Our 'BBB' issuer rating on Södra Skogsägarna ekonomisk förening (Södra) is unchanged following the publication of its fourth-quarter 2021 results.
Favourable market conditions drive record full-year results
Södra reported a 59% year-on-year increase in revenue and a 163% rise in EBITDA in the fourth quarter of 2021, with growth of 33% and 215%, respectively for the full year. The strong performance was driven by exceptionally high prices for pulp and sawn wood products, which achieved record levels in the course of the year, offsetting lower delivery volumes relative to 2020. Inventory build-up and production smoothing resulted in a 5% reduction in delivery volumes of pulp and an 8% reduction in volumes of sawn wood products. We note that pulp prices peaked in the third quarter and have been slightly lower since then. However, they remain high in a historical context. Södra's EBITDA margin for the full year was 25%, a significant increase from 9% previously.
Low leverage improves financial flexibility
Södra recorded full-year NCR-adjusted net debt/EBITDA of 0.2x compared with 2.3x a year earlier. The material improvement is directly attributable to the strong full-year results. On the back of the strong performance, Södra has proposed profit sharing amounting to SEK 2.2bn to its associate members, comprised of cash dividends of SEK 1.7bn and SEK 600m in capital contributions. Despite the size of the cash dividend, Södra's strong capital structure has, in our opinion, increased its resilience to downturns and improved its financial flexibility.
We view the currently strong pulp and sawn wood markets and Södra's improved financial position as positive for the cooperative's credit profile. However, at this point we are not adjusting the issuer rating or outlook in view of possible future market volatility.
This commentary does not constitute a rating action.
Contacts:
Marcus Gustavsson, analyst, +46700442775, marcus.gustavsson@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com