Holmen
Annual Report 2020

Plain-text annual report

Annual Report contents 2020 Holmen in brief CEO’s message Strategy and targets Investment case The year in brief Forest Paperboard Paper Wood Products Renewable Energy A sustainable business Employees Corporate governance report Risk management Shareholder information 03 04 06 10 14 16 18 20 22 24 26 34 36 41 46 Financial statements Notes Proposed appropriation of profits Auditor’s report Review of Sustainability Report Board of Directors Group management Key figures Ten-year review, finance Five-year review, sustainability Business overview Definitions & glossary Calendar & information 48 54 79 80 83 84 86 87 88 90 92 94 95 100 % 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 The Board of Directors and the CEO of Holmen The basis for the sustainability information Aktiebolag (publ.), corporate identity number presented is the issues identified as key in view of 556001-3301, submit their annual report for the materiality analysis conducted in 2018. with high whiteness and a smooth, matt surface. the parent company and the Group for the 2020 The Sustainability Report has been compiled in The paperboard is ideal for graphical products financial year. The annual report comprises the accordance with the Global Reporting Initiative’s with a surface finish. The insert is printed on Holmen TRND, which is manufactured at Hallsta Paper Mill. This is an uncoated, matt magazine administration report (pages 2, 6–9, 14–15, 32–47, GRI guidelines at Core level. The report comprises 79, 84) and the financial statements, together pages 2, 4–7, 15–43, 46–47, 49, 59, 61–64, 73, with the notes and supplementary information 76, 83–86, 90–93 and the GRI index on the website paper that offers a wide range of options in terms (pages 48–78). The statutory sustainability report holmen.com. The information is audited by a third of bulk, grammage and shade. Both Holmen TRND in accordance with the Annual Accounts Act is party, see separate assurance report at and Invercote G are made using fresh fibre from included in the annual report (pages 8–9, 32–35, holmen.com. sustainably managed forests. 38–40, 42–43). The Group’s consolidated income statement and balance sheet and the parent This is a translation of the Swedish annual report company’s income statement and balance sheet of Holmen Aktiebolag (publ.). In the event of will be adopted at the Annual General Meeting. inconsistency between the English and the Swedish versions, the Swedish version shall prevail. The cover is printed on Invercote G 280 gsm. The insert is printed on Holmen TRND 2.0 – 80 gsm. Layout: Identity Works. Production: Gylling Produktion AB. Photos: Jake Fagan, Fredrik Schlyter, Ulla-Carin Ekblom and others. Print: Åtta.45. 2 Holmen Annual Report 2020 Holmen in brief The growing trees, the water rushing down the mighty rivers and the wind blowing through the treetops. This is the heart of Holmen, a business that is all about owning and refining forest. From seedling to plank, paper and paperboard. We make maximum use of the raw mate­ rial from the forest. In fact, thanks to our efforts nothing goes to waste. The most valuable parts of the log are used to make wood products. The smaller parts of the tree – wood from thinning and chips from the sawmills – are turned into paperboard and paper at our mills. What’s more, residual products such as bark and wood shavings are used to produce bio energy. But what about the water and the wind? They are used to make renewable energy. The fact is that, combined with the renewable energy produced in our mills, hydro power and wind power equate to an increasing proportion of our electricity use. And so it continues. We plant new seedlings and manage the growing trees responsibly, creating productive forests that give us more raw material to refine. The value of the forest takes many forms Holmen creates long­term value and has fantastic potential for the future. Our way of managing the forest ensures that it pro­ vides 80 beneficial years before harvest. Alongside the economic value that we cre­ ate, 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 climate­smart building in wood, replace less environmentally friendly packag­ ing with the world’s best paperboard, and print on paper with the unique properties of fresh fibre. And with green electricity from water and wind, we also contribute to a sustainable energy supply. We are proud that Holmen delivers concrete solutions to some of society’s major challenges and that our business contributes to a better climate. 2020 in figures Net sales 16 327 SEKm Operating profit 2 479 SEKm Cash flow 2 411 SEKm No. of employees 2 974 Total shareholder return Holmen B and OMX Stockholm Index 600 500 400 300 200 100 0 11 12 13 14 15 16 17 18 19 20 Jan 21 Holmen B OMX Stockholm 30 (OMXS30) Holmen in brief Holmen Annual Report 2020 3 CEO’s message ↘ Dear sHareHolDer Although the coronavirus pandemic has been a significant feature of our lives, we can report that our business has stood firm and operating profit for 2020 was good, at SEK 2 479 million. We are pleased to have added Martinsons to the Group, thus advancing our position in sustainable wood construction and expanding our opportunities to add value to our own raw material. Putting the pandemic to one side, 2020 was the year that the climate firmly established itself on the global stage. The EU raised its ambition to phase out fossil car bon di­ oxide, while China tightened its national climate goals and in early 2021 the USA rejoined the Paris Agreement. The world is now embarking on a journey that will have a revolutionary effect on all manufacturing industry, where energy systems that are currently almost exclusively fossil-based will have to change. It is not enough just to make the electricity renewable – all industrial processes need to be electrified and the way that buildings are con­ structed must be reformed. Achieving this transition will require major investment and all products will have to carry the cost of their climate impact. The transition will dramatically increase demand for electricity, both in Sweden and across the rest of Europe. We have long produced hydro power, a renewable and controllable means of electricity generation that can be regulated to the times when it is most needed. This is now being complemented by wind power, which we are establishing cost­effectively on our own land. Our ex­ tensive land holdings offer huge potential, but progress will take time due to the long permit processes. Products for the future It is also becoming increasingly clear that the forest and its products fit naturally into a sustainable, fossil-free future. This is true not least of wood products, which store carbon dioxide when they are used in buildings and reduce demand for products with a high carbon footprint. During the year, the acquisition of Martinsons and the investment in Braviken Sawmill have almost doubled our wood products business, while at the same time broadening our product portfolio. We now have an excellent platform from which to continue growing. Our manufacture of paperboard and paper also fits in well with a sustainable society, since the production is practically fossil­free, unlike that of many of our com­ petitors on the continent, and when the products can no longer be used, they provide the benefit of bioenergy. With well-invested production facilities and fresh fibre as our base, we are in an excellent position to develop products that add value in the climate transition. Overall climate benefit of the forest The interest in owning forest is rising steadily and this is hardly surprising, since the transition to a fossil­free world has only just begun. The value to society is reflected in the overall climate benefit that our forest and our products delivered in 2020, totalling more than 6 million tonnes of CO2e, which can be compared with Sweden’s total emissions of a little over 50 million tonnes. Contrary to what many might think, the main contribution comes not from the carbon sequestration in the forest; in fact the greatest benefit comes from the ability of our products to replace alternatives that put a heavy burden on the climate. Strong result despite a tumultuous year The pandemic initially threw up significant challenges in keeping the whole business going, and created enor­ mous uncertainty about how demand for our products would pan out. We quickly adopted measures to make the work environment safe for our employees, increased our non-current financing, postponed investment deci- sions and halved the dividend. Looking back on 2020, we can report that the paper market was hit hard, but we managed to compensate for this through increased efficiency in the paperboard business and with the help of rising wood product prices. At the same time, the con tinued strong interest in owning forests has impacted market prices for forest properties, raising the value of the Group’s forest assets by 5 per cent to SEK 43 billion. In view of the good results for 2020, despite the coronavirus pandemic, and our strong financial position even after the acquisition of Martinsons, the Board pro­ poses that the ordinary dividend be raised to SEK 7.25 per share, with an extra dividend of SEK 3.50 per share. Holmen’s business, where we refine our forest raw material into everything from wood for climate­smart building to renewable packaging, magazines and books, while at the same time we generate hydro and wind power on our own land, is fully in tune with the times. Our development opportunities are also being strength­ ened as politicians in Europe accelerate the pace of the transition towards a fossil-free society. We look to the future with confidence. Stockholm, 26 February 2021 Henrik Sjölund President and CEO 4 Holmen Annual Report 2020 CEO’s message “ Our development opportunities are being strengthened as politicians in Europe accelerate the pace of the transition towards a fossil-free society.” CEO’s message Holmen Annual Report 2020 5 Strategy and targets ↘ growing a sustainable future Our business concept is to own and add value to the forest Holmen’s extensive forest holdings are the foun­ dation of our business. Using our own production facilities, the growing trees are refined into every- thing from wood for climate­smart 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 customers and shareholders, but also contributes to a better climate and thriving rural communities. ↘ Wood Products The Wood Products business will grow through products and solutions for sustainable construction. ↗ Paperboard The Paperboard business will develop on the basis of its position as a market leader in the premium segment for renewable consumer packaging. 6 Holmen Annual Report 2020 Strategy and targets ← Forest Forest growth and future harvests will increase through active and sustainable forestry. A strong position in the wood market will enable the develop­ ment of Holmen’s production facilities. ↙ Renewable Energy The Renewable Energy business will grow by establishing wind power on Holmen’s own land. ← Paper The Paper business will be developed by offering resource-efficient alterna­ tives to traditional products. Strategy and targets Holmen Annual Report 2020 7 Strategy and targets ↘ we aim to create value tHat stanDs tHe test of time wHile contributing to a better climate Forest The forest is sustainably managed to pro­ vide a good annual return and stable value growth. Growth and harvests will increase over time. In 2020, a new harvesting plan was drawn up for 2021–2030, under which the annual harvest will increase by 0.1 million m3 compared with 2016–2020, while keeping the amount of thinning unchanged. Industry The industrial operations are run with a focus on long-term profitability. The target is for a sustained return of over 10 per cent on capital employed. The return for industrial operations amounted to 12 per cent, with Paperboard and Wood Products exceeding the target by a good margin, while the return for Paper was weak. Renewable energy The production of renewable energy will increase by complementing our existing hydro power with wind power on our own land. Due to a good supply of water, the pro­ duction of hydro and wind power was higher than normal, reaching almost 1.4 TWh. 2021 will see the wind farm in Blåbergsliden become operational, which is expected to boost the Group’s annual production of renewable energy by a little over 400 GWh. Annual harvest, ’000 m3sub/year Industry’s return on capital employed, % Production of hydro and wind power, GWh 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2001- 2005 2006- 2010 2011- 2015 2016- 2020 2021- 2025* Harvest Storms & other events Thinning *Forecast 15 10 5 0 12 16 17 18 19 20 1 600 1 200 800 400 0 1 352 16 17 18 19 20 8 Holmen Annual Report 2020 Strategy and targets Climate benefit We will contribute positively to the climate through higher growth in our forests, prod­ ucts that replace fossil­based alternatives and reductions in the fossil emissions along our value chain. Furthermore, expanding wind power will play its part in the transition to a fossil­free energy system in Europe. In 2020, Holmen’s operations helped to generate a climate benefit of over 6 million tonnes of CO2e, with positive contributions from all the business areas. For further information, see page 30. Capital structure Our financial position is to be strong in order to secure room for manoeuvre when making long­term commercial decisions. Net financial debt will not exceed 25 per cent of equity. At year end, the financial position re­ mained strong, with a debt/equity ratio of 10 per cent. Dividend Holmen will generate a good annual dividend for shareholders. The level is determined by the Group’s profitability, investment plans and financial situation. The dividend is supplemented with share buy­backs where this is judged to create long­term value for shareholders. Based on a weighted assessment of the effects of the coronavirus pandemic, the decision was taken to pay a dividend of SEK 3.50 per share in autumn 2020. The Board proposes that the 2021 AGM approve a dividend of SEK 7.25 per share and an ex­ tra dividend of SEK 3.50 per share. Climate benefit, million tonnes CO2e Net debt as % of equity Dividend per share, SEK 8 6 4 2 0 6.4 16 17 18 19 20 40 30 20 10 0 10 16 17 18 19 20 12 9 6 3 0 Proposal 3.50 Proposal 7.25 16 17 18 19 20 Ordinary dividend Extra dividend Strategy and targets Holmen Annual Report 2020 9 Investment case ↘ we let tHe forest grow anD give Holmen provides solutions to some of society’s biggest challenges – meeting the needs of a growing population while at the same time reducing climate change. Growing demand for renewable and fossil-free products Demand for raw materials and products that are renewable, recyclable and fossil free is on the rise, a trend being accelerated by political decisions and increasing aware­ ness among consumers. Active forestry is boosting the growth in our forests, but the supply of forest raw materials is limited, while at the same time global demand is expected to increase, for both logs and pulpwood. Population growth and urbanisation, coupled with surging ambitions for sus­ tainable construction, are driving the wood products market. Demand for paperboard and paper is being fuelled largely by eco­ nomic and population growth, as well as behavioural changes and increased digi­ talisation. The desire to reduce climate impacts and avoid plastic packaging is a strong driving force promoting greater use of paperboard. Digitalisation has led to a drop in demand for printing paper, but certain segments are standing up well to the com­ petition from digital media, including the traditional book market. Electricity consumption is expected to rise due to electrification of transport and industrial processes. As fossil energy is phased out, renewable electricity produc­ tion will take on even greater significance in the future. Sustainable value creation As a Swedish forest company, we have a fantastic opportunity to help bring about solutions to some of the world’s major challenges – climate change in particular. Our growing forests reduce the amount of carbon dioxide in the atmosphere, our products replace fossil alternatives and our production of hydro power and wind power contributes to the transition towards a renewable energy system in Europe. We are a partner for sustainable business, and our investments in higher production of wood products and wind power are strength­ ening our position in areas with consider able development potential, while at the same time our contribution to a better climate is increasing. 10 Holmen Annual Report 2020 Investment case tHe value of owning forest The forest is a fantastic asset. In the drive to become less dependent on fossil raw materials, forest products have a key role to play and demand for them will increase over time. Advanced forestry is increasing the growth in the forests and with it the amount of re­ newable raw material, but the potential is limited to the areas that are available for forestry. The fact that Holmen owns 1.3 million hectares of land provides fantastic opportunities to create value over time. The growth in the forest is the result of our active and sustainable forest management, which begins with the seed – we raise our own seedlings and reforest all the areas that are harvested. 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 we will gradually be able to harvest more in the future. In 2020, Holmen’s total volume of standing timber amounted to 124 million m3 growing stock, solid over bark, which is 5 per cent higher than 10 years ago. Revenue from our forest holdings 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. Holmen uses the narrower part of the tree and wood from thin ning, along with residual wood chips from the sawmills, to manufacture paperboard and paper for packaging, books and other graphical printing. In addition to logs and pulpwood, treetops and branches have their own uses and are sold as forest fuel for the production of district heating and so on. 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. As we continue to initiate projects on our own land, the ongoing investment in the Blåbergsliden Wind Farm, due on stream in late 2021, is set to boost our production of hydro and wind power to approximately 1.6 GWh per year. There are currently 157 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, 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. Extracting stone and gravel from our own land for use in projects such as road build­ ing is another possibility for landowners such as Holmen. The value of the forest is confirmed by current transactions A large number of forest property transac­ tions are carried out every year. Holmen’s forest assets are recognised at fair value based on the prices paid for forest proper­ ties in the areas where we have our forest. As of 31 December 2020, the book value stands at SEK 43 202 (41 345) million, which averages out at SEK 41 420 per hec- tare of productive forest land. The value var­ ies across the country, with forest pro per­ ties 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. In 2020, a new harvesting plan was drawn up for the period 2021–2030 in which the annual harvest is planned to be 2.3 million m3 per year and thinning will be 0.5 million m3 per year. During the period 2016−2020 an average of 2.2 million m3 was har­ vested annually and 0.5 million m3 was thinned. In addition, an average of 0.1 million m3 per year was taken out due to events such as storms and spruce bark beetle outbreaks. The new plan is not expected to affect cash flow from the Forest business area. Planned harvest, ’000 m3sub/year 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2001- 2005 2006- 2010 2011- 2015 2016- 2020 2021- 2025* Harvest Thinning Storms & other events *Forecast Wood prices, SEK/m3sub Price of forest properties, SEK/m3sub 600 500 400 300 200 2003 2005 2007 2009 2011 2013 2015 2017 2019 2004 2006 2008 2010 2012 2014 2016 2018 2020 Real Nominal 800 600 400 200 0 2015 2016 2017 2018 2019 2020 Southern Sweden Central Sweden Northern Sweden Source: Infotrader and Holmen’s calculations. Average prices based on market transactions per county weighted together based on Holmen’s holdings in each region. Rolling 3-year average. Investment case Holmen Annual Report 2020 11 Investment case ↘ “ Developing the energy business will provide a substantial complement to our forestry and industrial operations – an opportunity that also supports Europe’s transition to renewable energy.” investing in winD Power strengtHens our business Blåbergsliden Wind Farm is currently being built on Holmen’s land outside Skellefteå. The investment, amount- ing to an estimated SEK 1.3 billion, will increase our production of renew- able energy by 35 per cent to 1.6 TWh, representing a significant step in the development of Holmen’s renewable energy business. For Holmen, the establishment of large­ scale wind power provides a logical comple­ ment to our controllable hydro power. It is also an effective way of obtaining added value from our forest ownership, and addi­ tional renewable electricity is positive for both Sweden and the climate. Once the wind farm is fully up and running in late 2021, the 26 wind turbines, with their com­ bined capacity of 143 MW, will generate renewable domestic electricity for the equivalent of 100 000 homes each year. According to a report by the Confedera­ tion of Swedish Enterprise (reference page 95), Sweden’s demand for electricity is set to rise by at least 60 per cent by the year 2045. This substantial increase is due to the electrification of society and industry, in part as a consequence of more recharge- able cars and larger vehicles, the establish­ ment of energy­intensive data centres and the electrification of industrial processes. As a major landowner, Holmen has great potential to play its part in the expansion of wind power. In recent years have we con­ ducted a survey and wind analysis of the Group’s land holdings to identify favourable areas for future installations. The analysis showed that a number of sites are suitable for wind power and the development of large­scale wind power on our own land is judged to have good potential and provide a good com plement to our controllable hydro power. In addition to Blåbergsliden, a permit application for another wind farm in Västerbotten has been submitted, and the ambition is to apply for environmental permits for wind farms in Östergötland un­ der 2021. 12 Holmen Annual Report 2020 Investment case The investment in wind power will provide Holmen with a stable cash flow that will strengthen the company and provide op­ portunities to continue developing the business. As a major consumer of electri­ city, the expansion in wind power will also help to reduce our exposure to the vagaries of energy supply and electricity prices. Blåbergsliden Wind Farm comprises 26 wind turbines. The overall height of the turbines is 200 metres, measured from the ground to the top of the blade. Installed capacity per turbine is 5.5 MW, giving a total figure of 143 MW for the whole wind farm. Production capacity is affected by the amount of wind, but the fore­ cast for a normal year is just over 400 GWh. Skellefteå’s new cultural centre will stand at around 80 metres tall once all 20 floors have been completed. The structural frame will use a total of around 10 000 cubic metres of CLT and 2 200 cubic metres of glulam from Martinsons. acQuisition aDvances Holmen’s Position in wooD construction In 2020, Holmen acquired Martinsons, one of Sweden’s biggest names in sawn and engineered wood products. The acquisition almost doubles the sales of wood products to a little over SEK 3 billion. Martinsons comprises two well­ invested sawmills in northern Sweden providing a comprehensive range of products for Scandinavian wood construction, as well as a project business for construction of com­ plete frames made of cross­laminated tim­ ber (CLT) and glulam beams for purposes such as offices, sports halls, schools and apartment buildings. The Bygdsiljum and Kroksjön Sawmills are ideally located near our forest holdings in northern Sweden, allowing us to maximise the value of our forest. Adding in the raw material flows from Martinsons’ wood buying, we are strength­ ening supplies to the whole of our industrial operation. In recent years, Holmen has been building up its position with Swedish builders’ mer­ chants, supplying quality products with high value added. Martinsons has a broader pro­ duct portfolio and some diffe rent builders’ merchants as customers. By combining our existing offering with Martinsons’ pro ducts, we can drive up sales to nationwide chains of builders’ merchants. Holmen’s production of wood products has become an increasingly vital part of our business, and the acquisition of Martinsons has caused the Wood Products business area to grow significantly. Demand for re- fined wood products, especially CLT and glulam beams, is growing and with rising interest in wood construction we see great opportunities to further develop the busi­ ness. The acquisition advances Holmen’s position in wood construction and gives us the ability to process the majority of the raw material from our own forests at our own production facilities. Martinsons comprises two sawmills with wood processing plus a project business for timber­framed struc­ tures. Annual wood consumption is 1 million m3, which corresponds to Holmen’s annual harvest in northern Sweden. Bygdsiljum is a large­scale saw­ mill with annual production of 450 000 m3, of which 100 000 m3 is processed into CLT and glulam for industrial construction and for builders’ merchants. Kroksjön produces 110 000 m3 wood products, of which 90 000 m3 is refined for builders’ merchants through processes such as planing, painting, cutting and pressure treatment. Investment case Holmen Annual Report 2020 13 The year in brief ↘ Strong reSultS and inveStmentS for the future 2020 was a year defined by the coronavirus pandemic and its far-reaching effects on both society and the economy. Despite the pan- demic, Holmen saw good profit for the full year of SEK 2 479 million, with higher production efficiency in Paperboard and price increases for wood products offsetting the weak paper market. The year saw Holmen acquire wood products company Martinsons, doubling our wood products business, and we have also begun erecting a new wind farm that is expected to in- crease our production of renew- able energy by over 400 GWh. Demand for logs gradually rose over the year, but was lower than normal for pulp­ wood due to low capacity utilisation in parts of the industry, and this led to slightly lower pulpwood prices. Forest’s profits climbed to SEK 1 367 million, due to a change in accounting policy and the sale of forest assets. The continued strong inter­ est in owning forests has impacted market prices for forest properties, which raised the value of the Group’s forest assets by almost SEK 2 billion to over SEK 43 billion. Despite the effects of the pandemic, consumption of paperboard for consumer packaging increased during the year and prices were stable. The annual maintenance shutdown at Iggesund Mill was completed successfully. Good production stability and a solid product mix drove up profits for Paperboard to SEK 812 million. The pan­ demic had a considerable impact on demand for paper, which fell by over 20 per cent dur­ ing the year. Although our niche products performed slightly better than the market as a whole, we were forced to impose sig­ nificant production curtailments. Coupled with lower sales prices, this reduced Paper’s profit to SEK 73 million. The market for wood products saw positive development over the year, driven by a strong US housing market and a pickup in home renovation projects, combined with a production slowdown in several countries due to the pandemic. Construction timber prices increased sharply in the second half of the year which, together with increased production at Braviken Sawmill and the acquisition of Martinsons, boosted profit for Wood Products to SEK 185 million. Electricity prices were low during the year, due to a good supply of hydro power and lower consumption than usual. Despite increased production, profit for Renewable Energy therefore fell to SEK 215 million. Holmen’s financial position remains strong, even after distribution of the divi­ dend and the acquisition of Martinsons. The Group’s net debt at year end amounted to SEK 4 181 million, equating to 10 per cent of equity. Outlook The strong wood products market is driving demand for logs from the forest. After a Key figures 2020 2019 Net sales, SEKm Operating profit/loss, SEKm Operating profit/loss excl. items affecting comparability, SEKm Profit for the year, SEKm Diluted earnings per share, SEK Ordinary dividend per share, SEK Extra dividend per share, SEK Return on capital employed, % Cash flow before investments and changes in working capital, SEKm Cash flow from investments, SEKm** Equity, SEKm Net financial debt, SEKm Net debt as % of equity Average no. of employees (FTE) 16 327 2 479 2 479 1 979 12.2 7.25* 3.5* 5.6 2 411 1 924 42 516 4 181 10 2 974 16 959 11 115 2 345 8 731 52.6 3.5 - 8.9 2 727 1 050 40 111 3 784 9 2 915 *Board proposal. **Net including company acquisitions but excluding changes in non-current financial receivables. 