Norske Skog makes a loss in the second quarter of 2014, but says it has plans to improve profits and will move with the market
Norske Skog has made a global loss after tax of US$18.4m for the second quarter of 2014 after a short hiatus in the black in Q1, still a substantial improvement on last year’s Q2 loss of $US138.4m. However the Norwegian paper maker expects to improve its profitability through cost reductions and says it should see greater cash flow with the wind up of its two-year US$79.4m investment programme in Tasmania’s Boyer mill. The company blames its return to the red on the depreciation of the Norwegian kroner against the euro and US dollar, which it says caused foreign exchange losses of US$19.5m. It also points to a ‘more benign demand decline’ (aka demand isn’t dropping as fast as it has been) for paper in Europe and Australasia and ‘a friendly cost trend’ in lower material costs as signs of hope for the future.
Sven Ombudstvedt, president and CEO of Norske Skog
Sven Ombudstvedt, president and CEO of Norske Skog, says the board will keep an eye on the market, ‘and if necessary implement active capacity management to counteract the effects of market imbalances.’ The Australasian operations are currently running at 91 per cent of capacity, and at 87 per cent in Europe. Ombudstvedt says, “Overall, 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.” In Australasia publication paper raked in gross operating earnings of around US$13.2m in Q2, up from US$8.7m in Q1 but considerably down on last year’s figure for the same period of US$34.3m. The Q2 jump from last quarter was helped along by the start-up of the new magazine paper machine at the Boyer mill in Tasmania, which completed its US$79.4m switch from newsprint to light-weight coated paper. The conversion brings the region’s production capacity to 695,000 tonnes, though the Boyer mill reportedly still has more to give and will contribute fully from Q3. Norske Skog says demand for newsprint and magazine paper in Oceania was ‘relatively stable’ in the first five months of 2014, compared to the same time last year. Demand for newsprint in the region fell by three per cent in the first five months, compared to 2013, and magazine paper demand dropped by five per cent.
The company’s Tasmanian Boyer Mill has completed its switch from newsprint to light-weight coated paper for catalogues and magazines
On the upside, cost of materials was flat on a per ton basis in Q2, and lower energy costs also contributed to a rise in chemical and pulp usage for magazine paper production. The company says it will continue to back print, pointing to RCS Media’s assertion that it will take 15 years for digital media to replace printed products if revenue trends continue. Norske Skog also claims that pure digital platforms require substantial revenue from other sources to be sustainable, that digital margins remain below print margins, and consumers prefer print as an ‘effective and unobtrusive’ advertising medium. The paper giant is the initiator of an ongoing Australian Anti-Dumping Commission investigation into newsprint allegedly dumped into the local market by French and Korean exporters. Norkse Skog Australia says it is suffering ongoing damages thanks to the alleged dumpers undercutting the already struggling market, with prices up to 12.85 per cent cheaper. However, in December it did manage to lock in long term contracts with two of Australasia’s big four newspaper groups; with deals for newsprint and improved grade paper with News Limited and Fairfax set to run til mid-2020. The investigation is currently underway, with a final recommendation due to the Parliamentary Secretary in September.
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