NORSKE SKOG Annual Report 2002 JAN REINÅS: Uses downturn to strengthen Norske Skog THE RESULT: Weak markets for publication paper, sound financial position OPERATIONS: Weak demand and reduced production. Asia is a bright spot. FUTURE PROSPECTS: Weak markets also first half of 2003 HEALTH AND SECURITY: Strong results in 2002 ENVIRONMENT: High priority also during improvements Main financial figures Norske Skog was established in 1962, and the first newsprint machine came THIS IS NORSKE SKOG on line in 1966. Acquisitions, con- NOK million 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1. Profit and loss account struction of new capacity and mergers Operating revenue 23 471 30 354 26 635 18 054 14 908 13 312 13 265 12 548 9 170 7 338 Norske Skog is the world’s second made the Company the undisputed Operating earnings 1 306 5 096 4 211 2 129 1 780 1 083 1 916 2 500 732 299 largest producer of publication paper, leader of Norway’s paper and pulp Earnings for the year 1 162 2 494 1 958 1 300 1 020 590 1 317 1 699 206 -47 with 24 wholly and partly owned mills industry during the 1970’s and 1980’s. in 15 countries on five continents. In the 1990’s Norske Skog built a 2. Main financial figures Norske Skog has a 13% share of the strong European platform through Cash flow from operating activities 3 687 7 052 4 922 2 162 2 859 1 615 2 616 2 555 866 492 global market for newsprint and maga- acquisitions and new plant construc- Depreciation 3 292 3 323 2 388 1 689 1 323 1 140 1 132 832 616 552 zine paper. tion in Norway, France, Austria and Investments in operational fixed assets 1 146 1 422 1 351 1 154 3 983 1 814 1 053 926 565 1 127 the Czech Republic. Since 2000 the Gearing 1.02 1.18 0.92 0.65 0.71 0.45 0.63 0.61 0.67 1.13 VISION: Norske Skog shall be a leading company has become a leading global player, with activities in Asia, North 3. Profitability international paper and pulp company. Gross operating margin % 19.6 27.7 24.8 21.1 20.8 16.7 23.6 26.6 14.7 11.6 America, South America and Return on capital employed % 4.7 13.7 13.1 11.0 11.7 8.4 15.9 25.4 8.3 3.4 GOAL: Norske Skog shall create value Australasia as well. Since 1999 the for shareholders on a par with the best Company has divested about 40 units 4. Shares and shareholder structure companies in the sector. outside its core area, and is now virtu- Net earnings per share after tax 8.79 20.68 19.17 14.01 11.36 6.94 16.99 22.01 2.88 -0.74 ally 100% concentrated on publica- Net earnings per share after full conversion 8.79 20.68 19.17 14.01 11.36 6.94 15.10 19.33 3.21 0.69 STRATEGY: Concentration on the core tion paper. Equity per share 133.43 146.66 218.04 126.17 111.71 107.34 99.19 84.82 66.21 108.14 area publication paper, profitable During 1992-2002 operating rev- growth in important markets, cost- enue grew from NOK 7.6 billion to efficient production. NOK 23.5 billion, and its market ca- pitalisation from NOK 1.8 billion to Main figures per area NOK 13 billion. NOK million 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 Europe Corporate management PRESIDENT AND CEO Operating revenue 14 087 14 219 13 229 12 102 10 539 9 284 9 493 8 066 5 831 4 731 Operating earnings 1 189 3 247 2 266 1 809 1 946 1 134 2 078 1 708 454 469 Jan Reinås Operating margin % 8.4 22.8 17.1 14.9 18.5 12.2 21.9 21.2 7.8 9.9 CORPORATE STRATEGY CORPORATE FINANCE North America SENIOR VICE PRESIDENT AND DEPUTY CEO SENIOR VICE PRESIDENT AND CFO Operating revenue – 5 455 4 157––––––– Jan A. Oksum Jan Kildal Operating earnings – 329 529––––––– Operating margin % – 6.0 12.7––––––– CORPORATE COMMUNICATION CORPORATE HR AND ORGANISATION SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT South America Hanne Aaberg Rolf Negård Operating revenue 1 107 1 939 1 035––––––– Operating earnings -9 473 231––––––– PRODUCTION SALES & MARKETING SUPPLY & LOGISTICS AUSTRALASIA SOUTH AMERICA Operating margin % -0.8 24.4 22.3––––––– SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT EXEC. VICE PRESIDENT EXEC. VICE PRESIDENT 1 Claes-Inge Isacson Jarle Dragvik Ketil Lyng David Kirk Vider Lerstad Australasia Operating revenue 3 807 4 473 2 801––––––– Operating earnings 546 725 545––––––– CORPORATE MANAGEMENT Operating margin % 14.3 16.2 19.5––––––– EUROPE SOUTH AMERICA AUSTRALASIA PARTIALLY OWNED COMPANIES Norske Canada Asia 9 mills 3 mills 3 mills 4 mills 3.8 million tonnes 440 000 tonnes 945 000 tonnes 1.9 mill. tonnes publication paper Operating revenue 2 688 2 434 2 572 1 988 485––––– publication paper publication paper publication paper Ownership share 30.6% Operating earnings 562 616 526 336 61––––– PanAsia Operating margin % 20.9 25.3 20.5 16.9 12.6––––– 4 mills 1.46 million tonnes publication paper Other activities Ownership share 50% Operating revenue 1 931 2 319 3 881 4 132 4 037 4 043 3 800 4 504 3 546 2 756 Malaysian Newsprint 1 Industries Operating earnings 47 98 372 37 -90 33 -100 778 324 -102 David Kirk resigned his position in Norske Skog with effect from 3 March 2003. 