Still strong performance despite weaker markets

27 Apr 2023 06:55 CEST

Norske Skog’s EBITDA in the first quarter of 2023 was NOK 675 million, a
decrease from NOK 1 083 million in the fourth quarter of 2022. The first quarter
EBITDA was impacted by lower sales volumes and slightly lower publication paper
sales prices than in the fourth quarter of 2022. The weakened publication paper
market resulted in increased finished goods inventory and some market downtime
with sale of excess energy at lower prices than in fourth quarter 2022. Norske
Skog Bruck successfully commenced recycled packaging paper production in the end
of the first quarter. The Norske Skog Golbey packaging paper conversion project
is progressing according to budget and timeline.

“All credit go to the entire Bruck team for the successful packaging paper
production start-up in the quarter. Most impressivesively, despite turbulent
European economic development in the last three years, the Bruck conversion
project has been implemented according to budget and timeline assumptions. We
expect to deliver packaging paper volumes regularly to our customers from the
end of the second quarter following normal production optimization and standard
product testing at our new customers. Despite weaker publication paper market
with lower sales prices and production volumes, we have delivered a solid
quarter,” says Sven Ombudstvedt, CEO of Norske Skog.

Cash flow from operations was NOK 430 million in the quarter compared to NOK 745
million in the previous quarter, negatively impacted by lower EBITDA and change
in working capital of NOK 188 million, mostly related to increased finished
goods inventory. Operating earnings in the first quarter of 2023 were NOK 85
million compared to operating earnings in the fourth quarter of 2022 of NOK 944
million. The operating earnings in the quarter was negatively affected by
non-cash changes in fair value of energy contracts in Norway amounting to NOK
474 million. Loss in the quarter was NOK 181 million compared to a profit of NOK
1 065 million in the previous quarter. The net loss was negatively affected by
NOK 189 million related to unrealized currency losses on euro denominated debt.
The annual general meeting adopted an authorization to the board of directors to
pay up to NOK 5.00 per share in dividend. A dividend payment is subject to
lenders waiving certain shareholder distribution restrictions, which is not yet
done. Net interest-bearing debt was NOK 1 305 million at the year end, with an
equity ratio of 42%.


Status projects
Norske Skog Bruck successfully started production of recycled packaging paper at
the PM3 in the end of the first quarter. At Norske Skog Golbey, the newsprint
paper machine (PM1) was closed in Q4 2022 for conversion into recycled packaging
paper production resulting in the sale of excess energy. The timeline and budget
are in line with the project plan assumptions, with expected start-up in the
fourth quarter of 2023.

The conversion of the two newsprint machines at Bruck and Golbey will add 760
000 tonnes of new cost-competitive and low-emission packaging paper capacity.
The packaging paper production will be fully based on recycled fibre, and will
utilise fossil-free energy generated from the waste-to-energy facility at the
Bruck industrial site and the biomass plant under construction at the Golbey
industrial site (Green Valley Energie).

“We are delighted to have completed the transformation of the Bruck mill into
packaging paper production based on in-house waste-to-energy. We are dedicated
to serve our customers a wide specter of publication- and packaging paper
products in addition to other bioproducts,” says Ombudstvedt.

The waste-to-energy facility at Bruck has been operating since second quarter
2022 on approximately 80% of its design capacity. Together with Valmet, the
supplier, modification, and optimisation work has been executed during the first
quarter of 2023 and have enabled the energy plant to reach its full design
capacity. The facility significantly reduces the gas consumption, and thus
CO2-emissions, for Norske Skog Bruck.

The construction of the renewable energy plant at the Golbey industrial site is
progressing according to original plans. The biomass boiler will produce about
200 GWh of electricity and about 700 GWh of renewable heat, thus generating CO2
savings of 210 000 tonnes per year. The Green Valley Energie (GVE) is a joint
venture, in which Norske Skog Golbey has a 10% equity stake. The biomass boiler
will ensure a stable, long-term supply of cost-competitive and renewable steam
as an alternative to fossil energy sources, somewhat shielding Golbey from
volatile energy markets.

Norske Skog Skogn is in the early stages to build a NOK 230 million new
thermo-mechanical pulp (TMP) line, substituting expensive recovered paper with
fresh fibre with expected start-up in first half of 2024. The new TMP line will
reduce variable costs, in addition to reducing NOx, fossil CO2-emissions and
waste sent to landfill.
Norske Skog actively works to realise value from its industrial sites based on
its existing infrastructure and industry competence. The biocomposite product
CEBICO, and microfibrillar cellulose product CEBINA produced at Norske Skog
Saugbrugs have received promising feedback from customers that have tested these
products successfully in various processes and materials. Norske Skog has been
pro-active in reducing CO2-emissions and aims to become CO2 net negative or
climate positive. Norske Skog will explore economically viable models for the
utilisation of biogenic CO2, either alone or together with partners.


