Norske Skogindustrier ASA - Company Profile, Information, Business Description, History, Background Information on Norske Skogindustrier ASA

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Company Perspectives:

Vision: Norske Skog shall be a leading international paper company. Goal: Norske Skog shall create value for its owners, matching the performance of the best pulp and paper companies. Strategy: Norske Skog's core business shall be wood-containing publication paper.

Global strength - local presence.

History of Norske Skogindustrier ASA

Norske Skogindustrier ASA (the name literally means Norwegian Paper Industry) has repositioned itself at the beginning of the 21st century as the world's second largest producer of publication papers, including newsprint and magazine quality paper. The company produces more than eight million tons of paper each year, with newsprint paper accounting for approximately two-thirds of the group's total activity. In a little more than a decade, Norske Skog has transformed itself from a relatively minor player wholly focused on the Norwegian market to one of the paper industry's global giants. The company owns wholly or in partnership more than 50 paper production facilities in 24 countries worldwide. Europe remains the group's biggest market, with mills in Austria, France, The Netherlands, the Czech Republic, Germany, and the United Kingdom, in addition to several plants in Norway. The company is also highly present in the Australasian market, with mills in Australia and New Zealand, and in South America, with mills in Chile and Brazil. The company also holds a 36 percent stake in Canadian paper giant Norske Canada, and a 50 percent stake in the Pan Asia Paper joint venture with partner Abitibi. In 2003, Norske Skog sold off the last of its forestry holdings in its drive toward refocusing itself exclusively around paper production. The company has exited a number of other fields, such as pulp production and power generation. The company's sales topped NOK 24 billion ($4 billion) in 2003.

Norwegian Forestry Consolidator in the 1960s

In the late 1950s, a group of forest owners from Norway's central region began exploring the possibility of grouping together in an effort to create a reliable outlet for their forestry products. Their talks led to the creation of a new company, Norske Skog--pronounced closer to "skoog" in English, the word means "paper"--in 1962. Major financial backing for the venture came from the Norwegian Forest Owners' Federation, which became the new company's majority shareholder at 50 percent. The company initially targeted the newsprint sector.

Observers were skeptical about the new company's chances of success, as the founding group had little industrial experience among them. Moreover, Norske Skog had to overcome other obstacles, including low cash reserves--the company's startup capital stood at just NOK 49 million--and a lack of marketing experience. Nonetheless, the company pushed ahead with plans to build its own mills and begin newsprint production.

Despite its small size, the company decided to build a mill with two newsprint machines, at a total investment cost of some NOK 300 million--a move credited with giving Norske Skog the production capacity it needed to survive its early years. The first newsprint machine at the company's Skogn mill was completed in 1966; the second machine was in production the following year.

By the early 1970s, Norske Skog was a profitable and expanding business. The company's shareholders had agreed to plow profits back into the company--the company was to pay dividends for the first time only in 1983--and Norske Skog now began a diversification effort, becoming a driving force behind the restructuring of the Norwegian forestry and paper and pulp sectors. In 1972, Norske Skog reached a cooperation agreement with Follum Fabrikker, one of Norway's oldest paper producers founded in 1873, in which each company acquired shares in the other. At the same time, the two companies agreed to form a joint marketing and logistics program for their newsprint production.

Norway's small size--and the risks that competition among the country's paper and pulp producers might result in the collapse of the domestic industry--brought new impetus for consolidation of the pulp, paper, and forestry sectors in the 1980s. Norske Skog had continued its expansion and diversification, in part by building up its shareholding in Follum as well as by gaining a majority share in Skien, Norway-based newsprint producer Union, and in part by diversifying its holdings. By the late 1980s, Norske Skog, along with its forest holdings and newsprint production, had added lumber and wood products, packaging, printing, retail book and stationery operations, and even power generation facilities. The company also became a leading Norwegian wood pulp producer through a controlling stake in Tofte Industrier.

Norske Skog completed its hold over Follum in 1989, forming the basis of a three-way merger, together with Tofte, that created Norway's dominant newsprint group. Shortly after the merger, the enlarged group took over another paper producer, Saugbrugsforeningen, a company with operations dating back to the late 1850s. As a result of that acquisition, and including the group's stake in Union, Norske Skog emerged with control over nearly all of Norway's newsprint production. The company also used the Saugbrugs plant as the springboard for its launch into the magazine paper sector, investing NOK 3 billion to build a new paper machine at the site in 1990.

European Leadership in the 1990s

Norske Skog now began a long, two-pronged process. On one side, the group began to refocus itself as a dedicated paper producer, while on the other Norske Skog began plans to expand its operations internationally for the first time. The company began selling off its noncore holdings in 1990, starting with the shutdown of its Otto Langmoen sawmill, followed by the winding up of a cellulose mill and a laminates plant in 1991. That year, as well, the company sold off its retail book- and stationery-store network and its wholesale and retail printing operations. The company also exited the packaging sector with the sale of three subsidiaries.

In the meantime, the company had made its first overseas purchase. In 1990, the company bought up 49 percent of France's Papeteries de Golbey SA. Following that purchase, Norske Skog began construction of a first newsprint mill at the French facility, spending more than NOK 3 billion. That machine came on-stream in 1992, boosting the group's total capacity by more than 250,000 tons per year. Soon after, the company brought its new Saugsbrugs magazine paper machine online, adding another 550,000 tons per year of capacity.

Divestments continued into the mid-decade, including the sale of the group's 50 percent stake in Olaf Norlis Bokhandel, and paper products distributor Ad. Jacobsen, in 1993, and the group's building materials supply division in 1997. The company also began seeking buyers for its forest holdings--a move that highlighted the group's transformation into a dedicated paper producer.

