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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.

Cash flow from operating activities before net financial items was NOK 115 million compared with NOK 321 million in Q2 2016. The cash balance at the end of the quarter was NOK 570 million. Net interest bearing debt was reduced by NOK 0.2 billion from the end of the second quarter, from NOK 6.4 billion to NOK 6.2 billion, as a result of a stronger Norwegian krone against all major currencies and bond buybacks. The equity was NOK 269 million at end of the third quarter compared to NOK 190 million at the end of the second quarter.

Key figures, third quarter of 2016 (NOK million)

  Q3 2016 Q2 2016 Q3 2015 2015
Operating revenue 2 918 2 891 2 779 11 538
Gross operating earnings (EBITDA) 251 335 163 753
Gross operating margin (%) 8.6 11.6 5.9 6.5
Gross operating earnings after depreciation 95 149 -27 -14
Restructuring expenses -1 -46 -2 -53
Impairment - -1 238 - -
Other gains and losses 20 -10 -137 -97
Operating earnings 114 -1 146 -167 -164
Share of profit in associated companies -3 -204 -7 -41
Financial items 84 1 359 -782 -801
Income taxes -5 220 81 -520
Profit/loss for the period 190 229 -874 -1 526
Cash flow from operations before net financial items 115 321 2 66
Net interest bearing debt 6 172 6 353 8 377 8 523

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.

Operating revenue decreased from the previous quarter with somewhat lower sales volumes and a negative Brexit impact from GBP depreciation. European publication paper prices remained stable outside the UK, where import inflation drove UK newsprint prices higher.

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).

Operating revenue increased from the previous quarter with higher sales volumes at Boyer. Publication paper prices in Australasia remained relatively stable as long term contracts are an important constituent of the business.

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
The NOK 150 million biogas project at Saugbrugs is on schedule for completion by year-end 2016. The biogas facility will be at full run-rate contribution to gross operating earnings in 2017. Saugbrugs has, in addition, initiated growth projects related to the development of microfibrillated cellulose (MFC) and fibreboard.

Growth projects at Golbey
The Golbey biogas plant is under construction, and is expected to be completed during 2017. The project 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. At the same time, Golbey is implementing new projects, which will combine synergies from the existing mill and nearby industrial clusters.

Tissue project at Bruck
Norske Skog is in partner discussions for a brownfield conversion of the newsprint line at Bruck in Austria to tissue. The 125 000 tonnes newsprint machine will be closed at the end of 2017, while the 265 000 tonnes LWC machine will continue production.

Wood pellets in New Zealand
Nature's Flames pellets production has reached an annual capacity of 40 000 tonnes. Norske Skog considers to expand the production of pellets, given the considerable competitive export advantage. Wood pellets are a renewable alternative to fossil fuels in the large economies of South-East Asia.

Presentation and quarterly material
A recorded webcast of the CEO presentation, the quarterly financial statements and the presentation package will be available on www.norskeskog.com.
From 1 November 2016, Norske Skog's press- and stock exchange releases will only be published through the Oslo Stock Exchange website www.newsweb.no, the Norske Skog ticker or IssuerID being NSG.

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

Q3 2016 Norske Skog quarterly report
Q3 2016 Norske Skog presentation


Norske Skog ASA
PB 294 Skøyen
0213 Oslo

Phone: +47 22 51 20 20
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Norske Skog ASA
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0278 Oslo