03 Nov 2006

Norske Skog - third quarter of 2006

Gross operating earnings before special items for Norske Skog came to NOK 1 322 million in the third quarter, compared with NOK 1 081 million for the previous quarter. Net operating earnings before special items were NOK 495 million, an improvement of NOK 217 million from the second quarter. The net loss after taxes was NOK 3 249 million, following extraordinary impairment charges and provisions totalling NOK 3 865 million.
"Our third-quarter results show that the underlying performance is somewhat more positive than in previous quarters," comments chief executive Christian Rynning-Tønnesen.
"This is encouraging and motivating for everyone in the group, who are now concentrating on implementing our demanding turnaround. The target is an 11 per cent return on capital employed by the end of 2008."
Volume trends. Newsprint volumes are making relatively good progress in most of Norske Skog's markets, and price increases have been implemented in Australia. Markets for magazine paper in Europe and newsprint in China remain difficult, with overcapacity and pressure on prices. Europe is witnessing a highly interesting development, with a substantial commitment to free newspapers.
Energy and raw materials. High prices for raw materials and energy remain a challenge for Norske Skog. Construction of a geothermal power station on the Norske Skog Tasman site in New Zealand provides Norske Skog with a 15-year electricity supply contract at competitive prices.
Cash flow showed a positive development in the third quarter and amounts to NOK 1.2 billion compared with NOK 600 million in the previous quarter.
"Developments are moving the right way for us," says Mr Rynning-Tønnesen. "The measures adopted in connection with the turnaround are already having some impact on the results for the third quarter. We're also benefiting from a weaker Norwegian krone."
Extraordinary impairment charges and provisions comprise NOK 3 265 million in impairment of fixed assets and goodwill, a provision of NOK 600 million for demanning, and NOK 106 million relating to changes in the value of energy hedges. All these items are included in net operating earnings under the IFRS.

Changes. Norske Skog is carrying out an extensive restructuring of the group, which includes the loss of about 1 000 jobs. A group of experts is working to implement the Norske Skog production system, a new standard for mill operation, and initiatives in more than 40 areas will be gradually adopted at the individual business units.
In addition to the closure of Norske Skog Union in the first quarter, the company shut down one paper machine at Norske Skog Tasman during August and two at Norske Skog Jeonju in Korea the following month. These moves have reduced Norske Skog's production capacity for newsprint by 10 per cent during 2006.
No significant changes in markets and costs are expected during the fourth quarter. In the longer term, the turnaround programme will yield positive effects. Market prospects for newsprint in Europe are good in 2007.
Oxenøen, 3 November 2006
Norske Skog
Corporate communications

A live presentation and webcast/phone conference is held at Norske Skog's HQ at Oksenøya outside of Oslo at 13:00 today.
More information:
Vice president, corporate communications
Tom Bratlie
Phone: +47 67 59 93 34
Mob: +47 905 21 904 
Finance market:
Vice president, investor relations
Jarle Langfjæran
Phone: +47 67 59 93 38
Mob: +47 909 78 434
Director, investor relations
Thomas Tronsgaard
Tlf: +47 67 59 80 62
Mob: +47 900 29 918

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