A weak international economic situation and massive fluctuations in currency exchange rates have adversely affected the markets for Södra's primary products and contributed to a negative result for the first three quarters of the year.
However, price levels have stabilised on the pulp market and a price increase was implemented in October.
Södra's operating profit for the first nine months of the year amounted to SEK -590 million, compared with SEK 879 million for the same period last year. Profit after net financial items amounted to SEK -588 million. The corresponding figure last year was SEK 731 million. Net sales over the first three quarters of the year amounted to SEK 12,968 million, SEK 975 million lower than for the same period last year.
The weak economic situation and concern about the euro have led to continued weak demand in Europe. As a result, 2012 has been characterised by weak development on the markets for Södra's products. Production in Södra's mills has also fallen as a result of stoppages at the start of the year. Reported results also include non-recurring items.
"We have decided to implement a number of measures to strengthen our earning capacity. These measures, combined with Södra's strong financial position, place us in a favourable position from which to deal with the challenges we face on our markets. We are also seeing signs of gradual improvement in the pulp market in particular," said Gunilla Saltin, acting Group President and CEO of Södra Cell.
A decision was made in August to liquidate Södra's holding in the Follafoss pulp mill, Norway. This mill produces CTMP (chemi-thermomechanical pulp) which has a variety of uses including paperboard and tissue production. The mill will be closed down on 1 November unless a new owner is found.
In September, a decision was made to make 260 people redundant at the company's Swedish operations. This measure will affect all business areas, and staff at all levels. Negotiations with the trade unions have begun.
Södra is also continuing to seek out new market segments. One such example is the launch of a new brand, Move Home, by Trivselhus in October. This new concept, which the company is using to target a younger customer category, offers quality homes at lower prices.
Paper pulp
Falling pulp prices in USD are affecting profitability in the pulp business. However, price levels stabilised in September, with the price of softwood sulphate pulp being increased to USD 790 per tonne in October. Further price increases are to be expected. Production at Södra's pulp mills was down slightly on the same period last year.
"We can see that the pulp market has strengthened. A price increase has taken place in October, and world stocks are at a good level. Therefore, we are of the opinion that the outlook for market pulp will improve gradually," commented Saltin.
Timber products
European consumption of timber products remains low and the market is still weak. Production at Södra's sawmills was slightly lower over the first three quarters of the year compared with the same period last year.
"Profitability at the sawmills is characterised by a sawn timber product market that remains weak. At the same time, our competitiveness is being affected by the strengthening of the krona against the euro, and by high raw material costs in relation to the price of finished products," said Saltin.
Interior products
The market for interior products is also being affected by the poor economic situation. Södra Interiör's main markets are characterised by reduced volumes and prices that are being forced down.
"The general economic decline and concern about the Eurozone's stability are contributing to reduced consumption in Europe. This is affecting us because Europe is our most important market," Saltin added.