Holmen
Annual Report 2022

Plain-text annual report

Annual Report 2022 We let the forest groW and give contents 2022 Holmen in brief CEO’s message Strategy and targets Investment case The year in brief Forest Wood Products Paperboard Paper Renewable Energy A sustainable business Employees Corporate governance report Risk management Shareholder information 03 04 06 10 14 16 21 25 28 32 36 46 48 53 58 Financial statements 60 66 Notes Proposed appropriation of profits 93 95 Auditor’s Report 97 Review of Sustainability Report Board of Directors Group management Key figures Ten-year review, finance Taxonomy Five-year review, sustainability Environmental information Business overview Definitions and glossary Calendar and information 98 100 101 102 104 108 110 112 114 115 100% Holmen-produced This entire annual report is made using Holmen’s own products. The cover is printed on Invercote G, manufactured at Iggesund Mill. This is a paperboard with high whiteness and a smooth, matt surface. The paperboard is ideal for graphical products with a surface finish. The insert is printed on Holmen TRND, which is manufactured at Hallsta Paper Mill. This is an uncoated, matt magazine paper that offers a wide range of options in terms of bulk, grammage and shade. Both Holmen TRND and Invercote G are made using fresh fibre from sustainably managed forests. Holmen Aktiebolag (publ.), corporate identity number 556001-3301, submit their annual report for the parent company and the Group for the financial year 01.01.2022–31.12.2022. The annual report comprises the administration report (pages 2, 6–9, 14–15, 44–59, 93–94, 98–99 and 110) and the financial statements, together with the notes and supplementary information (pages 60–92). The statutory sustainability report in accordance with the Swedish Annual Accounts Act comprises pages 6–9, 44–47, 50–52, 54–55, 104–107 and 110. The Group’s consolidated income statement and balance sheet and the parent company’s income statement and balance sheet will be adopted at the Annual General Meeting. The basis for the sustainability information presented is the issues identified as key in view of the materiality analysis conducted in 2018. The sustainability work is reported in accordance with the Global Reporting Initiative’s GRI Standards 2021. The Sustainability Report comprises pages 36–47, 54–55, 104–111 and the GRI index on the website holmen.com. The information is audited by a third party, see separate assurance report at holmen.com. This is a translation of the Swedish annual report of Holmen Aktiebolag (publ.). In the event of inconsistency between the English and the Swedish versions, the Swedish version shall prevail. 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: Jonas Westling, Måns Berg, Patrick Degerman, Kollberg & Karlsson, Ulla-Carin Ekblom and others. Print: Larsson Offsettryck AB. 2 Holmen Annual Report 2022 Holmen grows Houses We manage the forest actively and sustainably, and use the raw material wisely and far-sightedly. The wood is refined into wood products for sustainable building, and we turn whatever is left over into paperboard of world-leading quality and innovative paper products. In addition, we use the water rushing down the rivers and the wind blowing over the treetops to produce renewable energy. When we grow houses, we are also growing change. 2022 in figures Net sales 23 952 SEKm Cash flow* 6 768 SEKm Operating profit** 7 262 SEKm No. of employees 3 466 Profit per share SEK 40 30 20 10 0 13 14 15 16 17 18 19*** 20 21 22 Total shareholder return Holmen B and OMX Stockholm Index 800 600 400 200 0 13 14 15 16 17 18 19 20 21 22 Jan 23 Holmen B OMX Stockholm 30 (OMXS30) *Before investments and changes in working capital **Excl. items affecting comparability ***Excl. forest revaluation Holmen in brief Holmen Annual Report 2022 3 » Our strong financial position makes us well equipped to exploit the opportunities opening up in a world that is working towards a sustainable society.« 4 Holmen Annual Report 2022 CEO’s message CEO’s message Dear sHareHolDers, 2022 was marked by the war in Ukraine and the energy crisis in Europe, while around the world, central banks struggled with high inflationary pressures driven by raw material shortages. With our own forest and energy production as a foundation, we at Holmen have been able to advance our positions within our business areas, despite the uncertain environment, with earnings surging above SEK 7 billion. As we close the books on 2022, we can clearly see that our business model − creating value based on our forest assets − is a successful one. We can also report that interest in owning forest remains high, as reflected in the 11 per cent increase in the value of our forest assets to a little over SEK 52 billion. In light of the solid earnings development and our strong financial position, the proposal is to increase the ordinary dividend to SEK 8 and to pay an extra dividend of SEK 8. The transition to a sustainable world Although we are seeing rapid advances in renewable energy, only a small proportion of the world’s energy comes from sustainable sources. Looking back over the past 50 years, the world’s energy consumption has tripled, and this increase in demand has almost exclusively been met using fossil fuels. Russia’s invasion of Ukraine has highlighted just how damaging our dependence on fossil energy sources can be, not only for the climate, but also for the economy and security policy. To wean us off this dependence, Europe needs to restructure its energy supply. This means not only that we need to produce more fossil-free electricity, but that we must also electrify substantial elements of industrial production, heating and transport. Renewable electricity production With a fossil-free energy system and opportunities to increase renewable electricity generation, Sweden is well placed to lead the development of next-generation, fossil-free industrial processes. Recent initiatives concerning everything from green steel to batteries are concrete examples of companies beginning to turn words into action. With our controllable hydro power, we can play our part in supplying the growing industry with green electricity when it is most needed, while at the same time helping to stabilise an increasingly weather-dependent electricity system. In 2022, we increased our capacity for renewable energy production by 40 per cent with the commissioning of Blåbergsliden Wind Farm and the acquisition of Varsvik. There is also significant potential to develop more wind power on our own land, but this is reliant on permit application processes that are currently protracted and unpredictable. Sustainable building The real estate sector accounts for over a third of Europe’s carbon emissions, something that the major construction companies have begun to acknowledge as they set targets to make the whole value chain fossil-free. The main challenge is that making the dominant construction materials, cement and steel, sustainable is both costly and difficult. Wood offers a renewable alternative that is more than just fossil-free. In contrast to cement and steel, it is also energy-efficient to produce, and it stores carbon in the buildings. This makes the market prospects for wood very good, not least when fossil construction materials are made to carry their true cost to the climate. Through the acquisitions and investments of recent years, we have expanded our wood products business while at the same time shifting ourselves forward in the value chain. We are currently investing in the expansion of Iggesund Sawmill, and in higher volumes of products for large-scale construction. With a strong position in the wood market and well-invested sawmills, we have a platform for continued growth for many years to come. Fossil-free paper and paperboard We grow forest with a view to building houses. When we saw the wood, whatever is left over is used in our paper and paperboard mills, where wood chips and shavings are topped up with the trees that are too narrow to become construction material. With a secure and largely fossil-free energy supply, we provide the market with climate-smart products − a winning concept in light of the energy and raw material shortages that have hit competitors on the continent. Our paper business is performing strongly against the competition, with interesting opportunities also opening up in the packaging area. On the paperboard front, we are now accelerating the pace of investment over a five-year period in order to drive up sales to our customers in the premium segment. Managed forest generates climate benefits The world’s forests absorb increasing amounts of carbon dioxide every year, but this increase only occurs in the forests that are actively managed. We have long combined active forestry with preservation of biodiversity, and we are seeing this bear fruit with a increasing volume of standing timber and larger harvests from healthy ecosystems. Our growing volume of standing timber contributes to a better climate by sequestering carbon, but the main benefit comes when we are able to increase the production of wood products, paperboard and paper to replace fossil alternatives, while at the same time keeping the carbon stored in the buildings. In 2022, our combined operations contributed towards a climate benefit of 7 million tonnes CO2e, equivalent to 15 per cent of emissions in Sweden. With our large forest holdings as a foundation, we grow houses while also harnessing the energy that blows over the treetops and flows in the rivers. We then make renewable packaging, magazines and books from what is left over from forestry. Our strong financial position makes us well equipped to exploit the opportunities opening up in a world that is working towards a sustainable society in a time when both raw materials and energy are in short supply. Stockholm, 20 February 2023 Henrik Sjölund President and CEO CEO’s message Holmen Annual Report 2022 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 foundation of our business. Using our own production facilities, the growing trees are refined into everything from wood for climate-smart building to renewable packaging, magazines and books, while at the same time we generate hydro and wind power on our own land. A business that not only creates value for customers and shareholders, but also contributes to a better climate and thriving rural communities. Paper The Paper business will be developed by offering resource-efficient alternatives to traditional products. ↑ Wood Products The Wood Products business will grow through products and solutions for sustainable construction. 6 Holmen Annual Report 2022 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 development of Holmen’s production facilities. ↓ Paperboard The Paperboard business will develop on the basis of its position as a market leader in the premium segment for renewable consumer packaging. ↙ Renewable Energy The Renewable Energy business will grow by establishing wind power on Holmen’s own land. Strategy and targets Holmen Annual Report 2022 7 Strategy and targets We aim to create value that stands the test of time … Forest Industry Renewable Energy The forest is sustainably managed to provide a good annual return and stable value growth. Growth and harvests will increase over time. 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. Deliveries of renewable energy will increase by complementing our existing hydro power with wind power on our own land. Annual harvest, ’000 m3sub/year Industry’s return on capital employed, %* Deliveries of hydro and wind power, GWh 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2003- 2007 2008- 2012 2013- 2017 2018- 2022 2023- 2027* 2028- 2032* 2033- 2037* 2038- 2042* 60 40 20 0 52 18 19 20 21 22 2 000 1 600 1 200 800 400 0 1 639 18 19 20 21 22 Harvest Thinning Storms & other events *Excl. items affecting comparability *Forecast In 2022 volumes amounted to 2.8 million m3, which is in line with the current harvesting plan. The value of the Group’s forest assets increased by 11 per cent to SEK 52 billion. In 2022, the return for the industrial side of the business reached 52 per cent, driven primarily by excellent profitability in Paper and Wood Products. Over the year, the Group increased its deliveries of renewable energy by a little over 30 per cent with the commissioning of Blåbergsliden Wind Farm and acquisition of the outstanding shares in Varsvik Wind Farm. 8 Holmen Annual Report 2022 Strategy and targets … While contributing to a better climate Climate benefit Capital structure Dividend We will increase our benefit to the climate through higher growth in our forest and higher sales of renewable products that store carbon dioxide and replace fossil- based alternatives, while also reducing the fossil emissions along our value chain. Our financial position is to be strong in order to secure room for manoeuvre when making long-term commercial decisions. Net financial debt will not exceed 25 per cent of equity. Holmen will generate a good annual dividend for shareholders. The level is determined by the Group’s profitability, investment plans and financial situation. The dividend is supplemented with share buy-backs where this is judged to create long-term value for shareholders. Climate benefit, million tonnes CO2e Net debt as % of equity Dividend per share, SEK 8 6 4 2 0 7.2 18 19 20 21 22 20 15 10 5 0 4 18 19 20 21 22 20 15 10 5 0 Proposal 8 Proposal 8 18 19 20 21 22 Ordinary dividend Extra dividend In 2022, Holmen’s operations helped to generate a climate benefit amounting to 7.2 million tonnes of CO2e, with positive contributions from all the business areas. For further information, see page 42. Strong cash flow has reduced net debt by SEK 1 956 million to SEK 2 145 million over the year, and the debt/equity ratio has fallen to 4 per cent. The Board proposes that the 2023 AGM approve a dividend of SEK 8 per share and an extra dividend of SEK 8 per share. Strategy and targets Holmen Annual Report 2022 9 Investment case tHe value of owning forest The forest is a fantastic asset. It provides a renewable raw material that can be processed into climate- smart products for a sustainable future. If we are to become less dependent on fossil raw materials, forest products have a key role to play and demand will increase in the future. Active forest management enables the trees to grow better, which in turn increases the amount of renewable raw material. However, 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. In 2022, Holmen’s total volume of standing timber amounted to 125 million m3 growing stock, solid over bark, which is 5 per cent higher than 10 years ago. As well as harvesting the forest on our own land, we also purchase wood from private forest owners and other Swedish forest companies. Almost 15 000 private forest owners have chosen us as a forestry partner. The amount of forest we refine at our own production facilities is thus twice the volume that we harvest from our own forest, and all this wood is used for everything from timber for climate-smart construction to renewable packaging, magazines and books. 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 construction material. Holmen uses the narrower part of the tree and wood from thinning, along with residual wood chips from the sawmills, to manufacture paperboard and paper. Wood products used for houses and other structures add considerable value by storing carbon for a long period while at the same time replacing fossil emissions from concrete and steel. Paperboard and paper also contribute to a better climate when they replace fossil materials, are recycled and finally create benefit as bioenergy. 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. Nothing goes to waste. Wind and hydro power. Owning forest land also provides opportunities for other revenue streams, not least by developing wind power. Our extensive forest holdings give us a unique opportunity to develop areas that are favourable for wind power. We develop projects on our own land and during the spring of 2022, Holmen's new Blåbergsliden Wind Farm became fully operational. Blåbergsliden contributes its annual production of 0.4 TWh to the grand total of 1.8 TWh of hydro and wind power that we generate each year. We now have 159 wind turbines operating on our land. With several wind projects in various stages of development, we have an opportunity to continue expanding wind power within Holmen. Holmen’s renewable energy production is dominated by the plannable hydro power from our 21 fully or partly owned power stations. Hydro power provides a reliable electricity supply and delivers major social benefits in the transition to more renewable energy sources. Other opportunities on our land. 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 recreation. Extracting stone and gravel from our own land for use in projects such as road building is another possibility for landowners such as Holmen. The climate benefit of managed forest Our growing forests bind carbon and all our products help to replace fossil material such as concrete, steel and plastic. In addition, our energy production makes it possible for people to heat their homes and for companies to run their production on renewable energy sources. Our business thus provides substantial climate benefits and reduces the amount of carbon dioxide in the atmosphere. Our positive climate impact for 2022 equated to 7.2 million tonnes of CO2e. Net sales and operating costs, SEKm Climate benefit, million tonnes CO2e 25 000 20 000 15 000 10 000 5 000 0 18 19 20 21 22 Net sales Operating costs 10 Holmen Annual Report 2022 Investment case 8 6 4 2 0 7.2 18 19 20 21 22 focus on climate anD energy One of society’s biggest challenges is meeting the needs of today’s growing population without compromising the ability of future generations to do the same. If we are to successfully transition to a fossil-free society, we must break our dependence on fossil resources and make sure that more carbon atoms remain in the ground. Our world is currently dictated, to a large extent, by two parallel factors: the climate transition that is driving demand for sustainable products, and the prevailing energy crisis that has rewritten the ground rules for both industry and private individuals. Since energy accounts for almost three quarters of global greenhouse gas emissions, the energy issue is closely tied up with the climate transition. The way we handle the energy crisis will also affect the world’s ability to manage climate change. The climate transition is driving demand Population growth and urbanisation, coupled with surging ambitions for sustainable construction, are driving the wood products market. Demand for paperboard and paper is being fuelled largely by economic and population growth, as well as changes in consumer behaviour and increased digitalisation. The desire to reduce climate impacts and avoid plastic packaging is a strong driving force promoting greater use of wood fibre- based products. We are seeing a distinct rise in demand for raw materials and products that are renewable, recyclable and fossil-free, a trend being accelerated by political decisions and increasing awareness among consumers. Active forestry increases growth in our forests, but in global terms the supply of forest raw material is limited. And yet demand for logs and pulpwood is expected to rise. The energy crisis is rewriting the ground rules The European energy market is undergoing a major transition. Roughly half of electricity production in Europe is fossil-free, but electricity only accounts for a quarter of total energy consumption and almost all other energy consumption is fossil-based. The war in Ukraine has also shown how dependent Europe is on energy from Russia and how sensitive the energy market is to disruptions. To meet the climate targets, much of fossil-based energy production will need to be switched to fossil-free sources, while at the same time securing a stable and cost- effective energy supply. However, it will not be enough just to increase the production of renewable energy – all transport and industrial processes will need to be electrified and made more energy- efficient, as will the construction and heating of buildings. Achieving this transition will require major investment and all products will have to carry the true cost of their climate impact. As fossil energy is phased out with no expansion of nuclear power on the horizon, renewable electricity production will take on even greater significance in the future. » To meet the climate targets, much of fossil-based energy production will need to be switched to fossil-free sources.« Investment case Holmen Annual Report 2022 11 Investment case tHe climate can’t wait As the focus on both climate issues and the energy situation intensifies, it is becoming increasingly clear that the forest and its products have a vital role to play in a fossil-free future. Holmen as a company is already contributing towards a better climate and a stable energy system. The amount of greenhouse gas in the atmosphere is lower thanks to the work we do. Our growing forests capture and store carbon dioxide, our renewable products replace fossil alternatives and our production of hydro power and wind power contributes to the transformation of Europe’s energy system. The more we produce, the greater the positive effects. We began planning for our production facilities to move away from fossil energy use back in the early 2000s and we have now switched to primarily using fossil-free electricity and renewable energy from biofuel. This is a major reason why our production has such a low carbon footprint compared with many of our competitors. Combined with energy efficiencies, emissions of fossil carbon dioxide from our production facilities have fallen by 90 per cent since 2005. We have also increased our production of renewable electricity by building two wind farms. And we will continue to invest and grow our positive contribution where the benefit and demand are greatest – wood products for sustainable building and more green energy. Greenhouse gas emissions from paper production* Tonnes CO2e/tonne paper 1.5 Direct emissions (Scope 1) Indirect emission from purchased energy (Scope 2) 1.0 0.5 0.0 In dia C hin a Ja p a n G er m a ny M exico S p ain U K Italy U S A Fra nce C a n a d a Finla n d S w e d e n Brazil H ol m e n *Production of paper for packaging, newspapers and other graphical purposes. Source: FisherSolve Braviken Sawmill taken into operation Solid fuel boiler at Hallsta Paper Mill replaced with fossil-free electricity Opening of Varsvik Wind Farm outside Hallstavik Acquisition of Martinsons and its two sawmills Holmen takes full ownership of Varsvik Wind Farm 2010 2013 2014 2020 2022 2012 2013 2017 2022 New recovery boiler at Iggesund Mill New biofuel boiler at Workington Mill Acquisition of Linghem Sawmill Opening of Blåbergsliden Wind Farm outside Skellefteå 12 Holmen Annual Report 2022 Investment case  wooD proDucts for sustainable builDing Buildings account for considerable emissions of greenhouse gases, in construction and during the building’s lifecycle. Within the EU, the construction and real estate sector is responsible for a third of fossil carbon dioxide emissions, and in Sweden buildings account for 40 per cent of energy use. Active measures in heating and smart material choices offer major opportunities to cut the real estate sector’s climate footprint. Construction companies have ambitious climate targets and more and more countries, regions and cities are demanding sustainable building. Concrete, steel and wood are all key building materials, but wood has major benefits as it stores carbon while at the same time replacing materials with greater impact on the climate. In addition, the whole chain from manufacture to transport is much more energy-efficient for wood products than for other construction materials. The development of ‘green’ cement and fossil-free steel might lead to lower emissions, but it will also bring higher material costs, not least with a reduced allocation of emission allowances, as today’s production of steel and concrete does not carry its true cost to the climate. Increased production and value added Holmen’s manufacture of wood products has become an increasingly important part of our business. The construction of Braviken Sawmill in 2010 and the acquisition of Martinsons in 2020 have prompted strong growth in our wood products business. Demand for refined wood products is growing and with rising interest in wood construction, we see great opportunities to further develop the business. The next step is to increase capacity at Iggesund Sawmill by 20 per cent, and to step up the production of glulam and CLT (cross-laminated timber). Furthermore, we are exploring the viability of building a new large-scale sawmill in the county of Västerbotten. With a broader palette of refined products, we have also increased sales to chains of builders’ merchants, while through Martinsons we are now able to offer the planning and construction of complete timber frames in CLT and glulam for everything from sports halls and schools to office blocks and apartment buildings. Price trend for construction materials Index 400 300 200 100 0 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Wood products Steel Concrete renewable energy from our lanD The energy crisis in Europe has created significant difficulties in securing enough energy for households and industry. This has had far-reaching consequences for the whole of our society and shows just how sensitive the European energy system is and how dependent we are on fossil fuels such as gas and coal. At a time when the whole world needs to switch away from fossil energy sources, prompting a dramatic increase in electricity use, the need for more renewable energy is enormous. Having more weather- dependent energy from wind and solar also increases the need for controllable power in order to secure a stable and reliable network. The benefits of Holmen’s plannable hydro power are thus becoming all the clearer, as it can be managed to ensure production at times when the energy need is highest, and can help to keep the electricity grid’s frequency stable. Large-scale investment in wind power Our extensive land holdings mean that we also have the potential to add more renewable energy in the form of wind power. The establishment of large- scale wind power provides a logical complement to our controllable hydro power. It is also a great way to derive added value from our land, as higher energy production provides a good cash flow. 2014 saw the opening of Varsvik Wind Farm in Uppland, and Blåbergsliden Wind Farm outside Skellefteå came into operation in 2022. With 26 turbines, the wind farm will boost our annual production of renewable energy to 1.8 TWh. Europe’s energy use 2021, % Europe’s electricity use 2021, % 16 31 8 6 9 30 35 2 23 25 15 Fossil gas Oil Nuclear power Electricity Coal Renewables Fossil gas Oil Nuclear power Coal Renewables Investment case Holmen Annual Report 2022 13 The year in brief 2022 was a recorD year Net sales and operating margin Operating profit/loss and return Operating profit* Business area, % SEKm 25 000 20 000 15 000 10 000 5 000 0 23 952 30 17 18 19 20 21 22 % 50 40 30 20 10 0 SEKm 8 000 6 000 4 000 2 000 0 7 262 13 11 17 18 19 20 21 22 Net sales Operating margin* *Excl. items affecting comparability Operating profit* Return on capital employed* Return on equity** *Excl. items affecting comparability **Excl. forest revaluation 2019 % 16 12 8 4 0 14 19 17 15 36 Forest Paperboard Paper Wood Products Renewable Energy Total: 7 262 SEKm 1 401 SEKm 1 081 SEKm 2 714 SEKm 1 237 SEKm 1 006 SEKm *Excl. items affecting comparability and Group-wide Cash flow, SEKm Net debt as % of equity Capital employed* Business area, % 8 000 6 000 4 000 2 000 0 6 768 1 352 1 862 17 18 19 20 21 22 Investments Dividend Acquisitions Cash flow before investments and changes in working capital 20 15 10 5 0 8 4 3 10 4 17 18 19 20 21 22 74 Forest Paperboard Paper Wood Products Renewable Energy Total: 59 095 SEKm 41 354 SEKm 5 632 SEKm 1 939 SEKm 2 067 SEKm 4 618 SEKm *Excl. Group-wide 14 Holmen Annual Report 2022 The year in brief The year in brief The defining features of this year have been the war in Ukraine and the energy crisis in Europe. With our own forest and renewable energy production, we have managed to avoid the high inflationary pressures driven by the raw material shortages, while also advancing our position in several segments. Overall, we have managed to drive our profits to a high of SEK 7 262 million, marking our best result ever. Business area Comment Outlook Forest Paperboard Paper Demand for logs and pulpwood was high in 2022. Wood prices have gradually risen, generating profit of SEK 1 401 million. The value of Holmen’s forest property rose by 11 per cent over the year, based on transaction prices in the areas where Holmen owns forest land, and at year end amounted to SEK 52 billion. Despite a weaker wood products market, demand for logs is good. Competition for pulpwood is high due to sanctions stopping exports from Russia. Our strong position in the wood market, where we have good control over raw materials, is a real advantage in these uncertain times, ensuring a secure supply of raw material and good conditions for the development of our production facilities. Demand for paperboard for consumer packaging held up well and market prices settled at a higher level over the year. Price rises, combined with a favourable energy situation at the paperboard mills in Iggesund and Workington, helped boost profits to SEK 1 081 million, despite elevated raw material costs. Following a period of high demand and rising prices, the market normalised towards the end of the year. The paperboard market is expected to continue growing, but may be affected in the near term by an economic downturn. Backed by an advantageous cost position, we are continuing to develop our business with customers that demand the highest quality. While the structural decline in demand for paper continues, prices are currently driven mainly by the trend in production costs for producers on the continent who are dependent on recycled fibre and fossil energy. With well-invested facilities and access to fossil-free electricity and local wood, we remain highly competitive and are continuing to develop our book and magazine paper business, while also exploring new segments in the packaging area. Following substantial falls from the historically high levels of the summer, prices stabilised towards the end of the year. There is some uncertainty about how rising interest rates will affect construction and thus the demand for wood products. With our strong position in the wood market, we nevertheless see good opportunities to develop the wood products business in pace with the increasing demand for sustainable building materials. Energy shortages continue to be an issue in Europe and prices are historically high, although the situation has improved somewhat compared with last summer. The price gap between northern Sweden and the rest of Europe decreased towards the end of the year, in part due to greater transmission capacity within Sweden. We increased our renewable production capacity by 40 per cent over the year, and have large potential to build further wind power on our own land, although protracted permit application processes are impeding the pace of development. Holmen’s already strong financial position has been further boosted over the year, with net debt down by SEK 1 956 million to SEK 2 145 million, or 4 per cent of equity. Our business model has proven to be a particularly good fit in a world that is short of raw materials and energy and where we are striving for a sustainable society. Despite declining demand in several segments, paper prices climbed to record levels over the year, driven by energy and fibre shortages. Profit rose to SEK 2 714 million thanks to higher selling prices and our ability to adapt production to an environment of volatile electricity prices, combined with electricity price hedging. Wood Products After a strong performance in the first half of the year, the wood products market abruptly stalled due to high stock levels and uncertainty about the prospects for the construction industry. Nevertheless, the strong opening to the year delivered high profits of SEK 1 237 million. Renewable Energy As a result of the energy crisis in Europe, electricity prices in Sweden rose to record levels during the year, although due to grid limitations, the price of electricity was lower in northern Sweden, where the majority of Holmen’s production is located. Higher electricity prices, the expansion of wind power and higher remuneration for hydro power’s ancillary services to help stabilise the electricity system boosted profits to SEK 1 006 million. Key figures 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) 2022 23 952 7 527 7 262 5 874 36.3 8.0* 8.0* 13.3 6 768 1 352 56 950 2 145 4 3 466 2021 19 479 3 731 4 061 3 004 18.5 7.5 4.0 8.5 3 375 1 332 46 992 4 101 9 3 474 *Board proposal. **Net including company acquisitions but excluding changes in non-current financial receivables. The year in brief Holmen Annual Report 2022 15 Forest sustainable forestry 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. The strategy is to increase the revenue from and future value of the forest holdings through active and sustainable forestry with high growth. Holmen’s forests cover 1.3 million hectares, of which a little over a million hectares comprise productive forest land. As one of Sweden’s biggest landowners, we are largely able to supply our Swedish production units with renewable raw material from our own sources, which boosts our competitiveness while also promoting the development of our industrial facilities. Sustainable forestry is about balancing several perspectives – economic, environ­ mental and social – and succeeding in doing so over time. It is in our interest and equally in the interest of society for us to manage the forest actively and sustain­ ably and for us to use the raw material in a wise and far­sighted way. When we harvest trees, nothing goes to waste, since we make use of 100 per cent of the raw material. We grow houses In our forests, we grow houses. By this we mean that we manage the forest in a way that generates as much timber as possible. As the trees grow, they absorb carbon dioxide, which remains stored in the wood products that are used to build homes. Using the renewable raw material in place of fossil alternatives doubles the climate benefit. In addition, the larger the area managed, the more carbon dioxide is captured. Forest that is not actively managed delivers nowhere near the same long­term climate gains, since the carbon released from old trees and plants as they die and rot down to a large extent cancels out the absorption capacity of the younger trees. It also removes the option for wood raw material to replace products with a greater climate impact. Forestry constantly developing It takes 90 years for trees to reach maturity and be ready for harvesting, and by this time their growth and ability to absorb carbon dioxide have significantly declined. After harvesting, all the land is reforested, with at least two seedlings planted for every tree harvested. 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. 10–30 years before the forest is harvested, it can be fertilised to further boost growth. Holmen invests SEK 170 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. Long-term planning. Of Holmen’s over a million hectares of forest­clad land, we use about 80 per cent for wood production. Every ten years we conduct a survey of all of our forest holdings and calculate the potential harvest in a hundred years’ time, taking into account any habitats requiring special consideration, reindeer husbandry and social assets. Both volumes of standing forest and the forest’s growth continue to increase. 45 million seedlings. Holmen’s two nurseries – one in Gideå and one in Friggesund – produce almost 45 million spruce and pine seedlings each year, the majority of which are planted on our own land. Selected seeds and organic fertiliser produce healthy and vigorous seedlings that are given a special coating to protect against insect attack. Holmen is also involved in the development of improved seedlings that will grow better, produce higher quality timber and be more disease resistant. Biodiversity We care about the diversity of habitats and species in our forests. We take extensive measures to protect the environment when tending and harvesting our forest, and we have also identified around 6 500 areas that we refrain from harvesting. In these areas that have been voluntarily set aside, we conduct inventories of the natural assets and, where necessary, take action to further boost habitat diversity. Our forests and their assets are detailed in local ecological landscape plans, which also describe how areas set aside for nature conservation are to be planned and how the forests are to be managed over the long term in order to preserve existing natural assets and to create new ones. The aim is to ensure that all naturally occurring species are able to thrive in the Swedish forest landscape. Learning more about Swedish forests With the major contribution that our forests make to both the climate and the Swedish economy, management of the forest is of great national, regional and local significance. Holmen and other industry players have therefore joined forces to make politicians, authorities and the general public more aware of how vital the forest is for the climate, and the importance of forestry for a growing bioeconomy. Holmen’s Knowledge Forests. To raise awareness of our forestry and forest research, we have established four Knowledge Forests. The forests are selected for their specific biological conditions and are used to explore, gather and pass on knowledge. This is also our way of showing how our sustainable forestry can promote growth while at the same time increasing biodiversity in the forest. This year saw the opening of Berga Knowledge Forest in Västerbotten, where we are working to develop our prescribed burning in order to create habitats for species that rely on burned ground and wood. Control over the raw material Owning large areas of forest and having close partnerships with almost 15 000 private forest owners creates considerable economies of scale, which give Holmen a strong position in the wood market. Alongside extensive timber trading, we provide our industrial sites with raw material via efficient logistics solutions. With growing capacity to produce wood products near our forest holdings, we can also process an ever­increasing proportion of our forest at our own industrial sites. 16 Holmen Annual Report 2022 Forest Key figures Operating profit Comment on results 2022 2021 Net sales, SEKm 7 342 6 509 Of which from own forest, 1 524 1 376 SEKm Operating profit/loss, SEKm 1 401 1 495 Investments, SEKm 278 249 Book value, forest assets, SEKm Average no. of employees (FTE) Deliveries, own forest, ’000 m3sub 52 151 47 080 450 431 2 813 2 833 Volume of standing timber, m3 growing stock, solid over bark per hectare of productive forest land 120 90 60 30 0 1948 1955 1965 1975 1988 1993 2000 2010 2020 2022* Inventory * Estimate SEKm 1 600 1 200 800 400 1 401 Demand for logs and pulpwood was high in 2022. Wood prices have gradually risen, generating profit of SEK 1 401 million. The value of Holmen’s forest property rose by 11 per cent over the year, based on transaction prices in the areas where Holmen owns forest land, and at year end amounted to SEK 52 billion. 0 19 18 17 Operating profit excl. items affecting comparability 20 21 22 Holmen’s forests 2022 Total land acreage Total forest land acreage* – of which nature conservation areas Productive forest land** 1 305 000 ha 1 160 000 ha 204 000 ha 1 045 000 ha Total volume of standing timber on productive forest land 125 million m3 growing stock, solid over bark * Calculated based on Holmen’s stand catalogue and data from the National Forest Inventory in line with 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) according to Holmen’s stand catalogue. Forest Holmen Annual Report 2022 17 Forest Our nature conservation initiatives aim to benefit everything from plants and birds to insects and fungi. The photo shows a dog lichen of the genus Peltigera and family Peltigeraceae. Active meAsures create flourishing forests Biodiversity means that a landscape has many types of natural habitat, a rich variety of species, and a great deal of genetic variation within those species. It is all about wild animals, plants and fungi. But it is also about cultivated trees and growing forests. Holmen works to ensure that all naturally occurring species are able to thrive in our forests and that important natural assets are encouraged and preserved. Since the early 1990s, when the issue of nature conservation came into sharper focus, we have learned a great deal about how we can improve biodiversity and increase growth in the forest at the same time. Long-term planning for future generations Planning is the foundation of active and sustainable forestry. Every 10 years, we conduct an inventory of our entire forest holdings in order to calculate sustainable harvesting levels and ensure a growing volume of standing timber over time. The assets of our forests are also detailed in local ecological landscape plans, which describe how the forests are to be managed over the long term in order to preserve existing natural assets and to create new ones. Our active forest management includes extensive consideration for both natural and cultural assets. Since forest­dwelling species depend on different habitats for their survival, large broadleaf trees, dead trees and unusually old trees are preserved. Some areas are also kept entirely free from forestry activities, due to their high conservation value. Some of these areas are left entirely to their own devices and in others we implement active nature conservation measures such as clearing brushwood or burning forest under controlled conditions, which is good for many rare plants and animals. We also maintain valuable buffer zones around lakes, watercourses, marshes, rocky outcrops and agricultural land. These sites tend to be rich in species due to varying light conditions, soil types and moisture levels, and they also provide places where the flora and fauna of the forest mix with those from the marshes, water or open landscape. Forever learning With a production cycle of almost a century in the forest, long­termism is more than just a buzzword for us. It is a perspective that runs through every aspect of our business. As a forest company, we depend on the natural world being healthy and resilient – in fact it lies at the very heart of our business. We know it is fully possible to actively manage the forest while at the same time preserving and supporting important natural assets. We have come a long way on this journey, but we have not finished yet. Although we now have a huge bank of knowledge on how to promote biodiversity in our forests, we believe that, through research and collaboration, we can develop and refine our methods for creating healthy and flourishing ecosystems. Holmen is therefore running a hundred or so research projects on our land, both independently and in partnership with research organisations, universities and other stakeholders. Our goal is to achieve future­smart forests that give more, not just to us but to future generations. 