Consumables

Norske Skog: Challenging markets

Friday 26. April 2013 - Lower margins in the quarter were due to lower selling prices and seasonal fluctuations in demand. Norske Skog is meeting this challenge through the closure and conversion of paper machines. Price increases are expected during the second half as a result of the considerable capacity closures that have been announced.

Norske Skog continues to cut costs and improve productivity. Investments are also being made to improve profitability on certain machines. There is also focus on improving the regulatory environment in Norway.
Norske Skog had gross operating earnings (EBITDA) in the first quarter of 2013 of NOK 174 million, down from NOK 385 million in the first quarter of 2012.
The decline was mainly due to lower prices. Negative cash flow from operating activities of NOK 106 million in the first quarter, which was significantly weaker compared to the first quarter of 2012. The decrease was due to weaker margins, restructuring activities in Australia and seasonally increased working capital.
Net interest-bearing debt increased by NOK 461 million in the quarter, due to negative currency effects and cash flow. The level of fixed costs was NOK 800 million in the first quarter, down from NOK 1 026 million in the first quarter of 2012.
– The result was weakened by lower prices and weak demand. Permanent capacity cuts in Europe of more than a million tonnes have been announced this year. This constitutes a significant share of the production capacity in Europe and will provide a better market balance and increased prices. We are continuing our efforts to improve productivity and reduce costs in order to improve margins, says Sven Ombudstvedt, President and CEO in Norske Skog.
– The level of variable costs, mainly fibre and energy, was stable compared to the previous quarter, and lower compared to the same period in 2012. We are satisfied that the annual level of fixed costs has been reduced by over NOK 800 million in 12 months, says Ombudstvedt.
Active capacity management
The company’s investment projects have progressed according to plan in the quarter. We are investing AUD 84 million (NOK 480 million) to convert a machine at Boyer in Australia from production of newsprint to catalogue paper, and we are investing NOK 220 million at Saugbrugs to reduce energy consumption and fixed costs, says Ombudstvedt.
Norske Skog has announced a temporary production stop at Skogn in Norway. In addition, there will be a smaller reduction in the remaining production at Tasman in New Zealand. The other machine at the mill was permanently closed on 9 January 2013.
Outlook for 2013
Norske Skog expects that the operating environment will remain challenging through the first half of 2013, with weak demand in both Europe and Australasia. Relatively stable costs through the year and positive price impacts from industry-wide capacity closures will be supportive in the second half.