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Quarterly reports

Q2 2019

In brief

In brief

  • Operating revenues in the second quarter were NOK 2,844.0 million (3,055.7 million).
  • The operating profit was to NOK 168.2 million (219.8 million).
  • Return on capital employed (12-month rolling basis) improved to reach 17.6 per cent (15.7).
  • Uncertainty and reduced activity on the international sawn timber market.
  • Delivery volumes to the building products trade at a normal level.
  • Lower level of activity in Building Systems.
  • The HSE efforts create results, but still there are too many injuries.

In the group’s export markets  for sawn timber, demand was somewhat lower than normal for the season. The backdrop is largely uncertainty in the world economy and reduced activity as a result of the trade war between China and the US. At the same time a large supply of cheap raw materials as a consequence of extensive storm-fellings in Germany, and the resurgence of powder-post beetles, has led to pressure on prices for lower quality spruce products. For the export oriented units, which largely belong to the Timber division, the weakening of NOK has contributed to maintain competitiveness. Activity in the building products trade in Scandinavia was on a par with the second quarter of 2018. The renovation conversion and extension market still has a good level of activity, although new housing starts have declined in both Norway and Sweden.

For the Building Systems division, a lower demand for module based apartment building, has made it necessary to reduce production. In building and construction, infrastructure and smaller projects, activity has been good. The supply of sawlogs has been good in the period. At the end of the quarter the sawlog inventories were higher than at the same time last year. Inventories are satisfactory with regard to the existing production plans. The prices for sawlogs were higher than for the corresponding period in 2018. Prices for chip and fibre products were also higher than in the second quarter last year.

In the second quarter Moelven Pellets AS entered into a partnership with SCA that secure the Swedish group a delivery contract for the entire production volume (80,000 tons per year) from the Moelven Pellets AS factory at Sokna.

Both Moelven Töreboda AB and Moelven Våler AS, which is an important raw material supplier to the group’s glulam production, celebrated their 100th anniversaries in the second quarter. At the same time, Moelven Limtre AS celebrated its 60th anniversary. The anniversaries underscore that there is much history and experience behind the products and services the group currently supplies. In May the 85.4 metre tall Mjøstårnet was awarded its official status as the world’s tallest wooden building. Chairman Steve Watts of the international Council on Tall Buildings and Urban Habitat, CTBUH, described Mjøstårnet as “a step into the future” that will have a great impact on the development of the cities of the future. Throughout its 120-year history, Moelven, with projects such as the Olympic halls for the 1994 games and more than 200 wooden bridges and two world records with “Treet” in Bergen and “Mjøstårnet” in Brumunddal, has moved the boundaries for what is possible to build from wood. As a symbol that one of the world’s leading centres of expertise in wood structures is in the Moelven group, the group donated the monument “Silva” to Ringsaker municipality. The monument is eight metres tall, eight metres in diameter, can be illuminated according to the season and is made from glulam beams from Moelven Limtre.

In June Moelven Profil AS was presented with the award “Grue Company of the year 2018.” The company was established in 1974 and acquired by the Moelven group in 2011. Besides evolving to an efficient and profitable industry, the company has also created a safe and secure working environment. On 25 June the company reached 1,000 days without injuries resulting in absence, and thus proved that purposeful improvement work in the HSE area is beneficial and yields results.

In the second quarter information and training was provided related to the group’s new strategic framework that was established in the 2019 – 2021 strategy plan. The strategic framework summarises the four main pillars that the group strategy is based on; “People,” “Innovation,” “Sustainability” and “Profitability,” and provides common guidelines for which priorities that must be made to achieve the group’s long-term goals.

A good example of the strategy applied in practice is Moelven Modus’s new self-designed offices in Malmö. Newst! has named the office one of Sweden’s most attractive offices in 2019. When the office was designed, it was to create new standards not only for what an office can look like, but also to accommodate new work forms and patterns. In other words: “Innovation” and focus on “People.” In addition, Modus’s solutions are proven to be sustainable compared to traditional in situ solutions, particularly when the opportunities for reuse are exploited.The residential project “Cederhusen,” designed by BAU arkitekter and supplied by Moelven Byggmodul AB, has been nominated for the Haninge Architectural Award. The winner will be named in September, but the nomination alone is a recognition of the architectural quality of module-based buildings.

On Wednesday 22 May module number 90,000 left the Moelven Byggmodul factory. Since the current Moelven Byggmodul AS factory was built in 1975, the company has produced and supplied sustainable wood modules for the building and construction sector, public buildings, commercial buildings and buildings for residential purposes. After the acquisition of Moelven Byggmodul Hjellum AS, the apartment concept will be maintained by the latter, while Moelven Byggmodul AS has specialised its production for the building and construction sector and public and commercial buildings. 

