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Södra annual report 2012

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Södra <strong>2012</strong><br />

Annual Report


Contents<br />

1 Directors’ Report<br />

5 Consolidated statement of comprehensive income<br />

6 Consolidated statement of financial position<br />

8 Consolidated statement of changes in equity<br />

9 Consolidated statement of cash flows<br />

10 Parent Company income statement<br />

11 Parent Company balance sheet<br />

13 Parent Company statement of changes in equity<br />

14 Parent Company statement of cash flows<br />

Notes<br />

15 Note 1 Accounting policies<br />

22 Note 2 Segment <strong>report</strong>ing<br />

23 Note 3 Net revenue<br />

23 Note 4 Other revenue<br />

23 Note 5 Operational leasing<br />

24 Note 6 Employee expenses<br />

25 Note 7 Other expenses<br />

25 Note 8 Depreciation, amortisation and impairment of assets<br />

25 Note 9 Payment to auditors<br />

26 Note 10 Shares in associates<br />

27 Note 11 Income from financial items<br />

27 Note 12 Appropriations<br />

27 Note 13 Taxes<br />

28 Note 14 Other comprehensive income<br />

29 Note 15 Business combinations<br />

30 Note 16 Intangible assets<br />

31 Note 17 Buildings and land<br />

32 Note 18 Machinery and equipment<br />

33 Note 19 Construction in progress<br />

33 Note 20 Biological assets<br />

33 Note 21 Financial investments<br />

34 Note 22 Financial risk management<br />

38 Note 23 Other non-current investments<br />

38 Note 24 Non-current financial receivables<br />

38 Note 25 Non-current operating receivables<br />

38 Note 26 Deferred tax assets/liabilities<br />

39 Note 27 Inventories<br />

39 Note 28 Receivables from Group companies<br />

39 Note 29 Current operating receivables<br />

40 Note 30 Cash and cash equivalents<br />

40 Note 31 Equity<br />

40 Note 32 Untaxed reserves<br />

41 Note 33 Interest-bearing liabilities with Group companies<br />

41 Note 34 Interest-bearing liabilities<br />

42 Note 35 Pensions<br />

44 Note 36 Provisions<br />

44 Note 37 Non-current operating liabilities<br />

44 Note 38 Current operating liabilities<br />

45 Note 39 Group companies<br />

46 Note 40 Pledged assets<br />

46 Note 41 Contingent liabilities<br />

47 Note 42 Statement of cash flows<br />

47 Note 43 Critical accounting estimates and judgements<br />

47 Note 44 Investment commitments<br />

48 Note 45 Financial instruments<br />

50 Note 46 Events after the <strong>report</strong>ing period<br />

50 Note 47 Related parties<br />

50 Note 48 Parent Company information<br />

51 Proposed appropriation of profits<br />

52 Audit <strong>report</strong><br />

This is a translation of the <strong>annual</strong> <strong>report</strong>. This translation does not replace the original <strong>annual</strong> <strong>report</strong>. In the event of any<br />

lack of clarity or disparity between this translation and the <strong>annual</strong> <strong>report</strong>, the <strong>annual</strong> <strong>report</strong> will always take precedence.


Directors’ Report<br />

The Board of Directors and President of Södra Skogsägarna Economic<br />

Association (corporate identity number 729500-3789) hereby submit the<br />

Annual Report and Consolidated Financial Statements for the <strong>2012</strong> financial<br />

year. The Group’s and Parent Company’s development, profit and financial<br />

position are presented in the following consolidated statement of comprehensive<br />

income and consolidated statement of financial position and in<br />

the Parent Company’s income statement and balance sheet and notes and<br />

comments.<br />

Purpose of the organisation<br />

The purpose of Södra Skogsägarna Economic Association is to promote the<br />

economic interests of its members through trading in and processing forest<br />

products; securing a market for its members’ forest products at market<br />

prices; promoting high-value, advanced forest production while respecting<br />

cultural and natural values; supporting and developing individual forestry;<br />

monitoring and promoting the economic policy interests of members; and<br />

conducting operations otherwise compatible with the above.<br />

The Group has four business areas: Södra Skog, Södra Cell, Södra Timber<br />

and Södra Interiör, which purchase and process the members’ forest raw<br />

materials into pulp, timber products and interior wood products.<br />

Market<br />

The global economy was characterised by predominantly negative signals.<br />

The year commenced on a steep incline after the crisis in Europe had deteriorated<br />

in the latter part of 2011. During the spring and summer, weak development<br />

and falling indexes were forecast from several economic indicators.<br />

The trends in the financial markets were negative with declining stock<br />

exchanges and rising interest rates for the countries in crisis in Europe.<br />

However, several indicators gave the impression that the US would not be<br />

encumbered by the European recession.<br />

In the autumn, the slowdown continued in large parts of the global<br />

economy. The activity in the emerging markets of Asia was dampened,<br />

but stabilised at the end of the year. The economic indicators pointed<br />

downwards for large parts of Europe and many countries were more<br />

distinctly affected by the crisis in Southern Europe. However, the financial<br />

crisis in the euro zone eased once the European Central Bank (ECB) introduced<br />

support programmes and stimulus packages. At the end of the year,<br />

there were positive indications of increased home building and decreased<br />

indebtedness in the US, which contributed to somewhat more positive<br />

confidence in the future.<br />

The Swedish economy was relatively strong at the beginning of the year<br />

as a result of low national debt, stable government finances and somewhat<br />

higher interest rates than the surrounding world. However, the trend<br />

worsened at the end of the year owing to lower orders received, resulting<br />

in lower production and a deteriorating employment index. At year-end,<br />

the exchange rate against the USD was SEK 6.49 (6.89). Against the EUR,<br />

the SEK strengthened slightly from SEK 8.91 at the beginning of the year<br />

to SEK 8.56 at year-end.<br />

In <strong>2012</strong>, total demand in the world for bleached chemical market pulp<br />

rose by 3 per cent. However, the strength of the demand varied in the geographic<br />

sub-markets. Asia, and primarily China, accounted for the entire<br />

growth in demand. The total deliveries to Asia increased by 8 per cent. In<br />

Europe, development was weak as the result of both structural and cyclical<br />

factors, and demand for bleached chemical pulp was largely unchanged<br />

compared with the preceding year. North America exhibited a decline of<br />

1 per cent.<br />

The market for pulp in China grew rapidly and is now almost as large as<br />

the market in Western Europe. The Chinese investments in paper capacity<br />

are continuing, and with a limited domestic supply of wood raw materials,<br />

the need for imported market pulp is strongly increasing. The expansion of<br />

capacity for printing paper has slowed somewhat, but the growth of tissue<br />

and packaging material is continuing. The market for textile pulp also<br />

showed strong growth in volume during the year although the balance<br />

between supply and demand weakened when the supply of speciality pulp<br />

grew at an even faster rate.<br />

In Europe, the structural decline in consumption of printing paper continued,<br />

which together with the weak economy meant lower supply volumes.<br />

The economic development also dampened the demand for packaging<br />

paper and board. The only segment that displayed an increase in<br />

production was tissue. The structural changes have forced the Finnish forest<br />

industry, which has a high level of production of printing paper, to shutdown<br />

paper machines. This resulted in previously integrated pulp becoming<br />

market pulp, which substantially increased the competition for<br />

customers in Europe.<br />

Capacity growth in the global pulp industry was low during the year, but<br />

is assessed to increase somewhat in 2013, especially for hardwood pulp.<br />

At the beginning of <strong>2012</strong>, the price of northern softwood sulphate was<br />

USD 825 per tonne to increase to USD 850 in March–April. The price then<br />

dropped to USD 760 in September to again increase and was USD 810 per<br />

tonne at year-end. The price difference between softwood and hardwood<br />

sulphate narrowed during the year from USD 185 per tonne at the beginning<br />

of the year to USD 35 at year-end. At the beginning of the year, the<br />

price for one tonne of birch sulphate was USD 640 and USD 775 at the end<br />

of the year. The price of textile pulp dropped from USD 1,120 per tonne at<br />

the beginning of the year to USD 850 at year-end.<br />

The market for sawn timber products began positively with small price<br />

increases during the spring, but it weakened in the summer. The strengthening<br />

of the SEK against all key trading currencies worsened the situation.<br />

The autumn was characterised by gradually declining demand, lower sales<br />

prices and only marginally decreased production.<br />

New construction continued to decrease throughout Europe while activity<br />

in the renovation sector was relatively favourable. The general economic<br />

decline and the financial unrest contributed to increased uncertainty.<br />

The Swedish sawmill industry was under pressure during the year by the<br />

strengthening of the SEK. The situation for Finnish, Austrian and German<br />

sawmills was unsatisfactory due to high raw material prices. The sawmills<br />

in Canada managed better due to substantial exports to China and the positive<br />

trend break in the US, where consumption and home sales are again on<br />

the rise, although from a low level.<br />

The price of saw logs in Södra’s area remained high, despite the low<br />

prices of sawn timber products. The profitability of the sawmills was generally<br />

unsatisfactory and the structural change is continuing among sawmill<br />

companies, mainly in southern Sweden.<br />

A weakened building market, somewhat lower rate of renovation and<br />

higher price pressure from low-price imports entailed a weak market for<br />

interior wood products in Sweden in terms of demand. The Danish market<br />

for interior wood products, which has been weak for several years,<br />

remained at a low level with no signs of improvement. Meanwhile, the Norwegian<br />

market continued to develop positively with a high level of activity<br />

in the renovation sector and an increase in new construction.<br />

The wood market was characterised in the first half of the year by high<br />

demand for saw logs, but somewhat lower demand for soft pulpwood. At<br />

the same time, the supply of mainly soft pulpwood was very strong. The<br />

storm Dagmar contributed to a large supply in central Sweden and Norrland.<br />

Changed production, primarily at Södra Cell Mönsterås and Södra<br />

Cell Mörrum, entailed a shift in demand from soft pulpwood to hard pulpwood.<br />

Inventory levels were high during the summer.<br />

In the second half of the year, demand for pulpwood increased. After a<br />

weak beginning of the autumn, pulp production was at a favourable level.<br />

Demand for saw logs was high, but the weak profitability in the sawmill<br />

Södra <strong>2012</strong> 1


industry led to some production restrictions for both market and raw material<br />

reasons.<br />

The price of saw logs dropped as a result of the weak market for sawn<br />

timber products. Södra lowered the price of standard saw logs by SEK<br />

40/m³fub in August.<br />

The prices of pulpwood dropped in the first half of the year. In January,<br />

Södra lowered the price of soft pulpwood by SEK 25 to SEK 300/m³fub.<br />

In April, the price was lowered by a further SEK 20 to SEK 280/m³fub. The<br />

price of birch pulpwood remained at SEK 350/m³fub during the year at<br />

the same time that the price of sorted aspen pulpwood was raised to<br />

SEK 325/m³fub.<br />

Södra Interiör acquired the parquet flooring maker AB Berg & Berg<br />

i Kallinge. The acquisition, which was effective as of 1 February <strong>2012</strong>,<br />

expanded Södra Interiör’s customer offering by approximately 500,000 m 2<br />

of high-quality parquet flooring per year. At the date of the acquisition,<br />

the company had around 90 employees. In the autumn, an agreement was<br />

reached on the acquisition all shares in Föllinge Golv AB, with the date<br />

of transfer set at 1 January 2013.<br />

Södra Skog expanded and concentrated forest holdings in the Baltic<br />

States through exchanges, purchases and sales. The total land holding<br />

in Estonia and Latvia comprised 27,000 hectares (26,000) at year-end,<br />

of which 23,000 hectares (21,500) were forest.<br />

Income<br />

Consolidated net revenue decreased to SEK 16,807 million (18,191) and the<br />

operating result declined to loss of SEK 929 million (profit: 1,005). The operating<br />

loss includes result effects of SEK 23 million (192) from currency<br />

derivatives and of SEK 277 million (298) from sales of electricity certificates.<br />

The operating result for Södra Cell was a loss of SEK 283 million (profit:<br />

1,273). The decrease is largely attributable to lower prices. The market closure<br />

at Södra Cell Tofte at the beginning of the year and the closure of the<br />

CTMP pulp mill Södra Cell Folla were also contributing factors behind the<br />

decrease in profits. The operating result includes a reversal of a previous<br />

impairment loss on non-current assets at Södra Cell Tofte in an amount of<br />

SEK 138 million.<br />

Södra Timber’s operating result was a loss of SEK 469 million (loss: 276)<br />

mainly due to the start up of the new sawmill in Värö, lower prices of sawn<br />

timber products and a strengthening of the SEK.<br />

Södra Interiör’s operating profit totalled SEK 2 million (49). Weak<br />

demand in combination with increasing price pressure from competing<br />

low-price imports entailed a lower operating profit.<br />

Södra Skog’s operating result was a loss SEK 20 million (profit: 75). The<br />

decrease was primarily due to lower wood volumes and prices. The profit<br />

trend for each business area is presented in Note 2 Operating segments.<br />

Finance income and expense amounted to income of SEK 10 million<br />

(expense: 122). This improvement was primarily an effect of a more stable<br />

trend in the world’s financial markets compared with the preceding year,<br />

resulting in a positive revaluation of the Group’s investment assets. The<br />

result after finance income and expenses declined to a loss of SEK 919 million<br />

(profit: 883). The consolidated tax expense totalled SEK –347 million<br />

(175), representing –38 per cent (20) of profit before tax.<br />

Cash flow after investing activities deteriorated to a negative SEK 815<br />

million (negative: 793) primarily due to lower profits which, however, were<br />

offset by lower tied-up working capital and somewhat lower investment<br />

expenses. Cash and cash equivalents and current investments decreased<br />

to SEK 1,240 million (2,465).<br />

Investments and acquisitions<br />

Investments totalled SEK 1,708 million (1,738), of which SEK 1,096 million<br />

(862) in Södra Cell and SEK 376 million (576) in Södra Timber. During a<br />

planned maintenance shut-down at Södra Cell Mönsterås at the end of September,<br />

bark drums and a bark dryer were installed. The emphasis in the<br />

investments was on energy efficiency and productivity. At the beginning of<br />

the year, a decision was made to make an energy investment in a lime kiln<br />

and processed wood fuel at Södra Cell Värö.<br />

Södra Timber concluded the investment in a boiler facility in Långasjö.<br />

In Kisa, investment was concluded in a automatic sorter and renovation of<br />

the green sorter was initiated. In the autumn, Mönsterås installed an automatic<br />

sorter in the trimming plant and commenced work on the addition<br />

of a planing line in lath production. Investment in the new sawmill in Väro<br />

was completed during the year and adjustment to achieve the planned<br />

production capacity is in progress.<br />

Effective from 1 January <strong>2012</strong>, Södra Timber acquired the Norwegian<br />

companies Romerike Trelast AS and Romerike Trelast Eiendom AS. On<br />

completion of the acquisition, the companies were merged into the joint<br />

company Södra Timber AS. The Trivselhus Group also merged a number<br />

of subsidiaries and, as of October, ownership was transferred to Södra<br />

Skogsägarna Economic Association.<br />

Productivity<br />

Södra’s systematic productivity efforts continued. During the year, 6,311<br />

improvement ideas (7,166) were generated and 4,073 (4,902) were implemented.<br />

The <strong>annual</strong> income effect from the implemented ideas was SEK<br />

129 million (133).<br />

During the year, a decision was made to change the approach in terms<br />

of productivity. The central productivity staff unit was disbanded and the<br />

responsibility for the productivity efforts was more clearly distributed to<br />

the respective business areas.<br />

Research and development (R&D)<br />

Consolidated R&D costs totalled SEK 94 million (93). This includes costs<br />

for Södra’s own operations and support of external research projects.<br />

In terms of forestry and sawn timber, research is mainly performed in<br />

collaboration with research institutes and universities. The overall objectives<br />

are to promote a high level of sustainable forestry production, product<br />

development of sawn timber products and greater knowledge of timber<br />

construction.<br />

Södra Cell’s R&D investments focus on product and process development.<br />

Projects are conducted internally and in cooperation with customers,<br />

suppliers, universities and research institutes. Research is based at Södra’s<br />

research centre in Värö.<br />

Södra also supports research through the Södra Foundation for Research,<br />

Development and Education. The foundation aims to promote universitylevel<br />

research related to forestry and forest industry operations in southern<br />

Sweden.<br />

Environment<br />

96 per cent of Södra’s consolidated net revenue is subject to permits or<br />

<strong>report</strong>ing requirements. At year-end, Södra was running 62 (66) operations<br />

in Sweden that were subject to permits or <strong>report</strong>ing requirements under<br />

the Swedish Environmental Code and two (two) operations in Norway subject<br />

to permits under Norwegian law. Pulp mills, sawmills, Mönsterås harbour<br />

and peat bogs are operations requiring permits. Operations with<br />

<strong>report</strong>ing requirements include mills for processing sawn timber, wood<br />

terminals, biomass fuel terminals and wind power plants.<br />

Södra’s impact on the environment mainly derives from discharges and<br />

emissions to water and air from pulp production. Pulp mills have permits<br />

with final or provisional conditions mainly related to discharges to air and<br />

water. Provisional conditions apply during a limited trial period after which<br />

the mill’s status is <strong>report</strong>ed and the final conditions determined.<br />

The following were the most significant matters during the year:<br />

– A petition for an extended trial period for discharges to water was filed<br />

by Södra Cell Mörrum with the Land and Environmental Court.<br />

– Södra Cell Mörrum petitioned the Land and Environmental Court for<br />

altered conditions for emissions of total organic carbon (TOC), total<br />

phosphorus and total nitrogen to water.<br />

– Södra Cell Mörrum submitted the trial period <strong>report</strong> for energy to the<br />

Land and Environmental Court.<br />

– Södra Cell Värö petitioned the Land and Environmental Court for permission<br />

to install a new biomass-fired lime kiln and pelleting facility<br />

for sawdust.<br />

– Mönsterås Harbour applied to the county administrative board for<br />

altered conditions for the content of hydrocarbons in outgoing water<br />

from oil separators.<br />

2<br />

Södra <strong>2012</strong>


– At the closed Hjortsberga sawmill, which Södra previously owned,<br />

remediation measures were planned during the summer. However,<br />

after two appeals in the procurement process, remediation has not yet<br />

commenced.<br />

– Supplemental test samples were taken at the closed impregnation<br />

operations in Hultsfred and Lidhult, where Södra was among the previous<br />

owners, and the respective county administrative boards are<br />

investigating the issue of liability.<br />

– For Hultsfred, discussions have begun regarding the sale of a part<br />

of the area, which may mean that some of the area will be treated<br />

separately. This affects future claims only to a minor extent.<br />

Financial risk management<br />

Through its operations, Södra is exposed to financial risks with regard to<br />

variations in income and cash flow due to fluctuations in exchange rates,<br />

raw material prices and interest rates along with refinancing and credit<br />

risks. There are correlations between certain risk variables.<br />

The Group’s hedging strategy is focused on net exposures. Södra’s<br />

financial policy, which is established by the Board, regulates the management<br />

of the financial risks by stipulating objectives, risk mandates and limits<br />

for financial activities. Hedging measures within the scope of the financial<br />

policy are approved when the situation for such a measure is judged<br />

to be financially beneficial. Consideration is also taken to the access to<br />

commercially acceptable hedging terms.<br />

Decisions regarding hedging measures and transactions are handled<br />

centrally by the Treasury unit. The overriding objective is to provide costeffective<br />

financing and cash management and, when necessary, to manage<br />

financial market risks effectively when required and/or beneficial. The<br />

financial risks are continuously measured and compliance with the financial<br />

policy is monitored. The financial risks pertaining to hedged risks,<br />

objectives, hedging policies and current exposure and hedging level,<br />

which primarily relate to internationally active subsidiaries, are described<br />

in more detail in Note 22 Financial risk management.<br />

Under the financial policy, Södra’s pulp production can be hedged using<br />

pulp price derivatives. The main strategy is to be restrictive with such<br />

hedges. Any hedges are decided on in consultation between the CFO, the<br />

presidents of the subsidiaries and the CEO. Hedged risk pertains to cash<br />

flow risk, which is the risk that Södra will receive a pulp price that is less<br />

than the long-term price level anticipated by the Group. Hedging is also<br />

taken out on the fair value risk that arises when Södra offers to deliver pulp<br />

to buyers at a fixed price through its PulpServices Hedging value-added<br />

service. To ensure that fixed prices contracted with customers will not be<br />

lower than prevailing market prices at the time of delivery, the fixed price<br />

contract is swapped to variable prices. For 2013 and subsequent years,<br />

pulp price with regard to cash flow risk is not hedged. For <strong>2012</strong>, there was<br />

no hedging of the year’s expected pulp production with regard to cash flow<br />

risk. Fair value hedges for 2013 have been entered into for fixed-price<br />

agreements representing 2 per cent (2) of forecast pulp deliveries. There is<br />

no fair value hedging (–) for 2014 and subsequent years.<br />

Södra also has the opportunity to financially hedge oil, electricity and<br />

emission rights to minimise negative profit impact (cash flow risk) due to<br />

pricing variation over time. Oil exposure may be hedged for a period of 18<br />

months with a varying share for each six-month period. Because of Södra’s<br />

total energy exposure, consolidated profit is positively correlated with<br />

energy prices. Since only net exposures are to be hedged, no oil has been<br />

hedged for 2013 and subsequent years (–). With regard to financial electricity<br />

trading, forecast net positions may be hedged up to 100 per cent for the<br />

next two years and up to 80, 50 and 20 per cent in the subsequent three<br />

years. For 2013 and subsequent years, there are no hedges. Södra’s surplus<br />

emission rights are sold in accordance with policy guidelines. For the next<br />

12-month period, up to 100 per cent of the net surplus may be sold while<br />

the limits for the subsequent two years are 50 and 30 per cent, respectively.<br />

No emission rights (–) have been sold for 2013.<br />

Södra’s transaction exposure is not hedged. However, according to the<br />

financial policy, this exposure may be fully hedged. In terms of future flows,<br />

up to 70 per cent of the forecast net inflow during the coming 12-month<br />

period may be hedged, and up to 50 per cent of the inflow for the subsequent<br />

12-month period. The two subsequent 12-month periods may be<br />

hedged up to 30 and 20 per cent, respectively. At the end of the financial<br />

year, – per cent (6) was hedged for the next year. For the time after 2013,<br />

there are no hedges. Translation exposure pertaining to net value in foreign<br />

subsidiaries is only currency hedged under special circumstances.<br />

Liquidity and loan risks relate to the risk of liquidity being insufficient<br />

when needed, or refinancing being expensive or difficult. The financial policy<br />

states that the Group’s cash and cash equivalents and its credit commitments<br />

are to represent at least 10 per cent of a 12-month rolling <strong>annual</strong><br />

revenue. The average credit maturity on the Group’s loan liabilities should<br />

also be in relation to the Group’s equity ratio. With an equity ratio below 50<br />

per cent, the credit maturity should be a minimum of two years and with<br />

an equity ratio above 50 per cent, it should be a minimum of one year.<br />

Credit risk is limited through the financial policy’s requirement that most<br />

of Södra’s cash and cash equivalents be invested in financial instruments<br />

with high liquidity and a Standard & Poor’s credit rating of BBB-/K1 or<br />

higher.<br />

For the Group’s interest-bearing investments, the financial policy indicates<br />

how the interest risk, which consists of the negative changes in market<br />

value that can arise from interest fluctuations in the yield curve, is to<br />

be limited through the allocation of investments over various fixed-rate<br />

periods. The composition of the investment portfolio is described in Note<br />

22 Financial risk management, along with its purpose and return requirements<br />

in accordance with the financial policy.<br />

For financial liability, the objective is to maintain fixed-interest terms<br />

within the 3–15 month interval because Södra deems that a relatively short<br />

fixed-interest period reduces Group financing costs in the long term.<br />

Södra is exposed to share price risk through its holdings of shares, share<br />

index certificates, share index bonds and share funds. Exposure to share<br />

price risk totalled SEK 533 million (684) at the end of the year.<br />

Human resources<br />

Södra strives to be an attractive employer with motivated employees. Human<br />

Resources shall contribute to Södra being attractive for the employees of<br />

today and tomorrow. Value is generated for customers and members through<br />

an interdisciplinary approach with a focus on the processes of the Group.<br />

The weak international economy and poorer competitiveness due to the<br />

strong SEK entailed a significant loss to the company during the year. As a<br />

result of this and to reduce Group expenses in the future, 260 employees<br />

were served notice of termination in September.<br />

The common set of fundamental values and value words in human<br />

resources are whole, closeness and movement. Södra is a company in<br />

which every employee should be aware of his or her significance to the<br />

whole. The meetings and close relationships strengthen the company and<br />

the employees in a corporate culture that stimulates change and innovative<br />

thinking.<br />

The HR strategy stands for a “lifecycle perspective” in the employees’<br />

relationship to the company through the emphasis on objectives and processes<br />

for all stages of employment: attract, recruit, introduce, develop/<br />

retain, reward and resign/leave the company. The employees contribute<br />

expertise, which is the sum of the individual’s knowledge, will and abilities.<br />

In order to increase the component of will, motivation-based leadership<br />

is significant and should be characterised by clear, open communication,<br />

novel thinking and a desire to change.<br />

A prioritised area is the competency supply following increased retirement<br />

numbers in conjunction with notices of termination and layoffs and<br />

the growing number of retirements that will take place over the next few<br />

years. Furthermore, there is a higher of mobility in the labour market.<br />

Recruitment across business area boundaries is encouraged in order to<br />

increase internal mobility and offer development and new challenges. To<br />

attract and motivate employees, there is a “Talent Management Process”<br />

mainly directed at internal recruitment of managers.<br />

All new employees are offered a Group introduction programme. During<br />

the year, 200 employees participated in one of the five sessions arranged.<br />

The introduction helps new employees get to know the business units in<br />

the Group and gain an understanding of their own significance in the overall<br />

scheme.<br />

To develop managers, Södra invests in Group-wide training programmes,<br />

among other efforts. The company has developed a new concept for management<br />

development, which began in the autumn.<br />

Södra <strong>2012</strong> 3


Sickness absence in the Group remains low. The work of reducing workrelated<br />

injuries is a priority area. The outcome is the same level as the preceding<br />

year. Work to influence workplace attitudes continued with the aim<br />

of reducing accidents and incidents.<br />

Risks and uncertainties<br />

The international economic trends are of great significance to the global<br />

market balance for market pulp and hence for pulp volume and price development.<br />

In addition, the national and international building cycle and markets<br />

are of major significance to Södra’s sales of homes, sawn timber and<br />

interior wood products.<br />

Several Södra operations are highly currency-dependent because a major<br />

part of their sales is denominated in currencies other than those in which<br />

their costs are denominated. The exchange rate trend for the USD and EUR<br />

in particular has a major impact on consolidated profit.<br />

Södra’s single largest production costs are for wood, wages and salaries,<br />

chemicals and energy. Here too, the economic situation is an uncertainty<br />

that could affect the price trend for these input goods. The Group’s productivity<br />

efforts and the efficiency improvements made in production and<br />

administration have the potential to counteract the negative effects of<br />

undesirable price increases for input goods.<br />

Note 22 Financial risk management presents what the effect on consolidated<br />

profit and equity would have been had key variables developed differently<br />

compared with the actual outcome.<br />

Other<br />

After having worked for a long time to create profitability at Södra Cell Folla<br />

where chemi-thermomechanical pulp (CTMP) is produced, Södra Cell<br />

decided at the end of August to discontinue its ownership of the mill in Follafoss.<br />

