11 Aug 2006

Norske Skog - second quarter of 2006

Norske Skog achieved an EBITDA before special items of NOK 1 081 million for the second quarter, which represents a slight improvement from the first quarter of 2006 and the second quarter of last year. EBIT before special items came to NOK 278 million. The net loss after taxes was NOK 180 million, which includes NOK 292 million in special items recognised in EBIT under IFRS.
"The result remains weak, but it is roughly as expected in overall terms, comments chief executive Christian Rynning-Tønnesen. Despite relatively good demand for magazine paper in Europe, the market is difficult with excess capacity and pressure on prices. That has resulted in very poor earnings in this area. The other regions, and particularly Australasia, improved their operating earnings from the first quarter."
Markets and costs
Generally speaking, newsprint made good progress in volume terms in most of Norske Skog's markets. Demand in Europe was 4% higher in the first half than in the same period of last year, and 20% up in the former Eastern bloc countries.  South America increased so far this year by roughly 10% and Asia by just under 1%. Demand for newsprint was weak in China at the start of the year, but has since recovered and considering the first half year in total, China was almost on a par with the same period of 2005.  Australasian demand declined by roughly 4%.
The strengthening of the Norwegian krone is calculated to have had a negative effect of NOK 50 million in the second quarter compared with the first quarter.  Energy costs remained high, but levelled off in continental Europe and declined from an exceptionally high level in New Zealand.  The power requirements of Norske Skog's Norwegian mills are now fully covered under long-term contracts following the transfer of the contracts held by Norske Skog Union to the other mills.
Health and safety
A fatal accident occurred at the Norske Skog Golbey mill in France in early July, and a full internal investigation of this tragic incident has been initiated.  The lost-time injury frequency per million working hours was 1.1 for the 12-month period from 1 July 2005 to 30 June 2006. 
The board appointed Christian Rynning-Tønnesen as the new president and CEO on 6. June. At the same time, Andreas Enger was appointed as the new CFO. 
An extensive reorganisation was approved in early July.  Its main elements are reducing the corporate management from 11 to 8 members and turning the mills as separate business units.
Restructuring and demanning
Norske Skog needs to substantially improve its profitability and is implementing an extensive programme to improve earnings.  A series of improvement initiatives are being planned.  These include simplification of work processes, increased production efficiency, cost reduction within supply and logistics and a substantial de-manning.  The de-manning is targeted at shedding of some 1 000 jobs.  Production capacity will also be reduced by 180 000 tonnes in Korea.
In connection with the de-manning and shutting down production capacity in Korea, a provision in the order of NOK 1 billion will be made in the third quarter of 2006.
See the separate press release of these aspects.
Outlook for the rest of 2006
Norske Skog is maintaining earlier statements that operating earnings (before special items) are expected to be improved somewhat in the second half year.  The positive elements are primarily the reduced costs in the Australasia region after the completion of an extensive restructuring programme, and Australian price increases on 1 July. In addition, the positive effect on fixed costs from closing Norske Skog Union will also be felt in the second half year.  Prices for magazine paper in Europe and newsprint in China are expected to remain under pressure. Currency effects and high energy costs will also continue to present major challenges.
Oxenøen, 11 August 2006
Norske Skog
Corporate communications
Further information from
Hanne Aaberg, senior vice president corporate communications, Norske Skog tel: +47 67 59 90 29 or +47 91 35 16 81
Tom Bratlie, director, corporate communications, tel: +47 67 59 93 34 or +47 90 52 19 04
Financial market:
Jarle Langfjæran, tel: +47 67 59 93 38 or +47 90 97 84 34
Thomas Tronsgaard, tel: +47 67 59 90 62 or +47 90 02 99 18
Rune Gjessing, tel: +47 67 59 90 73 or +47 90 15 26 14

BOD report and figures