Operating revenues and results
Both volumes and prices were higher than in 2013 for all divisions. The prices for saw timber also increased overall, but the balance between finished product and raw material prices nevertheless improved compared to the previous year.
Throughout 2014 much priority has been given to follow-up and implementation of those measures and projects that were identified and initiated at the end of 2013 to improve the Group's competitiveness in the long term and reduce the risk of losses related to individual projects. This work has provided good results in many companies, but further improvement is required at more units to elevate the results to the targeted levels. Reimbursements from group health insurance plans in Sweden has a non-recurring effect of NOK 6.7 million on the Group's 2014 operating profit.
The Electrical system business has conducted write downs on projects totalling NOK 9 million.The 2013 result was negatively affected by significant losses in the Building Systems division related to project assessments in the Electrical system business and extensive damage to a module project in Sweden. This totalled NOK 67,5 million.
Net financial expenses were somewhat higher than for 2013. This is due to unrealised losses on financial hedging instruments, which are used to hedge exchange rates, interest rates and power prices. Non-cash items associated with this totalled minus NOK 30.4 million (plus NOK 5.5 million) The negative result from the hedging instruments is attributed primarily to lower interest rates in both Sweden and Norway, as well as the decline in electricity prices. Developments for the Group's unrealised currency hedges were positive.
The Group's average margin on debt financing was unchanged from 2013, but interest rate expenses were lower due to a lower level of debt through the year.
Profits before tax were NOK 115.3 million, an improvement of NOK 232.4 from 2013 and in line with the board's expectation of a significant improvement in 2014 compared to the previous year.
årsberetning timber tabell 1 E
The positive trend from the last half of 2013 in the international market for industrial wood continued into 2014. The balance between supply and demand improved compared to the previous year, and market prices rose in the fist six months. Demand in the export markets in the Middle East, North Africa and China was good, while activity in the Euro zone was somewhat more hesitant.
Increasing production and producer stocks led to a gradually more cautious attitude in the market from the end of the second quarter and into the autumn. In addition to the normal seasonal reduction towards the end of the year, the international industrial wood market was marked by uncertainty and a continued cautious attitude among customers toward the end of the year. Both the volume and prices were higher for the full year than in 2013. For the export-oriented units the price increase in the export markets was amplified by the NOK and SEK falling against the most important export currencies.
Access to raw material was challenging in certain areas at the start of the year, but gradually improved in the second half of the year. The prices of saw timber rose, particularly in Norway, and were at the end of 2014 somewhat higher than a year previously. The prices for wood chip and fibre products varied from stable to somewhat weaker compared to the same time in 2013.
Access to raw material was challenging in certain areas
Sawmills in Sweden saw better improvement in the balance between finished product and raw material prices than in Norway, and achieved good earnings improvements due to this. For Norwegian operations, realised operational improvements led to a comparable result with the previous year as the increase in raw material prices overall exceeded the increase in finished product prices.
The recognition of reimbursements from group health insurance plans in Sweden has a positive non-recurring effect of NOK 3.4 million on the operating profit.
At the start of 2014, ambitious improvement measures were planned within the division. In addition to a number of specific measures and goals, a great deal of emphasis is placed on developing a culture for continuous improvement of all the processes throughout the entire organisation. At the end of the year, there have been many successes, but certain units have nevertheless not performed satisfactorily. Significant work thus remains to bring all units to a level with satisfactory profitability and good competitive ability.
årsberetning wood tabell 2 E
For the Wood division the positive developments in the market from the latter half of 2013 carried over into 2014. A mild winter provided good operational conditions and an early start to the spring season. Throughout the first six months both delivery volumes and prices were higher than for the same period the previous year. However, as mid-year approached the Wood division's primary markets were also characterized by a more cautious approach. Following a seasonally normal reduction in the summer, market activity picked up somewhat slower as autumn progressed. In the fourth quarter, however, demand declined slightly in Norway and supply volumes dropped in comparison to the previous year. Activity levels in the Swedish market were satisfactory.
For the year as a whole, supply volumes were at the same level as 2013, while prices were higher.
The price performance for finished products throughout the year were ensued by higher raw material prices, both for the planing mills where the production is based on purchased industrial wood and for the timber-consuming units. Following a start to the year with a challenging situation with regard to the supply of raw material for the timber-consuming units, the situation took a positive turn. The supply of saw timber in the second half of the year was good, but particularly in Norway the prices were higher than in the same period in 2013. The price levels for wood chips and fibre products varied from stable to slightly weaker.
