Norske Skog's gross operating profit before depreciation and special items was NOK 601 million in the second quarter of 2008, up from 489 million in the first quarter. Sales volumes increased by about four per cent
Norske Skog’s gross operating profit before depreciation and special items was NOK 601 million in the second quarter of 2008, up from 489 million in the first quarter. Sales volumes increased by about four per cent.
”Even though we see signs of improvement, there is far to go before we have satisfactory financial results from operations,” says CEO Christian Rynning-Tønnesen.
The results have been improved for the segments Asia, Australasia and South America from the first to the second quarter. Magazine paper operations deliver a somewhat weaker result in the quarter, while the results from the newsprint activities in Europe are virtually unchanged. Sales volumes increased in all segments except newsprint in Asia.
There has been a good development in Norske Skog’s improvement programme throughout the second quarter. Improvements achieved now amount to NOK 2.5 billion annualized in relation to the base year of 2005.
”Our most important task is to improve profitability in operations through higher prices on our end products, while at the same time applying full pressure on the work to reduce costs and net debt,” says Rynning-Tønnesen.
Norske Skog is working on reducing net debt by generating a sufficient cash flow from operations and transactions.
”Following the sale of the Korean operations and properties, Norske Skog’s net debt will be significantly reduced. Our goal is to further reduce debt,” says Rynning-Tønnesen.
The sale of the operations in Korea was announced at the end of June this year. Completion of the transaction is contingent on approval by the Korean competition authorities, consent from certain of Norske Skog’s lenders and other customary closing conditions. There are still some matters to be clarified between the buyer and Norske Skog before the transaction can be closed.
Approval has been received from the competition authorities, as well as the necessary lenders. The approval from the lenders implies that no cash dividend must be disbursed or shares repurchased. Norske Skog must keep a liquidity buffer of minimum NOK 2.5 billion, and annual investments must be limited to NOK 1.5 billion. These conditions are effective until a loan of EUR 400 million, which falls due in February 2010, is renegotiated or repaid. The terms of the agreement between Norske Skog and the lenders will take effect upon implementation of the sale of the Korean operations.
Improved net result
The operating profit after depreciation and special items was NOK 1 269 million in the second quarter, compared with minus NOK 990 million in the first quarter. The profit in the second quarter includes changes in the value of power contracts and built-in derivatives with a gain of NOK 1.3 billion in all, while about NOK 700 million was booked to income in the first quarter from the power portfolio and a total of NOK 1.45 billion was expensed in restructuring costs and write-down of facilities. Profit after tax and financial items was NOK 695 million in the second quarter compared with minus NOK 966 million in the first quarter.
Prospects for the remainder of 2008
The accounts for the second half of the year will be impacted by the sale of Norske Skog’s operations in Korea and the shutdown of production capacity in Europe. Shutdowns and downsizing at the main office will entail reduced fixed costs.
Continued good demand and price increases for newsprint in Asia and magazine paper in Europe is expected. The prices for newsprint in Europe are stable, measured in local currency, while the demand trend is somewhat uncertain. In Australia there is a price reduction of seven per cent from 1 July 2008.
There is reason to believe that there will be a continued high price level on input factors, with a risk of further price increases.