Ailing Norske Skog strives to survive

Forest products firmNorske Skogwas once one of Norway’s top industrial companies, founded by forest owners in 1962 and still one of the world’s largest producers of paper for publications. Now it’s strugglingto ward off bankruptcy after an international expansion program left it saddled with debt, while newtechnology hascut demand for its products.

Forest products firmNorske Skogwas once one of Norway’s top industrial companies, founded by forest owners in 1962 and still one of the world’s largest producers of paper for publications. Now it’s strugglingto ward off bankruptcy after an international expansion program left it saddled with debt, while newtechnology hascut demand for its products - writes newsinenglish.no.

Trade Minister Monica Mæland (left) and Prime Minister Erna Solberg have been actively promoting Norwegian industry, like here during a visit at fertilizer firm Yara’s plant earlier this year. The last thing they want is a Norske Skog bankruptcy right before the September election. PHOTO: NFD/Trond Viken

“We hope that the company reaches its goals in the negotiations,” she wrote. “We won’t contribute to speculation about what will happen if they don’t succeed. We’ll need to evaluate that ifthe situation arises.”

Arepresentative for around 800 employees at theNorske Skog Saugbrugplant in Halden nonetheless blamed the government for failing to provide a better competitive framework for the company. Paul Kristiansen complained that the government, for example, rejected company requests for CO2 compensation. “We don’t need charity from the Norwegian state to survive,” Kristiansen toldDagsavisen, “we need a better framework.” He attributed all talk about state aid to “campaign posturing.”

Norske Skog’s CEO in Halden, Kjell-Arve Kure, said management and employees were trying to maintain normal operations despite all uncertainty over the company’s heavy debt. Both of Norske Skog’s Norwegian operations, in Halden and Skogn in Nord-Trøndelag, are actually doing well but Kure also seeks “a better framework” including better roads for transporting timber. He welcomes the political engagement.

Professor traces Norske Skog’s path to trouble A professor at the University of Oslo, Bjørnar Sæther, points, meanwhile, to two main reasons for Norske Skog’s problems over the past several years: The company’s international expansion was financed by loans that have become too difficult to service, and the introduction of smart phones hashad severe consequences for newspapers and magazines that are Norske Skog’s paper customers.

Sæther traced Norske Skog’s history in a commentary published inDNon Monday, in an attempt to explain “how things could go so wrong” at a company that was so successful. “This was once Norway’s most future-oriented industrial company with a leading global position and strong economic results for decades,” Sæther wrote. The start-up of itsnewspaper plant at Skogn in 1967 marked the beginning of 35 years of expansion.

Sæther noted that the “clever” forest owners who got together to launch Norske Skog soon gained control over large parts of the forestry business in Norway, a country rich in timber. They took over Union in Skien, Follum at Hønefoss and Tofte at Hurum. By the 1990s Norske Skoghad control over 80 percent of Norway’s forest products business.

Thirst for growth led to a hangover New managers at Norske Skog, and the consultants they hired in, then started seeking more growth outside Norway. Sæther noted how theyexpanded into Europe, building a new newspaper plant in Golbey in France.Company officials also decided to concentrate on paper for publishing ventures and raised capital for their expansion by selling off Norwegian businesses not directly involved in such paper products.

The Hurum cellulose operation in Norway was thus sold, as were others, over the concerns and objections of forest owners and employees. The new managers and their consultants had other ambitions, also for global expansion, leading ultimately to taking on debt to finance acquisitions in Australia, China, South Korea, Chile and Canada. The biggest deal came in 2000 when Norske Skog bought New Zealand-based Fletcher Challenge for NOK 20 billion, the largest foreign investment ever made by a Norwegian company.

The thrill of the expansion didn’t last long, as debt built up. “The debt Norske Skog took on, first and foremost with the purchase of Fletcher Challenge, is what’s caused the main problem today,” Sæther wrote. “Earnings over the years haven’t been sufficient to service the debt.”

Misguided growth ambitions Now the expansion has come back to haunt Norske Skog, along with its concentration on what the company calls “publication paper.” Other forestry firms in Sweden and Finland remained more diversified and are thus in much better shape now than Norske Skog. Their own shutdowns of newspaper plants, for example, have occurred without threatening the companies themselves.

Sæther blames the decisions made in the 1990s: “Loan-financed purchases of newspaper plants have been shown to have dramatic consequences both for Norske Skog and for the entire forestry industry,” he wrote. “Maybe the prime minister’s signals on a possible state rescue can save the plants in Halden and Skogn? Let’s hope the prime minister’s offer doesn’t expire on September 11, 2017 (Election Day in Norway).”

On Tuesday newspaperAftenposteneditorialized that Norske Skog “must clean up after itself” and not expect any state bailout. “Their debt is gigantic, at more than NOK 6 billion,” the newspaper, in a branch that still needs Norske Skog’s main product, wrote. “Not even good operating results will be enough to service that debt, or save the company as it exists today.”Aftenpostenclaimed Norske Skog’s problems should not become a political issue: “We have had a tradition of sending the state in as a rescuer of poorly managed companies … that time is fortunately over.” Bankruptcy and a restructuring thus remain the alternatives.

Reads more news on the city site of Oslo.

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