amount of forest we refrain from managing. The aim is to ensure that all naturally occurring species are able to thrive in Sweden’s forest landscape and that important natural assets are encouraged and preserved. We are convinced that it is through research and collaboration that we can continue to find new ways to encourage both growth and biodiversity in our forests. This is why we are conducting more than 300 research projects on our land, both ourselves and in partnership with research organisations, universities and other interested parties. Active measures in our forests In our active forest management, we pay a great deal of attention to natural and cultural assets. As forest species depend on different environments for their survival, we save wide­girth broadleaves, buffer zones and dead trees. Some areas are also completely exempt from forest management. They are chosen for their nature conservation potential and often have high conservation value. Some of these areas are left to develop totally freely, while in others we carry out nature conservation measures such as clearing brushwood or controlled burning to benefit many rare plants and animals. Important aquatic environments Holmen’s forests contain lakes, streams and other water­rich environments, with sensitive ecosystems and a wealth of fauna. Water in the forest is a priority area for us and we take active measures in our practical work, including avoiding land damage from forest machinery. Ongoing training initiatives are being conducted for field personnel and contractors as an important aspect of this work, focusing on water issues in practice. Climate and biodiversity hand in hand Biodiversity is essential for creating healthy and resilient forests capable of coping with climate change and more extreme weather. However, biodiversity is affected by climate change, which is why sustainable forest management that captures carbon dioxide and creates raw material that replaces fossil material is also an important component in mitigating climate change and so encourag­ ing biodiversity. Ecosystem services The benefit created for humans from forests and nature is termed ecosystem services. The forest has the capacity to contribute many ecosystem services at the same time, which is valuable for Holmen and for society in general. Examples of ecosystem services from the forest: • storing carbon dioxide in land and trees, • renewable and fossil­free forest raw material, • firm and stable soil that is able to cope with heavy rain and flooding, • food such as meat, fish, mushrooms and berries, • opportunities for recreation and tourism, • clean air and water. A sustainable business Employees Courage, commitment and responsibility Competent employees and a value­driven company culture are important to attaining our business objectives. Today’s Holmen is the result of countless decisions large and small, made in line with our values of courage, commitment and responsibility. A team effort where we have put long­term values ahead of short­ term profit and dared to swim against the tide when it made sense to do so. This sees us continuing to fine­tune our products and services. Management by objectives Holmen is a learning workplace where everyone has the opportunity to feel a sense of commitment and responsibility for the areas in which they work and the objectives set. Holmen’s individual management by objectives model, in which the manager expresses expectations and the employees themselves suggest objectives that steer work to meet them, helps us to make the most of the competence, potential and personal drive that every employee possesses. The management by objectives model is our way of making sure that all of us working at Holmen feel that we are focusing on the right things and helping to implement our strategy. Core values Our core values of courage, commitment and responsibility are the route to a strong culture and the answer to how we make each other and Holmen better. The core values guide us in our approach to each other, in relations with customers and in our work. They are integrated in our processes and tools, including in the recruitment process, appraisal talks, as a complement to the management by objectives model, and as a basis for our internal leadership and management programme. Health and safety We work to achieve a healthy culture and an accident­free workplace for our employees and the contractors who work with us. Holmen carries out systematic Group­ wide health and safety work in line with OSHAS 18000 (see page 31) and all our production units are certified, apart from Linghem Sawmill, which was acquired in 2017. Certification work began the same year and entered its final phase in 2019. 20 15 10 5 0 A zero vision for accidents The number of accidents per million hours worked increased to 5.7 in 2019 from 4.9 in 2018. The dominant causes of accidents are slipping, tripping and pinching. Cuts and lacerations have fallen during the year thanks to measures put in place, but slips, trips and pinch accidents have increased. In recent years, we have successfully managed to reduce the number of accidents and despite this year’s rise to 27 (24) incidents, efforts are moving in the right direction. This year’s rise shows how important it is for us to continue to take a farsighted approach, focused on our vision of zero accidents. It is worthy of note that our paperboard mill in Workington in the UK had no accidents resulting in sickness absence in 2019. Industrial accidents with more than 8 hours of absence (LTI) per million hours worked. Human rights and equality Holmen safeguards human rights and the equal value of all people. All employees must have the same rights, obligations and opportunities irrespective of their sex, trans­ gender identity or expression, ethnicity, political opinion, union membership, religion or other belief, disability, sexual orientation, health status, age or family responsibilities. This is set out in Holmen’s Code of Conduct and applies to employees, contractors and suppliers. During the year we have updated our supplier follow­up process to identify which suppliers pose risks linked to the environment, labour law, human rights, business ethics and sustainable purchasing. We have also drawn up an action plan for those suppliers identified as having a high risk in these respects. Our industry is currently predominantly male, but we are working to create a modern and inclusive industry where we can benefit from a diversity of backgrounds and expe­ riences and where everyone feels welcome. Greater diversity and a more even gender distribution in managers and leaders will see us becoming a more dynamic organisation. As part of our work to be an inclusive workplace in which everyone is given the same development opportunities, we draw up action plans and annual pay surveys in line with the Swedish Equality Act. We also use appraisal talks and employee surveys as tools to improve our work on equality and actively combat discrimination. At Holmen, everyone must experience a safe and friendly working climate without bullying or harassment. Recruitment and development To maintain competitiveness over time, attracting and retaining the right employees is of the utmost importance. This way we ensure that Holmen continues to be a business with a focus on innovation and development. Based on our current and future skills needs, we are working on employee development at all levels. We also provide development programmes for new and more experienced managers and for specialists driving work on change. 14 15 16 17 18 19 Holmen Annual Report 2019 33 A sustainable business Corporate governance report Holmen AB is a Swedish public limited company, listed on the Stockholm Stock Exchange (Nasdaq Stockholm) since 1936. The preparation of a corporate governance report is a requirement under the Swedish Annual Accounts Act. The corporate governance report complies with the rules and instructions stipulated in the Swedish Code of Corporate Governance. Shareholders Holmen had 38 904 shareholders at year- end 2019. Private individuals with Swedish citizenship accounted for the largest category of owners with 36 792 owners. The largest owner at year-end, with 62.3 per cent of votes and 34.1 per cent of capital, was L E Lundbergföretagen, which means that a Group relationship exists between L E Lundbergföretagen AB (corporate ID number 556056-8817), whose registered office is in Stockholm, and Holmen. The Kempe Foundations constituted the second-largest owner and their holdings of Holmen shares amounted to 17.5 per cent of votes and 7.4 per cent of capital at the same date. No other individual shareholder controlled as much as 10 per cent of the votes. 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 Annual General Meeting (AGM). At the 2019 AGM, the Board’s authori- sation to purchase up to 10 per cent of the company’s shares was renewed. The Board took the decision in August 2019 to use the share repurchase mandate in order to make the Group’s capital structure more efficient. 6 235 436 class B shares were repurchased for SEK 1 430 million, corresponding to an average price of SEK 229/share. The buy- backs correspond to 3.7 per cent of the total number of shares. During the year 168 797 shares were allocated to participants of the share savings programme. Together with shares already owned, this means that Holmen held 4.5 per cent of the total number of shares at 31 December 2019. See pages 44–45 for further information on the shares and ownership structure. before the meeting. The notice contains: a) information about registering intention to attend and entitlement to participate in and vote at the meeting; b) a numbered agenda of the items to be addressed; c) information on the proposed dividend and the main content of other proposals. Shareholders or proxies are entitled to vote in respect of the full number of shares owned or represented. Registration for the meeting is made by letter, telephone or at holmen.com. Notices con vening an Extraordinary General Meeting (EGM) called to deal with changes to the company’s articles of association shall be sent no earlier than six and no later than four weeks before the meeting. Proposals for submission to the AGM should be addressed to the Board and submitted in good time before the notice is distributed. Information about the rights of shareholders to have matters discussed at the meeting is provided at holmen.com. It was announced on 18 September 2019 that the 2020 AGM would take place in Stockholm on 30 March 2020. General meeting of shareholders The notice convening the AGM is sent no earlier than six and no later than four weeks Nomination committee The AGM resolved that the nomination committee shall consist of the chairman of AGM 2019 Board meetings The 2019 AGM and the material presented was in Swedish. The notice convening the meeting, the agenda, the CEO’s speech and the minutes are available at holmen.com. The meeting was attended by all AGM- elected Board members, Group management and the company’s auditors. During the AGM, the shareholders had the opportunity to ask and obtain answers to questions. The AGM adopted the income statement and balance sheet, decided on the appropriation of profits and granted the departing Board discharge from liability. Anne-Charlotte Hormgard of the Third Swedish National Pension Fund and Carl-Fredrik Lorenius of Swedbank Robur Funds checked and approved the minutes of the meeting. It was not possible to follow or participate in the meeting from other locations using communication technology. No changes in this regard are planned for the 2020 AGM. The Board held eight meetings in 2019, four of which were in connection with the company’s publication of its quarterly reports. One meeting was dedicated to reviews of strategic issues and the Group budget for 2020. One meeting was held in connection with the Board’s visit to paperboard customers and consumer product brand owners, and discussed the development of future packaging. Two meetings were held in connection with the company’s AGM. In addition, the Board paid particular attention to strategic, financial and accounting issues, the monitoring of business operations, the valuation of the company’s forests and matters regarding the repurchase of company shares, as well as the decision about investing in Blåbergsliden Wind Farm and other significant investment matters. On two occasions the company’s auditors reported directly to the Board, providing a presentation about their audit of the accounts and internal control. 34 Holmen Annual Report 2019 Corporate governance report Shareholders Nomination committee General meeting of shareholders Board of Directors CEO Group management Five group staffs Five business areas Auditors the Board and one representative from each of the three shareholders in the company that control the most votes at 31 August each year. The composition of the nomi- nation committee for the 2019 and 2020 AGMs is shown in the table on page 37. The nomination committee’s mandate is to submit proposals for the election of Board members and the Board chairman, for the Board fee and auditing fees and, where applicable, for the election of auditors. The committee’s proposals are presented in the notice convening the AGM. The nomination committee applies rule 4.1 of the Swedish Corporate Governance Code (the Code) as a diversity policy in putting forward proposed Board members, which means the composition of the Board should reflect the company’s business operations, phase of development and other circumstances, and should be diverse and wide-ranging in terms of the expertise, experience and background of the members elected by general meetings. An even gender distribution is sought. The nomination committee has observed this policy in its proposals to the Board. Further information about the work of the nomination commit- tee will be provided at the 2020 AGM. For the 2020 AGM, the nomination committee proposes that the Board consist of nine members elected by the AGM. The nomination committee proposes the re-election of the current Board members: Fredrik Lundberg (who is also proposed for re-election as Chairman of the Board), Carl Bennet, Lars G Josefsson, Lars Josefsson, Louise Lindh, Ulf Lundahl, Henriette Zeuchner, Alice Kempe and Henrik Sjölund. 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. According to the articles of association, the Board should consist of seven to eleven members. The company’s articles of association contain no other rules regarding the appointment or dismissal of Board members, or regarding amendments to the articles, or restrictions on how long members can serve on the Board. The 2019 AGM re-elected Fredrik Lundberg, Carl Bennet, Lars G Josefsson, Lars Josefsson, Louise Lindh, Ulf Lundahl, Henriette Zeuchner and Henrik Sjölund to the Board. Alice Kempe was elected as a new member of the Board after Carl Kempe declined to stand for re-election. Fredrik Lundberg was re-elected Chairman. At the statutory first meeting of the new Board in 2019, Henrik Andersson, Senior Vice President Legal Affairs, was appointed company secretary. Over and above the nine members elected by the AGM, the local labour organisations have a statutory right to appoint three members and three deputy members. Of the nine Board members elected by the AGM, eight are deemed independent of the company as defined by the Code. The CEO is the only Board member with an operational position in the company. Further information about the members of the Board is provided on pages 82–83. The Board’s activities The activities of the Board follow a plan, one of whose aims is to ensure that the Board obtains all requisite information. Each year the Board decides on written working procedures 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 develop- ments and other key events. Employees of the company participate in Board meetings to submit reports. In order to develop the work of the Board, an annual evaluation is undertaken involv- Board members as of the 2019 AGM Board members Fredrik Lundberg Carl Bennet Lars Josefsson Lars G Josefsson Alice Kempe Louise Lindh Ulf Lundahl Henriette Zeuchner Henrik Sjölund Elected 1988 2009 2016 2011 2019 2010 2004 2015 2014 Role on the Board Chairman Member Member Member Member Member Member Member Member, President & CEO Attendance at meetings: Audit committee Member Member Member Member Member Member Chairman Member – Remuneration committee Chairman Member – – – – – – – Board of Directors 7/8 7/8 8/8 8/8 6/8 8/8 8/8 8/8 8/8 Audit committee 5/5 4/5 5/5 5/5 4/5 5/5 5/5 5/5 – Remuneration committee 5/5 5/5 – – – – – – – Fee (SEK ’000) 710 355 355 355 355 355 355 355 – According to the nomination committee, Fredrik Lundberg, Carl Bennet, Lars G Josefsson, Lars Josefsson, Alice Kempe, Louise Lindh, Ulf Lundahl and Henriette Zeuchner are independent of the company and its senior management, and Lars G Josefsson, Lars Josefsson, Ulf Lundahl, Henriette Zeuchner and Henrik Sjölund are independent of the company’s major shareholders. Employee representatives Steewe Björklundh, member, elected 1998/Kenneth Johansson, member, elected 2004/Tommy Åsenbrygg, member, elected 2009/Per-Arne Berg, deputy member, elected 2015/Daniel Hägglund, deputy member, elected 2014/Christer Johansson, deputy member, elected 2017 Holmen Annual Report 2019 35 Corporate governance reportStrategy and targets Strategy, budget and management by objectives Business processes Earnings, reporting and monitoring Code of Conduct Policies Guidelines Authority Values Group instructions Authorisation rules Management systems Internal management processes and guideline documents ing each member answering a questionnaire containing relevant questions concerning the Board’s work and having the opportunity to make suggestions on how to enhance the Board’s work. Their responses were presented and discussed at a Board meeting. The results of the 2019 evaluation will form the basis for planning the Board’s work for the coming year. The chairman of the Board has reported the results of the evaluation to the nomina- tion committee. Remuneration The Board has appointed a remuneration committee consisting of Fredrik Lundberg and Carl Bennet. During the year, the com- mittee prepared matters pertaining to the remuneration and other employment condi- tions of the CEO. Remuneration and other employment conditions for senior management who report directly to the CEO are decided by the latter in accordance with the pay policy established by the remuneration committee. The remuneration committee has evaluated the application of both this policy and the guidelines on the remuneration of senior management adopted by the AGM. The Group applies the principle that each manager’s manager must approve decisions on remuneration in consultation with the relevant personnel manager. At the 2019 AGM the Board set out its proposals regarding guidelines for remu- neration of the CEO and other senior management, i.e. heads of business areas and heads of Group staffs who report directly to the CEO. The AGM adopted the guidelines in the proposal. The Board proposes new guide- lines to the 2020 AGM. The Board’s proposed guidelines on remune ration for senior man- agement are set out on page 39. Current guidelines and information about remunera- tion are presented in Note 4 on page 60. The 2019 AGM approved the Board fee and payment of the auditors’ fee as invoiced. 36 Holmen Annual Report 2019 The share savings programme that was introduced following a resolution by the 2016 AGM expired in May 2019. Entitlement to performance shares is linked to the Group’s average return on capital employed for 2016–2018, which was 9.0 per cent. This means that there was full allocation of performance shares. A total of 168 797 matching and performance shares were allocated to participants in May 2019. Allocation has taken place by means of free transfers of class B treasury shares. The 2019 AGM approved a similar new share savings programme that encompasses up to 60 members of the company’s senior management. The programme will expire upon publication of the interim report for January–March 2022. The company’s commitment to provide shares under the programme will also be met by means of free transfers of treasury shares. The effects on key ratios and profit per share are marginal. See Note 4 on page 60 for further information about the share savings programme. Group management The Board has delegated operational responsibility for management of the com- pany and the Group to the CEO. The Board annually decides on instructions covering the distribution of tasks between the Board and the CEO. Holmen’s Group management comprises the company’s CEO, the heads of the five business areas, the heads of the five Group staffs and the head of international affairs. Information about the CEO and other mem- bers of Group management is provided on page 84. Group management met on eight occa- sions in 2019. The meetings dealt with matters such as earnings performance and reports before and after Board meetings, strategic issues, budgets, investments, internal control, work environment, forest valuation matters, sustainability issues, environmental issues and silviculture matters. Meetings were also dedicated to reviews of market conditions, economic developments, possible consequences of Brexit and other external factors affecting the business, as well as discussion about governance of the Group and the tools, such as the management-by-objectives model and Group-wide policies, used in such governance. Audit KPMG, which has been Holmen’s auditor since 1995, was re-elected by the 2019 AGM as auditor for a period of one year. Authorised Public Accountant Joakim Thilstedt was appointed as the principal auditor. Under applicable regulations KPMG can be re-elected as auditor up until 2023. KPMG audits Holmen AB and almost all of its subsidiaries. The examination of internal procedures and control systems begins in the second quarter and continues thereafter until year-end. The interim report for January– September is subject to review by the auditors. The examination and audit of the final annual accounts and the annual report, including the sustainability report, take place in January–February. Holmen’s audit committee consists of external Board members and is chaired by Ulf Lundahl. The audit committee met five times in 2019. The Board’s reporting instructions include requirements that the members of the Board shall receive a report each year from the auditors confirming that the company’s organisation is structured to enable satisfactory supervision of accounting, management of funds and other aspects of the company’s financial circumstances. The auditors reported to the audit committee at three meetings in 2019. In addition to the audit assignment, Holmen has consulted KPMG on matters pertaining to taxation, accounting and for various investigations. The remuneration paid to KPMG for 2019 is stated in Note 5 on page 61. KPMG is required to assess its independence before making decisions on whether to provide Holmen with independent advice alongside its audit assignment. Internal management processes A review is conducted annually of each business area’s strategy, including the business’ goals. The strategy is presented to the Board and forms the basis of the expecta tions applied to the units in each respective business area. On the basis of the expectations, each unit sets objectives and identifies success factors for achieving them. Key performance indicators (KPIs) are linked to the success factors in order to measure and demonstrate changes in performance. The strategy review also provides the basis for the budget, in which decisions are taken on the distribution of resources and targets for the coming year are set. Use of a simple and well- implemented management-by-objectives tool for continuous follow-up ensures Corporate governance reportthat the entire organisation is applying appropriate priorities to attain the objectives established. The business areas guide the operating businesses towards these targets using processes for purchasing, production and sales, and supported by HR, financial management, research and development, IT, environment and communication processes. Operations are followed up through regular reporting of performance and KPIs that reflect business activity, along with additional qualitative analysis. Reporting of sustainability data is integrated with financial reporting. Code of Conduct. Holmen’s Code of Conduct is in line with the UN Global Compact and provides guidance on day- to-day operations and clarifies what expec- tations are made of employees. Holmen’s operations should be characterised by responsible behaviour towards both internal and external stakeholders. The Supplier Code of Conduct complies with the UN Global Compact and covers the areas of anti-corruption, human rights, health and safety and the environment. With respect for human rights, Holmen endeavours to ensure a workplace climate that is founded on the equal value of all people. All Holmen’s employees must have the same rights, obligations and opportunities irrespective of their sex, transgender identity or expression, ethnicity, religion or other belief, disability, sexual orientation and age. Holmen is subject to the UK Modern Slavery Act and a report relating to this is available at holmen.com. Policies. Holmen uses policies, guidelines and Group instructions to clarify how employees should act within key and critical areas. The Group’s 11 policies cover matters such as expectations of employee participation and leadership, specify the scope of management by objectives, talent management, interaction with trade union organisations, equality and employment terms and conditions. In addition to this, a good work environment is covered in terms of health and safety, anti-corruption and competition issues, and how good business practice is maintained in relation to external contacts on different markets. Employees in departments at risk of encountering unauthorised behaviour receive special training on business ethics. The policies specify that raw materials should be used efficiently, pollution should be prevented and that we should aspire to make continuous improvements. Financial risk is managed centrally and should be characterised by a low level of risk. The policies should also ensure Compliance. Holmen’s Code of Conduct, policies and values are part of every em- ployee’s induction programme, and are reite- rated by managers at employee meetings. Compliance is monitored partly through employee surveys and appraisal talks, pay surveys, safety statistics and audits of the organisational and social work environment. Where non-compliance or failings are found in terms of the corporate culture, the issue is addressed on a case-by-case basis. Whistleblower function. A whistleblower function is available so that employees and other stakeholders can highlight any deficiencies in Holmen’s financial reporting or other possible areas of concern at the company. “Holmen’s Code of Conduct is in line with the UN Global Compact and provides guidance on day-to-day operations.” that the company’s assets are managed in accordance with Group rules, risks of errors in financial reporting are minimised and irregularities are prevented. The Group’s purchasing should contribute to long- term profitability. The sustainable sale of raw materials, products and services should be ensured in both the short and long term. Communication must be accurate, transparent and easily accessible and comply with legal requirements and commercial confidentiality. Internal control of financial reporting The Board’s responsibility for internal control and financial reporting is regulated by the Swedish Companies Act and the Swedish Corporate Governance Code. Under this code, the Board is also responsible for ensuring that the company is managed in a sustainable and responsible manner. Day-to-day responsibility for all these matters is delegated to the CEO. Composition of the nomination committee Before AGM: Independent of the: Name Mats Guldbrand Fredrik Lundberg Carl Kempe Torbjörn Widmark Hans Hedström Representing L E Lundbergföretagen* Chairman of the Board Kempe Foundations* Kempe Foundations* Carnegie funds* 2020 x (chairman) x x - x 2019 x (chairman) x - x x Company Yes Yes Yes Yes Yes Largest shareholder (in terms of votes) No No Yes Yes Yes * At 31 August 2019, L E Lundbergföretagen controlled 61.5 per cent of the votes, the Kempe Foundations controlled 16.9 per cent and Carnegie funds (Sweden) controlled 1.5 per cent. Holmen Annual Report 2019 37 Corporate governance report Purpose and structure. The purpose of internal control is to ensure that Holmen achieves its financial reporting objectives (see below), ensure the company’s assets are managed according to Group rules and to prevent irregularities. Group Finance coor- dinates and monitors the internal control process concerning financial reporting. This work adheres to guidelines issued by the Committee of Sponsoring Organiza- tions of the Treadway Commission (COSO) in respect of internal control over financial reporting. The framework comprises five basic elements: control environment, risk assessment, control activities, information and communication, as well as monitoring activities and evaluations. The framework has been modified to suit the estimated needs of Holmen’s various operations. Control environment. The control envi- ronment provides the basis for internal control of financial reporting and is based in part on the company’s internal manage- ment processes. The Board of Directors’ procedural rules and the instruction for the CEO establish the distribution of roles and responsibilities to ensure effective control and management of the business’ risks. Policies, guidelines and instructions contribute to making individuals aware of their role in establishing good internal control. These documents also ensure that financial reporting complies with the laws and rules that apply to companies listed on Nasdaq Stockholm and the local rules in each country where the company operates. Risk assessment. Risk assessment activities aim to identify and evaluate the risks that can result in the Group’s financial reporting objectives not being met. The results of these risk-related activities are compiled and assessed under the guidance of Group Finance. reported to the Executive Vice President. The accuracy of self-assessments is subject to testing. Holmen’s greatest risks regarding financial The reporting of internal control to Group management takes place once a year. The company’s auditors report their obser- vations from the review of internal control to the audit committee and Board during the year. Follow-up is an important tool to identify possible deficiencies within the Group and to address these through the development of new control requirements. Statement on internal audit. The Board of Directors does not believe that particular circumstances in the business or other con- ditions exist to justify an internal audit function. The internal control managed by the Group, together with the activities carried out by the external auditors, is deemed to be sufficient. reporting are linked to the valuation of forest assets, property, plant and equipment, pension provisions, other provisions and to financial transactions. The risk assessment also involves identifying and assessing operational risks. For further information, see the Risk Management section on pages 40–43. Control activities. To ensure that Holmen’s financial reporting objectives are met, con- trol requirements are incorporated into the processes that are deemed relevant: sales, purchasing, investments, personnel, finan- cial statements, payments and IT. Control activities aim to prevent, identify and rectify errors and discrepancies. Business-specific self-assessments that are completed by all Group units set out what control require- ments apply for each respective process and whether or not they are met. Information and communication. Holmen’s financial information provision, both external and internal, adheres to a communication policy established by the CEO. The provision of financial informa- tion for Holmen’s shareholders and other stakeholders must be accurate, compre- hensive, transparent and consistent, and must take place on equal terms and at the right time. Follow-up and evaluation. Control acti- vities are assessed regularly to ensure that they are effective and appropriate. The results of self-assessments are followed up on a continual basis and discrepancies are Holmen’s financial reporting External financial reporting must: • be accurate and complete, and comply with applicable laws, regulations and recommendations • provide a true and fair description of the company’s business • support a reasoned and informed valuation of the business. Internal financial reporting must also support correct business decisions at all levels in the Group. 