Norwegian paper maker Norske Skog said on Tuesday that first quarter results will be significantly weaker than for the fourth quarter last year, and it would stop work on a paper machine project in Brazil. Shares in Norske Skog fell 5.2 percent to 20.80 crowns by 0808 GMT, valuing the group at about 3.95 billion Norwegian crowns ($769.1 million).
"Norske Skog's results are still impacted by continued strong cost increases, currency changes and lower prices in certain markets," the company said in a statement. "Because of this, it is expected that Norske Skog's underlying EBITDA (before all special items) will be significantly weaker in the first quarter of 2008, compared with fourth quarter 2007," it said, referring to earnings before interest, tax, depreciation and amortisation.
It said that the board has decided to stop installation of paper machine 2 at the mill in Brazil due to major cost overruns. "The net cost of stopping the project will be about 450 million Norwegian crowns ($82 million)," it said.
"To Norske Skog, it is decisive that we improve profitability and restructure the company so that the debt is reduced," chief executive Christian Rynning-Toennesen said. "As the costs of the construction of paper machine 2 in Brazil have turned out to be so high, we were forced to stop the project for financial reasons," he said.
In 2006, Norske Skog decided to move one of the paper machines at the discontinued mill Norske Skog Union in Skien to Norske Skog Pisa in Brazil. The project had an original cost limit of $210 million, but expenses have been significantly higher than budgeted, mainly due to high cost increases in Brazil and currency factors.
The net effect of stopping the project allowed for an accounting cost before tax at about $125 million in the first quarter, tax effects of $17 million and termination of currency hedging with a cash effect of $26 million, it said.
Norske Skog said parts of the project will be completed, and the paper machine will be stored at the mill. "The project may therefore be restarted at a later time if it appears financially prudent," it said. The board decided last week to back a plan to shut 450,000 tonnes of newsprint capacity at three mills to counter persistently weak markets.
The boards wants to close the Steti mill in the Czech Republic with 130,000 tonnes of capacity, the Cheongwon mill in South Korea with 190,000 tonnes and paper machine No 2 at the Follum mill in Norway with 130,000 tonnes of annual capacity.