NORSKE SKOG ANNUAL REPORT 2005 Another step towards global leadership

158 Pages·2006·5 MB·English

A CONTENTS
n NORSKE SKOG
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r ANNUAL REPORT 2005
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and sustainability reporting
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Norske Skogindustrier ASA 0
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Oksenøyveien 80 5
Postboks 329
1326 Lysaker
Telephone: [phone]
Skogn
Telefax: 67 59 91 81
www.norskeskog.com A Another step towards
Follum
N Saugbrugs
O Union
T
H Parenco
E Walsum
R global leadership Steti
S Golbey Bruck Chongwon
T
E
P
T Hebei
O Shanghai
W Jeonju
Sing Buri
A
R
D
S MNI

G
L
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L Pisa

L
E Albury
A Tasman
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E Bio Bio
R Boyer
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The world of
ACTING PRESIDENT AND CEO
Norske Skog
Vidar Lerstad
Norske Skog is one ofthe leading companies
in the paper industry,producing publication
BUSINESS DEVELOPMENT FINANCE
paper in Europe,Australasia,Asia and
Senior vice president Senior vice president and CFO
South America.The company has 19 mills in
Vidar Lerstad Christian Rynning-Tønnesen
14 countries.The constructive cooperation of
people from different cultures working
together for a common goal is what makes
COMMUNICATION HUMAN RESOURCES & IT
Norske Skog unique.We embrace the concept
oflocal responsiveness combined with global Senior vice president Senior vice president
strength. Hanne Aaberg Rolf Negård
N
o
rs
ke REGION EUROPE REGION AUSTRALASIA REGION SOUTH AMERICA REGION PANASIA SALES & MARKETING SUPPLY & LOGISTICS
S Senior vice president Executive vice president Executive vice president Executive vice president Senior vice president Senior vice president
ko Jarle Dragvik Rob Lord Antonio Dias Dag Tørvold Jan H Clasen Ketil Lyng
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in
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trie
r A
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This annual report is printed on 70 g Norset Classic fra Norske Skog Follum. Cover is printed on 250 gr CyclusOffset
CONTENTS
05
The year in pictures
Major world news stories give a solid boost to circulation INTRODUCTION MARKET
2005 in brief Main financial figures
figures for newspaper and magazine publishers. Holding
events between your own two hands is a special feeling.
Definitions 2005 2004 2003 2002 2001
Norske Skog has delivered unsatisfactory
financial results since 2002.Excess capacity PROFIT AND LOSS ACCOUNT (NOK MILL) NEWS IS BEST
has meant a low utilisation factor for the Operating revenue 25 726 25 302 24 068 23 471 30 354
company’s mills and low prices for its Gross operating earnings 1 3 950 4 240 4 686 5 198 8 419
products.Against that background,a Operating earnings 630 1 037 1 536 1 306 5 096 ON PAPER
number ofmeasures were implemented Earnings before financial expenses 2 (51) 868 1 381 1 180 5 581
with the aim ofrestructuring the business Earnings before taxation (1 004) 210 770 806 3 894
so that the portfolio ofmills and investments Earnings for the year (854) 621 402 1 162 2 494
strengthen Norske Skog’s position as a world
leader in the paper industry. BALANCE SHEET (NOK MILL) «Our aim is improved Large regional
Fixed assets 43 740 37 057 39 345 38 330 45 417 profitability» variations ANNUAL GENERAL MEETING ADDRESSES
Market Current assets 8 293 7 238 7 119 6 769 10 855 The annual general meeting will be held at 13.00 Corporate headquarters
Demand for Norske Skog’s products was Total assets 52 033 44 295 46 464 45 099 56 272 Further chapters 002Introduction 006Mystic mustard campaign on Thursday 20 April 2006 at Norske Skog´s head- Norske Skogindustrier ASA
good during 2005 in most countries and Shareholders´ equity incl.minority int. 22 679 19 195 19 322 17 827 19 526 were added to the 004New brand promise 008Global markets quarters at Oksenøyveien 80, NO-1326 Lysaker, Oksenøyveien 80
regions,although the growth rate was,as Long term debt 21 700 20 493 21 622 21 062 30 858 Harry Potter saga in 012Delivering the best package Norway. P O Box 329
expected,lower than in 2004.The company’s Current liabilities 7 654 4 607 5 520 6 210 5 888 2005, with a new 013Products NO - 1326 Lysaker
overall sales and production volumes were Total liabilities and shareholders equity 52 033 44 295 46 464 45 099 56 272 film, a new book and DIVIDEND PAYMENT Norway
roughly on a par with the year before,and Net interest-bearing debt 19 063 16 871 18 016 18 467 22 820 masses of publicity. Shares will be listed ex-dividend on 21 April. Telephone: [phone]
Pages 14-15
average capacity utilisation was 93 per cent. Dividend will be paid on 3 May to shareholders Telefax: 67 59 91 81
Price trends were also generally positive, PROFITABILITY listed in the company´s register of shareholders at
and prices rose in Europe after three years Gross operating margin % 3 15.4 16.8 20.0 22.1 27.7 20 April. REGIONAL OFFICES
ofdecline.They have developed negatively Net operating margin % 4 2.4 4.1 6.3 5.6 16.8 Norske Skog South America
in Australasia since July 2004 because the Net profit margin % 5 (3.3) 2.5 1.7 5.0 8.2 Lance Armstrong 002 006 PUBLICATION OF INTERIM RESULTS IN 2006 Norske Skog do Brazil Ltd.
