Higher market share in challenging publication paper market

18 Oct 2024 06:55 CEST

Norske Skog’s EBITDA in the third quarter of 2024 was NOK 91 million, a decrease
from NOK 471 million in the second quarter of 2024. Norske Skog implemented
price increases for both containerboard and newsprint during the quarter to
mitigate continued cost increases. Norske Skog received excellent feedback from
containerboard customers as deliveries continued to grow. Despite signs of
positive market developments for Norske Skog in the publication and
containerboard markets, these markets are still experiencing excess capacity,
thus closures are still required.

“ - We are receiving excellent feedback from our customers on the quality of our
containerboard products, which bodes well for our plan to deliver a total of
760,000 tonnes of packaging paper from Bruck and Golbey to the market in the
coming years. We are particularly pleased to have strengthened our position in
the newsprint market by increasing our market share through higher sales volumes
in the third quarter of 2024 compared to the same quarter last year, especially
in a declining market for publication paper,” says Geir Drangsland, CEO of
Norske Skog.

Cash flow from operations was NOK -272 million in the quarter compared to NOK
299 million in the previous quarter. The third quarter operating cash flow was
negatively impacted by an increase in working capital of NOK 261 million due to
recognition of CO2-related items and higher inventories. Operating earnings in
the third quarter of 2024 were NOK -13 million compared to operating earnings in
the second quarter of 2024 of NOK 364 million. Other operating earnings
decreased because of insurance recognition at Norske Skog Saugbrugs of NOK 338
million in the previous quarter compared to NOK 25 million in the third quarter.


Loss before tax in the quarter was NOK -156 million compared to profit before
tax of NOK 311 million in the previous quarter. Net interest-bearing debt
increased in the period from NOK 2 970 to 3 717 million at the end of the
quarter mainly due to investments at Norske Skog Golbey, increase in working
capital, and weaker NOK influencing EUR-denominated debts. The equity ratio was
41%.

“ – We are satisfied with the latest long-term financing of the group with
signing a NOK 1.4 billion bond in the second quarter and a NOK 500 million
green-term loan at Norske Skog Skogn in the third quarter,” says Geir
Drangsland, CEO of Norske Skog.


Operations

Total annual publication paper production capacity for the group is 1.6 million,
with 1.3 million tonnes in Europe and 0.3 million tonnes in Australia. Norske
Skog Bruck (PM3) started production of recycled containerboard paper in second
quarter of 2023, and Norske Skog Golbey (PM1) plans to start in the first
quarter of 2025. Norske Skog will after the ramp-up of Norske Skog Bruck and
Norske Skog Golbey have an annual capacity of 760 000 tonnes of packaging paper
production.

According to Euro Graph, demand for standard newsprint in Europe decreased by 1%
as of August 2024 compared to the same period last year. For magazine paper the
demand decreased by 6%, with supercalendered paper decreasing 10% and
lightweight coated paper decreasing 2% as of August 2024 compared to the same
period last year. According to PPPC trade statistics for Australia, demand for
newsprint and coated mechanical decreased by 26% and 2%, respectively, through
August 2024 compared to the same period last year.


Publication paper

Operating income decreased from the previous quarter mainly due to the
recognition of NOK 338 million in insurance at Norske Skog Saugbrugs in the
second quarter, compared to NOK 25 mill in the third quarter. Slightly higher
sales prices and sales volumes contributed positively during the period. Lower
energy prices contributed contributed negatively the revenue from sale of excess
energy compared to the previous quarter. Despite the positive demand sentiment
in certain areas of the publication paper market, there is still a market
imbalance for publication paper.

Variable costs per tonne increased in the quarter, both in absolute terms and
per tonne for cost of materials mainly caused by higher pulpwood and recovered
paper prices. Distribution costs increased slightly in the quarter due to higher
freight rates. Fixed costs both in absolute terms and per tonne decreased
somewhat in the quarter due to lower costs. Group capacity utilisation was 91%
in the quarter, 91% in Europe and 91% in Australasia.


Packaging paper

The packaging paper machine at Norske Skog Bruck is operating according to the
ramp-up plan. The containerboard production will reach full capacity utilisation
in the second half of 2025. Norske Skog Golbey will start commercial production
in the first quarter of 2025. Once at full utilisation, the machines are
expected to generate an annual EBITDA of EUR 70-80 million, based on historical
prices and margins seen in the market. EBITDA in the period was slightly
positive due to higher delivered volumes and higher sales prices.


