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06 Aug 2003 IMPROVEMENT PROGRAMME CONTRIBUTED NOK 320 MILLION Improvement 2003 has contributed NOK 320 million. However, Norske Skog's result is still characterised by weak markets and low prices for publication paper. Operating earnings were slightly better in Q2 than in Q1 2003, if gains from electricity trading are excluded. Net earnings in Q2 were negative NOK 190 million, including a currency hedging loss of NOK 148 million. Operating revenue in the first half of 2003 is NOK 11.4 billion, while operating earnings are NOK 685 million. Pre-tax earnings are NOK 100 million in the first half of 2003. A weaker Norwegian krone is positive to Norske Skog's business.
Key figures 2Q '03: http://reports.huginonline.com/912763/120972.pdf
- Improvements amounting to NOK 320 million, show that we are on track towards our goal of reaching NOK 1 billion in improvements this year. The impact of already implemented initiatives will give further results in the coming months. The whole Company has put forward a considerable effort, which will enable us to reach our goal of NOK 2 billion by 2004. I am also very pleased by the excellent results achieved from combined efforts in health and safety, especially given this demanding period with workforce reductions and change of work tasks, says President and CEO Jan Reinås.
Health and safety is always on top of the agenda in Norske Skog, and the high priority is showing remarkable results. In June 2003, the Company's mills could point to the lowest H-value (lost time injuries) ever recorded. The H-value the last 12 months was 3.1. The favourable trend is the result of systematic focusing on health and safety for many years. The target for 2003 as a whole is an H-value of less than 3.
Financially, Norske Skog has a good position. The equity ratio is 41.3% as of 30.06.2003, and shareholder equity is higher than net interest-bearing debt. At the end of the first half 2003, the Company had approximately NOK 7.6 billion in liquid assets and unutilised drawing rights.
The market situation did not change essentially during Q2 compared to Q1. Total deliveries of newsprint and magazine paper from Norske Skog year-to-date is a little less than 2.6 million tonnes, an increase of 8% compared to the same period in 2002, which suffered from very low deliveries in Q1. Seasonally higher volumes compared to Q1 2003 positively influenced operating earnings in the quarter.
In Europe, operating revenue for newspaper declined by 5.5% in Q2 2003 compared to Q2 2002. The reduction is mainly caused by lower sales prices. The market for newsprint is still very weak, and demand is at the same level as in the first half of 2002. Operating revenue for magazine paper was on the other hand 7.2% higher than 2002, mainly due to higher volumes.
In South America, operating revenue is up 12.5% compared to Q2 last year. Operating earnings are also up. The increase reflects favourable exchange rates. Terminating Norske Skog Klabin JV has also had a positive impact on costs and margins.
Australasia has so far in 2003 developed well and demand has increased. From July, 1 prices in Australia will be adjusted in accordance with long-term contracts. The new prices, in Australian dollars, will be about 4% lower than the price that has been in place since July last year. Operating earnings in Australia are therefore expected to be weaker in second half of 2003.
In PanAsia (50% owned by Norske Skog), operating revenue declined 17.7% compared to Q2 2002. This is primarily due to weaker demand in Korea. In addition, a competing mill in Korea had a lengthy strike last year, giving a higher market share to PanAsia during that period. Product prices in several Asian markets have weakened, while raw material prices and energy costs have increased. Compared to Q2 2002, there is also a significant negative exchange rate effect when results are converted to NOK.
NorskeCanada (30.6% owned by Norske Skog) saw its result negatively affected by a stronger Canadian dollar compared to the American dollar. The newsprint market remains weak. Newsprint prices increased during Q2, and an additional increase this year has been announced. The Company is implementing an improvement programme, with the goal of cutting costs by CAD 100 million during 2003/2004.
The outlook does not indicate any significant near-term improvements in newsprint and magazine paper markets. Demand can be expected to increase only when economic growth increases, primarily in North America and Europe. Therefore, Norske Skog expects weak, but stable markets and will make plans based on the assumption of low demand during the coming quarters, and keep focusing on the Improvement programme.
Oxenøen, August 6, 2003
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