18 Holmen Annual Report 2022 Forest the value of the forest is confirmed by current trAnsActions Holmen’s forest holdings cover 1.3 million hectares, of which a little over a million hectares comprise productive forest land. The land holdings are split across around 4 700 forest properties from Småland in the south to Västerbotten in the north. A large number of forest property transactions are carried out every year. Holmen’s forest assets are recognised at fair value based on the prices paid for forest properties in the areas where we have our forest. As of 31 December 2022, the book value stands at SEK 52 151 (47 080) million, which averages out at SEK 49 900 per hectare of productive forest land. The value varies across the country, with forest properties in southern Sweden being valued much higher per hectare as a result of a greater volume of standing timber, higher wood producing capacity, a shorter harvesting cycle and greater demand for forest land. Wood prices, SEK/m3sub 700 600 500 400 300 200 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2005 2007 2009 2011 2013 2015 2017 2019 2021 Real Nominal Price of forest properties, SEK/m3 growing stock, solid over bark 1 000 800 600 400 200 0 Holmen owns 1.3 million hectares of forest and land in Sweden, equivalent to almost two million football pitches. 2015 2016 2017 2018 2019 2020 2021 2022 Northern Sweden Central Sweden Southern Sweden Source: Annual collation of price statistics from various market players and transaction data. Forest Holmen Annual Report 2022 19 Vasaplan bus terminal in Umeå. Key figures Operating profit/loss and return Comment on results 2022 2021 Net sales, SEKm 5 015 4 872 Operating profit/loss, SEKm 1 237 1 668 Investments, SEKm 122 242 Capital employed, SEKm 2 067 2 278 Average no. of employees (FTE) 729 783 Deliveries, ’000 m3 1 435 1 373 SEKm 2 000 1 600 1 200 800 400 0 % 100 80 60 40 20 0 1 237 54 17 18 19 20 21 22 Operating profit Return on capital employed After a strong performance in the first half of the year, the wood products market abruptly stalled due to high stock levels and uncertainty about the prospects for the construction industry. Nevertheless, the strong opening to the year delivered high profits of SEK 1 237 million. Consumption of wood products Price development Million m³ 400 300 200 100 0 13 14 15 16 17 18 19 20 21 22 Index 500 400 300 200 100 0 17 18 19 20 21 22 Europe North America China Other Asia MENA Export price Sweden Price USA 20 Holmen Annual Report 2022 Wood Products Wood Products building the future in wood Holmen offers a wide range of wood and timber products for building, joinery and construction systems. The raw material comes from responsibly managed forests and is turned into sustainable building materials in our chain-of-custody certified sawmills. The business is being developed by increasing the value added and making better use of the wood raw material in combination with large- scale production. Wood is a fantastic material. It is strong, versatile, light and the only construction material that is renewable. Holmen’s sawmills play a key role in our circular business. This is where the wood is split and the processing of the forest we have harvested begins. Developing the wood products business is a natural extension of our forestry work and a key dimension of our strategy of owning and adding value to the forest. Our wood products become houses and other buildings. They are used for façades, roof trusses, floors, walls, doors and window frames, as well as for furniture and decking. Products as basic as planks and boards create great value, not least for the climate. Sustainable building Drawing energy from the sun and water from the ground, trees absorb carbon dioxide from the air, and this then remains stored in the wood products we manufacture. Building in wood is therefore significantly better for the climate than building in concrete and steel, since the manufacture of these materials 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 cost­effective, since wood weighs less than concrete and steel. We thus create benefit for the climate on multiple fronts. Demand for refined wood products, especially CLT and glulam beams, is growing and with rising interest in wood construction we see great opportunities to further develop the business. We currently offer everything from joinery timber and refined products for builders’ merchants to advanced construction components and glulam. Through Martinsons, we are now also able to offer the planning and construction of complete timber frames for everything from sports halls and schools to office blocks and apartment buildings. Added value in large-scale production Holmen’s high­tech sawmills enable us to offer a wide range of dimensions and grades. Proximity to the raw material combined with efficient wood purchasing is a key factor for profitability, while competitiveness is underpinned by the fact that parts of production are co­located with the Group’s paperboard and paper mills. In the sawmills, the entire log is used in an optimized way. Thanks to advanced technology, we can maximise the output from every log. Our high level of techno ­ logy, including one of the world’s most efficient planing mills at Braviken Sawmill, enables product development with a greater focus on optimising wood characteristics in the log to suit the end customer’s product. We develop sawing and drying in cooperation with our customers to minimise wastage and maximise customer benefit. Investments strengthening our position. Since becoming operational in 2011, Braviken Sawmill has undergone several rounds of technical upgrades to become one of Scandinavia’s largest and most modern sawmills. Following the expansion of Braviken, plus the acquisition of the Linghem customer sawmill in 2017 and Martinsons’ two sawmills in 2020, the focus now turns to Iggesund Sawmill as the next step in strengthening our wood products business. An investment in timber sorting and a new planing mill will increase production at Iggesund Sawmill by 20 per cent, as well as adding construction timber on top of its joinery products range. Investments in Bygdsiljum Sawmill and in a distribution warehouse and cutting line at Braviken Sawmill will also enable us to expand production of glulam and CLT, as well as strengthening our position with builders’ merchants. Furthermore, we are exploring the viability of building a new large­scale sawmill in Västerbotten. Energy-efficient production units. Two of the Group’s sawmills, Iggesund and Braviken, form energy-efficient units with their neighbouring paperboard and paper mills. This means that every aspect of the wood raw material is made use of in a cycle in which chips from the sawmills act as raw material in pulp production and the final residual products are used as biofuel to produce energy and district heating. Steam from the mills is also used in the drying processes at the sawmills. Control over the raw material. Holmen’s sawmills are located near our forest holdings from north to south, bringing logistical benefits and giving access to a transport network that reaches around the globe by rail, road and, not least, sea. Holmen’s sawmills all hold chain­of­ custody certification, and the wood raw material is sourced from Holmen’s own forest holdings and from other forest owners, ensuring an efficient logistics chain from forest to sawmill. With a total of five sawmills, strategically located near our forest holdings in various parts of Sweden, we have good control over our raw material. Strong underlying growth 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 climbed almost 25 per cent in the past decade, propelled largely by increased consumption in China and in the US market. The real estate sector accounts for a third of carbon emissions in Europe and the construction industry is working hard to reduce its carbon footprint. Within the ongoing green transition, wood as a construction material has a great deal in its favour, since wooden buildings continue to store carbon dioxide within the structures, instead of generating emissions. This trend is expected to strengthen, boosting demand for wood products, particularly if concrete and steel are made to carry their true cost to the climate. There is great growth potential, not least for high­rise buildings, and the proportion of housebuilding in wood is expected to rise as the capacity for industrial wood construction expands. Wood Products Holmen Annual Report 2022 21 Magasin X is Sweden’s largest office block in wood. With mArtinsons We build the Wooden houses of the future The acquisition of Martinsons in autumn 2020 saw Holmen take a real leap forward in the market for modern wood construction. Together we form a strong and stable value chain, from seed to finished wooden building. Martinsons was founded in Bygdsiljum in the late 1920s and in the 1960s the company began to take an early interest in the glulam being manufactured in Germany. The management spotted the potential of the material and decided to launch their own production. In 2003 they launched their first construction system in CLT, a new way of building in wood that further reinforced Martinsons’ position at the cutting edge of developments in wood construction. Since then, Martinsons’ structural frame systems in glulam and CLT have secured an increasingly vital role in the future of construction, and all the wood for the frames is still supplied by Holmen’s sawmill in Bygdsiljum. Today, the business covers development and design, as well as sales, project management and assembly. Function, sustainability and economics Wood is a fantastic material and making use of all its good properties is allowing us to create new opportunities to build both quickly and economically. Whether the focus is on halls, high­rise apartment blocks or other kinds of buildings, our ambition is to play an active part in building a more sustainable society. Through Martinsons, we offer brand new opportunities for wood construction. When it comes to function, performance and overall cost, frame systems in glulam and CLT have a central role to play. In our drive to constantly explore new ways of building in wood, we are continuing to push the boundaries of what is possible. We develop business premises, sports halls, schools and other public buildings based around financially smart construction systems, as well as building apartment blocks and office buildings that enable people to live and work in pleasant environments. 22 Holmen Annual Report 2022 Wood Products Wood Products With its seven floors and total floorspace of 16 600 m2, Magasin X is Sweden’s largest office block in wood – located in the heart of Uppsala. The project was run jointly with NCC and the timber frame was supplied by Martinsons as part of a turnkey contract that included responsibility for the planning, manufacture and assembly of the frame. The building was completed in 2022. the mAny Advantages of Wooden buildings Spending time surrounded by wood boosts health and wellbeing. It is thought that the reasons for the positive effects include the naturalness of the material and its positive impact on indoor air quality, moisture balance and acoustics. Wood is seen as an attractive and natural construction material. Exposed details in wood help to create light and pleasant indoor environments, while the material’s moisture buffering properties also contribute towards a good indoor climate. The wood absorbs moisture at humid times of the year, which it then releases at drier times, levelling out the relative humidity indoors. Put simply, wood produces a healthy and pleasing living environment. Being surrounded by wood feels very natural and is also much sought after by today’s well-informed consumers. From an environmental perspective, renewable building materials are the only sustainable option, and as knowledge and interest grow, we are increasingly realising the importance of making conscious choices. Studies also show that wood has a positive effect on humans, and that people who spend time in natural settings feel better. Patients, for example, recover faster in environments with exposed wood and it reduces our stress levels. Essentially, we become healthier, happier and more productive when we spend time anywhere with a connection to nature. Six reasons to build in wood 1. Good for the climate Wood products are made from renewable raw material in a process with a low climate impact. As a natural part of the ecocycle, they store carbon for their entire lifetime and when the time comes to demolish a wooden building, the material can be reused, recycled or used for energy production to heat other buildings. 2. Energy-efficient material production In contrast to steel and concrete, the manufacture of wood products is highly energy-efficient, a key consideration in a world facing energy shortages. 3. Light and easy to work with Wood is around five times lighter than concrete and therefore puts less pressure on the foundations. This low weight also makes installation easier, using a relatively small crane, and transport much more energy-efficient. What is more, the material can be worked on using simple hand tools. 4. High load-bearing capacity and large spans Their highly engineered structure means that glulam and CLT are dimensionally stable materials with an impressive load­bearing capacity that makes it possible to achieve large spans. This allows for flexible structures that open up design freedom in a wide range of contexts. 5. Shorter construction time Most wooden buildings are prefabricated in factories and assembled on site. Large elements and efficient joints enable rapid assembly, thus bringing down the construction time. 6. Less noise Since wooden structures don’t generate noise during on­site assembly, wood is increasingly being chosen when building new, temporary or additional floors on top of existing buildings. This provides a better work environment, and neighbours are not disturbed nearly as much, or for as long, as they would be with builds using steel and concrete. Wood Products Holmen Annual Report 2022 23 Key figures Operating profit/loss and return Comment on results 2022 2021 6 735 6 261 1 081 673 Net sales, SEKm Operating profit/loss excl. items affecting comparability, SEKm Investments, SEKm 555 399 Capital employed, SEKm 5 632 5 169 Average no. of employees (FTE) 1 290 1 263 Deliveries, ’000 tonnes 503 544 SEKm 1 250 1 000 750 500 250 0 % 25 1 081 20 20 15 10 5 0 17 18 19 20 21 22 Demand for paperboard for consumer packaging held up well and market prices settled at a higher level over the year. Price rises, combined with a favourable energy situation at the paperboard mills in Iggesund and Workington, helped boost profits to SEK 1 081 million, despite elevated raw material costs. Operating profit excl. items affecting comparability Return on capital employed excl. items affecting comparability European demand for SBB and FBB Price development FBB Mtonnes 4 3 2 1 0 13 14 15 16 17 18 19 20 21 22 Index 160 120 80 40 0 13 14 15 16 17 18 19 20 21 22 24 Holmen Annual Report 2022 Paperboard Paperboard premium paperboard for conscious brands Holmen Iggesund is a market leader in the production of high-quality paperboard. The strategy is to grow globally with our strong product brands by combining high quality, custom products 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 three brands: Invercote, Incada and Inverform. The quality, strength and design properties of the paperboard mean that we can create world­leading products for conscious brand owners with high ambitions. Clear product benefits from fresh fibre Our paperboard products are manufactured 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 combination of fresh fibre and a multi- tiered structure, with layers of different fibre types forming the basis for the paperboard’s outstanding performance. This allows us to work with our customers to develop better packaging solutions that are more fit for purpose. And because the paperboard is made from a renewable, recyclable and biodegradable material, we can develop products that encourage more circular packaging systems. When the paperboard is recycled, it also provides a necessary injection of fresh fibre into the recycled fibre industry. Circular production process Our facilities for paperboard production and processing are located in Iggesund and Strömsbruk in Sweden and in Workington in the UK. The paperboard mills hold chain-of-custody certification and all the wood raw material comes from sustainably managed forests. The plants are also largely self-sufficient in renewable thermal and electrical energy, which gives the products a low carbon footprint. 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. Both Iggesund Mill and Workington Mill have received a Platinum rating from EcoVadis for their successful sustainability work. In the latest review, Iggesund Mill was also ranked number one in its class by the international analysis firm, cementing the mill’s world­beating status on sustainability. Investments in increased capacity. With local wood raw material from our own forests and a sound energy situation, Iggesund Mill is ripe for further development. The aim of upcoming investments is to increase paperboard production at Iggesund by 25 per cent over time. Our customers’ choices make a difference We want to help our customers to make more renewable choices, so that more carbon atoms can be left in the ground. The next generation of packaging solutions is being created in close collaboration with our customers and partners. As we learn together, we are identifying new applications for our paperboard products and we are well placed to use our collective knowledge to create packaging solutions that really make a difference. A smarter alternative to plastic. One of the greatest challenges facing the packaging world is the switch from plastic to more sustainable packaging materials. The problems with plastic lie both in its fossil raw material and the enormous quantities of plastic that are polluting our oceans. 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. Close collaboration with customers. With its high and consistent quality, our paperboard ensures stable results in the customer’s production process, and the 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 cover everything from advice and product samples to service centres with local sheeting units and warehousing. Via support teams that maintain close contact with the market and have a deep understanding of the customer’s needs and wishes, we offer expert advice before, during and after the customer’s production process. The service offering includes environmental documentation and access to analysis facilities at the company’s own accredited laboratory for sensory and chemical analysis, known as the taint and odour lab, at Iggesund Mill. Coupled with the finishing options at the lamination unit in Strömsbruk, this means that we can offer custom solutions that meet the toughest requirements. Growing packaging market Demand for packaging is rising in line with factors such as population growth, urbanisation, an expanding middle class and more single­person households. Demand in the various product segments varies depending on the market, but there is a general increase in demand for renewable packaging materials. Being able to offer paperboard products of the highest quality, with a low climate footprint, that are also made from a raw material that is traceable back to sustainably managed forests puts us in a strong position in the premium segment. Paperboard Holmen Annual Report 2022 25 versatile packAging that mAkes A difference The choice of packaging material can make a big difference in the transition from fossil sources to renewables. Companies and brands in all industries have set ambitious targets to support progress towards more sustainable alternatives, and Holmen is constantly exploring new packaging solutions and applications for our paperboard. In our view, packaging should protect products, people and our planet. Switching to renewable and recyclable packaging materials is a way that all of us can help to make a difference – both today and for future generations. A smarter alternative Inverform is a formable paperboard product specially developed to replace food packaging in plastic and aluminium, and compared with fully plastic packaging, its carbon footprint can be as much as 60 to 80 per cent lower. The paperboard is normally supplied with a functional barrier that keeps the food fresh and stops it being affected by external factors, ensuring a longer shelf­life and reduced food waste. Just like our other paperboard products, Inverform has optimal whiteness and a smooth surface that offers superb printability. Made from pure wood fibre, the paperboard delivers a natural feel that is much appreciated by both brand owners and end customers. A conscious choice Plastic can be an excellent material, when used correctly. However, widespread use of plastics also has many downsides, not least the major climate impact from the fossil raw materials used in their manufacture and the risk of plastic particles ending up in the oceans and nature, where they can’t be decomposed. When developing Inverform, we wanted to create a renewable and recyclable packaging solution that would be more eco­friendly than plastic, but with the same good packaging performance along the whole value chain – from factory to warehouse, via the restaurant or store to the end consumer. We can do the most good together Our customers’ choices make a difference. And the best thing we can do for the climate is to help more customers to replace fossil sources with renewables. An informed choice of packaging material can significantly reduce our customers’ climate impact and help to keep plastic out of our natural environment. 26 Holmen Annual Report 2022 Paperboard Paperboard Customer-driven product development creating packaging of the future Working and developing alongside our customers, suppliers and partners lays the foundation for our co-learning, which in turn anchors and improves our position in the paperboard market, enabling us to advance further than we would be able to on our own. The world is in a constant state of flux, and everything is moving ever faster. We know that the only way to remain one step ahead is for us to quickly adapt to the changes that occur. We also need to constantly learn more about our customers’ need for new technology and new methods. This is how we will remain relevant and secure our position as the leading manufacturer of premium paperboard, all while delivering what our customers want – sustainable packaging solutions. We all need to be part of the solution in the necessary but formidable transition from fossil to renewables. As such, we need to be open and take every opportunity we can to share knowledge and collaborate. The next generation of packaging solutions is being created in close collaboration with customers and partners. We take on the challenges and opportunities of the future by learning together. The focus might be on anything from replacing traditional plastic payment cards with paperboard alternatives, to coming up with creative packaging that helps our customers to boost their brand. The emphasis of our collaborations is on sharing our knowledge and experience as a means of developing long­term relationships. These exchanges give us insights into the customer and the segment, while also developing our own know­how and gaining valuable feedback on our products and solutions. Our customers, partners, employees and, not least, the users of our products are all part of Holmen’s circular business, and every new relationship is an opportunity to expand the positive ripple effect of our actions. Paperboard Holmen Annual Report 2022 27 Paper innovative paper products from fresh fibre Holmen develops fresh fibre-based paper for books, packaging and graphical publications. Our papers are lightweight compared to traditional alternatives, making them resource-efficient without compromising on quality or the overall impression. Our strategy is to deliver and constantly develop products that are competitive over time. Holmen is a market leader in the development of new paper products based entirely on fresh fibre. In contrast to recycled fibre products, fresh fibre produces a naturally high brightness for an improved experience of text and images. Our 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. Holmen has been making paper for more than 100 years and has unparalleled expertise. We are convinced that, as a material, paper has an important role to play in society, today and tomorrow. With fresh fibre as the foundation, we are continuing to develop our position in a changing market, in both existing and new segments. Paper with the power to communicate Our customers are largely publishers, printing firms and retailers looking for resource- and cost-efficient papers with a focus on bulk, brightness and overall impression. We take a long­term approach in working to meet customer demand and create profitable products for books, magazines and printed advertising. Book paper. Holmen’s book paper is the leading product for paperback books in Europe. With its high bulk, it helps customers to achieve efficiencies in both production and distribution, while also having a low carbon footprint. Publishers further appreciate Holmen’s book paper because it offers product properties – in the form of a bright, smooth surface – that enhance the reading experience. Graphical paper. We have a wide range of papers for magazines and advertising. The combination of high bulk, whiteness and brightness makes our magazine paper a competitive choice. Direct mail is still considered an important communications channel for driving customers to both physical stores and online retail. Holmen’s lightweight paper offers customers the potential to increase the format or the number of pages or copies without adding to the cost, or simply to bank the pure savings on both paper and distribution. Successful launch of packaging paper In a world where goods and products are increasingly being distributed globally and often directly to households, it is becoming even more vital to ensure that the packaging materials are sustainably produced and based on renewable materials. Our light but strong and stable packaging paper from fresh fibre reduces transport emissions and gives customers a chance to replace fossil­based packaging. The launch of paper for corrugated packaging sees us taking the next step in our development of paper products for the future. Production with a low climate footprint With renewable raw material, fossil­free electricity and resource-efficient produc­ tion, we are able to offer products with a low climate footprint. Customer interest in our climate­smart products continues to grow, in a trend that matches our strategy of helping our customers to achieve a more sustainable business. Investments have boosted capacity in selected product areas and our development of new paper prod­ ucts involves close collaboration with customers and partners. Circular ecocycles. Holmen’s paper is produced at two Swedish mills, Braviken and Hallsta. Strategic logistical locations ensure short transport distances for the wood and proximity to ports with good capacity. The raw material for our paper comprises residual products from nearby forests and sawmills, which are employed in a circular ecocycle where nothing goes to waste. Environmental and chain­of­ custody certification enables us to ensure that the raw material for our products always comes from sustainably managed forests. In the most recent review in 2021, both mills were awarded EcoVadis Platinum. This puts them in the top flight of companies around the world that have been assessed on their environmental, ethical and social performance. Uniquely, production at Hallsta Paper Mill is entirely fossil­free. The mill’s energy solutions include recovering heat from the wastewater and the paper machines, selling the bark to heating plants and composting residual products to create topsoil. Braviken Paper Mill and Braviken Sawmill make an energy-efficient unit. The paper mill receives raw material in the form of wood chips from the sawmill, which in turn is supplied with energy and heat from the paper mill. Surplus bark and wood shavings are sold for the production of renewable energy. Without fresh fibre, there is no recycled fibre. The supply of fresh fiber is limited and paper manufacture in continental Europe is largely based on recycled fibre. But paper cannot be recycled again and again forever. The wood fibre becomes exhausted after a limited number of uses and the cycle thus has to be continually topped up with fresh fibre in order to keep functioning and maintain a sufficiently high level of quality. Our fresh fibre-based paper is therefore essential to the European recycled fibre system. Opportunities in a challenging market The market for graphical paper has experienced an underlying structural decline over many years. Demand varies across the segments, with the book market remaining stable, while other graphical segments such as magazine paper have weakened. The packaging market is growing strongly, but amid heavy competition, as many manufacturers have switched their printing paper production over to packaging materials. Our paper products have good competitiveness, not least due to resource-efficient production using local wood raw material and fossil­ free electricity, giving the products a low climate footprint. 28 Holmen Annual Report 2022 Paper Key figures Operating profit/loss and return Comment on results 2022 2021 Net sales, SEKm 8 370 5 441 Operating profit/loss, SEKm 2 714 Investments, SEKm 186 70 129 Capital employed, SEKm 1 939 1 637 Average no. of employees (FTE) 842 854 Deliveries, ’000 tonnes 995 1 029 SEKm 3 000 2 500 2 000 1 500 1 000 500 0 2 714 139 17 18 19 20 21 22 Despite declining demand in several segments, paper prices climbed to record levels over the year, driven by energy and fibre shortages. Profit rose to SEK 2 714 million thanks to higher selling prices and our ability to adapt production to an environment of volatile electricity prices, combined with electricity price hedging. % 180 150 120 90 60 30 0 Operating profit Return on capital employed European demand for paper Price development Ktonnes 20 000 15 000 10 000 5 000 0 13 14 15 16 17 18 19 20 21 22 Index 1 200 900 600 300 13 14 15 16 17 18 19 20 21 22 Uncoated magazine and book Coated magazine Newsprint Uncoated magazine Coated magazine Newsprint Paper Holmen Annual Report 2022 29 Paper innovative paper delivers light And strong packAging Holmen INNR is a new fresh fibre- based paper product that not only broadens our product range, but also encourages more climate-smart packaging. 2021 saw the launch of Holmen INNR as an interliner, the innermost layer in multilayered corrugated board. The market responded positively and the product was further developed in collaboration with our customers, who provided valuable feedback on what they needed from future packaging paper. Alongside this, work continued on improving the strength of the paper so that it could also be used for fluting, the wavy layer in corrugated board. Following a year of development work and extensive testing, in 2022 we were ready to add Holmen INNR fluting to our market portfolio. The product arrived at exactly the right time, as the shortage of recycled paper during the pandemic prompted European corrugated packaging manufacturers to begin seeking out new suppliers. With a product that is neither a traditional kraftliner or based on recycled fibre, Holmen has created a whole new market segment as the only European supplier of interliner and fluting made from thermo-mechanical pulp (TMP). A lighter paper is a smarter paper Holmen INNR in a grammage of 73 grams is just as strong as recycled paper­based fluting of 80–85 grams, but weighs less per square metre. Since paper is traded in volumes by weight, the customer can thus buy less paper, or get more square metres per tonne. Holmen INNR also delivers a significant difference in climate impact. Calculated according to industry association CEPI’s guidelines, the carbon footprint for Holmen INNR is only 87 kg CO2 per ton of paper, while the average figure for recycled paper­based liner and fluting in Europe is a much higher 838 kg CO2 according to data from FisherSolve. Like all our papers, Holmen INNR is made from fresh fibre, which is one of the reasons why it is so light. The key innovation comes not from the paper per se, but from the concept – creating corrugated board that is lighter than any other packaging material, but still strong enough to handle long­distance shipping. The lower weight also means lower energy consumption during distribution, which reduces both the overall carbon footprint and the cost of shipping. We know that our customers’ choices make a positive difference. And the best thing we can do for the climate is to help more customers to make smarter choices. 30 Holmen Annual Report 2022 Paper 838 ↓ 87 The carbon footprint of Holmen INNR is 87 kg CO2 per tonne of paper, which compares very favourably with the average footprint of recycled paper-based liner and fluting in Europe, at 838 kg CO2. An orgAnisation that thinks differently Within Holmen, we want to create a learning organisation that sees opportunities where others see challenges, whether creating the products of tomorrow or adapting to a changing world. The development of INNR is a prime example of a learning organisation and a successful collaboration within the company. Over recent years, demand for graphical paper has declined while at the same time demand for packaging paper has rocketed, powered in part by the rise in online retail. As part of our drive to continue growing in new segments, autumn 2020 therefore saw us begin to develop a stronger paper for the packaging industry. Moving into the packaging market brought us up against a whole new set of challenges. Compared with graphical paper, packaging paper has to be stronger in order to survive greater stresses. In contrast to graphical paper, packaging paper also needs to have high compression strength, meaning that it can take higher pressure against the paper surface without the paper tearing. Development of the new product was a real team effort that involved large parts of the business area’s organisation, from business development, marketing and sales to the R&D departments and labs at the paper mills. And progress was fast, with just a few months between the first enquiries coming in and the first order being delivered. Managing the energy crisis Another challenge for the organisation has been the leap in energy prices over the past year. Holmen’s two paper mills account for over 90 per cent of the Group’s electricity consumption, which means they have to bear the brunt of the high and rapidly changing electricity prices. The industry is designed to run at maximum capacity 24 hours a day, as this is the most resource-efficient. However, there is a breakeven point for the viability of producing paper, since a high electricity price cannot automatically be reflected in price rises for customers. To manage the high electricity prices, we have therefore been forced to think on our feet and adapt production to the prices wherever possible. We have, for example, increased the energy­ intensive production of paper pulp at night, when the price of electricity is lower, in order to create a buffer that means we can produce less when the prices are higher. The level of engagement has been high across the organisation, and the work on developing ourselves, our products and our production is by no means finished. On the contrary. Because we know that the best way to contribute to our continued success is to challenge ourselves and put our knowledge and experience to the test. Paper Holmen Annual Report 2022 31 Renewable Energy green energy from our land 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. 2022 saw us take the next step in developing our renewable energy business, with the construction of the wind farm in Blåbergsliden and the acquisition of Varsvik. Holmen produces renewable energy from water and wind. Hydro power is an important source of energy for society as production output can be adjusted and has an almost infinite lifetime and minimal climate impact. Our strategy is to increase the production of renewable energy by building wind farms on our own land as a complement to existing hydro power, which is uniquely controllable. This will help to increase the amount of renewable electricity on the market, which is a cornerstone of the transition to a sustainable society. Europe switching to renewables The European energy market is undergoing a major transition due to the issue of climate change. 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 fossil­free sources. Together with increasing electrification of both transport and industry, it is clear that electricity consumption is set to increase, creating additional demand for more 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 in transmission capacity within Sweden will therefore be needed. Strength in own energy assets Holmen supplied 1.6 TWh renewable electricity from hydro and wind power in 2022. Together with the renewable electrical energy that is produced at the Group’s mills, our production of hydro and wind power equates to around 55 per cent of Holmen’s overall electricity consumption. Hydro power stabilises the electricity market. Holmen’s energy production is dominated by hydro power from our 21 wholly or partly owned power stations located on the Umeälven, Faxälven, Gideälven, Iggesundsån, Ljusnan and Motala Ström rivers. In contrast to other renewable energy sources, hydro power is uniquely controllable. Energy is difficult to store on any great scale, but the water that is used to generate electricity can be stored in reservoirs, lakes and rivers. Hydro power stations can therefore generate both baseload power and regulating power, which is the energy needed to meet fluctuations in demand. Production is tailored to demand or changes in other electricity production by reducing or increasing the flow of water through the turbines. The value of this stabilising capacity has increased in recent years, and with it the market for different forms of ancillary services that contribute to a stable electricity system. 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. The climate impact of the operation is also marginal, with minimal emissions. Overall, hydro power brings major benefits to society as part of the move towards a fossil­free electricity system. Wind power creates opportunities The energy system is changing as fossil energy sources are phased out. Wind power is currently the fastest growing energy source in the EU and the third largest method of generating electricity in Sweden. Recent years have seen enormous technical advances in wind power, with longer rotor blades, larger generators and higher towers dramatically reducing the cost of wind power per kilowatt hour produced. As a consequence, wind power is now the cheapest way of producing new renewable electricity in Sweden. As a major landowner, Holmen has considerable opportunities to build wind power at a competitive cost, and we have several projects in different phases of development. Increased production on own land. This year saw the opening of Blåbergsliden Wind Farm outside Skellefteå. The 26 wind turbines, with annual production totalling 0.4 TWh, are able to supply around 100 000 households with renewable electricity. Over the year, we have also acquired the outstanding shares in Varsvik Wind Farm, which was previously co­owned with an investment fund for renewable energy. Opened in 2014, the wind farm in Varsvik is an attractive asset in many ways, particularly considering it is located next to Hallsta Paper Mill in electricity area SE3. These investments boost our renewable energy production by 40 per cent, marking a significant step in the development of Holmen’s renewable energy business. Energy crisis in Europe 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 and the price is set according to the most expensive means of production. However, the rapid phasing out of fossil energy production on the continent made its impact noticeable when the world started up again after the pandemic without sufficient expansion of fossil-free alternatives. Russia’s invasion of Ukraine and stranglehold on gas deliveries to Europe sparked an energy crisis that has led to significant difficulties in sourcing enough energy for households, transport and industry, prompting unprecedented price hikes. The energy shortage in Europe also affected Swedish electricity prices, while at the same time the price differences within Sweden were unusually large due to nuclear closures and limitations in transmission capacity between northern and southern parts of the country. 