Södra expect continued high global wood costs

Södra's profit for the first half was 577 million SEK (1084 million in the same period last year) representing a return on capital of 11 percent (21). The lower operating income at -507 million is explained due to 15 percent higher wood costs that affect earnings negatively by 624 MSEK. - The exception was the sawmill industry, where the market is in a deep slump, but the conditions in the first half was good, says CEO Leif Broden. The turnaround for new construction is delayed in the U.S. and Europe. A slowdown in the important renovation sector in Europe has also been seen. - Delivery Conditions in the European pulp market has been good during the first six months while a decline occurred for Chinese deliveries.

- We expect continued high global wood costs for the rest of the year as a counterforce to the beginnings of price uncertainty in our key products, continue Leif Broden.

Södra productivity improvement the last twelve months was 1.6 percent and improvement suggestions from employees contributed 1.1 percent. Both the pace of implementation of personnel improvement ideas that the annual improvement in earnings during the period increased from the previous record levels. In the first half were more than 80 ideas a week and profit improvement of the ideas was 76 million during the period.

Timber supply from the Södra Forest to the factories have been good this spring. The market has been characterized by pending and the prices are, despite some downward adjustment in hours, at a historically high level. Södra's increasingly important biofuel business is in line with last year. Our assessment is that demand for biofuels will increase due to expansion of biofuel-based works.

The pulp market has been characterized by a historically high pulp prices in U.S. dollars, which was partly offset by a stronger dollar in the spring. Södra Cell's delivery volumes of both pulp and electricity and district heating is on par with last year. Mass units are expected to deliver an operating profit for the year in line with our return requirements. Two new products will be produced and supplied by Södra Cell before the year end, textile pulp in Mörrum and DuraPulp pulp in Värö. DuraPulp is a new composite material that is completely renewable and can be composted. The material can be used in many applications such as interior design, packaging and more. The outlook for the remainder of the year in the pulp market is expected to wait, but good.

New construction activity remains low in several key markets of Södra Timber. Renovation sector is somewhat better. The investment in a new sawmill in Värö with a capacity of 750,000 cubic meters is in the commissioning phase. The next step is to trim the plant during the third quarter. This spring, the sawmill in Åtvidaberg closed and Traryd has been converted into a pure lövträsåg. Profitability of Södra Timber is deeply unsatisfactory, but the assessment is a gradual improvement in the market. Trivselhus had a good order intake in the spring while the Swedish housing market for single family houses decreases. To meet the shrinking demand closed the plant in Näshulta and twenty eight people involved.

Interior Products has been characterized by price pressure in the spring due to a stronger dollar. Södra Interiör focus remains on production synergy, branding and new products. Hardwood initiative has intensified during the spring and the greatest sales success shows ektrallen. Delivery volumes of interior products first half is in line with last year. The market outlook for interior products for the rest of the year is good.