Business News

Higher earnings following operational improvements and beneficial currency developments

Thursday 05. February 2009 - Norske Skog's gross operating earnings (EBITDA) were NOK 922 million in the fourth quarter of 2008, up from NOK 712 million in the third quarter.

“We have a seen a positive development throughout 2008. Our production is now more cost-efficient and important input factors have become more reasonably priced. In addition, currency developments with a significantly weaker NOK through the latter half of 2008 have had very beneficial effect for Norske Skog,” says CEO Christian Rynning-Tønnesen.
 
Net loss for the fourth quarter were NOK 1.3 billion, following major negative changes in value for the company’s energy contracts. Net earnings for the full year 2008 were minus NOK 2.8 billion, with large negative effects from write-downs and accounting losses without cash effects.
 
The cash flow amounted to NOK 1.98 billion in 2008, and thus almost on a par with 2007, when the cash flow was NOK 2.17 billion.
 
Key figures for 2008 (million NOK)
 
Q4 ‘ 08
Q3 ‘ 08
2008
2007
Operating revenue
7 354
6 317
26 468
27 118
Gross operating earnings (EBITDA)
922
712
2 723
3 932
Gross operating earnings after depreciation (EBIT)
256
111
100
1 053
Value changes energy contracts
-2 346
11
– 15
4 464
Accumulated translation differences
 
-783
-783
 
Other special income and costs
368
195
74
 
Write-downs
502
 
-785
-4 840
Financial items and tax
-63
-744
-1 359
-1 360
Net earnings
-1 282
-1 212
-2 765
-683
Net cash flow from operations
732
119
1 977
2 166
 
Figures excluding the activities in Korea*:
 
Operating revenue
7 354
6 317
24 819
23 304
Gross operating earnings (EBITDA)
922
712
2 536
3 213
Operating earnings after depreciation (EBIT)
256
111
108
767
 
*) Norske Skog sold two mills in Korea in 2008. The earnings from the two mills have been included up to and including the second quarter of 2008 and therefore influence the comparison of the earnings for 2008 and 2007.
 
Production
Over the last two years, Norske Skog has implemented a program which aims to improve profitability by NOK 3 billion per year. The program was completed at the end of 2008, and the achieved effects are close to the original objective.
 
“The improvement program has been absolutely necessary to counter the severe cost increases we have experienced in recent years,” says Rynning-Tønnesen.
 
Total sales are a little higher in the fourth quarter compared with the third. Sales in the fourth quarter are also somewhat higher than the production, and stocks have been reduced as a result.
 
Production in the fourth quarter was 1.15 million tonnes, down from 1.24 million tonnes in the third quarter. It is mainly the production in Asia and the production of magazine paper which have been reduced. 
 
Continued good health and safety results
 
Norske Skog’s constant focus on health and safety creates good results. Absence due to illness for 2008 was 3 per cent and the H value (lost time injuries per million working hours) was 1.4. The average H value for the international paper industry is about 10.
 
“We are never satisfied with the health and safety results, but it is good to see that we are successful in keeping absence due to sickness and the number of injuries at a low level, even in times with major reorganisations,” says Rynning-Tønnesen.
 
Segment results
 
The gross operating earnings for Norske Skog’s newsprint production in Europe increased to NOK 369 million in the fourth quarter, up from NOK 217 million in the third quarter. The main reason is the weaker Norwegian NOK, lower energy and recovered paper prices, as well as cost improvements.
 
The magazine paper segment shows a substantial result improvement in the fourth quarter. The gross operating earnings were NOK 331 million, up from NOK 201 million in the third quarter. It is mostly positive currency effects and lower input factor costs which contribute to the result improvement.
 
Gross operating earnings for the activities in Australasia increased to NOK 173 million in the fourth quarter, up from NOK 148 million in the third quarter. The main reasons for the improvement are lower energy costs in New Zealand and reduced wood prices in Australia.
 
The activities in Asia had a very weak fourth quarter result. Gross operating earnings in the quarter were NOK 8 million, down from NOK 42 million in the third quarter. The situation with substantial surplus capacity in China continues. In order to adapt production to the market, Norske Skog has reduced newsprint production in Asia to 97 000 tonnes in the fourth quarter, compared to 133 000 tonnes in third quarter. The reductions were implemented in the form of temporary production shutdowns.
 
For the activities in South America, the gross operating earnings in the fourth quarter were NOK 87 million. This is unchanged from the third quarter. The price level in the region was acceptable during the quarter, and the cost increase has levelled off.
 
Assets and liabilities
 
The value of Norske Skog’s assets increased by NOK 2 billion to NOK 45.2 billion in 2008. The main cause is the weaker NOK, in particular compared to the EUR and USD. The group’s equity is not significantly influenced by the currency fluctuations.
 
Net interest-bearing debt was reduced substantially in 2008 following the sales of the activities in Korea and various properties. At the end of 2008, the net debt was NOK 14 billion and the gearing (net debt/equity) was 1.05. Cash and liquid assets amounted to NOK 6 billion. Own bonds were repurchased in the fourth quarter at a discount. 
 
Temporary capacity curtailments in 2009
 
Newsprint demand is expected to be lower in 2009 than in 2008. Norske Skog has therefore decided to reduce the newsprint production capacity in Europe by about 200 000 tonnes in 2009. The magazine paper production capacity will be reduced by about 75 000 tonnes in 2009. The measures are temporary and will be divided between the mills in Europe, focusing on optimising the results in the overall activities.
 
The need for production curtailments will be assessed continuously in 2009 so that capacity can be quickly adjusted to reflect changes in demand.
 
Profitability improvements and debt reduction
 
The main objective for Norske Skog is continued improvement of profitability and debt reduction. Further cost reductions are planned for 2009 and 2010, and the company will continue to focus on reduction of net debt through cash flow from the operations, low investment levels and transactions.
 
There is considerable uncertainty linked to currency developments and the demand for newsprint and magazine paper in 2009. As of today, Norske Skog expects a decline in volume of 5-10 per cent in mature markets. There will be higher prices in Europe in 2009, and based on long-term contracts in Australia, prices are expected to increase from 1 July 2009. In Asia and South America prices could weaken somewhat from the current level.
 
The costs of recovered paper and energy are expected to be lower in 2009 than in 2008. Overall, there is reason to believe that the company’s gross operating earnings will be somewhat better in 2009 than in 2008.
 
“We have implemented a major restructuring of the company in 2008. Our financial situation has improved through the sale of the activities in Korea and various properties. The group’s cost position has improved and the production capacity has been reduced in order to meet lower demand. However, we can still not achieve results which give a satisfactory return on capital. To achieve our goals to improve profitability and continue to reduce debts, 2009 will also be characterised by reorganisations and hard work,” says Christian Rynning-Tønnesen.