14 Holmen Annual Report 2020 The year in brief year of weaker demand for pulpwood due to production curtailments, primarily in the paper industry, there are signs that de­ mand is beginning to rise again. Holmen has worked tirelessly to prevent the spread of the European spruce bark beetle in southern Sweden, but the development of the situa tion over the year depends largely on external factors such as temperature and precipitation. The paperboard market rode out the effects of the pandemic well. Holmen continues working to gradually increase sales to the most ambitious packaging customers, as paperboard production be­ comes even more efficient. The pandemic has added extra momentum to the under­ lying structural decline for paper. Although announced shutdowns will improve the market balance, the situation in the market is expected to remain challenging, with falling prices. Holmen remains committed to its strategy of developing paper products that make best use of fresh fibre and are competitive over time. The acquisition of Martinsons has doubled Holmen’s wood products business. The focus in 2021 will be on leveraging the broader product range that has come from the acquisition and building up sales to builders’ merchants and large­scale construction projects, while at the same time continuing the develop ment of existing production facilities. With the energy market in Europe under­ going a major transformation, increasing electrification of both transport and industry is set to drive up demand for more renew­ able electricity. Blåbergsliden Wind Farm is expected to become operational in autumn 2021, increasing the Group’s electricity production. Europe’s politicians have upped the pace of the transition to a fossil­free society. Holmen’s business, where we refine our forest raw material into everything from wood for climate­smart building to renew­ able packaging, magazines and books, while at the same time we generate hydro and wind power on our own land, is fully in tune with the times. In all, this brought a climate benefit equating to over 6 million tonnes of greenhouse gases in 2020. Net sales and operating margin Operating profit/loss and return Operating profit* Business area, % SEKm 20 000 16 000 12 000 8 000 4 000 0 % 20 SEKm 2 500 16 327 15.2 16 2 000 12 1 500 8 4 0 1 000 500 0 15 16 17 18 19 20 2 479 5.6 4.8 15 16 17 18 19 20 Net sales Operating margin* *Excl. items affecting comparability Operating profit* Return on capital employed* Return on equity* *Excl. items affecting comparability 8 7 3 31 % 15 12 9 6 3 0 52 Forest Paperboard Paper Wood Products Renewable Energy *Excl. Group-wide Total: 2 479 SEKm 1 367 SEKm 812 SEKm 73 SEKm 185 SEKm 215 SEKm Cash flow, SEKm Net debt as % of equity 3 000 2 000 1 000 0 2 411 765 1 159 567 15 16 17 18 19 20 40 30 20 10 0 Investments Dividend Acquisitions Cash flow before investments and changes in working capital Capital employed* Business area, % 7 4 4 11 10 15 16 17 18 19 20 74 Forest Paperboard Paper Wood Products Renewable Energy Total: 46 697 SEKm 34 230 SEKm 5 276 SEKm 1 969 SEKm 1 846 SEKm 3 351 SEKm *Excl. Group-wide The year in brief Holmen Annual Report 2020 15 Forest ↘ future-Smart foreStS Holmen manages the forest actively and sustainably. As well as being a stable source of revenue for Holmen, the forest brings major climate benefits by capturing and storing carbon dioxide and reducing the need for fossil raw materials. Holmen’s forests cover 1.3 million hectares, of which a little over a million hectares comprise productive forest land. The stra­ tegy is to increase the revenue from and future value of the forest holdings through active and sustainable forestry. As one of Sweden’s biggest landowners, we are largely able to supply Holmen’s Swedish production units with renewable raw mate­ rial from our own sources. Economies of scale and efficient logistics give us a strong position in the wood market, which boosts competitiveness and enables the develop­ ment of Holmen’s production facilities. Actively managed forest benefits the climate By managing the forest, we are contributing to a sustainable society. As the trees grow, they absorb carbon dioxide, which is good for the climate. What is more, the renewable forest raw material replaces fossil alterna­ tives, doubling the climate effect. In addi­ tion, the larger the area managed, the more carbon dioxide is captured. Forest that is not managed does not deliver anywhere near the same long-term benefits for the climate, not least due to the reduction in the substitution of products that are harm­ ful for the climate. Forestry constantly developing The volume of standing timber in Holmen’s forests is built up over 70–90 years and is then harvested when it reaches maturity, 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 using seedlings and seeds that are specifically tailored to the location. 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. Holmen invests around SEK 160 million a year in future growth through silviculture and fertilisation. Holmen’s forestry is certified according to PEFC™ and FSC® and all the wood is traceable. Fossil-free seedlings. Holmen’s two nurse­ ries – one in Gideå and one in Friggesund – produce a little over 40 million seedlings each year, the majority of which are planted on our own land. During the year, Gideå Nursery has switched to a bio­based heat­ ing system. In using wood chips from local suppliers for the heating, we have taken a major step towards making production at our nurseries fully fossil­free. The nursery in Friggesund uses a district heating system, and over the year the plastic foam balls previously used to protect seedlings from weeds and drying out during the growing phase have been replaced with wood shavings. Together with innovation and technology development company SweTree Technolo­ gies, Holmen is taking part in an initiative to automate the production of improved seedlings, based on the method of somatic embryogenesis. This technology will allow us to produce seedlings with higher growth, better wood quality and greater disease resistance. Active forestry and biodiversity We combine active forestry focused on high growth with protecting the diversity of na­ tural habitats and species in our forests. We apply extensive environmental conservation measures during harvesting. For example, we leave old and dead trees in the forest landscape, as well as trees along water­ courses. We also conduct targeted initia­ tives to increase the availability of habitats that are in short supply, not least by restoring wetlands or performing controlled burning. In addition, we have identified almost 8 000 sites that we do not harvest. These are either left to their own devices or we carry out measures to protect and improve habitat diversity. The aim is to ensure that all naturally occurring species are able to thrive in the Swedish forest landscape. Learning more about Swedish forests Forestry is of major national, regional and local significance. It creates employment in rural areas and enables many people to live 16 Holmen Annual Report 2020 Forest and work outside the major urban regions. The significance of forestry for both the cli- mate and the Swedish economy makes it an issue that matters to many people. Holmen and other industry players have joined for­ ces 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. To raise awareness of our forestry and forest re­ search, we have established Holmen’s Knowledge Forests. These forests are spe­ cifically intended to be places to explore, gather and pass on knowledge about the forest, and each section of the landscape has been selected for its specific biological conditions. It is also our way of showing that sustainable forestry can promote growth while at the same time increasing biodiversity in the forest. Our first forest is Kunnådalen, situated west of Örnsköldsvik. Strong position in the wood market The growing interest in building in wood has driven up demand for logs in recent years. Calls for different types of renewable packaging material and large­scale invest­ ments in pulp mills have also helped to drive up prices over several years. With the imminent expansion of pulp capacity in the Nordic region, competition for raw material from the forest is expected to remain high. However, production curtailments, primarily in the paper industry, due to the pandemic plus bark beetle outbreaks in southern Sweden created a surplus of pulpwood and chips during the year. The acquisition of Martinsons has strength ened our position in the wood market in the north. With control over larger volumes than we need for our own produc­ tion facilities, we hold a strong position in the market. “ We combine active forestry focused on high growth with protecting the diversity of natural habitats and species in our forests.” Key figures Operating profit ↓ Comment on results 2020 2019 5 883 6 286 1 367 1 172 Net sales, SEKm Operating profit/loss excl. items affecting comparability, SEKm Investments, SEKm 207 77 Book value, forest assets, SEKm Average no. of employees (FTE) Volume from own forest, ’000 m3sub 43 202 41 345 384 376 2 841 2 699 SEKm 1 600 1 200 800 400 0 1 367 Demand for logs was good during the year, but it was lower than normal for pulpwood because of production curtailments in the industry. Operating profit for 2020 amounted to SEK 1 367 million. A change of accounting policy for forest assets and the sale of forest properties had a positive effect on the year’s results, compensating for lower wood prices. Harvesting and thinning of Holmen’s own forest stood at a normal level and in line with the new harvesting plan for 2021–2030. 15 16 17 18 19 20 Volume of standing timber, m3 growing stock per hectare of productive forest land 120 90 60 30 0 1948 1965 1988 2000 2020 1955 1975 1993 2010 Assessment of tax Operating profit/loss excluding items affecting comparability Holmen’s forests 2020 Total land acreage Total forest land acreage* – of which nature conservation areas Productive forest land** Total volume of standing timber on productive forest land 1 303 000 ha 1 153 000 ha 195 000 ha 1 043 000 ha 124 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). Forest Holmen Annual Report 2020 17 “ Our customers are reducing their carbon footprint by replacing fossil plastic materials with paperboard.” Key figures Operating profit/loss and return ↓ Comment on results Net sales, SEKm Operating profit/loss excl. items affecting comparability, SEKm 2020 2019 6 187 6 229 812 435 SEKm 1 000 750 Investments, SEKm 275 421 500 Capital employed, SEKm 5 276 5 589 Average no. of employees (FTE) 1 228 1 286 Deliveries, ’000 tonnes 544 538 250 0 812 15 15 16 17 18 19 20 % 20 15 10 5 0 European demand for paperboard increased slightly over the year and selling prices were stable. Profit for 2020 rose by almost SEK 400 million to SEK 812 million. This improve ment in profits is due to a better product mix and lower production costs, along with higher production after com­ pleted investments in pulp production at Iggesund Mill. Major maintenance shut­ downs negatively impacted earnings by SEK 110 million, compared with SEK 210 million in 2019. Operating profit/loss excluding items affecting comparability Return on capital employed, excluding items affecting comparability European demand for SBB and FBB Holmen’s deliveries of paperboard Mtonnes 4 3 2 1 0 11 12 13 14 15 16 17 18 19 20 18 Holmen Annual Report 2020 Paperboard Ktonnes 600 500 400 300 200 100 0 11 12 13 14 15 16 17 18 19 20 Paperboard ↘ Premium PaPerboard for conSciouS brandS Holmen Iggesund is a market leader in the manufacture of high- quality paperboard for conscious custo mers and brands with high ambitions. The strategy is to grow globally with two of the market’s strongest brands by combining high quality and custom products with efficient production and first- class service. Holmen develops premium paperboard for consumer packaging solutions in sectors such as cosmetics, electronics, pharmaceuticals, food and tobacco. The paperboard is marketed under two brands: Invercote and Incada. The products are global market leaders due to their quality, dur ability and excellent design properties. Our facilities for paperboard production and processing are located in Iggesund and Strömsbruk in Sweden and in Workington in the UK. Close customer collaboration on development 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 growing demand for sustainable packaging solutions. The customers’ need for support and fast deliveries are priority areas that covers everything from advice and product samples to service centres with local sheet­ ing 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 and access to analy­ sis facilities at the company’s own accredit­ ed 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 we can offer custom solu­ tions that meet the toughest requirements. Fresh fibre delivers unique properties Both Invercote and Incada are manufac­ tured entirely from 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. Achieving all this relies on the use of fresh fibre and a multi-tiered structure, with layers of different fibre types forming the basis for the paperboard’s out­ standing performance. Fresh fibre products are also essential to keep the recycled fibre industry going. Sustainable production Both of Holmen’s paperboard mills hold chain-of-custody certification and all the wood raw material comes from sustainably managed forests. Our facilities are largely self-sufficient in renewable thermal and electrical energy. Iggesund Mill is integrated with Iggesund Sawmill, ensuring that every part of the tree is put to use on site in a circular production process. 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. A smarter alternative to plastic Two strong trends in the packaging market are the drive to reduce impacts on the cli­ mate and the drive to avoid plastic packag­ ing. Replacing fossil plastic materials with paperboard cuts our customers’ carbon footprint, while also reducing the amount of plastic that can end up in the natural environment. New product for food packaging. The launch of Inverform, a new paperboard product specifically developed to replace plastic and aluminium food packaging, gained pace over the year. Inverform has been designed for press­moulded and folded trays for packaging ready meals. A barrier gives the paperboard resistance to both moisture and grease. Inverform­ based packaging has a substantially lower carbon footprint than regular plastic trays and can also be recycled in the existing packaging collection system. In 2021 we will also be launching a degradable bio­ plastic that can be used as a barrier in our products, as a complement to our standard PE barrier. These innovations are prime examples of how we continue to develop purposeful packaging solutions in collaboration with our customers and partners. A growing packaging market Demand for packaging is rising in line with factors such as population growth, urbani­ sation, an expanding middle class and more single­person households. Demand in the various product segments varies de­ pending on the market, but there is a general increase in demand for renewable packag­ ing materials. This trend is being driven by regulations against single­use plastics and growing environmental awareness among consumers. Greater demand for pharmaceutical packaging. Demand for paperboard was good over the year, particularly in food, electronics and pharmaceuticals. The pandemic did suppress demand for tax­ free products such as confectionery and alcoholic drinks. However, we are proud to have delivered our Incada paperboard for use in various parts of the packaging for COVID-19 vac­ cines. An effective partnership, based on well­established relationships between the paperboard factory in Workington and the British pharmaceuticals industry, has made it possible to adapt production and deliveries to manage the need for packag ing material at short notice. Paperboard Holmen Annual Report 2020 19 Paper ↘ innovative PaPer ProductS from freSh fibre 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. Focus on climate impact. Customer inter­ est in the climate impact of the products continues to increase. We are also seeing growing interest in lifecycle analyses, where fresh fibre-based paper is compared with recycled fibre equivalents, for example. Holmen’s paper performs strongly in these comparisons and this trend is fully in line with our strategy of helping our customers to make their business more sustainable. With our climate-smart products from responsibly managed forests, this develop­ ment is a welcome one. The pandemic’s effects on a challenging market The coronavirus pandemic has caused a marked drop in demand for printing paper over the year. The pandemic has also ac­ celerated the underlying structural decline and a number of paper manufacturers have decided to permanently close parts of their business. This has reduced the available capacity and balanced out the market. The decline varies, however, between the dif­ ferent segments. Book paper has recovered best and by the end of 2020 was back to pre­pandemic levels, while the demand in paper for maga zines and printed advertis­ ing remained subdued. Holmen develops paper made from fresh fibre for a number of end- uses. Our papers are lightweight compared to traditional alternatives, making them resource-efficient without compromising on quality or the ove rall impression. The focus lies on delive ring and constantly developing products that are competitive over time. Holmen is a market leader in the develop­ ment of new paper products based entirely on fresh fibre. With their unique properties, our papers challenge more traditional alter­ natives for books, magazines, printed ad­ vertising and packaging. In contrast to re­ cycled fibre products, fresh fibre produces a naturally high brightness for an improved experience of text and images. Holmen’s paper 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 enables lower distribution costs. Paper with the power to communicate The customers are largely publishers, print­ ing firms and retailers looking for resource- and cost-efficient papers with a focus on bulk, brightness and overall impression. We take a long-term approach in working to meet customer demand and create profit- able products in three segments: books, magazines and printed advertising. Book paper. Holmen’s book paper is the leading product for paperback books in Europe. Our carbon­neutral paper with high bulk helps customers to achieve efficiencies in both production and distribution. Pub­ lishers appreciate Holmen’s paper because it offers product properties – in the form of a bright, smooth surface – that enhance the reading experience. Magazine paper. Holmen offers a wide range of magazine papers. The combina­ tion of high bulk, whiteness and brightness makes these products competitive alterna­ tives, with a focus on the overall impression. Printed advertising. Direct mail is still considered an important communications channel for driving customers to both phy­ sical and digital stores. Holmen’s paper creates opportunities for retailers, in the form of pure savings on both paper and dis­ tribution, or in the potential to increase the format or the number of pages or copies, without adding to the cost. Paper products of the future With a focus on processes and unique product properties, we are continuing to develop our position in a changing market. Investments have boosted capacity in se­ lected product areas and our development of new paper products, including flexible packaging such as bags and wrapping paper, involves close collaboration with customers and partners. Recycled paper grows in the forest Our paper is essential for the European pa­ per recycling system. Forest resources are limited in the rest of Europe and paper manu facture 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 wood fibre is exhausted. The ecocycle there fore needs a constant injection of fresh fibre. Environmental and chain-of-custody certification enables Holmen to ensure that the raw material for our products always comes from sustainably managed forests. Production in circular ecocycles 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 Saw­ mill make an energy-efficient unit. The paper mill receives raw material in the form 20 Holmen Annual Report 2020 Paper “ With a focus on processes and unique product properties, we are continuing to develop our position in a changing market.” Key figures Operating profit/loss and return ↓ Comment on results 2020 2019 Net sales, SEKm 4 879 5 757 Operating profit/loss, SEKm 73 509 Investments, SEKm 280 187 Capital employed, SEKm 1 969 1 903 Average no. of employees (FTE) 832 855 Deliveries, ’000 tonnes 883 996 SEKm 600 400 200 0 -200 % 30 20 10 0 -10 Demand for paper in Europe was hit heavily by the pandemic, falling a little over 20 per cent during the year. Profit for 2020 decreased to SEK 73 million due to lower selling prices and extensive production curtailments. Although it was possible to step up production slightly by the end of the year and announced closures are ex­ pected to improve the market balance, the situation remains challenging for the paper industry. 4 73 15 16 17 18 19 20 Operating profit/loss excluding items affecting comparability Return on capital employed, excluding items affecting comparability European demand for paper Holmen’s production of magazine and book paper Ktonnes 20 000 15 000 10 000 5 000 0 11 12 13 14 15 16 17 18 19 20 Ktonnes 1 000 750 500 250 0 2010 2020 Uncoated magazine and book Newsprint Coated magazine Paper Holmen Annual Report 2020 21 “ We offer everything from joinery timber, via refined products for builders’ merchants to advanced construction components, glulam and complete structural frames.” Key figures Operating profit/loss and return ↓ Comment on results Net sales, SEKm Operating profit/loss, SEKm 2020 2019 2 222 1 695 185 62 Investments, SEKm 107 162 Capital employed, SEKm 1 846 1 000 Average no. of employees (FTE) 387 266 Deliveries, ’000 m3 1 052 879 SEKm 300 225 150 75 0 % 30.0 22.5 185 17 15.0 7.5 0.0 15 16 17 18 19 20 The market balance for wood products was good in 2020 because of robust consump­ tion in many countries, at the same time that production curtailments limited supply. Prices for spruce products increased sharply in the second half of the year, helping to boost profit to SEK 185 million in 2020. The rise in profit was underpinned by lower raw material costs, as well as the additional profits from the acquisition of Martinsons and higher production at Braviken Sawmill. Operating profit Return on capital employed Consumption of wood products Price trend Million m3 400 300 200 100 0 Index 160 140 120 100 11 12 13 14 15 16 17 18 19 20 80 05 06 08 10 12 13 11 14 15 09 07 16 17 18 19 20 Europe North America China Other Asia MENA Wood products Concrete Steel 22 Holmen Annual Report 2020 Wood Products Wood Products ↘ building the future in wood mill. With a total of five sawmills strategically located in different parts of the country, we are increasing our control over the raw material. Strong trend in the global market The market for wood products is global and huge streams of goods are shipped between continents. Worldwide consumption of wood products has leapt up 20 per cent in the past decade, propelled largely by increased consumption in China and in the US market. Sustainable building driving the trend. The real estate sector accounts for a third of carbon emissions in Europe and the con­ struction industry is working hard to reduce its carbon footprint. A sharper focus on sus­ tainability within the construction sector is good news for wood construction, since wooden buildings continue to store carbon dioxide within the structures, instead of generating emissions. As this trend gathers momentum, it is expected to push up de­ mand for wood products. There is great potential for growth, mainly in high­rise buildings, and the proportion of housing built in wood is expected to rise as the capacity for industrial building in wood is expanded. Pandemic prompts more home renovation projects. A strong house market in the USA and a rise in home renovation projects in many countries due to the pandemic, combined with production curtailments in  Canada and Russia, led to rising prices for wood products in 2020. Today’s wood products market is somewhat split, with high demand and major price rises for con­ struction timber in spruce, while demand for pine joinery timber has seen rather weaker growth, since it is not driven to the same extent by home renovation projects. Holmen produces sawn and re- fined wood products for joinery, construction and builders’ mer- chants. Following the acquisi- tion of Martinsons, we are now also able to offer custom solutions for climate-smart and large-scale wood construction. The business is being developed by increasing the value added and making better use of the wood raw material in combi- nation with large-scale production. Wood is a fantastic material. It is strong, versatile, light and the only construction ma­ terial that is renewable. Holmen’s sawmills play a key role in our circular business. This is where the wood is split and the proces sing of the forest we have harvested begins. Sustainable building As trees grow, 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, since the manufacture of these mate­ rials requires large amounts of energy and generates considerable emissions of fossil carbon dioxide. In addition, the whole chain from manufacture to transport is much more energy-efficient and cost-effective, since wood weighs less than concrete and steel. We thus create benefit for the climate on multiple fronts. Several independent studies (references page 95) 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 pre sented 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 produc­ tion of construction materials. If the effect of the carbon that is stored in the building is included in the calculation, the climate benefit of building in wood doubles. Large-scale production adds greater value Holmen’s high­tech sawmills deliver a strong product range, and the advanced technology allows us to maximise the output from every log. Applying customer­centric working methods, we are building a platform for long-term and profitable customer rela­ tions 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 profit- ability, while competitiveness is under­ pinned by the fact that parts of production are co­located with the Group’s paperboard and paper mills. Broader range of refined products. The acquisition of Martinsons strength ens our portfolio of sawn and engi neered wood products. We now offer every thing from joinery timber, via refined products for builders’ merchants to advanced construc­ tion components, glulam and complete structural frames. Investments to boost capacity. Two of the Group’s sawmills, Iggesund and Braviken, form collective units with their neighbour­ ing 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. Since becoming operational in 2011, Braviken Sawmill has undergone several rounds of technical upgrades. The recent in vestment in dryers and a new trimming saw for the sorting line has increased production capacity by 150 000 m³ to 600 000 m³ per year. Iggesund Sawmill is also being modernised through an invest­ ment in a new drying plant to be ready for an increase in production. Sustainable raw material supply. Holmen’s sawmills are located near our forest holdings from north to south, bring­ ing logistical benefits and giving access to a transport network that reaches around the globe by rail, road and, not least, sea. Holmen’s sawmills have chain­of­custody 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 saw­ Wood Products Holmen Annual Report 2020 23 Renewable Energy ↘ green energy from our land wind turbines. As a large­scale land owner, Holmen is well placed to establish wind power at a competitive cost. Investing in wind power. At the end of 2019, Holmen decided to build the second of its own wind farms, Blåbergsliden, out­ side Skellefteå. The investment is worth an estimated SEK 1.3 billion and the facility is expected to produce a little over 400 GWh of electricity when it becomes operational in autumn 2021. An application for an addi­ tional wind farm with a similar production capacity at Blisterliden in Västerbotten is currently being reviewed by the authorities. The ambition for 2021 is to also submit en­ vironmental permit applications for wind farms in Östergötland with a total potential of over 1 TWh. Greater electricity production in the Nordics The market for electricity in the Nordic region has worked well historically, with harmonised pricing that usually follows the marginal cost of coal­based power, since the market is tied in with the rest of Europe. Electricity was in plentiful supply over the past year, due to wet and windy weather and high hydro power production, coupled with new wind power coming on stream. Together with limits to transmission capaci­ ty and a fall in demand for electricity due to the pandemic, this created an imbalance in the energy market, resulting in low electri­ city prices. Holmen’s production of renewable hydro and wind power contributes towards a sustainable energy supply in Sweden and towards Europe’s transition to fossil-free energy sources. We are now tak- ing the next step as a green energy producer by investing in the expan- sion of our wind power capacity. We produce renewable energy from water and wind. Hydro power is an important source of energy for society as it can be regulated and has an almost infinite life­ time and minimal climate impact. With Uppland’s largest wind farm, Varsvik, up and running and new projects in the pipe­ line, we see interesting opportunities for more wind power to advance our renewa­ ble energy business. Europe switching to renewables The European energy market is undergoing a major transition due to the issue of climate change. In late 2020, the European Parlia­ ment decided to raise its climate ambitions, whereby carbon emissions in the EU are to fall by at least 55 per cent by 2030 (base year 1990) compared with the previous target of a 40 per cent cut. Several coun­ tries, including Italy, the Netherlands and Germany, have also introduced legislation to phase out coal power, while many coun­ tries are scaling back their nuclear power production. Roughly half of electricity production in Europe is fossil­free. However, electricity only accounts for a quarter of total energy consumption and almost all other energy consumption is fossil­based. To meet the climate targets, much of fossil­based energy production will need to be switched to fossil-free sources, and with electrification of both transport and industry on the rise, it is clear that electricity consumption is set to increase, creating additional demand for renewable energy. Transitioning the energy system to more weather­dependent energy sources such as solar and wind power will also bring challenges, since the power supply has to be maintained every minute of every day, all year round. An expansion of transmission capacity both between and within countries is therefore necessary. Strength in own energy assets Holmen produced almost 1.4 TWh of re­ newable hydro and wind power in 2020. However, we are also a major consumer of electricity, so the expansion in wind power will help to reduce our exposure to the vaga ries of energy supply and electricity prices. Together with the renewable electri­ cal energy that is produced at the Group’s mills, our production of hydro and wind power equates to more than 55 per cent of Holmen’s overall energy consumption. 