NORSKE SKOG Q1 report. Restructuring in Australasia. Tough measures for improving profitability

Transcription

1 NORSKE SKOG 2006 Q1 report Restructuring in Tough measures for improving profitability

2 Tough action to boost profits Profitability in Norske Skog needs to be sharply improved. Far-reaching changes are required. We know where the problems are and what must be done. The goal is an 11% return on capital employed, compared with 2.8% in The board wants even more aggressive action to strengthen profits. This means that the pace of restructuring has to increase. Full attention will be devoted to three areas in particular: old and unprofitable capacity must be shut down the company must focus on regions with market growth for newsprint and magazine paper the production units must be world class for costs, either through proximity to the market or through a location in regions with special cost advantages for paper production. We must also be much tougher in our efforts to secure synergies and to take advantage of our size and concentration on publication paper. These conditions give us opportunities to standardise work processes and share experience and knowledge across regions and national boundaries. We will now put all our weight behind work on global standardisation. If we are going to maintain our position as a world leader in the paper industry, we must make money. We need the financial muscle to give our owners a sensible return and to implement the necessary restructuring. This will be our big job in the time to come. Lars Wilhelm Grøholt Chair Sale of Forestia AS Agreement was reached in January with Byggma ASA on the sale of the shares in Forestia, a wholly-owned Norske Skog subsidiary. This company is the leading Nordic manufacturer of fibreboards for the building and furniture industries and also produces girders for construction purposes. With 270 employees at three Norwegian plants, Forestia has an annual turnover of roughly NOK 600 million. Nordic Paper holding sold Norske Skog and M Peterson & Son A/S have sold the Nordic Paper company, which they owned 45 and 55 % respectively. The buyer was a group comprising of two senior Nordic Paper executives plus external investors. Established in October 2001, the company is the world s largest manufacturer of greaseproof paper. With 400 employees at two mills in Norway and one in Sweden, its 2005 turnover was NOK 825 million. Norske Skog AGM The annual general meeting of Norske Skog was held on 20 April In addition to approving the annual accounts and directors report for Norske Skogindustrier ASA and the group, the AGM adopted the board s proposal to pay a dividend of NOK 5.50 per share. Gisèle Marchand and Halvor Bjørken were re-elected by the corporate assembly as shareholder-elected directors. Trond Andersen was elected as a new worker director by the employees. The board has nine permanent members. Since Ivar Korsbakken wished to resign as chair of the corporate assembly after one year of his two-year term of office, Helge Evju was elected as a new shareholderelected member for one year. Birgitta Rødstøl Næss and Tom Ruud were elected for two years. Emil Aubert, Ole H Bakke, Christian Ramberg and Halvard Sæther were re-elected. Kjersti Narum was elected as a new alternate member. The AGM authorised the board to buy back the company s own shares up to ceiling of 10 % of the outstanding stock at any given time. This replaces an earlier authority and will remain in force until the AGM in Norske Skog s corporate assembly after the 2006 AGM Members elected by shareholders Idar Kreutzer, chair Helge Evju Emil Aubert Ole H. Bakke Christian Ramberg Birgitta Rødstøl Næss Halvard Sæther Svein Aaser Kirsten C. Idebøen Tom Ruud Turid Fluge Svenneby Ann Kristin Brautaset Members elected by the employees Randi Nessemo, Skogn Harald Bjerge, Saugbrugs Magnus Straume, Union Eigil Fredriksen, Union Roy Helgerud, Follum Ove Magne Anseth, Braskereidfoss New appointment in investor relations Thomas Tronsgaard (47), currently head of corporate insurance in Norske Skog, has been appointed director of investor relations from 1 July, reporting to Jarle Langfjæran. He holds a Master of Business Economics and joined Norske Skog in Tronsgaard has more than 20 years of experiance in the international insurance and reinsurance business. Norske Skog Q1 2006

