Norske Skog reports strong 4th quarter results despite weak paper markets

OSLO, NORWAY: Norske Skog, a leading producer of publication and packaging paper, announced its financial results for the fourth quarter of 2023, showing a significant improvement in earnings and cash flow compared to the previous quarter. The company attributed the positive results to the receipt of insurance proceeds related to the fire incident at its Saugbrugs mill in Norway, as well as the sale of its Tasman mill site in New Zealand.

The company’s earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter of 2023 was NOK 760 million, an increase from NOK 327 million in the third quarter of 2023. The fourth quarter EBITDA included NOK 625 million from business interruption insurance, which also covers 10 months in 2024 of NOK 460 million at Norske Skog Saugbrugs. In addition, EBITDA in the quarter was boosted by a NOK 57 million gain from the sale of the Norske Skog Tasman mill site.

The cash flow from operations in the quarter was NOK 973 million, improving the financial position and liquidity of the company. The cash flow was mainly driven by the insurance proceeds of NOK 720 million, the proceeds from the sale of Tasman of NOK 70 million, and NOK 399 million in reduced working capital.

The operating earnings in the fourth quarter of 2023 were NOK 629 million, compared to NOK 36 million in the third quarter of 2023. The operating earnings were positively affected by non-cash changes in fair value of energy contracts in Norway amounting to NOK 97 million, and negatively affected by NOK 88 million in impairments.

The profit before taxes in the quarter was NOK 586 million, compared to NOK 112 million in the previous quarter. The net profit was negatively affected by increased interest expense and lower evaluation of financial investments. The net interest-bearing debt decreased from NOK 2 662 to 2 590 million at the end of the quarter. The equity ratio was unchanged at 42%.

The company also reported on its production capacity and market outlook for its products. The total annual publication paper production capacity for the group is 1.6 million tonnes, with 1.3 million tonnes in Europe and 0.3 million tonnes in Australia. The company has been converting some of its machines to produce recycled containerboard paper, which has higher demand and margins than publication paper. The Bruck mill in Austria started production of containerboard paper in the first quarter of 2024, and the Golbey mill in France plans to start in the second half of 2024. After the ramp-up of Bruck and Golbey, Norske Skog will have an annual capacity of 760 000 tonnes of packaging paper production.

The company acknowledged that the publication paper markets remain weak, and further capacity closures are required to balance the supply and demand. According to industry statistics, the demand for standard newsprint, SC magazine and LWC paper in Europe decreased by 21%, 24% and 26%, respectively, through November 2023 compared to the same period last year. The demand for newsprint and coated mechanical in Australia decreased by 20% and 17%, respectively, through November 2023 compared to the same period last year.

The company also commented on the raw material and energy markets, which are important for both publication paper and packaging paper production. The company said that the markets are expected to remain uncertain, although prices have come down close to historical levels. The cost of recycled paper has become close to trend prices, but the quality and availability are worsening. This trend is expected to persist through 2024. The pulpwood prices increased steadily through 2023 and are expected to remain at elevated levels for 2024.

The company concluded that the level of input costs and demand for paper will continue to influence paper sales prices in Europe. The company said that it expects the utilisation of its paper machines to remain weak until the capacity adjustments are completed. The company also said that it will continue to pursue its strategy of diversifying its product portfolio and increasing its exposure to the growing packaging paper market.

“We are very satisfied with the NOK 2.4 billion insurance settlement agreed in the fourth quarter for business interruption and property damage related to the rockslide at Norske Skog Saugbrugs in April 2023. This provides us with an opportunity to assess options for development of Norske Skog Saugbrugs. However, lower production and carrying of fixed costs at Bruck, Golbey and Saugbrugs while the mills are transformed, impacts our operating earnings negatively during the quarter. During the ramp-up of production of containerboard at Bruck, and the conversion and ensuing ramp-up at Golbey, we will continue to experience relatively higher cost per tonne produced,” says Geir Drangsland, CEO of Norske Skog.

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