Monday, 23 April 2012 15:30

Södra's income statement for the first quarter of 2012

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Södra's operating profit for the first quarter of 2012 amounted to SEK -41 million. Profit after net financial items amounted to SEK -2 million. Reduced production and a number of market stoppages characterised the first quarter of the year.

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"We started the year with most of our sawmills implementing market stoppages, while production at two of our Norwegian pulp mills was down for much of the quarter. Production at our pulp mills was just 73 per cent of our normal capacity. For the sawmills, the corresponding figure was a low 70 per cent," said Group Chief Executive Leif Brodén. Together with the first quarter of 2009, this is historically the lowest level of capacity utilisation the company has seen. January and February experienced the lowest production figures, but they also mark the turning point. All production units have been back to normal production capacity since 20 March.

 

"We are seeing a recovering pulp market and anticipating economic recovery," said Brodén. Price announcements have been accepted, and as of 1 April the price of NSBK is USD 870 per tonne. We are now seeing strong increases in volumes to China, which up to now has been more or less solely responsible for the increase. We are expecting to see higher prices for sawn timber products over the course of the year, but only small volume increases. Viewed from a new development perspective, it seems that 2012 will be another lost year. The sawmill structure will probably need further streamlining.

 

"For the rest of 2012, we will see normal capacity utilisation, and we think we will see a profit for the year which is just below last year's result, along with a 7 to 8 per cent return on capital employed," said Brodén.   

 

The pulp market started to show signs of recovery during the first quarter of 2012. The world market price of bleached softwood sulphate pulp went up as inventories decreased.

 

Pulp production at Södra's five mills over the period amounted to 380,000 tonnes, compared with 522,000 tonnes over the same period last year. This reduction is due to the market stoppages which took place at Södra Cell Tofte and Södra Cell Folla.

 

Textile pulp is now being produced at Södra Cell Mörrum. Annual production is expected to reach 170,000 tonnes, which will give Södra a competitive textile pulp product based on hardwood.

 

Production of DuraPulp is ongoing at Södra Cell Värö. This is a material which has attracted significant attention due to its unique properties, combined with the fact that it is renewable and biodegradable. DuraPulp is made up of a specially selected pulp from Södra Cell and a renewable biopolymer. On further processing, these two components provide special properties such as moisture resistance, strength and hardness. For the most part, a lamp and a children's chair have been in the spotlight to date, and work is now ongoing with a number of partners which are testing the material at their production facilities. 

 

The market for sawn timber products remains weak, although supply and demand remain balanced. High raw material prices combined with the weak market are having an adverse impact on profitability.

 

Södra produced 371,000 m3 of sawn timber products over the period, compared with 391,000 m3 over the same period last year. Production at the new sawmill in Värö is continuing to develop positively towards stable, high production levels as planned.

 

The market for interior products is hesitant in Sweden and remains weak in Denmark, but both sales and earning capacity are strong in Norway.

 

Over the quarter, Södra Interiör acquired parquet flooring manufacturer Berg & Berg in Kallinge, employing around 90 staff. The company produces more than 500,000 m2 of high quality parquet flooring per year, with net sales of around SEK 130 million. This acquisition will further increase the range of products available to Södra Interiör's customers, while at the same time providing good opportunities for synergies between the businesses in fields such as marketing, logistics and product development.

 

As a consequence of the sawmill and pulp mill stoppages, the volumes handled by Södra Skog over the first quarter were 800,000 m3 lower than at normal capacity. The price of softwood pulp timber was reduced by SEK 25 on 16 January to SEK 300 per cubic metre sub (solid volume under bark). Since the end of the quarter on 13 April, the price of softwood pulp timber and the assortment mixed hardwood has been reduced by SEK 20 to SEK 280 per m3sub. At the same time, the price of aspen pulp timber went up by SEK 25 to SEK 325 per m3sub.

 

Over the period, Södra has installed and commissioned a new machine for applying wax protection to its bare root saplings and "plug plus one" saplings as an effective, non-toxic means of protecting against pine weevil damage. This machine is the first of its type. The wax makes it difficult for pine weevils to gnaw their way through to the bark and has been specially developed for high elasticity. This project is a cooperation between Södra Skogsplantor, Ramlösa Plantskola and Sundins Skogsplantor.

 

The forestry plans, with a newly prepared plan, have been available online to Södra members since March thanks to a newly developed function on Skogsägarnätet, the forest owners' network. The Skogsägare - forest owners - app was launched at the same time, making it possible to access the forestry plans on the iPhone and iPad.

 

Productivity improvement within the group continues apace, mainly due to ideas contributed by staff.

"We have implemented 1,281 suggested improvements over the quarter. These ideas will improve our profits by a total of SEK 32 million per year. However, overall productivity fell by 2.95 per cent over the quarter, mainly due to the fact that this figure is calculated on the basis of volumes supplied. March saw the marking of the 20,000th idea implemented since we started our systematic productivity programmes in 2000," added Brodén.

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