Moscow. Oct 30, 2008. /Lesprom.com/. Södra's profit for the first nine months was characterised by a weakening in the wood products sector. Operating profit was SEK 856 million ($115 million), a decrease of SEK 465 million ($62.8 million) compared to the same period last year. Return on capital employed declined from 16% to 11%. Södra has implemented market-related shutdowns representing just over 200 thousand cubic metres of sawn timber. The company also had to give notice of redundancy to 25 employees at the Södra Timber Traryd sawmill in August. In October, after the end of the period, a new notice of redundancy was issued following the announcement of a 25-strong reduction in personnel at Södra Timber Kinda and Åtvidaberg in conjunction with the coordination of the two sawmills.
"Demand for sawn timber has continued to fall during the period. This has had a negative effect on profitability, and Södra is responding to the tougher market conditions by adapting its production", says Södra's CEO, Leif Brodén.
The dollar has strengthened against the SEK. This has compensated the price decline for pulp in USD and has helped pulp mills defend their profitability compared to the first nine months of last year.
The productivity process was intensified throughout the group with the full-year forecast being a historically high 4 per cent. The ambition is to achieve 2% annually which fully compensates for the total real price decrease for the Södra Group of slightly more than 1 per cent on an annual basis. Productivity measures now include the implementation of one employee improvement suggestion every hour, which is twice the long-term objective. During the period, some 2,100 improvement proposals were implemented.
After the end of the period, Södra has announced it is taking yet another step forward on the energy market by starting the sale of electricity to consumers. The customer group is exclusively Södra's 52,000 members and 3,700 employees. Electricity sales are expected to commence on 1 January 2009. The basis of the offer is Södra's relatively strong position as an electricity producer. Södra is the biggest manufacturer of green electricity from biofuel in Sweden, producing 1.8 TWh annually. Södra Vindkraft is planning the construction of 250-300 wind turbines. This means that when the turbines are fully completed, Södra's electricity production is expected to exceed 3 TWh.
Weakened demand and rising global pulp stocks have caused pulp prices to back somewhat. The price for long-fibre pulp declined during the third quarter by approximately 4% to USD 865 per tonne. The price decline on short-fibre pulp was 2% to USD 820 per tonne. The strengthening of the USD against the SEK represents a price increase when calculated in SEK however.
Pulp production during the period was 1,564 thousand tonnes (1,510). Deliveries were 1,494 thousand tons (1,555). Pulp stocks increased to 260 thousand tons, which represents a month and a half's production.
A decline in the pace of housing construction in various parts of the world has resulted in declining demand for wood products, while supply remains at a high level. Consumption has to some extent been held up by the renovation sector. The weak market has caused a decline in the price for sawn timber products of more than 20 per cent compared to the same period last year.
Demand for interior products has shown a similar weakening on the three Scandinavian domestic markets with even weaker demand in European and Asian export markets. Selling and purchasing prices have both fallen. Two acquisitions were made during the period, a mouldings manufacturer in Norway and an MDF-board manufacturer in Sweden.
The timber market in the Södra region is characterised by a surplus of saw logs, balance in pulpwood and a certain surplus of hard pulpwood. Since August there has been a 50% increase in the rate of spruce saw logs being supplied from terminal stocks. At this rate, the majority of storm wood stocks are expected to be used by 31 March 2009.
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