38 Holmen Annual Report 2019 Corporate governance reportThe Board’s proposed guidelines on remuneration for senior management (Chapt. 8, §§ 51–53 Swedish Companies Act) The guidelines relate to the terms of employment for the CEO, executive vice president and other senior executives, i.e. the business area managers and heads of Group staffs reporting directly to the CEO. The guidelines shall apply to remuneration agreed after the guidelines have been adopted by the 2020 AGM. The guidelines do not cover remuneration determined by the AGM. Guidelines’ promotion of the company’s business strategy, long-term interests and sustainability Holmen’s strategy is to own and add value to the forest. Holmen’s forest holdings form the basis of the business in which the raw material grows and is refined into everything from wood products for climate- smart building to renewable packaging, magazines and books, using energy that largely comes from its own hydro and wind power. Successful implementation of the company’s business strategy, long-term interests and sustainability requires the company to be able to attract the right employees. This guideline is intended to provide Holmen with the conditions to recruit and retain skilled employees. Forms of remuneration A long-term share-based incentive program me has been established within the company. It was approved by the 2019 AGM and is therefore not covered by these guidelines. The overall purpose of the Programme is to retain close alignment of the interests of senior management and shareholders and to encourage long-term commitment to Holmen. The Programme is intended to attract and retain employees who are critical to Holmen’s ongoing success. The performance requirements used to assess the outcome of the programme are clearly linked to the business strategy and, thereby, to the company’s long-term value creation, including its sustainability. The programme also includes requirements on own invest- ment, remaining employment and multi- year retention. Over and above share- based incentive programmes approved by the AGM, no variable remuneration shall be paid. The remuneration of the CEO and the senior management shall consist of a fixed market-based salary. Other benefits may include such items as health insurance, accommodation and car allowance. Where such benefits are provided, they should constitute no more than 10 per cent of the fixed salary. The retirement age is normally 65 years. The pension benefit shall be based on contri butions and the contributions shall correspond to what is stipulated in the ITP occupational pension plan, currently 30 per cent of fixed cash salary. Notice and severance pay The period of notice is six months, regard- less of whether notice is given by the com- pany or the member of senior management. In the event of notice being given by the company, severance pay may be paid cor- responding to no more than 18 months’ salary. Consideration of salary and employment terms for other employees In formulating its proposals for these remuneration guidelines, the Board has taken into account salaries and employment terms of the company’s other employees, by including information about employees’ total remuneration, the components of such remuneration and the increase in remunera- tion and the rate of increase over time, which have constituted part of the basis for decisions in evaluating the reasonableness of these guidelines. Decision-making process for establishing, reviewing and implementing the guidelines The Board has established a remuneration committee. The committee’s duties include preparing the Board’s decision on proposed remuneration guidelines for senior manage- ment. Under Chapter 8, § 51 of the Swedish Companies Act, the Board must draft pro- posed new guidelines at least every four years and put such proposal to the AGM. The remuneration committee must also monitor and evaluate the application of the guideline and applicable remuneration structures and levels in the company. Members of the remuneration committee must be independent in relation to the com- pany and its senior management. The CEO and other members of senior management do not attend the Board’s discussion of and decisions on remuneration-related matters if such matters relate to them. Deviation from the guidelines The Board may decide to temporarily deviate from the guidelines in full or in part if, in an individual case, there are particular reasons for so doing and deviation is necessary in the long-term interests of the company, including its sustainability, or to ensure the company’s financial viability. Holmen Annual Report 2019 39 Corporate governance report Risk management The Group’s business and operational risks are managed by the relevant business areas, which also take decisions regarding produc- tion, sales and employees with the aim of generating a lasting good return on invested capital. Risks are addressed using the busi- ness areas’ management systems. Purchasing and IT are managed by group- wide functions in order to leverage econo- mies of scale and risks are handled in line with the Group’s policies. The Group’s financing and financial risks are managed by Group Finance based on a financial policy that was established by the Board Operational risks and that is characterised by a low level of risk and aims to minimise the Group’s cost of capital and provide effective control of the Group’s financial risks. Risk Risk management Comment Production and deliveries Changes in demand for paperboard, paper and wood products affect the ability to achieve full production at the Group’s facilities and can lead to lower income. Income may also be impacted if harvesting from our own forests needs to be limited as a result of lower demand and variations in precipitation and wind, which govern generation from hydro and wind power. Selling prices The market balance in each product segment governs the selling price and affects income. Commodity prices Wood, electricity and chemicals are the most significant inputs and price changes affect profitability. Holmen endeavours to maintain a good cost position through large-scale production at well-invested production facilities, efficient logistics solutions and good control over the supply of wood. Together with longstanding customer relationships and strong product brands, this also increases the ability to maintain a high level of production amid more difficult market conditions. Changes in demand for wood may be met by shifting harvesting from our own forests from year to year, while production of hydro power during the year can be regulated by controlling water reservoir levels. Holmen has limited possibilities to make rapid changes to its product range in the event of changes in price, but it adjusts its product focus towards those products and markets deemed to have the best long-term conditions, and by having a broad customer base and offering across a number of product areas. Changes in the price of wood and electricity can to some extent be managed by shifting harvesting from year to year and regulating reservoir water levels in order to shift electricity generation over the year. The harvesting of logs from our own forests essentially corresponds to consumption at our own sawmills. Pulpwood from our own forests and wood chips from our own sawmills supply just under 50 per cent of consumption at our paperboard and paper mills. The Group is largely in balance in terms of pulp as a result of the integrated production process. The paperboard business generates almost all the electricity required at its own mills, while electricity for paper manufacturing is supplied from external purchases. The Group also sells electricity from its hydro power and wind power assets to the electricity grid. In net terms, the Group’s own electricity generation corresponds to just under 50 per cent of its total electricity consumption. The price risk in this consumption is managed through physical fixed price contracts and financial hedging. There is a significant need for thermal energy, but this is produced locally at each mill from residual products. Chemicals are a significant input, particularly in paperboard production, but the need is being reduced and used chemicals are recycled at the mills. The cost position is continually strengthened by targeted investments. In 2019 investments were made to eliminate bottlenecks at Iggesund Mill, enabling increased pulp production. Work on expanding production capacity by 150 000 cubic metres at Braviken Sawmill is proceeding according to plan and this is expected to enter service in 2020. During the year the decision was taken to invest in Braviken Paper Mill to continue the transition towards bright, light products based on fresh fibre. In December the decision was taken to construct Blåbergsliden Wind Farm with a 143 MW capacity, which is expected to increase Holmen’s electricity generation from hydro and wind power by 35 per cent. In 2019 paper and wood product prices decreased from a high level as a result of a worsened market balance, while paperboard prices were stable. Log prices decreased slightly in southern Sweden as a result of temporarily high supply. Electricity prices generally remained at the same level as in 2018. The cost of input goods levelled out 2019 following sharp increases in the previous year. The price of net electricity consumption is 80 per cent hedged for 2020 and 65 per cent hedged for 2021. The nominal amount for financial hedging is SEK 326 million. The Group’s net exposure to the price of electricity will decrease once Blåbergsliden Wind Farm is operational at the end of 2021. Facilities Production equipment can be seriously damaged, for example, in the event of a fire, machine breakdown or power outage. This can lead to supply problems, unexpected costs and reduced customer confidence. Damage prevention measures, regular maintenance and continual upgrades can minimise the risk of damage to facilities. Training of employees promotes participation, knowledge and awareness about these risks and how they can be countered. Holmen insures its facilities at replacement value against damage to property and interruption of business. The insurance premium varies from one facility to another but the maximum is SEK 30 million for a single claim. The Group has liability insurance that also covers sudden and unforeseen environmental damage affecting third parties. No event causing significant damage occurred in 2019. Forest Forest fires, grazing by wild animals and insect pests are risks in growing forests. The Group’s forest holdings are not insured. They are widely dispersed over large parts of Sweden and the risk of extensive damage being incurred simultaneously is deemed to be low. To reduce the extent of grazing by wild animals, active efforts are undertaken on Holmen’s land to maintain game at the correct population level. Insect pests such as pine weevils are combatted by waxing seedlings and infested forest is harvested as soon as possible to prevent spread. Central Europe has been severely affected by spruce bark beetle infestations in recent years, resulting in a high supply of spruce saw logs at lower prices. Southern Sweden was also affected by spruce bark beetle infestations in 2019. Holmen temporarily switched production at Braviken Sawmill in the autumn to only sawing spruce in order to handle damaged logs. Customer credits The risk of the Group’s customers being unable to fulfil their payment obligations constitutes a credit risk. The risk that the Group’s customers will not fulfil their payment obligations is limited by means of creditworthiness checks, internal credit limits per customer and, in some cases, by insuring trade receivables against credit losses. Credit limits are continually monitored. Exposure to individual customers is limited. At 31 December 2019 the Group’s trade receivables totalled SEK 2 005 million, of which 35 per cent (43) were insured against credit losses. During the year, credit losses on trade receivables had a SEK -7 million (-1) impact on earnings. Sales to the five largest customers accounted for 15 per cent of the Group’s total sales in 2019. 40 Holmen Annual Report 2019 Risk management Risk Risk management Comment Suppliers Deficiencies in the supply chain for inputs in terms of security of supply and quality can lead to production disruptions. Suppliers that do not meet Holmen’s requirements can also have a negative effect on operations. Holmen endeavours to have at least two approved suppliers per area of use. In addition, Holmen’s Supplier Code of Conduct is included in all new contracts. It contains requirements on sustainable development, including by respecting internationally recognised principles on anti-corruption measures, human rights, health and safety and the environment. Since 2017, Holmen has hired an external partner, EcoVadis, to follow up supplier compliance with the Code in the areas of human rights, health and safety, the environment, business ethics and sustainable purchasing. No cases regarding breaches of the Supplier Code of Conduct were reported in 2019 (none in 2018). By the end of 2019, suppliers accounting for just under 90 per cent (85) of the Group’s purchasing volumes had signed up to the Supplier Code of Conduct. Supply chain risks relating to the environment, labour legislation, human rights, business ethics and sustainable purchasing have been mapped and an action plan established. Holmen is subject to the UK Modern Slavery Act and a report on this is available at holmen.com. Business operations were not affected by IT incidents in 2019. The Forest business area conducts ongoing climate risk analyses to create healthy, resilient forests suited to a changing climate. Climate change is leading to greater demand for Holmen’s products as our customers want renewable alternatives to fossil-based products. Operating disruptions and unauthorised access are prevented by security measures and preventive measures in the form of appropriate physical protection, reliable server operation and secure networks. Measures and procedures are in place to minimise the risk of interruption and to manage situations if interruptions occur. Holmen is continually developing these protective measures to address changes in the risk profile. Holmen is developing seedlings and processes for planting, cleaning and thinning to adapt our forests to a changing climate. Seeds from Holmen’s cultivation of seedlings are selected to grow and flourish in a changeable climate and when planting we choose tree species based on the specific conditions of the soil to ensure the trees can better withstand extreme weather such as storms, rain and drought. Since shorter periods of frozen ground can make harvesting more difficult in the winter, this work is being adjusted through planning and by relocating machines to areas with better conditions. The risk of impact on Holmen’s operations from climate change is being managed through Holmen’s operational continuity plannings. Risks concerning energy consumption and greenhouse gas emissions are managed through our ISO-certified environmental and energy management systems. Environmental measures are organised and conducted in accordance with Holmen’s environmental and energy policy. In the event of process disruptions, the environment takes precedence over production. Risks are prevented and managed through regular own checks, checks by authorities and environmental risk analyses, as well as through the use of certified environmental and energy management systems and chain-of-custody certification. Good health and safety is a priority at all levels of management in the Group. Certified management systems, Group-wide targets relating to work accidents, continual training of personnel to increase risk awareness, procedures for risk observation and incident and accident reporting, and risk assessment of tasks and work by contractors are examples of activities to achieve a high level of safety in the workplace. Work involving overhead cranes and vehicles constitutes the most significant areas of risk. Based on Group-wide employer branding efforts, we market Holmen as an employer using digital channels and by meeting people in person. Communication is applied both generally and directly at the primary target groups. In 2019, 35 (32) environmentally related incidents were reported to the supervisory authorities. The nonconformities were not of a significant nature in terms of environmental impact or impact on profits. The figure in 2019 was 5.7 (4.9) industrial accidents per 1 million hours worked. See also page 33. The most common accidents were slips, trips and pinch point accidents. Accidents resulting in cuts and lacerations decreased during the year following the implementation of measures. Our efforts have resulted in many more applicants for those positions that we are looking to fill. Voluntary employee turnover is stable and surveys of new employees show that new employees have job satisfaction and that young people joining from university remain with the company, which is a plus. Holmen’s Code of Conduct, business ethics policy and associated guidelines provide clear guidance on how to maintain good business ethics when dealing with external contacts in various markets. Training on business ethics is provided for management groups and for employees deemed to encounter issues covered by the business ethics policy, such as marketing and sales departments and purchasers. Holmen’s Code of Conduct also provides guidance on human rights, workers’ rights and the environment. These areas are clarified in Holmen’s policies and related guidelines. No cases concerning deviations from either the business ethics policy or the parts of the Code of Conduct regarding business ethics issues were reported in 2019. A few other events linked to the Code of Conduct were reported during the year. All have been addressed in line with Holmen’s internal processes. Steps have been taken and no further action is required. Holmen participates in national and international industry organisations whose purpose is to handle the monitoring of social trends, advocacy and put forward Holmen’s position and view on certain political issues. Contact is established with local representatives and the general public in areas where the Group has operations. This takes place, for example, through consultation and information meetings and through meetings with decision-makers. On issues regarding the right to manage the forest and water-based operations, Holmen has participated actively in work with business organisations and in responses to consultation on relevant subjects. The UK’s exit from the EU could affect the markets on which Holmen sells its products. Holmen also has production in the UK that could be affected. We are following developments closely, but the outcome and consequences are hard to predict. In 2019 the EU introduced a new directive regulating the use of certain disposable plastic items. Holmen takes a positive view of the directive as it could mean opportunities for the forest industry’s renewable products. Holmen Annual Report 2019 41 IT systems Efficient IT support is required to be able to plan and manage the production and when handling sales and purchasing. Disruptions in IT support and unauthorised access to information can have significant negative effects on the business. Climate change The Swedish Meteorological and Hydrological Institute’s forecasts show that average temperature, precipitation and soil moisture will increase in Sweden. A warmer climate could increase the growth of our northerly growing forests with a longer growth period, more precipitation and higher levels of carbon dioxide in the air, aiding photosynthesis. It could also affect biological diversity and raise the risk of wind and snow damage, fungal attack, insect damage and forest fires. Climate change could also impact our ability to carry out harvesting. Environment Production disruptions can cause breaches of emissions conditions set for the business by environmental authorities, which could impact the environment. Health and safety Incidents and accidents at the workplace have an effect on human life and health. This could also lead to production disruptions and increased costs. Talent management Skilled and motivated employees are key to being able to conduct long- term business operations with good profitability. Retirements increase the need to attract new personnel, which can be challenging. Business ethics Nationally and internationally, customers and partners place requirements on Holmen as a stable and reliable supplier that has good business ethics and clear sustainability principles. Deviations from principles and policies could have a negative impact on reputation and business relationships. Regulatory risks Laws and rules in countries in which the Group operates affect how business activities can be conducted. Rules on how forests may be managed could affect future growth and harvests. Rules on the use of fresh fibre rather than recycled fibre, as well as legislation regarding water-based operations, could have an impact on the Group’s competitiveness. Risk managementFinancial risks Risk Risk management Comment Currency The Group’s earnings are affected by fluctuations in exchange rates. Transaction exposure risk arises due to a significant portion of the Group’s sales income being in different currencies from costs. The translation exposure risk arises from the translation of foreign subsidiaries’ assets, liabilities and earnings into Swedish kronor. Transaction exposure. In order to reduce the impact on profit from changes in exchange rates, net flows are hedged using forward foreign exchange contracts. Net flows in euros, US dollars and sterling 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, competitiveness and the currency situation. Currency exposure arising when investments are paid for in foreign currency is distinguished from other transaction exposure. Normally, 90–100 per cent of the currency exposure associated with major investments is hedged. For just over the next two years expected flows in EUR/ SEK are hedged at an average of 10.43. For other currencies, approximately 4 months of flows are hedged. Translation exposure. Hedging exposure that arises when subsidiaries’ assets and liabilities are translated into Swedish kronor (known as equity hedg- ing) is assessed on a case-by-case basis and is arranged based on the value of net assets upon consolidation. The Group’s non-current assets are mainly Swedish, with the exception of the paperboard mill in the UK, which accounts for 3 per cent of the assets. The hedges take the form of foreign currency loans or forward foreign exchange contracts. Exposure that arises when the earnings of foreign subsidiaries are translated into Swedish kronor is not normally hedged. Hedging in pounds sterling amounted to GBP 14 million at year-end. Net assets in other currencies are limited and are not usually hedged. SEKm 10 000 8 000 6 000 4 000 2 000 0 EUR/SEK GBP/SEK USD/SEK EUR/GBP CNH/SEK Transaction exposure, 12 months Hedged transaction exposure Interest rates Risks that arise when changes in the market interest rate affect the Group’s interest income and cost. The fixed interest periods for the Group’s financial assets and liabilities are normally short. The Board can decide to lengthen these periods in order to limit the effect of a rise in interest rates. Derivatives in the form of interest rate swaps may be used to manage fixed interest periods without altering underlying loans. The Group’s average borrowing rate in 2019 was 1.2 per cent. The table below shows the Group’s fixed interest period by currency. In 2019 the long-term fixed interest increased by SEK 1 000 million, with SEK 500 million for four years and SEK 500 million for five years. SEKm SEK EUR GBP Other items <1 year -2 744 68 56 66 -2 544 1–3 years 3–5 years >5 years Pension provisions Right-of-use agreements - - - - - -1 000 - - - -1 000 - - - - - -21 -6 -19 - -46 -136 -35 -5 -9 -184 Total -3 900 27 33 57 -3 784 Credit risk from financial counterparties The risk of financial transactions giving rise to credit risks in relation to financial counterparties. Liquidity and refinancing The risk of the need for future funding and refinancing of maturing loans being required at a high cost. A maximum credit risk and settlement risk are established for each financial counterparty and are monitored continually. Holmen’s financial counterparties are assessed using reputable credit rating agencies or, where a counterparty has no credit rating, the company’s own analyses. This calculation is based on the maturity and historical volatility of different types of derivative. The maximum credit risk for other financial assets is estimated to correspond to their nominal amount. Holmen’s strategy is to have a strong financial position in order to secure room for manoeuvre when making long-term commercial decisions. The target is for net financial debt not to exceed 25 per cent of equity. Holmen’s financing mainly comprises bond loans and the issue of commercial paper. Holmen reduces the risk of future funding becoming difficult or expensive by using long-term contractually agreed credit facilities. The Group plans its financing by forecasting financing needs over the coming years based on the Group’s budget and profit forecasts that are regularly updated. At 31 December 2019, the Group had outstanding derivative contracts with a nominal amount of SEK 16 billion and a net fair value of SEK +123 million. The financial position is strong, with net financial debt at 31 December 2019 amounting to SEK 3 784 million, which corresponds to 9 per cent of equity. Of these financial liabilities, SEK 2 498 million falls due in 2020. At year-end the Group had an unused committed credit facility of EUR 400 million (SEK 4 172 million) with a syndicate of eight banks, of which SEK 296 million was available for use up until June 2020 and the remainder until June 2021. In February 2020 this was replaced by a new committed credit facility of SEK 4 000 million from a syndicate of seven banks, which is available to use until February 2025. The credit facility may be used provided that the Group’s net debt does not exceed 125 per cent of equity. SEKm 5 000 4 000 3 000 2 000 1 000 0 42 Holmen Annual Report 2019 2020 2021 2022 2023 > 2024 Financial liabilities Credit facility Risk management Sensitivity analysis Operational risks A 1 per cent change in deliveries and price of the Group’s products or significant inputs is deemed to affect Group operating profit as per the table to the right. Earnings are relatively evenly spread over the year. The clearest seasonal effects are lower personnel costs in the third quarter and the fact that electricity production at the hydro power plants is normally higher in the first and fourth quarters. Financial risks The table to the right shows the extent of the impact from a change in the Swedish krona, the price of electricity and the market interest rate on Group profit before tax and equity next year, taking account of hedging. The adopted change is calculated based on five years’ average historical volatility for each instrument, which is deemed a reasonable change going forward. Historical volatility on exchange rates is calculated based on average annual volatility on the KIX, the Riksbank’s exchange rate index. Excluding hedging, a 5 per cent change in the krona would affect earnings before tax by SEK 420 million a year. In addition, a 30 per cent change in the price of electricity would affect earnings before tax by SEK 235 million a year, excluding hedging. Impact on operating profit, SEKm Change Price Deliveries Paperboard Paper Wood products Wood from company forests Hydro and wind power Input goods Wood* Electricity* Chemicals Other variable costs Delivery costs Employees Other fixed costs 29 20 5 9 3 +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% 60 58 17 13 4 31 11 15 7 15 23 17 * Taking account of harvesting of company forests and generation of own electricity, net earnings sensitivity for the Group was SEK 18 million for wood and SEK 8 million for electricity. Earnings before tax* Change SEKm Exchange rates EUR/SEK USD/SEK GBP/SEK Other currencies/SEK Electricity price Borrowing rate Equity Transaction hedging Investment hedging Equity hedging Electricity price hedging Interest rate changes *Estimated effect for 2020 including hedging. +/-5% +/-5% +/-5% +/-5% +/-5% +/-30% +/- 0.5% unit Change +/-5% +/-5% +/-5% +/-30% +/- 0.5% unit 162 8 65 44 46 23 13 SEKm 511 42 9 159 19 Holmen Annual Report 2019 43 Risk managementShare buy-backs On 15 August the Board took the decision to use the mandate from the 2019 AGM to acquire company shares. A total of 6 235 436 class B shares were repurchased for SEK 1 430 million, corresponding to an average price of SEK 229/share. The buy- backs correspond to 3.7 per cent of the total number of shares. The company already owned 0.8 per cent of its own shares, mean- ing that at 31 December 2019 Holmen held 4.5 per cent of the total number of shares. The Board proposes that the AGM approve the cancellation of 7 000 000 class B shares and renew the mandate to repur- chase 10 per cent of the company’s shares. Ownership structure Holmen had a total of 38 904 shareholders at year-end 2019. In terms of numbers, Swedish private individuals account for the largest owner category with 36 792 share- holders. Shareholders registered in Sweden own 84 per cent (81) of the share capital. Among foreign shareholders, the largest proportion of shares are held in the US and Norway, accounting for 6 per cent and 2 per cent of capital, respectively. The largest owner at the turn of 2019/2020, with 62.3 per cent of votes and 34.1 per cent of capital, was L E Lundbergföretagen AB. Shareholder communication The website holmen.com contains informa- tion about the company and financial infor- mation in the form of reports, presentations and financial data, performance of Holmen shares and contact information. Shareholder information Holmen’s two series of shares are listed on Nasdaq Stockholm, Large Cap. Over the past five years, Holmen’s total shareholder return (dividend paid and share price performance) has been 154 per cent, compared with 46 per cent for OMX Stockholm 30. For Holmen, this corresponds to an annual return of 20 per cent. Share savings programme The share savings programme that was introduced following the decision of the 2016 AGM expired in May 2019, which meant that participants were allocated 168 797 matching and performance shares. The 2019 AGM approved a similar new share savings programme. See Note 4 for further information on the share savings programmes. Stock exchange trading Holmen was listed on the Stockholm Stock Exchange in 1936, but was called Mo och Domsjö AB at that time. Holmen’s two classes of share are listed on Nasdaq Stockholm, Large Cap. At the end of 2019 Holmen A was trading at SEK 295 (178) and Holmen B at SEK 285 (175), correspon ding to a market capitalisation of SEK 46.6 billion (29.5). The highest closing price for Holmen’s class B shares was SEK 297, on 19 November. The lowest closing price was SEK 172, on 3 January. The daily average number of class B shares traded was 516 000, which corresponds to a value of SEK 124 million. The daily average number of class A shares traded was 1 200. Just over 50 per cent of trading took place on Nasdaq Stockholm. Holmen shares have also been traded on other trading platforms, such as Cboe BXE, Aquis and Turquoise. Dividend Decisions on dividends are based on an appraisal of the Group’s profitability, future investment plans and financial position. The Board proposes that the AGM to be held on 30 March 2020 resolve in favour of paying a dividend of SEK 7 (6.75) per share, cor- responding to 2.8 per cent of shareholders' equity. Share structure Holmen has 161 925 685 shares outstand- ing, of which 45 246 468 are class A shares and 116 679 217 are class B shares. The company also has 7 586 639 repurchased class B shares held in treasury. Each class A share carries 10 votes, and each class B share 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 transferability of the shares. 