07 Feb 2008

Comprehensive measures for improved profitability

"Over the last couple of years, cost increases and excess capacity have reduced Norske Skog's profitability to a level which not is financially sustainable. In order to improve profitability, we have to make fundamental cost improvements in the operations and the administration of the company," says CEO Christian Rynning-Tønnesen.
Will reduce production capacity
An increasingly weak market has resulted in temporary production shut-downs at several Norske Skog mills in recent years. The production capacity is therefore not utilised in an efficient manner. At the same time, the continued excess capacity has resulted in a weak price development for the company's products. In total, 450,000 tonnes of production capacity is proposed to be shut down. This amounts to about seven per cent of the company's total production capacity globally.
"We cannot just sit and watch excess capacity and increasingly higher costs push the company's margins down to an unacceptable level. We therefore recommend shutting down the least profitable paper machines, and concentrate our production and assets on the most profitable and modern plants," says Rynning-Tønnesen.
Norske Skog Steti, Czech Republic
The group management recommends permanently shutting down the newsprint production at Norske Skog Steti in the Czech Republic. This mill has a newsprint production capacity of 130,000 tonnes.
Norske Skog Follum, Norway
The board also recommends shutting down one paper machine (PM2) at Norske Skog Follum in Norway indefinitely. This will reduce the production capacity by about 130,000 tonnes. The two other paper machines at Norske Skog Follum will produce special qualities such as improved newsprint, and coated magazine paper.
"By focusing on special qualities, we hope to improve profitability at Norske Skog Follum," says Rynning-Tønnesen.
Norske Skog Cheongwon, Korea
The group management further recommends shutting down the entire Norske Skog Cheongwon mill in Korea indefinitely. This mill has a newsprint production capacity of 190,000 tonnes.
Additional production curtailments in 2008
The previously reported production curtailments of 200,000 tonnes newsprint in Europe will be maintained. Combined with the effect of the shut-downs, Norske Skog will thus reduce its European newsprint production by 300,000 tonnes in 2008. Our service and obligations to our customers will be maintained during this process.
Changes in the group management and reduced head office functions
The group management and Norske Skog's head office at Oxenøen will be reorganised. The group management team will be reduced from nine to seven members, and most staff functions are removed.
In addition to CEO Christian Rynning-Tønnesen, the new group management team will consist of Andreas Enger (finance), Kristin Slyngstad Klitzing (HR and organisation), Antonio Dias (magazine paper and South America), Vidar Lerstad (Asia and Australasia), Rune Gjessing (strategy) and Jan Clasen (newsprint Europe and sales).
The changed head office will focus on financial follow-up of global operations and strategy work. The number of employees at the head office will be significantly reduced. The objective is to save at least NOK 150 million in administrative costs at the group level.
Selling properties
Norske Skog owns several properties which are not directly related to paper production. This applies to e.g. the company's head office, Oxenøen, at Lysaker outside Oslo. The group management has started the work to sell these properties.
The head office will remain at Oxenøen for the time being, but will most likely move to more reasonably priced premises later in 2008.
Allocating resources to restructuring
"The measures will affect many Norske Skog employees. This is a challenge, and we will allocate the necessary resources to help our employees to quickly find new work," says Christian Rynning-Tønnesen.
The management and employees at the effected units will meet immediately to prepare plans for the staff reductions. The objective is for such plans to be prepared by the end of February.
Accounting effects
The proposed permanent shut-downs will mean write-downs of about NOK 1.1 billion and provisions for shut-down costs of slightly more than NOK 200 million. The accounting effects will be posted in the first quarter of 2008.
As a result of the shut-downs and the changes at the head office, the fixed costs will be reduced by about NOK 400 million annually, with full effect from 2009.
Oxenøen, 7 February 2008
Norske Skog
Corporate communications
For further information :
Media: Vice president corporate communications Tom Bratlie, telephone: +47 905 21 904
Financial market: Vice president Jarle Langfjæran, telephone: +47 909 78 434
Quarterly result presentation and media access
Norske Skog will present the 2007 result at the company's premises at Oxenøen at 13.00 CET today. Group management representatives will be available to the media after the result presentation, at about 14.00 CET.
Media that need rigging and access to electricity should be at the premises no later than at 12.30 hrs. For questions relating to practical organisation for the media, please contact corporate communications manager Pål Stensaas on tel. +47 952 86 006.

Q42007 BOD report and accounts