Lower deliveries and greater market uncertainty

	Jan-Sep 2011	Jan-Sep 2010
Net sales, SEK m	13,943	14,978
Operating profit, SEK m	879	1,994
Profit after net financial items, SEK m	731	2,009
Return on capital employed, per cent	11	27
Free cash flow after investments, SEK m	132	1,810
Equity ratio, per cent	60	59
Actual productivity, per cent	- 2.7	2.3

Södra's operating profit for the first nine months of the year amounted to SEK 879 million (SEK 1,994 million for the same period last year), which is equivalent to a return of 11 (27) per cent on capital employed. The difference of SEK 1,115 million in operating profit compared with the same period last year is explained by higher timber costs, adverse exchange rate effects, lower delivery volumes and the fire at Södra Cell Mönsterås, combined with a weak market for sawn timber products.

"The market is being affected by the uncertainty caused by the effects of the debt crisis in Europe and the USA. At the other end of the scale, we have globally high timber costs as a balancing factor. In addition, demand in Asia, and in particular in China, remains strong," said Leif Brodén, Södra's Group President.

CEO, Leif Brodén

"How quickly the uncertainty will reverse and the markets bottom out and head back up again, will be determined mainly by how the politicians continue to handle the debt crisis," added Brodén.

The pulp market was characterised by prices that remained buoyant, compared with historical levels. Lower prices in dollars over the period was compensated for by a stronger dollar against the krona. The accumulated average price over the first three quarters of the year amounted to USD 983 per tonne for bleached softwood sulphate pulp and USD 853 dollar per tonne for hardwood pulp.

Producers' stocks of pulp increased over the quarter, with levels of short fibre pulp seeing the biggest increase. European customers' stocks of purchased pulp remained at historically low levels.

Deliveries of pulp amounted to 1,374,000 tonnes (1,518,000). Södra's pulp stock over the year has increased by 94,000 tonnes to 244,000 tonnes (171,000).
The market for sawn timber products continued to be marked by a decline in demand. Marketing activities in respect of new construction remain low in both Europe and the USA. Consumption of timber products in Sweden and elsewhere in Europe is also being affected by how sales of existing buildings are going. In the post-summer period, this market has seen less activity than previously. Södra's deliveries of sawn timber products fell by 101,000 cubic metres over the first nine months of the year to 1,168,000 cubic metres (1,269,000).

"There are signs that production levels in Swedish and other European sawmills are being cut back in response to a weaker market. However, we have not seen the effect of this as yet," Brodén commented.

The new sawmill in Värö began production and fine-tuning over the quarter, while the old sawmill on the site was closed. The new sawmill has an annual capacity of around 750,000 cubic metres, and the investment is worth around SEK 1 billion. The new sawmill was officially opened on 3 October.

Access to fibre raw material has been higher than normal throughout Sweden. Supplies to Södra's operations have been stable, with unchanged prospects for the rest of the year as well. This is also true of supplies to Södra's hardwood facilities, which have seen a massive increase in volumes due to the conversion of the sawmill in Traryd to a hardwood sawmill.

Access to raw materials has increased in Norway as well. Work to secure increased supplies of domestic Norwegian raw material for Södra's operations there is continuing.

Demand for forest fuel remains high. Supply is high and the market is balanced.
As far as interior products are concerned, sales to the Swedish building and construction trade have been good, with pressure on prices from imported goods constantly present. Exports have also been developing well in markets such as Japan, Germany, China and the Baltic States. The Norwegian market has continued to be strong, with increased sales and relatively high gross margins. Sales in Denmark, however, remained sluggish.

Productivity development over the last twelve-month period amounted to - 2.7 per cent. This figure has been adversely affected to a great extent by a reduction in pulp deliveries and the commissioning of the new sawmill in Värö. Suggestions made by staff for improvements contributed + 1.0 per cent. Both the pace of implementation of staff ideas for improvements and the annual improvement in profits remain at peak levels. More than 78 (61) ideas per week were implemented over the first nine months of the year, and profits improved by SEK 106 (98) million over the period.

"We will be fine-tuning the Värö sawmill over the final quarter of the year, while at the same time starting textile pulp production at Södra Cell Mörrum in December. Both are good examples of how we are participating in necessary restructuring, with even stronger customer offerings in the near future. We are predicting that the European market will remain weak over the next year, but with strong development in Asia offsetting this. We are also seeing, for the first time in a long while, a certain change for the better on the North American market," Brodén concluded.

For further information, please contact:
Group President and CEO Leif Brodén, +46 (0) 470 89 435
CFO Carina Olson, +46 (0) 470 85 695
Director of Communications Per Braconier, +46 (0) 70 534 51 66