44 Holmen Annual Report 2019 Shareholder categories Share of capital, % 16 13 18 53 Swedish institutions Swedish equity funds Swedish private individuals Foreign shareholders 53% 18% 13% 16% Earnings per share, 2019 SEK 52.6 Proposed dividend per share, 2019 SEK 7 Shareholder information Share price performance, Holmen class B and OMX Stockholm Total shareholder return for Holmen B and OMX Stockholm Incl. reinvested dividend but excl. tax Index 300 200 100 0 15 16 Holmen B Number of shares (thousand) 21 000 Index 300 14 000 200 7 000 100 17 18 OMX Stockholm 30 (OMXS30) 19 0 Jan 20 0 10 11 12 Holmen B 14 13 16 19 OMX Stockholm 30 (OMXS30) 17 18 15 Jan 20 Total number of class B shares traded (thousands) Source: Macrobond Annual return at 31 Dec 2019, % 1 year 3 years 5 years 10 years Holmen B OMX Stockholm 30 68 31 24 9 20 8 16 10 Holmen’s total shareholder return has averaged 16 per cent a year over the past 10 years, which is 6 percentage points better than the OMX Stockholm 30. Share capital structure Votes 10 1 Shares A B Total no. of shares Holding of own class B shares repurchased Total number of shares outstanding No. of shares 45 246 468 124 265 856 169 512 324 -7 586 639 No. of votes Quotient value 25 452 464 680 25 124 265 856 576 730 536 -7 586 639 SEKm 1 131 3 107 4 238 161 925 685 569 143 897 Changes in share capital 2000–2019 Change in no. of shares Total no. of shares Change in share capital Total share capital 2001 Cancellation of shares repurchased 2004 Conversion and subscription 2018 Share split -8 885 827 4 783 711 84 756 162 79 972 451 84 756 162 169 512 324 -444 239 - 3 999 4 238 4 238 Ownership structure* 31 Dec 2019 % of capital % of votes L E Lundbergföretagen Kempe Foundations Carnegie funds (Sweden) SEB funds Alecta Lannebo funds Nordea funds Vanguard (US) Swedbank Robur funds BlackRock Total Other Total Of which non-Swedish shareholders 34.1 7.4 5.3 4.2 3.5 2.3 1.8 1.8 1.7 1.3 63.4 62.3 17.5 1.5 1.2 1.0 0.6 0.5 0.5 0.5 0.4 86.0 36.6 100.0 15.9 14.0 100.0 4.9 * Calculated based on the total number of shares out- stand ing. The 10 identified shareholders with the largest holdings in terms of capital. Some large shareholders may have their holdings registered under nominee names, in which case they are included among ‘Other’. Ownership structure at 31 Dec 2019 No. of shares 1–1 000 1 001–100 000 100 001– Total No. of shareholders 34 859 Share of capital, % 4 3 969 76 38 904 11 85 100 Data per share (adjusted for the 2:1 share split in 2018) 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Diluted earnings per share, SEK1) Dividend, SEK Dividend as % of: Equity Closing listed price Profit/loss for the year Return, equity, %1) 6) Return, capital employed, %1) 6) Equity per share, SEK Closing listed price, B, SEK Average listed price for year, B, SEK Highest listed price for year, B, SEK Lowest listed price for year, B, SEK Total closing market capitalisation, SEK 1 000 m P/E ratio2) EV/EBITDA3) 6) Closing beta value (48 months), B, at year-end4) Number of shareholders at year-end 52.6 75) 13.5 6.75 9.9 6.5 8.5 6 3.3 5.5 5.4 5 4.3 4.5 11.1 4.5 23.6 4 4.2 3.5 3 2 13 8 9 238 285 220 297 172 46.6 5 14 0.77 38 904 5 4 50 10 10 140 175 213 240 175 29.5 13 9 0.74 33 573 5 3 65 8 9 131 218 186 218 157 36.6 22 13 0.74 30 903 5 4 71 8 9 127 164 141 163 114 27.4 19 10 0.72 28 159 4 4 158 7 6 124 131 132 153 110 22.3 39 11 0.68 28 176 4 4 93 6 6 125 133 118 136 105 22.3 25 9 0.71 27 788 4 4 106 4 5 124 117 99 118 87 19.7 28 10 0.67 27 692 4 5 41 6 7 124 96 93 102 85 16.2 9 8 0.67 28 440 3 4 17 8 9 118 99 101 126 78 16.6 4 7 0.67 28 899 3 3 83 4 6 101 111 98 113 87 18.5 26 7 0.67 28 339 1) See page 78: Definitions and glossary. 2) Closing listed price divided by diluted earnings per share. 3) Market capitalisation plus net financial debt at year-end (EV) divided by EBITDA. 4) Measures the sensitivity of the yield on class B shares in relation to the yield on the OMX 30 Stockholm over a period of 48 months. 5) Board proposal. 6) Excl. items affecting comparability. Holmen Annual Report 2019 45 Shareholder informationFinancial statements Income statement, SEKm Net sales Other operating income Change in inventories Raw materials and consumables Personnel costs Other operating costs Depreciation and amortisation according to plan Impairment losses Change in value of biological assets Profit/loss from investments in associates and joint ventures Operating profit/loss Finance income Finance costs Earnings before tax Tax Profit/loss for the year Attributable to: Owners of the parent company Earnings per share (SEK) basic diluted Average number of shares (million) basic diluted Note 2 3 4 5 10, 11, 12 10, 13 9 13 6 6 7 8 8 2019 16 959 1 370 ­220 ­9 398 ­2 316 ­3 597 ­1 141 ­109 9 566 0 11 115 13 ­47 11 081 ­2 351 8 731 2018 16 055 1 284 439 ­9 027 ­2 306 ­3 443 ­1 012 ­25 425 ­9 2 382 13 ­38 2 356 ­89 2 268 8 731 2 268 52.6 52.6 166.1 166.1 13.5 13.5 168.0 168.0 Operating profit was SEK 11 115 million (2 382) including items affecting com­ parability of SEK 8 770 million, which mainly relate to a change in the accounting of forest assets. Operating profit excluding items affecting comparability totalled SEK 2 345 million. Earnings were positively affected by higher selling prices, but were negatively impacted by increased wood costs and more extensive maintenance shutdowns. Net financial items for 2019 totalled SEK ­34 million (­25). Average net debt was higher than in the previous year. Tax recognised in 2019 was SEK ­2 351 million (­89) and includes SEK ­1 870 million from the change to the accounting of forest assets. Statement of comprehensive income, SEKm Note Profit/loss for the year Other comprehensive income Revaluation of forest land Revaluations of defined benefit pension plans Tax attributable to items that will not be reclassified to profit/loss for the year Total items that will not be reclassified to profit/loss for the year Cash flow hedging Revaluation Transferred from equity to the income statement Transferred from equity to non­current assets Translation difference on foreign operations Hedging of currency risk in foreign operations Share in joint ventures’ other comprehensive income Tax attributable to items that will be reclassified to profit/loss for the year Total items that will be reclassified to profit/loss for the year Total other comprehensive income after tax Total comprehensive income Attributable to: Owners of the parent company SEK 13 055 million from the revaluation of forest land under the amended accounting of forest land is included in other comprehensive income. Tax attributable to this revaluation amounts to SEK ­2 689 million. 46 Holmen Annual Report 2019 9 18 7 13 7 2019 8 731 13 055 14 ­2 687 10 382 ­277 247 ­7 141 ­2 ­6 8 105 10 487 19 218 2018 2 268 ­ ­52 10 -42 115 222 ­8 55 ­8 ­23 ­69 284 242 2 510 19 218 2 510 Financial statements Balance sheet at 31 December, SEKm Note 2019 2018 Non-current assets Forest assets Biological assets Forest land Non­current intangible assets Property, plant and equipment Right­of­use assets Investments in associates and joint ventures Other shares and participating interests Non­current 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/loss for the year Total equity attributable to the owners of the parent company Non-current liabilities Non­current financial liabilities Non­current liabilities relating to right­of­use assets Pension provisions Other provisions Deferred tax liabilities Total non-current liabilities Current liabilities Current financial liabilities Current liabilities relating to right­of­use assets Trade payables Current tax liability Provisions Other operating liabilities Total current liabilities Total liabilities Total equity and liabilities 9 9 10 11 12 13 13 14 7 15 16 7 16 14 14 14 18 19 7 14 20 7 19 20 27 979 13 366 70 8 906 183 1 620 1 452 1 52 579 3 460 2 005 0 799 14 483 6 761 18 400 301 68 8 776 ­ 1 740 1 468 1 29 755 3 628 1 929 328 959 35 278 7 157 59 340 36 912 4 238 281 10 540 25 052 40 111 2 018 171 46 637 10 299 13 171 2 485 13 2 259 112 158 1 030 6 058 19 229 59 340 4 238 281 70 18 865 23 453 1 033 ­ 61 483 5 839 7 416 2 494 ­ 2 232 13 197 1 108 6 044 13 459 36 912 At year­end, the book value of forest assets rose by SEK 22 134 million to SEK 41 345 million as a result of the assets being recognised based on transactions in those areas where Holmen owns land. Of this increase, SEK 9 079 million is recognised in operating profit and SEK 13 055 million in other comprehensive income. The change has increased the recognised deferred tax liability by SEK 4 560 million and equity by SEK 17 574 million. During the year shares were repurchased for a value of SEK 1 430 million, which reduces equity. The new IFRS 16 Leases standard increases assets by SEK 183 million, while non­current liabilities rise by SEK 171 million and current liabilities increase by SEK 13 million. Holmen Annual Report 2019 47 GroupFinancial statementsChanges in equity, SEKm Opening equity balance 1 Jan 2018 Profit/loss for the year Other comprehensive income Revaluation of defined benefit pension plans Cash flow hedging Translation difference on foreign operations Hedging of currency risk in foreign operations Share in joint ventures’ other comprehensive income Tax attributable to other comprehensive income Total other comprehensive income Total comprehensive income Dividend paid Share savings programme Closing equity balance 31 Dec 2018 Profit/loss for the year Other comprehensive income Revaluation of forest land Revaluation of defined benefit pension plans Cash flow hedging Translation difference on foreign operations Hedging of currency risk in foreign operations Share in joint ventures’ other comprehensive income Tax attributable to other comprehensive income Total other comprehensive income Total comprehensive income Dividend paid Buy­backs of company’s own shares Share savings programme Closing equity balance 31 Dec 2019 Other contributed capital Share capital 4 238 ­ 281 ­ ­ ­ ­ ­ ­ ­ - - ­ ­ 4 238 ­ ­ ­ ­ ­ ­ ­ - - ­ ­ ­ 4 238 ­ ­ ­ ­ ­ ­ - - ­ ­ 281 ­ ­ ­ ­ ­ ­ ­ - - ­ ­ ­ 281 Reserves Translation reserve Hedge reserve Revaluation surplus -97 ­ ­ ­ 55 ­8 ­ 2 49 49 ­ ­ -48 ­ ­ ­ 141 ­2 ­ 0 140 140 ­ ­ ­ 92 -117 ­ ­ 329 ­ ­ ­23 ­71 235 235 ­ ­ 118 ­ ­ ­37 ­ ­ ­6 8 -35 -35 ­ ­ ­ 83 - ­ ­ ­ ­ ­ ­ ­ - - ­ ­ - 13 055 ­ ­ ­ ­ ­ ­2 689 10 366 10 366 ­ ­ ­ 10 366 Retained earnings incl. profit/loss for the year Total equity 17 731 2 268 22 035 2 268 ­52 ­ ­ ­ ­ 10 -42 2 226 ­1 092 0 18 865 8 731 ­ 14 ­ ­ ­ ­ 2 17 8 747 ­1 134 ­1 430 4 25 052 ­52 329 55 ­8 ­23 ­60 242 2 510 ­1 092 0 23 453 8 731 13 055 14 ­37 141 ­2 ­6 ­2 679 10 487 19 218 ­1 134 ­1 430 4 40 111 48 Holmen Annual Report 2019 GroupFinancial statementsCash flow statement, SEKm Operating activities Earnings before tax Adjustments for non­cash items Depreciation and amortisation according to plan Impairment losses Change in value of biological assets Change in provisions Other* Income tax paid 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 non­current intangible assets Acquisition of biological assets Disposal of biological assets Increase in non­current financial receivables Repayment of non­current financial receivables Acquisition of shares and participating interests Cash flow from investing activities Financing activities Raised long­term borrowings Repayments of long­term borrowings** Change in current financial liabilities Change in current financial receivables Buy­backs of company’s own shares Dividend paid to owners of the parent company Cash flow from financing activities Cash flow for the year Cash and cash equivalents at beginning of year Exchange gains/losses on cash and cash equivalents Cash and cash equivalents at end of year Note 25 25 2019 2018 11 081 1 141 109 ­9 566 86 22 ­147 2 727 210 ­135 83 2 884 ­1 024 21 ­14 ­9 0 0 36 ­25 -1 015 1 000 ­500 385 13 ­1 430 ­1 134 -1 665 204 278 1 483 2 356 1 012 25 ­425 ­39 ­33 ­396 2 500 ­705 230 262 2 286 ­972 98 ­15 ­150 38 ­456 24 ­3 -1 436 1 000 ­300 ­539 0 ­ ­1 092 -930 -81 356 3 278 * Other adjustments primarily consist of currency effects and the marking to market of financial instruments, profit from associates, as well as gains on the sale of non-current assets. **Refers to repayments of loans that were long-term loans when raised. Change in net financial debt Opening net financial debt New IFRS 16 Leases accounting policy Cash flow Operating activities Investing activities (excl. non­current financial receivables) Share buy­backs Dividend paid Liabilities arising from new right­of­use agreements Revaluations of defined benefit pension plans Foreign exchange effects and changes in fair value Closing net financial debt 2019 ­2 807 ­205 2 884 ­1 050 ­1 430 ­1 134 ­76 12 21 -3 784 2018 ­2 936 ­ 2 286 ­1 005 ­ ­1 092 ­ ­47 ­13 -2 807 Holmen Annual Report 2019 49 GroupFinancial statementsIncome statement, SEKm Note 2019 2018 Cash flow statement, SEKm Note 2019 2018 2 3 Net sales Other operating income Change in inventories Raw materials and consumables Personnel costs Other external costs Depreciation and amortisation according to plan 10, 11 Impairment losses Operating profit/loss 4 5 10 Profit/loss from investments in Group companies Profit/loss from investments in associates Interest income and similar income Interest expense and similar costs Profit/loss after financial items Appropriations Earnings before tax Tax Profit/loss for the year 6, 23 6, 13 6 6 24 7 15 004 706 ­114 ­7 834 ­1 887 ­5 449 ­44 ­ 382 231 ­185 30 ­53 404 1 936 2 340 ­493 1 847 14 384 628 391 ­7 636 ­1 921 ­4 367 ­47 ­25 1 407 467 ­20 32 ­45 1 841 ­1 373 467 47 514 Statement of comprehensive income, SEKm Profit/loss for the year Other comprehensive income Cash flow hedging Revaluation Transferred from equity to the income statement Transferred from equity to non­current assets Tax attributable to other comprehensive income 7 Total items that will be reclassified to profit/loss for the year Total comprehensive income Note 2019 2018 1 847 514 ­291 264 ­7 7 -27 1 820 95 230 0 ­70 255 769 Operating activities Profit/loss after financial items Adjustments for non­cash items Depreciation and amortisation according to plan Impairment losses Change in provisions Other* Income tax paid 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 Increase in non­current financial receivables Repayment of non­current financial receivables Disposal of shares and participating interests Cash flow from investing activities Financing activities Raised long­term borrowings Repayments of external long­term borrowings** Change in other financial liabilities Change in other financial receivables Dividend paid to owners of the parent company Buy­backs of company’s own shares Group contributions received Group contributions paid Cash flow from financing activities Cash flow for the year Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 25 404 1 841 44 ­ 87 ­6 ­74 47 25 ­17 ­113 ­297 455 1 485 56 ­129 134 516 ­210 ­73 8 0 36 109 -135 1 000 ­500 475 ­1 190 ­1 134 ­1 430 2 572 ­2 -208 173 230 403 ­597 140 207 1 235 ­3 ­67 9 ­456 24 100 -395 1 000 ­300 ­502 2 384 ­1 092 ­ 191 ­2 584 -904 -64 294 230 The parent company includes Holmen’s Swedish operations with the exception of the majority of the non­current assets, which are recognised in other compa­ nies in the Group. The item ‘Interest expense and similar costs’ in the income statement includes the result of SEK ­2 million (­8) from hedging equity in foreign subsidiaries. * Other adjustments primarily consist of currency effects and the marking to market of financial instruments and gains on the sale of non-current assets. **Refers to repayments of loans that were long-term loans when raised. 50 Holmen Annual Report 2019 GroupFinancial statementsParent companyBalance sheet at 31 December, SEKm Non-current assets Non­current intangible assets Property, plant and equipment Non­current financial assets Shares and participations Non­current financial receivables Total non-current assets Current assets Inventories Operating receivables Current tax receivable Current investments Cash and cash equivalents Total current assets Total assets Note 2019 2018 Balance sheet at 31 December, SEKm Note 2019 2018 10 11 13, 23 14 15 16 7 14 14 24 3 008 25 2 974 10 774 2 397 16 203 10 787 7 419 21 205 2 867 2 364 ­ 14 403 5 648 2 926 2 424 327 35 230 5 942 21 852 27 147 Equity Restricted equity Share capital Statutory reserve Revaluation reserve Non­restricted equity Retained earnings incl. hedge reserve Profit/loss for the year Total equity Untaxed reserves Provisions Pension provisions Tax provisions Other provisions Deferred tax liability Total provisions Liabilities Non­current financial liabilities Current financial liabilities Current tax liabilities Operating liabilities Total liabilities Total equity and liabilities 17 24 18 19 19 7 14 14 7 20 Changes in equity, SEKm Restricted equity Statutory reserve Share capital Non-restricted equity Revaluation reserve Hedge reserve Retained earnings Profit/loss for the year Opening equity balance 1 Jan 2018 4 238 1 577 100 Appropriation of profits Profit/loss for the year Other comprehensive income Cash flow hedging Tax on other comprehensive income Total other comprehensive income Total comprehensive income Dividend paid Share savings programme Closing equity balance 31 Dec 2018 Appropriation of profits Profit/loss for the year Other comprehensive income Cash flow hedging Tax on other comprehensive income Total other comprehensive income Total comprehensive income Dividend paid Buy­backs of company’s own shares Share savings programme Closing equity balance 31 Dec 2019 ­ ­ ­ ­ - - ­ ­ 4 238 ­ ­ ­ ­ - - ­ ­ ­ 4 238 ­ ­ ­ ­ - - ­ ­ 1 577 ­ ­ ­ ­ - - ­ ­ ­ 1 577 ­ ­ ­ ­ - - ­ ­ 100 ­ ­ ­ ­ - - ­ ­ ­ 100 -93 ­ ­ 326 ­70 255 255 ­ ­ 162 ­ ­ ­34 7 -27 -27 ­ ­ ­ 135 4 049 1 847 ­ ­ ­ - 1 847 ­1 092 0 4 805 514 ­ ­ ­ - 514 ­1 134 ­1 430 4 2 759 1 847 ­1 847 514 ­ ­ - -1 333 ­ ­ 514 ­514 1 847 ­ ­ - 1 333 ­ ­ ­ 1 847 4 238 1 577 100 2 894 1 847 10 656 4 238 1 577 100 4 966 514 11 395 1 646 1 012 0 45 794 614 1 454 2 480 2 493 105 3 018 8 096 21 852 20 45 708 635 1 407 7 817 2 494 ­ 3 022 13 333 27 147 Total equity 11 718 ­ 514 326 ­70 255 769 ­1 092 0 11 395 ­ 1 847 ­34 7 -27 1 820 ­1 134 ­1 430 4 10 656 Holmen Annual Report 2019 51 GroupFinancial statementsParent companyNotes to the financial statements Amounts in SEKm, unless otherwise stated 1. Accounting policies 2. Operating segment reporting 3. Other operating income 4. Employees, personnel costs and remuneration to senior management 5. Auditors’ fee and remuneration 6. Net financial items and income from financial instruments 7. Tax 8. Earnings per share 9. Forest assets 10. Non-current intangible assets 11. Property, plant and equipment 12. Leases 13. Investments in associates, joint ventures and other shares and participating interests 52 57 59 60 61 61 62 63 64 65 65 66 67 14. Financial instruments 15. Inventories 16. Operating receivables 17. Equity, parent company 18. Pension provisions 19. Other provisions 20. Operating liabilities 21. Collateral and contingent liabilities 22. Related parties 23. Investments in Group companies 24. Untaxed reserves 25. Cash flow statement 26. Critical accounting estimates and judgements 68 71 71 71 72 73 73 74 74 75 76 76 76 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 consistently to the reporting and the consolidation of the parent company, subsidiaries, associates and joint ventures. Compliance with standards and statutory requirements The consolidated accounts are prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB), as adopted by the EU. The Swedish Financial Reporting Board’s recommendation (RFR 1 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 Accounting for Legal Entities. The differences between the policies applied by the parent company and those applied by the Group are due to restrictions in the parent company’s ability to apply IFRS as a consequence of the Swedish Annual Accounts Act, the Swedish Pension Obligations Vesting Act, and in some cases for tax reasons. Valuation principles applied in preparing the financial statements of the parent company and the Group Assets and liabilities are stated at cost, except for biological assets and forest land, as well as certain financial assets and liabilities, which are valued at fair value. In the parent company, biological assets and forest land are not valued at fair value. Investments in Group companies and associates are recognised in the parent company at the lower of cost and 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 currency of the parent company and the Group. This means that the financial statements are presented in Swedish kronor. Estimates and judgements in the financial statements Preparing the financial statements in accordance with IFRSs requires the company’s management to make estimates and judgements, as well as to make 52 Holmen Annual Report 2019 assumptions 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. These estimates and judgements 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 future periods. See also Note 26 ‘Critical accounting estimates and judgements’. Changes in accounting policies Voluntary change of accounting policy Because of a number of recent transactions involving large forest holdings, Holmen has revised the method and assumptions used for valuing forest assets on the Group’s balance sheet. There are a large number of transactions involving forest properties in those areas where Holmen owns land and the prices paid for small and medium-sized forest properties are in line with the prices of larger forest assets. In order to reflect the fair value of the Group’s forest assets, from 31 December 2019 Holmen has chosen to switch to recognising the Group’s forest assets at fair value calculated based on transactions in those areas where Holmen owns forest land. To enable this, the accounting policy for forest land in the Group has been changed to fair value based on the ‘revaluation model’ in IAS 16. Until 31 December 2019 forest land was recognised at cost. As previously, the trees growing on the forest land are recognised at fair value as per IAS 41. In the parent company, forest land continues to be recognised at cost. This change has led to the book value of forest land in the Group increasing from SEK 311 million to SEK 13 366 million, resulting in a SEK 2 689 million increase in the deferred tax liability. As per IAS 16, the increase is recognised as a revalua- tion in other comprehensive income. See also pages 54-55, Note 7 and Note 9. New and amended accounting policies applicable as of 2019 From 1 January the Group is applying IFRS 16 Leases, which replaces IAS 17 Leases and related interpretations IFRIC 4, SIC-15 and SIC-27. This standard requires assets and liabilities attributable to leases, with some exceptions, to be recognised in the balance sheet. The leasing cost allocated by depreciation, amortisation and interest expense is recognised in the income statement. Agree- ments that are affected by the new regulations for the Group mainly relate to office rent, leased vehicles and vessels. The Group has used the simplified for- ward-looking method, which has involved an asset and liability being set at the same value in connection with the transition. Consequently, no effects on equity GroupNote 1Noteshave been recognised as a result of this standard’s introduction. Relaxation rules have been applied to the transition to IFRS 16, resulting in a single discount rate being applied to a portfolio of similar leases. Assets and liabilities were recognised at SEK 205 million at 1 January 2019. Commitments for operating leases amounted to SEK 202 million in the 2018 annual accounts. The difference between commitments for future lease payments and the opening lease liability at 1 January 2019 mainly consists of a discount effect. At 31 December 2019, assets amounted to SEK 183 million and liabilities to SEK 184 million, SEK 13 million of which were recognised as current. Depreciation/amortisation of assets in 2019 totalled SEK 98 million and other external costs decreased to a corresponding degree. The interest expense on debt was SEK 4 million based on an interest rate of approximately 1 per cent. In the cash flow statement, leases were previously included in the item ‘Profit/loss before tax’ but from 2019 they are being shown as a change in current financial liabilities. Total cash outflow for leases was SEK 104 million in 2019. See also page 55 and Note 12. New and amended accounting policies not yet applied New and amended IFRSs to be applied in the future are not expected to have any material impact on the company’s financial statements. Segment reporting The Group’s operations are divided into operating segments, based on which parts of the operations are monitored by the company’s highest executive decision-maker, known as the management approach. The segmentation criterion is based on the Group’s business areas. This corresponds to the Group’s operating structure and the internal reporting to the CEO and the Board. The items in the profit, assets and liabilities of the operating segment are recognised in accordance with the profit (operating profit), assets and liabilities that are monitored by the company’s highest executive decision-maker. See Note 2 for more details of the classifica- tion and presentation of operating segments. Classification Essentially, non-current assets, non-current liabilities and provisions consist solely of amounts that are expected to be recovered or paid more than 12 months after the balance sheet date. Current assets, current liabilities and provisions essentially 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, exercises a controlling influence. Controlling influence exists if Holmen AB has control over an investment object, is exposed or entitled to variable returns on its involvement and can exercise its control of the investment to influence the size of return. In determining whether one company has control over another, potential shares with an entitlement to vote and whether de facto control exists are taken into account. The consolidated accounts are prepared using the acquisition method. The acquisi- tion method entails the parent company indirectly acquiring the subsidiary’s assets and assuming the liabilities of the subsidiary, valued at fair value. The difference between the cost of the shares and the fair value of the acquired identifiable net assets is treated as goodwill. The subsidiary companies’ income and expenses, and their assets and liabilities, are stated in the consolidated accounts as of the date when the Group gains control (acquisition date) until such time as the Group no longer has control. Intra-Group receivables and liabilities, transactions between companies in the Group and related unrealised gains are eliminated in their entirety. Holdings recognised in accordance with the equity method 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 significant influence, are stated in the consolidated accounts in accordance with the equity method. Jointly owned companies/joint ventures. In accounting, joint ventures are those companies for which the Group, through cooperation agreements with one or more parties, has joint control whereby the Group has rights to the net assets instead of direct rights to assets and commitments in liabilities. Holdings in joint ventures are consolidated in the consolidated accounts using the equity method. The equity method. The equity method means that the book value of the shares in the associates and joint ventures stated in the consolidated accounts corre- sponds to the Group’s interest in the associates and joint ventures’ equity and any consolidated surplus and deficit values. The Group’s share of the net earn- ings of associates and joint ventures after tax attributable to parent company owners adjusted for any amortisation or reversal of acquired surplus and deficit values, respectively, is stated in the consolidated income statement as ‘Share of profits of associates and joint ventures’. Dividends received from an associate or joint venture reduce the book value of the investment. Unrealised gains arising as a consequence of transactions with associates and joint ventures are eliminated in relation to the owned proportion of equity. When the Group’s share of the recognised losses of an associate and joint venture exceeds the book value of the investments stated in the consolidated accounts, the value of the investments is written down to zero. Losses are also offset against unsecured long-term financial balances that, in financial terms, comprise part of the owning company’s net investment in the associate and joint venture. Any further losses are not recognised unless the Group has provided guarantees to cover losses incurred by the associate or joint venture. The equity method is applied until such time as the significant influence no longer exists or the jointly owned company ceases to be jointly owned. 