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 base­ load 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, and the operating and maintenance costs are low since the plants are almost entirely automated. Overall, hy­ dro power brings major benefits to society as part of the move towards a fossil­free electricity system. Wind power creates opportunities Wind power is the fastest growing energy type in the EU and the third largest means of producing electricity in Sweden. Land­based wind power is now a mature technology and electricity generation costs are among the lowest of all the options, including gene­ ration using fossil fuels. Expansion is being driven by rapid devel­ opments in the wind power industry and a new generation of larger and more efficient 24 Holmen Annual Report 2020 Renewable Energy “ As a large-scale land owner, Holmen is well placed to establish wind power at a competitive cost.” Key figures Operating profit/loss and return ↓ Comment on results Net sales, SEKm Operating profit/loss excl. items affecting comparability, SEKm 2020 2019 378 215 378 336 Investments, SEKm 291 203 Capital employed, SEKm 3 351 3 058 Average no. of employees (FTE) Own production of hydro and wind power, GWh 16 13 1 352 1 109 SEKm 400 300 200 100 0 Electricity prices were low during the year, due to a good supply of hydro power and lower consumption than usual. Profit for 2020 therefore dropped to SEK 215 million, despite Holmen ’s production being 10 per cent higher than in a normal year. Profit for 2019 included SEK 80 million from the sale of a permit to build a wind farm on Holmen property. % 12 9 6 3 0 7 215 15 16 17 18 19 20 Operating profit/loss excluding items affecting comparability Return on capital employed, excluding items affecting comparability European energy consumption, % European electricity consumption, TWh 6 7 10 23 15 23 2 37 Fossil fuels Nuclear power Renewables Electricity Natural gas Oil Coal Other 4 000 3 000 2 000 1 000 0 1990 1995 2000 2005 2010 2015 Fossil fuels Nuclear power Renewables Renewable Energy Holmen Annual Report 2020 25 A sustainable business ↘ TogeTher we are circular Our business model is circular. The forest ecocycle gives us our wood, which is refined and made into products which our customers can then refine in their turn. As the lifecycle draws to a close, the products can be recovered and come back to life in a new form, or be put to use as biofuel. Our customers, partners, employees and, not least, the users of our products are all part of Holmen’s circular business. Every new relationship is an opportunity to expand the positive ripple effect of our actions. Over the years, we have made cir­ cularity an integrated part of our business. Today, growing, healthy forests, efficient management of raw materials and circular cycles are not merely essential to our profit­ ability, they are also the cornerstone of a genuinely sustainable business. Smart use of constantly growing forests 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 dioxide 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 con­ struction material used for houses and interiors, for example. The narrower part of the tree and wood from thinning represents about half of the harvest and is used with residual wood chips from the sawmills to manufacture paperboard and paper. The remainder comprises branches, tops, bark and wood shavings, which are used to pro­ duce bioenergy. We use 100 per cent of the raw material. Nothing goes to waste. Recycled paper grows in the forest. When our paperboard and paper made using fresh fibre from sustainably managed forests is recycled, it feeds into the recycled paper system, which needs an injection of fresh fibre to function. Residual products 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. Residual 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 soil, and steam from the mills is used in the drying processes at the integrated sawmills. 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 dif­ ferent combinations of mechanical, biologi­ cal and chemical treatment. This sees us working to ensure that the ecosystems in the aquatic environments surrounding our mills are healthy and thriving. Renewable raw materials from flourishing ecosystems The forest has the capacity to provide many benefits at the same time, making it a valu able resource not only for Holmen but for society as a whole. The transition to a fossil­free society demands more re­ newable material, which means that the earth’s surface needs to be managed more efficiently and to a greater extent. Flourish­ ing ecosystems are essential to creating healthy, resilient forests. We are convinced that it is through re­ search and collaboration that we can con­ tinue to develop forestry and find new ways to encourage both growth and biodiversity. Environmental conservation is part of all our activities as we manage and harvest our forest, and protect and improve habitat diversity. This enables Holmen to increase harvests over time, while enabling all natu­ rally occurring species to continue to thrive in the forest landscape. Forever learning To increase the value and the usefulness of the forest, Holmen constantly engages in development work spanning every aspect of our operations. Holmen’s work on re­ search and development is mainly focused on three areas – increased forest growth, more efficient production and developing new and existing products based on forest raw material. Using all of the tree trunk ↘ Wood – Planks and boards Wood chips – Pulp for paper Bark – Bioenergy Wood shavings – Bioenergy 26 Holmen Annual Report 2020 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 grinded and digested into pulp that then becomes paperboard or paper. 50% The large logs that make up approximately half of the harvest go to sawmills for the production of building materials in the form of construction timber and joinery products. Distribution of by-products and waste, % 0.2 0.4 2 20.8 78.6 To energy production, internal/external Utilised or sent for material recovery Waste sent to landfill Hazardous waste 78.6 20.8 0.4 0.2 A sustainable business Holmen Annual Report 2020 27 A sustainable business ↘ how we are coNTriBuTiNg To a SuSTAiNaBle FuTure As a Swedish forest industry company, we have excellent opportunities to drive sustainable development to- gether with our customers. This espe- cially applies to the climate challenge. Holmen’s business is genuinely sustainable. With growing, healthy forests, renewable energy production, resource and energy­ efficient production of climate­smart prod­ ucts and a values­driven company culture, we have major opportunities to do our part in creating sustainable development in line with the UN’s Sustainable Development Goals. Our single greatest contribution is that we promote a better climate, both through our own operations and together with our customers. We also contribute so­ cial benefit by being actively engaged in our employees and in the local communities in which we work. This was made clear in the materiality analysis conducted in 2018. In it we identified the areas where we con­ sider Holmen has the greatest opportunity to contribute to sustainable development. The analysis included interviews and work­ shops with about 50 stakeholders and was based on the ten principles of the UN Global Compact, the UN’s sustainable de­ velopment goals and the mega­trends and external factors affecting our customers and our industry. As a result of the materiality analysis, we formulated Holmen’s three focus areas that encapsulate our most important con­ tributions. Objectives, targets and activities linked to our focus areas are followed up on a quarterly basis. “Holmen’s production, business and organisation contributes to the UN’s Sustainable Development Goals and thus also to the 2030 Agenda.” The UN’s SDGs We have been building our own experience and finding long­term solutions for 400 years. Thanks to sustainable use of our forests’ ecosystems, today we are able to operate a circular, renewable and bio­based business that contributes to the UN’s Sustainable Development Goals and benefits our customers, shareholders, employees and local communities. 28 Holmen Annual Report 2020 A sustainable business ↓ Focus areas ↓ Objectives 1. We contribute to a better climate Our growing forests and our products bind carbon dioxide. Through active and sustainable forestry we increase forest growth and capacity to absorb carbon. We make wood prod­ ucts from the forest which store carbon dioxide. Residual products from the sawmills and wood from thinning are made into paperboard and paper, which also store carbon throughout their shorter lifecycle. At Holmen we work ac­ tively to cut our own carbon dioxide emissions and since 2005 we have reduced the use of fossil fuels at our mills by 88 per cent. This means that Holmen’s direct emissions of carbon dioxide are already lower than the emission limits set in the Paris Agreement. 2. We help our customers in their sustainable business We reduce our customers’ need for fossil materials and energy. Wood construction, products made from paper­ board and paper, and energy from hydro and wind power on our own land mean we are reducing our customers’ need for fossil­based materials and fossil energy. This leads to lower fossil carbon dioxide emissions from our customers’ businesses. At the same time, we are injecting a sustainably produced raw material into the recycled fibre industry and contributing towards the transition to a fossil­free energy system. Increase our climate benefit Our climate benefit is to increase through forest growth which binds carbon dioxide and by increasing our production of wood products. At the same time, we are to have low fossil emissions in our value chain and we have undertaken to ensure that the Group’s combined emission levels of fossil greenhouse gases continue to lie below the level defined by the Science Based Targets initiative (SBTi)* for the paper, pulp and paperboard in­ dustry in 2030. Our fossil emissions from transport are to fall by 2 per cent per tonne­kilometre and emissions from the majority of our suppliers of input goods are to fall by 1.2 per cent. In 2021, Holmen will apply to have a new climate target approved by SBTi. Enable our clients to reduce their carbon footprint We seek to increase our contribution to our customers’ climate efforts. We will achieve this by increasing our sales of wood prod ucts and construction products, which replace fossil­based materials. We also aim to increase our sales of paperboard, enab ling our customers to replace fossil­based packaging, and continue to develop paper products manufactured with one of the lowest carbon footprints in the world. Our production of paper and paper board also contributes a sustainable raw material to the recycled fibre industry and when the products can no longer be recycled, they are put to use as biofuel, which replaces fossil fuels. Expanding wind power on our own land will enable us to increase our sales of renewable electricity from hydro and wind power, reducing the need for fossil­based energy. In this way, Holmen plays an important role in the transition to a fossil­free society and to a fossil­free energy system in Europe. 3. We are committed to our employees and our local communities With courageous, committed and responsible employees and thriving local communities, we can achieve more. At Holmen, the focus is very much on innovation and develop­ ment, and we want our employees to develop and grow with us. In our work towards a sustainable future, this means investing in employees’ skills, active leadership, a positive corporate culture and a healthy workplace. Naturally, we therefore work actively to encourage health and prevent in­ jury, 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. An organisation focused on its objectives and thriving local communities Holmen’s management by objectives process is to contribute to­ wards our strategy and foster courage, commitment and respon­ sibility in our employees. We are to attract and develop a diverse staff of competent employees and work for a culture that is inclu­ sive and dynamic. Aware and mature leadership and employee­ ship is to drive the business forward and contribute to a positive culture, in which we focus on our own tasks and simultaneously help each other in every respect. Our work environment is to be safe and healthy. Therefore we have a zero vision for work­related accidents, repetitive strain injury and work­related illness. As an important employer in many locations, we are to actively contri­ bute to thriving local communities by providing employment for our workers and other companies in our value chain. * The Science Based Targets initiative (SBTi) is an international framework for calculating the target of 1.5°C set by the Intergovernmental Panel on Climate Change (IPCC), a UN body. Holmen has already attained the emissions target for paper and pulp companies for 2045. The threshold values are formulated by the IPCC and published by SBTi. A sustainable business Holmen Annual Report 2020 29 A sustainable business ↘ climate BeNeFiT ThroughouT The vAlue chaiN The forest delivers the most benefit when it is put to use. It is the heart of Holmen’s sustainable business. We are part of a value chain that creates climate benefit in four areas, amounting to a total of just over 6 million tonnes of carbon dioxide per year. This is equivalent to 12 per cent of total emissions within Sweden’s borders. This is how Holmen created real climate benefit in 2020. Forest carbon uptake Young trees have the greatest capacity to bind carbon dioxide. When the trees be­ come old and die, they rot and the stored carbon dioxide returns to the atmosphere. Through active and sustainable forestry we increase forest growth and capacity to ab­ sorb carbon. In 2020 it is calculated that the increase in the volume of standing tim­ ber in Holmen’s forests has absorbed and bound 1.4 million tonnes of carbon dioxide. Carbon storage and substitution in products The raw material from the forest continues to bind carbon dioxide in its refined form and substitution occurs when wood­based products and renewable energy replace fossil alternatives with a higher climate footprint. It is here that Holmen’s climate benefit becomes the most tangible – when our products reduce the need for fossil materials and raw materials, enabling the carbon to stay in the ground. The production of wood products in­ creased global storage of carbon dioxide by more than 0.3 million tonnes, while at the same time replacing construction materials that would have caused green­ house gas emissions of 1.4 million tonnes. It also replaced fossil energy equivalent to emissions of 0.4 million tonnes. Holmen’s paperboard and paper production has a car bon storage effect equating to just under 0.1 million tonnes of carbon dioxide. When the products can no longer be recy­ cled, they provide benefits as bioenergy, so replacing fossil energy equivalent to emis­ sions of 1.5 million tonnes of greenhouse gases. Renewable energy production that replaces fossil alternatives Our production of renewable electricity from hydro and wind power replaces power from coal and gas equivalent to 1.2 million tonnes of greenhouse gas emissions. On top of this, we have bioenergy production that comes from residual products from the forest and our facilities. By selling this bio­ energy, we replace emissions of 0.5 million tonnes. Holmen’s climate footprint meets the target of 1.5°C To meet the target of the Paris Agreement that global warming is not to exceed 1.5°C, we have to make the necessary transition and keep within the limits our ecosystem can cope with. Holmen’s own operations generate greenhouse gas emissions that already meet the Paris Agreement’s threshold values for 2045. We have achieved this through energy efficiency measures and investments in renewable energy at our facilities. Our fossil­free energy production in the form of hydro and wind power, forest­based bioenergy and purchasing of fossil­free electricity are important contributions to the climate. Because we manage the forest sustainably, the world gains access to more sustainable raw materials, and with invest­ ments in wind power we enable more people to contribute to the Paris Agreement. Just like the UN’s Sustainable Develop­ ment Goal 17, Partnerships for the Goals, it is through partnership and collaboration with new and existing customers and sup­ pliers that we create the greatest climate benefit, and through several different acti­ vities and value chains working in concert. Climate benefit created in Holmen’s value chains 20201) Million tonnes CO2e ↓ Climate benefit in several Uptake in the annual increase in volume of standing timber in Holmen’s forests2) Storage in and substitution through the products Holmen sells3) Wood products Paperboard and paper Substitution through renewable energy production Hydro and wind power4) Bioenergy5) Holmen’s fossil emissions (Scope 1, 2 and 3)6) Total climate benefit 1.4 3.7 2.2 1.5 1.7 1.2 0.5 -0.4 6.4 value chains In addition to the uptake, storage and sub­ stitution that take place in Holmen’s main value chains, we are also a link in creating climate benefit in other value chains, partly through our external sales of roundwood. The raw material often comes from private forest owners and is then refined by our customers. This creates climate bene­ fit through coopera tion between several different actors. 1)   Climate benefit in Holmen’s value chains in 2020 is calculated in line with the methodology used by the Swedish Forest Industries Federation, CEPI and a number of other forest  companies. To ensure that Holmen’s reporting is based on the same methodology, Holmen has had the calculations carried out by Peter Holmgren of Futurevistas AB. For further  information, visit holmen.com. Operations at the Bygdsiljum and Kroksjön Sawmills (formerly Martinsons) have been included from the date of acquisition, 1 October 2020. 2)  The calculation is based on the annual increase in the volume of standing timber, using data from the company forest inventory minus harvested volume. 3)   Carbon storage is calculated in line with Sweden’s official climate reporting to the UN conducted by the Swedish Environmental Protection Agency using the IPCC’s methodology.  Under this methodology, what is reported is the increased storage of carbon dioxide from Holmen’s production of wood products, paperboard and paper in 2020. This means  that the methodology takes into account the fact that a certain amount of old wood and fibre products rot or are incinerated in 2020 and thus stop binding carbon dioxide.  According to the IPCC, fibre products have a half-life of 2 years and wood products 30 years. Holmen’s calculation makes the assumption that climate benefit is equivalent to  100 per cent of the fibre products, and the old wood products that ceased binding carbon dioxide in 2020 were used for bioenergy which substituted for fossil fuel. 4)   Calculated based on our production of renewable electricity from hydro power replacing fossil-based electricity from coal power, and our production of renewable electricity from  wind power replacing fossil-based electricity from coal and gas power. 5)  Bioenergy comprises branches and treetops and residual products from Holmen’s operations delivered externally.  6)  Details of Holmen’s fossil and biogenic emissions are reported on pages 90–91.  30 Holmen Annual Report 2020 A sustainable business In 2020 Holmen’s operations contributed towards a climate benefit of 6.4 million tonnes CO2e, equivalent to 12 per cent of emissions in Sweden. 1.4 million tonnes of CO2e were absorbed in the growing volume of standing timber in our forests 3.7 million tonnes of CO2e were stored in and replaced by wood products (2.2) and by paper and paperboard (1.5) 1.7 million tonnes CO2e were replaced by our renewable production of electricity from wind and water (1.2) and from bioenergy (0.5) Emissions equivalent to 0.4 million tonnes CO2e come from Holmen’s production and transport A sustainable business Holmen Annual Report 2020 31 The picture shows the biological treatment facility at Hallsta Paper Mill. acTive eNviroNmeNTAl acTiviTieS 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 43 outlines Holmen’s preventive work on eco­ related 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 page 90. Holmen’s environmental work is charac­ terised by constant improvement measures within the framework of certified environ­ mental and energy management systems (see page 33), which ensure compliance with legislation and requirements set by authorities. Responsibility for the manage­ ment systems rests with the respective business area, as does environmental responsibility. Permits At the end of 2020, Holmen was running production operations that require en­ vironmental permits at nine facilities. The permits specify conditions regarding permitted production volumes and per­ mitted emissions to air and water, among other things. Eight of the facilities are located in Sweden and one is in Work­ ington in the UK. The facilities’ turnover amounted to 81 per cent of the Group’s net sales in 2020. The environmental status of Holmen’s Swedish mills is good and the mills meet the tougher emissions criteria that  apply from October 2018 under the EU’s Industrial Emissions Directive (IED). Workington Mill has a derogation whereby the mill is to invest in measures to ensure that the emission requirements for water are met. The schedule for this will be de ter mined in consultation with the Environment Agency. At Braviken Paper Mill the produc­ tion of bright products will gradually be stepped up. An application for a new environmental permit for operations was submitted in late 2020. In 2020 Holmen acquired Martinsons’ two sawmills at Bygdsiljum and Kroksjön. Bygdsiljum Sawmill gained a new environ­ mental permit under the Environmental Code in 2018. Kroksjön Sawmill obtained a new environmental permit in late 2020. It will be applied in 2021. In Västerbotten, Holmen is construct­ ing Blåbergsliden Wind Farm, which will have annual electricity production of just over 400 GWh. The wind farm will be fully operational in late 2021. A permit application has been put in for another wind farm on the same scale in Väster­ botten. In autumn 2020, consultation began on a permit application for wind power projects on Holmen’s land in Östergötland. Electricity production from these projects has a potential of more than 1 TWh. New environmental legislation for hydro power entered into force on 1  January 2019. The legislation means that hydro power operators who do not comply with modern environmental cri­ teria will need to apply for a review under the Swedish Environmental Code before the end of 2039. Holmen’s facilities have been registered with the national plan for the revision of hydro power plant licences. Jointly owned facilities have been registered by the respective main owner. 32 Holmen Annual Report 2020 A sustainable business A sustainable business ↘ Environmental permits for the Group’s production facilities 2018 2017 Iggesund Mill, Environmental Code1) Workington Mill, IED Hallsta Paper Mill, Environmental Protection Act 2000 Braviken Paper Mill, Environmental Code2) 2002 2014 Iggesund Sawmill, Environmental Code 2010 Braviken Sawmill, Environmental Code 2003 Linghem Sawmill, Environmental Code 2018 Bygdsiljum Sawmill, Environmental Code Kroksjön Sawmill, Environmental Code3) 2020 1)   Port activity at Skärnäs Terminal, alongside Iggesund  Mill, is included in the environmental permit. In addi- tion, operations subject to notification requirements  take place at the production unit in Strömsbruk. 2)   An application for a new environmental permit was  submitted to the Land and Environment Court in late  2020. 3)   The sawmill gained a new environmental permit in late  2020. The permit will be applied in 2021. 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 2020, 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 at the Hults Bruk landfill site. The ground area and the buildings at the former sawmill in Håstaholmen in Hudiksvall have been remediated. The project to remediate polluted sediment in the area of water off the industrial site was completed in 2020 and in 2021 work will continue in dealing with the polluted sediment mass. The land and the buildings at the former surface treatment site at Iggesund have been remediated and the work of treating the polluted groundwater was completed in 2020. This concludes the remediation work at this former industrial site. The remedia tion work at the Hults Bruk land­ fill site was completed in 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 resi­ dents is important in order to identify and address any views on operations at an early stage. 37 (35) environment­related incidents were reported to the supervisory authorities during the year. The noncon­ formities were not of a significant nature in terms of environmental 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. Holmen has been awarded emission allowances within the EU Emissions Trading Scheme. As a result of invest­ ments in bio­based energy production and energy savings at the facilities, the use of fossil fuels has fallen consider­ ably in recent years. Surplus allocated emission allowances have been able to be sold. Holmen has applied for allocation of emission allowances for the period 2021–2030. The process of allocating emission allowances in the EU has been delayed and notification is expected in summer 2021. The Group has produced renewable electricity for many years. This has contributed income in that we have obtained electricity certificates for our production. The electricity certificates have been sold to electricity distribu­ tors, who have used the certificates in their turn because their customers need a proportion of their electricity to come from renewable sources. In the UK, electricity distributors have to meet a certain quota for renewable electricity, and producers of renewable electri­ cal energy receive green Renewables Obligation Certificates in proportion to the amount of electricity generated. Workington Mill obtained such green certificates in 2020. A holistic approach to sustainability 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 pro­ gress made. Information on how Holmen complies with and works in line with the principles is available at holmen.com. “ We have a holistic approach to responsible 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 environmental responsibility, and anti-corruption.” Henrik Sjölund President and CEO of Holmen Management system certifications Production facilities1) Environment ISO 14001 Energy ISO 50001 Quality ISO 9001 Health and safety ISO 45001 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 proce- dures are in place for planning, implementation and follow-up, as well as measures to enable continuous improve- ment in the work on the various management systems. Certifications can be viewed at holmen.com/certificates. 1)  Holmen Forest is certified under the environmental management system ISO 14001. Forest operations also  hold forest management and chain-of-custody certification under PEFC™ and FSC® respectively. All Holmen’s  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 certification for the two sawmills. Linghem Sawmill, which was acquired  in 2017, was certified under ISO 45001 in 2020. Martinsons’ sawmills were acquired in 2020 and both the  Bygdsiljum and Kroksjön production facilities are certified under ISO 14001. Work is in progress to include  Linghem, Bygdsiljum and Kroksjön in the certificates of the other sawmills. A sustainable business Holmen Annual Report 2020 33 Employees ↘ courage, commiTmeNT & reSpoNSiBiliTy Today’s Holmen is the result of countless decisions large and small, made in line with our values of courage, commitment and respon- sibility. A team effort where we have put long-term 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 fine-tune 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. Using Holmen’s model for management by objectives, the strategy, business plans and expectations are com­ municated across the organisation, which sets step­by­step targets to meet the ex­ pectations. Ultimately, the managers com­ municate expectations to the individual employee, who in turn suggests objectives that steer towards the expectations. This helps us to make the most of the skills and potential of every employee. We believe in the drive inherent in every individual, team and unit. 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 re­ cruitment process, appraisal talks, as a complement to the management by objec­ tives model, and as a basis for our internal leader ship and management programme. 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 busi ness with a focus on innovation and develop ment. Employees and leaders are given opportunities to grow through com­ petence develop ment and we create con­ ditions in which each and every individual is able to grow, with stimulating tasks and new challenges. Based on our current and future skills needs, we are working on employee develop­ ment at all levels. We give employees a great deal of responsibility, but also moti­ vation and support from a team of commit­ ted and expert colleagues and leaders. We also provide development programmes for new and more experienced managers and for specialists driving work on change. Health and safety It goes without saying that we actively pursue a healthy culture and an accident­free work­ place for our employees and the contractors who work with us. Holmen carries out sys­ tematic Group­wide health and safety work in line with ISO 45001 (see page 33) and all our production units are certified, apart from Bygdsiljum and Kroksjön Sawmills, which were acquired in 2020. Work is in progress to include these facilities in the certificates of the other sawmills. As a result of the coronavirus pandemic, Holmen implemented a large number of adaptations and measures to ensure a safe work environment for our employees and others present in our operations. Human rights and equality Holmen safeguards human rights and the equal value of all people in everything we do, both in the workplace and when travel­ ling on business. All employees must have the same rights, obligations and opportuni­ ties irrespective of their sex, transgender 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 34 Holmen Annual Report 2020 Employees ↓ Examples of adaptations as a result of the coronavirus pandemic: ­ Conducted risk analyses at all workplaces. ­ Identified critical operational employees to safeguard production. ­ Promoted working from home to reduce the risk of transmission based on risk analyses. ­ Introduced strict health checks for exter­ nal staff in production operations. ­ Stepped up cleaning and introduced rules on hygiene and distancing. ­ Minimised travel and face­to­face meetings. ­ Modified working hours to avoid crowded public transport. ­ Supported managers in remote leader­ ship. ­ Issued recommendations on health and safety when working from home. Industrial accidents with more than 8 hours of absence (LTI) per million hours worked. LTI 20 15 10 5 0 15 16 17 18 19 20 ↗ A zero vision for accidents The number of accidents per million hours worked fell to 4.3 in 2020 from 5.7 in 2019. The dominant causes of accidents are slipping, tripping, pinching and cutting. During the year we have successfully managed to reduce the number of accidents from 27 to 21 incidents, which is our best result ever. This shows that our work is paying off and how important it is for us to continue taking 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 or in 2020. Dynamic workplace To maintain strong competitiveness, we want to be a workplace that attracts and retains the skills Holmen needs – employees who represent a diversity of insights, ex­ periences and cultures. Our industry is currently overwhelmingly male and we are therefore working to increase diversity and achieve a more even gender distribu­ tion among managers and leaders. This will enable us to benefit from a diversity of backgrounds and experiences, and make everyone to feel welcome. 