formula-based pricing system in this region Return on assets % 6 (0.1) 1.9 3.0 2.3 9.5 won the Tour de First quarter: 4th of May Rua Pasteur 463
is partly a function ofexchange rates. Return on equity %* 7 (4.1) 3.2 2.2 6.2 11.9 France for the se- Second quarter: 3rd of August 10 andar Centro Empesarial Jatobá
venth and last time,
No increase occurred in global newsprint Equity ratio 8 43.8 43.3 41.6 39.5 34.7 Third quarter: 1st of November 80250-080 Curitiba
and was acclaimed
capacity during 2005,since expansion in Net interest-bearing debt/equity 0.84 0.88 0.93 1.04 1.17 by the whole world PR-Brasil
China was offset by closures/conversions in Return on capital employed % 9.15 2.80 3.20 3.60 3.20 13.7 press. Pages 28-29 FURTHER INFORMATION ON THE INTERNET Telephone: [phone]
SOCIAL RESPONSIBILITY CAPITAL MARKET
North America.Capacity expansion was Net earnings per share after tax (NOK) 10 (5.98) 4.69 3.04 8.79 20.68 Additional financial data for Norske Skog can be Telefax: [phone]
also low for lightweight coated (LWC) Net earnings per share fully diluted (NOK)* 10 (5.98) 4.69 3.04 8.79 20.68 found at www.norskeskog.com
magazine paper,while new capacity for Cash flow per share after tax (NOK) 11 21.42 22.04 22.45 27.89 58.47 Norske Skog Australasia
super calendared (SC) magazine paper Cash flow per share fully diluted (NOK)* 11 21.42 22.04 22.45 27.89 23.29 INFORMATION AVAILABLE THERE INCLUDES: Norske Skog (Australasia) Pty. Limited
came on line towards the end ofthe year. • All annual and interim reports Level 22, 1 Oxford Street
LIQUIDITY • Press releases Darlinghurst, NSW
Financial performance Liquid assets (NOK) 12 902 889 930 868 4 158 • Presentations to the stock market P O Box 485
Norske Skog’s operating revenues totalled Cash flow (NOK) 13 3 061 3 132 2 973 3 687 7 052 Bob Geldof organised • Information on Norske Skog´s organisation Darlinghurst
NOK 25.7 billion in 2005,compared with Current ratio 14 1.08 1.57 1.29 1.09 1.84 10 Live 8 concerts in management and activities NSW 1300
NOK 25.3 billion the year before. four continents, 20 • Details about mills, products and markets Australia
Comparable gross operating earnings were DEFINITIONS MAIN FINANCIAL FIGURES years after Live Aid. • Information on environmental issues and the Telephone: [phone]
NOK 4 056 million as against NOK 4 303 1.Gross operating earnings = Operating earnings + Ordinary depreciation + Restructuring expenses Pages 50-51 company´s social involvement, as well as its gui- Telefax: [phone]
million,and net operating earnings came to 2.Earnings before financial expenses = Operating earnings + Interest income + Share of profit in affiliated companies Profitability and Shareholder values delines on the environment, social responsibility
NOK 984 million compared with 3.Gross operating margin = Gross operating earnings/Operating revenue social responsibility in the paper industry and business ethics Norske Skog PanAsia
NOK 1 210 million.These figures exclude 4.Net operating margin = Operating earnings/Operating revenue Norske Skog PanAsia.
