Business News

Norske Skog: Weak result in the first quarter

Thursday 08. May 2008 - The gross operating profit before depreciation and all special items was NOK 489 million in the first quarter of 2008, down from 778 million in the fourth quarter of 2007. The weakened result is, as previously reported, due to lower newsprint prices in Europe, increased prices on several input factors and currency factors.

Price increases have been implemented for magazine paper in Europe and newsprint in China. With the exception of magazine paper, all segments show weaker results, and in some cases significantly weaker results.
 
“Seasonal fluctuations add to the weak result. However, the strong cost growth, combined with a weak price development for newsprint in Europe, is the largest challenge facing Norske Skog,” says CEO Christian Rynning-Tønnesen.
 
Decisions have been made to shut down three paper machines in 2008. This is expected to yield a result improvement of NOK 500 million per year. In addition, staff reductions and other measures have been carried out at the corporate centre which will give annual cost savings of about NOK 150 million.
 
One of Norske Skog’s main priorities is to reduce net debt by generating sufficient cash flow from operations and transactions. As previously reported, Norske Skog is working with external advisers to review various models to restructure the group and reduce the debt.
 
The underlying operating profit, containing NOK 145 million in realised gains from currency hedging, amounted to NOK 634 million in the quarter. The corresponding figure in the fourth quarter of 2007 was NOK 926 million.
 
The net loss after tax was NOK 966 million in the first quarter of 2008. The halting of the Pisa PM2 project in Brazil has added NOK 665 million in termination costs and impairments to the accounts.
 
Operations generated a good cash flow during the quarter, NOK 832 million in total. This has contributed to reducing net interest-bearing debt with NOK 666 million from year-end 2007, and as of 31 March 2008, it amounts to NOK 15.7 billion NOK. 
 
Outlook for the remainder of 2008
Measured in local currency, stable newsprint prices are expected in Europe, lower prices in Australia from 1 July and price increases in Asia. The price increase on input factors remains a concern. The second half of 2008 will see cost savings as a result of the shutdown of paper machines and other cost-reducing measures.