32 Holmen Annual Report 2022 Renewable Energy Key figures Operating profit/loss and return Comment on results 2022 2021 Net sales, SEKm 1 226 Operating profit/loss, SEKm 1 006 Investments, SEKm 237 488 347 712 Capital employed, SEKm 4 618 4 069 Average no. of employees (FTE) 25 19 Deliveries of hydro and wind power, GWh 1 639 1 230 SEKm 1 200 900 600 300 0 1 006 23 17 18 19 20 21 22 % 32 24 16 8 0 As a result of the energy crisis in Europe, electricity prices in Sweden rose to record levels during the year, although due to grid limitations, the price of electricity was lower in northern Sweden, where the majority of Holmen’s production is located. Higher electricity prices, the expansion of wind power and higher remuneration for hydro power’s ancillary services to help stabilise the electricity system boosted profits to SEK 1 006 million. Operating profit excl. items affecting comparability Return on capital employed excl. items affecting comparability European energy consumption, % European electricity consumption Price development 7 4 6 14 16 9 31 30 TWh 6 000 4 000 2 000 0 96 01 06 11 16 21 EUR/MWh 600 400 200 0 17 18 19 20 21 22 Electricity Fossil gas Oil Coal Other Fossil fuels Nuclear power Renewables Source: Our World in Data Fossil fuels Nuclear power SE2 (Sundsvall) SE3 (Stockholm) Renewables Germany Fossil gas Renewable Energy Holmen Annual Report 2022 33 Renewable Energy hydro poWer helps towArds A stable energy system Holmen’s hydro power is a valuable asset that generates renewable electricity at a low cost and has a lifetime bordering on the infinite. Since production can be concentrated at times when the electricity is most in demand, hydro power is also crucial for the transition to a fossil-free energy system with widespread use of weather-dependent energy sources. For our electricity system to function reliably, we need a constant balance between the electricity produced and the electricity consumed. As the expansion of weather­dependent energy sources such as solar and wind power increases, along with the phasing out of fossil­based generation, there is a growing need for plannable energy production, known as ‘regulating power’. Hydro power provides regulating power in two ways – water can be stored in reservoirs and lakes ready for times when electricity demand generally increases, such as winter, and hydro power production can quickly be adapted to ensure a stable and reliable power grid. ‘Ancillary services’ is an umbrella term for the different techniques used to stabilise the electricity system and ensure that it works properly. There has always been a need for these stabilising ancillary services, but they have become more critical with the vital expansion of more renewable energy sources. The market for ancillary services has also developed as demand has become more pressing. One of the tasks of Svenska Kraftnät (Transmission system operator in Sweden) is to ensure a stable electricity grid across the country. This is done in part by purchasing hydro power production that is kept in reserve to run the network at a stable frequency of 50 Hz. A number of Holmen’s hydro power plants provide this type of service. Thanks to hydro power, we therefore have electricity when we need it, while also supporting the stable and secure expansion of other renewable energy sources. Income hydro power*, SEK/MWh 600 400 200 0 As Sweden’s biggest source of renewable energy, hydro power currently accounts for around 40 per cent of overall electricity generation. Q1-21 Q3-21 Q1-22 Q3-22 Q2-21 Q4-21 Q2-22 Q4-22 * Ancillary services, timing and guarantees of origin. 34 Holmen Annual Report 2022 Renewable Energy We build Wind poWer on our oWn lAnd Holmen owns 1.3 million hectares of forest and land in Sweden, equivalent to almost two million football pitches. As a major landowner, we have unique opportunities to find favourable locations for wind power, thus contributing to the green transition. Holmen has already completed much of the energy transition, which has dramatically reduced our fossil emissions, but we do still have energy­intensive production sites. In combining forestry and renewable energy production in our forests, we are taking responsibility for our own electricity consumption, while playing our part in the energy transition that society so badly needs. Wind power also works well with forestry as it requires relatively little space and the roads that are laid for the wind farms can be used to improve access for the general public, forestry activities and transport in the local area. Holmen’s strategy for wind power is to plan, own and manage wind farms on our own land, an approach that has several benefits: Major landowner Surveys and analyses of our substantial land holdings enable us to identify areas with favourable wind conditions and address the unique circumstances of each site, covering everything from consideration for local residents and the environment to the scope for connecting to the existing power grid. Consideration for nature Holmen’s forestry is certified to the FSC® standard, which means that we pay extra attention to our environmental impact in the areas where we establish wind power, and we never erect wind turbines in areas that have high conservation value or are key biotopes. Good local knowledge As a landowner, we are also fully familiar with the areas we investigate. It is important for us to have good relations with local residents, nearby property owners and businesses that may be affected by our activities. They are, after all, our neighbours. Long-term responsibility We take the long view, as both a landowner and an energy producer. As a forest owner, everything we do has a long­term perspective, and that goes for our wind power projects too. We take responsibility along the whole journey, from planning to the future operation of our wind farms. Wind analysis of Holmen’s land holdings No. of areas Total area, hectares Analysed areas with potential for wind power Of which, areas judged suitable for wind power Priority areas where we are conducting more detailed analyses 261 136 24 377 000 224 000 64 000 Holmen’s entire land holdings, totalling 1.3 million hectares, have been analysed, with an initial screening flagging up 261 areas with wind power potential. Of these, 136 areas are judged suitable sites for wind power, with 24 of them now undergoing more detailed analysis. In addition to these 24, we have around 10 areas in different phases from detailed analysis to processing of permit applications. Renewable Energy Holmen Annual Report 2022 35 A sustainable business We manage the forest while preserving biodiversity Our products replace fossil-based products and can be reused to make recykled paper and energy Our mills and sawmills are resource- and energy-efficient We produce renewable energy Our growing forests capture carbon dioxide We use all the raw material TogeTher we are circular The transition to a fossil-free society demands more renewable material, which means that the earth’s surface needs to be managed more efficiently and to a greater extent. But it also means we need to manage our resources more efficiently and use them more wisely. The forest has the capacity to provide many benefits at the same time, making it a valuable resource not only for Holmen but for society as a whole. A tree binds carbon dioxide while it is growing. When it is harvested and turned into planks and boards, the carbon stays in the wood – until someone demolishes the building, changes the windows or builds a new deck. The great thing is that the wood can then be reused or converted into fossil- free bioenergy, creating value once more. 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 further 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 bioenergy. We are also the only forest company in the Nordic region to use our land to produce renewable energy from wind and water. Over the years, we have improved our capacity to create value in every part of our operations. Today, growing, healthy forests, efficient management of raw materials and circular ecocycles are not merely essential to our profitability, they are also the cornerstone of a genuinely sustainable business. We have the expertise to make the forest grow and give. Over and over again. A circular business that is bigger than Holmen We create the greatest benefit for the climate together with our customers. We give quality-conscious customers across the world access to products from the Swedish forests. Our customers, partners and, not least, the users of our products are all part of Holmen’s circular business and their choice of renewable products from the forest, from wind and from water makes a positive difference. The best thing we can do for the climate is to help more customers to replace fossil sources with renewables. Recycled paper grows in the forest. Our customers become part of an ecocycle that creates benefit and value at every stage. When the products they buy can be reused or recycled, these too become part of the forest ecocycle. One example is when our paperboard and paper products, made using fresh fibre, are used for packaging or for graphical purposes and are then recycled. This feeds the recycled paper system, which needs a constant injection of fresh fibre if it is to continue functioning, as wood fibre can only be recycled a limited number of times before it wears out. This is why we often say that recycled paper grows in the forest. A virtuous circle. To avoid linear flows, we need to use renewable raw materials. But if the circular society is to become a reality, phasing out fossil raw materials won’t be enough. We will also need more renewable products, and even better ones. This is why we are working with our customers and industry organisations to develop products and processes that can make recycling easier and do their bit for the green transition. 36 Holmen Annual Report 2022 A sustainable business --------➔ ; : : :,,.,.;,: -'­'-l'We grow houses but we produce more than wood products Holmen’s two nurseries produce almost 45 million seedlings each year, the majority of which are planted on the Group’s own land. After 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. Environmental and chain-of-custody certification enables us to ensure that the raw material for our products always comes from sustainably managed forests. We grow houses. This means that we manage the forest to produce as much wood as possible and we saw as many planks and boards as we possibly can from the trees we harvest. But not everything can be turned into construction materials. This is because tree trunks are round and planks have corners, and because trees also have branches, knots and bark. We make use of 100 per cent of the raw material. About half of the harvest consists of large logs that are used to produce construction material used for houses and interiors, for example. The narrower part of the tree and wood from thinning represent about half of the harvest and are used with residual products from the sawmills in the form of wood chips to manufacture paperboard and paper. The remainder comprises branches, tops, bark and wood shavings, which are used to produce bioenergy. The harvest 5% Branches, tops, bark and wood shavings become renewable bioenergy which can be used to produce electricity, heating and biofuels. 45% The narrower parts of the tree and wood from thinning are ground or digested down into pulp, which is used to produce paper and paperboard. 50% The large logs that make up half of the harvest go to sawmills where they become building materials in the form of construction timber and joinery products. About half of these logs in turn become wood products, while residual products such as wood chips and wood shavings are used to produce pulp and bioenergy. The tree trunk Wood – Planks and boards Wood chips – Pulp for paper Bark – Bioenergy Wood shavings – Bioenergy Resource-efficient production in circular ecocycles No part of the trees we harvest goes to waste. When deciding what to make out of the different parts of the tree, greatest value added is the key criterion and the resulting residual products are used in other processes. We see this as good business practice and responsible resource management. Holmen’s production plants are among the most resource-efficient 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 sawmills are used to generate electrical and thermal energy in the mills, organic material from the water treatment process is sold on as soil improver, and steam from the mills is used in the drying processes at the integrated sawmills. Another example is the way that residual products from Iggesund Mill are used to cap a former industrial landfill site. Distribution of by-products and waste, % 0.5 0.1 37.9 61.4 To energy production internally/ externally To material production Waste sent to landfill Hazardous waste 61.4 37.9 0.5 0.1 Reusing water. Holmen’s industries use surface water from lakes and watercourses, partly to transport and wash fibres in the mills and also for cooling and steam production. Different combinations of mechanical, biological and chemical processes treat the water in several steps before it is returned to the natural ecocycle. Here we are working to ensure healthy and thriving aquatic environments in the vicinity of our mills. By-products and waste. Holmen strives to minimise the amount of waste it produces and to use as high a proportion as possible of the by-products that arise. Thanks to our efforts to find alternative uses, today only 0.5 per cent of the by- products and waste we produce is sent to landfill. A sustainable business Holmen Annual Report 2022 37 A sustainable business Limited supply of forest raw materiaL The forest plays a pivotal role in the climate transition. This is especially true when we look at sustainable building. The whole chain from seed to wooden building relies on active and sustainable forestry to produce the raw material needed. But while the forest is a renewable resource, the supply of this raw material is limited across much of the world. Higher demand for sustainable construction materials The construction and property sector accounts for considerable emissions of greenhouse gases, in construction and during the building’s lifecycle. In Europe, 35 per cent of emissions of fossil carbon dioxide come from buildings, driving demands for more sustainable construction. Unlike steel and concrete, wood products store carbon dioxide when they are in use, while at the same time reducing demand for products with a high carbon footprint. The phasing out of emission allowances will also make them more expensive over time. Products that generate major emissions becoming more expensive is a further factor contributing towards increased use of wood. In Europe alone, more than 110 million m3 of wood products were used in 2020 and demand is expected to rise, while the amount of wood products available is limited. Forestry in different parts of the world Sweden is a country with major forest assets that are actively managed, as is the case in many other countries. However, Sweden’s forests make up just over 15 per cent of forests in the EU and less than 1 per cent of forested land worldwide. Brazil, Canada, the USA and Russia are the countries with the largest amount of forest. In total, these four countries account for almost half of the world’s forests. Despite our comparatively small size, Sweden is one of the world’s largest producers of pulp, paper and wood products, with a large proportion of production being exported. Sweden is the world’s third largest exporter of softwood timber products and the sixth largest producer. 110 million m3 of wood products were used in Europe in 2020 Forestry conditions vary hugely between different countries and regions, with differences in forms of ownership having a particular impact on the way forests are managed and forest policy issues are approached. In global terms, private ownership is unusual. In Central Asia, Russia, Canada and Africa, almost all forests are state owned, while approximately half of Europe’s forests are in private ownership. 75 per cent of Sweden’s forest is owned by private actors, with almost 50 per cent being private individuals and 25 per cent companies. In Sweden we have managed our forests for generations and forestry is deeply rooted in our culture. Over the years, we have developed long-term, rational management of our forests and a well- developed and industrialised forest industry. The powerful rights of ownership of the large number of forest owners, combined with extensive legislation, have also led to varied and sustainable forestry with high growth. Over the past 100 years, the amount of forest in Sweden has doubled, while harvests have increased. Risk of a global wood shortage While demand for wood products is expected to increase, global supplies of wood are under increasing pressure. Spruce bark beetle damage has had a dramatic impact on the wood and wood products market in Europe, as large swathes of Central Europe have been forced to increase harvesting to remove damaged trees. In the long term, however, this is expected to lead to lower volumes due to the negative impact on future supply, mainly of softwood saw logs. Canada has also suffered major bark beetle attacks in the past 20 years, reducing the annual harvest from approximately 75 million m3 per year to just over 55 million m3. On the European market, the war in Ukraine has further reduced the availability of wood raw material. In the short term, this is affecting all flows from Russia, Belarus and Ukraine, as EU sanctions have halted wood imports from Russia to Europe. In the long term, political instability and neglected infrastructure are expected to reduce amounts of both logs and wood products from Russia. The worlds’ largest exporters of wood products 2021 Growth and harvest in Sweden’s forests* Million m³ Million m3 growing stock, solid over bark 35 30 25 20 15 10 5 0 R ussia C a n a d a S w e d e n G er m a ny Finla n d A ustria B elarus C hile Latvia C zech R e p u blic Source: FAO 38 Holmen Annual Report 2022 A sustainable business 140 120 100 80 60 40 1970 1980 1990 2000 2010 2018 Total growth Harvest of living trees Source: National forest inventory, Swedish Forest Agency, Swedish Forest *Moving five-year average. Industries Federation HigH growtH in tHriving forests Historically, biodiversity has not been a priority issue for Swedish forestry, but the focus has shifted over the past 30 years. Development has been rapid and we have learned a great deal about how we can foster healthy ecosystems while increasing forest growth. The forests of today are growing the houses of tomorrow Holmen’s forest strategy focuses on achieving high and profitable growth while also ensuring that all naturally occurring species can thrive in the Swedish forest landscape. Of Holmen’s just over 1 million hectares of forested land, we use about 80 per cent for wood production and we always take far-reaching environmental conservation into account when managing and harvesting our forest. Because we know that a varied forest environment with deciduous trees, watercourses and a wide range of animal species is vital to functioning ecosystems and thriving forests. Holmen has been managing forests since the 17th century and over the years has contributed to enormous industrial advances. The trees we plant today will grow for 80–90 years before they can be harvested and become buildings and homes and an awful lot can happen in that time. The forest could be hit by drought, fires, storms and pests. Active management and thriving ecosystems increase the resilience of the trees. Each year, we invest SEK 170 million in caring for our forests and constantly work to improve everything from seedlings to nature conservation through research, development and education – all to ensure good growth and healthy ecosystems for future generations. Good conditions for biodiversity in the Nordic countries Safeguarding global biodiversity is a critical dimension of sustainable development, and one that is closely related to how our forests are managed. However, the natural variation of biotopes and species in a given area makes studying trends a complex challenge. The Biodiversity Intactness Index models human impact on the natural environment and estimates how high a proportion of the original number of species and habitats still remain. The desirable level of biodiversity in an area is at least 90 per cent, which can be seen as a threshold value that biodiversity in an area must exceed. Sweden and Finland are two of the most highly forested countries in Europe, both comprising more than 70 per cent forest land, much of which is actively managed. According to the Biodiversity Intactness Index, conditions in Sweden and Finland are also good for functioning ecosystems, with both countries having an index of just over 95 per cent. This can be compared with the global average of 77 per cent, significantly lower than the 90 per cent considered to be sustainable. The index also shows that conditions for biodiversity in Sweden have improved in the past 50 years. The Biodiversity Intactness Index The index is based on the world’s largest database of how ecological communities have been affected by mankind and is used to monitor biodiversity in different regions. For further information, see page 114. Biodiversity Intactness Index 2022 Biodiversity Intactness Index trends 1970–2022 100 90 80 70 60 50 Finla n d S w e d e n C a n a d a Glo b al average P ortu gal In d o n esia Brazil U S A G er m a ny Fra nce In dia 100 95 90 85 80 75 70 1970 1980 1990 2000 2010 2020 2022 Sweden Europe Global average In 2022, Sweden’s biodiversity intactness index was just over 95 per cent – a level with good biodiversity and good prospects for functioning ecosystems. Since 1970, the year from which data is available, the trend in Sweden’s index has been better in comparison with both the European and the global averages. A sustainable business Holmen Annual Report 2022 39 A sustainable business our con- tribution to a sus- tainabLe future For Holmen, running a successful business goes hand in hand with a sustainable future. We are working to be a positive force in society, focusing on three areas where we are especially well placed to make a difference, not just in the future but right now: climate, customers’ sustainable choices, and our employees and the local communities in which we operate. GOOD HEALTH AND WELLBEING AFFORDABLE AND CLEAN ENERGY DECENT WORK AND ECONOMIC GROWTH INDUSTRY, INNOVATION AND INFRASTRUCTURE SUSTAINABLE CITIES AND COMMUNITIES RESPONSIBLE CONSUMPTION AND PRODUCTION CLIMATE ACTION LIFE BELOW WATER LIFE ON LAND PARTNERSHIPS FOR THE GOALS We have been building our experience for 400 years and we con stantly work to find long-term solutions to current challenges. Thanks to sustainable use of our forests’ ecosystems, today we are able to operate a circular, renewable and bio-based business that benefits our customers, shareholders, employees and local communities. Our production, business and organisation contribute to many of the UN’s Sustainable Development Goals and thus also to the 2030 Agenda. 1. The climate can’t wait 2. The power of customer choice 3. We grow together We are part of a value chain in which climate benefit is created on multiple fronts and where we control a large proportion of the chain ourselves. We will increase the positive impact of our operations, while reducing our own climate footprint at the same time. The forest’s uptake of carbon dioxide will increase through active and sustainable forestry with high growth, while we increase the storage of carbon dioxide in our climate-smart products. We will also cut emissions from our value chain, mainly from transport and input goods, in line with targets approved by the Science Based Targets initiative*. We create the greatest benefit for the climate together with our customers. Their choice of renewable products from forests, wind and water means that the world is avoiding fossil emissions. We make our customers part of a circular business that creates value at several stages of the chain. Our customers’ choices make a positive difference and the best we can do for the climate is to help more customers to replace fossil sources with renewables, known as carbon substitution. The goal is to help customers to choose more renewable products so that more fossil carbon atoms can stay in the ground. We are committed to our employees and our local communities. We invest in development and community because when people and communities grow, we can grow too. We create a positive working climate through development and teamwork in equal measures, with goal-oriented work on health and safety, diversity and inclusion. Forestry also fosters thriving rural communities and enables people to live, work and enjoy quality of life outside the urban regions. Target Target Target We will increase the amount of carbon dioxide stored in our products while reducing our greenhouse gas emissions in line with the Paris Agreement. Outcomes are presented on pages 9 and 42. We will increase the substitution of fossil carbon dioxide through higher sales of renewable products and renewable energy. Outcomes are presented on pages 9 and 42. We will be an attractive employer with a healthy work environment free from industrial accidents, discrimination or harassment, and where employees recommend Holmen as a workplace. Outcomes are presented on page 47. In the materiality analysis carried out in 2018, we identified these three focus areas where we see Holmen having the greatest opportunity to contribute to sustainable development. The analysis included interviews and workshops with about 50 stakeholders and was based on the ten principles of the UN Global Compact, the UN’s Sustainable Development Goals and the mega-trends and external factors affecting our customers and our industry. *The Science Based Targets initiative is an international framework for calculating UN body the IPCC’s target of 1.5°C. Read more about our climate targets at holmen.com. 40 Holmen Annual Report 2022 A sustainable business Sweden has approximately 470 000 km of private roads, about half of which are forest roads. In other words, put together, these forest roads would run more than five times round the world. A holistic approach to sustainability Holmen has been part of the UN Global Compact and its corresponding Nordic network since 2007. Every year we report on our work and on the progress made in line with its ten principles. Information on how Holmen is working in line with and fulfilling the principles of the UN Global Compact is provided 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 Thriving rural communiTies Active forestry is essential to thriving rural communities. It creates jobs in places where there are few employers and gives people an opportunity to live, work and enjoy quality of life outside the city regions. Holmen is one of Sweden’s largest forest owners, with a land holding of 1.3 million hectares divided between about 4 700 forest properties from Småland in the south to Västerbotten in the north. We manage our forests and harvest timber on our own land, but we also work with private forest owners and other companies that are part of the Swedish forest industry. Almost 15 000 private forest owners have chosen us as a forestry partner. As well as our own 3 500 forest workers, we create employment for local contractors and companies in many small communities across the country. Forestry also makes the forests easily accessible for outdoor recreation under Sweden’s right to roam. Our forest roads get people out enjoying the natural world, while thinning means the forest does not become overgrown. Our land is accessible to hikers, for picking mushrooms and berries, and is excellent for hunting and fishing. Our active forestry creates prosperity, jobs and a confident future for Sweden, while also bringing major regional benefits. We take pride in being a good neighbour and engage with local clubs and societies and the tourism industry. This enables us to develop in harmony with our local communities. Because when people and communities grow, we can grow too. The forest industry employs about 120 000 people in Sweden in total. In several regions, the forest industry accounts for 20 per cent or more of industrial employment. A sustainable business Holmen Annual Report 2022 41 A sustainable business a business tHat benefits tHe cLimate on multipLe fronts Holmen’s operations are already benefitting the climate today. The amount of greenhouse gas in the atmosphere is lower thanks to the work we do. In 2022 we contributed a climate benefit totalling 7.2 million tonnes of carbon dioxide. This is equivalent to 15 per cent of total emissions within Sweden’s borders. The forest delivers the most benefit when it is put to use. This is the heart of Holmen’s sustainable business. Our aim is to increase the climate benefit in our value chain, mainly by increasing the positive impact on the climate that our business has, but also by reducing our negative footprint. This is how Holmen created real climate benefit in 2022. Forest carbon uptake Young trees have the greatest capacity to bind carbon dioxide. When the trees become old and die, they decay and the stored carbon dioxide returns to the atmosphere. Active and sustainable forestry, in which the trees are harvested when growth declines and the land is then reforested, sees us increasing forest growth and uptake capacity over time. In 2022 it is calculated that the increase in the volume of standing timber in Holmen’s forests has absorbed and stored a net 1.3 million tonnes of carbon dioxide. Storage in our products After harvest, the raw material from the forests continues to bind carbon dioxide even in its processed form. In products with a long lifetime such as wood products, the carbon is stored for a long time once the products have been turned into buildings and homes, while short- lived products made of paperboard and paper store carbon over a shorter period of time. Holmen’s production of wood products increased global storage of carbon dioxide by just over 0.5 million tonnes and our paperboard and paper products contributed storage equivalent to just under 0.1 million tonnes of carbon dioxide. Replacing fossil products The greatest climate benefit is created when our customers choose wood- based products and renewable energy instead of fossil-based options with a higher carbon footprint. It is here too that Holmen’s climate benefit becomes the most tangible – when our products reduce the need for fossil materials and raw materials, which means that finite raw materials such as coal, oil and gas can stay in the ground. The wood products we produced during the year replaced construction materials and fossil energy that would have generated 2.6 million tonnes of greenhouse gas emissions. When the paperboard and paper we have produced can no longer be recycled, it continues to provide a benefit as bioenergy, replacing fossil energy equivalent to 1.5 million tonnes of greenhouse gas emissions. Renewable energy production. Our sales of our own renewable electricity from hydro power, wind power and biomass replace coal and gas power equivalent to 1.3 million tonnes of greenhouse gas emissions. On top of this, our sales of bioenergy based on residual products from the forest and our facilities replace 0.6 million tonnes of emissions. Lower emissions Energy-efficiency measures and investments in renewable energy at our production facilities have led to a sharp drop in fossil emissions from our own operations. Since 2005, the use of fossil fuels in our production has fallen by 90 per cent and today the majority of our emissions are generated from purchases of input products and from transport to and from Holmen’s industrial sites. Therefore, we are now focusing on cutting emissions in these areas. Managed forests benefit the climate in several ways, million tonnes CO2e 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 2.6 1.3 0.5 0.1 Storage in Holmen’s forests Storage in wood products Storage in paper & paperboard 1.5 1.3 0.6 Wood products replacing fossil materials Paper & paperboard replacing fossil energy Bioenergy replacing fossil energy Renewable electricity production replacing fossil energy Increased net storage of carbon dioxide Reduced fossil carbon dioxide emissions -0.7 Holmen’s emissions in Scope 1–3 Emissions in Holmen’s value chain Actively managing the forest enables us to benefit the climate by storing carbon dioxide both in the forest and in our products, and by forest-based products and renewable energy replacing fossil alternatives. Total climate benefit from Holmen’s value chains in 2022 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 had the calculation methodology produced by Peter Holmgren of Futurevistas AB in 2020. See page 111 for further details of the calculations. 42 Holmen Annual Report 2022 A sustainable business In 2022 Holmen’s operations contributed towards a climate benefit of 7.2 million tonnes CO2e, equivalent to 15 per cent of emissions within Sweden. 1.3 million tonnes of CO2e were absorbed in the growing volume of standing timber in our forests 1.9 million tonnes CO2e were replaced by our renewable production of electricity from wind and water (1.3) and from bioenergy (0.6) Emissions equivalent to 0.7 million tonnes CO2e come from Holmen’s production and transport 4.7 million tonnes of CO2e were stored in and replaced by wood products (3.1) and by paper and paperboard (1.6) Climate targets in line with the Paris Agreement Holmen’s emissions targets are in line with the UN’s climate goals under the Paris Agreement, as certified by the UN-backed organisation the Science Based Targets initiative (SBTi). Since 2005, emissions from fossil fuels in our production have fallen by 90 per cent and our own emissions are already at the low levels defined by the IPCC as the target for our industry in 2045 if we are to be in line with the Paris Agreement. Today the majority of our fossil emissions are generated from purchases of input products, along with transport to and from Holmen’s industrial sites. Read more about our science-based targets at holmen.com Holmen’s science-based targets are to reduce greenhouse gas emissions by 2030 in: • Scope 1 and 2 by 15 per cent per tonne of paper and pulp • Scope 3 from transport to and from our industrial facilities by 22 per cent per tonne kilometre • Scope 3 from transport of woody biomass by 22 per cent per tonne of woody biomass Additionally, suppliers accounting for 35 per cent of emissions from purchased goods and services are to have climate targets in line with Science Based Targets by 2025. A sustainable business Holmen Annual Report 2022 43 Water treatment plant at Braviken 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 resource-efficient 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. Holmen’s environmental work is characterised by constant improvement measures within the framework of certified environmental and energy management systems, which ensure compliance with legislation and requirements set by authorities. Responsibility for the management systems rests with the respective business area, as does environmental responsibility. Holmen’s operations have a large number of quality, energy and environmental targets, which are set by the respective business area and mill. These targets differ between the business areas and are set within the framework of Holmen’s different management systems. The targets are owned by the Senior Vice President Forest and by the respective mill managers in Paper, Paperboard and Wood Products. For information about environmental permits and certification, see pages 110–111. Environmental risks Holmen makes continuous efforts to manage risks related to the environment, where the main environmental impact is from emissions to air and water and the occurrence of noise and waste. There is also a risk of exceeding the limits laid down by the environmental authorities for operations. Holmen works continuously to prevent and tackle different types of environmental risks. This is done for example by conducting our own checks, inspections by government agencies, environmental risk analyses, Group- wide climate targets and certification. For information on discontinued operations, see page 110. Exceedances and complaints The environmental managers at each facility handle any incidents that occur. Close dialogue with local residents is important in order to identify and address any views on operations. The environmental incidents reported to the supervisory authorities during the year were tackled by means of corrective measures within the facilities’ environmental management systems. Proactive work. Constant monitoring of environmental incidents that occur at different levels is an important part of Holmen’s environmental efforts. Proactively identifying a high proportion of potential incidents means we can avoid more serious incidents taking place. » Operations are characterised by resource-efficient use of renewable raw material and energy, and by protecting the environment, applying the precautionary principle. « 44 Holmen Annual Report 2022 A sustainable business A sustainable business climate adaptation Our business concept is to own and add value to the forest. Taking nature as the starting point of everything we do means that climate issues are very closely integrated in our operations. This applies to both our capacity to contribute towards positive development and how our operations may be affected by a changed climate. Climate adaptation plan Holmen has a decentralised organisation in which each business unit is responsible for drawing up a climate adaptation plan to assess how its operations and its products and/or services may be affected by climate change. In 2022 climate adaptation plans were produced for our operations in forestry, hydro and wind power, our sawmill in Linghem and for electricity production from biofuel. The climate adaptation plans are based on an assessment of changes in climate parameters that pose a risk to operations. The climate parameters take into account primary physical events such as air and water temperature, secondary physical events such as surface water or groundwater supply, and transitional events such as new customer demands and regulatory and legislative changes. The climate adaptation plans identify critical business processes and the climate-related events considered to pose a risk to these processes. An annual financial impact is calculated to assess the impact of climate-related events on operations, and the result of this risk assessment becomes a financial consequence in the respective critical process. Ongoing and potential activities capable of reducing the consequences of these various climate risks are identified, while at the same time the direct and indirect impacts of the planned measures are evaluated. This may involve everything from developing digital tools to investigating our opportunities to plan and regulate water supply in reservoirs. All in all, the climate adaptation plans represent proactive work that equips us to develop our operations and adapt to a changing climate. Examples of climate-related risks and how they are tackled Primary physical event — Temperature change Secondary physical event — Fire Transitional event — Reduction obligation The risk of forest fires is rising due to three factors: higher temperatures, a greater risk of storms and lightning strikes because of higher energy levels in the atmosphere, and more biomass on the ground as a result of increased growth. Holmen is working with SMHI to develop a digital tool for planning harvesting and fire watching, taking into account the higher risk of fires. A requirement to increase the admixture of biofuels may affect fuel prices. To mitigate the consequences of higher fuel prices, Holmen is working to increase the volumes transported by rail. To improve the efficiency of transport kilometres driven by truck, Holmen is also involved in technological development efforts to enable the use of longer and heavier vehicles and alternative fuels. Modelling by the Swedish Meteorological and Hydrological Institute (SMHI) indicates that Sweden’s average temperature is set to rise. A warmer climate may increase growth in our forests due to a longer growing season, but may also affect the ecosystems due to changes in biodiversity. Holmen is developing seedlings and processes to adapt our forestry to a changing climate. When planting, we choose tree species in line with the unique land conditions to create thriving and highly resilient forests. Areas with high conservation value are identified and prioritised with greater consideration or individual nature conservation measures. A sustainable business Holmen Annual Report 2022 45 Employees empLoyees witH courage, commitment & responsibiLity Today’s Holmen is the result of countless decisions large and small, made in line with our values: courage, commitment and responsibility. 