Our 'BBB+' long-term issuer rating on Sweden-based forestry cooperative Södra Skogsägarna ekonomisk förening and the stable outlook remain unchanged, despite weaker-than-expected market conditions.
Södra Skogsägarna's profits declined sharply in 2025, driven by weaker demand, higher raw material costs, and adverse currency movements. The company's NCR-adjusted EBITDA fell to SEK 0.2bn from SEK 3.3bn in 2024. The NCR-adjusted EBITDA margin was 0.7% for the year, with a fourth-quarter margin of -8.7% significantly impacting results. Previously, Södra reported double-digit margins.
The appreciation of the Swedish krona against major currencies (USD, GBP and EUR) had a negative impact of SEK 1.8bn on the results. Additional headwinds included an ongoing raw material shortage in northern Europe, which has persisted since Russia's attack on Ukraine and the subsequent halt of Russian wood imports. The supply shortage has driven up raw material prices, weighing on cash flows. Furthermore, weak demand for sawn wood products and market pulp across Europe exerted downward pressure on outbound prices, negatively affecting Södra's revenues.
A rapid recovery is not expected; forecasts for 2026 remain subdued. Nevertheless, we expect the SEK 1bn cost savings programme, initially launched in early 2025, to offset some of the cost pressure from challenging market conditions. In addition, market wood prices have declined recently, leading Södra to lower purchase prices for its members twice at year-end 2025 and again in February. There are also early indications of rising pulp prices, which could support Södra's revenues.
Cash flows are expected to remain under pressure as Södra undertakes significant investments over the coming years, including upgrades to its Kinda sawmill and construction of a new lignin plant. As a result, capital expenditure is likely to stay elevated through 2026 and 2027.
Södra’s net cash position, which had persisted since 2022, shifted to net debt in Q2 last year, and closed at net debt of SEK 2.1bn at year-end 2025. However, we expect the net cash position to be restored in the first quarter this year, following the sale of its Baltic forests to Ingka Investments for EUR 720m. In addition, Södra has proposed reducing annual dividends to its member owners to SEK 0.6bn, down from SEK 1.6bn net paid in 2025.
We continue to assess Södra's financial risk as strong, supported by ample liquidity for current operations and planned investments. Financial risk ratios are expected to recover, with a sustained net cash position over the next two to three years, reflecting gradually improving operating performance.
Recent developments underscore the cyclical and volatile nature of market pulp and sawn wood products. This volatility is already reflected in our assessment of Södra's business profile. As we expect gradual market improvement and continued value creation for Södra's member owners, we see no need to revise our business risk assessment or the final rating.
This commentary does not constitute a rating action.
Contacts:
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com