provisions and impairments. 5.Net profit margin = Earnings for the year/Operating revenue 054 New opportunities for 078 Investor relations CONTACT INFORMATION 4 Shenton Way,
A total ofNOK 1 247 was charged to 6.Return on assets = Earnings before financial expenses/Total assets (average) When Pope John Paul Union mill site 081 Financing and liquidity Photo: Media and external affairs: # 29-01 SGX Centre 2
expenses as provisions and impairments in 7.Return on equity = Earnings for the year/Equity (average) II died, millions of 056New beginning for Norske 084Risk management Kaia Means Hanne Aaberg, senior vice president Singapore 068807
connection with the closure ofNorske Skog 8.Equity ratio = Equity/Total assets people shared the sor- Skog Tasman Inge Fjelddalen/Telemarksavisa Telephone: + 47 67 59 90 00 Telephone: [phone]
Union,the disposal ofthe shares in Catalyst 9.Return on capital employed = Operating earnings before restructuring costs/Capital employed (average) (see 15) row through 058Sickness absence stays low Håvard Solerød [email protected] Telefax: [phone]
Paper and Forestia,and the sale offorest 10.Net earnings per share after tax = Earnings for the year/Average number of shares* newspapers and 060Continuous development Scanpix
magazines.
properties in Australia. 11.Cash flow per share after tax = Cash flow/average number of shares* 063Equal opportunities Sonja Evang Financial market:
Pages 76-77
The board has proposed a dividend of 12.Liquid assets = Cash and bank deposits + short term investments 066Newspapers for 18 million Tynning Jarle Langfjæran, vice president
NOK 5.50 per share for the 2005 fiscal year. 13.Cash flow = Net cash flow from operating activities (from cash flow statement) Brazilian pupils Peter MacCallum Telephone: [phone]
That corresponds to 25.7 per cent ofcash 14.Current ratio = Current assets/Current liabilities 072True sporting enjoyment Oscar Malpica [email protected]
flow per share.Dividend for fiscal 2004 was 15.Capital employed = Total assets less affiliates,interest free current liabilities and interest bearing assets Norske Skogs billedarkiv
NOK 6 per share,which corresponds to IsmErtaraaqntidso erpsdr oLgata ertceht-e roruevndEe ort fot h tehex eep lbCreeacsltlsio ottnh a ersie rts Todupilst spianot ilBsitfaiacgIcihatindosan dOn weoginto h2t i7aa ltDleeedgc eNeodmv eebrlee grc.to iAvoetn r l neframasuetI dn5.t 0Tp0hoN0es ytds ed.me-on- Snuonrtnhie Mrnu tsoliwmns coefl eMborastuel tohne 1e7l eDcteicoenm inb etrh.e Abann Ioranq, io wn o1m5 eDne cveomtebse ar.t a polling station in Beirut, capital of Le- I1r5a qDi eecleemctbioenr. wMoarnkye rpse goeptl er etaodoyk taod cvoaunntat gbea lolof tt hpeaipr errigs hint tIroa qvo otne. 054 078 Environment:
NOK 5.43 after adjusting for the rights issue * When calculating financial ratios per share after full conversion,net earnings and cash flow are rectified by interest IRAQ Design: Rune Andersen, senior advisor
in the autumn of2005. expenses on subordinated convertible bonds. Tdcd808oTdNtTycrrsoogdNaeNheoirphhoeroefgeEuOp g ue5cyeveumvwihWicRrneaen e eietSiroawasnscclflnr SKis oprochtlgnideE t e asdorpfaIrfeh, mneaaSnlS mo MDpmirtaK ttrs atenre eariauBecO ate ccaneaarrctaodnEttaGnssesiitentiln ev Slm o ilet slpsudf tAo ifesTy nsadsoualnN swns r yit eroftrtOne,Nqntaaod . o tohmodfUaou lniN crb ecrrIa taAnrpfeod eiiear remapfmLdsfParc elisr aqsitetatrcmAR n rohie eaweest sEoatsoPrwinesrctPl,omhneeir n EfiO ttefhtiin c racaRottaRitro2istateb ehelghe Tti.i . 0s n ol i ebenhacewEvT el0 ndfneet lehsaltdo cer5hs w ooet geoe5,hlcasom lca lltsn0 otcoetiene he etow ue ictetydrotseevtriwyieieeybfe cno.adcdeeuror.snts e.u s1elt5ec coDtmiItperohoaceelqnl iiewn s goamoi ylidnfn ti obeB tr atsIehhg rgehrue ad.maa qradTdpi.in noh fgcoo lebularn ltl cao sttoh ebefuo vedxawneeysr taoarfntelyr vIraq’s prime mteirnsi sitne rt,h Ieb rhaohliym c iJtaya ofafr ,N NaaOdjRadSfKr eEo snSsK e1Os7G h DAisNe NcsUeuAmpLp bRoeErPr-.ORT89 DwttPhhaeeeagmr neef ois 5rh cs08ret 8a lytd-tie8im ca9i nree sl I.eir nac tqmi ofonorsre DPNrionirnapmtri:not TrSPueåonlle ceSpi.tahaenoln dnsraeeear:s ss+pe, 4nod7@inr en6scio7tbr o5sirkl9iet s9yk0:o 2g3.com
