Newsprint maker Norske Skog has reassessed its business in Australia and New Zealand following continuing weak demand.
In its report on trading for the fourth quarter of 2012, impairments driven by factors increased uncertainty about sales price expectations, the situation in Australasia and the life expectancy of a German mill contribute to a net loss for the period.
The company says it expects that the operating environment to remain “challenging”, with weak demand in both Australasia and Europe.
It is continuing to reduce debt and fixed costs, but says the loss was significantly influenced by non-cash items such as impairments and change in value of energy contracts.
Gross operating earnings (EBITDA) in the fourth quarter of 2012 were NOK 327 million, down from NOK 365 million in the third quarter. This decline was due to weak seasonal effects and NOK appreciation. Gross operating earnings for the full year 2012 were NOK 1 464 million, a reduction of NOK 51 million from 2011, mainly due to lower production capacity after the closure of Norske Skog Follum, sale of Norske Skog Bio Bio and Norske Skog Parenco.
Net profit before special items were NOK 432 million in 2012 compared to NOK 12 million in 2011. The net loss of NOK 2.8 billion for 2012 was heavily influenced by NOK 3.2 billion in impairments, change in value of energy contracts and restructuring expenses. Impairments reflect increased uncertainty about sales price expectations.
In addition, reassessment of Norske Skog's business in Australasia and reduction in the expected useful life of Norske Skog Walsum – in Duisberg, Germany – influenced impairments.
Cash flow from operating activities was NOK 382 million before net financial payments in the quarter. Underlying interest expenses in 2012 fell from 2011 in line with the reduction of net debt.
President and chief executive Sven Ombudstvedt says operating earnings before special items improved in 2012. “Although our mill portfolio was reduced by three mills in 2012, we have made profitability improvements through cost input efficiencies and reduced working capital and fixed costs.
“We have actively managed capacity to counter market imbalances,” he says.
“The main task ahead is to create a better balance between supply and demand, improve productivity and cut expenses to improve margins.”
While prices for Norske Skog products remained “relatively stable” throughout 2012, demand for newsprint in Oceania was weak, with a year-to-date decline of 13 per cent in 2012 compared to 2011.
Norske Skog shut one of two machines at its Tasman last month, as part of a restructuring which saw total annual production capacity cut by 18 per cent. Capacity utilisation for the group in the fourth quarter was 87 per cent compared to 90 per cent in the third quarter with active capacity management. For 2012, capacity utilisation was 88 per cent, a increase on the previous year’s 87 per cent.
Ombudstvedt also pointed to the decision to invest AUD 84 million to convert a machine at Boyer from newsprint to catalogue paper: “We believe in our industry,” he says.