3 : Restructuring on schedule The n restructuring project is a significant investment in the future of Norske Skog in this region, says Rob Lord, executive vice president. Employees at the three mills have shown enormous commitment throughout the work. Cooperation and support between the mills has allowed the project to progress successfully, Lord adds. I m now looking forward to completing the restructuring by August and seeing the financial benefits for the company moving forward. The project involves the following elements: - increases in the speed and output of the Norske Skog Albury machine to more than metres per minute and 265,000 tonnes of newsprint respectively - increases in the speed and output of the number 2 and 3 machines at Norske Skog Tasman to mpm and a combined tonnes of newsprint respectively. As a result of these upgrades, PM 1 at Norske Skog Tasman will be shut down on 31 July. Norske Skog is thereby replacing production from this machine with increased output by the remaining machines at Norske Skog Tasman and PM 1 at Norske Skog Albury. That reduces overheads, transport costs and some variable operating expenses. The total cost of the Norske Skog Albury project is NOK 650 million, while the Norske Skog Tasman development has a NOK 120 million price tag. Norske Skog Tasman PM3 at Norske Skog Tasman in New Zealand was rebuilt in late June/early July 2005, and started up on 18 July that year. This machine has already reached speeds of mpm following the rebuild. Work is now progressing on enhancing efficiency and reducing dry paper losses. The mill s PM2 will be rebuilt along similar lines in June Norske Skog Albury PM1 at Norske Skog Albury was shut down on 15 February for rebuilding. In addition to major rebuilds on the machine itself, a second winder has been installed, capacity in the thermomechanical pulp plant has been expanded and waste water treatment facilities are upgraded. The machine was restarted on 23 March Following some initial technical difficulties with the calendar stack, it was quickly taken up to mpm and above the start-up curve. Work is now focused on stabilising operations and enhancing efficiency. April production to expected to be at target levels. Norske Skog Q1 2006

4 Report for the first quarter of 2006 Gross operating earnings before special items: NOK million (Q4 05: NOK 925 million); net operating earnings before special items: NOK 167 million (Q4 05: NOK 97 million) Good demand in Europe and price increases for newsprint Weak first quarter in Asia, primarily because of the balance between supply and demand in China Rebuild shut-downs contributed to a weak result for the n region Continued increase in energy costs The board has announced a speed up of the restructuring of the company to improve profitability Key figures, group IFRS: Q1/06 Q4/05 Q1/ Operating revenues NOK mill Gross op earnings NOK mill Gross operating margin % Net op earnings/(loss) NOK mill 172 (194) Net operating margin % 2.4 (2.7) Pre-tax earnings/(loss) NOK mill 194 (1 127) (85) (1 004) Net earnings/(loss) NOK mill 213 (997) (42) (854) Earnings per share NOK 1.13 (5.75) (0.32) (5.98) Cash flow NOK mill Cash flow per share NOK Return on capital employed % Deliveries t Production t Norske Skog Q1 2006

