2019 ANNUAL REPORT CONTENTS SUMMARY Key figures 4 Norske Skog - The big picture 5 CEO’s comments 6 Board of Directors 8 Corporate Management 9 Short stories 10 SUSTAINABILITY REPORT About Norske Skog’s operations 16 Stakeholder and materiality analysis 17 Norske Skog and the UN Sustainable Development Goals (SDGs) 18 Strategic priorities 20 Compliance 20 About the sustainability report 20 Prioritised SDGs 21 How Norske Skog relates to the other SDGs 37 Key figures 44 Independent Auditor’s assurance report 46 Share information 48 Corporate governance in Norske Skog 50 Report of the Board of Directors 58 CONSOLIDATED FINANCIAL STATEMENTS 63 Notes to the consolidated financial statements 68 FINANCIAL STATEMENTS NORSKE SKOG ASA 109 Notes to the financial statements 114 Alternative performance measures 124 Statement from the Board of Directors and the CEO 126 Independent Auditor’s report 127 We took some vital and brave steps in 2019 that will have great effects on the company in the years to come. Sven Ombudstvedt, CEO of Norske Skog Design: BK design // Print: BK.no Paper: Artic Volum white Editor: Carsten Dybevig Cover photo: Enzo Zadra. All images are Norske Skog’s property and should not be used for other purposes without the consent of the communication department of Norske Skog Photo: Carsten Dybevig SUMMARY PAPER MILLS CEO KEY FIGURES IN 5 COUNTRIES 6 Sven Ombudstvedt NOK MILLION (UNLESS OTHERWISE STATED) 2015 2016 2017 2018 2019 Skogn, Norway Saugbrugs, Norway Corporate management INCOME STATEMENT Golbey, France Total operating income 11 132 11 852 11 527 12 642 12 954 Bruck, Austria EBITDA* 818 1 081 701 1 032 1 938 Boyer, Australia Operating earnings 19 -947 -1 702 926 2 398 Tasman, New Zealand Profit/loss for the period -1 318 -972 -3 551 1 525 2 044 CFO COO SVP SVP SVP Earnings per share (NOK)** -15.98 -11.78 -43.04 18.48 24.77 Rune Sollie Amund Saxrud Tore Hansesætre Lars P.S. Sperre Robert Wood Strategic projects Strategy Commercial CASH FLOW Net cash flow from operating activities 146 514 404 881 602 Net cash flow from operating activities per share (NOK)** 1.77 6.23 4.89 10.68 7.30 Net cash flow from investing activities -174 -105 -278 -188 -180 OPERATING MARGIN AND PROFITABILITY (%) EBITDA margin* 7.3 9.1 6.1 8.2 15.0 Return on capital employed (annualised)* 5.2 8.9 6.6 14.1 28.5 Employees PRODUCTION/DELIVERIES/CAPACITY UTILISATION Production (1 000 tonnes) 2 366 2 506 2 494 2 492 2 310 Deliveries (1 000 tonnes) 2 356 2 520 2 491 2 485 2 285 Production / capacity (%) 85 93 93 95 89 BALANCE SHEET 2 359 Non-current assets 9 620 7 184 4 939 4 789 5 248 Assets held for sale 0 0 0 0 631 Current assets 3 512 3 313 3 170 3 776 4 360 % Total assets 13 133 10 497 8 109 8 565 10 240 12 Equity 4 729 2 090 -1 427 2 365 5 493 female Net interest-bearing debt 4 528 5 038 5 717 2 268 919 employees *As defined in Alternative Performance Measures **Adjusted for the share split on 18 September 2019 pursuant to which the number of shares was increased from 30 000 to 82 500 000 TOTAL OPERATING INCOME EBITDA NET INTEREST-BEARING DEBT MNOK MNOK MNOK 15 000 2 000 6 000 5 000 1 938 12 000 5 717 1 500 12 954 5 038 81% 12 642 4 000 11 85211 9 000 4 528 Electricity and renewable energy 11 527 11 11 13211 1 000 3 000 88% 6 000 1 081 1 032 2 000 certified fibres 500 818 701 3 000 2 268 1 000 Lost time injuries per 919 million working hours 0 0 0 0.47 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 4 Annual report 2019 / Norske Skog SUMMARY SUMMARY BRAVE STEPS IN 2019 LEAVE US WITH A PROMISING FUTURE We need to be innovative, creating new products and exploring new business opportunities. Our employees We took some vital and brave steps in 2019 developing new revenue streams in synergy with Our core values are openness, honesty and that will have great effects on the company in existing paper production. In the years ahead of cooperation. Our policies and guidelines build represent the heartbeat the years to come. Our mill teams have proven us, we will launch new green products. All these on the UN Universal Declaration of Human great ability to create profit and run our core initiatives will be profitable and sustainable: Rights and the 10 principles of UN Global of our company, and operations effectively in a declining market. We Compact. These values guide our business have delivered the best operating performance in • At Bruck in Austria, we are investing in activities and sustainability work across I am very impressed many years; in addition, we have the best health a new 50MW wide range energy boiler, regions and are, together with our leadership with their efforts and and safety results in the history of Norske Skog. utilizing refuse derived fuels and paper principles, the fundament to ensure an ethical Further, we issued a bond of EUR 125 million production residuals. This will improve the and competitive business conduct within commitments. in June, and Saugbrugs