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. and applies to employees, contractors and suppliers. To us, this means that everyone who works at Holmen and in our supply chain must stay healthy and perform well at work and have an inclusive, safe and healthy work environment with fair terms of employment. Bullying and harass ment are not tolerated and everyone is expected to act professionally and not expose them­ selves to the risk of being linked to opinions and activities that are not compatible with Holmen’s Code of Conduct. We have clear guidelines on what applies and where to turn in cases where Holmen’s Code of Conduct is not being followed. Monitoring the Code of Conduct During the year we have conducted exten­ sive internal training on Holmen’s Code of Conduct with all employees who work as managers or in sales, marketing, purchas­ ing, finance, HR, information, market com­ munication, projects or in Group staffs. The training was provided online and the com­ pletion rate was 89 per cent by the end of the year. We have also continued to work in line with our process for supplier follow­up, which was updated last year. We have iden­ tified which suppliers pose risks linked to the environment, labour law, human rights, business ethics and sustainable purchasing. Work to draw up action plans for suppliers identified as being high risk continues. Employees Holmen Annual Report 2020 35 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 gover nance report is a require­ ment under the Swedish Annual Accounts Act. The corporate gover­ nance report complies with the rules and instructions stipulated in the Swedish Code of Corporate Governance. Shareholders Holmen had 48 104 shareholders at year- end 2020. Private individuals with Swedish citizenship accounted for the largest cate- gory of owners with 45 749 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 second-largest owner was the Kempe Foundations 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 con- trolled 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 2020 AGM, the Board’s authorisa­ tion to purchase up to 10 per cent of the company’s shares was renewed. No shares were repurchased in 2020, but 7 000 000 of the class B treasury shares that were pre­ viously repurchased by the company were cancelled in 2020. After the cancellation Holmen AB holds 586 639 shares in treasury. See pages 46–47 for further information on the shares and ownership structure. General meeting of shareholders The notice convening the AGM is sent no earlier than six and no later than four weeks 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 let- ter, telephone or at holmen.com. Notices convening an Extraordinary General Meet- ing (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 25 September 2020 that the 2021 AGM would take place in Stockholm on 22 April 2021. ↓ AGM 2020 ↓ Extraordinary General Meeting The 2020 AGM and the material presented was in Swedish. The notice convening the meeting, the agenda and the minutes are available at holmen.com. According to item 1.2 of the Swedish Corporate Governance Code, the Chairman of the Board and as many members of the Board as are required for a quorum are to be present at meetings. In light of the risk of spreading the coronavirus, however, the Board resolved to conduct the AGM so that as few participants as possible would be present. For this reason, only the Chairman of the Board and the CEO were present at the AGM. However, as many members as were needed for the Board to have a quorum were prepared to hold a telephone meeting on the day of the AGM. 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. Fredrik Lundberg and Hans Hedström, Carnegie Funds, checked and approved the minutes. 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 2021 AGM. At an Extraordinary General Meeting (EGM) on 16 September 2020 the shareholders resolved to pay a dividend of SEK 3.50 per share. In light of the risk of the spread of coronavirus, the EGM was conducted without physical presence, by shareholders exercising their voting rights only by postal voting pursuant to the Act (2020:198) on temporary exemptions to facilitate the conduct of general and association meetings. Shareholders were given the opportunity to submit questions in writing to the Board and the CEO prior to the EGM. ↓ Board meetings The Board held twelve meetings in 2020, 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 2021. 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, effects of the coronavirus pandemic, sustainability issues, acquisition of the sawmill group Martinsons and other significant investment matters. On two occasions the company’s auditor reported directly to the Board, providing a presentation about their audit of the accounts and internal control. 36 Holmen Annual Report 2020 Corporate governance report Shareholders Nomination committee General meeting of shareholders Board of Directors CEO Group management Five group staffs Five business areas Auditors Nomination committee The AGM resolved that the nomination committee shall consist of the chairman of the Board and one representative from each of the three shareholders in the company that control the most votes at 31 August each year. The composition of the nomination committee for the 2020 and 2021 AGMs is shown in the table on page 39. 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 put- ting forward proposed Board members, which means the composition of the Board should reflect the company’s business op­ erations, phase of development and other circumstances, and should be diverse and wide-ranging in terms of the expertise, ex- perience and background of the members elected by general meetings. An even gen- der distribution is sought. The nomination committee has observed this policy in its proposals to the Board. Further information about the work of the nomination committee will be provided at the 2021 AGM. For the 2021 AGM, the nomination com- mittee proposes that the Board consist of nine members elected by the AGM. The nomi nation committee proposes the re- election of the current Board members: Fredrik Lundberg (who is also proposed for re­election as Chairman of the Board), Carl Bennet, Alice Kempe, Lars Josefsson, Lars G Josefsson, Louise Lindh, Ulf Lundahl, Henrik Sjölund and Henriette Zeuchner. The audit committee conducted a pro- curement process for a new auditing com- pany in 2020. For the 2021 AGM, the nomi- nation committee proposes, in line with the recommendation of the audit committee, that PWC, Pricewaterhouse Coopers AB, is the first choice and Ernst & Young AB is the second choice to serve as the company’s auditor for a period of one year until the adjournment of the 2022 AGM. 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 2020 AGM re­elected Fredrik Lundberg , Carl Bennet, Lars G Josefsson, Lars Josefsson, Alice Kempe, Louise Lindh, Ulf Lundahl, Henriette Zeuchner and Henrik Sjölund to the Board. Fredrik Lundberg was re­elected Chairman of the Board. At the statutory first meeting of the new Board in 2020, Henrik Andersson, Senior Vice Presi- dent Legal Affairs, was appointed company secretary. ↓ Members of the Board of Directors Attendance at meetings in 2020: Board members Elected Role on the Board Audit committee Remuneration committee Board of Directors Audit committee1) Remuneration committee2) Fee (SEK ’000) Fredrik Lundberg Carl Bennet Lars O Josefsson Lars G Josefsson Alice Kempe Louise Lindh Ulf Lundahl Henriette Zeuchner Henrik Sjölund 1988 2009 2016 2011 2019 2010 2004 2015 2014 Chairman Member Member Member Member Member Member Member Member, President & CEO Member – Member – – – Chairman – – Chairman Member – – Member – – – – 12/12 12/12 11/12 12/12 12/12 11/12 10/12 12/12 12/12 6/6 2/6 6/6 2/6 2/6 2/6 5/6 2/6 – 2/2 2/2 – – 1/2 – – – – 710 355 355 355 355 355 355 355 – 1) As of the 2020 AGM the audit committee consists of Ulf Lundahl (Chair), Fredrik Lundberg and Lars O Josefsson. Before that time, the audit committee consisted of the external Board members. 2) As of the 2020 AGM, the remuneration committee consists of Fredrik Lundberg (Chair), Carl Bennet and Alice Kempe. Before that time the remuneration committee consisted of Fredrik Lundberg and Carl Bennet. 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 2020 37 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. 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 84–85. 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 pro- cedures and issues written instructions relating to the division of responsibilities between the Board and the CEO and the information that the Board is to receive continually on financial developments and other key events. Employees of the company participate in Board meetings to submit reports. In order to develop the work of the Board, an annual evaluation is undertaken involving 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 pre- sented and discussed at a Board meeting. The results of the 2020 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 nomination committee. Remuneration The Board has appointed a remuneration committee consisting of Fredrik Lundberg, Carl Bennet and Alice Kempe. During the year, the committee prepared matters pertaining to the remuneration and other 38 Holmen Annual Report 2020 employment conditions of the CEO and also evaluated guidelines for remuneration and share savings programmes. Remuneration and other employment conditions for senior management who report directly to the CEO are decided by the latter and approved by the remunera- tion committee in accordance with the instructions for the remuneration commit- tee adopted by the Board of Directors, as well as the guidelines adopted by the AGM for remuneration of senior management. The Group applies the principle that each manager’s manager must approve decisions on remuneration in consultation with the relevant personnel manager. At the 2020 AGM the Board set out its proposals regarding guidelines for remu- neration of the CEO and other senior man- agement, i.e. heads of business areas and heads of Group staffs who report directly to the CEO. The AGM adopted the guidelines in accordance with the Board’s proposal. Current guidelines and information about remuneration are presented in Note 4 on page 61. The 2020 AGM approved the Board fee and payment of the auditors’ fee as invoiced. The 2020 AGM resolved to adjust the performance terms of the share savings programme adopted by the 2019 AGM, which covers 54 members of senior man- agement in the company. The adjustment was made because of a change of account- ing policy for the company’s forest assets. The programme will expire upon publication of the interim report for January–March 2022. The company’s commitment to pro- vide shares under the programme will 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 61 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 an nual ly 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 86. Group management met on nine occa- sions in 2020. The meetings dealt with matters such as earnings performance and reports before and after Board meetings, strategic issues, budgets, investments, acquisition of the sawmill group Martinsons, internal control, work environment, sustain- ability issues, climate and environmental issues and silviculture matters. Meetings were also dedicated to reviews of market conditions, the coronavirus pandemic, economic developments, possible conse- quences of Brexit and other external factors affecting the business, as well as discussion about governance of the Group and the tools, such as the management­by­objectives model and Group-wide policies, used in such governance. Audit KPMG, which has been Holmen’s auditor since 1995, was re-elected by the 2020 AGM as auditor for a period of one year. Authorised Public Accountant Joakim Thilstedt was appointed as the principal auditor. KPMG audits Holmen AB and al­ most all of its subsidiaries. The examination of internal procedures and control systems begins in the second quarter and continues thereafter until year­end. The interim report for January– September is subject to review by the audi- tors. The examination and audit of the final annual accounts and the annual report, including the sustainability report, take place in January–February. Up until the 2020 AGM, the audit com- mittee consisted of the external Board members, who met two times. After that date, the committee consisted of Ulf Lundahl, Chairman, Fredrik Lundberg and Lars Josefsson who met four times. 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 satis- factory supervision of accounting, manage- ment of funds and other aspects of the company’s financial circumstances. The auditors reported in 2020 to the audit com- mittee at three meetings and to the Board of Directors on two occasions. 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 2020 is stated in Note 5 on page 62. Corporate governance report KPMG is required to assess its independ- ence before making decisions on whether to provide Holmen with indepen dent advice alongside its audit assignment. Internal management processes Holmen’s business strategy is formulated by Group management in order to create long-term value for both shareholders and customers, while contributing to a better climate and thriving rural communities. A review is conducted annually of each business area’s strategy, including the business’ goals. The strategy, which is pre- sented to and adopted by the Board, forms the basis of the expectations 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 well­implemented management­by­objectives tool for con­ tinuous follow-up ensures that the entire organisation is applying appropriate priori- ties to attain the objectives established. The business areas guide the operating businesses towards these targets using pro- cesses for purchasing, production and sales, and supported by HR, financial mana gement, research and development, IT, environment and communication processes. Operations are followed up through regu lar reporting of performance and KPIs that reflect business activity, along with additional qualitative analysis. Reporting of sustainability data is integrated with finan- cial 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 expectations are made of employees. Holmen’s operations should be characterised by responsible behaviour towards both internal and external stake- holders. The Supplier Code of Conduct com- plies 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 opportuni- ties 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 em ployees should act within key and critical areas. The Group’s 11 policies cover matters materials should be used efficiently, pollu- tion 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 that the company’s assets are managed in accor dance 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, trans- parent and easily accessible and comply with legal requirements and commercial confidentiality. Compliance. Holmen’s Code of Conduct, policies and values are part of every ”Holmen is a forest-owning company whose business is to create lasting value over time and mitigate global warming. The climate benefit is created by capture and storage of carbon dioxide, as well as the production of renewable energy and products that replace fossil materials.” Louise Lindh, Holmen Board member such as expectations of employee participa- tion and leadership, specify the scope of management by objectives, talent manage- ment, interaction with trade union organisa- tions, 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 depart- ments at risk of encountering unauthorised behaviour receive special training on busi- ness ethics. The policies specify that raw employee’s induction programme, and are reiterated 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. A few events linked to Holmen’s Code of Conduct were reported during the year, which were handled according to internal procedures. ↓ Composition of the nomination committee Before AGM: Independent of the: Name Mats Guldbrand Fredrik Lundberg Carl Kempe Hans Hedström Representing 2021 L E Lundbergföretagen* x (chairman) Chairman of the Board Kempe Foundations* Carnegie Funds* x x x 2020 x (chairman) x x x Company Largest shareholder (in terms of votes) Yes Yes Yes Yes No No Yes Yes * At 31 August 2020, L E Lundbergföretagen controlled 62.3 per cent of the votes, the Kempe Foundations controlled 17.5 per cent and Carnegie Funds (Sweden) controlled 1.5 per cent. Holmen Annual Report 2020 39 Corporate governance report Whistleblower function. A whistleblower function is available so that employees and other stakeholders can highlight any defi- ciencies in Holmen’s financial reporting or other possible areas of concern at the com- pany. No complaints about deficiencies were reported through this channel in 2020. Internal control of financial reporting The Board’s responsibility for internal con- trol 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 en suring that the company is managed in a sustainable and responsible manner. Day­ to-day responsibility for all these matters is delegated to the CEO. 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 coordinates and monitors the internal con- trol 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 environ- ment provides the basis for internal control of financial reporting and is based in part on the company’s internal management pro- cesses. The Board of Directors’ procedural rules and the instruction for the CEO estab- lish the distribution of roles and responsi- bilities to ensure effective control and mana- gement of the business’ risks. Policies, guidelines and instructions con- tribute 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 coun- try where the company operates. Risk assessment. Risk assessment activi- ties aim to identify and evaluate the risks that can result in the Group’s financial reporting objectives not being met. The results of these risk­related activities are compiled and assessed under the guidance of Group Finance. Holmen’s greatest risks regarding finan- cial reporting are linked to the valuation of forest assets, pension provisions, other provisions and to financial transactions. The risk assessment also involves identify- ing and assessing operational risks. For fur- ther information, see the Risk Management section on pages 41–45. 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. Business­specific 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 provi- sion of financial information for Holmen’s shareholders and other stakeholders must be accurate, comprehensive, transparent and consistent, and must take place on equal terms and at the right time. Follow­up and evaluation. Control activities are assessed regularly to ensure that they are effective and appropriate. The results of self-assessments are followed up on a con- tinual basis and discrepancies are reported to the Executive Vice President. The accuracy of self­assessments is subject to testing. The reporting of internal control to Group management takes place once a year. The company’s auditors report their observa- tions 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 conditions exist to justify an internal audit function. The internal control managed by the Group, together with the activities car- ried out by the external auditors, is deemed to be sufficient. ↓ 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. ” Climate benefit is fundamental in Holmen’s business and sustainability is naturally integrated into our corporate governance. We were among the first to integrate the sustainability report into our annual report and have done so since 2010.” Anders Jernhall, Executive Vice President and CFO, Holmen 40 Holmen Annual Report 2020 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 established by the Board 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. ↓ Operational risks Risk Risk management Comment Production and deliveries Demand for Holmen’s products is affected by many factors, both political and macroeconomic, including production among European manufac- turers, changes in imports to Europe and oppor- tunities for profitably exporting from Europe. Changes in demand for Holmen’s products af- fect the ability to achieve full production at the Group’s industries and can lead to lower income. Income may also be impacted if harvesting from our own forests needs to be limited as a result of lower demand and variations in pre- cipitation and wind, which govern generation from hydro and wind power. 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 main- tain a high level of production amid more diffi- cult market conditions. Changes in demand for wood may be met by shifting harvesting from our own forests from year to year, while production of hydro power during the year can be controlled by regulating water reser- voir levels. Selling prices The market balance in each product segment governs the selling price and affects income. Raw materials Wood, electricity and chemicals are the most significant input goods and price changes affect profitability. Holmen’s costs depend on the price trend for input goods, as well as on how well the Group succeeds in making production and administration more efficient. There is a risk that the Group’s costs will increase if there is a shortage of raw materials, or if prices in- crease for input goods. Holmen has limited possibilities to make rapid changes to its product range in the event of changes in price, but it adjusts its product focus towards those products and markets deemed to have the best long-term conditions, and by having a broad customer base and offering across a number of product areas. Changes in the price of wood can be managed to some extent by shifting harvest- ing from year to year and changes in the price of electricity can be managed by regulating reservoir water levels in order to shift elec- tricity generation over the year. Half of the Group’s wood needs are covered by harvesting from the Group’s own forests, while the remainder is purchased from private forest owners. The Group is largely in balance in terms of pulp as a result of the integrated production process. The paperboard business generates almost all the electricity required at its own mills, while electricity for paper manufacturing is supplied from external pur- chases. The Group also sells electricity from its hydro power and wind power assets, as well as from bioenergy, to the electricity grid. In net terms, the Group’s own electricity gene ration corresponds to about 50 per cent of its total electricity consumption. The price risk in this consumption is managed through physical fixed price contracts and financial hedging. The need for thermal energy is great and is met locally through recycling and pro- duction from residual products. Chemicals are a significant input, particularly in paper- board production, but the need is being reduced since used chemicals are recycled at the mills. In 2020, Holmen acquired the wood products com- pany Martinsons, which strengthens Holmen’s mar- ket position for wood products. In addition, much of the company’s own forests are refined by its own industry as a result of the acquisition. The work to expand production capacity by 150 000 cubic me- tres at Braviken Sawmill was completed in 2020. The work to construct Blåbergsliden Wind Farm with a 143 MW capacity is underway and is expected to increase Holmen’s electricity generation from hydro and wind power by 35 per cent in late 2021. Production of paper was limited during the year be- cause of weak demand in the wake of the pandemic. For information about how changes in deliveries would affect Holmen’s operating profit, given the circumstances on 31 December 2020, see the sensitivity analysis on page 45. The price of paperboard was stable during the year, while the price of wood products rose as a result of home renovation projects in several markets, at the same time that production was limited in certain regions. Paper prices fell as a result of weak de- mand. The large supply of hydro power caused the price of electricity to fall compared with 2019. For information about how changes in prices would af- fect Holmen’s operating profit, given the circum- stances on 31 December 2020, see the sensitivity analysis on page 45. On average, the price of wood and chemicals was somewhat lower in 2020 than in 2019. The price of net electricity consumption is 65 per cent hedged for 2021, 65 per cent for 2022, and 15–35 per cent hedged for 2023–2025. The Group’s net exposure to the price of electricity will decrease once Blåbergsliden Wind Farm is operational at the end of 2021. The nominal amount for financial hedging is SEK 625 million. For information about how changes in commodity prices would affect Holmen’s operating profit, given the circumstances on 31 December 2020, see the sensitivity analysis on page 45. Holmen Annual Report 2020 41 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. There is also a risk that essential raw materials are not deli- vered because of changes in laws and regula- tions or other external factors. Customer credits The risk of the Group’s customers being unable to fulfil their payment obligations constitutes a credit risk. 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. Production facilities require ongoing maintenance. Major maintenance shutdowns can entail higher costs and greater loss of production than planned. Investments in non-current assets can also be more expensive than initially planned. 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 informa- tion can have significant negative effects on the business. Forest management Holmen’s right to manage its own forest is cru- cial for maintaining its value. There is a risk that requirements to allocate areas for purposes other than forestry could increase in the future. Such a development could have a negative im- pact on the value of Holmen’s forest assets. Damage to forests Wild game can damage the forest when graz- ing, resulting in both deterioration of the quality of the trees and reduced forest growth. Insect pests are another risk factor; for example, the spruce bark beetle can damage spruce forests. Climate change The Swedish Meteorological and Hydrological Institute’s forecasts show that average tempera- ture, 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 the ability to carry out harvesting. 42 Holmen Annual Report 2020 Holmen endeavours to have at least two ap- proved 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 re- specting internationally recognised principles on anti-corruption measures, human rights, health and safety and the environment. Since 2017, Holmen has engaged an external party, Ecovadis, to monitor suppliers regarding their compliance with the Code. Holmen is subject to the UK Modern Slavery Act and a report on this is available at holmen.com. In 2020, 1 (0) case regarding breach of the Supplier Code of Conduct was reported. There is an active dialogue with an action plan in place in accordance with Holmen’s procedures. Suppliers associated with 90 per cent (90) of the Group’s purchasing vo- lumes have signed the Code. Supply chain risks re- lating to the environment, labour legislation, human rights, business ethics and a sustainable purchasing have been mapped and an action plan has been for- mulated. Despite the challenges associated with the pandemic, Holmen has been able to maintain its de- liveries of essential raw materials to such an extent that production has not been negatively impacted. 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 2020, the Group’s trade receiva- bles totalled SEK 2 015 million, of which 32 per cent (35) were insured against credit losses. During the year, credit losses on trade receivables had a SEK -14 million (-7) impact on earnings. Sales to the five largest customers accounted for 15 per cent (15) of the Group’s total sales in 2020. No event causing significant damage occurred in 2020. During the year one major maintenance shutdown was carried out at Iggesund Mill, which went smoothly. The ongoing investment in the Blåbergsliden wind farm is progressing according to plan. Business operations were not affected by IT inci- dents in 2020. Disruptions in IT support were avoided despite the heavy workload caused by the increase in remote work as a result of the pandemic. The regularly recurring IT security training course was held for employees during the year. Of Holmen’s total land area of 1 303 000 hectares, 195 000 hectares are set aside for nature conser- vation purposes. The spruce bark beetle infestation continued in southern Sweden in 2020. To prevent spread, Holmen prioritised harvesting spruce bark beetle infested forests and the percentage of spruce sawn at Braviken Sawmill increased to take care of the damaged logs. Ongoing climate risk analyses are conducted to create healthy, resilient forests suited to a chang- ing climate. Climate change is leading to greater demand for Holmen’s products as our customers want renewable alternatives to fossil-based products. Damage prevention measures, regular mainte- nance and continual upgrades can minimise the risk of damage to facilities. Training of employees promotes participation, knowledge and aware- ness about these risks and how they can be countered. Holmen insures its facilities at re- placement value against damage to property and interruption of business. The insurance ex- cess varies from one facility to another, but the maximum is SEK 35 million for a single claim. The Group has liability insurance that also covers sudden and unforeseen environmental damage affecting third parties. Operating disruptions and unauthorised access are prevented by security measures and preven- tive 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 con- tinually developing protective measures to ad- dress changes in the risk profile. Holmen participates in national and interna- tional industry organisations whose purpose is to handle the monitoring of social trends, advo- cacy and put forward Holmen’s position and view on relevant political and regulatory issues. Holmen’s forest holdings are scattered across large parts of Sweden and the risk of extensive damage occurring simultaneously is considered to be low, for which reason the Group does not have insurance cover for its forest holdings. To reduce the extent of grazing by wild animals, ac- tive 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 har- vested as soon as possible to prevent spread. Holmen is developing seedlings and processes for planting, clearing and thinning to adapt our forests to a changed climate. Seeds from Holmen’s cultivation of seedlings are selected to grow and flourish in a changing 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 ad- justed through planning and by relocating ma- chines to areas with better conditions. The risk of impact on Holmen’s sites from climate change is being managed through Holmen operational continuity planning. Risks concerning energy consumption and greenhouse gas emissions are managed through our ISO-certified environ- mental and energy management systems. Risk managementRisk Risk management Comment Environment and permits Holmen runs operations that require environ- mental permits. The permits specify conditions regarding permitted production volumes and permitted emissions to air and water. Produc- tion disruptions can cause breaches of emis- sions conditions set for the business by envi- ronmental authorities, which could impact the environment. In places where Holmen has conducted industrial operations, the need for remediation may entail future costs. 