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Södra posted a record result for the third quarter of 2022. The higher result was due to a strong market for Södra’s pulp and energy products. At the same time, the turbulent business environment is expected to impact the association’s results in the coming quarters.
In the third quarter of 2022, net sales for the Södra Group amounted to SEK 8,102 million (6,999), up 16 percent compared with the year-earlier period. Operating profit totaled SEK 2,480 million (2,148), the highest quarterly operating profit for Södra on record.
Operating profit for the first nine months of 2022 totaled SEK 6,779 million (4,021). The return on capital employed was 41 percent (26), and the equity ratio was 63 percent at the end of the period.
The third-quarter result reflects the favorable market conditions, with strong demand and highly favorable prices for Södra’s pulp and energy products. Södra’s mills produced high volumes with stable quality, while delivery volumes of pulp increased year-on-year.
“I am happy and proud of the result we delivered in these highly uncertain times. The result was achieved through long-term efforts, where the commendable work of employees and members built a Södra that is strong enough to stand firm despite a highly volatile business environment. The result will enable us to continue our development of family forestry in Götaland, and to meet the challenges ahead,” said Södra’s President Lotta Lyrå.
Several challenges during the quarter
The third quarter brought several challenges. The sawn timber market declined rapidly and prices fell nearly 20 percent from a peak in the second quarter, according to Södra’s figures. Due to slowing demand, Södra decided to reduce sawmill production by up to 100,000 m³ for the remainder of 2022.
“We are heedful of the conditions in our operating environment and the challenges ahead. The current uncertainty is affecting Södra in several ways. Especially the slowdown in economic growth, which led to lower demand for sawn timber during the quarter. We are working proactively with what we can actually influence and have reduced production in our sawmills, for example, to adapt our operations to the market situation,” said Lotta Lyrå.“Södra has a very stable financial position and due to the growing economic uncertainty, we will be focused on our ability to remain robust and flexible. That will help the association deal with both market downturns and rapid shifts in the needs of our members or customers.
Focus on improved efficiency and the energy situation
The World-class Efficiency project is part of this process. The project will strengthen the association’s underlying profitability and to date has generated efficiency gains corresponding to SEK 167 million on a 12-month basis. The target is to achieve full-year improvements of SEK 1 billion by 2025.
Another part of the process is Södra’s energy strategy. Södra generates more electricity than it needs and in the third quarter, 146 GWh was sold to the national grid and supported the electricity supply in Götaland. The fact that Södra is a net producer is the result of long-term decisions and investments in the industrial structure, which provides resilience when the energy situation is insecure. This work is being developed through continued efforts to improve energy efficiency and by creating additional value for forest raw materials by investing in liquid biofuels from woody biomass.
During the third quarter of the year, Södra continued to raise its prices for pulpwood and fuel wood and has now raised wood prices a total of four times in 2022. The basic price for prime softwood pulpwood is now SEK 465 per solid m³ and SEK 505 for prime birch and aspen pulpwood.
“A great deal of our energy is spent on the short-term challenges, but we are also looking ahead and making continuous strategic decisions in order to build a stronger Södra in the long term. Our long-term strategy remains firm and future initiatives include new business opportunities to strengthen the value of forest estates, combined with advanced methods for forest use and management that account for climate change and the environment,” said Södra’s President Lotta Lyrå.
Business areas’ results for the third quarter of 2022
In the Södra Skog business area, operating profit totaled SEK 60 million (4) for the period. The earnings improvement during the period was mainly the result of increased margins from its own forest in the Baltics.
In the Södra Wood business area, operating profit totaled SEK 225 million (1,121) for the period. This reflects the lower prices for sawn timber combined with lower outbound deliveries of sawn timber.
In the Södra Cell business area, operating profit for the period totaled SEK 2,393 million (1,252). The earnings improvement was due to a stronger price level and higher outbound deliveries of pulp.
In the Södra Innovation business area, operating loss for the period totaled SEK 4 million (profit: 52). The change was due to the reclassification of the holding in Silva Green Fuel in the year-earlier period, which is now recognized as profit/loss from shares in partnerships and charged to net financial items.