5 Factors that influence the comparison with results for previous quarters In the first quarter of 2006 Norske Skog sold its shares in the partly-owned Canadian company Catalyst Paper, and a loss of NOK 729 million was recognised under affiliated companies in the accounts for the fourth quarter of The whollyowned Forestia subsidiary was also sold, with a small negative effect on the fourth-quarter results. In addition, Norske Skog reached agreement on the sale of its shares in the partly-owned company Nordic Paper. This yielded a minor gain which has been included in the firstquarter results under affiliated companies. Norske Skog Pan Asia has been treated as a wholly-owned region from 18 November 2005, while it was previously recognised in the financial statements through 50% consolidation. The Asian business was also affected by the start-up of the new newsprint mill in Hebei during the second quarter of A provision of NOK 270 million was made in the fourth quarter of 2005 in connection with the shut-down of Norske Skog Union, and its fixed assets were written down by NOK 155 million. Comparison between Q and Q Comparable net operating earnings (before IFRS-related value adjustments, provisions and impairment) were up by NOK 70 million from This improvement derived primarily from the newsprint business in Europe, where price increases had a positive effect. Results in were significantly weaker because of a conversion shut-down at Norske Skog Albury, reduced production at Norske Skog Tasman, and persistently high energy prices. Comparable energy costs for the group as a whole rose by roughly NOK 50 million. Comparison between Q and Q Comparable net operating earnings declined by NOK 117 million. In this perspective, comparable energy costs rose by about NOK 280 million. Despite this increase, results improved for a number of the regions. However, s performance was much weaker. Financial items (NOK mill) Q1/06 Q4/05 Q1/ Net interest exp (254) (187) (173) (733) Interest hedging Gain/(loss) currency 86 (16) (128) (77) Other financial items (23) (49) (12) (97) Total financial items (161) (228) (295) (883) The increase in interest expenses relates primarily to higher debt during the quarter due to the full consolidation of PanAsia s debt plus a slight rise in interest rates. Average net interest-bearing debt was NOK 1.4 billion higher in the first quarter than in the fourth quarter of last year. Affiliated companies The total of NOK 183 million includes NOK 11 million for Norske Skog s share of net earnings in Malaysian Industries and NOK 30 million in gain on the sale of the Nordic Paper shares. An income of NOK 146 million is included as the share of the group s equity which can be attributed to the accumulated exchange rate differences in the former affiliated company Catalyst Paper. When disposing of a foreign group company, IFRS rules require that a positive accumulated exchange rate difference must be recognised as income in the profit and loss account and as a reduction in equity. Total equity is not affected, since net earnings for the quarter are taken to equity. Tax The earnings effect from affiliated companies has no significance for tax, which is a positive NOK 12 million for the first quarter. Net earnings Net earnings after tax and minority interests for the first quarter came to NOK 213 million. Excluding the recognition of the IFRS-related exchange rate differences from Catalyst Paper, this figure becomes NOK 67 million. Cash flow Cash flow from operations totalled NOK 251 million in the first quarter. This low figure primarily reflects provisions in and one-off effects for short-term interest-free debt in Asia. Balance sheet Assets totalled NOK 49.4 billion at 31 March, a reduction of NOK 2.7 billion from 31 December. This decline primarily reflects the disposal of the Catalyst Paper shares, the deconsolidation of Forestia and a strengthening of the Norwegian krone to 31 March. This currency effect reduced the value of fixed assets outside Norway. Investment taken to the balance sheet totalled NOK 333 million in the first quarter. Net interest-bearing debt was NOK 17.5 billion at 31 March, down by NOK 1.5 billion from 31 December This primarily reflects settlements for the shares in Catalyst Paper and other companies. The average maturity of long-term debt at 31 March was 5.9 years, and liquidity including undrawn lines of credit was NOK 7 billion. Gearing net interest-bearing debt divided by equity was 0.81 at 31 March. Moody s rating agency announced in April that Norske Skog s credit rating had been reduced from Baa3 to Ba1. This has no consequences for interest rates on existing debt. Just over NOK 600 million of the change in equity during the quarter is attributable to conversion differences when consolidating foreign companies. This amount also embraces conversion differences recognised in the profit and loss account from Catalyst Paper, as reported above. The annual general meeting on 20 April resolved to pay a dividend of NOK 5.50 per share. Totalling just over NOK 1 billion, this payment will be made on 3 May. Norske Skog Q