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. Environmental measures are organised and conducted in accordance with Holmen’s environ mental and energy policy. In the event of process disruptions, the environment takes precedence over production. Risks are preven- ted and managed through regular own checks, checks by authorities and environmental risk analyses, as well as through the use of certi- fied environmental and energy management systems and chain-of-custody certification. In consultation with the authorities, Holmen is conducting investigations to assess the need for remediation at former industrial sites. Good health and safety is a priority at all levels of management in the Group. Certified manage- ment systems, Group-wide targets relating to work accidents, continual training of personnel to increase risk awareness, procedures for risk observation and incident and accident report- ing, and risk assessment of tasks and work by contractors are examples of activities to achieve a high level of safety in the workplace. 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. With Holmen’s employer brand, we are marketing Holmen as an employer in digital channels and physical meetings. We have a strong Employer Value Proposition (EVP) with our sustainable business and the small big company as the prominent message. Business ethics risks 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. International, political and legal risks Holmen is active in a global market and sells products to many countries around the world. Because of this geographical spread, Holmen is exposed to political risks, conflicts, natural disasters, epidemics and pandemics. Moreover, Holmen is obligated to comply with laws and regulations where Holmen conducts business, including in areas such as the environment, real estate, labour law and taxation. Changes in laws and regulations may affect conditions for Holmen’s operations and lead to increased costs for regulatory compliance. Since Holmen’s business is based on our sustainable use of the forest and land, it is important that laws and regulations, such as the Environmental Code, the Forest Inquiry and the EU taxonomy promote the development of green growth. Holmen’s Code of Conduct, business ethics policy and associated guidelines provide clear guidance on how to maintain good business ethics when dealing with external contacts in various markets. Holmen’s Code of Conduct also provides guidance on human rights, workers’ rights and the environment. These areas are clarified in Holmen’s policies and related guidelines. Managers and employees in sales, marketing, purchasing, finance, HR, information, market communication, projects and Group staffs have all received training in all aspects of Holmen’s Code of Conduct. Holmen participates in national and interna- tional industry organisations whose purpose is to handle the monitoring of social trends, advocacy and put forward Holmen’s position and view on relevant political and regulatory issues. Contact is established with local rep- resentatives and the general public in areas where the Group has operations. This takes place, for example, through consultation and information meetings and through meetings with decision-makers. More unpredictable risks that may arise, such as shutdowns as a result of disease outbreaks or political unrest, are managed through ongoing external monitoring, close dialogue and coordination with indus- try organisations to maintain the best possible preparedness. In 2020, 37 (35) 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 2020 was 4.3 (5.7) industrial acci dents per 1 million hours worked. See also page 35. The most common accidents were slips, trips, cuts and pinch point accidents. The most significant areas of risk involve work with overhead cranes and vehicles with peo ple in movement. As a result of the corona- virus pandemic, we implemented a large number of adaptations and measures to ensure a safe work environment for employees and others present in our operations. Our employer branding efforts in digital channels at the Group level, combined with local efforts at our operating sites, provide a good foundation for an inflow of interested applicants to our vacant posi- tions. The voluntary employee turnover is stable and annual surveys show that new employees ap- preciate Holmen as an employer, both the culture and the job opportunities. Holmen has not fur- loughed personnel as a result of the pandemic during the year. In 2020, 0 (0) cases concerning deviations from the business ethics policy or the parts of the Code of Conduct regarding business ethics issues were reported. During the year, 89 per cent of the designated functions completed the training on the Code of Conduct. See also page 35. The outbreak of the coronavirus pandemic has had a negative impact on profitability within the Paper business area, while impact on other business areas has been limited. The Group worked continually in 2020 to take action to minimise the impact of the coronavirus outbreak, with a focus on the health and safety of our employees. To mitigate the effects of the UK’s exit from the EU, Holmen took a number of measures during the year; for example, logistics solutions and warehouses were adapted to ensure deliveries to customers and from suppliers. Holmen has also been active through dialogue, responses to reports, preparedness and advocacy work along with industry organisations to promote the development of green growth. Holmen Annual Report 2020 43 Risk management↓ Financial risks Risk Risk management Comment Currency The Group’s earnings are affected by fluctua- tions in exchange rates. Transaction exposure risk arises due to a significant portion of the Group’s sales income being in different cur- rencies from costs. The translation exposure risk arises from the translation of foreign sub- sidiaries’ assets, liabilities and earnings into Swedish kronor. For just over the next two years, expected flows in EUR/SEK are hedged at an average of 10.64. For other currencies, 4–7 months of flows are hedged. Hedging of exposure to pounds sterling amounted to GBP 33 million at year-end. Net assets in other currencies are limited and are not usually hedged. Transaction exposure. In order to reduce the impact on profit from changes in exchange rates, net flows are hedged using forward for- eign 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 transac- tion exposure. Normally, 90–100 per cent of the currency exposure associated with major investments is hedged. Translation exposure. Hedging exposure that arises when subsidiaries’ assets and liabilities are translated into Swedish kronor (known as equity hedging) 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 2 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 sub- sidiaries are translated into Swedish kronor is not normally hedged. SEKm 9 000 6 000 3 000 0 EUR/SEK GBP/SEK USD/SEK EUR/GBP CNH/SEK Net flow 12 months Hedged Interest rates Risks that arise when changes in the market interest rate affect the Group’s interest income and cost. The fixed rate period for the Group’s financial assets and liabilities is 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 rate periods without altering underlying loans. The Group’s average borrowing rate in 2020 was 1.2 per cent. In 2020 interest on loans of SEK 900 million was fixed for 5 years. The table below shows the Group’s fixed interest rate period by currency. SEKm <1 year 1–3 years 3–5 years >5 years Pension provisions Right-of-use agreements Total SEK -1 773 -500 -1 400 EUR GBP Other items 24 -213 16 - - - - - - -1 946 -500 -1 400 - - - - - -18 -6 -24 - -48 -192 -3 883 -78 -7 -10 -61 -244 6 -287 -4 181 At 31 December 2020, the Group had outstanding derivative contracts with a nominal amount of SEK 15 billion and a net fair value of SEK +477 million. 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 deriva- tive. The maximum credit risk for other finan- cial assets is estimated to correspond to their nominal amount. Credit risk from financial counterparties The risk of financial transactions giving rise to credit risks in relation to financial counterparties. 44 Holmen Annual Report 2020 Risk managementRisk Risk management Comment Liquidity and refinancing The risk of the need for future funding and refinancing of maturing loans being required at a high cost. 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 ex- ceed 25 per cent of equity. Holmen’s financ- ing mainly comprises bonds and the issue of commercial paper. Holmen reduces the risk of future funding becoming difficult or expen- sive by using long-term contractually agreed credit facilities. The Group plans its financing by forecasting financing needs over the com- ing years based on the Group’s budget and profit forecasts that are regularly updated. The financial position is strong, with net finan cial debt at 31 December 2020 amounting to SEK 4 181 million. Of these financial liabilities, SEK 605 million falls due in 2021. The Group has unutilised committed credit facili- ties of SEK 5 billion, of which SEK 4 billion matures in 2026 and SEK 1 billion in 2024. Both facilities in- clude a limit stipulating that they cannot be used if net liability in relation to equity exceeds 125 per cent. At year-end, the Group’s net liability in rela- tion to equity was 10 per cent. SEKm 5 000 4 000 3 000 2 000 1 000 0 2021 2022 2023 2024 >2025 Financial liabilities Credit facility ↓ Sensitivity analysis Operational risks A 1 per cent change in deliveries and price of the Group’s products or significant input goods 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. 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 +/-1% +/-1% +/-1% +/-1% +/-1% 60 49 22 13 3 31 16 8 9 2 Change Price +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% 31 11 13 8 14 24 15 * 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. 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’ ave- rage historical volatility for each instrument, which is deemed a reasonable change going forward. Historical volatility on exchange rates is calcula ted 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 380 million a year. In addition, a 40 per cent change in the price of electricity would affect earnings before tax by SEK 190 million a year, excluding hedging. Earnings before tax* 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 Change SEKm +/-5% +/-5% +/-5% +/-5% +/-5% +/-40% +/-0.5% unit 126 8 36 33 48 56 10 Change SEKm +/-5% +/-5% +/-5% +/-40% +/-0.5% unit 535 40 19 256 21 *Estimated effect for 2021 including hedging. Holmen Annual Report 2020 45 Risk managementshaReholdeR infoRmation Holmen’s two classes 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 248 per cent, compared with 54 per cent for OMX Stockholm 30. For Holmen, this corresponds to an annual return of 28 per cent. At the same time, the number of owners has increased by 20 000 to just over 48 000. 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 shares are listed on Nasdaq Stockholm, Large Cap. At the end of 2020 Holmen A was trading at SEK 415 (295) and Holmen B at SEK 394 (285), corresponding to a market capitalisation of SEK 64.7 bil- lion (46.6). The highest closing price for Holmen’s class B shares was SEK 396, on 18 December. The lowest closing price was SEK 228, on 12 March. The daily aver- age number of class B shares traded was 715 000, which corresponds to a value of SEK 221 million. The daily average number of class A shares traded was 2 500. Almost 45 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 22 April 2021 approve a dividend of SEK 7.25 per share and an extra dividend of SEK 3.50 per share. 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 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. Cancellation of shares and share buy-back The 2020 AGM resolved to cancel 7 000 000 class B treasury shares that were previously repurchased by the company. After cancel- lation Holmen holds 586 639 class B shares in treasury. The 2020 AGM renewed the authorisation for the Board to be able to take decisions to purchase up to 10 per cent of the company’s shares. No buy-backs took place during the period. The Board proposes that the 2021 AGM approve corresponding authorisation for the Board. Ownership structure Holmen had a total of 48 104 shareholders at year-end 2020. In terms of numbers, Swedish private individuals account for the largest owner category with 45 749 share- holders. Shareholders registered in Sweden own 82 per cent (84) of the share capital. Among foreign shareholders, the largest proportion of shares are held in the US and Finland, accounting for 5 per cent and 2 per cent of capital, respectively. The largest owner at the turn of 2020/2021, with 62.3 per cent of votes and 34.1 per cent of capi- tal, was L E Lundbergföretagen AB. Shareholder communication Information about the company is available at the holmen.com website, including finan­ cial information in the form of reports, pres- entations and financial data, as well as the performance of Holmen shares and contact information. Shareholder categories Share of capital, % 2 18 12 17 53 Swedish institutions Swedish equity funds Swedish private individuals Foreign shareholders 53% 17% 12% 18% Share price performance, Holmen class B and OMX Stockholm Total shareholder return for Holmen B och OMX Stockholm incl. reinvested dividend but excl. tax Index 400 300 200 100 0 Number of shares (thousand) Index 40 000 30 000 20 000 10 000 600 500 400 300 200 100 16 17 18 19 0 20 Jan 21 0 11 12 13 14 15 16 17 18 19 20 Jan 21 Holmen B Total number of class B shares traded (thousands) OMX Stockholm 30 (OMXS30) Holmen B Source: Macrobond OMX Stockholm 30 (OMXS30) 46 Holmen Annual Report 2020 Shareholder information Earnings per share, 2020 Proposed dividend per share, 2020 SEK 12.2 SEK 7.25 + SEK 3.50 Annual return at 31 Dec 2020*, % 1 year 3 years 5 years 10 years Holmen B OMX Stockholm 30 *Including reinvested dividend. 39 7 25 9 28 9 17 9 Holmen’s total shareholder return has averaged 17 per cent a year over the past 10 years, which is 8 percentage points better than the OMX Stockholm 30. Share capital structure Shares Votes No. of shares No. of votes Quotient value SEKm Ownership structure* 31 Dec 2020 % of capital % of votes L E Lundbergföretagen Kempe Foundations Carnegie Funds (Sweden) SEB Funds Alecta Nordea Funds Swedbank Robur Funds Vanguard (US) Norges Bank Länsförsäkringar Total Other Total Of which non-Swedish shareholders 34.1 7.4 5.3 4.3 2.8 2.3 2.3 1.5 1.3 1.3 62.3 17.5 1.5 1.2 0.8 0.7 0.6 0.4 0.4 0.4 62.6 85.8 37.4 14.2 100.0 17.7 100.0 5.3 A B Total no. of shares Holding of repurchased class B shares 10 1 45 246 468 117 265 856 162 512 324 -586 639 452 464 680 117 265 856 569 730 536 -586 639 Total number of shares outstanding 161 925 685 569 143 897 26 1 180 26 3 058 4 238 * Calculated based on the total number of shares outstanding. 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 shareholders’. Based on the decision of the general meeting, 7 000 000 class B shares were cancelled during the year. The quotient value increased in conjunction with this cancellation from SEK 25 to SEK 26. Changes in share capital 2000–2020 Change in no. of shares Total no. of shares Change in share capital Total share capital, SEKm 2001 Cancellation of shares repurchased 2004 Conversion and subscription 2018 Share split 2020 Cancellation of shares repurchased -8 885 827 4 783 711 84 756 162 -7 000 000 79 972 451 84 756 162 169 512 324 162 512 324 -444 239 - - 3 999 4 238 4 238 4 238 Shareholder statistics at 31 Dec 2020 Holding classes, no. of shares No. of share- holders Share of capital, % 1–1 000 1 001–100 000 100 001– Total 44 143 3 882 79 48 104 4 10 86 100 Data per share (adjusted for the 2:1 share split in 2018) 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 Diluted earnings per share, SEK1) 12.2 52.6 13.5 9.9 8.5 3.3 5.4 4.3 11.1 23.6 4.5 4.5 Dividend, SEK Ordinary dividend, SEK Extra dividend, SEK Ordinary dividend in % of Equity Closing market price Profit/loss for the year Return, equity, %1) 3) Return, capital employed, %1) 3) Equity per share, SEK Closing market price, B, SEK Average listed price for year, B, SEK Highest market price for year, B, SEK Lowest market price for year, B, SEK 7.252) 3.52) 3 2 59 5 6 263 394 310 396 228 3.5 6.75 6.5 - 1 1 6 8 9 238 285 220 297 172 - 5 4 50 10 10 140 175 213 240 175 - 5 3 65 8 9 131 218 186 218 157 6 - 5 4 71 8 9 127 164 141 163 114 5.5 - 4 4 158 7 6 124 131 132 153 110 5 - 4 4 93 6 6 125 133 118 136 105 - 4 4 106 4 5 124 117 99 118 87 Total closing market capitalisation, '000 SEKm 64.7 46.6 29.5 36.6 27.4 22.3 22.3 19.7 P/E ratio4) EV/EBITDA3) 5) 32 19 5 14 13 9 22 13 19 10 39 11 25 9 28 10 4 - 3 4 17 8 9 118 99 101 126 78 16.6 4 7 - 4 5 41 6 7 124 96 93 102 85 16.2 9 8 Closing beta value (48 months), B, at year-end6) 0.77 0.77 0.74 0.74 0.72 0.68 0.71 0.67 0.67 0.67 Number of shareholders at year-end 48 104 38 904 33 573 30 903 28 159 28 176 27 788 27 692 28 440 28 899 1) See page 94: Definitions & glossary. 2) Board proposal. 3) Excl. items affecting comparability. 4) Closing market price divided by diluted earnings per share. 5) Market capitalisation plus net financial debt at year-end (EV) divided by EBITDA. 6) 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. Holmen Annual Report 2020 47 Shareholder information Financial statements Income statement, SEKm Note 2020 Net sales Other operating income Change in inventories Raw materials and consumables Personnel costs Other operating costs Change in value of biological assets Depreciation/amortisation according to plan Impairment losses Profit/loss from investments in associates and joint ventures Operating profit Financial income Financial 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 2 3 4 5 9 10, 11, 12 13 13 6 6 7 8 8 Operating profit for 2020 amounted to SEK 2 479 million (2019: 11 115). Lower production costs in Paperboard and higher wood product prices had a positive impact on earnings, though this effect was offset by price decreases and production curtailments in Paper. In 2019, the operating profit for the year included SEK 8 770 million in items affecting comparability. Operating profit excluding items affecting comparability in 2019 totalled SEK 2 345 million. Net financial items totalled SEK -42 million (-34). Net debt totalled SEK 4 181 million (3 784) at year-end. Tax recognised totalled SEK -458 million (-2 351), corresponding to 19 per cent (21) of profit before tax. Statement of comprehensive income, SEKm Note 2020 16 327 1 339 -88 -8 781 -2 411 -3 310 579 -1 172 - -6 2 479 11 -53 2 437 -458 1 979 1 979 8 731 12.2 12.2 161.9 161.9 52.6 52.6 166.1 166.1 2019 16 959 1 370 -220 -9 398 -2 316 -3 597 9 566 -1 141 -109 0 11 115 13 -47 11 081 -2 351 8 731 2019 8 731 13 055 14 -2 687 10 382 -277 247 -7 141 -2 -6 8 105 10 487 19 218 2 968 19 218 9 18 7 13 7 1 979 1 173 -15 -239 920 380 -105 -2 -187 29 16 -61 69 989 2 968 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 hedges Revaluation Transferred from equity to the income statement Transferred from equity to non-current 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 48    Holmen Annual Report 2020 GroupFinancial statementsBalance sheet at 31 December, SEKm Note 2020 2019 Non-current assets Forest assets Biological assets Forest land Non-current intangible assets Property, plant and equipment Right-of-use assets Investments in associates and joint ventures Other shares and participations Non-current financial receivables Deferred tax assets Total non-current assets Current assets Inventories Trade receivables Current tax receivable Other operating receivables Current financial receivables Cash and cash equivalents Total current assets Total assets Equity Share capital Other contributed capital Reserves Retained earnings incl. profit/loss for the year Total equity attributable to owners of the parent company Non-current liabilities Non-current financial liabilities Non-current liabilities relating to right-of-use assets Pension provisions Other provisions Deferred tax liabilities Total non-current liabilities Current liabilities Current financial liabilities Current liabilities relating to right-of-use 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 8 16 14 14 14 18 19 7 14 20 7 19 20 28 663 14 538 555 9 226 284 1 717 2 290 1 55 276 3 594 2 015 6 1 262 43 346 7 267 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 62 543 59 340 4 238 281 11 541 26 457 42 516 3 919 175 48 491 10 570 15 203 605 112 2 496 211 163 1 235 4 824 20 026 62 543 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 Holmen Annual Report 2020    49 GroupFinancial statementsChanges in equity, SEKm Opening equity balance 1 Jan 2019 Profit/loss for the year Other comprehensive income Revaluation of forest land Revaluation of defined benefit pension plans Cash flow hedges 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 Buy-backs of treasury shares Share savings programme Closing equity balance 31 Dec 2019 Profit/loss for the year Other comprehensive income Revaluation of forest land Revaluation of defined benefit pension plans Cash flow hedges 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 Cancellation of treasury shares Bonus issue Share savings programme Closing equity balance 31 Dec 2020 Share capital 4 238 - Other contributed capital 281 - - - - - - - - - - - - - - - - - - - - - - - - - 4 238 - 281 - - - - - - - - - - - -175 175 - 4 238 - - - - - - - - - - - - - 281 Reserves Translation reserve Hedge reserve Revaluation surplus Retained earnings incl. profit/loss for the year Total equity -48 - - - - 141 -2 - 0 140 140 - - - 92 - - - - -187 29 - -6 -165 -165 - - - - -73 118 - - - -37 - - -6 8 -35 -35 - - - 83 - - - 273 - - 16 -55 234 234 - - - - 316 - - 13 055 - - - - - -2 689 10 366 10 366 - - - 10 366 - 1 173 - - - - - -242 932 932 - - - - 18 865 8 731 23 453 8 731 - 14 - - - - 2 17 8 747 -1 134 -1 430 4 25 052 1 979 - -15 - - - - 3 -12 1 967 -567 175 -175 2 13 055 14 -37 141 -2 -6 -2 679 10 487 19 218 -1 134 -1 430 4 40 111 1 979 1 173 -15 273 -187 29 16 -300 989 2 968 -567 - - 2 11 297 26 457 42 516 50    Holmen Annual Report 2020 GroupFinancial statementsCash flow statement, SEKm Operating activities Earnings before tax Adjustments for non-cash items Depreciation/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 non-current intangible assets Investments in and acquisition of biological assets Disposal of biological assets Acquisition of shares and participations Repayment of non-current financial receivables Cash flow from investing activities Financing activities Raised long-term borrowings Repayments of long-term borrowings** Change in current financial liabilities Change in current financial receivables Buy-backs of treasury 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 difference on cash and cash equivalents Cash and cash equivalents at end of year Note 2020 2019 25 2 437 11 081 1 172 - -579 -95 46 -569 2 411 195 -44 -105 2 457 -1 032 12 -7 -128 69 -839 141 -1 783 1 900 - -2 144 3 - -567 -808 -133 483 -4 346 1 141 109 -9 566 86 22 -147 2 727 210 -135 83 2 884 -1 024 21 -14 -9 0 -25 36 -1 015 1 000 -500 385 13 -1 430 -1 134 -1 665 204 278 1 483 25 *Otheradjustmentsprimarilyconsistofforeignexchangeeffectsandthemarkingtomarketoffinancialinstruments,profitfromassociates,aswellasgains/losseson sale of non-current assets. **Referstorepaymentsofloansthatwerelong-termloanswhenraised. Change in net financial debt, SEKm Opening net financial debt New IFRS 16 Leases accounting policy Business combination Cash flow Operating activities Investing activities (excl. non-current financial receivables) Share buy-backs Dividend paid Liabilities arising from new right-of-use agreements Revaluations of defined benefit pension plans Foreign exchange effects and changes in fair value Closing net financial debt 2020 -3 784 - -187 2 457 -1 924 - -567 -163 -15 1 -4 181 2019 -2 807 -205 - 2 884 -1 050 -1 430 -1 134 -76 12 21 -3 784 Holmen Annual Report 2020    51 GroupFinancial statementsIncome statement, SEKm Note 2020 2019 Cash flow statement, SEKm Note 2020 2019 Net sales Other operating income Change in inventories Raw materials and consumables Personnel costs Other external costs Depreciation/amortisation according to plan Operating profit 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 2 3 4 5 10, 11 6, 23 6, 13 6 6 24 7 14 187 690 -119 -7 285 -1 942 -5 150 15 004 706 -114 -7 834 -1 887 -5 449 -48 332 199 - 24 -23 531 1 804 2 336 -417 1 919 -44 382 231 -185 30 -53 404 1 936 2 340 -493 1 847 Statement of comprehensive income, SEKm Profit/loss for the year Other comprehensive income Cash flow hedges Revaluation Transferred from equity to the income statement Transferred from equity to non-current assets Tax attributable to other comprehensive income Total items that will be reclassified to profit/loss for the year Note 2020 2019 1 919 1 847 372 -97 -2 -55 218 -291 264 -7 7 -27 7 Total comprehensive income 2 137 1 820 The parent company includes Holmen’s Swedish operations, with the exception of the majority of the non-current assets and the operation that was taken over on 1 October 2020 in conjunction with the acquisition of Martinsons, which are recognised in other companies in the Group. Profit after net financial items includes the result from hedging equity in foreign subsidiaries of SEK 29 million (-2). Operating activities Profit/loss after financial items Adjustments for non-cash items Depreciation/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 Acquisition of property, plant and equipment Disposal of property, plant and equipment Repayment of non-current financial receivables Acquisition of shares and participations Disposal of shares and participations Cash flow from investing activities Financing activities Raised long-term borrowings Repayments of external long-term borrowings** Change in other financial liabilities Change in other financial receivables Dividend paid to owners of the parent company Buy-backs of treasury 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 25 531 404 48 95 -50 22 -440 44 - 87 -6 -74 206 455 187 96 -171 319 -72 6 141 -918 - -842 56 -129 134 516 -73 8 36 -210 109 -135 1 900 1 000 - -1 941 -1 549 -567 - 2 513 -1 355 -168 403 236 -500 475 -1 190 -1 134 -1 430 2 572 -2 -208 173 230 403 * Other adjustments primarily consist of currency effect and the marking to market offinancialinstrumentsandgains/lossesonthesaleofnon-currentassets. **Referstorepaymentsofloansthatwerelong-termloanswhenraised. 52    Holmen Annual Report 2020 Parent companyFinancial statementsBalance sheet at 31 December, SEKm Non-current assets Non-current intangible assets Property, plant and equipment Non-current financial assets Shares and participations Non-current 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 Changes in equity, SEKm Opening equity balance 1 Jan 2019 Appropriation of profits Profit/loss for the year Other comprehensive income Cash flow hedges Tax on other comprehensive income Total other comprehensive income Total comprehensive income Dividend paid Buy-backs of treasury shares Share savings programme Note 2020 2019 Balance sheet at 31 December, SEKm Note 2020 2019 10 11 13, 23 14 17 3 038 24 3 008 11 597 3 467 18 119 10 774 2 397 16 203 15 16 7 14 14 2 659 2 442 - 43 236 5 379 2 867 2 364 - 14 403 5 648 23 498 21 852 Equity Restricted equity Share capital Statutory reserve Revaluation reserve Non-restricted equity Retained earnings incl. hedge reserve Profit/loss for the year Total equity Untaxed reserves Provisions Pension provisions Other provisions Deferred tax liabilities Total provisions Liabilities Non-current financial liabilities Current financial liabilities Current tax liabilities Operating liabilities Total liabilities 17 24 18 19 7 14 14 7 20 4 238 1 577 100 4 394 1 919 4 238 1 577 100 2 894 1 847 12 228 10 656 2 354 1 646 4 744 657 0 839 614 1 405 1 454 4 083 514 145 2 769 7 511 2 480 2 493 105 3 018 8 096 Total equity and liabilities 23 498 21 852 Restricted equity Non-restricted equity Statutory reserve Revaluation reserve Hedge reserve Retained earnings Profit/loss for the year 1 577 100 162 4 805 Share capital 4 238 - - - - - - - - - - - - - - - - - - - - - - - - - - - Closing equity balance 31 Dec 2019 4 238 1 577 100 Appropriation of profits Profit/loss for the year Other comprehensive income Cash flow hedges Tax on other comprehensive income Total other comprehensive income Total comprehensive income Dividend paid Cancellation of treasury shares Bonus issue Share savings programme Closing equity balance 31 Dec 2020 - - - - - - - -175 175 - 4 238 - - - - - - - - - - - - - - - - - - - - 1 577 100 Total equity 11 395 - 1 847 -34 7 -27 1 820 -1 134 -1 430 4 10 656 - 1 919 272 -55 218 2 137 -567 - - 2 514 -514 1 847 - - - 1 333 - - - 1 847 -1 847 1 919 - - - 72 - - - - - - -34 7 -27 -27 - - - 135 - - 272 -55 218 218 - - - - 353 514 - - - - 514 -1 134 -1 430 4 2 759 1 847 - - - - 1 847 -567 175 -175 2 4 042 1 919 12 228 Holmen Annual Report 2020    53 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. Right-of-use assets (leases) 13. Investments in associates, joint ventures and other shares and participations Note 1. Accounting policies 54 14. Financial instruments 59 15. Inventories 60 16. Operating receivables 17. Equity, parent company 61 62 62 63 64 65 66 66 67 68 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. Business combinations 27. Critical accounting estimates and judgements 69 72 72 72 73 74 74 74 75 76 77 77 78 78 The accounting policies for the Group presented below have been applied con- sis tently 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. A decision has been taken within the EU to allow Member States to defer reporting under the ESEF for one year. An amendment to the law is proposed to enter into force on 15 March 2021 with application from 1 January 2021, stating that the first reporting according to ESEF will take place beginning with the annual report for 2021. Consequently, Holmen AB will not prepare an annual report for 2020 in accordance with ESEF. 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 environments 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 assumptions that affect the application of the accounting policies and the recognised 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 27 ‘Critical accounting estimates and judgements’. Changes in accounting policies New and amended accounting policies applicable as of 2020 New and amended IFRSs with application from 2020 do not have any material impact on the company’s financial statements. Amendments to IFRS 9 and IFRS 7 were adopted on 15 January 2020 as a result of the Interest Rate Benchmark Reform. The amendments provide temporary exceptions from the application of specific requirements for hedge accounting for hedging relationships that are directly impacted by this reform. The exceptions apply to hedge accounting so that companies should not have to discontinue hedging relationships due to uncertainty concerning the reform. The amendments are to be applied as of 1 January 2020. For such currencies where the reference rate reform is underway, continued hedge accounting will apply while the reform is in progress. Nevertheless, these hedges are expected to be effective in the future. Consequently, the reform is not expected to have any material impact on the Group’s financial statements. See also Note 14. 