In light of the continued weak development of profitability in the Danish<br />

market, a review was performed of Södra Interiör’s operations in Denmark,<br />

which resulted in a decision to restructure the operations. As a part of this,<br />

40 employees were served notice of termination in Åbyhøj. Production will<br />

be moved to Sweden, mainly Södra Interiör’s mills in Våxtorp and Ronneby.<br />

The decision will also result in the relocation of the order picking warehouse<br />

and office from Åbyhøj to Hørning in summer 2013. Flooring production<br />

in Sunds will continue to be conducted in Denmark.<br />

Operations at Berg & Berg’s sawmill in Eringsboda were discontinued<br />

in the autumn. To utilise potential synergies and increase the efficiency<br />

of the production of parquet raw materials, production was moved to Södra<br />

Interiör’s hardwood sawmill in Djursdala and to Berg & Berg’s factory in<br />

Kallinge.<br />

During the year, Södra decided to withdraw from the Angara Paper<br />

project in Russia.<br />

After decisions in the Board, Leif Brodén withdrew as President and<br />

CEO in May <strong>2012</strong>. Gunilla Saltin was appointed as the Acting President<br />

and CEO. The Board has appointed Lars Idermark as the new President<br />

and CEO and he is expected to assume office in spring 2013.<br />

Outlook for 2013<br />

For the upcoming year, a recovery in the emerging markets in Asia is forecast<br />

while the economic decline will continue in the crisis countries in<br />

Europe, where a continuation of deep budget cuts and weak domestic<br />

demand will lead to a deeper recession. In the US, agreement is expected<br />

regarding the impending financial policy restrictions and a recession will<br />

thereby be avoided. Altogether, this entails a weak global recovery in 2013.<br />

For pulp, a fragile market balance is foreseen during the year. The additions<br />

of new capacity will be moderate, with a somewhat larger addition of<br />

hardwood pulp than softwood pulp. The market in Europe is expected to<br />

continue to be weak while the increase in demand will be in Asia. Despite<br />

the fragile market balance, a cautiously rising price trend is forecast during<br />

the year.<br />

Demand for sawn timber is expected to be low at the beginning of the<br />

year. If the positive trend in the US continues with slowly rising volumes<br />

and prices, scope will be created for larger export volumes to the US and<br />

a better balance in Södra Timber’s domestic market.<br />

For interior products, a weak market in terms of demand is forecast in<br />

Sweden and Denmark, with continued downward price pressure from<br />

imports from low-cost countries. For the Norwegian market and selected<br />

export markets, demand is assessed to slowly increase.<br />

Market developments, and above all the trend of the USD, is of major<br />

significance to Södra if it is to achieve a satisfactory level of profitability.<br />

Parent Company Södra Skogsägarna Economic Association<br />

The Parent Company’s operations consist primarily of trade in the members’<br />

forest raw materials and forest advisory services.<br />

Income<br />

The Parent Company’s net revenue decreased to SEK 8,994 million (10,009).<br />

The operating result decreased to a loss of SEK 172 million (loss: 140). The<br />

decrease in net revenue was primarily due to lower wood volumes and prices.<br />

Finance income and expense amounted to income of SEK 24 million<br />

(expense: 34). The preceding year’s finance income and expense was<br />

charged with significant impairment losses of investment assets as a<br />

result of the development in the financial markets.<br />

The result after finance income and expenses was a loss of SEK 148<br />

million (loss: 174).<br />

Annual General Meeting (AGM)<br />

The Annual General Meeting was held on 15–16 May <strong>2012</strong> in Ronneby.<br />

The AGM resolved to approve a dividend for the 2011 financial year in<br />

an amount of 5 per cent on the capital contributed and 5 per cent on the<br />

members’ wood deliveries. In addition, the AGM resolved to approve a<br />

bonus issue corresponding to 10 per cent of available paid-up capital contributed<br />

at 31 December 2011 and a dividend on subordinated debentures<br />

as contracted.<br />

At the AGM, Stefan Olsson was elected as a new Board member.<br />

Events after the balance sheet date<br />

After the balance sheet date, the Board of Directors resolved to discontinue<br />

Södra’s involvement in Södra Cell Tofte. It is considered that the conditions<br />

exist to identify a new owner. However, a significant negative earnings effect<br />

in 2013 as a result of this decision cannot be ruled out.<br />

In 2011, Ittur Redibo AB commenced arbitration proceedings against<br />

Södra Timber AB and claimed damages due to alleged violations of an<br />

option agreement under which Ittur Redibo AB was granted the right,<br />

under certain predetermined terms, to buy back shares in Trivselhus Holding<br />

AB from Södra Timber AB.<br />

On 7 February 2013, the final ruling on the dispute between Ittur Redibo<br />

AB and Södra Timber AB was announced. The arbitration board rejected<br />

Ittur Redibo AB’s claim in its entirety and the board ordered Ittur Redibo<br />

AB to compensate Södra Timber for its costs for the arbitration proceedings<br />

(including compensation to the arbitrators and arbitration institute).<br />

The ruling has no impact on Södra’s earnings.<br />

Membership<br />

The number of members at year-end was 50,888 (51,247). The affiliated<br />

membership area was 2,36 million hectares (2,37), a decline of 9,000<br />

hectares.<br />

Appropriation of profits<br />

The Board’s proposal to the AGM for profit allocation entails a dividend<br />

of SEK 295 million, comprising a dividend on contributed capital of 3 per<br />

cent, a dividend on wood deliveries of 3 per cent and SEK 106 million as<br />

a bonus issue. A dividend of SEK 7 million will be paid on subordinated<br />

debentures as contracted.<br />

4<br />

Södra <strong>2012</strong>


Consolidated statement of comprehensive income<br />

SEK million Note <strong>2012</strong> 2011<br />

Net revenue 2, 3 16,807 18,191<br />

Other revenue 4 305 383<br />

Change in inventories of finished products and products<br />

in process –327 603<br />

Capitalised work 41 39<br />

Raw materials and consumables –10,916 –11,732<br />

Goods for resale –396 –305<br />

Freight and transportation –888 –858<br />

Employee expenses 6 –2,526 –2,346<br />

Other expenses 5, 7, 9 –1,955 –1,787<br />

Depreciation, amortisation and impairment of assets 8 –1,074 –1,177<br />

Share of profit of associates 10 0 –6<br />

Operating profit/loss 2 –929 1,005<br />

Finance income 182 113<br />

Finance expense –172 –235<br />

Finance income and expense 11 10 –122<br />

Profit/loss before income tax –919 883<br />

Income tax 13 347 –175<br />

Profit/loss for the year –572 708<br />

Other comprehensive income<br />

Translation differences for the year on translation of<br />

foreign operations 3 –8<br />

Revaluation of available-for-sale financial assets to<br />

fair value –1 0<br />

Cash flow hedges 1 –184<br />

Actuarial gains and losses –11 –250<br />

Share of other comprehensive income of associates 1 —<br />

Tax attributable to other comprehensive income 14 4 114<br />

Other comprehensive income/loss for the year 14 –3 –328<br />

Total comprehensive income/loss for the year –575 380<br />

Profit/loss attributable to:<br />

Parent Company –577 704<br />

Minority share of income for the year 5 4<br />

Profit/loss for the year –572 708<br />

Net revenue<br />

SEK million<br />

25,000<br />

20,000<br />

15,000<br />

10,000<br />

5,000<br />

0<br />

08 09 10 11 12<br />

Profit before income tax<br />

SEK million<br />

2,500<br />

2,000<br />

1,500<br />

1,000<br />

500<br />

0<br />

–500<br />

–1,000<br />

08 09 10 11 12<br />

Total comprehensive income/loss for the year attributable to:<br />

Owners of the Parent –581 375<br />

Minority interest 6 5<br />

Total comprehensive income/loss for the year –575 380<br />

Comments on the consolidated statement of comprehensive income<br />

Consolidated net revenue decreased to SEK 16,807 million (18,191). Pulp<br />

prices in USD were low during the year. This and the market closure implemented<br />

at Södra Cell Tofte at the beginning of the year contributed to<br />

Södra Cell’s net revenue decreasing by SEK 1,016 million. Lower prices for<br />

sawn timber products and negative exchange rate effects meant that Södra<br />

Timber’s net revenues decreased. Revenue also declined for Södra Skog as<br />

a result of lower wood volumes and prices. Södra Interiör <strong>report</strong>ed increased<br />

sales mainly as an effect of a positive trend in the Norwegian market,<br />

higher exports of hardwood products and corporate acquisitions.<br />

The operating result decreased to a loss of SEK 929 million (profit: 1,005).<br />

The operating loss includes result effects totalling SEK 23 million (192) from<br />

currency derivatives and fixed-price contracts and SEK 277 million (298)<br />

from sales of electricity certificates.<br />

The profit trend for each business area is presented in Note 2 Operating<br />

segments. Södra Cell <strong>report</strong>ed the largest change. The operating result<br />

dropped to a loss of SEK 283 million (profit: 1,273), mainly due to lower pulp<br />

prices. The continued weak market for sawn timber products entailed a<br />

poorer result for Södra Timber, which <strong>report</strong>ed a loss of SEK 469 million<br />

(loss: 276). The operating results of Södra Skog and Södra Interiör deteriorated<br />

to a loss of SEK 20 million (profit: 75) and a profit of SEK 2 million<br />

(profit: 49), respectively.<br />

Finance income and expenses amounted to income of SEK 10 million<br />

(expense: 122). The improvement was primarily a result of positive revaluations<br />

of the Group’s investment assets caused by a more stable trend in the<br />

world’s financial markets in <strong>2012</strong> compared with 2011. The result before tax<br />

fell by SEK 1,802 million to a loss of SEK 919 million (profit: 883).<br />

Return on capital employed was negative (9).<br />

Södra <strong>2012</strong> 5


Consolidated statement of financial position<br />

31 December, SEK million Note <strong>2012</strong> 2011<br />

ASSETS 15, 44, 45<br />

Non-current assets<br />

Intangible assets<br />

Goodwill 289 294<br />

Other intangible assets 161 172<br />

Total intangible assets 16 450 466<br />

Property, plant and equipment<br />

Buildings and land 17 1,963 1,835<br />

Machinery and equipment 18 6,191 5,568<br />

Construction in progress 19 426 594<br />

Total property, plant and equipment 8,580 7,997<br />

Biological assets 20 488 475<br />

Shares and participations in associates 10 112 113<br />

Financial investments 21 17 17<br />

Surplus in funded pension plans 35 — 2<br />

Non-current financial receivables 21, 24 4 2<br />

Non-current operating receivables 25 5 5<br />

Deferred tax assets 26 114 93<br />

Total non-current assets 9,770 9,170<br />

Current assets<br />

Inventories 27 3,073 3,409<br />

Tax assets 48 129<br />

Current operating receivables 29 2,743 3,089<br />

Current investments 21 646 1,812<br />

Cash and cash equivalents 30 594 653<br />

Total current assets 7,104 9,092<br />

TOTAL ASSETS 16,874 18,262<br />

6<br />

Södra <strong>2012</strong>


31 December, SEK million Note <strong>2012</strong> 2011<br />

EQUITY AND LIABILITIES<br />

Equity<br />

Contributed capital 2,661 2,508<br />

Other paid-up capital 1,312 1,294<br />

Reserves 109 107<br />

Retained earnings including profit for the year 6,143 7,181<br />

Equity attributable to owners of the Parent 10,225 11,090<br />

Minority interest 17 11<br />

Total equity 31 10,242 11,101<br />

Liabilities 15, 44, 45<br />

Non-current liabilities<br />

Non-current interest-bearing liabilities 22, 34 378 426<br />

Provisions for pensions 35 494 485<br />

Non-current provisions 36 188 135<br />

Non-current operating liabilities 37 7 —<br />

Deferred income tax liabilities 26 851 1,195<br />

Total non-current liabilities 1,918 2,241<br />

Current liabilities<br />

Current interest-bearing liabilities 34 2,151 2,288<br />

Income tax liabilities 45 35<br />

Current operating liabilities 38 2,518 2,597<br />

Total current liabilities 4,714 4,920<br />

Total liabilities 6,632 7,161<br />

TOTAL EQUITY AND LIABILITIES 16,874 18,262<br />

For information about the Group’s pledged assets and contingent liabilities, see Notes 40–41.<br />

Comments on the consolidated statement of financial position<br />

Total assets decreased to SEK 16,874 million (18,262). This was mainly a<br />

result of lower operating receivables, reduced inventories and the consolidated<br />

cash and cash equivalents and current investments decreasing to<br />

SEK 1,240 million (2,465). At the same time, capital tied-up in non-current<br />

assets increased.<br />

Equity totalled SEK 10,242 million (11,101). Of equity, paid-up capital contributed<br />

and bonus issues accounted for SEK 2,661 million (2,508). Forthcoming<br />

repayments of contributed capital to members that resigned during<br />

the financial year amount to SEK 44 million (35).<br />

Interest-bearing liabilities declined to SEK 2,529 million (2,714). The<br />

Group’s borrowings consist primarily of loans from members allocated in<br />

membership accounts of SEK 1,724 million, payment plans of SEK 563 million,<br />

forest loans of SEK 33 million and liquidity accounts of SEK 26 million.<br />

Issued subordinated debentures of SEK 130 million were reclassified under<br />

IFRS in the consolidated statement of financial position from equity to<br />

interest-bearing liabilities.<br />

Södra has a credit agreement in the form of a club agreement that gives<br />

Södra the possibility of borrowing up to EUR 105 million over a four-year<br />

period. The credit commitment was unutilised at year-end.<br />

The equity ratio was 61 per cent (61) and the debt-equity ratio was<br />

0.2 times (0.2).<br />

Södra <strong>2012</strong> 7


Consolidated statement of changes in equity<br />

Equity attributable to owners of the Parent<br />

SEK million<br />

Contributed<br />

capital<br />

Other<br />

paid-up<br />

capital<br />

Translation<br />

reserve<br />

Fair<br />

value<br />

reserve<br />

Hedging<br />

reserve<br />

Retained<br />

earnings<br />

including<br />

profit for<br />

the year<br />

Total<br />

Minority<br />

interest<br />

Total<br />

equity<br />

Opening balance 1 January <strong>2012</strong> 2,508 1,294 107 1 –1 7,181 11,090 11 11,101<br />

Profit/loss for the year — — — — — –577 –577 5 –572<br />

Other comprehensive income/loss for the year — — 2 –1 1 –6 –4 1 –3<br />

Total comprehensive income/loss for the year — — 2 –1 1 –583 –581 6 –575<br />

Capital contributed, paid-up by members 89 — — — — — 89 — 89<br />

Capital contributed, paid-out to members –35 — — — — — –35 — –35<br />

Dividend to members — — — — — –338 –338 — –338<br />

Bonus issue 99 — — — — –99 — — —<br />

Allocation to restricted funds — 18 — — — –18 — — —<br />

Closing balance 31 December <strong>2012</strong> 2,661 1,312 109 — — 6,143 10,225 17 10,242<br />

SEK million<br />

Opening balance 1 January 2011 2,354 1,253 115 1 135 7,552 11,410 6 11,416<br />

Profit for the year — — — — — 704 704 4 708<br />

Other comprehensive income/loss for the year — — –8 0 –136 –184 –329 1 –328<br />

Total comprehensive income/loss for the year — — –8 0 –136 520 375 5 380<br />

Capital contributed, paid-up by members 103 — — — — — 103 — 103<br />

Capital contributed, paid-out to members –38 — — — — — –38 — –38<br />

Appropriation of profits — 41 — — — –41 — — —<br />

Dividend to members — — — — — –761 –761 — –761<br />

Bonus issue 89 — — — — –89 — — —<br />

Closing balance 31 December 2011 2,508 1,294 107 1 –1 7,181 11,090 11 11,101<br />

For additional information, see Note 31 Equity and Note 14 concerning comprehensive income.<br />

8<br />

Södra <strong>2012</strong>


Consolidated statement of cash flows<br />

SEK million Note <strong>2012</strong> 2011<br />

Operating activities<br />

Profit/loss before income tax –919 883<br />

Adjustment for non-cash items<br />

Depreciation and amortisation 1,176 1,175<br />

Impairment of non-current assets –102 2<br />

Change in value of current investments –71 122<br />

Profit from sale of non-current assets 0 –13<br />

Other items not affecting cash flow 124 35<br />

Income tax paid 57 –283<br />

Net cash flow from operating activities before change in working capital 265 1,921<br />

Change in<br />

Inventories (increase –) 372 –1,011<br />

Operating receivables (increase –) 356 222<br />

Operating liabilities (increase +) –223 –214<br />

Cash flow from operating activities 770 918<br />

Investing activities<br />

Acquisition of subsidiaries and associates 15 –96 –11<br />

Sale of companies –8 —<br />

Change in other financial assets –2 3<br />

Investments in intangible assets — –17<br />

Investments in property, plant and equipment –1,517 –1,733<br />

Sale of property, plant and equipment 38 47<br />

Cash flow from investing activities –1,585 –1,711<br />

Cash flow after investing activities –815 –793<br />

Financing activities<br />

Capital contributed, paid-up 89 103<br />

Capital contributed, paid out –35 –38<br />

Change in subordinated debentures 0 0<br />

Dividends paid –338 –761<br />

Change in loans from members –185 187<br />

Repayment of other loans –15 –150<br />

Change in current investments with maturity > 90 days 1,240 641<br />

Cash flow from financing activities 756 –18<br />

CASH FLOW FOR THE YEAR 42 –59 –811<br />

Cash and cash equivalents at beginning of year 653 1,464<br />

Exchange gains/losses on cash and cash equivalents 0 0<br />

Cash and cash equivalents at end of year 30 594 653<br />

Södra <strong>2012</strong> 9


Parent Company income statement<br />

SEK million Note <strong>2012</strong> 2011<br />

Net revenue 2, 3 8,994 10,009<br />

Change in inventories of finished products and products in process 41 78<br />

Other revenue 4 378 362<br />

Goods for resale –8,505 –9,520<br />

Other external expenses 5, 9 –497 –473<br />

Employee expenses 6 –527 –541<br />

Depreciation, amortisation and impairment of assets 8 –52 –49<br />

Other operating expenses 7 –4 –6<br />

Operating profit 3 –172 –140<br />

Profit/loss from shares in Group companies –8 13<br />

Interest income and similar profit items 108 136<br />

Interest expenses and similar items –76 –183<br />

Finance income and expense 11 24 –34<br />

Loss after finance items –148 –174<br />

Appropriations 12 414 557<br />

Profit before income tax 266 383<br />

Income tax 13 –33 –16<br />

Profit for the year 233 367<br />

Profit for the year matches Comprehensive income for the year.<br />

10<br />

Södra <strong>2012</strong>


Parent Company balance sheet<br />

31 December, SEK million Note <strong>2012</strong> 2011<br />

ASSETS 44<br />

Non-current assets<br />

Intangible assets<br />

Other intangible assets 14 26<br />

Total intangible assets 16 14 26<br />

Property, plant and equipment<br />

Buildings and land 17 292 244<br />

Machinery and equipment 18 123 103<br />

Construction in progress 19 20 57<br />

Total property, plant and equipment 435 404<br />

Financial assets<br />

Shares in Group companies 39 2,637 2,253<br />

Shares and participations in associates 10 58 58<br />

Surplus in funded pension plans 35 25 24<br />

Other non-current investments 23 13 13<br />

Other non-current receivables 25 5 5<br />

Deferred tax assets 26 31 50<br />

Total financial assets 2,769 2,403<br />

Total non-current assets 3,218 2,833<br />

Current assets<br />

Inventories 27 411 451<br />

Current receivables<br />

Interest-bearing receivables with Group companies 28 2,976 2,655<br />

Deferred tax receivables 0 30<br />

Operating receivables 29 1,435 1,209<br />

Total current receivables 4,411 3,894<br />

Current financial investments 725 1,962<br />

Cash and bank balances 80 29<br />

Total current assets 5,627 6,336<br />

TOTAL ASSETS 8,845 9,169<br />

Södra <strong>2012</strong> 11


Parent Company balance sheet<br />

31 December, SEK million Note <strong>2012</strong> 2011<br />

EQUITY AND LIABILITIES<br />

Equity<br />

Restricted equity<br />

Contributed capital 2,661 2,508<br />

Subordinated debentures 130 130<br />

Statutory reserve 1,312 1,294<br />

Total restricted equity 4,103 3,932<br />

Non-restricted equity<br />

Profit carried forward 126 221<br />

Profit for the year 233 367<br />

Total non-restricted equity 359 588<br />

Total equity 31 4,462 4,520<br />

Untaxed reserves 32 19 207<br />

Provisions<br />

Provisions for pensions 35 82 94<br />

Other non-current provisions 36 81 45<br />

Total provisions 163 139<br />

Non-current liabilities<br />

Non-current interest-bearing liabilities with Group companies 33 29 21<br />

Non-current interest-bearing liabilities 34 248 296<br />

Total non-current liabilities 277 317<br />

Current liabilities<br />

Current interest-bearing liabilities with Group companies 33 196 397<br />

Current interest-bearing liabilities 34 2,098 2,236<br />

Current tax liabilities 3 —<br />

Current operating liabilities 38 1,627 1,353<br />

Total current liabilities 3,924 3,986<br />

TOTAL EQUITY AND LIABILITIES 8,845 9,169<br />

Pledged assets 40 123 94<br />

Contingent liabilities 41 604 571<br />

12<br />

Södra <strong>2012</strong>


Parent Company statement of changes in equity<br />

SEK million<br />

Contributed<br />

capital<br />

Restricted equity<br />

Subordinated<br />

debentures<br />

Statutory<br />

reserve<br />

Non-restricted equity<br />

Profit carried<br />

forward<br />

Profit for<br />

the year<br />

Total equity<br />

Opening balance 1 January <strong>2012</strong> 2,508 130 1,294 221 367 4,520<br />

Transfer of profit for the year — — — 367 –367 —<br />

Profit for the year — — — — 233 233<br />

Total equity excluding owner transactions 2,508 130 1,294 588 233 4,753<br />

Capital contributed, paid-up by members 89 — — — — 89<br />

Capital contributed, paid-out to members –35 — — — — –35<br />

Paid-out subordinated debentures — 0 — — — —<br />

Appropriation of profits — — — — — —<br />

Dividend to members — — — –338 — –338<br />

Dividend on subordinated debentures — — — –7 — –7<br />

Bonus issue 99 — — –99 — —<br />

Allocation to restricted funds — — 18 –18 — —<br />

Closing balance 31 December <strong>2012</strong> 2,661 130 1,312 126 233 4,462<br />

SEK million<br />

Opening balance 1 January 2011 2,354 130 1,253 300 822 4,859<br />

Transfer of profit for the year — — — 822 –822 —<br />

Profit for the year — — — — 367 367<br />

Total equity excluding owner transactions 2,354 130 1,253 1,122 367 5,226<br />

Capital contributed, paid-up by members 103 — — — — 103<br />

Capital contributed, paid-out to members –38 — — — — –38<br />

Paid-out subordinated debentures — 0 — — — 0<br />

Appropriation of profits — — 41 –41 — —<br />

Dividend to members — — — –761 — –761<br />

Dividend on subordinated debentures — — — –10 — –10<br />

Bonus issue 89 — — –89 — —<br />

Closing balance 31 December 2011 2,508 130 1,294 221 367 4,520<br />

For additional information, see Note 31 Equity.<br />

Profit for the year matches Comprehensive income for the year.<br />

Södra <strong>2012</strong> 13


Parent Company statement of cash flows<br />

SEK million Note <strong>2012</strong> 2011<br />

Operating activities<br />

Profit/loss after finance items –148 –174<br />

Adjustment for non-cash items<br />

Depreciation and amortisation according to plan 51 49<br />

Change in value of current investments 37 –8<br />

Profit from sale of non-current assets 8 0<br />

Other items not affecting cash flow 473 624<br />

Income tax paid 18 –30<br />

Net cash flow from operating activities before change in working capital 439 461<br />

Change in<br />

Inventories (increase –) 40 –242<br />

Operating receivables (increase –) –328 –575<br />

Operating liabilities (increase +) –362 –542<br />

Cash flow from operating activities –211 –898<br />

Investing activities<br />

Acquisition of shares in subsidiaries and contribution –384 –64<br />

Sale of shares in subsidiaries –8 —<br />

Investments in intangible assets –1 –5<br />

Investments in property, plant and equipment –82 –118<br />

Sale of property, plant and equipment 10 3<br />

Cash flow from investing activities –465 –184<br />

Cash flow after investing activities –676 –1,082<br />

Financing activities<br />

Capital contributed, paid-up 89 103<br />

Capital contributed, paid out –35 –38<br />

Change in subordinated debentures 0 0<br />

Dividends paid –345 –771<br />

Change in loans from members –185 187<br />

Change in current investments with maturity > 90 days 1,056 796<br />

Cash flow from financing activities 580 277<br />

CASH FLOW FOR THE YEAR 42 –96 –805<br />

Cash and cash equivalents at beginning of year 413 1,218<br />

Cash and cash equivalents at end of year 30 317 413<br />

14<br />

Södra <strong>2012</strong>


Note 1<br />

Accounting policies<br />

Södra has applied the EU-adopted International Financial Reporting Standards<br />

(IFRS) since 1 January 2009. The following accounting policies have, with the<br />

exceptions described below, been applied consistently to all periods presented<br />

in the consolidated financial statements. The Group’s accounting policies have<br />

also been consistently applied by Group companies and associates.<br />

Conformity with standards and legislation<br />

The consolidated financial statements have been prepared in accordance with<br />

the International Financial Reporting Standards (IFRS) published by the International<br />

Accounting Standards Board (IASB) and interpretations from the<br />

International Financial Reporting Interpretations Committee (IFRIC) as adopted<br />

by the EU. The Swedish Financial Accounting Standards Council’s recommendation<br />

RFR 1 Supplementary accounting rules for groups has also been<br />

applied.<br />

The Parent Company applies the same accounting policies as the Group<br />

except as specified in the following section Parent Company’s accounting<br />

policies.<br />

The <strong>annual</strong> <strong>report</strong> and consolidated financial statements were approved<br />

for publication by the Board of Directors and the President on 14 February<br />

2013. The consolidated statement of comprehensive income and statement<br />

of financial position as well as the Parent Company’s income statement and<br />

balance sheet and statement of comprehensive income will be adopted by<br />

the Annual General Meeting on 15 May 2013.<br />

Valuation basis in preparation of the financial statements<br />

Assets and liabilities are recognised at historic cost, except for certain financial<br />

assets and liabilities and biological assets that are measured at fair value.<br />

Financial assets and liabilities measured at fair value consist of derivative<br />

instruments, financial assets classified as financial assets at fair value through<br />

profit or loss or as available-for-sale financial assets.<br />

Functional currency and <strong>report</strong>ing currency<br />

The companies in the Group prepare their financial statements in the currency<br />

that is used in the financial environment in which they are primarily operative,<br />

known as the functional currency. These statements form the basis of the consolidated<br />

financial statements. The consolidated financial statements are prepared<br />

in SEK, which is the Parent Company’s functional currency and <strong>report</strong>ing<br />

currency. All amounts are in SEK million, unless otherwise indicated.<br />

Estimates and assumptions in the financial statements<br />

Preparing the financial statements in conformity with IFRS requires management<br />

to make estimates and assumptions and make presumptions that affect<br />

the application of accounting policies and the carrying amounts for assets,<br />

liabilities, revenue and expenses. The actual outcome may differ from this.<br />

