Norske Skog ASA

OSE:NSKOG

Earnings Call Transcript 2024-Q1

[Geir Drangsland, executive]

Welcome to Norske Skog's First Quarter 2024 presentation. We continue delivering on our strategy of becoming a leading independent supplier of recycled containerboard in Europe. This will enable us to grow steadily over the next several quarters. Our net debt increased in the quarter as we are completing our investment in Golbey with net CapEx around NOK 400 million, now remaining.

In addition, due to a weak NOK, over overall debt increased with around NOK 200 million. Our cash and liquidity position remains strong. Following the quarter, we have received CO2 compensation in Norway of almost NOK 280 million, and sold around 100,000 CO2 allowances for around NOK 90 million. We have also received NOK 58 million in refunded cash outlays from insurance settlement. In sum, we have collected more than NOK 400 million within the 2 first weeks of April.

Earnings in the quarter were negatively impacted by deconsolidation of Tasman with NOK 46 million and lower CO2 prices with an impact of NOK 32 million. We continue to see positive developments in the containerboard markets with demand returning and price increases. For publication paper, the prices remain at low and unsustainable levels. Our containerboard deliveries increased to 38,000 tonnes in the quarter, and customer feedback has been excellent. We expect to reach 85% utilization at Bruck PM3 towards end of the year, in line with the plan.

The most exciting milestone for 2024 will be the startup of Golbey PM1, which significantly increased the size of Norske Skog. Our total production capacity will increase by more than 30% with the start-up of this machine, contributing greatly to our future growth. We maintain a strong balance sheet and liquidity as we now soon complete our investment projects. In addition, we recently repurchased around NOK 340 million of our bond. There are the key figures for the quarter. Production and deliveries developed mostly well in the quarter, but we had some disappointing and unplanned stops for our newsprint production at Skogn. We expect this to improve for the second quarter. Our revenues were down mainly as a result of less insurance at Saugbrugs being recognized in the quarter as well as a negative impact from revaluation of our CO2 surplus balance.

The similar impact can be seen in our EBITDA, which was down to NOK 76 million, adjusting for CO2 prices and the Tasman deconsolidation, EBITDA would have been close to NOK 150 million. Pretax profit was negatively influenced by a change in value of our energy contracts of NOK 115 million. Changes in currencies, certain euro-denominated debt and currency hedges of NOK 140 million, depreciation of NOK 125 million, net interest of NOK 40 million and other items resulting in pretax profit of minus NOK 382 million. Briefly on financial position. Equity ratio remained strong at 41%. Interest coverage ratio at 11.9x. Cash of NOK 1.9 billion and higher net debt of NOK 3.2 billion as our investment projects are complete and weaker NOK. Looking at the segments, EBITDA of NOK 166 million in Publication Paper Europe, with a margin of 8%, even though we had a negative revaluation of NOK 32 million from surplus CO2 allowances and lower newsprint deliveries due to unplanned stops. This should normalize in the second quarter. We have already received a majority of the CO2 compensation during the second quarter.

Publication Paper Australia was challenging in the quarter, mainly due to deconsolidation of Norske Skog Tasman impacting the result with NOK 46 million negatively. Underlying, the result was still negative due to larger share of volumes being delivered to weaker export markets, but we maintain our ambition of delivering positive underlying EBITDA. Packaging paper continues to grow in line with plan and price increases realized towards the end of the quarter will see a full impact from the second quarter. We look forward to present steady deliveries growth from this segment going forward.

The Golbey project moves ahead towards start-up in the second half with final piping and electrical work being completed. The net remaining CapEx is around NOK 400 million. This is net of energy efficiency certificates that will be received over the next 2, 3 years of around NOK 600 million. The support in France to realize large-scale industrial projects has been incredible. As already mentioned, Bruck paper machine 3 is performing very well in serving its customer.

Update on Skog Bruck, starting with the positives, delivering of SC magazine paper from SC from Skog Bruck for paper machine 4 and paper machine 5 is developing positively and customer feedback is good. For the mill to be competitive with only 2 smaller machines, we are working diligently to improve the cost position during 2024. We received over NOK 300 million in the first quarter from the insurance settlement. -Limited cash payments remain apart from NOK 650 million, which will be paid in the event for a positive investment decision at Skog Bruck. As stated, we have looked at several potential projects to replace production at the damage Skog Bruck paper machine 6. We are very motivated to realize the project and hope to have an announcement before summer. This would also result in a recognition of NOK 295 million, positively impacting EBITDA in that quarter. Quickly on our raw materials. Energy prices have stabilized at more normalized levels. The recycled paper price index is low, but we experienced that both excess and prices in the market are more challenging than illustrated by industry statistics.

Pulpwood prices continue to increase and has become an increasingly challenging raw material. CO2 prices, as mentioned, has declined significantly at the start of 2024. Publication prices have stabilized at low levels, reflecting cost of production for managed suppliers, combined with excess capacity, this has resulted in low industry utilization. Prices for containerboard increased in March and we expect full impact from start of the second quarter. The prices seen in recent months have been unsustainable levels given production costs and further price increases are needed. The market is still seeing excess capacity, but demand growth has now started to improve the situation.

Recycled fiber and energy costs are stabilizing, but pulpwood costs remain at high levels. Publication paper prices are at very low levels compared to production costs and the industry continued to see low utilization. Much needed price increases for containerboard implemented during March, but further increases are required given current production cost environment. We expect negative EBITDA from Packaging Paper segment in 2024 due to the start-up of Golbey paper machine 1 in the second half of 2024.

However, Bruck paper machine 3 should be positive. We continue our significant focus on reducing production costs and working capital to maintain our competitive position. This work is in full progress. Our liquidity position is very healthy as so investment projects near completion and debt repayment increase. 2024 marks the final transition year for our entry into containerboard announced in the summer of 2020. It will be very positive to conclude this transition and to start presenting our growth story for many quarters to come. We look positively on the future of Norske Skog.

That concludes our first quarter presentation. Thank you.