Norske Skog annual report1997 · Main figures per Area NORSKE SKOG ANNUAL REPORT 1997 1 1997 1996...

Main figures per Area

1NORSKE SKOG ANNUAL REPORT 1997

1997 1996 1995 1994 1993 1992 1991 1990 1989Area PaperOperating revenue NOK million 9,284 9,493 8,066 5,831 4,731 4,773 5,855 6,733 5,768Operating profit NOK million 1,134 2,078 1,708 454 469 95 656 721 398Operating margin % 12.2 21.9 21.2 7.8 9.9 2.0 11.2 10.7 6.9

Area FibreOperating revenue NOK million 1,376 1,222 2,171 1,498 1,052 1,202 1,247 1,709 2,025Operating profit NOK million 49 -127 682 178 -187 -176 -164 327 615Operating margin % 3.6 -10.4 31.4 11.9 -17.8 -14.6 -13.2 19.1 30.4

Area Building MaterialsOperating revenue NOK million 2,667 2,579 2,333 2,048 1,704 1,688 1,725 1,960 1,911Operating profit NOK million -16 27 96 146 85 64 9 107 93Operating margin % -0.6 1.0 4.1 7.1 5.0 3.8 0.5 5.5 4.9

Other 2%

Newsprint 40%

Building materials 20%

LWC magazine paper 9%

SC magazine paper 20%

Special grades 1%Pulp 8%

Operating revenue per product

Rest ofworld 8%

USA 10%

OtherEurope

25%

France 8% UK 11%

Germany 15%

Norway 23%

Operating revenue per market

2 NORSKE SKOG ANNUAL REPORT 1997

An increased demand for information is oneresult of modern mass culture. At the same time,both technology and economic developmentshave made it possible to meet this demand,among other things through special publicationsdevoted to music, IT and lifestyle.

Price decline caused weaker resultPrices of paper and pulp fell during thefirst quarter of 1997. This led to areduction in operating profit fromNOK 1,916 million in 1996 to NOK1,083 million in 1997.

Record paper outputIn 1997 Norske Skog produced - forthe first time - more than two milliontonnes of printing paper. New outputrecords were set at the printing papermills Norske Skog Skogn, NorskeSkog Follum, Norske Skog Golbeyand Norske Skog Bruck.

Expansion of Norske Skog GolbeyNorske Skog decided in April toexpand Norske Skog Golbey by instal-ling a second paper machine, withcapacity of 330,000 tonnes per year.This will give the mill a total capacityof nearly 600,000 tonnes. The newmachine is scheduled to come on streamin first quarter 1999.

Growth in sawn timberIn September, Norske Skog took overHedalm Trelast's three mills in Hed-mark county. These companies, whichform part of our subsidiary ForestiaAS, have a total annual turnover ofabout NOK 250 million.

Major investments at Norske Skog TofteNorske Skog decided in October toinvest NOK 600 million in a compre-hensive upgrade of Norske Skog Tofte,during the period 1997-2001. Thiswill, among other things, increase themill's capacity from 360,000 tonnes ofbleached sulphate pulp to 420,000 tonnes.

Cogeneration plant at SkognIndustrikraft Midt-Norge DA, which

is owned by Norske Skog (40%),Elkem (40%) and Statoil (20%), noti-fied the authorities in November of itsplans to build a cogeneration plant atNorske Skog Skogn.

Expansion in Eastern EuropeIn November, Norske Skog took overthe ROTO newsprint mill (NorskeSkog Steti) in the Czech Republic. Themill's capacity is 100,000 tonnes, andthis is now being increased to 120,000tonnes.

Reorganisation of the building materials businessTo create the conditions for more inde-pendent development of these activi-ties, Norske Skog's building materialsbusiness was reorganised in 1997 intotwo subsidiary companies: Forestia AS(sawn timber and board) and NorskeSkog Flooring AS (flooring products).

Concentration on core areasDuring 1997 Norske Skog disposedfour units which lay outside theGroup's core areas: the workshop busi-ness Folla Tech, and the building mate-rials outlets Namsenbygg, LundbyBruk Brumunddal and Lundby BrukRena, with a total turnover of aboutNOK 50 million.

1997 Highlights

Aims and tasks in 1998

Improved logistics and sales supportNorske Skog is working to becomemore competitive. During 1998 it willbegin utilising GLOSS (Global Logi-stics and Sales Support) to achieve amore customer-friendly, streamlinedand cost-efficient planning of sales,production and distribution of printingpaper. The project has a budget ofNOK 100 million.

OrganisationNorske Skog will start a three-yearefficiency programme - Norske Skog2000 - in 1998. The programme willincorporate all current and new impro-vement activities at business centresand joint projects, in order to exploitGroup synergies. The aim is to achievethe Group's target for return on totalassets of 13% by the year 2000 – and,at the least, to achieve this as an ave-rage throughout an economic cycle.

ProjectsIn addition to the expansion of NorskeSkog Golbey, with PM 2, and theupgrading of Norske Skog Tofte,Norske Skog is building a new wastetreatment plant at Norske SkogFollum, and undertaking a major rebu-ilding of PM 5 at Norske Skog Saug-brugs. The two last-mentioned pro-jects will be completed during 1998.Total investments in 1998 at NorskeSkog's mills in Norway and abroadwill amount to just over NOK 3 billion.


The year 1997The 1997 result was marked by signi-ficantly lower prices for printing paperthan in 1996, while at the same timepulp prices remained low. During thesecond half-year the supply/demandbalance on paper markets became satis-factory, but the pulp market remainedunstable.

The trend towards structural changesin the forest industry continued during1997. These changes led to greaterconcentration and larger players, witha focus on core areas and the globalmarket. Norske Skog intends to parti-cipate in this trend. The Group is wellprepared to do so, both financially andorganisationally.

In 1997 Norske Skog decided onacquisitions and investments in newplant which increase the Group's prin-ting paper capacity by 20% or nearly450,000 tonnes/year. At the same time,new business opportunities were eva-luated.

During 1997 Norske Skog's buil-ding materials business was restruc-tured and organised into two wholly-owned subsidiaries, Forestia AS andNorske Skog Flooring AS. This makesit possible to invite other owners toparticipate in these companies. Thesemoves enable Norske Skog to focusincreasingly on pulp and paper. Mean-while, the subsidiaries are better placedorganisationally to focus more stronglyon their core areas, and to competemore efficiently within their respectivesectors, and increase profitability.

In 1997 Norske Skog sold foursmall units - which lie outside theGroup's core areas - with a total annualturnover of NOK 50 million.

Result and dividendHigh output and slightly higher pulpprices in the second half-year did notoffset the decline in printing paper pri-ces during the first quarter. TheGroup's pre-tax profit for 1997 wasNOK 652 million. The corresponding

figure for 1996 was NOK 1,732 mil-lion.

The Group’s operating revenuereached NOK 13,312 million (NOK13,265 million). For printing paper -which accounts for about 70% of theGroup's operating income - pricelevels on local markets were, for muchof the year, about 25% below 1996levels. The loss of income which thisentailed was partly offset by an incre-ase in volumes.

Operating profit was NOK 1,083million (NOK 1,916 million). Thetrend over the year was favourable forpaper, and the final quarter showed amarked improvement, compared withthe first quarter. The trend continuedinto 1998, and increases in paper pri-ces were put into effect from the NewYear. Following a temporary impro-vement during the autumn, pulp mar-kets again weakened towards the endof 1997, primarily because of highinventories.

Price levels for the Group's mainproducts were lower than the averagelevel over an economic cycle.Operating margin was 8.1% (14.4%),which is not satisfactory. Cash flowfrom operations was NOK 1,615 mil-lion (NOK 2,616 million). Return ontotal assets reached 7.8% (14.1%),which is markedly below the Group'srequirement for a 13% return on capi-tal, on average, over an economic cycle.Return on equity was 7.1.% (18.6%).

Net financial items amounted tominus NOK 455 million in 1997(minus NOK 262 million). Lower netinterest costs of NOK 196 million(NOK 285 million) were due to lowerinterest rates and lower debt.Exchange rates fluctuated widely in1997. Currency losses debited to theaccounts including unrealised lossesamounts to NOK 269 million as of31.12.1997. This must be seen in thecontext of increased operating incomeowing to higher prices. At the sametime, currency-related reserves not

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Board of Directors' Report

Operating profit

Profit after financial items

credited to the accounts totalled NOK62 million (NOK 81 million).

Tax costs for the year were NOK62 million, corresponding to 9.5% ofpre-tax profit. This low tax rate mainlyreflects a one-time effect on theaccounts connected with the introduc-tion of a new system for taxing elec-tricity generating plants in Norway.

Net profit, after tax and minorityinterests, was NOK 590 million (NOK1,317 million). Earnings per sharewere NOK 16.40 (NOK 40.38).

The Board proposes a dividend ofNOK 7.00 per share, unchanged from1996.

Capital developments, financingand investmentsNorske Skog further strengthened itsfinancial position during 1997. At theend of the year the Group's equity capi-tal stood at NOK 9,064 million and itsequity to assets ratio at 52.4% (45.9%).This favourable development reflectsprofit from operations and the con-version of bonds to shares.

The Group's net interest-bearingdebt dropped from NOK 4,827 millionas of 31.12.1996 to NOK 4,145 mil-lion at the end of 1997. The ratio of netinterest-bearing debt to equity was0.46 (0.63).

At the end of 1997 liquid assetsstood at NOK 853 million (NOK 1,088million). Unutilised drawing rightstotalled NOK 5,106 million at the endof the year.

Investments in new plant andequipment, totalling NOK 1,814 mil-lion in 1997, were concentrated on theGroup's printing paper mills, and itsboard and flooring activities. The lar-gest projects were a new biologicalwaste treatment plant and a new bio-fuel boiler, at Norske Skog Skogn, andNorske Skog Golbey's PM 2.

The Group decided during 1997 toexpand Norske Skog Golbey by instal-ling a second paper machine (PM 2),scheduled for start-up during first

quarter 1999. Total investments invol-ved are NOK 2.8 billion, and NOK 672million of this had accrued by the endof 1997. The mill's capacity will incre-ase by 330,000 tonnes to about600,000 tonnes/year. The project willmake Norske Skog Golbey one of theworld's most efficient paper mills, andit strengthens the Group's position asa leading, low-cost supplier of high-quality printing paper.

In November, Norske Skog tookover the ROTO newsprint mill (NorskeSkog Steti) in the Czech Republic, forNOK 200 million, on a debt-free basis.The mill has a capacity of 100,000 ton-nes/year, which will be increased to120,000 tonnes. The aquisition provi-des a good basis for further activity inCentral and Eastern Europe.

Norske Skog will invest NOK 200million during 1998/99 in streamliningthe Group's administrative routines,particularly in the areas of marketingand distribution. The projects envisa-ged offer good profitability, providinga basis for the development of efficientmanagement systems and administra-tive routines, and will give the Groupcompetitive advantages in the market.

The Group's IT systems are beingchecked to ensure that the millennialchange will be satisfactorily dealtwith. Norske Skog Research is goingthrough the control and regulation sys-tems on the production side. Togetherthis will also mean a renewal and stan-dardisation of Norske Skog's IT infra-structure. The aim is to ensure thatnecessary adaptations are made in ITsystems critical to the Group's activi-ties.

Shareholder structureNorske Skog's ownership structure isstable, and several of its largest share-holders increased their stake in thecompany during 1997. Foreign inves-tors held 21.6% of total shares as of31.12.1997 (22%).

The proposed dividend for 1997

corresponds to a pay-out ratio of 43%for l997, and makes the average pay-out ratio 20% over the past five years.It is Norske Skog's goal to pay a divi-dend that will give its shareholders areasonable proportion of profits overthe whole of an economic cycle, whileat the same time maintaining andstrengthening the Group's ability tofinance future development out of itsown resources.

As a consequence of the conversionof bond loans to shares, share capitalrose during the year by NOK 111 millionto NOK 764 million as of 31.12.1997.The number of shares is 38.2 million,comprising 28.8 million A shares and9.4 million non-voting B shares.

A foundation was established in1997 to sell shares to employees. Atotal of 17,540 shares were sold toemployees in 1997.

At the end of 1997 the company'smarket capitalisation was NOK 8,100million. A total of 30.5 million NorskeSkog shares were traded on the OsloStock Exchange during 1997.

PaperNorske Skog's paper mills achieved anoperating profit of NOK 1,134 millionin 1997 (NOK 2,078 million). Totaloperating revenue reached NOK 9,284million (NOK 9,493 million).

Production of newsprint, SC maga-zine paper and LWC magazine paperat the Group's mills was high in 1997,reaching a record level of 2,143,000tonnes - including the affiliated com-pany A/S Union (Union Co.). This isan increase of 9% from 1996.

The situation for newsprint wasaffected by a 15-20% price decline atthe turn of the year 1996/97, caused byhigh stocks and a degree of overcapa-city in 1996. Increased consumption inAsia and the US during the year, madeit possible to raise prices on these mar-kets in the second half-year, while pri-ces in Europe remained unchanged,owing to annual contracts.



Favourable economic trends in themajor industrial countries have led toincreased demand for newsprint. Atthe end of 1997 there was high capa-city utilisation in both the Europeanand north American newsprint indus-tries. Price negotiations at the turn ofthe year led to price rises on all mar-kets apart from the UK, where thetrend of the exchange rate for thepound led to a small downward adjust-ment of the price in GBP.

Norske Skog Golbey's PM 2 -which is scheduled for start-up duringthe first quarter of 1999 - is the onlynew newsprint machine being built inEurope. Given demand growth in thetrend area of 2-3% per year, it is assu-med that the balance betweenEuropean supply and demand willcontinue tight during the next coupleof years - although this could be affec-ted by developments in other areassuch as Asia and North America.

Magazine paper prices fell at theturn of the year 1996/97, and for SCthe decline was 15-20%. The situa-tion stabilised somewhat in the firstquarter, and during the summerdemand improved for both SC andLWC. This made it possible to imple-ment price increases for LWC, follo-wing a significant fall in 1996. Pricesfor SC were stable for the year as awhole in Europe, while small priceinceases were achieved in the US.

Capacity utilisation in the Europeanmagazine paper industry was consi-derably higher in 1997 than in 1996.During the final quarter, demand formagazine paper rose further. Thefavourable price trend for LWC con-tinued, therefore, both during fourthquarter 1997 and in January 1998. ForSC, too, price increases were achievedwith effect from and including the firstquarter of the present year.

FibreThe result trend for the Group's pulpmills was affected by the fact that themarket provided opportunities forsomewhat higher production and aslow improvement in prices, but the

latter are still at a low level. Operatingresult was NOK 49 million (minus 127million). Total operating revenues rea-ched NOK 1,376 million (NOK 1,222million).

At New Year 1996/97, NORSCANstocks stood at 1.9 million tonnes, andprices for long-fibre sulphate pulp rea-ched a low of USD 520/tonne inMarch.

Order inflow revived during thesummer, stocks declined, and duringthe autumn it was possible to increasethe price to around USD 600/tonnefor long-fibre sulphate pulp. At theturn of the year the price was USD580, but NORSCAN stocks were stillvery high - 1.75 million tonnes.

The CTMP pulp situation in 1997was marked by great imbalance bet-ween supply and demand, and verylow prices. The markets for this typeof pulp largely follow the trend of sul-phate pulp, but with relatively largerfluctuations.

Building materials companiesNorske Skog's building materials com-panies had a total operating result ofminus NOK 16 million in 1997 (plusNOK 27 million). Total operatingrevenues were NOK 2,667 million(NOK 2,579 million).

Forestia ASThere was good demand for sawn tim-ber both in Norway and on export mar-kets for much of the year. This madeit possible to increase prices and main-tain a high level of output. During theautumn the international sawn timbermarket grew considerably weaker.

With effect from 01.07.1997 NorskeSkog took over Hedalm Trelast's threemills as part of the restructuring andfurther development of its sawn timberactivities.

For board, market conditions werestable throughout the whole year. Thenew particle board line at Brasker-eidfoss was started up in April, andtime was spent, during the year, onmaking the line operate as efficientlyas possible. Norske Skog expects that

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in 1998 it will have Europe's most effi-cient, high-quality particle board activity.

Norske Skog Flooring ASDuring 1997, prices of laminatedflooring products came under steadilyincreasing pressure. The launch ofAlloc flooring demanded considerableresources and investments. That put anextra load on this product area. Towardthe end of the year, productivity andquality were significantly improved.The product is still in the introductionphase, and among other things, a new,modified production line was startedup. Together with a further develop-ment of the organisation, this has laidthe foundation for marked expansionin 1998/99.

Demand for parquet flooring wasgood in 1997, and production capacitywas fully utilised.

ResourcesSupplies of raw materials to NorskeSkog's mills were satisfactory in 1997.Purchases totalled 7.3 million cubicmetres of timber and sawmill chipsand 336,500 tonnes of waste paper.Of this, 6.7 million cubic metres oftimber were bought for the Group'smills in Norway. Norske Skog Hurumreceived 3,400 tonnes of milk cartons.Also in 1997 harvesting in Norwegianforests was well below the industry'sraw material requirements, and timberimports accounted for 27% of totalpurchases. Some 35% of pulpwoodrequirements - 1.7 million cubic metres- was imported. Import availabilitywas good.

Supplies of waste paper to theGroup's printing paper mills on theContinent were good. Norske Skog'sagreement with the EnvironmentMinistry has helped stimulate markedgrowth in paper collection in Norway,and has made it possible to find outletsfor waste paper on a difficult exportmarket.

Energy use by Norske Skog's millstotalled 11,454 GWh in 1997 (10,708GWh). The Group has covered itsrequirements for electricity for its

mills in Norway through long-termagreements, and will be affected onlyto a small extent by short-term fluctu-ations in the power market. More than80% of Norske Skog's thermal energyrequirements are met from its own pro-duction of bioenergy, and recycling.

Norske Skog must have long-termsecurity concerning future supplies ofelectric power to its mills in Norway.The Group has therefore approved aplan of action incorporating the follo-wing main elements:

• industrial contracts with Statkraft• access to direct imports• increased reliance on bioenergy for

heating• meet more of our needs from own

sources.

The power supply/demand balance inNorway will grow tight in the comingyears. Norske Skog believes that gasresources must be utilised to boostpower supplies. Norwegian industrymust be given opportunities to useNorwegian gas in its value creation,like its competitors elsewhere in Europe.

Together with Elkem and Statoil,Norske Skog has established a com-pany, Industrikraft Mid-Norge DA, tobuild and operate a high efficiency,gas-based cogeneration plant in con-nection with its newsprint mill atSkogn. An application for permissionto build will be prepared during thefirst half of 1998. Plans envisage afacility able to produce 5.6 TWh/year.

EnvironmentNorske Skog continued its active par-ticipation in efforts to promote theenvironment-friendly qualities of tim-ber and the certification of forestry, viathe broadly-based "Living Forest"cooperation programme.

With the projects which were com-pleted in 1997, all of Norske Skog'sprinting paper mills have now instal-led biological treatment of processwater. Water consumption is beingsteadily reduced, and the ultimate goalis to achieve closed water systems.

The problem of production wastegenerated by the Group's mills - pri-marily bark, sludge and remnants offibre - has largely been solved. Thiswaste is used as biofuel in the mills'own energy production.

The Group's mills use very smallamounts of fossil fuels in their pro-cesses. Emissions of greenhouse gasesare consequently limited, and if mea-sures should be introduced to curb cli-mate gases they will be unlikely toentail major environmental invest-ments at Norske Skog's mills. In con-nection with its "Tofte 400" project,Norske Skog Tofte will take furthersteps to limit emissions of noise, odourand dust.

Taking into account projects com-pleted and those in the planning stage,Norske Skog will soon have imple-mented all the major investments inthe environmental sector which arecurrently envisaged. From now on, theemphasis will be on further improvingprocesses and on operating plant asefficiently as possible, both as regardsenvironmental impact and resourceuse.

Environmental investments atNorske Skog's mills totalled NOK 344million in 1997.

In 1997 Norske Skog Saugbrugsand Forestia Van Severen achievedboth EMAS approval and certificationin accordance with the ISO 14001international standard for environ-mental management. Norske SkogBruck and Forestia Kvam were certi-fied in accordance with ISO 14001.Several other mills are in the processof introducing corresponding systems.



Research and developmentIn 1997 Norske Skog approved a long-term plan for Norske Skog Research1997-2001 and a development plan forthe period to 2005. They envisage thatthis activity should continue to be pro-duct- and process-oriented, that itshould help improve market accep-tance of Norsk Skog's products, reduceproduction costs and ensure that theGroup's activities and products areenvironment-friendly. Research anddevelopment should make significantcontributions to at least three specifictechnical innovations during thecourse of a year. These should make aprecisely defined contribution toNorske Skog's operating result.

During 1997 efforts in the pulp andpaper area have been concentratedboth on improving existing processesand products and on developing newones. Projects in 1997 included thedevelopment of the new printing paperproduct NORSET at Norske SkogFollum, the rebuilding of papermachine PM 5 at Norske Skog Saug-brugs, and planning connected withthe new paper machine at Norske SkogGolbey.

Personnel and the working environmentAt the end of 1997 Norske Skog had5,986 people on its payroll (5,965).Of these, 1,280 (1,000) were employedoutside Norway. Total wages andsocial expenses in 1997 were NOK1,961 million (NOK 1,859 million).The steady growth in Norske Skog'sactivities abroad is making newdemands on our personnel policy. Tomeet the need for flexibility and mobi-lity, a system called "Goal-orientedmanagement and employee develop-ment" has been developed in coope-ration with the companies in theGroup. It will be implemented in 1998.

One hundred and fifty of theGroup's senior management and tradeUnion officials participated in a pro-gramme aimed at creating a sharedunderstanding of Norske Skog's ambi-

tions, its strategic plan and the plan'sconsequences. Another aim of the pro-gramme was to support the introduc-tion of new technology and the stan-dardisation of work processes in theGroup.

At several of the Group's compa-nies, major organisational develop-ment projects have been launched.

The number of injuries resultingin time off work at the Group's com-panies, per million hours worked, was19 in 1997 (23). Absenteeism due toillness was 6.3% of time worked(5.5%). These figures are unsatisfac-tory, and in 1998 Norske Skog willfocus strongly on HES (health, envi-ronment and safety) to improve thefigures for injury and absenteeism dueto illness.