Estimates and assumptions are regularly reviewed. Changes in the estimates<br />

are recognised in the period they are made if it is the only period<br />

affected by the change or in the period the changes are made and in future<br />

periods if they also affect future periods.<br />

Estimates made by management on application of IFRS that have a substantial<br />

effect on the financial statements and assumptions made that may<br />

involve material adjustments in the following year’s financial statements are<br />

described in detail in Note 43 Critical accounting estimates and judgements.<br />

Södra’s charter states that an AGM resolution shall precede the disbursement<br />

of contributed capital. Södra thereby classifies capital contributed as<br />

equity.<br />

Wood purchases from the members are based on commercial pricing.<br />

Dividends based on wood deliveries are classified as dividends and recognised<br />

in equity.<br />

Amended accounting policies<br />

Received and paid intra-Group transfers were recognised in finance income<br />

and expense in 2011. In <strong>2012</strong>, the Swedish Financial Accounting Standards<br />

Council revised RFR 2, making it possible to recognise intra-Group transfers<br />

as appropriations. Södra has chosen to apply these new rules as of <strong>2012</strong>. The<br />

comparison year has been restated.<br />

Changed accounting policies due to new or revised IFRS<br />

In Södra’s assessment, there are no material changes in policies in <strong>2012</strong>.<br />

New IFRS and interpretations not yet applied<br />

A number of new or changed standards and new interpretations take effect in<br />

the coming financial years and have not been applied in advance in the preparation<br />

of these financial statements. Premature adoption of new or changed<br />

standards that take effect after the <strong>2012</strong> financial year is not planned. The<br />

following changes are considered applicable to the Södra Group:<br />

IFRS 9 Financial Instruments is intended to replace IAS 39 Financial<br />

Instruments: Recognition and measurement, applicable as of 1 January 2015.<br />

This first component concerns the classification and measurement of financial<br />

assets. The categories for financial assets in IAS 39 are replaced by two<br />

categories, where measurement takes place at fair value or amortised cost.<br />

Amortised cost is used for instruments that are held in a business model the<br />

objective of which is to obtain the contractual cash flows, which will constitute<br />

payments of principal and interest on the principals at specified dates.<br />

Other financial assets are recognised at fair value and the possibility of<br />

applying the fair value option, as stipulated in IAS 39, is retained. Changes in<br />

fair value shall be recognised in profit or loss, except for changes in value of<br />

equity instruments that are available for sale and for which choices are initially<br />

made to recognise changes in value in other comprehensive income.<br />

Value changes of derivatives in hedge accounting are not affected by this<br />

part of IFRS 9, but rather continue to be recognised in accordance with IAS<br />

39. The second part was presented in 2010 and contains guidance on the<br />

classification and measurement of liabilities. Neither part has yet been<br />

adopted by the EU.<br />

IFRS 10 Consolidated Financial Statements replaces IAS 27 Consolidated<br />

and Separate Financial Statements with regard to the rules for consolidated<br />

accounts, and SIC-12 when special purpose entities (SPEs) are to be covered<br />

by consolidated accounting. This entails no changes compared with IAS 27<br />

(2008) with regard to rules for consolidation in connection with acquisitions<br />

and disposals, but a new control method is to be applied for when companies<br />

are to be consolidated. Controlling influence is defined based on the right to<br />

variable returns, entailing a broader definition. IFRS 10 is applied to financial<br />

years beginning on or after 1 January 2014.<br />

IFRS 12 Disclosure of Interests in Other Entities is to be applied to financial<br />

years beginning after 1 January 2014. It contains disclosure requirements<br />

for holdings in other companies, such as subsidiaries, joint ventures, joint<br />

operations, associates and unconsolidated companies, so-called “structured<br />

entities”. Disclosures are required regarding assessments and assumptions<br />

made, meaning the method used to decide which companies would be consolidated,<br />

the risk of holdings in the form of exposures and effects on earnings,<br />

position and cash flows.<br />

IFRS 11 Joint Arrangements replaces IAS 31 Interests in Joint Ventures and<br />

is to be applied to financial years beginning after 1 January 2014. This standard<br />

states that joint arrangements are classified as either a joint operation or<br />

joint venture. A joint operation is defined as when there is control over individual<br />

assets or liabilities. A joint venture is defined as when there is no such<br />

control, but rather only control over residual, meaning the return in the form of<br />

dividends, for example. The accounting effect is that joint ventures are recognised<br />

according to the equity method while the share of jointly owned assets,<br />

liabilities, income and expenses is recognised in joint operations.<br />

IFRS 13 Fair Value Measurement is to be applied to financial years beginning<br />

after 1 January 2013.<br />

IFRS 13 is intended to define a framework for measurement at fair value.<br />

The regulations are applied to all other IFRS that require or allow fair value<br />

measurement, with the exception of recognition and disclosures under IFRS<br />

2 and IAS 17 or disclosures under IAS 19, IAS 26 and IAS 36. The application<br />

is prospective, but advance application is permitted.<br />

IAS 19 Employee Benefits is to be applied to financial years beginning<br />

after 1 January 2013. The corridor method is no longer applicable and does<br />

not affect Södra. Return on plan assets shall be calculated in accordance with<br />

the interest rate used for pension liabilities. Discrepancies in the actual outcome<br />

are charged to other comprehensive income.<br />

Classification<br />

Non-current assets and non-current liabilities substantially consist of amounts<br />

that are expected to be recovered or paid more than 12 months after balance<br />

sheet date. Current assets and current liabilities consist mainly of amounts<br />

that are expected to be recovered or paid within 12 months of the balance<br />

sheet date.<br />

Södra <strong>2012</strong> 15


cont. note 1<br />

Segment <strong>report</strong>ing<br />

An operating segment is a part of the Group that operates an entity in which it<br />

can generate revenue and incur costs and for which independent financial<br />

information is prepared. The profit of an operating segment is monitored by<br />

the chief operating decision-maker in order to assess performance and allocate<br />

resources to the operating segment. See Note 2 Segment <strong>report</strong>ing for grouping<br />

and presentation of operating segments. The Group’s primary operation is<br />

divided into the following operating segments:<br />

Södra Skog supplies the Group’s mills with wood raw materials, trades in<br />

wood raw materials and biomass fuel, and provides forestry services to members.<br />

The Parent Company’s primary operation is provided by Södra Skog.<br />

Södra Timber manufactures sawn and planed timber products, primarily for<br />

construction and other building applications, at sawmills in southern Sweden.<br />

Södra Interiör manufactures a broad range of interior wood products,<br />

including mouldings, panels, flooring and interior fittings, at plants in<br />

Sweden, Norway, Denmark and Lithuania.<br />

Södra Cell is one of the world’s largest producers of bleached sulphate<br />

market pulp. Pulp is sold predominantly to European paper mills for the<br />

production of fine paper, printing paper, tissue and speciality products.<br />

All else, called Corporate functions, includes the Group’s financial operations<br />

and other corporate functions such as management, staffs and service<br />

units. Operations in Trivselhus are included here.<br />

Segment allocation<br />

Segment profit, assets and liabilities include directly attributable items.<br />

Interest-bearing receivables and liabilities, pension provisions, cash and cash<br />

equivalents and taxes are not included. The segments’ investments in property,<br />

plant and equipment and intangible assets include all investments.<br />

The accounting policies for the segments concur with those for the Group.<br />

Consolidation policies<br />

Subsidiaries<br />

Subsidiaries are entities over which the Parent Company Södra Skogsägarna<br />

ekonomisk förening has controlling influence. This implies the direct or indirect<br />

power to govern the financial and operating policies in order to achieve<br />

economic benefit. The existence and effect of potential voting rights that are<br />

currently exercisable or convertible are considered when assessing whether<br />

the Group controls another entity.<br />

Business combinations<br />

Subsidiaries are recognised in the financial statements using the purchase<br />

method. This method means that the acquisition of a subsidiary is viewed as<br />

a transaction whereby the Group indirectly obtains the subsidiary’s assets and<br />

assumes its liabilities. The acquisition analysis establishes the fair value of<br />

acquired, identified assets and assumed liabilities as well as any non-controlling<br />

interest on the date of acquisition. Arising transaction expenses are<br />

recognised directly in profit for the year, except those attributable to the issue<br />

of equity or debt instruments.<br />

In business combinations where transferred compensation, any noncontrolling<br />

interests and fair value of previously owned participations (in step<br />

acquisitions) exceed the fair value of acquired assets and assumed liabilities<br />

that are recognised separately, the difference is recognised as goodwill.<br />

When the difference is negative, known as a bargain purchase, it is recognised<br />

directly in profit for the year.<br />

Transferred compensation in conjunction with the acquisition does not<br />

include payments pertaining to the settlement of earlier business connections.<br />

Such settlement is recognised in profit or loss.<br />

Contingent purchase considerations are recognised at fair value at the date<br />

of acquisition. If the contingent purchase considerations are classified as<br />

equity instruments, no remeasurement is carried out and settlement takes<br />

place in equity. Other contingent purchase considerations are remeasured at<br />

each <strong>report</strong>ing occasion and the change is recognised in profit for the year.<br />

Non-controlling interests arise for acquisitions not involving 100 per cent<br />

ownership of the subsidiary. Two options are available for recognising this:<br />

recognising the non-controlling interest’s proportionate share of net assets or<br />

recognising the non-controlling interest at fair value, meaning that the noncontrolling<br />

interest has a share of goodwill. The options for recognising noncontrolling<br />

interests can be made on an acquisition-by-acquisition basis.<br />

For business combinations achieved in stages (step acquisitions), goodwill<br />

is determined on the date on which the controlling interest arises.<br />

Previous interests are measured at fair value and the change in value is<br />

recognised in profit for the year.<br />

In conjunction with disposals resulting in the loss of a controlling interest<br />

but where a residual interest exists, this holding is measured at fair value<br />

and the change in value recognised in profit for the year.<br />

The financial statements of subsidiaries are included in the consolidated<br />

financial statements from the acquisition date until such date as the controlling<br />

interest ceases.<br />

If the subsidiary’s accounting policies do not agree with the Group’s<br />

accounting policies, adjustments have been made to the Group’s accounting<br />

policies.<br />

Losses attributable to non-controlling interests are allocated to noncontrolling<br />

interests despite the fact that non-controlling interests will be<br />

recognised as a debit item under equity.<br />

Acquisitions of non-controlling interests<br />

Acquisitions of non-controlling interests are recognised as transactions in<br />

equity, meaning between the Parent Company’s owners (within retained earnings)<br />

and non-controlling interests. Consequently, goodwill does not arise. The<br />

change in non-controlling interests is based on their proportional share of net<br />

assets.<br />

Sale of non-controlling interests<br />

Sales of non-controlling interests, where a controlling interest remains, are<br />

recognised as transactions in equity, meaning between the Parent Company’s<br />

owners and non-controlling interests. The difference between received payment<br />

and the non-controlling interest’s proportionate share of acquired net<br />

assets is recognised under retained earnings.<br />

Associates<br />

The equity method is used to <strong>report</strong> shareholdings in associates in which the<br />

Group has a minimum of 20 per cent and maximum of 50 per cent of the votes<br />

or in some other way has a determining influence and ownership is part of a<br />

lasting relationship. This means that the carrying amount in the Group for<br />

shares in associates is equivalent to the Group’s share of equity in the associates<br />

plus corporate goodwill and any residual value for Group surplus and<br />

undervalues. The Group’s share of profit from associates attributable to owners<br />

of the Parent is recognised in the consolidated statement of comprehensive<br />

income as share in profit of associates, with adjustment for any depreciation or<br />

amortisation, impairment and discharge surplus or undervalue from the acquisition.<br />

Share in profits less dividends received from associates represents the<br />

main change in the carrying amount of the shares in associates.<br />

Any difference arising from the acquisition between cost of shares and the<br />

owner’s share of net fair value of the associate’s identifiable assets, liabilities<br />

and contingent liabilities is recognised using the same policies as for acquisition<br />

of subsidiaries.<br />

When the Group’s share of recognised losses in the associate exceeds the<br />

carrying amount of the shares in the Group, the value of the shares is<br />

reduced to zero. Losses are also settled on non-current, unsecured financial<br />

dealings, the financial substance of which is part of the owner’s net investment<br />

in the associate. Ongoing losses are only recognised if the Group has<br />

provided guarantees to cover them. The equity method of accounting is<br />

applied until the significant influence ceases.<br />

Transactions that are eliminated on consolidation<br />

Intra-Group receivables and liabilities, revenue or expenses and unrealised<br />

gains or losses in transactions between Group companies are eliminated in<br />

their entirety in the consolidated financial statements. Unrealised profits in<br />

transactions with associates are eliminated to the extent they represent the<br />

Group’s ownership in the company. Unrealised losses are eliminated in the<br />

same way as unrealised profits, provided impairment loss is not required.<br />

Foreign currencies<br />

Transactions in foreign currencies<br />

Foreign currency transactions are translated into the functional currency using<br />

the exchange rates prevailing at the dates of the transactions. Functional currency<br />

is the currency of the primary economic environment in which the entity<br />

operates. Monetary assets and liabilities in foreign currency are translated into<br />

the functional currency using the exchange rate prevailing on the balance<br />

sheet date. Exchange rate differences arising on translation are recognised in<br />

profit. Non-monetary assets and liabilities that are recognised at historic cost<br />

are translated to the exchange rate at the date of the transaction. Non-monetary<br />

assets and liabilities that are recognised at fair value are translated to the<br />

functional currency at the rate on the date of fair value measurement.<br />

16<br />

Södra <strong>2012</strong>


Financial statements for foreign entities<br />

Assets and liabilities of foreign entities, including goodwill and other consolidated<br />

surplus and undervalues, are translated from the functional currency of<br />

the foreign entity to the Group’s <strong>report</strong>ing currency, SEK, using the closing<br />

rate. Income and expenses in a foreign entity are translated to SEK at an average<br />

rate that represents an approximation of exchange rates at the individual<br />

transaction dates.<br />

Translation differences that arise on currency translation of foreign entities<br />

are recognised in other comprehensive income and accumulated in the<br />

translation reserve in equity. When a foreign entity is disposed of, the accumulated<br />

translation differences that were recorded in equity of the disposed<br />

foreign operation are recognised in profit for the year as an adjustment at the<br />

same date on which the gain or loss on sale is recognised.<br />

Revenue<br />

Net revenue<br />

Revenue from the sale of goods is recognised in profit for the year when the<br />

material risks and benefits associated with ownership of the goods have been<br />

transferred to the buyer. Revenue from service assignments is recognised in<br />

profit for the year when the services are performed. Revenue is not recognised<br />

if it is probable that the economic benefits will not accrue to the Group. Revenue<br />

is not recognised where there is material insecurity regarding payment,<br />

associated costs or risk of return, or where the seller remains involved in the<br />

day-to-day administration that is normally associated with ownership. Revenue<br />

is recognised at the fair value of the amount that is received or is expected<br />

to be received.<br />

Net revenue includes invoiced sales pertaining to primary activities. The<br />

majority of Group revenue is generated from the sale of manufactured goods.<br />

Net revenue also includes revenue for sold and delivered electricity certificates<br />

and emission rights, exchange rate gains on hedged operating receivables,<br />

payments for delivery costs and sales commissions, plus value change<br />

on derivatives pertaining to hedging of price and currency risk for products<br />

delivered during the period.<br />

Revenue is recognised exclusive of value-added tax, trade discounts<br />

provided and similar revenue reductions.<br />

Other revenue<br />

Revenue from activities outside the company’s primary operations is recognised<br />

as other revenue. Other revenue consists primarily of rental and leasing<br />

income, insurance compensation and capital gains on property, plant and<br />

equipment. Other revenue includes exchange rate gains pertaining to operating<br />

receivables and liabilities arising from translation to the balance date rate<br />

and profit on unhedged derivatives. Other revenue and profits arising from<br />

outside the company’s primary operations is also recognised.<br />

Raw materials, consumables used and goods for resale<br />

All wood raw material is classified as goods for resale in the Parent Company,<br />

while wood that goes to Södra mills is reclassified as raw materials on a<br />

consolidated level.<br />

Leasing<br />

Leasing is classified in the consolidated financial statements as financial or<br />

operational leasing. Under financial leasing, the financial risks and benefits<br />

associated with ownership are substantially transferred to the leaseholder;<br />

otherwise it is a case of operational leasing. Assets rented under financial<br />

leasing agreements are recognised as assets in the Consolidated statement<br />

of financial position. Commitments to pay future leasing fees are recognised<br />

as non-current and current liabilities. Minimum leasing fees are allocated<br />

between interest expenses and amortisation of outstanding liability. The interest<br />

expense is allocated over the leasing period so that each accounting period<br />

is charged with an amount equivalent to a fixed interest rate for the liability<br />

recognised in the specific period. Variable fees are expensed in the periods<br />

they arise. Under operational leasing, the leasing fee is allocated over the term<br />

of the lease on a linear basis. Benefits received in conjunction with signing of a<br />

contract are recognised as a reduction of the leasing charges. Variable fees are<br />

expensed in the periods they arise.<br />

Finance income and expenses<br />

Finance income and expenses consist of interest income and expenses, dividend<br />

income and revaluation of certain financial instruments at fair value as<br />

well as realised and unrealised exchange rate gains and losses attributable to<br />

financial operations.<br />

Interest income on receivables and interest expenses on liabilities are calculated<br />

using the effective interest method. Dividend income is recognised<br />

when the dividend has been determined and the right to receive payment is<br />

considered certain. Issue expenses and opening fees for loans are apportioned<br />

over the duration of the loan, using the effective interest method.<br />

Taxes<br />

The Group’s total tax consists of current tax and deferred tax. Income taxes are<br />

recognised in profit for the year except when the underlying transaction is recognised<br />

in other comprehensive income or in equity, in which case the associated<br />

tax effect is recognised in other comprehensive income or equity.<br />

Current tax is tax that is to be paid or received pertaining to the current<br />

year, with application of the tax rates that are enacted or substantially<br />

enacted at the balance sheet date. Adjustments of current tax relating to<br />

previous periods are also recognised here.<br />

The regulations for economic associations have been applied in the calculation<br />

of current tax. These mean that dividend proposal for the financial year<br />

(which will be paid out in the following year) is tax deductible in the current<br />

year and has been treated as a deduction in the calculation of current tax.<br />

The deduction has affected the recognised tax expense in profit for the year.<br />

Deferred tax is calculated using the liability method, based on the temporary<br />

difference between the carrying amount and the tax value of assets and<br />

liabilities. Recognition is not made of temporary differences arising on initial<br />

recognition of goodwill or on initial recognition of assets and liabilities that<br />

are not business combinations that at the time of the transaction do not<br />

affect either accounting or taxable profit or loss. In addition, recognition is<br />

not made of temporary differences pertaining to shares in subsidiaries and<br />

associates that are not expected to be reversed in the foreseeable future.<br />

Measurement of deferred tax is based on how the underlying assets or liabilities<br />

are expected to be capitalised or settled. Deferred tax is determined<br />

using tax rates and laws that have been enacted or substantially enacted at<br />

the balance sheet date.<br />

Deferred tax assets related to deductible temporary differences and deficit<br />

deductions are recognised only to the extent that it is likely that they can be<br />

utilised. The value of deferred tax assets is reduced when it is no longer considered<br />

likely they can be utilised.<br />

Financial instruments<br />

A financial asset or financial liability is recognised in the consolidated statement<br />

of financial position when the company becomes party to the contractual<br />

terms of the instrument. Trade receivables are recognised in the consolidated<br />

statement of financial position when invoiced. Liabilities are recognised when<br />

the counterparty has performed and contractual duty requires payment, even if<br />

the invoice has not yet been received. Trade creditors are recognised when the<br />

invoice is received.<br />

A financial asset, or part thereof, is derecognised from the consolidated<br />

statement of financial position when the rights in the contract are realised,<br />

expire or the company loses control of them. A financial liability, or part<br />

thereof, is derecognised from the consolidated statement of financial position<br />

when the obligation in the contract is fulfilled or otherwise extinguished.<br />

A financial asset and financial liability are offset and the net amount recognised<br />

in the consolidated statement of financial position only when there<br />

is a legal right to set off the amount, combined with an intention to adjust<br />

the items with a net amount or to concurrently realise the asset and settle<br />

the liability.<br />

The buying and selling of financial assets are recognised on the settlement<br />

date, which is when the asset is delivered to or from the company.<br />

The fair value presented is based on official market quotations at the balance<br />

sheet date as well as the generally accepted methods for unlisted financial<br />

instruments. Translation to SEK has been made at the exchange rate<br />

quoted at the balance sheet date.<br />

Classification and valuation<br />

Financial instruments that are not derivatives are initially recognised at cost<br />

representing the fair value of the instrument, with transaction costs added for<br />

all financial instruments except those defined as financial assets at fair value<br />

through profit or loss, which are recognised at fair value excluding transaction<br />

costs. Initial classification of financial instruments depends on the purpose for<br />

which they were acquired. Classification determines how the financial instruments<br />

are measured after initial recognition as described below.<br />

Södra <strong>2012</strong> 17


cont. note 1<br />

Available-for-sale financial assets<br />

Available-for-sale financial assets include all interest-bearing investments and<br />

equity instruments other than shares, share index bonds and share index certificates.<br />

Assets in this category are regularly measured at fair value with<br />

changes in value recognised in other comprehensive income. Impairment,<br />

interest on receivable instruments and dividend revenue are recognised in<br />

profit for the year. The exchange rate effects on monetary items are recognised<br />

in profit for the year, while exchange rate effects on non-monetary items are<br />

recognised in other comprehensive income. When assets are sold or disposed,<br />

the accumulated profit or loss previously recognised in equity is included in<br />

the profit for the year.<br />

Financial assets at fair value through profit or loss<br />

This category consists of two subgroups: available-for-sale financial assets and<br />

other financial assets that the company has initially chosen to place in this category<br />

(based on the fair value option). The latter subgroup includes shares,<br />

share index bonds and share index certificates. Management reviews the fair<br />

value of shares, share index bonds and share index certificates on a regular<br />

basis through information in the monthly financial <strong>report</strong>. Assets in this category<br />

are regularly measured at fair value with changes in value recognised in<br />

profit for the year. Interest on receivable instruments, dividend revenue and<br />

exchange rate effects are recognised in profit for the year. Accumulated profit<br />

or loss is recognised in profit for the year on sale or disposal of the assets.<br />

Loan receivables and trade receivables<br />

Loan receivables and trade receivables are financial assets that are not<br />

derivatives that have determined or determinable payments and that are not<br />

quoted on an active market. These assets are measured at amortised cost.<br />

Amortised cost is based on the effective interest calculated at the date of<br />

purchase. Trade receivables are recognised in the amount that is expected<br />

to be received after deduction of uncertain receivables.<br />

Provision for a decrease in value of trade receivables is made when there<br />

is objective evidence that the company will not receive full payment under<br />

the original terms of the overdue receivable. Unpaid or significantly delayed<br />

payments and/or significant financial difficulties at the debtor are considered<br />

indicators of an impairment requirement. A provision is made by reducing<br />

the carrying amount of the asset through a provision for depreciation while<br />

the anticipated loss is recognised in other expenses in the consolidated<br />

statement of comprehensive income. The size of the provision consists of the<br />

difference between the carrying amount of the asset and the present value of<br />

the estimated future cash flow discounted by the original effective interest.<br />

When the bad debt loss is determined, it is removed using a counter-entry on<br />

the provision for impairment of trade receivables. Recovery of previously<br />

impaired amounts is recognised as revenue.<br />

Financial liabilities at fair value through profit or loss<br />

Recognition is made here of the Group’s derivatives with negative fair value<br />

not subject to hedge accounting. Changes in fair value are recognised in profit<br />

for the year.<br />

Other financial liabilities<br />

This includes subordinated debentures, loans from members and<br />

credit institutes and other financial liabilities such as trade creditors. The liabilities<br />

are measured at amortised cost.<br />

Derivatives and hedge accounting<br />

The Group’s derivative instruments have been acquired as an economic hedge<br />

against risks for interest, price and currency exposure to which the Group is<br />

subject. Derivatives are initially recognised at fair value with transaction costs<br />

charged to profit for the period. After initial recognition, derivative instruments<br />

are measured at fair value and changes in value are recognised as described<br />

below. An embedded derivative is disclosed if it is not closely related to the<br />

value contract.<br />

To fulfil the requirements of hedge accounting, it is necessary to establish<br />

an unambiguous connection to the hedged item. It is also necessary that the<br />

hedge effectively protects the hedged item, that hedging documentation is<br />

prepared and that its effectiveness is measurable. Gains and losses pertaining<br />

to hedging are recognised in profit for the year at the same time as gains<br />

and losses for the hedged items are recognised. The interest component in<br />

forward contracts is not allocated over the duration of the forward contract,<br />

but is fully recognised in revenue at the same time as the forward contract.<br />

Hedging of fair value<br />

When a hedge instrument is used to hedge a fair value, the derivative is recognised<br />

at fair value in the statement of financial position, and the hedged asset<br />

is also recognised at the fair value of the hedged risk. The gain or loss on the<br />

derivative is recognised in profit for the year along with the gain or loss on the<br />

hedged item. Customer contracts, known as Long Term Fixed Price (LTFP), are<br />

recognised here along with the associated derivatives.<br />

Cash flow hedges<br />

Derivatives used to hedge exposure of variations in cash flow, attributable to a<br />

specific risk, are recognised in the hedge reserve in equity via other comprehensive<br />

income. When the hedged flow is recognised in profit for the year, the<br />

hedging instrument’s accumulated gain or loss is transferred from the hedging<br />

reserve to profit for the year where it meets and matches the profit effects of<br />

the hedged transaction.<br />

Currency derivatives are taken out in order to eliminate the exchange<br />

risks associated with selling, purchasing and investments in foreign currency.<br />

Hedge <strong>report</strong>ing is applied to currency derivatives with a maturity<br />

longer than 60 days when they meet the criteria for effectiveness and the<br />

hedge can be supported by documentation in the form of budgets or forecasts.<br />

Currency derivatives with a maturity of less than 60 days are assumed<br />

to be invoiced and hedge <strong>report</strong>ing is therefore not applied. Derivatives that<br />

do not fulfil effectiveness criteria are also classified under non-hedgeaccounting.<br />