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. We like being the small big company among the world’s forest companies and would rather be best at the things we choose to focus on than the biggest in the business and fairly good at lots of things. Management by objectives in a decentralised organisation Holmen has a management philosophy and decentralised organisation that sets great store by the active participation of employees. Applying our management by objectives model, the strategy, business plans and performance expectations are communicated across the organisation. Based on this, our employees produce an initial proposal for targets that will lead to the expectations being met. This helps us to make the most of the skills, potential and drive of every individual, team and unit. Holmen provides a learning environment where everyone has the opportunity to feel a sense of commitment and responsibility for the areas in which they work and their objectives. The management by objectives model is our way of making sure that everyone working at Holmen feels that we are focusing on the right things and helping to implement our strategy. This makes it easy to work across boundaries and in new constellations. Values that guide us. Our three values: courage, commitment and responsibility develop us as individuals, build further on our strong culture and make Holmen better. The values are clearly front and centre at Holmen. Every day, they support and develop the behaviours, priorities, decisions and the way we run the business. They guide us in our approach to each other, in relations with customers and in our work day to day. They are also integrated in our processes and tools, including in the recruitment process, appraisal talks, in our management by objectives model, and as a basis for our internal leadership and management programmes. We grow together Based on our current and future skills needs, we are working on employee development at all levels. We give them a great deal of responsibility, as well as the motivation and support of a team of committed and expert colleagues and managers. We also provide development programmes for new and more experienced managers alike, plus specialists driving work on change. Ongoing competence development sees us paving the way for everyone to grow, with stimulating duties and new challenges. Because we know that the impetus to grow is greatest when development is built from the ground up. Attracting and retaining the right employees is of the utmost importance in maintaining competitiveness over time. This way, we ensure that Holmen continues to be a business with a focus on innovation and development. We have an attractive employer offering that we are constantly refining to attract the right 46 Holmen Annual Report 2022 Employees people. We recruit using a competency- based methodology that helps us bring in the right skills. Dynamic workplace. To maintain strong competitiveness, Holmen wants to be an attractive employer that appeals to and retains the talent we need – employees who represent a diversity of insights, experiences and cultures. This will enable us to benefit from different backgrounds and ensure that everyone feels welcome. As our industry is currently overwhelmingly male, we are working to achieve a more even gender distribution among all employees. We draw up action plans and annual pay surveys in line with the Swedish Equality Act as part of our work to create an inclusive workplace in which everyone is given the same development opportunities. Health and safety It goes without saying that we actively pursue a healthy culture and an accident- free workplace for our employees and the contractors who work with us. Holmen carries out systematic Group-wide health and safety work in line with ISO 45001 (see page 111) and all 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 and is expected to be completed in 2023. During the coronavirus pandemic, Holmen implemented a large number of adaptations and measures to ensure a safe work environment for our employees and others visiting our operations. As always, the precautionary principle is paramount. Code of Conduct Holmen’s good reputation as a responsible and trustworthy company is fundamental to our business. Holmen’s Code of Conduct clearly sets out the requirements and expectations of how employees at Holmen are to behave. Office workers receive training in the Code of Conduct every three years. A few cases linked to deviation from the Code of Conduct were reported during the year and were handled according to internal procedures. We constantly work in line with our supplier follow-up process, which was updated in 2020. Our follow-up has identified which suppliers pose risks linked to the climate, 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. 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 travelling on business. All employees must have the same rights, obligations and opportunities 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 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, while enjoying an inclusive, safe and healthy work environment with fair terms of employment. Bullying and harassment are not tolerated and everyone is expected to act professionally and not expose themselves 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. Three of our social targeTs Industrial accidents with more than 8 hours of absence (LTI) per million hours worked. LTI 10 8 6 4 2 0 17 18 19 20 21 22 A zero vision for discrimination and harassment Holmen has a vision of zero discrimination and harassment, which is followed up internally via employee surveys, appraisal talks and reported cases. A number of cases involving discrimination and harassment were reported during the year. The cases were handled in line with internal procedures. A zero vision for accidents The number of accidents per million hours worked increased from 5.6 in 2021 to 7.6 in 2022. There was a reduction in the leading reasons for work- related accidents (tripping, slipping, falls and pinch point accidents) in 2022, but the number of cuts and lacerations increased. Work is underway to investigate the reasons for this rise and to put additional measures in place. It is important for us to continue to work far-sightedly, focused on our vision of zero accidents. Employees who recommend Holmen A comparison based on responses from 250 companies in different industries showed that Holmen’s employees are far more likely to recommend Holmen as an employer than the benchmark. Employee surveys put Holmen’s employee Net Promotor Score (eNPS) at 25, compared with a benchmark index of 16. Employees Holmen Annual Report 2022 47 Corporate governanCe report Holmen AB is a Swedish public limited company, listed on the Stockholm Stock Exchange (Nasdaq Stockholm) since 1936. The preparation of a corporate governance report is a requirement under the Swedish Annual Accounts Act. The corporate governance report complies with the rules and instructions stipulated in the Swedish Code of Corporate Governance. Shareholders Holmen AB had 52 701 shareholders at year-end 2022. Private individuals with Swedish citizenship accounted for the largest category of owners with 50 177 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 controlled as much as 10 per cent of the votes. Employees have no holdings of Holmen shares via a pension fund or similar system. At the 2022 AGM, the Board’s authorisation to purchase up to 10 per cent of the company’s shares was renewed. No shares were bought back in 2022. The company already holds 0.3 per cent of the total number of shares in treasury. During the year, 75 993 shares were transferred to participants in the Group’s share savings programme, which expired in 2022. See pages 58–59 for further information on the shares and ownership structure. General meeting of shareholders The notice convening the AGM is announced and posted on holmen.com no earlier than six and no later than four weeks before the meeting. That a notice has been issued is also advertised in a nation-wide newspaper. It was announced on 20 September 2022 that the 2023 AGM would take place on 28 March 2023. Shareholders or proxies are entitled to vote in respect of the full number of shares owned or represented. 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 2022 and 2023 AGMs is shown in the table on page 51. 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 for the election of auditors. The nomination committee applies rule 4.1 of the Swedish Corporate Governance Code (the Code) as a diversity policy in putting forward proposed Board members, which means the composition of the Board should reflect the company’s business operations, phase of development and other circumstances, and should be diverse and wide-ranging in terms of the expertise, experience and background of the members elected by general meetings. ↓ 2022 AGM ↓ Board meetings The notice convening the meeting, the agenda and the minutes of the 2022 AGM 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 only through postal voting 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. For the AGM, shareholders were given the opportunity to ask and receive answers to questions in writing. 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, Hans Hedström, Carnegie Funds, and Carina Silberg, Alecta, checked and approved the minutes. It was not possible to follow or participate in the meeting from other locations using communication technology. The Board held eight meetings in 2022, 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 2023. One meeting was 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 energy markets, and the other impacts of the war in Ukraine on Holmen’s operations. The Board also devoted time to sustainability issues, study visits to sawmills and power plants in the vicinity of Skellefteå and significant investment matters. On one occasion the company’s auditor reported directly to the Board, providing a presentation about the audit of the accounts and internal control. 48 Holmen Annual Report 2022 Corporate governance reportNomination committee Shareholders General meeting of shareholders Board of Directors CEO Group management Five group staffs Five business areas Auditors An even gender distribution is sought. Further information about the work of the nomination committee will be provided at the 2023 AGM. For the 2023 AGM, the nomination committee proposes that the Board consist of nine members elected by the AGM. The nomination committee proposes the re- election of the current Board members Fredrik Lundberg (who is also proposed for re-election as Chairman of the Board), Lars Josefsson, Alice Kempe, Louise Lindh, Ulf Lundahl, Fredrik Persson, Henrik Sjölund and Henriette Zeuchner, as well as the election of Carina Åkerström. Carl Bennet declined to stand for re-election. 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 2022 AGM re-elected Fredrik Lundberg , Carl Bennet, Lars Josefsson, Alice Kempe, Louise Lindh, Ulf Lundahl, Henrik Sjölund and Henriette Zeuchner to the Board, as well as electing Fredrik Persson. Fredrik Lundberg was re-elected Chairman of the Board. At the statutory first meeting of the new Board in 2022, Henrik Andersson, Senior Vice President Legal Affairs, was appointed company secretary. Over and above the nine members elected by the AGM, the local labour organisations have a statutory right to appoint three members and three deputy members. Of the nine Board members elected by the AGM, eight are deemed independent of the company as defined by the Code. The CEO is the only Board member with an operational position in the company. Further information about the members of the Board is provided on pages 98–99. The Board’s activities The activities of the Board follow a plan, one of whose aims is to ensure that the Board obtains all requisite information. Each year the Board decides on written working procedures and issues written instructions relating to the division of responsibilities between the Board and the CEO and the information that the Board is to receive continually on financial 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 presented and discussed at a Board meeting. The results of the 2022 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 employment conditions of the CEO and also evaluated guidelines for remuneration ↓ Members of the Board of Directors Attendance at meetings in 2022: Board members Fredrik Lundberg Carl Bennet Lars G Josefsson Lars Josefsson Alice Kempe Louise Lindh Ulf Lundahl Fredrik Persson Henriette Zeuchner Henrik Sjölund Elected 1988 2009 2011 2016 2019 2010 2004 2022 2015 2014 Role on the Board Chairman Member Member Member Member Member Member Member Member Member, President & CEO Audit committee Member – – Member – – Chairman – – – Remuneration committee Chairman Member – – Member – – – – – Board of Directors 8/8 8/8 2/8 8/8 8/8 8/8 8/8 5/8 8/8 8/8 Audit committee 5/5 – – 5/5 – – 5/5 – – – Remuneration committee 1/1 1/1 – – 1/1 – – – – – Fee for 2022 decided by AGM (SEK ’000) 780 390 – 390 390 390 390 390 390 – According to the nomination committee, Fredrik Lundberg, Carl Bennet, Lars Josefsson, Alice Kempe, Louise Lindh, Ulf Lundahl, Fredrik Persson and Henriette Zeuchner are independent of the company and its senior management, and Lars Josefsson, Ulf Lundahl, Fredrik Persson, Henriette Zeuchner and Henrik Sjölund are independent of the company’s major shareholders. Lars G Josefsson declined to stand for re-election at the AGM on March 30 2022 and Fredrik Persson was elected as a new Board member. Employee representatives Steewe Björklundh, member, elected 1998/Christer Johansson, member, elected 2017/Tommy Åsenbrygg, member, elected 2009/Martin Nyman, deputy member, elected 2021/Daniel Hägglund, deputy member, elected 2014/Ari Aula, deputy member, elected 2022. Holmen Annual Report 2022 49 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. and share savings programmes. The committee also examined remuneration structures, remuneration levels and methods for establishing the Group’s salary levels to ensure that these are reasonable and appropriate. Remuneration and other employment conditions for senior management who report directly to the CEO are decided by the latter and approved by the remuneration committee in accordance with the instructions for the remuneration committee 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. The current guidelines for remuneration of the CEO and other senior management, i.e. heads of business areas and heads of Group staffs who report directly to the CEO, were adopted by the 2020 AGM. The AGM adopted the guidelines in accordance with the Board’s proposal. Current guidelines and information about remuneration are presented in Note 4 on pages 73–74. New guidelines are proposed for the 2023 AGM. See Note 4. The proposal is available on holmen.com. The 2022 AGM approved the Board fee and payment of the auditors’ fee as invoiced. The share savings programme that was introduced following a resolution by the 2019 AGM expired in April 2022. The 2022 AGM approved a new share savings programme for key individuals in the Group. The aim of the programme is to strengthen common interests between shareholders and company management, as well as to create a long-term commitment to Holmen. More information about the current share savings programme can be found in Note 4. 50 Holmen Annual Report 2022 Group management The Board has delegated operational responsibility for management of the company and the Group to the CEO. The Board annually decides on instructions covering the distribution of tasks between the Board and the CEO. Holmen’s Group management consists of the company’s CEO, the heads of the five business areas, and the heads of the five Group staffs. Information about the CEO and other members of Group management is provided on page 100. Group management meets regularly. The meetings during the year dealt with matters such as earnings performance and reports before and after Board meetings, strategic issues, budgets, investments, internal control, work environment, sustainability issues, climate and environmental issues and silviculture matters. Meetings were also dedicated to reviews of market conditions, economic developments and other external factors affecting the business, as well as discussion about governance of the Group and the tools, such as the management-by-objectives model and Group-wide policies, used in such governance. In 2022, Group management focused particularly on analysing the energy and construction material markets, and testing the Group’s strategy in different scenarios according to how these markets might develop. Audit The audit firm PricewaterhouseCoopers AB (PwC), which has been Holmen’s auditor since 2021, was re-elected as auditor at the 2022 AGM for a period of one year. Authorised Public Accountant Magnus Svensson Henryson was appointed as the principal auditor. PwC performs the audit for Holmen AB as well as for the majority of Holmen’s subsidiaries. The examination of internal procedures and control systems begins in the second quarter and continues thereafter until year-end. The interim report for January– September is subject to review by the auditors. The examination and audit of the final annual accounts and the annual report, including the sustainability report, take place in January–February. The members of Holmen’s audit committee are Ulf Lundahl, Chairman, Fredrik Lundberg and Lars Josefsson. The audit committee has met five times. The audit committee’s task is to monitor the company’s financial reporting and the efficiency of the company’s internal control and risk management. The audit committee reviews and monitors the impartiality and independence of the auditor. The committee also evaluates the auditor’s work and submits proposals to the company’s nomination committee on the election of an auditor for the next mandate period. The Board’s reporting instructions include requirements that the members of the Board shall receive a report each year from the auditors confirming that the company’s organisation is structured to enable satisfactory supervision of accounting, management of funds and other aspects of the company’s financial circumstances. In 2022, the auditors reported on their work to the audit committee at four meetings and to the Board of Directors on one occasion. In addition to the audit assignment, Holmen has consulted PwC on matters pertaining to taxation, accounting and for various investigations. The remuneration paid to PwC for 2022 is stated in Note 5 on page 75. PwC is required to assess its independence before making decisions on whether to provide Holmen with independent 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. An annual review of the Group’s strategy is conducted, including objectives for the business. The strategy is adopted by the Board and forms the basis for the expectations that are set. On the basis of the expectations, each unit sets objectives and identifies success factors for achieving them. Key performance indicators (KPIs) are linked to the success factors in order to measure and demonstrate changes in performance. The strategy review also provides the basis for the budget, in which decisions are taken on the distribution of resources and targets for the coming year are set. Use of a simple and well- implemented management-by-objectives tool for continuous follow-up ensures that the entire organisation is applying appropriate priorities to attain the objectives established. Corporate governance reportThe business areas guide the operating businesses towards these targets using processes for purchasing, production and sales, and supported by HR, financial management, IT, environment and communication processes. Operations are followed up through regular reporting of performance and KPIs that reflect business activity, along with additional qualitative analysis. Reporting of non-financial data is integrated with the financial reporting. When major investment decisions are under consideration, financial, social and environmental effects are taken into account. Code of Conduct. Holmen’s Code of Conduct is in line with the UN Global Compact, the International Labour Organization’s (ILO’s) eight fundamental conventions and the OECD’s Guidelines for Multinational Enterprises, 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 stakeholders. The Supplier Code of Conduct is also in keeping with the principles, conventions and guidelines above. Both Holmen’s Code of Conduct and Supplier Code of Conduct cover the areas of anti- corruption, human rights, health and safety and the environment. With respect for human rights, Holmen endeavours to ensure a workplace climate that is founded on the equal value of all people. All Holmen’s employees must have the same rights, obligations and opportunities irrespective of their sex, transgender identity or expression, ethnicity, religion or other belief, disability, sexual orientation and age. Holmen is subject to the UK Modern Slavery Act and a report relating to this is available at holmen.com. Policies. Holmen works with policies, guidelines and Group instructions to clarify how employees should act within key and critical areas. The Group’s 11 policies cover matters such as expectations of employee participation and leadership, specify the scope of management by objectives, talent management, interaction with trade union organisations, equality and employment conditions. In addition to this, a good work environment is covered in terms of health and safety, anti-corruption and competition issues, and how good business practice is maintained in relation to external contacts on different markets. Employees in departments at risk of encountering unauthorised behaviour receive special training on business ethics. The policies specify that raw materials should be used efficiently, pollution should be prevented and that we should aspire to make continuous improvements. Financial risk is managed centrally and should be characterised by a low level of risk. The policies should also ensure that the company’s assets are managed in accordance with Group rules, risks of errors 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. The Board is to be informed of any violations of the Code of Conduct. Where non-compliance or failings are found in terms of the corporate culture, the issue is addressed on a case-by-case basis. Whistleblower function. A whistleblower function is available so that employees and other stakeholders can highlight any deficiencies in Holmen’s financial reporting or other possible areas of concern and improprieties at the company. No complaints about deficiencies were reported through this channel in 2022. Internal control of financial reporting The Board’s responsibility for internal control and financial reporting is regulated » Forests are the core and basis of sustainably successful entrepreneurship in a Group that rests on five strong business areas and whose strategy revolves around sustainable development. Through Holmen’s business model, returns and climate benefits are generated at the same time as ecosystems and biodiversity are protected.« Louise Lindh, Board member, Holmen in financial reporting are minimised and irregularities are prevented. The Group’s purchasing should contribute to long-term profitability. The sustainable sale of raw materials, products and services should be ensured in both the short and long term. Communication must be accurate, transparent and easily accessible and comply with legal requirements and commercial confidentiality. Compliance. Holmen’s Code of Conduct, policies and values are part of every employee’s induction programme, and by the Swedish Companies Act and the Swedish Corporate Governance Code. Under this code, the Board is also responsible for ensuring that the company is managed in a sustainable and responsible manner. Day-to-day responsibility for all these matters is delegated to the CEO. Purpose and structure. The purpose of internal control is to ensure that Holmen achieves its financial reporting objectives (see page 52), ensure the company’s assets are managed according to Group ↓ Composition of the nomination committee Before AGM: Independent of the: Name Mats Guldbrand Fredrik Lundberg Carl Kempe Vegard Torsnes Hans Hedström Representing 2023 L E Lundbergföretagen* x (Chairman) Chairman of the Board Kempe Foundations* Norges Bank* Carnegie Funds x x x - 2022 x (Chairman) x x - x Company Largest shareholder (in terms of votes) Yes Yes Yes Yes Yes No No Yes Yes Yes * At 31 August 2022, L E Lundbergföretagen controlled 62.2 per cent of the votes, the Kempe Foundations controlled 17.5 per cent and Norges Bank controlled 1.1 per cent. Holmen Annual Report 2022 51 Corporate governance report rules and to prevent irregularities. Group Finance coordinates and monitors the internal control process concerning financial reporting. This work adheres to guidelines issued by the Committee of Sponsoring Organizations 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 environment provides the basis for internal control of financial reporting and is based in part on the company’s internal management processes. The Board of Directors’ procedural rules and the instruction for the CEO establish the distribution of roles and responsibilities to ensure effective control and management of the business’ risks. Policies, guidelines and instructions contribute to making individuals aware of their role in establishing good internal control. These documents also ensure that financial reporting complies with the laws and rules that apply to companies listed on Nasdaq Stockholm and the local rules in each country where the company operates. Risk assessment. Risk assessment activities aim to identify and evaluate the risks that can result in the Group’s financial reporting objectives not being met. The results of these risk-related activities are compiled and assessed under the guidance of Group Finance. Holmen’s greatest risks regarding financial reporting are linked to the valuation of forest assets, pension obligations, provisions and financial transactions. The risk assessment also involves identifying and assessing operational risks. For further information, see the Risk Management section on pages 53–57. Control activities. To ensure that Holmen’s financial reporting objectives are met, control requirements are incorporated into the processes that are deemed relevant: sales, purchasing, investments, personnel, financial statements, payments and IT. Control activities aim to prevent, identify and rectify errors and discrepancies. Business-specific self-assessments that are completed by all Group units set out what control requirements apply for each respective process and whether or not they are met. Information and communication. Holmen’s financial information provision, both external and internal, adheres to a communication policy established by the CEO. The provision of financial 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. Follow-up 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 continual basis and discrepancies are reported half-yearly to the Executive Vice President. The accuracy of self- assessments is subject to testing. The reporting of internal control to Group management takes place once a year. The company’s auditors report their observations 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 carried 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. » Sustainability is about balancing several perspectives – economic, environmental and social – and succeeding in doing so over time. It is a core component of our corporate governance and we were among the first to integrate the sustainability report into our annual report.« Anders Jernhall, Executive Vice President and CFO, Holmen 52 Holmen Annual Report 2022 Corporate governance report Risk management The Group’s business and operational risks are managed by the relevant business areas, which also take decisions regarding production, sales and employees with the aim of generating a lasting good return on invested capital. Purchasing and some parts of IT are managed by Group-wide functions in order to leverage economies 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 macroeconomic and political factors, among others, and the competitiveness above all of European producers. Changes in demand affect the ability to achieve full production at the Group’s industries and can lead to lower income. Income may also be impacted if harvesting from our own forests needs to be limited as a result of lower demand and variations in precipitation and wind, which govern generation from hydro and wind power. Selling prices The market balance in each product segment governs the selling price and affects income. Raw materials Wood, electricity and chemicals are the most significant input goods and price changes affect profitability. Holmen’s costs depend on the price development for input goods, as well as on how well the Group succeeds in making production and administration more efficient. There is a risk that the Group’s costs will increase if there is a shortage of raw materials, or if prices increase for input goods. Thanks to our strong supply of wood and energy, Holmen was able to produce largely at full capacity in 2022, whereas many competitors on the continent had problems with raw material supplies. Blåbergsliden Wind Farm became operational at the start of 2022, which, together with the acquisition of the remaining 50 per cent of the previously partly owned Varsvik Wind Farm, increased Holmen’s renewable electricity production capacity by 40 per cent per year. For information about how changes in deliveries would affect Holmen’s operating profit, given the circumstances on 31 December 2022, see the sensitivity analysis on page 57. Paperboard and paper product prices were increased in 2022. A flagging construction market drove down wood product prices at the end of the year. Electricity prices were high, but with significant local variations. Holmen’s renewable electricity prices were on average nearly twice as high as in 2021. For information about how changes in prices would affect Holmen’s operating profit, given the circumstances on 31 December 2022, see the sensitivity analysis on page 57. The electricity price in southern Sweden, where most of Holmen’s consumption takes place, was high in 2022. Due to price hedges and Holmen’s adapting of its production to an environment with volatile electricity prices, the price increase had a limited impact on Holmen’s costs. Other important input goods, such as chemicals and wood, also increased in price during the year. For information about how changes in commodity prices would affect Holmen’s operating profit, given the circumstances on 31 December 2022, see the sensitivity analysis on page 57. 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 and energy. Together with longstanding customer relationships and strong product brands, this also increases the ability to maintain a high level of production amid more difficult market conditions. Changes in demand for wood may be met by shifting harvesting from our own forests from year to year, while production of hydro power during the year can be controlled by regulating water reservoir levels. Holmen has limited possibilities to make rapid changes to its product range in the event of changes in price, but it adjusts its product focus towards those products and markets deemed to have the best long-term conditions, and by having a broad customer base and offering across a number of product areas. Changes in the price of wood can be managed to some extent by shifting harvesting from year to year and changes in the price of electricity can be managed by regulating reservoir water levels in order to shift electricity generation over the year. Around half of the Group’s wood needs are covered by harvesting from the Group’s own forests, while the remainder is mainly purchased from private forest owners. The Group is largely in balance in terms of pulp as a result of the integrated production process. The paperboard business generates almost all the electricity required at its own mills, while electricity for paper manufacturing is supplied from external electricity purchases. The price risk in this consumption is managed through physical fixed price contracts and financial hedging. The Group also sells electricity from its hydro power and wind power assets to the grid. The need for thermal energy is great and is met locally through recycling and production from residual products. Chemicals are a significant input, particularly in paperboard production, but the need is declining since used chemicals are being recovered at the mills. Holmen Annual Report 2022 53 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 delivered because of changes in laws and regulations 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 can be seriously disrupted, for example, in the event of a fire, machine breakdown or natural disaster. This can lead to supply problems, unexpected costs and reduced customer confidence. Production facilities require ongoing maintenance and technical upgrades. Major maintenance shutdowns can entail higher costs and greater loss of production than planned. Investments in non-current assets can also be more costly than initially planned. IT systems Efficient IT support is required to be able to plan and manage the production and when handling sales and purchasing. Disruptions in IT support and unauthorised access to information can have significant negative effects on the business. Forest management Holmen’s right to manage its own forest is crucial for maintaining its value. There is a risk that requirements to allocate areas for purposes other than forestry could increase in the future. Such a development could have a negative impact on the value of Holmen’s forest assets, and mean that forestry methods may need to change, which could reduce the harvest and increase costs. Damage to forests Wild game can damage the forest when grazing, resulting in both deterioration of the quality of the trees and reduced forest growth. Insect pests are another risk factor; for example, the spruce bark beetle can damage spruce forests. Storm and snow damage, fungal attacks and forest fires are other examples of damage that must be addressed and managed in forestry. Climate change The Swedish Meteorological and Hydrological Institute’s forecasts show that average temperature, precipitation and soil moisture will increase in Sweden. A warmer climate could increase the growth of our northerly growing forests with a longer growth period, more precipitation and higher levels of carbon dioxide in the air, aiding photosynthesis. It could also affect the ecosystems in that biodiversity is altered, while the risk of storm and snow damage, fungal attack, insect damage and forest fires increases. Climate change could also impact the ability to carry out harvesting, for example because of the increased risk of damage to the land. 54 Holmen Annual Report 2022 Holmen endeavours to have at least two approved suppliers per area of use. In addition, Holmen’s Supplier Code of Conduct is included in all new contracts. It contains requirements on sustainable development, including by respecting internationally recognised principles on anti-corruption measures, human rights, health and safety and the environment. Since 2017, Holmen has engaged an external party, EcoVadis, to monitor suppliers regarding their compliance with the Code. Holmen is subject to the UK Modern Slavery Act and a report on this is available at holmen.com. Compliance with forest management contractor agreements is ensured through site visits in the forest and all forest management contractors are trained in forest management and labour law and are informed about where to turn if irregularities should occur. In 2022, 0 (2) cases regarding breach of the Supplier Code of Conduct were reported. In the event of such breaches of the Code, an active dialogue with an action plan is in place in accordance with Holmen’s procedures. Suppliers representing 88 per cent (85) of the Group’s purchasing volumes have signed the Supplier Code of Conduct. Supply chain risks relating to the climate, environment, labour legislation, human rights, business ethics and a sustainable purchasing have been mapped and an action plan has been formulated. The largest suppliers of input products are engaged in dialogues regarding the reduction of fossil emissions. The war in Ukraine and the effects of the pandemic have made it more difficult and expensive to acquire certain goods and services. Holmen has actively worked to limit the effects and has been able to avoid disruptions to production. The risk that the Group’s customers will not fulfil their payment obligations is limited by means of creditworthiness checks, credit limits per customer and, in some cases, by insuring trade receivables against credit losses. Credit limits are continually monitored. Exposure to individual customers is limited. Damage prevention measures, regular maintenance and continual upgrades can minimise the risk of damage to facilities. Training of employees promotes participation, knowledge and awareness about these risks and how they can be countered. Holmen insures its facilities at replacement value and has insurance against interruptions in the event of unforeseen events. The Group also has liability insurance that covers sudden and unforeseen environmental damage affecting third parties. Operating disruptions and unauthorised access are prevented by security measures and preventive measures in the form of appropriate physical protection, reliable server operation and secure networks. Measures and procedures are in place to minimise the risk of interruption and to manage situations if interruptions occur. Holmen is continually developing protective measures to address changes in the risk profile. Land and forest management are regulated both nationally and at the EU level. In order to be able to engage in active and sustainable forestry, it is important that laws and regulations such as the Environmental Code, the Forest Inquiry, the EU’s forest strategy and LULUCF do not restrict the conditions necessary for sustainable operations. Holmen participates in national and international industry organisations to exert an influence on relevant political and regulatory issues. Holmen’s forest holdings are scattered across large parts of Sweden and the risk of extensive damage occurring simultaneously is considered to be low, for which reason the Group does not have insurance cover for its forest holdings. To reduce the extent of grazing by wild animals, active efforts are undertaken on Holmen’s land to maintain game at the correct population level. Insect pests such as pine weevils are combatted by waxing seedlings and infested forest is harvested as soon as possible to prevent spread. At 31 December 2022, the Group’s trade receivables totalled SEK 2 929 million (2 393), of which 43 per cent (34) were insured against credit losses. During the year, no credit losses on trade receivables had an impact on earnings (SEK 0 million). Sales to the five largest customers accounted for 14 per cent (14) of the Group’s total sales in 2022. The turbine in the biofuel boiler at Workington became fully operational again in the first quarter of 2022 after being damaged in 2021. Following the insurance investigation, Holmen was entitled to compensation for the turbine damage, minus the excess and certain costs. In 2022, Holmen invested SEK 1 225 million in the maintenance and upgrading of its production facilities. At Braviken Paper Mill, a project was launched to streamline production and treat and reuse more water and chemicals. Business operations were not affected by cyber incidents in 2022. To make its systems and procedures secure, Holmen has created a new function focused on IT and cyber security. A regularly recurring IT security training course is held for employees. During the year, the right to use the forest in line with Swedish laws and regulations was questioned within the EU. Holmen has actively participated, both on its own and through industry organisations, in the debate to influence the EU position, including by elucidating the positive climate effects associated with a managed forest. The spruce bark beetle infestation continued in southern Sweden in 2022. To halt its spread, Holmen continued to prioritise the harvesting of the spruce bark beetle infested forest. Holmen is working resolutely on the spruce bark beetle infested forest, focusing on retaining as much of the wood’s value as possible and looking for a sales outlet for the damaged logs. Holmen is developing seedlings and processes for planting, clearing and thinning to adapt our forests to a changed climate. Seeds for Holmen’s cultivation of seedlings are selected to grow and flourish in a changing climate. When planting, we choose tree species based on the specific conditions of the soil to ensure the trees can better withstand extreme weather such as storms, rain and drought. Since shorter periods of frozen ground can make harvesting more difficult in the winter, this work is being adjusted through planning and by relocating machines to areas with better conditions. Ongoing climate risk analyses and adaptation plans are carried out to ensure healthy, resilient forests suited to a changing climate. The risk of an impact on Holmen’s sites from climate change is being managed through Holmen’s operational continuity planning. Risks concerning energy consumption and greenhouse gas emissions are managed through our ISO-certified environmental and energy management systems. Demand for Holmen’s products is rising in response to the market’s ambitions to counteract climate change, since our customers want renewable alternatives to fossil-based products. Risk managementRisk Risk management Comment Environment and permits Holmen runs operations that require environmental permits. The permits specify conditions regarding permitted production volumes and permitted emissions to air and water. Production disruptions can cause breaches of emissions conditions set for the business by environmental authorities. Such breaches could affect the environment. In places where Holmen has conducted industrial operations, the need for remediation may entail future costs. Health and safety Incidents and accidents at the workplace have an effect on human life and health. This could also lead to production disruptions and increased costs. Talent management Skilled and motivated employees are key to being able to conduct long-term business operations with good profitability. There is a structural shortfall in many industrial positions. 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. External 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. Environmental measures are organised and conducted in accordance with Holmen’s environmental and energy policy. In the event of process disruptions, the environment takes precedence over production. Risks are prevented and managed through regular own checks, checks by authorities and environmental risk analyses, as well as through the use of certified environmental and energy management systems and chain- of-custody certification. In consultation with the authorities, Holmen is conducting investigations to assess the need for remediation at former industrial sites. In 2022, 45 (53) environment-related incidents were reported to the supervisory authorities. There were no incidents that led to long-term consequences for the environment, production or human health in 2022. Corrective measures were taken to deal with these cases, in line with the environmental management system of the operations concerned. Holmen has several wind farm project applications in progress, but the authorisation procedure often takes a long time and its outcome is uncertain. Good health and safety is a priority at all levels of the Group. Certified management systems, Group-wide targets relating to work accidents, continual training of personnel to increase risk awareness, procedures for risk observation and incident and accident reporting, and risk assessment of tasks and work by contractors are examples of activities to achieve a high level of safety in the workplace. In 2022, the rate of industrial accidents was 7.6 per 1 million hours worked (5.6). See also page 47. The most common accidents were slips, trips and crush injuries. The most significant areas of risk involve work with overhead cranes and vehicles with people in movement. The focus during the year was conducting preliminary investigations into industrial accidents before the end of shifts in order to directly address any dangers. Holmen is continually working to enhance the employer brand in the eyes of existing and potential employees. Systematic marketing to targeted groups through digital channels, combined with in-person meetings in the form of careers fairs and sponsorship collaborations, are helping to increase awareness of Holmen and attract and retain talented employees. 