In 1997 Roy Borgersen, Arne Rødøand Arnt Saelor left the Board. Theywere replaced by Kjell Hansen, RoyEilertsen and Gisle Hegstad. TheBoard thanks the departing Boardmembers for their work for NorskeSkog.

Details of the shareholdings of thecompany's elected officers and theadministration are given on page 63and 64.

The salary and other remunerationpaid to the President and CEO amoun-ted to NOK 1,894,627. The Presidentand CEO has an agreement entitlinghim to up to three years' salary afterleaving the company.

Remuneration of the CorporateAssembly and Board members amoun-ted to NOK 494,250 and NOK 833,000respectively.

The 1997 audit fee for NorskeSkogindustrier ASA amounted toNOK 1,537,000. Other audit feesamounted to NOK 385,000 in 1997.

1997 was a demanding year for theentire Norske Skog organisation, andone which called for great efforts. TheBoard thanks all Norske Skog employ-ees for their valuable contributions toNorske Skog's development in 1997,as in previous years.

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Future prospectsAt the start of 1998 there is gooddemand for newsprint and magazinepaper on our markets, and this favou-rable market situation is expected tocontinue through the year.

The market pulp situation is mar-ked by over-capacity and some declinein prices during the first quarter of1998. The outlook is more uncertainthan for printing paper, but there areexpectations of some improvement asearly as the second quarter.

The economic crisis in parts ofAsia is, however, an element of uncer-tainty among the otherwise favourableprospects for 1998.

Norske Skog expects a better over-all result in 1998 than in the previousyear.

Application of profitNorske Skogindustrier ASA made a profit for the year of NOK 532 million.

It is proposed to apply the profit as follows:Profit for the year NOK 532 millionAvailable for application NOK 532 million

Proposal for application:To legal reserve NOK 68 millionTo distributable reserve NOK 26 millionGroup contribution NOK 171 millionDividend to shareholders NOK 267 millionTotal applied NOK 532 million

Lysaker, February 11, 1998

Lage Westerbø Jon R. Gundersen

Chairman Vice Chairman

Roy Eilertsen John Frøseth Kjell Hansen

Gisle Hegstad Jan Reinås Eivind Reiten Halvard Sæther


Accounts 1997 ConsolidatedPROFIT AND LOSS ACCOUNT

NOK million Notes 1997 1996 1995

Operating revenue 1 13,312 13,265 12,548Cost of materials 2 6,121 5,564 5,252Wages, salaries and personnel expenses 3,4 1,961 1,859 1,568Other operating expenses 5 3,007 2,706 2,396Ordinary depreciation 16 1,140 1,132 832Restructuring expenses 0 88 0Operating expenses 12,229 11,349 10,048Operating profit 1,083 1,916 2,500Share of profit in affiliated companies 13 22 74 60Net financial expenses 6 -455 -262 -225Profit before minority interests and taxes 650 1,728 2,335Minority interests 2 4 1Profit before taxes 652 1,732 2,336Taxes 7 -62 -415 -637Profit for the year 590 1,317 1,699

Earnings per share 16.40 40.38 52.39Earnings per share fully diluted 16.40 35.89 45.99

STATEMENT OF CASH FLOWCash flow from operating activitiesCash generated from operations 13,169 13,885 12,181Cash used in operations -10,920 -10,514 -9,395Financial revenue received 130 133 258Financial expenses paid -454 -366 -482Taxes paid -310 -522 -7Net cash flow from operating activities 8 1,615 2,616 2,555Cash flow from investment activitiesInvestments in operational fixed assets -1,814 -1,053 -926Adjustment for investments without cash-effect 219 0 0Sales of operational fixed assets 44 21 20Long term investments -97 -309 -672Net financial investments 27 -27 23Net cash flow from investment activities -1,621 -1,368 -1,555

Cash flow from financial activitiesNew long-term debt 287 227 1,097Repayment of long-term debt -1,893 -1,392 -2,621New short-term debt 3,455 3,614 1,126Repayment of short-term debt -2,970 -3,443 -1,182Dividend paid -228 -196 -48Converted bonds 1) 1,106 0 16Share issues 0 4 89Net cash flow from financial activities -243 -1,186 -1,523Total change in liquid assets -249 62 -523Liquid assets as at January 1 1,102 1,026 1,533Liquid assets as at December 31 853 1,088 1,010

1) Converted bonds has no cash-effect. The same amount is included in repayment of debt.


BALANCE SHEET AT 31.12

NOK million Notes 1997 1996 1995

AssetsCash and bank deposits 9 302 351 184Short-term investments 10 551 737 826Accounts receivable 11 1,840 1,842 1,886Other short-term receivables 315 164 394Stocks 12 1,507 1,498 1,328Current assets 4,515 4,592 4,618Shares in affiliated companies 13 394 383 307Shares in other companies and partnerships 14,15 79 107 103Other long-term receivables 17 226 302 281Securities and long-term financial assets 699 792 691Operational fixed assets 16 12,079 11,239 9,555Fixed assets 12,778 12,031 10,246Total assets 17,293 16,623 14,864

Liabilities and shareholders' equityShort-term liabilities 18 2,481 2,466 2,795Interest bearing short-term liabilities 19 882 1,288 542Current liabilities 3,363 3,754 3,337Pension obligations 4 98 101 73Subordinated convertible bonds 20 0 707 1,206Senior interest bearing long-term debt 21 4,116 3,920 3,267Other long term debt 243 39 0Deferred taxes 7 350 411 435Long-term liabilities 4,807 5,178 4,981Minority interests 59 56 1Share capital 764 653 652Other consolidated equity 23 8,300 6,982 5,893Shareholders' equity 23 9,064 7,635 6,545Total liabilities and shareholders' equity 17,293 16,623 14,864

Mortgages 24 67 692 964Contract obligations 26 602 386 362

The consolidated accountsThe consolidated accounts include all companies in whichNorske Skog owns more than 50 % and/or has controllinginfluence. Affiliated companies are shown in the accountsaccording to the equity method.

Inter-company sales, receivables, payables and profitsincluded in inventories are eliminated in the consolidatedaccounts.

Shares in subsidiary companies are eliminated in accor-dance with the purchase method. The price paid in excess ofthe calculated equity is, on the basis of an excess value ana-lyse according to the unit principle, allocated to the relevantitems in the balance sheet and amortised accordingly. If thedate of payment differs from the date of purchase and no inte-rest has been agreed, the purchase amount is corrected toallow for the accrued interest. The interest adjustment isrecorded as a financial expense.

In translating to NOK the liquid assets, receivables etc.of foreign subsidiaries which are considered an integratedpart of the parent company, the year-end exchange rate isused. In the same way, current liabilities are translated atthe year-end exchange rate. Long-term liabilities are trans-lated at the higher of the exchange rate on the transactiondate or on the balance sheet date, while non-monetary itemare translated at the exchange rate on the transaction date.Profit and loss account items are translated at averageexchange rate for the year, except for cost of materials andordinary depreciation, which are translated at the exchangerate on the transaction date. The translation difference isshown in the profit and loss account as a financial item.Items on the balance sheets of subsidiaries not consideredas an integrated part are translated to NOK at year-endexchange rates. Profit and loss account items are translatedat the average exchange rate for the year. The translation dif-ference is shown under consolidated equity.

Minority interests in subsidiaries that are not wholly-owned are shown as seperate items in the profit and lossaccount and balance sheet.

Affiliated are those companies in which the Group ownsbetween 20 and 50 % and where its ownership gives influ-ence. The Group`s share of profit of affiliated companies isshown on a reparate line in the profit and loss account. Inthe balance sheet, share of equity is shown an fixed assets,adjusted for excess/lesser values and the Group`s share ofpost-acquisition profit less taxes.

Revenue recognitionSales are recognised as revenue from the time of delivery.Newsprint is mostly sold free delivered to customer abroadand free from mill in the domestic market, while other deli-veries are sold on a cif (cost, insurance and freight) basis.

Operating revenue include gross operating revenue redu-ced with commissions, rebates and other direct reductions inthe sales price.

Cash rebatesCash rebates in respect of sales are deducted from sales revenueand in respect of purchases deducted from cost of materials.

ClassificationAssets which are to be retained or used on a long-term basisand receivables due for repayment more than a year afterthe end of the accounting year are shown as fixed assets.Other assets are classified as current assets. There will becorresponding classification for liabilities.

Assets and liabilities in foreign currenciesBank deposits, short-term receivables and short-term debtdenominated in foreign currencies are translated intoNorwegian kroner using year-end exchange rates.

Long-term receivables and long-term debt denominatedin foreign currencies are translated into Norwegian kronerat the lower, respective higher, of the exchange rates on thetransaction date or on the balance sheet date. Each currencyis consciously managed as a whole so that unrealised lossesare eliminated against unrealised gains within each currency.Net unrealised losses within each currency are booked asfinancial expenses. Net unrealised gains are booked as finan-cial revenue (reversed) within the limits of prevous bookedunrealised losses.

Shares, bonds and commercial papersShares, bonds and commercial papers included under cur-rent assets are valued as a portfolio. The portfolio is consci-ously managed as a whole, and is recorded at the lower ofcost and market value at year-end. Net unrealised losses ofeach portfolio are booked as financial expenses, while netunrealised gains are booked as financial revenue within thelimits of previous unrealised losses.

Shares shown under fixed assets not being shown asaffiliated companies are investments of strategic characterwhere the Group has no significant influence. These sharesare valued at cost or market value if value reduction is of apermanent character.

StocksRaw materials and other purchased goods are valued at pur-chase cost on a first-in-first-out (FIFO) basis. The value ofown produced finshed goods includes cost of raw materials,energy, direct wages and a share of indirect costs includingmaintenance and ordinary depreciation. Future net realisa-ble value is used where this is lower than cost.

Operational fixed assets and depreciationExpenditure that increases capacity or significantly impro-ves the quality of the facilities, including environmentalinvestments, are capitalised. Expenses related to preparingIT-systems for the turn of the millennium are capitalised ifthis increases future economic benefits. Building loan expen-ses of larger investments are capitalised.


Accounting principles

Ordinary depreciation is calculated from the time fixed assetsare used in normal operations and is based on the estimateduseful economic lives of the assets in accordance with thefollowing guidelines:

Machinery 10 - 20 yearsFixtures 10 yearsVehicles 5 - 10 yearsFactory buildings 25 - 33 yearsOther buildings 10 - 25 yearsComputer equipment 3 - 5 yearsGoodwill and other exclusive rights 5 - 20 years

Spare parts are capitalised in the same group as the machi-nery to which they belong, and depreciation rates followthose of the machinery. No depreciation has been made forplant under construction.

Gains and losses on sales of operational fixed assets arecalculated as the difference between sale price and net bookvalue and included as other income.

LeasingA concrete evaluation of each leasing agreement determi-nes whether it is considered to be a financial or an operati-onal leasing agreement. Fixed assets leased under agree-ments regarded as financial leasing agreements are capitali-sed in the balance sheet and depreciated in the same way asordinary fixed assets. The amortisation part of the leasingobligation is shown as a long-term loan. The liability is redu-ced by the amount of rental paid, after deducting the calcu-lated interest cost.

Pension costs and pension obligationsThe net periodic pension cost is included in wages, salariesand personnel expenses, and consists of the total of the ben-fits earned during the year, the interest costs of the priorperiod benefit, the expected return on pension plan assets,the booked effect of changes in estimates and pension plans,the booked effect of any difference between the actual andexpected return, plus periodic employers’ contribution.

The plan assets at fair value is evaluated against projec-ted benefit obligations. Initially, each individual pensionarrangement is evaluated separately, but the value of over-funding in one arrangement, and underfunding in others, iscombined and shown net on the balance sheet, where planassets can be transferred between one arrangement and anot-her. Net plan assets are shown as long-term receivables, andnet pension obligations as long-term liabilities.

Changes in projected benefit obligations resulting fromchanges in estimates and pension plans, as well as dispari-ties between actual and expected return, are charged accor-ding to the accrual method over the remaining earning time,or expected lifetime, only when the accumulated effect exce-eds ten per cent of the larger of plan assets or pension obli-gations.

Bonds held in treasuryThe senior long-term debt in the balance sheet is reduced bybonds held in treasury.

Value above or below par on bond issued and owned bythe company is accrued over the remaining life of the loan.

Deferred taxes/deferred tax advantageAt the balance day deferred taxes are booked according totemporary differences between fiscal and tax values, toget-her with taxable deficit. Temporary differences related toassets and liabilities are eliminated within the same periodand shown in the accounts as net values.

Deferred tax advantage due to pension obligations anddeficits which are not eliminated has been classified as taxadvantage and shown separately in the balance sheet.

Derivative financial instrumentsThe accounting treatment of financial instruments followsthe intention behind entering into a contract. Upon agree-ment these contracts are either termed as hedging or as trad-ing. In those cases where the contracts entered into servethe purpose of hedging exposure, the revenues or costs areaccrued and classified as for the underlying balance sheetitems.

Those contracts not directly linked to a specific com-mercial or financial transaction are considered to be trading.

Forward rate agreements, currency options and spot dealsare consciously managed as one single portfolio. Contracts,which for accounting purposes are not classified as hedgingcontracts, are valued at market rate.

Each instrument employed for hedging interest rate expo-sure is consciously managed as a single group and is valuedat the lowest value of cost price and market value. Net un-realised losses on the individual portfolios are booked asfinancial items, whereas net urealised gains offset previouslyincurred losses.

Received or paid premiums related to options maturingafter closing date are accrued over the options’ lifetime.

ComparabilitySande Paper Mill AS, with operating revenue of NOK 183million and total assets of NOK 156 million included in busi-ness area paper in 1996, was sold with effect as of03.01.1997. Hedalm Trelast was acquired with effect as of01.07.1997, and is included in business area building mate-rials with operating revenue of NOK 118 million and totalassets of 214 million for 1997. Norske Skog Steti was con-solidated into the group accounts with effect as of01.11.1997, and is included in business area paper withoperating revenue of NOK 55 million and total assets ofNOK 342 million for 1997.



Notes to the Consolidated Accounts

All figures shown as NOK million unless otherwise stated.

1. Business areasBuilding Staff/ Conso-

1997 Paper Fibre materials elim. lidated

Operating revenue:Norway 964 498 1,659 -26 3,095 Rest of Europe 6,072 863 889 11 7,835 Rest of World 2,248 15 119 0 2,382 Total operating revenue 9,284 1,376 2,667 -15 13,312 Operating expenses 7,293 1,227 2,520 49 11,089 Ordinary depreciation 857 100 163 20 1,140 Operating profit 1,134 49 -16 -84 1,083

Current assets 2,668 342 778 727 4,515 Fixed assets 9,648 895 1,341 894 12,778 Non-interest bearing debt 1,311 88 328 754 2,481

Investments 1,334 111 317 52 1,814 Employees 3,436 468 1,818 264 5,986 Export share (%) 90 64 38 77

Building Staff/ Conso-1996 Paper Fibre materials elim. lidated

Operating revenue:Norway 907 403 1 727 -79 2,958 Rest of Europe 6,751 814 789 50 8,404 Rest of World 1,835 5 63 0 1,903 Total operating revenue 9,493 1,222 2,579 -29 13,265 Operating expenses 6,563 1,218 2,421 -73 10,129 Ordinary depreciation 852 121 131 28 1,132 Restructuring expenses 0 10 0 78 88 Operating profit 2,078 -127 27 -62 1,916

Current assets 2,273 358 684 1,277 4,592 Fixed assets 8,918 891 1,629 593 12,031 Non-interest bearing debt 1,026 83 253 1,104 2,466

Investments 511 81 443 18 1,053 Employees 3,386 521 1,862 196 5,965 Export share (%) 90 67 33 78

Building Staff/ Conso-1995 Paper Fibre materials elim. lidated

Operating revenue:Norway 842 703 1,468 -20 2,993 Rest of Europe 5,679 1,461 832 -2 7,970 Rest of World 1,545 7 33 0 1,585 Total operating revenue 8,066 2,171 2,333 -22 12,548 Operating expenses 5,777 1,373 2,123 -57 9,216 Ordinary depreciation 581 116 114 21 832 Operating profit 1,708 682 96 14 2,500

Current assets 2,555 461 674 928 4,618 Fixed assets 7,530 937 829 950 10,246 Non-interest bearing debt 945 128 260 1,462 2,795

Investments 601 96 217 12 926 Employees 2,799 532 1,681 181 5,193 Export share (%) 90 68 37 76

2. Consumption of raw materials1997 1996 1995

Raw materials and purchased goods 6,073 5,645 5,400Change in stock of finished goods 48 -81 -148Total 6,121 5,564 5,252

3. Wages, salaries and personnel expenses1997 1996 1995

Wages/salaries incl. holiday allowances 1,575 1,546 1,298National insurance and pensions 386 313 270Total 1,961 1,859 1,568

4. Pension costs and pension obligationsNorske Skogindustrier ASA, with subsidiaries in Norway,has collective benefit retirement plans for its employeeswith a life insurance company. The retirement plans for theGroup are uniform. The main conditions are 30 years' ser-vice, a pension amounting to 65 % of pensionable earningson January 1 of the year the employee reaches 67 years,plus disablement, spouse and childrens' pension. All planbenefits are coordinated with expected social security bene-fits. The pension level is reduced to 60 % from the pensio-ner's 75th birthday. As of December 31, 1997 the pension

arrangements covered 6.722 members, of whom 4.547 wereworking and 2.175 were pensioners. In case of disablementthe obligations extend to the disabled both as an activeemployee and as a pensioner. In these cases the person willbe included in both aforementioned categories.

In addition to the benefit obligations covered throughinsurance arrangements, the Group has uninsured benefitobligations. These include obligations concerning formerowners of subsidiaries, and pensions of top managementand Board members, totalling 64 persons. The uninsuredbenefit obligations also include estimated future obligationsconnected with the AFP- arrangement (involving a possiblefuture reduction of the pension age), and obligations con-cerning foreign subsidiaries. Obligations relating to topmanagement pensions are partly insured through a supple-mentary retirement plan with life insurance company.

In evaluating plan assets their estimated value at yearend is used. This estimated value is corrected every year inaccordance with the figures provided by the life insurancecompany regarding the market value of the assets.

In measuring incurred obligations the projected obliga-tion at year end is used. This projected obligation is correc-ted every year in accordance with the figures provided bythe actuary conserning incurred pension obligations.

Calculation of future benefit obligations is based on thefollowing assumptions:

1997 1996 1995

Discount rate 5.5 % 5.5 % 5.5 %Expected return on plan assets 6.5 % 6.5 % 6.5 %Salary adjustment 3.0 % 3.0 % 3.0 %Social security increase/inflation 2.0 % 2.0 % 2.0 %Pension increase 1.6 % 1.6 % 1.6 %

Net periodic pension cost 1997 1996 1995

Benefits earned during the year 51 40 37Interest cost on prior period benefit 49 44 37Expected return on plan assets -56 -53 -45Accrued employer tax 2 -1 1Expensed portion of changed AFP-plan 3 0 0Expensed portion of differences in estimates 3 2 0Net periodic pension cost 52 32 30


Status of the pension plans reconciled to the consolidated balance sheet:Plan assets exceed PBO PBO exceed plan assets

31.12.97 31.12.96 31.12.95 31.12.97 31.12.96 31.12.95Projected Benefit Obligations (PBO) -694 -780 -657 -327 -143 -79Plan assets at fair value 746 887 841 181 31 14Plan assets in excess of/lessthan (-) PBO 52 107 184 -146 -112 -65Differences in estimates and plans not taken into income/expense*) 82 72 15 51 14 -3Net plan assets / pension obligations 134 179 199 -95 -98 -68Accrued employer tax 7 9 10 -3 -3 -5Plan assets/pension obligations (-) in the balance sheet 141 188 209 -98 -101 -73*) Changed AFP-plan included with NOK 57 million in 1997.

The plan assets are managed by the life insurance compa-nies and invested in accordance with the general guidelinesgoverning investments by life insurance companies inNorway.

The actual return on plan assets in 1996 was NOK 60million. For 1997 return on plan assets of NOK 54 millionis estimated, which is included in the estimated plan assetsas at 31 December 1997. The difference of NOK 2 millionbetween the booked return and the estimated return istreated as an estimate difference.

The effect of changes in estimates and deviationsbetween projected and actual returns is booked during theaverage remaining earning period, only when the accumu-lated effect exceeds 10 % of plan assets or pension obliga-tions, whichever is the larger. This entails booking accord-ing to the straight line method over 15 years.

5. Other operating expenses

Losses on bad debts are included as follows.

1997 1996 1995

Amounts written off during the year 10 14 15Received amounts previously written off -2 -2 -1Changes in bad debt reserves 12 8 -7Total 20 20 7

6. Net financial expenses

1997 1996 1995

Dividends received 2 2 1Interest revenue 89 86 100Profit on securities 2 11 52Realised net profit on foreign currency debt and related foreign exchange contracts 0 45 0Net profit realised on foreign exchange contracts related to cash flows 0 0 94Other financial revenue 121 91 43Total financial revenue 214 235 290

Interest expenses 285 371 408Loss on securities 0 0 10Realised and unrealised net losson foreign currency debt and related foreign exchange contracts 132 0 4Realised net loss on foreign exchange contracts related to cash flow 230 104 0Other financial expenses 22 22 93Total financial expenses 669 497 515

Net financial expenses -455 -262 -225

7. Taxes

New rules for taxation of power plants has been introducedwith effect from January 1, 1997. The change entailed anupward adjustment of fiscal value on assets used in powerproduction. The upward adjustment has untaught a reduc-tion of deferred taxes with NOK 65 million in 1997.

Tax expenses 1997 1996 1995

Taxes payable -124 -345 -513Change in deferred tax -3 -70 -124Effect from changed tax rule 65 0 0Total tax expenses -62 -415 -637

Deferred tax/deferred tax advantageA specification is made of temporary differences and lossesto be brought forward, as well as calculation of deferredtax/deferred tax advantage at year end:

Deferred tax 1997 1996 1995

Total short-term items -23 37 6Total long-term items 2,557 2,790 2,537Taxable deficit to be brought forward *) -1,053 -1,063 -937Total temporary differences andlosses to be brought forward 1,481 1,764 1,606

Deferred tax 350 411 435*) Taxable deficit to be brought forward is related to our companies in France and

Austria. The deficits have no time limit.

