Södra posted a very strong result for the first quarter of 2022. The result reflects the favorable market conditions for Södra’s core products, while global turmoil is creating uncertainty about the future.
In the first quarter of 2022, net sales for the Södra Group amounted to SEK 8,165 million (5,733), up 42 percent year on year. Operating profit totaled SEK 1,974 million (547), representing an operating margin of 24 percent (10). Return on capital employed was 36 percent (10) and the equity ratio increased to 64 percent.
The first-quarter result reflects the favorable market conditions, with strong demand and highly favorable prices for Södra’s core products in the pulp and sawn timber. In addition, Södra’s mills produced high volumes with stable quality. Combined with high outbound delivery volumes where, for example, Södra Wood’s deliveries reached a historically high level during a single month of March, this provided the basis for the robust result.
“It is gratifying that Södra is standing strong in turbulent times. Due to the hard work of our employees, contractors, and members, we handled the challenges in our forests and delivered favorable results in our mills. During the quarter, we increased the production of our core products, while prices and demand remained at very high levels,” said Lotta Lyrå, President and CEO.
Several initiatives during the quarter
In the first quarter, Södra worked to promote long-term ownership value and will continue to create sustainable and profitable growth.
During the quarter, Södra decided to build its own cold storage facility with a capacity for 40 million seedlings. The cold storage facility is scheduled for completion by summer 2023 and will enable the delivery of more and better seedlings. In addition, Södra has raised the price of all wood ranges and introduced a new range to simplify the handling of storm-damaged wood deliveries.
The digitization process also continued during the quarter, including the modernization of the digital infrastructure at Södra’s sawmills. At the same time, the efficiency of pulp mills was enhanced by increasing availability and utilization rates.
Uncertainty about the quarters ahead
For the quarters ahead, the war in Ukraine and the effects this may have on Södra’s operations are causing market uncertainty.
“We expect the market outlook to remain positive in the short term, but are concerned about the deepening global turmoil. We are mindful of the global situation and the challenges this is presenting,” said Lotta Lyrå.
High energy prices have led to sharp increases in the cost of chemicals and logistics, which may impact Södra’s results ahead. In addition, there is an increased risk of input product and component shortages as well as low freight capacity. Greater global competition for forest raw materials also affects Södra. Higher raw material prices are leading to increased costs for the small flow of imports from the Baltics that support supplies to Södra’s mills.
“Södra was already challenged by soaring energy prices and global supply chain bottlenecks. The war in Ukraine has made the situation even worse. We dealt with this situation without affecting production in the first quarter, but the future is highly uncertain and if these problems continue or worsen, some parts of our products could be at risk. We are working actively with what we can do to offset these global fluctuations, such as developing world-class efficiency,” said Lotta Lyrå.
Business areas’ results for the first quarter of 2022
In the Södra Skog business area, the operating loss totaled SEK 6 million (profit: 23) for the period.
In the Södra Wood business area, operating profit totaled SEK 762 million (378) for the period. The earnings improvement was due to higher volumes combined with highly favorable prices for sawn timber.
In the Södra Cell business area, operating profit totaled SEK 1,431 million (378) for the period. The earnings trend was due to improved prices for pulp. Production volumes increased during the quarter.
In the Södra Innovation business area, the operating loss totaled SEK 15 million (loss: 54) for the period. The change in earnings was mainly attributable to a stronger result in SunPine and recognition of the holding in Silva Green Fuel as shares in partnerships.