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Norske Skog Initiates Cost Cutting Measures

June 15, 2009 - Norske Skog said that it is implementing a number of measures to cut costs in line with the changes in the market.

"Our utilization rate in the first quarter of 2009 was 76 percent, which led to a weak result," said Christian Rynning-Tønnesen, Norske Skog's CEO. "We cannot sit idly by and watch our earnings decline. Therefore, we are implementing vigorous new measures to reduce the group's overall costs, improve cash flow and eliminate surplus capacity."

Norske Skog Parenco in the Netherlands
In April, one of the two paper machines at Norske Skog Parenco in the Netherlands was temporarily shut down. The company has now decided that this paper machine, with a production capacity of 225,000 tonnes per year, will be indefinitely idled. A staff reduction process will commence, based on continued operations with just one paper machine.

The workforce at Norske Skog Parenco will be cut by 170-200 persons as a result of this shutdown. Norske Skog Parenco currently has 428 employees.

Norske Skog Skogn in Norway
A main study is currently underway to evaluate the construction of a new bleaching plant at Norske Skog Skogn. If this project is carried out, production of improved newsprint will be moved from Norske Skog Follum and Norske Skog Parenco to Norske Skog Skogn during the course of 2010.

The Skogn mill is one of the group's most cost-effective units. A new bleaching plant will expand the range of products offered, and further improve profitability.

Upon completion of the project, 160,000 tonnes of the capacity at Norske Skog Skogn will be converted from standard newsprint to improved newsprint.

Norske Skog Follum in Norway
During the course of 2009, the workforce at Norske Skog Follum will be reduced from 420 to 340 employees. The mill has two paper machines in operation (PM1 and PM7). PM1 produces improved newsprint and PM7 produces magazine paper.

The production of improved newsprint will be transferred from Norske Skog Follum to Norske Skog Skogn, assuming that the investment in a new bleaching plant at Skogn is carried out.

Following the potential transfer of production from Follum to Skogn, continued operation of Follum PM1 will be focusing on the book paper market.

Norske Skog is in the process of establishing new activities at Follum in the field of bioenergy, and this work will be reinforced in the time to come.

CAPEX
To further improve Norske Skog's financial position, the company has decided to reduce the group's overall investment level by NOK 400 million to NOK 600 million in 2009. Investments in existing activities will be reduced further in the years to come.

Workforce Reductions
Workforce reductions will be implemented in all of the group's units. The total effect of these measures is expected to result in a reduction of about 600 positions, which amounts to 9 percent of the group's global workforce.

Costs at Norske Skog's headquarters will be cut by 20 percent, compared with 2008 levels. The savings will be achieved both by means of workforce reductions and cost cuts in other areas.

"Additional staff and cost cuts are demanding for everyone in Norske Skog. We will be focusing considerable resources on helping the people who lose their jobs because of the new measures," Rynning-Tønnesen said.

Financial Effect of the Measures
The above-mentioned measures will have a positive effect on earnings, amounting to about NOK 230 million as early as from the second half of 2009. The full year effect from 2010 is estimated at NOK 600-700 million.

A provision of NOK 300 million will be made in the second quarter of 2009 in connection with the workforce reductions.

Norske Skog Parenco will be written down by about NOK 900 million as a consequence of the indefinite idling of one of the paper machines.

"In addition to the effect on our operational earnings gained by these measures, the efforts to reduce net debt by generating sufficient cash flow from operations and transactions will continue," Rynning-Tønnesen said.

SOURCE: Norske Skog




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