was fully included in the carbon footprint, further strengthen the mill’s and on behalf of Norske Skog. To further Norwegian CO2-compensation scheme. The huge profitability and create new business beyond demonstrate our commitment, we have mile stone was, however, when we went public on publication paper. prepared a sustainability report aligned with the the Oslo Stock Exchange on 18 October, preparing • At Saugbrugs, we will work to develop a UN Sustainable Development Goals (SDGs). us for future success and creating a base for new new type of bio-composite that may be Some of the goals express the challenges we opportunities. used in furniture, packaging materials and meet in our daily operations. Others have less car interiors. We will develop sustainable direct relevance to our business, but they still There has also been some tough choices along solutions related to plastic raw materials by constitute important goals to the communities the way. Thursday 5th December marked the fibre blending, technology development and we belong. Norske Skog is contributing to the end of an era as the Albury Mill ceased newsprint testing of bio-composites. This will contribute fulfilment of the SDGs we may impact to the production. Since 1981, the mill and its employees to decreased plastic consumption by creating best of our competences. have made an outstanding contribution to the new, green products with significantly reduced local community and the Australian economy. carbon footprint. I want to send my thanks and warm thoughts • Our biogas facilities at Golbey and Saugbrugs to all my colleagues running the mills 24/7 At Norske Skog, we are acutely aware that already contribute positively to our earnings, every day of the year. Our employees represent we are in charge of our own destiny. We need but more impressively, it has reduced our the heartbeat of our company, and I am very to remain competitive in a fiercely competitive carbon footprint substantially. We will invest impressed with their efforts and commitments. global marketplace, and we need to be innovative, further to improve our biogas activities, and Let us continue to join forces together – we creating new products and exploring new business we are proud to be a global forerunner in the have a promising future ahead of us. opportunities. circular economy. • At Nature’s Flame in New Zealand, we have Norske Skog’s long-term strategy remains to doubled the output of wood pellets to an SVEN OMBUDSTVEDT improve the core business, to convert certain annual capacity of 85 000 tonnes delivering to CEO of the group’s paper machines and to diversify our domestic customers as well as markets in the business within the bioenergy, fibre and Asia. biochemical markets. Although our employees • Likewise, there are also numerous encourag- are committed to deliver quality publication ing initiatives at the Tasman (New Zealand), paper every day, Norske Skog is actively Skogn (Norway) and Boyer (Australia) mills. 6 Annual report 2019 / Norske Skog Annual report 2019 / Norske Skog 7 SUMMARY SUMMARY BOARD OF DIRECTORS CORPORATE MANAGEMENT JOHN CHIANG SVEN OMBUDSTVEDT Education: Position: Strategy Education: Chair since 2019 Master of Business Administration, Senior Partner and Portfolio Manager Chief Executive Officer (CEO) - Senior Vice President Upstream Master in International Management Board member since 2018 Harvard Business School (USA) of Oceanwood Capital Management, In Norske Skog since 2010 Operations from Thunderbird (USA) (London, UK) Residence: Bachelor of Science in Industrial Background:r Norsk Hydro ASA: Bachelor in Business Administration London, United Kingdom Engineering and a Minor in Economics, Directorships: SCD SAS: - Senior Vice President Corporate from Pacific Lutheran University (USA) Stanford University (USA) Chair of NS Norway Holding AS - Senior Vice President Strategy - Various positions in Hydro Agri and Yara International ASA: Norsk Hydro - Chief Financial Officer and Head of IDUNN GANGAUNE FINNANGER Education: Position: Board member since 2019 Master of Technology Electric Power Head of Asset Management and Asset RUNE SOLLIE Engineering, Norwegian University Manager, TrønderEnergi, General Background: Education: Residence: of Science and Technology (NTNU), Manager Driva Kraftverk DA, General Chief Financial Officer (CFO) Senior Director Financial Reporting & State Authorised Public Accountant, Trondheim, Norway Trondheim (Norway) Manager Usma Kraft AS In Norske Skog since 2014 Compliance, Statoil Fuel & Retail AS Norwegian School of Economics (Norway) Directorships: Various positions in UNIconsult AS, Yara Board member of 6AM Accelerator AS International ASA and KPMG AS Bachelor of Science in Accounting and Auditing from Oslo University College (Norway) ARVID GRUNDEKJØN Education: Position: Board member since 2018 Executive programme, Harvard Business Investor and professional board member.