Rottneros swings to Q3 loss of 136M Swedish kronor from profit of 56M kronor in year-ago period, sales down 11.1% year-over-year to 367M kronor; results driven by impairment charges, decreased demand particularly for mechanical pulp

Kendall Sinclair

Kendall Sinclair

Oct 20, 2011 – Rottneros

STOCKHOLM , October 20, 2011 (press release) – Profit after net financial items amounted to SEK 72 (125) million for the period January to September 2011 before write-downs and one-off costs. Operating profit amounted to SEK 74 (123) million for January to September 2011.

The result for the third quarter of 2011 has been charged with write-downs of SEK -118 million and one-off costs of SEK -30 million: SEK -148 million in total. Loss after net financial items amounted to SEK -76 million for January to September 2011 after these write-downs and one-off costs.

As a consequence of the weak market for mechanical pulp, Rottneros Mill initiated an improvement programme that entails not only staff reductions and cutting other production costs but also changes to the product range.

CEO’s statement

The earnings after financial items of SEK 19 million and SEK 37 million generated in Quarters 1 and 2 respectively fell to SEK 16 million in Quarter 3. In addition to this, accounting write-downs and restructuring costs of SEK 148 million were charged to the result for this quarter. This drop in operating profit is not only due to the normal three-week holiday shutdown at Rottneros Mill, but also weaker demand for our products. Particular mention can be made of the mechanical pulp produced at Rottneros Mill, which is used primarily to manufacture printing paper. The consumption of printing paper has reduced significantly in Western Europe, which has already been seen in North America. The price level for mechanical pulp is relatively low but stable; the problem is the volume of demand, which is why we have restricted production at Rottneros Mill and are continuing to do so. The mill has problems in respect of profitability, for which reason we are conducting negotiations con cerning a reduction of the workforce and writing down our book value for the mill’s fixed assets by SEK 65 million. We are also reserving SEK 11 million in one-off costs for early retirements and redundancy costs.

The chemical pulp market had a strong start to the year and new record price levels in USD/tonne were noted during the second quarter. At the same time, a low valuation was given for the US dollar, which meant that the price of pulp in SEK never attained the highest level for 2010. During the summer prices fell, demand became weaker and the manufacturers’ stocks of pulp rose which resulted in the downward price trend continuing even after the traditionally weak European holiday period. This downward trend was held back in SEK by the simultaneous strengthening of the US dollar.

We are now approaching our annual maintenance shutdown at Vallvik Mill. Our previously notified investments in the bleaching and water treatment plants will be linked up during this two-week shutdown. The pace of investments in the Group will thereafter reduce.

We are actively working on several interesting projects involving CTMP installations based on our assets from Utansjö where the book value is utilised. However we no longer consider the South Africa project to be the most likely option and are therefore writing down the value of the project-related costs by SEK 19 million to SEK 0 million. There is no longer any chance of maintaining the book value for the Miranda receivable of SEK 53 million, for which reason we are writing the value down to zero.

The above-mentioned write-downs will have a significant adverse effect on the booked result for the quarter and year. On the other hand they will not affect the cash flow and nor do these write-downs affect the company's capacity to pay dividends.

Ole Terland

President and CEO

Industry Intelligence Editor's Note: In an omitted table, Rottneros reported Q3 net loss of 136 million Swedish kronor and net sales of 367 million kronor. For the same period a year ago, the company recorded net income of 56 million kronor and net sales of 413 million kronor.

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