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 liabilities in foreign currencies are translated into the functional currency at the exchange rate prevailing on the balance sheet date. Exchange differences arising on such translations are stated in the income statement. Non-monetary assets and liabilities that are stated at historical cost are translated at the exchange rate prevailing on the transaction date. Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and other consolidated surplus and deficit values, are translated in the consolidated accounts, from the foreign operation’s functional currency, to the Group’s reporting currency (Swedish kronor) at the balance sheet date rate. The income and expenses of foreign operations are translated into Swedish kronor at an average rate that is an approximation of the exchange rates prevailing at the date of each transaction. Differences arising during the currency translation of foreign operations 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 accumulated translation differences attributable to the business are realised, less any currency hedging, in the consolidated income statement. Companies operating on behalf of the parent company The parent company’s business is largely conducted through companies operating 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 companies. All income, expenses, assets and liabilities, which arise in the operations conducted by the companies, are recognised in Holmen AB’s accounts, except for the majority of investments made as well as some sales of forest assets, which are instead recognised in some of the Group’s subsidiaries. Income The Group’s sales mostly relate to goods sold to customers, which is specified in the tables in Note 2. The services provided are limited and essentially relate to silviculture services. Holmen acts almost exclusively as principal and the sales transactions are based on agreements. For Holmen, the vast majority of contracts are separate undertakings and comprise one undertaking per contract. Holmen’s guarantees in connection with sales should not be regarded as separable and are therefore recognised in accordance with IAS 37. The transaction price is the price of the goods or service. Variable consideration mainly occurs in the form of rights of return, or volume or cash discounts. All returns relating to defective goods are recognised as they arise. Volume discounts give customers a discounted price provided that a certain amount of goods are purchased over a period. A cash discount entitles customers to a lower price if payment is made by a certain date. Discounts are recognised as a reduction in net sales. The income item is recognised when Holmen fulfils its commitment by transferring control of the pledged goods and, where applicable, services to the customer. The date of transfer of control, and the transfer of risk, is critical to when an income item is recognised. The transfer of risk differs depending on the shipping terms applied. The sale of energy differs from other sales as supply takes place in conjunction with generation, when it is also recognised as revenue. Payment terms vary from market to market and Holmen usually follows applicable practice on the respective market. See Note 1 Accounting Policies and Note 16 Operating Receivables for management of credit losses. 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 by-products, Holmen Annual Report 2019 53 GroupNote 1Notesrenewable energy certificates, rent and land lease income, emission allowances, insurance compensation and gains/losses on sales of non-current assets. Renewable energy certificates Certificates are issued in relation to production of renewable energy according to a quota system introduced in order to promote electricity generation using renewable sources of energy. Income from allocated certificates is recognised as other operating income in the same period in which generation occurs. Certificates sold on forward contracts are measured at their net realisable value. Unsold certificates are measured at the lower of cost and estimated fair value. State grants State grants are recognised in the balance sheet as accrued income when it is reasonably certain that the grant will be received and that the Group will satisfy the conditions associated with the grant. State grants linked to a non-current asset reduce the asset’s recognised cost. State grants, such as road grants, intended to cover costs are recognised as other operating income. 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. Finance income and costs Finance income and costs consist of interest income and interest expense, dividend income and revaluations of financial instruments valued at fair value, as well as unrealised and realised currency gains and losses. Interest income on receivables and interest expense on liabilities are calculated by using the effective interest method. Interest expense includes transaction costs for loans, which have been distributed 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 expense usually impacts earnings for the period to which it is attributable. Borrowing costs attributable to the purchase, construction or production of qualifying assets are capitalised in the consolidated accounts as part of the asset’s cost. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use and that is relevant for the Group in connection with major investment projects. 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 attributable to previous periods. Deferred tax is calculated using the balance sheet method on the basis of temporary differences between book values 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. In the parent company’s accounts, untaxed reserves are recognised inclusive of deferred tax liability. Deferred tax assets in respect of tax-deductible temporary differences and loss carry-forwards are recognised only to the extent that it is likely they will be utilised and entail lower tax payments in the future. Deferred tax assets and deferred tax liabilities in the same country are recognised net to the extent that a right of set-off applies. 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. Financial instruments Financial instruments are measured and recognised according to IAS 9. Recognition in and derecognition from the balance sheet A financial asset or liability is stated in the balance sheet when the company becomes 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 trade date principle. Trade receivables are recognised in the balance sheet when an invoice has been sent. Liabilities are recognised when the counterparty has provided a product or service 54 Holmen Annual Report 2019 and there is a contractual obligation to pay, even if an invoice has not yet been received. A financial asset and a financial liability are only offset and recognised at a net amount where a legal right to offset the amounts exists and there is an intention to settle the items at a net amount or simultaneously realise the asset and settle the liability. Financial assets, excluding shares, and financial liabilities have been classified as current if the amounts are expected to be recovered or paid within 12 months of the balance sheet date. Shares have been classified as non-current if they are intended to be held in the operation permanently. Classification and measurement of financial instruments Financial instruments are classified and measured based on the company’s business model and the nature of contractual cash flows. See Note 14 for the company’s classifications of financial instruments. Financial assets - are measured initially at fair value less any transaction costs. Normally, the assets are measured on a current basis at amortised cost using the effective interest method. In those cases where funds issued fall short of the repayment amount, the difference is allocated over the duration of the loan using the effective interest method. Derivatives are recognised on an ongoing basis at fair value. Changes in the value of derivatives that are not hedged are recognised in profit/loss. Financial liabilities - are measured initially at the value of funds received after deduction of any transaction costs. Normally, the liabilities are measured on a current basis at amortised cost using the effective interest method. In those cases where funds received fall short of the repayment amount, the difference is allocated over the duration of the loan using the effective interest method. Derivatives are recognised on an ongoing basis at fair value. Changes in the value of derivatives that are not hedged are recognised in profit/loss. Impairment of financial assets - For financial assets for which there is an indica- tion that the entire book value cannot be recovered, an individual assessment of the respective instrument is made. Missed payments from counterparties usually constitute such an indication. Any impairment is recognised based on an indivi- dual estimate. For financial instruments for which there are no indications of low credit quality, a provision is made for credit losses based on historical outcomes. Hedge accounting - All derivatives, such as forward foreign exchange contracts, electricity derivatives and interest rate swaps, are measured at fair value and recognised in the balance sheet. Essentially all derivatives are held for hedging purposes. The effective portion of changes in value from cash flow hedges is recognised in other comprehensive income and accumulated in equity until such time as the hedged item influences the income statement, when the accumulated changes in value are transferred from equity via other comprehensive income to the income statement to meet and match the hedged transaction. In the hedging of investments, the cost of the hedged item is instead adjusted when it occurs. The ineffective portion of hedges is recognised directly in the income statement. Interest rate swaps are used as a cash flow hedge for interest rates. Changes in the value of hedges relating to net investments in foreign businesses are recognised in other comprehensive income for the Group. Accumulated changes in value are recognised as a component in the Group’s equity until the business is disposed of, at which point the accumulated changes in value are recognised in the income statement. In the parent company, changes in value are recognised in the income statement, as hedge accounting is not applied. Holmen’s cash flow hedges mainly relate to the hedging of sales in foreign currency, future interest payments, the purchase of electricity and purchases in foreign currency in conjunction with investments. Hedging instruments comprise forward foreign exchange contracts, forward electricity contracts and interest rate swaps. The hedged items comprise forecasts of future sales, interest payments, electricity purchases and capital expenditures. The hedge ratio is set on an ongoing basis by comparing hedged amounts with actual forecasts. For hedging of net investments in foreign operations, the book value of the net investment is a hedged item and the hedge ratio is set by comparing the hedged amounts with the net investment. Any inefficiency is based on an estimate of the hedge ratio. The Group’s risk management of financial instruments is described on pages 42–43. Forest assets The Group’s forest assets are recognised at fair value based on the transaction prices for forest properties in those areas where the Group has forest land. Fair value measurement is based on measurement level 3. The total value of the forest assets is allocated across growing trees, which are recognised as a bio- logical asset, and forest land. How much of the value is allocated to the biological assets is established by calculating the present value of expected cash flows, less selling costs but before tax, from harvesting those trees currently growing. Calculation of present value uses a discount rate before tax calculated on the basis of forest property transactions. The value of the forest land is calculated as the difference between the total value of the forest assets and the biological assets. Changes in the fair value of biological assets are recognised in profit/loss. Changes in the fair value of forest land are recognised in other comprehensive income and accumulated in a separate component of equity called the revaluation GroupNote 1Notessurplus. If the fair value of forest land were to be less than cost, the difference would be recognised in profit/loss as an impairment loss. Recognition in the parent company In the parent company, forest assets are recognised in accordance with RFR 2. This means that they are classified as non-current assets and recognised at cost adjusted for revaluations taking into account the need, if any, for impairment in value. Non-current intangible assets Non-current intangible assets such as patents, licences and IT systems are recognised at cost after deduction of accumulated amortisation and any impai- rment losses. The Group’s non-current intangible assets are amortised over periods of between 5 and 20 years, except for goodwill. Any goodwill is allotted to cash-generating units. Both goodwill and other non-current intangible assets are tested for impairment annually. Any impairment losses may be reversed via exceptions from goodwill. The Group does not currently recognise any goodwill. Non-current intangible assets in the parent company are amortised over five years. Goodwill represents the difference between the cost of business combinations and the fair value of the acquired assets, assumed liabilities and contingent liabilities. Goodwill is valued at cost less any accumulated impairment losses. Goodwill arising in connection with the acquisition of associates is included in the book value of the participating 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 financial benefits can be reliably assessed. The recognised value includes all directly attributable expenses, for example in connection with materials and services, employee benefits, registration of a legal right, amortisation of patents and licences and borrowing costs in accordance with IAS 23. Other development expenditure is recognised in the income statement as costs when incurred. Development expenditures recognised in the balance sheet are stated at cost less accumulated amortisation and impairment losses. Property, plant and equipment Property, plant and equipment are stated at cost after deduction of accumulated depreciation and any impairment losses. Property, plant and equipment that consist of parts with different useful lives are treated as separate components of property, plant and equipment. Additional expenditure is capitalised only if it is estimated to generate financial benefits for the company. The key factor deter- mining whether or not additional expenditure is capitalised is if it relates to the replacement of identified components or parts thereof, in which case the expendi- ture is capitalised. The cost is also capitalised in cases where a new component is created. Any undepreciated book values for replaced components or parts of components are retired and expensed in connection with the replacement. The book value 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 any selling price and the book value of the asset, less any direct selling costs. Gains and losses are recognised in the accounts as other operating income/costs. An asset is classified as being held for sale if it is available for immediate sale in its present condition and based on normal terms, and it is highly likely that a sale will take place. Such assets are recognised on a separate line as a current asset in the balance sheet. When an asset is classified as holdings for sale, it is recognised at the lower of book value and fair value, less selling costs. Depreciation according to plan is based on original acquisition cost less any impairment losses. Depreciation takes place on a straight-line basis over the estimated useful life of the asset. Land is not depreciated. 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 sawmills, pulp, paper and paperboard production Other machinery Forest roads Equipment 10–40 10–33 10–20 10 20 4–10 cash flow. The discount rate applied takes account of the risk-free rate and the risk associated with the asset. An impairment loss consists of the amount by which the recoverable amount falls short of the book value. An 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 book value that would have been recognised, less depreciation, if there had been no impairment. Borrowing costs attributable to the purchase or construction of qualifying assets are to be capitalised in the consolidated accounts as part of the asset’s cost. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use and that is relevant for the Group in connection with major investment projects. Leases Policies applied from 1 January 2019 When entering an agreement an assessment is made as to whether the agreement is, or contains, a lease. An agreement is, or contains, a lease if the agreement transfers the right for a set period to control the use of an identified asset in exchange for compensation. The Group recognises a right-of-use asset and associated liability upon entering into a lease. Such liabilities are initially valued at the present value of the remaining lease payments for the estimated lease period. Lease payments are discounted at the Group’s marginal borrowing rate, which in addition to the Group’s credit risk reflects the agreement’s lease period and currency. Right-of-use assets are initially valued at the value of the liability plus lease payments paid upon or before the start date, plus any initial direct payments. Such right-of-use asset is depreciated/amortised on a straight-line basis over the term of the lease. The term of the lease comprises the non-cancellable period plus additional periods in the agreement if it is deemed at the start date reasonably certain that these will be used. No right-of-use asset or lease liability is recognised for leases with a term of 12 months of less or with underlying assets of low value. Lease payments for such leases are recognised as a cost on a straight-line basis over the term of the lease. Policies applied up until 31 December 2018 In the consolidated accounts, leases were classified as finance leases or operat- ing leases. The leasing of non-current assets for which the Group was sub- stantially exposed to the same risks and benefits as if the asset were directly owned was classified as finance leases. The leasing of assets over which the lessor substantially retained ownership was classified as operating leases. Costs relating to operating leases were recognised in profit/loss for the year on a straight-line basis spread over the term of the lease.  Variable charges were expensed in the periods in which they were incurred. Within the Group, all leases were classified as operating leases. Parent company The new policies on leases, in accordance with IFRS 16, that have started being applied by the Group are not applied by the parent company. The parent company applies an exception option in RFR 2 with the result that the parent company recognises existing leases in the same way as in previous years. Inventories Inventories are valued at the lower of cost and production cost after deduction for necessary obsolescence, or net realisable value. The 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 deduction of the estimated costs of completion and affecting the sale. The cost of finished products manufactured by the company comprises direct production costs and a reasonable share of indirect costs. Purchased felling rights are stated as inventories. They have been acquired with a view to securing Holmen’s raw material requirements through harvesting. No measurable biological change occurs from the acquisition date. Emission allowances received are initially recognised at market price when allotted among inventories and as deferred income. During the year the allocation is recognised as income at the same time as an interim liability, corresponding to emissions made, is expensed. Unsold rights are measured at the lower of cost and fair value. Certificates received for renewable energy are initially recognised at market price when allotted among inventories and as deferred income. Unsold certificates are measured at the lower of cost and fair value. Recognition takes place, in line with production, as inventories or accrued income. If there is any indication that the book value 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 realisable value and the value in use. The net realisable value is the estimated selling price after deduction of the estimated cost of selling the asset. The value in use is measured as expected future discounted Employee benefits Pension costs and pension obligations Obligations to pay premiums to defined contribution plans are recognised as a cost in the income statement as and when they are earned. Holmen Annual Report 2019 55 GroupNote 1NotesNote 1 The Group’s net obligation regarding defined benefit plans is calculated sepa- rately for each plan by estimating future benefits earned by employees through their employment in both current and previous periods. This benefit is discounted to present value and unrecognised costs relating to employment in previous periods and the fair value of any plan assets are deducted. The discount rate is the interest rate at the balance sheet date for a high-quality corporate bond with a duration corresponding to the Group’s pension obligations. If there is no active market for such corporate bonds, the market interest 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 portion of the pension obligations that is defined benefit. Establishment of the obligation’s present value and the fair value of plan assets may give rise to actuarial gains and losses. These arise either through the actual outcome deviating from previously made assumptions or through changes in assumptions. Actuarial gains and losses are recognised in other comprehensive income. If the benefits provided by a plan are improved, the proportion of the improvement in the benefit that is attributable to the employees’ employment during earlier periods is recognised as a cost in the income statement and is distributed on a straight-line 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. If any changes occur to a defined benefit plan, these are recognised when the change to the plan occurs. If the change occurs in conjunction with restructuring, this is recognised when the company recognises the associated restructuring costs. The changes are recognised directly in profit/loss for the year. When the calculation leads to an asset for the Group being limited, the book value of the asset is limited to the lower of the plan surplus and the asset limitation calculated using the discount rate. The limitation of assets consists of the present value of future economic benefits in the form of reduced future costs or cash reimbursement. Any minimum funding requirements are taken into account in calculating the present value of future reimbursements or receipts. The interest expense on defined benefit obligations is recognised in profit/loss for the year under financial items. This is calculated as the net total of the upward adjustment of interest on the pension obligation and expected income on plan assets calculated according to the same interest factor (discount rate). Other components are recognised in operating profit/loss. The revaluation effects consist of actuarial gains and losses and the difference between the actual return on plan assets and the amount included in net interest. Revaluation effects are recognised in other comprehensive income. Payroll tax constitutes part of the actuarial assumptions and is therefore recognised as part of net obligations. Policyholder tax is recognised as it is incurred in profit/ loss for the period to which the tax relates and is consequently not included in the calculation of liabilities. In the case of funded plans, this tax is levied on the return on plan assets and is recognised in other comprehensive income. In the case of unfunded plans or partially unfunded plans, this tax is levied on profit for the year. In the parent company’s accounts, different grounds are used for computation of defined benefit pension plans from those referred to in IAS 19. The parent company complies with the provisions of the Swedish Pension Obligations Vesting Act 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 calculation of the defined benefit obligation on the basis of the current pay level without any assumption regarding pay increments in the future, and the recognition of all actuarial gains and losses in the income 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 consolidated accounts in respect of payroll tax based on this difference. The present value of the provision or receivable is not calculated. Share-based payments The share savings programme is recognised in accordance with IFRS 2 Share- based Payments and is paid through equity instruments. Recognition of share- based payment programmes paid through equity instruments entails the fair value of the instrument at the dividend date being recognised in the income statement as a cost over the vesting period, with a corresponding adjustment of equity. At the end of each vesting period, an estimate is made of the expected number of allocated shares and the effect of any change in previous estimates are recognised in the income statement with a corresponding adjustment of equity. In addition, a provision is made for estimated social security costs relating to the share programme. Estimates are based on the value of the shares at the allocation date, which is defined as the period when the agreement was concluded between the parties. The average share price during this period was used as the basis for the valua- tion of the shares at the allocation date. 56 Holmen Annual Report 2019 Termination benefits Termination benefits in connection with the termination of employment contracts are recognised in the accounts if it is shown that the Group has an obligation, without any reasonable possibility of withdrawing, 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 redundancy, a cost is recog- nised if it is likely that the offer will be accepted and the number of employees who will accept the offer can be reliably estimated. Short-term benefits Short-term benefits to employees are calculated without being discounted and are recognised as a cost when the related services are provided. Equity Consolidated equity comprises share capital, other contributed capital, translation, hedge and revaluation surpluses, 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. It also includes exchange differences arising in connection with the revaluation of liabilities and derivatives that are classified 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. The revaluation surplus comprises changes in value attributable to forest land. 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 proceeds from the disposal of the company’s own shares are stated as an increase. Transaction costs are charged directly to retained earnings. The parent company’s equity comprises share capital, statutory reserves, revaluation reserves, retained earnings and profit/loss for the year. The parent company’s statutory reserve consists of previous compulsory provisions 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 non-current 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 informal 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 esti- mate 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 restructuring 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. Contingent liabilities A contingent liability is recognised when there is a potential commitment that originates from 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 recognised as a liability or provision because it is unlikely that an outflow of resources will be required. Group contributions and shareholder contributions Group contributions are recognised in the parent company in accordance with RFR 2’s alternative rule, i.e. Group contributions paid or received are recognised as appropriations. Shareholder contributions are recognised as an increase in the item ‘ Investments in Group companies’. In addition, a review is conducted as to whether an impair- ment loss on the value of the shares is necessary. This review complies with standard rules on the valuation of this asset item. Shareholder contributions received are recognised directly in non-restricted equity. Other The figures presented are rounded off to the nearest whole number or equivalent. The absence of a value is indicated by a dash (-). GroupNote 1NotesNote 2. Operating segment reporting 2019 Net sales Forest Paperboard Paper Wood Products Renewable Energy Group-wide and other Eliminations Total Group External Internal Other operating income Operating costs Depreciation and amortisation according to plan Impairment losses Change in value of biological assets Share of profits of associates Operating profit 2 913 3 372 191 -5 747 -45 - 9 566 - 10 250 6 229 - 839 -6 072 -562 - - - 435 5 757 - 185 -5 051 -382 - - - 509 Operating profit/loss excluding items affecting comparability* 1 172 435 509 Operating margin excluding items affecting comparability, % Return on capital employed, excluding items affecting comparability, % Operating assets Operating liabilities Net deferred tax Capital employed Acquisition of non-current assets External net sales by market Sweden Germany UK Italy France Poland Rest of Europe Asia Rest of the world Total 19 8 43 127 -1 719 -8 690 32 718 77 2 909 - - - - - 5 - - 2 913 7 8 7 403 -880 -935 5 589 421 79 1 356 872 302 424 351 1 286 941 618 6 229 9 24 3 007 -741 -363 1 903 187 280 883 669 634 486 367 1 421 658 359 5 757 1 695 - 351 -1 887 -97 - - 1 62 62 4 6 1 232 -193 -39 1 000 162 450 4 418 3 0 0 339 166 314 1 695 367 11 102 -118 -26 -109 - 0 227 - - 224 -562 -29 - - - -368 336 -168 89 11 3 521 -127 -335 3 058 203 367 - - - - - - - - 367 - - 546 -982 64 -372 21 - - - - - - - - - - - -3 384 -521 3 905 - - - - - - - - -445 445 - - - - - - - - - - - - - 16 959 - 1 370 -15 531 -1 141 -109 9 566 0 11 115 2 345 14 9 58 390 -4 196 -10 298 43 895 1 071 4 084 2 244 1 958 938 910 719 3 050 1 765 1 291 16 959 *Items affecting comparability refer to the revaluation of biological assets within Forest (SEK 9 079 million), an impairment loss of an associate within Renewable Energy (SEK -109 million) and increased provisions for environmental restoration (SEK -200 million), recognised centrally within the Group. Holmen Annual Report 2019 57 GroupNote 2NotesNote 2. Operating segment reporting, cont. Forest Paperboard Paper Wood Products Renewable Energy Group-wide and other Eliminations Total Group 2018 Net sales External Internal Other operating income Operating costs Depreciation and amortisation according to plan Impairment losses Change in value of biological assets Share of profits of associates Operating profit/loss Operating profit/loss excluding items affecting comparability* Operating margin excluding items affecting comparability, % Return on capital employed, excluding items affecting comparability, % Operating assets Operating liabilities Net deferred tax Capital employed 20 8 20 313 -1 520 -3 963 14 830 12 12 7 324 -934 -1 074 5 316 Acquisition of non-current assets 357 471 Net sales by market Sweden Germany UK Italy France Poland Rest of Europe Asia Rest of the world Total 2 598 - - - - - 35 - - 2 633 77 1 175 818 344 409 229 1 112 1 114 509 5 785 2 633 3 311 251 -5 404 -31 - 425 - 1 185 5 785 - 770 -5 430 -507 -25 - - 595 5 571 - 184 -5 090 -336 - - - 329 1 747 - 305 -1 716 -92 - - 1 246 319 - 28 -132 -24 - - -10 181 - - 219 -350 -22 - - - -154 1 185 689 329 246 181 -154 6 15 3 235 -735 -428 2 072 173 304 813 611 615 426 348 1 680 537 236 5 571 14 27 1 176 -197 -52 927 76 467 6 439 3 0 8 333 218 273 1 747 57 6 3 500 -114 -334 3 052 22 319 - - - - - - - - 319 - - 1 045 -995 13 64 42 - - - - - - - - - - - -3 311 -473 3 784 - - - - - - - - -461 461 - - - - - - - - - - - - - 16 055 - 1 284 -14 337 -1 012 -25 425 -9 2 382 2 476 15 10 36 132 -4 033 -5 838 26 261 1 140 3 764 1 994 1 867 962 835 585 3 161 1 868 1 018 16 055 *Items affecting comparability refer to restructuring costs in the Paperboard business area (SEK -94 million). 