1 mill Operating margin % 2.4 4.2 9.6 0.9 -2.2 0.8 -2.6 17.3 9.1 -3.7 250 000 tonnes publication paper Ownership share 34% Uses downturn to Weak stock markets Weak demand for Norske Skog Annual report View on strengthen Norske publication paper assumes environment Skog responsi- bility New organisation strengthens competitiveness 10 26 42 52 56 94 sidentContents and CEO Jan Reinås. Dividend of NOK 6 per share. Increase in Asia and stability in Australasia. Openness, honesty and co-operation. Results are more than economics. Sound financial position despite weak results. With sustainable development in focus. Introduction Capital market information Review of Operations Management and Annual report Environmental report organisation Norske Skog is using the downturn to beco- Wea k markets, but high trading volume of Increase in demand for publication paper in Norske Skog has well functioning internal Wea k demand and a strong Norwegian Environment is highly prioritised in me an even stronger and better supplier of Norske Skog's shares. Read more about the Asia and stable in Australasia despite a de- governance and control mechanisms. krone had a significant negative effect on Norske Skog. Read more about our envi- publication paper. CEO Jan Reinås promises stock market, investor relations and risk cline in global demand.You will find more Read more about the corporate bodies Norske Skog’s result for 2002. Read more ronmental performance on pages 94-111. a competitive and strong Norske Skog. management on pages 10-25. details concerning Norske Skog's 24 wholly managing Norske Skog on pages 42-51. about the results and future prospects on 94 Environment through the entire 2 Satisfactory development - 10 Weak stock markets in 2002 and partly owned companies on pages 26- 42 New organisation strengthens pages 56-93. value chain despite recession 12 Shareholder information 41. competitiveness 56 Annual report 96 With sustainable development in 4 This happened in 2002 14 Investor relations shall help achieve 26 Weak demand for publication paper 44 Company bodies and management 58 The Board of director’s report focus 5 2002 in summary correct pricing of Norske Skog shares 28 The world of Norske Skog 46 Remuneration 66 Consolidated accounts 2002 97 Norske Skog’s environmental policy 6 Improvement 2003 15 Shares and share capital 30 Europe 47 Members of corporate bodies 68 Notes consolidated accounts 98 Process and main figures for wholly- 8 Norske Skog 40 years old 15 Trading in Norske Skog shares 34 South America 48 The Board of Norske Skog 86 Accounts 2002 Norske owned mills 15 Share savings scheme and 36 Australasia 50 Norske Skog’s corporate Skogindustrier ASA 100 Raw material consumption incentive system 38 PanAsia management 88 Notes Norske Skogindustrier ASA 102 Energy consumption 16 The stock market in 2002 38 Malaysian Newsprint Industries 93 Auditor's report for 2002 104 Discharge from production 16 40 years of Norske Skog shares 39 NorskeCanada 93 The Corporate Assembly's state- 108 Mill figures 18 Financing and liquidity 40 We are like brothers ment to the General Meeting 110 Environment-related costs 20 Risk management in Norske Skog Social responsibility 111 About the report 22 Production capacities 111 Independent accountant's report 23 Main financial figures To Norske Skog sust ainable development 24 Principal shareholders means achieving results not only with 112 Glossary 25 Key figures related to shares regard to the traditional, financial bottom line. The Company is also focusing on envi- ronmental and social conditions. Read more about our engagement on pages 52-55. 52 Norske Skog assumes responsibility Photo front page: The newsprint mill in Golbey, France, is 10 years in 2003. Virginie Cholez (25) has been educated at the mill and is today a machine operator. She hopes for a future at Norske Skog. Introduction Satisfactory development – despite the recession Norske Skog continued to implement its development plan IMPROVEMENT DRIVE most efficient solutions are designed to during 2002.