Södra's 2011 net profit down 62.1% year-over-year to 883M Swedish kronor; net sales down 7.8% to 18.2B kronor primarily due to economic downturn, weak markets, strengthening Swedish krona

UPPLANDS VASBY, Sweden , February 17, 2012 (press release) –

Södra, 1 January – 31 December

Income statement, SEK million

2011

2010

Net sales

18,191

19,727

Operating profit

1,005

2,271

Net financial items

-122

61

Profit after net financial items

883

2 332

Cash flow after investments

-614

1 381

Return on capital employed, per cent

9

23

Equity ratio, per cent

61

61

 

 

Södra’s business areas, 1 January – 31 December                     

SEK millions

Net sales

 

Operating profit

 

 

2011

2010

2011

2010

Södra Skog

10,987

10,186

75

56

Södra Cell

9,888

11,310

1,273

2,224

Södra Timber

3,846

4,250

-307

129

Södra Interiör

1,240

1,174

49

30

Other, eliminations

-7,770

-7,193

-85

-168

Total

18,191

19,727

1,005

2,271



Södra’s operating profit for 2011 fell by SEK 1,266 million to SEK 1,005 million compared with 2010. Net sales fell by SEK 1,536 million to SEK 18,191 million, primarily as a consequence of the economic downturn and weak markets over the second six months of the year, in combination with a strengthening of the Swedish krona. Return on capital employed fell to 9 per cent, compared with 23 per cent in 2010.

• There was high activity in forestry, with timber volumes amounting to 17.0 million m3sub.

• The new sawmill in Värö, with an annual capacity of 750,000 cubic metres over three shifts, opened over the course of the year.

• The sawmill in Traryd was converted to a hardwood sawmill. Södra now has the two biggest hardwood sawmills in Sweden.

• Production of textile pulp began in Mörrum towards the end of the year.

• The end of the year also saw the start of industrial-scale production in Värö of the new pulp-based composite material DuraPulp.


Comments from Leif Brodén, CEO and Group President of Södra:

The year got off to a relatively strong start. The world market price of pulp smashed the thousand dollar barrier in the spring. But we saw a sharp slowdown when the effects of the financial anxiety became perceptible. Viewed over the year as a whole, therefore, justifying the long-term return requirement became a challenge.

As things stand at present, Södra’s primary task has been to take responsibility as a company, seeking to alleviate the adverse effects and avoiding the build-up of new problems further along the line. This is what we have done; we have restricted production at our sawmills and pulp lines as well in order to reduce stock levels.

Our employees have continued to drive Södra’s productivity culture forwards over the year. The organisation has thus continued to demonstrate that it is working actively on all the things that Södra itself can influence, no matter what the direction of the economic situation in the markets at any one time. Some 4,902 suggestions from staff were implemented over the year – a record figure. This means 94 suggestions implemented every week. The annual positive effect on profit as a result of these ideas amounts to SEK 133 million.

For the Group overall, productivity development was negative in 2011. This is due mainly to the fact that production volumes were reduced by production restrictions as a consequence of market downtime and the fire that took place at Södra Cell Mönsterås in August.

The strategy includes a number of products to reinforce our competitiveness in the long term. This was a very special year in which a number of important investment projects for the future were launched. One of several positives was our startup of textile pulp production at Södra Cell Mörrum. We are getting to grips with a completely new product and are approaching new customers alongside our existing ones.

October saw the opening of our state-of-the-art Södra Timber Värö sawmill, which replaced the old one and offers three times the capacity. This investment is part of our strategic focus on streamlining and productivity development, which means that Södra is increasing its ability to pay for members’ timber.

Another new addition is Södra’s industrial-scale production of the pulp-based composite material DuraPulp. For a couple of years now, this material has been attracting attention due to its properties, alongside the fact that it is renewable and biodegradable as well. The increased production rate provides the opportunity to develop many exciting new applications in future. A number of new opportunities with customers await.

More about the business in 2011:

Members’ area increased by 7,122 hectares over the year to a total of 2.37 million hectares. The number of members was 51,247. In 2011, Södra Skog handled a total of 17.0 million m3sub of timber raw material, compared with 16.6 million m3sub in 2010.

Södra Skogsenergi’s business has clearly been affected by the weather. A very cold winter and spring with increased production was followed by an abnormally warm autumn, which helped to reduce deliveries. Deliveries of biofuel to heating plants, heat and power plants, industries and pellet factories over the whole year remained unchanged at 4.3 TWh (4.3).

The pulp market got off to a strong start but weakened over the second six months of the year. A new price record of USD 1,030 per tonne for bleached softwood sulphate pulp was achieved in June before falling to USD 843 per tonne in the autumn. Prices in Swedish kronor were under pressure due to a stronger krona.

As far as timber products were concerned, the year was characterised by a gradual reduction in demand and only marginal reduction in production. Construction of new buildings continued to fall throughout Europe, while the renovation sector remained at a good level. The Swedish sawmill industry has been particularly vulnerable over the year due to the relatively strong Swedish krona impairing competitiveness. However, the situation for sawmills in our main competitor countries has also been unsatisfactory.

Pulp production amounted to 1,912,000 tonnes, compared with 2,012,000 tonnes in 2010. This figure was affected by the fire in Mönsterås and market downtime. The production of sawn timber products fell by 220,000 m3 to 1,381,000 m3 as a consequence of production being curtailed in the face of weaker demand.

Trivselhus has taken back market share, and its situation has improved over the year. A simplified portfolio adapted to market conditions has helped to improve margins over the autumn.

The market for Södra Interiör was slightly better than in 2010 in terms of demand, although greater caution was apparent in that we received more orders over the last quarter of the year, but these were worth less. The Swedish market benefited from the repairs and extension tax allowances (ROT-avdrag). Norway was stable, primarily in the maintenance sector, while activity on the Danish market remained low.

The timber market was characterised by high demand for pulp wood but slightly limited demand for saw timber over the first six months of the year. At the same time, access to both varieties was good. Over the second six months of the year, demand for pulp wood fell due to restricted production among many manufacturers. Consumption of saw timber remained largely buoyant up to the end of the year, when a number of sawmill companies restricted production.

Work continued on achieving FSC and PEFC certification for more member forests. At the end of the year, more than 1.3 million hectares held FSC certification, and almost 1.8 million hectares held PEFC certification.

Södra’s annual report will be published on 20 February at www.sodra.com

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