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 international industry organisations whose purpose is to handle the monitoring of social trends, advocacy and put forward Holmen’s position and view on relevant political and regulatory issues. Contact is established with local representatives and the general public in areas where the Group has operations. This takes place, for example, through consultation and information meetings and through meetings with decision-makers. More unforeseeable risks that may arise, such as shutdowns as a result of disease outbreaks, war or political unrest, are managed through ongoing external monitoring. To maintain optimum preparedness and active crisis management, Holmen is engaged in close dialogue and coordination with industry organisations, customers and suppliers. Annual surveys show that new hires rate Holmen highly as an employer. During the year, managers were trained in competency-based recruiting in order to improve their recruitment success rate and increase diversity among new employees. Holmen received accolades in 2022 such as a top 20 ranking in the Ranstad awards, the title Karriärföretag (career company) 2023, and a top 10 place in Universum’s ranking of Sweden’s Best Employers (Sveriges Bästa Arbetsgivare). No identified or reported cases concerning deviations from the business ethics policy or the parts of the Code of Conduct or Supplier Code of Conduct regarding business ethics issues were reported in 2022. In August 2022, new versions of the Code of Conduct and the Supplier Code of Conduct were adopted. Office workers and managers at Holmen are trained in the Code of Conduct every three years. No corruption lawsuits against the organisation or its employees were ongoing in 2022. Following the war in Ukraine, Holmen has taken a number of measures to safeguard its employees and guarantee its raw material supply, logistics and IT security. Holmen has marginal direct exposure to Ukraine, Russia and Belarus, but we continuously analyse the consequences the war might have for our operations, in both the short and long term. We comply with the sanctions adopted. In 2022, Holmen continued to take action to minimise the impact of the coronavirus pandemic, with a focus on the health and safety of our employees. Holmen has been active in promoting the growth of sustainable energy production, and bio-based and fossil-free activities, through dialogue, consultation responses, preparedness and advocacy work, on its own and together with industry organisations. Holmen Annual Report 2022 55 Risk management Financial risks Risk Risk management Comment Currency The Group’s earnings are affected by fluctuations in exchange rates. Transaction exposure risk arises due to a significant portion of the Group’s sales income being in different currencies from costs. The translation exposure risk arises from the translation of foreign subsidiaries’ assets, liabilities and earnings into Swedish kronor. For the next two years, expected flows in EUR/SEK are hedged at an average of 10.55. For other currencies, 4–8 months of flows are hedged. Hedging of exposure to pounds sterling amounted to GBP 126 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 foreign exchange contracts. Net flows in euros, US dollars and pounds sterling for the coming four months are always hedged. These normally correspond to trade receivables and outstanding orders. The Board can decide to hedge flows for a longer period if this is deemed suitable in light of the products’ profitability, competitiveness and the currency situation. Currency exposure arising when investments are paid for in foreign currency is distinguished from other transaction exposure. Normally, 90–100 per cent of the currency exposure associated with major investments is hedged. Validation of revaluations. 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 subsidiaries are translated into Swedish kronor is not normally hedged. SEKm 10 000 7 500 5 000 2 500 0 EUR/SEK GBP/SEK USD/SEK EUR/GBP CNH/SEK Net flow 12 months Hedge Interest rates Changes in market interest rates affect the Group’s cost of borrowing. The fixed rate duration for the Group’s net financial debt varies over time and is decided by the Board of Directors. To limit the effects of a rise in interest rates, the interest rate on loans may be fixed, or an interest rate swap agreement may be entered into without changing the interest rate on the underlying loan. Holmen’s average borrowing rate in 2022 was 1.5 per cent. 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 obligations Right-of-use agreements Total SEK 1 873 -1 400 -500 EUR GBP Other items -246 -1 737 119 0 0 0 0 0 0 9 -1 400 -500 0 0 0 0 0 2 -9 0 0 -7 -153 -179 -75 -8 -10 -330 -1 746 109 -247 -2 145 Credit risk from financial counterparties The risk of financial transactions giving rise to credit risks in relation to financial counterparties. The creditworthiness of Holmen’s financial counterparties is assessed using reputable credit rating agencies or, where a counterparty has no credit rating, the company’s own analyses. A maximum credit risk and settlement risk are established for each financial counterparty and are monitored continually. This calculation is based on the maturity and historical volatility of different types of derivatives. For cash and cash equivalents and current investments, the maximum credit risk is assessed to correspond to the nominal amount. At 31 December 2022, the Group had outstanding derivative contracts with a nominal amount of SEK 17 billion and a net fair value of SEK 4 billion. 56 Holmen Annual Report 2022 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 exceed 25 per cent of equity. Holmen’s financing usually mainly comprises bonds and the issue of commercial paper. Holmen reduces the risk of future funding becoming difficult or expensive by using long-term contractually agreed credit facilities. The Group plans its financing by forecasting financing needs over the coming years based on the Group’s budget and profit forecasts that are regularly updated. The cash flow was strong in 2022 and net financial debt fell to SEK 2 145 million, which is equal to 4 per of equity. Financial liabilities totalled SEK 4 195 million at the end of the year, of which SEK 1 127 million are due for payment in 2023, and financial assets totalled SEK 2 050 million, of which SEK 1 935 million consist of cash and cash equivalents and short-term investments. The Group has unutilised committed credit facilities of SEK 5 billion, of which SEK 1 billion matures in 2025 and SEK 4 billion in 2027. Both facilities include a limit stipulating that they cannot be used if net liability in relation to equity exceeds 125 per cent. SEKm 5 000 4 000 3 000 2 000 1 000 0 2023 2024 2025 2026 >2027 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. Holmen hedges parts of the electricity consumption by the paper business area. For 2022, 90 per cent of electricity consumption was hedged. At year-end, 90 per cent of electricity consumption was hedged for 2023. For 2024, 60 per cent has been hedged, while for 2025 the figure is 25 per cent. Sale 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 Change +/-1% +/-1% +/-1% +/-1% +/-1% Change +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% +/-1% Impact on operating profit, SEKm Price Deliveries 35 42 24 10 10 66 84 50 15 12 Price 36 2 20 9 22 30 14 * Taking electricity price hedges for 2023 into account. Without taking hedges into account, the corresponding figure would be SEK 39 million. Financial risks The table to the right shows the extent of the impact from a change in the Swedish krona, the price of electricity and the market interest rate on Group profit before tax and equity next year, taking account of hedging. The adopted change is calculated based on five years’ average historical volatility for each instrument, which is deemed a reasonable change going forward. Historical volatility on exchange rates is calculated based on average annual volatility on the KIX, the Riksbank’s exchange rate index. Excluding hedging, a 5 per cent change in the krona would affect earnings before tax by SEK 500 million a year. Earnings before tax* Exchange rate total EUR/SEK USD/SEK GBP/SEK other currencies/SEK Borrowing rate Equity Transaction hedging Investment hedging Equity hedging Electricity price hedging Interest rate changes Change +/-5% +/-5% +/-5% +/-5% +/-5% +/-1% point Change +/-5% +/-5% +/-5% +/-60 % +/-1% point *Estimated effect for 2023 including hedging. SEKm 180 18 68 46 48 1 SEKm 590 11 79 2 625 8 Holmen Annual Report 2022 57 Risk managementshaReholdeR infoRmation Holmen’s two classes of shares are listed on Nasdaq Stockholm, Large Cap. Over the past ten years, Holmen’s total shareholder return (dividend paid and share price performance) has been 488 per cent, compared with 160 per cent for the OMX Stockholm 30. For Holmen, this corresponds to an annual return of 19 per cent. At the same time, the number of shareholders has in- creased by 25 000 to nearly 53 000. 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 currently listed on Nasdaq Stockholm, Large Cap. At the end of 2022, Holmen A was trading at SEK 424 (448) and Holmen B at SEK 414 (435), corresponding to a market capitalisation of SEK 67.5 billion (71.0). The highest closing price for Holmen’s class B shares was SEK 573, on 29 April. The lowest closing price was SEK 400, on 2 November. The daily average number of class B shares traded was 1 050 000, which corresponds to a value of SEK 501 million. The daily average number of class A shares traded was 1 097. Almost 28 per cent of trading took place on Nasdaq Stockholm. Holmen shares have also been traded on other trading platforms, such as Cboe BXE, LSE and Aquis. 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 28 March 2023 approve a dividend of SEK 8 per share and an extra dividend of SEK 8 per share. Share structure Holmen has 162 001 678 shares outstanding, of which 45 246 468 are class A shares and 116 755 210 are class B shares. The company also has 510 646 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. Share savings programme The share savings programme introduced by decision of the 2019 AGM expired in April 2022, which means that the participants have been allocated 75 993 matching and performance shares. The 2022 AGM decided on a new, similar share savings programme. The aim of the programme is to strengthen common interests between shareholders and company management, as well as to create a long-term commitment to Holmen. More information about the current share savings programme can be found in Note 4. Share buy-backs The 2022 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 company already owns 0.3 per cent of all shares outstanding. The Board proposes that the 2023 AGM approve corresponding authorisation for the Board. Ownership structure Holmen had a total of 52 701 shareholders at year-end 2022. In terms of numbers, Swedish private individuals account for the largest owner category with 50 177 shareholders. Shareholders registered in Sweden own 73 per cent (81) of the share capital. Among foreign shareholders, the largest proportion of shares are held in the US and Norway, accounting for 8 per cent and 5 per cent of capital, respectively. The largest owner at the turn of 2022/2023, with 62.3 per cent of votes and 34.1 per cent of capital, was L E Lundbergföretagen AB. Shareholder communication Information about the company is available at the holmen.com website, including financial information in the form of reports, presentations and financial data, as well as the performance of Holmen shares and contact information. Shareholder categories Share of capital, % 2 27 12 11 50 Swedish institutions Swedish equity funds Swedish private individuals Foreign shareholders 50% 11% 12% 27% Share price performance, Holmen class B and OMX Stockholm Total shareholder return Holmen B and OMX Stockholm Including reinvested dividend without tax Index 500 400 300 200 100 0 Number of shares (thousand) 50 000 40 000 30 000 20 000 10 000 Index 800 600 400 200 18 19 20 21 0 22 Jan 23 0 13 14 15 16 17 18 19 20 21 22 Jan 23 Holmen B Total number of class B shares traded (thousands) OMX Stockholm 30 (OMXS30) Holmen B Source: Macrobond OMX Stockholm 30 (OMXS30) 58 Holmen Annual Report 2022 Shareholder information Earnings per share Proposed dividend per share sek 36.3 sek 8 + sek 8 Annual return at 31 Dec 2022*, % 1 year 3 years 5 years 10 years Holmen B OMX Stockholm 30 *Including reinvested dividend. -3 -13 15 7 16 9 19 10 Holmen’s total shareholder return has averaged 19 per cent a year over the past 10 years, which is 9 percentage points better than the OMX Stockholm 30. Share capital structure Equities Votes No. of shares No. of votes Quotient value SEKm A B Total no. of shares Holding of repurchased class B shares Total number of shares outstanding 10 1 45 246 468 117 265 856 162 512 324 -510 646 452 464 680 117 265 856 569 730 536 -510 646 162 001 678 569 219 890 26 26 1 180 3 058 4 238 Changes in share capital 2000–2022 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 79 972 451 4 783 711 84 756 162 -7 000 000 84 756 162 169 512 324 162 512 324 -444 239 - - 3 999 4 238 4 238 4 238 Ownership structure* 2022-12-31 % of capital % of votes L E Lundbergföretagen Kempe Foundations Norges Bank SEB Funds BlackRock Handelsbanken Funds Vanguard (US) Carnegie Funds (Sweden) Swedbank Robur Funds Nordea Funds Total Other Total Of which non-Swedish shareholders 34.1 7.4 4.8 2.4 2.3 2.1 2.1 1.8 1.5 1.4 62.3 17.5 1.4 0.7 0.7 0.6 0.6 0.5 0.4 0.4 59.9 85.0 40.1 15.0 100.0 27.3 100.0 8.0 * 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’. Shareholder statistics at 31 Dec 2022 Holding classes, no. of shares 1–1 000 1 001–100 000 100 001– Total Number of shareholders Share of capital, % 48 890 3 731 80 52 701 4 11 85 100 Data per share (adjusted for the 2:1 share split in 2018) 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Diluted earnings per share, SEK1) 36.3 18.5 12.2 52.6 13.5 9.9 8.5 3.3 5.4 4.3 Dividend, SEK Ordinary dividend, SEK Extra dividend, SEK Total dividend as % of: Equity Closing market price Profit/loss for the year Return, equity, %1) 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 82) 82) 4.6 3.9 44 11 13 352 414 459 573 400 7.5 4.0 4.0 2.6 62 7 9 290 435 404 469 365 7.25 3.5 4.1 2.7 88 5 6 263 394 310 396 228 3.5 - 1.4 1.2 6 35 9 238 285 220 297 172 6.75 - 4.8 3.9 50 10 10 140 175 213 240 175 6.5 - 5.0 3.0 65 8 9 131 218 186 218 157 6 - 4.7 3.7 71 7 9 127 164 141 163 114 5.5 - 4.2 4.0 158 3 6 124 131 132 153 110 5 - 4.0 3.8 93 4 6 125 133 118 136 105 4.5 - 3.6 3.8 106 3 4 124 117 99 118 87 Total closing market capitalisation, ’000 SEKm 67.5 71.0 64.7 46.6 29.5 36.6 27.4 22.3 22.3 19.7 P/E ratio4) EV/EBITDA3) 5) 11 8 23 14 32 19 5 14 13 9 22 13 19 10 39 11 25 9 28 10 Closing beta value (48 months), B, at year-end6) 0.75 0.78 0.77 0.77 0.74 0.74 0.72 0.68 0.71 0.67 Number of shareholders at year-end 52 701 48 126 48 104 38 904 33 573 30 903 28 159 28 176 27 788 27 692 1) See page 114: Definitions and 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 2022 59 Shareholder information Financial statements Income statement, SEKm Net sales Other operating income Change in inventories Raw materials and consumables Personnel costs Other operating costs Change in value of biological assets Depreciation and amortisation according to plan Impairment losses Share in profits of 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 Note 2 3 4 5 9 10, 11, 12 10 13 6 6 7 8 8 2022 23 952 2 743 364 -11 078 -2 956 -4 585 509 -1 345 -87 10 7 527 12 -99 7 441 -1 567 5 874 2021 19 479 1 690 1 -10 110 -2 720 -3 814 464 -1 261 - 0 3 731 9 -48 3 691 -688 3 004 5 874 3 004 36.3 36.3 162.0 162.0 18.5 18.5 161.9 161.9 Operating profit for 2022 amounted to SEK 7 527 million (3 731). The increase in profit is due to prices rising significantly while cost inflation has been limited by our own strong supply of wood and energy. Net financial items totalled SEK -87 million (-39). Tax recognised totalled SEK -1 567 million (-688), corresponding to 21 per cent (19) of profit before tax. Statement of comprehensive income, SEKm Note 2022 Profit/loss for the year Other comprehensive income Revaluation of forest land Revaluation 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 60    Holmen Annual Report 2022 9 18 7 13 7 5 874 4 373 -6 -899 3 469 6 560 -3 507 -16 72 -28 0 -612 2 469 5 938 11 812 2021 3 004 3 345 -12 -683 2 650 182 349 -27 180 -39 3 -97 551 3 201 6 204 11 812 6 204 GroupFinancial statementsBalance sheet at 31 December, SEKm Note 2022 2021 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 receivables Other operating receivables Current financial receivables Cash and cash equivalents Total current assets Total assets Equity Share capital Other contributed capital Reserves Retained earnings including 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 obligations Non-current 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 liabilities Other operating liabilities Total current liabilities Total liabilities Total equity and liabilities 9 9 10 11 12 13 13 14 7 15 16 7 16 14 14 14 18 19 7 14 20 7 20 29 867 22 284 427 10 124 242 1 680 2 97 2 64 726 4 838 2 929 589 6 402 18 1 935 16 710 81 436 4 238 281 20 689 31 742 56 950 2 902 158 7 441 13 490 16 998 1 039 89 3 848 118 2 395 7 488 24 486 81 436 29 204 17 876 539 9 711 240 1 756 2 268 3 59 598 3 818 2 393 70 1 676 39 507 8 503 68 101 4 238 281 14 748 27 725 46 992 3 911 173 24 409 11 610 16 127 736 71 2 836 80 1 259 4 982 21 109 68 101 Holmen Annual Report 2022    61 GroupFinancial statementsChanges in equity, SEKm Opening equity balance 1 Jan 2021 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 Share savings programme Closing equity balance 31 Dec 2021 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 Share savings programme Share capital 4 238 - Other contributed capital 281 - - - - - - - - - - - - - - - - - - - - - - - 4 238 - 281 - - - - - - - - - - - - - - - - - - - - - - - Closing equity balance 31 Dec 2022 4 238 281 Reserves Translation reserve Hedge reserve Revaluation surplus -73 - - - - 180 -39 - 8 149 149 - - 76 - - - - 72 -28 - 6 50 50 - - 126 316 - - - 504 - - 3 -105 402 402 - - 718 - - - 3 037 - - 0 -618 2 419 2 419 - - 3 137 11 297 - 3 345 - - - - - -689 2 656 2 656 - - 13 953 - 4 373 - - - - - -901 3 472 3 472 - - 17 426 Retained earnings incl. profit/loss for the year 26 457 3 004 - -12 - - - - 6 -6 2 997 -1 741 12 27 725 5 874 - -6 - - - - 2 -4 5 870 -1 862 9 31 742 Total equity 42 516 3 004 3 345 -12 504 180 -39 3 -780 3 201 6 204 -1 741 12 46 992 5 874 4 373 -6 3 037 72 -28 0 -1 511 5 938 11 812 -1 862 9 56 950 62    Holmen Annual Report 2022 GroupFinancial statementsCash flow statement, SEKm Operating activities Earnings before tax Adjustments for non-cash items Depreciation and amortisation according to plan Impairment losses Change in value of biological assets Change in provisions Other* Income tax paid Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Change in inventories Change in trade receivables and other operating receivables Change in trade payables and other operating liabilities Cash flow from operating activities Investing activities Acquisition of property, plant and equipment Disposal of property, plant and equipment Acquisition of non-current intangible assets Investments in and acquisition of biological assets Disposal of biological assets Acquisition of shares and participations Disposal of shares and participations Repayment of non-current financial receivables Cash flow from investing activities Financing activities Raised long-term borrowings Repayment of long-term borrowings Change in current financial liabilities Repayment of debt related to right-of-use assets Change in current financial receivables 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 2022 2021 25 25 25 7 441 1 345 87 -509 15 28 -1 639 6 768 -1 007 -1 284 1 007 5 484 -1 225 14 -6 -160 32 -11 4 3 -1 349 - -500 -261 -90 0 -1 862 -2 713 1 422 507 5 1 935 3 691 1 261 - -464 -187 -263 -662 3 375 -236 -156 247 3 229 -1 534 19 -13 -166 424 -63 - 25 -1 307 500 - -411 -110 -3 -1 741 -1 764 158 346 2 507 * Other adjustments primarily consist of foreign exchange effects and the marking to market of financial instruments, profit from associates, as well as gains/losses on the sale of non-current assets. Change in net financial debt, SEKm Opening net financial debt Cash flow Operating activities Investing activities (excl. financial receivables and business combinations) Dividend paid Business combinations Liabilities arising from new right-of-use agreements Revaluation of defined benefit pension plans Foreign exchange effects and changes in fair value Closing net financial debt 2022 -4 101 5 484 -1 350 -1 862 - 270 -93 -7 53 -2 145 2021 -4 181 3 229 -1 332 -1 741 - -67 17 -27 -4 101 Holmen Annual Report 2022    63 GroupFinancial statementsIncome statement, SEKm Note 2022 2021 Net sales Other operating income Change in inventories Raw materials and consumables Personnel costs Other external costs Depreciation and amortisation according to plan Operating profit Profit/loss from investments in Group companies 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 21 995 1 262 304 -9 418 -2 485 -6 590 18 186 921 35 -10 127 -2 078 -5 428 10, 11 -56 -51 5 012 1 458 6, 23 6 6 24 7 453 84 -88 5 459 -511 4 948 -930 4 019 380 26 -90 1 774 768 2 541 -451 2 090 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 Total comprehensive income Note 2022 2021 4 019 2 090 6 401 -3 499 -16 204 329 -27 7 -594 -104 2 291 6 310 401 2 491 The parent company includes Holmen’s Swedish operations, except for most of the non-current assets , the business operating at Varsvik Wind Farm and the Group’s construction system business, which are recognised within other Group companies. Profit after net financial items includes the result from hedging equity in foreign subsidiaries of SEK -28 million (-39). Cash flow statement, SEKm Operating activities Profit/loss after financial items Adjustments for non-cash items Depreciation and amortisation according to plan Impairment losses Change in provisions Other* Income tax paid Cash flow from operating activities before changes in working capital Cash flow from changes in working capital Change in inventories Change in operating receivables Change in operating liabilities Cash flow from operating activities Investing activities 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 Repayment of long-term borrowings Change in other financial liabilities Change in other financial receivables Dividend paid to owners of the parent company 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 Note 2022 2021 5 459 1 774 56 - 10 -357 -1 460 51 2 -145 75 -618 3 708 1 139 -1 073 -969 1 168 2 834 19 8 3 -157 26 -102 - -500 267 0 -1 862 1 013 -322 -1 404 1 329 445 1 774 -250 -641 622 870 -92 10 25 -39 - -95 500 - -303 -286 -1 741 1 495 -230 -565 209 236 445 25 * Other adjustments primarily consist of foreign exchange effect and the marking to market of financial instruments and gains/losses on the sale of non-current assets. 64    Holmen Annual Report 2022 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 receivables Current investments Cash and cash equivalents Total current assets Total assets Note 2022 2021 Balance sheet at 31 December, SEKm Note 2022 2021 10 11 13, 23 14 9 3 088 13 3 075 11 792 3 648 18 537 11 634 4 176 18 898 15 16 7 14 14 3 965 8 606 579 18 1 774 14 941 2 886 3 616 39 39 445 7 025 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 obligations Provisions Deferred tax liabilities 33 478 25 923 Total provisions Liabilities Non-current financial liabilities Current financial liabilities Operating liabilities Total liabilities 17 24 18 19 7 14 14 20 4 238 1 577 100 7 514 4 019 4 238 1 577 100 4 986 2 090 17 448 12 990 4 053 2 852 13 609 1 389 2 011 3 334 1 039 5 593 9 966 0 599 787 1 386 4 513 736 3 446 8 695 Total equity and liabilities 33 478 25 923 Restricted equity Non-restricted equity Share capital Statutory reserve Revaluation reserve Hedge reserve Retained earnings Profit/loss for the year Total equity Changes in equity, SEKm Opening equity balance 1 Jan 2021 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 Share savings programme Closing equity balance 31 Dec 2021 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 Share savings programme 4 238 - - 1 577 - - - - - - - - - - - - - - 4 238 - - 1 577 - - - - - - - - - - - - - - 100 - - - - - - - - 100 - - - - - - - - Closing equity balance 31 Dec 2022 4 238 1 577 100 353 - - 505 -104 401 401 - - 754 - - 2 885 -594 2 291 2 291 - - 3 045 4 042 1 919 - - - - 1 919 -1 741 12 4 232 2 090 - - - - 2 090 -1 862 9 4 469 1 919 -1 919 2 090 - - - 171 - - 2 090 -2 090 4 019 - - - 1 929 - - 4 019 12 228 - 2 090 505 -104 401 2 491 -1 741 12 12 990 - 4 019 2 885 -594 2 291 6 310 -1 862 9 17 448 Holmen Annual Report 2022    65 Parent companyFinancial statements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 66 14. Financial instruments 71 15. Inventories 72 16. Operating receivables 17. Equity, parent company 18. Pension obligations 19. 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 73 75 75 76 77 78 80 80 81 82 83 86 86 86 87 88 88 88 89 90 91 91 92 92 Note 1. Accounting policies The accounting policies for the Group presented below have been applied consistently to all periods included in the Group’s financial statements except where otherwise stated below. The Group’s accounting policies have been applied consistently to the reporting and the consolidation of the parent company, subsidiaries, associates and joint ventures. Compliance with standards and statutory requirements The consolidated accounts are prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB), as adopted by the EU. The Swedish Financial Reporting Board’s recommendation (RFR 1 Supplementary Accounting Rules for Groups) has also been applied. The parent company applies the same accounting policies as the Group except in the cases that are commented on separately under each section. The parent company’s accounts are prepared in accordance with RFR 2 Accounting for Legal Entities. The differences between the policies applied by the parent company and those applied by the Group are due to restrictions in the parent company’s ability to apply IFRS as a consequence of the Swedish Annual Accounts Act, the Swedish Pension Obligations Vesting Act, and in some cases for tax reasons. Valuation principles applied in preparing the financial statements of the parent company and the Group Assets and liabilities are stated at cost, except for biological assets and forest land, as well as certain financial assets and liabilities, which are measured 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. The financial statements are presented in millions of Swedish kronor. 66 Holmen Annual Report 2022 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 2022 New and amended IFRSs with application from 2022 do not have any material impact on the company’s financial statements. New and amended accounting policies not yet applied New and amended IFRSs to be applied in the future are not expected to have any material impact on the company’s financial statements. Segment reporting The Group’s operations are divided into operating segments, based on which parts of the operations are monitored by the company’s highest executive decision- maker, known as the management approach. The segmentation criterion is based on the Group’s business areas. This corresponds to the Group’s operating structure and the internal reporting to the CEO and the Board. The items in the profit, assets and liabilities of the operating segment are recognised in accordance with the profit (operating profit), assets and liabilities that are monitored by the company’s highest executive decision-maker. See Note 2 for more details of the classification and presentation of operating segments. Note 1NotesClassification Essentially, non-current assets, non-current liabilities and non-current 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 current 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 acquisition 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 consolidated 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 in 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 any goodwill and other consolidated surplus and deficit values, are translated in the consolidated accounts, from the foreign operation’s functional currency, to the Group’s reporting currency (Swedish kronor) at the balance sheet date rate. The income and expenses of foreign operations are translated into Swedish kronor at an average rate that is an approximation of the exchange rates prevailing at the date of each transaction. Translation differences arising during currency translation of foreign operations and the related effects of hedging net investments are recognised in other comprehensive income and are accumulated in a separate component of equity called the translation reserve. In the disposal of a foreign operation, the accumulated translation differences attributable to the business are realised, less any currency hedging, in the consolidated income statement. Companies operating on behalf of the parent company The parent company’s business is largely conducted through companies operating on its behalf: Holmen Skog AB, Holmen Wood Products AB, Holmen Iggesund Paperboard AB, Holmen Paper 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 other 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 volume or cash discounts. 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. The Group’s business also includes construction solutions in wood. Income from this activity is treated as a commercial construction contract and recognised over time, based on costs spent in relation to the total estimated costs of the project. Projects usually do not extend beyond twelve months. Holmen therefore applies the relaxation rule and does not disclose remaining performance commitments. 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 2022 67 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 expenses affect profit/loss in the period to which they relate. Borrowing costs attributable to the purchase or construction of qualifying assets are capitalised in the consolidated accounts as part of the asset’s cost. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use and that is relevant for the Group in connection with major investment projects. Taxes Income taxes comprise current tax and deferred tax. Income taxes are recognised in the income statement except when underlying transactions are recognised in other comprehensive income or directly in equity, in which case the associated tax effect is also recognised in other comprehensive income or directly in equity. Current tax is the tax to be paid or received for the year in question, using the tax rates that have been decided on, or to all intents and purposes have been decided on at the balance sheet date. This also includes any adjustment to current tax attributable to previous periods. Deferred tax is calculated using the balance sheet method on the basis of temporary differences between book values and values for tax purposes of assets and liabilities, applying the tax rates and rules that have been approved or announced at the balance sheet date. In the parent company’s accounts, untaxed reserves are recognised inclusive of deferred tax liability. Deferred tax assets in respect of tax-deductible temporary differences and loss carry-forwards are recognised only to the extent that it is likely they will be utilised and entail lower tax payments in the future. Deferred tax assets and deferred tax liabilities in the same country are recognised net to the extent that a right of set- off applies. Earnings per share The calculation of earnings per share (EPS) is based on the Group’s profit/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 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 fair value. Changes in the value of derivatives that are not hedged are recognised in profit/loss. 68 Holmen Annual Report 2022 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 - When assessing expected credit losses on financial assets, the simplification rule is applied in accordance with IFRS 9. 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 56–57. 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. Goodwill represents the difference between the cost of business combinations and the fair value of the acquired assets, assumed liabilities and contingent liabilities. Note 1Notes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 book value includes all directly attributable expenses, for example in connection with materials and services, employee benefits, registration of a legal right, amortisation of patents and licences and borrowing costs in accordance with IAS 23. Other development expenditure is recognised in the income statement as costs when incurred. Development expenditures recognised in the balance sheet are stated at cost less accumulated amortisation and impairment losses. Property, plant and equipment Property, plant and equipment are stated at cost after deduction of accumulated depreciation and any impairment losses. Property, plant and equipment that consist of parts with different useful lives are treated as separate components of property, plant and equipment. Additional expenditure is capitalised only if it is estimated to generate financial benefits for the company. The key factor 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 a 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 a maximum of 12 months 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, after deduction for necessary obsolescence, and 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 of making the sale. The cost of finished products manufactured by the company comprises direct production costs and a reasonable share of indirect costs. Purchased felling rights are stated as inventories. They have been acquired with a view to securing Holmen’s raw material requirements through harvesting. No measurable biological change occurs from the acquisition date. Emission allowances received are initially recognised at market price when allotted among inventories and as deferred income. During the year the allocation is recognised as income at the same time as an interim liability, corresponding to emissions made, is expensed. Unsold rights are measured at the lower of cost and fair value. Certificates received for renewable energy are initially recognised at market price when allotted among inventories. 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 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 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 2022 69 Note 1Notes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 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 transactions 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. 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. 70    Holmen Annual Report 2022 Note 1NotesForest Paperboard Paper Wood Products Renewable Energy Group-wide and other Eliminations Total Group Note 2. Operating segment reporting 2022 Net sales External Internal Other operating income Operating costs Change in value of biological assets Depreciation and amortisation according to plan Impairment losses Share in profits of associates and joint ventures 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 Deferred tax, net Capital employed 2 610 4 732 367 -6 643 509 -87 -87 - 1 401 6 735 - 1 820 -6 610 - -599 - - 8 370 - 314 -5 651 - -319 - - 1 347 2 714 5 015 - 605 -4 181 - -204 - 2 1 237 1 222 4 152 -273 - -106 - 8 1 006 1 401 1 081 2 714 1 237 1 006 19 4 54 499 -2 015 -11 130 41 354 16 20 32 139 7 792 -1 263 -897 3 242 -1 003 -301 5 632 1 939 25 54 2 944 -749 -128 2 067 82 23 6 101 -1 110 -372 4 618 - - 222 -370 - -30 - - -178 -178 - - 5 888 -1 744 -660 3 485 Acquisition of non-current assets 278 555 186 122 237 23 External net sales by market Sweden Germany UK France Italy Rest of Europe Asia Rest of the world Total 2 586 - - - - 25 - - 2 610 164 1 128 874 475 399 1 995 1 296 404 6 735 373 1 329 953 958 912 2 963 496 386 8 370 1 794 45 646 52 17 1 092 409 959 5 015 1 222 - - - - - - - 1 222 - - - - - - - - - - -4 737 -737 5 473 - - - - - - - - -1 083 1 083 - - - - - - - - - - - - 23 952 - 2 743 -18 255 509 -1 345 -87 10 7 527 7 262 30 13 79 384 -6 801 -13 487 59 095 1 401 6 138 2 502 2 474 1 486 1 328 6 084 2 202 1 739 23 952 *Items affecting comparability refer to the insurance compensation, and the costs and the loss of revenue, associated with the turbine breakdown at the paperboard mill in Workington (SEK 266 million). Net sales by market Sweden Germany UK France Italy Rest of Europe Asia Rest of the world Total Group Parent company 2022 6 138 2 502 2 474 1 486 1 328 6 084 2 202 1 739 2021 5 343 1 963 2 304 1 074 911 4 383 2 150 1 351 2022 6 645 2 114 1 939 1 279 1 188 4 995 2 117 1 718 2021 6 240 1 611 1 793 896 788 3 497 2 077 1 285 23 952 19 479 21 995 18 186 Net sales by product area Consumer paperboard Pulp Book, magazine & packaging paper Newsprint Wood products, pine Wood products, spruce Wood construction solutions Wood Electricity Other Group Parent company 2022 2021 2022 2021 446 464 182 446 446 202 6 553 6 059 4 232 3 950 396 7 924 4 977 7 924 4 977 464 2 116 2 206 2 116 2 206 2 580 2 345 2 731 2 345 - 2 610 2 424 2 586 3 181 473 473 1 396 1 216 194 118 6 320 320 8 - Income from external customers is allocated to individual countries according to the country in which the customer is based. Non-current assets per country 2022 2021 2022 2021 Group Parent company Total 23 952 19 479 21 995 18 186 Sweden UK Other Total 63 262 57 993 14 889 14 721 - - 1 358 4 1 329 4 - - 64 624 59 326 14 889 14 721 Holmen Annual Report 2022 71 Note 2Notes Notes 2–3 Note 2. Operating segment reporting, cont. Forest Paperboard Paper Wood Products Renewable Energy Group-wide and other Eliminations Total Group 2021 Net sales External Internal Other operating income Operating costs Change in value of biological assets Depreciation and amortisation according to plan Share in profits of associates and joint ventures 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 Deferred tax, net Capital employed 2 424 4 085 580 -5 979 464 -78 - 1 495 1 495 23 4 49 178 -1 834 -10 045 37 300 - 642 6 261 5 441 - 270 -5 995 -5 270 - -371 - - -565 - 343 673 11 13 70 70 1 4 6 974 2 707 -840 -958 -231 -847 5 169 1 637 4 872 - 499 -3 514 - -189 1 1 668 481 7 28 -140 - -28 -1 347 1 668 347 34 82 2 954 -606 -70 2 278 Acquisition of non-current assets 249 399 129 242 External net sales by market Sweden Germany UK France Italy Rest of Europe Asia Rest of the world Total 2 422 - - - - 2 - - 2 424 131 1 136 804 465 333 195 791 661 528 570 1 780 1 677 645 1 196 374 415 6 261 5 441 2 113 37 839 81 7 924 309 561 4 872 71 10 4 772 -334 -368 4 069 712 481 - - - - - - - 481 - - 217 -380 - -29 - -193 -193 - - 1 320 -633 -47 640 43 - - - - - - - - - - -4 092 -544 4 636 - - - - - - - -620 620 - - - - - - - - - - - - 19 479 - 1 690 -16 643 464 -1 261 0 3 731 4 061 21 9 67 284 -4 584 -11 608 51 093 1 775 5 343 1 963 2 304 1 074 911 4 383 2 150 1 351 19 479 *Items affecting comparability refer to the costs and the loss of revenue associated with the turbine breakdown at the paperboard mill in Workington (SEK -330 million). The Forest business area manages the Group’s forests, which cover just over one million hectares. The annual harvest of own forests amounts to 2.8 million m3sub. This business area is also responsible for the Group’s wood supply in Sweden. The Paperboard business area produces paperboard for consumer packaging for the premium segment at one Swedish and one UK mill. The Paper business area produces paper 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 2022, the Group produced 0.5 million tonnes of paperboard, 1.0 million tonnes of paper and 1.4 million m3 of wood products. The Renewable Energy business area is responsible for the Group’s hydro power and wind power assets. Deliveries in 2022 amounted to 1.6 TWh of renewable hydro and wind power electricity and include wind power electricity bought from wind farm constructed on Holmen’s land. 