Norske Skog: Still lower costs

Norske Skog continues the positive trend of reducing costs. High production at the mills in a demanding market shows the relative competitive position of the group.  

- Our competitive position has improved over the past year as a result of continuous improvement programs in all areas. Interest expense has been reduced by repayments of expensive bond loans and by replacement of cheaper securitisation facilities based on receivables totalling so far around NOK 800 million. 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.

Norske Skog's gross operating earnings (EBITDA) in the third quarter of 2014 were NOK 208 million, down from NOK 251 million in the second quarter, but an improvement from third quarter 2013 of NOK 32 million. The decrease was due to prolonged initiation of the new LWC-production at Boyer in Australia and a planned nine-week stop at one of three machines at Skogn in Norway.

Loss before tax for the period amounted to NOK -40 million in the third quarter, compared to a loss of NOK -165 million in the second quarter of 2014. Loss after tax for the period amounted to NOK -192 million in the third quarter, compared to a loss of NOK -114 million in the second quarter of 2014. The tax expense of NOK 152 million was mainly negatively impacted by a reassessment of deferred tax assets. Net interest-bearing debt decreased by NOK 21 million to NOK 6 931 million. Cash flow from operating activities before net financial items was NOK 46 million in the third quarter, compared to NOK 206 in the second quarter.

- Despite the generally high cost level in Norway, especially on wages, we have still in recent years implemented extensive cost cuts at our mills and headquarter. Efforts of creative staff have resulted in more efficient use of energy and raw materials, as well as lower fixed costs, says Sven Ombudstvedt, President and CEO of Norske Skog.

Market and segments

Europe
Operating income was slightly lower compared to the previous quarter despite a modest increase in sales volume. Capacity utilization was 86% in the third quarter compared to 87% in the second quarter. The summer stop at one of three machines at Skogn in Norway contributed to decline in gross operating earnings.

Demand for newsprint and magazine paper in Europe fell by 5% and 4% in the first eight months of this year compared with the same period last year. Cost of materials was flat from the second quarter on a per tonne basis. Fixed costs continue to show a downward trend.

The Walsum paper machine (PM4), which ceased production of 225 000 ton in December 2013, has been liquidated and sold to Eurasteel. The sales agreement has a clause of not producing publication paper grades again.

Australasia
Operating revenue increased compared to the second quarter, due to higher production after the start-up of the LWC-machine at Boyer. Demand for newsprint and magazine paper in Oceania fell by 6% and 1% in the first eight months of this year compared with the same period last year. 

Variable costs per ton increased in the quarter compared to the previous quarter due to higher costs associated with LWC-production at Boyer. Fixed costs were slightly higher compared with the second quarter in part due to a stronger Australian dollar. Capacity utilization was 94% in the quarter compared with 91% in the previous quarter.

Key figures, second quarter of 2014 (NOK million)

	Q3 2014	Q2 2014	Q3 2013	2013
Operating revenue	3 057	3 018	3 353	13 339
Gross operating earnings (EBITDA)	208	251	176	862
Gross operating margin (%)	6,8	8,3	5,2	6,5
Gross operating earnings after depreciation	22	71	40	134
Restructuring expenses	5	0	3	-145
Other gains and losses	70	51	-47	-1 100
Impairments	0	0	0	0
Operating earnings	97	122	-4	-1 111
Share of profit in associated companies	0	-3	9	26
Financial items	-138	-284	-245	-1 258
Income taxes	-152	51	94	500
Profit/loss for the period	-192	-114	-147	-1 844
Cash flow from operations before net financial items	46	206	17	690

Outlook

Publication paper prices in Europe are expected to remain relatively stable into 2015. The market balance for newsprint is acceptable, while the operating rate for magazine paper currently is not satisfactory.

Newsprint prices in Australasia are to a large degree fixed through long-term contracts, while export volumes track international prices. Magazine paper prices are more short-term and among other exposed to the relative strength of AUD.

Variable costs for the group are expected to remain relatively stable. Fixed costs initiatives 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: 483 289#.

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

Oslo, 23 October 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

---