6 Organisation The board of Norske Skog and chief executive Jan Oksum reached agreement in March that Oksum would resign from his post with immediate effect. Senior vice president Vidar Lerstad was appointed acting chief executive, and board chair Lars Wilhelm Grøholt has subsequently served as working chair. The board is in the process of searching for a new president and CEO. Group electricity contracts in Norway The Norwegian Ministry of Petroleum and Energy has announced that Norske Skog can retain the electricity supply contracts with Statkraft which related to Norske Skog Union. Since the closure of this mill, these contracts have been converted to group contracts so that an annual amount of 335 GWh can be used at Norske Skog s other Norwegian mills. They expire at the end of Health and safety The lost-time injury frequency per million working hours was 1.4 for the 12 months from 1 April 2005 to 31 March Closure of Norske Skog Union Paper production at Norske Skog Union ceased as planned in the first quarter. The Klosterøya New Opportunities project to create new activity on the site is progressing on schedule, and a main report is due to be completed in June. The Unicorn engineering company has become the first enterprise to move into the site. By mid-april about 250 of the 380 Norske Skog Union employees had found new work. Share developments The foreign shareholding at 31 March 2006 was 57.2%, a marginal increase from 31 December. A total of 74 million Norske Skog shares were traded in the first quarter, representing a turnover rate of 1.56 on an annual basis. A total of 815 people purchased shares in this year s share sale to employees. Participation and the number of shares purchased were somewhat lower than in previous years. At present the scheme does not include employees at the Asian mills. In addition to the general share sale, shares were sold in partial settlement of bonus schemes for senior executives in Norske Skog. These shares must be held for three years. Following these transactions, Norske Skog held of its own shares. Operations and market Production and deliveries from Norske Skog s mills totalled about 1.5 million tonnes for the first quarter. Excluding Norske Skog PanAsia operations to achieve comparability, deliveries show normal seasonal variation compared with the fourth quarter of last year and a 3% increase from the first quarter of Comparable production volumes were lower than in 2005, primarily because of conversion shut-downs in. Europe newsprint Key figures: Op revenues NOK mill Gross op earn NOK mill Net op earn NOK mill Gross op margin % Deliveries t Production t Production/capacity % The price increases implemented in Europe have led to better results in the region. Measured in Norwegian kroner, the average price achieved was up by 7.4% from the fourth quarter. A total of tonnes were produced at Norske Skog Union before its closure. This is roughly half the volume in earlier quarters. Nevertheless, overall production was similar to the first quarter of last year. European demand for standard and improved newsprint was 3.5% higher in the first quarter than in the same period of This increase must be seen to some extent in relation to weak demand at the beginning of last year. The increase in demand was 15% in the Eastern European countries. North American exports of newsprint to Europe halved by comparison with the same period of last year. Europe magazine paper Key figures: Op revenues NOK mill Gross op earn NOK mill Net op earn NOK mill Gross op margin % Deliveries t Production t Production/capacity % Q1/06 Q4/05 Q1/ Q1/06 Q4/05 Q1/ Prices for magazine paper in Europe increased only marginally in the first quarter, and results were unsatisfactory. European demand for magazine paper rose by 6% compared with the first quarter of last year. The increase was greatest for uncoated (SC) magazine paper. 6 Norske Skog Q1 2006

7 South America Key figures: Op revenues NOK mill Gross op earn NOK mill Net op earn NOK mill Gross op margin % Deliveries t Production t Production/capacity % Q1/06 Q4/05 Q1/ Asia (Norske Skog PanAsia) Key figures: Q1/06 Q4/05 Q1/ Op revenues NOK mill Gross op earn NOK mill Net op earn NOK mill Gross op margin % Deliveries t Production t * Only from mills in the region. Results for the region in the first quarter were satisfactory, primarily because of price increases. A provision of NOK 50 million made in the fourth quarter of 2005 for a dispute over grid tariffs in Brazil remains in the accounts. Demand for standard newsprint in the first quarter was more than 10% higher than in the same period of 2005, but this increase is thought to be partly due to a build-up of customer stocks. Newspapers with lower cover prices have been launched in Brazil, the largest market, and advertising statistics in this country are showing good progress. Thanks to the positive market, prices are on a par with the USA. Key figures: Op revenues NOK mill Gross op earn NOK mill Net op earn NOK mill Gross op margin % Deliveries t Production t Production/capacity % Q1/06 Q4/05 Q1/ (105) (39) When making comparisons with 2005, it must be remembered that PanAsia was consolidated 50% until mid-november. The new mill in China s Hebei province also came on line in July and has been depreciated since September. Results for the region were weak. The contribution margin for exports from Korea remained low, and prices have fallen more sharply than expected in China after a big increase in supply from the start-up of new production capacity in Shandong province at the end of For the same reason, capacity utilisation at the Hebei mill is relatively low. Overall demand in Asia was 3% per cent lower in the first quarter than in the same period of last year, primarily because of a sharp reduction in customer stocks in China. Demand in India rose by almost 10%, and Korea also experienced a small improvement. Chinese demand is expected to increase for 2006 as a whole, and March by itself showed a rise of 4% from the same month last year. In the long term, China remains the world s most interesting growth market. Lysaker, 2 May 2006 The board of directors of Norske Skogindustrier ASA Results for the region were very weak in the first quarter because of lower production and persistently high electricity prices in New Zealand. Norske Skog Albury in Australia was shut down during the quarter for conversion work. Production at Norske Skog Tasman was also lower than in earlier quarters, partly because of preparations for a conversion shut-down in the second quarter. The restructuring project in the region, due to be completed during the summer, will reduce both distribution and payroll costs. Demand for standard and improved newsprint in the region was 6.6% lower than in the first quarter of This partly reflects a reduction in available volume from Norske Skog Albury. Norske Skog Q1 2006