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 54    Holmen Annual Report 2020 Note 1Noteshighest executive decision-maker. See Note 2 for more details of the classification 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 corresponds to the Group’s interest in the associates and joint ventures’ equity and any con- soli dated surplus and deficit values. The Group’s share of the net earnings of associates and joint ventures after tax attributable to parent company owners adjusted for any depreciation/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 con- solidated 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. Translation differences arising during currency translation of foreign operations and the related effects of hedging net investments are recognised in other compre- hensive income and are accumulated in a separate component of equity called the translation reserve. In the disposal of a foreign operation, the accumulated trans- lation differences attributable to the business are realised, less any currency hedg- ing, 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 Skog AB, Iggesund Paperboard AB, Holmen Paper AB, Holmen Timber 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 and services in the construction industry such as installation work. 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. Through the acquisition of Martinsons on 1 October 2020, the Group’s operations also include wood construction solutions. Income from this activity is treated as a commercial construction contract and reported over time, based on hours worked in relation to the total estimated working hours of the project. Projects usually do not extend beyond twelve months. Accrued income related to commercial construction contracts is initially recognised as contract assets, since the right to payment is conditional upon customer approval. When the customer has accepted the goods, the amount of the contract asset is recognised as a receivable instead. Advances received are included in the contract liability. Payment terms vary from market to market and Holmen usually follows applicable practice on the respective market. 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, 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. 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. Holmen Annual Report 2020    55 Note 1NotesFinancial income and costs Financial 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 qualify- ing 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/loss 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 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 since the assets are held with the objective of collecting the contractual cash flows, which consist of principal and interest on the outstanding principal. 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 56    Holmen Annual Report 2020 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 indication 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 individual 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 44–45. 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 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 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 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 the value of acquired wood supply business, patents, licences and IT systems are recognised at cost after deduction of accumulated amortisation and any impairment losses. The Group’s non-current intangible assets are amortised over periods of between 5 and 20 years, except for goodwill. Both goodwill and other non-current intangible assets are tested for impairment annually. Any impairment losses may be reversed via exceptions from goodwill. Non-current intangible assets in the parent company are amortised over five years. Note 1Notes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 allocated to cash-generating units that are expected to benefit from the effects of the acquisition. 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 attribu table 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 determining whether or not additional expenditure is capitalised is if it relates to the replacement of identified components or parts thereof, in which case the expenditure is capitalised. The cost is also capitalised in cases where a new component is created. Any undepreciated 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 10–40 Administrative and warehouse buildings, residential properties 10–33 Production buildings, land installations, and machinery for sawmills, pulp, paper and paperboard production Other machinery Forest roads Equipment 10–20 10 20 4–10 If there is any indication that the book value is too high, an analysis is made in which the recoverable amount 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 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. Right-of-use assets (leases) 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. Parent company The policies on leases, in accordance with IFRS 16, that are 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 as operating leases. 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 recog- nised 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. Unsold certificates are measured at the lower of cost and fair value. 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. The Group’s net obligation regarding defined benefit plans is calculated separately 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. Holmen Annual Report 2020    57 Note 1NotesHoldings of shares bought back are stated as a reduction in retained earnings. Acquisitions of treasury shares are stated as a deduction, and proceeds from the disposal of treasury 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 estimate of the amount can be made. A provision to cover restructuring is recognised once the Group has established a detailed and formal restructuring plan and the 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 impairment 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 (-). 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 valuation of the shares at the allocation date. 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 recognised 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 employee benefits 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 trans- actions that have not yet occurred, including tax. The revaluation surplus also comprises changes in value attributable to forest land. Retained earnings comprise all other parts of equity, including profit/loss for the year. 58    Holmen Annual Report 2020 Note 1NotesNote 2. Operating segment reporting 2020 Net sales External Internal Other operating income Operating costs Change in value of biological assets Depreciation/amortisation according to plan Share of profits of associates Operating profit Operating margin, % Return on capital employed, % Operating assets Operating liabilities Net deferred tax Capital employed Acquisition of non-current assets External net sales by market Sweden Germany UK France Italy Poland Rest of Europe Asia Rest of the world Total Net sales by market Sweden Germany UK France Italy Poland Rest of Europe Asia Rest of the world Total Forest Paperboard Paper Wood Products Renewable Energy Group-wide and other Eliminations Total Group 2 664 3 219 279 -5 318 579 -55 - 1 367 23 4 45 088 -1 673 -9 185 34 230 207 2 656 - - - - - 8 - - 2 664 6 187 - 796 -5 617 - -554 - 812 13 15 6 920 -869 -775 5 276 275 105 1 258 774 380 271 397 1 352 1 329 321 6 187 4 879 - 179 -4 603 - -381 - 73 2 4 2 925 -693 -262 1 969 280 279 850 590 425 532 321 1 250 438 192 4 879 2 222 - 395 -2 308 - -124 - 185 8 17 2 625 -727 -52 1 846 107 781 6 465 11 2 0 411 174 371 2 222 375 3 19 -149 - -27 -6 215 57 7 3 810 -121 -339 3 351 291 375 - - - - - - - - 375 Group Parent company 2020 4 197 2 115 1 830 816 805 718 3 022 1 940 884 2019 4 084 2 244 1 958 910 938 719 3 050 1 765 1 291 2020 4 382 1 707 1 253 647 716 488 2 332 1 841 820 2019 4 045 1 849 1 224 758 854 527 2 184 1 714 1 847 16 327 16 959 14 187 15 004 Net sales by product area Consumer paperboard Pulp Book and magazine paper Newsprint Wood products, pine Wood products, spruce Wood construction solutions Wood Electricity Other - - 248 -392 - -31 - -174 - - 873 -893 44 24 845 - - - - - - - - - - - -3 222 -577 3 799 - - - - - - -379 379 - - - - - - - - - - - - - 16 327 - 1 339 -14 589 579 -1 172 -6 2 479 15 6 61 862 -4 597 -10 568 46 697 2 006 4 197 2 115 1 830 816 805 718 3 022 1 940 884 16 327 Group Parent company 2020 2019 2020 2019 187 260 293 6 001 5 969 3 861 3 596 369 4 381 5 058 4 381 4 976 699 904 789 - 2 664 2 913 2 656 2 909 350 411 498 1 035 1 080 107 699 904 789 - 498 863 948 - 330 45 350 17 330 358 Income from external customers is allocated to individual countries according to the country in which the customer is based. Group Parent company Non-current assets per country 2020 2019 2020 2019 Sweden UK Other Total 53 657 50 532 14 652 13 806 - - 1 587 5 1 321 4 - - 54 983 52 124 14 652 13 806 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, as well as wood construction solutions, 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. The annual volume in own forest amounts to 2.8 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. Total 16 327 16 959 14 187 15 004 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 mainly for books, magazines and advertising at two Swedish mills. The Wood Products business area produces wood products at five sawmills, for use in joinery and construction. In 2020, the Group produced 0.6 million tonnes of paperboard and 0.9 million tonnes of paper. Production of sawn wood products totalled 1.0 million m3, including 0.1 million m3 from the wood products company Martinsons, which was acquired as of 1 October. 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 operating receivables and operating liabilities, and the net amount of deferred 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. Holmen Annual Report 2020    59 Note 2NotesNotes 2–3 Note 2. Operating segment reporting, cont. 2019 Forest Paperboard Paper Wood Products Renewable Energy Group-wide and other Eliminations Total Group Net sales External Internal Other operating income Operating costs Change in value of biological assets Depreciation/amortisation according to plan Impairment losses Share of profits of associates Operating profit 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 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 2 913 3 372 191 -5 747 9 566 -45 - - 10 250 6 229 - 839 -6 072 - -562 - - 435 5 757 - 185 -5 051 - -382 - - 509 1 172 435 509 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 0 227 336 89 11 3 521 -127 -335 3 058 203 367 - - - - - - - - 367 - - 224 -562 - -29 - - -368 -168 - - 546 -982 64 -372 21 - - - - - - - - - - - -3 384 -521 3 905 - - - - - - - - -445 445 - - - - - - - - - - - - - 16 959 - 1 370 -15 531 9 566 -1 141 -109 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. Note 3. Other operating income Group Parent company 2020 2019 2020 2019 Certificates, renewable energy Sales of by-products Rent and land lease income Emission allowances Silviculture contracts Sales of non-current assets Other 457 411 94 85 80 59 153 510 371 54 86 70 15 265 Total 1 339 1 370 12 291 49 83 80 6 170 690 31 272 51 87 70 7 187 706 Of the sales of by-products in the Group, SEK 118 million (111) relates to rejects from production, SEK 186 million (132) to wood shavings, bark and chips, as well as SEK 108 million (127) 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 457 million (510), of which SEK 445 million (479) refers to the UK. The Group has been allotted emission allowances that have been used partly within its own production. The surplus resulted in a gain of SEK 85 million (86). 60    Holmen Annual Report 2020 NotesNote 4. Employees, personnel costs and remuneration to senior management Note 4 Wages, salaries and social security costs Wages, salaries and other remuneration Social security costs Group Parent company 2020 2019 2020 2019 1 694 679 1 625 633 1 326 577 1 300 543 AGM’s guidelines for determining salaries and other remuneration for senior management The 2020 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 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 programme has been established within the company, which is described below under Share savings programme. It was approved by the 2019 AGM and is therefore not covered by these guidelines. 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 contributions 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, 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. 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 remuneration 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 management. Under Chapter 8, § 51 of the Swedish Companies Act, the Board must draft proposed 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 company 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. Share savings programme The 2019 AGM approved a targeted share savings programme for key individuals in the Group. 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. Participation in the programme required the relevant employees to have personally 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 addition, performance shares may be allocated, depending on the level of the Group’s return on capital employed. The maximum number of performance shares varies depending on the participant’s position and amounts to 3–6 shares per savings share. The assignment of matching and performance shares requires participants 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 through the day of publication of the interim report for the first quarter of 2022. The maximum number of shares that can be allocated is estimated at 151 000. Total costs for the programme are estimated at SEK 11 million. Costs of SEK 5 million have been recognised for 2020. 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 2020, fees to the Board amounted to SEK 3 195 000 (3 195 000). The chairman of the Board 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 2020 amounted to SEK 9 783 332 (16 404 506), of which SEK 0 (7 341 506) relates to the value of shares allocated under the 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 5 647 641 (5 193 543). Recognised wages and salaries for the share savings programmes for the CEO amounted to SEK 577 836 (809 752). In 2020, the salaries and other benefits of other senior management, i.e. the heads of the five (five) 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 29 066 025 (37 499 766) in 2020, of which SEK 0 (10 964 132) relates to the value of shares allocated under the 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 11 795 571 (11 566 102) in 2020. Recognised wages and salaries for the share savings programmes for this group amounted to SEK 1 802 587 (1 446 961). 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 corresponding 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 29 million (23) at 31 December 2020 and for other members of senior management to SEK 31 million (26), calculated in accordance with IAS 19. The pension obligations are secured using plan assets managed by an independent pension fund. Holmen Annual Report 2020    61 NotesNotes 4–6 Note 4. Employees, personnel costs and remuneration to senior management, cont. Average no. of employees (FTE) Of which women Of which men Average no. of employees (FTE) Of which women Of which men 2020 2019 2 316 462 1 854 2 349 445 1 904 12 76 377 123 22 12 35 6 41 41 17 8 4 15 6 35 336 106 14 8 20 12 73 409 - 23 13 36 5 39 45 - 8 5 15 7 34 363 - 15 8 21 658 132 526 566 118 448 2 974 594 2 380 2 915 562 2 352 Parent company Sweden Group companies France Netherlands UK Sweden Germany US Other countries Total Group companies Total Group Proportion of women, % Board (excl. deputy members) Senior management Total Group Parent company 2020 25 17 21 2019 25 17 21 2020 25 17 21 2019 25 17 21 Note 5. Auditors’ fee and remuneration The audit firm KPMG was elected by the 2020 AGM as Holmen’s auditors for a period of one year. KPMG audits Holmen AB and almost all of its subsidiaries. Group Parent company 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 2020 2019 2020 2019 - - 15 6 -22 -2 -5 -47 -53 -42 - - -95 - - -185 -28 -3 29 -2 -4 -41 -47 -34 43 6 -21 28 - -52 -118 199 -29 -3 29 -4 - -50 -238 22 *SEK -7 million (-18) in the Group and parent company relates to interest expense for derivatives valued at fair value through other comprehensive income. SEK -2 million (-4) 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 44–45. The income from financial instruments included in operating profit/loss is shown in the following table: Group Parent company Remuneration to KPMG 2020 2019 2020 2019 2020 2019 2020 2019 Audit assignments Tax advice Total Other auditors Total 7 0 7 0 7 7 1 7 0 7 4 0 5 - 5 5 1 5 - 5 ‘Audit assignments’ refers to the statutory examination of the annual accounts and accounting records, the administration by the Board and the CEO, and auditing 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 connection 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 Group Parent company 2020 2019 2020 2019 - 0 - 0 11 11 - 0 0 - 13 13 284 - 10 0 24 318 148 - 82 - 30 261 *SEK 11 million (12) relates to interest income calculated using the effective interest rate method from financial items valued at amortised cost. Exchange gains/losses on trade receivables and trade payables Net gain/loss on derivatives stated in working capital 48 336 45 343 -98 -250 -80 -265 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 2020 amounted to SEK -16 million (-419), with the remainder being recognised in other comprehensive income as hedge accounting is applied. The fair value of outstanding currency hedges at 31 December 2020 was SEK 466 million (-27). Gains/losses on financial electricity hedges are recognised in the income statement when they expire; for 2020 they totalled SEK -82 million (172). The fair value of outstanding financial electricity hedges at 31 December 2020 was SEK 14 million (206). 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 -35 million (4) at 31 December 2020. In 2020 there was an impact of SEK -2 million on the cost of hedged items owing to results from hedging. Results from hedging of foreign net assets amounted to SEK 29 million (-2) in 2020 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 -187 million (141) on consolidated equity. The fair value of outstanding hedges of net assets at 31 December 2020 was SEK 7 million (3) and relates to financial derivatives. The fair value of the derivatives used to manage the fixed interest periods amounted to SEK -3 million (-6) at 31 December 2020, which was recognised in other comprehensive income as hedge accounting is applied. This value is expected to be recognised in the income statement in 2021 and later. 62    Holmen Annual Report 2020 Notes Note 7 Note 7. Tax Taxes stated in income statement 2020 2019 2020 2019 Group Parent company Current tax Deferred tax Total -517 -582 59 -1 769 -458 -2 351 -429 12 -417 -506 13 -493 Tax recognised totalled SEK -458 million, corresponding to 19 per cent of profit before tax. In 2019, tax recognised was affected by SEK -1 870 million from a change in the accounting of forest assets. Group Parent company 2020 2019 2020 2019 % SEKm % SEKm 2 336 % SEKm 2 340 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 SEKm 2 437 -521 9 7 -19 -2 0 60 5 4 -458 11 081 -2 371 2 23 -29 -1 0 -6 62 -30 21.4 -0.4 -0.3 0.8 0.1 0.0 -2.4 -0.2 -0.2 18.8 -2 351 21.4 0.0 -0.2 0.3 0.0 0.0 0.1 -0.6 0.3 21.2 -500 0 64 -24 -2 0 45 0 0 -417 21.4 0.0 -2.7 1.0 0.1 0.0 -1.9 0.0 0.0 17.9 -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 Tax attributable to other comprehensive income Cash flow hedges 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 Group Parent company Before tax After tax Before tax After tax Before tax Tax After tax Before tax Tax Tax After tax Tax 2020 2019 2020 2019 -29 272 -55 218 -34 273 -55 218 -37 16 -187 - - 16 -6 -187 141 8 - - -6 141 29 1 173 -6 -242 23 -1 932 13 055 -2 689 10 366 -2 0 -15 3 -12 14 2 16 - - - - - - - - - - - - - - - - - - - - 7 - - - - - 7 -27 - - - - - -27 Other comprehensive income 1 289 -300 989 13 166 -2 679 10 487 272 -55 218 -34 Taxes as stated in balance sheet 2020 2019 2020 2019 Group Parent company 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 1 6 7 1 0 2 - - - - - - 5 901 2 939 1 063 509 5 746 2 697 1 434 359 - 595 2 - - 595 2 - 92 66 37 27 Deferred tax liabilities 10 570 10 299 Current tax liability Total tax liabilities 211 112 10 780 10 411 91 37 -32 657 145 802 -19 614 105 719 Holmen Annual Report 2020 63 NotesNotes 7–8 Note 7. Tax, cont. Change in the net amount of deferred tax assets and deferred tax liabilities Group Stated in the income statement Stated in other com- prehensive income Opening balance Translation differences and other Business combination Closing balance Opening balance Parent company Stated in the income statement Stated in other com- prehensive income -5 746 -2 697 -1 434 -359 -37 -26 -10 298 -155 - 357 -150 - 7 59 - -242 - - -55 -3 -300 - - 14 - 0 7 21 - - - - - -50 -5 901 -2 939 -1 063 -509 -92 -66 - -595 -2 - -37 19 -50 -10 570 -614 - -1 - - - 13 12 - - - - -55 - -55 2020 Biological assets Forest land Property, plant and equipment Tax allocation reserve Transactions subject to hedge accounting Other Deferred net tax liability 2019 Biological assets Forest land Property, plant and equipment Tax allocation reserve Transactions subject to hedge accounting Other Group Stated in other com- prehensive income Stated in the income statement -1 973 - 324 -134 - 13 - -2 689 - - 8 2 Opening balance -3 773 -8 -1 746 -225 -44 -42 Translation differences and other Closing balance Opening balance Parent company Stated in the income statement Stated in other com- prehensive income - - -12 - - 1 -5 746 -2 697 -1 434 -359 -37 -26 - -594 -2 - -44 6 -635 - -1 - - - 13 13 - - - - 7 - 7 Deferred net tax liability -5 838 -1 769 -2 679 -11 -10 298 Closing balance - -596 -2 - -91 32 -657 Closing balance - -595 -2 - -37 19 -614 The Group’s deferred tax liability for forest assets (biological assets and forest land) amounts to SEK 8 840 million (8 442) and is calculated based on the difference between book value SEK 43 201 million (41 345) and taxable cost SEK 315 million (363). 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/amortisation in excess of plan. The amount recognised in other comprehensive income includes deferred tax mainly related to a change in the value of forest land of SEK -242 million (-2 689) and hedge reserve of SEK -55 million (8). In 2020 the Group’s Spanish companies were liquidated. Holmen is considering applying group relief in the parent company related to the companies’ tax losses. No deferred tax asset has been recognised for these losses. There are no other loss carry-forwards of significance in the Group. The share savings programme approved by the 2019 AGM may entail allocation of up to 151 000 shares from Holmen’s treasury holdings when the programme expires in 2022. The effects on key ratios and profit per share are marginal. Note 8. Earnings per share Group 2020 2019 Total number of shares outstanding, 1 January Buy-back of treasury shares during the year Share savings programme allocation 161 925 685 167 992 324 - 6 235 436 168 797 - - Total number of shares outstanding, 31 December 161 925 685 161 925 685 Shareholders’ share of profit/loss for the year, SEKm Basic average number of shares 1 979 8 731 161 925 685 166 097 996 Basic EPS for the year, SEK 12.2 52.6 Shareholders’ share of profit/loss for the year, SEKm Diluted average number of shares 1 979 8 731 161 925 685 166 097 996 Diluted EPS for the year, SEK 12.2 52.6 64 Holmen Annual Report 2020 Notes Note 9. Forest assets Holmen owns a total of 1 303 000 hectares of land, of which 1 043 000 hectares are productive forest land. Forest assets are recognised 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. The volume of standing timber is estimated at 124 million cubic metres growing stock, solid over bark, based on the inventory conducted in 2019 and taking into account subsequent growth and harvest. No value is assigned to land that is not productive forest land. The book value of forest assets amounted to SEK 43 202 million (41 345) at 31 December 2020. The value corresponds to an average of SEK 41 420 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. North Central South Productive forest land, ‘000 ha Volume of standing timber, mil. m3 solid over bark 688 264 74 35 91 15 Total 1 043 124 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. The trees that are currently growing are expected to be harvested when they reach an age of 85 years. The volumes are based on the long-term harvest plan that was updated 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 (4.5) 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 change in value of biological assets, calculated as the net of the change as a result of harvesting and the unrealised change in fair value is stated in the income statement and in 2020 totalled SEK 579 million (9 566). For 2019 this amounted to SEK 9 079 million, recognised as an item affecting comparability as a result of amended assumptions, primarily an amended discount rate. The change in fair value for forest land is recognised in other comprehensive income and totalled SEK 1 173 million (13 055). In 2019 a new accounting policy was adopted for forest land that affected the size of the change. Note 9 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 following graphs show historical market prices for forest properties and the development of Holmen’s volume of standing timber according to completed inventories. Price of forest properties, SEK/m3 800 600 400 200 0 2015 2016 2017 2018 2019 2020 Southern Sweden Central Sweden Northern Sweden Source: Infotrader together with Holmen’s calculations. Average prices based on market transactions per county weighted together based on Holmen’s holdings in each region. Rolling 3-year average. Volume of standing timber, m3 solid over bark growing stock per hectare of productive forest land 160 120 80 40 0 1948 1955 1965 1975 1988 1993 2000 2010 2020 SEKm Change in assumption Market price based on market statistics Forest stand volume of timber Price change SEK 5/m3 growing stock, solid over bark 1 million m3 growing stock, solid over bark Change in value, before tax 2020 2019 620 615 350 335 In 2019 and 2020, an external independent valuation was carried out for forest properties corresponding to 44 per cent of book value. The external valuation exceeds the book value by an average of 4 per cent. The inventory conducted in 2019 is a random sample inventory of forest holdings with an estimated standard error of 1.3 per cent. Group Book value at start of year Acquisitions Disposal Investment in reforestation Change due to harvesting Unrealised change in fair value Other changes Book value at end of year Forest assets Biological assets Forest land Of which 2020 41 345 9 -22 128 -691 2 444 -12 43 202 2019 18 701 16 -3 - -665 23 286 10 41 345 2020 27 979 0 -16 128 -691 1 271 -8 28 663 2019 18 400 9 -3 - -665 10 231 7 27 979 2020 13 366 9 -6 - - 1 173 -4 14 538 2019 301 7 - - - 13 055 3 13 366 The acquisition cost of forest land amounted to SEK 310 million at 31 December 2020. Holmen Annual Report 2020 65 NotesNotes 10–11 Note 10. Non-current intangible assets Group Accumulated acquisition costs Opening balance Business combination Investments Disposal and retirement of assets Translation differences Total Accumulated amortisation, depreciation and impairment losses Opening balance Depreciation/amortisation for the year Disposal and retirement of assets Translation differences Total Residual value according to plan at end of year Group Goodwill Other intangible assets Total Parent company Non-current intangible assets 2020 2019 2020 2019 2020 2019 2020 2019 - 355 - - - 355 - - - - - 355 - - - - - - - - - - - - 225 140 7 -2 0 370 155 17 -2 0 170 200 231 - 12 -18 1 225 163 10 -18 1 155 70 225 495 7 -2 0 725 155 17 -2 0 170 555 231 - 12 -18 1 225 163 10 -18 1 155 70 68 - - - - 68 44 6 - - 50 17 81 - 5 -18 - 68 56 6 -18 - 44 24 The goodwill recognised in conjunction with the acquisition of Martinsons in 2020 relates to the Wood Products business area, see Note 26. Goodwill is tested for impairment annually by calculating the value in use of the cash-flow generating unit to which goodwill has been allocated. The calculations are made by assessing future cash flows. The impairment test performed in 2020 is based on analyses of margin and volume growth made in connection with the acquisition. The future cash flows have been discounted by 8 per cent interest before tax. The discount rate has been determined by calculating the weighted average cost of capital (WACC). Based on these calculations, there is no need for impairment. Other intangible assets consist primarily of the value of the wood supply business included in the acquisition of Martinsons SEK 134 million (0), right-of-use relating to certain energy assets SEK 49 million (46) and IT systems SEK 10 million (16). The assets are mainly externally acquired and all assets, with the exception of goodwill, have a definable useful life. Note 11. Property, plant and equipment Buildings, other land* and land installations Machinery and equipment Work in progress and advance payments to suppliers Total 2020 2019 2020 2019 2020 2019 2020 2019 5 934 475 79 7 -1 -53 6 441 3 549 348 110 - 0 -36 3 971 2 471 5 695 - 195 10 -9 43 5 934 29 050 866 549 89 -416 -399 29 739 28 573 - 657 36 -534 318 29 050 3 418 - 22 773 646 22 154 - 949 - -414 -294 934 -13 -528 227 23 660 22 773 100 13 -9 27 3 549 2 385 244 134 397 -96 - -2 676 - - - - - - - 80 - 208 -46 - 3 244 35 229 1 475 1 025 - -417 -454 36 858 34 348 - 1 060 - -543 364 35 229 - - - - - - - 26 323 994 25 572 - 1 059 - -414 -330 1 034 - -537 254 27 632 26 323 6 078 6 277 676 244 9 226 8 906 Group Accumulated acquisition costs Opening balance Business combination Investments Reclassifications Disposal and retirement of assets Translation differences Total Accumulated amortisation, depreciation and impairment losses Opening balance Business combination 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 *Other land refers to land other than forest land. 66 Holmen Annual Report 2020 NotesNotes 11–12 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 *Other land refers to land other than forest land. Forest land Buildings, other land* and land installations Machinery and equipment Work in progress and advance payments to suppliers Total 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 474 4 - - 478 - - - - 469 5 - - 474 - - - - 177 9 4 - 190 166 5 6 - 177 136 133 4 - 3 - 139 136 2 388 - 2 388 2 388 - 2 388 1 - 1 1 - 1 260 52 9 -18 303 173 38 -18 193 - - - 243 46 1 -30 260 168 35 -30 173 - - - 17 7 -13 - 10 - - - - - - - 8 17 -8 - 17 - - - - - - - 928 72 - -18 982 309 42 -18 333 886 72 - -30 928 301 38 -30 309 2 389 - 2 389 2 389 - 2 389 2 866 2 862 51 42 111 87 10 17 3 038 3 008 For forest assets in the Group see Note 9. The Group’s investment commitments relating to approved and ongoing projects amounted to SEK 1 304 million (1 841) at 31 December 2020, the majority of which is attributable to the Blåbergsliden Wind Farm. In 2020, capitalised borrowing costs totalled SEK 2 million (3). An interest rate of 1.2 per cent (1.1) was used to determine the amount. Note 12. Right-of-use assets (leases) Group Accumulated acquisition costs Value at start of year Amended accounting policy Business combination Additional right-of-use agreements Completed leases Total Accumulated depreciation and amortisation Value at start of year Depreciation/amortisation for the year Completed leases Total Value at end of year 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 such assets is normally 2 to 5 years. Buildings Machinery and equipment Total 2020 2019 2020 2019 2020 2019 167 - 3 82 -17 235 42 38 -17 63 172 - 143 - 24 0 167 - 42 0 42 126 113 - 32 80 -36 188 56 58 -36 78 111 - 62 - 51 0 113 - 56 0 56 57 281 - 35 162 -53 424 98 96 -53 141 284 - 205 - 75 0 281 - 98 0 98 183 Amounts recognised in profit/loss 2020 2019 Depreciation/amortisation Interest expense Costs related to current lease liabilities Costs related to low-value leases Costs related to variable leases 96 5 2 0 0 98 4 2 0 2 102 106 In 2020 the Group’s payments attributable to leases amounted to SEK 102 million (104). 