Descriptions of operational risks, management of them and comments on activities 2017 in the following areas; demand and prices, commodity prices, facilities, forest, customer credits, health and safety, environment, personnel, business ethics, suppliers, IT systems and political decisions.


Risk Risk management Comment
Demand and prices. Changes in demand and prices affect opportunities to achieve profitability targets. Changes in prices and deliveries largely depend on the development of the European market. This in turn is influenced by several factors, such as demand, production among European producers and changes in imports into Europe, as well as the opportunities for exporting profitably from Europe. Holmen has limited opportunities for making rapid significant changes to its range of products, but the company adapts its product focus, steering it towards the products and markets deemed to have the best longterm potential. Holmen aims to have a broad customer base and an offering that spans several product areas. This aim, combined with long-term customer relationships, reduces vulnerability to changes in the market. In 2017, sales of paperboard, paper and wood products to priority end-use areas and markets increased. 
Commodity prices. Wood, electricity and chemicals are the most significant inputs for the industry and price changes affect the industry’s profitability. The size of the log harvest from the company’s forests is essentially the same as consumption at the company’s saw mills, while pulpwood from own forests corresponds to approximately 35 per cent of the paperboard and paper mills’ consumption. The Group is largely in balance in terms of pulp as a result of the integrated production process. The paperboard business generates almost all the electricity required at its own mills, while electricity for paper manufacturing is supplied from external purchases. The Group also sells electricity from its hydro power and wind power assets to the electricity grid. In net terms, the Group’s own electricity generation corresponds to just under 50 per cent of its total electricity consumption. The price risk in this consumption is managed through physical fixed price contracts and financial hedging. There is a significant need for thermal energy, but this is produced locally at each mill from residual products. Chemicals are a significant input, particularly in paperboard production, but the need is reduced and used chemicals at the mill are recycled. Commodity prices have been generally stable in recent years. The price of net electricity consumption is 80–85 per cent hedged for 2018-2020 and 65 per cent hedged for 2021. Linghem Sawmill, with production capacity of 75 000 cubic metres, was acquired in 2017 to strengthen the raw material supply and expand the product offering for Braviken Sawmill. 
Facilities. Production equipment can be seriously damaged for example in the event of a fire, machine breakdown or power outage. This can lead to supply problems, unexpected costs and reduced customer confidence. Damage prevention measures, regular maintenance and continual upgrades can minimise the risk of damage to facilities. Training of employees promotes participation, knowledge and awareness about these risks and how they can be countered. Holmen insures its facilities to their replacement value against property damage and consequential loss. The excess varies from one facility to another, but the maximum is SEK 30 million for any one claim. The Group has liability insurance that also covers sudden and unforeseen environmental damage affecting third parties. No event causing significant damage occurred in 2017. 
Forest. Forest fires, grazing by wild animals and insect pests are risks in growing forests. The Group's forest holdings are not insured. They are widely dispersed over large parts of Sweden and the risk of extensive damage being incurred simultaneously is deemed to be low. To reduce the extent of grazing by wild animals, active efforts are undertaken on Holmen's land to maintain game at the correct population level. Insect pests such as pine weevils are countered by waxing seedlings.  No major unforeseen events involving damage occurred in Holmen’s forests in 2017.
Customer credits. The risk of the Group’s customers being unable to fulfil their payment obligations gives rise to credit risk. The risk that the Group’s customers will not fulfil their payment obligations is limited by means of creditworthiness checks, internal credit limits per customer and, in some cases, by insuring trade receivables against credit losses. Credit limits are continually monitored. Exposure to individual customers is limited. At 31 December 2017 the Group's trade receivables totalled SEK 2 089 million, of which 37 per cent (46) were insured against credit losses. During the year, credit losses on trade receivables had a SEK -5 million (-5) impact on earnings. Sales to the five largest customers accounted for 13 per cent of the Group's total sales in 2017. 
Health and safety. Incidents and accidents at the workplace pose a risk to human life and health. This could lead to production disruptions and increased costs. Good health and safety is a priority at all levels of management in the Group. Certified management systems, Groupwide targets relating to work accidents, continual training of personnel to increase risk awareness, procedures for incident and accident reporting, and risk assessment of work by contractors are examples of activities to achieve a high level of safety in the workplace.  The figure in 2017 was 5.1 industrial accidents per 1 million hours worked (8.8).
