Södra’s third quarter report January – September 2009

Södra is adopting IFRS in 2009. The comparison period Jan-Jun 2008 has been recalculated. The full reconciliation report for the IFRS transition is available on www.sodra.com*2008-12-31

“All segments are now improving but we have a fair way to go before the pulp market reaches satisfactory profitability. To meet a 10 per cent profitability requirement on capital employed, pulp prices would have to rise by at least 10 per cent in the fourth quarter,” according to Södra President and CEO Leif Brodén.

“Essentially all the growth in market pulp is now concentrated in China. Reduced demand in both North America and Europe is likely to continue during the first half of 2010,” he continued.

“Total pulp inventory is now at a low level and is expected to continue declining during the rest of the year. One of the key factors affecting the price picture for market pulp in the coming year is whether the US government manages to close the loophole for the “black liquor tax subsidy” to US pulp producers.”

“Something we’re very pleased about at the moment is the increasing productivity in sawmills and the price recovery for sawn timber. Södra Timber has been meeting its profitability requirement since September and we expect that to continue during the rest of the year. On a global basis, saw logs are in short supply and we have adapted production to the ongoing weak demand. We anticipate an upturn in new housing construction next year in the US and other countries, albeit from a very low base. The shortage in the timber market is expected to continue in 2010 and hold back production increases,” commented Brodén.

“Södra’s interior products company, Gapro, is showing steadily improving operating margins, even if from a low base.”

“Non-recurring items have had a positive effect on profit so far this year. In the fourth quarter of the year we anticipate continued improvements in all business areas. Uncertainty related to the global timber situation however makes business conditions for 2010 difficult to forecast” Brodén concluded.

Productivity in Södra increased at an annual rate of 1.7 per cent in the first nine months of the year. An average of 59 improvement proposals were made per week.

Södra’s operating profit for the period was SEK 311 million (698). Net revenue decreased to SEK 12,635 million (13,085).

Storm management completed during the fourth quarter

• Final storm timber being removed from terminal storage
• Reforestation completed
• Extraordinary forest protection work completed

The final wood from the Gudrun and Per storms, which felled a total of 91 million forest cubic meters in the Götaland region, will be processed in late 2009. The last of the stockpiled wood is being removed from terminal storage for use in the mills. At most, 10 million cubic meters of wood were stored at a total of 40 terminals and also stockpiled at motor roads following the storm.

Of the 164,000 hectares of land belonging to Södra members that was cleared by the storms – equivalent to seven years’ normal felling – 93 per cent has been reforested. 86 per cent has been reforested through planting and 7 per cent through self-regeneration. Management of re-growth and cleaning now commences.

Bark beetle attack after the storms was restricted through measures such as rapid processing of storm-felled wood and placement of traps. Favourable weather in 2008 and 2009 has also inhibited bark beetle reproduction. A total of 2 million cubic meters of wood were subject to bark beetle infestation on land belonging to Södra members.

“Thanks to the intensive forest protection efforts of our organisation and members working together, the insect attack has been restrained,” said Södra director of forestry, Urban Eriksson.

For further information, please contact:
Leif Brodén, President and CEO, Södra +46 70 558 9426
Mikael Staffas, CFO, Tel +46 70 511 6497
Per Braconier, Director of Communications, Södra +46 70 534 5166