Nordic Credit Rating has affirmed its 'BBB+' long-term issuer rating on Sweden-based forestry cooperative Södra Skogsägarna ekonomisk förening. The outlook is stable. NCR has also affirmed the 'N2' short-term issuer rating and the 'BBB+' senior unsecured issue rating.
Rating rationale
The affirmation reflects our expectation that Södra's profitability will gradually recover from current weak levels, supported by slowly improving market conditions. The sale of the company's Baltic forest assets in early 2026 restored a strong balance-sheet position and credit metrics and provides significant protection against continued earnings volatility in the cyclical pulp and sawn wood markets. Södra's SEK 2bn net debt position at the end of 2025 has shifted to net cash of SEK 4bn as of end-Sep.
The projected recovery in profitability is also expected to be supported by the implementation of its cost savings programme launched in early 2025 combined with adjustments to wood purchase prices. As a result, we expect NCR-adjusted EBITDA to increase to about SEK 0.9bn in 2026 from SEK 0.2bn in 2025, and we forecast net cash to be sustained well above SEK 4bn over 2026–2028. Reduced dividends in 2026, and our estimate over 2027-2028, has supported cash retention and demonstrate alignment between the company and its member owners during a weaker phase of the cycle.
The rating remains constrained by the forestry sector's historically volatile earnings profile. Södra remains exposed to cyclical pulp and sawn wood markets, commoditised products and a concentrated customer base, which together limit pricing power and increase earnings sensitivity to market prices and currency movements. Recent weak pulp prices, high input costs and adverse currency movements have pressured profitability. However, Södra's net cash position has supported its financial risk profile through the downturn and provides capacity to absorb weaker earnings while profitability recovers. We also note that Södra's financial policy permits materially higher leverage than currently reported, which constrains our financial risk assessment.
Stable outlook
The stable outlook reflects our expectation that Södra's profitability will gradually recover from current weak levels while its financial ratios remain strong, supported by a sustained net cash position and conservative capital structure. We expect recovering market pulp prices and construction activity to support demand for Södra's pulp and sawn wood products over 2026-2028, leading to improved earnings and margins from current depressed levels. At the same time, the company's strong balance sheet provides resilience through the recovery period and capacity to absorb continued market volatility.
We view a rating upgrade as unlikely over the medium term due to the sector's earnings volatility and continued sensitivity to macroeconomic developments and commodity prices.
We could lower the rating if profitability fails to recover as expected, resulting in EBITDA margins remaining below high-single-digit levels over the near term, if net debt/EBITDA exceeds 1x on a sustained basis, or if unexpected long-term mill outages materially increase investment requirements, raise costs or reduce production volumes.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
Andreas Kindahl, Chief Rating Officer, +46702053453, andreas.kindahl@nordiccreditrating.com
Sean Cotten, lead senior analyst, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.