Deferred tax advantage 1997 1996 1995

Unsecured pension obligations 55 94 61Deficits not eliminated 0 0 0Total basis of tax advantage 55 94 61

Deferred tax advantage (see note 17) 15 27 17

8. Net cash flow from operations

The connection between profit before minority interests andcash flow from operations is shown below.

1997 1996 1995

Profit before minority interests and taxes 650 1 728 2 335Ordinary depreciation 1,140 1,132 832Share of profit in affiliated companies -22 -74 -60Taxes paid -310 -522 -7Changes in receivables*) -118 620 -367Changes in stocks*) 52 7 -371Changes in current liabilities*) 223 -275 193Net cash flow from operating activities 1,615 2,616 2,555

*) Changes in balance sheet items are not directly comparable to changes in theconsolidated balance sheet page 11, due to aquisitions and sales of companiesduring the year.

9. Cash and bank deposits

Restricted deposits covering employer taxes and sundryguarantees amount to NOK 14 million in 1997, compared toNOK 25 million in 1996.



10. Short-term investments

1997 1996 1995

Treasury bonds 90 66 10Bank/Insurance 105 201 320Other Financial institutions 258 221 237Industry/Commerce/Shipping 0 29 55Foreign bonds 0 0 22Total bonds 453 517 644Commercial papers 98 20 158Short-term investments 0 200 24Total 551 737 826

For 1997, securities defined as current assets are valued as aportfolio. At year-end, unrealised loss in the portfolio amoun-ted to NOK 5 million. Corresponding figures for year end1996 were unrealised gains of NOK 12 million.

Norske Skogindustrier ASA bonds held in treasury havebeen deducted from the bond portfolio.

11. Accounts receivable

1997 1996 1995

Accounts receivable 1,931 1,922 1,940Provisions for bad debts -91 -80 -54Total 1,840 1,842 1,886

12. Stocks1997 1996 1995

Raw materials 640 629 636Work in progress 60 66 49Finished goods 807 803 643Total 1,507 1,498 1,328

13. Affiliated companies

In the consolidated accounts, shares in affiliated companies are included according to the equity method. Norske Skog owns48,1% of the voting shares in Union. Norske Skog`s total ownership in Union of 57,6% has been used when applying theequity method. Share of profit is reported after correction of dividend from affiliated companies and the Group`s share of thedividends payable by Norske Skog to Union.

Share of Divivend/Book value Bought profit for other equity Book value

Company Ownership 31.12.96 shares the year corrections 31.12.97

Union 57.6% 359 0 27 -11 375Norsk Gjenvinning 31.4% 24 0 -5 0 19Total 383 0 22 -11 394


14. Shares

Shares included as financial assetsTotal

Number nominalShares owned by the parent company Share capital of shares value Book value

Støren Trelast AS 6.6 12,400 1.1 1.1Bio-Varme AS 15.0 30 3.0 3.0Adresseavisen AS 31.3 37,015 0.6 4.7Norsk Avfallshandtering AS 131.4 300 3.0 3.0Union *) 10.0 289,057 2.9 15.0Norsk Gjenvinning *) 19.3 1,212,820 6.0 33.5Stangeskovene 20.3 726 3.6 13.4Camfore AB SEK 3.2 179,700 0.4 13.0Other shares, each with book value less than NOK 1 million 3.8Total 90.5Shares owned by subsidiariesUnion *) 10.0 287,094 2.8 12.8Other shares 9.1Total 112.4*) Included as affiliated companies -61.3Partnerships (see note 15) 27.8Total amount shares and partnerships 78.9

Shares in subsidiariesShare Total nominal Owner- Book

Shares in Norwegian subsidiaries capital Number value ship valueowned by the parent company (NOK 1,000) of shares (NOK 1,000) % (NOK 1,000)

Nornews AS 50 1,000 50 100.0 50Norske Treindustrier AS 50 50 50 100.0 50Lysaker Invest AS 100 1,000 100 100.0 100Forestia AS 50 50 50 100.0 50Norske Skog Sales AS 50 455 46 91.0 46Norske Skog Bygg AS 10,000 100,000 100 100.0 10,000Norsk Virke AS 4,000 364 3,640 91.0 3,640Folla CTMP AS 10,000 100,000 10,000 100.0 0Norske Skog Flooring Holding AS 100 1,000 100 100.0 100Service - og Utmarksenteret AS 605 500 500 82.6 500AWA AS 1,000 600 600 60.0 600Total 15,136


Share Total nominal Owner- BookShares in foreign subsidiaries capital Number value ship valueowned by the company (NOK 1,000) of shares (NOK 1,000) % (NOK 1,000)

Norske Skog Golbey SA FRF 2,187,370 2,187,370 2,187,370 100.0 2,270,988Norske Skog Bruck GmbH ATS 25,000 25 25,000 100.0 165,917 Norske Skog Steti a.s. CZK 680,000 8,600 100 100.0 138,176 Norske Skog Østerreich GmbH ATS 2,000 1 2,000 100.0 1,254 Markproject Ltd. GBP 300 50,000 300 100.0 3,105Norske Skog Deutschland GmbH DEM 1,000 1,000 1,000 100.0 4,222Norske Skog (UK) Ltd. GBP 100 10,000 100 100.0 2Norske Skog Holland B.V. NLG 100 200 100 100.0 400Norske Skog Belgium S.A. BEC 19,375 19,375 19,375 100.0 3,234Nornews Produtos Florestais. LDA PTE 400 400 400 100.0 17Norske Skog Espana S.A. ESP 55,000 550 55,000 100.0 3,606Norske Skog (Irland) Ltd. IEP 2 20 2 100.0 22Norske Skog (Schweiz) AG CHF 25 25 25 100.0 193Norske Skog Danmark ApS DKK 30 30 30 100.0 25Norske Skog Italia s.r.l. ITL 20,000 19 19,000 95.0 84Norske Skog France S.A.R.L. FRF 50 500 50 100.0 6.374Norske Skog Japan Co. Ltd. JPY 2,000 20 2,000 100.0 94Norske Skog (USA) Inc. USD 2 200 2 100.0 8Norske Skog AB SEK 50 500 50 100.0 58Norske Skog (Cypros) Ltd. CYP 1 1,000 1 100.0 2Norske Skog Asia Pacific Pte Ltd. SGD 20 20,000 20 100.0 69AB Lee Bruk SEK 150 1,500 150 100.0 11,089 Norske Skog Hong Kong Ltd. HKD 10 10,000 10 100.0 8 Total 2,608,947Total shares owned by the company 2,624,083


Share Total OwnerShares in Norwegian subsidiaries capital Number nominal value shipowned by consolidated companies (NOK 1,000) of shares (NOK 1,000) %

Norske Skog Trelast AS NOK 6,500 65,000 6,500 100.0Norske Skog Plater AS NOK 26,000 26 26,000 100.0Telemarksbruket AS NOK 2,240 14,784 1,478 66.0Norske Skog Flooring AS NOK 32,000 32,000 32,000 100.0Norske Skog Flooring (USA) AS NOK 50 500 50 100.0Fibo-Trespo AS NOK 4,000 4,000 4,000 100.0

Shares in foreign subsidiaries

owned by consolidated companies

Polak & van Berg B.V. NLG 120 240 120 100.0Amstelpoort B.V. NLG 10 20 10 100.0Respatex International Ltd. GBP 10 10,000 10 100.0Norske Skog Italia s.r.l. ITL 20,000 1 1,000 5.0Norske Skog Flooring AB SEK 100 1,000 100 100.0Norske Skog Holzprodukte GmbH DEM 100 1 100 100.0Norske Skog Flooring (UK) Ltd GBP 15 15,000 15 100.0Norske Skog Flooring (USA) Inc. USD 1 1,000 1 100.0Norske Skog Flooring (USA) Real Property USD 1 1,000 1 100.0Wallmann Gulv AS DKK 500 5,000 500 50Fjellman Press i Mariestad AB SEK 2,500 1,000 2,500 89.0Norske Skog Publicationspapier GmbH ATS 380,000 1 380,000 100.0Paper Back Buro-Altpapier GmbH ATS 500 1 500 100.0Germain Saulxures FRF 4,977 8,917 3,566 71.7

15. Shares in partnerships

NOK 1,000 Partnership PartnershipShares in partnerships Owner- capital capital Share of Book owned by the parent company ship paid not paid profit value

Nornews Express ANS 55 % 936 0 3,694 15,945Lys-Skog ANS 60 % 10,123 0 1,568 11,854Total owned by the company 11,059 0 5,262 27,799

Shares in partnerships

Telemarksbruket KS 66,0% 10,900 0

Shares in ANS Hed-Opp, Norway Airlines City of Stavanger ANS and ANS Østfoldtømmer were sold in 1997.


16. Operational fixed assetsGoodwill Machinery, Plant

and other equipment, Buildings Real underAcquisition cost exclusive rights Ships etc. and plants estate construction Total

Acquisition cost 31.12.1996 193 21 14,917 4,162 351 482 20,126Addition, new companies 0 0 290 50 3 2 345Addition 1997 at cost 76 0 516 130 30 1,062 1,814Sales 1997 at cost 0 0 -253 -117 -22 0 -392Transferred from plant under construction 0 0 469 54 0 -523 0Acquisition cost 31.12.1997 269 21 15,939 4,279 362 1,023 21,893

RevaluationRevaluation 31.12.1996 0 0 0 31 99 0 130Addition 1997 at cost 0 0 0 0 4 0 4Revaluation 31.12.1997 0 0 0 31 103 0 134

DepreciationAccumulated ordinary depreciation 31.12.1996 61 18 7,469 1,408 61 0 9,017Accumulated depreciation new companies 0 0 0 0 0 0 0Ordinary depreciation 1997 21 2 928 181 8 0 1,140Depreciation on fixed assets sold in 1997 0 0 -133 -75 -1 0 -209Accumulated ordinary depreciation 31.12.1997 82 20 8,264 1,514 68 0 9,948

Book valueBook value 31.12.1996 132 3 7,448 2,785 389 482 11,239Book value 31.12.1997 187 1 7,675 2,796 397 1,023 12,079

Operating fixed assets - acquisition and disposals over the last 5 years1993 Acquisition 18 0 160 41 3 905 1,127

Disposal 0 0 6 23 7 0 361994 Acquisition 4 0 314 53 9 185 565


Disposal 0 0 7 0 13 0 201996 Acquisition 10 0 467 102 19 455 1,053

Disposal 0 0 14 0 7 0 211997 Acquisition 76 0 516 130 30 1,062 1,814

Disposal 0 0 10 72 10 0 92Total 5 years Acquisition 131 0 2,075 415 69 2,795 5,485

Disposal 0 0 57 97 56 0 210

17. Other long-term receivables1997 1996 1995

Loans to employees 11 8 8Sundry long-term receivables 59 79 47Pension plan assets 141 188 209Deferred tax advantage 15 27 17Total 226 302 281

Loans to associated parties under the Joint StockCompanies' Act § 12-10 represent NOK 8.7 million.

18. Short-term liabilities1997 1996 1995

Public dues and holiday allowances 244 226 226Accounts payable 1,144 1,028 1,027Sundry interest-free short debt 362 259 249Provisions for dividend 267 228 196Accrued expenses 326 287 476Taxes payable 138 438 621Total 2,481 2,466 2,795

19. Interest-bearing short-term liabilities1997 1996 1995

Short-term bank debt 742 202 215Current portion of long-term debt 140 1,086 327Total 882 1,288 542

20. Subordinated convertible bonds1997 1996 1995

Remaining debt as at December 31 0 1,206 1,206Current portion of long-term debt 0 -499 0Book value of long-term debt 0 707 1,206

During 1997, NOK 1,106 million of the subordinatedconvertible bond loans were converted. NOK 100 millionwas paid to the bond owners..

21. Senior interest bearing long-term debt1997 1996 1995

Senior long term debt in NOK 1,486 1,483 783Senior long term debt in foreign currencies 2,770 3,024 2,811Total 4,256 4,507 3,594Current portion of senior longterm debt -140 -587 -327Total 4,116 3,920 3,267

BondsThe book value of bonds held in treasury is NOK 46 mil-lion at year-end. These bonds are deducted from the seniorlong term debt in NOK.

On September 20,1991 the company issued a 10.5 percent domestic fungible bullet bond loan with an upper limitof NOK 1,500 million, maturing in 2001. Total drawn onthis facility as at December 31, 1997 was NOK 944 million.In connection with this bond loan, the company has enteredinto cross-currency swap agreements of NOK 700 million,thus changing the exposure into floating rate foreigncurrency obligations. This part of the bond loan has beenpresented in the accounts as a foreign currency debt whithfloating interest.

On March 16, 1994 the company issued a 6.5 % domes-tic fungible bullet bond loan with an upper limit of NOK1,000 million, maturing in 2004. The total outstanding onthis facility as at December 31, 1997 was NOK 53 million.

On November 13, 1996 the company issued a 7,6 %domestic fungible bullet bond loan with an upper limit ofNOK 1,000 million, maturing in 2006. The total outstan-ding on this facility as at December 31, 1997, was NOK753 million.

Senior long-term debt by currencySenior long term debt by currencies, current portion included:

Booked WeightedAmount in foreign exchange NOK average

currency (million) rates million interest31.12.97 31.12.97 31.12.97 31.12.97

ATS 1,357 0.5815 789 3.01CZK 463 0.2127 98 16.00DEM 192 4.0920 787 4.32FRF 143 1.2230 174 3.57GBP 9 12.1240 106 8.28NLG 4 3.6308 16 3.50USD 104 7.3157 762 5.80Set-off 37Total debt in foreign currencies 2,770Total senior long term debt in NOK 1,486 5.86Total senior long term debt 4,256Current portion of long term debt -140Total interest bearing long-term debt 4,116

Unrealised losses at December 31, 1997 exchange ratesamount to NOK 172 million. Unrealised losses as atDecember 31 1996 amounted to NOK 55 million. Thechange of NOK 117 million is included in the financialexpenses in 1997.


Repayment of debtThe company’s long-term debt as at December 31, 1997matures as follows

Debtbanks Bonds Total

1999 90 0 902000 945 0 9452001 187 944 1,1312002 461 0 4612003 211 0 2112004 60 0 60After 2004 465 753 1,218Total 2,419 1,697 4,116

In October 1997 the company signed for a loan of USD 187million with Eksportfinans, that matures in 2007. The loanmay be drawn in several currencies with both floating andfixed interest rate. A syndicate of norwegian and internatio-nal banks have garanteed for the loan. The loan will bedrawn in January 1998.

The company thereby increased its drawing rights as atDecember 31 1997 to a total of NOK 5.106 million. Thedrawing rights of USD 470 million matures in 2004. Theremaining committed drawing rights of NOK 300 millionmatures in 2002.

Loans of FRF 250 million in Den NordiskeInvesteringsbank (NIB), which originally were set tomature in 1997, have had the maturity date extended until2005, with the first instalment due in 2003.

The Group's long term fixed-interest debt has a marketvalue at year end which exceeds the book value by NOK 54million. When entering into certain unsecured long termloan agreements, negative trust receipts have been issued.Furthermore, some loan agreements require financial ratiosregarding solidity and liquidity to be met. These require-ments have been satisfied.

22. Foreign exchange- and interest off-balance instruments

Foreign exchange exposureBank deposits, receivables, long-term receivables and cashflow from operations in foreign currencies are managedpartly through debt in foreign currencies and partly throughthe use of different derivative financial instruments. Mainly,Norske Skog uses foreign exchange contracts in managingthe foreign exchange exposure.

Interest rate exposureIn order to obtain an effective management of the intereststructure in the company, off-balance interest rate contractsare used in addition to a well-proportioned balance of inte-rest bearing assets and liabilities.

Foreign exchange contractsPurchase contracts Sales contracts

equivalent equivalentCurrency to NOK million to NOK million

ATS 1,244BEC 149CHF 121DEM 753DKK 155ESP 190FIM 96FRF 362GBP 861ITL 368JPY 92NLG 283NOK 1,881PTE 40SEK 79USD 585XEU 57Total 3,662 3,653

Foreign currency contracts have been converted to NOK atDecember 31 1997 spot rates.

All foreign exchange contracts related to operationsmature during 1998. The contracts related to the investmentin the new paper machine in Golbey matures according tothe direct cash flow of the project.

Currency optionsThe premiums of not yet matured bonds were NOK 2,6 million at year end. Premiums are accrued according tothe date of maturity of the bond.

Forward rate agreements (FRA)Net purchase/

Currency sales(-) in million Period

FRF 140 3 monthsDEM -40 3 monthsNOK -50 6 monthsNOK -50 3 months

When selling forward rate agreements the company willbenefit from a decrease in the interest rates.

As at December 31, 1997 there is an unrealised gain inthe FRA portfolio amounting to NOK 0,6 million.



24. Mortgages

The following loans are secured by real estate mortgages 31.12.

1997 1996 1995

Outstanding balance, bond 0 5 10Outstanding balance, other mortgages debt 67 687 954Total 67 692 964

Book value of assets securing this debt as at 31.12.

1997 1996 1995

Ships 0 3 4 Machinery 64 1,856 5,706 Buildings 29 629 2,046 Forest, land and other real estate 0 3 158 Plant under construction 0 1 106 Operating fixed assets 93 2,492 8,020 Stocks/receivables 88 12 63 Total 181 2,504 8,083

25. Environment

Capitalised environmental investments

1997 1996 1995

Norske Skog Skogn 243 16 0Norske Skog Bruck 3 6 -Norske Skog Golbey 10 0 0Norske Skog Follum 40 1 43Norske Skog Saugbrugs 16 108 64Sande Paper Mill - 8 6Norske Skog Tofte 9 1 1Norske Skog Folla 3 3 27Norske Skog Hurum 0 4 2Area Buliding Materials 20 25 9Total 344 172 152

These investments are included in addition at cost in note 16.

Long term interest rate futuresCommercial paper no. Net purchase/sales(-)

German Bund 31

When buying long term interest rate futures the companywill benefit from a decrease in the interest rates.

Interest rate swapsCurrency Million Receives Pays Maturity

NOK 350 Fixed Floating 1998NOK 50 Fixed Floating 2001DEM 25 Floating Fixed 1998FRF 50 Floating Fixed 1999

When interest rates go down the company will benefit fromreceiving fixed interest rates and paying floating interest rates.

As at December 31 1997 there is an unrealised gain in theportfolio amounting to NOK 17 million, which is not inclu-ded in the accounts. At year end 1996 the unrealised gainamounted to NOK 23 million.

23. Shareholders' equity

Other consolidated equity 1997 1996 1995

Legal reserve 2,946 1,869 1,754Temporary restricted reserve 0 0 79Distributable reserve 4,479 4,420 3,680Other consolidated equity 875 693 380Total consolidated equity 8,300 6,982 5,893

Shareholders' equity

Shareholders' equity 1.1. 7,635 6,545 4,727Profit for the year 590 1,317 1,699Share issues 0 4 89Converted bonds 1,106 0 16Provisions for dividend -267 -228 -196Corrected equity capital in Norske Skog Golbey 0 0 179Corrected equity capital in affiliated co. 0 -3 0Translation difference 0 0 31Shareholders' equity 31.12. 9,064 7,635 6,545

Norske Skog GolbeyThe mill installed new presses for dewatering of sludgefrom the deinking process and from the treatment plant.The investment was made to improve the incinerationquality of the sludge.

Norske Skog TofteThe mill has carried out activities aimed at energyconservation and reducing emissions of odour-containinggases from the mill’s calcium oven.

Other millsNew plants for purifying of flue gases were installed atNorske Skog Folla and at the board mill in Braskereidfoss.At other mills, only minor environmental investmentswere made.

26. Contractual obligations

The company has entered into contractual obligations forthe purchase of operational fixed assets amounting to NOK602 million in addition to the expenses included in theaccounts as at December 31 1997. Additionally, decisionshave been made to invest a total of NOK 3,301 million.

27. Leasing obligations

The Group has annual expenses related to long-term rentaland leasing obligations of NOK 67 million.


Norske Skog Skogn A new biological waste water treatment plant and a newbiofuel boiler were put into operation at the end of theyear. The treatment plant was necessary to meet newemission limits effective from 1998. The biofuel boilerwas needed for handling the moisture sludge coming fromthe new treatment plant.

Norske Skog FollumSince the startup of the new biofuel boiler in 1995 Follumhas had problems incinerating sludge due to high moisturelevels. In 1997, therefore a new thermal sludge dryer wasinstalled to reduce the moisture in the sludge before inci-neration. As a consequence there is no further need todispose of biological waste at the mill. In 1997, the millalso installed a new backwater tower that will reduce andstabilize the amount of waste water. This leads to a morestable operation of the treatment plant and consequentlyreduced emissions.

Norske Skog SaugbrugsDuring 1997 the mill completed the construction of a newbiofuel boiler. Saugbrugs now burns all organic waste pro-duced at the mill, and as a consequence there is no furtherneed to dispose of organic waste at the mill. This has alsogreatly reduced the consumption of fossil fuels.