Binding: Telephone: [phone]
Norprint [email protected]
C
PRODUCTION ENVIRONMENT
o
«Head start for the Norske Skog with
n
future» high credibility
016 Strategy 032Emphasis on environment
020 Europe 033Environmetal policy
021 South America 036Raw material consumption
022 Australasia 039Investments
023 PanAsia 040Emissions and discharges t
024 Difficult energy market 042Energy consumption and
026Improving the quality of policy
water 044A global player in paper
e
027 Production capacities recovery and recycling
048Independent Auditor’s report
016 032
n
CORPORATE GOVERNANCE ANNUAL REPORT
t
s
How Norske Skog Annual report
is organised
099 Director´ report
106Annual accounts 2005
090 Corporate governance
group
093 Compensations
110Notes group
094 Board of directors and
136Annual accounts 2005
corporate management
Norske Skogindustrier ASA
096 Articles of association for
138Notes
Norske Skogindustrier ASA
Norske Skogindustrier ASA
150 Global Compact
151 Gobal Reporting Initiative
090 099
NORSKE SKOG ANNUAL REPORT1
Introduction
Our aim is improved
profitability
The acquisition of PanAsia means we have taken another
long step towards being recognised as a world leader in
the paper industry and towards better profitability.
nLike the rest ofthe industry,we are struggling easily identify is vital for a global organisation
with weak prices for magazine paper andnews- like ours.Our core values ofopenness,honesty
print and generally high costs for energy.Low and cooperation mobilise and motivate people
prices have been an industry problem since in all parts ofthe world.Good and open
2001,despite the global economic boom. cooperation between all employees is very
Although we are not expecting major changes important.We have subscribed to the UN’s
in 2006,the picture is brighter in a number of Global Compact,and were the first pulp and
markets.The coming year will accordingly see paper company to sign a global cooperation
a rise in prices for our products,viewed overall. agreement with the International Federation
A number ofmeasures are being pursued ofChemical,Energy,Mine and General Workers’
in-house to improve profitability.A restructuring Unions (ICEM) which secures the rights of
process was launched in Europe during 2005 our workers worldwide.We also report
with the decision to close the according to the Global report Initiative (GRI).
Norske Skog Union paper mill in Norway. We have also expanded the collaboration
We will continue to develop our production with our customers –through,
facilities during 2006.Phasing out additional the World Association ofNewspapers – on
capacity is also relevant,or possibly converting improving reading skills among children and
to other products.Among other decisions in young people,and thereby securing new
2006,we will be clarifying whether a new generations ofreaders for the print media.
paper machine should be built in Brazil. Our targets are ambitious,we take risks and
We intend to get better at continuous we do what we say we will.We demonstrated
improvement.This will be part ofour everyday that in 2005 through the acquisition ofPanAsia.
