Apr 21, 2006. /Lesprom Network/. The first quarter of the year is characterised by a clear improvement in market conditions and positive results in all business units. Higher costs for quality deterioration due to the older storm timber now being processed have been compensated by improved market conditions. Operating income of SEK 289 million ($38.3 million) up from SEK 237 million ($31.4 million) last year, has been charged with a non-recurrent write-down of goodwill of SEK 131 million ($17.4 million) at the Tofte pulp mill in Norway. This completes the review of the Group's fixed assets that commenced in 2004.

Interim report for the period January – March 2006

 

2006

2005

Jan-Mars

Jan-Mars

Sales, million SEK/million USD

4 209/557.2

3 513/465.1

Operating income, million SEK/million USD

289/38.3

237/31.4

Return on capital employed, %

11

10

 

"We're now seeing higher demand in all product areas," says President Leif Brodén. "Pulp, sawn timber and interior wood products are continuing to grow from a good base. Biofuel has had an exceptional start to the year. We're seeing record volumes across the board.

"If this increasing demand continues during the year we could be facing a case of classic overheating next year," continues Leif Brodén.

Production rates have been strong during the quarter and have steadily increased compared with the same period last year.

"We are continuing to get a strong response from our organisation in the drive for productivity and results increase our future competitiveness."

The combination of improved market conditions and increased productivity currently indicate a yearly result for 2006 that will clearly exceed last year's result of SEK 854 million ($113 million) before tax.

In order to incorporate the processing of storm payments, Södra currently has an 18-month financial year which runs until 30 June 2006.

Södra's profit development ensures the viability of the storm timber payment notified earlier.

Total compensation for storm-felled timber is expected to be as follows:

 

Spruce saw logs:

SEK 380 ($50.3) per m3fub, approx. SEK 450 ($59.6) per m3to

Pine saw logs:

SEK 340 ($45.0) per m3fub, approx. SEK 410 ($54.3) per m3to

Soft pulpwood:

 

SEK 180 ($23.8) per m3fub

These prices include the post-payment the Board of Directors will propose to the Annual General Meeting.

"Our jointly owned mills have enabled Södra to pay very well for storm timber. Through our mills, our solidarity and our teamwork, Södra members affected by the storm have got a lot back from their membership," says Södra Chairman Lars-Eric Åström.

Processing of the storm timber is expected to be completed during April. The total amount will be 24 million cubic metres rather than the forecast 30 million cubic metres. Södra has also honoured old contracts signed before Hurricane Gudrun on 8-9 January 2005.

Although the volume was less than expected, the storm post-payment fund and additional payment for old contracts of just over SEK 2 000 million ($264.8 million), is in line with the previous forecast.

Saw logs have made up 56% of the storm timber compared to the usual 64% in Södra's regular harvesting.

Södra is a co-operative of over 35,000 private forest owners in southern Sweden. Together, their estates account for some two million hectares of productive forest land – over half of the privately-owned forest in southern Sweden.

In 2004, the Group employs over 3,600 people, who work in various roles and from various locations in Sweden, Norway and elsewhere around Europe.