58 Holmen Annual Report 2019 GroupNote 2NotesNon-current assets per country Sweden UK Other Total Net sales by market Sweden Germany UK Italy France Poland Rest of Europe Asia Rest of the world Total Group Parent company 2019 2018 2019 2018 50 532 1 587 5 52 124 27 674 1 604 6 29 284 13 806 - - 13 806 13 786 - - 13 786 Group Parent company 2019 2018 2019 2018 4 084 2 244 1 958 938 910 719 3 050 1 765 1 291 16 959 3 445 1 994 1 867 962 835 585 3 161 1 868 1 337 16 055 4 045 1 849 1 224 854 758 527 2 184 1 714 1 847 15 004 3 423 1 702 1 183 884 673 474 2 745 1 713 1 587 14 384 Income from external customers is allocated to individual countries according to the country in which the customer is based. Net sales by product area Consumer paperboard Pulp Book and magazine paper Newsprint Wood products, pine Wood products, spruce Wood Electricity Other Total Group Parent company 2019 2018 2019 2018 5 969 260 5 058 699 904 789 2 913 350 17 16 959 5 607 179 5 053 517 989 758 2 633 319 0 16 055 3 596 369 4 976 699 904 789 2 909 350 411 15 004 3 496 329 4 959 517 989 758 2 598 319 419 14 384 Sales of consumer paperboard and pulp are made within the Paperboard business area, while book and magazine paper and newsprint are attributable to the Paper business area. Spruce and pine products are sold within the Wood Products business area. Wood is sold by the Forest business area and electricity by the Renewable Energy business area. The Forest business area manages the Group’s forests, which cover just over one million hectares. Annual wood harvested in company forests is normally 3 million m3sub. The Renewable Energy business area is responsible for the Group’s hydro power and wind power assets. Generation in a normal year amounts to 1.2 TWh of electricity. The business areas are also responsible for the Group’s supply of wood and electricity in Sweden. The Paperboard business area produces paperboard for consumer packaging for the premium segment at one Swedish and one UK mill. The Paper business area produces paper for books, magazines and advertising at two Swedish mills. The Wood Products business area produces wood products for use in joinery and construction at three sawmills, whose by-products are used at the Group’s paper and paperboard mills. In 2019, the Group produced 0.5 million tonnes of paper- board, 1.0 million tonnes of paper and 0.9 million m3 of wood products. These business areas are responsible for managing the operating assets and liabilities, which together with the net amount of deferred tax assets and tax liabilities constitutes their capital employed. Group management monitors the business at operating profit level, and in terms of how earnings relate to capital employed. Capital employed in each segment includes all assets and liabilities used by the business area such as non-current assets, inventories and operat- ing receivables and operating liabilities, and the net amount of tax assets and tax liabilities. Financing and tax issues are managed at Group level. Consequently, financial assets and liabilities, including pension liabilities, and current tax assets and tax liabilities, are not allocated to the business areas. Intra-Group sales between segments are founded on an internal market-based price. The ‘Group-wide and other’ segment comprises Group staffs and Group- wide functions that are not allocated to other segments. Notes 2–3 Note 3. Other operating income Sales of by-products Certificates, renewable energy Emission allowances Sales of non-current assets Rent and land lease income Silviculture contracts Other Total Group Parent company 2019 371 510 86 15 54 70 265 1 370 2018 335 479 41 28 39 63 300 1 284 2019 2018 272 31 87 7 51 70 187 706 174 64 40 9 37 63 241 628 Of the sales of by-products in the Group, SEK 111 million (41) relates to rejects from production, SEK 132 million (130) to sawdust, bark, chips etc., and SEK 127 million (164) to external sales of energy. Income from renewable energy certificates received from the production of renewable energy at the Group’s mills amounted to SEK 510 million (479). The Group has been allotted emission allowances that have been used partly within its own production. The surplus resulted in a gain of SEK 86 million (41). Holmen Annual Report 2019 59 GroupNotesNote 4 Note 4. Employees, personnel costs and remuneration to senior management Wages, salaries and social security costs Wages, salaries and other remuneration Social security costs Group 2019 1 625 633 2018 1 609 638 Parent company 2018 2019 1 300 543 1 297 584 AGM’s guidelines for determining salaries and other remuneration for senior management The 2019 AGM decided on the following guidelines for determining the salaries and other remuneration of the CEO and other senior management, namely the heads of the business areas and heads of Group staffs who report directly to the CEO. The guidelines apply to agreements entered into after the AGM’s resolution. Salary and other benefits The remuneration of the CEO and the senior management shall consist of a fixed market-based salary. Other benefits, mainly car and accommodation, shall, insofar as they are provided, represent a limited part of the remuneration. No variable remuneration shall be paid other than possible share-related incentive programmes determined by the AGM. Pension The retirement age is normally 65 years. Pension benefits are based on defined contributions and comply with the ITP plan. Additional defined-contribution pension solutions may occur. Notice and severance pay The period of notice is six months, regardless of whether notice is given by the company or the member of senior management. In the event of notice being given by the company, severance pay may be paid corresponding to no more than 18 months’ salary. Remuneration committee A remuneration committee appointed from among the members of the Board shall handle matters pertaining to the CEO’s salary and other conditions of employment and submit proposals on such issues to the Board for decision. Detailed principles for determining the salaries, pension rights and other remune ration for senior management shall be laid down in a pay policy adopted by the remuneration committee. Deviations 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 deviation, information thereon and the reasons therefor shall be submitted to the next AGM. Share savings programme The 2016 AGM decided on a targeted share savings programme for around 40 key individuals in the Group. Participation in the programme required the relevant employees to have invested in Holmen shares (known as ‘savings shares’). For each savings share invested, half a matching share was assigned after the expiry of the vesting period in May 2019. Participants were also allo- cated performance shares. As the performance condition linked to the Group’s return on capital employed was achieved in full, the maximum number of per- formance shares were allocated. In total, 168 797 shares were allocated free of charge. The total cost of the programme was SEK 30 million, of which SEK 3 million was recognised in 2019. The 2019 AGM approved a new targeted share savings programme for key individuals in the Group. The purpose of the programme is to strengthen the interests between the owners and the management of the company and to create long-term commitment to Holmen. Participation in the programme required the relevant employees to have person- ally invested in Holmen shares (known as ‘savings shares’) during the period 9 May to 31 May 2019. For each savings share invested, half a matching share will be allocated after the expiry of the vesting period provided that Holmen’s total shareholder return is positive over the duration of the programme. In addi- tion, performance shares may be allocated, depending on the level of the Group’s return on capital employed. The maximum number of performance shares var- ies depending on the participant’s position and amounts to 3–6 shares per sav- ings share. The assignment of matching and performance shares requires par- ticipants to have been full-time employees within the Holmen Group and to have held the savings shares for the entire vesting period. The vesting period runs from 31 May 2019 up to and including the date of publication of Holmen’s interim report for the first quarter of 2022. 51 people are participating in the pro- gramme and the maximum number of shares that can be allocated is calculated at 160 000. Total costs for the programme are estimated at SEK 11 million. Costs corresponding to SEK 4 million have been recognised for 2019. 60 Holmen Annual Report 2019 Remuneration of Board and senior management Board of Directors A fixed Board fee shall be paid to the members of the Board elected by the AGM. The CEO, however, does not receive any Board fee. For 2019, fees to the Board amounted to SEK 3 195 000 (3 195 000). The chairman received a fee of SEK 710 000 (710 000), and each of the other seven (seven) members received SEK 355 000 (355 000). Senior management Salary and other benefits for the CEO in 2019 amounted to SEK 16 404 506 (9 052 744), of which SEK 7 341 506 relates to the value of shares allocated under the 2016 share savings programme. No variable remuneration was paid besides the allocation under the share savings programme. The total pension cost for the CEO, calculated in accordance with IAS 19, amounted to SEK 5 193 543 (4 992 483). Recognised wages and salaries for the share savings programmes for the CEO amounted to SEK 809 752 (1 581 019). In 2019, the salaries and other benefits of other senior management, i.e. the heads of the five (four) business areas and the heads of the five (five) Group staffs and the head of international affairs, who report directly to the CEO, totalled SEK 37 499 766 (22 211 926) in 2019, of which SEK 10 964 132 relates to the value of shares allo- cated under the 2016 share savings programme. No variable remuneration was paid besides the allocation under the share savings programme. The total pension cost for this group, calculated in accordance with IAS 19, amounted to SEK 11 566 102 (10 160 508) in 2019. Recognised wages and salaries for the share savings pro- grammes for this group amounted to SEK 1 446 961 (2 188 461). For senior management, employed from 2011, a mutual notice period of six months applies. In the event of notice being given by the company, deductible severance pay corresponding to 18 months’ salary is paid. These terms apply to nine people. For one person no severance is paid. For two senior management employment contracts, signed before 2011, the employee is required to give six months’ notice and the company must give 12 months’ notice. In the event of notice being given by the company for these people, severance pay correspond- ing to up to two years’ salary is paid, depending on age. All members of senior management are employed by the parent company. Pension obligations in respect of senior management Holmen’s pension obligations over and above the ITP plan for the CEO amounted to SEK 23 million (19) at 31 December 2019 and for other members of senior manage- ment to SEK 26 million (35), calculated in accordance with IAS 19. The pension obli- gations are secured using plan assets managed by an independent pension fund. Average no. of employees (FTE) Of which women Of which men Average no. of employees (FTE) Of which women Of which men 2019 2018 2 349 445 1 904 2 379 454 1 925 6 12 4 7 1 73 8 2 2 6 409 23 13 2 5 2 2 - 39 4 2 - 3 45 8 5 4 7 2 5 1 34 4 - 2 3 363 15 8 6 12 5 7 2 74 8 2 2 6 415 23 14 2 5 1 2 - 43 4 2 - 3 49 9 6 4 7 4 5 2 31 4 - 2 3 366 14 8 566 118 448 576 126 450 Parent company Sweden Group companies Estonia France Hong Kong Italy Japan Netherlands Poland Russia Switzerland Singapore UK Germany US Total Group companies Total Group 2 915 562 2 352 2 955 580 2 374 Proportion of women, % Board (excl. deputy members) Senior management Total Group Parent company 2019 2018 2019 2018 25 17 21 17 18 17 25 17 21 17 18 17 GroupNotesNote 5. Auditors’ fee and remuneration The audit firm KPMG was elected by the 2019 AGM as Holmen’s auditors for a period of one year. KPMG audits Holmen AB and almost all of its subsidiaries. Remuneration to KPMG Audit assignments Tax advice Total Other auditors Total Group Parent company 2019 2018 2019 2018 7 1 7 0 7 6 1 7 0 8 5 1 5 - 5 4 1 6 - 6 ‘Audit assignments’ refers to the statutory examination of the annual accounts and accounting records, the administration by the Board and the CEO, and audit- ing and other assessment performed as agreed or in accordance with contracts. This includes other duties that are incumbent on the company’s auditors and the provision of advice or other assistance resulting from observations in connec- tion with such assessment or the performance of such other duties. ‘Tax advice’ refers to all consultation in the field of taxation. Note 6. Net financial items and income from financial instruments Financial income Dividend income from Group companies Dividends from associates Gains on sales of Group companies Gains on sales of associates Interest income* Total financial income Financial costs Impairment losses on value of shares in Group companies Impairment losses on value of shares in associates Net profit/loss Assets and liabilities measured at fair value through profit/loss Cash and cash equivalents Assets and liabilities measured at amortised cost Total net profit/loss Interest expense attributable to right-of-use liabilities Interest expense** Financial costs Net financial items Group Parent company 2019 2018 2019 2018 - 0 0 - 13 13 - - -28 -3 29 -2 -4 -41 -47 -34 - - 0 - 12 13 - - -9 1 8 0 - -38 -38 -25 148 - 82 - 30 261 367 - 100 8 23 499 - - -185 -20 -29 -3 29 -189 - -50 -238 22 -12 1 7 -24 - -41 -65 434 *SEK 12 million relates to interest income calculated using the effective interest rate method from financial items valued at amortised cost. **SEK -18 million (-23) in the Group and parent company relates to interest expense for derivatives valued at fair value through other comprehensive income. SEK -4 million (-6) relates to interest expense for derivatives recognised at fair value through profit/loss for the year. Remaining interest expense is calculated using the effective interest rate method and relates to financial items valued at amortised cost. Net gains and losses recognised in net financial items mainly relate to currency revaluations of internal lending and hedging of internal lending. The parent company’s net financial items also include currency revaluation of forward contracts that hedge net investment in foreign operations, which are recognised in the Group under other comprehensive income. The fair value of the interest component in forward foreign exchange contracts as well as value changes in accrued interest and realised interest in fixed-interest-rate swaps is recognised on an ongoing basis in net interest items. Information on financial risks is provided on pages 42–43. Notes 5–6 The income from financial instruments included in operating profit/loss is shown in the following table: Group Parent company Exchange gains/losses on trade receivables and trade payables Net gain/loss on derivatives stated in working capital 2019 2018 2019 2018 336 285 343 280 -250 -222 -265 -231 Interest income on trade receivables Interest expense on trade payables 0 0 1 0 0 0 1 0 The derivatives included in operating profit/loss relate to currency hedging of trade receivables and trade payables as well as financial electricity derivatives. Gains and losses on currency hedging are recognised in operating profit/loss when the hedged item is recognised and in 2019 amounted to SEK -419 million (-324), with the remainder being recognised in other comprehensive income as hedge accounting is applied. The fair value of outstanding currency hedges at 31 December 2019 was SEK -27 million (-244). Gains on financial electricity hedges are recognised in the income statement when they expire; for 2019 they totalled SEK 172 million (102). The fair value of outstanding financial electricity hedges at 31 December 2019 was SEK 206 million (473). The change in fair value is recognised in other comprehensive income as hedge accounting is applied. The change in the fair value of hedges for investment purchases is recognised in other comprehensive income until expiry, at which point the gain/loss is added to the cost of the non-current asset that was hedged. The fair value of outstanding hedges for investment purchases amounted to SEK 4 million (5) at 31 December 2019. In 2019 there was a SEK 7 million positive effect on the cost of hedged items owing to results from hedging. Results from hedging of foreign net assets amounted to SEK -2 million (-8) in 2019 and are recognised in other comprehensive income as hedge accounting is applied. In the parent company accounts, this gain is recognised in the income statement. The translation of net foreign assets had an impact of SEK 141 million (55) on consolidated equity. The fair value of outstanding hedges of net assets at 31 December 2019 was SEK 3 million (2) and relates to financial derivatives. The fair value of the derivatives used to manage the fixed interest periods amounted to SEK -6 million (-26) at 31 December 2019, which was recognised in other comprehensive income as hedge accounting is applied. This value is expected to be recognised in the income statement in 2020 and later. Holmen Annual Report 2019 61 GroupNotes Note 7 Note 7. Tax Taxes stated in income statement Current tax Deferred tax Total Group Parent company 2019 -582 -1 769 -2 351 2018 36 -125 -89 2019 -506 13 -493 2018 1 46 47 Tax recognised totalled SEK -2 351 million, corresponding to 21 per cent of profit before tax. Tax recognised was affected by SEK -1 870 million from a change in the accounting of forest assets. Taxes stated in income statement Recognised profit/loss before tax Tax at applicable rate Difference in tax rate in foreign operations Tax-exempt income Non-tax-deductible costs Standard interest on tax allocation reserve Effect of unstated loss carry-forwards and temporary differences Tax attributable to previous periods Change to tax rate on deferred tax assets/liabilities Other Effective tax 2019 SEKm 11 081 -2 371 2 23 -29 -1 0 -6 62 -30 -2 351 Group % 2018 SEKm 2 356 Parent company 2019 2018 % SEKm 2 340 % SEKm 467 21.4 0.0 -0.2 0.3 0.0 0.0 0.1 -0.6 0.3 21.2 -518 5 54 -30 -2 3 87 315 -2 -89 22.0 -0.2 -2.3 1.3 0.1 -0.1 -3.7 -13.4 0.1 3.8 -501 0 70 -45 -1 0 0 0 -16 -493 21.4 0.0 -3.0 1.9 0.0 0.0 0.0 0.0 0.7 21.1 % 22.0 0.0 -23.0 1.8 0.3 0.0 -0.2 -8.6 -2.4 -10.0 After tax 255 - - - - - 255 -103 0 107 -8 -2 0 1 40 11 47 Tax 2018 -70 - - - - - -70 Tax attributable to other comprehensive income Cash flow hedging Share in joint ventures’ other comprehensive income Translation difference on foreign operations Hedging of currency risk in foreign operations Revaluations of forest land Revaluations of defined benefit pension plans Other comprehensive income Group After tax Before tax Before tax Tax 2019 -37 8 -29 329 -6 141 -2 13 055 14 13 166 - - 0 -2 689 2 -2 679 -6 141 -1 10 366 16 10 487 -23 55 -8 - -52 302 Tax 2018 -71 - - 2 - 10 -60 Parent company After tax Before tax Tax 2019 After tax Before tax 258 -23 55 -6 - -42 242 -34 - - - - - -34 7 - - - - - 7 -27 - - - - - -27 326 - - - - - 326 Taxes as stated in balance sheet Tax receivables Deferred tax asset Current tax receivable Total tax receivables Deferred tax liabilities Non-current assets Biological assets Forest land Property, plant and equipment Tax allocation reserve Transactions subject to hedge accounting Other, including deferred tax assets stated net among deferred tax liabilities Deferred tax liabilities Current tax liability Total tax liabilities Group Parent company 2019 2018 2019 2018 1 0 2 1 328 329 5 746 2 697 1 434 359 3 773 8 1 746 225 37 44 27 10 299 112 10 411 43 5 839 13 5 852 - - - - 595 2 - 37 -19 614 105 719 - 327 327 - 594 2 - 44 -6 635 - 635 62 Holmen Annual Report 2019 NotesNotes 7–8 Change in the net amount of deferred tax assets and deferred tax liabilities 2019 Biological assets Forest land Property, plant and equipment Tax allocation reserve Transactions subject to hedge accounting Other Deferred net tax liability 2018 Biological assets Forest land Property, plant and equipment Tax allocation reserve Transactions subject to hedge accounting Other Deferred net tax liability Opening balance Stated in the income statement Group Stated in other comprehensive income Translation differences and other -3 773 -8 -1 746 -225 -44 -42 -5 838 -1 973 - 324 -134 - 13 -1 769 - -2 689 - - 8 2 -2 679 - - -12 - - 1 -11 Opening balance Stated in the income statement Group Stated in other comprehensive income Translation differences and other -3 902 -23 -1 255 -444 27 -51 -5 648 129 16 -489 219 - -1 -125 - - - - -71 10 -61 - - -3 - - 0 -4 Closing balance -5 746 -2 697 -1 434 -359 -37 -26 -10 298 Closing balance -3 773 -8 -1 746 -225 -44 -42 -5 838 Parent company Opening balance Stated in the income statement Stated in other comprehensive income Closing balance - -594 -2 - -44 6 -635 - -1 - - - 13 13 - - - - 7 - 7 - -595 -2 - -37 19 -614 Parent company Opening balance Stated in the income statement Stated in other comprehensive income Closing balance - -635 1 - 26 -2 -610 - 40 -3 - - 8 46 - - - - -70 - -70 - -594 -2 - -44 6 -635 The Group’s deferred tax liability for forest assets (biological assets and forest land) amounts to SEK 8 442 million and is calculated based on the difference between book value (SEK 41 345 million) and taxable cost (SEK 363 million). This represents the tax expense that would arise if the forest assets were sold as forest properties. No tax expense arises if the assets are retained. 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 19. The deferred tax expense recognised in the 2019 consolidated income statement mainly relates to a change as a result of amended accounting of forest assets. The amount recognised in other comprehensive income includes deferred tax related to a change in the value of forest land of SEK -2 689 million, hedging reserves of SEK 8 million (71) and an impact of SEK 2 million (10) from the revaluation of defined benefit pension plans. Holmen has tax losses in the Group’s Spanish companies, in which business operations are no longer conducted. The application for an advance ruling on the ability to apply group relief in the parent company for such tax losses has been addressed by the Supreme Administrative Court, which in December 2019 ruled that the matter cannot be determined by an advance ruling. No deferred tax asset has been recognised for these losses. There are no other loss carry-forwards of significance in the Group. Note 8. Earnings per share Total number of shares outstanding, 1 January Buy-back of company’s own shares during the year Share savings programme allocation Total number of shares outstanding, 31 December Shareholders’ share of profit for the year, SEKm Basic average number of shares Basic EPS for the year, SEK Shareholders’ share of profit for the year, SEKm Diluted average number of shares Diluted EPS for the year, SEK Group 2019 2018 167 992 324 167 992 324 - - 6 235 436 - 168 797 161 925 685 167 992 324 8 731 2 268 166 097 996 167 992 324 13.5 52.6 8 731 2 268 166 097 996 167 992 324 13.5 52.6 On 15 August the Board took the decision to use the mandate from the 2019 AGM to acquire company shares. During the year 6 235 436 class B shares were repurchased for SEK 1 430 million, corresponding to an average price of SEK 229/share. The buy-backs correspond to 3.7 per cent of the total number of shares. Together with previously held shares, this means that at 31 December 2019 Holmen held shares corresponding to 4.5 per cent of the total number of shares outstanding and 1.3 per cent of the total number of votes. The share savings programme that was introduced following the decision of the 2016 AGM expired in May 2019, which meant that participants were allocated 168 797 matching and performance shares. The 2019 AGM approved a similar new share savings programme. The new programme may result in up to 160 000 shares being allocated from Holmen’s own holding of shares. The effects on key ratios and profit per share are marginal. See Note 4 for further information about the share savings programme. Holmen Annual Report 2019 63 NotesNote 9 Note 9. Forest assets Holmen’s owns land totalling 1 302 000 hectares, of which 1 043 000 hectares comprise productive forest land on which the volume of standing timber is 123 million cubic metres of growing stock, solid over bark. From 31 December 2019 Holmen recognises forest assets at fair value, calculated based on the transaction prices for forest properties in those areas where the Group owns forest land. The valuation is based on detailed data about transactions and pricing statistics published by different market operators over the past three years. Account is taken of where in the country the forest land is located and differences in the forest in terms of the volume of standing timber and site quality. No value is assigned to land that is not productive forest land. The book value of forest assets amounted to SEK 41 345 million at 31 December 2019. The value has been affected by SEK 22 134 million from the transition to recognising forest assets at fair value based on prices of forest properties. The value corresponds to an average of SEK 39 640 per hectare of productive forest land. The value per hectare varies between different parts of the country, with forest properties in southern Sweden being valued much higher per hectare as a result of a greater volume of standing timber, higher site quality, a shorter harvesting cycle and greater demand for forest land. For forest properties in southern Sweden a refe- rence valuation has been obtained from the company Forum Fastighetsekonomi. Their valuation is 4 per cent higher than the value calculated by Holmen. Productive forest land, ‘000 ha Volume of standing timber, mil. m3 solid over bark North 688 74 Central South 264 35 91 15 Total 1 043 123 The future value of forest assets is governed by changes in market prices for forest properties and growth in Holmen’s volume of standing timber. The charts below show historical price development for forest properties, measured as SEK per m3 growing stock, solid over bark in different parts of Sweden and how Price of forest properties, SEK/m3 800 700 600 500 400 300 200 100 2003 2005 2007 2009 2011 2013 2015 2017 2019 2002 2004 2006 2008 2010 2012 2014 2016 2018 Southern Central Northern Source: LRF Konsult’s price statistics for different regions of Sweden. Allocation per region does not fully correspond to Holmen's own allocation. Volume of standing timber, m3 growing stock per hectare of productive forest land 150 100 50 0 1948 1955 1965 1975 1988 1993 2000 2010 2019 Forest assets 2019 Group Book value at start of year Purchase Sale Change due to harvesting Unrealised change in fair value Other changes Book value at end of year The acquisition cost of forest land amounted to SEK 311 million at 31 December 2019. 