Operating revenues and results
årsberetning Driftsinntekter og resultater konsern NO
Operating revenues increased by 6.4 per cent compared to the previous year, including sales of businesses. The operating profit without corrections for restructuring increased by 37.3 per cent. EBITDA, which doesn't include impairment and loss through the sale of fixed assets, increased by 15.9 per cent compared to 2015. Overall, delivery volumes in 2016 have been higher than in the previous year, and at prices on a par with or somewhat higher than in 2015. Overall, raw material prices did not change significantly compared to 2015. The improvement in operating margin is thus mainly due to internal improvements.
The inventory estimates, which are prepared according to the FIFO principle, are reviewed regularly to correct for developments in raw material costs. Along with an update of real value assessments of inventory, this formed the basis for price adjustments totalling NOK 9 million in 2016 and NOK -45.6 million in 2015. The items do not have any impact on cash flow.
Following a review of the overall project portfolio in Building Systems, it has been revealed that the valuation of project revenues in the fourth quarter report was too high. Based on a careful assessment of the portfolio, an impairment totalling NOK 40 million has been implemented in the annual accounts.
The profits for 2015 were charged with write-downs and losses on sales of fixed assets totalling NOK 54.1 million related to the sale and liquidation of operations at Moelven Nössemark Trä AB, in addition to cost adjustments in the project portfolio of the Electrical Installations business of NOK 40.0 million. In the course of the autumn of 2015 the Group's remaining defined-benefit pension schemes in Norway were converted to defined-contribution pension schemes. The change resulted in a positive non-recurring effect on the operating result of NOK 26.5 million. In addition there is a positive effect of NOK 8.0 million from negative goodwill related to acquisitions.
Net financial expenses excluding changes in the value of financial instruments were NOK 57 million in 2016, compared to NOK 61.9 million the previous year. Overall borrowing costs increased slightly through the refinancing that was completed in June 2016, but lower net interest-bearing debt throughout the year meant that net financial costs nevertheless decreased.
The Group employs financial instruments to hedge foreign exchange rates, interest rates and power prices. Net non-cash items associated with this totalled NOK 14.5 million (NOK 5.6 million). The main reason is positive developments in the market value for the power hedges. Falling interest rates increased the already negative market value of the interest rate hedges slightly, while the currency hedges were almost unchanged compared to the previous year.
årsberetning timber tabell 1 E
The activity levels in the Timber division's main markets were satisfactory in 2016, and followed the normal seasonal variations through the year. Demand for the division's products was good as well. Adjusted for Moelven Nössemark Trä AB as of 31 December 2015 no longer being a part of the Group, delivery volumes in 2016 were somewhat higher than for the previous year. Average prices for finished goods, without corrections for market mix, were slightly higher overall in 2016 than the year before.
Most of the exports take place from the division's Swedish units, and the bulk is settled in EUR. For 2016 as a whole, EUR has been marginally stronger against SEK than in 2015. At the same time the GBP, which is the Group's second largest export currency, weakened significantly following the BREXIT referendum. However, currency hedges and increased prices measured in GBP contributed to limit the negative effect on margins.
Access to raw material was good in the first half of 2016, while in the second half of the year, access to spruce in Norway varied. The situation improved towards the end of the year. At year end sawlog inventories were at levels that provide a satisfactory basis for the planned production levels for the winter. In 2016 price levels for sawlogs have overall been somewhat higher than in the previous year in Norway, and somewhat lower in Sweden. Sales of chip and fibre products were good throughout the year, at prices on a par with or somewhat over 2015.
Due to price developments, the profits for 2016 have been charged with a price adjustment to inventories totalling NOK 1.6 million The corresponding price adjustment in 2015 comprised NOK -23.0 million.
The profits for 2016 have been charged with an impairment loss of NOK 16.5 million as a consequence of the restructuring and change of concept at Moelven Tom Heurlin AB prior to transfer to the Wood division as of the first quarter of 2017.
The operating profit for 2015 has been charged with write-downs and losses on sales of fixed assets totalling NOK 54.1 million related to the sale of the operations at Moelven Nössemark Trä AB. Further, the conversion of the remaining defined-benefit pension schemes in Norway to defined-contribution pension schemes provided a positive non-recurring effect on the operating result of NOK 2.1 million in 2015.
In 2016 several units have improved efficiency as a result of the ongoing improvement work. There are nevertheless units remaining with unsatisfactory results, and improvement work will continue unabated in order to bring all units up to targeted profitability levels.
årsberetning wood tabell 2 E
The Wood division sells most of its products on the building materials market in Scandinavia. Demand in 2016 was, with the exception of south-west Norway, satisfactory. The increase in revenues compared to the previous year was mainly due to increased volumes in Norway and Sweden. Price levels for the division as a whole increased slightly compared to the previous year.
Sales of custom products such as surface-treated or cut-to-length products are on the increase. Commissioning and building of new homes is at a high level in both countries. In Sweden however, activity in the renovation, conversion and extension market has dropped slightly following changes to the tax rules concerning deductions.
The result for 2016 is to a certain extent characterized by lower than optimal production at some units after starting up following new investments. In addition there are still units that are not delivering satisfactory earnings. Improvement efforts to bring these to targeted profitability levels continue with high priority.
On 21 November 2016 Moelven acquired the business and assets of DLH Sverige AB. The takeover went according to plan, and yielded positive results in the board segment before the end of the year.