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, net financial items, financial assets and liabilities, including pension obligations, 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. Note 3. Other operating income Group Parent company 2022 2021 2022 2021 Sales of by-products Sales of non-current assets Certificates, renewable energy Emission allowances Insurance compensation Rent and land lease income Silviculture contracts Other 849 34 433 284 489 150 91 413 584 320 186 140 0 101 95 264 548 7 1 251 1 73 91 289 Total 2 743 1 690 1 262 378 10 1 136 0 43 95 258 921 72 Holmen Annual Report 2022 Of the sales of by-products in the Group, SEK 178 million (182) relate to rejects from production, SEK 226 million (292) to wood shavings, bark and chips, as well as SEK 445 million (110) to external sales of energy. Holmen receives a certificate for the production of renewable energy at the British paperboard mill in Workington. Revenue for 2022 was higher than in 2021 due to increased electricity prices, and the fact that the revenue for 2021 was lower than usual because of the turbine breakdown at the mill in Workington, which led to lower renewable energy production than normal. Insurance compensation refers above all to the turbine breakdown in Workington. The Group has been allotted emission allowances that have been used partly within its own production. The surplus resulted in a recognised gain of SEK 284 million (140). NotesNote 4 Note 4. Employees, personnel costs and remuneration to senior management Wages, salaries and social security costs 2022 2021 2022 2 048 1 928 1 662 Wages, salaries and other remuneration 760 759 Social security costs 856 2021 1 415 615 Group Parent company The 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. The 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 under Share savings programme. It was approved separately by the AGM and is therefore not covevered 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 conditions for other employees In formulating its proposals for these remuneration guidelines, the Board has taken into account the salaries and employment conditions 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 (‘LTIP 2019’). Participation in the programme required the relevant employees to have personally invested in Holmen shares (known as ‘savings shares’). Participants in the programme were able to receive a half matching share for each savings share on the condition that the total return on Holmen’s shares was positive during the period 2019–2021. Participants could also receive performance shares based on the Group’s return on capital employed. The condition for matching shares was met and the performance condition was met by 72 per cent. The programme conditions include an allocation ceiling, however, in the event of the share price doubling during the programme’s term. As the share price more than doubled during the programme’s term, the allocation was reduced so that the participants received 69 per cent of the number of shares that they would have received without the ceiling. Overall, this means that the participants received 75 993 shares free of charge. The recognised cost of the programme totalled SEK 25 million during 2019–2022. The 2022 AGM approved a new targeted share savings programme for key individuals in the Group (‘LTIP 2022’). The aim of the programme is to strengthen common interests between employees and shareholders, as well as to foster a long-term commitment to Holmen. Participation in the programme required a personal investment in Holmen shares (known as ‘savings shares’). For each savings share invested in, a half share will be allocated after the end of the vesting period, provided that the total return on the company’s shares exceeds 10 per cent during the period 2022–2024. Performance shares will also be allocated depending on the level of the return on capital employed for the three Paperboard, Paper and Wood Products business areas. The maximum number of performance shares varies depending on the participant’s position and ranges between 3 and 6 shares per savings share. To be allocated shares, a participant must be a permanent employee of the Holmen Group and hold savings shares on the day of publication of Holmen’s interim report for the first quarter of 2025. 73 people are taking part in the programme and the maximum number of shares that may be allocated is calculated at 81 000. Costs of SEK 17 million have been recognised for 2022. 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 2022, fees to the Board amounted to SEK 3 510 000 (3 330 000). The Chairman of the Board received a fee of SEK 780 000 (740 000), and each of the other seven (seven) members received SEK 390 000 (370 000). Senior management Salary and other benefits for the CEO in 2022 amounted to SEK 10 753 215 (9 786 724), of which SEK 10 320 299 (9 360 000) relates to fixed salary and SEK 432 916 (426 724) relates to other benefits. In addition to salary and other benefits, in 2022 the CEO was allocated 14 547 shares under the LTIP 2019 share savings programme, worth SEK 7 643 430. No allocation was made under the share savings programme the previous year. The total pension cost for the CEO, calculated in accordance with IAS 19, amounted to SEK 6 140 673 (5 907 348). The recognised payroll cost for the LTIP 2019 and LTIP 2022 share savings programmes for the CEO amounted to SEK 1 288 276 (2 309 061). In 2022, 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, until May 2022, the head of international affairs, who report directly to the CEO, totalled SEK 30 309 270 (30 826 296), of which SEK 29 196 504 (29 635 750) relates to fixed salaries and SEK 1 112 766 (1 190 546) relates to other benefits. In addition to salaries and other benefits, in 2022 the other members of senior management were allocated 30 288 shares under the LTIP 2019 share savings programme, worth SEK 15 914 224. No allocation was made under the share savings programme the previous year. The total pension cost for this group, calculated in accordance with IAS 19, amounted to SEK 12 759 263 (12 027 090) in 2022. The recognised payroll cost for the LTIP 2019 and LTIP 2022 share savings programmes for this group amounted to SEK 2 313 342 (4 694 627). 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 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 32 million (32) at 31 December 2022 and for other members of senior management to SEK 27 million (32), calculated in accordance with IAS 19. The pension obligations are secured using plan assets managed by an independent pension fund. These agreements were entered into in accordance with the guidelines for remuneration to senior management that were applicable at the time. Holmen Annual Report 2022 73 NotesNote 4 Note 4. Employees, personnel costs and remuneration to senior management, cont. Board resolution regarding guidelines on remuneration for senior management The Board proposes that the 2023 AGM approve the guidelines below on remuneration for senior management (Chapter 8, §§ 51–53 of the Swedish Companies Act). The guidelines relate to the employment conditions of the Chief Executive Officer, the Executive Vice President and other members of senior management, i.e. the heads of business areas and heads of Group staff who report directly to the Chief Executive Officer. The guidelines replace the guidelines approved by the 2020 AGM and shall apply to remuneration agreed after the guidelines have been adopted by the 2023 AGM. The guidelines do not cover remuneration determined by the general meeting of shareholders. Other benefits may include such items as health insurance, and accommodation and car allowances. 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. Pension benefits should be based on defined contributions and should usually be equal to 30 per cent of the person’s 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. The 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. Consideration of salary and employment conditions for other employees In formulating its proposals for these remuneration guidelines, the Board has taken into account the salaries and employment conditions 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. 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 give Holmen the means to hire and retain qualified employees and ensure that the forms of remuneration and other conditions are uniform and consistent. Forms of remuneration Long-term share-based incentive schemes are introduced within the company from time to time. These are approved by the general meeting of shareholders and are therefore not covered by these guidelines. See holmen.com for more information about these schemes. Remuneration for senior management should be in line with market terms and competitive within the job market for senior managers, as well as reflecting senior management’s responsibilities, powers and performance. Remuneration may consist of a fixed salary, variable remuneration, other benefits and a pension. Variable remuneration should be aimed at encouraging and rewarding value- creating initiatives that support the company’s business strategy, sustainability and long-term interests. Variable remuneration should be calculated based on the achievement of measurable targets and not exceed 50 per cent of the person’s fixed annual salary. It should be possible to measure compliance with the criteria for the payment of variable remuneration annually, under normal circumstances. 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 Chief Executive Officer 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. Average no. of employees (FTE) Average no. of employees (FTE) Of which women Of which men Average no. of employees (FTE) Of which women Of which men 2022 2021 Parent company Sweden Group companies France Netherlands UK Sweden Germany USA Other countries Total Group companies Total Group 2 863 597 2 266 2 464 507 1 957 12 79 395 47 22 8 40 603 3 466 6 45 41 9 8 3 16 128 725 6 34 354 38 14 5 24 475 2 741 12 80 383 466 22 9 38 6 45 41 72 8 3 14 6 35 342 394 14 6 24 1 010 3 474 189 696 821 2 778 Proportion of women in Holmen’s Board of Directors and Group management Proportion of women, % Board (excl. deputy members) Senior management Total Group Parent company 2022 25 18 22 2021 25 17 21 2022 25 18 22 2021 25 17 21 74 Holmen Annual Report 2022 NotesNote 5. Auditors’ fee and remuneration The audit firm PricewaterhouseCoopers AB (PwC) was elected by the 2022 AGM as Holmen’s auditors for a period of one year. PwC performs the audit for Holmen AB as well as for the majority of Holmen’s subsidiaries. Remuneration to auditors 2022 2021 2022 2021 Group Parent company Audit assignments PwC Tax advice PwC Total Other auditors Total 8 0 9 1 9 8 1 9 1 9 6 0 6 - 6 5 1 6 - 6 ‘Audit assignments’ refers to the statutory examination of the annual accounts and accounting records, the administration by the Board and the CEO, and 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 2022 2021 2022 2021 - 0 - 1 11 12 - 0 - - 8 9 446 - 25 1 84 536 382 - - - 26 408 *SEK 11 million (8) relates to interest income calculated using the effective interest rate method from financial items valued at amortised cost. Financial costs Impairment losses on value of shares in Group companies 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 agreements Interest expense* Financial costs Net financial items Group Parent company 2022 2021 2022 2021 - -26 -12 9 -29 -5 -65 -99 -87 - 3 0 -5 -2 -5 -41 -48 -39 - -2 -2 -12 8 -7 - -82 -88 448 -35 0 -5 -40 - -49 -92 316 *SEK -7 million (-2) relates to the interest expense for derivatives valued at fair value through other comprehensive income. SEK -2 million (-1) relates to the interest expense for derivatives recognised at fair value through profit/loss for the year. The remaining interest expense is calculated using the effective interest rate method and relates to financial items valued at amortised cost. Notes 5–6 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 56–57. The income from financial instruments included in operating profit/loss is shown in the following table: Group Parent company Exchange gains/losses on trade receivables and trade payables Net gain/loss relating to derivatives 2022 2021 2022 2021 204 -97 199 -96 2 703 336 2 775 314 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 2022 amounted to SEK -341 million (120), with the remainder being recognised in other comprehensive income as hedge accounting is applied. The fair value of outstanding currency hedges at 31 December 2022 was SEK -499 million (103). Gains/losses on financial electricity hedges are recognised in the income statement when they expire; for 2022 they totalled SEK 3 043 million (215). The fair value of outstanding financial electricity hedges at 31 December 2022 was SEK 4 366 million (838). 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 7 million (-3) at 31 December 2022. In 2022 there was an impact of SEK 16 million (-23) on the cost of hedged items owing to results from hedging. Results from the hedging of foreign net assets amounted to SEK -28 million (-39) in 2022 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 72 million (180) on consolidated equity. The fair value of outstanding hedges of net assets at 31 December 2022 was SEK 14 million (-12) and relates to financial derivatives. The fair value of the derivatives used to manage the fixed interest periods amounted to SEK 78 million (13) at 31 December 2022, which was recognised in other comprehensive income as hedge accounting is applied. This value is expected to be recognised in the income statement in 2023 and later. Holmen Annual Report 2022 75 Notes Note 7 Note 7. Tax Taxes stated in income statement 2022 2021 2022 2021 Group Parent company Tax recognised totalled SEK -1 567 million (-688), corresponding to 21 per cent (19) of profit before tax. Current tax Deferred tax Total -1 138 -429 -1 567 -456 -232 -688 -921 -9 -930 -426 -25 -451 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 Tax attributable to previous periods Change to tax rate on deferred tax assets/liabilities Other Effective tax Group Parent company 2022 2021 2022 2021 SEKm 7 441 -1 533 7 21 -32 -2 8 - -35 -1 567 % SEKm 3 691 20.6 -0.1 -0.3 0.4 0.0 -0.1 - 0.5 21.0 -760 -2 65 -25 -2 4 -31 62 -688 % 20.6 0.0 -1.8 0.7 0.1 -0.1 0.8 -1.7 18.6 SEKm 4 948 -1 019 - 103 -8 -2 0 - -4 -930 % SEKm 2 541 20.6 - -2.1 0.2 0.0 0.0 - 0.1 18.8 -523 - 79 -4 -2 0 -2 1 -451 % 20.6 - -3.1 0.2 0.1 0.0 0.1 -0.1 17.7 Tax attributable to other comprehensive income Cash flow hedges Share in joint ventures’ other comprehensive income Translation difference from foreign operations Hedging of currency risk in foreign operations Revaluation of forest land Revaluation of defined benefit pension plans Before tax Tax 2022 Group After tax Before tax Tax 2021 After tax Before tax Tax 2022 Parent company After tax Before tax After tax Tax 2021 3 037 -618 2 419 504 -105 399 2 885 -594 2 291 505 -104 401 0 72 - - 0 72 3 180 - - 3 180 -28 4 373 6 -901 -22 3 472 -39 3 345 8 -689 -31 2 656 -6 2 -4 -12 6 -6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Other comprehensive income 7 449 -1 512 5 938 3 981 -780 3 201 2 885 -594 2 291 505 -104 401 Taxes as stated in balance sheet 2022 2021 2022 2021 Group Parent company Tax receivables Deferred tax assets Current tax receivables 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 2 589 592 3 70 72 6 153 4 553 1 143 850 6 016 3 648 1 171 606 - 579 579 - 601 3 0 - 39 39 - 601 2 - 789 196 790 196 2 -29 -4 Deferred tax liabilities 13 490 11 610 1 389 Current tax liabilities Total tax liabilities 118 80 - 13 608 11 690 1 389 76 Holmen Annual Report 2022 -12 787 - 787 NotesChange in the net amount of deferred tax assets and deferred tax liabilities Notes 7–8 Group Stated in the income statement Stated in other com- prehensive income Opening balance Translation differences and other Business combinations Closing balance Opening balance Parent company Stated in the income statement Stated in other com- prehensive income -6 016 -3 648 -1 171 -606 -196 29 -137 -4 -6 -244 - -38 - -901 - - -593 2 -11 608 -429 -1 491 - - -6 - - 0 -6 - - 39 - - 7 -6 153 -4 553 -1 143 -850 -789 0 46 -13 488 - -601 -2 - -196 11 -787 - 0 0 - - -9 -9 Group Stated in the income statement Stated in other com- prehensive income Opening balance Translation differences and other Reclassi- fication Closing balance Opening balance Parent company Stated in the income statement Stated in other com- prehensive income -5 901 -2 939 -1 063 -509 -92 -66 -125 -10 -51 -97 - 51 -10 570 -232 - -689 - - -105 6 -788 - - -13 - 1 -5 -17 10 -10 -44 - - 44 -6 016 -3 648 -1 171 -606 -196 29 - -596 -2 - -91 32 - -11 608 -657 - -5 0 - - -20 -25 Closing balance - -601 -2 - - - - - -593 - -789 3 -593 -1 389 Closing balance - -601 -2 - -196 11 - - - - -104 - -104 -787 2022 Biological assets Forest land Property, plant and equipment Tax allocation reserve Transactions subject to hedge accounting Other Deferred net tax liability 2021 Biological assets Forest land Property, plant and equipment Tax allocation reserve Transactions subject to hedge accounting Other Deferred net tax liability The Group’s deferred tax liability for forest assets (biological assets and forest land) amounts to SEK 10 706 million (9 664) and is calculated based on the difference between book value SEK 52 151 million (47 080) and taxable cost SEK 181 million (173). 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. Deferred tax assets from leases in accordance with IFRS 16 total SEK 1 million net, of which SEK 51 million of deferred tax assets and SEK -50 million of deferred tax liabilities. The amount recognised in other comprehensive income includes deferred tax mainly related to a change in the value of forest land of SEK -901 million (-689) and a hedge reserve of SEK -593 million (-105). The Swedish Tax Agency has rejected Holmen AB’s group relief claim relating to tax losses in Spanish subsidiaries that were liquidated. Holmen intends to appeal the decision. The deductions correspond to SEK 386 million in tax, but no tax receivable has been recognised. There are no other loss carry-forwards of significance in the Group. The share savings programme introduced by decision of the 2019 AGM expired in May 2022, which means that the participants have been allocated 75 993 matching and performance shares. The 2022 AGM decided on a new share savings programme. The new programme may lead to the allocation of 81 000 shares from Holmen’s own holding of shares. The effects on key ratios and profit per share are marginal. See Note 4 for more information about the share savings programme. Note 8. Earnings per share Group 2022 2021 Total number of shares outstanding, 1 January Share savings programme allocation Total number of shares outstanding, 31 December 161 925 685 75 993 161 925 685 - 162 001 678 161 925 685 Shareholders’ share of profit/ loss for the year, SEK Basic average number of shares 5 874 297 908 3 003 524 941 161 925 685 161 975 028 Basic EPS for the year, SEK 36.3 18.5 Shareholders’ share of profit/ loss for the year, SEK Diluted average number of shares 5 874 297 908 3 003 524 941 161 925 685 161 975 028 Diluted EPS for the year, SEK 36.3 18.5 Holmen Annual Report 2022 77 NotesNote 9 Note 9. Forest assets Holmen owns land totalling 1 305 000 hectares, of which 1 045 000 hectares are defined as productive forest land with an estimated volume of standing timber of 125 million cubic metres (m3) of growing stock, solid over bark. The holdings are distributed over three regions in Sweden. Volume of standing timber, millions m3 growing stock, solid over bark Productive forest land, ’000 ha North Central South Total 690 264 92 1 045 75 36 15 125 North Central 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 calculation is carried out through an appraisal of the valuations that are based partly on price statistics published by various market participants, and partly on detailed information regarding transactions with forest properties over the past three years. The price statistics refer to SEK per m3 growing stock, solid over bark, which is paid on average in the various counties in Sweden where Holmen has land. The calculation based on transactions with forest properties is carried out as a regression analysis based on transactions exceeding 20 hectares in the areas where Holmen has land. South The price statistics used in the valuation are public information that comes from market participants who are independent of Holmen. The transaction data that are used come from Lantmäteriet (the Swedish mapping, cadastral and land registration authority) and were processed by an external party. In the areas where Holmen has land about 300 transactions involving forest properties are carried out annually. Transactions between legal entities are not normally included in the calculations for price statistics or transaction data. Holmen has chosen to use three years of price statistics and transaction data in the valuation. If a different time period were used, the book value would be affected. Market data Number of transactions Average size of property (ha) 2022 2021 2020 2019 322 138 308 140 263 117 246 122 The book value of forest assets amounted to SEK 52 151 million (47 080) at 31 December 2022. 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. The following two graphs show Holmen’s recognised value of forest assets by region, stated in both SEK million and in SEK per hectare. Book value, SEKm Book value, SEK/hectare 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0 2019 Northern Sweden 2020 Central Sweden 2021 2022 Southern Sweden The recognised value of forest assets is primarily dependent on how large the volume of standing timber is estimated to amount to and the market price per m3 growing stock, solid over bark calculated based on price statistics and transaction data collected from external parties. The table below shows how the value is affected by changes in the size of the volume of standing timber and the market price, respectively. Price statistics and market data Northern Sweden SEK 10/m3 growing stock, solid over bark SEK 10/m3 growing stock, solid over bark Central Sweden Southern Sweden SEK 10/m3 growing stock, solid over bark Holmen’s volume of standing timber 1 million m3 growing stock, solid over bark SEKm 750 360 150 420 The size of Holmen’s volume of standing timber is calculated based on the most recent inventory, updated with the completed harvest and estimated growth after the time of inventory. In the most recent inventory, an external party carried out a random sample inventory with a standard error of 1.4 per cent. The inventory is normally carried out every ten years. The diagram below shows the volume of standing timber measured as m3 growing stock, solid over bark, per hectare in the inventories carried out since 1988 and the estimated volume of standing timber at 31 December 2022. Volume of standing timber m3 growing stock, solid over bark per hectare productive forest land, average for Holmen’s forest assets 160 120 80 40 0 1988 1993 2000 2010 2020 2022 The diagram below shows the price for forest properties measured in SEK per m3 growing stock, solid over bark, based on annual price statistics and transaction data for the regions in the country where Holmen owns land. Price of forest properties, SEK/m3 growing stock, solid over bark 60 000 40 000 20 000 0 2019 2020 2021 2022 1 000 750 500 250 0 2015 2016 2017 2018 2019 2020 2021 2022 Northern Sweden Central Sweden Southern Sweden Northern Sweden Central Sweden Southern Sweden 78 Holmen Annual Report 2022 Notes To verify Holmen’s own valuation of the forest assets, an external independent valuation of parts of the forest holdings is carried out every year, with the aim of having a reference valuation of the entire forest holdings over five years. Since Holmen began to recognise forest assets at fair value in 2019, the company Forum Fastighetsekonomi has carried out external valuations each year. At the end of 2022, forest properties corresponding to 90 per cent of the book value were valued by Forum Fastighetsekonomi. The external valuations exceed the internal valuations by 7 per cent. The value of the forest assets is allocated in the balance sheet to growing trees, SEK 29 867 million, recognised as a biological asset, and forest land, SEK 22 284 million. Biological assets The value 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 and costs are calculated based on long-term trend levels. The trend price that was used for 2022 was SEK 476 (466)/m3sub, which is lower than current prices. The costs are based on the current level adjusted for temporary effects. 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 harvest have not been included. 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 2022 totalled SEK 509 million (464). Wood prices, SEK/m3sub 600 500 400 300 200 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Real Nominal Note 9 Planned harvest, ’000 m3sub/year 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2003- 2007 2008- 2012 2013- 2017 2018- 2022 2023- 2027* 2028- 2032* 2033- 2037* 2038- 2042* Harvest Thinning Storms & other events *Forecast The table below shows how the value of biological assets would be affected by changes in the most significant valuation assumptions. Annual change +0.1% per year Harvest rate Price inflation Cost inflation Change in level Harvesting Prices Costs +1 % Discount rate +0.1% SEKm 1 080 1 620 -670 350 520 -230 -840 Annual change refers to the annual rate of change used in the valuation of each parameter. For example, an increase of 0.1 per cent means that the annual price inflation will be increased from 2.0 per cent to 2.1 per cent in the calculations. Change in level means that the level for each parameter and year changes. For example, a 1 per cent price increase means that the wood prices in the calculations are raised by 1 per cent for all years (change of level). Note that the discounted cash flow model for biological assets only affects the dividing of the forest assets’ value between biological assets and forest land. The changed assumption would not affect the value of the forest assets, but only transfer the value between biological assets and forest land. Forest land The book value of the forest land is calculated as the difference between the total value of the forest assets and the 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 fair value for forest land is recognised in other comprehensive income and totalled SEK 4 373 million (3 345) in 2022. No value is assigned to land that is not productive forest land. Group Book value at beginning of year Acquisitions Disposal Investment in reforestation Change due to harvesting Unrealised change in fair value Other changes Book value at end of year Of which Forest assets Biological assets Forest land 2022 47 080 71 -9 127 -836 5 718 0 52 151 2021 43 202 42 -120 142 -695 4 503 7 47 080 2022 29 204 33 -6 127 -836 1 345 0 29 867 2021 28 663 24 -93 142 -695 1 158 5 29 204 2022 17 876 38 -3 - - 4 373 0 22 284 2021 14 538 18 -27 - - 3 345 2 17 876 The acquisition cost of forest land amounted to SEK 338 million at 31 December 2022. Holmen Annual Report 2022 79 Notes Notes 10–11 Note 10. Non-current intangible assets Group Other intangible assets Total Parent company Non-current intangible assets Goodwill 2022 2021 2022 2021 2022 2021 2022 2021 Accumulated acquisition costs Opening balance Business combinations Investments Disposal and retirement of assets Translation differences Total Accumulated amortisation, depreciation and impairment losses Opening balance Business combinations Depreciation and amortisation for the year Disposal and retirement of assets Impairment losses Translation differences Total 358 - - - - 358 - - - - - - - 355 4 - - - 358 - - - - - - - Residual value according to plan at end of year 358 358 384 4 6 -1 0 392 203 1 32 -1 87 0 323 69 370 - 13 - 1 384 170 - 32 0 - 1 203 181 742 4 6 -1 0 750 203 1 32 -1 87 0 323 427 725 4 13 - 1 742 170 - 32 0 - 1 203 539 68 - - -1 - 67 55 - 4 -1 - - 58 9 68 - - - - 68 50 - 5 - - - 55 13 The goodwill recognised is attributable to the Wood Products business area, and relates to the acquisition of Martinsons in 2020. The goodwill refers to the value of integrating Holmen’s own forest with its own industrial plants. 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 future cash flows are based on current levels of selling prices, costs and volumes for the coming year. When calculating cash flows for subsequent periods, prices and costs are used based on historical data. 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 right-of-use relating to certain energy assets amounting to SEK 60 million (57) and IT systems amounting to SEK 2 million (5). The book value of the wood supply business included in the 2020 acquisition of Martinsons totals SEK 0 million (110) after impairment losses. The assets are mainly externally acquired and all the 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 2022 2021 2022 2021 2022 2021 2022 2021 6 512 109 65 158 -18 19 6 845 4 059 43 134 -15 13 4 234 2 612 6 441 - 54 37 -72 52 6 512 3 971 - 122 -70 36 4 059 2 454 31 352 588 829 157 -223 136 32 839 29 739 - 657 1 061 -492 387 31 352 363 - 332 -316 - 1 381 676 - 782 -1 098 - 3 363 24 456 257 23 660 - 1 088 -198 103 995 -487 288 25 706 24 456 - - - - - - - - - - - - 7 132 6 895 381 363 38 227 697 1 226 - -241 156 40 065 28 515 300 1 222 -213 116 29 940 10 124 36 858 - 1 493 - -564 442 38 227 27 632 - 1 117 -557 324 28 515 9 711 Group Accumulated acquisition costs Opening balance Business combinations Investments Reclassifications Disposal and retirement of assets Translation differences Total Accumulated amortisation, depreciation and impairment losses Opening balance Business combinations Depreciation and amortisation according to plan for the year 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. 80    Holmen Annual Report 2022 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 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 499 - - - 499 - - - - 478 21 - - 499 - - - - 203 7 6 - 215 190 5 8 - 203 143 139 5 0 4 - 148 143 2 388 - 2 388 2 388 - 2 388 1 - 1 1 - 1 306 58 - -32 332 194 48 -32 210 - - - 303 45 - -42 306 193 43 -42 194 - - - 2 887 2 887 68 60 124 113 15 1 -6 - 9 - - - - - - - 9 10 13 -8 - 15 - - - - - - - 1 024 66 - -32 1 055 982 84 - -42 1 024 336 53 -32 357 333 44 -42 336 2 388 - 2 388 2 388 - 2 388 15 3 088 3 075 For forest assets in the Group see Note 9. In 2022, capitalised borrowing costs totalled SEK 0 million (6). An interest rate of 1.2 per cent (1.2) was used to determine the amount. Note 12. Right-of-use assets (leases) Group Accumulated acquisition costs Opening balance Additional agreements Completed leases Total Accumulated depreciation and amortisation Opening balance Depreciation and amortisation for the year Completed leases Total Value at end of year Buildings Machinery and equipment Total 2022 2021 2022 2021 2022 2021 261 19 -23 257 77 42 -23 96 161 235 57 -32 261 63 46 -32 77 184 191 73 -93 172 135 48 -93 91 81 188 11 -8 191 78 66 -8 135 56 452 92 -116 429 212 91 -116 187 242 424 68 -40 452 141 111 -40 212 240 Buildings The Group’s rental of buildings refers to 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 leases usually have a term of between 2 and 5 years. Amounts recognised in profit/loss 2022 2021 Depreciation and amortisation Interest expense Costs related to current lease liabilities Costs related to low-value leases Costs related to variable lease payments 91 5 2 2 0 100 111 5 4 3 0 122 In 2022, the Group’s payments attributable to leases amounted to SEK 100 million (122). 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 or 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 2022 81 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 2022 10 0 10 2021 0 3 3 Associates and joint ventures Associates Joint ventures Total Group Parent company Group Parent company Group Parent company Book value at beginning of year Investments Share of earnings Reclassification between joint ventures and subsidiaries Translation difference Disposals Other 2022 1 675 0 6 2021 1 642 33 0 - 0 -2 - - - - - 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 92 2 - - - - - 87 5 - - - - - 81 - 3 -84 - - - - 75 3 3 - 0 - 0 81 67 - - -67 - - - - 64 3 - 1 756 0 10 1 717 36 3 - - - - -84 0 -2 - - 0 - 0 67 1 680 1 756 159 2 - -67 - - - 93 151 8 - - - - - 159 Book value at end of year 1 680 1 675 93 92 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 2 050 2 014 49.4 6.8 13.9 9.9 41.0 40.3 556914-9833 Stockholm - - 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** Book value in the parent company Holding %* Value of holding in consolidated accounts** Book value in the parent company 2022 1 522 90 36 0 20 10 1 1 680 - 1 680 49.4 6.8 13.9 9.9 46.0 40.3 50.0 - 90 - 0 3 1 - 93 - 93 2021 1 518 90 36 0 20 10 1 1 675 81 1 756 - 90 - 0 2 - 0 92 67 159 *The percentage of ownership corresponds to the percentage of votes for the total number of shares. **The proportion of equity is recognised in the Renewable Energy and Wood Products business areas, at SEK 1 649 million (1 725) and SEK 31 million (31) respectively. *** In February 2022, Holmen acquired the remaining 50 per cent of shares in Varsvik AB. Varsvik AB has since been included in the Holmen Group’s subsidiaries. See Note 26 for further information. Group Parent company Other shares and participations 2022 2021 2022 2021 Book value at beginning of year Investments Disposals Translation difference Book value at end of year 2 - - 0 2 2 0 0 0 2 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 associates only earn 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 1 522 million (1 518). Holmen purchased 553 GWh (515) of electrical power from Harrsele AB in 2022, giving Holmen an operating profit of SEK 437 million (180) 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 169 million (155). The company’s shareholders made a shareholders contribution during the year of SEK 0 million (52). 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. 82 Holmen Annual Report 2022 Notes Note 14 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 2023 2024 2025 2026 2027- -7 - -821 -3 848 -276 - - -49 - - -34 - - - - -79 -52 -1 103 -1 065 -42 -943 -31 -531 -51 -510 35 26 21 3 631 2 929 950 - 337 - 1 941 2 2 13 14 - 2 - - - 12 * Liabilities relating to right-of-use assets are not classified as a financial instrument under IFRS 9. Parent company Maturity structure, undiscounted amounts Financial liabilities Derivatives Derivatives attributable to working capital Trade payables Other financial liabilities Financial receivables Derivatives Derivatives attributable to working capital Trade receivables Other financial receivables 2023 2024 2025 2026 2027- -12 -5 -3 -2 -2 -712 -3 617 -1 102 -216 - -1 499 -49 - -943 -34 - -531 - - -508 35 26 21 3 630 2 454 950 - 373 - 1 825 3 601 44 13 48 - 43 - - - 144 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 pension obligations (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 56–57. SEK 1 039 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 3 833 million (946). Assets and liabilities are not offset in the report. Recognised derivatives totalled SEK 5 020 million (1 097) on the asset side and SEK 1 187 million (151) on the liability side. The ongoing Interest Rate Benchmark 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 Interest Rate Benchmark 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 56–57 and Note 6. Holmen Annual Report 2022 83 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 Cash and cash equivalents 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) Recognised at fair value through profit/loss* Hedging instruments Recognised at amortised cost Total book value Fair value 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 - - - - 2 - 2 - - - - - - - -3 - - -3 2 - - - - - 6 - 6 - - - - - - - -11 - - -11 2 - 78 - 78 - 7 - 7 - - - - - - - -5 - - -5 - - 19 - 19 - - - - - - - -6 - -6 - -12 - - -12 - 19 19 2 - 7 9 1 935 1 935 -2 900 - -2 -2 902 - - -18 -1 013 -1 031 - 248 248 0 - 33 33 78 19 97 2 9 7 18 19 248 268 0 6 33 39 78 19 97 2 9 7 18 507 507 1 935 1 935 507 507 1 935 1 935 -3 900 - -5 -3 905 -200 - -10 -503 -713 -2 900 - -2 -2 902 - -7 -18 -1 013 -1 039 -3 900 -6 -5 -3 911 -200 -23 -10 -503 -736 -2 900 - -2 -2 902 - -7 -18 -1 013 -1 039 19 248 268 0 6 33 39 507 507 -3 900 -6 -5 -3 911 -200 -23 -10 -503 -736 - - - 2 929 - 2 393 2 2 929 2 2 393 2 2 929 2 2 393 200 34 4 732 1 037 - - 4 933 1 072 4 933 1 072 - -321 -119 - -22 14 - - -3 848 -2 836 -3 848 -2 836 -3 848 -2 836 -859 3 873 -99 938 - - -1 180 -919 -443 2 836 -122 508 -1 180 2 836 -122 508 Total financial instruments -120 -9 3 954 939 -2 890 -4 273 944 -3 325 944 -3 325 *Refers to instruments compulsorily valued at fair value in accordance with IFRS 9. 84 Holmen Annual Report 2022 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 Cash and cash equivalents Non-current liabilities Bonds Liabilities to Group companies Derivatives 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 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 - - - - - 9 - 9 - - - -14 - -14 - -7 - - -7 0 - - - - - - 6 - 6 - - - - - - - -23 - - -23 0 - 78 - - 78 - - - - - - - - - - - - - - - - - 19 - - 19 - - - - - - - - -6 -6 - - - - - - - - 3 553 17 3 570 2 - 6 8 1 774 1 774 -2 900 -420 - -3 320 - - -18 -1 013 -1 031 - 3 910 246 4 157 0 - 33 33 78 3 553 17 3 648 2 9 6 18 19 3 910 246 4 176 0 6 33 39 78 3 553 17 3 648 2 9 6 18 445 445 1 774 1 774 445 445 1 774 1 774 -3 900 -607 - -4 507 -200 - -10 -503 -713 -2 900 -434 - -3 334 - -7 -18 -1 013 -1 039 -3 900 -607 -6 -4 513 -200 -23 -10 -503 -736 -2 900 -434 - -3 334 - -7 -18 -1 013 -1 039 19 3 910 246 4 176 0 6 33 39 445 445 -3 900 -607 -6 -4 513 -200 -23 -10 -503 -736 - 2 454 - 2 068 0 2 454 0 2 068 0 2 454 0 2 068 323 34 4 685 1 037 - - 5 007 1 072 5 007 1 072 - -82 241 229 - -24 10 - - -3 617 -2 540 -3 617 -2 540 -3 617 -2 540 -929 3 756 -101 936 - - -1 010 -1 163 -472 2 835 -125 475 -1 010 2 835 -125 475 -6 3 835 950 -162 -1 057 3 901 -114 3 901 -114 *Refers to instruments compulsorily valued at fair value in accordance with IFRS 9. Holmen Annual Report 2022 85 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 2022 810 356 1 234 2021 2022 2021 664 355 975 810 335 877 664 307 674 2 322 1 778 1 870 1 218 116 45 73 22 4 838 3 818 3 965 2 886 During the year impairment losses and reversal of previous impairment losses for finished stock had an effect of SEK -65 million (7) on Group profit, while impairment losses on other stock had an effect of SEK -7 million (-5). Impairment losses and reversal of previous impairment losses for finished stock had an effect of SEK -35 million (7) on the parent company, with impairment losses on other stock of SEK -5 million (-3). 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 2022 2021 2022 2021 - 69 2 860 2 929 907 4 933 563 6 402 - 50 2 343 2 393 425 1 072 179 1 676 12 69 2 373 2 454 797 5 007 347 6 152 108 50 1 910 2 068 320 1 072 157 1 548 Total operating receivables 9 332 4 069 8 606 3 616 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 0 million (20). The provision for expected credit losses was SEK 28 million (28). During the year, the provision decreased by SEK -3 million (-26) as a result of actual credit losses, and increased by SEK 3 million (8) as a result of changes in the provision for anticipated or expected credit losses. At 31 December 2022, SEK 29 million (19) 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. 31 Dec 2022 Registered share capital Class A Class B Total no. of shares Holding of repurchased class B shares Total number of shares outstanding Number 45 246 468 117 265 856 162 512 324 -510 646 162 001 678 Quotient value 26 26 SEKm 1 180 3 058 4 238 31 Dec 2021 Registered share capital Class A Class B Total no. of shares Holding of repurchased class B shares Total number of shares outstanding Number 45 246 468 117 265 856 162 512 324 -586 639 161 925 685 Quotient value 26 26 SEKm 1 180 3 058 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. At 31 December 2022, the Group’s own shareholding was 510 646 shares (586 639). During the year, 75 993 shares were transferred to participants in the share savings programme. Assets and liabilities measured at fair value according to Chapter 4 Section 14a of the Swedish Annual Accounts Act had an impact of SEK 4 064 million (944) on parent company equity. In the consolidated accounts, valuation of derivatives and other financial instruments had an impact of SEK 3 834 million (930) 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 11 532 865 159. The Board proposes that the AGM, to be held on 28 March 2023, approve a dividend of SEK 16.00 per share. The proposed dividend totals SEK 2 592 million. The Board also proposes that the remaining amount of SEK 8 940 838 311 be carried forward. The preceding year, the dividend paid was a total of SEK 11.50 per share (SEK 1 862 million). Net financial debt as a percentage of equity was 4 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 53–57. 86 Holmen Annual Report 2022 Notes Note 18 Note 18. Pension obligations 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. The change in the defined benefit obligations and the change in plan assets are specified in the table on the left. 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. In 2022, the trusts entered into an agreement with a life insurance company that, in exchange for a one-time payment made in December 2022, will compensate the trusts for all their future pension payments, and thereby bear the risk of future changes in pension payments as a result of changes in inflation, mortality rates, and so on. In both trusts, the assets exceed the commitment, but no surplus may be included in the accounts. This adjustment is referred to as an asset ceiling in tables. Group Parent company The weighted average duration is 11 years. Cost recognised in profit/loss for the year Defined benefit plans Personnel costs* Financial income and costs Indexation change** Total defined benefit plans stated in profit/loss for the year Defined contribution plans Personnel costs 2022 2021 2022 2021 -6 10 - 4 -9 2 65 59 -26 0 - -26 21 0 - 21 -184 -173 -148 -135 Total recognised in profit/loss for the year *SEK -20 million (27) is included in the parent company relating to an item that is recognised in the Group as an actuarial revaluation in other comprehensive income. -115 -114 -180 -174 **Change in the index-based price of defined benefit plans in the UK. Cost recognised in other comprehensive income Return on plan assets excl. recognised interest income Actuarial gains and losses from changes in demographic assumptions Actuarial gains and losses from changes in financial assumptions Actuarial gains and losses from experiential adjustments Payroll tax Effect of asset ceiling Total recognised in other comprehensive income Group 2022 2021 -827 210 29 4 593 142 -48 1 247 -6 5 6 -380 -12 Group Parent company Obligations Obligations at 1 January Current service cost Payroll tax Interest expense Actuarial gains/losses Benefits paid Indexation change Exchange differences Obligations at 31 December Plan assets Fair value of assets at 1 January Recognised interest income Expected return excl. recognised interest income Real return (parent company) Administrative expenses Receipts and outgoings from employer Benefits paid Exchange differences Fair value of assets at 31 December Effect of asset ceiling Pension obligations, net 2022 2021 -2 070 -2 161 -9 0 -28 151 92 65 -179 -1 471 -2 070 -6 6 -39 574 116 - -52 2 568 49 2 231 30 -827 - -3 17 -116 65 210 - -2 -12 -92 202 1 753 2 568 -289 -7 -522 -24 2022 -175 -10 - -2 - 13 - - -175 174 - - -13 - - - - 161 - -13 2021 -182 -3 - -2 - 12 - - -175 178 - - 25 - -29 - - 174 - 0 Of the Group’s total obligations, SEK 10 million (10) refers to those that are not funded, while the rest are wholly or partially funded obligations. Of the parent company’s obligations, SEK 13 million (0) are secured under the Swedish Pension Obligations Vesting Act. Plan assets by type are as shown below: Plan assets Equities Bonds and bank account balances Life insurance company receivables Group 2022 71 405 1 277 1 753 2021 1 052 1 516 - 2 568 Parent company 2021 93 82 2022 71 90 - 161 - 174 The plan assets do not include any financial instruments issued by Group companies or assets used by the Group. All instruments are traded on an active market. In 2022, most of the UK trusts’ holdings of shares and bonds were sold to finance the above agreement with the life insurance company. Of the shares, 100 per cent are Swedish shares, and of the bonds, 61 per cent are government bonds and 39 per cent corporate bonds. Key actuarial assumptions, Group (weighted average) Discount rate, % Rate of salary increase, % Rate of price inflation, % Life expectancy after 65 for men/ women, years Life expectancy table Key actuarial assumptions, Group Discount rate Rate of salary increase Rate of price inflation Life expectancy after 65 for men/ women, years Life expectancy table UK 31 Dec 2022 31 Dec 2021 2.0 - 2.9 4.9 - 2.8 21/24 SAPS S3PA 21/24 SAPS S3PA Sweden 31 Dec 2022 31 Dec 2021 1.2 3.0 2.0 3.7 3.0 2.0 22/24 DUS21 22/24 DUS14 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 0.2 per cent (-0.1) and salary levels at the balance sheet date were used for calculating the amount of the parent company’s pension obligation. The table below shows how the obligation would be affected in the event of a change in key actuarial assumptions (- reduces debt, + increases debt). Sensitivity analysis Discount rate (+0.5%) Rate of salary increase (+0.5%) Rate of price inflation (+0.5%) Mortality (+ 1 year in life expectancy) Group 31 Dec 2022 31 Dec 2021 -133 2 98 110 -71 1 55 62 The Group’s payments into the funded defined benefit plans in 2023 are expected to amount to SEK 0 million. Holmen Annual Report 2022 87 NotesNotes 18–21 Note 18. Pension obligations, cont. Note 20. Operating liabilities Multi-employer plans The year’s premiums for pension insurance policies taken out with Alecta’s ITP 2 plan amounted to SEK 32 million (36) and are included among personnel costs in the income statement. Holmen’s active members in the plan amounted to 640 people, which corresponds to 0.16 per cent of the plan’s active members. 