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19 Oct 2016 Norske Skog: Continued good performance
Strong demand for Norske Skog's products in all regions resulted in high capacity utilisation and net profit in the third quarter of NOK 190 million. This demonstrate the long-term trend of good performance. So far this year, the net profit is NOK 430 million. Gross operating earnings (EBITDA) in the third quarter 2016 was NOK 251 million, which was a decrease from NOK 335 million in the second quarter, mainly due to somewhat higher energy and recovered paper cost and weaken pound. Net profit in the third quarter was NOK 190 million compared with a negative NOK 874 million in the third quarter 2015. - Despite a comprehensive refinancing of the group this year, the business units have completed major cost reductions and seen significant progress on new growth projects. The green shift transformation of Norske Skog into new segments will be more prominent in the years to come. The improved market balance should allow for a substantial increase in sales prices going forward, especially after significant capacity closures in Europe and North America combined with a flattening of the demand curve, says Sven Ombudstvedt, CEO of Norske Skog. Key figures, third quarter of 2016 (NOK million)
Market outlook The market balance for publication paper in Europe is favorable with modest demand declines and reduced supply due to capacity closures. The newsprint market will tighten further in 2017 with significant additional European capacity closures already announced, which should lead to price increases. 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. Ongoing growth initiatives will begin to contribute meaningfully to gross operating earnings from next year and reach full run-rate within a timeframe of 3-4 years. Fixed costs initiatives continue at all mills towards a group level run-rate of NOK 600 million per quarter. Recent foreign exchange developments, particularly from GBP depreciation, but also from NOK appreciation to EUR is a headwind for the group. Combined with somewhat higher energy and recovered paper costs, this will diminish the positive seasonal effect from higher sales volumes in the fourth quarter. Markets and segments Total annual production capacity for the group is 2.7 million. In Europe, the group capacity is 2.0 million tonnes, while in Australasia the capacity is 0.7 million tonnes. Capacity utilization for the group in the third quarter was 93% compared with 92% in the second quarter. Europe Variable costs increased per tonne due to higher energy and recovered paper costs. Fixed costs remained unchanged from the second quarter. Gross operating earnings decreased quarter-over-quarter with lower revenue, cost inflation, and reduced contribution from Golbey in France due to its annual maintenance stop. Demand for newsprint and magazine paper in Europe decreased by 3% and 2% respectively through August compared to the same period the year before. Capacity utilisation remained high at 92% in the period (92% in Q2 2016). Australasia Variable costs increased per tonne with a relatively higher share of magazine paper production to newsprint production. Fixed costs were broadly flat. Gross operating earnings decreased somewhat quarter-over-quarter with increased costs offsetting the higher sales volumes. Demand for newsprint in Australasia decreased by 6% through August compared to the same period the year before. Demand for magazine paper was relatively stable. Capacity utilisation was close to full at 97% in the period (91% in Q2 2016). Update on new growth opportunities Growth project at Saugbrugs Growth projects at Golbey Tissue project at Bruck Wood pellets in New Zealand Presentation and quarterly material Norske Skog
Q3 2016 Norske Skog quarterly report |