mode ofworking.That means we will do better By being a low-cost manufacturer which delivers
at each mill while viewing all our units in an top quality as well as profitable growth,and
overall perspective.Every year,we will be focusing complete attention on our core
producing more efficiently and at lower cost business,we aim to deliver the best share-
throughout the value chain. holder value in the paper industry.Our human
After visiting our Asian mills,my conviction resources make me confident that we will achieve
that we have the right expertise to achieve this that goal.
objective remains unaltered.I have seldom
seen such enthusiasm and commitment.Just
as Norske Skog PanAsia has a lot to learn
from the rest ofour organisation,it can also
teach us a great deal. LARS WILHELM GRØHOLT
A solid values base with which people can CHAIR OF THE BOARD
2NORSKE SKOG ANNUAL REPORT
INTRODUCTION
From Norske Skog Golbey in France.
NEW CORPERATE BRAND PROMISE
The soul of
Norske Skog
What do we have in common? What makes us unique, what
differentiates us from our competitors and what promises
can we make to all those we do business with?
only on the future ofpaper,but also on the
nPaper means much more to us than a simple continued loyalty ofour customers.We have
fibre-based surface for printing or writing on. earned customer loyalty over time by cultivating
Paper connects people to society,liberates ideas relations with customers,by seeking their feed-
and expresses emotions.It is timeless in its back,by listening to their needs and by sharing
ability to surprise,entertain and involve.Paper our passion for paper with them.In this way
reaches out to everyone – rich and poor,young we prove our commitment and exceed their
and old,in every corner ofthe world. expectations.This is also the reason why we
Our commitment to paper is demonstrated are collaborating with our customers to secure
in a high level ofquality technical service and new generations ofnewspaper readers through
a determination to make constant improve- the Young Reader projects in both new and
ments to our product. established markets.
We know that our future will depend not
Introducing Future on Paper
“Future on Paperreflects what company which we can also live On the paper reel
we are,” says Hanne Aaberg, up to in future. The purpose of adopting a new
senior vice president for corporate tagline and design is for
communications. “We believe in Strengths and weaknesses Norske Skog to be easily identified
the future of paper and in The survey revealed that and to distinguish itself clearly
continuous development of quality Norske Skog has both strengths from its competitors.
and service.” and weaknesses. Many people “We want to be at the
She explains that Future on felt that we could become more forefront of people’s awareness,”
Paperwill occupy a central place market-oriented, that our product emphasises senior adviser
for both employees and portfolio is rather narrow and that Anneli Skudal. “When our
customers. Not only because it we are too production-oriented. customers or employees see
will be printed on our new paper One of the strengths recorded Future on Paperthey will think
reels but also because it will take in the survey was that Norske Skog. When they think of
a prominent position in all of our Norske Skog has dedicated paper, they will think Norske Skog.
communication materials. employees who know their jobs Nike uses “Just do it” as their
and the business. Many are also tagline and Avis uses “We try
The corporate brand promise happy with the corporate culture harder”, Norske Skog uses says
Our goal has been to establish a at the mills and that there is a Future on Paper.”
tagline that quickly communicates strong belief and close relation-
what Norske Skog does, what our ship with paper. What is a tagline?
image is and what position that “We want our customers to A tagline is a precise expression
image occupies. In professional know that Norske Skog will give (typically seven words or less) which
marketing jargon, this is known them a different experience than communicates a unique and
as a brand promise – one which other companies can,” says powerful brand promise – a
both company and products live Aaberg. “That means we must message about a brand (company)
up to. live up to our values. These guide or a product. The brand promise
A methodical and detailed the way we behave and must message must reach and be readily
process underpins the new tagline, become part of us, just as they understood by its target audience.
according to the team behind the are part of the products we make Companies around the world have
project. Employees from operators and the services we offer. Given used taglines for more than a Designer Ernie Mah at Ken Allan
to top executives have been inter- everything we now know, we century to tell themselves and Design Group has created the new
viewed in an extensive survey. beleive that Future on Paper others something important about design for the paper reel wrapper.
They were consulted to establish represents a good and appropriate themselves or the products they sell. Note the blue lines which are
an accurate image of the tagline for us.” woven together like fibre.
4NORSKE SKOG ANNUAL REPORT
Norske Skog’s corporate
brand promise
OUR PROMISE
At Norske Skog we believe in paper
as a timeless source of
communication.