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 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. Holmen Annual Report 2020 67 NotesNote 13 Note 13. Investments in associates, joint ventures and other shares and participations Profit/loss from associates and joint ventures Recognised in profit/loss for the year Stated in other comprehensive income Total comprehensive income Group 2020 -6 16 10 2019 0 -6 -6 Associates and joint ventures Book value at start of year Business combination Investments Disposals Share of earnings Translation difference Impairment losses Other Book value at end of year Associates Joint ventures Total Group Parent company Group Parent company Group Parent company 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 1 620 13 10 - -1 - - - 1 626 - 25 -29 -1 - - - 1 642 1 620 87 - - - - - - - 87 114 - - -26 - - - - 87 0 - 64 - 11 0 - 0 75 113 - - - -5 0 -109 0 0 0 - 64 - - - - - 64 185 - - - - - -185 - 1 620 13 74 - 10 0 - 0 1 740 - 25 -29 -6 0 -109 0 87 - 64 - - - - - 0 1 717 1 620 151 299 - - -26 - - -185 - 87 Parent company and Group holdings of shares and investments in associates and joint ventures Corporate ID No. Registered office Number of holdings Holding %* 556036-9398 556504-2826 556017-6678 556016-0953 556594-6984 556594-3015 Vännäs Lycksele Arbrå Örnsköldsvik Stockholm Umeå 9 886 683 5 556 990 2 300 2 014 49.4 6.8 13.9 9.9 46.0 40.3 556914-9833 Stockholm 250 50.0 Associates Harrsele AB Vattenfall Tuggen AB Brännälvens Kraft AB Gidekraft AB Uni4 Marketing AB Rebio AB Other associates Joint venture Varsvik AB Total Value of holding in consolidated accounts 2020 Book value in the parent company Holding %* Value of holding in consolidated accounts 2019 Book value in the parent company 1 493 85 36 0 16 10 1 1 642 75 1 717 49.4 6.8 13.9 9.9 36.0 - 50.0 - 85 - 0 2 - 0 87 64 151 1 484 85 36 0 15 - 0 1 620 0 1 620 - 85 - 0 2 - 0 87 0 87 *The percentage of ownership corresponds to the percentage of votes for the total number of shares. Other shares and participations 2020 2019 2020 2019 Group Parent company Book value at start of year Investments Disposals Translation difference Impairment losses Book value at end of year 1 0 0 0 - 2 1 - - 0 - 1 0 - 0 - - 0 0 - - - 0 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 earnings are stated in the consolidated accounts within the Renewable Energy business area. The holding in associate Harrsele AB is recognised in the Group at SEK 1 493 million (1 484). Holmen purchased 568 GWh (476) of electrical power from Harrsele AB in 2020, giving Holmen an operating profit of SEK 112 million (133) 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 140 million (122). The company’s shareholders made a shareholders contribution during the year of SEK 20 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. 68    Holmen Annual Report 2020 Notes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. 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. Loans, accrued interest expense, unrealised exchange losses and fair values of derivatives are stated as financial liabilities. Financial liabilities are largely interest-bearing. In addition to the financial assets and liabilities identified above, liabilities relating 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 44–45. SEK 514 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 489 million (147). Assets and liabilities are not offset in the report. Recognised derivatives totalled SEK 577 million (326) on the asset side and SEK -88 million (-179) on the liability side. The ongoing reference rate reform only has a marginal impact on Holmen, since interest derivatives are almost exclusively denominated at the Swedish reference rate. For such currencies where the reference rate reform is underway, continued hedge accounting will apply while the reform is in progress. Nevertheless, these hedges are expected to be effective in the future. 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 calculations, such as discount rates and exchange rates, are taken from market listings 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. 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 44–45 and Note 6 on page 62. Note 14 2021 2022 2023 2024 2025– -9 -66 -2 496 -113 -630 -4 -2 - -2 -7 - -2 0 - -3 - - -50 -80 -529 -1 026 -1 023 -1 428 -29 -36 18 3 297 2 015 380 226 - 35 2 29 - 36 2 0 - 37 3 2 - 200 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 *Liabilitiesrelatingtoright-of-useassetsarenotclassifiedasafinancialinstru- ment 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 2021 2022 2023 2024 2025– -9 -4 -2 -2 -3 -66 -1 970 -539 -2 - - - -529 -1 026 -1 023 -1 422 -7 - 0 - 18 3 297 1 487 266 226 - 35 2 29 - 36 2 0 - 37 3 2 - 188 Holmen Annual Report 2020    69 NotesNote 14 Note 14. Financial instruments, cont. 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 Bank balances Non-current liabilities Bonds Derivatives Other non-current liabilities Current liabilities Commercial paper programme Derivatives Accrued interest Other current liabilities Financial instruments not included in net financial debt Other shares and participations Trade receivables Derivatives (recognised among operating receivables) Trade payables Derivatives (recognised among operating liabilities) Total financial instruments Recognised at fair value through profit/loss* Hedging instruments Recognised at amortised cost Total book value Fair value 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 - - - - 16 - 16 - - - - - - - -5 - - -5 2 - 36 - -2 36 48 - - - - 14 - 14 - - - - - - - -13 - - -13 1 - 8 - -32 -23 -22 12 - 12 - - - - - - - -14 - -14 - - - - - - - 14 - 14 - - - - - - - -12 - -12 - -8 - - -8 - - - 278 278 0 - 27 27 346 346 -3 900 - -5 -3 905 -500 - -9 -92 -601 - 438 438 0 - 0 0 483 483 -2 000 - -6 -2 006 -2 450 - -14 0 -2 464 12 278 290 0 16 27 43 346 346 -3 900 -14 -5 -3 919 -500 -5 -9 -92 -605 14 438 452 0 14 0 14 483 483 -2 000 -12 -6 -2 018 -2 450 -21 -14 0 -2 485 12 278 290 0 16 27 43 346 346 -3 900 -14 -5 -3 919 -500 -5 -9 -92 -605 14 438 452 0 14 0 14 483 483 -2 000 -12 -6 -2 018 -2 450 -21 -14 0 -2 485 - 2 015 - 2 005 2 2 015 1 2 005 2 2 015 1 2 005 513 291 - - 550 299 550 299 - -68 445 - -2 496 -2 259 -2 496 -2 259 -2 496 -2 259 -115 176 - - -481 -254 -70 1 -147 -101 -70 1 -147 -101 443 170 -4 336 -3 803 -3 845 -3 655 -3 845 -3 655 *Refers to instruments compulsorily valued at fair value in accordance with IFRS 9. 70    Holmen Annual Report 2020 Notes Note 14 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 Bonds Liabilities to Group companies Derivatives Current liabilities Commercial paper programme Derivatives Accrued interest Liabilities to Group companies Other current liabilities Financial instruments not included in net financial debt Other shares and participations Trade receivables Derivatives (recognised among operating receivables) Trade payables Derivatives (recognised among operating liabilities) Total financial instruments Recognised at fair value through profit/loss* Hedging instruments Recognised at amortised cost Total book value Fair value 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 - - - - - 16 - 16 - - - - - - - -5 - - - -5 0 - 38 - -3 35 46 - - - - - 14 - 14 - - - - - - - -13 - - - -13 0 - 8 - -32 -24 -23 12 - - 12 - - - - - - - - -14 -14 - - - - - - - - 14 - - 14 - - - - - - - - -12 -12 - -8 - - - -8 - - - 3 180 275 3 455 0 - 27 27 236 236 -3 900 -169 - -4 069 -500 - -9 - 0 -509 - 1 948 435 2 384 0 - 0 0 403 403 -2 000 -468 - -2 468 -2 450 - -14 -8 0 -2 472 12 3 180 275 3 467 0 16 27 43 236 236 -3 900 -169 -14 -4 083 -500 -5 -9 - 0 -514 14 1 948 435 2 397 0 14 0 14 403 403 -2 000 -468 -12 -2 480 -2 450 -21 -14 -8 0 -2 493 12 3 180 275 3 467 0 16 27 43 236 236 -3 900 -169 -14 -4 083 -500 -5 -9 - 0 -514 14 1 948 435 2 397 0 14 0 14 403 403 -2 000 -468 -12 -2 480 -2 450 -21 -14 -8 0 -2 493 - 1 487 - 1 749 0 1 487 0 1 749 0 1 487 0 1 749 515 293 - - 553 301 553 301 - -68 447 - -1 970 -2 150 -1 970 -2 150 -1 970 -2 150 -118 175 - - -483 -400 -71 -1 -150 -249 -71 -1 -150 -249 444 169 -1 344 -2 553 -853 -2 407 -853 -2 407 *Refers to instruments compulsorily valued at fair value in accordance with IFRS 9. Holmen Annual Report 2020    71 Notes Notes 15–17 Note 15. Inventories Note 17. Equity, parent company Felling rights Logs and pulpwood Raw materials and consumables Finished products and work in progress Electricity certificates and emission allowances Total Group Parent company 2020 2019 2020 2019 558 369 916 600 306 890 450 331 689 592 287 675 1 728 1 617 1 176 1 266 23 47 14 47 3 594 3 460 2 659 2 867 During the year impairment losses and reversal of previous impairment losses for finished stock had an effect of SEK 12 million (-36) on Group profit, while impairment losses on other stock had an effect of SEK -6 million (-13). Impairment losses and reversal of previous impairment losses for finished stock had an effect of SEK 5 million (-24) on the parent company, with impairment losses on other stock of SEK -3 million (-11). Note 16. Operating receivables Trade receivables Group companies Associates Other Total trade receivables Current receivables Derivatives Prepayments and accrued income Total other operating receivables Group Parent company 2020 2019 2020 2019 - 33 1 982 2 015 446 550 266 1 262 - 44 1 961 2 005 267 299 232 799 14 33 1 440 1 487 298 553 104 955 102 44 1 604 1 749 221 301 92 614 Total operating receivables 3 278 2 804 2 442 2 364 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 36 million (23). The provision for expected credit losses was SEK 45 million (32) at 31 December 2020. During the year, the provision decreased by SEK 16 million (-3) as a result of actual credit losses, and increased by SEK 31 million (-1) as a result of changes in the provision for anticipated or expected credit losses. At 31 December 2020, SEK 58 million (13) 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 Number Quotient value 31 Dec 2020 Class A Class B Total no. of shares Holding of repurchased class B shares Total number of shares outstanding 45 246 468 117 265 856 162 512 324 -586 639 161 925 685 26 26 Registered share capital Number Quotient value 31 Dec 2019 Class A Class B Total no. of shares Holding of repurchased class B shares Total number of shares outstanding 45 246 468 124 265 856 169 512 324 -7 586 639 161 925 685 25 25 SEKm 1 180 3 058 4 238 SEKm 1 131 3 107 4 238 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. In 2020, 7 000 000 class B treasury shares that the company had previously repurchased were cancelled. After cancellation Holmen holds 586 639 class B shares in treasury. In conjunction with the cancellation of treasury shares a bonus issue was carried out to restore share capital. Assets and liabilities measured at fair value according to Chapter 4 Section 14a of the Swedish Annual Accounts Act had an impact of SEK 490 million (146) on parent company equity. In the consolidated accounts, valuation of derivatives and other financial instruments had an impact of SEK 491 million (148) 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 6 313 587 411. The Board proposes that the AGM to be held on 22 April 2021 approve a dividend of SEK 7.25 per share and an extra dividend of SEK 3.50 per share. The proposed dividend totals SEK 1 741 million. The Board also proposes that the remaining amount of SEK 4 572 886 297 be carried forward. In the preceding year, the dividend paid was SEK 3.50 per share (SEK 567 million). Net financial debt as a percentage of equity was 10 per cent (9). 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 41–45. 72    Holmen Annual Report 2020 Notes 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 policies 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 agreement 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* Financial income and 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 2020 2019 2020 2019 -11 2 -9 -7 0 -7 -15 0 -15 10 0 10 -136 -129 -101 -101 -146 -136 -116 -92 *SEK -9 million (17) is included in the parent company relating to an item that is recognised in the Group as an actuarial revaluation in other comprehensive income. Group Cost recognised in other comprehensive income 2020 2019 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 77 30 240 45 -208 -205 88 -1 -1 -15 6 2 -73 14 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. The assets in one trust exceed the commitment by SEK 118 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 24 million which will be covered over the next five 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 2020 2019 2020 2019 -2 305 -2 063 -7 -2 -57 -154 121 -145 -11 1 -42 -90 93 192 -2 161 -2 305 -176 -15 - -2 - 12 - -182 -176 10 - -20 - 10 - -176 The weighted average duration is 16 years. Of the Group’s total obligations, SEK 8 million (7) refers to those that are not funded, while the rest are wholly or partially funded obligations. Of the parent company’s obligations, SEK 4 million (0) are secured under the Swedish Pension Obligations Vesting Act. Note 18 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 Plan assets by type are as shown below: Plan assets Equities Bonds Current fixed income investments Group Parent company 2020 2 388 44 77 - -1 6 -81 -201 2 231 -118 -48 2019 2 053 57 240 - -2 4 -111 148 2 388 -130 -46 2020 2019 176 - - 2 - - - - 178 - -4 156 - - 20 - - - - 176 - 0 Group Parent company 2020 1 119 1 093 19 2 231 2019 1 201 1 160 27 2 388 2020 2019 81 92 4 82 92 0 178 174 The plan assets do not include any financial instruments issued by Group compa- nies or assets used by the Group. Of equities, 38 per cent relate to the UK, 57 per cent to the rest of Europe and the US and 5 per cent to the rest of the world. Of bonds, 42 per cent relate to government bonds and 58 per cent to corporate bonds. Key actuarial assumptions, Group (weighted average), % 31 Dec 2020 31 Dec 2019 UK Discount rate Rate of salary increase Rate of price inflation 1.3 - 3.1 Sweden 2.0 - 3.0 Key actuarial assumptions, Group, % 31 Dec 2020 31 Dec 2019 Discount rate Rate of salary increase Rate of price inflation 0.9 2.8 1.8 1.3 3.0 2.0 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 0.3 per cent (0.7) 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). Group Sensitivity analysis 31 Dec 2020 31 Dec 2019 Discount rate (+ 0.5%) Rate of salary increase (+ 0.5%) Rate of price inflation (+ 0.5%) Mortality (+ 1 year in life expectancy) -151 2 112 113 -167 2 128 117 The Group’s payments into the funded defined benefit plans in 2021 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 27 million (30) and are included among personnel costs in the income statement. Holmen’s active members in the plan amounted to 665 people, which corresponds to 0.17 per cent of the plan’s active members. Premiums to Alecta are expected to amount to SEK 36 million in 2021. 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, measures 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 2020, Alecta’s collective consolidation level was 148 per cent (148). Holmen Annual Report 2020 73 NotesNotes 19–21 Note 19. Other provisions Note 21. Collateral and contingent liabilities Contingent liabilities Guarantees on behalf of Group companies Other contingent liabilities Total Group Parent company 2020 2019 2020 2019 - 67 67 - 96 96 210 55 265 60 83 143 Other contingent liabilities for the Group largely comprise guarantee undertakings for third parties. Holmen has environmentally related contingent liabilities that cannot currently be quantified but that could result in future costs. Group 2020 2019 Book value at start of year Business combination Provisions during the year Utilised during the year Unutilised amount reversed during the year Reclassification 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 795 75 53 -158 -55 -55 -1 654 491 163 839 194 -231 -58 744 489 255 680 - 251 -124 -14 - 1 795 637 158 753 328 -230 -12 839 616 223 Other provisions mainly relate to uncertainties associated with obligations for en- vironmental restoration, fixed price electricity supply contracts and restructuring costs. SEK 263 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 Other Total trade payables Group Parent company 2020 2019 2020 2019 - 2 496 2 496 - 2 259 2 259 22 1 948 1 970 34 2 116 2 150 Current liabilities Associates Other Derivatives Accruals and deferred income 4 242 70 920 4 217 147 663 Total other operating liabilities 1 235 1 030 3 208 71 516 799 3 185 150 530 868 Total operating liabilities 3 732 3 289 2 769 3 018 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 218 million (199), discounts of SEK 82 million (74) and goods and services delivered but not yet invoiced of SEK 38 million (61). The fair values of derivatives relate to hedges of future cash flows. See Note 14. 74 Holmen Annual Report 2020 NotesNote 22 Note 22. Related parties Of the parent company’s net sales of SEK 14 187 million (15 004), SEK 182 million (109) relates to deliveries of goods to Group companies. The parent company’s purchases of goods from Group companies amounted to SEK 134 million (145). Parent company net sales also include income from the sale of silviculture services to subsidiaries for an amount of SEK 427 million (386). SEK -2 178 million (-2 299) 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 company 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 46–47). 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 2020, 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). Partly owned wind power company Varsvik AB has loans amounting to SEK 275 million (425). 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. Transactions with related parties Group Associates Joint venture Parent company Subsidiaries Associates Joint venture Sale of goods to related parties Purchase of goods from related parties Other (e.g. interest, dividend) Liability to related parties Receivable due from related parties 2020 261 14 182 261 13 2019 368 3 109 368 3 2020 2019 2020 2019 2020 2019 56 - 134 56 - 42 - 145 42 - 0 11 296 0 11 0 13 160 0 12 4 3 192 3 - 6 - 514 3 - 2020 43 275 3 197 43 275 2019 54 425 2 053 54 425 See Note 4 for fees and remuneration paid to members of the Board. Holmen Annual Report 2020 75 NotesNote 23 Note 23. Investments in Group companies Accumulated acquisition costs Value at start of year Shareholder contributions and investments Liquidations Sales Total Accumulated impairment losses Value at start of year Impairment losses for the year Liquidations Total Book value at end of year Parent company 2020 2019 17 335 17 142 210 - -17 853 -5 077 - 13 112 17 335 6 648 95 -5 077 1 666 6 655 -7 - 6 648 11 445 10 687 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 investments in Group companies’. During the year the Spanish company Holmen Suecia Holding S.L. and its subsidiaries were liquidated. Corporate ID No. Registered office Number of holdings Holding %* Book value in the parent company Holding %* Book value in the parent company 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 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 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 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 1 000 500 1 197 100 - - 10 000 - - - 800 000 35 500 1 000 4 000 000 *The percentage of ownership corresponds to the percentage of votes for the total number of shares. **Indirect holdings. 2020 2019 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 383 2 856 1 527 422 2 663 740 276 200 832 9 901 1 519 - - 0 1 - - 4 7 0 7 5 2 1 545 0 0 0 0 0 383 2 856 1 527 422 2 633 740 276 200 74 9 142 1 519 - - 0 1 0 - 4 7 0 7 5 2 1 545 11 445 10 687 76 Holmen Annual Report 2020 NotesNotes 24–25 Note 24. Untaxed reserves Parent company Parent company Accumulated depreciation and amortisation in excess of plan Non-current intangible assets Property, plant and equipment 31 Dec 2019 Appropriations 31 Dec 2020 -16 11 -5 3 5 8 -13 17 3 Group contributions received amounted to SEK 2 513 million (2 572) and Group contributions paid amounted to SEK -1 million (-2). Total appropriations of profit amounted to SEK 1 804 million (1 936). Accumulated depreciation and amortisation in excess of plan Tax allocation reserves 2015 fiscal year 2016 fiscal year 2017 fiscal year 2019 fiscal year 2020 fiscal year Total 31 Dec 2019 Appropriations 31 Dec 2020 191 290 470 700 - 1 651 1 646 - - - - 700 700 708 191 290 470 700 700 2 351 2 354 Note 25. Cash flow statement Interest paid and dividends received Dividends received Interest received Interest paid Total Group Parent company 2020 2019 2020 2019 - 11 -40 -29 - 13 -31 -18 284 24 -35 273 148 21 -31 139 The change in current liabilities mostly relates to borrowing within the Group’s commercial paper programme. In 2020, a number of different short-term loans totalling SEK 3 528 million (8 250) were raised within the Group’s commercial paper programme, and SEK 5 478 million (7 751) was repaid. See Note 14 for a breakdown of cash and cash equivalents. Group Bonds Commercial paper Other financial liabilities Liabilities relating to right-of-use assets Pension liability Financial liabilities* 2018 1 500 1 951 75 - 61 3 587 New leases - - - 281** - 281 Cash flow 500 499 -41 -100 -27 831 Currency and market revaluation - - 18 4 12 34 2019 2 000 2 450 52 184 46 4 733 Business combinations New leases - - 173 34 - 207 - - - 163 - 163 Cash flow 1 900 -1 950 -106 -99 -13 -268 Currency and market revaluation - - 7 5 15 27 2020 3 900 500 126 287 48 4 860 *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 right-of-use agreements entered into in 2019. 2018 Cash flow Currency and market revaluation 2019 Cash flow Currency and market revaluation Parent company Bonds Commercial paper Liabilities to Group companies Other financial liabilities Pension liability Financial liabilities* 10 330 *Including pension liability. 1 500 1 951 6 791 68 20 500 499 -6 315 -39 -11 -5 367 - - - 18 -9 9 2 000 2 450 476 47 0 4 973 1 900 -1 950 -307 -26 -1 -384 2020 3 900 500 169 28 4 - - - 7 4 11 4 601 Holmen Annual Report 2020 77 NotesNotes 26–27 Note 26. Business combinations Note 27. Critical accounting estimates and On 1 October 2020 Holmen completed the acquisition of Martinsons, one of Sweden’s leading players in sawn and engineered wood products. The preliminary purchase price, which was paid on 1 October, was SEK 960 million for 100 per cent of the shares. The final purchase price will be determined in 2021. Based on the information available at the time of writing of this report, goodwill is recognised at SEK 355 million and other intangible assets at SEK 140 million in conjunction with the acquisition. Goodwill relates to the value of integrating Holmen’s own forest with its own industry and other intangible assets relate to the value of the wood supply business included in the acquisition. Recognised goodwill is not tax deductible. The fair value of intangible assets other than goodwill are amortised over seven years. From the time of acquisition on 1 October 2020 until 31 December 2020, Martinsons contributed SEK 344 million to the Group’s sales and SEK 21 million to the Group’s profit after tax. Martinsons consists of two sawmills in northern Sweden with processing of wood products for Scandinavian wood construction, as well as a project operation for construction of complete frames made of cross-laminated timber (CLT) and glulam beams for purposes such as offices, sports centres and apartment buildings. After current investments are completed, the larger sawmill, Bygdsiljum, will have the capacity to produce 500 000 m3 of wood products annually, while the annual production at Kroksjön is over 100 000 m3. Bygdsiljum also manufactures CLT and glulam beams, while Kroksjön processes wood products through trimming, planing, painting, treatment and finger jointing. Martinsons’ annual wood consumption is 1 million m3, which corresponds to Holmen’s annual harvest in northern Sweden. The company has 470 employees, most of whom work in processing. The acquisition will nearly double Holmen’s sales in Wood Products, while strengthening its position in sustainable wood construction and increasing integration between forest and industry. Costs for the acquisition are recognised as other operating costs and amount to SEK 14 million. 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 The book value of the Group’s forest assets at 31 Dec 2020 was SEK 43 202 million (41 345), divided between SEK 14 538 million (13 366) for forest land and SEK 28 663 million (27 979) for biological assets. A deferred tax liability of SEK 8 840 million (8 442) 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 recognised 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 Note 7 and Note 9 for further information. Impairment testing of non-current assets Non-current assets are tested for impairment annually. The calculations are based on current market conditions. Changes in conditions may have an effect on the estimated recoverable amount applied in connection with future impairment tests. Pension obligations The Group has benefit-based pension obligations measured at SEK 2 161 million and SEK 2 231 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. See Note 19. 78 Holmen Annual Report 2020 NotesProPosed aPProPriation of Profits Appropriation of profits The following earnings of the parent company are at the disposal of the AGM: Net profit for the 2020 financial year Retained earnings The Board of Directors proposes that the shareholders be paid in part, an ordinary dividend of SEK 7.25 per share (161 925 685 shares), and in part, an extra dividend of SEK 3.50 per share (161 925 685 shares) and that the remaining amount be carried forward The Board of Holmen AB has proposed that the 2021 AGM resolve in favour of paying an ordinary dividend of SEK 7.25 per share, and an extra dividend of SEK 3.50 per share, for a total of SEK 1 741 million. In the preceding year, the dividend paid was SEK 3.50 per share. 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 88 per cent of net profit for 2020 for the Group and means that 4.1 per cent of equity in the Group at 31 December 2020 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 2020 it amounted to 10 per cent. The proposed dividend would increase net debt to equity by 5 percentage points. Holmen AB’s equity at 31 December 2020 amounted to SEK 12 228 million, of which non-restricted equity was SEK 6 314 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 490 million on equity. The Group’s equity at 31 December 2020 amounted to SEK 42 516 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 justifiable 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 SEK 1 919 135 580 4 394 451 831 6 313 587 411 1 173 961 216 566 739 898 1 740 701 114 4 572 886 297 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 Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on 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 operations, 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 publication by the Board in its decision of 26 February 2021. The Group’s consolidated income statement and balance sheet and the parent company’s income statement and balance sheet will be presented for adoption at the AGM to be held on 22 April 2021. Fredrik Lundberg Chairman Carl Bennet Board member Steewe Björklundh Board member Kenneth Johansson Board member Stockholm, 26 February 2021 Lars G Josefsson Board member Ulf Lundahl Board member Lars Josefsson Board member Alice Kempe Board member Louise Lindh Board member Henriette Zeuchner Board member Tommy Åsenbrygg Board member Henrik Sjölund Board member and Chief Executive Officer Our audit report was submitted on 1 March 2021. KPMG AB Joakim Thilstedt Authorised Public Accountant Proposed appropriation of profits Holmen Annual Report 2020 79 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 2020, except for pages 8–9 and 33–35 in the sustainability report. The annual accounts and consolidated accounts of the company are included on pages 2, 6–9, 14–15, 32–79 and 84 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 2020 and its financial performance and cash flow for the year then ended in accord­ ance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the Group as of 31 December 2020 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 pages 8–9 and 33–35 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 Audi­ tor’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 accord­ ance 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 audited com­ pany 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 thereon, 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 disclosures 9 and 27 and accounting principles on page 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 43 201 million as of 31 December 2020. This is made up of SEK 14 538 million forest land and SEK 28 663 million biological assets. The forest assets are valued at fair value, where the determination of the fair value of the 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 present value. The valuation is performed internally and is calculated using a combination of harvesting plans, future sales prices, cost projections, inflation and discount rates. Response in the audit 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 under lying 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 by agreeing underly­ ing transactions which form the basis of the Group’s valuation, regard­ ing price and area to external supporting documentation. 