8 Profit and loss account NOK million Operating revenue Distribution costs Other operating expenses Other gains and losses Provision for restructuring costs Gross operating earnings Depreciation and amortisation Impairments Operating earnings Earnings/(loss) from affiliated companies 1 Financial items Earnings/(loss) before taxation Taxation Net earnings/(loss) The minority s share of net earnings/(loss) The majority s share of net earnings/(loss) Earnings per share Earnings per share fully diluted Jan-Mar 06 Jan-Mar (648) (539) (2 349) (5 462) (4 182) (19 432) 5 (24) (270) (867) (756) (3 072) - (11) (248) (39) (751) (161) (295) (883) 194 (85) (1 004) (38) (848) (7) (42) (854) 1.13 (0.32) (5.98) 1.13 (0.32) (5.98) 1 Earnings/(loss) from affiliated companies are included after taxation. Cash flow statement NOK million Cash flow from operating activities Cash generated from operations Cash used in operations Cash from net financial items Taxes paid Net cash flow from operating activities Cash flow from investing activities Investments in operational fixed assets Sales of operational fixed assets Net cash from sold shares in other companies Net cash used on acquisitions of shares in other companies Taxes paid Net cash flow from investing activities Cash flow from financing activities Net change in long-term liabilities Net change in current liabilities Dividend paid 1 New equity 2 Net cash flow from financing activities Translation difference Total change in liquid assets Jan-Mar 06 Jan-Mar (6 575) (5 269) (21 906) (231) (132) (845) (39) (23) (65) (333) (450) (2 230) (3 905) (450) (6 014) (1 004) (717) (348) (807) (936) (137) (50) 13 1 The amount in 2005 includes dividend paid to minority shareholders in PanAsia. 2 The amount is related to the acquisition of the remaining 50 % of the shares in PanAsia Paper Company. 8 Norske Skog Q1 2006

9 Balance sheet NOK million ASSETS Intangible fixed assets Biological assets Operational fixed assets Investments in affiliated companies Deferred tax asset Other long-term receivables Derivatives Total non-current assets Inventory Receivables Financial assets at fair value through profit or loss Cash and cash equivalents Derivatives Total current assets Total assets EQUITY Equity Minority interests Total equity LIABILITIES Deferred tax Interest-bearing long-term debt Non interest-bearing long-term liabilities Derivatives Total non-current liabilities Interest-bearing current debt Tax liabilities Trade and other payables Derivatives Total current liabilities Total liabilities Total liabilities and shareholders equity Financial key figures Net operating margin Gross operating margin Return on capital employed Equity ratio % Equity ratio excl minority interests % Net interest-bearing debt Net interest-bearing debt/equity Net interest-bearing debt/equity excl minority interests Earnings per share after taxes Earning per share - fully diluted Cash flow per share after taxes Cash flow per share - fully diluted definitions Jan-Mar 06 Jan-Mar (0.32) (5.98) 1.13 (0.32) (5.98) Definitions: 1 : Net operating margin = operating earnings/operating revenue 2 : Gross operating margin = gross operating earnings/operating revenue 3 : Equity ratio = shareholders equity/total assets 4 : Equity ratio excl minority interests = (shareholders equity - minority interests)/total assets 5 : Net interest bearing debt = interest bearing debt - cash and cash equivalents - current investments - interest rate swaps fair value hedge 6 : Earnings per share after taxation = net earnings/average number of shares 7 : Cash flow per share after taxes = net cash flow from operating activities/average number of shares Norske Skog Q