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 2022, Alecta’s collective consolidation level was 172 (172) per cent and Alecta decided to introduce a premium reduction for 2023. Expected premiums to Alecta in 2023 amount to SEK 23 million, taking the premium reduction into account. Note 19. Provisions Group 2022 2021 Book value at beginning of year Business combinations 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 Parent company Book value at beginning 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 409 6 66 -31 -9 - 0 441 441 599 130 -118 -2 609 454 155 654 - 6 -169 -50 -32 0 409 409 744 120 -261 -5 599 467 132 Provisions mainly relate to obligations to restore the environment at discontinued factory sites. SEK 140 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. Trade payables Group companies Other Total trade payables Current liabilities Associates Other Derivatives Accruals and deferred income Total other operating liabilities Group Parent company 2022 2021 2022 2021 - 3 848 3 848 3 359 1 180 853 2 395 - 2 836 2 836 2 257 122 878 1 259 2 3 615 3 617 3 289 1 010 674 1 976 70 2 470 2 540 2 192 125 587 906 Total operating liabilities 6 243 4 095 5 593 3 446 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 248 million (231), discounts of SEK 92 million (84) and goods and services delivered but not yet invoiced of SEK 78 million (68). The fair values of derivatives relate to hedges of future cash flows. See Note 14. Note 21. Collateral and contingent liabilities Contingent liabilities Guarantees on behalf of Group companies Other contingent liabilities Total Group Parent company 2022 2021 2022 2021 - 51 51 - 64 64 69 51 60 62 120 122 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. Under Swedish law, Holmen has strictly unlimited liability for damages towards third parties caused by dam failures. Holmen has liability insurance for such damages. 88 Holmen Annual Report 2022 NotesNote 22 Note 22. Related parties Of the parent company’s net sales of SEK 21 995 million (18 186), SEK 438 million (964) relates to deliveries of goods to Group companies. The parent company’s purchases of goods from Group companies amounted to SEK 95 million (1 722). Parent company net sales also include income from the sale of silviculture services to subsidiaries for an amount of SEK 475 million (459). SEK 2 469 million (2 183) 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 58–59). Holmen rents office premises for SEK 7 million (8) from Fastighets AB L E Lundberg, which is a group company within L E Lundbergföretagen AB. In 2022, Fredrik Lundberg, who is CEO and principal shareholder in L E Lundbergföretagen, received a fee of SEK 780 000 (740 000) 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 390 000 (370 000). In February 2022, Holmen acquired the remaining 50 per cent of the shares in wind power company Varsvik AB and the company is since recognised as a subsidiary of Holmen AB. 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 2022 541 0 438 541 0 2021 265 1 964 265 1 2022 2021 2022 2021 2022 2021 2022 64 - 95 64 - 54 - 1 722 54 - 0 1 510 0 1 0 10 399 0 10 3 - 439 3 - 2 2 680 2 - 81 - 3 646 81 - 2021 60 254 4 018 60 254 See Note 4 for fees and remuneration paid to members of the Board. Holmen Annual Report 2022 89 NotesNote 23 Note 23. Investments in Group companies Accumulated acquisition costs Opening balance Shareholder contributions and investments Reclassification from joint ventures to subsidiaries Disposals Liquidations Total Accumulated impairment losses Opening balance Impairment losses for the year Liquidations Total Parent company 2022 12 831 156 2021 13 112 31 67 0 0 - - -312 13 054 12 831 1 357 - - 1 357 1 666 2 -312 1 357 Book value at end of year 11 697 11 474 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’. Corporate ID No. Registered office Number of holdings Book value in the parent Holding %* company Holding %* Book value in the parent company Parent company’s direct holdings of investments in subsidiaries Holmen Skog AB Holmen Wood Products AB Holmen Paper AB Holmen Iggesund Paperboard AB Holmen Energi AB Holmen Skog Mitt AB Holmen Skog Syd AB Holmen Sågverk AB Martinsons Såg AB Holmens Bruk AB Iggesunds Bruk AB Holmen Vattenkraft AB Ljusnan Vattenkraft AB Blåbergsliden Vind AB Martinsons Skogsfastigheter AB Terminalen i Bastuträsk AB Varsvik AB Other Swedish Group companies Total Swedish holdings 556220-0658 556099-0672 556005-6383 556088-5294 556524-8456 559165-6623 559165-6631 559165-6672 556218-2856 559165-6615 559165-6656 559165-6664 559165-6680 559138-5181 556738-2154 556591-5898 556914-9833 Holmen UK Ltd, UK Holmen Paper Ltd*** Holmen Iggesund Paperboard (Workington) Ltd*** Holmen France S.A.S., France Holmen GmbH, Germany Holmen Paper S.A., Spain Iggesund Paperboard Asia Pte Ltd, Singapore Iggesund Paperboard Inc, US Iggesund Paperboard Asia (HK) Ltd, China Holmen B.V., Netherlands AS Holmen Mets, Estonia Other non-Swedish Group companies Total non-Swedish holdings Total Örnsköldsvik Hudiksvall Norrköping Hudiksvall Örnsköldsvik Stockholm Stockholm Stockholm Skellefteå Stockholm Stockholm Stockholm Stockholm Stockholm Stockholm Stockholm Stockholm Workington London Workington Paris Hamburg Madrid Singapore Lyndhurst Hong Kong Amsterdam Tallinn 1 000 1 000 100 1 000 1 000 1 000 1 000 1 000 50 000 1 000 1 000 1 000 1 000 500 1 000 1 000 500 1 197 100 - - 10 000 - 60 000 800 000 1 000 4 000 000 35 500 *The percentage of ownership corresponds to the percentage of votes for the total number of shares. **The percentage of ownership of Varsvik AB was 50 per cent in 2021 and is recognised as a joint venture. ***Indirect holdings. 90    Holmen Annual Report 2022 2022 2021 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 2 856 1 527 422 831 383 740 2 663 276 200 70 18 163 2 10 152 1519 - - 0 1 1 4 7 5 7 0 2 1 545 11 697 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - ** 100 100 100 100 100 100 100 100 100 100 100 0 0 0 0 0 2 856 1 527 422 858 383 740 2 663 276 200 - - 2 9 929 1 519 - - 0 1 1 4 7 5 7 0 2 1 545 11 474 NotesNote 24. Untaxed reserves Parent company Parent company Untaxed reserves Accumulated depreciation and amortisation in excess of plan Non-current intangible assets Property, plant and equipment 31 Dec 2021 Appropriations 31 Dec 2022 -9 20 12 8 -7 2 0 14 13 Untaxed reserves Tax allocation reserves 2016 fiscal year 2017 fiscal year 2019 fiscal year 2020 fiscal year 2021 fiscal year 2022 fiscal year Group contributions received amounted to SEK 1 013 million (1 495) and Group contributions paid amounted to SEK -322 million (-230). Total appropriations of profit amounted to SEK 511 million (768). Total Notes 24–25 31 Dec 2021 Appropriations 31 Dec 2022 290 470 700 700 680 - 2 840 2 852 -290 1 490 1 200 1 202 - 470 700 700 680 1 490 4 040 4 053 Note 25. Cash flow statement Interest paid and dividends received Dividends received Interest received Interest paid Total Group Parent company 2022 2021 2022 2021 - 9 -48 -39 1 8 -39 -30 446 81 -59 467 382 26 -36 371 The change in current liabilities mostly relates to borrowing within the Group’s commercial paper programme. In 2022, a number of different short-term loans totalling SEK 800 million (2 300) were raised within the Group’s commercial paper programme, and SEK 1 000 million (2 600) 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 obligations Financial liabilities* 2020 3 900 500 126 287 48 4 860 New leases - - - 67 - 67 Cash flow 500 -300 -89 -115 -8 -12 Currency and market revaluation - - 11 5 -16 2021 4 400 200 47 244 24 0 4 915 Business combinations New leases - - 3 - - 3 - - - 93 - 93 Currency and market revaluation 2022 - 3 900 - - 41 28 5 7 247 7 40 4 195 Cash flow -500 -200 -37 -95 -24 -856 *Including liabilities relating to right-of-use assets and pension obligations. Parent company Bonds Commercial paper Liabilities to Group companies Other financial liabilities Pension obligations Financial liabilities* *Including pension obligations. Cash flow 500 -300 428 - -5 623 Currency and market revaluation - - 10 14 2 26 2021 4 400 200 607 42 0 5 250 Cash flow -500 -200 -171 -26 13 -884 Currency and market revaluation - - -2 22 - 20 2022 3 900 - 434 39 13 4 386 2020 3 900 500 169 28 4 4 601 Holmen Annual Report 2022 91 NotesNotes 26–27 Note 26. Business combinations In February 2022, Holmen acquired the remaining 50 per cent of the shares in the partly owned company Varsvik AB. The 17 wind turbines in Varsvik provide 51 MW and production totals 150 GWh in a normal year. The final purchase price, restated to 100 per cent of the shares, was SEK 190 million. The table below shows the assets and liabilities of the acquired company. No goodwill has been recognised in connection with the acquisition. The previously owned proportion of equity has been revalued at a fair value of SEK 10 million and recognised as other operating income in the income statement. Acquired net assets Property, plant and equipment Deferred tax, net Working capital Net financial debt Identifiable assets, net SEKm 373 50 -61 -172 190 Note 27. Critical accounting estimates and judgements When preparing financial statements the company’s management is required to make estimates and judgements that have an effect on the stated amounts. The estimates and judgements that, in the view of the company’s management, are of importance for the amounts stated in the annual accounts, and that are at significant risk of being altered by future events and new information, mainly include the following: Forest assets The book value of the Group’s forest assets at 31 December 2022 was SEK 52 151 million (47 080), divided between SEK 29 867 million (29 204) for biological assets and SEK 22 284 million (17 876) for forest land. A deferred tax liability of SEK 10 707 million (9 664) 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 goodwill and non-current assets Goodwill is tested for impairment annually, and non-current assets are tested when there is an indication that an impairment loss needs to be recognised. 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 1 471 million (2 070) and SEK 1 753 million (2 568) 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 assumptions are usually updated annually, which affects the Group’s comprehensive income and the recognised pension provision. See Note 18. 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. Taxes The Swedish Tax Agency has rejected Holmen AB’s group relief claim relating to tax losses in Spanish subsidiaries that were liquidated. Holmen intends to appeal the decision. The deductions correspond to SEK 386 million in tax, but no tax receivable has been recognised. 92 Holmen Annual Report 2022 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 2023 financial year Retained earnings The Board proposes that the following be allocated to the shareholders an ordinary dividend of SEK 8.00 per share (162 001 678 shares), an extra dividend of SEK 8.00 per share (162 001 678 shares) and that the remaining amount be carried forward SEK 4 018 886 579 7 513 978 580 11 532 865 159 1 296 013 424 1 296 013 424 2 592 026 848 8 940 838 311 The Board of Holmen AB has proposed that the 2023 AGM resolve in favour of paying an ordinary dividend of SEK 8.00 per share, and an extra dividend of SEK 8.00 per share, for a total of SEK 2 592 million. In 2022, an ordinary dividend of SEK 7.50 per share and an extra dividend of SEK 4.00 per share were paid. 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 44.1 per cent of net profit for 2022 for the Group and means that 4.6 per cent of equity in the Group at 31 December 2022 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 2022 it amounted to 4 per cent. The proposed dividend would increase net debt to equity by 5 percentage points. Holmen AB’s equity at 31 December 2022 amounted to SEK 17 448 million, of which non-restricted equity was SEK 11 533 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 4 064 million on equity. The Group’s equity at 31 December 2022 amounted to SEK 56 950 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 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 consolidated 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 accounts and the 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. Proposed appropriation of profits Holmen Annual Report 2022 93 Signatures The annual accounts and the consolidated accounts were approved for publication by the Board in its decision of 20 February 2023. 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 28 March 2023. Stockholm, 20 February 2023 Fredrik Lundberg Chairman Carl Bennet Board member Lars Josefsson Board member Alice Kempe Board member Louise Lindh Board member Ulf Lundahl Board member Fredrik Persson Board member Henriette Zeuchner Board member Henrik Sjölund Board member and Chief Executive Officer Steewe Björklundh Board member, employee representative Christer Johansson Board member, employee representative Tommy Åsenbrygg Board member, employee representative Our audit report was submitted on 22 February 2023. PricewaterhouseCoopers AB Magnus Svensson Henryson Authorised Public Accountant Principal Auditor Linda Corneliusson Authorised Public Accountant 94 Holmen Annual Report 2022 Signatures Auditor’s report To the general meeting of 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 2022, except for the corporate governance statement and the statutory sus- tainability report on pages 48-52 and 6-9, 44-47, 50-52, 54-55, 104-107 and 110, respectively. The annual accounts and consolidated accounts of the company are i ncluded on pages 2, 6-9, 14-15, 44-94, 98-99, 104-107 and 110 of this document. In our opinion, the annual accounts have been prepared in accordance with the An- nual Accounts Act, and present fairly, in all material respects, the financial position of the parent company as of 31 December 2022 and its financial performance and cash flow for the year then ended in accordance 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 2022 and its financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the cor- porate governance statement and the sustainability report on pages 48-52 and 6-9, 44-47, 50-52, 54-55, 104-107 and 110, respectively. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the general meeting of shareholders adopts the in- come statement and balance sheet for the parent company and the Group. Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the Board of the parent company and the Group in accordance with the Audit Regula- tion (537/2014) Article 11. Basis of opinion We have conducted our audit in accordance with the International Standards on Au- diting (ISA) and generally accepted auditing standards in Sweden. Our responsibili- ties under these standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the Group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes, based on the best of our knowledge and belief, that no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its controlled companies with- in the EU. We believe that the audit evidence we have obtained is sufficient and adequate as a basis for our opinion. Our audit approach Audit scope We have designed our audit by determining the materiality level and assessing the risk of material misstatement in the financial statements. We have considered where the Managing Director and the Board of Directors have made significant accounting estimates about future events or outcomes that are inherently uncertain. In the au- dit, we have also addressed the risk that the Board of Directors and the Managing Di- rector may have overridden internal controls, including considering whether there is evidence of systematic deviations that could indicate irregularities. We have designed our audit to enable us to provide an opinion on the financial statements as a whole, taking into account how the Group is organised, the pro- cesses for financial reporting and the industry in which the operations are active. Materiality The scope of our audit has been influenced by our application of materiality. An au- dit is designed to obtain reasonable assurance about whether the financial state- ments are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if they, individually or in aggregate, could rea- sonably be expected to influence the economic decisions of users taken on the ba- sis of the financial statements. Based on our professional judgement, we have determined quantitative thresholds for materiality concerning the financial statements as a whole. With the help of these and qualitative considerations, we have established the audit orientation and scope and the character and point in time for our audit procedures. Quantitative thresholds for materiality have also been used to assess the effect of potential mis- statements, individual and aggregated, in the financial statements as a whole. 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 for the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consoli- dated accounts as a whole, but we do not provide a separate opinion on these matters. Description of key audit matter Revenue recognition Net sales amount to SEK 23 952 million and are a material item in the income statement. The Group has various types of revenue, which largely consist of goods such as paper, paperboard, timber, wood products and pulpwood that are sold to customers. Sales of goods are transaction-rich, put require- ments on bookkeeping, monitoring and internal controls. The services provided are limited and primarily relate to forest man- agement services and within construction, such as installation work. The various revenue streams have different characteristics, leading to separate processes for revenue recognition, which have been exam- ined individually. Valuation of forest assets The Group’s forest assets amount to SEK 52 151 million and constitute a significant item in the consolidated and the parent company’s bal- ance sheets. The assets are divided into biological assets that are recognised in ac- cordance with IAS 41 Agriculture, and properties that are recognised in accordance with IAS 16 Property, Plant and Equipment. A description of the measurement of value of forest assets and impor- tant assumptions is presented in Note 9. The measurement process is complex since it requires assessments and assumptions in respect of, inter alia, market statistics, and the breakdown of the total value of land and biological assets. Significant areas of judgment include the scope and completeness of market statistics, local market prices and discount rates as well as tim- ber prices and felling costs. The measurement is classified as a Level 3 measurement in accordance with IFRS 13. In view of the material na- ture of the item and the inherent complexity, the valuation of the group’s forest assets is considered key audit matter in our audit. How our audit addressed the key audit matter Our audit procedures have included, but were not limited to, the activities listed below. • Evaluated the Group’s processes for the recognition of the various revenue streams. • Performed tests of a sample of controls in the processes for revenue recognition. • Tested a selection of transactions against supporting underlying agreements and payments, as well as performed accounts receivable confirmation. • Tested a sample of transactions to assess whether revenue has been recognised in the appropriate period. • Reviewed the information presented in the annual accounts and assessed whether it provides sufficient information according to the regulatory requirements. Our audit procedures have included, but were not limited to, the procedures listed below. We have: • Evaluated the process and the method used for valuation of forest assets as well as the company’s process for collecting input data, performed through validation against supporting documents and interviews with Holmen staff. • Tested the allocation of value between biological assets and land assets. • Evaluated the reasonableness of material assumptions that form the basis for the Group’s valuation, including but not limited to, timber prices, harvest plan as well as costs for forestry and harvesting activities. • Verified, on a sample basis, the mathematical accuracy of the valuation model used. • Our valuation specialists have evaluated assumptions and documentation used for establishing the discount rate used. • Evaluated outcome of the internal valuation model used compared to external valuations. • Examined that the disclosed information in Note 9 of the annual report meets the requirements according to IFRS and provides a fair presentation of the company’s valuation. Holmen Annual Report 2022 95 Auditor’s ReportOther information than the annual accounts and consolidated accounts This document also contains information other than the annual accounts and con- solidated accounts, which is found on pages 3-5, 10-13, 16-43, 95-97,100-103, 108-109 and 111-116 (“Other information”). The remuneration report that we obtained prior to the date of this auditor’s report also constitutes Other information. The Board of Directors and the Managing Director are responsible for Other information. Our opinion on the annual accounts and consolidated accounts does not cover other information and we do not express any form of assurance conclusion regarding Oth- er information. In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the Other 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 obtained in the audit and assess whether Other information otherwise appears to be materially misstated. If we, based on the work performed concerning Other information, conclude that the Other information contains a material misstatement, we are required to report this. We have nothing to report in this regard. The Board of Directors’ and Managing Director’s responsibilities The Board of Directors and the Managing Director are responsible for the prepa- ration 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 assessing 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 assumption applies unless the Board and the Managing Director intend to liquidate or cease to operate the company or have no realistic alternative to doing so. The auditor’s responsibility Our objectives are to obtain reasonable assurance about whether the annual ac- counts 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, indivi- dually or aggregated, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts. A further description of our responsibility for the audit of the annual accounts and consolidated accounts is available on the website of the Swedish Inspectorate of Auditors: www.revisorsinspektionen.se/revisornsansvar. This description is part of the auditor’s report. 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 2022 as well as the proposed appropriations of the com- pany’s profit or loss. We recommend to the general meeting of shareholders that the profit be appropri- ated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year. Basis of opinion We have conducted our audit in accordance with generally accepted auditing stand- ards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the Group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and adequate as a basis for our opinion. The Board of Directors’ and Managing Director’s responsibilities Responsibility for the proposed appropriation of the company’s profit or loss rests with the Board of Directors. In conjunction with the proposal of a dividend, this in- cludes 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’ equity, consolidation require- ments, liquidity and position in general. 96 Holmen Annual Report 2022 The Board of Directors is responsible for the organisation and administration of the company’s affairs. This includes continuous assessment of the company’s and the Group’s financial situation and ensuring that the company’s organisation is de- signed so that the accounting, management of assets and the company’s financial affairs otherwise are controlled in a reassuring manner. The Managing Director is re- sponsible for day-to-day management in accordance with the guidelines and in- structions issued by the Board and is required to take such actions as may be nec- essary to ensure compliance with the company’s statutory accounting obligations and satisfactory management of funds. The auditor’s responsibility Our objective for the management audit, and thus for our opinion on release from liability, is to obtain audit evidence which enables us to assess with reasonable assurance whether any member of the Board or the Managing Director has in any material respect: taken any action or been guilty of any neglect that could give rise to a liability to indemnify the company otherwise acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. Our objective in respect of our audit of the proposed appropriation of the company’s profit or loss, and thus for our opinion on the same, is to obtain reasonable assur- ance that the proposed appropriation is consistent 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. A further description of our responsibility for the audit of the administration is availa- ble on the website of the Swedish Inspectorate of Auditors: www.revisorsinspek- tionen.se/revisornsansvar. This description forms part of the statutory annual report. The auditor’s opinion on the ESEF report Opinion In addition to our audit of the annual accounts and consolidated accounts, we have also examined whether the Board of Directors and the Managing Director have prepared the annual accounts and the consolidated accounts in a format that facili- tates uniform electronic reporting (the ESEF report) according to Chapter 16, Sec- tion 4 a of the Securities Market Act (2007:528) for Holmen AB for the year 2022. Our examination and our opinion refer only to the statutory requirement. In our opinion, the ESEF report has been prepared in a format that in all significant respects facilitates uniform electronic reporting. Basis for Opinion We have conducted our examination in accordance with FAR’s recommendation, RevR 18 Examination of the Esef report. Our responsibilities under this recommen- dation are further described in the Auditor’s Responsibilities section. We are inde- pendent of Holmen AB 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 evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are responsible for ensuring that the Esef report has been prepared in accordance with Chapter 16, Section 4 a of the Securities Market Act (2007:528) and for ensuring that there is such internal con- trol as the Board of Directors and the Managing Director regard as necessary to pre- pare the Esef report in a manner that is free from material misstatement, whether due to fraud or error. The auditor’s responsibility Our responsibility is to obtain reasonable assurance whether the Esef report is in all material respects prepared in a format that meets the requirements of Chapter 16, Section 4 a of the Swedish Securities Market Act (2007:528), based on the proce- dures performed. RevR 18 requires us to plan and execute procedures to achieve reasonable assur- ance that the Esef report is prepared in a format that meets these requirements. Reasonable assurance is a high level of assurance, but it is not a guarantee that an engagement carried out according to RevR 18 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, individu- ally or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Esef report. The audit firm applies ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and other Assurance and Related Services Engagements and accordingly maintains a comprehensive system of quality con- trol, including documented policies and procedures regarding compliance with professional ethical requirements, professional standards and legal and regulatory requirements. Auditor’s ReportThe examination involves obtaining evidence, through various procedures, that the Esef report has been prepared in a format that enables uniform electronic reporting of the annual accounts and consolidated accounts. The procedures selected de- pend on the auditor’s judgment, including the assessment of the risks of material misstatement in the report, whether due to fraud or error. In carrying out this risk assessment, and in order to design procedures that are appropriate in the circum- stances, the auditor considers those elements of internal control that are relevant to the preparation of the Esef report by the Board of Directors (and the Managing Director), but not for the purpose of expressing an opinion on the effectiveness of those internal controls. The examination also includes an evaluation of the appro- priateness and reasonableness of assumptions made by the Board of Directors and the Managing Director. The procedures mainly include a validation that the Esef report has been prepared in a valid XHTML format and a reconciliation of the Esef report with the audited annual accounts and consolidated accounts. Furthermore, the procedures also include an assessment of whether the con- solidated statement of financial performance, financial position, changes in equity, cash flow and disclosures in the Esef report has been marked with iXBRL in accord- ance with what follows from the Esef regulation. Auditor’s opinion regarding the corporate governance statement The Board of Directors is responsible for ensuring that the corporate governance statement on pages 48-52 has been prepared in accordance with the Annual Accounts Act. Focus and scope of the examination Our examination has been conducted in accordance with FAR’s auditing standard RevR 16 The Auditor’s Examination of the Corporate Governance Statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with Internation- al Standards on Auditing and generally accepted auditing standards in Sweden. We believe that this examination has provided us with sufficient basis for our opinions. Opinion A corporate governance statement has been prepared. Disclosures in accordance with Chapter 6, Section 6, second paragraph, points 2–6 of the Annual Accounts Act and Chapter 7, Section 31, second paragraph of the same law are consistent with the other parts of the annual accounts and the consolidated accounts and are in accordance with the Annual Accounts Act. Auditor’s opinion regarding the statutory sustainability report Assignment and division of responsibilities The Board of Directors is responsible for ensuring that the sustainability report on pages 6-9, 44-47, 50-52, 54-55, 104-107 and 110 has been prepared in accord- ance with the Annual Accounts Act. Focus and scope of the examination Our examination has been conducted in accordance with FAR’s auditing standard RevR 12 The auditor’s opinion regarding the statutory sustainability report. This means that our examination of the sustainability report is different and substantial- ly more limited in scope compared with the focus and scope of 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. Opinion A statutory sustainability report has been prepared. PricewaterhouseCoopers AB, Torsgatan 21, SE-113 97 Stockholm, was appointed auditor of Holmen AB by the general meeting of the shareholders on 30 March 2022 and has been the company’s auditor since 22 April 2021. Stockholm, 22 February 2023 PricewaterhouseCoopers AB Magnus Svensson Henryson Authorised Public Accountant Auditor in Charge Linda Corneliusson Authorised Public Accountant review of sustainAbility report Holmen’s Sustainability Report, as defined on page 2 of Holmen’s Annual Report 2022, 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, 22 February 2023 PricewaterhouseCoopers AB Magnus Svensson Henryson Authorised Public Accountant Auditor in Charge Isabelle Hammarström Specialistmedlem i FAR Auditor’s Report & Review of Sustainability Report Holmen Annual Report 2022 97 Board of directors 1. Fredrik Lundberg 6. Louise Lindh Employee representatives Chairman. Djursholm. Born in 1951. Member since 1988. M.Sc. in Engineering and M.Sc. in Economics. Tech. h.c. and D. Econ. h.c. President and CEO of L E Lundbergföretagen AB. Other significant appointments: Chairman of Hufvudstaden AB and AB Industrivärden. Deputy Chairman of Svenska Handelsbanken AB. Board member of L E Lundbergföretagen AB and Skanska AB. 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. Board member of the Confederation of Swedish Enterprise. Shareholding: 54 602 shares. 3. 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. 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. 7. Fredrik Persson Stockholm. Born in 1968. Member since 2022. M.Sc. in Economics. Other significant appointments: Former President and CEO of Axel Johnson AB. Chairman of Business­ Europe, Ellevio AB and JM AB and board member of AB Electrolux, Ahlström Capital Oy, Hufvudstaden, ICA Gruppen AB and Interogo Holding AB. Shareholding: 3 000 shares. 8. Carl Bennet Gothenburg. Born in 1951. Member since 2009. M.Sc. in Economics. Med. dr. h.c. and Tekn. dr. h.c. 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 Lundbergföretagen AB. Shareholding: 200 000 shares. 10. Ari Aula Norrköping. Born in 1967. Deputy member since 2022. Employee representative, LO. Chairman of the Swedish Paper Workers Union’s branch 53 at Braviken. 11. Steewe Björklundh Hudiksvall. Born in 1958. Member since 1998. Employee representative, LO. Chairman of the GS union, Iggesund Sawmill. 12. Daniel Hägglund Örnsköldsvik. Born in 1982. Deputy member since 2014. Employee representative, PTK. 13. Martin Nyman Ölsund. Born in 1978. Deputy member since 2021. Employee representative, PTK. Chairman of Unionen Club, Holmen Iggesund. Shareholding: 760 shares. 14. Christer Johansson Iggesund. Born in 1959. Elected as deputy member 2017, ordinary member since 2022. Employee representative, LO. Chairman of the Swedish Paper Workers Union branch 15. 4. Henriette Zeuchner 9. Lars Josefsson 15. Tommy Åsenbrygg Norrköping. Born in 1953. Member since 2016. M.Sc. in Engineering. Other significant appointments: Chairman of TimeZynk. Board member of Ouman and Nevel. Shareholding: 7 000 shares. Skebobruk. Born in 1968. Member since 2015. Employee representative, PTK. Shareholding: 200 shares. Stockholm. Born in 1972. Member since 2015. M.Sc. in Economics and Bachelor of Laws. Other significant appointments: Board member of the NTM Group. Shareholding: 1 600 shares. 5. 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, and Nordstjernan Kredit AB. Board member of Indutrade AB. Shareholding: 8 000 shares. Auditors: PricewaterhouseCoopers AB Principle auditor: Magnus Svensson Henryson Authorised public accountant. 98 Holmen Annual Report 2022 Board of Directors The information relates to personal and related party shareholdings at 31 December 2022. 11 10 2 4 3 12 13 15 5 1 14 6 7 9 8 1. Fredrik Lundberg 2. Henrik Sjölund 3. Alice Kempe 4. Henriette Zeuchner 5. Ulf Lundahl 6. Louise Lindh 7. Fredrik Persson 8. Carl Bennet 9. Lars Josefsson 10. Ari Aula 11. Steewe Björklundh 12. Daniel Hägglund 13. Martin Nyman 14. Christer Johansson 15. Tommy Åsenbrygg Board of Directors Holmen Annual Report 2022 99 Group manaGement 2 5 9 1 8 1. Henrik Sjölund President and CEO Born in 1966. Joined Holmen in 1993. Shareholding: 54 602 shares. Henrik Sjölund has no significant shareholdings or ownership in companies with which the Group has important business relations. Further information is provided on page 98. 8. Gunilla Rolander Senior Vice President Human Resources Born in 1966. Joined Holmen in 2013. Shareholding: 3 436 shares. 2. Anders Jernhall Executive Vice President, Chief Financial Officer Born in 1970. Joined Holmen in 1997. Shareholding: 20 160 shares. 5. Johan Nellbeck Senior Vice President Paperboard Born in 1964. Joined Holmen in 2019. Shareholding: 6 000 shares. 9. Ola Schultz-Eklund Senior Vice President Technology Born in 1961. Joined Holmen in 1994. Shareholding: 4 000 shares. 3 6 4 7 10 3. Sören Petersson Senior Vice President Forest Born in 1969. Joined Holmen in 1994. Shareholding: 19 378 shares. 6. Lars Lundin Senior Vice President Paper Born in 1966. Joined Holmen in 2018. Shareholding: 3 000 shares. 10. Stina Sandell Senior Vice President Sustainability and Communications Born in 1966. Joined Holmen in 2017. Shareholding: 2 156 shares. 11 4. Johan Padel Senior Vice President Wood Products Born in 1966. Joined Holmen in 2014. Shareholding: 2 570 shares. 7. Fredrik Nordqvist Senior Vice President Renewable Energy Born in 1971. Joined Holmen in 2011. Shareholding: 721 shares. 11. Henrik Andersson Senior Vice President Legal Affairs Secretary of the Board of Directors. Born in 1971. Joined Holmen in 2008. Shareholding: 5 296 shares. 100 Holmen Annual Report 2022 Group management The information relates to personal and related party shareholdings at 31 December 2022. Key figures Holmen uses performance measures in its reporting in addition to the measures defined within IFRS regulations, or directly in the income statement and balance sheet, in order to illustrate the company’s financial position and performance and to increase comparability between different periods and other companies. Below are calculations used to arrive at the performance measures applied within the Group. For further information, see also Definitions. ESMA’s (European Securities and Markets Authority) ‘Guidelines – Alternative Performance Measures’ are used. Alternative performance measures published in this report should not be regarded as replacing the financial measures defined under IFRS regulations, but rather as a complement and they do not need to be comparable in the same way with defined performance measures published by other companies. Key figures, SEKm 2022 2021 2020 2019 2018 Operating profit, EBITDA and items affecting comparability EBITDA Depreciation and amortisation according to plan Operating profit/loss excluding items affecting comparability Items affecting comparability* Operating profit 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 after tax 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 obligations 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 102 for what items affecting comparability refers to. 8 607 -1 345 7 262 266 7 527 7 262 23 952 30.3 56 950 2 145 59 095 7 262 54 570 13.3 5 874 51 299 11.5 2 902 158 1 039 89 7 -97 -18 -1 935 2 145 2 145 56 950 4 56 950 81 436 70 5 321 -1 261 4 061 -330 3 731 4 061 19 479 20.8 46 992 4 101 51 093 4 061 47 557 8.5 3 004 43 326 6.9 3 911 173 736 71 24 -268 -39 -507 3 651 -1 172 2 479 - 3 486 -1 141 2 345 8 770 2 479 11 115 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 2 345 16 959 13.8 40 111 3 784 43 895 2 345 26 391 8.9 8 731 25 233 34.6 2 018 171 2 485 13 46 -451 -14 -483 3 488 -1 012 2 476 -94 2 382 2 476 16 055 15.4 23 453 2 807 26 261 2 476 25 469 9.7 2 268 22 546 10.1 1 033 - 2 494 - 61 -468 -35 -278 4 101 4 181 3 784 2 807 4 101 46 992 9 46 992 68 101 69 4 181 42 516 10 42 516 62 543 68 3 784 40 111 9 40 111 59 340 68 2 807 23 453 12 23 453 36 912 64 Key figures Holmen Annual Report 2022 101 2022 Ten-year review, finance SEKm 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Income statement Net sales Operating costs Change in value of biological assets Share in profits of associates and joint ventures EBITDA Depreciation and amortisation according to plan Operating profit/loss excluding items affecting comparability 19 479 16 327 16 231 23 952 -15 865 -14 622 -13 250 -13 961 -12 984 -13 379 -12 626 -13 348 -13 270 -13 919 264 3 464 0 415 -12 282 -7 425 -9 267 7 315 -22 579 -6 487 0 509 10 16 133 16 959 15 513 15 994 16 014 16 055 8 607 -1 345 7 262 5 321 -1 261 4 061 3 651 3 486 3 488 3 157 3 179 2 940 2 999 2 579 -1 172 -1 141 -1 012 -991 -1 018 -1 240 -1 265 -1 370 2 479 2 345 2 476 2 166 2 162 1 700 1 734 1 209 Items affecting comparability* 266 -330 - 8 770 -94 - -232 -931 -450 -140 7 527 3 731 2 479 11 115 2 382 2 166 1 930 769 1 284 1 069 Operating profit Net financial items Earnings before tax Tax -87 -39 -42 -34 -25 -53 -71 7 441 3 691 2 437 11 081 2 356 2 113 1 859 -1 567 -688 -458 -2 351 -89 -445 -436 Profit/loss for the year 5 874 3 004 1 979 8 731 2 268 1 668 1 424 Diluted earnings per share, SEK** 36.3 18.5 12.2 52.6 13.5 9.9 8.5 Net sales Forest Paperboard Paper Wood Products Renewable Energy Group-wide costs and eliminations 7 342 6 735 8 370 5 015 1 226 -4 737 6 509 6 261 5 441 4 872 488 -4 092 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 Group 23 952 19 479 16 327 16 959 16 055 16 133 15 513 16 014 15 994 16 231 Operating profit Forest Paperboard Paper Wood Products Renewable Energy Group-wide costs and eliminations Items affecting comparability* Group Cash flow Earnings before tax Adjustment items Income tax paid Changes in working capital 1 401 1 081 2 714 1 237 1 006 -178 7 262 266 1 495 673 70 1 668 347 -193 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 4 061 2 479 2 345 2 476 2 166 2 162 1 700 1 734 1 209 -330 - 8 770 -94 - -232 -931 -450 -140 7 527 3 731 2 479 11 115 2 382 2 166 1 930 769 1 284 1 069 7 441 966 -1 639 -1 284 3 691 346 -662 -145 2 437 544 -569 46 11 081 -8 208 -147 158 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 Cash flow from operating activities 5 484 3 229 2 457 2 884 2 286 2 509 1 961 2 526 2 176 2 011 Cash flow from investing activities*** -1 352 -1 332 -1 924 -1 050 -1 005 -644 -123 -824 -815 -872 Cash flow after investments 4 132 1 897 533 1 834 1 281 1 865 1 838 1 702 1 361 1 139 Dividend paid Share buy-backs -1 862 - -1 741 - -567 - -1 134 -1 430 -1 092 - -1 008 - -882 - -840 - -756 - -756 - *Items affecting comparability: 2022: Insurance compensation, and the costs and the loss of revenue, associated with the turbine breakdown in Workington (SEK 266 million). 