OSLO, Norway , April 24, 2014 (Press Release) -
Norske Skog continues to strengthen operations in a difficult market. Capacity utilisation in the first quarter remained high at 91% showing the competitiveness of the business units.
In a challenging market, we see a good trend with stable variable and lower fixed costs. We are in a better cost position this year compared to prior years, due to continued cost reduction programmes and better economies of scale at our remaining units. We are adapting our production to market needs, and we have currently received positive customer feedback on the first rolls of LWC-paper from the newly rebuilt Boyer-machine, says Sven Ombudstvedt, President and CEO of Norske Skog.
Norske Skog's gross operating earnings (EBITDA) in the first quarter of 2014 were NOK 153 million, down from NOK 298 million in the fourth quarter. The decline reflected a loss at Boyer due to the LWC machine conversion, continued loss at Walsum with time lag in optimizing production around one machine, start-up at the new thermo-mechanical pulp plant at Saugbrugs and seasonal sales volume effects.
Profit after tax for the period amounted to NOK 11 million in the first quarter, compared to a loss of NOK 457 million in the fourth quarter of 2013. The profit was impacted by an increase in the value of energy contracts due to higher electricity prices. Net interest-bearing debt decreased by NOK 17 million to NOK 6 800 million. As of 23 April 2014, Norske Skog has bought back bonds with maturity in June 2014 amounting to NOK 301 million. The remaining amount due in June is NOK 395 million. Cash flow from operating activities before net financial items was NOK 54 million in the first quarter, compared to NOK 497 in the fourth quarter.
We have successfully strengthened our financial position by entering into new loan agreements for Skogn, Saugbrugs and Golbey totalling approximately NOK 600 million based on outstanding accounts receivables. We are working on similar agreements for the Bruck mill. Cost reductions and lower interest expenses following the June bond maturities will also improve profitability. 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.
Market and segments
Operating revenue decreased from the previous quarter, reflecting the closure of one machine at Walsum in Germany and seasonally lower sales volumes. Average selling prices were influenced by lower exposure to the LWC-market, due to the Walsum closure.
Cost of materials per tonne was on level with the previous quarter. Fixed costs declined, with a lower headcount at Walsum following the closure.
Demand for newsprint in Europe was flat in the first two months of the year compared to the corresponding period last year. Demand for magazine paper declined by 5%.
Operating revenue decreased compared to the previous quarter, reflecting the standstill of the machine under conversion at Boyer. Furthermore, Singburi in Thailand was fully deconsolidated in the first quarter. In the fourth quarter of last year, Singburi was partially consolidated.
Cost of materials per tonne increased somewhat compared to the previous quarter, reflecting higher energy prices in New Zealand. Fixed costs increased due to a one-off reduction in environmental obligations in Australasia in the fourth quarter.
Last years sharp decline in consumption has abated in the first quarter. Demand for magazine paper in Australasia remains relatively flat.
New marketing agreements
Norske Skog and Björnberg 1781 have agreed to enter into a long-term marketing agreement for sales of publication paper in the Czech and Slovak Republic and in Poland. Björnberg 1781 will have the exclusive marketing rights for all Norske Skog products to be sold in these markets. Norske Skog will transfer its current sales operations and sales staff in these markets to Björnberg 1781.
Anti dumping actions by Australian authorities
Norske Skog welcomes the Australian Anti-Dumping Commission's (ADC) announcement of an investigation into newsprint imported from France and South-Korea. ADC will investigate whether newsprint paper has been exported to Australia as the dumping may have caused significant financial harm to Norske Skog.
New member of Corporate Management
Vice President Legal, Lars P. Sperre (37), has been appointed Senior Vice President Corporate Strategy & Legal, and will from now on be a member of the Corporate Management of Norske Skog. Sperre has been Vice President Legal in Norske Skog since December 2007 and has been actively involved in the strategic development of the Norske Skog Group during his service as VP Legal.
Outlook for 2014
Publication paper prices in Europe improved into 2014, with a better market balance for newsprint and SC magazine paper. The European market for coated magazine paper remains weak.
The converted paper machine in Australia will contribute to gross operating earnings from the second quarter.
Variable costs for the group are expected to remain relatively stable. Fixed costs will decline following ongoing cost reduction programmes.
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