Pulp price derivatives are taken out in order to reduce profit fluctuations<br />

caused by pulp price variations including exchange rate effects. Södra can<br />

hedge the selling price of its produced pulp by swapping future revenue in<br />

USD to SEK at a fixed price. This process also provides a currency hedge for<br />

the sales price. The fair value of outstanding derivatives is based on current<br />

market conditions at the balance sheet date.<br />

Electricity price derivatives are taken out in order to reduce profit fluctuations<br />

caused by variations in electricity prices. Electricity price derivatives<br />

can be used for both procurement and sale of electricity. The fair value of outstanding<br />

electricity price derivatives is based on current market conditions<br />

at the balance sheet date.<br />

Oil price derivatives are taken out to reduce profit fluctuations caused by<br />

variations in the prices of crude oil and oil products. The fair value of outstanding<br />

oil price derivatives is based on current market conditions at the<br />

balance sheet date.<br />

Non-hedge accounting<br />

If derivative instruments are acquired for a purpose other than as an economic<br />

hedge against risks for interest, price and currency exposure, hedge accounting<br />

is not applied. In such cases, the derivative is recognised at fair value with<br />

changes recognised in profit for the year. With hedge accounting, the ineffective<br />

part is recognised in the same manner as the change in value on derivatives<br />

that are not used for hedge accounting.<br />

Receivables and liabilities in foreign currency<br />

Forward contracts are used to hedge receivables or liabilities against exchange<br />

rate risk. Hedge accounting is not applied to protect against foreign exchange<br />

risk, since a financial hedge is reflected in the accounts by the underlying<br />

receivable or liability and the hedging instrument being carried at the closing<br />

rate and the changes in exchange rates are recognised in the consolidated<br />

statement of comprehensive income.<br />

Cash and cash equivalents<br />

Cash and cash equivalents include cash in hand, deposits held at call with<br />

banks and similar institutions, and other short-term liquid investments with<br />

original maturity of three months or less from the date of acquisition which<br />

are exposed to only an immaterial risk of value fluctuations.<br />

Intangible assets<br />

Goodwill represents the excess of the cost of a business combination over the<br />

fair value of the Group’s share of the identifiable assets, assumed liabilities and<br />

contingent liabilities. Goodwill is carried at cost less any accumulated impairment<br />

losses. Goodwill is allocated to cash-generating units and impairment<br />

tested not less than <strong>annual</strong>ly. Goodwill on acquisitions of associates is included<br />

in the carrying amount for shares in associates.<br />

In business combinations, brands are carried at the discounted net present<br />

value of a market-value share of the particular company’s <strong>annual</strong> sales.<br />

Annual sales are based on the company’s business plan and discounting is<br />

18<br />

Södra <strong>2012</strong>


carried out using a risk-adjusted discount rate based on the company’s market<br />

situation. The useful life of a brand, which can be definite or indefinite,<br />

is assessed on a case-by-case basis.<br />

Research costs are expensed as they incur. Direct development costs are<br />

only capitalised in conjunction with major projects if they are deemed to<br />

create an identifiable asset that is controlled by the Group and expected to<br />

generate future economic benefits. Other costs associated with development<br />

are recognised as expenses in consolidated profit for the year as incurred.<br />

Major investments in IT systems and licences are recognised as intangible<br />

assets. Intangible assets are recognised at cost less accumulated amortisation<br />

and impairment. With the exception of goodwill, intangible assets are<br />

amortised straight-line over their estimated useful lives. These periods are<br />

tested each year.<br />

Property, plant and equipment<br />

Property, plant and equipment are stated on a consolidated basis at cost after<br />

deduction of accumulated depreciation and amortisation, and potential impairment.<br />

The cost includes purchase price and costs directly attributable to<br />

bringing the asset into place and in the condition required by the purchase.<br />

The cost of property, plant and equipment manufactured in-house<br />

includes expenses for material, for remuneration of employees, if applicable,<br />

other manufacturing costs considered directly attributable to the property,<br />

plant or equipment, and estimated expenses for dismantling and removal of<br />

assets and restoration of the site or area where they are located.<br />

Property, plant and equipment consisting of parts with different useful<br />

lives are treated as separate components of property, plant and equipment.<br />

The carrying amount for property, plant and equipment is removed from<br />

the consolidated statement of comprehensive income on disposal or sale or<br />

when no future economic benefits are expected from the use or disposal/sale<br />

of the asset. The gain or loss that arises on the disposal or sale of an asset<br />

represents the difference between the selling price and the carrying amount<br />

of the asset less direct selling costs. The gain and loss are recognised as<br />

operating income/expenses.<br />

Additional expenses<br />

Additional expenses are added to the cost only if it is probable that the future<br />

economic benefits associated with the asset will benefit the company and the<br />

cost can be reliably estimated. Other additional expenses are expensed in the<br />

period they are incurred.<br />

An additional expense is added to the cost if the expense relates to the<br />

exchange of identified components or parts thereof. The expense is also<br />

added to the cost in situations where new components are created. Any<br />

undepreciated carrying amount on exchanged components, or parts of<br />

components, are disposed and expensed in conjunction with the exchange.<br />

Repairs are expensed on an ongoing basis.<br />

Depreciation policies<br />

Depreciation is made straight-line over the estimated useful life of assets.<br />

The Group applies component depreciation, which means that depreciation is<br />

based on the estimated useful life of the component. Land is not depreciated.<br />

Estimated useful life<br />

Group<br />

No. of years<br />

Parent Company<br />

No. of years<br />

Other intangible assets 5 5<br />

Wind power plants 20 —<br />

Pulp mills 17–25 —<br />

Factory buildings 20–25 20–25<br />

Administration buildings 20–50 25–50<br />

Residences 25–50 25<br />

Land improvements 20 20<br />

Sawmills 10–15 —<br />

Machinery 5–10 7–8<br />

Equipment 5–10 5<br />

Mobile transportation equipment 5–7 5<br />

IT equipment (servers, printers, etc.) 3 3<br />

The Trivselhus brand is considered to have an indefinite useful life and is not<br />

amortised. Machinery and other technical facilities comprise components<br />

with different useful lives. They are recognised and depreciated as separate<br />

components. Costs for planned maintenance shutdowns at pulp mills are rec-<br />

ognised and depreciated as separate components with an estimated useful<br />

life of 18–24 months, which represents the operating period between planned<br />

maintenance shutdowns. Factory buildings consist of two components<br />

grouped under buildings and land. There is no depreciation on the land component<br />

as the useful life is deemed indeterminable. The Group’s head office<br />

consists of components with different useful lives as follows:<br />

Structure<br />

Structural additions, internal walls, etc.<br />

Fixtures and fittings: heating, electricity, sanitation, ventilation, etc.<br />

External surface: facades, roof, etc.<br />

Inner surface, mechanical equipment, etc.<br />

50 years<br />

25 years<br />

25 years<br />

25 years<br />

25 years<br />

Depreciation methods, residual values and useful life periods are retested at<br />

the end of each year.<br />

Biological assets<br />

The Group’s forest holdings are recognised under the headings land and growing<br />

forest. Growing forest is classified as a biological asset and measured at fair<br />

value while land is measured at cost.<br />

On measurement of biological assets at fair value, the present value of<br />

expected future cash flows before tax is estimated based on current harvesting<br />

plans and estimates of forest growth, wood prices, harvesting costs and<br />

forest management costs. These future cash flows, after deduction of selling<br />

costs, are discounted using an estimated WACC (weighted average cost of<br />

capital) based on a harvesting cycle of 80 years. Future price and cost development<br />

has been estimated, replanting costs taken into account and provisions<br />

made for environmental conservation.<br />

Changes in fair value for the growing forest are recognised in consolidated<br />

profit for the period in which the change arises.<br />

Inventories<br />

Inventories are stated at the lower of cost and net realisable value. Obsolescence<br />

risk is thus taken into account. Cost is determined using the first- in,<br />

first-out (FIFO) method and comprises costs incurred in acquiring inventory<br />

assets and transporting them to their current location and condition. The cost<br />

of finished goods and work in progress includes a reasonable proportion of<br />

indirect costs based on normal operating capacity. Net realisable value is the<br />

estimated selling price in operating activities, less estimated costs for completion<br />

and to achieve sale.<br />

Electricity certificates<br />

In 2003, a system of electricity certificates was introduced in Sweden, whose<br />

purpose is to promote usage of renewable energy sources for electricity production.<br />

Plants involved in the system receive electricity certificates at no cost<br />

from Svenska Kraftnät (Swedish National Grid) in proportion to the certificateentitled<br />

electricity produced. Received electricity certificates are recognised<br />

at zero cost.<br />

Emission rights<br />

Södra participates in the European system for emission rights, which aims to<br />

reduce emissions of the greenhouse gas carbon dioxide. Affected plants are<br />

granted emission rights free of charge from the Swedish EPA. Allocated emission<br />

rights are recognised at zero cost. Purchased emission rights are recognised<br />

as inventory under current assets at cost, with a deduction for cumulative<br />

impairment as appropriate.<br />

As long as own holdings of emission rights cover the own undertakings<br />

regarding emissions, no value provisions are made with regard to liabilities<br />

for emissions made. If emissions undertakings exceed the own holdings of<br />

emission rights, a liability provision is made corresponding to the requisite<br />

number of rights measured at market value.<br />

Impairment<br />

The Group’s recognised assets are reviewed at each balance sheet date to<br />

determine whether there are any impairment indicators. IAS 36 is applied<br />

regarding impairment of assets other than financial assets which are <strong>report</strong>ed<br />

in accordance with IAS 39, available-for-sale financial assets and disposal<br />

assets that are <strong>report</strong>ed in accordance with IFRS 5, inventories, plan assets<br />

that are used to finance benefits to employees, biological assets and deferred<br />

tax assets. The carrying amounts of other assets are estimated according to<br />

the appropriate standards.<br />

Södra <strong>2012</strong> 19


cont. note 1<br />

Impairment of property, plant and equipment and intangible assets<br />

plus shares in associates<br />

The recoverable amounts of assets are calculated where impairment indicators<br />

are present. Impairment is recognised when the carrying amount of an asset<br />

exceeds the recoverable amount. Impairment losses are recognised as an<br />

expense in the consolidated statement of comprehensive income.<br />

The recoverable amount is the greater of fair value less selling costs and<br />

value-in-use. When value-in-use is calculated, future cash flow is discounted<br />

using a discount factor that reflects the risk-free interest rate and risk associated<br />

with the specific asset.<br />

Impairment of financial assets<br />

At each balance sheet date, assessment is made whether there is objective<br />

evidence that a financial asset or group of assets has an impairment requirement.<br />

Objective evidence includes observable events that have occurred and<br />

that negatively affect the potential to recover the cost, as well as a significant<br />

or extended decrease of the fair value of a financial investment classified as<br />

an available-for-sale financial asset.<br />

The company classifies trade receivables as uncertain when, subsequent<br />

to non-payment or significantly delayed payment and individual assessment<br />

of the debtor’s financial situation, an impairment need may arise. The impairment<br />

need on the receivables is based on historic experience of losses on<br />

similar trade receivables. Trade receivables with impairment indicators are<br />

recognised at present value of the expected future cash flow. Receivables<br />

with short maturity are not discounted. The presence of credit insurance or<br />

other forms of security is considered when determining a potential impairment<br />

requirement.<br />

Equity instruments classified as available-for-sale financial assets are<br />

deemed to have an impairment requirement and are subsequently impaired<br />

if their fair value is substantially less than cost or they have been subject to<br />

a prolonged decrease in value. The company deems a decrease in value of<br />

more than 20 per cent to be substantial and a period of not less than nine<br />

months to be prolonged. On impairment, the carrying amount of the asset<br />

is reduced through a provision for depreciation while the anticipated loss<br />

is recognised in profit for the year. Previously recognised accumulated profit<br />

or loss in equity is transferred to profit for the year in the event of impairment.<br />

The amount of an accumulated loss that is reclassified from equity to<br />

profit for the year represents the difference between cost and the current fair<br />

value less any impairment of the financial asset previously recognised in<br />

profit for the year. Any increase in value subsequent to the impairment<br />

reduces the amount of the depreciation provision and is credited to profit<br />

for the year.<br />

Impairment of available-for-sale financial assets is recognised in finance<br />

income and expenses in the statement of comprehensive income.<br />

Reversal of impairment<br />

An impairment loss on assets covered by IAS 36 is reversed if there are indicators<br />

that an impairment requirement no longer exists and there has been a<br />

change in the assumptions that formed the basis for calculation of the recoverable<br />

amount. Impairment of goodwill is never reversed. A reversal is only made<br />

such that the asset’s carrying amount after reversal does not exceed the<br />

amount that would otherwise have been recognised, less any depreciation,<br />

had it not been impaired.<br />

Impairments of loan receivables and trade receivables that are recognised<br />

at amortised cost are reversed if the earlier grounds for the impairments no<br />

longer exist and full payment is expected to be received from the customer.<br />

Impairments of equity instruments classified as available-for-sale financial<br />

assets that were previously recognised in profit for the year are not reversed<br />

via profit for the year, but rather in other comprehensive income. Subsequent<br />

revaluations, which are recognised in other comprehensive income, are<br />

based on the impaired value. Impairments of interest-bearing instruments<br />

classified as available-for-sale financial assets are reversed to profit for the<br />

year if the fair value increases and the increase can objectively be attributed<br />

to an event that occurred after the impairment was applied.<br />

Employee benefits<br />

Pension obligations<br />

Within the Group, there are a number of defined-contribution plans as well as<br />

defined-benefit pension plans.<br />

Defined-contribution plans<br />

Defined-contribution pension plans are classified as pension plans under<br />

which the company’s obligation is limited to the contributions the company<br />

has committed to pay. Under such plans, the size of an employee pension is<br />

based on the contributions the company pays to the plan or an insurance company<br />

and the capital yield generated by the contributions. Consequently, it is<br />

the employee who bears the actuarial risk (that the payment will be lower than<br />

expected) and the investment risk (that the investment assets will be inadequate<br />

to provide the expected benefits). The company’s obligation to make<br />

payments to the defined-contribution plans is recognised as an expense in<br />

profit for the year at the rate they are earned through services provided by the<br />

employees over a period.<br />

Defined-benefit plans<br />

The Group’s net obligation in terms of defined-benefit pension plans is calculated<br />

separately for each plan through an estimate of the future benefit that<br />

employees have earned in current and previous periods. This benefit is discounted<br />

to a present value. The discount rate is the interest on the balance<br />

sheet date on a housing bond with a duration equivalent to the Group’s pension<br />

obligations. The calculation is made by a qualified actuary using the Projected<br />

Unit Credit Method. The fair value of any plan assets is also calculated<br />

at the <strong>report</strong> date.<br />

Actuarial gains and losses are recognised as revenue or cost in other<br />

comprehensive income.<br />

In the consolidated statement of financial position, the carrying amount for<br />

pensions and similar obligations represents the present value of the obligation<br />

at the end of the financial year, less the fair value of plan assets and<br />

unrecognised costs pertaining to past service.<br />

When the calculation leads to an asset for the Group, the carrying amount<br />

of the asset is limited to the net of unrecognised costs for service in earlier<br />

periods and the present value of future repayments from the plan or reduced<br />

future payments to the plan. When benefits in a plan are improved, the share<br />

of the increase in benefit attributable to past service is recognised as an<br />

expense in the consolidated statement of comprehensive income and allocated<br />

straight-line over the average period until the benefit is fully earned.<br />

If the benefit is fully earned, the total expense is recognised directly in profit<br />

for the year.<br />

Where there is a difference in the determination of pension costs in legal<br />

entities and groups, a provision or receivable is recognised pertaining to the<br />

specific payroll tax based on this difference. The provision or receivable is<br />

not calculated at present value.<br />

The net of the interest on pension liabilities and expected return on the<br />

associated plan assets is recognised in finance income and expenses. Other<br />

components are recognised in operating profit.<br />

Termination benefits<br />

An expense for benefits on termination of employees is only recognised if the<br />

company is demonstrably committed to a detailed formal plan, without realistic<br />

possibility of withdrawal, for terminating employment before the normal<br />

date. When benefits are paid as an offer to encourage voluntary redundancy,<br />

an expense is recognised if it is probable the offer will be accepted and the<br />

number of employees that will accept the offer can be reliably estimated.<br />

Short-term employee benefits<br />

Short-term employee benefits are calculated on an undiscounted basis and<br />

recognised as an expense when the related services are performed.<br />

Provisions<br />

A provision is recognised in the consolidated statement of financial position<br />

when a legal or informal obligation arises as a result of past events and it is<br />

probable that an outflow of resources will be required to settle the obligation,<br />

and the amount has been reliably estimated.<br />

Provisions are made based on the best estimate of the amount required to<br />

settle the obligation on the balance sheet date. When the time of payment is<br />

important, provisions are measured by discounting the expected future cash<br />

flow using a pre-tax rate that reflects current market assessments of the time<br />

value of money and, where applicable, the risks specific to the liability.<br />

Parent Company<br />

Accounting policies<br />

The Parent Company has prepared its <strong>annual</strong> <strong>report</strong> in accordance with the<br />

Annual Accounts Act (1995:1554) and the recommendation of the Swedish<br />

Financial Accounting Standards Council RFR 2 Accounting for legal entities.<br />

20<br />

Södra <strong>2012</strong>


RFR 2 specifies that the Parent Company in the <strong>annual</strong> <strong>report</strong> of the legal entity<br />

is to apply all IFRS and statements adopted by the EU to the extent possible<br />

within the framework of the Annual Accounts Act and the Pension Obligations<br />

Vesting Act, and with regard to the relationship between accounting and taxation.<br />

The recommendation specifies the exceptions and additions to be made<br />

to IFRS.<br />

Differences between accounting policies for the Group and Parent<br />

Company<br />

Differences between accounting policies for the Group and Parent Company<br />

are presented below. The accounting policies described below for the Parent<br />

Company have been applied consistently to all periods in the financial statements<br />

of the Parent Company.<br />

Classification and layouts<br />

The income statement and balance sheet for the Parent Company are presented<br />

in accordance with the Annual Accounts Act layouts. The difference in<br />

IAS 1 Presentation of Financial Statements as applied in the design of consolidated<br />

financial statements is primarily disclosure of finance income and<br />

expenses, non-current assets, equity and the presence of provisions as a<br />

specific heading in the balance sheet.<br />

Subsidiaries and associates<br />

Shares in subsidiaries and associates are recognised in the Parent Company<br />

at cost after deduction of any accumulated impairment.<br />

The recoverable amounts of the subsidiary or associate are calculated<br />

where impairment indicators are present. Impairment is recognised when<br />

the carrying amount of the subsidiary or associate exceeds the recoverable<br />

amount. Impairment losses are recognised as an expense in profit or loss.<br />

The recoverable amount is the greater of fair value less selling costs and<br />

value-in-use. When value-in-use is calculated, future cash flows are discounted<br />

using a discount rate that reflects the risk-free interest rate and risk<br />

associated with the specific subsidiary and associate.<br />

Revenue<br />

Sale of goods and performance of service assignments<br />

Service assignments are recognised in Parent Company profit on completion<br />

of the service. Prior to this, work on contract pertaining to service assignments<br />

is recognised at the lower of cost and net realisable value on the balance sheet<br />

date.<br />

Financial instruments and hedge accounting<br />

As a result of changed rules in the recommendation of the Swedish Financial<br />

Accounting Standards Council RFR 2 and the guide to the relationship<br />

between accounting and taxation, the rules for financial instruments and<br />

hedge accounting in IAS 39 are not applied to the Parent Company as a<br />

legal entity.<br />

In the Parent Company, financial assets are measured at cost less any<br />

impairment loss and current financial assets according to the principle of<br />

lowest value. The cost of interest-bearing instruments is adjusted for the<br />

period-allocated difference between the original purchase price, less transaction<br />

costs, and the amount due on maturity (premium and discount).<br />

Gains or losses from currency derivatives used to hedge operating assets<br />

or liabilities are recognised in operating profit on the same date as the gain<br />

or loss attributable to the hedged item arises. Gains or losses attributable<br />

to other assets or liabilities are recognised in finance income and expenses.<br />

Currency derivatives that hedge forecast flows are not recognised in the<br />

balance sheet. The change in value of such derivatives is recognised in the<br />

same period that the flow arises. The principal rule is that trade receivables<br />

are remeasured at the closing rate. When the trade receivable is hedged with<br />

currency derivatives, the receivable is remeasured at the hedged rate.<br />

Interest swaps that effectively hedge cash flow risk on interest payments<br />

on liabilities are measured at the net of the accrued receivable on variable<br />

interest and the accrued liability pertaining to fixed interest and the difference<br />

is recognised respectively as interest expense and interest income.<br />

Hedging is effective if the economic content of the hedge and liability is the<br />

same as if the liability had been recognised at a fixed market interest rate<br />

when the hedging relationship commenced. The premium paid for the swap<br />

contract is allocated as interest over the duration of the contract.<br />

Anticipated dividends<br />

Anticipated dividends from subsidiaries are recognised when the Parent Company<br />

alone is entitled to determine the size of the dividend and the Parent<br />

Company has done so before the financial statements were published.<br />

Segment <strong>report</strong>ing<br />

The Parent Company does not recognise segments based on the same allocation<br />

and scope as the Group, but discloses net revenue and allocation of other<br />

revenue based on the revenue types and geographic markets of the Parent<br />

Company.<br />

Property, plant and equipment<br />

Property, plant and equipment is recognised at cost after deduction of accumulated<br />

depreciation and any impairment loss in the same manner as for<br />

the Group, but with the addition of impairment gains as appropriate.<br />

Leased assets<br />

All leasing agreements are recognised according to the regulations for operational<br />

leasing.<br />

Intangible assets<br />

Research and development<br />

All research and development costs are recognised as expenses in profit<br />

or loss.<br />

Biological assets<br />

Biological assets are measured according to the Annual Accounts Act. This<br />

means that biological assets classified as non-current assets are recognised<br />

at cost and impaired as necessary.<br />

Subordinated debentures<br />

Subordinated debentures are recognised as equity according to the Cooperative<br />

Societies’ Act. Subordinated debentures do not meet IFRS criteria for<br />

equity and are recognised as a liability in the consolidated financial statements.<br />

Employee benefits<br />

Defined-benefit plans<br />

The Parent Company uses another basis for calculating defined-benefit plans<br />

than that specified in IAS 19. The Parent Company follows the regulations of<br />

the Pension Obligations Vesting Act and the Financial Supervisory Authority<br />

as required for tax deductibility. The key differences compared with the rules<br />

in IAS 19 relate to how discount interest is determined, that calculation of the<br />

obligations of the defined-benefit plan are based on current salary level without<br />

regard to future salary increases, and that all actuarial profits and losses are<br />

recognised in profit or loss when they arise.<br />

Taxes<br />

Unlike the Group, the Parent Company recognises untaxed reserves in the balance<br />

sheet without division into equity and deferred tax liability. Similarly,<br />

there is no allocation in the Parent Company income statement for appropriations<br />

to be partially transferred to deferred tax expense.<br />

Intra-Group transfers and shareholder contributions for legal entities<br />

Shareholder contributions are stated directly against the equity of the company<br />

receiving the contribution and capitalised in shares and participations in<br />

the company making it, provided no impairment is required. Received and<br />

paid intra-Group transfers are recognised as appropriations.<br />

Södra <strong>2012</strong> 21


Note 2<br />

Segment <strong>report</strong>ing<br />

Södra Skog Södra Timber Södra Interiör Södra Cell<br />

Group <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Net revenue<br />

from external customers 3,611 3,943 2,486 2,647 1,254 1,230 8,817 9,797<br />

from other segments 6,059 7,044 605 687 27 10 55 91<br />

9,670 10,987 3,091 3,334 1,281 1,240 8,872 9,888<br />

Depreciation, amortisation and impairment of assets –45 –39 –220 –137 –33 –34 –721 –915<br />

Share of profit of associates — 0 2 2 — — — —<br />

Operating profit/loss –20 75 –469 –276 2 49 –283 1,273<br />

Finance income and expenses<br />

Profit before income tax<br />

Assets 2,440 2,600 3,614 3,247 905 839 8,650 8,873<br />

Operating capital* 1,385 1,330 3,158 2,774 477 487 7,055 7,443<br />

Return on operating capital* neg 6 neg neg 0 10 neg 18<br />

Cash flow after investments –172 –272 –321 –562 –55 –71 54 341<br />

Investments 92 113 376 576 76 52 1,096 862<br />

Intra-Group Eliminations Total consolidated<br />

Group <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Net revenue<br />

from external customers 639 574 — — 16,807 18,191<br />

from other segments — — –6,746 –7,832 — —<br />

639 574 –6,746 –7,832 16,807 18,191<br />

Depreciation, amortisation and impairment of assets –55 –52 — — –1,074 –1,177<br />

Share of profit of associates –2 –8 — — 0 –6<br />

Operating profit/loss –165 –135 6 19 –929 1,005<br />

Finance income and expenses 10 –122<br />

Profit before income tax –919 883<br />

Assets 7,049 7,666 –5,784 –4,963 16,874 18,262<br />

Operating capital* 733 811 — — 12,005 11,814<br />

Return on operating capital* — — — — neg 9<br />

Cash flow after investments –321 –229 — — –815 –793<br />

Investments 68 135 — — 1,708 1,738<br />

* Operating capital = property, plant and equipment and intangible assets, biological assets, inventories and other operating assets,<br />

less operating liabilities.<br />

Capital employed is used in the Group. Capital employed = operating capital less net tax liability.<br />

Segment allocation<br />

Segment profit, assets and liabilities include directly attributable items. The assets consist of property, plant and equipment and intangible assets, biological<br />

assets, other non-current receivables, inventories and current receivables. Liabilities comprise non interest-bearing operating liabilities.<br />

Assets and investments for the period in property, plant and equipment and intangible assets are grouped geographically by where the assets are located.<br />

Investments comprise property, plant and equipment and intangible assets as well as biological assets. Assets deemed to be held or used in the operation for a<br />

minimum of 12 months are recognised as non-current assets. Assets are primarily divided between the geographic markets Sweden SEK 8,439 million (8,077),<br />

Norway SEK 723 million (503), Estonia SEK 195 million (192), Latvia SEK 136 million (137) and Denmark SEK 19 million (22).<br />

Södra Skog Intra-Group Eliminations Total consolidated<br />

Parent Company <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Net revenue<br />

from external customers 3,427 3,698 142 — — — 3,569 3,698<br />

from other segments 5,425 6,311 — — — — 5,425 6,311<br />

8,852 10,009 142 — — — 8,994 10,009<br />

Depreciation, amortisation and impairment of assets –25 –25 –27 –24 — — –52 –49<br />

Operating profit/loss –36 0 –136 –140 — — –172 –140<br />

Finance income and expenses 24 –34<br />

Profit after financial items –148 –174<br />

Operating result, return on operating capital and cash flow per segment are monitored by the chief operating decision-maker.<br />

22<br />

Södra <strong>2012</strong>


Note 3<br />

Net revenue<br />

Note 4<br />

Other revenue<br />

Consolidated net revenue<br />

by geographic market <strong>2012</strong> Share, % 2011 Share, %<br />

Other revenue by income type<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Sweden 6,533 39 7,731 42<br />

Germany 1,796 11 2,285 13<br />

Norway 1,320 8 1,157 6<br />

United Kingdom 1,215 7 1,336 7<br />

Italy 582 3 881 5<br />

Austria 570 3 550 3<br />

France 535 3 636 3<br />

Denmark 312 2 354 2<br />

The Netherlands 302 2 372 2<br />

Hungary 244 1 279 2<br />

Turkey 213 1 73 0<br />

Poland 172 1 281 2<br />

Belgium 146 1 252 1<br />

Switzerland 128 1 210 1<br />

Finland 126 1 131 1<br />

Spain 126 1 133 1<br />

Slovakia 107 1 120 1<br />

Other Europe 225 1 205 1<br />

China 1,237 8 365 2<br />

Other Asia 711 4 551 3<br />

Africa 151 1 110 1<br />

Other world 55 0 146 1<br />

Unallocated 1 0 33 0<br />

Total 16,807 100 18,191 100<br />

Geographic segments<br />

Net revenue by geographic market is shown as revenue grouped by customer<br />

location.<br />

Parent Company's net revenue by geographic market <strong>2012</strong> 2011<br />

Sweden 8,588 9,451<br />

Norway 347 451<br />

Denmark 30 30<br />

United Kingdom — 0<br />

South America 29 77<br />

Total 8,994 10,009<br />

Specification of revenue<br />

by income type<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Sale of goods 103 172 73 77<br />

