2019 in brief
Following five years with increases in operating revenues and improved results, 2019 was a year that saw a decline in operating revenue and results for the group as a whole. The backdrop is first and foremost reduced activity levels in module operations and lower prices and delivery volumes for sawn timber and building wood. For the group as a whole operating income dropped by 6.6 per cent to NOK 10.3 billion (11.0) and the operating result by NOK 42.4 per cent to NOK 335.4 million (586.2). The group's rate of return on employed capital dropped from 19.0% to 9.4%. The main objectives in Moelven’s long-term strategy plans are focused on creating a business with international competitiveness and a resilience that limits volatility in results and cash flow. The decline in profits from 2018 to 2019 was significant. In the context of the loss of activity in the module market and the price reduction in the international market for sawn timber, the board is nevertheless of the opinion that the long-term improvement work that forms the basis of the strategy is yielding results.
With exports to more than 40 countries and on several continents, Moelven is dependent on developments in the global economy. Combined, approx. 15 per cent of the group's turnover is in markets beyond Scandinavia, mainly in the euro zone, the UK, Middle East, North Africa and Asia. It is mainly sawn timber that is exported. For Timber in isolation the export share outside of Scandinavia is 45 per cent, and for Wood it is 10 per cent. Both price developments on the international market for sawn timber and exchange rate developments therefore have a major impact on the business. Both directly for export revenue, but also indirectly because international price levels rapidly impact the home market in Scandinavia.
In 2019 demand for sawn timber internationally has been good, although the economic downturn and trade war between the USA and China somewhat dampened activities. On the supply side, the overall supply of sawn timber has been at a level that has led to an imbalance in the marked and a decline in process compared to the previous year. Weak Scandinavian currencies, in particular against the Euro, have contributed to maintain good competitiveness for the export-oriented units.
The UK is an important export market for Moelven. Market activity was good in 2019, although the Brexit issue caused some uncertainty through the year. Moelven implemented measures early on to mitigate risk related to Brexit, and views uncertainty with regard to the UK going forward to be mainly related to economic developments.
The Wood division mainly sells its processed wood products on the industrial and building materials markets in Scandinavia. Demand from this market has been satisfactory, although building activity has dropped somewhat compared to 2018. The division also has seven so-called combined units that use sawtimber as a raw material in their operations. Depending on the quality and dimensions of raw materials, this results in a certain volume of sawn timber that is not processed by the unit but sold externally. The share of sawn timber sold externally from the combined units increased in 2019 compared to the previous year, and is one of the reasons the division increased operating revenues.
Timber stocks at the start of the year were satisfactory with regard to planned production levels for the winter of 2019. Access to timber has generally been good throughout the year. At the end of 2019, inventories were somewhat higher than at the start of the year. Both timber prices and prices for chip and fibre products have been higher in 2019 than the previous year.
Building Systems operates exclusively in building and construction in Scandinavia. Deliveries are to professional players in both the new building and renovations, extensions and conversions markets. Market activities in these markets has declined somewhat in 2019, in particular in module projects for residential purposes. For the year as a whole, the overall demand for the division’s products and services were somewhat lower than in the previous year. At the turn of the year the total order backlog for the division was NOK 131 million higher than at the same time in 2018. The low market activity and an improved, yet still weak order situation, makes it necessary to uphold the capacity reductions that have been implemented in 2019.
Events in 2019
On 13 February a fire broke out in the lumber dryers at Moelven Trysil AS. The fire brigade was notified just after seven in the morning, and Moelven quickly gained control of all employees at the sawmill. No one was injured, but several of the dryers sustained significant damage. The least affected dryers returned to operation relatively quickly, and at the end of the first quarter, drying capacity was back at approximately 50 per cent of the level before the fire. Damage to the other dryers proved to be so extensive that when age was taken into account, it was decided to build new ones rather than replace the old ones. A waiting period and a deductible on the general and consequential loss insurance of approx. NOK 5 million was charged to the accounts in the first quarter. The new dryers were started up in November/December 2019.