Accounts 1997 Norske Skogindustrier ASAPROFIT AND LOSS ACCOUNTNOK million Notes 1997 1996 1995

Operating revenue 2 7,262 7,685 9,919Cost of materials 3,048 2,946 4,227Wages, salaries and personnel expenses 5 958 911 1,052Other operating expenses 3 1,843 1,682 1,888Ordinary depreciation 7 563 563 578Operating expenses 6,412 6,102 7,745Operating profit 850 1,583 2,174Financial revenue 220 199 401Financial expenses -499 -358 -557Financial items, net -279 -159 -156Profit before taxes 571 1,424 2,018Taxes 6 -39 -301 -511Profit for the year 532 1,123 1,507Application of profit for the year:Group contribution -171 -122 0Allocated to legal reserve -68 -112 -151Transferred from temporary restricted reserve 0 79 238Transferred from/to(-) distributable reserve -26 -740 -1,398Dividend to shareholders -267 -228 -196Total -532 -1,123 -1,507

STATEMENT OF CASH FLOWCash flow from operating activitiesCash generated from operations 7,120 8,042 9,883Cash used in operations -5,631 -6,013 -7,393Financial revenue received 220 202 401Financial expenses paid -499 -384 -557Taxes paid -290 -483 4Net cash flow from operating activities 4 920 1,364 2,338Cash flow from investment activitiesInvestments in operational fixed assets -717 -470 -761Sales of operational fixed assets 74 13 16New intercompany receivables -760 -711 -60Net financial investments -76 -43 -1,814Net cash flow from investment activities -1,479 -1,211 -2,619Cash flow from financial activitiesNew long-term debt 239 941 1,092Repayment of long-term debt -1,252 -677 -1,453New short-term liabilities 3,407 3,228 1,126Repayment of short-term liabilities -2,902 -3,443 -1,151Dividend paid -228 -196 -48Converted bonds 1,106 0 16Share issues 0 4 89Net cash flow from financial activities 370 -143 -329Total change in liquid assets -189 10 -610Liquid assets as at January 1 797 787 1,397Liquid assets as at December 31 608 797 787


BALANCE SHEET AT 31.12.NOK million Notes 1997 1996 1995

AssetsCash and bank deposits 64 80 52Bonds 454 517 622Commercial papers 90 0 75Other short-term investments 0 200 38Liquid assets 608 797 787Accounts receivable 868 1,013 1,423Provision for bad debts -45 -51 -47Other receivables 235 99 283Intercompany receivables 1,100 989 747Receivables 2,158 2,050 2,406Raw materials and work in progress 288 307 367Finished goods 413 437 383Stocks 701 744 750Current assets 3,467 3,591 3,943Shares in subsidiaries 2,624 2,384 2,376Shares in other companies 91 91 61Partnerships 28 42 41Pension plan assets 5 111 139 165Other long-term assets 49 44 40Deferred tax advantage 6 8 10 13Intercompany receivables 1,501 946 238Securities and long-term financial assets 4,412 3,656 2,934Operational fixed assets 7 5,951 5,816 5,920Fixed assets 10,363 9,472 8,854Total assets 13,830 13,063 12,797

Liabilities and shareholders' equityBank debt 0 0 215Current portion of long-term debt 46 569 57Taxes payable 118 371 576Provisions for dividend 267 228 196Public dues and holiday allowances 129 128 126Accounts payable 312 358 528Other short-term liabilities 1,066 259 461Current liabilities 1,938 1,913 2,159Pension obligations 5 29 35 46Senior long-term debt 3,093 2,826 2,551Mortgage loans 3 3 28Subordinated convertible bonds 0 707 1,206Deferred tax 6 574 637 642Long-term liabilities 3,699 4,208 4,473Share capital 764 653 652Legal reserve 2,946 1,869 1,754Temporary restricted reserve 0 0 79Revaluation reserve 4 0 0Distributable reserve 4,479 4,420 3,680Shareholders' equity 9 8,193 6,942 6,165Total liabilities and shareholders` equity 13,830 13,063 12,797Mortgages 3 27 28Guarantees 8 1,330 1,238 408


1. Accounting principlesThe company's accounting principles are the same as thoseof the consolidated accounts, which are described on page12 and 13. The company's notes are similar to the consoli-dated notes. Only those notes which are different, areshown below.

2. Operating revenueThe figures include ordinary revenue from sale of goods tocompanies within the Group amounting to NOK 838 mil-lion. Additionally, administration fee and income from rentto the subsidiaries amounted to NOK 74 million. All inter-company deliveries, intercompany profits and intercom-pany debts are eliminated in the consolidated accounts.

3. Other operating expensesLosses on bad debts amounting to NOK -2 million areincluded in the figures.

4. Net cash flow from operationsThe connection between profit before taxes and cash flowfrom operations is shown below.

1997 1996 1995Profit before taxes 571 1,424 2,018Ordinary depreciations 563 563 578Shares a.o. written off 0 0 0Taxes paid -290 -483 4Changes in receivables 108 357 -36Changes in stocks 43 6 -139Changes in current liabilities -75 -503 -87Net cash flow from operating activities 920 1,364 2,338

5. Pension costs and pension liabilitiesNet periodic pension costs 1997 1996 1995Benefit earned during the year 33 28 28Interest costs on prior period benefit 34 30 28Expected return on plan assets -41 -38 -36Periodic employer tax 1 -2 1Expensed portion of changes of AFP 2 0 0Expensed portion of differnces in estimates 1 0 0Net periodic pension cost 30 18 21

6. TaxesNew rules for taxation of power plants has been introducedwith effect from January 1, 1997. The change entailed anupward adjustment of fiscal value on assets used in powerproduction. The upward adjustment has untaught a reduc-tion of deferred taxes with 65 mkr in 1997.

Taxation basisA specification of the difference between profit before taxesand basis for taxation this year is shown below.

1997 1996 1995Profit before taxes 571 1,424 2,018Permanent differences -9 -19 -204Group contribution -171 -121 0Change of temp. differences -6 -5 -74Basis for taxation this year 385 1,279 1,740

Tax expensesTaxes payable -102 -300 -468Change in deferred tax -2 -1 -43Effect from chenges taxe rule 65 0 0Total tax expenses -39 -301 -511

Deferred tax / deferred tax advantageA spesification is made of temporary differences and calcu-lation of deferred tax/deferred tax advantage at the end ofthe year (taxation rate 28 per cent).

1997 1996 1995Reserve in accounts receivable -44 -49 -36Reserve in stocks 88 85 67Other short-term items -34 -27 -14Total short-term items 10 9 17Accelerated depreciation 1,857 2,076 1,972Allocated capital gains 67 61 69Pension plan assets 111 139 165Other long-term items 5 -9 -17Total long-term items 2,040 2,267 2,189Total temporary differences 2,050 2,276 2,206Deferred tax 574 637 642

Deferred tax advantageUncovered pension obligations -30 -35 -45Deferred tax advantage 8 10 13

Status of pension plans reconciled to the balance sheet Pension assets exceed PBO PBO exceed plan assets31.12.97 31.12.96 31.12.95 31.12.97 31.12.96 31.12.95

Projected Benefit Obligations (PBO) -622 -532 -512 -56 -53 -52Plan assets at fair value 662 631 676 22 17 14Plan assets in excess of/less than (-) PBO 40 99 164 -34 -36 -38Diff. in estimates and plans not taken to income/expense*) 65 32 -7 8 3 -4Net plan assets/pension obligations 105 131 157 -26 -33 -42Accrued employer tax 6 8 8 -3 -2 -4Pension assets/pension obligations (-) in the balance sheet 111 139 165 -29 -35 -46See note 4 to the consolidated accounts regarding assumptions and further information.

*) Changed AFP plan included with NOK 30 million in 1997.

Notes to Norske Skogindustrier ASA


7. Operational fixed assetsGoodwill Machinery Plant

and other equipment, Buildings Real underexclusive rights Ships etc. and plants estate construction Total

Acquisition costAcquisition cost 31.12.1996 6 21 8,509 2,273 187 220 11,216Acquisition cost 31.12.1996 at merger 0 0 13 5 7 0 25Addition 1997 at cost 1 0 170 99 28 419 717Sales 1997 at cost 0 0 -39 -43 -1 -3 -86Reclassification 0 0 197 52 0 -249 0Acquisition cost 31.12.1997 7 21 8,850 2,386 221 387 11,872

RevaluationRevaluation 31.12.1996 0 0 0 0 83 0 83Revaluation 31.12.1996 at merger 0 0 0 0 4 0 4Revaluation 31.12.1997 0 0 0 0 87 0 87

DepreciationAccumulated ordinary depreciation 31.12.1996 2 18 4,622 806 35 0 5,483Accumulated ordinary depreciation 31.12.1996 at merger 0 0 7 2 0 0 9Ordinary depreciation 1997 1 2 469 86 5 0 563Depreciation on fixed assets sold 1997 0 0 -38 -9 0 0 -47Accumulated ordinary depreciation 31.12.1997 3 20 5,060 885 40 0 6,008

Book valueBook value 31.12.1996 4 3 3,887 1,467 235 220 5,816Book value 31.12.1997 4 1 3,790 1,501 268 387 5,951

Operating fixed assets - acquisition and disposals over the last 5 years1993 Acquisition 18 0 110 10 2 25 165





Disposal 0 0 5 62 7 0 74Total 5 years Acquisition 32 0 1,143 191 47 949 2,362

Disposal 4 0 230 137 56 28 455

8. GuaranteesThe company has guaranteed debt for subsidiaries for a total of NOK 1,330 million.

9. Shareholders' equityShare Legal Distributable Revaluation

capital reserve reserve reserve TotalShareholders' equity 31.12.1996 653 1,869 4,420 0 6,942Share issues 111 995 0 0 1,106Group contribution 0 0 -171 0 -171Equity corrections 0 14 33 4 51Profit for the year 0 68 464 0 532Provisions for dividend 0 0 -267 0 -267Shareholders' equity 31.12.1997 764 2,946 4,479 4 8,193

Equity corrections are related to the merge with the subsidiary A/S Van Severen & Co. Ltd.


Newspapers and other printedmedias, have an advantageover TV as an advertising

medium in that one candevote time to themwhenever, and for as longas, it suits the individual –like this lady who is study-

ing the day’s issue of LeFigaro in a Paris cafe. About2/3 of advertising budgets inWestern Europe went tonewspapers, magazines anddirect advertising in 1996.

tain significant errors or omissions. We have checked selectedparts of the accounting material supporting the financial sta-tements and evaluated the accounting principles applied, theestimates made by the management, and the content and pre-sentation of the annual accounts. To the extent required bygenerally accepted auditing standards we have also evaluatedthe Company's asset management and internal controls.

The Board of Directors' proposal for application of theyear's profits and equity transfers complies with the require-ments of the Joint Stock Companies Act.

In our opinion, the annual accounts have been preparedin conformity with the Joint Stock Companies Act and givea fair presentation of the Company's and the Group's finan-cial position as of December 31, 1997 and the result of itsoperations for the fiscal year in accordance with generallyaccepted accounting principles

To the Annual General Meeting of NorskeSkogindustrier ASAWe have audited the annual accounts of Norske Skogindu-strier ASA for 1997, showing a profit of NOK 532 millionfor the parent Company and a profit of NOK 590 millionfor the Group. The annual accounts, which consist of theBoard of Directors' report, statement of income, balancesheet, cash flow analysis, notes and the corresponding con-solidated accounts, are the responsibility of the Board ofDirectors and the President and Chief Executive Officer.

Our responsibility is to examine the Company's annualaccounts, its accounting records and the conduct of its affairs.

We have conducted our audit in accordance with applica-ble laws, regulations and generally accepted auditing standards.We have performed the auditing procedures we considerednecessary to determine that the annual accounts do not con-

The corporate assembly's statement to the general meetingThe Board's draft accounts for 1997 have been presented to,and discussed by, the Corporate Assembly.

The Corporate Assembly recommends that the General

Auditor’s Statement

The Corporate Assembly’s Statement

Meeting confirms the Board's proposed profit and loss state-ment and balance sheet of Norske Skogindustrier ASA, togetherwith the consolidated profit and loss statement, and balance sheet.

It also recommends the Board's proposal for distributingthe profit to be approved.

Lysaker, March 4, 1998

Ivar B. KorsbakkenCorporate Assembly Chairman

Oslo, February 11, 1998

ARTHUR ANDERSEN & CO.

Henning StrømState Authorised Public Auditor (Norway)


Wood-containing printingpaper accounts for more than50%, or about 60 million ton-nes, of the nearly 115 milliontonnes of paper used for com-munication and informationpurposes throughout theworld.

By wood-containing printing paper -hereafter called printing paper - ismeant newsprint, magazine paper anda growing proportion of medium gra-des, including improved newsprint,which are used for a number of spe-cial purposes. Printing paper is mademainly from mechanically processedwood fibre and/or recyled fibre.

North America and WesternEurope account for three quarters ofoutput capacity and two thirds of theconsumption of this product, amongother things because use of printingpaper is closely connected with eco-nomic activity and use of advertise-ments. Advertisers provide 50-70%of the income basis for newspapers andmagazines. These regions also havesupplies of the two most important inputfactors, long-fibre wood and energy. InNorway, printing paper accounts fornearly three quarters of paper produc-tion, in Finland for more than half andin Sweden for about one third.

Newsprint moves southwardsThe use of recycled fibre as raw mate-rial has pushed a rising proportion ofnewsprint production southwards - intothe major consuming areas. After theexpansion of Norske Skog Golbey bythe addition of a new paper machine,Norske Skog will have about 40% of itsprinting paper production outsideNorway. In the first half of the 1990's,the Nordic area fell behind the UK/-Continent as a newsprint producer, andthe same thing is happening in Canada/-USA. In Europe this has taken placesimultaneously with the consolidation,internationalisation and structural rene-wal of the industry. Nordic companiesnow have a significant proportion of thecapacity for printing paper in the UKand on the Continent, while Canadiancompanies have only a limited share ofthe printing paper industry in the US.

A large part of the Nordic expan-sion in Europe has come from newpaper machines. In 1990 large machi-nes (more than 8 metres wide) accoun-ted for 47% of European newsprintcapacity – in 1999 the correspondingfigure will be 62%. Norske SkogGolbey's two newsprint machines -which will account for about 6% ofEuropean capacity - will date from1992 and 1999. The consolidation wit-

Continued growth for wood-containing printing paper

hin printing paper has come relativelyfar in Europe, where the five largestproducers have three quarters of totalcapacity. The North American printingpaper industry is far more fragmented.The five largest suppliers of newsprintthus account for only just over 30% ofcapacity in the region, while the com-parable figure for western Europe is76%. Norske Skog today has newsprintcapacity which corresponds to about18% of the West European market, or5% of the world market.

Paper for magazines and cataloguesMagazine paper (also called SC andLWC) has a global market of five milliontonnes and eleven million tonnes,respectively. Uncoated magazine paper(SC) has filler mixed with its paperpulp, and the finished paper sheet isprocessed mechanically by passingthrough a roller press a so called supercalender. This process smooths theroughness caused by individual paperfibres on the surface of the sheet, andgive the paper good printing qualities.The most important area of use ismagazines and catalogues printed inlarge numbers. Uncoated magazinepaper fetches a price around 15-20%higher than that of newsprint.Coated magazine paper (LWC) is coa-ted with a layer of filler, to achieve aneven smoother and more glossy sur-face. This further improves its printcharacteristics, and this paper is parti-cularly suited to special magazines andfree sheets requring high print qua-lity. Coated magazine paper fetches a15-20% higher price than uncoated.Norske Skog's capacity for magazinepaper accounts for about 10% of themarket in western Europe - for uncoa-ted magazine paper, for more than 20%.

Magazine paper shows strongestgrowthThe growth in the use of printing papervaries from region to region and from

0

10

20

30

40

50

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Am

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Jap

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Eu

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Thai

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Ru

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Newsprint comsumption,kilograms per capita (1996)


product to product. Coated magazinepaper has shown the highest growthduring the past few years. This is due,among other things, to a switch frommass marketing to more targetedadvertising directed at special groups,via specialised magazines, direct mailand catalogues. Growth for newsprintand SC has been more moderate, andis related to general economic condi-tions. During the period 1980-95,demand for LWC in Western Europerose by 6%, on average, while the cor-responding rise for newsprint and SCwas barely 3%. In the future, too,magazine paper is expected to showstronger growth than newsprint.

In Europe, demand for newsprint isexpected to grow by about two per cent– or 180,000 tonnes/year – during thenext few years. Growth in the US isexpected to be around zero, becausethis is beginning to be a "mature" mar-ket, with newsprint consumption perinhabitant of more than 40 kilos/year.The corresponding figure for Europeis 23 kilos. In Asia, Latin America andCentral/Eastern Europe demand isexpected to increase by 3-4.5% annu-ally – but from a very low level, as lowas around 1 kilo per inhabitant per yearin some Asian countries.

Many areas of useMagazine paper - particularly coatedgrades - meets a growing need for

paper for advertising supplements,special issues and niche magazines,and significant amounts of this productare exported from Europe to overseasmarkets. Asia, excluding China andJapan, does not produce magazinepaper at present, and even though con-sumption is still low, it is expected torise steeply in the future. LWC is agood alternative to woodfree paper,because its lower total weight meanslower postage and distribution costs.

The printed media are now beingchallenged by audiovisual media suchas TV, the Internet and radio. An ana-lysis of trends since 1984 shows realgrowth in newspapers' advertisingrevenues - and they are continuing togrow. However, since TV and radiohave grown more rapidly, the printedmedia's share of total advertising turn-over is falling. Advertising budgets inWestern Europe in 1996 totalled USD100 billion – and of that 66% went tonewspapers, magazines and directadvertising. The corresponding figurefor the US was USD 133 billion, and theshare of the printed media was 62%.

Rapid newsprint growth in AsiaDuring the period 1985-95 newsprintconsumption in Asia (excludingJapan) rose from 2.1 million tonnes to4.6 million tonnes – an annual growthof 8.1%. To meet this rising demandSouth Korea, in particular, has strongly

expanded its newsprint capacity. Thisexpansion has to a great extent beenbased on waste paper from westerncountries, thus setting obvious limitsto long-term growth. Productiongrowth in this part of the world iscoming primarily within woodfreepaper, and Asia's capacity for thesegrades exceeds its own consumption,while it imports about a quarter of itsnewsprint consumption. Woodfreepaper is being produced from chemi-cal pulp, using short-fibre wood as rawmaterial. Asian wood resources is forthe greater part short-fibred, and thepotential for plantation production ofthis kind of wood is great.

Nordic printing paper producerssuch as Norske Skog, with a large pro-portion of newsprint in their portfolios,face several challenges. To maintaintheir positions in the market they muststrengthen their presence in regionswhere production and consumption arealready at a high level. Suppliers in thelong-fibre areas must exploit to themaximum the quality characteristics ofthe timber, in products where virginfibre cannot be replaced by recycledfibre, or challenged by short fibre. Atthe same time it is necessary to takeaccount of those parts of the worldwhich – in the longer term – appear tohave the greatest potential for econo-mic growth and consequently also forincreased use of printing paper.

Total 280 million tonnes

Other 6%Latin America5%

Japan 11%

Asia (ex Japan)

17%

Western Europe27%

North America34%

Newsprint consumption,regions (1996)

Other11%

Tissue6%

Industrial papers 40%

Other writing and printing 24%

Magazine paper (LWC, SC) 6%

Newsprint 13%

World paper consumption,different grades


Main financial figures(NOK million)

Profit and loss accounts Definitions 1997 1996 1995 1994 1993 1992 1991 1990 1989

Operating revenue 13,312 13,265 12,548 9,170 7,338 7,557 8,640 9,879 9,248Gross operating profit 1 2,223 3,136 3,332 1,348 851 728 1,183 1,676 1,678Operating profit 1,083 1,916 2,500 732 299 -47 500 1,128 1,001Profit before financial expenses 2 1,319 2,225 2,850 843 589 49 877 1,502 1,490Profit before taxes 652 1,732 2,336 333 4 -659 478 957 917Profit for the year 590 1,317 1,699 206 -47 -516 246 773 802

Balance sheet (NOK million)Current assets 4,515 4,592 4,618 4,333 4,261 3,816 5,690 4,835 5,093Fixed assets 12,778 12,031 10,246 7,377 7,694 7,917 6,042 5,380 4,662Total assets 17,293 16,623 14,864 11,710 11,955 11,733 11,732 10,215 9,755Current liabilities 3,363 3,754 3,337 2,043 1,958 2,535 2,077 2,418 3,358Long-term liabilities 4,807 5,178 4,981 4,936 6,133 5,413 5,368 3,139 2,453Minority interests 59 56 1 4 3 16 20 20 31Untaxed reserves - - - - - - - 3,379 2,713Shareholders' equity 9,064 7,635 6,545 4,727 3,861 3,769 4,267 1,259 1,200Total liabilities and shareholders' equity 17,293 16,623 14,864 11,710 11,955 11,733 11,732 10,215 9,755

Profitability:Gross operating margin % 3 16.7 23.6 26.6 14.7 11.6 9.6 13.7 17.0 18.1Net operating margin % 4 8.1 14.4 19.9 8.0 4.1 -0.6 5.8 11.4 10.8Net profit margin % 5 4.4 9.9 13.5 2.2 -0.6 -6.8 2.9 7.8 8.7Return on total assets % 6 7.8 14.1 21.4 7.1 5.0 0.4 8.0 15.0 17.0Return on equity %*) 7 7.1 18.6 30.1 4.8 -1.2 -12.8 6.5 25.3 33.4Equity ratio % 8 52.4 45.9 44.0 40.4 32.3 32.1 36.4 32.2 29.0Net interest-bearing debt/Equity 0.46 0.63 0.61 0.67 1.13 1.07 0.49 0.65 0.63Return on capital employed % 9 8.4 15.9 25.4 8.3 3.4 -0.6 7.2 17.9 19.8Net earnings per share after tax (NOK) 10 16.40 40.38 52.39 6.91 -1.79 -21.28 10.18 32.05 35.99Net earnings per share fully diluted (NOK)1) 10 16.40 35.89 45.99 6.91 1.68 -13.03 11.30 30.25 34.59Cash flow per share after tax (NOK) 11 44.89 80.20 78.79 29.07 18.74 10.56 58.12 41.50 41.19Cash-flow per share fully diluted (NOK)1) 11 44.89 69.47 68.22 25.91 18.11 11.56 49.73 38.85 39.55*) For 1990 and 1989 equity includes shareholders' equity and 60% of untaxed reserves.

Liquidity:Liquid assets (NOK million) 12 853 1,088 1,010 1,499 1,716 1,433 3,081 1,879 2,354Cash flow (NOK million) 13 1,615 2,616 2,555 866 492 256 1,405 1,001 918Current ratio 14 1.34 1.22 1.38 2.12 2.18 1.51 2.74 2.00 1.52

Definitions main financial figures:1. Gross operating profit= Operating profit + Ordinary depreciation + Restructuring expenses2. Profit before financial expenses= Operating profit + Financial income + Share of profit in aff. companies3. Gross operating margin= Gross operating profit : Operating revenue4. Net operating margin= Operating profit : Operating revenue5. Net profit margin= Profit for the year : Operating revenue6. Return on total assets= Profit before financial expenses : Total assets (average)7. Return on equity= Profit for the year : Equity (average)8. Equity ratio= Equity : Total assets9. Return on caital employed= Operating profit : Capital employed (average) (see 15)10. Net earnings per share after tax= Profit for the year : Average number of shares *)11. Cash flow per share after tax= Cash flow : Average number of shares *)12. Liquid assets= Cash and bank deposits + Short-term investments13. Cash flow= Net cash flow from operating activities (from Statement of Cash Flow)14. Current ratio= Current assets : Current liabilities15. Capital employed= Total assets with deductions for non-interest-bearing liabilities and interest-bearing assets.

1) *) When calculating financial ratios per share fully diluted net earnings and cash flow are rectified by interest expenses on subordinated convertible bonds.