Services 15 22 293 272<br />

Rental income 8 12 2 5<br />

Change in fair value of biological<br />

assets — 4 — —<br />

Exchange rate effect 0 — 0 —<br />

Revaluation of derivatives 2 — — —<br />

Capital gains 14 30 1 3<br />

Government grants 5 4 2 2<br />

Insurance/strike compensation 101 115 2 0<br />

Other 57 24 5 3<br />

Total 305 383 378 362<br />

Other government grants are included in the consolidated total in the<br />

amount of SEK 5 million (4) and mainly relate to grants pertaining to<br />

personnel of SEK 3 million and diesel of SEK 1 million..<br />

Note 5<br />

Operational leasing<br />

Leasing agreements where Södra<br />

is lessee. Non-terminable lease<br />

payments are:<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Within 1 year 43 63 7 6<br />

Between 1 year and 5 years 35 36 3 16<br />

More than 5 years 2 11 — —<br />

Total 80 110 10 22<br />

Of future leasing fees, SEK 56 million (48) pertains to time-charter vessels,<br />

SEK 5 million to working machinery and SEK 1 million to equipment. For<br />

time-charter vessels, there is an option to extend the contract by one year at<br />

a time with six months’ notice.<br />

Expensed charges for operational<br />

leasing agreements are:<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Minimum leasing agreements 86 98 14 11<br />

Total 86 98 14 11<br />

Sale of goods 15,007 16,185 7,660 8,746<br />

Services 1,205 1,264 1,191 1,263<br />

Electricity certificates 418 298 142 —<br />

Emission rights 0 6 — —<br />

Electricity 87 139 — —<br />

Exchange rate effect 22 276 — —<br />

Unallocated 68 23 1 —<br />

Total 16,807 18,191 8,994 10,009<br />

Södra <strong>2012</strong> 23


Note 6<br />

Salaries and benefits<br />

Employee expenses<br />

Board and<br />

President<br />

<strong>2012</strong> 2011<br />

Other<br />

employees<br />

Board and<br />

President<br />

Other<br />

employees<br />

Parant Company 27* 325 12 304<br />

Subsidiaries 28 1,350 26 1,313<br />

Total 55 1,675 38 1,617<br />

* The greater part of the year includes double president salaries and redundancy payments.<br />

Salaries, benefits and social<br />

security costs<br />

Salaries and<br />

benefits<br />

<strong>2012</strong> 2011<br />

Social<br />

security costs<br />

Salaries Social<br />

and benefits security costs<br />

Parent Company 349 151 316 193<br />

(of which pension costs) 1) (42) (94)<br />

Subsidiaries 1,381 564 1,339 551<br />

(of which pension costs) (146) (187)<br />

Total 1,730 715 1,655 744<br />

(of which pension costs) 2) (188) (281)<br />

1) Of the Parent Company’s pension expenses, SEK 13 million (5) pertains to current and previous Board<br />

members and Presidents. Outstanding pension obligations to these individuals amount to SEK 39 million (29).<br />

2) Of the Group’s pension expenses under the Swedish Annual Accounts Act, SEK 17 million (9) pertains<br />

to current and previous Board members and Presidents. Outstanding pension obligations to them amount<br />

to SEK 56 million (48).<br />

Benefits to senior management<br />

Senior management<br />

Senior management refers to top-level management and other senior management.<br />

Södra’s top-level management includes the Chairman, Vice Chairman<br />

and the President and CEO. At year-end, other senior management<br />

included seven salaried employees (12) who, with the CEO, made up Group<br />

Senior Management. In addition, two positions are currently vacant.<br />

Preparation and decision process for setting benefits for senior<br />

management<br />

The Fees and Benefits Committee, appointed by the Board, includes at least<br />

three Board members, but not the CEO. In addition to preparing matters<br />

such as policies for benefits and other employment terms for Group management,<br />

the Committee should regularly approve expense summaries for the<br />

Board, the Chairman and Vice Chairman, and the CEO’s personally related<br />

expenses.<br />

Remuneration and benefits to the Board and senior management<br />

As resolved at the AGM, Board members received remuneration and benefits<br />

in <strong>2012</strong> in an amount of SEK 4,767 thousand (4,046). This consists of SEK 2,527<br />

thousand (2,112) in fixed Board remuneration, SEK 1,821 thousand (1,677) in<br />

daily remuneration, and SEK 419 thousand (257) in other remuneration and<br />

benefits.<br />

Additional fees of SEK 813 thousand (661) were paid to Board members who<br />

also sit on the Boards of Södra subsidiaries.<br />

To Chairman Christer Segerstéen, a total of SEK 1,441 thousand (1,300)<br />

was paid in remuneration and benefits. To Vice Chairman Anders Grennborg,<br />

a total of SEK 827 thousand (718) was paid in remuneration and benefits.<br />

The remuneration from the Parent Company in <strong>2012</strong> constitutes grounds for<br />

pension under one of the ITP plans (ITP1 and ITP2).<br />

To former President Leif Brodén, SEK 16,181 thousand (7,062) was paid in<br />

remuneration and benefits in <strong>2012</strong> (1 January – 8 May) and he also received<br />

SEK 7,220 thousand in pension insurance. In addition, SEK 182 thousand (152)<br />

was paid in bonus. Pension was paid under the ITP plan (ITP1).<br />

To Acting President Gunilla Saltin, a total of SEK 3,038 was paid in remuneration<br />

and benefits in <strong>2012</strong> (9 May – 31 December). Pensions were paid under<br />

the ITP plan (ITP1). In addition to the premium under the ITP plan, the company<br />

paid endowment insurance to Saltin in an amount of SEK 415 thousand.<br />

Yield on the endowment insurance, both positive and negative, accrues to<br />

Saltin as additional pension. During the period Saltin was Acting President,<br />

she also retained her assignment as the President of Södra Cell AB.<br />

The group of other senior management was paid remuneration and benefits<br />

totalling SEK 24 million (22) of which SEK 0.6 million (1) in productivity bonus<br />

with a maximum of one month’s salary on the same terms as other employees.<br />

Pension is paid out under one of the ITP plans. This group has individual<br />

employment contracts with termination periods of three to six months, and a<br />

redundancy payment of up to 18 months. For some senior management, the<br />

company also paid premiums for endowment insurance totalling SEK 2 million<br />

(2) in accordance with individual contracts.<br />

Number of employees<br />

<strong>2012</strong> 2011<br />

Number<br />

of which<br />

men, % Number<br />

of which<br />

men, %<br />

Parent Company<br />

Sweden 745 74 714 75<br />

Subsidiaries<br />

Sweden 2,667 83 2,609 84<br />

Norway 427 86 432 85<br />

Lithuania 105 32 — —<br />

Denmark 77 88 83 89<br />

Estonia 15 67 16 65<br />

Latvia 8 63 8 63<br />

Germany 5 40 5 20<br />

France 4 25 4 25<br />

United Kingdom 2 50 2 50<br />

Italy 3 33 3 33<br />

Switzerland 3 33 3 33<br />

Total 4,061 80 3,879 82<br />

Men/women<br />

management, %<br />

<strong>2012</strong> 2011<br />

Men Women Men Women<br />

Group<br />

Boards 76 24 73 27<br />

Management groups 79 21 69 31<br />

Parent Company<br />

Board 80 20 77 23<br />

Management group 62 38 62 38<br />

24<br />

Södra <strong>2012</strong>


Note 7<br />

Other expenses<br />

Note 9<br />

Payment to auditors<br />

Group <strong>2012</strong> 2011<br />

Vehicle costs 200 189<br />

Repairs, maintenance and other operating costs 781 725<br />

Other services and subcontracted personnel 276 200<br />

Travel expenses and cost of sales 226 228<br />

Company insurances and other risk costs 88 72<br />

Cost of premises and property 136 134<br />

Rent of non-curent assets 32 37<br />

Administration expenses 50 54<br />

Exchange rate effect 53 16<br />

Revaluation of derivatives 1 83<br />

Change in fair value of biological assets 3 —<br />

Other expenses 109 49<br />

Total 1,955 1,787<br />

Other operating expenses Parent Company <strong>2012</strong> 2011<br />

Capital loss 4 3<br />

Exchange rate effect 0 3<br />

Total 4 6<br />

Note 8 Depreciation, amortisation and impairment of assets<br />

Ernst & Young auditors<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

auditing assignments 4 4 1 1<br />

auditing activities other than the<br />

audit assignment 0 0 0 —<br />

tax consultancy services 1 0 1 0<br />

other assignments 3 0 3 0<br />

KPMG auditors<br />

auditing assignments — 0 — 0<br />

auditing activities other than the<br />

audit assignment — 0 — —<br />

tax consusltancy services — 1 — 0<br />

other assignments — 0 — —<br />

Other<br />

auditing assignments 0 1 — —<br />

auditing activities other than the<br />

audit assignment 0 — — —<br />

tax consultancy services 0 0 — —<br />

other assignments 0 0 — —<br />

Fees for tax consultancy and certain other consulting assignments<br />

concerning subsidiaries are invoiced to the Parent Company. Costs are<br />

invoiced to the subsidiaries.<br />

Group<br />

Depreciation<br />

and<br />

amortisation<br />

<strong>2012</strong> 2011<br />

Total<br />

Depreciation<br />

and<br />

amortisation<br />

Total<br />

Goodwill — 5 5 — — —<br />

Other intangible assets 24 — 24 17 — 17<br />

Buildings 108 –14* 94 96 — 96<br />

Land — 5 5 — — —<br />

Land improvements 27 — 27 20 — 20<br />

Machinery 855 –103* 752 901 2 903<br />

Equipment 162 5 167 141 — 141<br />

Totalt 1,176 –102 1,074 1,175 2 1,177<br />

Parent Company<br />

Depreciation<br />

and<br />

amortisation<br />

<strong>2012</strong> 2011<br />

Total<br />

Depreciation<br />

and<br />

amortisation<br />

Impairment<br />

Impairment<br />

Impairment<br />

Impairment<br />

Total<br />

Other intangible assets 13 — 13 13 — 13<br />

Buildings 3 — 3 3 — 3<br />

Land improvements 2 — 2 1 — 1<br />

Equipment 34 — 34 32 — 32<br />

Total 52 — 52 49 — 49<br />

* In 2010, it was decided to discontinue production of eucalyptus pulp at<br />

Södra Cell Tofte, which entailed an impairment loss. In <strong>2012</strong>, the conditions<br />

changed whereby the impairment applied was reversed.<br />

Södra <strong>2012</strong> 25


Note 10<br />

Shares in associates<br />

Group Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

At the beginning of the year 113 109 58 48<br />

Acquisition of associates — 10 — 10<br />

Share of profit of associates 0 –6 — —<br />

Translation difference –1 — — —<br />

Carrying amount at the end<br />

of the year 112 113 58 58<br />

The following information pertains to associates in full.<br />

Specification of associates <strong>2012</strong> Country Revenue Profit Assets Liabilities Equity<br />

Ownership<br />

share in %<br />

Parent Company<br />

SunPine AB Sweden 884 –8 558 472 86 28<br />

Svenska Skogsägarplaner AB Sweden — — 0 — 0 47<br />

ECS Entreprenörscertifiering AB Sweden — — 1 — 1 25<br />

Subsidiaries<br />

Torsås Fjärrvärmenät AB Sweden 8 0 26 18 8 24<br />

Södra Timber A/S Denmark 201 2 33 22 11 50<br />

Crown Timber Group (plc) United Kingdom 881 7 244 107 137 21<br />

Specification of associates 2011 Country Revenue Profit Assets Liabilities Equity<br />

Ownership<br />

share in %<br />

Parent Company<br />

SunPine AB Sweden 590 –29 542 447 95 28<br />

Svenska Skogsägarplaner AB Sweden — — 0 0 0 47<br />

ECS Entreprenörscertifiering AB Sweden 0 –1 1 — 1 25<br />

Subsidiaries<br />

Torsås Fjärrvärmenät AB Sweden 8 0 26 18 8 24<br />

Södra Timber A/S Denmark 214 2 33 24 9 50<br />

Crown Timber Group (plc) United Kingdom 895 6 252 117 135 21<br />

The information is based on the <strong>report</strong>s available at the time of Södra’s <strong>report</strong>ing.<br />

26<br />

Södra <strong>2012</strong>


Note 11<br />

Income from financial items<br />

Finance income and expenses<br />

Parent Company <strong>2012</strong> 2011<br />

Finance income and expenses<br />

Group <strong>2012</strong> 2011<br />

Finance income<br />

Net profit<br />

Assets and liabilities at fair value via profit or loss 130 8<br />

Dividends 26 25<br />

Net exchange rate fluctuations — 8<br />

Other interest income 26 70<br />

Other finance income 0 2<br />

182 113<br />

Finance expenses<br />

Net loss<br />

Assets and liabilities at fair value via profit or loss –62 –130<br />

Net exchange rate fluctuations –8 —<br />

Interest expenses on defined-benefit pension obligations –5 –1<br />

Other interest expenses –94 –97<br />

Other finance expenses –3 –7<br />

–172 –235<br />

Total 10 –122<br />

Of which:<br />

Interest income from instruments measured at amortised cost 15 20<br />

Interest expenses from instruments measured at amortised cost –94 –97<br />

Profit from shares in Group companies<br />

Profit from sale of shares in Group companies –8 13<br />

–8 13<br />

Interest income and similar profit items<br />

Dividends on shares in other companies 26 25<br />

Interest income from Group companies 42 44<br />

Interest income from others 15 58<br />

Profit on sale of current investments 25 8<br />

Other 0 1<br />

108 136<br />

Interest expenses and similar items<br />

Interest expenses from Group companies –6 –26<br />

Interest expenses from others –76 –75<br />

Impairment 76 –75<br />

Foreign exchange rate loss –6 0<br />

Loss on sale of current investments –62 —<br />

Other –2 –7<br />

–76 –183<br />

Total 24 –34<br />

Profit from financial instruments recognised<br />

in operating income<br />

Group <strong>2012</strong> 2011<br />

Note 12<br />

Appropriations<br />

Exchange rate effect in trade receivables –20 10<br />

Net profit from currency derivatives 23 192<br />

3 202<br />

Value changes for hedging instruments that pertain to fair value hedging had<br />

a profit impact of negative SEK 5 million (pos: 92) for derivatives and positive<br />

SEK 5 million (neg: 92) for hedged items.<br />

Parent Company <strong>2012</strong> 2011<br />

Change in tax allocation reserve<br />

– provisions for the year — –20<br />

– releases for the year 188 —<br />

Change in accelerated depreciation<br />

– machinery and equipment — 3<br />

Intra-Group transfers received 688 1,218<br />

Intra-Group transfers paid –462 –644<br />

Total 414 557<br />

Note 13<br />

Taxes<br />

Recognised tax expense<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Tax expense for the period –23 –92 –15 –16<br />

Adjustment of tax pertaining<br />

to previous years 0 –5 0 0<br />

Current tax expense –23 –97 –15 –16<br />

Deferred tax expense pertaining<br />

to temporary differences 370* –78 –18 0<br />

Deferred tax expense 370 –78 –18 0<br />

Total 347 –175 –33 –16<br />

* The deferred tax income on temporary differences is mainly attributable to a changed tax rate in Sweden.<br />

Södra <strong>2012</strong> 27


cont. note 13<br />

Group<br />

Parent Company<br />

Reconciliation of effective tax <strong>2012</strong> Tax rate, % 2011 Tax rate, % <strong>2012</strong> 2011<br />

Profit before income tax –919 883 266 383<br />

Tax based on current tax rate for Parent Company 242 –26.3 –232 26.3 –70 –101<br />

Effect of special tax rules for economic associations* 53 –6 91 –10 53 91<br />

Effect of other tax rates for foreign subsidiaries 11 1 –1 0 — —<br />

Non-deductible expenses –59 6 –31 4 –23 –18<br />

Non-taxable income 57 –6 14 –2 10 6<br />

Increase in deficit deductions without equivalent capitalisation of deferred tax –127 14 –12 1 — —<br />

Standard interest on tax allocation reserve –4 0 –7 1 –1 –1<br />

Issue capital, paid-out 6 –1 7 –1 6 7<br />

Capitalisation of deferred tax on deficit deductions related to losses of previous years — — 1 0 — —<br />

Changed tax rate 168 18 — — –8 —<br />

Tax pertaining to previous years — — –5 1 — —<br />

Effective tax recognised 347 –38 –175 20 –33 –16<br />

* In accordance with the taxation rules for economic associations, dividends paid in the second year (pertaining to the previous year) are tax deductible in the first year. This means that the Board’s proposed dividend<br />

to be paid in 2013 has been treated as deductible in the calculation of current tax for 2013.<br />

Income tax pertaining to other comprehensive income is recognised in Note 14 Other comprehensive income.<br />

Change of deferred tax in temporary differences and deficit deductions<br />

Group<br />

At the beginning<br />

of the year<br />

Recognised in<br />

profit or loss<br />

Recognised in other<br />

comprehensive<br />

Acquisitions income<br />

Carrying amount<br />

at the end<br />

of the period<br />

Non-current assets –982 135 –9 — –856<br />

Current receivables and liabilities –2 4 — 0 2<br />

Current investments 17 –31 — 0 –14<br />

Provisions 124 35 — 4 163<br />

Untaxed reserves excluding depreciation and amortisation in excess of plan –327 230 — — –97<br />

Deficit deductions 68 –3 — — 65<br />

Total –1,102 370 –9 4 –737<br />

Note 14<br />

Other comprehensive income<br />

Group <strong>2012</strong><br />

Translation<br />

reserve<br />

Fair value<br />

reserve<br />

Hedging<br />

reserve<br />

Actuarial<br />

profit/loss*<br />

Minority<br />

interest<br />

At the beginning of the year 107 1 –1 –360 1<br />

Translation differences for the year 2 — — — 1<br />

Change for the year in fair value of available-for-sale financial assets — –1 — — —<br />

Change for the year in fair value of cash flow hedges — — — — —<br />

Change in fair value of cash flow hedges transferred to profit for the year — — 1 — —<br />

Actuarial gains and losses — — — –11 —<br />

Tax pertaining to components in other comprehensive income — — — 4 —<br />

Carrying amount at the end of the period 109 — — –367 2<br />

Group 2011<br />

Translation<br />

reserve<br />

Fair value<br />

reserve<br />

Hedging<br />

reserve<br />

Actuarial<br />

profit/loss*<br />

Minority<br />

interest<br />

At the beginning of the year 115 1 135 –176 —<br />

Translation differences for the year –8 — — — 1<br />

Translation differences transferred to profit for the year — — — — —<br />

Change for the year in fair value of available-for-sale financial assets — 0 — — —<br />

Change for the year in fair value of cash flow hedges — — 207 — —<br />

Change in fair value of cash flow hedges transferred to profit for the year — — –391 — —<br />

Actuarial gains and losses — — — –250 —<br />

Tax pertaining to components in other comprehensive income — 0 48 66 —<br />

Carrying amount at the end of the period 107 1 –1 –360 1<br />

* Actuarial profit/loss is a part of retained earnings.<br />

28<br />

Södra <strong>2012</strong>


Cash flow hedging - transferred to profit for the year <strong>2012</strong> 2011<br />

Net revenue 0 389<br />

Other expenses –1 2<br />

–1 391<br />

Translation reserve<br />

The translation reserve includes all foreign exchange gains and losses that<br />

arise in translating financial statements from foreign operations that have<br />

prepared their financial statements in a currency other than that used in<br />

the consolidated financial statements. The Parent Company and the Group<br />

present their financial statements in SEK.<br />

Fair value reserve<br />

The fair value reserve includes the accumulated net change in fair value of<br />

available-for-sale financial assets until the asset is removed from the statement<br />

of financial position.<br />

Hedging reserve<br />

The hedging reserve includes the effective share of the accumulated net<br />

change in fair value of a cash flow hedge instrument attributable to hedging<br />

transactions that have not yet occurred.<br />

Note 15<br />

Business combinations<br />

Acquisitions in <strong>2012</strong><br />

In <strong>2012</strong>, companies with a combined value of SEK 119 million were acquired.<br />

The following table specifies the <strong>2012</strong> acquisitions, in addition to <strong>annual</strong> revenue<br />

and number of employees at the dates of the respective acquisitions.<br />

Business area Business Acquisition date Annual revenue<br />

Number of<br />

employees<br />

Södra Timber Södra Timber AS 1 January <strong>2012</strong> NOK 100 million 33<br />

Södra Interiör AB Berg & Berg 1 February <strong>2012</strong> SEK 121 million 97<br />

The negative difference (negative goodwill) of SEK 20 million arose as a<br />

result of the fair value of acquired net assets exceeding the purchase price<br />

paid. The acquired business is expected to generate a higher return than<br />

was the case with the former owner through utilisation of synergies in the<br />

Södra Group.<br />

AB Berg & Berg<br />

Carrying amount in<br />

acquired company<br />

Fair value<br />

adjustment<br />

Fair value<br />

recognised<br />

in Group<br />

Property, plant and equipment 10 — 10<br />

Inventories 35 3 38<br />

Current receivables 13 — 13<br />

Cash and cash equivalents 4 — 4<br />

Provisions –1 –1 –2<br />

Interest-bearing liabilities –11 — –11<br />

Non-interest-bearing liabilities –17 — –17<br />

Identifiable net assets 33 2 35<br />

Purchase price paid incl. estimated<br />

additional purchase price 35<br />

Liability to the seller –15<br />

Cash and cash equivalents in<br />

acquired entity –4<br />

Net effect on cash and cash equivalents 16<br />

Acquisitions in 2011<br />

In 2011, two minor corporate acquisitions were implemented. On 18 April<br />

2011, Södra Skog acquired SIA Latvian Sustainable Forestry. The purchase<br />

amount was SEK 4 million. The company owns 400 hectares of forest land<br />

in Latvia and has no employees.<br />

Södra Interiör acquired, through the subsidiary UAB SIWood newly formed<br />

for the purpose, the assets and liabilities for MDF production from the company<br />

UAB Aldrea in Lithuania. The acquisition, which took place on 1 April<br />

2011, included the assumption of 93 employees. The purchase amount was<br />

SEK 10 million.<br />

Both acquisitions are of minor significance in terms of amounts.<br />

Consequently, no further specification of the acquisitions is provided.<br />

In all acquisitions during <strong>2012</strong>, 100 per cent ownership was obtained. The<br />

total purchase amount was SEK 119 million. The businesses acquired in<br />

<strong>2012</strong> jointly affected consolidated net revenue in an amount of SEK 275 million.<br />

Total <strong>annual</strong> revenue in the acquired businesses amounted to SEK<br />

279 million. If all business acquisitions had taken place at the beginning of<br />

the year, the <strong>annual</strong> effect on operating profit would have amounted to a loss<br />

of SEK 23 million and the <strong>annual</strong> effect on net revenue would have been<br />

SEK 284 million.<br />

The acquired companies had operations that were within the scope of<br />

the Group’s existing business areas in which they were included after the<br />

acquisitions.<br />

The following table presents the fair value of acquired net assets and the<br />

effect on the consolidated cash flows of all the acquisitions.<br />

Södra Timber AS (Romerike)<br />

Carrying amount in<br />

acquired company<br />

Fair value<br />

adjustment<br />

Fair value<br />

recognised<br />

in Group<br />

Property, plant and equipment 63 28 91<br />

Inventories 33 3 36<br />

Current receivables 9 — 9<br />

Cash and cash equivalents 5 — 5<br />

Provisions –8 –8 –16<br />

Interest-bearing liabilities –2 — –2<br />

Non-interest-bearing liabilities –19 — –19<br />

Identifiable net assets 81 23 104<br />

Negative difference –20<br />

Purchase price paid 84<br />

Cash and cash equivalents in<br />

acquired entity –4<br />

Net effect on cash and cash equivalents 80<br />

Södra <strong>2012</strong> 29


Note 16<br />

Intangible assets<br />

Group <strong>2012</strong><br />

Brand<br />

Development<br />

expenses, licences Goodwill Total<br />

Cost<br />

At the beginning of the year 123 81 297 501<br />

Other investments — 13 — 13<br />

123 94 297 514<br />

Amortisation<br />

At the beginning of the year — –32 — –32<br />

Amortisation according to plan for the year — –24 — –24<br />

— –56 — –56<br />

Impairment<br />

At the beginning of the year — — –3 –3<br />

Impairment for the year — — –5 –5<br />

— — –8 –8<br />

Carrying amount at the end<br />

of the period 123 38 289 450<br />

Group 2011<br />

Brand<br />

Development<br />

expenses, licences Goodwill Total<br />

Cost<br />

At the beginning of the year 123 64 297 484<br />

Other investments — 17 — 17<br />

123 81 297 501<br />

Goodwill per cash-generating unit <strong>2012</strong> 2011<br />

Södra Timber 61 66<br />

Södra Trivselhus Holding AB 179 179<br />

Södra Interiör 48 48<br />

Södra Skog 1 1<br />

Total 289 294<br />

Intangible assets<br />

developed internally<br />

Intangible assets<br />

acquired<br />

Parent Company <strong>2012</strong> Development expenses Goodwill Total<br />

Cost<br />

At the beginning of the year 44 — 44<br />

Other investments 1 — 1<br />

45 — 45<br />

Amortisations<br />

At the beginning of the year –18 — –18<br />

Amortisation according to plan<br />

for the year –13 — –13<br />

–31 — –31<br />

Carrying amount at the end<br />

of the period 14 — 14<br />

Amortisation<br />

At the beginning of the year — –15 — –15<br />

Amortisation according to plan for the year — –17 — –17<br />

— –32 — –32<br />

Impairment<br />

At the beginning of the year — — –3 –3<br />

— — –3 –3<br />

Carrying amount at the end<br />

of the period 123 49 294 466<br />

Testing of impairment requirement for goodwill and brands<br />

Impairment testing of recognised goodwill and brands with indefinite useful<br />

lives was done prior to the financial statements at 31 December <strong>2012</strong>. Goodwill<br />

of SEK 289 million (294) was recognised in the consolidated statement of<br />

financial position. The following table presents the recognised amounts for<br />

goodwill allocated by business area.<br />

Södra Timber and Södra Trivselhus are the cash-generating units to which<br />

material goodwill has been allocated. Following acquisition, acquired operations<br />

are integrated into the Group’s existing business areas in order to generate<br />

the anticipated synergy effects. The integration also pertains to attributable<br />

cash flows. In such cases where acquired cash-generating units have<br />

been integrated with existing business areas, a test of impairment requirement<br />

is carried out at business area level, since it is at this level that goodwill<br />

is monitored internally.<br />

The recovery amount of the business areas builds on the value in use that<br />

is based on cash flow forecasts for five years where the forecasts of individual<br />

business area management pertaining to revenue, operating profit, operating<br />

capital and investments form the basis for discounting cash flows. An<br />

increase in cash flow of an average of approximately 2 per cent (0–3) per year<br />

is then adopted. Growth rate and operating margins have been determined<br />

based on historic experience and judgements of business trends in the coming<br />

five-year period that draw on external and internal sources of information.<br />

Cash flow was discounted by approximately 10 per cent (10–11) prior to tax.<br />