10 Revenue and profit by area Operating Revenue NOK million Jan-Mar 06 Jan-Mar Europe Magazine paper Total Europe South America Asia Other activities Other industry in Norway Other revenues Total other activities Staff/eliminations (105) (136) (392) Total group gross Operating Earnings NOK million Jan-Mar 06 Jan-Mar Europe Magazine paper Total Europe South America Asia Other activities Other industry in Norway Other revenues Total other activities Staff/eliminations (49) (20) (114) Gain on power trading and energy hedging 5 (24) 264 Restructuring costs - - (270) Total group Operating earnings NOK million Jan-Mar 06 Jan-Mar Europe Magazine paper Total Europe South America Asia Other activities Other industry in Norway Other revenues Total other activities Staff/eliminations Gain on power trading and energy hedging Impairments Restructuring costs Total group 10 Norske Skog Q (105) (60) (29) (167) 5 (24) (11) (248) - - (270)

11 Production by Product/Area tonnes Jan-Mar 06 Jan-Mar Europe Magazine paper South America Asia Norske Skog total Total newsprint Total magazine paper Total publication paper deliveries by Product/Area tonnes Jan-Mar 06 Jan-Mar Europe Magazine paper South America Asia Norske Skog total Total newsprint Total magazine paper Total publication paper EBITDA / EBIT These tables show gross and net operating earnings under IFRS, adjusted for impairments, changes in the value of power contracts, and restructuring costs (- equals gain, + equals loss). NOK million Q1/06 Q4/05 Q1/ Gross op earnings, IFRS Reversals: Prov. for energy cost Value changes power contracts Restructuring costs Gross op earnings, adjusted Gross op margin, adjusted % NOK million Q1/06 Q4/05 Q1/ Net op earnings, IFRS Reversals: Prov. for energy cost Value changes power contracts Restructuring costs Impairments Net op earnings, adjusted Net op margins, adjusted % Norske Skog Q

12 Quarterly comparisons NOK million Operating revenue Restructuring costs Gross operating earnings Depreciation and amortisation Impairments Operating earnings Earnings/(loss) before taxation Majority s share of net earn/(loss) 1Q06 4Q05 3Q05 2Q05 1Q05 4Q04 3Q04 2Q04 1Q (270) (63) (828) (740) (748) (756) (726) (785) (779) (803) - (179) - (58) (11) 57 - (167) (194) (1 127) (85) (212) (57) 213 (997) 193 (8) (42) (91) (57) Quarterly comparisons NOK million Operating revenue Europe South America Asia Other activities Staff/eliminations Total operating revenue Gross operating earnings Europe South America Asia Other activities Gain on power trading and energy hedging Restructuring costs Staff/eliminations Total gross operating earn Operating earnings Europe South America Asia Other activities Impairments Gain on power trading and energy hedging Restructuring costs Staff/eliminations Total operating earnings 1Q06 4Q05 3Q05 2Q05 1Q05 4Q04 3Q04 2Q04 1Q (105) (100) (76) (80) (136) (113) (119) (136) (112) (12) 92 (24) (270) (63) - (49) (56) (15) (23) (20) (62) (29) (20) (39) (5) (105) (39) (1) (1) 6 - (179) - (58) (11) 57 - (167) (12) 92 (24) (270) (63) - (60) (79) (25) (34) (29) (73) (35) (22) (44) 172 (194) Norske Skog Q1 2006