800

1000

1200

1400

1600

1800

LWCSCNewsprint

1/91 1/92 1/93 1/94 1/95 1/96 1/97 jan/98

DEM/tonnes

Source: PPI Pricewatch

Price development publicationpaper in Germany

1989:Norske Skogindustrier A.S mergedwith A/S Follum Fabrikker and TofteIndustrier A/S.

The merged company acquiredSaugbrugsforeningen with effect, foraccounting purposes, from July 1.

1990:Norske Skog acquired 49 per cent ofthe FRF 900 million share capital ofPapeteries de Golbey S.A., and thecompany ordered the main machineryfor its new newsprint mill in March.Total investment budget NOK 3.4 bil-lion.

In December the Group decided tobuild a new paper machine, to makeSC magazine paper, at Norske SkogSaugbrugs in Halden - total investmentbudget NOK 3 billion.

Floating of NOK 500 million con-vertible bond loan.

Operations at Otto Langmoen A/S,a sawn timber business, were woundup during the first half-year.

1991:Floating of NOK 707 million conver-tible bond loan.

During the year, the Group soldthese units:• Guru Papp A/S (packaging)• Kartopap A/S (packaging)• Dalwell AB (packaging)• F. Beyers wholesaling and printing

business• F. Beyers Bok- og Papirhandel (sta-

tionery and books)

Activity at the following companieswas wound up:• Fibo-Trespo AS' division at Not-

odden (laminates)• The pulp mill at Norske Skog

Saugbrugs (dissolving pulp)

1992:The new newsprint machine (PM 1)at Papeteries de Golbey S.A: - with a

Major events in Norske Skog's development 1989-97

capacity of 255,000 tonnes - wasbrought on line in January.

Restructuring costs, currency losses,and our share of Golbey's results in thestart-up year were debited to the accounts,in the amount of NOK 619 million.

These businesses were sold:• Empire Fine Papers Ltd., England

(fine paper)• Koppang Innredninger AS (interior

fittings)

1993:Norske Skog Saugbrugs new papermachine (PM 6), with capacity of290,000 tonnes SC magazine paper,started production in February.

These businesses were transferred tonew owners:• Sarpsborg Finpapir• Olaf Norlis Bokhandel A/S (book

retailing - 50% ownership stake)• Ad. Jacobsen (paper trading)

1994:New share issue brought the companyNOK 767 million, net, of new equitycapital.

1995:The particle board mill Agnes Fabrik-ker A.S. was taken over in March.

Norske Skog acquired the remai-ning 51% of the shares in Papeteriesde Golbey S.A., so that the newsprintmill became a wholly-owned subsidi-ary and was consolidated in theaccounts with effect from 01.04.1995.

1996:Effective from 01.01.1996, NorskeSkog took over the Bruck printingpaper mill in Austria, with capacity of220,000 tonnes LWC magazine paperand 115,000 tonnes newsprint.

Norske Skog decided in Novemberto transfer Sande Paper Mill A/S (flu-ting) to new owners, with effect from03.01.1997.

1997:During the first quarter, the particleboard mill at Braskereidfoss started upa new NOK 325 million productionline.

The Group decided in April thatNorske Skog Golbey should be expan-ded by the addition of a second new-sprint machine - with a capacity of330,000 tonnes - involving a totalinvestment of NOK 2.8 billion.

Our subsidiary company ForestiaAS took over Hedalm Trelast, withthree production units, in July.

In November, Norske Skog tookover the 100,000 tonnes capacityROTO (Norske Skog Steti) newsprintmill in the Czech Republic.

These units were transferred to newowners:• Lundby Bruk Rena and Brumunddal

(building materials trading)• Namsen Bygg (building materials

trading)• Folla Tech (workshop business)


In the management of the Group’s cur-rency and interest rate exposure, thegoal is to minimise risk, in accordanceto given guidelines.

Comprehensive internal supervi-sory routines have been established toensure that the financial managementfollows these guidelines.

Currency riskFluctuations in currency rates exposeNorske Skog to both direct and indi-rect economic risk.

The direct risk (basic risk) reflectsthe fact that approx. 80% of theGroup’s operating revenues are inforeign currencies, while only about25-30% of its costs are in such cur-rencies. The largest exposures areagainst GBP, USD and DEM.

The basic risk per currency is cal-culated as 12 months future net cashflow per currency (rolling). Allowanceis made for the fact that market pulpis invoiced in local European curren-cies, while prices are agreed in USD.On a 12-month horizon, 75% of thecurrency risk on pulp is calculated asa USD risk. The basic risk is estimatedby the business units, and consolida-ted to a net exposure per currency. Atall times, 50-100% of that exposureshould be hedged. Hedging takes placeeither by drawing on a loan in foreigncurrency, or through the use of hedginginstruments such as forward contractsand currency options.

The effect of hedging deals is shownin the Group accounts under financialitems. Such currency losses or gainswill to a greater or lesser extent havecounterpart items in the form of incre-ased or reduced future net operatingrevenue. The size of the counterpartitem will depend mainly on what pro-portion of the exposure has been hed-ged.

Norske Skog is exposed to indirectrisk because our competitive positionis affected by fluctuations in thedomestic currencies of our competi-tors. This applies mainly to SEK, FIMand CAD. This type of risk is not hedged.

Interest rate riskNorske Skog is normally a net borro-wer, and is therefore exposed to riskconnected to changes in interest ratelevels. During an upswing, interestrates will normally be higher thanduring a downturn, and in the sameway Norske Skog’s results are nor-mally higher in an economic upswingthan in a downturn. Thus, Norske Skogcan handle higher interest costs duringan upswing, while it is important toensure low interest costs during arecession. It is therefore regarded as areduction of risk to have floating inte-rest rates, to the greatest possibleextent, on net borrowing. In order toexploit interest rate fluctuations, wealso have a proportion of borrowingat fixed interest rates.

Interest Rate Risks

Sensitivity

One per cent change of the price onmain products/input factors entails thefollowing change on the operating pro-fit:

1 %NOK million changes

SalespricesNewsprint 45SC magazine paper 23LWC magazine paper 10Pulp 11Sawn timber 14

Today’s loan portfolio consists offloating and fixed interest rate loans.The economic risk incorporated in theportfolio is measured in terms of inte-rest rate sensitivity. The risk is hed-ged either by interest-bearing assets orby off balance sheet hedging instru-ments.

As a consequence of this strategy,Norske Skog has held long-term bondsto hedge the interest rate risk on long-term loans. The losses and gains on thebond portfolio have their counterpartitem in an increase/decrease in thevalue of the company’s fixed interestrate debt, but such effects are notshown in the accounts, in accordancewith present accounting rules.

Net currency exposureThe Group’s annual net currencyexposure is at present approx. NOK 6billion when Golbey PM 2 is included,divided by:

1 %NOK million changes

Input factorsTimber 28Waste Paper 3Energy 10

Other16%

DEM-bloc16%

GBP

USD43%

25%


Production capacities

Paper CapacitiesNewsprint: Norske Skog Skogn Levanger 550,000 tonnesNorske Skog Follum Ringerike 355,000 tonnesNorske Skog Golbey Golbey, France 255,000 tonnesNorske Skog Bruck Steiermark, Austria 115,000 tonnesNorske Skog Steti Czech Republic 100,000 tonnesA/S Union (affiliated company) Skien 240,000 tonnesTotal newsprint 1,615,000 tonnes

SC magazine paper:Norske Skog Saugbrugs Halden 540,000 tonnesLWC magazine paper:Norske Skog Bruck Steiermark, Austria 220,000 tonnesTotal magazine paper 760,000 tonnes

Total publication paper (newsprint and magazine paper) 2,375,000 tonnes

Special grades:Norske Skog Hurum Hurum 35,000 tonnesTotal capacity paper 2,410,000 tonnes

FibreNorske Skog Tofte (sulphate pulp) Hurum 365,000 tonnesNorske Skog Folla (chemithermomechanical pulp) Verran 90,000 tonnesTotal capacity pulp 455,000 tonnes

ResourcesTotal land area 180,000 hectaresOf which productive forest area 81,000 hectaresMean installed hydropower capacity 415 GWh

StatisticsProduction 1997 1996 1995 1994 1993 1992 1991 1990 1989Area PaperNewsprint *) 1000 tonnes 1,218 1,107 1,051 816 821 748 767 787 778SC magazine paper 1000 tonnes 502 458 523 430 336 199 242 241 220LWC magazine paper 1000 tonnes 214 178 - - - - - - -Kraft Paper 1000 tonnes 29 29 31 32 28 29 32 31 31

Area FibreSulphate pulp 1000 tonnes 340 326 356 341 295 322 305 300 322CTMP 1000 tonnes 64 60 89 83 70 52 62 71 78

Building MaterialsSawn timber 1000 m3 654 557 497 491 476 476 467 488 499Particle board 1000 m3 368 347 334 244 228 213 206 225 210Parquet flooring andlaminated flooring 1000 m2 3,529 3,724 3,695 2,960 2,337 1,996 1,498 1,579 1,792

Personnel as at December 31Area Paper 3,436 3,386 2,799 2,505 2,518 2,748 3,291 3,742 3,740Area Fibre 468 521 532 518 509 527 719 748 731Building Materials 1,818 1,862 1,681 1,597 1,568 1,602 1,755 1,846 1,969Administration 264 196 181 138 144 139 139 129 96Total 5,986 5,965 5,193 4,758 4,739 5,016 5,904 6,465 6,536*) Excl. A/S Union.


Basis for value estimates

generate 415 GWh of hydro power.Only a small part of this hydro poweris subject to "hjemfall" (that is, due torevert to state ownership within a spe-cified period).

The book value of the Group'spower plants and hydro power rightsis NOK 80 million, of which write-upsaccount for NOK 50 million.

Shares in A/S Union (Union Co.) Norske Skog owns 576,151 shares inUnion, corresponding to 57.6% of totalshare capital. The Union group produ-ces about 240,000 tonnes of newsprintand other grades of printing paper. Inaddition, Union owns power plantswith an annual output of 280 GWh andbuildings in downtown Drammen.

The cost price to Norske Skog ofits Union shares is NOK 27.8 million.Union is consolidated in NorskeSkog's accounts according to theequity capital method. This gives it abook value of NOK 375 million, as of31.12.1997.

ShipsNorske Skog has a 55% ownershipstake in each of the ships "Nornews

General remarksThe assets of an industrial group suchas Norske Skog consist largely of fac-tories and the appertaining workingcapital in the form of stocks and recei-vables. The value of these assets is, inprinciple, equal to the discounted valueof the future cash flows they will gene-rate. The Group has, however, certainother assets which must be taken intoaccount when valueing total assets,including the Group's liquid assets,which on 31.12.1997 amounted toNOK 853 million.

Below are listed the most impor-tant assets not dependent on operations.

ForestsNorske Skog owns 81,000 hectares ofproductive forest, 17,000 hectares ofwhich is in Sweden. Annual fellingsduring the past few years have aver-aged about 80,000 m3.

The book value of the Group's forestproperties is NOK 103 million. Of this,write-ups account for NOK 27 million.

Hydro power rightsNorske Skog owns power plants which,in a year with average precipitation,

Express" and "Nornews Leader".The two vessels carry newsprint for

Norske Skog under long-term contracts.The 60% ownership in “Lys-Skog” wassold in the beginning of 1998.

"Nornews Express" is of 4,568 m.t.deadweight and built in 1987. "Nor-news Leader" is of 5,670 m.t. dead-weight and built in 1991.

The book value of Norske Skog's55% stakes in "Nornews Express" and"Nornews Leader" is NOK 17 million.

80

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120

130

140

150

Oslo Stock Exchange Total index

Svedish forest indexNorske Skog

2.1. 14.2 2.4 16.5 1.7 12.8 24.9 6.11 18.12

Share price 1997 (1/1 = 100)Cash flow per share– fully diluted

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979695949392919089

NOK

Earnings per share– fully diluted

Norway rankshighest in Europe– and thus also inthe world – innewspaper reader-ship. The numberof newspaperssold per thousandinhabitants exceeds600, while thecorrespondingfigure for otherEuropean countriesis 470 or less.

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979695949392919089

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Shares for employeesNorske Skog would like as many aspossible of its employees to be share-holders, and every year it sells sharesto the Group’s employees in Norway.Norwegian taxation rules allow thecompany to grant employees a 20%discount on the market price (limitedto a maximum discount of NOK 1,000per employee) on such share sales.About 20% of our employees havetaken advantage of this offer during thepast two years. The annual share salesincrease awareness, throughout theorganisation, of the role played byowners in Norske Skog, as well asgiving employees insight into theshare market.

These annual share sales are handledby a foundation which buys shares inthe market and re-sells them to employ-ees. Under the terms of the found-ation’s articles, the share sales are togive an equal economic benefit toevery employee receiving the offer,and this benefit is to be limited to thetax-free discount. In 1997 a total of17,540 shares were sold to employeesunder this arrangement.

Shares and share capitalAs of 31.12.1997 the company’s sharecapital was NOK 764,222,340 dividedbetween 28,795,560 A-shares and9,415,557 B-shares. Share capitalincreased by NOK 111.4 million during1997, owing to conversions. Thenumber of shares rose by 5,570,062,comprising 2,238,834 A-shares and3,331,228 B-shares.

B-shares do not have voting rights.Otherwise, all shares have equal rightsin the company, and there is no limiton the number of shares which maybe held by foreigners.

Ownership structure is more or lessstable, and there were only minorchanges during 1997. At the turn of theyear, the Norwegian Forest Owners’Federation owned, as a whole, 36.4%of A-shares and 29.2% of total share

Shareholder policy, share capital and shareholder structure

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93 94 95 96 97

Share price development 1993-1997 Risk capital is essential for NorskeSkog’s further development. Thecompany’s shares must, thereforerepresent a competitive invest option.

Norske Skog seeks to achieve thisthrough dividend payment and by cre-ating the conditions for a long-termshare price increase.

It is Norske Skog’s goal to pay adividend which gives shareholders areasonable proportion of profits duringan economic cycle, without undermi-ning the company’s ability to financeits future development from its ownearnings. Efforts will be made to evenout dividend payments during thecycle.

Value for shareholdersOver the longer term, there is usuallya correlation between the trend of ashare’s price and the return on capitalinvested. Compared with the sectoraverage, Norske Skog has had a goodyield, but its share price trend has beenrelatively weak. There is reason tobelieve that the return in the sectorgenerally is too low, and the Group haslaunched a programme called «NorskeSkog 2000" which aims to boost pro-fitability. The goal is to achieve targetsfor return on total assets and on equityprofitability of 13% and 15%, respec-tively, as an average during a cycle.

Dividend for 1997Norske Skog wishes to pay a compe-titive dividend, and its goal is that sha-reholders should receive 15-25% ofprofits, during an economic cycle. Thecompany also wishes to even out thedividend over the cycle, and is there-fore maintaining an unchanged divi-dend of NOK 7 per share, despite thelower profit in 1997. This dividendrepresents a pay-out ratio of 43% for1997. As a weighted average over thepast five years, the pay-out ratio is20%. Based on share prices as of31.12.1997, it provides a yield of 3.3%on A-shares and 3.5% on B-shares.

-15

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-5

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5

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35

979695949392919089

%

Return on equity 1989-1997

Shareholder policyThe forest industry is a sector whichis marked by wide fluctuations in ear-nings and a need for large amounts ofcapital to invest, continuously, inmachinery and equipment. To be ableto cope with economic fluctuationsand major investment outlays, a soundbalance sheet is required, with a highequity to assets ratio and long-termfinancing.

NOK per share


capital. The largest single shareholderwas the US investment fundTempleton, which - at the turn of theyear - owned 11.9% of A-shares and9% of total share capital. Foreigninvestors held 26% of A-shares and21.6% of total share capital. Corre-sponding figures at the start of 1997were 23.6% of A-shares and 22% oftotal share capital.

The Board has no authorisation, atpresent, to increase share capital.

Share price trends in 1997The Oslo Stock Exchange and mostinternational stock exchanges experi-enced turbulent market movementsduring 1997. Share prices were risinguntil August; after that came pricedeclines which were more marked forforest industry, and other cyclical sha-res, than for the market as a whole. Thedecline was largely a result of econo-mic turmoil in Asia, with the risk ofreduced import requirements in theregion, coupled with Asian producers’greater competitiveness owing to steepdevaluations. Toward the end of theyear, lower pulp prices also had somenegative impact on Norske Skog shareprices. Most companies in the forestindustry, world-wide, saw a share pricedecline during the autumn.

At the end of the year, Norske Skogshares were quoted at NOK 214 forA-shares and NOK 200 for B-shares.This was about the same as at the endof the previous year. The highest pricewas in August, at NOK 296 for A-sha-res and NOK 281.50 for B-shares.Those were historic, all-time high pri-ces. The Oslo Stock Exchange overallindex rose by over 31% during 1997,making the trend of Norske Skog sha-res markedly weaker than that of theoverall index, during the year.

Norske Skog’s market capitaliza-tion was at NOK 8.1 billion as of31.12.1997. This is NOK 1.2 billionmore than a year earlier, and reflectsthe increased number of shares, owingto conversions.

Trading in Norske Skog sharesThe company’s shares are listed on theOslo Stock Exchange. In addition, itsB-shares are listed on SEAQ (StockExchange Automatic Quotation System)in London.

During the year a total of 30.5 mil-lion Norske Skog Shares were tradedon the Oslo Stock Exchange. In relationto the average number of shares - 36.0million - that represents a turnover ratioof 0.84. That is a relatively high figure,considering the significant presence oflong-term, institutional shareholdersin Norske Skog. In addition to the sha-res traded on the Oslo Stock Exchange,7.4 million A-shares and 2.1 millionB-shares were traded on SEAQ.

Investor RelationsNorske Skog gives high priority tokeeping in touch with the Norwegianand international financial market. Thegoal is to increase knowledge aboutthe company and understanding of theindustry. This will build up the con-fidence needed to make long-terminvestors interested in Norske Skog.

Providing the financial marketwith relevant and timely informationis an important part of investor relati-ons. Norske Skog plans to issue thefollowing reports during 1998:

Preliminary report 1997 - FebruaryAnnual report and accounts 1997 - April1st quarter 1998 - May 62nd quarter 1998 - August 203rd quarter 1998 - October 29

In addition to the information provi-ded by these reports, Norske Skogholds regular presentations for theNorwegian and international finan-cial market. In 1997 such presentati-ons were held in Norway, England,Sweden, Austria and the US.Information activity is increasing bothin Norway and abroad.

A large number of Norwegian andforeign broking houses follow NorskeSkog and publish analyses of the company.

Jarle Langfjæran is responsible forNorske Skog’s investor relations.

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Market cap as of 31.12.


Principal shareholders as of December 31, 1997 (>1% ownership)

A-shares B-shares TotalNo. Name Number % Number % Number %

1 Chase Manhattan Bank NA, GBR 3,907,321 13,57 22,361 0,24 3,929,682 10,282 Drammendistr. Skogeierforening, Hønefoss 2,322,832 8.07 140,398 1.49 2,463,230 6.453 Folketrygdfondet, Oslo 934,222 3.24 812,000 8.62 1,746,222 4.574 Kommunal Landspensjonskasse, Oslo 418,371 1.45 1,025,390 10.89 1,443,761 3.785 Storebrand Liv- og Skadefors., Oslo 311,733 1.08 983,277 10.44 1,295,010 3.396 Mjøsen Skogeierforening, Lillehammer 1,133,773 3.94 139,225 1.48 1,272,998 3.337 State Street Bank & Trust Co. USA 1,015,159 3.53 168,929 1.79 1,184,088 3.108 Telemark Tømmersalgslag, Skien 1,123,769 3.90 9,004 0.10 1,132,773 2.969 Gjensidige Forsikring, Oslo 431,436 1.50 693,492 7.37 1,124,928 2.94

10 Glommen Skog/Fond, Elverum 1,087,527 3.78 24,659 0.26 1,112,186 2.9111 Nedre Glommen Skogeierforening, Ås 862,544 3.00 82,849 0.88 945,393 2.4712 A/S UNION, Skien 838,546 2.91 182 0.00 838,728 2.1913 Vestfold-Lågen Skogeierfor., Hvittingfoss 778,949 2.71 49,975 0.53 828,924 2.1714 Omega, Oslo 13,450 0.05 655,050 6.96 668,500 1.7515 Aksjefondet Avanse, Oslo 610,007 2.12 0 0.00 610,007 1.6016 Sør-Trøndelag Skogeierforening, Trondheim 518,260 1.80 19,000 0.20 537,260 1.4117 Namdal Skogeierforening, Namsos 507,609 1.76 23,854 0.25 531,463 1.3918 Morgan Guaranty Trust Co., Belgia 486,429 1.69 20,312 0.22 506,741 1.3319 Nidarå Tømmersalgslag, Arendal 485,067 1.68 9,002 0.10 494,069 1.2920 Vital Forsikring, Oslo 360,123 1.25 113,000 1.20 473,123 1.2421 Agder Skogeigarlag, Kristiansand S. 403,593 1.40 66,467 0.71 470,060 1.2322 Norsk Hydro Pensjonskasse, Oslo 440,500 1.53 25,000 0.27 465,500 1.2223 Morgan Stanley Trust, USA 345,386 1.20 75,396 0.80 420,782 1.1024 Odin Norge AF, Oslo 25,000 0.09 393,251 4.18 418,251 1.0925 Orkla ASA, Oslo 104,710 0.36 305,686 3.25 410,396 1.07Total principal shareholders 19,466,316 67.60 5,857,759 62.21 25,324,075 66.27Total number of shares 28,795,560 100.00 9,415,557 100.00 38,211,117 100.00

Other Norwegian shareholders

38%

Forest owners’ associations36%

Foreign holding26%

Shares with voting rights

Shareholder structure as of 31.12.1997

Other Norwegian shareholders49%

Forest owners’ associations29%

Foreign holding22%

Total number of shares


Key figures related to shares1997 1996 1995 1994 1993 1992 1991 1990 1989

Nominal value per share (NOK) 20 20 20 20 20 20 20 20 20Average number of shares excludingshares held in treasury (1,000) 35,979 32,617 32,430 29,794 26,259 24,251 24,174 24,121 22,286

Average number of shares afterfull conversion excludingshares held in treasury (1,000) 35,979 38,695 38,508 36,241 32,791 31,399 29,922 26,509 23,388

Dividend per share (NOK) 7.00 7.00 6.00 1.50 1.00 0.00 2.00 3.00 3.00Price earnings ratio1) 13.05 5.28 3.54 27.77 - - 9.63 3.96 4.61Payout ratio (%) 43.00 17.30 11.50 21.70 - - 19.60 9.40 8.30

Number of shares A-share 28,796 26,557 26,531 26,199 23,684 21,826 21,826 21,825 21,82531.12 (1,000) B-share 9,416 6,084 6,084 5,561 2,631 2,425 2,425 2,425 2,425

Total 38,211 32,641 32,615 31,760 26,315 24,251 24,251 24,250 24,250

Share prices high 296.00 214.00 233.00 203.50 175.50 127.50 173.00 185.00 186.00(A-restricted) low 190.00 174.50 170.00 140.00 65.00 45.00 73.00 103.00 109.00Trading volume(Oslo Børs) 1.000 stk. 30,500 25,600 28,000 26,192 25,619 30,190 19,571 10,010 16,560

Share prices 31.12. A-restricted 192.00 174.00 71.00 96.00 125.00 -A free 214.00 213.00 185.50 190.00 176.00 76.00 97.50 135.50 166.00B-share 200.00 194.50 175.50 184.00 175.00 68.00 95.00 119.00 -

Number of A-restricted 16,907 16,824 17,067 17,561 -shareholders 31.12. A free 17,466 17,456 17,285 17,222 16,106 15,936 16,224 16,811 17,524

B-share 13,796 14,271 14,605 14,950 15,384 15,196 17,502 16,192 -Total 18,075 18,070 17,710 17,503 17,552 17,379 17,501 17,854 17,524

Number of foreign A-restricted 0 0 0 0 0 0shareholders 31.12. A free 186 154 179 164 139 108 100 91 116

B-share 97 92 127 130 80 98 91 105 -Total 208 177 231 222 162 142 112 137 116

Foreign ownership A-restricted 0,0 % 0,0 % 0,0 % 0,0 % 0,0%31.12. A free 26.0 % 23.6 % 14.2 % 15.9 % 42.7 % 17.0 % 11.7 % 25.1 % 13.7%

B-share 8.3 % 15.2 % 41.4 % 60.8 % 58.4 % 63.2 % 54.4 % 7.6 % -Total 21.6 % 22.0 % 19.3 % 24.7 % 18.6 % 11.7 % 8.9 % 8.3 % 13.7%

Market value (NOK mill) 8,100.0 6,900.0 6,000.0 5,983.0 4,597.0 1,750.9 2,376.6 3,089.5 4,037.0

1) Price earnings ratio = Share price 31.12: Net earnings per share after tax.The share classes A restricted and A free were combined at year-end 1994.