It is the judgement of corporate management that there are no reasonable<br />

potential changes in any important assumption that would lead to any<br />

impairment requirement of recognised goodwill.<br />

Intangible assets<br />

developed internally<br />

Intangible assets<br />

acquired<br />

Parent Company 2011 Development expenses Goodwill Total<br />

Cost<br />

At the beginning of the year 39 — 39<br />

Other investments 5 — 5<br />

44 — 44<br />

Amortisations<br />

At the beginning of the year –5 — –5<br />

Amortisation according to plan<br />

for the year –13 — –13<br />

–18 — –18<br />

Carrying amount at the end<br />

of the period 26 — 26<br />

30<br />

Södra <strong>2012</strong>


Note 17<br />

Buildings and land<br />

Group Buildings Land<br />

<strong>2012</strong> 2011<br />

Land<br />

improvements<br />

Total buildings<br />

and land Buildings Land<br />

Land<br />

improvements<br />

Total buildings<br />

and land<br />

Cost<br />

At the beginning of the year 3,121 161 689 3,971 2,815 157 530 3,502<br />

Acquisition of subsidiaries 87 — — 87 — 8 — 8<br />

Investments 83 22 56 161 284 17 91 392<br />

Reclassifications 57 –15 18 60 27 –10 78 95<br />

Disposals and sales –9 –3 — –12 –3 –9 –9 –21<br />

Translation differences 7 –15 — –8 –2 –2 –1 –5<br />

3,346 150 763 4,259 3,121 161 689 3,971<br />

Depreciation<br />

At the beginning of the year –1,695 — –281 –1,976 –1,601 — –270 –1,871<br />

Acquisition of subsidiaries –38 — 0 –38 — — — —<br />

Disposals and sales 9 — — 9 1 — 9 10<br />

Depreciation according to plan for the year –108 — –27 –135 –96 — –20 –116<br />

Translation differences –4 — — –4 1 — — 1<br />

–1,836 — –308 –2,144 –1,695 — –281 –1,976<br />

Impairment<br />

At the beginning of the year –143 –9 –8 –160 –145 –9 –8 –162<br />

Disposals and sales — — — — 2 — 0 2<br />

Impairment for the year 14 –5 — 9 — — — —<br />

Translation differences –1 — — –1 — — — —<br />

–130 –14 –8 –152 –143 –9 –8 –160<br />

Carrying amount at the end of the period 1,380 136 447 1,963 1,283 152 400 1,835<br />

Parent Company Buildings Land<br />

<strong>2012</strong> 2011<br />

Land<br />

improvements<br />

Total buildings<br />

and land Buildings Land<br />

Land<br />

improvements<br />

Total buildings<br />

and land<br />

Cost<br />

At the beginning of the year 88 155 31 274 87 155 18 260<br />

Investments 1 1 17 19 — — 13 13<br />

Reclassifications 26 — 8 34 1 — — 1<br />

Disposals and sales –5 — — –5 — — — —<br />

110 156 56 322 88 155 31 274<br />

Depreciation<br />

At the beginning of the year –19 — –3 –22 –16 — –2 –18<br />

Disposals and sales 5 — — 5 — — — —<br />

Depreciation according to plan for the year –3 — –2 –5 –3 — –1 –4<br />

–17 — –5 –22 –19 — –3 –22<br />

Impairment<br />

At the beginning of the year — –8 — –8 — –8 — –8<br />

— –8 — –8 — –8 — –8<br />

Carrying amount at the end of the period 93 148 51 292 69 147 28 244<br />

Södra <strong>2012</strong> 31


Note 18<br />

Machinery and equipment<br />

Group Machinery Equipment Leased assets<br />

<strong>2012</strong> 2011<br />

Total machinery<br />

and equipment Machinery Equipment Leased assets<br />

Total machinery<br />

and equipment<br />

Cost<br />

At the beginning of the year 18,505 1,902 9 20,416 17,828 1,572 9 19,409<br />

Acquisition of subsidiaries 178 12 — 190 — — — —<br />

Investments 891 130 0 1,021 550 164 — 714<br />

Reclassifications 440 59 — 499 380 278 — 658<br />

Disposals –461 –102 — –563 –247 –112 — –359<br />

Translation differences 31 1 — 32 –6 — — –6<br />

19,584 2,002 9 21,595 18,505 1,902 9 20,416<br />

Depreciation<br />

At the beginning of the year –12,944 –1,184 –8 –14,136 –12,296 –1,133 –8 –13,437<br />

Acquisition of subsidiaries –136 –9 — –145 — — — —<br />

Disposals 449 81 — 530 247 92 — 339<br />

Reclassifications — 2 — 2 1 –1 — —<br />

Depreciation according to plan for the year –855 –162 — –1,017 –901 –141 — –1,042<br />

Translation differences –18 –1 — –19 5 –1 — 4<br />

–13,504 –1,273 –8 –14,785 –12,944 –1,184 –8 –14,136<br />

Impairment<br />

At the beginning of the year –708 –4 — –712 –707 –4 — –711<br />

Disposals and sales 2 1 — 3 — — — —<br />

Impairment for the year 103 –5 — 98 –2 — — –2<br />

Translation differences –8 — — –8 1 — — 1<br />

–611 –8 — –619 –708 –4 — –712<br />

Carrying amount at the end of the period 5,469 721 1 6,191 4,853 714 1 5,568<br />

<strong>2012</strong> 2011<br />

Parent Company Machinery Equipment Leased assets<br />

Total machinery<br />

and equipment Machinery Equipment Leased assets<br />

Total machinery<br />

and equipment<br />

Cost<br />

At the beginning of the year — 221 — 221 — 221 — 221<br />

Investments — 47 — 47 — 51 — 51<br />

Reclassifications — 16 — 16 — 7 — 7<br />

Disposals and sales — –39 — –39 — –58 — –58<br />

— 245 — 245 — 221 — 221<br />

Depreciation<br />

At the beginning of the year — –118 — –118 — –135 — –135<br />

Disposals and sales — 30 — 30 — 49 — 49<br />

Depreciation according to plan for the year — –34 — –34 — –32 — –32<br />

— –122 — –122 — –118 — –118<br />

Carrying amount at the end of the period — 123 — 123 — 103 — 103<br />

32<br />

Södra <strong>2012</strong>


Note 19<br />

Construction in progress<br />

Note 21<br />

Financial investments<br />

Group <strong>2012</strong> 2011<br />

Cost<br />

At the beginning of the year 594 737<br />

Investments 409 619<br />

Reclassifications –577 –762<br />

Carrying amount at the end of the period 426 594<br />

Parent Company <strong>2012</strong> 2011<br />

Cost<br />

At the beginning of the year 57 11<br />

Investments 13 54<br />

Reclassifications –50 –8<br />

Carrying amount at the end of the period 20 57<br />

Note 20<br />

Biological assets<br />

Södra’s forest assets are divided into biological assets and land assets in<br />

the consolidated financial statements. Standing timber is recognised as a<br />

biological asset at fair value discounted to the present value of future<br />

expected cash flow from the standing timber. The land that the forest is<br />

growing on is measured at cost.<br />

On 31 December <strong>2012</strong>, Södra had forest holdings of 34,400 hectares<br />

(29,145) of productive forest. The volume of standing timber was 4.0 million<br />

m 3 sk (3.8). The total value of forest holdings was SEK 559 million (539). Of<br />

this value, SEK 71 million (64) pertained to forest land. The change of value<br />

of standing timber during the year amounted to SEK 9 million (4), which is<br />

recognised in the profit or loss.<br />

The valuation model is unchanged from the previous year. The valuation<br />

is based on estimated harvesting cycles for Södra’s harvesting volumes,<br />

product range and growth assumptions based on current harvesting plans.<br />

Future price and cost development are estimated at 2 per cent (2) per year.<br />

Costs for replanting have been considered along with provisions for environmental<br />

conservation. Estimated cash flow before tax has been discounted<br />

to present value at a rate of 5.5 per cent (5.5) after tax for forest assets in<br />

Sweden. Forest assets in the Baltic States have been discounted at a rate<br />

of 6.5 per cent (6.5) after tax. The assessed value of standing timber has<br />

subsequently been charged with deferred tax. A 100-year time-frame has<br />

been used for discounting of future cash flow in all forests. The length of<br />

harvesting cycles varies. A harvesting cycle of 80 years has been used for f<br />

orest assets located in Sweden, 75 years for Latvia and 70 years for Estonia.<br />

The change in value of standing timber can be divided into the following<br />

components:<br />

Group <strong>2012</strong> 2011<br />

Non-current assets<br />

Valued at fair value through profit or loss<br />

Financial investments 17 17<br />

17 17<br />

Current assets<br />

Valued at fair value through profit or loss<br />

Shares in listed companies 483 587<br />

Share index bonds — 46<br />

Share index certificates 50 51<br />

533 684<br />

Available for sale<br />

Bonds 72 809<br />

Other current investments 41 319<br />

113 1,128<br />

646 1,812<br />

Non-current financial assets comprise unlisted shares and participations<br />

measured at cost since a reliable market value could not be determined.<br />

Impairment has been applied where indicators have arisen.<br />

Non-current financial assets include holdings of shares in LRF förening<br />

upa of SEK 0 million (0) and Statkraft Södra Vindkraft AB of SEK 13 million<br />

(13). These valuations are due to there being no functional market for these<br />

holdings. Södra does not intend to divest these investments in 2013.<br />

The financial assets shares, share index bonds and share index certificates<br />

are measured at fair value via the consolidated profit for the year as management<br />

values these instruments based on their fair value. Fair value for these<br />

assets is based on quoted market prices through trade on an active market.<br />

Interest-bearing securities measured as available-for-sale financial assets<br />

have a fixed interest of between 0.97 per cent (2.06) and 5.83 per cent (5.83).<br />

The receivables have maturities of up to five years.<br />

Parent Company <strong>2012</strong> 2011<br />

Current financial investments<br />

Shares in listed companies 407 536<br />

Share index bonds — 42<br />

Share index certificates 49 51<br />

Hedge-fund bonds 5 7<br />

Bonds 20 694<br />

Other current investments 244 632<br />

725 1,962<br />

Group <strong>2012</strong> 2011<br />

At the beginning of the year 475 461<br />

Purchases of growing forest 18 20<br />

Sale of growing forest –2 –8<br />

Change in fair value less selling costs 9 4<br />

Translation differences –12 –2<br />

Carrying amount at the end of the period 488 475<br />

The following sensitivity analysis shows how the value of standing timber<br />

would be affected if the key valuation parameters were attributed other<br />

values than those that form the basis of the current valuation.<br />

Variable<br />

Change<br />

Change in value<br />

after tax,<br />

SEK million<br />

Discount rate +/– 0,25% –/+ 34<br />

Wood price +/– 1% in real terms +/– 9<br />

Harvesting costs +/– 1% in real terms –/+ 3<br />

Harvesting volumes +/– 1% +/– 7<br />

Södra <strong>2012</strong> 33


Note 22<br />

Financial risk management<br />

The international and capital-intensive nature of its operations means Södra<br />

is constantly exposed to financial risks, such as market risk, credit risk and<br />

liquidity and financing risk. There are correlations between certain risk variables.<br />

According to the hedging strategy, focus shall be on hedging net exposures.<br />

The Group’s financial policy for handling financial risks is adopted by<br />

the Board and provides a framework of guidelines and rules in the form of<br />

risk mandates and limits for financial operations. Hedging measures are<br />

approved when the situation for such a measure is judged to be financially<br />

beneficial. Consideration is also taken to the current access to commercially<br />

acceptable hedging terms.<br />

Södra’s financial risk management is centralised to the Treasury function<br />

in the Parent Company. This enables economies of scale and synergy effects<br />

to be utilised and helps minimise handling risks. The overall objective is to<br />

provide cost-effective financing and liquidity administration while minimising<br />

the negative effects on consolidated income that arise from market risks.<br />

The financial risks are continuously measured and compliance with the<br />

financial policy is monitored. The key aspects of financial risk management<br />

within the Group are described below.<br />

Market risk<br />

Market risk involves the risk of the fair value of, or future cash flow from, a<br />

financial instrument changing due to fluctuating market prices. Market risk<br />

consists of foreign exchange risk, interest risk and other price risks. The<br />

market risks that primarily affect the Group are foreign exchange risk and<br />

raw material price risk.<br />

Foreign exchange risk<br />

Södra is exposed to different types of foreign exchange risk. The primary<br />

exposure arises from the Group’s sales and purchases in foreign currencies.<br />

These foreign exchange risks consist partly of the risk of fluctuations in the<br />

value of financial instruments and trade receivables and payables, and partly<br />

of foreign exchange risk in anticipated or contracted payment flows (transaction<br />

exposure).<br />

There are also foreign exchange risks in translation of the assets and liabilities<br />

of foreign subsidiaries to the functional currency of the Group (translation<br />

exposure). The Group is also exposed to foreign exchange risks attributable<br />

to investments in foreign currency (financial exposure).<br />

Consolidated income includes foreign exchange differences of negative<br />

SEK 53 million (neg: 16) in operating profit and of negative SEK 8 million<br />

(pos: 8) in finance income and expenses.<br />

Transaction exposure<br />

A substantial part of revenue is related to customers outside Sweden and most<br />

of the company’s products are invoiced in local currency or USD. Input goods<br />

are largely imported in foreign currency. These factors mean that changing foreign<br />

exchange rates have a major impact on Södra. To manage Södra’s net<br />

transaction exposure, forecast currency flow can be hedged using currency<br />

derivatives.<br />

Currency exposure is hedged in accordance with the financial policy. Temporarily<br />

attractive levels or specific factors can make it desirable to deviate<br />

from the hedging norms. The hedging interval determines the risk mandate<br />

that Södra Treasury has to follow for deviations from hedging norms. The currency<br />

hedging component of pulp hedges is included in the overall foreign<br />

exchange mandate. Under the policy, standardised forward contracts, currency<br />

swaps and acquired foreign exchange options may be used for hedging purposes.<br />

Hedge <strong>report</strong>ing is used when the demands for this are met.<br />

Transaction exposure 31 December <strong>2012</strong> (major currencies)<br />

Currency<br />

Forecast<br />

net influx Hedges %<br />

2013 2014<br />

Average<br />

rate<br />

Forecast<br />

net influx Hedges %<br />

Average<br />

rate<br />

USD million* 675 — — — 830 — — —<br />

EUR million 332 — — — 427 — — —<br />

GBP million 57 — — — 57 — — —<br />

Total 1,064 — — 1,314 — —<br />

Hedging interval 0–70 0–50<br />

* The currency hedging component of pulp price hedges is included in forecast net influx; there are no pulp price hedges for 2013–2014.<br />

Transaction exposure 31 December 2011 (major currencies)<br />

Currency<br />

Forecast<br />

net influx Hedges %<br />

<strong>2012</strong> 2013<br />

Average<br />

rate<br />

Forecast<br />

net influx Hedges %<br />

Average<br />

rate<br />

USD million* 652 52 8 6.77 810 — — —<br />

EUR million 486 22 5 9.17 597 — — —<br />

GBP million 54 3 6 10.67 46 — — —<br />

Total 1,192 77 6 1,453 — —<br />

Hedging interval 0–70 0–50<br />

* The currency hedging component of pulp price hedges is included in forecast net influx; there are no pulp price hedges for <strong>2012</strong>–2013.<br />

34<br />

Södra <strong>2012</strong>


Translation exposure<br />

Translation exposure refers to the net value in foreign subsidiaries. The basic<br />

principle is not to currency hedge this exposure. The most significant translation<br />

exposure pertains to equity in the following currencies: NOK 1,002 million<br />

(1,446), EUR 30 million (28), GBP 13 million (13), LVL 15 million (10) and<br />

DKK 48 million (57). As in the previous year, none of these translation exposures<br />

were hedged at year-end.<br />

Interest risk<br />

Interest risk represents the negative changes in market value that can arise<br />

with interest fluctuations in the yield curve (market interest for different<br />

terms). The objective in the financial policy is to maintain fixed interest<br />

terms for financial liabilities within the 3-15 month range. The fixed interest<br />

term of financial liabilities amounted to 6 months (7) at 31 December <strong>2012</strong>.<br />

The financial policy specifies how interest risk is to be limited on the<br />

Group’s interest-bearing investments by allocating investments over different<br />

fixed rate periods. The basic idea is that the maturity structure of subscribed<br />

fixed income instruments is to counter forecast cash flow fluctuations.<br />

The fixed interest term of interest bearing investments amounted to 32<br />

months (20) at 31 December <strong>2012</strong>.<br />

Price risk<br />

Price risk pertains to the change in price of products or input goods and the<br />

subsequent effect on profit.<br />

Pulp price risk<br />

Pulp price risk is the risk of the average price received for pulp being less<br />

than the expected price. To reduce pulp price risk, Södra Treasury can trade<br />

in quoted pulp forward contracts, forward contracts or swap contracts on the<br />

OTC market. Södra hedges pulp price risk in two ways: hedging of cash flow<br />

risk from the future sale of Södra pulp, and hedging of fair value risk in fixed<br />

price customer contracts.<br />

Cash flow risk from the future sale of own production of pulp arises<br />

through cyclical variations in pulp price, expressed in foreign currency,<br />

which, in conjunction with variations in exchange rates, can mean the pulp<br />

price that Södra receives measured in SEK is less than the pulp price<br />

expected by the Group in the long term. The main strategy is to be restrictive<br />

with this kind of hedge and no hedges were in place at year-end.<br />

Fair value risk arises when Södra, through the value-added service Pulp-<br />

Services Hedging, utilises its financial competence in the field of pulp price<br />

risk, and offers pulp deliveries to buyers at a fixed price. To ensure the fixed<br />

prices contracted with customers will not deviate negatively from the prevailing<br />

market prices at the time of delivery, the fixed price contract is<br />

swapped to a variable price. Fixed price contracts may be signed for not<br />

more than 50 per cent of the total delivery volume to individual customers.<br />

The contract period may not exceed 24 months. Business cycles, market<br />

price level, demand for fixed price contracts and the potential to sign swap<br />

contracts on acceptable terms are factors that, over time, affect current<br />

hedging levels<br />

2013 2014<br />

Pulp price derivatives<br />

31 December <strong>2012</strong> Ktonne % Ktonne %<br />

Fair value hedges 31 2 — —<br />

Forecast production 1,915 2,032<br />

<strong>2012</strong> 2013<br />

Pulp price derivatives<br />

31 December 2011 Ktonne % Ktonne %<br />

Fair value hedges 41 2 — —<br />

Forecast production 2,040 2,013<br />

Electricity price risk<br />

Södra has business areas with both a surplus and deficit of electricity. Södra<br />

Timber and Södra Interiör are at risk of heavy increases in the purchase cost<br />

of electricity, which would lower margins and weaken their competitive position.<br />

The major investments in electricity generating capacity made by Södra<br />

Cell and Södra Vind in recent years, which have made them net sellers of<br />

electricity, require reasonably high electricity prices to achieve the required<br />

return.<br />

To best hedge the different needs of the business areas while optimising<br />

the Group’s net position for electricity utilisation, Södra Treasury has a consumption<br />

portfolio and a production portfolio. The total net price position is<br />

hedged between the two portfolios using financial electricity contracts to<br />

avoid major profit effects of electricity price changes. The permitted hedging<br />

instruments consist of standard contracts on Nordpool. Södra’s forecast net<br />

position on electricity can be hedged for a period of five years with an <strong>annual</strong>ly<br />

declining maximum percentage level. For the first two years, up to 100<br />

per cent of net position may be hedged. For the years 3–5, up to 80, 50 and 20<br />

per cent of net position may be hedged, respectively.<br />

There is no electricity price hedging for 2013 and subsequent years.<br />

Oil price risk<br />

Södra’s business areas <strong>annual</strong>ly purchase oil-related products for approximately<br />

SEK 720 million. Most purchases are related to spot markets for specific<br />

products. The volatile nature of these markets means they may cause<br />

undesirable fluctuations in profit and Södra aims to limit this risk by trading<br />

in financial markets for oil-related products. The permitted hedging instruments<br />

consist of forward contracts and options.<br />

Oil-related products that may be hedged are diesel, fuel oil and Brent<br />

crude. Hedging may be done for an 18-month period with the following purchasing<br />

volumes for each 6-month period: 0–6 months 0–75 per cent, 7–12<br />

months 0–50 per cent and 13–18 months 0–25 per cent. Södra’s total energy<br />

exposure means that consolidated profit is positively correlated with energy<br />

prices.<br />

There is no oil price hedging for 2013 and subsequent years.<br />

Share price risk<br />

Södra is exposed to price risk through its holdings of shares, share index<br />

certificates, share index bonds and share funds (see Note 21 Financial<br />

investments).<br />

Credit risk<br />

Financial credit risk<br />

Södra’s financial transactions create exposure to credit risk relative to financial<br />

counterparties. The financial policy specifies that transactions may only<br />

be undertaken with parties that have good credit ratings, defined as category<br />

BBB-/K1 or better under Standard & Poor’s system. Limits are set for each<br />

counterparty and revised regularly. To further limit counterparty risk, ISDA<br />

contracts (netting contracts) have been taken out with several banks.<br />

At 31 December <strong>2012</strong>, Södra’s total counterparty exposure amounted to<br />

SEK 2,009 million. At 31 December, all counterparties were within the parameters<br />

set in Södra’s financial policy with regard to limits, durations and rating<br />

requirements.<br />

Credit risk in trade receivables<br />

The risk of customers not fulfilling their obligations, in other words payment<br />

not being received, represents a customer credit risk. Customer credit is<br />

checked using information on their financial position from various credit-rating<br />

agencies. Security is required for customers with an inadequate credit<br />

rating or weak credit history. Credit risks involving customers are described<br />

in more detail in Note 29 Operating receivables.<br />

Södra <strong>2012</strong> 35


cont. note 22<br />

Maximum credit risk<br />

The credit quality of Södra’s financial assets can be assessed using the following<br />

asset grouping:<br />

Financial assets per category <strong>2012</strong> 2011<br />

Trade receivables that are not due 1,599 1,640<br />

Trade receivables that are due 330 345<br />

Trade receivables gross 1,929 1,985<br />

Current investments 646 1,812<br />

Cash and cash equivalents 594 653<br />

Total financial investments 1,240 2,465<br />

Derivative instruments with positive values 1 10<br />

Customer contracts 2 8<br />

Earned but not invoiced revenue 19 19<br />

Other operating receivables 673 849<br />

Other receivables total 695 886<br />

Maximum credit risk exposure 3,864 5,336<br />

Trade receivables due with no impairment indicators totalled SEK 306 million<br />

(318) on 31 December <strong>2012</strong>.<br />

Liquidity and financing risk<br />

Liquidity and financing risk is the risk of the Group having problems fulfilling<br />

its obligations associated with financial liabilities. Corporate financial planning,<br />

which comprises all Group entities, is used to identify and counter<br />

liquidity risks and minimise corporate financing costs. The objective is for<br />

the Group to be able to meet its financial commitments in positive and negative<br />

business cycles without substantial unforeseen costs. Group policy is to<br />

minimise its borrowing requirement by using surplus liquidity in the Group<br />

in cash pools. Liquidity risks are managed on a central basis by Södra Treasury<br />

for the Group as a whole.<br />

Cash and cash equivalents are primarily invested in current interestbearing<br />

securities. Investments can also be made in highly liquid assets that<br />

are negotiable within three days. A limited amount of surplus liquidity may<br />

be invested in minor liquid assets.<br />

To cover future financing requirements, Södra aims to have account credits,<br />

loan structures, or other binding loan agreements that guarantee access<br />

to liquidity in the coming two-year period. A substantial part of loan financing<br />

consists of loans from members through member accounts, forest loans<br />

and payment plans. Södra has a credit agreement in the form of a club agreement<br />

that gives Södra the possibility of borrowing up to EUR 105 million over<br />

a four-year period. This loan agreement has a covenant based on Södra’s<br />

equity ratio where the lenders are entitled to cancel the loan agreement if<br />

Södra’s equity ratio falls below 40 per cent. The liquidity reserve, which consists<br />

of loan agreements and the company’s cash and cash equivalents, is to<br />

represent at least 10 per cent of a forecast rolling 12-month revenue. On the<br />

balance sheet date, the total liquidity reserve was SEK 2,859 million (3,421),<br />

equivalent to 17 per cent (19) of consolidated <strong>annual</strong> revenue.<br />

Maturity structure current investments Maturity<br />

Within 1 year 1–5 years More than 5 years Total<br />

Financial investments <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Certificates 33 319 — — — — 33 319<br />

Bonds 11 33 39 697 22 72 72 802<br />

Share index bonds — 7 — — — 46 — 53<br />

Share index certificates — — 26 20 24 31 50 51<br />

Quoted shares 483 587 — — — — 483 587<br />

Bank funds 8 — — — — — 8 —<br />

Total 535 946 65 717 46 149 646 1,812<br />

Interest-bearing investments amount to SEK 112 million (1,128), of which 42 per cent (31) has a duration of up to one year, 39 per cent (68) has a duration between one and<br />

five years and 20 per cent (1) has a duration that is longer than five years.<br />

36<br />

Södra <strong>2012</strong>


Maturity structure financial liabilities – undiscounted cash flow<br />

Maturity<br />

Within 1 year 1–5 years More than 5 years Total<br />

Financial liabilities Interest rate, % Currency <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Subordinated debentures 5,7 (5,7) SEK — — 137 137 — — 137 137<br />

Loans from members<br />

Liquidity accounts 0,0 (0,0) SEK 26 28 — — — — 26 28<br />

Payment plans 2,6 (3,0) variable SEK 323 401 230 275 25 23 578 699<br />

Forest loans 2,6 (3,0) variable six months SEK 34 37 — — — — 34 37<br />

Member accounts 1,85 (2,5) variable six months SEK 1,756 1,827 — — — — 1,756 1,827<br />

Trade creditors 0.00 1,551 1,721 — — — — 1,551 1,721<br />

Negative derivatives 2 16 — — — — 2 16<br />

Liabilities to other SEK 0 — — 1 — — 0 1<br />

Total 3,692 4,030 367 413 25 23 4,084 4,466<br />

Sensitivity analysis<br />

Södra is subject to large profit fluctuations, with a number of its operations<br />

highly dependent on the state of the general economy and exchange rates.<br />

However, it is primarily the upswings and downswings in the pulp market<br />

that generate profit variations at a Group level.<br />

Södra Skog’s profit is particularly sensitive to changes in price margins<br />

in the wood trade and in acquired volumes. Sawmill profit is mainly<br />

affected by changes in the prices of sawn timber and chips and the cost of<br />

saw logs. The greatest impact for Södra Cell is from changes in pulp prices,<br />

volume and fibre costs. The table shows the effect on profit if the values<br />

had been higher or lower than the actual outcome. (Pertains to a 12-month<br />

result based on average conditions during the financial year.)<br />

In the calculation of the effect on profit, specific changes on the hedging<br />

instrument for currency and pulp price have been taken into account. The<br />

effects that would have been realised during the year have been included<br />

in the indicated profit effect. The unrealised effects that would have arisen<br />

at the end of the year have impacted the effect on profit.<br />

The table shows individual sensitivity for each variable. In reality, the<br />

change in one variable often affects other variables, but with a certain time<br />

delay. For example, a strengthening or weakening of a currency can affect<br />

market price. There is no simple rule of thumb for calculating a “net profit<br />

effect” due to the complex and changeable relationships which vary with<br />

market conditions and other factors.<br />

At the end of the year, Södra held shares and share-related instruments<br />

worth SEK 533 million (see Note 21 Financial investments). A 10 per cent<br />

value change of those shares and the underlying index they relate to would<br />

have affected <strong>annual</strong> profit by some SEK 53 million.<br />

Variable<br />

Change<br />

Effect on 12-month profit,<br />

SEK million<br />

USD/SEK +/– SEK 0.50 +/–330<br />

Pulp price +/– SEK 300/tonne +/–460<br />

Fibre cost for pulp mills +/– SEK 25/m 3 fub –/+210<br />

Pulp production +/– 50,000 tonne +/–70<br />

Sawn timber price +/– SEK 50/m 3 +/–70<br />

Saw log cost for sawmills +/– SEK 25/m 3 fub –/+70<br />

Sawn timber production +/– 50,000 m 3 +/–10<br />

Oil price +/– 10 USD/fat –/+40<br />

Total salary cost +/– 3% –/+80<br />

Södra <strong>2012</strong> 37


Note 23<br />

Other non-current investments<br />

Note 25<br />

Non-current operating receivables<br />

Parent Company <strong>2012</strong> 2011<br />

Cost<br />

At the beginning of the year 38 38<br />

38 38<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Other non-current receivables 5 5 5 5<br />