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 documentation in order to assess whether the valuation is carried out in accordance with an established valuation methodology. Furthermore, we have had discussions with management and, through evaluation of management’s written plans and documentation, we have assessed the reasonableness of assumptions regarding volumes, 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. 80    Holmen Annual Report 2020 Auditor’s Report Other provisions See disclosures 19 and 27 and accounting principles on page 58 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 2020 amounts to SEK 654 million (795) in the Group and SEK 744 million (839) in the parent company. The other provisions include among other obligations for environmental restoration, contractual commitments regarding delivery of electricity at a fixed price and restructuring costs. 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. 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 3–5, 10–13, 16–31 and 85–94. The other information comprises also of the remuneration report which we obtained prior to the date of this auditor’s report. The Board of Directors and the Managing Director 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 Managing Director The Board of Directors and the Managing Director 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 Managing Director 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 Managing Director 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 Managing Director 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 an­ nual 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 con solidated accounts. As part of an audit in accordance with ISAs, we exercise professional 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. 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 over­ ride 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 reasona­ bleness of accounting estimates and related disclosures made by the Board of Directors and the Managing Director. • Conclude on the appropriateness of the Board of Directors’ and the Manag­ ing Director’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 uncer­ tainty 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 wheth­ er 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 reason­ ably be thought to bear on our independence, and where applicable, measures that have been taken to eliminate the threats or 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 2020    81  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 Managing Director of Holmen AB for the year 2020 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 Managing Director 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 fur­ ther described in the Auditor’s Responsibilities section. We are independ­ ent 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 Managing Director 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 require­ ments 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 Managing Director 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 account­ ing in accordance with law and handle the management of assets in a reassuring manner. Directors or the Managing Director 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 accord­ ance 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 stand­ ards in Sweden, we exercise professional judgment and maintain profes­ sional scepticism throughout the audit. The examination of the administra­ tion 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 8–9, 32–35, 38–40 and 42–43, and that it is prepared in accordance with the Annual Accounts Act. Our examination has been conducted in accordance with FAR:s audit­ ing 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. 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 assess with a reasonable degree of assurance whether any member of the Board of KPMG AB, Box 382, 101 27, Stockholm, was appointed auditor of Holmen AB by the general meeting of the shareholders on the 4 June 2020. KPMG AB or auditors operating at KPMG AB have been the company’s auditor since 1995. Stockholm 1 March 2021 KPMG AB Joakim Thilstedt Authorized Public Accountant 82    Holmen Annual Report 2020 Auditor’s Report review of sustainability report Holmen’s Sustainability Report, as defined on page 2 of Holmen’s Annual Report 2020, has been subject to a limited review in accordance with ISAE 3000 Assurance engagements other than audits or reviews of historical 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 1 March 2021 KPMG AB Joakim Thilstedt Authorized Public Accountant Torbjörn Westman Expert member of FAR Review of Sustainability Report Holmen Annual Report 2020    83 Board of directors 1. Fredrik Lundberg 5. Lars Josefsson Employee representatives Chairman. Djursholm. Born in 1951. Member since 1988. M.Sc. in Engineer- ing 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. Shareholding: 1 679 448 shares. Shareholding of L E Lundbergföretagen: 55 244 000 shares. 2. Henrik Sjölund Norrköping. Born in 1966. Member since 2014. M.Sc. in International Economics. President and CEO. Other significant appointments: Chairman of The Swedish Forest Industries Federation and SKGS. Board member of The Confederation of Swedish Enterprise Shareholding: 52 155 shares. 3. Carl Bennet Gothenburg. Born in 1951. Member since 2009. B.Sc. (Econ.), Ph.D. h.c. (Med.), Ph.D. h.c. (Tech.) CEO of 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 Lundberg företagen AB. Shareholding: 200 000 shares. 4. 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 Prorsum AG. Member of Robert Bosch International Advisory Committee and Hand in Hand International. Member of The Royal Swedish Academy of Engineering Sciences, IVA. Shareholding: 10 000 shares. Norrköping. Born in 1953. Member since 2016. M.Sc. in Engineering. Other significant appointments: Chairman of TimeZynk. Deputy Chairman of Vestas. Board member of Ouman. Shareholding: 7 000 shares. 6. 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, SweTree Technologies AB and Arevo AB. Shareholding: 218 792 shares. 7. Louise Lindh Stockholm. Born in 1979. Member since 2010. M.Sc. in Economics. CEO and Board member 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. 8. Ulf Lundahl Lidingö. Born in 1952. Member since 2004. B.A. in Legal Science and B.Sc. (Econ). Other significant appointments: Chairman of Attendo AB, Fidelio Capital AB, SHB Regionbank Stockholm and Nordstjernan Kredit AB. Board member of Indutrade AB. Shareholding: 8 000 shares. 9. 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. 10. Steewe Björklundh Hudiksvall. Born in 1958. Member since 1998. Employee representative, LO. 11. Kenneth Johansson Söderköping. Born in 1958. Member since 2004. Employee representative, LO. Chairman of the Swedish Paper Workers Union branch 53, Holmen Paper Braviken. 12. Tommy Åsenbrygg Skebobruk. Born in 1968. Member since 2015. Employee representative, PTK. Deputy Chairman of Ledarna, Hallsta Paper Mill. Shareholding: 100 shares. 13. Per-Arne Berg Forsa. Born in 1955. Deputy member since 2015. Employee representative, PTK. Chairman of Unionen Club, Holmen Iggesund. 14. Daniel Hägglund Örnsköldsvik. Born in 1982. Deputy member since 2014. Employee representative, PTK. 15. Christer Johansson Iggesund. Born in 1959. Deputy member since 2017. Employee representative, LO. Chairman of the Swedish Paper Workers Union branch 15. Auditors: KPMG AB Principle Auditor: Joakim Thilstedt. Authorised Public Accountant. 84 Holmen Annual Report 2020 Board of Directors The information relates to personal and related party shareholdings at 31 December 2020. 1 4 7 10 13 2 5 8 11 14 3 6 9 12 15 Board of Directors Holmen Annual Report 2020 85 Group manaGement 1 5 9 1. Henrik Sjölund President and CEO Born in 1966. Joined  Holmen in 1993. Shareholding: 52 155 shares. Henrik Sjölund has no signi­ ficant shareholdings or owner- ship in companies with which the Group has important busi- ness relations. Further infor- mation is provided on page 84. 2. Anders Jernhall Executive Vice President, Chief Financial Officer Born in 1970. Joined Holmen in 1997. Shareholding: 27 527 shares. 3. Sören Petersson Senior Vice President Forest Born in 1969. Joined  Holmen in 1994. Shareholding: 16 200 shares. 2 6 3 7 4 8 10 11 12 4. Johan Nellbeck Senior Vice President Paperboard Born in 1964. Joined Holmen in 2019. Shareholding: 4 000 shares. 7. Fredrik Nordqvist Senior Vice President Renewable Energy Born in 1971. Joined Holmen in 2011. Shareholding: 800 shares. 10. Gunilla Rolander Senior Vice President Human Resources Born in 1966. Joined Holmen in 2013. Shareholding: 4 398 shares. 5. Lars Lundin Senior Vice President Paper Born in 1966. Joined Holmen in 2018. Shareholding: 2 250 shares. 6. Johan Padel Senior Vice President Wood Products Born in 1966. Joined Holmen in 2014. Shareholding: 1 200 shares. 8. Stina Sandell Senior Vice President Sustainability and Communications Born in 1966. Joined Holmen in 2017. Shareholding: 765 shares. 9. Nils Ringborg Senior Vice President International Affairs Born in 1958. Joined Holmen in 1988. Shareholding: 8 200 shares. 11. Ola Schultz-Eklund Senior Vice President Technology Born in 1961. Joined Holmen in 1994. Shareholding: 2 740 shares. 12. Henrik Andersson Senior Vice President Legal Affairs Company Secretary. Born in 1971. Joined Holmen in 2008. Shareholding: 3 782 shares. The information relates to personal and related party shareholdings at 31 December 2020. 86 Holmen Annual Report 2020 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 com- parability 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 perfor­ mance 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 2020 2019 2018 2017 2016 Operating profit, EBITDA and items affecting comparability EBITDA Depreciation/amortisation according to plan Operating profit/loss excluding items affecting comparability Items affecting comparability* Operating profit Profit/loss for the year and items affecting comparability Profit/loss for the year excluding items affecting comparability Items affecting comparability* Profit/loss for the year 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 88 for what items affecting comparability refers to. 3 651 -1 172 2 479 - 2 479 1 979 - 1 979 2 479 16 327 15.2 42 516 4 181 46 697 2 479 44 128 5.6 1 979 40 718 4.8 3 919 175 605 112 48 -290 -43 -346 4 181 4 181 42 516 10 42 516 62 543 68 3 486 -1 141 2 345 8 770 11 115 1 789 6 943 8 731 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 68 3 488 -1 012 2 476 -94 2 382 2 341 -73 2 268 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 64 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 3 179 -1 018 2 162 -232 1 930 1 652 -228 1 424 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 61 Key figures Holmen Annual Report 2020 87 2020 ↘ Ten-year review, finance SEKm 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 Income statement Net sales Operating costs Change in value of biological assets Profit from investments in associates and joint ventures 16 055 16 327 16 959 18 656 -13 250 -13 961 -12 984 -13 379 -12 626 -13 348 -13 270 -13 919 -15 224 -15 501 - 84 350 47 425 -9 267 7 264 3 315 -22 487 0 282 -7 415 -12 579 -6 15 994 15 513 17 852 16 231 16 014 16 133 EBITDA 3 651 3 486 3 488 3 157 3 179 2 940 2 999 2 579 3 026 3 239 Depreciation and amortisation according to plan -1 172 -1 141 -1 012 -991 -1 018 -1 240 -1 265 -1 370 -1 313 -1 260 Operating profit/loss excluding items affecting comparability 2 479 2 345 2 476 2 166 2 162 1 700 1 734 1 209 1 713 1 980 Items affecting comparability* - 8 770 -94 - -232 -931 -450 -140 -193 3 593 2 479 11 115 2 382 2 166 1 930 769 1 284 1 069 1 520 5 573 Operating profit Net financial items Earnings before tax Tax Profit/loss for the year Net sales Forest Paperboard Paper Wood Products Renewable Energy Group-wide costs and eliminations Group Operating profit Forest Paperboard Paper Wood Products Renewable Energy Group-wide costs and eliminations -42 -34 -25 -53 -71 2 437 11 081 2 356 2 113 1 859 -458 -2 351 -89 -445 -436 1 979 8 731 2 268 1 668 1 424 5 883 6 187 4 879 2 222 378 -3 222 6 286 6 229 5 757 1 695 378 -3 385 5 944 5 785 5 571 1 747 319 -3 311 5 535 5 526 5 408 1 562 315 -2 214 5 302 5 252 5 431 1 342 314 -2 128 5 481 5 472 6 148 1 314 359 -2 760 -90 679 -120 559 3.4 -147 1 137 -230 907 5.4 5 641 5 113 6 247 1 352 389 -2 748 -198 871 -160 -227 -244 1 294 5 328 559 -1 374 711 1 853 3 955 4.3 11.1 23.6 5 694 4 618 7 148 1 175 450 -2 853 6 061 4 967 8 144 1 129 522 -2 972 6 348 5 109 8 631 875 552 -2 858 16 327 16 959 16 055 16 133 15 513 16 014 15 994 16 231 17 852 18 656 1 367 812 73 185 215 -174 1 172 435 509 62 336 -168 1 185 689 329 246 181 -154 1 069 764 288 80 135 -170 1 001 903 289 -3 120 -148 905 847 -74 9 176 -163 817 674 141 37 212 -146 924 433 -309 -75 371 -136 931 596 94 -130 355 -132 739 863 228 -136 406 -120 2 479 2 345 2 476 2 166 2 162 1 700 1 734 1 209 1 713 1 980 Diluted earnings per share, SEK** 12.2 52.6 13.5 9.9 8.5 Items affecting comparability* - 8 770 -94 - -232 -931 -450 -140 -193 3 593 Group Cash flow Earnings before tax Adjustment items Income tax paid Changes in working capital 2 479 11 115 2 382 2 166 1 930 769 1 284 1 069 1 520 5 573 2 437 11 081 -8 208 -147 158 544 -569 46 2 356 540 -396 -214 2 113 418 -221 199 1 859 965 -504 -360 679 1 802 -398 443 1 137 1 448 -191 -217 871 1 056 210 -127 1 294 1 057 -434 338 5 328 -2 561 -557 -109 Cash flow from operating activities 2 457 2 884 2 286 2 509 1 961 2 526 2 176 2 011 2 254 2 101 Cash flow from investing activities*** -1 924 -1 050 -1 005 -644 -123 -824 -815 -872 -1 957 -1 791 Cash flow after investments 533 1 834 1 281 1 865 1 838 1 702 1 361 1 139 297 310 Dividend paid Share buy-backs -567 - -1 134 -1 430 -1 092 - -1 008 - -882 - -840 - -756 - -756 - -672 - -588 - *Items affecting comparability: 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. **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. 88 Holmen Annual Report 2020 Ten-year review, finance SEKm Balance sheet Forest assets Other non-current assets* Current assets Financial receivables Total assets 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 For a ten-year review of data per share, see page 47. 43 202 11 784 6 878 679 41 345 10 781 6 264 950 18 701 10 586 6 845 781 17 971 10 780 5 710 430 17 595 11 106 5 852 338 17 340 12 184 5 607 325 17 032 13 189 5 964 249 16 654 13 998 5 774 327 16 344 14 320 6 005 377 15 871 14 463 6 642 240 62 543 59 340 36 912 34 891 34 891 35 456 36 434 36 753 37 046 37 217 Equity Deferred tax liabilities Financial liabilities and interest-bearing provisions Operating liabilities 42 516 10 570 4 860 4 597 40 111 10 299 4 733 4 196 23 453 5 839 3 587 4 033 22 035 5 650 3 366 3 840 21 243 5 613 4 283 3 752 20 853 5 508 5 124 3 971 20 969 5 480 6 156 3 829 20 854 5 804 6 443 3 653 20 813 5 504 6 967 3 762 19 773 6 630 6 499 4 313 Total equity and liabilities 62 543 59 340 36 912 34 891 34 891 35 456 36 434 36 753 37 046 37 217 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. 34 230 5 276 1 969 1 846 3 351 24 32 718 5 589 1 903 1 000 3 058 -372 14 830 5 316 2 072 927 3 082 34 13 824 5 433 2 193 862 3 115 -455 13 536 5 546 2 507 859 3 153 -410 13 401 5 698 3 266 897 3 075 -684 13 212 5 841 4 366 874 3 118 -535 12 688 12 657 5 489 4 920 1 385 2 947 5 5 686 4 438 1 327 3 005 -173 11 599 4 233 5 798 1 471 2 884 47 46 697 43 895 26 261 24 972 25 190 25 653 26 876 26 970 27 403 26 032 13 2 8 15 4 15 4 17 7 6 5 10 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 15 -1 1 11 7 15 neg 1 6 6 7 23 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 2 841 544 883 1 052 1 352 2 699 538 996 879 1 109 2 816 525 1 036 828 1 145 2 883 526 1 117 852 1 169 2 945 497 1 134 776 1 080 3 132 499 1 325 730 1 441 3 207 493 1 305 725 1 113 3 361 469 1 574 686 1 041 3 085 485 1 651 660 1 353 2 850 474 1 668 487 1 235 Ten-year review, finance Holmen Annual Report 2020 89 2020 ↘ 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 performance indicators provided are widely used in the industry. Data from all parts of the Group is collected, quality-assured and evaluated. 1 October saw the acquisition of Martinsons with its two sawmills, the figures for which have been included in the report for the fourth quarter of 2020. No material changes have otherwise been made to the principles of reporting. 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. 2020 2019 2018 2017 2016 615 GWh. 1) Bio-based electricity production accounted for 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 m3sub2) Purchased pulp, ’000 tonnes Thermal energy, GWh Electrical energy, GWh Water use, million m3,5) Plastic granules/foiling material, ’000 tonnes Chemicals, ’000 tonnes6) Filler, pigment, ’000 tonnes6) Emissions to air, tonnes7) Sulphur dioxide (counted as sulphur, S) Nitrogen oxides Particulates Fossil carbon dioxide, ’000 tonnes Biogenic carbon dioxide, ’000 tonnes Emissions to water, tonnes7) 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 recovery8) Tall oil9) Waste, ’000 tonnes Hazardous10) Sent to landfill (wet) Energy supplies Branches, treetops and peat, GWh11) Electrical and thermal energy, GWh12) Environmental protection expenditure, SEKm Investments (remedial and preventive)13) Electricity and heat-saving investments Environmental taxes and charges14) Internal and external environmental expenses15) Environmental cost of forestry16) 551 84 891 1 021 1 352 6211) 5.62 78 5 8853) 3 5084) 69 2.8 147 156 64 902 33 63 1 545 38 210 19 20 3.5 937 252 16 2.3 4.9 115 351 428 18 10 174 80 532 79 975 877 1 109 669 5.49 78 5 992 3 720 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 62 503 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 2.2 16.0 155 380 55 8 14 182 71 90 Holmen Annual Report 2020 Five-year review, sustainability 2) At Group level, wood consumption is computed net, taking into account internal deliveries of chips from the sawmills to the nearby mills. 3) Of which 4 644 GWh from production at mills from recovered liquors, bark and wood residues, 949 GWh from the TMP process at Braviken Paper Mill, Hallsta Paper Mill and Workington Mill. The process generates thermal energy that is recovered and used in production. 292 GWh comes from natural gas, oil and purchased thermal energy. 4) 1 286 GWh renewable electricity, 2 222 GWh fossil-free electricity. Emissions of fossil carbon dioxide from production of purchased electricity totalled 493 tonnes. 5) Almost 100 per cent use of surface water from lakes and watercourses. 6) Stated as 100 per cent active substance. Total quantity of commodities was 214 000 tonnes for chemicals and 220 000 tonnes for filler and pigment. In total, 207 tonnes of chemicals were used at three of the sawmills for protective treatment of the wood products. 7) Relates to emissions at facilities. Emissions of methane and natural gas at the facilities amounted to 16 000 tonnes of carbon dioxide equivalents. 8) By-products used, for example, as filling material, construction material or for the production of soil products. 9) For delivery to the chemical industry. 10) Hazardous waste is dealt with by authorised col- lection and recovery contractors. Certain fractions of the waste are recovered. In 2020, 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 amount of this oil-containing waste totalled 456 tonnes in 2020. 11) Branches and treetops (39 GWh) and peat (76 GWh) delivered from Holmen’s land to external energy producers. 12) For 2020: 114 GWh of electrical energy supplied from Workington Mill to the local community. 226 GWh of thermal energy from Iggesund Mill and Braviken Paper Mill to Iggesund Sawmill and Braviken Saw- mill. 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. 13) The stated amount includes costs for internal process measures and water treatment measures, plus the cost of erecting wind turbines. 14) The stated amount includes costs for waste mana- gement, energy tax charged in Sweden on the use of fossil fuels, nitrogen oxide tax and inspection charges. Two environmental incidents led to corpo- rate fines totalling SEK 0.1 million. 15) Includes costs of environmental personnel, opera- tion of treatment equipment, waste management, management systems, environmental training, applications for permits, environmental consultants and the costs of inquiries and measures in connec- tion with discontinued operations. 16) The environmental cost of forestry is calculated as the value of the wood that is not harvested for environ- mental reasons. The annual loss of income in 2020 is estimated at around SEK 80 million. The figures for the years 2016–2019 are based on calculations for each year. The figures for 2020 are calculated as an average value for the past three years. 1) Employee data for former Martinsons employees is included for the fourth quarter of 2020. 2) See page 62, Note 4. 3) Relates to permanent employees. 4) No industrial accidents with a fatal outcome occurred during the year. 5) Relates to permanent and temporary employees. 6) All Swedish units have collective agreements. At foreign units, Holmen supports other forms of collective employee engagement in line with local standards. 7) 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. 8) Board’s dividend proposal. Employees1) Employees Average no. of employees (FTE)2) of whom women, % of whom temporary employees, % Average age3) Sickness absence, % Total of which longer than 60 days 2020 2019 2018 2017 2016 2 974 20.0 8.4 44.3 2 915 20.0 11.1 44.4 2 955 20.3 10.7 44.9 2 976 19.3 7.4 46.0 2 989 19.3 8.8 46.3 4.3 1.7 3.8 1.6 4.1 1.6 4.2 2.0 4.2 2.0 Gender equality, %3) Women managers out of total number of managers Women joining the company out of total new employees 22.7 35.5 22.9 39.5 19.8 40.1 20.7 25.0 19.0 27.0 Personnel turnover, %3) Personnel turnover of which given notice of which retiring of which leaving at own request New employees Number of industrial accidents 4) Industrial accidents, more than 8 hours of absence, per million hours worked Union cooperation, %5) Percentage of employees that work at a unit with a collective agreement6) Employees Lenders Society 7) Income statement per stakeholder category, SEKm Customers Suppliers Sales of products, wood and electricity Purchases of products, services, along with depreciation, etc. Wages and social security costs Interest Property tax Excise tax Social security costs Payroll tax Corporation tax Shareholders Net profit Dividend 7.3 0.6 3.1 3.0 2.6 7.9 0.9 2.2 4.4 2.5 7.9 0.4 2.6 3.9 2.7 8.0 0.9 2.6 4.4 5.9 6.9 1.6 2.4 2.9 5.4 4.3 5.7 4.9 5.1 8.8 94 93 94 94 94 17 666 18 329 17 339 17 269 17 072 -12 734 -1 891 -42 -42 -31 -481 -39 -427 1 979 1 7418) -4 817 -12 539 -12 719 -12 721 -1 786 -1 819 -71 -34 -126 -55 -26 -27 -448 -472 -34 -25 -436 -2 351 1 424 8 731 1 008 567 -1 767 -53 -101 -31 -449 -36 -445 1 668 1 092 -1 792 -25 -82 -30 -479 -35 -89 2 268 1 134 Greenhouse gas emissions Scope 1, 2, 3 tonnes CO2e Ecovadis gives Holmen top sustainability rating In 2020, all of Holmen’s paperboard and paper mills were awarded a Platinum rating by the international analysis firm Ecovadis, putting Holmen’s mills in the absolute top flight of rated companies. Ecovadis assesses how companies work on the environment, sustainable purchasing, ethics, workers’ rights and human rights. Scope 1: From production facilities and nurseries1) Scope 2: From purchased electricity2) Scope 3: From Holmen’s value chain3) Forestry4) Input goods Transport of fuel to biofuel boiler in Workington Transport of raw materials and products5) Total 79 0 25 67 11 195 377 1) Emissions from the production facilities are included in the EU’s system for emissions trading. 2) Emissions of greenhouse gases from production of purchased electricity amounted to 493 tonnes CO2e (rounded down to 0 Ktonnes). This follows a market-based methodology, with EPD from Vattenfall AB as the source. Calculated using a location-based methodology, with the European Environment Agency as the source, the emissions are 27 197 tonnes CO2e. 3) Emissions from the production of machinery, vehicles, buildings etc, and travel for work and business are not included. 4) Forestry in own forest. 5) Fuel combustion during transport, using calculation method: “Tank-to-wheel”. Five-year review, sustainability Holmen Annual Report 2020 91 Business overview ↘ Holmen 2020 Holmen gives quality-conscious customers across the world access to renewable products from the Swedish forests. Holmen’s forests, power plants & industrial sites Forest holdings 1.3 million hectares total land acreage 1 million hectares productive forest land 92 Holmen Annual Report 2020 Business overview Kroksjön Sawmill Bygdsiljum Sawmill Umeälven Harrsele Tuggen Gideälven Stennäs Gammelbyforsen Björna Gideå Gidböle Gideåbacka Faxälven Linnvasselv Junsterforsen Gäddede Bågede Strömsbruk Strömsbruk Converting Plant Iggesundsån Pappersfallet Iggesund Power Station 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 Forest holdings Holmen’s forests 2020 Total land acreage Total forest land acreage* – of which nature conservation areas Productive forest land** Total volume of standing timber on productive forest land Production facilities 1 303 000 ha 1 153 000 ha 195 000 ha 1 043 000 ha Iggesund Mill Products: Multi-layered paperboard made from bleached chemical pulp (SBB). Brand: Invercote. Raw material: Softwood and hardwood pulpwood. 124 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). Power plants Hydro power plant %1) GWh2) Built in 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. Strömsbruk Converting Plant Products: Converted paperboard products for the packaging of cosmetics, confectionery, food, etc. 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. Braviken Sawmill Products: Spruce and pine wood products for construction and joinery. 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 construction and joinery. Raw material: Spruce and pine saw logs. Bygdsiljum Sawmill Products: CLT, glulam, spruce and pine wood products for construction and joinery. Raw material: Spruce and pine saw logs. Kroksjön Sawmill Products: Spruce and pine wood products for joinery and construction. Raw material: Spruce and pine saw logs. River Umeälven Gideälven Faxälven Harrsele Tuggen Stennäs Gammelbyforsen Björna Gideå Gidböle Gideåbacka Linnvasselv Junsterforsen Gäddede Bågede Iggesundsån Pappersfallet Iggesund Power Station Ljusnan Motala Ström Sveg Byaforsen Krokströmmen Långströmmen Ljusne Strömmar Holmen Bergsbron-Havet Wind power Varsvik Wind Farm 1) Holmen’s share of production. 2) Normal production. Customers and market 49 22 10 10 10 10 10 10 7 100 30 100 100 100 20 20 9 11 7 100 100 50 489 98 3 1 8 9 6 8 16 130 22 71 6 22 22 21 42 32 17 106 8 75 1957–58 1962 1985–96 " " " " " 1961–74 " " " 1915 2009 1949–75 " " " " 1990 1927 2014 Business area Products Customer segment Competitors Forest Paperboard Paper Wood Products Logs, pulpwood and biofuel Sawmills, pulp mills, paperboard and paper mills SCA, Sveaskog plus a number of large forest owners’ associations Premium paperboard for consumer packaging Brand owners, converters and wholesalers Metsä Board, Stora Enso Paper for books, magazines and printed advertising Publishers, printing firms and retailers Norske Skog, Stora Enso, UPM Construction timber, joinery timber, CLT and glulam, plus wood for pallets and packaging Construction industry, joinery industry, builders’ merchants, and packaging industry Moelven, SCA, Setra, Södra, Vida and a large number of foreign companies Renewable Energy Renewable energy from hydro and wind power Nordic electricity market Fortum, Statkraft, Vattenfall, Uniper Business overview Holmen Annual Report 2020 93 Definitions & glossary ↘ Definitions 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. 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 (EPS) 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 and major restructuring measures, plus 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 88 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 finan- cial assets. Operating margin Operating profit/loss (excl. items affecting compara- bility) 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, based on quarterly data. 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. Glossary 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. Carbon dioxide equivalents (CO2e) Carbon dioxide equivalents include the effects from greenhouse gases other than just carbon dioxide, such as methane and nitrous oxide. COD Chemical oxygen demanding substances. A measure of the amount of oxygen needed for the complete decomposition of organic material in water. Cross-laminated timber (CLT) Engineered wood product comprising an odd number of layers of planed lamellae glued together, with each layer perpendicular to the previous one. Uses include posts and beams plus surface units for walls and floor systems. 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. Glulam 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 phosphorus 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. Engineered wood product comprising layers of planed lamellae glued together, with the wood grain running parallel with the length. Uses include posts, beams and roof trusses. 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 45001 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. 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. 94 Holmen Annual Report 2020 Definitions & glossary Calendar & information ↘ Information Calendar 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, togeth- er 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 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 or go to holmen.com For 2021, Holmen will publish the following financial reports: Interim report Jan–Mar: 29 Apr 2021 Interim report Jan–Jun: 19 Aug 2021 Interim report Jan–Sep: 21 Oct 2021 Year-end report: 28 January 2022 AGM 2021 Holmen’s AGM for 2021 will be held on 22 April. The format of the AGM will mean that shareholders will only be able to exercise their voting rights via postal voting. Votes will need to be submitted using a form that is available at holmen.com. The company must receive the signed form by 21 April at the latest. The form can be signed using a BankID or by hand and should then be sent to the company by e-mail (info@computershare.se) or to Holmen via the address Computershare AB, “Årsstämma i Holmen”, Box 5267, SE-102 46 Stockholm, Sweden. Dates of trading and dividend The final date for trading, including right to dividend: 22 April 2021 Record date for dividend: 26 April 2021 Payment date for dividend: 29 April 2021 References References page 12 • Kraftsamling elförsörjning – Långsiktig scenarioanalys (Focusing energies on electricity supply – long-term scenario analysis), Confederation of Swedish Enterprise 2020. 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 reduce 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. 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 

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