Both Moelven Töreboda AB and Moelven Våler AS celebrated their 100-year 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. Moelven Industrier ASA was established in 1899, and 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 AS.
On Wednesday 22 May module number 90,000 left the Moelven Byggmodul AS 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.
Rebuilding of the dry sorting line at Moelven Notnäs Ransby AB, Ransby department after the fire in November 2018 was completed according to plan. The new dry sorting line was put into operation in the summer of 2019.
In September the new bioenergy plant that Moelven Pellets AS has built at Sokna was put into operation. Commissioning went according to plan, and Moelven Soknabruket AS closed its old heating plant in October. The bio-energy centre’s two combustion boilers will have a total installed power of 24 MW, and will provide environmentally friendly thermal energy to both Moelven Soknabruket AS and Moelven Pellets AS’s new pellets factory. The pellets factory started trial production at the September/October turn of the month. The startup went according to plan, and the first deliveries took place as early as October. In the beginning of 2020 the requirements to ENplus certification of the pellets were met. A partnership agreement has been concluded with SCA for the delivery of pellets. The agreement entails that the Swedish SCA group acquires the entire production volume from the factory.
In September it was decided to further specialise operations at Moelven Løten AS. This will be done by moving the production of standard goods to Moelven Våler AS, while Moelven Løten AS will produce only specialty products from large pine logs from the turn of the year. The change means that operations will be reduced to one shift. Staffing has therefore been reduced by a total of seven people. Timber consumption will be reduced from approx. 90,000 m³ to 75,000 m³.
Following a thorough process, in September 2019 an agreement was signed for the procurement of a new management system for HSE, quality and the external environment. The supplier Landax provides a comprehensive tool to support all HSE work in Moelven. A common way of working will reinforce the way in which we follow up and implement preventive work. A course of implementation has been planned where different modules are introduced in phases. In the years ahead training and new ways of working will characterise much of the HSE work at Moelven.
On 30 September the Board of Moelven Eidsvold Værk AS decided to close down the company. Moelven Eidsvold Værk AS is a combined facility with both a sawmill and planing mill, and has 60 employees. Discontinuation will take place in 2020. In August 2019 employees were informed that a closure of the plant was being considered. The background was high operating costs and an extensive need for investments to make operations competitive in a more normal market situation than has been the case in recent years. Following a comprehensive study, one has not succeeded in finding alternative solutions that could justify further operations, and the decision to discontinue was therefore made.
In October Moelven was host for parts of the programme for SIKT 2019. SIKT is an annual conference where His Royal Highness Crown Prince Haakon invites young leaders and talents between 20 and 40 to participate. The SIKT conference gathers around 200 participants from all over the country, and represents trade and industry, entrepreneurs, the public sector, NGOs, culture, sports, the media and academia. The goal of the conference is that all participants can learn from each other and discuss common challenges and opportunities in the Norway of the future. Four of the group’s employees took part in the conference.
The glulam beams that were used as tables during the SIKT conference have subsequently been repurposed as part of the load-bearing structure for Tande Bridge across the E6 motorway south of Moelv.
In October 2019 the residential project “Cederhusen,” designed by BAU arkitekter and supplied by Moelven Byggmodul AB, was announced as winner of the 2019 Haninge Architectural Award. As justification for the nomination, which in itself is recognition of the architectural quality of module-based buildings, the jury stated that “‘Cederhusen’ is a wooden building that merges with its surroundings. The buildings tie the city and nature together in a pleasing way and create great variation in expression with a small selection of materials. With its long balconies and common roof terrace, all residents experience proximity to nature and views of the emerging district Vega in Stockholm.”
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.