The forest industry is a cyclical indus-

try, in which economic results

fluctuate considerably.

Companies' results from

year to year must be jud-

ged in this context. Over a

period of time, Norske Skog

has shown good profitability,

compared with many of our

competitors in the international forest

industry. This demonstrates that the

company is competitive within its sector.

But we cannot be satisfied with the

level of results. Historically, it is a fact

that profitability is not good enough,

neither in Norske Skog nor in the

industry as a whole. The international

forest industry has had - and still has -

a poorer return on capital than many

other industries. This is not satisfac-

tory in a global economy where there

is keen competition for both markets

and capital.

To increase our owners' values is a

main goal for Norske Skog. It is the

Company's declared ambition to offer

owners a competitive return on their

investments. That is necessary to ensure

capital for further development. Norske

Skog's most important result goal is,

therefore, to achieve a return on total

assets of at least 13%, taken as an aver-

age throughout an economic cycle.

In February 1998 Norske Skog started a

three-year profitability programme

called "Norske Skog 2000". The aim of

the programme is to close the gap

between the Group's profitabi-

Continuous focus on profitabilitylity goal and its actual earnings.

The programme is intended to

ensure a continuous improve-

ment in all parts of Norske

Skog's activities. For many

years we have focused

strongly on rationalisation

and productivity enhance-

ment in the operation of our

mills. These efforts will continue, and

intensify. At the same time, we must

become more skilful in exploiting

synergies and exchanging experience

among the Group's units and functions.

There is still significant potential here.

Logistics is another area in which we

can still achieve gains.

We are also reviewing our administra-

tive processes, with a view to improve-

ment and streamlining. This includes,

among other things, an energetic

emphasis on the IT side, where several

large projects were started during

1997. Administrative changes mean,

however, much more than finding new

IT solutions. It is just as much a matter

of organisation and finding new ways

of working. In short, working smarter.

The drive for greater profitability can-

not be a short-term, one-off effort. It

must be an ongoing process which

creates and maintains a culture

committed to continuous improvement

throughout the entire organisation.

Consequently, everyone in Norske

Skog can contribute to improving

profitability and increasing the

Company's value.

France leads theworld when it comesto magazine reader-ship - not quite sohigh where news-paper readership isconcerned. Literallythousands of maga-zines are publishedthere - not leastspecialised magazi-nes. In consequence,this type of publica-tion has a relativelylarge share of theadvertising market inFrance.

Jan Reinås


Co

rpo

rate

cen

ter

Bu

sin

ess

un

its

Organisation structure

Norske Skog’s building materials business is organised in two subsidiaries - Forestia AS and Norske Skog Flooring AS. Chairmen of the Board of directors are, respectively, President and CEO Jan Reinås and Executive Vice president Jan Kildal.

Corporate Resources,Senior Vice President

Thor H. Lobben

Newsprint, Senior Vice President

Dag Tørvold

Fiber and Magazine Paper,Senior Vice President

Jan Oksum

Sales and MarketingPaper and Pulp,

Senior Vice PresidentVidar Lerstad

Research andDevelopment,

Acting Vice PresidentGeorg E. Carlberg

Human Resources, Vice President

Bjørn-Frode Jacobsen

Public Affairs,Vice President

Rolf Løvstrøm

RessurserKonserndirektørThor H. Lobben

Corporate Development,Executive Vice President

Omund Revhaug

Economy, Finance, Law, IT, Executive Vice

PresidentJan Kildal

President and Chief Executive Officer

Jan Reinås

Norsk Virke ASManaging DirectorHelge Fasseland

Norske Skog SkognMill Director

Svein Kr. Aurstad

Norske Skog TofteMill DirectorErik Olsson

Norske Skog SalesManaging Director

Vidar Lerstad

ForestsForestry Manager

Steinar Asakskogen

Norske Skog FollumMill Director

Gjermund Røkke

Folla CTMP ASMill Director

Egil Kjeldstad

EnergyDirector

Svein Kroken

Norske Skog Golbey SAManaging Director

Ketil Lyng

Norske Skog SaugbrugsMill Director

Oddvar Sandvei

Real EstateManagerJon B. Ås

Norske Skog Steti a.s.Managing DirectorRagnvald Nilsen

Norske Skog Bruck GmbHManaging DirectorSiegfried Kocher

IndustrikraftMidt-Norge DA

Managing DirectorSteinar Bysveen

Union BrukManaging DirectorBjørn Arnestad

Norske Skog HurumMill Manager

Johnny Andersen


Norske Skog's management has con-centrated on implementing the Group'sstrategy and development plan.

Group developmentIn view of Norske Skog's ambitionsto continue growing - primarily inter-nationally - the Group's organisationand skills are being adapted to this end.The business development departmentwas strengthened in 1997, and givenresponsibility for the operation of pro-duction activities outside Europe.

Norske Skog's strong financialposition, with an equity to assets ratioof 52%, provides latitude for furtherdeveloping the Group. In October,Norske Skog signed an agreementwith Eksportfinans and a group ofunderwriting banks regarding a USD187 million loan facility. The loan hasa life of ten years and will be used formajor investment projects, primarilyPM 2 at Norske Skog Golbey.

New and better working methodsIn 1997 Norske Skog initiated a two-year programme to improve the com-mercial and administrative routineswithin the Group. This involves areorganisation of its administrativeprocesses and IT-based systems. Theprogramme will, in total, lead to newand better working methods in admi-nistration, business operation andfinancing, and is expected to result insignificant streamlining, as well asensuring that all systems are adaptedto handle the year 2000 and the intro-duction of the Euro.

The most comprehensive single pro-ject within the programme is GLOSS(Global Logistics and Sales Systems),which has an overall investment bud-get of NOK 100 million. This projectaims to streamline all routines con-nected with Norske Skog's globalpaper sales and distribution. The sys-tem will be adopted by Norske SkogBruck and a number of our sales com-panies in autumn 1998. In addition, anew budget management programmeis being developed.

More employees outside NorwayThe recruitment and development of

employees has high priority. At the endof 1997 the Group had 140 apprenti-ces under contract. Norske Skog co-operates with colleges and universitiesregarding doctoral studies, project-and degree theses and vacation jobs forstudents.

Norske Skog is in continuous con-tact with several European manage-ment studies institutes, and in 1997several of its key management peopleparticipated in programmes at suchinstitutes. The international mobilityof the Group's employees has increa-sed - affecting managers, project grouppeople and operatives. A special admi-nistrative section has been created tostimulate and administrate rotationwithin the Group, with particular focuson international rotation.

Norske Skog decided in 1997 tofocus more strongly on Health, theWorking Environment, and Safety(HWS). A network organisation has

Group administration in 1997

been established for managers andpeople with HWS responsibilitieswithin the Group.

Increased R & D activityNorske Skog Research (previouslyNorske Skog Teknikk) - the Group'scentral unit for research and develop-ment - cooperates closely with areas,business units, the sales organisationand external institutes. Its programmefor 1998 comprises 20 different pro-jects. Resources have also been setaside which will be able to undertakecontract work for the mills, as andwhen these need to have special R &D work done. In addition, a new pro-ductivity improvement area has beenestablished, at Norske Skog Skogn.During 1998 a new R & D group willbe created, at Norske Skog Bruck inAustria, concerned with coating andsurface treatment of printing paper.

The different kinds of technologiesneeded to close the water systems in anewsprint/magazine paper mill havebeen tested. Concepts aimed at closingthe water systems of sulphate pulp ble-aching plants, in the future, are beingworked out in parallel.

New Corporate CentreAt the turn of the year 1998/99 NorskeSkog will move its Corporate Centreto new premises at Oxenøen, on theFornebu peninsula in the district ofBærum, near Oslo. These will provideup to date office accommodation,under one roof, for all of the Group'sfunctions.


AREA PAPER

Record production in an uneven market

Even with some curtailmentson output at the start of theyear, Norske Skog's productionof printing paper passed the 2million tonne mark in 1997 forthe first time ever - reaching1,427,000 tonnes of newsprintand 716,000 tonnes of maga-zine paper. A further increase isforeseen in 1998.

Market conditionsAt the start of 1997, conditions on theprinting paper market were affected bythe difficult supply situation in thesecond half of 1996, leading to a sig-nificant price decline. The magazinepaper market improved quite early in1997, however. Overall, Norske Skog'sdeliveries of wood-containing printingpaper to Western Europe were higherthan ever.

Global demand for newsprintdeveloped favourably in 1997, andtotal deliveries of newsprint toWestern Europe rose by 5%. Highdemand in the US, combined with astrong USD, meant that deliveriesfrom Canada to Western Europe decli-ned in 1997. Because contracts fornewsprint in Western Europe are conc-luded on an annual basis, no priceincreases were achieved during theyear. Increased consumption in over-seas markets, too, made quarterly priceincreases possible in these markets.Taken as a whole, however, newsprintprices were 15-20% lower than in1996. Norske Skog increased its totalnewsprint sales, in volume terms, byabout 10% compared with the previ-ous year.

A final agreement regarding thepurchase of the Roto newsprint millin the Czech Republic - Norske SkogSteti - was signed on 26.11.1997. Witha capacity of about 100,000 tonnes/-year, this mill, together with NorskeSkog Bruck, gives Norske Skog a goodfoothold in Eastern and Central Europe.Consumption of printing paper in thisarea shows relatively strong growth.

Deliveries of magazine paper alsogrew strongly in 1997. The growthamounted to no less than 25% and 10%for LWC and SC respectively. Capacityutilisation in the European magazinepaper industry was therefore signi-

0

500

1000

1500

2000

2500

LWC magazine paper

SC magazine paper

Newsprint, partly owned

Newsprint, wholly owned

979695949392919089

1,000 tonnes

Production publication paper

Kraft paper 2%LWC

magazine paper

13%

SC magazine

paper30%

Newsprint 55%

Operating revenue

Consumption of newsprint isclosely correlated with eco-nomic developments in acountry or region. Duringthe period 1985-95 con-sumption of newsprint inAsia (ex Japan) more thandoubled - from 2.1 milliontonnes to 4.6 million tonnes.That corresponds to annualgrowth of 8.1%.


The rise reflects increased opera-ting time and higher productivity.Norske Skog Golbey and Norske SkogBruck continued to improve producti-vity and - like Norske Skog Skogn andNorske Skog Follum - they set newoutput records. The Group is alsobeginning to reap the benefit, in themarket, of its investment in specialgrades at Norske Skog Follum.

Plant and investmentInvestment activity in 1997 was domi-nated by the construction of a newnewsprint machine at Golbey. The pro-ject is going ahead according to plan,and the machine will start up duringthe first quarter of 1999. This projectwill boost Norske Skog's capacity fornewsprint production to more than 1.9million tonnes, or 5% of world capa-city.

At Norske Skog Skogn, work wascompleted during the year on the con-struction of a new biological effluenttreatment plant and a biofuel boiler, ata total investment cost of nearly NOK300 million. The facilities have beenstarted up and are performing well.Norske Skogn now has Norway's lar-gest biofuel plant, with an output of 80MW and an achievable capacity, inpractice, of 550 GWh of thermalenergy per year.

At Norske Skog Saugbrugs it hasbeen decided to rebuild PM 5, at a totalcost of NOK 400 million. That willbring production from this papermachine, too, up to SC A-grade. The

Area Paper 1997 1996 1995

Operating revenue NOK million 9,284 9,493 8,066Operating expenses NOK million 7,293 6,563 5,777Depreciation NOK million 857 852 581Operating profit NOK million 1,134 2,078 1,708Operating margin % 12.2 21.9 21.2

Total assets NOK million 12,316 11,191 10,085Current assets NOK million 2,668 2,273 2,555Fixed assets NOK million 9,648 8,918 7,530Return on total assets % 9.8 19.9 23.1Export share % 90 90 90Number of employees 3,436 3,260 2,799

ficantly higher in 1997 than in 1996.The high demand for LWC made itpossible to implement price increasesin both the third and fourth quarters.After the summer holiday, demand forSC also rose. In Europe, the price ofSC was stable, while a small priceincrease was achieved in the US.

Growth in printing paper capacityis at present low. No new newsprintmachine came on stream in eitherWestern Europe or the US in 1997, andnone will do so in 1998 either. In 1998one new magazine paper machine willcome on stream in Europe, and one inNorth America. But the increase incapacity will be partly offset by theshutdown of existing LWC productionin France.

For special paper, the market situ-ation in 1997 varied - depending ongrades - from satisfactory to poor.

ProductionThe market situation at the beginningof 1997 made it necessary to curtailproduction. Market balance improved,after some time, and led to high capa-city utilisation at the Group's millseven before the summer. The Group'smills produced a total of 2,172,000tonnes of paper, comprising 1,427,000tonnes of newsprint (including the affi-liated company A/S Union), 716,000tonnes of magazine paper and 29,000tonnes of kraft paper. This is an incre-ase of 9% from 1996, and the highestproduction volume Norske Skog hasever achieved.

AREA PAPER

European producers of printing paper

Demand for publication paper inWestern Europe

0

1000

2000

3000

4000

5000

6000

LWCSCNewsprint

UPM

/Kym

men

e

Sto

ra

Enso

No

rske

Sko

g

Hai

nd

l

Met

sä/M

ylly

kosk

i

SCA

Mo

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1,000 tonnes

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2000

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6000

8000

10000

LWCSCNewsprint

1980 1983 1986 1989 1991 1994 1997

1,000 tonnes


Future prospectsFor newsprint, markets in both Europeand North America are expected todevelop favourably in 1998. The lar-gest relative growth is foreseen inCentral and Eastern Europe. No newnewsprint capacity will come on linein Western Europe in 1998, but themarket balance may be negativelyaffected by the situation in South EastAsia. Turmoil on the financial marketsin South East Asia, and local capacityincreases, will probably reduce theregion's need for newsprint imports.

Norske Skog expects the positivetrend for magazine paper to continueduring 1998. Good market balance andhigh capacity utilisation made it pos-sible to implement increases in maga-zine paper prices from 01.01.1998.

For magazine paper, too, the situ-ation in Asia is an uncertainty factor,since it could reduce the region'simport needs. If there should be a risein exports from Asia of certain gradesof wood-free paper, that could, in addi-tion, have a negative impact on themarket balance for magazine paper inEurope and North America.

The situation for special paper isexpected to be somewhat better than in1997.

MillsNewsprintNorske Skog Skogn Norske Skog Follum Norske Skog Golbey, France Norske Skog Bruck, AustriaNorske Skog Steti, Czech RepublicA/S Union (affiliated company)

Magazine paperNorske Skog Saugbrugs Norske Skog Bruck, Austria

Special paperNorske Skog Hurum

ProductsNewsprint: Used for newspapers andto some extent for catalogues and freesheets.

project is currently being carried outand is scheduled for completion aroundend April/early May 1998.

At Norske Skog Follum work hasstarted on a new wood handling plantat a total investment cost of aboutNOK 300 million. It is due for com-pletion during 1998.

Other investments at the paper millsconcern a number of smaller projects.

Personnel, organisation and thework environmentAt the end of 1997 there were 3,436people on the Area Paper payroll. Thenet increase of 98 from 1996 includesNorske Skog Steti, with 238 employees.

There were no lay-offs during 1997at any of our mills.

At the mills, absence due to illnessand injuries at work were considerablydown on previous levels. The Grouphas sharpened its focus on this area,and the mills' ambition is to achievefurther improvements in 1998.

The integration of Norske SkogSteti into the Group's organisation iswell under way, and as early asSeptember Norske Skog had leadingpersonnel in place in the company'sorganisation.

Norske Skog Follum is carryingout an organisational developmentproject in close cooperation with theemployees and their organisations.The aim is to adapt organisation andskills at the mill to meet new require-ments.

EnvironmentWith the new biological effluent tre-atment plant at Norske Skog Skognon stream, all the Group's printingpaper mills have biological treatmentof process water.

All the mills met permitted emis-sion limits during 1997.

Following completion of a numberof projects, no new official require-ments are envisaged which will entailmajor environmental investments atNorske Skog's paper mills.

0

5

10

15

20

25

979695949392919089

%

Operating margin

AREA PAPER

SC magazine paper: Used mainly formagazines, but also for catalogues andfree sheets.

LWC magazine paper: Used for maga-zines, catalogues, free sheetsand brochures requiring high qualityprint characteristics.

Special paper: Used for a wide rangeof packaging and office purposes.

The numberof specialisedmagazines has risen steeplyduring recent years. Nichepublications like this giveadvertisers good coverageof special target groupsthey wish to reach, such ascouples who are about tomarry. The latter will findboth editorial and commer-cial information in weddingmagazines, ahead of thegreat day. Publications ofthis kind demand high printquality, and are oftenprinted on coated magazinepaper (LWC) - from, amongothers, Norske Skog Bruckin Austria.


Owing to the market situation, the millwas obliged to curtail production sig-nificantly in 1997, as in the previousyear.

Plant and investmentsNorske Skog decided in 1997 to carryout the "Tofte 400" project during theperiod 1997-2001. It has a total invest-ment budget of NOK 600 million, andits aim is to increase the mill's compe-titiveness and profitability, achievequality improvements and developpulp products adapted to customers'needs. It is also intended to improvethe environment locally by reducingemissions of odour, noise and dust.The upgrade means that Norske SkogTofte's capacity will rise from 360,000tonnes/ year to 420,000 tonnes/yearduring the period.

The first stage of "Tofte 400" wascompleted in 1997. It covered rebuil-ding of the recovery boiler to increasecapacity and improve operational avail-ability. Stage two will be carried out in1998 and aims to improve the qualityof the finished product and to reduceemissions to air.

At Norske Skog Folla a new wrap-ping line was installed, and severalsmaller investments were made.

Personnel and the working environmentNorske Skog Tofte is continuing itsdrive to increase competence andstreamline its organisation. A team-work training course for all personnelwas completed in 1997. The number ofpeople on the mill's payroll fell during1997 by 13 to 384.

At Norske Skog Folla the shiftsystem was changed to a continuousfive-shift system. At this mill, too,there has been a drive to upgrade com-petence and develop the organisation.The workforce declined by 6 to 79.

Market conditionsThe market for bleached long-fibre sul-phate pulp continued difficult in 1997.Pulp stocks in the NORSCAN area (theNordic countries and North America)were at a high level throughout thewhole year - about 1.8 million tonnes -while about 1.2 million tonnes is regar-ded as providing a balanced market. Atthe end of 1997 NORSCAN stocksstood at 1.75 million tonnes.

The list price for bleached longfibre sulphate pulp was USD 560/-tonne at the beginning of 1997, andreached a low of USD 520/tonne at theend of the first quarter, before it againrose gradually to USD 600/tonne inOctober. At the end of 1997 the pricewas USD 580/tonne. The price of shortfibre eucalyptus pulp showed a paral-lel trend, and at the end of 1997 it wasECU 490/tonne, compared with ECU420/tonne at the start of the year.

The imbalance in the market wasnot due to demand - which rises everyear - but to excessive capacity growth.During 1997 capacity rose by about 1million tonnes to about 37 million ton-nes. An increase of the same order isexpected in 1998.

The market situation for CTMPpulp has been even poorer than for sul-phate pulp - due to significant over-capacity.

ProductionNorske Skog Tofte produced 340,000tonnes of bleached sulphate pulp in1997 - 13,700 tonnes more than in1996. Of total output, 147,700 tonneswas eucalyptus pulp. The mill was shutdown for a total of four weeks in 1997- mostly in the second half of the year- for necessary maintenance and re-building of the recovery boiler.

Norske Skog Folla produced63,500 tonnes of CTMP pulp in 1997- 3,100 tonnes more than in 1996.

AREA FIBRE

Large stocks resulted in low pricesOver-capacity and large stocksmeant that pulp prices were ata very low level throughout1997. After some improvementduring the autumn, the marketweakened again toward theend of the year.

