Norske Skog reports second quarter net loss, announces new business segments

Norske Skog reports second quarter net loss, announces new business segments

Paper producer says it is entering the tissue market and plans to utilize bioenergy.

August 5, 2015
RTGE Staff

Newsprint and magazine paper producer Norske Skog, based in Norway, has reported a net loss of NOK 571 million ($68.8 million) for the second quarter of 2015. The company also reported a decline in gross operating earnings in the second quarter of 2015 to NOK 138 million, from 192 million in the first quarter.

The company cites weak publication paper demand in 2015 and industry focus on market share as factors.

The company also has announced entry into two new growth areas alongside the publication paper business: the use of bioenergy at its facilities and tissue production at Bruck.

The company says the current challenging market for publication paper is affected by cash-driven commercial policies and continued efforts to cut costs and improve productivity.

Sven Ombudstvedt, president and CEO of Norske Skog, says the company will continue to pursue an active capacity management policy to support cash generation and improved market balance.

In Europe the company reported lower sales volume of lightweight coated paper (LWC) due to the June 2015 discontinuation of its Walsum mill in Duisburg, Germany. and the appreciation of the Norwegian krone caused lower operating revenues in the quarter.

The company says the low sales volume, a less favorable sales mix and continued losses at Walsum through May contributed to reduced gross operating earnings.

Demand for newsprint and magazine paper in Europe decreased by 10 percent and 4 percent respectively in the five first months of 2015 compared to the same period last year, Norske Skog says. The mills reduced their capacity utilization to 80 percent (from 82 percent in Q1 2015) in the quarter to avoid low margin sales and to support the company’s commercial policy.

In Australasia, operating revenue declined slightly with Australian dollar depreciation and challenging export markets for newsprint to Asia. Demand for newsprint in Australia decreased by around 10 percent in the first five months of the year compared to the same period last year, while demand for magazine paper was relatively stable.

The group says it has a significant competitive advantage in Australia and New Zealand, being the sole domestic producer of newsprint and magazine paper. However, the export markets for newsprint to Asia pose a challenge with historically low prices.

Total annual production capacity for the group is 2.8 million metric tons.

The company says the market remains challenging and portfolio management policies will continue. Onbudstvedt says previously announced permanent capacity cuts of more than 2.5 million metric tons in Europe and North America in 2014 and 2015 in its product segments should be favorable to the market balance and thus future price levels.

Norske Skog also is entering into two new growth areas alongside the publication paper business. The company plans to build biogas facilities at its mills to utilize waste from paper production for renewable energy. The company plans to build the first biogas facility at Saugbrugs in Norway. The new growth area will be named Nature's Flame, Ombudstvedt says.

The biogas facility is expected to be operational in 2017, and Norske Skog is considering replicating the project at its other mills. The company also has acquired Nature’s Flame, a New Zealand-based producer of wood pellets.

Norske Skog also plans to enter the tissue market and will convert its newsprint site at Bruck in Austria to tissue production through a joint venture structure with the Italian producer and tissue distributor Roto-cart. The total investment for the tissue conversion project is around EUR 80 million, Norske Skog says.

“We are entering the tissue market through a joint venture structure with an experienced partner, which limits the market risk and the capital spend for Norske Skog,” Ombudstvedt says. “The joint venture will replace newsprint production at Bruck with tissue. Thus, supporting the market balance for newsprint and exposing Norske Skog towards the growing market for tissue.”