Norske Skog says challenging export markets affected third quarter performance

Photo: Soma Kondo via Flickr

Norwegian paper producer Norske Skog has delivered its third quarter financial report, indicating gross operating earnings (EBITDA) in the third quarter of 2015 of NOK 163 million, up from 138 million in the second quarter.

The company attributes the improvement to foreign exchange effects, noting it was offset by lower sales prices with challenging export markets in Australasia.

The company also reported a net loss of NOK 742 million (US$86.56 million) in the third quarter of 2015, which was significantly impacted by negative unrealised foreign exchange losses of NOK 525 million on foreign denominated debt due to a significant depreciation of NOK.

“We are satisfied with the cost development in Europe, but we are challenged by low export prices from Australasia. We meet the challenging market for publication paper by a cash-driven commercial policy, and continued efforts to cut costs and improve productivity. We are also considering several options for the upcoming bond maturities,” says Sven Ombudstvedt, president and CEO of Norske Skog.

In Europe, the company reports operating revenue increased slightly despite somewhat lower sales volume. The volume was down due to the deconsolidation of the Walsum mill in Germany, the company says.

Gross operating earnings improved significantly quarter-over-quarter mainly due to lower costs, while there was a reduction in selling prices year-over-year due to depressed European price levels for newsprint and magazine paper.

Total annual production capacity for the group is 2.8 million metric tons, with 2.1 million tons in Europe and 0.7 million metric tons in the Australasian region.

The company reports that capacity utilization for the group in the third quarter was 85 percent, compared with 82 percent in the second quarter.

The market balance for newsprint and magazine paper in Europe has improved following capacity closures in the industry.

The company also says that following the deconsolidation of its Walsum mill and ongoing tissue conversion at Bruck, in Austria, Norske Skog only has prime capacity left in the portfolio. Norske Skog has formalized a joint venture structure with the Italian producer and tissue distributor Roto-cart for converting the newsprint site at Bruck in Austria to tissue production.

“We will continue to pursue an active capacity management policy to support cash generation and improved market balance, Ombudstvedt says.

In addition, the NOK 150 million biogas project at Saugbrugs is on schedule for completion by late 2016.  Norske Skog says is considering replicating the project at its other mills.

The company says the newsprint export business out of Australasia is an increasing challenge as the domestic market declines and the Asian prices remain historically low, however input factors are set to decrease with ongoing efficiency projects at all mills.

The challenging market environment for both price and volumes have reduced gross operating earnings and cash flows. The industry consensus is, however, for improved pricing for all grades into 2016. LWC (lightweight coated) prices have increased this autumn, and high operating rates across all graphic paper grades support higher prices into 2016 for all the company’s product, Norske Skog says.