Operating revenue

CTMP pulp13%

P-masse

bret masse

Lasu

Long-fibresulphate pulp50%

Short-fibresulphate pulp

37%

Newspaper readership in Europeis very stable. No dramaticchanges have taken place in anycountry during the past 10-15years, although the market sha-res of particular papers withinthe different countries may fluc-tuate somewhat. Norske Skogsupplies newsprint to eight ofthe ten largest-circulation new-spapers in Europe. The Times,founded in 1785 as The DailyUniversal Register, is one of theveterans of Europe’s press.


of 1998, but a more favourable trend isexpected in the second half of the year.

The market for CTMP will beaffected by overcapacity in 1998, onceagain, and production curtailmentswill be necessary.

MillsNorske Skog Tofte, bleached sulphatepulp, long fibre and eucalyptus.Norske Skog Folla, CTMP.

ProductsBleached sulphate pulp: Used to givemagazine paper necessary strength,as well as a raw material for fine paper,soft paper and special paper.CTMP: Used as raw material for tissue,writing and printing paper and forabsorbent products.

In 1997 the number of injuriesinvolving absence from work rose atboth Norske Skog Tofte and NorskeSkog Folla. Injury figures are too high,and priority is being given to improvingthe situation, as well as to further incre-asing productivity and profitability.

Long-term absence due to illnesswas high at Norske Skog Tofte in1997, and in 1998 the focus will be onrehabilitation measures and systema-tic remedial training.

EnvironmentNorske Skog Tofte operated well within permitted emission limits in1997. As part of the "Tofte 400" pro-gramme, there will be a further reduc-tion in emissions to air affecting thelocal environment.

Norske Skog Folla stayed withinall its emission limits in 1997, apartfrom one dust emission incident.

Both mills are working to achieveEMAS (environmental standard)approval by the end of 1998.

Future prospectsDuring the next few years, capacitygrowth for chemical pulp will besomewhat higher than the expected risein demand. The new capacity will comemainly in South East Asia and SouthAmerica, and will be for short fibre pulp.

The situation in Asia causes greatuncertainty as to how pulp markets willdevelop in 1998. Production curtail-ments will be needed this year, to keepthe inventory situation under control.Prices declined during the first quarter

Area Fibre 1997 1996 1995

Operating revenue NOK million 1,376 1,222 2,171Operating expenses NOK million 1,227 1,228 1,373Depreciation NOK million 100 121 116Operating profit NOK million 49 -127 682Operating margin % 3.6 -10.4 31.4

Total assets NOK million 1,237 1,249 1,398Current assets NOK million 342 358 461Fixed assets NOK million 895 891 937Return on total assets % 4.5 -9.5 50.5Export share % 64 67 68Number of employees 468 521 532

-20

-15

-10

-5

0

5

10

15

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25

30

35

979695949392919089

%

Operating margin

0

200

400

600

800

1000

1200

500

1000

1500

2000

2500

3000

72 76 80 84 88 92 96 feb 98

Price Stocks

USD/tonne 1,000 tonnes

NORSCAN = Producers stocks in the Nordic countries and North America.

List price bleached longfibredpulp/NORSCAN stocks

0

100

200

300

400

500

CTMP pulpChemical pulp

979695949392919089

1,000 tonnes

Production of pulp

AREA FIBRE


BoardMarket conditionsThere was good demand for particleboard on all the most important mar-kets in 1997. It was also possible toachieve small price increases, butthese were not enough to compensatefor higher production costs.

Consumption of particle board inNorway rose by 7% in 1997 to 274,000m3. Norske Skog's share of this marketis 56%. Export sales were somewhathigher than in 1996, totalling 180,000 m3.

ProductionIt has taken somewhat longer thanexpected to run in the new particleboard line at Braskereidfoss. Produc-tivity and quality are developingfavourably.

New output records were setduring 1997 by the particle board millsForestia Agnes and Forestia Kvam,and by Forestia Grubhei, which makesI-beams. Total production of particleboard reached 368,000 m3, against347,000 m3 in 1996.Forestia Kvam achieved ISO 14001approval in 1997 - probably the firstparticle board mill in Europe to do so.

InvestmentsInvestments totalled NOK 77 million,85% of which was related to the newparticle board line at Braskereidfoss.

Personnel and organisationAt the end of the year the workforcein this business numbered 432. Therewere no temporary lay-offs during1997. In 1997, as in the previous year,the rate of absence due to illness decli-ned slightly, and is now just over 5%.Injury rates are, however, too high.

Norske Skog's BuildingMaterials area was reorganisedas two new subsidiary compa-nies in 1997. A new, large pro-duction line for particle boardwas started up. In addition theactivity was expanded by threenew production units.

Forestia ASWith effect from 01.07.1997, theGroup's sawn timber and board busi-ness was organised under a singlemanagement as a separate subsidiarycompany, Forestia AS. The companybecame formally operative fromJanuary 1998.

Sawn timberMarket conditionsThe international sawn timber marketswere satisfactory during the first halfof the year, and it was possible toincrease prices. Germany is the mostimportant export market, while otherimportant markets outside Norway areDenmark, England and the Nether-lands. Exports accounted for 37% ofturnover in 1997.

During the autumn, record-highoutput in Sweden and Finland - comb-ined with a significant weakening ofthe Japanese market - led to imbalancebetween supply and demand. That ledto a steep decline in prices of spruceproducts, which make up the largestsawn timber product group.

Underlying demand for sawn tim-ber has, however, been generally goodin both Norway and Europe. On theNorwegian market, chains of buildingmaterial outlets have further streng-thened their position and are the mostimportant customer group.

ProductionProduction was satisfactory and out-

put volume (including Hedalm's mills)totalled 721,000m3. Total Norwegianproduction reached about 2.4 millionm3 of sawn timber, the same level asin 1996. In 1997, too, imports of tim-ber from Russia and the Baltic stateswere necessary to meet raw materialrequirements. In 1997, Forestia VanSeveren became the first Norwegiansawmill to achieve EMAS/ISO certi-fication.

InvestmentsFollowing a period in which invest-ments were at a high level, the total forthe sawmills in 1997 was NOK 49 mil-lion.

Personnel and organisationThere were 910 employees at the endof 1997. The net increase of 67 peo-ple from 1996 reflects the acquisitionof three new units. Absence due to ill-ness increased somewhat, while theinjury rate declined slightly. A limitednumber of temporary lay-offs wereimplemented in 1997.

As part of a drive to improve capa-city utilisation, structural changes areplanned for 1998. The building mate-rials outlets Namsenbygg, LundbyBrumunddal and Lundby Rena weresold in 1997, and it is expected that thebuilding materials business SaugbrugsTrelast will be sold during the first halfof 1998.

Future prospectsOwing to overcapacity and high rawmaterial prices, profitability in thesawn timber business will remainunder pressure in 1998. There is a needfor structural changes, productivityimprovements and cost-cutting mea-sures, combined with the developmentof new products which can stand a hig-her level of costs.

BUILDING MATERIALS

Major changes in 1997


Future prospectsGood activity is envisaged in all themain markets for particle board duringthe first half of 1998. The greatestchallenge in 1998 will be to get thenew production line run in as rapidlyas possible, so that it can achieve theintended levels of productivity andquality.

Norske Skog Flooring ASWith effect from 01.06.1997, Lang-moen Parkett AS in Brumunddal, andFibo-Trespo AS in Lyngdal, were mer-ged to form Norske Skog Flooring AS.

1997 was a poor year, as regardsresults. This was due mainly to signi-ficant pressure on prices of laminatedproducts, as well as the start-up of pro-duction and the introduction of thenew Alloc products on severalEuropean markets, in addition to theirtest launch in the US.

Market conditionsIn 1997 sales volumes rose by 12%, forlaminated flooring, and 8%, for par-quet. Owing to a steep rise in interna-tional production, prices for laminatedflooring fell considerably in bothEurope and the US. Prices for parquetin local currencies were stable. For

laminated flooring, Norway is the lar-gest single market, while the US is thelargest export market.

The new product category, Alloclaminated flooring - a type of flooringthat does not need glue - was launchedin Europe in the first half-year, andachieved a satisfactory volume growthduring the year. The product waslaunched in the US in January 1998.Laminated flooring is showing goodgrowth in Europe, and in the US acontinued very high rate of growth isexpected.

Demand for parquet flooring rosein 1997. Langmoen Parkett strengthe-ned its position on the domestic mar-ket, achieving a 13% increase in turn-over. Sales to German-language partsof Europe now account for 43% of par-quet turnover.

Production, plant and investmentImproved efficiency and reduceddown time boosted parquet output by14%, compared with 1996. Alloc pro-duction line no. 2 was started up inthe spring of 1997, and output of Allocflooring increased from 300,000 m2 in1996 to 700,000 m2 in 1997. Qualityand productivity developed very wellduring the second half-year.

Largest producers of sawn timberin nordic countries

Building materials 1997 1996 1995

Operating revenue NOK million 2,667 2,579 2,333Operating expenses NOK million 2,520 2,421 2,123Depreciation NOK million 163 131 114Operating profit NOK million -16 27 96Operating margin % -0.6 1.0 4.1

Total assets NOK million 2,119 2,313 1,503Current assets NOK million 778 684 674Fixed assets NOK million 1,341 1,629 829Return on total assets % 0.6 2.8 7.9Export share % 38 33 37Number of employees 1,818 1,862 1,681

Sawn timber52%

Flooring and laminated products26%

Board 22%

Operating revenue

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At the parquet plant only minorinvestments were made. At the Lyng-dal plant two new production lineswere put into operation, one for Allocand one for laminated flooring.

Personnel and organisationAs a consequence of the streamliningand rebuilding of parts of the produc-tion facilities at the Brumunddal par-quet plant, the workforce there fell by36 to 225 in 1997. The workforce at theLyngdal plant fell by 20 to 229. Duringthe year the central organisationalunits of Norske Skog Flooring AS -including the market and sales areas -were set up and staffed.

Future prospectsDemand for flooring products is rising,both in Norway and on export markets.Parquet prices are expected to risesomewhat, while overcapacity andkeen competition will cause furtherprice pressure on laminated flooring.Norske Skog Flooring AS will take itsshare of growing consumption byfocusing on a broader product rangeand by strengthening distribution in allmarket segments.

Plants

Forestia ASSawmills:Forestia Våler Forestia Østerdalen Forestia LangmoenForestia Løten Forestia Elverum Forestia RomedalForestia Sokna Forestia Telemark Forestia NumedalForestia Van Severen

Particle board mills:Forestia Braskereidfoss Forestia Agnes Forestia Kvam

Trade and further processing:Forestia Gol Forestia Vikersund Forestia HenForestia Hen TreimpregneringForestia TreNova Forestia GrubheiForestia Saugbrug Trelast

ProductsSawn timber for building and con-struction use, panelling and specialgrades, beams, components for thefurniture industry, particle board forthe building, furniture and interiorproducts industries.

Norske Skog Flooring ASNorske Skog Flooring AS, LyngdalNorske Skog Flooring AS,Brumunddal

ProductsParquet flooring, laminated flooring,laminates, laminated products.

Fibo-Trespo ASFibo-Trespo AS, Lyngdal

ProductsBathroom panelling, counter tops, elements, dividing walls.

The Japanese are fond ofreading, and account fornearly ten per cent ofworld printing paperconsumption. Some of theworld’s largest newspapersare published in Japan

Fibo-Trespo ASWith effect from 01.09.1997 the com-pany was hived off from Norske SkogFlooring AS. Results were good in1997, reflecting high sales of bath-room panelling. At the end of the yearthe company installed a new profilingline for panelling. The workforce num-bered 60 at the year’s end. Prospectsfor 1998 are favourable.

BUILDING MATERIALS

This area includes the Group’sforest land estates, its hydropower stations, procurement ofelectric power, management ofthe Group’s real estate inNorway, and Norsk Virke AS,which is responsible for pur-chases of round timber, sawmillchips and waste paper.

Timber and waste paperNorsk Virke AS is responsible forsupplies of pulpwood and chips to theGroup's pulp and paper mills inNorway, and Union. Norske SkogSaugbrugs was supplied by Østfold-tømmer ANS until September 1997,when Norsk Virke took over respon-sibility. The company has also beenresponsible for supplying sawmilltimber to the sawmills Van Severen,Sokna, Numedal, Telemark and toHen, as well as raw material for theparticle board mills. As a conse-quence of the establishment of ForestiaAS, Norsk Virke no longer procuressawmill timber for the sawmills andraw materials for the particle boardmills, with the exception of the VanSeveren sawmill at Namsos.

The agreement with Sande PaperMill on procurement of timber and wastepaper terminated at the end of 1997.

Cooperation with M. Peterson &Søn AS regarding the procurement ofbrown waste paper through AWA AShas also ended. Norsk Virke will play akey role in procuring waste paper for thedeinking plant at Norske Skog Skogn.

Munkedal Skog AB, a timber trad-ing company in Sweden, has beenacquired with effect from the turn ofthe year 1997/98 to strengthen NorskeSkog Saugbrugs' position in theSwedish timber market.

Norsk Virke is taking on responsi-bility for operating Norske Skog's pro-curement network, and for inwardtransport by road and rail in Norway.

Purchases of pulpwood and chipsfor our Norwegian units totalled about6.7 million m3 in 1997, of which NorskVirke accounted for about 5.8 millionm3. Imports amounted to 1.8 million m3.About 35% of the pulpwood was impor-ted, and about a quarter of that was euca-lyptus for Tofte. Most of the coniferoustimber imported comes from Sweden.

The collection of waste paper inNorway has risen very steeply duringthe past few years. Norske Skog's agre-ement with the Environment Ministryhas made it possible to find buyers onexport markets for the large volumesinvolved. The planned deinking plantat Norske Skog Skogn will help ensuresales of Norwegian waste paper.

Norske Skog is concerned toensure and to document that wood forthe Group's mills comes from sustai-nable foresty. The Group supports thebroadly-based forest project "LivingForests". This project, which is in itsconcluding phase, aims at nationalstandards for sustainable forestry andcertification methods which are adap-ted to the ownership structure of fore-stry in Norway.

ForestsTotal area of Norske Skog's forest landis 180,000 hectares, of which 81,000hectares is productive forest. Harvestingand cultivation of the forests wentaccording to plan. A total of 81,660cubic metres was harvested in 1997

Registration of forest resources inthe county of Nord-Trøndelag wasconcluded in the summer of 1997.Together with recent records coveringthe other areas, this data will be thebasis for operation of the forests inthe coming years.

Environmental surveys carried outin recent years were followed up by a"Naturvårdsavtal" ("EnvironmentalProtection Agreement") covering 42hectares of the Group's forests inSweden. The intention is that the areacovered by these agreements shall bemanaged to conserve or foster envi-ronmental qualities. The agreementsare being concluded for periods of 50years, with the Swedish Skogsvård-styrelsen (Forest Protection Authority)as the other party to the agreement.

AREA RESOURCES

Focus on energy



DA to build and operate a gas-firedcogeneration plant located at NorskeSkog's Skogn paper mill. The cogene-ration plant will produce about 5,600GWh per year, meeting a third ofElkem's and Norske Skog's electricpower requirements. Integrating thecogen plant with the paper mill atSkogn will make it a very efficient andenvironment-friendly gas-fired gene-rating plant, in an international context- due, among other things, to the mill'sneed for process heat. IndustrikraftMidt-Norge plans to file an applicationin the summer of 1998 for permissionto build the cogen plant.

Real estateBuilding of the new Corporate Centreat Oxenøen Bruk, near Oslo's Fornebuairport, is proceeding according toplan. The move to the new Centre isplanned for the turn of the year1998/99.

The Skogvårdstyrelsen has the autho-rity to decide on all the measures tobe carried out.

EnergyNorske Skog's operations are energy-intensive, and consumption of elec-tric energy at its plants in Norway in1997 totalled 4,504 GWh. Powergenerated by the Group's own hydroplants accounted for 364 GWh, back-pressure power amounted to 200 GWhand deliveries by Statkraft were about2,400 GWh. The rest was bought undercontracts of varying duration withother suppliers in the market.

Production and consumption ofthermal energy totalled 5,888 GWh,including 4,842 GWh in Norway. Inthe Group's Norwegian units, bioe-nergy accounted for 60% and recove-red electric power for 23% of total heatrequirements.

Norske Skog wishes to support anincreased use of bioenergy, in order toreduce consumption of oil and elec-tricity for heating purposes. The Grouphas therefore taken a stake in Bio-Varme AS, a recently formed bio-energy company.

The Group needs predictable, long-term power supply arrangements thatwill ensure the competitiveness of itsNorwegian printing paper mills. Aplanof action comprising four elementswas decided on in 1997. These fourelements are industrial power con-tracts, imports, bioenergy and a largerdegree of self-sufficiency.

Norske Skog believes that Nor-wegian gas resources should be usedto strengthen the Norwegian powersupply balance and to increase theshare of the Group's electricity con-sumption from own sources.

In partnership with Elkem andStatoil, Norske Skog has thereforeestablished Industrikraft Midt-Norge

Energy consumption (electricityand thermal energy) by sources

1997 - 11, 454 Gwh

Raw material purchasesRound timber and chips (m3) Waste paper (tonnes)

Norsk Virke, from Norway 4.0 million Norsk Virke, imports 1.7 millionOther Norwegian suppliers 1.0 millionOther imports 0.1 millionMills outside Norway 0.5 million 312,000

7.3 million 312,000

Fossil fuels9%

Recovered 11%

Bioenergy 30%

Electricity 50%


Norske Skog’s R & D unit,Norske Skog Research (formerlyNorske Skog Teknikk), performsresearch and developmentwork for the Group in closecooperation with the mills'own development depart-ments. Norske Skog Researchwas established in 1989 andconsists today of four depart-ments: Fibre/Cellulose,Mechanical pulp, Paper andEnvironment, as well as agroup, established in 1997,which works on measures toimprove productivity. NorskeSkog Research today has 35employees.

In 1997 the unit was much concernedwith improving the process for makingmechanical pulp and the quality of thispulp, in view of the fact that mechani-cal pulp is the main raw material forthe Group's paper production. Oneresult of this work is that improvedtechnology is being adopted at bothFollum and Saugbrugs. Follum will bethe first mill in the world to install refi-ner technology which employs higherpressure and greater rotation speed.This produces pulp with improvedfibre characteristics, while at the sametime reducing energy consumption.Where mechanical pulp is concerned,the demand for more even quality isconstantly growing, and because of thevarying quality of the raw material,selective treatment of the fibrousmaterial is needed to achieve a homo-genous end product. At Saugbrugs thishas been taken into account, by remo-ving large particles which are givenseparate refining treatment. This givesthe paper a better surface and conse-quently improved printing characte-ristics.

Market pulp from Tofte competesin the market with sulphate pulp frommany other producers. It has thereforebeen considered important to enablethe mill to tailor pulp for the differentpaper grades in which it is to be used.Most of the projects in the Fibre/Cellulose department have been dedi-cated to this problem. Tofte's rawmaterial comes from different parts ofthe country, and therefore has varyingnatural qualities, including differentfibre length. This has been exploitedby sorting the pulp wood, so that pulpgrades can be made with the desiredfibre length and thus the desiredstrength potential.

Regarding Norske Skog's mainproduct, wood based printing paper,the demands of the market are beco-ming tougher. Printing presses are con-stantly undergoing technologicalimprovements, and at the same timeprinting methods are changing, reflec-ting - among other things - environ-mental and productivity requirements.For example, continuous efforts arebeing made to find substitutes for thesolvent-based inks used in roto-gravure. At the same time it is appa-rent that a switch to water-based prin-ting ink will make quite differentdemands on the paper's dimensionalstability, on both a micro and a macroscale. Colour pictures are being incre-asingly used in newspapers, magazi-nes and free sheets. This also requireshigher quality paper, both as regardsprintability and runnability. Newmodifications of the offset process,such as - for example - anhydrous off-set and single fluid offset, may proveto require other paper characteristics.Norske Skog Research works closelywith Technical Customer Service atthe mills concerning problems relatingto the runnability and printability oftheir paper.

A great deal of work was doneduring 1997 on the improvement ofexisting paper grades and the develop-ment of potential new grades. Theseefforts have largely concerned pro-duction at Follum, Saugbrugs andGolbey.

In the Environment departmentwork is proceeding on projects con-cerned with reducing water consump-tion at our mills, and at finding themost environment-friendly ways oftreating sludge and ash generated byproduction processes.

RESEARCH AND DEVELOPMENT

Focus on mechanical pulp

Corporate Assembly

Nominated by the shareholdersIvar B. Korsbakken, Oslo, chairman(27)Karl Stalleland, Grimstad, vice chairmanBjørn Arnestad, StabekkBjørn Asp, SteinkjerBjørn Blakstad, Sørum (148)Kjell Brandtsegg, Steinkjer (3,282)Trygve Bruvik, BergenEinar Gjems, Rena (100)Tellef Harstveit, ÅmliPål Haugstad, Ringebu (66)Kurt Jessen Johansson, Mosjøen (194)Idar Kreutzer, OsloOla R. Kristiansen, Halden (413)Tore Lindholt, SkjettenJohan Olaf Melø, KveldeTorstein A. Opdahl, Namnå (99)Dieter Oswald, Bø i Telemark (560)Tom Ruud, OsloPer Stamnes, Hønefoss (110)Kjell Stendahl, Spillum (60)

Deputy members1. Tom Hansson, Oslo2. Lars Wilhelm Grøholt, Hov (51)3. Knut Reinset, Ålvundfjord (86)4. Arne Bakken, Trysil (4)5. Jens Nicolai Jenssen, Hommelvik

(238)6. Per Kjelstad, Sande i Sunnfjord

Nominated by the employeesIver Engebretsen, FollumSteinar Voldseth, SkognTor Salater, Skogn (55)Widar Israelsson, HurumSverre Abrahamsen, LyngdalRuth Bekkeli, Våler (19)Finn Fløttum, BrumunddalConnie I. Abelsen, Saugbrugs (50)Martin M. Petersen, SaugbrugsTormod Blomset, Folla (44)

Deputy membersÅse Roen, Follum (19)Kjetil Bakkan, Skogn (25)

Hans Thore Kirknes, Skogn (132)Kjell Torp, Tofte (44)Odd Kåre Dahlen, NumedalArnt Saelor, Lyngdal (19)Stein Ove Brun, Østerdalsbruket (19)Torbjørn Fredriksen, SaugbrugsPer Kristian Dahl, SaugbrugsOdd Vidar Vandbakk, Folla (25)

Observers from the employeesRolf Bråthen, Follum (69)Roger Harstad Olsen, HurumOve Magne Anseth, BraskereidfossHenrik Gundersen, Agnes (88)Torbjørn Dybsand, Brumunddal

Deputy observersBjørn Løken, Follum (44)Rolf Ingvar Lurud, Tofte (55)Magne Eriksmoen, VålerSvein Gunnar Snippen, SoknaFrank W. Torgersen, Brumunddal


Board of Directors

Lage Westerbø, Aurdal, chairman (439)Jon R. Gundersen, Oslo, vice chairman(283)Roy Eilertsen, SaugbrugsJohn Frøseth, Støren (188)Kjell Hansen, FollumGisle Hegstad, Tofte (19)Jan Reinås, Bærum (544)Eivind Reiten, OsloHalvard Sæther, Lillehammer

Deputy members by the employeesKåre Leira, Skogn (117)Roy Borgersen, Tofte (149)Fred Lundberg, Saugbrugs (19)

ObserverArne Rødø, Van Severen

Deputy observerOle Ellingsrud, Braskereidfoss (50)(Number of shares owned in parenthesis)

AuditorsArthur Andersen & Co., Oslo

From left: Arne Rødø, John Frøseth, Halvard Sæther, Lage Westerbø (Chairman of the Board), Jan Reinås, Jon R. Gundersen (Vice Chairman of the Board), Eivind Reiten, Kjell Hansen, Roy Eilertsen and Gisle Hegstad.


