A lot is happening, both locally and elsewhere in the world, which is having an impact on Södra. In a large company, rapid changes do sometimes take place in terms of both organisation and production. Gunilla Saltin, temporarily holding the position of CEO of the Södra Group, explains:
We have made a number of rapid changes of late, but now we have reached the point where we want to be, to allow us to focus on the right things and face the future.
Historically, the pulp market has always been sensitive to economic conditions. Bad times mean less advertising, less printed information and less packaging. At present, we can see that Europe, Södra Cell's domestic market, is hesitant. A number of major economies are experiencing problems. Furthermore, electronic media are taking over in many instances and replacing paper as a carrier of information. All this means that we are facing an unprecedented combination in Europe of a hesitant market combined with structural change.
Despite this, both long and short fibre pulp prices have increased since the start of the year. Asia has China, with its stable economic development and an increasing need for paper pulp. Prices in China have also increased, although they remain lower than in Europe. Our overall assessment is that Södra Cell has every chance this year of meeting its return requirement of 10%.
Södra Cell launched two new products last year, Durapulp, and textile pulp at Mörrum. When we asked for investment funding for this product, we thought we would need three years in which to achieve full production from both a marketing and a production standpoint. Production has gone better than expected and customers are showing a lot of interest. They perceive Södra to be a stable, long-term supplier with a good environmental profile and a quality product based on raw material from sustainable forestry. A month or so ago, we decided to produce only textile pulp on one of the Mörrum lines. The change went more quickly than we envisaged, and so we are already at the point that we thought we would reach in three years.
Looking ahead, Södra is now into the final sprint for the current strategy period, which will be completed in 2014. We have a number of strategic targets that we have to have met by then:
Our pulp production must be fossil-free. This means that we will not be using any oil for normal operations. This is the right thing to do, regardless of whether or not you believe carbon dioxide helps to bring about climate change. We are being cautious with a scarce resource which can be used for better purposes, and we are saving money: squeezing out those last few drops of oil is an expensive enterprise!
Another target is for us to implement an established productivity culture. What does this involve? It goes without saying that we should continue doing what we were doing before, but doing it better now, working together and systematically coming up with new solutions. We have been working in this way since 2000, so our target is very much in sight. But a culture is something that we have to cherish and develop if we are not to lose it, and this is our priority just at the moment. Productivity involves working with development. Of course, anything which does not develop will be superseded. Development will involve us working on changing and improving the products we have at present and finding new product options. Södra Interiör is something of a role model in this regard. It is constantly coming up with new products in order to maintain an attractive product range.
Södra Skog has faced a number of challenges of late. Production at our pulp mills has not been as envisaged, and we have large stocks of pulp wood. Acquiring raw materials for the sawmills has been a challenge, and so market premiums have been introduced in some areas. Despite this, the situation is not satisfactory. Increased domestic hardwood supplies, monitoring of the transfers of ownership and pre-commercial thinnings are all focal points for forestry operations over the coming period.
The uncertainty in the global economy is also apparent at Södra Interiör. Sales volumes to date this year have been lower than anticipated. Profitability at the hardwood sawmills continues to be something of a challenge. As far as products are concerned, solid flooring with a new surface treatment and new parquet floor ranges are being launched.
The market conditions for sawn timber products are tough. Weak economic development in many countries is resulting in low construction rates. Market conditions contributed to a very weak result of SEK -307 million last year, and profitability has not improved over the first four months of the year. The accumulated result for the period January to April stands at SEK -108 million. In a situation such as this, it is natural for the CEO to throw open his or her position and hand over to someone else. We need to focus on the profitability of the sawmills. Håkan Svensson, the Acting CEO of Södra Timber, has put together a team of people to work on increasing income and reducing costs.
Södra Timber and Södra Interiör share a number of customers. As part of the efforts to increase revenues, Håkan has worked in cooperation with Ulf Edman (the new CEO of Södra Interiör) to launch a joint sales organisation. This will make things easier for customers who want to buy from both Södra Timber and Södra Interiör, so allowing us to be perceived as a more attractive supplier and giving us the opportunity for additional sales. Sales, sales, sales - that's the name of the game.
We have a successful productivity programme in place at all Södra units, and Södra Timber is no exception to this. But now that we have been seeing negative results for such a long time, extraordinary efforts are required. We are mustering all our available resources so as to completely screen all expenses at all sawmills and propose measures in order of priority, all under Håkan's management. Stoppages will not reduce expenses. Therefore, we have reversed the decision we made to implement stoppages in the summer.
We now have an organisation in place which is working hard to focus on the most important thing: reversing the trend at Södra Timber.