Consumables

Norske Skog: Fourth quarter 2010: Weak results – slightly better outlook

Thursday 03. February 2011 - Norske Skog reached gross operating earnings of NOK 479 million in the fourth quarter, an improvement of NOK 74 million from the third quarter, when non-recurring items are excluded.

There was a positive development relating to volumes and capacity utilization, but higher prices for input factors impacted the results negatively. Gross operating earnings for the full year 2010 were NOK 1 413 million, compared with
NOK 2 185 million in 2009.
“2010 was a very weak year for Norske Skog, especially in Europe, but demand increased and the market balance was slightly better toward the end of the year,” says CEO Sven Ombudstvedt in Norske Skog.
“We implemented important measures to reduce variable and fixed costs and debt throughout 2010. We also achieved changes in our contract portfolio from 2011, from full-year contracts to contracts of shorter duration. This provides increased flexibility in a market that is characterized by large fluctuations.”
Capacity utilization at the group’s mills increased for the sixth consecutive quarter and was 94 percent in the fourth quarter. Capacity utilization for the full year 2010 was 89 percent compared with 79 percent in 2009.
“We expect that the price of newsprint in Europe will be significantly higher in 2011 than in 2010. Rising prices for input factors mean that 2011 will also be a challenging year. Our opinion is that further consolidation in the industry is necessary to achieve satisfactory profitability in the future. Tight cost control and additional measures to improve the group’s financial position are the main priority to ensure that Norske Skog is best positioned for a future consolidation of the paper industry,” says Ombudstvedt.

Operating earnings (IFRS) were minus NOK 46 million in the fourth quarter, compared with minus NOK 326 million in the third quarter of 2010 and NOK 1.075 million in the fourth quarter of 2009.
Net loss in the fourth quarter was NOK 198 million, compared with a loss of NOK 244 million in the previous quarter and profit of NOK 667 million in the fourth quarter of 2009. The result for the fourth quarter of 2009 included a change in value of energy contracts that gave a positive effect on earnings of NOK 1.4 billion.
The level of fixed costs, adjusted for one-time effects, at the end of 2010 was in excess of NOK 4.3 billion, which is in line with the target. Work on further cost improvements will continue in 2011.
Net interest-bearing debt was reduced by NOK 0.1 billion in the quarter and amounted to NOK 8.9 billion at the end of the fourth quarter of 2010. The gearing ratio (net interest-bearing debt to equity) was 0.88 at the end of the fourth quarter, compared with 0.89 at the end of the third quarter.
Segment information
Results in the segment newsprint Europe were significantly weaker in 2010 than in 2009, due to lower sales prices and higher prices for input factors. The market balance improved during the year, however, which led to increased in sales volumes. Considerably higher prices are expected in 2011, as well as more quarterly price agreements.
Gross operating earnings in the segment newsprint outside Europe were virtually unchanged from the third to the fourth quarter. The operations in Australia and New Zealand have stable and relatively strong earnings. New five-year sales agreements were entered into in 2010 for the majority of the volume.
The magazine paper segment achieved better gross operating earnings in the fourth quarter of 2010 compared with the third quarter, even when non-recurring items are excluded. The improvement in earnings is mainly due to higher sales volumes. Demand has increased, particularly for LWC (coated) magazine paper.
Outlook for 2011
After a weak result in 2010, some improvement is expected in 2011. The price level for newsprint in Europe will be significantly higher in 2011 than in 2010, but there is reason to expect higher prices for most input factors. Gross operating earnings in the energy segment are not expected to be significant in 2011.