Executive Staff as of February 1, 1998

President and Chief Executive OfficerJan Reinås (544)

Executive Vice President Omund Revhaug,

Corporate Development (44)

Executive Vice President Jan Kildal, Economy, Finance,

Law, IT (694)

Vice President Bjørn-Frode Jacobsen, Human Resources (44)

Acting Vice President Georg E. Carlberg, Research and

Development (44)

Vice President Rolf Løvstrøm,

Public Affairs (44)

Senior Vice PresidentDag Tørvold,

Newsprint (19)

Senior Vice President Jan Oksum,

Fibre and Magazine paper (201)

Senior Vice President Vidar Lerstad, Sales and

Marketing - Pulp and Paper (94)

Senior Vice President Thor H. Lobben, Corporate

Resources (338)

(Number of shares owned in parenthesis)


Value added in Norway 1997In 1997, the domestic operating reve-nues for Norske Skog reached NOK10,109 million. Export revenues madeup the majority of this figure, amoun-ting to NOK 7,380 million and domes-tic sales provided NOK 2,729 millionin operating revenues.

Value added is a product of theGroup’s income, less the value of pur-chased goods and services, and lessdepreciation. The resulting figure isthe value which is distributed betweenthe company’s owners, lenders andemployees.

Total domestic value creation for1997 as a result of the Group’s acti-vities (NOK million)Net operating income 10,109 - Purchase of goods and

services (domestic and imported) -6,960

- Depreciation -735 = Creation of value by the

business units 2,414

The creation of value in the Groupbenefits the employees, the public sec-tor, the owners and the enterprise itself.For 1997 the total values created inNorway are distributed as follows.

Distribution of the Group’s valuecreation in 1997 (NOK million)Employees 1,376 Lenders * 377 State/local government 215 Owners ** 267 The company 179

2,414

*) Lenders: Net financial costs**) Owners: Dividend

Of the total value creation in Norwayof NOK 2.4bn, NOK 1.38 bn benefitsthe employees of the Group in termsof wages and social costs (lessemployer tax). The remaining amountis distributed between lenders as netfinancial costs the State local authori-ties the owners and the company.

EmploymentIn total the Group employed 5,986people as at 31.12.1997. With overseasemployees numbering 1,280, the totalnumber of employees in Norway isthus 4,706 as at 31.12.1997.

Socio-Economic Accounts

The Company 7%

Owners11%

State/localauthorities

9%

Lenders16%

Employees57%

The distribution of domestic valueadded in Norske Skog during 1997

Nordland 0,25%Nord-Trøndelag 18,25%

Vest-Agder 5%

Vestfold 2,5%

Buskerud 29%

Oppland 1%

Hedmark 21%

Telemark 1%

Oslo/Akershus 5%

Østfold 17%

Regional distribution of employeesin Norway

Regional distribution of employeesin Norway

No. of full-time employees Østfold 809Oslo/Akershus 240Telemark 39Hedmark 988Oppland 47Buskerud 1,363Vestfold 114Vest-Agder 237Nord-Trøndelag 859Nordland 10Total 4,706

Indirect employment: The indirect employment in forestry,the transport sector and the energy sec-tor, as well as other industries whichdeliver goods and services to NorskeSkog, is an estimated figure based onmultiplying factors provided by theNorwegian public bureau of statistics.

The indirect employement effect ofthe group’s domestic purchasing in1997 is estimated at about 10,550 manyears.

The total employment effect of thegroup’s activities amounts to 15,300man years based on this premise.


Raw materialTimber: General term for wood as a rawmaterial. Primarily used as a general namefor pulpwood and saw logs timber, but alsoof sawn timber as a raw material for wood-products factories.Pulpwood: Logs suitable for the produc-tion of chemical or mechanical pulp.Saw logs: Logs suitable for the productionof timber.Chips: Wood chopped into pieces, 20-50mm long, 4-5 mm thick and 15-20 mmwide, produced from round logs, or as asecondary product from the sawmills.Waste paper: Used newspapers and maga-zines, waste paper from offices and print-shops, used packaging.

PulpCellulose: Organic substance which is themost important component of the cell wallsin wood fibre; it accounts for roughly 40%,while lignin makes up 30% and other sub-stances the rest.Lignin: Organic substance gluing the woodfibres together.Mechanical pulp: Amixture of fibres havingbeen separated through mechanical proces-sing in refiners or grinders.Refiner: A machine which makes mechani-cal pulp by pressing chips between rota-ting steel discs. The surface pattern of thediscs helps separate the individual fibres inthe wood.Grinder: Amachine which makes pulp fromlogs; the fibres in the wood are separatedwhen the logs are pressed against a rotatinggrinding stone.Thermo Mechanical Pulp (also called TMP):

Mechanical pulp produced by refining chipsthat are pre-heated to 100-115 C. The hightemperature softens the wood structure andhelps separate the fibres, thus yieldinglonger and stronger fibres than are produ-ced by grinding.CTMP (Chemi-Thermo-Mechanical Pulp):

Pulp produced in refiners where the rawmaterial - chips - is both pre-heated and che-mically impregnated.Chemical pulp: A mixture of fibres havingbeen separated through a chemical cooking

process where substances other than cellu-lose are dissolved and removed.Sulphate (kraft) pulp: Chemical pulp pro-duced by cooking the wood chips with asolution consisting mainly of caustic sodaand sodium sulphide in a digester. The termsulphate reflects the fact that sodium sul-phate was traditionally used in the chemicalrecovery process.Long fibre pulp: Chemical pulp producedfrom softwood timber such as spruce orpine.Short fibre pulp: Chemical pulp producedfrom hardwood timber such as birch oreucalyptus.DIP (deinked pulp): Recycled newspapers,magazines and other printed material whichare chemically treated to remove the ink.Bleaching: Removal or modification of thecoloured components in the pulp, prima-rily lignin, to improve its brightness. Actingchemicals include chlorine dioxide andhydrogen peroxide, giving the pulp higherbrightness..Market pulp: Pulp delivered to externalend-users. Most pulp is converted to paperin an integrated mill.

PaperCoating: A process in which the paper sheetis given a thin coating of clay and otherpigments, to give the sheet a good printingsurface.Basis weight (substance): The weight ofthe paper sheet per unit area, normally ingrammes per square metre. In NorthAmerica other units of measurement areused (lb per 3,000 square feet).Wood containing paper (publication

paper): General term for paper containingmainly mechanical pulp. The most commongrades are newsprint, SC magazine paperand LWC magazine paper.Newsprint: Paper for newspapers contai-ning of up to 100% mechanical pulp and/ordeinked pulp. Deinked pulp is increasinglyused as a raw material for the productionof newsprint.SC (Super Calendered) magazine paper:

Uncoated printing paper, mainly for maga-zines and catalogues, consisting of about

50% mechanical pulp, 20% chemical pulpand 30% clay. This paper is given a surfacetreatment (super calendered) to give it asmoother surface and better printing cha-racteristics. LWC (Light Weight Coated) magazine

paper: Coated printing paper with a basesheet of mechanical and chemical pulpgiven a coating to improve its surface - usedfor magazines, catalogues and free sheets.Fine paper: General term for writing andprinting paper of high quality, made frombleached chemical pulp.

Sawn timber, board and parquetTimber: Wood product for structural pur-poses and carpentry, or for further processingto other timber products. Used as a commonname for sawn timber and planed timber.Sawn timber: Materials produced straightfrom the log.Planed timber: Timber planed on all sur-faces.Drying: Removal of moisture from the tim-ber until the moisture content satisfies therequirement to what the timber shall be usedfor.Kiln: Plant for artificial drying of timberwith controlled climate conditions (tempe-rature, air humidity and air velocity).Particle board: A board produced by blend-ing chips and glue and subjecting it to hightemperature and pressure.Parquet: Laminated boards, most often con-sisting of three layers. The top layer madefrom hardwood, the middle layer of cross-wise wooden strips and bottom layer of ply-wood. The boards are tongued and groovedand are produced in lengths of 1.80 - 2,5 metres.

OtherBiological treatment: A method of clean-sing waste water in which micro organismsconvert dissolved organic material in theeffluent to water, CO2 and combustiblesludge.Boiler house: The section that produces thethermal energy (steam/hot air) requiredduring the production process to give thefinished products (pulp, paper, board, sawntimber) the desired dry matter content.

GLOSSARY

ngary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmarkland Taiwan USA Scotland Germany France Austria Switzerland Portugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary

gapore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England TaiwanA Scotland Germany France Austria Switzerland Portugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australiael Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germanynce Austria Switzerland Portugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysiaonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Austriatzerland Portugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysia Indonesia

ng Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Austria Switzerlandtugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kongna India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Austria Switzerland Portugal Greecekey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kong China Indiaand Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Austria Switzerland Portugal Greece Turkeyway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Polandisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Austria Switzerland Portugal Greece Turkey Norwayand Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japancedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Austria Switzerland Portugal Greece Turkey Norway Ireland Belgiumherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatiavakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Austria Switzerland Portugal Greece Turkey Norway Ireland Belgium Netherlandsembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakiailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Austria Switzerland Portugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourgand Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria

mania Denmark England Taiwan USA Scotland Germany France Austria Switzerland Portugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czechublic Hungary Singapore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmarkland Taiwan USA Scotland Germany France Austria Switzerland Portugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary








nesorymicnes

persga-rialoksazi-cialoneualsnes








pers

Annual Report 1997

Shareholders’ GeneralMeetingThe ordinary General Meeting

will be held on Wednesday May

6, 1998 at 12 o’clock at

Festiviteten, Kirkegaten 18,

Levanger.

Financial information 1998General Meeting May 6

Shares are quoted exclusive of

dividend May 7

Dividend paid to shareholders

registered at the VPS as

of May 6, May 22

Publication of results for

January-March May 6


January-June August 20


January-September October 29

contents

This is Norske SkogMain financial figures, Group and by Area1997 Highlights 2Aims and tasks in 1998 2

The BoardBoard of Directors’ report 1997 4

AccountsAccounts 1997, consolidated 10Accounts 1997, Norske Skogindustrier ASA 26Auditor’s Statement 30The Corporate Assembly’s Statement 30

Analytic InformationContinued growth for wood-containing printing paper 32Main financial figures 34Major events 35Sensitivity/Currency and Interest rate Risks 36Production capacities/Statistics 37Basis for value estimates 38

Shares and shareholdersShareholder policy, structure and share capital 40Principal shareholders 42Key figures related to shares 43

Administration’s commentsJan Reinås: Continuous focus on profitability 45Organisation structure 46Group administration in 1997 47Area Paper 49Area Fibre 53The Building Materials Business 56Area Resources 60Research and development 62

OrganisationCorporate Assembly, Board of Directors, Auditors 63Executive Staff 64

OtherSocio-Economic Accounts 65Glossary 66Addresses

Norske Skog's operating revenue, by products

Building materials19%

Special grades/packaging 6%

Fine paper11%

Bleached sulphate10% CTMP/Dissolving

5%

Printing paper49%

Building materials20%

Special grades and other 3%

Bleached sulphate 7%

CTMP 1%

Printing paper69%

1990 1997

Our goal is to continue developingNorske Skog as an international forestindustry group which provides a com-petitive return on its owners' invest-ments. Norske Skog's core areas areprinting paper and bleached sulphatepulp. Two subsidiary companies pro-duce wood-based building materials.In 1997 Norske Skog derived 77% of itsoperating revenues from markets out-side Norway.

Printing paper - newsprint and magazine paper - isNorske Skog's largest core area. With a capacity ofabout 2.4 million tonnes of paper, and a world-widesales and distributing organisation, Norske Skog isone of the world's leading suppliers within this mar-ket segment. Norske Skog is the fourth largest pro-ducer of printing paper in Europe, and in newsprintit is among the world's five largest. The world mar-ket for printing paper is just over 50 million tonnes,while the total west European market exceeds 16 mil-lion tonnes. Printing paper accounted for about 70%of the Group's operating income in 1997.

Norske Skog's output capacity for market pulpis 455,000 tonnes, in a total global market of about35 million tonnes. Norske Skog is northern Europe'sonly producer of eucalyptus pulp. Market pulpaccounted for about 10% of the Group's operatingrevenues in 1997.

Through its subsidiaries Forestia AS and NorskeSkog Flooring AS, Norske Skog is Norway's largestmanufacturer of building materials, and one of thelargest suppliers of sawn timber and board in theNordic area. The two subsidiaries accounted in 1997for about 20% of the Group's operating revenues.

Norske Skog has a strong financial basis, withtotal booked assets of NOK 17.3 billion and andequity capital ratio of 52%. The company had about18,000 shareholders as of 31.12.1997, and is listedon the Oslo Stock Exchange and on SEAQ (StockExchange Automatic Quotation System) in London.At the turn of the year, 21.6% of shares were ownedby non-Norwegians.

Norske Skog was founded in 1962, and has sin-ce it started grown rapidly through mergers withother companies (in 1972 and 1989), as well asthrough acquisitions and major investments in newplant in Norway and abroad.

Through continued growth and internationali-sation, Norske Skog will strengthen its position as acost-efficient supplier of high-quality printing paper.When the upgrade of paper machine number two atGolbey has been completed, in the first quarter of1999, the Group will have doubled its printing papercapacity during the 1990's. About 40% of productionwill be sited in key European markets, and the Groupwill probably be the world's second largest newsprintproducer.

This is Norske Skog

Main financial figures1. Profit and loss account 1997 1996 1995 1994 1993 1992 1991 1990 1989

Operating revenue 13,312 13,265 12,548 9,170 7,338 7,557 8,640 9,879 9,248Operating profit 1,083 1,916 2,500 732 299 -47 500 1,128 1,001Profit for the year 590 1,317 1,699 206 -47 -516 246 773 802

2. Main financial figuresCash flow from operating activities 1,615 2,616 2,555 866 492 256 1,405 1,001 918Depreciation 1,140 1,132 832 616 552 575 553 548 487Investments in operational fixed assets 1,814 1,053 926 565 1,127 2,220 1,190 1,001 1,373Gearing 0.46 0.63 0.61 0.67 1.13 1.07 0.49 0.65 0.63

3. ProfitabilityReturn on assets % *) 7.8 14.1 21.4 7.1 5.0 0.4 8.0 15.0 17.0Return on equity % *) 7.1 18.6 30.1 4.8 -1.2 -12.8 6.5 25.3 33.4

4. Shares and shareholder structureNet earnings per share fully diluted *) 16.40 40.38 52.39 6.91 -1.79 -21.28 10.18 32.05 35.99Net earnings per share fully diluted *)16.40 35.89 45.99 6.91 1.68 -13.03 11.30 30.25 34.59Equity per share 237.20 233.91 200.67 148.84 146.72 155.42 175.95 135.52 116.61*) See definitions page 35.

180

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Jan. Feb. Mar. Apr. Mai Jun. Jul. Aug. Sep. Oct. Nov. Dec.

NOK

Share price development 1997

0

50

100

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979695949392919089

NOK/year

Equity per share

Head Office7620 SKOGNTel.: +47 74 08 70 00Fax: +47 74 08 71 00

Corporate CenterVollsveien 91324 LYSAKERTel.: +47 67 59 90 00Fax: +47 67 59 91 81

Area PaperNorske SkogArea PaperVollsveien 91324 LYSAKERTel.: +47 67 59 90 00Fax: +47 67 59 90 51

Area Fibre and Magazine paperNorske SkogArea Fibre and Magazine paperVollsveien 91324 LYSAKERTel.: +47 67 59 90 00Fax: +47 67 59 90 51

Sales and public relation -fibre and paperNorske Skog Sales ASVeritasveien 141322 HØVIKTel.: +47 67 59 90 00Fax: +47 67 59 91 97

Area ResourcesNorske SkogArea ResourcesVollsveien 91324 LYSAKERTel.: +47 67 59 90 00Fax: +47 67 59 91 93

Forestia ASHead Office2435 BRASKEREIDFOSSTel.: +47 62 42 82 00Fax: +47 62 42 39 23

Norske Skog Flooring ASVollsveien 13D1324 LYSAKERTel.: +47 67 59 90 00Fax: +47 67 59 91 85

Norske Skogindustrier ASA

Photo: Glenn Røkeberg. Design: Geelmuyden.Kiese. Print: Produksjonshuset. Stock: 29.000.

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gazines Direct mail material Brochures Mail order catalogues Daily newspapers Music magazines Local newspapers Manuals Comic books Regional newspapers Financial magazirporate magazines Pocket books Free sheets Fashion magazines Motoring magazines Tabloid newspapers Supplements Magazines Periodicals Tourist leaflets Telephone directmputer magazines Wedding magazines Lifestyle magazines Direct mail material Brochures Mail order catalogues Daily newspapers Music magazines Local newspapers Manuals Cooks Regional newspapers Financial magazines Corporate magazines Pocket books Free sheets Fashion magazines Motoring magazines Tabloid newspapers Supplements Magaziiodicals Tourist leaflets Telephone directory Computer magazines Wedding magazines Lifestyle magazines Direct mail material Brochures Mail order catalogues Daily newspapsic magazines Local newspapers Manuals Comic books Regional newspapers Financial magazines Corporate magazines Pocket books Free sheets Fashion magazines Motoring maes Tabloid newspapers Supplements Magazines Periodicals Tourist leaflets Telephone directory Computer magazines Wedding magazines Lifestyle magazines Direct mail matechures Mail order catalogues Daily newspapers Music magazines Local newspapers Manuals Comic books Regional newspapers Financial magazines Corporate magazines Pocket booe sheets Fashion magazines Motoring magazines Tabloid newspapers Supplements Magazines Periodicals Tourist leaflets Telephone directory Computer magazines Wedding maga

s Lifestyle magazines Direct mail material Brochures Mail order catalogues Daily newspapers Music magazines Local newspapers Manuals Comic books Regional newspapers Finangazines Corporate magazines Pocket books Free sheets Fashion magazines Motoring magazines Tabloid newspapers Supplements Magazines Periodicals Tourist leaflets Telephoectory Computer magazines Wedding magazines Lifestyle magazines Direct mail material Brochures Mail order catalogues Daily newspapers Music magazines Local newspapers Manumic books Regional newspapers Financial magazines Corporate magazines Pocket books Free sheets Fashion magazines Motoring magazines Tabloid newspapers Supplements Magaziiodicals Tourist leaflets Telephone directory Computer magazines Wedding magazines Lifestyle magazines Direct mail material Brochures Mail order catalogues Daily newspapsic magazines Local newspapers Manuals Comic books Regional newspapers Financial magazines Corporate magazines Pocket books Free sheets Fashion magazines Motoring maes Tabloid newspapers Supplements Magazines Periodicals Tourist leaflets Telephone directory Computer magazines Wedding magazines Lifestyle magazines Direct mail matechures Mail order catalogues Daily newspapers Music magazines Local newspapers Manuals Comic books Regional newspapers Financial magazines Corporate magazines Pocket booe sheets Fashion magazines Motoring magazines Tabloid newspapers Supplements Magazines Periodicals Tourist leaflets Telephone directory Computer magazines Wedding maga







s Lifestyle magazines Direct mail material Brochures Mail order catalogues Daily newspapers Music magazines Local newspapers Manuals Comic books Regional newspapers Finangazines Corporate magazines Pocket books Free sheets Fashion magazines Motoring magazines Tabloid newspapers Supplements Magazines Periodicals Tourist leaflets Telephoectory Computer magazines Wedding magazines Lifestyle magazines Direct mail material Brochures Mail order catalogues Daily newspapers Music magazines Local newspapers Manumic books Regional newspapers Financial magazines Corporate magazines Pocket books Free sheets Fashion magazines Motoring magazines Tabloid newspapers Supplements Magaziiodicals Tourist leaflets Telephone directory Computer magazines Wedding magazines Lifestyle magazines Direct mail material Brochures Mail order catalogues Daily newspap

Norske Skogindustrier ASA

Head OfficeN-7620 SkognTel: +47 74 08 70 00Fax: +47 74 08 71 00

Corporate CenterVollsveien 9N-1324 LysakerTel: +47 67 59 90 00Fax: +47 67 59 91 81

http://www.norske-skog.com

Paper from Norske Skog's mills was used in

hundreds of publications throughout the world in 1997,

amounting to more than a billion printed copies

@Hugin 1998. All rights reserved.

97Table of Contents

Overview

Summary 1997

Key figures

Report of the Board of Directors

Income Statement

Balance Sheet

Cash Flow Analysis

Notes

Shareholders Policy

Norske Skogpore Australia Israel Andorra Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denm

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Malaysia Indonesia Hong Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland GermSwitzerland Portugal Greece Turkey Norway Ireland Belgium Netherlands Luxembourg Iceland Cyprus Czech Republic Hungary Singapore Australia Israel Andorra Malg Kong China India Poland Tunisia Japan Macedonia Croatia Slovakia Thailand Bulgaria Rumania Denmark England Taiwan USA Scotland Germany France Au

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