THE TAGLINE
Future on Paper
THE BACKGROUND
The purpose of paper is to connect
people, liberate ideas and express
emotions. It is timeless. It is un-
matched by any other com-
munication channel in its ability to
surprise, entertain and involve.
Paper reaches out to everyone
– rich and poor, young and old, in
every corner of the world.
Because we are committed to
the the future on paper,we are
committed to:
nThe people who make paper
nThe quality of technical service
and continual improvement of
paper
nThe future generations of readers
nThe communities that support
papermaking
n Paper as a sustainable product
Creative
and modern
Packaging says a lot about a company, so
a great deal of thought goes into designing
it. The new wrap for our reels is no
exception. Fresh and bold, it can be identified
at great distance, and stands out in the
thickest crowd.
Its inspiring design provides a starting
point for our imagination, and for the
imagination of our customers. What does
your imagination see in the unending lines?
Is it Asian dragons? Viking ornaments?
North American tribal art? Is it magnified
fibre, a Maori weaving, or perhaps a
metaphor for eternity? If we let ourselves
dream, it can be all these things and more.
It’s the mark of a creative, modern
company that challenges the imagination
and embraces all the different cultures that
contribute to its strength – now, and into
the future.
NORSKE SKOG ANNUAL REPORT5
MARKED
Mystic mustard
campaign
What happens when a completely unknown brand of
mustard is offered plenty of free newspaper advertising?
A "mystery campaign" in Norway proved the answer.
n Sponsored by Norske Skog and in Competing importers wanted to know why
cooperation with major newspapers,the such a large four-week drive – with five
Norwegian Media Business Association different full-page ads in 54 newspapers
(MBL) ran a nationwide newspaper advertising nationwide – was being devoted to a niche
campaign dubbed “the mustard case”– also product.
known as “the big mystery campaign.”Very The Dijon variety accounts for only 15 per
few people knew that it was selling more than cent oftotal mustard consumption in Norway.
mustard.When the campaign had finished,it Edmond Fallot had an initial market share of
was revealed that the award-winning just 1.8 per cent and distribution to only 10
advertisements were promoting both news- per cent in Norway’s grocery shops.Annual
papers and Dijon mustard at the same time. sales in Norway have been worth about
The question was simple – can newspapers NOK 3.5 million.
reposition themselves at the forefront of Even the sales corps at importer
“image”advertising,ahead ofTV? Such ads OlufLorentzen were kept in the dark and not
seek not only to sell products,but also to build informed in advance about the campaign.
brand identity and recognition.What better The results were immediately visible.Pollster
way to find the answer than to conduct a TNS Gallup measured product recognition
research campaign,so that experts could before,during and after the campaign among
measure the pure effect ofadvertising in news- the target group ofpeople aged 30 to 59.
papers alone? Recognition ofEdmond Fallot Dijon mustard
This project aimed to increase advertising shot up from a mere 19.8 per cent before the
and circulation for newspapers,a goal shared campaign to 42.2 per cent.Most notably,the
by both Norske Skog and its customers.The percentage ofpeople who preferred this brand
team was prompted to do its own Norwegian over other brands surged from three to 12 per
trial after a Danish “ketchup case”had yielded cent.Sales also more than doubled despite
great results.Criteria for the project required a the absence a coordinated in-store marketing
product which had been on the shelves for campaign.
some time without ever being advertised in
Norway.A typical niche product,Edmund The Danish ketchup case
Fallot Dijon mustard,was chosen. An advertising campaign in Danish news-
papers during 2003 helped to boost sales of
Higher level the local Mutti ketchup brand by no less than
A secret campaign was launched in close 442 per cent.It transformed the product from
cooperation with the Shnel & Melnychuck the least-known ketchup in Denmark,familiar
advertising agency. to only 0.8 per cent ofthe population,to one
Project leader Erik Heisholt at Shnel & which every fifth Dane had heard of.
Melnychuck wanted to take the ads to a level
higher than Norwegian readers are used to.
“I’ve missed seeing really good newspaper
ads that challenge you,”he says.
Using ads with large amounts oftext,based
on a mystery theme,the campaign received
the Best Advertising award for November
from Oslo daily Aftenposten.The ads were
praised as elegant and classic in style.
6NORSKE SKOG ANNUAL REPORT
NORSKE SKOG ANNUAL REPORT7
MARKET