Operating revenues and profits

Operating revenues dropped compared to the same period last year as a result of lower activity in Building Systems and Timber. Higher delivery volumes and higher market prices for processed goods resulted in increased operating revenues for Wood. With the exception of operational disruptions resulting from the fire in the lumber dryers at Moelven Trysil AS, the second quarter was good in terms of operations. Cost levels were nevertheless too high at certain units, and this imposes requirements towards further efficiency improvement measures.

The FIFO principle requires that inventory calculations are adjusted in line with developments in raw material costs. Along with an update of real value assessments of inventory, this has impacted the operating profit with a total of NOK -9.5 million (30.3 million) in the quarter, and NOK 0.0 million (41.7 million) for the first six months. The items do not have any impact on cash flow.

The group employs financial instruments as a hedge against short-term fluctuations in foreign exchange rates, interest rates and power prices. Non-cash items related to fair value assessments on unrealized financial instruments totalled NOK -4.6 million (NOK 16.0 million) for the quarter and NOK -10.0 million (NOK 50.0 million) for the first six months. For the second quarter the amounts include basis swap effects of NOK -0.5 million (0.1), and for the first six months NOK 17.6 million (26.4). Basis swaps are hedging instruments that when viewed for the entire term have a market value change equalling zero, and where the accounting effect therefore is reversed over time.

Investments, balance sheet and funding

Investments totalling NOK 171.5 million (NOK 82.7 million) were made during the second quarter, and NOK 228.4 million (NOK 191.4 million) during the first half of the year. The increase in the investment rate is taking place in accordance with the investment programme in the group’s strategy plan. The depreciations were NOK 76.3 million (NOK 69.8 million) in the quarter and NOK 153.1 million (NOK 140.8 million) for the first six months. At mid-year, the group's total assets were reported as NOK 6,035.1 million (NOK 5,433.0 million). In addition to high investments in 2019/2018 and the accounting effects of the implementation of IFRS 16 – Leasing, increased inventories are the main reason of the increase in total assets.

Cash flow from operating activities in the second quarter was NOK 178.6 million (NOK 340.9 million), corresponding to NOK 1.38 per share (NOK 2.63). Corresponding figures for the first six months were NOK 20.9 million (NOK 117.6 million), which is equivalent to NOK 0.16 (NOK 0.91) per share. The change compared to last year is due to natural fluctuations in working capital items. Cash flow from working capital items was NOK -12.3 million in the second quarter (NOK 105.0 million) and NOK -313.9 million year to date (NOK -250.3 million). Net interest-bearing liabilities were NOK 1,335.9 million (NOK 924.2 million) at the end of the second quarter. Financial leases are included in net interest-bearing liabilities in the amount of NOK 214.8 million (NOK 14.1 million). The reason for the increase is because after the implementation of IFRS 16 – Leasing, all leases are recognised in the balance sheet as debt-financed assets. The liquidity reserve was NOK 747.6 million (NOK 936.9 million). In the group's main financing the available loan facility varies in time with the natural fluctuations in the group's tied-up capital through the year.

Equity at the end of the second quarter amounted to NOK 2,341.1 million (NOK 2,143.0 million), which is equivalent to NOK 18.07 (NOK 16.54) per share. The equity ratio was 38.8 per cent (39.4 per cent). The dividend for the previous year of NOK 1.74 (0.68) per share, totalling NOK 225.4 million (88.1), was paid and charged to equity in the second quarter. Parts of the group's equity are linked to ownership interests in foreign subsidiaries, principally in Sweden, and are thereby exposed to exchange rate fluctuations. The scope and consequences of likely exchange rate fluctuations are within acceptable risk limits. In the second quarter, exchange rate fluctuations resulted in an unrealised change in equity of NOK -6.2 million (NOK -34.4 million). Year to date the change was NOK -64.0 million (-100.5 million). Approximately half of the group's assets are recognised in SEK. The total assets thus also change based on the exchange rate, and the equity ratio in percent is therefore less impacted by exchange rate fluctuations than the nominal equity.


Activities in the export markets were lower than at the same time last year. Price levels were overall somewhat higher than in the second quarter of 2018. However, particularly for lower qualities of spruce, prices came under pressure as a result of the great supply of cheap raw material further south in Europe due to extensive storm fellings and increased harvesting because of attacks from powder-post beetles. Production was somewhat lower than in the same period last year, and contributed to inventories being kept at acceptable levels. Cost levels were however higher than planned, and measures are being implemented in order to improve cost efficiency.