Operations
Total annual publication paper production capacity for the group is 1.7 million
tonnes after the closure of Golbey PM1, with 1.4 million tonnes in Europe and
0.3 million tonnes in Australia. Bruck (PM3) started production of recycled
packaging paper in the end of the first quarter, and Golbey (PM1) is planned to
start in late fourth quarter of 2023. Norske Skog will after the ramp-up of
Bruck and Golbey have an annual capacity of 760 000 tonnes of packaging paper
production. Norske Skog has several ongoing bio products and energy activities
at all industrial sites.

Lower publication paper sales prices and sales volume in the first quarter were
somewhat offset by lower variable cost. However, the Group average sales price
increased due to relatively lower share of newsprint paper compared to other
higher priced paper grades. The revenues from sale of excess energy at Golbey,
due to the conversion of PM1 to packaging paper grades, were lower than fourth
quarter of 2022 due to lower energy market prices in the quarter.

The sales price decreases were driven by softened demand for publication paper
and lower energy prices. Variable cost per tonne slightly increased in the
quarter with higher distribution costs and cost of materials per tonne, but was
somewhat offset by lower recovered paper cost per tonne. Fixed costs per tonne
increased somewhat due to lower delivered volumes. Group capacity utilisation
was 78% in the quarter, respectively 77% in Europe and 83% in Australasia. The
weakened publication paper demand caused some operational down-time in the
quarter, which impacted the capacity utilization in Europe.

According to Eurograph, demand for standard newsprint in Europe decreased by 21%
through February 2023 compared to the same period last year. SC magazine demand
decreased by around 27%; whereas, LWC paper demand decreased by around 30%
through February compared to the same period last year. According to official
Australian trade statistics, demand for newsprint and coated mechanical
increased by 5% and 16%, respectively, through February 2023 compared to the
same period last year. For the packaging paper production, it is expected that
the containerboard machines will operate at 60-70% utilisation in the first year
of operations and reach full utilisation during the third year of production.

 
Key figures, first quarter of 2023
NOK million (unless otherwise stated)
Q123 Q422 Q122 2022 2021
Income statement
Total operating income 3 320 4 056 3 590 15 214 10 315
EBITDA 675 1 083 610 3 105 662
Operating earnings 85 944 593 2 845 -160
Profit/loss for the period -181 1 065 583 2 572 -363

Cash flow
Net cash flow from operating activities
430 745 196 2 040 191
Net cash flow from investing activities
-367 -872 -112 -1 956 -891

Operating margin and profitabilty (%)
EBITDA margin 20.3 26.7 17.0 20.4 6.4
Return on capital employed (annualised)
5.6 12.1 17.6 14.8 -7.8

Capacity utilisation (Production / capacity %)
78 78 94 87 89

Outlook
The development in the global economy is of vital importance for consumer
spending, and will impact the publication paper and packaging industry, and thus
Norske Skog’s operations.

There is still some uncertainty to how the global economy will perform in 2023
especially in the raw material- and energy markets. Raw material and energy
prices are below the record levels experienced in 2022, but are still far above
historical average levels. The decrease in energy prices and decreased demand
for publication and packaging paper have resulted in lower sales prices. It is
expected that the development of costs and paper demand will influence paper
sales prices in Europe. The decreased demand for publication paper has initiated
further announcements of capacity closures in the industry to improve the
imbalance in demand and supply for publication paper.

Norske Skog’s European operations are cost-competitive, and the group will
temporarily adjust production to customer demand. Simultaneously, Norske Skog
will continue to develop the industrial sites, including further conversions and
new initiatives within renewable energy and bioproducts.


About Norske Skog
Norske Skog is a world leading producer of publication paper with strong market
positions and customer relations in Europe and Australasia. The Norske Skog
Group operates four mills in Europe, which produce publication paper, recycled
packaging paper, energy and bioproducts. In addition, the Group operates one
paper mill in Australia. Norske Skog aims to further diversify its operations
and continue its transformation into a growing and high-margin business through
a range of promising energy and bio product development projects. The Group has
approximately 2 100 employees, is headquartered in Norway and listed on the Oslo
Stock Exchange under the ticker NSKOG.


Presentation and quarterly material
The company will not hold a live presentation, but will arrange a webinar today
at 08:30 CEST for pre-registered participants. The quarterly recording, the
presentation, the financial statements and the press releases are available on
www.norskeskog.com and published on www.newsweb.no under the ticker NSKOG. If
you want to receive future Norske Skog press releases, please subscribe through
the website of the Oslo Stock Exchange www.newsweb.no.


Norske Skog
Communications and Public Affairs

For further information:
Norske Skog media: Norske Skog financial markets:

Vice President Communication and Public Affairs Investor Relation Manager
Carsten Dybevig Even Lund
Email: carsten.dybevig@norskeskog.com Email: even.lund@norskeskog.com
Mob: +47 917 63 117 Mob: +47 906 12 919

More information:
Access the news on Oslo Bors NewsWeb site

588684_Norske Skog presentation - Q1 2023 FINAL.pdf
588684_Norske Skog press release Q1 2023 ENG FINAL.pdf
588684_Norske Skog collection of Q1 2023 Reports.pdf