Total 5 5 5 5<br />

Impairment<br />

At the beginning of the year –25 –25<br />

–25 –25<br />

Carrying amount at the end of the year 13 13<br />

Parent Company <strong>2012</strong> 2011<br />

At the beginning of the year 5 5<br />

Deductible items — —<br />

Carrying amount at the end of the year 5 5<br />

Note 24<br />

Non-current financial receivables<br />

Group <strong>2012</strong> 2011<br />

Other non-current financial receivables 4 2<br />

Total 4 2<br />

Note 26<br />

Deferred tax assets/liabilities<br />

Deferred tax assets Deferred tax liabilities Net<br />

Group <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Intangible assets — — –31 –37 –31 –37<br />

Property, plant and equipment 10 1 –810 –944 –800 –943<br />

Biological assets — — — –2 — –2<br />

Current investments 8 — –22 17 –14 17<br />

Tax allocation reserves — — –77 –303 –77 –303<br />

Other untaxed reserves — — –20 –24 –20 –24<br />

Provisions for pensions 8 8 107 103 115 111<br />

Non-current provisions 23 13 — — 23 13<br />

Operating liabilities — — 3 — 3 —<br />

Deficit deductions 65 68 — — 65 68<br />

Other — 3 –1 –5 –1 –2<br />

Deferred tax asset/liability 114 93 –851 –1,195 –737 –1,102<br />

Set-off — — — — — —<br />

Total 114 93 –851 –1,195 –737 –1,102<br />

Deferred tax assets Deferred tax liabilities Net<br />

Parent Company <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Current investments 7 31 — — 7 31<br />

Provisions for pensions 6 8 — — 6 8<br />

Non-current provisions 18 11 — — 18 11<br />

Accrued expenses — — — — — —<br />

Deferred tax asset/liability 31 50 — — 31 50<br />

Set-off — — — — — —<br />

Total 31 50 — — 31 50<br />

Of deferred tax liabilities, SEK 789 million (917) is attributable to depreciation and amortisation in excess of plan.<br />

38<br />

Södra <strong>2012</strong>


Note 27<br />

Inventories<br />

Note 29<br />

Current operating receivables<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Raw materials and consumables 847 1,002 — —<br />

Goods under production 151 174 — —<br />

Finished goods 1,621 1,897 — —<br />

Goods for resale 454 336 411 451<br />

Total 3,073 3,409 411 451<br />

The consolidated cost of goods sold includes impairment of inventories of<br />

SEK 144 million (82).<br />

The cost of goods sold for the Parent Company includes impairment of<br />

inventories of SEK 0 million (–).<br />

Electricity certificates<br />

Stock-on-hand of allocated electricity certificates is recognised at zero value.<br />

No allocated electricity certificates have been sold on contract for future<br />

deliveries. Residual stock of allocated electricity certificates had a market<br />

value of SEK 188 million (193) at the balance sheet date.<br />

Acquired electricity certificates are measured at cost according to the<br />

principle of lowest value.<br />

Emission rights<br />

The value of emission rights not expected to be needed to cover actual emissions<br />

is recognised at zero value and had a market value of SEK 9 million (7)<br />

at the balance sheet date. No emission rights were sold on contract for future<br />

deliveries.<br />

Note 28<br />

Receivables from Group companies<br />

Interest-bearing receivables with<br />

Group companies, Parent Company<br />

Receivables with<br />

Group companies<br />

<strong>2012</strong> 2011<br />

Cost<br />

At the beginning of the year 2,655 1,983<br />

Additional items 321 672<br />

Carrying amount at the end of the period 2,976 2,655<br />

Operating receivables from<br />

Group companies, Parent Company <strong>2012</strong> 2011<br />

Cost<br />

At the beginning of the year 402 463<br />

Additional items 367 —<br />

Deductible items — –61<br />

Carrying amount at the end of the period 769 402<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Current receivables with<br />

Group companies — — 769 402<br />

Advances to suppliers 0 1 — —<br />

Trade receivables 1,905 1,958 264 327<br />

Derivatives 1 10 — —<br />

Customer contracts 2 8 — —<br />

Earned but not invoiced income 19 19 19 19<br />

Other receivables 673 849 359 425<br />

Prepaid expenses and accrued income 143 244 24 36<br />

Total 2,743 3,089 1,435 1,209<br />

Trade receivables are recognised after deduction of anticipated and actual<br />

credit losses. They are measured in the amounts expected to be received.<br />

Trade receivables in foreign currency are measured at the closing rate.<br />

The value of uncertain receivables is based on individual estimates.<br />

Prepaid expenses and accrued income for the Parent Company includes<br />

prepaid rental charges of SEK 1 million (1), prepaid insurance premiums of<br />

SEK 4 million (3), accrued interest income of SEK 3 million (10), accrued<br />

income of SEK 1 million (9) and other prepaid costs of SEK 15 million (13).<br />

Customer credit risk<br />

The Group’s credit management aims to limit the risk of customers not<br />

meeting their commitments. The credit risk exposure is continuously<br />

monitored and <strong>report</strong>ed through age analyses and individual analyses of<br />

customers. Where it is deemed necessary and practicable, credit loss risk<br />

is limited using credit insurance and using different forms of security<br />

otherwise for customers with a low credit rating. At the balance sheet<br />

date, there was no significant concentration of credit exposure.<br />

Trade receivables<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Trade receivables gross 1,929 1,985 269 333<br />

Provision for uncertain receivables –24 –27 –5 –6<br />

Total 1,905 1,958 264 327<br />

Analysis of credit risk exposure<br />

in trade receivables<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Trade receivables that are not due and<br />

not impaired 1,599 1,640 257 278<br />

Trade receivables that are due<br />

< 30 days 265 271 6 48<br />

30–90 days 51 20 5 2<br />

90–180 days 6 33* 1 0<br />

> 180 days 8 21 0 5<br />

Total exposure to credit risk 1,929 1,985 269 333<br />

Trade receivables that are impaired –24 –27 –5 –6<br />

Trade receivables 1,905 1,958 264 327<br />

* The main component is expected to be reimbursed by the credit insurance company<br />

Provision for uncertain<br />

receivables<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

At the beginning of the year –27 –29 –6 –4<br />

Realised losses 2 — 2 —<br />

Reservation for anticipated losses –2 –3 –1 –2<br />

Reversal of provision for losses 3 5 — —<br />

Carrying amount at the end<br />

of the year –24 –27 –5 –6<br />

Södra <strong>2012</strong> 39


Note 30<br />

Cash and cash equivalents<br />

Note 31<br />

Equity<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Cash and bank balances 357 269 80 29<br />

Current investments, equivalent to cash 237 384 237 384<br />

Total according to cash flow<br />

analysis 594 653 317 413<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Paid-up capital contributed 1,062 986 1,062 986<br />

Issued capital contributed 1,599 1,522 1,599 1,522<br />

Subordinated debentures — — 130 130<br />

Other equity 7,581 8,593 1,671 1,882<br />

Total 10,242 11,101 4,462 4,520<br />

Board policy provides that the Group’s financial objective is to have a strong<br />

financial position that contributes to retaining the confidence of members,<br />

creditors and the market and creating a foundation for ongoing development<br />

of the business, while also generating satisfactory long-term profit. Due to<br />

the cyclical risks that Södra business areas are exposed to, the objective for<br />

the minimum equity ratio for the Group is 50 per cent. The profitability target<br />

is a return on capital employed of not less than 10 per cent over a business<br />

cycle.<br />

The Board’s dividend objective is for at least 40 per cent of operating profit<br />

over a business cycle to be transferred according to the distribution policy<br />

with approximately half the dividend amount relating to the members’ deliveries<br />

of forest raw materials to Södra during the year and the remaining dividend<br />

amount to the members’ capital holdings in the company.<br />

Since 21 December 2011, Södra has a credit agreement in the form of a<br />

club agreement that enables it to borrow up to EUR 105 million for a period of<br />

four years. This unutilised loan agreement has a covenant based on Södra’s<br />

equity ratio where the lenders are entitled to cancel the agreement if Södra’s<br />

equity ratio falls below 40 per cent.<br />

Contribution repayments<br />

Capital contributed of SEK 44 million (35) will be repaid in 2013 to members<br />

who had left the association on 31 December <strong>2012</strong>.<br />

Subordinated debentures<br />

SEK 0 million of subordinated debentures is expected to be repaid in 2013.<br />

Subordinated debentures <strong>2012</strong> 2011<br />

2004: To the Södra Pension Foundation of 2003 100 100<br />

2004: To the Södra Foundation for research, development<br />

and eduction 30 30<br />

Total 130 130<br />

See also Statement of changes in equity.<br />

Note 32<br />

Untaxed reserves<br />

Parent Company <strong>2012</strong> 2011<br />

Accumulated depreciation and amortisation in excess of plan<br />

– machinery and equipment 19 19<br />

Tax allocation reserve 2007 — 27<br />

Tax allocation reserve 2008 — 40<br />

Tax allocation reserve 2009 — 56<br />

Tax allocation reserve 2011 — 45<br />

Tax allocation reserve <strong>2012</strong> — 20<br />

Total 19 207<br />

Deferred tax of SEK 4 million (54), not recognised in the Parent Company<br />

balance sheet, is included in the untaxed reserves above.<br />

40<br />

Södra <strong>2012</strong>


Note 33<br />

Interest-bearing liabilities with Group companies<br />

Maturity<br />

Within 1 year 1–5 years More than 5 years Total<br />

Parent Company <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Group account – liabilities 196 397 — — — — 196 397<br />

Liabilities to Group companies — — — — 29 21 29 21<br />

Total 196 397 — — 29 21 225 418<br />

Note 34<br />

Interest-bearing liabilities<br />

Maturity<br />

Within 1 year 1–5 years More than 5 years Total<br />

Group <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Subordinated debentures — — 130 130 — — 130 130<br />

Loans from members 2,098 2,236 224 272 24 23 2,346 2,531<br />

Other liabilities 53 52 — 1 — — 53 53<br />

Total 2,151 2,288 354 403 24 23 2,529 2,714<br />

Maturity<br />

Within 1 year 1–5 years More than 5 years Total<br />

Parent Company <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Loans from members 2,098 2,236 224 272 24 23 2,346 2,531<br />

Other liabilities — — — 1 — — — 1<br />

Total 2,098 2,236 224 273 24 23 2,346 2,532<br />

Södra <strong>2012</strong> 41


Note 35<br />

Pensions<br />

Most salaried employees in Sweden and almost all employees in Norway and<br />

Germany are covered by defined-benefit pension plans. Most other employees<br />

are covered by defined-contribution pension plans. Pension plans primarily<br />

include retirement pension and, for some categories, sickness pension<br />

and family pension.<br />

Defined-benefit plans<br />

Benefit-based pension obligations are primarily secured through pension<br />

foundations with assets separate from Södra, but also through provisions in<br />

the consolidated statement of financial position. The Södra Group Pension<br />

Foundation of 2003 secures most of the Parent Company’s and other Group<br />

obligations in Sweden. Plan assets include subordinated debentures that are<br />

issued by Södra with a nominal value totalling SEK 100 million (100). Pension<br />

obligations in Sweden are essentially also credit-insured in the Swedish pension<br />

guarantee mutual insurance company, PRI Pensionsgaranti.<br />

The ITP1 plan in Sweden is a defined-contribution plan. Södra pays premiums<br />

for the employees covered by ITP1 and the employee selects the fund<br />

manager. Södra’s ITP1 Pension plan is a variation of the traditional ITP1 plan.<br />

It is available to salaried employees in Sweden born not earlier than 1979<br />

and/or with salaries exceeding ten base amounts. Employees that have<br />

selected Södra as fund manager are covered by a guarantee for the minimum<br />

amount to be received at the time of retirement. This guarantee means that<br />

the portion of ITP1 plans for which Södra is the manager is recognised as<br />

defined-benefit plans. The net obligation recognised in the consolidated<br />

<strong>report</strong> of financial position is marginal since the Södra ITP1 pension plan<br />

started in April 2009. The pension premium is 5.5 per cent of salary up 7.5<br />

income base amounts and 30 per cent of salary over that amount. It is not<br />

subject to any administration costs, but is subject to tax on returns. Returns<br />

are governed by a Södra index consisting of 60 per cent shares and 40 per<br />

cent interest. Repayment cover is compulsory and the pension provision is<br />

credit insured through the PRI Pensionsgaranti pension guarantee.<br />

ITP2 in Sweden is a defined-benefit pension plan in which the benefit is<br />

governed by the employee’s final salary. ITP2 is the pension plan used for<br />

employees born in 1978 or earlier. The retirement pension is 10 per cent of<br />

salary below 7.5 income base amounts, 65 per cent between 7.5 and 20 base<br />

amounts and 32.5 per cent between 20 and 30 base amounts.<br />

Defined-contribution plans<br />

Pension obligations for defined-contribution plans are paid as insurance premiums.<br />

The size of the premium is based on the salary.<br />

The total cost of Södra pension obligations is presented below.<br />

Pension expense<br />

Group <strong>2012</strong> 2011<br />

Defined-benefit plans<br />

Pension expenses accrued during the year 57 38<br />

Interest expense 48 48<br />

Expected return on plan assets –43 –47<br />

Cost of defined-benefit plans 62 39<br />

Cost of defined-contribution plans 38 66<br />

Payroll tax and tax on returns 35 21<br />

Total cost of post-employment benefits 135 126<br />

Costs in the following line items are included in profit for the year:<br />

Employee expenses 130 125<br />

Finance income and expenses 5 1<br />

Costs recognised in profit for the year 135 126<br />

Return on plan assets<br />

Group <strong>2012</strong> 2011<br />

Actual return on plan assets 40 –28<br />

Less expected return on plan assets –43 –47<br />

Actuarial result for plan assets during the period –3 –75<br />

Obligations and plan assets for the defined-benefit plans<br />

Group <strong>2012</strong> 2011<br />

Defined-benefit plans and value of plan assets<br />

Fully or partially funded obligations<br />

Present value of defined-benefit obligations 1,326 1,294<br />

Fair value of plan assets –937 –892<br />

Fully or partially funded obligations, net 389 402<br />

Present value of unfunded defined-benefit obligations 105 81<br />

Net obligations before adjustments 494 483<br />

Net amount is recognised in consolidated statement of financial<br />

position under the headings:<br />

Financial assets — –2<br />

Provisions for pensions 494 485<br />

Net amount in consolidated statement of financial<br />

position (obligation +, asset –) 494 483<br />

Net amount is allocated between plans in the following countries:<br />

Sweden 393 410<br />

Norway 77 52<br />

Germany 23 21<br />

Switzerland 1 —<br />

Net amount in consolidated statement of financial position 494 483<br />

Net amount in consolidated statement of financial position <strong>2012</strong> 2011<br />

Net liability in consolidated statement of financial position at the<br />

beginning of the period 483 300<br />

Cost of defined-benefit plans<br />

Net expense recognised in profit for the year 62 39<br />

Payment of benefits –52 –46<br />

Additional funds from employer to funded plans –10 –16<br />

Actuarial gains and losses recognised in other comprehensive income* 11 206<br />

Exchange rate difference 0 0<br />

Other 0 —<br />

Net liability in consolidated statement of financial position at<br />

the end of the period 494 483<br />

* Specific payroll tax is <strong>report</strong>ed under Provisions.<br />

Present value of defined-benefit obligations<br />

Group <strong>2012</strong> 2011<br />

At the beginning of the year 1,375 1,212<br />

Service expenses 55 37<br />

Payment of benefits –56 –50<br />

Interest expense 48 48<br />

Actuarial gains and losses 8 131<br />

Settlements and curtailments –2 –2<br />

Exchange rate differences 3 –1<br />

Carrying amount at the end of the period 1,431 1,375<br />

Interest expense less expected return on plan assets is included under the<br />

heading finance income and expenses. Other pension expenses are recognised<br />

as employee expenses. For <strong>2012</strong>, the actual return on plan assets was<br />

less than the expected return.<br />

42<br />

Södra <strong>2012</strong>


Fair value of plan assets<br />

Group <strong>2012</strong> 2011<br />

At the beginning of the year 892 912<br />

Fund contributions from employer 9 14<br />

Payment of benefits –4 –5<br />

Expected return on plan assets 43 47<br />

Difference between expected and actual return (actuarial gain or loss) –3 –75<br />

Settlements –3 —<br />

Exchange rate differences 3 –1<br />

Carrying amount at the end of the period 937 892<br />

Fair value of plan assets<br />

Group <strong>2012</strong> 2011<br />

Equity instruments 349 292<br />

Hedge funds and bonds 148 168<br />

Other interest-bearing securities* 330 320<br />

Properties 49 49<br />

Other assets 61 63<br />

Carrying amount at the end of the period 937 892<br />

* of which debentures issued by Södra Skogsägarna ekonomisk förening SEK 100 million (100).<br />

Historic information<br />

Group <strong>2012</strong> 2011 2010 2009 2008<br />

Present value of defined-benefit obligations 1,431 1,375 1,212 1,203 1,141<br />

Fair value of plan assets –937 –892 –912 –880 –786<br />

Surplus/deficit in plan 494 483 300 323 355<br />

Experience-based adjustment to plan assets –3 –75 11 20 –140<br />

Experience-based adjustment for<br />

defined-benefit obligations 12 –80 –20 –28 –9<br />

Amount whereby the provision item is expected to be paid within 12 months<br />

is estimated at SEK 58 million (52).<br />

Actuarial assumptions<br />

The following significant actuarial assumptions have been applied in calculations<br />

(weighted average values).<br />

Group <strong>2012</strong> 2011<br />

Discount rate 3.5% 3.5%<br />

Expected return on plan assets 4.5% 4.8%<br />

Future salary increases 3.0% 3.0%<br />

Future pension increases 1.7% 1.6%<br />

Employee turnover 4.0% 4.9%<br />

Expected remaining average time of service 15,7 years 15,8 years<br />

In addition to these assumptions, changed life-expectancy assumptions have<br />

contributed to an increase in the Swedish pension liability.<br />

Expense pertaining to pensions<br />

Parent Company <strong>2012</strong> 2011<br />

Pension system run by Södra<br />

Cost for pensions accrued 10 35<br />

Payment of benefits 21 18<br />

Actual return on specific separate assets –12 14<br />

Cost for pensions run by Södra excluding taxes 19 67<br />

Pensions through insurance<br />

Insurance premiums or equivalent 15 9<br />

Specific payroll tax 8 18<br />

Recognised net costs pertaining to pensions 42 94<br />

Provisions for pensions<br />

Parent Company <strong>2012</strong> 2011<br />

Capital value of pension obligations* 406 391<br />

Less plan assets in pension foundation –324 –297<br />

Total 82 94<br />

Pension obligations secured through endowment assurance<br />

recognised under financial assets –25 –24<br />

Net 57 70<br />

* Of which PRI pensions ITP2 294 290<br />

* Credit insured via PRI Pensionsgaranti 380 365<br />

Where plan assets exceed pension liabilities, the surplus is not recognised.<br />

Changes in net liability<br />

Parent Company <strong>2012</strong> 2011<br />

At the beginning of the year 70 23<br />

Expense recognised in income statement for pensions run by Södra<br />

excluding taxes 8 65<br />

Pension payments –21 –18<br />

Carrying amount at the end of the period 57 70<br />

Anticipated pension payments in 2013 amount to SEK 21 million (15).<br />

Fair value of plan assets<br />

Parent Company <strong>2012</strong> 2011<br />

Equity instruments 134 109<br />

Hedge funds and bonds 23 32<br />

Other interest-bearing securities* 148 135<br />

Properties 8 8<br />

Other assets 11 13<br />

Carrying amount at the end of the period 324 297<br />

* of which debentures issued by Södra Skogsägarna ekonomisk förening SEK 100 million (100).<br />

Assumptions for defined-benefit obligations<br />

Parent Company<br />

ITP plan according to PRI grounds <strong>2012</strong> 2011<br />

Discount rate 3.8% 3.8%<br />

Södra <strong>2012</strong> 43


Note 36<br />

Provisions<br />

Group <strong>2012</strong><br />

Guarantee<br />

commitments<br />

Other<br />

provisions<br />

Provisions<br />

At the beginning of the year 4 131 135<br />

Provisions made during the period — 54 54<br />

Utilised amount during the year — –1 –1<br />

Carrying amount the end of the year 4 184 188<br />

of which non-current provisions 188<br />

Group 2011<br />

Guarantee<br />

commitments<br />

Other<br />

provisions<br />

Provisions<br />

At the beginning of the year 4 130 134<br />

Provisions made during the period — 16 16<br />

Releases for the period — –13 –13<br />

Utilised amount during the year — –2 –2<br />

Carrying amount at the end of the year 4 131 135<br />

of which non-current provisions 135<br />

Guarantee commitments<br />

Provisions for guarantee measures pertain to costs that may arise during<br />

the guarantee period for current products. Provisions are made for amounts<br />

deemed reasonable based on previous experience.<br />

Other provisions, non-interest-bearing<br />

Provisions have been made for payroll tax on pension liability provisions in<br />

accordance with IAS 19. Provision has also been made in an amount<br />

deemed reasonable for possible future environmental rehabilitation of<br />

former businesses.<br />

Given Södra’s extensive business operations, it is unavoidable that<br />

certain disputes arise. An appropriation has been made for an amount<br />

that is deemed reasonable under the current circumstances.<br />

Parent Company <strong>2012</strong><br />

Other<br />

provisions<br />

Provisions<br />

At the beginning of the year 45 45<br />

Releases for the period 36 36<br />

Utilised amount during the year 0 0<br />

Carrying amount at the end of the year 81 81<br />

of which non-current provisions 81<br />

Parent Company 2011<br />

Other<br />

provisions<br />

Provisions<br />

At the beginning of the year 60 60<br />

Releases for the period –13 –13<br />

Utilised amount during the year –2 –2<br />

Carrying amount at the end of the year 45 45<br />

of which non-current provisions 45<br />

Other provisions<br />

Provision has been made in an amount deemed reasonable for possible future<br />

environmental rehabilitation of former businesses.<br />

Given Södra’s extensive business operations, it is unavoidable that certain<br />

disputes arise. An appropriation has been made for an amount that is<br />

deemed reasonable under the current circumstances.<br />

Note 37<br />

Non-current operating liabilities<br />

Note 38<br />

Current operating liabilities<br />

Group <strong>2012</strong> 2011<br />

Non-interest-bearing non-current liabilities 7 —<br />

Total 7 —<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Current liabilities with Group<br />

companies — — 567 204<br />

Trade creditors 1,551 1,721 871 986<br />

Derivatives 2 16 — —<br />

Customer contracts 1 4 — —<br />

Advances from customers 1 4 — 4<br />

Value added tax liability 18 14 11 7<br />

Other operating liabilities 225 182 38 34<br />

Accrued expenses and prepaid income 720 656 140 118<br />

Total 2,518 2,597 1,627 1,353<br />

Customer contracts relate to fixed price customer contracts that are linked to<br />

financial instruments.<br />

44<br />

Södra <strong>2012</strong>


Not 39<br />

Group companies<br />

Specification of Parent Company’s holdings of shares<br />

and participations in Group companies Corp. ID no. Reg. office Number Share, %<br />

Carrying amount<br />

<strong>2012</strong> 2011<br />

Operational<br />

Södra Cell AB 556072-7348 Växjö 50,000 100 1,052 1,052<br />

Södra Cell Tofte AS 981,998,413 Norway 1,000,000 100<br />

Södra Cell International AB 556255-3106 Växjö 2,500 100<br />

Södra Cell Folla AS 950,198,168 Norway 100,000 100<br />

Södra AG 268012 Switzerland 50 100<br />

Södra Cell UK Ltd 789930 United Kingdom 1,999 100<br />

Södra Cell Italia SRL 3298250154 Italy 20 100<br />

Södra Cell AS 921,507,828 Norway 50 100<br />

Södra Cell SAS 69203946400031 France 2,500 100<br />

Södra Cell GmbH 164312351 Germany 50 100<br />

Södra Interiör AB 556095-2417 Växjö 2,220 100 223 223<br />

Aktiebolaget Berg & Berg 556528-7181 Ronneby 213,332 100<br />

Aktiebolaget Nordingrå Trä 556159-6395 Växjö 10,000 100<br />

Södra Exteriör AB 556613-9662 Sävsjö 10,000 100<br />

Södra Interiör AS 971,646,799 Norway 20,000 100<br />

Södra Interiör A/S 73496314 Denmark 2 100<br />

UAB SIWood 302603523 Lithuania 50,362 100<br />

Södra Timber AB 556004-5998 Växjö 1,000 100 398 398<br />

Södra Timber AS 987,827,106 Norge 4,500 100<br />

Södra Trivselhus Holding AB 556552-6810 Korsberga 5,000 100 318 —<br />

Trivselhus AB 556402-2977 Korsberga 12,000 100<br />

Trivselhus Norge AS 995,326,485 Norway 5,000 100<br />

Tomtbolaget THV Aktiebolag 556536-7520 Korsberga 5,000 100 5 —<br />

Södra Skogsägarna Leasing AB 556280-1943 Växjö 5,000 100 61 61<br />

Södra Skogsägarna Försäkring AB 516406-0054 Växjö 10,000 100 45 45<br />

Södra Skogsplantor AB 556476-3539 Växjö 6,500 100 34 34<br />

Södra Skogsenergi AB 556091-8764 Växjö 20,000 100 15 15<br />

Mönsterås Hamn AB 556084-8037 Växjö 100 100 0 0<br />

Södra Elnät Aktiebolag 556756-2300 Växjö 1,000 100 0 0<br />

Södra Eesti AS 10329729 Estonia 200 50 0 0<br />

Södra Metsad OÜ 10944021 Estonia 400 100 231 220<br />

Sodra Latvia SIA 40003490902 Latvia 7,500 50 0 0<br />

Sodra Mezs SIA 50003871841 Latvia 310,000 100 181 131<br />

Södra Medlemsel AB 556070-5724 Växjö 50,000 100 6 6<br />

Södra Skog AS 994,457,012 Norway 100 100 6 6<br />

Södra Vind AB 556765-5716 Växjö 1,000 100 55 55<br />

Non-operational 7 7<br />

Total 2,637 2,253<br />

Södra Skogsägarna ekonomisk förening capitalised Sodra Mezs SIA in the amount of SEK 50 million and Södra Metsad OÜ in the amount of SEK 11 million.<br />

During the year, Latvian Sustainable Forestry SIA merged with Sodra Mezs SIA. Södra Trivselhus Holding AB with subsidiaries and Tomtbolaget THV<br />

Aktiebolag were acquired from Södra Timber AB during the year. Småland Trivselhus Invest AB merged during the year into Södra Trivselhus Holding<br />