18 701 16 -3 -665 23 286 10 41 345 64 Holmen Annual Report 2019 Holmen’s volume of standing timber has changed. A change in the average market price of forest assets by SEK 5/m3 growing stock, solid over bark would affect the value of Holmen’s forest assets by SEK 615 million. A change in Holmen’s volume of standing timber by 1 million m3 growing stock, solid over bark would affect the value by SEK 335 million. The value of the forest assets is allocated in the balance sheet to growing trees, which are recognised as a biological asset, and forest land. How much of the value is allocated to the biological assets is established by calculating the present value of expected future cash flows, less selling costs but before tax, from harvesting those trees currently growing. Those trees currently growing are expected to be harvested on average after 85 years, which is the harvest period used in the valuation. The volumes are based on the current harvesting plan. A new long term harvesting plan is being developed and is expected to be ready in 2020. Income is calculated based on a long-term trend price for 2020 of SEK 457 (445)/m3sub, which is in line with currently prevailing market prices. Costs are based on the current level. Prices and costs are revised up by 2 per cent each year. A discount rate before tax of 4.5 per cent (5.5) has been used. Costs for replanting after harvesting have not been taken into account. The book value of forest land is calculated as the difference between the total value of forest assets and biological assets. This value reflects future income from sources other than the harvest of currently standing trees, such as leasing of land for wind power, quarrying, hunting leases, licence income and harvesting future generations of trees. The net effect of an unrealised change in fair value and the change as a result of harvesting of biological assets is stated in the income statement as a change in value of biological assets. For 2019 this amounted to SEK 9 566 million (425), of which SEK 9 079 million (0) is treated as an item affecting comparability as a result of amended assumptions, primarily an amended discount rate. The unrealised change in fair value of forest land is recognised in other comprehen sive income and amounted to SEK 13 055 million (0) as a result of the introduction of a new accounting policy. North Central South Biological assets Of which 2018 17 971 317 -16 -654 1 079 3 18 701 2019 18 400 9 -3 -665 10 231 7 27 979 2018 17 831 150 -9 -654 1 079 3 18 400 Forest land 2019 301 7 - - 13 055 3 13 366 2018 140 167 -7 - - 0 301 Notes Notes 10–11 Non-current intangible assets mainly comprise IT systems at SEK 16 million (13) and rights of use for certain energy assets at SEK 46 million (42). The assets are mainly externally acquired and have a definable useful life. No goodwill applies for the Group. Note 10. Non-current intangible assets Accumulated acquisition costs 2019 2018 2019 2018 Group Parent company Opening balance Investments Disposal and retirement of assets Translation differences Total Accumulated amortisation, depreciation and impairment losses Opening balance Amortisation for the year Impairment losses for the year Disposal and retirement of assets Translation differences Total Residual value according to plan at end of year 231 12 -18 1 225 163 10 - -18 1 155 212 18 - 0 231 123 16 25 - 0 163 70 68 Note 11. Property, plant and equipment 81 5 -18 - 68 56 6 - -18 - 44 24 26 55 - - 81 19 12 25 - - 56 25 Buildings, other land* and land installations 2019 2018 Machinery and equipment 2019 2018 Work in progress and advance payments to suppliers 2019 2018 Total 2019 2018 Group Accumulated acquisition costs Opening balance Investments Reclassifications Disposal and retirement of assets Translation differences Total Accumulated amortisation, depreciation and impairment losses Opening balance Depreciation and amortisation according to plan for the year Reclassifications Disposal and retirement of assets Translation differences Total Residual value according to plan at end of year 5 695 195 10 -9 43 5 934 3 418 100 13 -9 27 3 549 2 385 5 633 54 - -5 13 5 695 3 316 99 - -5 8 3 418 2 277 28 573 657 36 -534 318 29 050 22 154 934 -13 -528 227 22 773 6 277 28 031 723 4 -280 95 28 573 21 471 898 - -277 62 22 154 6 418 Parent company Accumulated acquisition costs Opening balance Investments Reclassifications Disposal and retirement of assets Total Accumulated depreciation and amortisation according to plan Opening balance Depreciation and amortisation according to plan for the year Disposal and retirement of assets Total Accumulated revaluations Opening balance Disposal and retirement of assets Total Residual value according to plan at end of year Forest land 2019 2018 Buildings, other land* and land installations 2018 2019 Machinery and equipment 2019 2018 469 5 - 0 474 - - 0 0 464 4 - 0 469 - - - - 2 388 0 2 388 2 862 2 389 0 2 388 2 857 166 5 6 0 177 133 3 0 136 1 0 1 42 150 17 - -1 166 131 2 0 133 1 - 1 34 243 46 1 -30 260 168 35 -30 173 - - - 87 210 52 - -19 243 154 33 -19 168 - - - 76 80 208 -46 - 3 244 - - - - - - 61 22 -4 - 1 80 - - - - - - 244 80 Work in progress and advance payments to suppliers 2019 2018 8 17 -8 - 17 - - - - - - - 17 0 8 - - 8 - - - - - - - 8 34 348 1 060 0 -543 364 35 229 25 572 1 034 0 -537 254 26 323 8 906 33 725 799 - -285 109 34 348 24 787 997 - -282 70 25 572 8 776 Total 2019 2018 886 72 0 -30 928 301 38 -30 309 825 81 - -20 886 285 35 -19 301 2 389 0 2 389 3 008 2 389 0 2 389 2 974 *Other land refers to land other than forest land. See Note 9 for the Group’s forest properties. The Group’s investment commitments for approved and ongoing projects amounted to SEK 1 841 million (601) at 31 December 2019. The increase on the previous year is mainly due to the construction of Blåbergsliden Wind Farm. In 2019, the company’s capitalised borrowing costs totalled SEK 3 million (3). An interest rate of 1.1 per cent (1.5) was used to determine the amount. Holmen Annual Report 2019 65 NotesNote 12 Note 12. Leases Group Accumulated acquisition costs Value at start of year Amended accounting policy Additional right-of-use agreements Completed leases Total Accumulated depreciation and amortisation Value at start of year Amortisation for the year Completed leases Total Value at end of year The impact of the transition to IFRS 16 on the Group’s leases is described in Note 1 Accounting Policies. The method that the Group has opted to apply for the transition to IFRS 16 means that comparative figures are not restated. Buildings The Group leases a number of office and warehouse premises. The leases usually have a term of between 5 and 10 years. Machinery and equipment The Group’s leasing of machinery and equipment mainly relates to cargo ships, forklifts and cars. The leasing period for these types of asset is normally 2 to 5 years. Buildings Machinery and equipment 2019 2018 2019 2018 Total 2019 2018 - 143 24 0 167 - 42 0 42 126 - - - - - - - - - - - 62 51 0 113 - 56 0 56 57 - - - - - - - - - - - 205 75 0 281 - 98 0 98 183 Amounts recognised in profit/loss Amortisation amounts for rights of use Interest expense for lease liabilities Costs related to current lease liabilities Costs related to low-value leases Costs related to variable leases - - - - - - - - - - 2019 98 4 2 0 2 106 In 2019 the Group’s payments attributable to leases amounted to SEK 104 million. These payments include both amounts for leases that are recognised as lease liabilities and amounts paid for variable lease payments, short-term leases and low-value leases. No right-of-use asset or lease liability is recognised for leases with a term of 12 months of less or with underlying assets of low value. See Note 14 for a maturity analysis of liabilities regarding right-of-use assets. 66 Holmen Annual Report 2019 NotesNote 13 Note 13. Investments in associates, joint ventures and other shares and participating interests Profit/loss from associates and joint ventures Recognised in profit/loss for the year Stated in other comprehensive income Total comprehensive income Group 2019 2018 0 -6 -6 -9 -23 -32 The combined value of Holmen’s share in the profits of associates amounted to SEK -4 million (5) for the Group and to SEK 2 million (11) for the parent company. The combined value of Holmen’s share in the profits of joint ventures amounted to SEK 2 million (-27) for the Group and to SEK 2 million (-27) for the parent company. Associates and joint ventures Book value at start of year Investments Disposals Share of earnings Translation difference Impairment losses Other Book value at end of year Associates Joint ventures Total Group 2019 1 626 25 -29 -1 - - - 1 620 2018 1 636 11 - -11 - - -10 1 626 Parent company 2018 2019 Group 2019 2018 Parent company 2018 2019 114 - -26 - - - - 87 123 11 - - - -20 - 114 113 - - -5 0 -109 0 0 113 31 - -21 -5 - -4 113 185 - - - - -185 - 0 92 93 - - - - - 185 Group 2019 1 740 25 -29 -6 0 -109 0 1 620 2018 1 749 42 - -32 -5 - -14 1 740 Parent company 2018 2019 299 - -26 - - -185 - 87 215 104 - - - -20 - 299 The holding in associate VindIn AB was divested in 2019. Parent company and Group holdings of shares and investments in associates and joint ventures Corporate ID No. Registered office Number of shares Holding %* 556017-6678 556016-0953 556036-9398 556594-6984 556504-2826 556713-5172 Arbrå Örnsköldsvik Vännäs Stockholm Lycksele Stockholm Tel Aviv 5 556 990 9 886 1 800 683 200 119 13.9 9.9 49.4 36.0 6.8 - 27.6 556914-9833 Stockholm 250 50.0 Value of holding in consolidated accounts 2019 Book value in the parent company Holding %* Value of holding in consolidated accounts 2018 Book value in the parent company 36 0 1 484 15 85 - 0 0 1 620 0 1 620 13.9 9.9 49.4 36.0 6.8 17.7 46.8 50.0 - 0 - 2 85 - - 0 87 0 87 36 0 1 461 14 85 29 0 0 1 626 113 1 740 - 0 - 2 85 26 - 0 114 185 299 Associates Brännälvens Kraft AB Gidekraft AB Harrsele AB Uni4 Marketing AB Vattenfall Tuggen AB VindIn AB Melodea Ltd, Israel Other associates Joint venture Varsvik AB Total *The percentage of ownership corresponds to the percentage of votes for the total number of shares. The holdings in Brännälvens Kraft AB, Gidekraft AB, Harrsele AB and Vattenfall Tuggen AB refer to hydro power assets. The holdings entitle the Group to buy electricity produced at cost price, so the associate only earns a very limited profit. Purchased electricity is sold to external customers at market price, and the earn- ings are stated in the consolidated accounts within the Renewable Energy busi- ness area. The holding in associate Harrsele AB is recognised in the Group at SEK 1 484 million (1 461). Holmen purchased 476 GWh (471) of electrical power from Harrsele AB in 2019, giving Holmen an operating profit of SEK 133 million (107) from market sales. Harrsele AB owns power assets that generate 950 GWh of electrical power in a normal year. These assets were originally constructed in 1957–58 and the book value of the non-current assets in Harrsele AB amounts to SEK 122 million (122). The company has non-current liabilities to its owner of SEK 0 million (25). Ownership in remaining associates relates to activities in the areas of sales, research and development. The interests in Brännälvens Kraft AB, Gidekraft AB and Vattenfall Tuggen 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. Ownership in the joint venture, Varsvik AB, relates to wind power operations. Other shares and participating interests Book value at start of year Disposals Translation difference Impairment losses Book value at end of year Group Parent company 2019 2018 2019 2018 1 - 0 - 1 2 0 0 - 1 0 - - - 0 0 0 - - 0 Holmen Annual Report 2019 67 NotesGroup Maturity structure, undiscounted amounts Financial liabilities Derivatives Derivatives attributable to working capital Trade payables Liabilities relating to right-of-use assets* Other financial liabilities Financial receivables Derivatives Derivatives attributable to working capital Trade receivables Other financial receivables 2020 2021 2022 2023 2024– -34 -130 -2 259 -63 -2 483 16 168 2 005 518 -3 -18 - -43 -13 2 114 - 42 -2 - - -2 - - -3 - - -22 -512 -18 -1 008 -53 -504 3 18 - 49 3 - - 51 3 - - 346 * Liabilities relating to right-of-use assets are not classified as a financial instrument under IFRS 9. Parent company Maturity structure, undiscounted amounts Financial liabilities Derivatives Derivatives attributable to working capital Trade payables Other financial liabilities Financial receivables Derivatives Derivatives attributable to working capital Trade receivables Other financial receivables 2020 2021 2022 2023 2024– -34 -128 -2 150 -2 476 16 165 1 749 435 -3 -18 - -13 2 114 - 42 -2 -2 -3 - - -512 - - -1 008 3 18 - 49 3 - - 51 - - -504 3 - - 346 Note 14 Note 14. Financial instruments Non-current financial receivables consist of interest-bearing financial receivables from other companies, prepayments for credit facilities and the fair value of non-current derivatives. The parent company’s receivables from Group companies include a significant share of interest-free receivables between Swedish wholly owned Group companies. Current financial receivables are recognised as fixed income investments and lending for durations of up to one year, accrued interest income and unrealised exchange gains and fair values of derivatives. Current financial receivables essentially have fixed interest periods of under 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 in bank accounts or as current deposits at banks. Financial liabilities accrued interest expense, unrealised exchange losses and fair values of derivatives are stated as financial liabilities. Financial liabilities are largely interest-bearing. The parent company’s liabilities to Group companies include a significant amount of interest-free liabilities between Swedish wholly owned Group companies. In addition to the financial assets and liabilities identified above, liabilities relat- ing to right-of-use assets (see Note 12) and a pension liability (see Note 18) are also included in net financial debt. The maturity structure and average interest for the Group’s liabilities are stated in the section on Risk on pages 42–43. SEK 2 493 million of the parent company’s liabilities are due for payment within one year. All of the Group’s derivatives are covered by ISDA or FEMA agreements, which entails a right for Holmen to offset assets and liabilities in relation to the same counterparty in the case of a credit event. Taking into account the terms of the netting agreement, the net exposure is SEK 147 million. Assets and liabilities are not offset in the report. Recognised derivatives totalled SEK 326 million (557) on the asset side and SEK -179 million (-381) on the liability side. No provision has been made for expected credit losses for the financial assets included in the net liability, based on no losses arising over the past 10 years and assets held at the balance sheet date being deemed to be of good credit quality. See Note 16 for information about impairment testing of trade receivables. The fair value of financial instruments traded on an active market is based on listed market prices and belongs to measurement level 1 as per IFRS 13. Where there are no listed market prices, fair value has been calculated using discounted cash flows. In calculating discounted cash flows, variables used for the calcu- lations, such as discount rates and exchange rates, are taken from market list- ings where possible. In calculating discounted cash flows, the mean of exchange rates and discount rates is used. These valuations belong to measurement level 2. Other valuations, for which a variable is based on own assessments, belong to measurement level 3. Currency options are valued using the Black & Scholes formula, where appropriate. Holmen uses valuation level 2 when measuring financial instruments in accordance with IFRS 13. Fair value in the tables is calculated on the basis of discounted cash flows and all variables, such as discount rates and exchange rates, are taken from market listings for calculations. The difference between fair value and book value arises because certain liabilities are not measured at fair value in the balance sheet, and are instead stated at their amortised cost. In the case of trade receivables and trade payables, the book value is stated as the fair value, as this is judged to be a good reflection of the fair value. For further information about financing and quantitative data on Holmen’s hedge accounting see the section on Risk on pages 42–43 and Note 6 on page 61. 68 Holmen Annual Report 2019 NotesNote 14 Recognised at amortised cost 2019 2018 Total book value Fair value 2019 2018 2019 2018 - 438 438 0 - 0 0 0 483 483 -2 000 - -6 -2 006 -2 450 0 - -14 - 0 -2 464 - 468 468 0 - 18 18 0 278 278 -1 000 - -7 -1 007 -1 951 -24 - -12 -500 0 -2 487 14 438 452 0 14 0 14 0 483 483 -2 000 -12 -6 -2 018 -2 450 0 -21 -14 - 0 -2 485 0 468 468 0 17 18 35 0 278 278 -1 000 -26 -7 -1 033 -1 951 -24 -7 -12 -500 0 -2 494 14 438 452 0 14 0 14 0 483 483 -2 000 -12 -6 -2 018 -2 450 0 -21 -14 - 0 -2 485 0 468 468 0 17 18 35 0 278 278 -1 000 -26 -7 -1 033 -1 951 -24 -7 -12 -500 0 -2 494 - 2 005 - 1 929 1 2 005 1 1 929 1 2 005 1 1 929 - - - - - - - - - - - -26 - -26 - - - - - - - - - 536 - - 299 541 299 541 - -2 259 -2 232 -2 259 -2 232 -2 259 -2 232 -303 233 - -254 - -303 -147 -101 -348 109 -147 -101 -348 109 170 207 -3 803 -3 033 -3 655 -2 855 -3 655 -2 855 Recognised at fair value through profit/loss* 2018 2019 Hedging instruments recognised at fair value through other comprehensive income 2018 2019 Group Financial instruments included in net financial debt Non-current financial receivables 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 Bond loans Derivatives Other non-current liabilities Current liabilities Commercial paper programme Bank account liabilities Derivatives Accrued interest Bond loans 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) Total financial instruments - - - - 14 - 14 - - - - - - - - - -13 - - - -13 1 - 8 - -32 -23 -22 - - - - 17 - 17 - - - - - - - - - -7 - - - -7 1 - 5 - -45 -39 -29 14 - 14 - - - - - - - - -12 - -12 - - -8 - - - -8 - - 291 - -115 176 *Refers to instruments compulsorily valued at fair value in accordance with IFRS 9. Holmen Annual Report 2019 69 Notes Note 14 Note 14. Financial instruments, cont. Parent company Financial instruments included in net financial debt Non-current financial receivables Derivatives Receivables from Group companies Other financial receivables Current financial receivables Accrued interest Derivatives Other financial receivables Cash and cash equivalents Bank balances Non-current liabilities Bond loans Liabilities to Group companies Derivatives Current liabilities Commercial paper programme Bank account liabilities Derivatives Accrued interest Bond loans 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) Total financial instruments Recognised at fair value through profit/loss* 2019 2018 Hedging instruments recognised at fair value through other comprehensive income 2018 2019 Recognised at amortised cost 2019 2018 Total book value 2019 Fair value 2018 2019 2018 - 1 948 435 2 384 0 - 0 0 403 403 -2 000 -468 - -2 468 -2 450 0 - -14 - -8 0 -2 472 - 6 954 465 7 419 0 - 18 18 230 230 -1 000 -6 791 - -7 331 -1 951 -24 - -12 -500 - 0 -2 487 14 1 948 435 2 397 0 14 0 14 403 403 -2 000 -468 -12 -2 480 -2 450 0 -21 -14 - -8 0 -2 493 - 6 954 465 7 419 0 17 18 35 230 230 -1 000 -6 791 -26 -7 817 -1 951 -24 -7 -12 -500 - 0 -2 494 14 1 948 435 2 397 0 14 0 14 403 403 -2 000 -468 -12 -2 480 -2 450 0 -21 -14 - -8 0 -2 493 - 6 954 465 7 419 0 17 18 35 230 230 -1 000 -6 791 -26 -7 817 -1 951 -24 -7 -12 -500 - 0 -2 494 - 1 749 - 1 594 0 1 749 0 1 594 0 1 749 0 1 594 14 - - 14 - - - - - - - - -12 -12 - - -8 - - - - -8 - - - - - - - - - - - - - - -26 -26 - - - - - - - - - - 293 536 - - 301 541 301 541 - -118 175 - -2 150 -2 033 -2 150 -2 033 -2 150 -2 033 -304 232 - -400 - -439 -150 -249 -350 -248 -150 -249 -350 -248 169 206 -2 553 -2 590 -2 407 -2 875 -2 407 -2 875 - - - - - 14 - 14 - - - - - - - - -13 - - - - -13 0 - 8 - -32 -24 -23 - - - - - 17 - 17 - - - - - - - - -7 - - - - -7 0 - 5 - -45 -40 -30 *Refers to instruments compulsorily valued at fair value in accordance with IFRS 9. 70 Holmen Annual Report 2019 Notes Notes 15–17 Note 15. Inventories Note 17. Equity, parent company Raw materials and consumables Logs and pulpwood Finished products and work in progress Felling rights Electricity certificates and emission allowances Total Group Parent company 2019 890 306 1 617 600 47 3 460 2018 873 282 1 804 613 56 3 628 2019 675 287 1 266 592 47 2 867 2018 660 239 1 369 603 55 2 926 During the year impairment losses on finished stock had an effect of SEK -36 (-6) million on Group profit, while impairment losses on other stock had an effect of SEK -13 million (-2). Impairment losses on inventories had an impact of SEK -35 million (-2) on the parent company. Note 16. Operating receivables Trade receivables Group companies Associates Other Total trade receivables Current receivables Group companies Associates Other Financial derivatives Prepayments and accrued income Total other operating receivables Group Parent company 2019 2018 2019 2018 - 44 1 961 2 005 - 61 1 868 1 929 102 44 1 604 1 749 37 61 1 495 1 594 - - 267 299 232 799 - - 214 541 205 959 - - 221 301 92 614 - - 184 541 104 830 Total operating receivables 2 804 2 889 2 364 2 424 Trade receivables are recognised at the amount expected to be received, based on an individual assessment of each customer. The Group’s trade receivables mainly consist of receivables from European customers. Trade receivables denominated in foreign currencies were valued at the balance sheet date. Contract assets attributable to goods delivered but not yet invoiced that are not included in the item ‘Trade receivables’ amounted to SEK 23 million (26). The provision for expected credit losses was SEK 32 million (34) at 31 December 2019. During the year, the provision was changed by SEK -3 million (-1) as a result of actual credit losses, and by SEK 1 million (-6) as a result of changes in the provision for anticipated or expected credit losses. At 31 December 2019, SEK 13 million (27) of trade receivables were past due for more than 30 days. The credit quality of trade receivables that are neither past due nor impaired is deemed to be good and on a par with previous years. The fair values of derivatives relate to hedges of future cash flows. Registered share capital Class A Class B Total no. of shares Holding of own class B shares repurchased Total number of shares outstanding Registered share capital Class A Class B Total no. of shares Holding of own class B shares repurchased Total number of shares outstanding 31 Dec 2019 Number Quotient value 25 25 45 246 468 124 265 856 169 512 324 SEKm 1 131 3 107 4 238 -7 586 639 161 925 685 31 Dec 2018 Number Quotient value 25 25 45 246 468 124 265 856 169 512 324 SEKm 1 131 3 107 4 238 -1 520 000 167 992 324 The company’s share capital consists of shares issued in two classes: class A, each of which carries 10 votes, and class B, each of which carries one vote. In other respects, there are no restrictions between classes of shares. At 31 December 2019 the Group’s own shareholding was 7 586 639 (1 520 000). During the year 168 797 shares were transferred to participants of the share savings programme. In 2019 6 235 436 class B shares were repurchased for SEK 1 430 million, corresponding to an average price of SEK 229/share. The buy-backs correspond to 3.7 per cent of the total number of shares. Together with shares already owned, this means that Holmen held 4.5 per cent of the total number of shares at 31 December 2019. Assets and liabilities measured at fair value according to Chapter 4 Section 14a of the Swedish Annual Accounts Act had an impact of SEK 146 million (176) on parent company equity. In the consolidated accounts, valuation of derivatives and other financial instruments had an impact of SEK 148 million (178) on equity. Decisions on dividends are based on an appraisal of the Group’s profitability, future investment plans and financial position. The objective is to maintain a strong financial position and for the Group’s net financial debt as a percentage of equity not to exceed 25 per cent. The AGM has at its disposal the company’s earnings amounting to SEK 4 741 167 346. The Board proposes that the AGM on 30 March 2020 approve a dividend of SEK 7 per share. The proposed dividend totals SEK 1 133 million. The Board also proposes that the remaining amount of SEK 3 607 687 551 be carried forward. In the preceding year, the dividend paid was SEK 6.75 per share (SEK 1 134 million). Net financial debt as a percentage of equity was 9 per cent (12). Neither the parent company nor any of the subsidiaries are subject to external capital requirements. For further details about the Group’s capital management and risk management, see pages 40–43. Holmen Annual Report 2019 71 Notes Note 18 Note 18. Pension provisions Holmen provides defined benefit pension plans for some office-based employees in Sweden. Most of these commitments 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 accordance with statement UFR 10 of the Swedish Financial Reporting Board as a defined contribution plan. Some defined benefit obligations over and above the ITP plan are available for Group management and secured by means of a pension fund. Occupational pensions for other office-based employees and all collective agree- ment workers in Sweden are defined contribution plans. There are two defined benefit plans in the UK that have been closed to new pension accruals since 2015. These obligations are recognised in the consolidated accounts as defined benefit plans in accordance with IAS 19. Cost recognised in profit/loss for the year Defined benefit plans Personnel costs* Finance costs Total defined benefit plans stated in profit/loss for the year Defined contribution plans Personnel costs Total recognised in profit/loss for the year Group Parent company 2019 2018 2019 2018 -7 0 -7 -7 0 -7 10 0 10 -129 -117 -101 -18 0 -18 -93 -136 -123 -92 -111 *SEK 17 million (-8) is included in the parent company relating to an item that is recognised in the Group as an actuarial revaluation in other comprehensive income. Cost recognised in other comprehensive income Return on plan assets excl. recognised interest income Actuarial gains and losses from changes in demographic assumptions Actuarial gains and losses from changes in financial assumptions Actuarial gains and losses from experiential adjustments Payroll tax Effect of asset ceiling Total recognised in other comprehensive income Group 2019 240 45 -205 6 2 -73 14 2018 -135 14 56 53 -5 -34 -52 The change in the defined benefit obligations and the change in plan assets are specified in the tables below. Some 90 per cent of the obligations relate to the pension plans in the UK. The obligations arising out of the pension schemes in the UK are placed in two trusts. These are governed by boards consisting of representatives from Holmen and the beneficiaries. Holmen’s UK subsidiaries have commitments to cover any deficits that exist. This should be done over a period of time established between the respective trust and the company in consultation with its actuary. The assets in one trust exceed the commitment by SEK 130 million. This surplus has not been recognised as there are no offset rights. This adjustment is referred to as an asset ceiling in tables. The other trust has a deficit of SEK 19 million which will be covered over the next three years. Obligations Obligations at 1 January Current service cost Payroll tax Interest expense Actuarial gains/losses Benefits paid Exchange differences Obligations at 31 December Group Parent company 2019 -2 063 -7 -2 -57 -154 121 -145 -2 305 2018 2019 2018 -2 198 -7 -2 -55 122 127 -52 -2 063 -176 10 - -20 - 10 - -176 -173 -18 - 5 - 11 - -176 The weighted average duration is 17 years. Of the Group’s total obligations, SEK 7 million (9) refers to those that are not funded, while the rest are wholly or partially funded obligations. Of the parent company’s obligations, SEK 0 million (20) are secured under the Swedish Pension Obligations Vesting Act. 72 Holmen Annual Report 2019 Group Parent company Plan assets Fair value of assets at 1 January Interest income Expected return excl. recognised interest income Real return (parent company) Administrative expenses Contribution by employer Benefits paid Exchange differences Fair value of assets at 31 December Effect of asset ceiling Pension provisions, net 2019 2 053 57 240 - -2 4 -111 148 2 388 -130 -46 2018 2 177 55 -135 - -2 24 -115 51 2 053 -52 -61 2019 2018 156 - - 20 - - - - 176 - 0 160 - - -5 - - - - 156 - -20 Plan assets by type are as shown below: Plan assets Equities Bonds Current fixed income investments Group Parent company 2019 1 201 1 160 27 2 388 2018 1 007 1 040 6 2 053 2019 2018 82 92 0 174 70 83 2 156 The plan assets do not include any financial instruments issued by Group com- panies or assets used by the Group. Of equities, 41 per cent relate to the UK, 54 per cent to the rest of Europe and the US and 5 per cent to the rest of the world. Of bonds, 43 per cent relate to government bonds and 57 per cent to corporate bonds. Key actuarial assumptions, Group (weighted average), % Discount rate Rate of salary increase Rate of price inflation Group 31 Dec 2019 31 Dec 2018 1.9 3.0 3.0 2.7 3.0 3.2 The discount rate for pension obligations have been established based on high- quality corporate bonds in the relevant currency and country of the commitment, i.e. mainly the UK. A discount rate of 0.7 per cent (0.6) and salary levels at the balance sheet date were used for calculating the amount of the parent company’s pension obligation. The table below shows how the obligation would be affected in the event of a change in key actuarial assumptions (- reduces debt, + increases debt). Sensitivity analysis Discount rate (+ 0.5%) Rate of salary increase (+ 0.5%) Rate of price inflation (+ 0.5%) Mortality (+ 1 year in life expectancy) Group 31 Dec 2019 31 Dec 2018 -167 2 128 117 -144 2 111 92 The Group’s payments into the funded defined benefit plans in 2020 are expected to amount to SEK 5 million. Multi-employer plans The year’s premiums for pension insurance policies taken out with Alecta’s ITP 2 plan amounted to SEK 30 million (31) and are included among personnel costs in the income statement. Holmen’s active members in the plan amounted to 635 people, which corresponds to 0.14 per cent of the plan’s active members. Premiums to Alecta are expected to amount to SEK 29 million in 2020. Alecta’s surplus can be allocated to policyholders and/or the persons insured. If Alecta’s collective consolidation falls below 125 per cent or exceeds 150 per cent, mea- sures will be taken to create the conditions to ensure the level of consolidation returns to the normal range. In the event of low consolidation, one measure may be to raise the agreed price for new policy subscriptions and an increase in existing benefits. In the event of high consolidation, one measure may be to introduce reductions in premiums. At the end of 2019, Alecta’s collective consolidation level was 148 per cent (142). Notes Notes 19–20 Note 19. Other provisions Group Book value at start of year Provisions during the year Utilised during the year Unutilised amount reversed during the year Translation differences Book value at end of year Of which non-current portion of the provisions Of which current portion of the provisions Parent company Book value at start of year Provisions during the year Utilised during the year Unutilised amount reversed during the year Book value at end of year Of which non-current portion of the provisions Of which current portion of the provisions Provisions for taxes Other provisions Total 2019 2018 90 30 - - - 120 120 - 45 - - - 45 45 - 185 - - -95 - 90 90 - 45 - - - 45 45 - 2019 590 221 -124 -14 1 675 517 158 708 328 -230 -12 794 571 223 2018 622 76 -110 - 3 590 393 197 725 180 -197 - 708 451 256 2019 680 251 -124 -14 1 795 637 158 753 328 -230 -12 839 616 223 2018 807 76 -110 -95 3 680 483 197 770 180 -197 - 753 496 256 Other provisions mainly relate to uncertainties associated with obligations for environmental restoration, fixed price electricity supply contracts and restruc- turing costs. SEK 380 million of these provisions are expected to be settled within three years, while the remainder is expected to be settled over a longer time  horizon. Note 20. Operating liabilities Trade payables Group companies Associated companies Other Total trade payables Current liabilities Group companies Associated companies Other Derivatives Accruals and deferred income Total other operating liabilities Total operating liabilities Group Parent company 2019 2018 2019 2018 - - 2 259 2 259 - 4 217 147 663 1 030 3 289 - - 2 232 2 232 - 8 171 348 581 1 108 3 340 34 - 2 116 2 150 36 - 1 996 2 033 0 3 185 150 530 868 0 7 159 350 472 989 3 018 3 022 All trade payables are due for payment within one year. Accruals and deferred income in the parent company principally consist of personnel costs of SEK 199 million (210), discounts of SEK 74 million (54) and goods and services delivered but not yet invoiced of SEK 61 million (78). The fair values of derivatives relate to hedges of future cash flows. See Note 14. Holmen Annual Report 2019 73 NotesNotes 21–22 Note 21. Collateral and contingent liabilities Group Financial liabilities Total Parent company Financial liabilities Total Property mortgages Other collateral Total collateral 2019 Total collateral 2018 - - - - - - - - - - - - 6 6 6 6 Contingent liabilities Surety on behalf of Group companies Other contingent liabilities Total Group Parent company 2019 2018 2019 2018 - 96 96 - 98 98 60 83 143 38 83 122 Other contingent liabilities for the Group largely comprise ongoing legal processes and guarantee undertakings for third parties. Holmen has environmentally related contingent liabilities that cannot currently be quantified but that could result in future costs. Note 22. Related parties Of the parent company’s net sales of SEK 15 004 million (14 384), SEK 109 million (151) relates to deliveries of goods to Group companies. The parent company’s purchases of goods from Group companies amounted to SEK 145 million (242). Parent company net sales also include income from the sale of silviculture services to subsidiaries for an amount of SEK 386 million (389). SEK -2 299 million (-1 378) of expenses for leasing of non-current assets from subsidiaries are recognised in the parent company. There are significant financial receivables and liabilities between the parent com- pany and its Swedish subsidiaries. The parent company has a related party relationship with its subsidiaries (see Note 23). L E Lundbergföretagen AB is a major shareholder in Holmen (see pages 44–45). Holmen rents office premises for SEK 6 million (6) from Fastighets AB L E Lundberg, which is a group company within L E Lundbergföretagen AB. In 2019, Fredrik Lundberg, who is CEO and principal shareholder in L E Lundbergföretagen, received a fee of SEK 710 000 (710 000) as Board chairman of Holmen. Louise Lindh, who is the CEO of Fastighets AB L E Lundberg and who is also a party related to Fredrik Lundberg, received a Board fee of SEK 355 000 (355 000). Transactions with related parties are priced on market terms. 