24 Oct 2013

Norske Skog: Better market balance

An improvement in the market balance for newsprint and magazine paper, as a result of permanent shutdowns in the industry, contributes to higher capacity utilisation and an improved margin outlook in Europe.

- During the quarter, we have both announced and implemented an active capacity management. We are now seeing the effects of this, through higher selling prices in Europe. Capacity utilisation is currently high for our machines. We will continue to actively cut costs and improve productivity, and assess our capacity on an ongoing basis, says Sven Ombudstvedt, President and CEO of Norske Skog.

Norske Skog's gross operating earnings (EBITDA) in the third quarter of 2013 were NOK 176 million, down from NOK 371 million in the third quarter of 2012. The decrease was due to divestments and lower margins. Cash flow from operating activities was NOK -91 million in the third quarter, and was weaker than the third quarter of 2012. The decrease was due to lower operating earnings and increased working capital.

- The total production capacity has been reduced in line with market demand. A better balance between supply and demand has given room for price increases in the second half of the year. This, combined with a favourable exchange rate development and stable raw material costs, contributes to a brighter margin outlook, says Ombudstvedt.

Net interest-bearing debt increased by NOK 277 million in the quarter, primarily due to the weaker Norwegian krone and negative cash flow. Net interest-bearing debt has increased by NOK 897 million so far this year, of which NOK 565 million is due to the weaker Norwegian krone. The company repaid the revolving credit facility of EUR 70 million in the quarter, thus removing uncertainty regarding possible covenant breaches. Financial items consist primarily of NOK 160 million in interest costs and NOK 87 million in unrealised currency losses.

Fixed costs were NOK 758 million in the third quarter, down from NOK 903 million in the third quarter of 2012. A new long-term sales contract was negotiated in the third quarter, and a fee was received in relation to cancellation of the previous contract. This amount will be recognised as income quarterly over two years.

Key figures, third quarter of 2013 (NOK million)

Q3 2013 Q2 2013 Q3 2012 2012
Operating revenue 3 353 3 267 4 115 16 592
Gross operating earnings (EBITDA) 176 214 371 1 485
Gross operating margin (%) 5.2 6.6 8.9 9.0
Gross operating earnings after depreciation 40 16 140 550
Restructuring expenses 3 0 -122 -118
Other gains and losses -47 -662 -65 -1 009
Impairments 0 0 -403 -2 086
Operating earnings -4 -647 -450 -2 663
Share of profit in associated companies 9 4 -83 -70
Financial items -245 -358 86 -117
Income taxes 94 142 20 69
Profit/loss for the period -147 -859 -433 -2 781
Profit/loss before special items -103 -197 550 432
Net cash flow from operating activities -91 -48 6 982

Active capacity management
The company's investment projects are progressing according to plan. AUD 84 million (NOK 480 million) is being invested in connection with the conversion of a machine at Boyer in Australia from production of newsprint to catalogue paper, and NOK 220 million is being invested at Saugbrugs in Norway to reduce energy consumption and fixed costs. Both of these investments will have a positive impact on margins.

As previously announced, Norske Skog will temporarily curtail production from the end of December at one of two LWC machines (PM4) at Walsum in Germany, due to low profitability. The annual production capacity of this machine is 225 000 tonnes.

As a result of improved margins for newsprint in England, PM2 at Skogn was started up again in late August after two months of curtailment.

Norske Skog Singburi in Thailand was sold to a Thai industrial group for USD 33 million. The mill has an annual production capacity of 125 000 tonnes, and the transaction will be completed upon settlement of the sales consideration in the fourth quarter.

Prices are expected to remain relatively stable from the third quarter to the fourth quarter. We anticipate little change in the level of variable costs, whilst fixed costs will decline somewhat as a result of ongoing cost reduction programmes. A weaker Norwegian krone is supportive to underlying earnings. Reported volumes, revenue and costs will be reduced following the divestment of Norske Skog Singburi.

Presentation and telephone conference
The interim financial statements will be presented in DnB's offices in Bjørvika in Oslo today at 08:30 CET. The presentation will be transmitted live on Norske Skog's website www.norskeskog.com. A recording of the presentation will be published shortly afterwards.

An international telephone conference, open to questions from the financial markets, will be held at 13:00 CET. Conference call details: +44 1296 480 180, confirmation code: 996 531#

Interim financial statements
The interim financial statements are only prepared in English.

Oslo, 24 October 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 markets:
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.


Q3 2013 Norske Skog press release
Q3 2013 Norske Skog quarterly report
Q3 2013 Norske Skog presentation