Södra CEO Says Efficiency Measures Having Positive Effect on Financial Results

Oct. 16, 2013 - Södra said that in spite of a continued weak economy, it has increased underlying earnings significantly over the first three quarters compared to the same period last year.

Interim report January - September 2013:

  • Net revenue was SEK 12,436 million, which represents a drop of 4 per cent. This drop is primarily due to a fall in sales of electricity certificates and the closing of the CTMP mill at Follafoss, Norway.
  • Operating profit, excluding restructuring costs, rose by SEK 780 million compared to the same period last year and totalled SEK 190 million. At the same time costs have decreased by 9 per cent.
  • Operating profit after restructuring costs was SEK -706 million. Over the corresponding period for 2012, operating profit was SEK -590 million.
  • In July, Södra decided to close the pulp mill in Tofte, Norway. Restructuring costs are SEK 896 million and are accounted for separately in the results.
  • Cash flow after investments was SEK 295 million, which is SEK 939 million higher than the corresponding period for 2012.

"We can see that our markets continue to be characterised by the weak economy and the strong Swedish krona," said Lars Idermark Group President and CEO at Södra. "Despite this, our earning capacity grew over the year.

"Operating profit, excluding restructuring costs in the third quarter of this year, was SEK 221 million. This is SEK 608 million above the same period last year." — Lars Idermark, Group President and CEO, Södra.

"The change when looking at the trend over recent months is particularly evident. Operating profit, excluding restructuring costs in the third quarter of this year, was SEK 221 million. This is SEK 608 million above the same period last year.

"An important factor in the improvement in earnings was the savings and efficiency measures that have been implemented, which total more than a quarter of a billion kronor to date this year," he continued.

SOFTWOOD PULP

Despite weak economic growth in Europe, the market for softwood sulphate pulp has continued to develop positively. The reduction in demand that normally occurs over the summer months failed to materialise this year. The strong market balance is expected to continue for the remainder of the year, and Södra raised the price of softwood sulphate pulp to USD 900 per tonne on October 1. The impact of the price increase on Södra Cell's profitability is determined by how the Swedish krona moves against the US dollar.

"A contributing factor to the strong market growth for softwood sulphate pulp is our decision to close the plant at Tofte. The mill ceased production in August and means capacity has been reduced by 375,000 tonnes per year," Idermark added.

Södra Cell has enjoyed a significant improvement in earnings over the year and currently has good profitability, despite the prevailing economic climate.

"Last year's results were impacted by significant losses in the Norwegian mills, which made us take the decision to close."

SAWN TIMBER

For sawn timber products, the market has gradually strengthened over the year, albeit from a low level. The market is currently characterised by stable demand and unchanged prices. Södra Timber's production over the first nine months rose to 1,085,000 cubic metres up from 1,001,000 cubic metres for the same period last year.

"Ahead of the last quarter, we note an improvement in demand for sawn timber products in some of our key markets and we also see some room for improvement in prices. The new sawmill at Värö is now fully expanded and operates a three-shift production system, in order to establish profitability. We anticipate a continued high rate of production at our sawmills and we will produce more than 1.5 million cubic metres this year. Next year, we expect to achieve total production of approximately 1.7 million cubic metres," Idermark explained.

INTERIOR PRODUCTS

The market for interior products is affected by a continued slow pace both in terms of construction and home renovations. Deliveries improved over the autumn from a seasonal aspect.

"Södra Interiör is currently undergoing an extensive programme of change to create a more efficient, more customer and market oriented organisation in order to further increase competitiveness."

FORESTRY OPERATIONS

Forestry operations over the summer and early autumn were characterised by a strong contraction and build up of standing timber stock.

"We have a strong offering in the timber market and the price increase that we implemented in May has had the intended effect," Idermark said.

"Good harvesting conditions with a dry autumn have paved the way for a high level of harvesting activity. The outlook for the end of the year is good, and we envision that Södra's operations will continue to have a consistently high demand for raw timber products," Idermark concluded.

SOURCE: Södra