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 external customers at market price, and the earnings are stated in the consolidated accounts within the Renewable Energy business area. The partly owned wind power company Varsvik AB has loans amounting to SEK 425 million (452), which Holmen acquired from creditor bank for the nominal value in 2018. Transactions with related parties Group Associates Joint venture Parent company Subsidiaries Associates Joint venture Sale of goods to related parties 2019 2018 Purchase of goods from related parties Other (e.g. interest, dividend) 2019 2018 2019 2018 Liability to related parties 2019 368 3 109 368 3 395 3 151 395 3 42 - 145 42 - 71 - 242 71 - 0 13 160 0 12 0 17 374 0 16 6 - 514 3 - Receivable due from related parties 2019 54 425 2 053 54 425 2018 85 454 6 993 85 454 2018 37 - 6 830 34 - See Note 4 for fees and remuneration paid to members of the Board. 74 Holmen Annual Report 2019 NotesNote 23 Note 23. Investments in Group companies Accumulated acquisition costs Value at start of year Purchasing Shareholder’s contribution Sales Total Accumulated impairment losses Value at start of year Impairment losses for the year Total Book value at end of year Parent company 2018 2019 17 142 - 210 -17 17 335 17 142 1 - -1 17 142 6 655 -7 6 648 6 655 - 6 655 10 687 10 487 The parent company’s impairment losses on investments in Group companies are stated in the income statement in the line item for ‘Profit/loss from invest- ments in Group companies’. Subsidiaries Stavro Vind AB and Laforsen AB were sold during the year. Corporate ID No. Registered office Number of holdings Holding %* Book value in the parent company Holding %* Book value in the parent company 2019 2018 Parent company’s direct holdings of investments in subsidiaries Holmen Skog AB Iggesund Paperboard AB Holmen Paper AB Holmen Timber AB Holmen Energi AB Holmens Bruk AB Holmen Skog Mitt AB Holmen Skog Syd AB Holmen Sågverk AB Holmen Vattenkraft AB Iggesunds Bruk AB Ljusnan Vattenkraft AB Holmen Holding AB MoDo Capital AB Holmen Energi Elnät AB Stavro Vind AB Blåbergsliden Vind AB Other Swedish Group companies Total Swedish holdings 556220-0658 556088-5294 556005-6383 556099-0672 556524-8456 559165-6615 559165-6623 559165-6631 559165-6672 559165-6664 559165-6656 559165-6680 516406-0062 556499-1668 556878-3905 556953-6153 559138-5181 Holmen UK Ltd, UK Holmen Paper Ltd** Iggesund Paperboard (Workington) Ltd** Holmen France S.A.S., France Holmen GmbH, Germany Holmen Suecia Holding S.L., Spain Holmen Paper Madrid S.L.** Iggesund Paperboard Asia Pte Ltd, Singapore Holmen B.V., Netherlands AS Holmen Mets, Estonia Iggesund Paperboard Inc, USA Iggesund Paperboard Asia (HK) Ltd, China Other non-Swedish Group companies Total non-Swedish holdings Total Örnsköldsvik Hudiksvall Norrköping Hudiksvall Örnsköldsvik Stockholm Stockholm Stockholm Stockholm Stockholm Stockholm Stockholm Stockholm Stockholm Örnsköldsvik Stockholm Stockholm Workington London Workington Paris Hamburg Madrid Madrid Singapore Amsterdam Tallinn Lyndhurst Hong Kong 1 000 1 000 100 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 10 000 1 000 500 500 500 1 197 100 - - 10 000 - 9 448 557 - 800 000 35 500 1 000 4 000 000 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 *The percentage of ownership corresponds to the percentage of votes for the total number of shares. **Indirect holdings. 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 0 0 0 0 0 383 2 856 1 527 422 2 633 740 276 0 72 0 - 200 2 9 142 1 519 - - 0 1 0 - 4 7 0 7 5 2 1 545 0 0 0 0 0 383 2 856 1 527 422 2 663 740 276 0 72 0 0 0 2 8 943 1 519 - - 0 1 0 - 4 7 0 7 5 2 1 545 10 687 10 487 Holmen Annual Report 2019 75 NotesNotes 24–26 Note 24. Untaxed reserves Note 26. Critical accounting estimates and judgements When preparing financial statements the company’s management is required to make estimates and judgements that have an effect on the stated amounts. The estimates and judgements that, in the view of the company’s management, are of importance for the amounts stated in the annual accounts, and that are at significant risk of being altered by future events and new information, mainly include the following. Forest assets Because of a number of recent transactions involving large forest holdings, Holmen has revised the method and assumptions used for valuing forest assets on the Group’s balance sheet. There are a large number of transactions involving forest properties in those areas where Holmen owns land and the prices paid for small and medium-sized forest properties are in line with the prices of larger forest assets. In order to reflect the fair value of the Group’s forest assets, from 31 December 2019 Holmen has chosen to switch to recognising the Group’s forest assets at fair value calculated based on transactions in those areas where Holmen owns forest land. To enable this, the accounting policy for forest land in the Group has been changed from cost to fair value based on the ‘revaluation model’ in IAS 16. The book value of the Group’s forest assets at 31 Dec 2019 was SEK 41 345 million (18 701), divided between SEK 13 366 million (301) for forest land and SEK 27 979 million (18 400) for biological assets. A deferred tax liability of SEK 8 442 million (3 781) has been recognised relating to the forest assets. The valuation of the forest assets is based on detailed data about transactions and pricing statistics published by different market operators. The valuation takes account of where in the country the forest land is located and differences in the forest in terms of the volume of standing timber and site quality. The book value of the forest assets will be affected by changes in transaction prices for forest properties and by how the volume of standing timber develops. The value of the forest assets is allocated in the balance sheet to growing trees, which are recog- nised as a biological asset, and forest land. How much of the value is allocated to biological assets is established by calculating the present value of expected future cash flows from growing trees based on estimates of future harvest volumes, price and cost development and discount rate. See Accounting Policies, Notes 7 and 9 for further information. Pension obligations The Group has benefit-based pension obligations measured at SEK 2 305  million and SEK 2 388 million in plan assets set aside to cover such obligations. The value of pension obligations is estimated on the basis of assumptions regarding discount rates, inflation and demographic factors. These commitments are usually updated annually, which affects the Group’s comprehensive income and the recognised pension provision. See Note 18. Other provisions Obligations that may result in costs for Holmen are evaluated on an ongoing basis to assess the need for a provision. Uncertainty in the assessment mainly relates to the date and size of the future cost. The Group mainly has provisions for uncertainty related to obligations for environmental restoration, fixed price electricity supply contracts and corporation tax risks. See Note 19. Accumulated depreciation and amortisation in excess of plan Non-current intangible assets Property, plant and equipment Tax allocation reserves 2015 fiscal year 2016 fiscal year 2017 fiscal year 2019 fiscal year Total Parent company 31 Dec 2018 Appropriations 31 Dec 2019 -23 11 -12 264 290 470 - 1 024 1 012 7 1 7 -73 - - 700 627 634 -16 11 -5 191 290 470 700 1 651 1 646 Group contributions received amounted to SEK 2 572 million (191) and Group contributions paid amounted to SEK -2 million (-2 584). Total appropriations of profit amounted to SEK 1 936 million. Note 25. Cash flow statement Interest paid and dividends received Dividends received Interest received Interest paid Total Group Parent company 2019 2018 2019 2018 - 13 -31 -18 - 12 -28 -16 148 21 -31 139 367 23 -29 362 The change in current liabilities mostly relates to borrowing within the Group’s commercial paper programme. In 2019, a number of different short-term loans totalling SEK 8 250 million (6 585) were raised within the Group’s commercial paper programme, and SEK 7 751 million (6 733) was repaid. See Note 14 for a breakdown of cash and cash equivalents. Group New leases Cash flow Currency and market revaluation 2019 2018 1 500 1 951 75 - - - - 61 281* - 500 499 -41 -100 -27 - 2 000 - 2 450 52 18 4 12 184 46 3 587 281 831 34 4 733 Bond loans Commercial paper Other financial liabilities Liabilities relating to right-of-use assets Pension liability Financial liabilities including pension liability and liabilities relating to right-of-use assets *SEK 205 million is attributable to the introduction of the new IFRS 16 Leases accounting policy. The remainder relates to liabilities linked to leases entered into during the year. Parent company 2018 Cash flow Currency and market revaluation 1 500 1 951 Bond loans Commercial paper Liabilities to Group companies Other financial liabilities Pension liability Financial liabilities including pension liability 10 330 6 791 68 20 500 499 -6 315 -39 -11 -5 367 76 Holmen Annual Report 2019 2019 2 000 2 450 476 47 0 - - - 18 -9 9 4 973 Notes Proposed appropriation of profits The following earnings of the parent company are at the disposal of the AGM: Net profit for the 2019 financial year Retained earnings The Board of Directors proposes that a dividend of SEK 7 per share (161 925 685 shares) be paid to the shareholders and that the remaining amount be carried forward Appropriation of profits SEK 1 846 968 192 2 894 199 154 4 741 167 346 1 133 479 795 3 607 687 551 The Board of Holmen AB has proposed that the 2020 AGM resolve in favour of paying a dividend of SEK 7 per share, SEK 0.25 per share higher than the preceding year, totalling SEK 1 133 million. The proposal complies with the Board’s policy, in that decisions on dividends are to be based on an appraisal of the Group’s profitability, future investment plans and financial position. The proposed dividend corresponds to 13 per cent of net profit for 2019 for the Group and means that 2.8 per cent of equity in the Group at 31 December 2019 will be paid out by way of dividend. The Board has established that the Group should have a strong financial position, with net financial debt not exceeding 25 per cent of equity. At 31 December 2019 it amounted to 9 per cent. The proposed dividend would increase net debt to equity by 3 percentage points. Holmen AB’s equity at 31 December 2019 amounted to SEK 10 656 million, of which non-restricted equity was SEK 4 741 million. Assets and liabilities measured at fair value according to Chapter 4 Section 14a of the Swedish Annual Accounts Act had an impact of SEK 146 million on equity. The Group’s equity at 31 December 2019 amounted to SEK 40 111 million. In accordance 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 justi fiable in view of the demands made on the company and the Group by the nature, 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 accounts were prepared in accordance with generally accepted accounting principles in Sweden and the Group’s consoli- dated accounts 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 consolidated accounts provide a true and fair view of the performance and financial position of the parent company and the Group. The administration report for the parent company and the Group provides a true and fair view of the development of the opera tions, financial position and performance of the Group and the parent company and also describes material risks and uncertainties to which the parent company and the other companies in the Group are exposed. The annual accounts and the consolidated accounts were approved for publica- tion by the Board in its decision of 19 February 2020. The Group’s consolidated income statement and balance sheet and the parent company’s income state- ment and balance sheet will be presented for adoption at the AGM to be held on 30 March 2020. Stockholm, 19 February 2020 Fredrik Lundberg Chairman Lars G Josefsson Board member Ulf Lundahl Board member Carl Bennet Board member Lars Josefsson Board member Henriette Zeuchner Board member Steewe Björklundh Board member Kenneth Johansson Board member Alice Kempe Board member Louise Lindh Board member Tommy Åsenbrygg Board member Henrik Sjölund Board member and Chief Executive Officer Our audit report was submitted on 21 February 2020. KPMG AB Joakim Thilstedt Authorised Public Accountant Proposed appropriation of profits Holmen Annual Report 2019 77 Auditor’s Report To the general meeting of the shareholders of Holmen AB, corp. id 556001-3301 Report on the annual accounts and consolidated accounts Opinions We have audited the annual accounts and consolidated accounts of Holmen AB for the year 2019, except for the pages 10-11, 31 and 33 in the sustainability report. The annual accounts and consolidated accounts of the company are included on pages 2, 4-5, 10-11, 30-31, 33, 34-77 and 82-83 in this document. In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act, and present fairly, in all material respects, the financial position of the parent company as of 31 December 2019 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been pre- pared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2019 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the pages 10-11, 31 and 33 in the sustainability report. A corporate governance statement has been prepared. The statutory administration report and the corporate governance statement are consistent with the other parts of the annual accounts and consolidated accounts, and the corporate governance statement is in accordance with the Annual Accounts Act. We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the group. Our opinions in this report on the the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the parent company’s audit committee in accordance with the Audit Regulation (537/2014) Article 11. Basis for Opinions We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent com- pany and the group in accordance with professional ethics for accoun- tants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audi- ted company or, where applicable, its parent company or its controlled companies within the EU. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Key Audit Matters Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion the- reon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters. Valuation of Forest Assets See disclosure 9 and 26 as well as the accounting principles on pages 52-56 in the annual account and consolidated accounts for detailed information and description of the matter. Description of key audit matter Forest assets comprise of forest land and biological assets and have a total carrying value on the group’s balance sheet of SEK 41 345 million as of 31 December 2019. This is made up of SEK 13 366 million forest land and SEK 27 979 million biological assets. The group has voluntary changed the accounting principle as of 31 December 2019 for forest land to fair value based on the revaluation method instead of the previously applied acquisition value method. The reason for the change in accounting principle is to better represent the value of the group’s forest assets on the balance sheet through valua- tion at fair value of both forest land and biological assets. Determination of the fair value of forest assets is based on transaction prices for forest properties in those areas where the group owns forest land, considering the location of the forest land and differences in the nature of the forest in terms of the volume of standing timber and site quality. The fair value calculation of forest assets is both complex and com- prises judgements. There is a risk that the market transactions that form the basis of the valuation do not accurately mirror the value of the group’s forest assets, which could significantly affect the carrying value. The total value of forest assets is subsequently allocated between growing trees, which is recognised as a biological asset, and forest land. The value which is allocated to biological assets is determined by discounting estimating future cash flows from the growing trees to pre- sent value. The valuation is performed internally and is calculated using a combination of harvesting plans, future sales prices, cost projections, inflation and discount rates. These assumptions can change over time, which would directly affect the carrying value for the financial period. Response in the audit The group’s decision to change accounting principle for valuation of forest land has been evaluated against both the criteria stipulated by IFRS for carring out any voluntary change of accounting principle and to the applicable regulations regarding accounting for the effects of the change from the acquisition value method to the revaluation method. We have obtained and assessed the group’s model for determining fair value of forest assets. We have also made an independent calculation of the value of forest assets based on the same model and underlying base data. The frequency and number of transactions in the areas where the group owns forest land has been assessed. During our audit we have also performed detailed sample testing of underlying transactions which form the basis of the group’s valuation, regarding price, volume of standing timber and site quality. In connection with this we have also evaluated the market operators from which the group uses data on completed transactions. We have moreover inspected the external reference valuation which was carried out on a portion of the group’s forest assets. Regarding the portion of the total fair value which is allocated to biological assets, we have examined the valuation and underlying do- cumentation in order to assess whether the valuation is carried out in accordance with an established valuation methodology. Furthermore, we have had discussions with group management and, through evaluation of management’s written plans and documentation, we have assessed the reasonableness of assumptions regarding volu- mes, prices, costs and the discount rate used in the valuation model. We have also performed sensitivity analysis to assess how changes in the assumptions can affect the overall valuation. We have also considered the completeness of the disclosures in the Annual Report and assessed whether they show a true and fair view of the new accounting principle which has been applied and are in line with the assumptions that group management have applied in their valuation. 78 Holmen Annual Report 2019 Auditor’s Report Other provisions See disclosure 19 and 26 as well as the accounting principles on pages 52-56 in the annual account and consolidated accounts for detailed information and description of the matter. Description of key audit matter The carrying value of the other provisions as of 31 December 2019 amounts to SEK 795 million in the group and SEK 839 million in the parent company. The other provisions include among other obligations for environmental restoration, contractual commitments regarding delivery of electricity at a fixed price, restructuring costs and tax risks. In the parent company there are also provisions for replanting after harvest. Provisions involve significant levels of judgement regarding uncertain future outcomes, in particular relating to the amount and timing of the final assessments. Changes to the underlying assumptions used to make these provisions could significantly affect the reported result. Response in the audit We have inspected the group’s documentation of its provisions. We have assessed management’s estimates and have had discussions with management regarding their assumptions in each area to ensure that the provisions are in line with the group’s accounting principles and with IFRS requirements. We have also considered the completeness of the disclosures in the Annual Report and assessed whether they are, in all material respects, in agreement with IFRS requirements. Other Information than the annual accounts and consolidated accounts This document also contains other information than the annual accounts and consolidated accounts and is found on pages 3, 6-9, 12-29, 32 and 84-91. The Board of Directors and the Chief Executive Officer are responsible for this other information. Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information. In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated. If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors and the Chief Executive Officer The Board of Directors and the Chief Executive Officer are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Chief Executive Officer are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. In preparing the annual accounts and consolidated accounts The Board of Directors and the Chief Executive Officer are responsible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Chief Executive Officer intend to liquidate the company, to cease operations, or has no realistic alternative but to do so. The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting process. Auditor’s responsibility Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of the company’s internal control relevant to our audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the Chief Executive Officer. • Conclude on the appropriateness of the Board of Directors’ and the Chief Executive Officer’s, use of the going concern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evidence obtained, as to whether any material uncertainty exists related to events or conditions that may cast significant doubt on the company’s and the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company and a group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolidated accounts represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions. We must inform the Board of Directors of, among other matters, the planned scope and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we identified. We must also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the annual accounts and consolidated accounts, including the most important Auditor’s Report Holmen Annual Report 2019 79 assessed risks for material misstatement, and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes disclosure about the matter. Report on other legal and regulatory requirements Opinions In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Chief Executive Officer of Holmen AB for the year 2019 and the proposed appropriations of the company’s profit or loss. We recommend to the general meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administra- tion report and that the members of the Board of Directors and the Chief Executive Officer be discharged from liability for the financial year. Basis for Opinions We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Responsibilities of the Board of Directors and the Chief Executive Officer The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolidation requirements, liquidity and position in general. The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the group’s financial situation and ensuring that the company’s organization is designed so that the accounting, management of assets and the company’s financial affairs otherwise are controlled in a reassuring manner. The Chief Executive Officer shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulfill the company’s accounting in accordance with law and handle the management of assets in a reassuring manner. Auditor’s responsibility Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to as- sess with a reasonable degree of assurance whether any member of the Board of Directors or the Chief Executive Officer in any material respect: • has undertaken any action or been guilty of any omission which can give rise to liability to the company, or • in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. Our objective concerning the audit of the proposed appropriations of the company’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Act. As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment and maintain professional scepticism throughout the audit. The examination of the administration and the proposed appropriations of the company’s profit or loss is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the operations and where deviations and violations would have particular importance for the company’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed appropriations of the company’s profit or loss we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. The auditor’s opinion regarding the statutory sustainability report The Board of Directors is responsible for the sustainability report on pages 10-11, 30-31, 33, 36-38 and 41, and that it is prepared in accordance with the Annual Accounts Act. Our examination has been conducted in accordance with FAR:s auditing standard RevR 12 The auditor’s opinion regarding the statutory sustainability report. This means that our examination of the statutory sustainability report is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinion. A statutory sustainability report has been prepared. KPMG AB, Box 382, 101 27, Stockholm, was appointed auditor of Holmen AB by the general meeting of the shareholders on the 1 April 2019. KPMG AB or auditors operating at KPMG AB have been the company’s auditor since 1995. Stockholm, 21 February 2020 KPMG AB Joakim Thilstedt Authorized Public Accountant 80 Holmen Annual Report 2019 Auditor’s Report Review of Sustainability Report Holmen’s Sustainability Report, as defined on page 2 of Holmen’s Annual Report 2019, has been subject to a limited review in accordance with ISAE 3000 Assurance engagements other than audits or reviews of histo- rical financial information. A complete assurance report on the Sustainability Report is available at holmen.com. The assurance report contains the following conclusion: Based on the limited assurance procedures we have performed, nothing has come to our attention that causes us to believe that the Sustainability Report is not prepared, in all material respects, in accordance with the criteria defined by Group management. Stockholm 21 February 2020 KPMG AB Joakim Thilstedt Authorised Public Accountant Torbjörn Westman Expert member of FAR Review of Sustainability Report Holmen Annual Report 2019 81 Board of Directors Louise Lindh Stockholm. Born in 1979. Member since 2010. M.Sc. in Economics. CEO of Fastighets AB L E Lundberg. Other significant appointments: Chairman of J2L Holding AB. Board member of Hufvudstaden AB and L E Lundbergföretagen AB. Shareholding: 200 000 shares. Henrik Sjölund President and CEO Norrköping. Born in 1966. Member since 2014. M.Sc. in International Economics. Other significant appointments: Board member of the Swedish Forest Industries Federation, the Confederation of Swedish Enterprise and the Swedish Association of Industrial Employers. Shareholding: 52 155 shares. Henriette Zeuchner Stockholm. Born in 1972. Member since 2015. M.Sc. in Economics and Bachelor of Laws. CEO of Clear Channel Scandinavia. Other significant appointments: Board member of the NTM Group. Shareholding: 1 600 shares. Christer Johansson Iggesund. Born in 1959. Deputy member since 2017. Employee representative, LO. Chairman of the Swedish Paper Workers Union branch 15. Daniel Hägglund Örnsköldsvik. Born in 1982. Deputy member since 2014. Employee representative, PTK. Fredrik Lundberg Chairman Djursholm. Born in 1951. Member since 1988. M.Sc. in Engineering and M.Sc. in Economics. Tech. h.c. and D. Econ. h.c. President and CEO of L E Lundbergföretagen AB. Other significant appointments: Chairman of Hufvudstaden AB and AB Industrivärden. Deputy Chairman of Svenska Handelsbanken AB. Board member of L E Lundbergföretagen AB and Skanska AB. Own and related parties’ shareholdings: 1 679 448 shares. Shareholding of L E Lundbergföretagen: 55 244 000 shares. Lars G Josefsson Stockholm. Born in 1950. Member since 2011. M.Sc. in Engineering. Former President and CEO of Vattenfall. Other significant appointments: Board member of Robert Bosch International Advisory Committee and Prorsum AG. Board member of Hand in Hand International and member of The Royal Swedish Academy of Engineering Sciences, IVA. Shareholding: 10 000 shares. 82 Holmen Annual Report 2019 Board of Directors Top row l–r: Louise Lindh, Henrik Sjölund, Fredrik Lundberg, Alice Kempe, Ulf Lundahl, Tommy Åsenbrygg, Per-Arne Berg Bottom row l–r: Lars G Josefsson, Henriette Zeuchner, Christer Johansson, Daniel Hägglund, Steewe Björklundh, Carl Bennet, Lars Josefsson, Kenneth Johansson Alice Kempe Torshälla. Born in 1967. Member since 2019. M.Sc. in Forestry. Other significant appointments: Chairwoman of the Kempe Foundations. Board member of MoRe Research Örnsköldsvik AB and SweTree Technologies AB. Own and related parties’ shareholdings: 216 292 shares. Ulf Lundahl Lidingö. Born in 1952. Member since 2004. Bachelor of Laws and M.Sc. in Economics. Other significant appointments: Chairman of Attendo AB, Fidelio Capital AB and SHB Regionbank Stockholm. Board member of Eltel AB, Indutrade AB and Nordstjernan Kredit AB. Shareholding: 8 000 shares. Tommy Åsenbrygg Skebobruk. Born in 1968. Member since 2015. Employee representative, PTK. Shareholding: 200 shares. Per-Arne Berg Forsa. Born in 1955. Deputy member since 2015. Employee representative, PTK. Chairman of the Holmen-Iggesund Trade Union Club. Steewe Björklundh Hudiksvall. Born in 1958. Member since 1998. Employee representative, LO. Carl Bennet Gothenburg. Born in 1951. Member since 2009. M.Sc. in Economics. D. Tech. h.c. VD Carl Bennet AB. Former President and CEO of Getinge AB. Chairman of Elanders AB and Lifco AB. Other significant appointments: Deputy Chairman of Arjo AB and Getinge AB. Board member of L E Lundbergföretagen AB. Shareholding: 200 000 shares. Lars Josefsson Norrköping. Born in 1953. Member since 2016. M.Sc. in Engineering. Other significant appointments: Chairman of TimeZynk. Deputy Chairman of Vestas. Board member of Metso and Ouman. Shareholding: 7 000 shares. Kenneth Johansson Söderköping. Born in 1958. Member since 2004. Employee representative, LO. Section Chairman of the Swedish Paper Workers Union branch 53, Holmen Paper Braviken. Information at 31 December 2019. Auditors: KPMG AB Principle Auditor: Joakim Thilstedt. Authorised Public Accountant. Board of Directors Holmen Annual Report 2019 83 Group management L–r: Anders Jernhall, Nils Ringborg, Stina Sandell, Henrik Andersson, Johan Padel, Gunilla Rolander, Lars Lundin, Sören Petersson, Johan Nellbeck, Henrik Sjölund, Ola Schultz-Eklund Anders Jernhall Executive Vice President, Chief Financial Officer Born in 1970. Joined Holmen in 1997. Shareholding: 27 527 shares. Nils Ringborg Senior Vice President International Affairs Born in 1958. Joined Holmen in 1988. Shareholding: 11 200 shares. Stina Sandell Senior Vice President Sustainability and Communications Born in 1966. Joined Holmen in 2017. Shareholding: 765 shares. Henrik Andersson Senior Vice President Legal Affairs Company Secretary. Born in 1971. Joined Holmen in 2008. Shareholding: 4 282 shares. Johan Padel Senior Vice President Wood Products Born in 1966. Joined Holmen in 2014. Shareholding: 3 200 shares. Gunilla Rolander Senior Vice President Human Resources Born in 1966. Joined Holmen in 2013. Shareholding: 4 054 shares. Henrik Sjölund President and CEO Born in 1966. Joined Holmen in 1993. Shareholding: 52 155 shares. Henrik Sjölund has no significant share- holdings or ownership in companies with which the Group has important business relations. Further information about the CEO is provided on page 82. Lars Lundin Senior Vice President Paper Born in 1966. Joined Holmen in 2018. Shareholding: 1 950 shares. Ola Schultz-Eklund Senior Vice President Technology Born in 1961. Joined Holmen in 1994. Shareholding: 2 740 shares. Sören Petersson Senior Vice President Forest Born in 1969. Joined Holmen in 1994. Shareholding: 16 200 shares. Johan Nellbeck Senior Vice President Paperboard Born in 1964. Joined Holmen in 2019. Shareholding: 3 000 shares. Fredrik Nordqvist Senior Vice President Renewable Energy Born in 1971. Joined Holmen in 2011. Shareholding: 780 shares. Information at 31 December 2019. 