The total operating profit for Moelven in 2011 ended at NOK 13 million (243). Difficult market conditions inteMain intro rnationally and losses on some individual projects were the main causes of the poor operating profit.
The group's total operating income for 2011 was NOK 8,060 million (7,184). Operating income and operating profit for the group in the fourth quarter were NOK 2,011 million (1,885) and NOK minus 2 million (minus 35) respectively.
Hans Rindal, President and CEO of Moelven Industries is not satisfied with the results for 2011 and gives the following explanation to the figures:
- If we first consider operations, there are two circumstances in particular that have affected results. One is losses of about NOK 40 million in the third quarter, linked to projects in our electrical systems business. The other is linked to unusually low gross margins for the export-based activities of the sawmills in Sweden, says Rindal.
Low international activity
He says that this is partly explained by the debt crisis in Europe holding demand in these markets at a lower level than normal:
- This has led to falling prices for industrial timber, while at the same time the Euro has weakened, which has in turn weakened the competitiveness of manufacturers outside the Euro zone. Strong competition on the raw materials market in Sweden has slowed the reduction in raw material prices from their all-time high a year ago. The net effect of this, unfortunately, has been losses in this part of our industry, says Rindal.
A third explanation of the poor results after financial costs has been that financial costs increased considerably compared to the previous year. During the fourth quarter, the Moelven group changed its accounting principles from the Norwegian to the international standards, which has meant that financial items vary more than they did previously.
The main reason for this is that unrealised losses and gains on financial hedging instruments used for hedging exchange rates, interest rates and power prices shall now be recognised during each period. Non-cash items connected to such hedging instruments amounted to NOK minus 17 million (plus 29) for the quarter and NOK minus 60 million (plus 33) for the year.
- It is unfortunate that we hedged as early as we did this time, when we could have reached a better result doing it now, says Rindal, but the hedging was done to avoid paying more if prices had risen.
Profit before income tax ended at NOK minus 112 million (plus 230).
A better 4th quarter
The operating result in the fourth quarter of the year was better than the year before, however. The Building Systems division has seen good activity in a difficult market and activity in the building products division Wood has been normal for the season in Norway and Sweden, but falling in Denmark.
- Parts of our business are doing well in all divisions, but unfortunately not well enough to compensate for our losses through the year, says Rindal. We can confirm however that it is good to have more than one leg to stand on, he says.
In spite of the unsatisfactory results last year and the mixed prospects, the group is planning for normal activity in 2012.
- It is not long since we went through a financial crisis where we came out pretty well because we took the necessary actions. Based on this recent experience, we have also established contingency plans for the coming year if the level of activity must be reduced, says Rindal.
The most internationally-oriented parts of Moelven have already had to face lower demand and reduced prices throughout the second half of 2011, and measures have been taken in several areas.
Long-term liquid reserves
Financially, the group has satisfactory solidity and sufficient long term liquid reserves to be able to perform the necessary operational reorganisation. Certain reductions of the investment level have been initiated, which will take effect during the course of 2012 if market conditions do not improve.