The planing mills in the Wood division use sawn timber as a raw material, and the raw material costs for these units thus follow the same trends as the finished product prices for the sawmills in the Timber division. Compared to the previous year, raw material costs for these units have increased slightly. Access to saw timber for the division's timber consuming operations was satisfactory in the first half of 2016, while in the second half of the year, access to spruce in Norway varied. The situation improved towards the end of the year. At year end sawlog inventories were at levels that provide a satisfactory basis for the planned production levels for the winter. In 2016 price levels for sawlogs have overall been somewhat higher than in the previous year in Norway, and somewhat lower in Sweden. Sales of chip and fibre products were good throughout the year, at prices on a par with or somewhat over 2015.
Due to price developments, the profits for 2016 have been credited with a price adjustment to inventories totalling NOK 10.6 million The corresponding price adjustment in 2015 comprised NOK -22.6 million.
The conversion of the remaining defined-benefit pension schemes in Norway to defined-contribution pension schemes provided a positive non-recurring effect on the operating result of NOK 4.6 million in 2015.
årsberetning byggsytemer tabell 3 E
The increase in revenues compared to 2015 is due to greater activity in Building Modules in Sweden and the acquisition of Moelven Byggmodul Hjellum AS in the fourth quarter of 2015. The order backlog for the division as a whole is still good and diverse. At year end the combined order backlog was NOK 68 million lower than the previous year. The order backlog for the electrical installations business that was transferred to Other business in the second quarter of 2016 comprised NOK 85 million at the end of 2015.
Following a review of the overall project portfolio, it has been revealed that the valuation of project revenues in the fourth quarter report was too high. Based on a careful assessment of the portfolio, an impairment totalling NOK 40 million has been implemented in the annual accounts.
The conversion of the remaining defined-benefit pension schemes in Norway to defined-contribution pension schemes provided a positive non-recurring effect on the operating result of NOK 17.2 million in 2015. In 2015 there was also a disparagement of the project portfolio comprising individual projects with a contract value above NOK 30 million. The disparagement resulted in a charge to the result of NOK 40 million for the year as a whole.
Market activity and demand for glulam in Sweden was good in 2016. Overall, both the production and application of glulam in Sweden reached record levels. Prices were nevertheless under pressure as a result of several players directing their volumes at the home market rather than export markets. For Moelven Töreboda AB internal improvement work and increased volumes resulted in more efficient utilization of the factory, and the result improved significantly compared to 2015. The glulam activities in Norway also saw good demand for their products. However, increased costs for certain inputs led to a decline in earnings. Overall, glulam operations delivered a result in 2016 that was better than the year before.
The Interior System business saw a lower level of activity in Norway compared to the previous year, mainly due to market developments in south and western Norway. Reduced demand has also led to strong pressure on prices. Staffing on the Norwegian side has therefore been reduced and adjusted in accordance with the current market situation. For the Swedish part of the business the market situation was very good throughout 2016, particularly in and around the major cities of Stockholm, Gothenburg and Malmö, both within new building and renovation, conversion and extension. Overall, the Interior System business had a significant drop in earnings compared to the year before, but capacity adjustments contribute to maintain positive results and cash flow.
The Modular Buildings business in Sweden had excellent demand in all market segments throughout the year, and increased its level of activity significantly in 2016. As a result of this, 133 previously hired staff were given permanent positions in the course of the year. Price developments have been positive, but the economic boom has also led to increased costs. Efficiency-enhancing measures are therefore assigned high priority. During 2016 two significant investment projects have been implemented. At the plant in Kil, where building and construction modules are produced, conversion is taking place that will increase capacity by 15 per cent. At the plant in Säffle, where modules for residential and renting purposes are produced, a development project is ongoing with a cost framework of SEK 72 million that is to be completed in the course of the second quarter of 2017. The investment, which involves significant robotisation, will, in addition to increasing the overall capacity at the factory by 50 per cent, also provide more rational production solutions and improved HSE conditions.
In Norway there has also been good demand for modules in the housing segment. Towards the end of the year demand also improved in other market segments, but the situation at year end remains unsatisfactory for accommodation rigs. This market is to a certain extent characterized by a surplus of used rigs in the market. Due to the high demand in Sweden, available capacity at the plants in Norway has been used to produce modules for the Swedish market.
In the second quarter 2016, Moelven Elektro AS acquired assets and project portfolio related to maintenance contracts, and small and medium-sized projects, from the other electrical installations business in the Group. The company, which belonged to the “Other businesses” reporting area, was sold to Bravida Norway AS 1 December 2016. At the time of the sale Moelven Elektro AS had a total of 162 employees.
The remaining electrical installations operations in the Building Systems division, Moelven Elprosjekt AS, has focused on completing projects. At year end all projects were completed on site, but clarification on the final settlement for certain projects remains.
årsberetning øvrige tabell 4 E
Apart from this reorganization and subsequent sale of operations, 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 regions without local demand for pulp wood and wood chips, train solutions have been established for the transport of these. The business is based on fixed agreements on both the customer and supplier sides.
The result for 2015 includes a positive net result of NOK 8.0 million from negative goodwill related to acquisitions. In addition there is a positive non-recurring effect of NOK 3.5 million from converting the remaining defined-benefit pension schemes in Norway to defined contribution pension schemes.