84 Holmen Annual Report 2019 Group management Key figures Holmen uses performance measures in its reporting in addition to the measures defined within IFRS regulations, or directly in the income statement and balance sheet, in order to illustrate the company’s financial position and performance and to increase comparability between different periods and other companies. Below are calculations used to arrive at the performance measures applied within the Group. For further information, see also Definitions. ESMA’s (European Securities And Markets Authority) ‘Guidelines – Alternative Performance Measures’ are used. Alternative performance measures published in this report should not be regarded as replacing the financial measures defined under IFRS regulations, but rather as a complement and they do not need to be comparable in the same way with defined performance measures published by other companies. Key figures, SEKm 2019 2018 2017 2016 2015 Operating profit, EBITDA and items affecting comparability EBITDA Depreciation and amortisation according to plan Operating profit/loss excluding items affecting comparability Items affecting comparability* Operating profit/loss Profit/loss for the year and items affecting comparability Profit/loss for the year Items affecting comparability* Profit/loss for the year excluding items affecting comparability Operating margin Operating profit/loss excluding items affecting comparability Net sales Operating margin, % Capital employed Equity Net financial debt Capital employed Return on capital employed Operating profit/loss excluding items affecting comparability Average capital employed Return, % Return on equity Profit/loss after tax excluding items affecting comparability Average equity Return, % Net financial debt Non-current financial liabilities Non-current liabilities relating to right-of-use assets Current financial liabilities Current liabilities relating to right-of-use assets Pension provisions Non-current financial receivables Current financial receivables Cash and cash equivalents Net financial debt Debt/equity ratio Net financial debt Equity Net debt as % of equity Equity/assets ratio Equity Assets Equity/assets ratio, % *See page 86 for what items affecting comparability refers to. 3 486 -1 141 2 345 8 770 11 115 8 731 -6 943 1 789 2 345 16 959 13.8 40 111 3 784 43 895 2 345 26 391 8.9 1 789 23 035 7.8 2 018 171 2 485 13 46 -451 -14 -483 3 784 3 784 40 111 9 40 111 59 340 67.6 3 488 -1 012 2 476 -94 2 382 2 268 73 2 341 2 476 16 055 15.4 23 453 2 807 26 261 2 476 25 469 9.7 2 341 22 546 10.4 1 033 - 2 494 - 61 -468 -35 -278 2 807 2 807 23 453 12 23 453 36 912 63.5 3 157 -991 2 166 - 2 166 1 668 - 1 668 2 166 16 133 13.4 22 035 2 936 24 972 2 166 24 874 8.7 1 668 21 297 7.8 552 - 2 775 - 39 -42 -32 -356 2 936 2 936 22 035 13 22 035 34 891 63.2 3 179 -1 018 2 162 -232 1 930 1 424 228 1 652 1 930 15 513 13.9 21 243 3 945 25 190 2 162 25 146 8.6 1 652 20 890 7.9 882 - 3 200 - 201 -39 -89 -210 3 945 3 945 21 243 19 21 243 34 891 60.9 2 940 -1 240 1 700 -931 769 559 860 1 418 769 16 014 10.6 20 853 4 799 25 653 1 700 26 769 6.4 1 418 21 108 6.7 2 295 - 2 698 - 130 -43 -61 -221 4 799 4 799 20 853 23 20 853 35 456 58.8 Key figures Holmen Annual Report 2019 85 Ten-year review, finance SEKm 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Income statement Net sales Operating costs Change in value of biological assets Profit from investments in associates and joint ventures EBITDA Depreciation and amortisation according to plan Operating profit/loss excluding items affecting comparability Items affecting comparability* Operating profit/loss Net financial items Earnings before tax Tax Profit/loss for the year 16 959 -13 961 487 0 3 486 -1 141 2 345 8 770 11 115 -34 11 081 -2 351 16 055 -12 984 425 -9 3 488 -1 012 2 476 16 133 -13 379 415 -12 3 157 -991 2 166 15 513 -12 626 315 -22 3 179 -1 018 2 162 16 014 -13 348 267 7 2 940 -1 240 1 700 15 994 -13 270 282 -7 2 999 -1 265 1 734 16 231 -13 919 264 3 2 579 -1 370 1 209 -94 - 2 382 2 166 -25 2 356 -89 -53 2 113 -445 1 668 -232 1 930 -71 1 859 -436 1 424 8 731 2 268 -931 769 -90 679 -120 559 3.4 Diluted earnings per share, SEK** 52.6 13.5 9.9 8.5 Net sales Forest Paperboard Paper Wood Products Renewable Energy Group-wide costs and eliminations*** Group Operating profit/loss Forest Paperboard Paper Wood Products Renewable Energy Group-wide costs and eliminations Items affecting comparability* Group Cash flow Earnings before tax Adjustment items Income tax paid Changes in working capital Cash flow from operating activities Cash flow from investing activities*** Cash flow after investments Dividend paid Share buy-backs *Items affecting comparability: 6 286 6 229 5 757 1 695 378 -3 385 16 959 1 172 435 509 62 336 -168 2 345 8 770 5 944 5 785 5 571 1 747 319 -3 311 16 055 1 185 689 329 246 181 -154 2 476 -94 5 535 5 526 5 408 1 562 315 -2 214 16 133 1 069 764 288 80 135 -170 2 166 - 11 115 2 382 2 166 11 081 -8 208 -147 158 2 884 2 356 540 -396 -214 2 286 -1 050 -1 005 1 834 1 281 2 113 418 -221 199 2 509 -644 1 865 -1 134 -1 430 -1 092 - -1 008 - 5 302 5 252 5 431 1 342 314 -2 128 15 513 5 481 5 472 6 148 1 314 359 -2 760 16 014 1 001 903 289 -3 120 -148 2 162 -232 1 930 1 859 965 -504 -360 1 961 -123 1 838 -882 - 905 847 -74 9 176 -163 1 700 -931 769 679 1 802 -398 443 2 526 -824 1 702 -840 - 17 852 -15 224 350 47 3 026 -1 313 1 713 -193 1 520 -227 1 294 18 656 -15 501 - 84 3 239 -1 260 1 980 3 593 5 573 -244 5 328 559 -1 374 1 853 3 955 17 581 -15 077 52 28 2 583 -1 251 1 332 264 1 596 -208 1 388 -684 704 11.1 23.6 4.2 6 061 4 967 8 144 1 129 522 -2 972 17 852 931 596 94 -130 355 -132 1 713 -193 1 520 1 294 1 057 -434 338 2 254 6 348 5 109 8 631 875 552 -2 858 18 656 739 863 228 -136 406 -120 1 980 3 593 5 573 5 328 -2 561 -557 -109 2 101 5 585 4 849 8 142 586 626 -2 207 17 581 818 817 -618 20 495 -200 1 332 264 1 596 1 388 811 -704 28 1 523 -1 957 -1 791 -1 585 297 310 -62 -672 - -588 - -588 - -450 1 284 -147 1 137 -230 907 5.4 5 641 5 113 6 247 1 352 389 -2 748 15 994 817 674 141 37 212 -146 1 734 -450 1 284 1 137 1 448 -191 -217 2 176 -815 1 361 -756 - -140 1 069 -198 871 -160 711 4.3 5 694 4 618 7 148 1 175 450 -2 853 16 231 924 433 -309 -75 371 -136 1 209 -140 1 069 871 1 056 210 -127 2 011 -872 1 139 -756 - 2019: Revaluation of biological assets amounting to SEK 9 079 million, impairment loss by associates of SEK -109 million and provisions of SEK -200 million. 2018: Restructuring costs of SEK -94 million. 2016: Sale of the mill in Spain and insurance compensation of SEK -232 million for the reconstruction of Hallsta Paper Mill following a fire. 2015: Impairment loss on non-current assets, provision for costs and the effects of a fire totalling SEK -931 million. 2014: Impairment loss on non-current assets of SEK -450 million. 2013: Impairment loss on non-current assets and restructuring costs of SEK -140 million. 2012: Impairment loss on non-current assets and restructuring costs of SEK -193 million. 2011: Revaluation of forest amounting to SEK 3 593 million. 2010: Impairment losses on non-current assets and restructuring costs of SEK -786 million and revaluation of forest amounting to SEK 1 050 million. **Historical figures have been adjusted because of the share split (2:1) in 2018. ***Net after disposals and before changes in non-current financial receivables. 86 Holmen Annual Report 2019 Ten-year review, finance SEKm Balance sheet Forest assets Other non-current assets* Current assets Financial receivables Total assets Equity Deferred tax liability Financial liabilities and interest-bearing provisions Operating liabilities Total equity and liabilities Capital employed Forest Paperboard Paper Wood Products Renewable Energy Group-wide and other** Capital employed Key figures Operating margin, %** Paperboard Paper Wood Products Group Return, capital employed, %** Forest Paperboard Paper Wood Products Renewable Energy Group Return on equity, %** Net debt as % of equity Deliveries Volume from own forest, ’000 m3 Paperboard, ’000 tonnes Paper, ’000 tonnes Wood products, ’000 m3 Own production of hydro and wind power, GWh *Excluding non-current financial receivables. **Excluding items affecting comparability. 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 For a ten-year review of data per share, see page 45. 41 345 10 781 6 264 950 59 340 40 111 10 299 4 733 4 196 59 340 32 718 5 589 1 903 1 000 3 058 -372 43 895 18 701 10 586 6 845 781 36 912 23 453 5 839 3 587 4 033 36 912 14 830 5 316 2 072 927 3 082 34 26 261 17 971 10 780 5 710 430 34 891 22 035 5 650 3 366 3 840 34 891 13 824 5 433 2 193 862 3 115 -455 24 972 17 595 11 106 5 852 338 34 891 21 243 5 613 4 283 3 752 34 891 13 536 5 546 2 507 859 3 153 -410 25 190 7 9 4 14 8 8 24 6 11 9 8 9 12 6 14 15 8 12 15 27 6 10 10 12 14 5 5 13 8 14 12 9 4 9 8 13 17 5 0 14 7 16 10 0 4 9 8 19 17 340 12 184 5 607 325 35 456 20 853 5 508 5 124 3 971 35 456 13 401 5 698 3 266 897 3 075 -684 25 653 15 -1 1 11 7 15 neg 1 6 6 7 23 17 032 13 189 5 964 249 36 434 20 969 5 480 6 156 3 829 36 434 13 212 5 841 4 366 874 3 118 -535 26 876 16 654 13 998 5 774 327 36 753 20 854 5 804 6 443 3 653 36 753 12 688 5 686 4 438 1 327 3 005 -173 26 970 16 344 14 320 6 005 377 37 046 20 813 5 504 6 967 3 762 37 046 12 657 5 489 4 920 1 385 2 947 5 27 403 15 871 14 463 6 642 240 37 217 19 773 6 630 6 499 4 313 37 217 11 599 4 233 5 798 1 471 2 884 47 26 032 13 2 3 11 6 12 3 3 7 6 6 28 9 -4 -6 7 7 8 neg neg 13 4 4 29 12 1 -12 10 8 12 2 neg 12 7 6 32 17 3 -16 11 8 23 4 neg 14 9 8 32 12 261 13 767 6 950 454 33 432 16 913 5 910 6 227 4 383 33 432 8 822 3 428 6 069 1 153 2 831 382 22 685 17 -8 4 8 10 24 neg 3 17 6 8 34 2 714 538 996 879 1 109 2 831 525 1 036 828 1 145 2 904 526 1 117 852 1 169 2 986 497 1 134 776 1 080 3 213 499 1 325 730 1 441 3 297 493 1 305 725 1 113 3 465 469 1 574 686 1 041 3 211 485 1 651 660 1 353 2 988 474 1 668 487 1 235 2 999 464 1 732 285 1 149 Ten-year review, finance Holmen Annual Report 2019 87 Five-year review, sustainability The environmental and employee data provided is the most relevant information with regard to regulatory requirements and internal monitoring. The key perfor- mance indicators provided are widely used in the industry. Data from all parts of the Group is collected, quality-assured and evaluated. No material changes have been made to the principles of reporting in comparison with 2018. Holmen reports its environmental data to the supervisory authorities monthly and annually. Reporting to Swedish authorities is made available to the public under the principle of public access to documents. Data from all the mills is reported to the EU annually. Expenditure on environmental protection is reported in accordance with guidelines from Statistics Sweden. As some of the details provided in this report had already been collected by the end of the year they refer to, they might differ slightly from the information finally reported to the authorities. 2019 2018 2017 2016 2015 Production Paperboard, ’000 tonnes Market pulp, ’000 tonnes Paper, ’000 tonnes Wood products, ’000 m3 Own production of hydro and wind power, GWh Electricity production at the mills, GWh Raw materials Wood, million m3sub1) Purchased pulp, ’000 tonnes Thermal energy, GWh Electrical energy, GWh Water use, million m3,4) Plastic granules/foiling material, ’000 tonnes Chemicals, ’000 tonnes5) Filler, pigment, ’000 tonnes5) Emissions to air, tonnes6) Sulphur dioxide (counted as sulphur, S) Nitrogen oxides Particulates Fossil carbon dioxide, ’000 tonnes Biogenic carbon dioxide, ’000 tonnes Emissions to water, tonnes6) AOX (chlorinated organic matter) Nitrogen Phosphorus COD (organic matter), ’000 tonnes Suspended solids (SS), ’000 tonnes By-products, ’000 tonnes To energy production, internally/externally Utilised or for recovery7) Tall oil8) Waste, ’000 tonnes Hazardous9) Sent to landfill (wet) Energy supplies Branches, treetops and peat, GWh10) Electrical and thermal energy, GWh11) Environmental protection expenditure, SEKm Investments (remedial and preventive)12) Electricity and heat-saving investments Environmental taxes and charges13) Internal and external environmental expenses14) Environmental cost of forestry15) 532 79 975 877 1 109 669 5.49 78 5 9922) 3 7203) 70 3.2 181 160 59 888 28 68 1 585 44 174 14 21 2.9 949 208 10 2.5 0.9 101 372 310 20 14 182 65 538 66 1 069 873 1 145 679 5.62 78 6 238 3 996 73 2.9 165 164 56 986 45 75 1 660 48 216 16 22 3.5 977 166 13 1.6 7.6 137 370 84 10 12 165 91 530 54 1 268 827 1 169 621 5.63 79 6 099 3 987 73 2.9 147 146 48 907 30 73 1 545 48 177 14 20 2.8 995 202 14 1.8 1.8 116 366 44 20 12 137 62 1) At Group level, wood consumption is computed net, taking into account internal deliveries of chips from the sawmills to the nearby mills. 2) Of which 4 646 GWh from production at mills from recovered liquors, bark and wood residues, 1 022 GWh from the TMP process at Braviken Paper Mill, Hallsta Paper Mill and the mill in Workington. The process generates thermal energy that is recovered and used in production. 324 GWh comes from natural gas, oil and purchased thermal energy. 3) Of which 1 488 GWh from renewables and 2 232 GWh from nuclear. Emissions of fossil carbon dioxide from production of purchased electricity totalled 19 tonnes. 4) Almost 100 per cent use of surface water from lakes and watercourses. 5) Stated as 100 per cent active substance. Total quantity of commodities was 251 000 tonnes for chemicals and 226 000 tonnes for filler and pigment. 6) Relates to emissions at facilities. 7) By-products used, for example, as filling material, construction material or for the production of soil products. 8) For delivery to the chemical industry. 9) Hazardous waste is dealt with by authorised collection and recovery contractors. Certain fractions of the waste are recovered. In 2019, Holmen dealt with oil-containing waste from vessels that docked at two of its own ports. Such waste is included in the figures for hazardous waste. The volume of this oil-containing waste totalled 662 tonnes in 2019. 10) Branches, treetops and peat delivered from Holmen’s land to external energy producers. 11) For 2019: 117 GWh of electrical energy supplied from the mill at Workington to the local community. 244 GWh of thermal energy from Iggesund Mill and Braviken Paper Mill to Iggesund Sawmill and Braviken Sawmill. A total of 11 GWh thermal energy from Hallsta Paper Mill and Iggesund Mill was supplied to the district heating network of the local communities. 12) The stated amount includes costs for internal process measures and water treatment measures, plus the cost of erecting wind turbines. 503 56 1 317 776 1 080 784 5.36 70 6 375 3 949 70 2.6 151 148 41 960 39 124 1 540 52 208 14 20 3.2 872 270 13 502 56 1 287 734 1 441 781 5.10 79 6 288 3 994 68 2.5 138 146 52 891 48 180 1 440 57 226 19 21 3.3 823 303 12 2.2 16.0 1.9 13.0 13) The stated amount includes costs for waste management, energy tax charged in Sweden on the use of fossil fuels, nitrogen oxide tax and inspection charges. 155 380 55 8 14 182 71 230 348 12 18 12 208 101 14) Includes costs of environmental personnel, operation of treatment equipment, waste management, management systems, environmental training, applications for permits, environmental consultants and the costs of inquiries and measures in connection with discontinued operations. 15) The environmental cost of forestry is calculated as the value of the wood that is not harvested for environmental reasons. Holmen sets aside around 16 per cent of its productive forest acreage and thus refrains from harvesting around 16 per cent of the potential volume. The annual loss of income in 2019 is estimated at around SEK 65 million. 88 Holmen Annual Report 2019 Five-year review, sustainability Employees Employees Average number of whom women, % of whom temporary employees, % Average age1) Sickness absence, %2) Total of which longer than 60 days Gender equality, %1) Women managers out of total number of managers Women joining the company out of total new employees Personnel turnover, %1) Personnel turnover of which given notice of which retiring of which leaving at own request New employees Number of industrial accidents 2) Industrial accidents, more than 8 hours of absence, per million hours worked Union cooperation, %3) Percentage of employees that work at a unit with a collective agreement4) Employees Lenders Society 6) Income statement per stakeholder category, SEKm Sales of products, wood and electricity Customers Purchases of products, services, Suppliers along with depreciation, etc. Wages and social security costs Interest Property tax Excise tax Social security costs Payroll tax Corporation tax Net profit Board’s dividend proposal Shareholders 1) Relates to permanent employees. 2) No industrial accidents with a fatal outcome occurred during the year. 3) Relates to permanent and temporary employees. 4) All Swedish units have collective agreements. At foreign units, Holmen supports other forms of collective employee engagement in line with local standards. 5) Includes change in value of forests of SEK 9 566 million. Value excluding this item amounts to SEK -14 383 million. 6) Holmen accepts its responsibility to society and pays its taxes in line with the legislation and rules in force in all the countries in which we operate. Holmen’s financial policy and guidelines state that Holmen must be transparent in its tax-related deliberations, with a focus on commercial considerations and no transactions whose main purpose is tax planning. Holmen must also not accept, support or facilitate any tax violations by third parties. 2019 2018 2017 2016 2015 2 915 20.0 11.1 44.4 3.8 1.6 22.9 39.5 7.9 0.9 2.2 4.4 2.5 5.7 2 955 20.3 10.7 44.9 4.1 1.6 19.8 40.1 7.9 0.4 2.6 3.9 2.7 4.9 2 976 19.3 7.4 46.0 4.2 2.0 20.7 25.0 8.0 0.9 2.6 4.4 5.9 5.1 2 989 19.3 8.8 46.3 4.2 2.0 19.0 27.0 6.9 1.6 2.4 2.9 5.4 8.8 3 315 19.4 9.0 46.8 4.2 1.8 20.5 24.0 7.6 2.8 2.4 2.5 5.3 8.8 93 94 94 94 97 17 339 18 329 -4 8175) -12 539 17 269 -12 719 17 072 -12 721 17 216 -13 955 -1 819 -34 -55 -27 -472 -25 -2 351 8 731 1 133 -1 792 -25 -82 -30 -479 -35 -89 2 268 1 134 -1 767 -53 -101 -31 -449 -36 -445 1 668 1 092 -1 786 -71 -126 -26 -448 -34 -436 1 424 1 008 -1 825 -90 -129 -27 -481 -29 -120 559 882 Climate impact 2019 in Scope 1, 2, 3 – Emissions, capture and storage plus substitution, ’000 tonnes carbon dioxide Emissions of fossil carbon dioxide Scope 1: From production facilities and nurseries Scope 2: From purchased electricity Scope 3: Emissions from our value chain Forestry Input goods Transport of raw materials and products Capture and storage of carbon dioxide Annual increase in volume of standing timber Wood products for construction purposes Substitution of fossil carbon dioxide Effect of substituting climate-negative construction materials with wood products Net emissions, capture of carbon dioxide and substitution effect 395 70 0 325 20 72 233 1 995 1 270 725 1 060 1 060 2 660 Emissions from the production facilities are included in the EU’s system for emissions trading. Several independent sources show the positive climate impact of forestry and forest products. The summary is based on internal data and calculations and on scientific articles published in recent years. References: Simplified reporting of carbon pool changes for Holmen’s forest and land holdings in line with the guidelines of the Convention on Climate Change (UNFCCC), 2019. Swedish University of Agricultural Sciences. Leskinen, P, Cardellini, G. González-García, S, Hurmekoski, E. Sathre, R. Seppälä, J. Smyth, C. Stern, T and Verkerk, P.J. Substitution effects of wood-based products in climate change mitigation. From Science to Policy 7. European Forest Institute, Nov. 2018. Gustavsson, L. et al. Climate change effects of forestry and substitution of carbon-intensive materials and fossil fuels. Renewable and Sustain able Energy Reviews 2017, Volume 67, 612-624. Cintas, O. et al. The potential role of forest management in Swedish scenarios towards climate neutrality by mid century. Forest Ecology and Management 2017, 383, 73-84. Five-year review, sustainability Holmen Annual Report 2019 89 Definitions Glossary Capital employed Net financial debt plus equity, which corresponds to fixed assets (excluding non-current financial receivables) plus working capital less the net sum of deferred tax liabilities and deferred tax assets. Average values are calculated on the basis of quarterly data. A change in the method of calculating the value of forest assets introduced on 31 December 2019 has not affected average capital employed for 2019. Cash flow after investments Cash flow from operating activities less cash flow from investing activities. Debt/equity ratio Net financial debt divided by total equity. Earnings per share 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. EBITDA Earnings before interest, taxes, depreciation and amortisation, excl. items affecting comparability. Equity/assets ratio Equity expressed as a percentage of total assets. Financial assets Non-current and current financial receivables and cash and cash equivalents. Items affecting comparability Used to clarify how the earnings measures are affected by matters outside normal business operations, such as impairment, disposal, closure, major restructuring measures, fire and alterations to assumptions in the valuation of biological assets. The effects of maintenance and rebuilding shutdowns are not treated as an item affecting comparability. Page 86 states which items have been treated as items affecting comparability over the past 10 years. Net financial debt Non-current and current financial liabilities, non- current and current liabilities regarding right-of- use assets, and pension provisions, less financial assets. Operating margin Operating profit/loss (excl. items affecting comparability) expressed as a percentage of net sales. Operating profit Profit before net financial items and tax. Return on capital employed Operating profit/loss (excluding items affecting comparability) expressed as a percentage of average capital employed. Return on equity Profit for the year excluding items affecting comparability, expressed as a percentage of average equity, calculated on the basis of quarterly data. A change in the method of calculating the value of forest assets introduced on 31 December 2019 has not affected average equity for 2019. Bio co-location A co-location of different operations for more efficient use of raw materials and energy, amongst other benefits. Biofuel Renewable fuels such as wood, black liquor, bark and tall oil. Fuels that do not generate any net emission of carbon dioxide into the atmosphere, since the quantity of carbon dioxide formed during combustion is part of the carbon cycle. Bulk Measure of the paper’s volume. Paper of the same grammage can have different thicknesses depending on the paper’s bulk. High bulk means thick, but relatively light, paper. Carbon dioxide (CO2) Carbon is the building block of life and is part of all living things. Biogenic carbon dioxide is released when biological material decays or wood is burned. Fossil carbon dioxide is released when coal, oil or natural gas is burned. COD Chemical oxygen demanding substances. A measure of the amount of oxygen needed for the complete decomposition of organic material in water. FBB Folding Box Board. Multi-layered paperboard made from mechanical and chemical pulp. Fillers Fillers, such as ground marble and kaolin clay, are used to give the paper bulk and make it more uniform in structure and brighter. Fossil fuels Fuels based on carbon and hydrogen compounds from sediment or sedimentary bedrock – mainly coal, oil and natural gas. FSC® Forestry certification system. GRI Global Reporting Initiative. International cooperation body, in which many different groups of stakeholders in society have drawn up global guidelines for how companies are to report on activities encompassed by the umbrella term of sustainable development. ISO 9001 An international standard for quality management systems. Primarily aimed at companies and organisations that wish to improve two aspects of their operations, i.e. to ensure more satisfied customers and lower costs. ISO 14001 An international standard for environmental management. Important principles in ISO 14001 include regular environmental audits and a gradual increase in the requirements. ISO 50001 An international energy management systems standard that provides a framework for energy efficiency measures. m3 growing stock, solid over bark The volume of tree stems, incl. bark, from stump to top. Generally used as a measure for growing forest. m3sub Cubic metre solid volume under bark. The actual volume (no gaps between the logs) of whole stems or stemwood excl. bark and treetops. Generally used as a measure for harvested wood. Nitrogen (N) An element contained in wood. Nitrogen emissions to water may cause eutrophication. Nitrogen oxides (NOx) Gases that consist of nitrogen and oxygen that are formed in combustion. In moist air, nitrogen oxides are converted into nitric acid, which creates acid rain. Nitrogen oxides also have a fertilising effect. OHSAS 18001 A series of international standards regarding a management system for health and safety. The management system includes monitoring, evaluating and reporting on health and safety work. Particulates Particles of ash formed in incineration of bark or liquor, for example. PEFC™ Forestry certification system. Phosphorus (P) An element contained in wood. Excessive phos- phorus in the water may cause over-fertilisation (eutrophication) and oxygen consumption. Precautionary principle Persons who pursue an activity or take a measure, or intend to do so, shall implement protective measures, comply with restrictions and take any other precautions that are necessary in order to prevent, hinder or combat damage or detriment to human health or the environment as a result of the activity or measure. For the same reason, the best available technology shall be used in connection with professional activities. SBB Solid Bleached Board. Multi- layered paperboard made from bleached chemical pulp. Sulphate pulp 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). Sulphur dioxide (SO2) A gas consisting of sulphur and oxygen that is formed in combustion of sulphur-containing fuels, such as oil. In contact with moist air, sulphur dioxide is converted into sulphuric acid, which creates acid rain. Suspended solids Waterborne substances consisting of fibres and particles that can largely be removed using a fine mesh filter. Tall oil By-product of the sulphate pulp process used for making soft soap, paints, biodiesel and other products. TMP Thermo-mechanical pulp. Obtained by heating spruce chips and then grinding them in refiners. Wood-containing paper Paper that is manufactured from mechanical pulp. Woodfree paper Paper that is manufactured from chemical pulp. References References page 23 • Brege, S, Nord, T and Stehn, L. Industriellt byggande i trä – nuläge och prognos mot 2025. 2017 (Industrial construction in wood – status and forecast to 2025). 2017, Linköping University. With annex from consultancy firm Tyréns, Framtidsstudie: Indata för bedömning av klimateffekt av ökat träbyggande (Future study: Input data for assessing climate impact of increased wood construction), 2017. • Hurmekoski, E. How can wood construction re- duce environmental degradation, 2017. European Forest Institute. ISBN 978-952,5980-43-9. • Tettey, U, Y, A; Dodoo, A. and Gustafsson, L., Carbon balances for a low energy apartment building with different structural frame materials. Innovative Solutions for Energy Transitions: Proceedings of the 10th International Conference on Applied Energy (ICAE2018), Elsevier, 2019, Vol. 158, p. 4254-4261. 90 Holmen Annual Report 2019 Definitions, glossary and references Information The interim and year-end reports are presented at an online conference for press and analysts. The conference is held in English and is broadcast live on holmen.com. The annual report, together with year-end and interim reports, is published in Swedish and English and the reports are sent automatically to the shareholders who have indicated their wish to receive them. They are also available at holmen.com. How to order printed material: • holmen.com • Holmen AB, Group Sustainability and Communications, P.O. Box 5407, SE-114 84 Stockholm, Sweden • e-mail: info@holmen.com • telephone: +46 8 666 21 00 Calendar For 2020, Holmen will publish the following financial reports: Interim report January–March: 29 April 2020 Interim report January–June: 13 August 2020 Interim report January–September: 21 October 2020 Year-end report: 5 February 2021 AGM 2020 Holmen’s AGM for 2020 will be held on Monday 30 March at 3 pm in the Winter Garden at the Grand Hôtel (Royal entrance), Stallgatan 6, Stockholm, Sweden. Notification of attendance must be submitted by Tuesday 24 March 2020. Write to Holmen AB, Group Legal Affairs, Box 5407, 114 84 Stockholm, Sweden. Notice may also be given by telephone: +46 8 666 21 11 or via holmen.com. Dates of trading and dividend The final date for trading, including right to dividend: 30 March 2020 Record date for dividend: 1 April 2020 Payment date for dividend: 6 April 2020 100% Holmen-produced This entire annual report is made using Holmen’s own products. The cover is printed on Invercote G, manufactured at Iggesund Mill. This is a paperboard with high whiteness and a smooth, matt surface. The paperboard is ideal for graphical products with a surface finish. The insert is printed on Holmen TRND, which is manufactured at Hallsta Paper Mill. This is an uncoated, matt magazine paper that offers a wide range of options in terms of bulk, grammage and shade. Both Holmen TRND and Invercote G are made from fresh fibre that can be recycled up to seven times. The cover is printed on Invercote G 280 gsm. The insert is printed on Holmen TRND, 2.0 – 80 gsm. Layout: Identity Works. Graphic production: Gylling Produktion AB. Photos: Fredrik Schlyter, Ulla-Carin Ekblom, David Schmidt and others. Print: Åtta.45. Cover photo: Holmen’s forest outside Norrköping, photographed by Fredrik Schlyter. Holmen AB (publ) P.O. Box 5407, SE-114 84 Stockholm, Sweden +46 8 666 21 00 info@holmen.com ID no. 556001-3301 Registered office Stockholm Annual Report2019 

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