The new dry sorting line at Moelven Notnäs Ransby AB, Ransby department, started up according to plan on 27 May. With the new dry sorting line in place, cost efficiency will improve in the second half of the year.

The supply of sawlogs has been good in the period. At the end of the quarter sawlog inventories were somewhat higher than at the same time last year, particularly for spruce in Sweden. Inventories are satisfactory with regard to the existing production plans. The prices for sawlogs were higher than for the corresponding period in 2018. Prices for chip and fibre products were also higher than in the second quarter last year.

Due to price developments the profits for the quarter have been impacted by a price adjustment to inventories totalling NOK -3.2 million. The corresponding adjustment in the second quarter of 2018 was NOK 5.4 million. Year to date the price adjustments comprised NOK 5.1 million (NOK 7.2 million). In the second quarter the division’s sales offices in Poland and the Netherlands were discontinued. Responsibility for these markets has been transferred to Moelven Deutschland GmbH.


Activities in the building products trade in Scandinavia was on a par with the corresponding period in 2018, but with higher price levels. Delivery volumes to the trade increased somewhat, combined with a certain change in the product mix. Compared to the same period last year, the combined units also increased deliveries to the export markets for sawn timber. Overall, this resulted in an increase in operating revenues in the quarter.

Operating conditions in the period were generally good, but the fire at Moelven Trysil AS resulted in operational disruptions at the plant in Trysil and at the units affected by the continuity plans. The plant is insured both in terms of damage and disruptions. Excess costs and a waiting period for the consequential loss insurance was charged to the accounts in the first quarter to the tune of NOK 5 million. Construction of new lumber dryers was initiated during the second quarter.

The supply of sawlogs has been good in the period. At the end of the quarter sawlog inventories were somewhat higher than at the same time last year, particularly for spruce in Sweden. Inventories are satisfactory with regard to the existing production plans. The prices for sawlogs were higher than for the corresponding period in 2018. Prices for chip and fibre products were also higher than in the second quarter last year.

Due to price developments the profits for the quarter have been impacted by a price adjustment to inventories totalling NOK -6.3 million. The corresponding adjustment in the second quarter of 2018 was NOK 24.9 million. Year to date the price adjustments comprised NOK -5.1 million (NOK 34.6 million). 

Building Systems

At the end of the quarter the order backlog for the division as a whole was NOK 509 million lower than at the same time in 2018, and this has made it necessary to implement capacity adjustments at certain units.
For the Modular Buildings business in Norway, activities in building and construction have been good, and production for this market segment has been satisfactory. The new robot line that has been installed at the factory in Moelv has started up, and will provide further rationalisation of operations in the time ahead. In the housing segment activity has been slow, and not sufficient to ensure production through the first six months. However, production will start up again in the third quarter.

For the Swedish operations, demand for more basic modules used in building and construction and leasing has been somewhat weaker than normal, while the housing segment remains hesitant. Pursuant to Swedish legislation, layoffs are not permitted. In order to adjust capacity to the market conditions, redundancies are therefore necessary. Notice of this, as well as termination of agreements for hiring personnel, have been issued and will reduce capacity by more than 30 per cent during the third quarter.

For the Interior Systems operations activity in the market is good in both Norway and Sweden, particularly in the capital regions. The market’s focus on the environment has strengthened significantly, as well as requirements to flexibility and good design in activity-based working environments. Material choices and product documentation are becoming more and more important in connection with the environmental certification of buildings. All of this, in addition to the authorities’ focus on proper working conditions in the construction industry, is good for the business.

A new painting line at the factory in Hulån in Sweden, as well as new production equipment for the production of Eco Panel at the factory in Norway, will contribute to further rationalisation. 

Other Businesses

Other businesses include Moelven Industrier ASA, with shared services for finance, accounting, insurance, communications, HSE and ICT. Sawlog supply and sales of wood chips and energy products are organised as a common function for the group's timber processing industry and are included with the companies Moelven Skog AB, Broberg Skogs AB, Moelven Virke AS, Vänerbränsle AB and Moelven Bioenergi AS. 

Moelven Pellets AS, which was established in June 2018 to manage construction and operation of the new pellet factory and energy centre in connection with Moelven Soknabruket AS, is also included in the area, but as of yet with no result items of significance. The pellet factory will be commissioned in the autumn of 2019. In the second quarter Moelven Pellets AS entered into a partnership with SCA that secures the Swedish group a delivery contract for the entire production volume (80,000 tons per year) from the Moelven Pellets AS factory at Sokna.