2021: Increased energy costs of SEK -330 million due to turbine breakdown in Workington. 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. **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. 102 Holmen Annual Report 2022 Ten-year review, finance -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 -160 711 4.3 5 694 4 618 7 148 1 175 450 -2 853 SEKm Balance sheet Forest assets Other non-current assets* Current assets Financial receivables Total assets 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 For a ten-year review of data per share, see page 59. 52 151 47 080 12 477 12 251 7 956 14 758 814 2 050 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 81 436 68 101 62 543 59 340 36 912 34 891 34 891 35 456 36 434 36 753 Equity Deferred tax liabilities Financial liabilities and interest-bearing provisions Operating liabilities 56 950 46 992 13 490 11 610 4 915 4 584 4 195 6 801 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 Total equity and liabilities 81 436 68 101 62 543 59 340 36 912 34 891 34 891 35 456 36 434 36 753 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 Own forests, ’000 m3sub Paperboard, ’000 tonnes Paper, ’000 tonnes Wood products, ’000 m3 Hydro and wind power, GWh *Excluding non-current financial receivables **Excluding items affecting comparability 41 354 37 300 5 169 1 637 2 278 4 069 640 5 632 1 939 2 067 4 618 3 485 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 5 686 4 438 1 327 3 005 -173 59 095 51 093 46 697 43 895 26 261 24 972 25 190 25 653 26 876 26 970 16 32 25 30 4 20 139 54 23 13 11 4 11 1 34 21 4 13 4 82 10 9 7 9 13 2 8 15 4 15 4 17 7 6 5 10 7 9 4 14 8 8 24 6 11 9 35 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 7 19 15 -1 1 11 7 15 neg 1 6 6 3 23 13 2 3 11 6 12 3 3 7 6 4 28 9 -4 -6 7 7 8 neg neg 13 4 3 29 2 813 503 995 1 435 1 639 2 833 544 1 029 1 373 1 230 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 Ten-year review, finance Holmen Annual Report 2022 103 2022 Taxonomy The Taxonomy Regulation is a classification system that currently covers certain economic activities that have a significant impact on the climate and the climate change adaptation measures taken. In accordance with this regulation, companies must report the proportion of their turnover, capital expenditure and operating expenditure covered by the Taxonomy Regulation, and the proportion that meets the requirements allowing them to be considered sustainable. Each activity is examined to see whether it meets the regulation’s criteria for compliance with environmental objectives without causing significant harm to any other environmental objectives and it has minimum social safeguards in place. Detailed information about Holmen’s activities that are covered by the taxonomy can be found in the tables below. These show that 11 per cent of Holmen’s turnover, 47 per cent of its capital expenditure and 20 per cent of its operating expenditure are covered by the taxonomy, and that all the activities meet the criteria for being considered sustainable. The key figures have been calculated in accordance with definitions 1.1.1, 1.1.2 and 1.1.3 in Annex 1 to the Disclosures Delegated Act in line with Article 8 of the Taxonomy Regulation. In short, this means that the turnover, capital expenditure and operating expenditure that are covered by the taxonomy (the numerators) must be divided by the Group’s total turnover, capital expenditure and operating expenditure (the denominators) in accordance with the definitions in the Delegated Act. The following sections describe the calculation principles applied by Holmen. Allocation of turnover, capital expenditure and operating expenditure to the denominators The Group’s total turnover in accordance with the taxonomy’s definition corresponds to the Group’s sales as presented in the income statement on page 60, and some of the Group’s other operating income. Note 3 on page 72 shows the Group’s other operating income, and the items included in the denominators are sales of by-products, renewable energy certificates, emission allowances and silviculture contracts, and some rent and land lease revenue and other items, which together total SEK 1 950 million. Internal sales eliminated from the consolidated figures, which are generated by intra-Group activities and are covered by the taxonomy, are not factored in. Capital expenditure corresponds to investments and acquisitions for the year in line with Note 9 Forest assets, Note 10 Intangible assets, Note 11 Property, plant and equipment, and Note 12 Leases on pages 78–81. The total operating expenditure in accordance with the taxonomy’s definition that is applicable to Holmen consists of repairs and maintenance and research and development. Based on this definition it totalled SEK 1 386 million for 2022. Allocation of turnover, capital expenditure and operating expenditure to the numerators Holmen’s activities that are covered by the taxonomy are harvest of own forest (NACE code 02.20) and electricity production from wind power, hydro power and bioenergy (NACE code 35.11). Turnover for 2022 Economic activities (1) Unit A. Taxonomy-eligible activities A.1 Environmentally sustainable activities (taxonomy-aligned) 1.3 Harvest of own forest 4.3 Wind power 4.5 Hydro power 4.8 Bioenergy Turnover of environmentally sustainable activities (taxonomy-aligned) (A.1) A.2 Taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned activities) Not applicable Turnover of taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned activities) (A.2) Total (A.1 + A.2) B. Taxonomy-non-eligible activities Turnover of taxonomy-non-eligible activities (B) Total (A + B) 104 Holmen Annual Report 2022 Taxonomy ) 2 ( s e d o C 02.20 35.11 35.11 35.11 ) 3 ( r e v o n r u t e t u l o s b A SEKm 758 208 1 009 853 2 829 - - ) 4 ( r e v o n r u t f o n o i t r o p o r P % 11 3 1 4 3 11 - - 2 829 11 23 074 25 903 89 100 These activities correspond to taxonomy activities 1.3 (harvesting of own forests), 4.3, 4.5 and 4.8 (electricity production from wind power, hydro power and bioenergy). Holmen does not have any external sales derived from other NACE codes (economic activities) covered by the Taxonomy Regulation or activities covered by climate adaptation measures. Capital expenditure relating to suppliers whose activities are covered by the taxonomy, but that does not relate to Holmen activities 1.3, 4.3, 4.5 or 4.8, known as category C investments, is negligible and is not included. Turnover from the harvesting of our own forests above all consists of external sales of logs and pulpwood, but not the logs and pulpwood processed by Holmen in its industrial plants. Capital expenditure includes purchases of forest machinery, the construction of forest roads and acquisitions of forest properties. Operating expenditure includes the development and maintenance of our own forests in the form of thinning, road maintenance, clearing and fertilisation. Turnover derived from electricity production consists primarily of external sales of electricity, support services for the stabilisation of the electricity grid and green electricity certificate revenue. Capital expenditure includes upgrades, new facilities and acquisitions. Operating expenditure consists of minor renovations and the maintenance of equipment for electricity production, and various forms of development work, such as the designing of new wind farms. The different activities that are subject to the taxonomy are able to be separately identified in Holmen’s financial reporting, which prevents any double counting of turnover, capital expenditure and operating expenditure. Evaluation of compliance with the criteria Holmen has evaluated its compliance with the criteria for substantial contributions and the criteria for doing no significant harm as set out in Annex 1 to the Delegated Act on climate change mitigation. The Group’s forestry plan, together with the climate benefit analysis prepared that shows increased carbon storage and that the legislation ensures continued land use for forestry, are considered together to meet the requirements for substantial contributions to forest management. Forest management takes place in accordance with the Group’s certifications and, along with the legal requirements and the climate adaptation plan prepared, this ensures that the forest management does no significant harm. With regard to the evaluation of whether the Group produces wind and hydro power and bioenergy in line with the criteria set, an analysis of each power plant’s individual design and characteristics has been conducted and climate adaptation plans prepared for each activity. Compliance with minimum social safeguards has been evaluated in keeping with the guidance from the Platform on Sustainable Finance. Holmen complies with labour and human rights laws. Substantial contribution criteria Does Not Significantly Harm (DNSH) criteria ) 5 ( n o i t a g i t i m e g n a h c e t a m i l C % ) 6 ( n o i t a t p a d a e g n a h c e t a m i l C % e n i r a m d n a r e t a W % ) 7 ( s e c r u o s e r ) 8 ( y m o n o c e r a l u c r i C d n a y t i s r e v i d o B i ) 0 1 ( s m e t s y s o c e ) 9 ( n o i t u l l o P e g n a h c e t a m i l C ) 1 1 ( n o i t a g i t i m e g n a h c e t a m i l C ) 2 1 ( n o i t a t p a d a e n i r a m d n a r e t a W ) 3 1 ( s e c r u o s e r ) 4 1 ( y m o n o c e r a l u c r i C d n a y t i s r e v i d o B i ) 6 1 ( s m e t s y s o c e ) 5 1 ( n o i t u l l o P s d r a u g e f a s m u m n M i i ) 7 1 ( % % % Yes/no Yes/no Yes/no Yes/noYes/no Yes/no Yes/no 100 100 100 100 100 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes - - Yes - - Yes Yes Yes Yes Yes Yes Yes Yes Yes d e n g i l a - y m o n o x a T , r e v o n r u t f o n o i t r o p o r p % ) 8 1 ( 2 2 0 2 d e n g i l a - y m o n o x a T , r e v o n r u t f o n o i t r o p o r p % ) 9 1 ( 1 2 0 2 g n i l b a n e ( y r o g e t a C ) 0 2 ( ) r o y t i v i t c a l a n o i t i s n a r t ( y r o g e t a C ) 1 2 ( ) y t i v i t c a Enabling Transitional 3 1 4 3 11 11 - - - - - - - - - - - - - - - - - - Taxonomy Holmen Annual Report 2022 105 Capital expenditure for 2022 Economic activities (1) Unit A. Taxonomy-eligible activities A.1 Environmentally sustainable activities (taxonomy-aligned) 1.3 Harvest of own forest 4.3 Wind power 4.5 Hydro power 4.8 Bioenergy Capital expenditure of environmentally sustainable activities (taxonomy-aligned) (A.1) A.2 Taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned activities) Not applicable Capital expenditure of taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned activities) (A.2) Total (A.1 + A.2) B. Taxonomy-non-eligible activities Capital expenditure of taxonomy-non-eligible activities (B) Total (A + B) ) 2 ( s e d o C 02.20 35.11 35.11 35.11 l a t i p a c f o n o i t r o p o r P ) 4 ( e r u t i d n e p x e % 47 14 31 1 2 47 - - l a t i p a c e t u l o s b A ) 3 ( e r u t i d n e p x e SEKm 267 596 20 30 913 - - 913 47 1 011 1 923 53 100 Of the SEK 267 million of taxonomy-aligned capital expenditure relating to the harvesting of our own forests, SEK 198 million were invested in forest assets, SEK 51 million in property, plant and equipment and SEK 18 million in leases. Of the SEK 596 million of taxonomy-aligned capital expenditure relating to wind power, SEK 592 million were invested in property, plant and equipment and SEK 4 million in intangible assets. Of the SEK 20 million of taxono- my-aligned capital expenditure relating to hydro power, SEK 14 million were invested in property, plant and equipment and SEK 6 million in intangible assets. Of the SEK 30 million of taxonomy-aligned capital expenditure relating to bioenergy, SEK 30 million were invested in property, plant and equipment. Operating expenditure for 2022 ) 2 ( s e d o C 02.20 35.11 35.11 35.11 g n i t a r e p o f o n o i t r o p o r P ) 4 ( e r u t i d n e p x e % 20 17 0 2 1 20 - - g n i t a r e p o e t u l o s b A ) 3 ( e r u t i d n e p x e SEKm 235 6 31 8 280 - - 280 20 1 105 1 386 80 100 Economic activities (1) Unit A. Taxonomy-eligible activities A.1 Environmentally sustainable activities (taxonomy-aligned) 1.3 Harvest of own forest 4.3 Wind power 4.5 Hydro power 4.8 Bioenergy Operating expenditure of environmentally sustainable activities (taxonomy-aligned) (A.1) A.2 Taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned activities) Not applicable Operating expenditure of taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned activities) (A.2) Total (A.1 + A.2) B. Taxonomy-non-eligible activities Operating expenditure of taxonomy-non-eligible activities (B) Total (A + B) Most of the SEK 280 million of taxonomy-aligned operating expenditure relates to maintenance and repairs. 106 Holmen Annual Report 2022 Taxonomy Substantial contribution criteria Does Not Significantly Harm (DNSH) criteria e g n a h c e t a m i l C ) 5 ( n o i t a g i t i m % e g n a h c e t a m i l C ) 6 ( n o i t a t p a d a % e n i r a m d n a r e t a W ) 7 ( s e c r u o s e r % 100 100 100 100 100 - - - - - - - - - - ) 8 ( y m o n o c e r a l u c r i C % - - - - - ) 9 ( n o i t u l l o P % - - - - - d n a y t i s r e v i d o B i ) 0 1 ( s m e t s y s o c e e g n a h c e t a m i l C ) 1 1 ( n o i t a g i t i m e g n a h c e t a m i l C ) 2 1 ( n o i t a t p a d a e n i r a m d n a r e t a W ) 3 1 ( s e c r u o s e r ) 4 1 ( y m o n o c e r a l u c r i C d n a y t i s r e v i d o B i ) 6 1 ( s m e t s y s o c e ) 5 1 ( n o i t u l l o P ) 8 1 ( 2 2 0 2 , e r u t i d n e p x e l a t i p a c f o n o i t r o p o r p d e n g i l a - y m o n o x a T ) 9 1 ( 1 2 0 2 , e r u t i d n e p x e l a t i p a c f o n o i t r o p o r p d e n g i l a - y m o n o x a T ) 7 1 ( g n i l b a n e ( y r o g e t a C ) 0 2 ( ) r o y t i v i t c a l a n o i t i s n a r t ( y r o g e t a C ) 1 2 ( ) y t i v i t c a s d r a u g e f a s m u m n M i i % Yes/no Yes/no Yes/no Yes/noYes/noYes/no Yes/no % % Enabling Transitional - - - - Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes - - Yes - - Yes Yes Yes Yes Yes Yes Yes Yes Yes - - - - - 14 31 1 2 47 47 - - - - - - - - - - - - - - - - - - Substantial contribution criteria Does Not Significantly Harm (DNSH) criteria e g n a h c e t a m i l C ) 5 ( n o i t a g i t i m e g n a h c e t a m i l C ) 6 ( n o i t a t p a d a e n i r a m d n a r e t a W ) 7 ( s e c r u o s e r ) 8 ( y m o n o c e r a l u c r i C d n a y t i s r e v i d o B i ) 0 1 ( s m e t s y s o c e ) 9 ( n o i t u l l o P e g n a h c e t a m i l C ) 1 1 ( n o i t a g i t i m e g n a h c e t a m i l C ) 2 1 ( n o i t a t p a d a e n i r a m d n a r e t a W ) 3 1 ( s e c r u o s e r ) 4 1 ( y m o n o c e r a l u c r i C d n a y t i s r e v i d o B i ) 6 1 ( s m e t s y s o c e ) 5 1 ( n o i t u l l o P s d r a u g e f a s m u m n M i i ) 7 1 ( % % % % % % Yes/no Yes/no Yes/no Yes/noYes/no Yes/no Yes/no 100 100 100 100 100 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes - - Yes - - Yes Yes Yes Yes Yes Yes Yes Yes Yes ) 8 1 ( 2 2 0 2 , e r u t i d n e p x e g n i t a r e p o f o n o i t r o p o r p % d e n g i l a - y m o n o x a T ) 9 1 ( 1 2 0 2 , e r u t i d n e p x e g n i t a r e p o f o n o i t r o p o r p % d e n g i l a - y m o n o x a T g n i l b a n e ( y r o g e t a C ) 0 2 ( ) r o y t i v i t c a l a n o i t i s n a r t ( y r o g e t a C ) 1 2 ( ) y t i v i t c a Enabling Transitional 17 0 2 1 20 20 - - - - - - - - - - - - - - - - - - Taxonomy Holmen Annual Report 2022 107 2022 5-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. No material changes have been made to the principles of reporting in 2022. 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 Statistics Sweden guidelines. 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. 2022 2021 2020 2019 2018 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, GWh1) Raw materials Wood, million m3sub2) Purchased pulp, ’000 tonnes Thermal energy, GWh4) Electrical energy, GWh Water use, million m3,6) Plastic granules/foiling material, ’000 tonnes Chemicals, ’000 tonnes7) Filler, pigment, ’000 tonnes7) Emissions to air, tonnes8) Sulphur dioxide (counted as sulphur, S) Nitrogen oxides Particulates Fossil carbon dioxide, ’000 tonnes Biogenic carbon dioxide, ’000 tonnes Emissions to water, tonnes8) AOX (chlorinated organic matter) Nitrogen Phosphorus COD (organic matter), ’000 tonnes Suspended solids (SS), ’000 tonnes By-products, ’000 tonnes To energy production, internally/externally9) To material production10) Waste, ’000 tonnes Hazardous11) Sent to landfill (wet) Energy supplies Branches, treetops and peat, GWh12) Electrical and thermal energy, GWh13) Environmental protection expenditure, SEKm Investments (remedial and preventive)14) Electricity and heat-saving investments Environmental taxes and charges15) Internal and external environmental expenses16) Environmental cost of forestry17) 513 77 1 016 1 468 1 561 520 529 80 998 1 465 1 230 445 6.363) 6.34 77 77 5 291 4 648 3 9305) 3 872 70 3.3 147 162 71 3.0 147 162 49 899 49 42 1 657 50 811 52 81 1 423 36 162 12 19 3.6 39 187 16 19 3.2 759 469 1 067 412 1.8 6.3 325 377 215 44 18 239 83 2.0 3.7 291 317 815 35 15 159 79 551 84 891 1 021 1 352 621 5.62 78 5 885 3 508 69 2.8 147 156 64 902 33 63 1 545 38 210 19 20 3.5 937 252 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 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 1.6 7.6 137 370 84 10 12 165 91 108 Holmen Annual Report 2022 Five-year review, sustainability 1) Bio-based electricity production accounted for 514 GWh. Production was negatively impacted in 2022 as a result of a turbine breakdown at the Workington Mill and the turbine at Iggesund Mill bei ng taken out of operation for part of the year. 2) At Group level, wood consumption is computed net, taking into account internal deliveries of chips from the sawmills to the nearby mills. Harvest of Holmen’s own forests amounted to 2 813 000 m3sub. 3) 4) The calculation model has been modified for 2022, which means that the data is not fully comparable with the data for 2018–2021. 5) 2 494 GWh renewable electricity and 1 436 GWh fossil-free electricity. Direct emissions of fossil carbon dioxide from production of purchased electrical energy totalled 0 ktonnes. 6) Almost 100 per cent use of surface water from lakes and watercourses, i.e. renewable raw material. 7) Non-renewable raw material stated as 100 per cent active substance, equivalent to 219 000 tonnes of commodities for chemicals and 222 000 tonnes of commodities for filler and pigment. Relates to emissions at facilities. Emissions of meth- ane and nitrous oxide at the facilities amounted to 15 000 tonnes of carbon dioxide equivalents. 8) 9) From 2022 onwards, by-products to energy production are reported as dry weight instead of falling dry content. This produces a somewhat lower amount. 10) By-products used, for example, as filling material, construction material or for the production of soil products. Holmen Wood Products has been included from 2021. By-products from Holmen’s sawmills are mainly used for pulp. Of by-products to material production, 16 000 tonnes consist of tall oil, which is mainly supplied to the fuel and chemicals industry. 11) Hazardous waste is dealt with by an authorised col- lection and recovery contractor. Certain fractions of the waste are recovered. 26 per cent of the hazardous waste consists of oil sludge from ships that dock at Holmen’s ports. 12) Branches and treetops (37 GWh) and peat (85 GWh) delivered from Holmen’s land and 203 GWh of branch- es and treetops from felling rights to external energy producers. 13) 123 GWh of electrical energy supplied from Working- ton Mill to the local community. 228 GWh of thermal energy from Iggesund Mill and Braviken Paper Mill to Iggesund Sawmill and Braviken Sawmill. A total of 26 GWh thermal energy from Hallsta Paper Mill and Iggesund Mill was supplied to the local communities’ district heating networks. 14) The stated amount includes costs of internal process measures and water treatment measures. The figure for 2021 included the costs of constructing Blåbergs- liden Wind Farm. 15) The stated amount includes costs for waste manage- ment, energy tax charged on the use of fossil fuels in Sweden, nitrogen oxide tax and inspection charges. Two environmental incidents led to corporate fines totalling SEK 0.1 million. 16) Includes costs of environmental personnel, operation of treatment equipment, waste management, management systems, environmental training, appli- cations for permits, environmental consultants and the costs of inquiries and measures in connection with discontinued operations. 17) The environmental cost of forestry is calculated as the value of the wood that is not harvested for environmental reasons. The loss of income in 2022 is valued at SEK 83 million and is due to general considerations and nature conservation. 5-year review, susTainabiliTy 1) See page 74, note 4. 2) Relates to permanent employees. 3) Relates to employees. No industrial accidents with a fatal outcome occurred during the year. 4) Relates to permanent and temporary employees. 5) Relates to Swedish and UK units, all of which have collective agreements. At other foreign units, Holmen supports different forms of collective employee engagement in line with local standards, e.g. Works Councils. 6) Holmen accepts its responsibility to society and pays its taxes in line with the legislation and rules in force in all the countries in which we operate. Holmen’s financial policy and guidelines state that Holmen must be trans- parent in its tax-related deliberations, with a focus on commercial considerations and no transactions whose main purpose is tax plan- ning. Holmen must also not accept, support or facilitate any tax violations by third parties. 7) Board’s dividend proposal. Employees Employees Average no. of employees (FTE)1) of whom women, % of whom men, % of whom temporary employees, % Average age2) Sickness absence, % Total of which longer than 60 days Gender equality, %2) Proportion of female managers out of total no. of managers Proportion of male managers out of total no. of managers Women joining the company out of total new employees Men joining the company out of total new employees Personnel turnover, %2) Personnel turnover of which given notice of which retiring of which leaving at own request New employees 2022 2021 2020 2019 2018 3 466 20.9 79.1 11.4 42.9 3 474 20.6 79.4 9.3 43.5 2 974 20.0 80.0 8.4 44.3 2 915 20.0 80.0 11.1 44.4 2 955 20.3 79.7 10.7 44.9 4.7 1.4 4.1 1.4 23.8 23.1 76.2 76.9 44.4 30.3 55.6 69.7 8.3 0.1 2.3 5.1 5.3 8.9 0.3 3.0 4.3 5.1 4.3 1.7 22.7 77.3 35.5 64.5 7.3 0.6 3.1 3.0 2.6 3.8 1.6 22.9 77.1 39.5 60.5 7.9 0.9 2.2 4.4 2.5 4.1 1.6 19.8 80.2 40.1 59.9 7.9 0.4 2.6 3.9 2.7 Number of industrial accidents3) Industrial accidents, more than 8 hours of absence, per million hours worked Union cooperation, %4) Percentage of employees that work at a unit with a collective agreement5) 7.6 5.6 4.3 5.7 4.9 95 95 94 93 94 Income statement per stakeholder category, SEKm Customers Suppliers Employees Lenders Society 6) 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 26 696 21 169 17 666 18 329 17 339 -16 176 -14 675 -2 121 -43 -43 -37 -558 -39 -651 3 004 1 862 -2 322 -93 -41 -35 -576 -47 -1 532 5 874 2 5927) -12 734 -1 891 -42 -42 -31 -481 -39 -427 1 979 1 741 -4 817 -1 819 -34 -55 -27 -472 -25 -2 351 8 731 567 -12 539 -1 792 -25 -82 -30 -479 -35 -89 2 268 1 134 Five-year review, sustainability Holmen Annual Report 2022 109 Environmental information Permits At the end of 2022, Holmen was running production operations that require environmental permits at nine facilities. Additionally, the converting plant in Strömsbruk is a notifiable activity. The permits specify conditions regarding permitted production volumes, noise levels and permitted emissions to air and water. Eight of the facilities are located in Sweden and one is in Workington in the UK. The facilities’ turnover amounted to 84 per cent of the Group’s net sales in 2022. The paperboard mill in Workington gained a new environmental permit in 2022 with new conditions for its operations. In 2022, Sweden’s Land and Environment Court passed a decision on a new environmental permit for Braviken Paper Mill. The County Administrative Board appealed against the decision to the Land and Environment Court of Appeal. That court will decide whether leave to appeal will be granted. If leave to appeal is not granted, the ruling of the Land and Environment Court will gain legal force. It is expected that the matter will be resolved in 2023. Holmen has three permits for wind power and 15 permits for commercial quarries. Additionally, the six wholly-owned hydro power plants have environmental permits for the production plant, reservoirs and water regulation. In 2022, Blåbergsliden Wind Farm was opened in Västerbotten with an anticipated annual electricity production of just over 400 GWh. A permit application process is in progress for another wind farm in Västerbotten. Holmen has applied for permits to build two wind farms on its own land in Östergötland. In one case, Holmen chose to withdraw the application in 2022 while awaiting an update to the municipal wind power plan. In the other case, current political circumstances make continued work more difficult. Two new consultations on wind farms began during the year; Tigerberget in the municipality of Hudiksvall and Högaliden in the municipality of Robertsfors. New environmental legislation for hydro power entered into force in 2019. The legislation means that hydro power operators who do not comply with modern environmental criteria have to apply for a review under the Swedish Environmental Code before the end of 2039. Holmen’s plants have been registered under the national plan for revision of hydro power plant licences. Jointly owned facilities have been registered by the respective main owner. In late 2022, the Government announced that the plan will be paused for a year to investigate the consequences of implementing a review of the power system. Emission allowances and electricity certificates Holmen has been awarded emission allowances within the EU Emissions Trading Scheme. As a result of investment in bio-based energy production and energy savings at the facilities, the use of fossil fuels has fallen considerably in recent years. Surplus allocated emission allowances have been able to be sold. Holmen has applied to be allocated emission allowances for the period 2021–2030 and has received an allocation decision for the trading period 2021–2025. 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 distributors, 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 electrical energy receive green Renewables Obligation Certificates in proportion to the amount of electricity generated. Workington Mill obtained such green certificates in 2022. 110 Holmen Annual Report 2022 Environmental information 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 2022, studies were in progress at different stages regarding the former sawmills Håstaholmen, Stocka and Lännaholm, the sulphite mills at Strömsbruk, Domsjö, Loddby and Mariannelund, the paper mill at Silverdalen and the groundwood mill at Bureå. The project to remediate the polluted sediment in the area of water outside the former sawmill at Håstaholmen in Hudiksvall was concluded in autumn 2022. The final report on completed remediation is awaiting approval from the responsible environmental agency. During the year, it became clear that the Geological Survey of Sweden (SGU) will be the client for remediation projects at the former Stocka sawmill and the former sulphite plant in Strömsbruk. In early 2023, an application for funding for preparatory surveys at these abandoned factory sites will be submitted to the Swedish Environmental Protection Agency. In 2022, the County Administrative Board approved the study of measures and risk evaluation submitted by Holmen regarding polluted land at the Domsjö industrial area. This means that there is now a remediation option that will be worked on further. It is expected that documentation for an application for funding for preparatory surveys will be produced in 2023. Environmental permits for the Group’s production facilities 2018 2022 Iggesund Mill, Environmental Code1) Workington Mill, IED Hallsta Paper Mill, Environmental Protection Act 2000 Braviken Paper Mill, Environmental Code2) 2002 Iggesund Sawmill, Environmental Code 2014 Braviken Sawmill, Environmental Code 2010 Linghem Sawmill, Environmental Code 2003 Bygdsiljum Sawmill, Environmental Code 2018 Kroksjön Sawmill, Environmental Code 2020 1) Port activity at Skärnäs Terminal, alongside Iggesund Mill, is included in the environmental permit. In addition, operations subject to notification requirements take place at the production unit in Strömsbruk. 2) Sweden’s Land and Environment Court passed a decision on a new environmental permit in 2022. An appeal was lodged with the Land and Environment Court of Appeal. It is expected that the matter will be resolved in 2023. Greenhouse gas emissions Scope 1–3, ’000 tonnes CO2e 2022 2021 2020 2019 Scope 1: Direct greenhouse gas emissions Scope 2: Indirect greenhouse gas emissions from purchased electrical energy1,2) Scope 3: Emissions in the value chain of which category 1: Purchased goods and services3) of which category 2: Capital goods of which category 3: Fuel and energy-related activities4) of which category 4: Upstream transport5) of which categories 6 & 7: Travel6) of which category 9: Downstream transport7) Total emissions 58 29 604 191 95 40 54 4 220 691 971) 601) 550 136 120 38 56 4 196 707 79 38 460 100 80 36 56 4 184 577 86 46 453 101 80 31 57 4 180 585 1) Emissions from Scope 1 and 2 were high as a result of the turbine breakdown at Workington Mill which reduced its own fossil-free electricity production. 2) Refers to emissions from production and maintenance of the electricity-producing facilities and emissions from downstream electricity distribution. 3) The amount of input goods covered by the calculation has been increased and for 2022 includes 99 per cent of the volume of paperboard and paper (recalculated as dry weight). 4) Transport of fuel for the biofuel boiler at Workington Mill and emissions from forestry, such as emissions from logging and forestry. 5) Transport of woody biomass, Well to Wheel. 6) Based on the travel habits survey conducted by Holmen in 2019. 7) Refers to transport of finished products, Well to Wheel. The increase is mainly due to a new calculation method that is more wide-ranging and based on more detailed data. Management system certifications Production facilities1) Environmental ISO 14001 Energy ISO 50001 Quality ISO 9001 Iggesund Mill2) Workington Mill3) Hallsta Paper Mill Braviken Paper Mill Iggesund Sawmill Braviken Sawmill Linghem Sawmill4) Bygdsiljum Sawmill4) Kroksjön Sawmill4) 2001 2003 2001 1999 1999 2011 1999 2005 1990 1990 1993 1996 1997 2011 2005 2015 2005 2006 2006 2011 2022 2022 Health and safety ISO 45001 2016 2005 2012 2015 2017 2017 2020 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. Licence codes for PEFC and FSC® are available at holmen.com. 2) The certifications include the production unit in Strömsbruk and operations at Skärnäs Terminal. 3) Workington Mill has also been certified under the food safety management system ISO 22000 since 2019 and upgraded to FSSC 22000 in 2021. 4) Work is in progress to include Linghem, Bygdsiljum and Kroksjön in the other sawmill certificates. 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 improvement in the work on the various management systems. Certificates can be viewed at holmen.com/sustainability. Holmen awarded EcoVadis Platinum Holmen has been ranked Platinum by the international analysis company EcoVadis. This means that Holmen is among the top percentage of the companies examined worldwide. EcoVadis assesses how companies work on the environment, sustainable purchasing, ethics, workers’ rights and human rights. High rating from CDP CDP is an independent sustainability index that analyses climate data from over 18 000 companies each year. The companies that report their sustainability work to CDP are assessed on disclosure, awareness and management of climate-related risks and opportunities. Holmen has reported to the CDP Climate Program since 2007 and also to the CDP Forest Program since 2013. The results show that Holmen has a good strategy and management to mitigate negative impacts of climate change. In the 2022 evaluation Holmen was ranked A- in both categories. Calculation of Holmen’s climate benefit Comments to calculations on pages 42–43 Carbon dioxide storage in Holmen’s forests is based on the annual increase in the volume of standing timber based on the company inventory carried out in 2019 minus harvested volumes. Net storage in land, wood products, paperboard and paper 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. Storage in land is calculated by the Swedish University of Agricultural Sciences (SLU) using the permit method based on an inventory of 30 000 sample sites over a five-year cycle. The methodology also takes into account the fact that a certain amount of old wood and fibre products rotted or was incinerated during the year and thus stopped binding carbon dioxide. According to the IPCC, fibre products have a half-life of 2 years and wood products 30 years. The substitution effect of wood products is based on European and Canadian research. Holmen’s calculations of the substitution effect of wood products also make the assumption that 100 per cent of older fibre products and old wood products that ceased binding carbon dioxide in 2022 were used for bioenergy which substituted for fossil fuel. The substitution effect from paper and paperboard is calculated based on the assumption that 100 per cent of paper and paperboard becomes biofuel at the end of its lifecycle, and thus replaces fossil fuels. The substitution effect from our production of renewable electricity is calculated by bio- based electricity production and hydro power replacing fossil-based controllable electricity from coal power, wind power replacing fossil-based electricity from coal and gas power, and bioenergy (comprising branches and treetops and residual products from Holmen’s operations delivered externally) replacing fossil fuels. More information on calculations and sources is provided in Holmen’s sustainability report at holmen.com. Environmental information Holmen Annual Report 2022 111 Business overview holmen 2022 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 112 Holmen Annual Report 2022 Business overview Kroksjön Sawmill Blåbergsliden Wind Farm Bygdsiljum Sawmill Umeälven Harrsele Tuggen Gideälven Stennäs Gammelbyforsen Björna Gideå Gidböle Gideåbacka Faxälven Linnvasselv Junsterforsen Gäddede Bågede Strömsbruk Strömsbruk Converting Plant Iggesundsån Pappersfallet Iggesunds Kraftstation Iggesund Iggesund Mill Iggesund Sawmill Ljusnan Sveg Byaforsen Krokströmmen Långströmmen Ljusne Strömmar Hallstavik Hallsta Paper Mill Varsvik Wind Farm Stockholm Head Office Norrköping Braviken Paper Mill Braviken Sawmill Linghem Sawmill Motala Ström Holmen Bergsbron-Havet UK Workington Mill Forest holdings Holmen’s forests 2022 Total land acreage Total forest land acreage* – of which nature conservation areas Productive forest land** 1 305 000 ha 1 160 000 ha 204 000 ha 1 045 000 ha Total volume of standing timber on productive forest land 125 million m3 growing stock, solid over bark * Calculated based on Holmen’s stand catalogue and data from the National Forest Inventory in line with 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) according to Holmen’s stand catalogue. Power plants Hydro power plant %1) GWh2) Built in River Umeälven Gideälven Faxälven Harrsele Tuggen Stennäs Gammelbyforsen Björna Gideå Gidböle Gideåbacka Linnvasselv Junsterforsen Gäddede Bågede Iggesundsån Pappersfallet Iggesunds Kraftstation Ljusnan Motala Ström Sveg Byaforsen Krokströmmen Långströmmen Ljusne Strömmar Holmen Bergsbron-Havet Wind power Varsvik Wind Farm Blåbergsliden Wind Farm 49 22 10 10 10 10 10 10 7 100 30 100 100 100 20 20 9 11 7 100 100 100 100 489 98 3 1 8 9 6 8 16 130 22 71 6 22 22 21 42 32 17 106 8 149 430 1957–58 1962 1985–96 " " " " " 1961–74 " " " 1915 2009 1949–75 " " " " 1990 1927 2014 2020–22 Production facilities Iggesund Mill Products: Multi-layered paperboard made from bleached chemical pulp (SBB). Brand: Invercote and Inverform. Workington Mill Products: Multi-layered paperboard, surface layer of chemical pulp, core of mechanical pulp (FBB). Brand: Incada. Strömsbruk Converting Plant Products: Converted paperboard products for the packaging of cosmetics, confectionery, food, etc. Braviken Paper Mill Products: Paper for books, magazines, advertising, newspapers and packaging. Hallsta Paper Mill Products: Paper for books, magazines, advertising and packaging. Braviken Sawmill Products: Spruce and pine construction products. Iggesund Sawmill Products: Pine joinery products. Linghem Sawmill Products: Spruce and pine construction products. Bygdsiljum Sawmill Products: Spruce and pine products for joinery and construction plus glulam and CLT for the construction market. Kroksjön Sawmill Products: Spruce and pine products for joinery and construction plus planed and painted construction products. 1) Holmen’s share of production. 2) Holmen’s share of production in a normal year. Customers and market Product area Products Customer segment Primary markets Competitors Paperboard Paper Wood Products Premium paperboard for consumer packaging Brand owners, converters and wholesalers Europe, Asia, North America Metsä Board, Mayr-Melnhof, Stora Enso, Westrock Paper for books, packaging and graphical publications Publishers, printers, retailers and converters Europe, Asia Norske Skog, Stora Enso, UPM Construction and joinery timber, CLT and glulam, plus wood for pallets and packaging Construction and joinery industry, builders’ merchants, and packaging industry Europe, Middle East & North Africa, North America Moelven, SCA, Setra, Södra, Vida and a large number of foreign companies Business overview Holmen Annual Report 2022 113 Carbon dioxide (CO2) Particulates Definitions and 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 102 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 obligations, less financial assets. Operating margin Operating profit/loss (excl. items affecting comparability) expressed as a percentage of net sales. Operating profit Profit before net financial items and tax. Carbon is the building block of life and is part of all living things. Biogenic carbon dioxide is released when biological material decays or is burned. Fossil carbon dioxide is released when coal, oil or fossil 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. 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 fossil gas. FSC® Forest Stewardship Council. Forestry certification system. GRI Global Reporting Initiative. International cooperation body, in which many different groups of stakeholders in society have drawn up global guidelines for how companies are to report on activities encompassed by the umbrella term of sustainable development. ISO 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. Return on capital employed ISO 9001 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 expressed as a percentage of average equity, calculated on the basis of quarterly data. Glossary 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. 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. 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. 114 Holmen Annual Report 2022 Definitions and glossary Particles of ash formed in incineration of bark or liquor, for example. PEFC Programme for the Endorsement of Forest Certification. Forestry certification system. Phosphorus (P) An element contained in wood. Excessive phosphorus in the water may cause over- fertilisation (eutrophication) and oxygen depletion. 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. The Biodiversity Intactness Index Ahead of the UN biodiversity conference, COP15, a research group at the UK’s Natural History Museum launched the Biodiversity Trends Explorer. This is a free tool open to everyone which can be used to see how biodiversity is being affected by human activity. The change is summarised by an index (Biodiversity Intactness Index) showing what percentage of a region’s natural biodiversity remains. The index can assume values between 0 and 100, where 100 means that the function of an ecosystem is intact and that the ecosystem is functioning as it always has, while 100 indicates an ecosystem that is completely depleted. The desirable level of biodiversity in an area is at least 90 per cent, which can be seen as a threshold value that biodiversity must exceed. The Biodiversity Intactness Index is based on the world’s largest database on how ecological communities have been affected by mankind. The database contains more than 4.7 million data points from more than 41 000 places and represents 58 000 species of plants, fungi and animals worldwide. For the period 1970–2014, the index values are based on the actual values contained in the database. From 2015 onwards, the index values are modelled from available data in the database. For further information, visit www.holmen.com Sources: Natural History Museum. Global Forest Watch. Calendar and information Information Calendar For 2023, Holmen will publish the following financial reports: Interim report Jan–Mar: 28 April 2023 Interim report Jan–Jun: 17 August 2023 Interim report Jan–Sep: 25 October 2023 Year-end report: 31 January 2024 AGM 2023: 28 March 2023 The interim and year-end reports are presented at an online conference for press and analysts. The conference is held in English and is broadcast live on holmen.com. The annual report, together with year-end and interim reports, is published in Swedish and English and the reports are sent automatically to the shareholders who have indicated their wish to receive them. The reports 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 Dates of trading and dividend The final date for trading, including right to dividend: 28 March 2023 Record date for dividend: 30 March 2023 Payment date for dividend: 4 April 2023 Holmen Annual Report 2022 115 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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