17 Jul 2014

Norske Skog: Lower costs and improved margins

Norske Skog strengthened operations due to lower costs and improved efficiency in the second quarter. High production at the mills in a difficult market shows the relative competitive position of the group.  

- The good trend with lower variable and fixed costs. Overall, we are in a better cost position this year compared to prior years, due to continued cost reduction programmes and better economies of scale at our remaining units, says Sven Ombudstvedt, President and CEO of Norske Skog.

Norske Skog's gross operating earnings (EBITDA) in the second quarter of 2014 were NOK 251 million, up from NOK 153 million in the first quarter. The increase was due to lower energy and fibre costs, and lapse of one-off effects at Boyer (start-up LWC), Walsum and Saugbrugs (start-up new pulp plant).

Loss after tax for the period amounted to NOK -114 million in the second quarter, compared to a profit of NOK 11 million in the first quarter of 2014. The result was impacted by unrealized foreign exchange losses of NOK 121 million. Net interest-bearing debt increased by NOK 152 million to NOK 6 952 million, of which NOK 136 million related to a negative currency effect due to a weaker Norwegian krone. A weaker Norwegian krone will be positive for the company's future results. Norske Skog repaid the remaining bonds of NOK 496 million with maturity in June. Cash flow from operating activities before net financial items was NOK 206 million in the second quarter, compared to NOK 54 in the first quarter.

- Cost reductions and lower interest expense after repayment of June-maturities will improve profitability. This coupled with the completion of the major investment program over the last two years will increase cash flow significantly ahead. At the same time, we will continuously monitor the market situation, and if necessary implement active capacity management to counteract the effects of market imbalances, says Sven Ombudstvedt, President and CEO of Norske Skog.

Market and segments

Operating revenue increased due to seasonally somewhat higher sales volumes compared to the previous quarter. Demand for both newsprint and magazine paper in Europe decreased by 4% in the first five months of the year compared to the corresponding period last year.

Cost of materials declined from the first quarter on a per ton basis, reflecting lower energy and fibre costs. Fixed costs were flat. Capacity utilization was 87% in the second quarter compared to 90% in the first quarter.

Operating revenue increased compared to the previous quarter, reflecting the start-up of the new magazine paper machine at Boyer. Demand for newsprint and magazine paper in Oceania was relatively stable in the first five months of the year, compared to the corresponding period last year.  

Cost of materials was flat on a per ton basis compared to the first quarter, with lower energy costs offsetting more chemical and pulp usage for magazine paper production. Capacity utilization was unchanged on 91% in the quarter.

Key figures, second quarter of 2014 (NOK million)

Q2 2014 Q1 2014 Q2 2013 2013
Operating revenue 3 018 2 867 3 267 13 339
Gross operating earnings (EBITDA) 251 153 214  862
Gross operating margin (%) 8.3 5.3 6.6 6.5
Gross operating earnings after depreciation 71 -28 16 134
Restructuring expenses 0 -2 0 -145
Other gains and losses 51 114 -662 -1 100
Impairments 0 0 0 0
Operating earnings 122 84 -647 -1 111
Share of profit in associated companies -3 8 4 26
Financial items -284 -77 -358 -1 258
Income taxes 51 -4 142 500
Profit/loss for the period -114 11 -859 -1 844
Cash flow from operations before net financial items 206 54 298 718

Outlook 2014
Publication paper prices in Europe are expected to remain relatively stable throughout 2014. The market balance for newsprint is acceptable, while the operating rate for magazine paper, which currently is not satisfactory, should improve with seasonal factors.

Sales volumes will be seasonally higher in the second half of 2014.

The new Boyer machine in Australia has ramped up and will contribute fully from the third quarter.

Variable costs for the group are expected to remain relatively stable. Fixed costs initiatives will continue.

Presentation and telephone conference
The interim financial statements will be presented in Karenslyst allé 2 in Oslo today at 08.30 CET, and transmitted live on Norske Skog's website www.norskeskog.com.

An international telephone conference, open to questions from the financial markets, will be held at 13:00 CET. Callers are asked to register before 12:50 CET. Conference call details: +44 1296 480 100, confirmation code: 806 083#

A recording of the presentation and conference will later be available on www.norskeskog.com.

Oslo, 17 July 2014

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

Q2 2014 Norske Skog press release
Q2 2014 Norske Skog quarterly report
Q2 2014 Norske Skog presentation