Södra Reports Improved Fourth Quarter Results on Savings and Streamlining Measures

"Södra Cell has seen a massive improvement in profit levels and is currently enjoying positive development." – Lars Idermark, CEO and Group Chief Executive, Södra.

Feb. 13, 2014 - Despite a weak economic situation and a strong Swedish krona, Södra saw a significant increase in its underlying earnings in 2013. Operating profit, excluding restructuring costs, amounted to SEK 400 million, representing a SEK 1,329 million increase on last year.

  • Net sales for the group amounted to SEK 16,580 million, which represents a drop of one 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. At the same time, costs have fallen by nine per cent.
  • Operating profit, restructuring costs excluded, rose by SEK 1,329 million compared to last year and totalled SEK 400 million.
  • Operating profit, restructuring costs included, amounted to SEK -417 million. Over the corresponding period for 2012, operating profit was SEK -929 million.
  • In July, Södra decided to close its pulp mill in Tofte, Norway. Restructuring costs amounted to SEK 817 million and are accounted for separately in the results.
  • Cash flow after investments was SEK 597 million, which is SEK 1,412 million higher than the corresponding period for 2012.
  • The equity/assets ratio at year-end was 59 per cent (61).
  • Investments amounted to SEK 952 million (1,708) for the year.
  • Södra's new group strategy was presented in December. This aims to create a cohesive group and long-term profitable growth.

Business environment and market

After a weak 2012 in economic terms, the world economy gradually recovered in 2013. Positive signals indicating an improving situation and rising growth rate were seen as early as the spring, but uncertainty in the European economy and elsewhere resulted in slow development.

The market for Södra's products eventually improved after a slow first six months of the year. The autumn in particular was positive in terms of market pulp, but even the market for sawn timber products improved slightly. Stocks of softwood sulphate pulp were relatively low during the year, which meant that prices could gradually be increased to an extent. The list price for softwood sulphate pulp in Europe stood at USD 810 per tonne at the start of the year, rising to USD 905 per tonne at the end.

The market for sawn timber products got off to a weak start, but in the autumn it began to be characterised by stable demand and strengthening prices. A construction market that remains weak and a cautious renovation market in Sweden, combined with a relatively sharp decrease in new construction in Norway, has influenced the market for interior timber products.

The timber market in southern Sweden was characterised by high demand from industry during the first six months of the year. The range of forest resources was low at the start of the year but increased after Södra raised its standard timber prices by SEK 40 kronor per m3sub before the summer. This resulted in an increase in the purchase rate mainly for final felling. The price difference for softwood pulp timber between Götaland and Svealand grew wider over the year, to 50 kronor per m3sub.

Comments from Lars Idermark, CEO and Group Chief Executive, Södra

"Our markets have continued to be characterised by a weak economic situation and a strong Swedish krona. Despite this, our earning capacity grew significantly over the year. If we exclude the restructuring costs for the closure of the pulp mill in Tofte, our operating profit amounted to SEK 400 million, which is SEK 1,329 million better than in 2012. These improved underlying earnings are what we now take with us into 2014.

"The savings and streamlining measures implemented throughout all parts of the company are one important element in this improvement in profits.

"The restructuring presented by closing our pulp mill in Tofte impacted upon profits for 2013 but had a positive effect on cash flow. It also helped to reinforce the market balance for long-fibre market pulp. We also sold the second, smaller mill in Follafoss in Norway during the year, which resulted in a positive economic contribution.

"One important measure in 2013 was the formulation of our new group strategy. Following a period in the early 2000s when the company achieved growth and good profitability, Södra has seen a phase in which profits have been falling and the company has failed to grow. Therefore, this strategy aims to create profitable growth. One important element of this strategy will be to make us a more cohesive group, allowing us to use our collective resources more effectively and work together more efficiently. The fact that the markets for our products are growing by 3-5 per cent per year is also giving us opportunities to grow, and this is a must if we are to be able to add value for our owners in the long term.

"Södra Cell has seen a massive improvement in profit levels and is currently enjoying positive development.

"For sawn timber products, the market has gradually strengthened over the year, albeit from a low level. We are currently seeing a market with stable prices and demand.

"One important element of our efforts to improve profits at Södra Timber will involve increasing production further. This year, we are expecting to achieve total production of approximately 1.8-1.9 million cubic metres. The new sawmill in Värö has been operating at full capacity since last autumn. Three-shift production is now placing us in a position from which to achieve profitability. We are aiming to produce 500,000 cubic metres of sawn timber in 2014 and 600,000 cubic metres in 2015.

"Our hardwood sawmills are now fully integrated into Södra Timber, and both sales and production volumes are seeing a positive trend curve.

"We have implemented restructuring at Södra Interiör over the year, along with extensive changes with a view to creating a more efficient organisation which is more customer- and market-oriented. Profits for 2013 are subject to costs for the measures implemented in order to enhance competitiveness in the long term.

"There has been plenty of demand for timber, and we have a strong offering in the timber market. The price increase which we implemented in May has had the desired effect. Södra's land conservation guarantee, launched in June, has also been met with great interest and demand among forest owners.

"Looking to the future, I feel that our prospects for 2014 are better than they have been compared to the past couple of years. Europe, which is the primary market for our products, is expected to be stronger, with growth in the economy in 2014. A better economic situation in 2014 will also result in consistently high demand for raw timber products from Södra," Idermark concluded.

Södra, with headquarters in Vaxjo, Sweden, produces market pulp, wood products and biofuels. The company operates three pulp mills, all in Sweden, with a total capacity of 1.6 million tonnes/year. Sodra produces both softwood and hardwood pulp — 90% softwood and 10% hardwood. To learn more, please visit: www.sodra.com.