13 Change in equity retained NOK million share capital Other equity earnings total Total equity excluding minority interests 1 Jan Currency translation adjustments and other - - (618) (618) Share issues Change in holding of own shares Dividend paid Net earnings/(loss) for the period Total equity excluding minority interests 31 March Accounting principles The interim financial statements for the first quarter of 2006 are presented in accordance with IAS 34. The interim financial statements, including comparative figures, are based on today s IFRS standards and interpretations. The accounting principles applied in these interim financial statements are the same as those applied in the financial statements at 31 December 2005 and for the year ending at that date. Accounting estimates, judgements and assumptions The group prepares estimates and makes judgements and assumptions about the future. Accounting estimates derived from these will by definition seldom accord fully with the final outcome. Estimates and the underlying assumptions are reviewed on an ongoing basis. The effects of changes in accounting estimates are recognised in the period in which the estimates are revised. If the change in estimates also has an effect on future periods, these effects are recognised in the period in which the estimates are revised and in the future periods in which the changes in estimates have an effect. The same judgements and assumptions have been made when applying accounting policies and preparing estimates in preparing these interim financial statements as when preparing the financial statements at 31 December 2005 and for the year ending at that date. Divestments Norske Skog s investment in Catalyst Paper was sold in mid-february This investment has been classified as an investment in affiliates. The book value of the investment was written down to the estimated sales price in the annual accounts for This implies that no gain or loss from the sale will be recognised in the profit and loss account in the interim financial statements for the first quarter of The line item Earnings from affiliates includes a recognition of cumulative exchange rate differences related to the investment in Catalyst Paper which have been recognised directly in equity during the ownership of this investment. According to IAS 21, these cumulative exchange rate differences should be presented in the profit and loss account at the time of the disposal of the investment. These cumulative exchange rate differences amount to NOK 148 million. Forestia AS was sold in March A letter of intent was signed with the buyer of Forestia at the time when the annual accounts for 2005 were being prepared. The value of the assets in Forestia was written down to the agreed sales price in the annual accounts for A loss of NOK 9 million on the sale of Forestia is recognised in these interim financial statements. The total loss related to the sale of Forestia, including the writedown in the annual accounts for 2005, amounts to NOK 33 million. Norske Skog s investment in Nordic Paper AS was sold in February. This was classified as an investment in affiliates. Norske Skog has recognised a gain of NOK 30 million in the profit and loss account for the first quarter of 2006 related to this divestment. Norske Skog Q

14 Pro forma figures The acquisition of the remaining 50 % of PanAsia was closed in November PanAsia is consolidated 100 % into the Norske Skog Group accounts from the acquisition date. The below numbers show the consolidated profit and loss accounts for Norske Skog as if PanAsia was consolidated 100% into the Norske Skog Group accounts from 1 January NOK million Operating revenue Distribution costs Other operating expenses Provision for restructuring costs Gross operating earnings Depreciation and amortisation Impairments Operating earnings Earnings/(loss) from affiliated companies Financial items Earnings/(loss) before taxation Taxation Net earnings/(loss) The minority s share of net earnings/(loss) The majority s share of net earnings/(loss) Jan-Mar (574) (2 536) (4 693) (21 655) - (270) (844) (3 181) (11) (248) (39) (751) (331) (963) (84) (733) (43) (669) 8 12 (51) (681) Special items The table below shows special items which have influenced net earnings over the past five quarters. NOK million 1/06 4/05 3/05 2/05 1/05 Restructuring provision - (270) Impairments in (op earnings) (58) (11) Translation effects on accounts receivable and payable (op earnings) (21) Change in market value of interest rate derivatives (financial items) (29) 27 Currency hedging gain/(loss) (financial items) 44 (15) 8 28 (128) The Norske Skog share Key figures January-March 2006 At High Low Earnings per share Booked equity per share Share price Market value NOK mill NOK Norske Skog Q1 2006

15 1000 Euro price development newsprint, sc, lwc - germany /94 1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 1/03 1/04 1/05 1/06 45g SC roto 56g LWC offset 60g NOK 200 share price development Week 1/00 Week 1/01 Week 1/02 Week 1/03 Week 1/04 Week 1/05 Week 17/06 Oslo Stock Exchange index Norske Skog Norske Skog Q

16 Return: Norske Skogindustrier ASA Oksenøyveien 80 P O Box 329, NO-1326 Lysaker, Norway Phone: Fax: BEconomique Design and print: Vestfjorden Grafisk AS Photos: Front page: Peter MacCallum Christian Hatt 16 Norske Skog Q1 2006