AB. Different accounting policies (BFN and IFRS) means that merged consolidated goodwill is considered to be entirely amortised in the legal entity (BFN)<br />

while the consolidated amortisation is reversed in its entirety (IFRS). Shareholder contributions were provided in an amount of SEK 220 million as compensation<br />

for applied goodwill amortisation. Södra Interiör AB acquired Aktiebolaget Berg & Berg. Södra Timber AB acquired Romerike Trelast AS and<br />

Romerike Eiendom AS, which were merged and renamed Södra Timber AS.<br />

Shares and participations in Group companies<br />

Parent Company <strong>2012</strong> 2011<br />

Cost<br />

At the beginning of the year 2,253 2,207<br />

Investments 384 54<br />

Disposals — –8<br />

Carrying amount at the end of the period 2,637 2,253<br />

Södra <strong>2012</strong> 45


Note 40<br />

Pledged assets<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Pledged assets for own liabilities and provisions<br />

Property mortgages 2 0 — —<br />

Floating charges 3 3 — —<br />

Other pledged collateral and securities<br />

Pulp price derivatives 97 69 97 69<br />

Floating charges 8 8 — —<br />

Financial assets 32 34 26 25<br />

Total 142 114 123 94<br />

Note 41<br />

Contingent liabilities<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Liability under guarantee for pensions<br />

in Group companies — — 521 495<br />

Other contingent liabilities 101 94 83 76<br />

Total 101 94 604 571<br />

Disputes<br />

In the scope of Södra’s operations, differences of opinion arise between companies<br />

within the Södra Group and various counterparties with regard to the<br />

size of compensation, results achieved, lines of responsibility, etc. Most of<br />

these differences are resolved on commercial basis while some circumstances<br />

become subject to arbitration or court proceedings. An appropriation<br />

has been made for an amount that is deemed reasonable under the current<br />

circumstances.<br />

Capital guarantee<br />

Södra’s part-ownership in SunPine AB includes a guarantee that the equity<br />

in SunPine AB may not fall below a determined level. The guarantee is jointly<br />

pledged by Södra and Sveaskog and applies until the production plant at<br />

SunPine AB has achieved a certain continuous level of production and debt/<br />

equity ratio. In addition, Preem has also issued a guarantee to be responsible<br />

for one-third of Södra’s and Sveaskog’s joint capital guarantee.<br />

Parent Company<br />

Aforementioned contingent liabilities regarding restoration costs and the<br />

capital guarantee also apply to the Parent Company.<br />

Group<br />

Restoration obligations<br />

The future closure of part or parts of the operation could lead to a requirement<br />

for decontamination or other restoration work. Such work is considered<br />

to be in the distant future. Potential future expenses cannot be reliably calculated<br />

and no provision has been made for potential costs.<br />

Restoration costs<br />

Södra Skogsägarna ekonomisk förening has guaranteed the obligations of<br />

Södra Cell Tofte AS of NOK 20 million pertaining to industrial landfill until<br />

2035. Should the equity ratio of the Parent Company drop below 40 per cent<br />

for two quarters running, a bank guarantee may be required during the<br />

period the equity ratio is below 40 per cent.<br />

Provisions for future costs for restoration of fully harvested peat bogs are<br />

made on an ongoing basis as individual peat bogs are harvested. The costs<br />

are recognised as provisions.<br />

46<br />

Södra <strong>2012</strong>


Note 42<br />

Statement of cash flows<br />

Note 43<br />

Critical accounting estimates and judgements<br />

Group<br />

Parent Company<br />

<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />

Financial items<br />

Interest received during the year 33 70 64 103<br />

Interest paid during the year –93 –96 –81 –98<br />

–60 –26 –17 5<br />

Dividends received during the year 26 25 26 25<br />

Capital gains 0 –30 –2 0<br />

Parent Company<br />

Unsettled intra-Group transfers — — –236 –23<br />

Preparation of financial statements and application of various accounting<br />

standards are based on estimates and judgements concerning the future<br />

made by company management. These estimates and judgements are based<br />

on historic experience and expectations of future events that are believed to<br />

be reasonable under the circumstances. These estimates and judgements<br />

form the basis of carrying amounts for assets, liabilities and contingent liabilities<br />

that cannot be determined using other information. If other circumstances<br />

arise, or if other assumptions are made, the actual outcome may<br />

deviate from the carrying amounts. Critical areas where such estimates and<br />

judgements have greatest impact on the result and on assets and liabilities<br />

are commented below.<br />

Valuation of biological assets<br />

Södra has valued the biological assets, which consist essentially of standing<br />

timber, at present value of the expected future cash flows. The cash flows<br />

were estimated for an assessed harvesting cycle of 80 years for forest assets<br />

located in Sweden, 75 years for Latvia and 70 years for Estonia. The cash<br />

flows are based on Södra’s harvesting volumes according to current harvesting<br />

plans and relevant assumptions of future growth. Future price and cost<br />

development have been assessed. Costs for replanting have been considered<br />

along with provisions for environmental conservation. Calculated cash flows<br />

have been discounted at present value. Note 20 Biological assets presents<br />

the sensitivity in valuation of changes in these estimates as well as in the<br />

assumptions that have been applied.<br />

Pensions<br />

The value of pension obligations for defined-benefit pension plans is based<br />

on actuarial calculations based on assumptions of discount interest, future<br />

salary increases, inflation and demographic circumstances. These assumptions<br />

are normally updated on an <strong>annual</strong> basis. Changes in these assumptions<br />

affect the amount of the recognised pension liability and recognised<br />

equity in the Group. For further information, see Note 35 Pensions.<br />

Impairment testing of property, plant and equipment<br />

If there is an indication of impairment requirements of production assets, the<br />

assets’ recoverable amount is calculated. This recoverable amount is compared<br />

with the carrying amount and, if the recoverable amount is below the<br />

carrying amount, an impairment is applied. In the calculation of the recoverable<br />

amount, assumptions of the future cash flows from the specific asset are<br />

made. These assumptions may deviate from the actual outcomes.<br />

Note 44<br />

Investment commitments<br />

Group<br />

In <strong>2012</strong>, the Group signed contracts for the future purchase of property,<br />

plant and equipment for SEK 925 million (943).<br />

Parent Company<br />

In <strong>2012</strong>, the Parent Company signed contracts for the future purchase<br />

of property, plant and equipment for SEK 23 million (50).<br />

Södra <strong>2012</strong> 47


Note 45<br />

Financial instruments<br />

Fair value and carrying amount in consolidated statement of financial position:<br />

Group <strong>2012</strong><br />

Financial assets at fair<br />

value through profit or loss<br />

Availablefor-sale<br />

financial assets<br />

Cash flow<br />

hedging<br />

Hedging of<br />

fair value<br />

Financial liabilities at<br />

fair value through<br />

profit or loss<br />

Financial assets<br />

at fair value Held-for-trade Held-for-trade<br />

Loan and<br />

trade<br />

debtors<br />

Other<br />

liabilities<br />

Total<br />

carrying<br />

amount<br />

Fair value<br />

Other shares and participations 17 — — — — — — — 17 17<br />

Trade receivables — — — — — — 1,905 — 1,905 1,905<br />

Derivatives, current — 0 — — 1 — — — 1 1<br />

LTFP *, current — — — — 2 — — — 2 2<br />

Other receivables — — — — — — 455 — 455 455<br />

Current investments 534 — 112 — — — — — 646 646<br />

Cash and cash equivalents 594 — — — — — — — 594 594<br />

Total assets 1,145 0 112 — 3 — 2,360 — 3,620 3,620<br />

Subordinated debentures — — — — — — — 130 130 138<br />

Payment plans — — — — — — — 563 563 577<br />

Forest loans — — — — — — — 33 33 34<br />

Member accounts — — — — — — — 1,724 1,724 1,769<br />

Liquidity accounts — — — — — — — 26 26 26<br />

Trade creditors — — — — — — — 1,551 1,551 1,551<br />

Derivatives, current — — — — 2 0 — — 2 2<br />

LTFP*, current — — — — 1 — — — 1 1<br />

Other liabilities — — — — — — — 188 188 188<br />

Total liabilities — — — — 3 0 — 4,215 4,218 4,286<br />

* Customer contracts tied to financial instruments.<br />

Group 2011<br />

Financial assets at fair<br />

value through profit or loss<br />

Availablefor-sale<br />

financial assets<br />

Cash flow<br />

hedging<br />

Hedging of<br />

fair value<br />

Financial liabilities<br />

at fair value through<br />

profit or loss<br />

Financial assets<br />

at fair value Held-for-trade Held-for-trade<br />

Loan and<br />

trade<br />

debtors<br />

Other<br />

liabilities<br />

Total<br />

carrying<br />

amount<br />

Fair value<br />

Other shares and participations 17 — — — — — — — 17 17<br />

Trade receivables — — — — — — 1,958 — 1,958 1,958<br />

Derivatives, current — 6 — 0 4 — — — 10 10<br />

LTFP *, current — — — — 8 — — — 8 8<br />

Other receivables — — — — — — 650 — 650 650<br />

Current investments 684 — 1,128 — — — — — 1,812 1,812<br />

Cash and cash equivalents 653 — — — — — — — 653 652<br />

Total assets 1,354 6 1,128 0 12 — 2,608 — 5,108 5,107<br />

Subordinated debentures — — — — — — — 130 130 137<br />

Payment plans — — — — — — — 684 684 699<br />

Forest loans — — — — — — — 36 36 37<br />

Member accounts — — — — — — — 1,783 1,783 1,827<br />

Liquidity accounts — — — — — — — 28 28 28<br />

Trade creditors — — — — — — — 1,721 1,721 1,721<br />

Derivatives, current — — — 1 8 8 — — 17 17<br />

LTFP*, current — — — — 4 — — — 4 4<br />

Other liabilities — — — — — — — 135 135 135<br />

Total liabilities — — — 1 12 8 — 4,517 4,538 4,605<br />

* Customer contracts tied to financial instruments.<br />

48<br />

Södra <strong>2012</strong>


Other shares and participations include shares and participations in external<br />

companies.<br />

Current investments comprise interest-bearing investments with a duration<br />

of more than three months from the date of acquisition, share index<br />

bonds, share index certificates and shares in listed companies.<br />

Cash and cash equivalents consists of bank assets and current investments<br />

with a duration of up to three months from the date of acquisition<br />

with insignificant risk of value fluctuation and unsubstantial interest risk.<br />

The following summarises the methods and assumptions that are primarily<br />

used to determine fair value of the financial instruments presented in the<br />

table above:<br />

Shares and participations and current investments<br />

Fair value of listed securities is based on the quoted price of the asset<br />

on the balance sheet date without addition of transaction costs at the time<br />

of acquisition. Potential transaction costs are not taken into account on<br />

disposal of an asset.<br />

The fair value of unquoted shares measured at cost due to the difficulty<br />

in determining a reliable market value is represented by the carrying amount<br />

in the above table.<br />

Derivatives<br />

Fair value of currency derivatives and electricity price derivatives is based<br />

on quoted prices where available. In the absence of such prices, fair value is<br />

calculated by discounting the difference between the contracted forward rate<br />

and the forward rate available on balance sheet date for the remaining period<br />

of the contract. Discounting is done using the risk-free interest based on<br />

treasury bonds.<br />

Fair value of pulp price derivatives, oil price derivatives and timber price<br />

derivatives is based on the valuation of the intermediary credit institute, and<br />

fairness tested by discounting expected future cash flows based on market<br />

interest for similar instruments on the balance sheet date. Cash flows are<br />

based on the best judgements of corporate management.<br />

Trade receivables and trade creditors<br />

For trade receivables and trade payables with a remaining life of less than<br />

six months, carrying amount is deemed to reflect fair value.<br />

Other financial assets and liabilities<br />

The fair value of other financial assets and liabilities is based on future cash<br />

flows of capital amounts and interest discounted to current market interest<br />

on the balance sheet date.<br />

Interest rates used to determine fair value<br />

Discounting is based on the current government borrowing rate plus appropriate<br />

interest spread.<br />

The following tables present the determination of fair value of financial<br />

instruments at fair value in the consolidated statement of financial position.<br />

Allocation of fair value determination is based on three levels.<br />

Level 1: Based on prices quoted on an active market for such instruments.<br />

Level 2: Based on direct or indirect observable market data not included in<br />

level 1.<br />

Level 3: Based on input data that is not observable on the market.<br />

Group <strong>2012</strong> Level 1 Level 2 Level 3 Total<br />

Other shares and participations — — 17 17<br />

Derivatives, current — — 1 1<br />

LTFP*, current — — 2 2<br />

Current investments 483 163 — 646<br />

Cash and cash equivalents 357 237 — 594<br />

Total assets 840 400 20 1,260<br />

Group 2011 Level 1 Level 2 Level 3 Total<br />

Other shares and participations — — 17 17<br />

Derivatives, current — 6 4 10<br />

LTFP*, current — — 8 8<br />

Current investments 587 1,225 — 1,812<br />

Cash and cash equivalents 269 384 — 653<br />

Total assets 856 1,615 29 2,500<br />

Derivatives, current — 0 2 2<br />

LTFP*, current — — 1 1<br />

Total liabilities — 0 3 3<br />

* Customer contracts tied to financial instruments.<br />

Derivatives, current — 8 8 16<br />

LTFP*, current — — 4 4<br />

Total liabilities — 8 12 20<br />

* Customer contracts tied to financial instruments.<br />

The following table presents a reconciliation of opening and closing balances for financial instruments at fair value in the consolidated <strong>report</strong> of financial<br />

position using a valuation method based on non-observable input data (level 3).<br />

Assets<br />

Liabilities<br />

Group <strong>2012</strong> Other shares and participations Derivatives LTFP* Derivatives LTFP*<br />

At the beginning of the year 17 4 8 8 4<br />

Total recognised profits and losses:<br />

– recognised in profit for the year — 1 2 2 1<br />

Capital contributions 0 — — — —<br />

Sold and terminated — –4 –8 –8 –4<br />

Closing balance 31 December <strong>2012</strong> 17 1 2 2 1<br />

* Customer contracts tied to financial instruments.<br />

Assets<br />

Liabilities<br />

Group 2011 Other shares and participations Derivatives LTFP* Derivatives LTFP*<br />

At the beginning of the year 17 69 — — 69<br />

Total recognised profits and losses:<br />

– recognised in profit for the year — 4 8 8 4<br />

Sold and terminated — –69 — — –69<br />

Closing balance 31 December 2011 17 4 8 8 4<br />

* Customer contracts tied to financial instruments.<br />

Södra <strong>2012</strong> 49


Note 46<br />

Events after the <strong>report</strong>ing period<br />

After the balance sheet date, the Board of Directors resolved to discontinue<br />

Södra’s involvement in Södra Cell Tofte. It is considered that the conditions<br />

exist to identify a new owner. However, a significant negative earnings effect<br />

in 2013 as a result of this decision cannot be ruled out.<br />

In 2011, Ittur Redibo AB commenced arbitration proceedings against<br />

Södra Timber AB and claimed damages due to alleged violations of an option<br />

agreement under which Ittur Redibo AB was granted the right, under certain<br />

predetermined terms, to buy back shares in Trivselhus Holding AB from<br />

Södra Timber AB.<br />

On 7 February 2013, the final ruling on the dispute between Ittur Redibo<br />

AB and Södra Timber AB was announced.<br />

The arbitration board rejected Ittur Redibo AB’s claim in its entirety and<br />

the board ordered Ittur Redibo AB to compensate Södra Timber for its costs<br />

for the arbitration proceedings (including compensation to the arbitrators<br />

and arbitration institute). The ruling has no impact on Södra’s earnings.<br />

Note 47<br />

Related parties<br />

The Parent Company is deemed to be a related party in relation to its subsidiaries<br />

and associates, as presented in Note 39 Group companies.<br />

Of the Parent Company’s total purchases and sales measured in SEK, 8 per<br />

cent (8) of purchases and 61 per cent (63) of sales are related to other companies<br />

in the Group.<br />

Through its representation on the Boards of the Södra Pension Foundation<br />

and the Södra Foundation for research, development and education, the Parent<br />

Company is considered a related party to these foundations. The foundations<br />

have taken out subordinated debentures in Södra Skogsägarna ekonomisk<br />

förening. The Södra Foundation for research, development and<br />

education has also acquired bonus issues.<br />

Through their right to participate in decisions affecting the Parent Company’s<br />

strategies, its Board members have a significant influence over the Parent<br />

Company and are thus considered to be related parties. An economic<br />

association is intended to promote the economic interests of its members<br />

through financial operations in which the members participate. In accordance<br />

with this, purchases and sales of goods and services during the accounting<br />

year have occurred between the Parent Company and individual Board members,<br />

which are members of the Association. In the same manner, individual<br />

Board members participate in the financing of the Association. These transactions<br />

have occurred in accordance with the Association’s purpose, and its<br />

price-setting and other conditions have been applied.<br />

Group<br />

Sale of goods/<br />

services to<br />

related parties<br />

Purchase of<br />

goods/services<br />

from related parties<br />

Other (interest,<br />

dividends)<br />

Receivables from<br />

related parties<br />

31 December<br />

Liabilities to<br />

related parties<br />

31 December<br />

Associates<br />

<strong>2012</strong> 622 — — 61 —<br />

2011 498 — — 15 —<br />

Parent Company<br />

Sale of goods/<br />

services to<br />

related parties<br />

Purchase of<br />

goods/services<br />

from related parties<br />

Other (interest,<br />

dividends)<br />

Receivables from<br />

related parties<br />

31 December<br />

Liabilities to<br />

related parties<br />

31 December<br />

Subsidiaries<br />

<strong>2012</strong> 5,686 677 36 3,745 792<br />

2011 6,481 790 18 3,057 622<br />

Information about salaries and agreements for redundancy payments, etc.<br />

for management and other personnel has been provided in Note 6 Employee<br />

expenses.<br />

Other information relating to transactions between Group companies is<br />

presented in Note 41 Contingent liabilities and contingent assets.<br />

Note 48<br />

Parent Company information<br />

Södra Skogsägarna ekonomisk förening (corporate identity number<br />

729500-3789) is a Swedish-registered economic association with its<br />

registered office in Växjö, Sweden. The head office is located at Skogsudden,<br />

Växjö, Sweden.<br />

The consolidated financial statements for <strong>2012</strong> consist of the Parent<br />

Company and its subsidiaries, jointly named the Group. The Group also<br />

includes shares owned in associates.<br />

50<br />

Södra <strong>2012</strong>


Proposed appropriation of profits<br />

The Board proposes that the profits at the disposal of the Södra AGM, an amount of SEK 358,520,396, be appropriated as follows:<br />

Dividend to members of 3 per cent of capital contributed, amounting to SEK 79,825,689<br />

Dividend to members of 3 per cent on wood deliveries, amounting to SEK 108,679,579<br />

The dividend is calculated on members’ wood deliveries from 1 January to 31 December <strong>2012</strong><br />

of all ranges, exluding sold standing forest<br />

To members’ capital accounts through bonus issue SEK 106,218,775<br />

The bonus issue represents 10 per cent of available paid-up capital contributed at 31 December <strong>2012</strong><br />

Dividend of 5.7 per cent on subordinated debentures, series D SEK 7,410,000<br />

Appropriation to the statutory reserve SEK 11,620,333<br />

Amount carried forward SEK 44,766,020<br />

SEK 358,520,396<br />

Proposed appropriations to restricted equity totalled SEK 11,620,333<br />

The consolidated accounts and <strong>annual</strong> <strong>report</strong> have been prepared in accordance with International Financial Reporting Standards as referred to in Regulation<br />

No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards and generally accepted<br />

accounting principles in Sweden and provides a true and fair view of the position and performance of the Group and the Parent Company.<br />

The Directors’ Report for the Parent Company and Group provide a true overview of the development of the operations, position and performance of the<br />

Parent Company and Group and describes significant risks and uncertainty factors faced by the Parent Company and the companies in the Group.<br />

Växjö, 14 February 2013<br />

Christer Segerstéen Anders Grennborg Kent Almqvist Nils-Erik Andersson<br />

Chairman Vice Chairman Employee representative Employee representative<br />

Paul Christensson Marie Hallén Mats Hansson Carl-Olov Holmström<br />

Hans-Olof Mattsson Stefan Olsson Caroline Sundewall Eva-Carin Tengberg<br />

Employee representative<br />

Jan-Olof Thorstensson<br />

Gunilla Saltin<br />

CEO<br />

Our audit <strong>report</strong> was submitted on 14 February 2013<br />

Lars Träff Åke Andersson Göran Andersson Tomas Sättlin<br />

Authorised Public Accountants Member Representative Auditors<br />

This is a translation of the <strong>annual</strong> <strong>report</strong>. This translation does not replace the original <strong>annual</strong> <strong>report</strong>. In the event of any<br />

lack of clarity or disparity between this translation and the <strong>annual</strong> <strong>report</strong>, the <strong>annual</strong> <strong>report</strong> will always take precedence.<br />

Södra <strong>2012</strong> 51


Audit <strong>report</strong><br />

To the Annual General Meeting of Södra Skogsägarna ekonomisk förening, Corporate Identity Number 729500-3789.<br />

Report on the <strong>annual</strong> accounts and consolidated accounts<br />

We have conducted an audit of the <strong>annual</strong> accounts and the consolidated<br />

accounts for Södra Skogsägarna ekonomisk förening for the year <strong>2012</strong>.<br />

Responsibility of the Board of Directors and the President for the<br />

<strong>annual</strong> accounts and consolidated accounts<br />

The Board of Directors and the President are responsible for the preparation<br />

and fair presentation of these <strong>annual</strong> accounts and consolidated accounts<br />

in accordance with International Financial Reporting Standards, as<br />

adopted by the EU, and the Annual Accounts Act, and for such internal<br />

control as the Board of Directors and the President determine is necessary<br />

to enable the preparation of <strong>annual</strong> accounts and consolidated accounts<br />

that are free from material misstatement, whether due to fraud or error.<br />

Auditor’s responsibility<br />

Our responsibility is to express an opinion on these <strong>annual</strong> accounts and<br />

consolidated accounts based on our audit. We conducted the audit in<br />

accordance with International Standards on Auditing and generally<br />

accepted auditing standards in Sweden. These standards require that we<br />

comply with professional ethics requirements and plan and perform the<br />

audit to obtain reasonable assurance about whether the <strong>annual</strong> accounts<br />

and consolidated accounts are free from material misstatement.<br />

An audit involves performing procedures to obtain audit evidence about<br />

the amounts and disclosures in the <strong>annual</strong> accounts and consolidated<br />

accounts. The procedures selected depend on the auditor’s judgement,<br />

including the assessment of the risks of material misstatement of the <strong>annual</strong><br />

accounts and consolidated accounts, whether due to fraud or error. In making<br />

those risk assessments, the auditor considers internal control relevant to<br />

the society’s preparation and fair presentation of the <strong>annual</strong> accounts and<br />

consolidated accounts in order to design audit procedures that are appropriate<br />

in the circumstances, but not for the purpose of expressing an opinion on<br />

the effectiveness of the society’s internal control. An audit also includes evaluating<br />

the appropriateness of accounting policies used and the reasonableness<br />

of accounting estimates made by the Board of Directors and the President,<br />

as well as evaluating the overall presentation of the <strong>annual</strong> accounts<br />

and consolidated accounts.<br />

We believe that the audit evidence we have obtained is sufficient and<br />

appropriate to provide a basis for our opinion.<br />

Opinions<br />

In our opinion, the <strong>annual</strong> accounts have been prepared in accordance with<br />

the Annual Accounts Act and present fairly, in all material respects, the<br />

financial position of the parent society as of 31 December <strong>2012</strong> and of its<br />

financial performance and its cash flows for the year then ended in accordance<br />

with the Annual Accounts Act, and the consolidated accounts have<br />

been prepared in accordance with the Annual Accounts Act and present<br />

fairly, in all material respects, the financial position of the group as of 31<br />

December <strong>2012</strong> and of the financial performance and cash flows in accordance<br />

with International Financial Reporting Standards, as adopted by the<br />

EU, and the Annual Accounts Act. The statutory administration <strong>report</strong> is<br />

consistent with the other parts of the <strong>annual</strong> accounts and consolidated<br />

accounts.<br />

We therefore recommend that the <strong>annual</strong> general meeting adopt the<br />

income statement and balance sheet for the parent society and the group.<br />

Report on the <strong>annual</strong> accounts and consolidated accounts<br />

In addition to our audit of the <strong>annual</strong> accounts and consolidated accounts,<br />

we have examined the proposed appropriations of the society’s profit and<br />

the administration of the Board of Directors and the President of Södra<br />

Skogsägarna ekonomisk förening for the year <strong>2012</strong>.<br />

Responsibilities of the Board of Directors and the President<br />

The Board of Directors is responsible for the proposal for appropriations of<br />

the society’s profit, and the Board of Directors and the President are responsible<br />

for the administration under the Co-operative Societies’ Act.<br />

Auditor’s responsibility<br />

Our responsibility is to express an opinion with reasonable assurance on<br />

the proposed appropriations of the society’s profit and on the administration<br />

based on our audit. We conducted the audit in accordance with generally<br />

accepted auditing standards in Sweden.<br />

As a basis for our opinion on the Board of Directors’ proposed appropriations<br />

of the society’s profit, we examined whether the proposal is in accordance<br />

with the Co-operative Societies’ Act.<br />

As a basis for our opinion concerning discharge from liability, in addition<br />

to our audit of the <strong>annual</strong> accounts and consolidated accounts, we examined<br />

significant decisions, actions taken and circumstances of the company in<br />

order to determine whether any member of the Board of Directors or the<br />

President is liable to the company. We also examined whether any member<br />

of the Board of Directors or the President has, in any other way, acted in contravention<br />

of the Co-operative Societies’ Act, the Annual Accounts Act or<br />

the Articles of Association.<br />

We believe that the audit evidence we have obtained is sufficient and<br />

appropriate to provide a basis for our opinion.<br />

Opinions<br />

We recommend to the <strong>annual</strong> general meeting that the profit be appropriated<br />

in accordance with the proposal in the statutory administration <strong>report</strong><br />

and that the members of the Board of Directors and the President be discharged<br />

from liability for the financial year.<br />

Lars Träff<br />

Authorised<br />

Public Accountant<br />

Åke Andersson<br />

Authorised<br />

Public Accountant<br />

Växjö, 14 February 2013<br />

Göran Andersson<br />

Member<br />

Representative Auditor<br />

Tomas Sättlin<br />

Member<br />

Representative Auditor<br />

This is a translation of the <strong>annual</strong> <strong>report</strong>. This translation does not replace the original <strong>annual</strong> <strong>report</strong>. In the event of any<br />

lack of clarity or disparity between this translation and the <strong>annual</strong> <strong>report</strong>, the <strong>annual</strong> <strong>report</strong> will always take precedence.<br />

52<br />

Södra <strong>2012</strong>


Solberg<br />

This is Södra<br />

Södra is based on the growing power and potential of<br />

forest land. The foundation for the business is growing<br />

forest, planting, forest management and harvesting.<br />

The forest is the platform for our industrial operations:<br />

production of pulp, sawn timber, timber homes, interior<br />

wood products and energy.<br />

Södra – keeps growing into the future.<br />

SÖDRA<br />

Skogsudden, SE-351 89 Växjö, Sweden<br />

Tel +46 470 890 00<br />

E-mail: info@sodra.com or medlemsinfo@sodra.com<br />

www.sodra.com

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