23 Apr 2015

Norske Skog: High profit due to refinancing

Norske Skog successfully completed in the first quarter a EUR 290 million senior secured notes issue and bond exchange, extending the maturity profile. The profit after tax was 663 million in the first quarter mainly due to gains on exchanged bonds.

- After these refinancing transactions, we have strengthened and secured our long-term capital structure by enhancing our liquidity position, realizing immediate de-leveraging and extended debt maturities, said Mr. Sven Ombudstvedt, President and CEO of Norske Skog.

- Already completed and announced capacity cuts in the industry should lead to an improved market balance for newsprint and magazine paper in Europe effective in second half of 2015. However, our effective cost reduction programs at every mill and a weaker Norwegian krone support operating margins, particularly for the Norwegian units, says Sven Ombudstvedt, President and CEO of Norske Skog.

Norske Skog's gross operating earnings (EBITDA) in the first quarter of 2015 were
NOK 192 million, slightly up from 190 million in the fourth quarter. EBITDA were flat with a weak market for publication paper in Europe and low Asian export prices for newsprint, outweighing positive foreign exchange rate effects and an improvement at Boyer.

- We now see the positive effects of the conversion of one machine line from newsprint to LWC at Boyer. We are the sole producer of publication paper in Australia and New Zealand, which gives us a competitive edge in those markets. Given the weak magazine paper markets in Europe, Walsum will be under strategic review, says Sven Ombudstvedt, President and CEO of Norske Skog.

Key figures, first quarter of 2015 (NOK million)

  Q1 2015 Q4 2014 Q1 2014 2014
Operating revenue 2 886 3 208 2 867 12 150
Gross operating earnings (EBITDA) 192 190 153  801
Gross operating margin (%) 6.6 5.9 5.3 6.6
Gross operating earnings after depreciation -1 2 -28 66
Restructuring expenses -3 -7 -2 -4
Other gains and losses 121 29 38 39
Operating earnings 116 24 8 102
Share of profit in associated companies -7 -4 8 1
Financial items 600 -858 -77 -1 357
Income taxes -46 -178 16 -223
Profit/loss for the period 663 -1 017 -45 -1 477
Cash flow from operations before net financial items -387 641 54 948

The net profit of NOK 663 million in the first quarter of 2015 was significantly impacted by gains on the bond exchange, mainly related to the recent refinancing of the group. Net interest-bearing debt decreased by NOK 0.3 billion from year end 2014, from NOK 7.4 billion to NOK 7.1 billion, with a gain on bond exchange offsetting a negative cash flow. Cash flow from operating activities before net financial items was NOK -387 million (NOK 641 million in Q4 2014) mainly due to due to seasonality in working capital and opportunistic capturing of supplier cash discounts.

Market and segments

Operating revenues were lower due to lower sales volume, more than outweighing a positive foreign exchange rate effect. Cost of materials were flat compared to last quarter, but fixed costs decreased slightly. Gross operating earnings declined to NOK 95 million in the quarter, from NOK 129 million in the fourth quarter, with a weak publication paper market in Europe.

Demand for newsprint and magazine paper in Europe decreased by 11% and 4% respectively in the two first month of 2015 compared to the same period last year. The mills reduced their capacity utilization to 82% (84% in Q4 2014) in the quarter to avoid low margin sales and to support the company's commercial policy.

Compared to the previous quarter, operating revenue decreased due to seasonality and low Asian export prices for newsprint. Variable cost per tonne in Q1 2015 was flat compared to the previous quarter. Fixed costs were higher in Q1 2015 than in the comparing periods, reflecting a weaker NOK to AUD and increased operating expenses following the conversion.

Demand for newsprint in Australia decreased by around 10% in the first two months of the year compared to the same period last year, while demand for magazine paper was relatively stable. The mills reduced their capacity utilization to 88% (93% in Q4 2014) to avoid low margin newsprint exports.

Active capacity management
Total annual production capacity for the group is 3.0 million tonnes following the completion of the ramp-up at Boyer. In Europe the group capacity is 2.3 million tonnes, while in Australasia the capacity is 0.7 million tonnes. Capacity utilization for the group in the first quarter was 83% compared with 86% in the fourth quarter, as a result of active capacity management.

- The market remains challenging. We have performed active portfolio management of our machine capacity in the first quarter, and we will continue this policy in the next quarters. Already announced permanent capacity cuts of more than 2.5 million tonnes in Europe and North-America in 2014 and 2015 in our product segments should be supportive to the market balance, and thus future price levels, says Sven Ombudstvedt, President and CEO of Norske Skog.

The market balance for newsprint and magazine paper is expected to improve into the second half of 2015, with all announced capacity closures in the industry completed, giving room for price increases.

The group has a significant competitive advantage in Australia and New Zealand being the sole domestic producer. Export markets for newsprint to Asia have been  challenging, but should improve with announced capacity closures in Russia.

Variable costs for the group are expected to remain relatively stable, while fixed costs initiatives are set to continue.

Presentation and quarterly material
A recorded CEO presentation, the quarterly financial statements and the presentation package are available on www.norskeskog.com. In connection with the Q2 release on 16 July, it will be an opportunity for the press to participate in a mill tour at Norske Skog Saugbrugs along with the corporate and local mill management.

Oslo, 23 April 2015
Norske Skog
Communications and Public Affairs

For further information:

Norske Skog media:
Vice President Corporate Communication
Carsten Dybevig
Mob: +47 917 63 117
Twitter: @Norske_Skog


Norske Skog financial markets:
Vice President Investor Relations
Tom Rogn
Mob: +47 948 55 659

Q1 2015 Norske Skog press release
Q1 2015 Norske Skog quarterly report
Q1 2015 Norske Skog presentation