02 Aug 2005

Slight improvement in results, restructuring underway

Norske Skog again delivered weak financial results in the second quarter of 2005, as expected, although pre-tax earnings showed some progress compared with previous quarters.

However, this was influenced by value changes under International Financial Reporting Standards (IFRS) and other factors.
NOK million
2 Q 2005
2 Q 2004
1 Q 2005
Operating revenue
6 433
6 239
5 761
Net operating earnings (EBIT), IFRS
Adjusted EBIT*
Pre-tax earnings, IFRS
* EBIT before IFRS-related value changes and impairments/restructuring costs.
The negative impact of currency changes came to around NOK 45 million in the second quarter compared with the same period of last year, and NOK 140 million in the first half of 2005 compared with the first six months of 2004.
"Price increases in Europe and our in-house improvements are being absorbed by the unfavourable development of energy costs and exchange rates," says chief executive Jan Oksum.
"We've seen the expected seasonal upturn in European demand during the second quarter, and demand is also good in most other markets except for newsprint in North America and South Korea. After implementing a wide range of cost-saving measures, we're now moving into a phase of adjusting our permanent capacity to European market needs."
Progress on health and safety was good, and the lost-time injury frequency per million working hours came to 1.1 for the 12-month period to 30 June. Seven of the mills had no lost-time injuries at all during this period.
PanAsia - owned 50% by Norske Skog - successfully started-up its new newsprint mill in China's Hebei province. The first reel was produced on 31 May, one month ahead of schedule, and commercial production began at the end of June. The newsprint machine is the largest in Asia, with a capacity of 330 000 tonnes/year, and total investment will be below the original budget of USD 300 million.
Work with the restructuring project in Australasia is on schedule. PM 3 at Norske Skog Tasman in New Zealand has been rebuilt, marking the end of the first phase in this programme.
The board of directors has approved the management's proposal to initiate a formal process with a view to the permanent closure of the Norske Skog Union mill at Skien in Norway. This facility has an annual capacity of 260 000 tonnes of newsprint, improved newsprint and bulky book paper. Its closure will reduce Norske Skog's capacity for newsprint and related grades in Europe by about 11%, and allow the company to transfer production volumes to other mills with surplus capacity and lower costs. The company also aims to concentrate deliveries to European customers, while deliveries outside Europe will be mainly covered from the mills in Australasia, South America and the PanAsia joint venture.
Commenting on the outlook, Mr Oksum says that Norske Skog expects higher shipments in the second half of 2005 owing to the normal seasonal factor. The market in Europe is likely to be tight because of the current low level of inventories. Developments in the European paper market are still positive, and growth in demand remains high in eastern Europe as well as in many Asian and South American countries. This is promising in a longer perspective.
The full interim report with accounting figures is available at www.norskeskog.com.
Oxenøen, 2 August 2005
Corporate communications
Further information from:
Hanne Aaberg, senior vice president, corporate communications, tel: +47 67 59 93 34, mobile +47 90 52 19 04
Financial market:
Jarle Langfjæran, vice president, investor relations, tel: +47 67 59 93 38, mobile +47 90 97 84 34