Fluctuations in operating revenues in the area of Other Businesses are largely due to the level of activity within sawlog supply and sales of wood chips and energy products. These are mainly internal sales, which do not materially affect the profits 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 transport. The business is based on fixed agreements on both the customer and supplier sides.


Moelven’s overall goal in safety work is that no one should be harmed at work. The LTI rate on a 12 month rotating basis, which is an expression for the number of injuries with subsequent sick leave per million worked hours, was 9.8 (13.0) at the end of the second quarter 2019. Developments are headed in the right direction, but the level remains above the target for 2019 of 7.0. HSE work has a high priority in the work of the board, the corporate management and the safety committee. Work on training and awareness-raising is constantly ongoing in order to establish a culture for safety at all levels. As a part of the systematic work to reach the targets in safety work, investigations have been introduced as a method in incidents of a certain severity. The purpose of the investigations is to ensure a thorough and unbiased examination or investigation of the incident, and to ensure follow up of HSE incidents to prevent recurrences. The investigations shall ensure learning and the transfer of experience in all companies in Moelven.

There were 11 (20) personal injuries with subsequent sick leave during the quarter. As a part of work to increase focus on injuries in general, target figures have also been established for the TRIF, which means number of personal injuries with and without absence per million worked hours. For 2019 the goal is set at 33. At the end of the second quarter the TRIF was 35.1 (40.8). To succeed with the 2019 target for LTI rate of < 7.0 and TRIF of < 33, it is essential that preventive work is carried out based on good causal analyses of adverse events.

In the second quarter, absence due to illness was 5.3 per cent (5.2), where 2.8 per cent (2.6) represents long-term absence. Although absence increased slightly during the quarter, the long-term trend is nevertheless still declining. Many of Moelven's businesses have sickness absence levels lower than the maximum target for 2019 of 4.4 per cent. There is nevertheless much to be gained, and work is ongoing to reduce sickness absence for the group as a whole to below the target level. Efforts, which include employee surveys, close follow-up of sickness absence and cooperation with the occupational health services, are particularly directed at those businesses with the highest sickness absence levels.


Activity in the world economy has declined somewhat. The trade conflict between the US and China and uncertainty concerning Brexit are contributing to fears of a further slowdown, and several central banks have already cut interest rates and implemented other measures to stimulate the economy. In Norway the mainland economy is at a normal level, while activity in Sweden has declined. The rest of Europe still has a marginal positive growth rate.

Uncertainty related to the UK has not diminished with the change of prime minister. The consequences of a hard Brexit may lead to significant changes in trade with the UK, with possible ripple effects in the rest of Europe. Moelven has implemented measures to reduce the risk related to this.

In the USA the economy is still improving, although the growth rate is lower and uncertainty greater than previously. Moelven has only occasional deliveries to the United States, but the group sees a positive effect from an improved global market balance. The growth rate in China and Japan is decreasing, and is to a certain extent affected by the ongoing trade war between China and the US. In other parts of Asia there are signs of increasing activity. The Middle East and North Africa are important export markets for Moelven, but remain characterised by conditions that complicate international trade. However, the underlying demand is good in the latter markets. Positive and stable developments in international demand for industrial wood are expected.

Both NOK and SEK are wakened against most currencies except the GBP. This improves competitiveness on the export markets.In Norway demand for processed products in 2019 is expected to remain on a par with 2018, albeit with regional differences. Construction activity in and surrounding the major cities is expected to remain high. In Sweden the need for new homes remains high, but activity in the new building market remains hesitant as in Norway. The order situation for building module operations remains weak, and it is taking a long time to finally clarify the projects that are on the market. Activity in the renovation, conversion and extension market remains good. Increased interest for wood as a building material contributes to maintain activity levels.

Sawlog inventories and access to sawlogs at the start of the third quarter 2019 are satisfactory. However, in Sweden increased harvesting of spruce to avoid powder-post beetle attacks has led to a certain reduction in the supply of pine. Some uncertainty remains in relation to further developments in the market as a result of the powder-post beetle attacks. In addition the situation is affected by major storm fellings in certain areas in Europe.

The group's composition, with divisions that experience different impacts from economic fluctuations and units that operate in different markets, provides the group with a good starting point for further improvements. The group has a long-term goal of a return on capital employed of 13 per cent over an economic cycle. Parts of the strategic programme for operational improvement and structure of the group are being pushed ahead to counter weaker economic developments than assumed by the strategy plan. This will contribute to continued strengthened profitability in the underlying operations. The Board is of the opinion that the group has adequate solvency and access to liquidity over the long term to introduce the necessary measures to develop the group in line with the strategy plan. For 2019 the Board expects a somewhat lower activity level than in 2018 in some of the market segments, and an overall weaker profit as a consequence of economic developments.

