Publishers in Australia and New Zealand are using a lot less newsprint… but more coated stocks.

The bottomline verdict on the industry’s woes shows demand for newsprint was down 17 per cent last year, while that for coated magazine paper grew five per cent.

Paper maker Norske Skog says large capacity cuts in the global industry have led to improved market balance for newsprint and uncoated (SC) magazine paper, although the market for LWC is still challenging.

In its interim report, the company says capacity utilisation in the fourth quarter remained high at around 90 per cent. A weakening of the Norwegian krone improved operating margins, particularly for the Norwegian units, but at the same time this increased long-term debt, which is mostly in Euros and US dollars.

“We have performed in line with what we have communicated to the market in 2013,” says president and chief executive Sven Ombudstvedt. “Fixed costs are greatly reduced, lower capacity in the market has improved margins, investments and variable costs were as expected, and reduced working capital in addition to the best health, environment and safety performance in the company's history show that we are on the right track.”

Norske Skog's gross operating earnings (EBITDA) in the fourth quarter of 2013 were 
NOK 298 million, up from 176 million in the third quarter. The increase was due to positive currency effects caused by a weaker NOK, lower costs and higher sales volumes. Gross operating earnings for the full year 2013 were NOK 862 million, a reduction of NOK 623 million compared to 2012, mainly due to weaker margins and lower production capacity following the divestments of Pisa and Singburi.

A loss of NOK 599 before special items in 2013 compared to
NOK 432 million the previous year. The company says its net loss of NOK 1.8 billion for 2013 was “significantly impacted” by negative changes (with no cash impact) in the value of energy contracts and restructuring expenses, amounting to NOK 1.2 billion in total.

Net interest-bearing debt increased by NOK 800 million from 2012 to 2013, from NOK 6.0 billion to NOK 6.8 billion, mainly as a result of a weaker NOK. Cash flow from operating activities before net financial items was NOK 497 million in the fourth quarter.

Ombudstvedt says the market remains challenging, but the group will continue its efforts to improve competitiveness and financial flexibility. “Permanent capacity cuts in Europe of 1.5 million tonnes were completed in 2013 and announced cuts of 0.5 million tonnes will be completed in 2014 in our product segments. This constitutes a significant part of the European production capacity and has improved market balance. We therefore see higher prices and expect better margins for 2014,” he says.

Prices remained “relatively stable” in the second half of 2013; demand for newsprint in Europe fell by six per cent, but demand for improved grades rose four per cent. Demand for magazine paper in Europe fell by six per cent, and for SC paper by four per cent.

During the year, Norske Skog shut down one machines at its Walsum mill, and sold mills at Pisa in Brazil and Singburi in Thailand. As a result total annual production capacity decreased from 3.7 to 3.0 million tonnes (19 per cent). Capacity utilisation for the group in the fourth quarter was 89 per cent compared with 90 per cent in the third quarter, as a result of active capacity management. Capacity utilisation for 2013 was unchanged at 88 per cent.

“Even though our product portfolio was reduced by two mills and a machine at Walsum in 2013, we have achieved profitability improvements through better use of input factors, reduced working capital and fixed costs,” says Ombudstvedt. “We have implemented an active capacity management to counteract the effects of a market imbalance.”

Sales prices in Europe have increased into 2014 as a result of improved market balance for newsprint and SC paper, and the current exchange rate level has a positive impact on revenue.

Norske Skog also expects increased domestic sales in Australia from the second quarter following conversion of a newsprint machine to coated magazine paper at Boyer mill, but production will be low in the first quarter as a result of the conversion.