Environment. Production disruptions can cause breaches of emissions conditions set for the business by environmental authorities. This could have an environmental impact. 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.  The mills reported 29 (44) incidents to the supervisory authorities in 2017. The nonconformities were not of a significant nature in terms of environmental impact or impact on profits.
Personnel. Holmen needs to attract and retain skilled and motivated employees so it can conduct long-term business operations with good profitability. Issues regarding management by objectives, responsibility, participation, safety and skills development are prioritised in day-to-day work through continual feedback and dialogue between managers and employees, as well as training of personnel. Employee representatives have seats on Holmen’s Board. A whistleblower function is in place if employees and other stakeholders wish to report improper conduct within Holmen. No cases regarding deviations from the code of conduct or the HR policy were reported in 2017.
Business ethics. Both nationally and internationally, customers and partners place requirements on Holmen as a stable and reliable supplier that has good business practices and clear sustainability principles. Deviations from principles and policies could have a negative impact on reputation and business relationships. Holmen’s business ethics policy and associated guidelines provide clear guidance on how to maintain good business ethics when dealing with external contacts in various markets. Training on business ethics is provided for management groups and for employees deemed to encounter issues covered by the business ethics policy, such as marketing and sales departments and purchasers. No cases concerning deviations from either the business ethics policy or the parts of the Code of Conduct regarding business ethics issues were reported in 2017. 
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 sustainability requirements can also have a negative effect on operations. Holmen endeavours to have at least two approved suppliers per area of use. In addition, Holmen’s Code of Conduct for suppliers is included in all new contracts. It contains requirements on sustainable development, including by respecting internationally recognised principles on anti-corruption measures, human rights, health and safety and the environment. Since 2017, Holmen has hired an external partner, EcoVadis, to follow up supplier compliance with the Code in the areas of human rights, health and safety, the  environment, business ethics and purchasing. No cases regarding breaches of the Supplier Code of Conduct were reported in 2017. By the end of 2017, suppliers accounting for over 80 per cent of the Group’s purchasing volumes had signed up to the Supplier Code of Conduct. Holmen is subject to the UK Modern Slavery Act and a report relating to this is available here.
IT systems. Sales and purchasing require efficient IT support in order to manage and plan production. Disruptions in IT support and unauthorised access to information can have significant negative effects on the business. Operating disruptions and unauthorised access are prevented by security measures and preventive measures in the form of appropriate physical protection, reliable server operation and secure networks. Measures and procedures are in place to minimise the risk of interruption and to manage situations if interruptions occur. Holmen is continually developing these protective measures to address changes in the risk profile. Business operations were not affected by IT incidents in 2017.
Political decisions. Laws and rules in countries in which the Group operates affect how business activities can be conducted. Rules on how forests may be managed could affect future growth and harvests. Stimulus measures to use bio-based products can affect demand for paperboard and wood products, as well as wood from our forests. Rules on the use of fresh fibre versus recovered fibre also have an impact. Holmen participates in national and international industry organisations whose purpose is to handle the monitoring of social trends, advocacy and political lobbying. 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 debate in the media. On issues regarding the right to manage the forest and water-based operations, Holmen has participated actively in work with business organisations and responses to consultation on relevant subjects. In late 2017, the EU issued a decision about how the land and forestry sector should contribute to the EU's climate and energy policy. The result was positive for Holmen and the Swedish forest products industry. In 2017, a parliamentary bill regarding water-based operations was introduced that could affect Holmen and the business sector's ability to develop operations. 

 

 

Debt/equity ratio
0.13

Net turnover (Msek)
16 133

Holmen AB, P.O. Box 5407, SE-114 84 Stockholm, Sweden. 

Tel: +46 8 666 21 00  E-mail: info@holmen.com

  

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