Södra's first six months

Profit SEK 627 million

Return 12 per cent

Interim report for the period January-June 2008

Södra’s profit for the first six months was characterised by a profound weakening in the wood products sector. Operating profit declined to SEK 627 million, a decrease of SEK 256 million compared to the same period last year. Return on capital employed declined from 16 per cent to 12 per cent.  

More difficult global conditions are to be expected in the coming period. According to Södra CEO Leif Brodén, Södra needs to take in sail to meet the storm clouds gathering on the horizon:  

“Profitability in the sawn timber business is now a thing of the past. This summer we’re having a month-long production shutdown which represents 150,000 cubic metres of ready sawn products. The possibility of further market-related shutdowns later in the year can’t be excluded. The international building market continues to weaken and we have to adapt production to new demand levels.”  

The continued weakness of the USD, poor profitability for customers, and uncertainty related to Russian export tax is fuelling uncertainty around the development of market conditions in the next 6 to 12 months. Södra’s productivity gains and bioenergy production are not able to offset these negative conditions in the short-term.  

“Although we’re sailing into the wind at the moment, we still believe we can deliver annual return in line with our requirement for 10 per cent return on capital. We would, however, need a little luck with those aspects we can’t affect ourselves,” says Leif Brodén.

“One thing we can impact however is our productivity. Our productivity improvement compared to last year is around 2.7 per cent. We’ve also picked up the pace of our productivity work and implemented nearly 1,400 improvement ideas during the first six months of the year, which is more than twice as many as during the same period last year.”  

The Group’s profit decline compared to 2007 essentially represents the profit decline in sawn timber. The average price for sawn timber declined during the profit period by almost 20 per cent compared to the first six months of 2007. Raw material costs are unchanged. Operating conditions have been good, but the year began with minor market-related shutdowns.  

Raw material stocks from the storms Gudrun and Per continued to decline. The total wood inventory was 4.6 million cubic metres fub on 30 June 2008, compared to 7.0 million cubic metres on 30 June 2007.  

Average market conditions prevail in the pulp market. Despite the implementation of price increases in USD during the profit period, the pulp price in SEK fell due to the falling dollar rate. In January 2008 the PIX price for long-fibre pulp was SEK 5,590 (USD 871) per tonne. On 30 June this price was SEK 5,420 (USD 904) per tonne, representing a price decline in SEK of 3 per cent in the first six months.  

Pulpwood costs increased during the first six months of 2008 by 24 per cent compared to the same period in 2007. Pulp mill operating conditions have been uneven during the profit period. Production records have been achieved at some mills with weaker production results in others. Total production for the first six months was 1,032,000 tonnes (1,000,000).  

External bioenergy sales achieved record volumes during the first half-year with a total energy value of 1,340 GWh. Of this, 250 GWh was sales of district heating and electricity from Swedish units.  

The process of removing bark beetle infested wood from the forest continues at the same level. The original forecast still holds until reliable new forecasts can be made in August. A continued focus on implementation is therefore extremely important.