Key figures, third quarter of 2024

NOK million (unless otherwise stated)
Q324 Q224 Q323 YTD24 YTD23
Income statement
Total operating income 3 006 3 217 3 036 8 911 9 760
EBITDA 91 471 327 637 1 382
Operating earnings -13 364 36 175 267
Profit before tax -156 311 112 -227 4

EBITDA margin %
3.0 14.6 10.8 7.2 14.2
Capacity utilisation publication paper %
91 88 89 88 81

Cash flow
Net cash flow from operating activities
-272 299 173 -43 956
Net cash flow from investing activities
-289 -104 -949 -771 -2 012

Balance 30.09.24 30.06.24 30.09.23
Total assets 14 824 15 201 13 898
Equity 6 132 6 138 5 880
Equity % 41 40 42


Status projects


Norske Skog Golbey conversion projects

At Norske Skog Golbey, the conversion of the newsprint paper machine (PM1) into
recycled containerboard paper production is progressing towards start-up in the
first quarter of 2025. Norske Skog Golbey will eventually add 550 000 tonnes of
new low-emission packaging paper capacity after ramp-up is completed, which will
be fully based on recycled fibre. Along with the containerboard production at
Bruck, Norske Skog will at full capacity utilisation, deliver 760 000 tonnes of
packaging paper to the market. Golbey PM1 will utilise renewable energy
generated from the newly commissioned biomass plant at the Golbey industrial
site (Green Valley Energie). This energy plant will be the largest of its kind
in France.

- This investment marks an important step in Norske Skog's development, with the
goal of increasing long-term value for all our stakeholders. Increased focus on
environmentally friendly products and the continued rise in e-commerce have
created a significant demand for renewable packaging solutions. The production
of recycled packaging at Golbey will meet this demand with cost-leading and
environmentally friendly capacity. Golbey’s industrial site, centrally located
in continental Europe, is well positioned for the large packaging market, with
established access to recycled fibre," says Drangsland.


Norske Skog Saugbrugs BCTMP-production

Norske Skog Saugbrugs has started a main study aiming to enter the Bleached
Chemi-ThermoMechanical Pulp (BCTMP) market by starting production at Norske Skog
Saugbrugs in Halden. Currently, Norske Skog Saugbrugs has engaged technical and
environmental consultants, who are working with potential machinery and
equipment suppliers. To clarify permits and environmental issues, Norske Skog
Saugbrugs has met with the Norwegian Environment Agency.
The new BCTMP line will produce approximately 300 000 tons of competitive pulp
to meet the growing demand, especially for products in the packaging market. The
BCTMP production will be based on fresh fibre, and the mill already has access
to adequate energy capacity. Norske Skog Saugbrugs investment will exploit
existing machinery, equipment, and infrastructure; thus, reducing the total
investment significantly compared to a greenfield alternative. The final
investment decision is expected to be made during the first half of 2025.


Outlook

The development in the global economy is of vital importance for consumer
spending, and this impacts the publication paper and packaging paper industry,
and thus Norske Skog’s operations and results. Norske Skog’s deliveries have
continued to improve during the third quarter of 2024 and is expected to improve
in the fourth quarter.

The raw material and energy markets, which are important for both publication
paper and packaging paper production, are expected to remain uncertain, although
prices have come down closer to historical levels. Cost of recovered paper has
increased significantly, and the quality and availability has deteriorated. This
trend is expected to persist for the remainder of 2024 and into 2025. Pulpwood
prices is expected to remain at higher levels in fourth quarter.

The level of input costs and demand for paper will continue to influence paper
sales prices in Europe. Both publication and packaging markets are characterised
by excess capacity and capacity reductions are required to balance the markets.
Industry utilisation is expected to remain weak until capacity is reduced.
Norske Skog is able to maintain a higher utilisation rate than the industry
average.

The production of recycled containerboard at Norske Skog Bruck PM3 is expected
to increase in line with plan over the coming quarters. The EBITDA from the
Packaging Paper segment in 2024 is expected to be positive, as the allocation of
fixed costs relating to Norske Skog Golbey PM1 will be shifted to the first
quarter of 2025 in line with the revised start-up timeline.

Norske Skog Saugbrugs continues to progress with the design phase of a new
Bleached Chemi-ThermoMechanical Pulp (BCTMP) line, with expected final
investment decision in the first half of 2025. Potential investments into a
BCTMP line at Saugbrugs will result in recognition and receipt of additional
insurance compensation of NOK 615 million.

In Australasia, markets remain challenging with a large share of volume being
delivered in low margin export markets. There is continuous effort to improve
the mill’s cost position and commercial terms.

Norske Skog will continue to develop its industrial sites with new fibre
projects based on efficient use of certified fibre and renewable energy, both on
a stand-alone basis and in partnerships.


 
About Norske Skog

Norske Skog is a 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. The annual publication paper production capacity is 1.6
million tonnes. The annual production capacity of packaging paper will be 0.8
million tonnes following the start-up of containerboard production at Golbey in
the first quarter of 2025. 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 arrange a Teams-webinar today at 08:30 CEST, which can be
attended by clicking the webinar link on the front page of the
www.norskeskog.com.
The quarterly board of directors report, 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:
Vice President Corporate Communication and Public Affairs
Carsten Dybevig
carsten.dybevig@norskeskog.com
Mob: +47 917 63 117

Norske Skog Investor Relations:
Vice President Corporate Finance
Even Lund
even.lund@norskeskog.com
Mob: +47 906 12 919

More information:
Access the news on Oslo Bors NewsWeb site

629854_Norske Skog presentation Q3 2024.pdf
629854_Norske Skog quarterly reports collection Q3 2024.pdf
629854_Norske Skog press release Q3 2024 ENG FINAL.pdf