Norske Skog: Quarterly report postponed, good Q2 performance

Due to a comprehensive process related to change of auditor, Norske Skog postpones the publication of the full figures for the second quarter until Wednesday 20 July. BDO, an international auditing and consulting company with branches in 154 countries, is about to finalize an agreement to audit Norske Skogindustrier ASA. Norske Skog will today only publish gross operating profit, cash flow, net interest bearing debt and liquidity for the second quarter of 2016. Gross operating profit for the second quarter was NOK 335 million, which is the best gross operating earnings since the third quarter of 2012.

New auditor

Norske Skog has previously communicated through various press releases and announcements that EY and Norske Skog have agreed that a change of auditors will be most beneficial to both parties. In the process of finding a new auditor, Norske Skog has been in dialogue with several auditing firms. From this process, the Board of Norske Skog has decided to recommend that the General Assembly choose BDO as new auditor. The election of new auditor will take place at an extraordinary general meeting within 10 August, which is the deadline set by the Register of Business Enterprises (Foretaksregisteret) to register new auditor. As a condition for accepting the audit assignment, BDO has set forth certain assignment conditions including material write-downs of the asset portfolio.

Due to extraordinary additional work in connection with the impairments of the company's asset portfolio, the final quarterly consolidated financial statements including notes and the report of board of directors will be published on Wednesday 20 July. Today's press release is therefore an update on operations and markets.

Operational development and gross operating earnings

Operations at all factories were better in the second quarter compared to the first quarter. Gross operating earnings (EBITDA) in the second quarter 2016 was NOK 335 million, which was a significant increase from NOK 242 million in the first quarter and a significant improvement of NOK 138 million second quarter last year. Gross operating earnings (EBITDA) for the first six months totaled NOK 577 million. Norske Skog had guided for a gross operating earnings in the first half above NOK 500 million.

- As announced in the first quarter, the European market shows signs of clear improvements. We are now seeing the effects of own cost reductions and capacity closures in Europe and North America in recent years. Our mills have been operating close to full capacity utilization throughout the first half. The need for active capacity management will be less in the second half than in the corresponding period previous year. Seasonal variations are in 2016 expected to provide higher sales volumes in the second half than in the first. The improvement market balance will be supportive to maintain margins at the same level as in the first half, says Sven Ombudstvedt, CEO of Norske Skog.

Cash flow from operating activities before net financial items was NOK 321 million compared with NOK 285 million in Q1 2016. The cash balance at the end of the quarter was NOK 725 million.

In the second quarter, Norske Skog completed a comprehensive refinancing of the debt, which increased the average maturity of existing bonds to 6 years and significantly reduced the debt. Net interest bearing debt was reduced by almost NOK 1.7 billion from the end of the first quarter, from NOK 8.1 billion to NOK 6.4 billion, as a result of debt restructuring in connection with the exchange offer, the repair equity offering and unrealized (without cash effects) currency effects.

Key figures, second quarter of 2016 (NOK million)

Market outlook

The market balance for publication paper in Europe is favourable due to a benign demand development and capacity closures. Newsprint prices in the UK increased into the second half of 2016 reflecting depreciation of the British pounds following Brexit referendum. The European SC- market is benefiting from a strong dollar and capacity closures in the US. The Asian export market for newsprint, of increasing importance to Norske Skog due to a smaller domestic market in Australasia, is encouraging with price improvements.

Favourable energy costs for our European mills and efficiency measures at all mills are expected to reduce variable costs by 2-3% per tonne in 2016. Fixed costs initiatives continue at all mills towards a run-rate group level of NOK 600 million per quarter by year-end 2016. Ongoing growth initiatives are expected to contribute marginally to gross operating earnings this year but to reach full run-rate potential within a timeframe of 3-4 years.

Growth projects at Golbey
 
The sodding ceremony for the construction of the Golbey biogas plant will be made on July 13. The project at Golbey will be financed locally. The plant will be connected to the biological-chemical treatment plant and be dimensioned to absorb all organic waste from the paper production. The plant is expected to be at full operation during 2017. At the same time, Golbey launches new projects, which will combine synergies from the existing mill and the nearby industrial cluster, which is developed in recent years.

Presentation and quarterly material
The reporting of the final quarterly figures will occur on 20 July at 07.00 CET. A recorded webcast of the CEO presentation, the quarterly financial statements and the presentation package will be available on www.norskeskog.com.

The press and investor gathering at Golbey on July 13 at 11:00 will be conducted as planned. The planned investor meetings in London and New York will unfortunately be postponed until after the summer.

Norske Skog
Communications and Public Affairs