Quarterly accounts for the Moelven Group for the second quarter of 2019

Note 1 – General information

Moelven Industrier ASA is a public limited liability company, registered in Norway. The company's headquarters are located at Industriveien 2, 2390 Moelv, Norway. The consolidated financial statement for the second quarter of 2019, ending on 30 June 2019, includes Moelven Industrier ASA and its subsidiaries (collectively referred to as “the group”) and the group's interests in associated companies. The annual accounts for 2018 are available at www.moelven.no.

Note 2 – Statement of conformity

The consolidated financial statements for the second quarter of 2019 have been prepared in accordance with the requirements of IAS 34 “Interim Financial Reporting” which have been approved by the EU. The interim financial statements do not include all the information required in a complete annual report and ought to be read in conjunction with the consolidated financial statements for 2018. The consolidated quarterly financial statements were approved by the Board on 27 August 2019.

Note 3 – Accounting policies

The accounting policies adopted in the quarterly financial statements for 2019 are the same as those in the consolidated financial statements for 2018, with the exception of principles related to IFRS 16, which were implemented on 1 January 2019. Changes to accounting principles as a result of IFRS 16 are described in the consolidated accounts note 3. Currency exchange rates in the consolidation are retrieved from Norges Bank.

Note 4 – Critical judgements and estimates

The preparation of quarterly financial statements requires management to make judgements, estimates and assumptions that affect both which accounting policies are applied and the reported amounts of assets, liabilities, revenues and expenses. Actual amounts may differ from the estimated amounts. In preparing these quarterly financial statements management has applied the same critical judgements in applying the accounting policies as it made when preparing the consolidated financial statements for 2018 and the principal sources of estimate uncertainty are the same when preparing these quarterly accounts as for the consolidated accounts for 2018.

Note 5 – Pensions and taxes

The calculations of pension costs and pension liabilities are undertaken annually by actuaries. In the quarterly accounts pension costs and pension liabilities are based on forecasts from actuaries. The income tax expense is determined in each quarter on the basis of the expected annual income tax expense.

Note 6 – Seasonal fluctuations

Demand for the group's products and services are normally subject to variability throughout the year.

This means a low season through the first quarter, increasing activity and a high season through the second and third quarters and less activity in the last part of the fourth quarter.

Due to the annual seasonal variation in raw material access and market activity, the group's working capital varies by NOK 300 million to NOK 400 million from its highest level in May/June to its lowest in November/December.

Note 7 – Fixed assets, intangible assets and goodwill

Note 7

Note 8 - Financial instruments

Note 8

Note 9 – Operating segments

The divisions are divided in accordance with Moelven's three core activities: Timber (industrial goods), Wood (building products) and Building Systems (projects). There is also a division named "Other" in which the remaining units are placed. The divisions are built up around independent subsidiaries with activities clearly defined within the divisions. All transactions between the divisions are conducted on normal commercial terms. The split into divisions differs from the formal legal ownership structure. See the consolidated financial statements for 2018 for further information about segments. Below is a reconciliation of the profit before taxes in the reporting segments with the company's profit before taxes.

Note 9

Note 10 – Related parties

Transactions with the owners are performed in some areas of the ordinary activities. Among other things, this relates to purchase of timber, where the Norwegian forest owner cooperatives are suppliers. There will also be deliveries of biofuel from the Moelven Group to a bioenergy plant owned by Eidsiva Energi AS, with possible buy-back of bioenergy for Moelven's industries in connection with the energy plant. Eidsiva Marked AS also trades electric power to Moelven's Norwegian industrial operations. All these transactions have in common that the arm's length principle shall be applied. Where other suppliers can offer better prices or terms, these will be used. About 42 per cent of Moelven's total purchasing requirement for timber of 4.4 million cubic metres comes via the Norwegian forest owner cooperatives.

Moelven's supply of energy raw materials to Eidsiva's bioenergy plant represents between 40 and 50 GWh on an annual basis, while buying back energy represents between 20 and 30 GWh. Net delivery of energy raw materials is 20 GWh. The extent of the sale of electrical power corresponds to about 40 per cent of Moelven's total consumption of 210 GWh.

Moelven has a long tradition of running its operations in accordance with all the laws and ethical guidelines of the industry and is of the opinion that competition is positive for all parties in industry. In order to ensure that this culture is maintained, ethical guidelines and guidelines for complying with legislation on competition have been devised.

Note 11 - Events after the balance sheet date

There have not been any events after the balance sheet date which would have an impact on the income, expenses, assets and liabilities disclosed in the quarterly financial statements.