Lysaker, Norway, 25 November 2011 -- Norske Skog's corporate management is recommending that the board of directors maintain full operations at the mills in Skogn and Halden for the time being, but to close down production at Norske Skog Follum. Management's plan means that production at Follum will cease no later than 31 March 2012.
Norske Skog Follum is located in the town of Hønefoss, Norway, and has 356 employees. The mill produces improved newsprint, magazine paper, and book paper. Annual production capacity is 290,000 metric tons.
"It is with regret towards all employees, suppliers, and the local community that we recommend to close Norske Skog Follum. Norske Skog sells less paper than before, since many replace paper with electronic media. Therefore, we unfortunately no longer need as many paper mills," said Sven Ombudstvedt, president and CEO of Norske Skog.
Norske Skog's management has on several occasions this year made it clear that the group must assess its production capacity. Today's recommendation is the result of an extensive process, which also involved employee representatives.
"We apologize sincerely to the 356 employees at Follum, and we will try to assist as much as possible during the coming period," Ombudstvedt said. "They have done a great job in the areas of product development, cost reductions, and improved energy efficiency. Despite all efforts, earnings have deteriorated year by year."
Small mills are expensive to operate, and Norske Skog has phased out a number of small mills in Norway and abroad over the past five years. Follum is Norske Skog's smallest Norwegian mill, and it has the highest costs per metric ton. Alternatives for the continued operation of Follum have been investigated; however, management has not found a solution which is justifiable for Norske Skog.
"We do not need more competition and more paper in the market. We need fewer competitors and less paper in the market. Continued operation of Follum with another owner would make the situation considerably more difficult for our other mills in Norway," Ombudstvedt noted.
"Norske Skog has shown, and always will show, social responsibility. However, we have lost billions, and we are not in a situation where we can afford to lose more money. If we do not act now, the entire group and all the jobs will be at risk," Ombudstvedt said.
Several factors have created problems for the Norske Skog operations in general, and for the Norwegian mills in particular. Paper prices are still too low in relation to prices for major raw materials. For the Norwegian mills, there is an extra burden that the Norwegian krone has continued to appreciate during 2011, making it increasingly difficult for Norwegian industry to compete internationally.
The employees' representatives will continue to be involved in the upcoming process, in line with agreements and regulations, and in line with Norske Skog's culture of cooperation. The matter will be addressed in the ordinary meetings of the Norske Skog board of directors on 07 and 08 December.