Consumables
Norske Skog – First quarter 2011: Gradual improvement for newsprint in Europe
Thursday 05. May 2011 - Norske Skogs gross operating earnings were NOK 296 million in the first quarter of 2011. When the energy segment and non-recurring items are excluded, the result is approximately unchanged from fourth quarter 2010.
The price of newsprint in Europe has improved from a very low level, but at the same time the prices of important input factors are rising. The results from newsprint outside Europe are somewhat weaker.
“The improvement for newsprint in Europe is encouraging, but also quite necessary, as last year was so weak. At the same time we still have some distance to cover before we reach satisfactory profitability for the company. Throughout the quarter, we have continued our efforts to reduce fixed costs, sell non-core assets and refinance debt maturing in 2011 and 2012,” says President and CEO Sven Ombudstvedt of Norske Skog.
Operating earnings (IFRS) were NOK 225 million in the first quarter, compared to a loss of NOK 46 million in the fourth quarter of 2010 and a loss of NOK 1 364 million in the first quarter of 2010.
Financial items contributed positively with NOK 45 million. This includes realized and unrealized currency gains of NOK 216 million.
Net earnings were NOK 169 million, compared to a loss of NOK 198 million in the fourth quarter 2010 and a loss of NOK 1 152 million in the first quarter of 2010. The quarter is positively affected by non-recurring items.
The gearing ratio was 0.90 at the end of the quarter, compared to 0.87 at year-end.
Segment information
Gross operating earnings for the segment newsprint in Europe improved in the first quarter from a very weak level throughout last year. The improved profitability is mainly caused by higher prices, but a third of the volume in the first quarter was still sold at last years prices. The cost of both wood, recovered paper and energy has increased. Production volume was roughly in line with fourth quarter 2010 and significantly increased from first quarter 2010.
The segment newsprint outside Europe shows an improvement compared to first quarter 2010, but a decline compared to the fourth quarter. In Australia and New Zealand, earnings declined somewhat. The weakening here is mainly due to lower volumes related to maintenance downtime at Norske Skog Boyer and a larger share of export sales to Asia with relatively low margins. The operations in South America have somewhat better results than last year.
The magazine paper segment has weaker gross operating earnings than in the fourth quarter of 2010, but stronger than in the first quarter of 2010. The volume in this segment is significantly impacted by halted production after the fire at Norske Skog Saugbrugs on 2 February. One of three paper machines is restarted, but full production is not expected until the end of June.
As previously reported the energy segment is no longer expected to contribute significantly to Norske Skogs gross operating earnings due to changed contract structure in Norway.
Green certificates
During the hearings leading up to the Norwegian governments proposed law on power certificates, uncertainty was uncovered about whether all power-intensive industry and the pulp and paper industry would be exempt from the obligation to purchase certificates. However, the bill published in April includes a clause securing an exemption.
“This is a very important issue for a company like Norske Skog, and the government should get credit for listening to the industrys views,” says Ombudstvedt.
Outlook for 2011
From and including the second quarter of 2011, the price increases for newsprint in Europe will be fully effective, and somewhat higher sales volumes are expected in most regions. The cost level for most input factors will remain high. Operating earnings for all of 2011 are expected to improve somewhat from 2010.