Norske Skog

Earnings by Norske Skog have declined substantially from a figure of almost NOK 4 billion in 2001, chief executive Jan Oksum told a press conference today.

"We earned only NOK 210 million on revenues of just over NOK 25 billion in 2004," he said. "We have a responsibility to reverse this trend, and must act before our results deteriorate further.

"We understand part of the debate now under way about our proposal to shut down the Norske Skog Union mill south of Oslo. But we also see a need to express ourselves more clearly."

Mr Oksum emphasised that no final decision has yet been taken, but said that the group is involved in a process where a possible shut-down of Norske Skog Union is under consideration.

He expressed great understanding for the sense of uncertainty being felt by Norske Skog Union employees during this process.

"I will accordingly do my utmost to give them attention and support.

"I wouldn't have subjected our employees and the company to this unless I was convinced that a closure of the mill is needed to strengthen Norske Skog and safeguard more than 6 000 jobs worldwide."

Norske Skog has an organisation for assisting employees at Norske Skog Union at this difficult time. Preparations are also being made to give longer-term help.

One of Norske Skog's biggest challenges is that the group is currently paying heavily to maintain a level of production capacity which exceeds market demand.

To improve profitability, spare capacity at other mills must be utilised by transferring production from the weakest unit - which is Norske Skog Union.

Production capacity in the European market for bulky book paper is twice as high as annual sales of this product, which total 600 000 tonnes.

"Closing Norske Skog Union cuts our European capacity by 11 per cent,"Mr Oksum told the press conference. "That gives us an annual saving of NOK 200 million."

This mill has the weakest results of all Norske Skog's mills, and failed to earn money overall in 2002-05. Its size and location also prevent further expansion.

Mr Oksum emphasised that a sale of the mill which allowed paper production to continue would not solve the problem of excess capacity for either newsprint or book paper. Machines producing book paper can easily be converted to newsprint.

"We need to transfer orders from Norske Skog Union to other mills in the group with spare capacity, and that won't happen if it continues operating," Mr Oksum said.

He added that he had been in touch with bidders for the mill and had requested a meeting.

Norske Skog also contacted the Norwegian Competition Authority on 5 August after this agency expressed interest in the matter, and a meeting is scheduled for later this week.