07 Feb 2013

Norske Skog: Challenging market and lower debt

Norske Skog continues to reduce debt and fixed costs despite challenging markets. Net loss was significantly influenced by non-cash items such as impairments and change in value of energy contracts.

Norske Skog had gross operating earnings (EBITDA) in the fourth quarter of 2012 of NOK 327 million, down from NOK 365 million in the third quarter. This decline was due to weak seasonal effects and NOK appreciation. Gross operating earnings for the full year 2012 were NOK 1 464 million, a reduction of NOK 51 million from 2011, mainly due to lower production capacity after the closure of Norske Skog Follum, sale of Norske Skog Bio Bio and Norske Skog Parenco.

Net profit before special items were NOK 432 million in 2012 compared to NOK 12 million in 2011. The net loss of NOK 2.8 billion for 2012 was heavily influenced by NOK 3.2 billion in impairments, change in value of energy contracts and restructuring expenses. Impairments reflect increased uncertainty about sales price expectations. In addition, reassessment of Norske Skog's business in Australasia and reduction in the expected useful life of Norske Skog Walsum influenced impairments.

Cash flow from operating activities was NOK 382 million before net financial payments in the quarter. Underlying interest expenses in 2012 fell from 2011 in line with the reduction of net debt.

- Our operating earnings before special items have improved in 2012. Although our mill portfolio was reduced by three mills in 2012, we have made profitability improvements through cost input efficiencies and reduced working capital and fixed costs. We have actively managed capacity to counter market imbalances, says Sven Ombudstvedt, President and CEO of Norske Skog.

- The main task ahead is to create a better balance between supply and demand, improve productivity and cut expenses to improve margins, says Ombudstvedt.

Key figures, fourth quarter 2012 (NOK million)

  Q4 2012 Q3 2012 Q4 2011 2012 2011
Operating revenue 3 689 4 115 4 970 16 592 18 904
Gross operating earnings (EBITDA) 327 365 503   1 464 1 515
Gross operating margin (%) 8.9 8.9 10.1 8.8 8.0
Gross operating earnings after depreciation (EBIT) 104 134 138 529 -143
Restructuring expenses 14 -122 -361 -118 -387
Other gains and losses -228 -65 -532 -1 009 -201
Impairments -1 649 -403 -86 -2 086 -1 969
Operating earnings -1 758 -455 -841 -2 684 -2 701
Share of profit in associated companies 6 -83 203 -70 198
Financial items -49 86 -358 -96 -629
Income taxes -113 20 404 69 588
Profit/loss for the period -1 914 -433 -592 -2 781 -2 545
Net profit/loss for the period excluding special items -51 157 387 432 12
Net cash flow from operating activities 247 463 409 982 455

Net interest-bearing debt was reduced by NOK 1.8 billion in 2012, totalling NOK 6.0 billion at the year end. Net interest-bearing debt was reduced by NOK 264 million in the fourth quarter. Net interest-bearing debt has been reduced from NOK 14 billion at the beginning of 2009 to NOK 6.0 billion in 2012, a decrease of NOK 8 billion over the last four years.

- We have strengthened the company's financial position considerably through a substantial reduction in our net interest bearing debt in recent years, says Ombudstvedt.

The prices for our products remained relatively stable throughout 2012.

Newsprint Europe
Year-to-date demand for newsprint in Europe declined by 9% in 2012 compared to 2011. Gross operating margin was relatively stable in Europe, but negatively impacted by exports and an appreciating NOK.

Newsprint outside Europe
Demand for newsprint in Oceania was weak, with a year-to-date decline of 13% in 2012 compared to 2011. Latin America saw a more modest decrease of 3%.

Magazine paper
An appreciating NOK adversely affected the export business. Year-to-date demand for magazine paper in Europe declined by 6% in 2012 compared to 2011. A somewhat better development for the smaller SC (uncoated) segment (minus 3%) compared to the larger LWC (coated) segment (minus 8%) was largely due to product substitution.

Active capacity management
Norske Skog ceased production at Norske Skog  Follum in 2012 and one of two machines at Norske Skog Tasman in January 2013. Norske Skog sold Norske Skog Bio Bio and Norske Skog Parenco in 2012. As a consequence of these restructuring activities, the total annual production capacity is reduced from 4.4 to 3.7 million tonnes (18%).

Capacity utilisation for the group in the fourth quarter was 87% compared to 90% in the third quarter with active capacity management. For 2012, capacity utilisation was 88% (87% for 2011).

- The closures of five machines during 2012 have been difficult but necessary decisions due to declining demand for our products. Unfortunately, these decisions negatively affect the lives of our employees and their families. We believe in our industry. Therefore, we are investing AUD 84 million in the conversion of one machine at Norske Skog Boyer from newsprint to catalogue paper. In addition, we invest NOK 220 million at Norske Saugbrugs that will reduce energy consumption and fixed costs, says Ombudstvedt.

Outlook for 2013
Norske Skog expects that the operating environment will remain challenging, with weak demand in both Europe and Australasia. Relatively stable costs and already announced industry-wide capacity closures will be supportive. Active capacity management will lead to low utilisation rates in the short term. Further NOK appreciation remains an additional risk.

- The market is still challenging, but we maintain our efforts to improve the group's competitive position and financial headroom. We will also work on improving regulatory framework in Norway, says Ombudstvedt.

Presentation and conference call
The interim financial statements will be presented at DNB's offices in Bjoervika in Oslo today at 08.30 CET. The presentation will be transmitted live on Norske Skog's web site www.norskeskog.com. A recording of the presentation will also be published shortly thereafter. An international telephone conference, open to questions from the financial markets, will be held at 13:00 CET. The President and CEO Sven Ombudstvedt and other members of corporate management will participate in both of these events.

Telephone numbers:  
+44(0)20 7136 2051 International Toll
800 56053 Norway Toll Free
0800 279 4841 UK Toll Free
1877 249 9037 USA Toll Free
Confirmation code: 5387434

Lysaker, 7 February 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 market:
Vice President Investor Relations
Tom Rogn
Mob: +47 948 55 659

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.

Q4 2012 Norske Skog quarterly report
Q4 2012 Norske Skog presentation