On 29 November Finansparken Bjergsted in Stavanger was officially opened. Finansparken Bjergsted is the new headquarters of Sparebank 1 SR Bank, and is northern Europe’s largest commercial building based on wooden load-bearing structures at 22,800 m². Both Moelven Limtre AS and Moelven Modus AS have had significant deliveries to the building with glulam load-bearing structures and interiors of Eco Panel and Multi Room solutions. The use of wood, both in load-bearing structures and as a part of the indoor environment, is an important contributory factor to the building in all likelihood being certified at the BREEAM Outstanding, which is the highest level for environmental certification of buildings.
Strategy – People, Innovation, Sustainability and Profitability
The sustainability and climate challenges the world is facing are attracting more and more attention. For the Moelven group sustainability and environmental impact have been central topics for a long time, and are a natural part of the culture and mindset in a business based on wood as a raw material. Starting from 2017, the group’s public reporting also includes a sustainability report in accordance with the GRI standards (Global Reporting Initiative) and climate accounts according to the GHG protocol (GreenHouse Gas). In society in general, increased knowledge and awareness of wood’s properties and opportunities, both as carbon storage and as a building material, has led to greater interest in climate-smart building with wood.
Among the Moelven group’s products and services, the deliveries from Wood and Building systems are most visible to the outside world. This concerns both processed wood building materials, bridges and other load-bearing structures in glulam and module-based apartment buildings. In addition, activity in infrastructure is high. Use of wood in connection with this is also on the increase, and is an important cause of the good demand for sawn timber, which is the main product of the Timber companies.
In 2018 a strategic decision was made to expand the group’s focus on own processing of residual raw materials. Previously, residual raw materials from the mechanised industry has mainly been sold to other industries or used for internal bio-energy purposes. Small-scale briquet production has also been carried out. The decision taken in the spring of 2018 entailed building a new pellets factory and a new bioenergy plant at Sokna outside Hønefoss, at an overall investment of NOK 270 million, of which Enova supports the bioenergy effort with NOK 66 million. The effort is employing groundbreaking solutions, where energy and chip products from Moelven’s sawmills in the region will be used for pellet production. Both the bioenergy plant and the pellets factory started up in the autumn of 2019. The pellets factory has provided 7 new jobs, and will double pellet production Norway when it reaches full production. The factory will be unique in that it is the first pellet factory in Norway that is fully integrated in a sawmill in terms of energy. A major proportion of the overall investment has been a brand new bio-energy plant that will both supplies the sawmill and the pellet factory with thermal energy. This means that the energy that otherwise would go to waste from the sawmill is used in the production of white pellets. Estimates show that by doing this, one may reduce energy consumption in pellet production by up to 37 per cent.
*LTI2-number: Number of injuries with and without absence per million worked hours, 12 months rolling.
The health, safety and environment strategy can be summarized in nine points:
- Clear goals
- Active leadership and active employee participation
- Increased use of resources
- Clear sharing of responsibility
- Increased expertise
- Underpinning systems
- Unambiguous processes and rules
- Incentives and consequences
- Frequent information
With regard to business, the group is still in a phase where large parts of operations are doing well and improving results, while other parts of operations still fail to meet the requirements to profitability and returns that have been defined. It is thus important that the right priorities and choices are made, to have the best possible foundation for sustained profitability. The shareholder values in Moelven are best ensured and developed by the organization focusing on developing the units the company currently possesses, which in all likelihood will reach profitability targets in the course of an economic cycle. Further growth in the strategy period should take place by strengthening the basic business we already have. New investments must be adjusted to the strategic choices that have been made and take place within the applicable financial framework. Investments and growth will mainly take place on the basis of existing business areas.
Efforts on internal improvement work and restructuring in accordance with the action plan that was drawn up in the autumn of 2014 have proceeded with full strength in 2019. In addition, several organizational changes are being implemented, as well as major investment projects that will improve efficiency and profitability.
Moelven’s strategic framework summarises the corporate strategy and is used to clarify what work should be done and which priorities should be made to achieve the objectives.