Sniace, the supplier of raw material to Borregaard's lignin plant in Spain, has decided not to start up the pulp mill and other activities until 24 September 2013.
The industrial production at Sniace's site in northern Spain was stopped on 1 July due to a strike initiated by the trade union, which ended on 14 July. It was then decided to perform the annual two - three weeks maintenance stop, normally carried out in August, immediately after the strike, when the mill was already out of operation.
Sniace announced today that an agreement has been reached with the trade union, according to which all production on site will stand still for a further period of two months, and the workers will be temporarily laid off. In the meantime, the company hopes that the pending issues related to taxes on energy production and the environmental permits will be sorted out with the authorities, so that a basis for continued operation can be established. The company also intends to permanently reduce the number of employees if the decision is taken to restart the industrial activities.
As a consequence of the events described above the supply of lignin raw material to Borregaard's lignin plant in Spain, LignoTech Ibérica, was stopped on 1 July, and the company has declared force majeure with respect to deliveries to its customers until further notice. The management and Board of LignoTech Ibérica, owned by Borregaard (60%) and Sniace (40%), will decide on necessary actions in light of the new situation.
With normal supplies of raw material from Sniace, the deliveries of lignin from LignoTech Ibérica are in the range of 60 - 65.000 tons. During the first half of 2013 the lignin production has been reduced by approximately 30% due to Sniace's limited pulp production.
The financial performance of LignoTech Ibérica in recent years has been influenced by the general economic conditions in Spain and other countries in Southern Europe. In 2012 the direct and indirect impact on Borregaard's EBITA from LignoTech Ibérica was close to NOK 20 million (100% consolidated). The impact on net earnings (after tax and 40% minority interest) was about NOK 12 million. The book value of fixed assets in LignoTech Ibérica (100%) is at a low level (NOK 7 million at 31 December 2012), and Borregaard's 60% share of equity was NOK 10 million at 31 December 2012.
Borregaard has previously informed that the consequences of reduced supply in Spain and other reductions elsewhere will be balanced by product mix changes, price increases and higher production at other sites. The new situation in Spain will, if it prevails for some time, have an impact on sales volume and profitability. The above mentioned data regarding contributions and asset values linked to the Spanish operations represent an indication of the magnitude.