The recognition of reimbursements from group health insurance plans in Sweden has a positive non-recurring effect of NOK 1.3 million on the operating profit.
Many units have achieved the expected results and developed well throughout the year
There was an extensive plan of action at the start of the year to improve profitability further for Wood as well. Many units have achieved the expected results and developed well throughout the year, but there are also certain units that are still performing significantly below the plan and target. In addition to technical improvements, extra resources were allocated to these units in order to safeguard the implementation of the improvement measures in the fourth quarter.
årsberetning byggsytemer tabell 3 E
The Building Systems Division has primarily Norway and Sweden as its market. In general, market activities within the sectors in which the division's companies operate have been good in Sweden and more challenging Norway. Price developments have been positive. With the exception of the Electrical systems business, all business areas in the division increased their revenues in 2014. All business areas improved on their operating profit compared to the previous year. Order intake has been good, and at the end of 2014 the division had a healthy and well-composed order backlog that was NOK 360 million higher than at the start of the year.
The Norwegian part of glulam operations had a good level of activity in 2014. Despite a certain decline in market activity, price levels throughout the year were higher than the previous year. Developments in Sweden were less positive, and the Swedish part of glulam operations has in the latter half of the year intensified market efforts and implemented a number of measures to increase volumes and improve production efficiency. In addition to poor developments throughout the year, the result at the end of the year was hit by cost overruns and productivity interruptions related to the introduction of a new ERP system.
Raw material costs for glulam operations increased compared to previous years as a result of the price increases for industrial wood.
The glulam business has had a separate organization in the UK with offices and warehouse in Eastleigh outside Southampton. Results have not been satisfactory in recent years, and a decision to discontinue operations was made in September. The accounts for 2014 have been charged with NOK 4 million for costs related to this. Standard glulam products for the British market will be sold through the Timber division's organisation in the UK.
At the end of 2014 the Electrical Installations business has essentially been restructured in accordance with the new strategy for the company. The restructuring entails increased focus on smaller projects and service jobs, and the company has several long-term contracts for maintenance with durations of several years. Activities in large and complex projects are being discontinued. In connection with the finalization of the restructuring and the final major individual project, NOK 9 million was written down in 2014. Comparative figures for 2013 include a corresponding charge totalling NOK 42.5 million.
For the Modular Building business in Sweden, the market activity was good throughout the year, and the company showed a very good inflow of new orders and good results. The level of activity was lower in Norway, particularly in the housing segment, where there has also been problems achieving satisfactory profitability. A new market concept in the housing segment is being developed. Compared to 2013 productivity at the factory in Moelv has improved, but efficiency at the building site still lags behind targets. Measures are being implemented for further productivity improvements and increased efficiency at the building site. Comparative figures for 2013 include a write down of NOK 25 million related to a large individual project with Modular Building in Sweden.
For the Modular System Interiors companies, the level of activity for new construction saw positive development in the Swedish part of the business, especially in the Stockholm area. In Norway the level of activity in new construction has been poor throughout 2014. The renovation and remodelling markets have had a stable, good level of activity in both Norway and Sweden.
The recognition of reimbursements from group health insurance plans in Sweden has a positive non-recurring effect of NOK 2.0 million on the division's operating profit.
årsberetning øvrige tabell 4 E
Fluctuations in operating revenues within the area of Other businesses are largely due to fluctuations in the level of activity within timber supply and sales of chips and energy products. The main activity is internal sales, which do not materially affect the results within the business area. In order to safeguard the supply of timber and market opportunities for wood chip and energy products in the regions that were affected by the closure of Södra Cell Tofte in August 2013, a train solution was established to transport pulp wood and chips. The arrangement entails increased external sales due to pulp wood now being purchased and subsequently sold externally. The business is based on fixed agreements on both the customer and supplier sides, and the risk is limited. The cost increase for the full year compared with the same period last year is attributed to a higher level of activity in the parent company linked to improvement projects. A provision for 18 months' salary for the former CEO was charged to the operating profit for 2014 in accordance with the guidelines described in note 28 in the consolidated financial statements and note 16 for the parent company.