Norske Skog: Stable quarter, brighter prospects

7/18/2013, 7:01 AM (Source: GlobeNewswire)

Somewhat better margins in the quarter due to seasonal variations in demand and lower costs per unit as a result of ongoing efficiency programmes. Price increases and sustained depreciation of the Norwegian krone will improve the revenue base going forward. The ongoing investments at Boyer and Saugbrugs are progressing as planned and will improve margins at both mills from 2014.

- Despite falling demand, we are experiencing high capacity utilisation of our machines and overall improved margins. This shows that our employees manoeuvre the ship well. However, we will actively continue our efforts to cut costs and improve productivity, and if necessary, close or convert paper machines, says Sven Ombudstvedt, President and CEO of Norske Skog.

Norske Skog's gross operating earnings (EBITDA) in the second quarter of 2013 were NOK 214 million, down from NOK 398 million in the second quarter of 2012. The decrease was primarily due to lower selling prices and volumes. Cash flow from operating activities was NOK -48 million in the second quarter and was lower than the second quarter of 2012. The decrease was primarily due to weaker operating margins.

- Permanent capacity cuts of more than a million tonnes have been announced in Europe this year as a result of the fall in demand. This, combined with expected price increases in the second half, continued favourable exchange rate development and stable raw material costs, contributes to a brighter margin outlook, says Ombudstvedt.

Net interest-bearing debt increased by NOK 159 million in the quarter, mainly due to the weaker Norwegian krone. The previously announced divestment of 51% of Pisa in Brazil for USD 41 million was completed, and the proceeds were received in the second quarter. The level of fixed costs was NOK 784 million in the first quarter, down from NOK 964 million in the second quarter of 2012.

Key figures, second quarter of 2013 (NOK million)

  Q2 2013 Q1 2013 Q2 2012 2012
Operating revenue 3 267 3 186 4 377 16 592
Gross operating earnings (EBITDA) 214 174 398 1 485
Gross operating margin (%) 6.6 5.4 9.1 9.0
Gross operating earnings after depreciation 16 -24 168 550
Restructuring expenses 0 0 0 -118
Other gains and losses -662 -153 -46 -1 009
Impairments 0 0 0 -2 086
Operating earnings -647 -178 123 -2 663
Share of profit in associated companies 4 5 0 -70
Financial items -358 -333 -248 -117
Income taxes 142 124 34 69
Profit/loss for the period -859 -381 -91 -2 781
Profit/loss before special items -197 -228 -45 432
Net cash flow from operating activities -48 -106 6 982

Other gains and losses of NOK -662 million have no cash impact. The amount consists mainly of NOK 487 million arising from reduced value of energy contracts and the loss from divestment of Pisa of NOK 195 million, recognized on a 100% basis.

Financial items consist primarily of NOK 191 million in unrealised currency losses and NOK 150 million in interest expenses.

Active capacity management
The company's investment projects are progressing according to plan. AUD 84 million (NOK 480 million) is being invested in connection with the conversion of a machine at Boyer in Australia from production of newsprint to catalogue paper, and NOK 220 million is being invested at Saugbrugs in Norway to reduce energy consumption and fixed costs.

As previously announced, Norske Skog has temporarily stopped production from the end of June at one of three machines (PM2) at Skogn in Norway. Annual production capacity for this machine is 160 000 tonnes. Due to the lack of profitability of magazine paper, LWC production will be subject to a separate capacity assessment in the third quarter.

Outlook for 2013
Price increases from the third quarter, the weaker Norwegian krone and seasonally higher sales volumes will improve the revenue base in the second half. Variable costs are expected to remain largely unchanged, whilst fixed costs will decline somewhat as a result of ongoing cost reduction programmes. The deconsolidation of Norske Skog Pisa following the divestment of 51% of the mill will cause a decline in reported revenue and costs from the third quarter.

New member of corporate management in Norske Skog
Roar Ødelien (45) has been appointed Chief Operating Officer (COO) in Norske Skog, with responsibility for the group's commercial and operational activities. He will be employed from 1 October, and appointed to the position from 1 November 2013. Ødelien comes from the position Group Warehouse Director in Carlsberg Supply Company AG in Switzerland. He has extensive experience in logistics and supply from Ringnes AS as well as commercial experience from a number of other companies.

- Roar Ødelien has an exciting background that will bring new knowledge and energy to Norske Skog, says President and CEO Sven Ombudstvedt. Ødelien will replace Trond Stangeby (63) who has been a member of corporate management since August 2011. Stangeby has decided to resign from his position from 1 November.

- Trond Stangeby has been responsible for the implementation of major organisational changes, and has brought Norske Skog's operative business to a new level. We are many colleagues who thank him for his contribution, and will miss his enthusiasm and dedication, says Ombudstvedt.

Presentation and telephone conference
The interim financial statements will be presented in DnB's offices in Bjørvika in Oslo today at 08:30 CET. The presentation will be transmitted live on Norske Skog's website A recording of the presentation will be published shortly afterwards.  

An international telephone conference, open to questions from the financial markets, will be held at 13:00 CET. Conference call details: +44(0)20 3427 1909  Confirmation code: 6586683

Interim financial statements
The interim financial statements are only prepared in English.

Oslo, 18 July 2013
Norske Skog
Communications and Public Affairs

For further information:
Norske Skog media:
Vice President Corporate Communication
Carsten Dybevig
Mob: +47 917 63 117
Norske Skog financial markets:
Vice President Investor Relations
Tom Rogn
Mob: +47 948 55 659

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Source: Norske Skog via Thomson Reuters ONE

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