Norske Skog took full control of Papeteries de Golbey in 1995. The company began plans to expand the French site's capacity again, launching construction of a new, NOK 2.8 billion machine in 1997. The new machine, launched in 1998, added another 335,000 tons per year to the group's production in France.

At the same time, Norske Skog sought a deeper penetration into the European paper industry. In 1996, the company bought a mill in Bruck, Austria. The site added some 220,000 tons per year of magazine paper and 115,000 tons per year of newsprint to Norske Skog's total. The company remained in Central Europe for its next purchase, buying up a newsprint mill in Steti, in the Czech Republic, adding 100,000 tons per year of newsprint capacity in 1997. By the end of that year, Norske Skog's total production had topped two million tons.

Global Newsprint Leader in the 2000s

The late 1990s marked a new turning point in the company's history. Norske Skog now began targeting expansion beyond Europe in an effort to join the ranks of top global publication paper producers. In 1998, the company bought 90 percent control of a newsprint mill in Korea, boasting 180,000 tons per year, as well as a mill in Thailand, adding an additional 120,000 per year to the group's Asian capacity. Both mills had previously been owned by Korea's Shin Ho Paper.

The company's Asian ambitions became clearer at the end of 1998, when the company agreed to a form a joint venture with Canada's Abitibi Consolidated and Korea's Hansol Paper Co. to form Pan Asia Paper. The new company, owned at one-third each by the partners, then acquired Hansol's Korean and Chinese newsprint operations for $1 billion. Pan Asia then bought up Norske Skog's Korean and Thai holdings as well.

Norske Skog completed its ownership of Union in 1999. The company then began a new phase in its restructuring, shedding still more of its noncore holdings, including a merger of its sawn timber business into Moelven Industrier that year. The company also sold off its Fibo-Trespo laminate products business in 1999. By 2001, the company had sold off nearly 20 noncore operations. Instead, the group turned its attention to the South American market, acquiring a 50 percent stake in the newsprint operations of Brazil's Industrias Klabin de Papel e Cellulose. At the same time, Norske Skog announced its intention to seek out a major international acquisition.

That opportunity came the following year, when Norske Skog reached an agreement to acquire New Zealand newsprint and magazine paper group Fletcher Challenge Paper. The purchase, worth NOK 21 billion ($2.5 billion) nearly doubled Norske Skog's size, adding mills in New Zealand, Australia, Canada, Brazil, Chile, and Malaysia. The move gave Norske Skog control of some 13 percent of the global publication papers market.

The new paper giant continued to seek acquisition opportunities. The company's next target came in Canada, where it agreed to merge Pacifica Papers into its Norske Skog Canada subsidiary in a deal worth CAD 900 million. Following the merger, Norske Skog's stake in the Canadian operation was reduced to just 36 percent, and accordingly the company changed its name to Norske Canada.

By the end of 2002, Norske Skog had expanded its production capacity past eight million tons, while boosting revenues to more than NOK 24 billion ($4 billion). The company now took a break from acquisitions as it worked to integrate its newly expanded global operations. At the same time, however, Norske Skog continued in its drive to shed its noncore holdings. In 2002, the company sold off its 13 hydropower electric generating plants for NOK 1.4 billion. By the end of 2003, it also had found a buyer for the last of its forest holdings, a 330,000-acre tract.

By then, too, Norske Skog once again began plotting for further expansion, now eyeing the Asian region. In 2001, Hansol had exited the Pan Asia Paper joint venture, enabling Norske Skog to increase its share to 50 percent. That company now prepared to step up its presence in the massive Chinese market, forming a joint venture with Hebei Longteng Paper Corporation to form Hebei Pan Asia Long-Teng Paper Co. The move, which included construction of a new paper mill expected to be completed in 2005, was slated to double Pan Asia's Chinese production and confirm its position as the largest paper producer in Asia, excluding Japan. In just 40 years, Norske Skog had grown from a tiny Norwegian company to a major player in the worldwide paper sector.

Principal Subsidiaries: Nornews AS, Lysaker; Norske Treindustrier AS; Lysaker Invest AS; Norske Skog Holding AS; Norske Skog Flooring Holding AS; Embretsfos Fabrikker AS; Union Paper & Co. AS; Wood and Logistics AS; Oksenøyveien 80 AS; Norske Skog Golbey (France); Pan Asia Paper Company Ltd. (Singapore; 50%); Norske Skog Bruck GmbH (Austria); Norske Skog Steti (Czech Republic); Norske Skog Osterreich GmbH (Austria); Markproject Ltd. (England); Norske Skog Deutschland GmbH (Germany); Norske Skog (UK) Ltd.; Norske Skog Holland B.V.; Norske Skog Belgium NV; Nornews Portugal (75%); Norske Skog Espana S.A. (Spain); Norske Skog (Ireland) Ltd.; Norske Skog (Schweiz) AG; Norske Skog Danmark ApS; Norske Skog Italia S.R.L.; Norske Skog France S.A.R.L.; Norske Skog Japan Co. Ltd.; Norske Skog AB (Sweden); Norske Skog Polska Sp. z.o.o. (Poland); Norske Skog Hungary Trading and Service Limited; THP Paper Company (Canada).

Principal Competitors: Marubeni Corporation; International Paper Co.; Georgia-Pacific Corporation; Perm Timber Producers Joint Stock Co.; Mondi Ltd.; Weyerhaeuser Co.; Zaklady Celulozy i Papieru CELULOZA SWIECIE S.A.; VENEPAL SACA; Krasnoyarsk Pulp and Paper Mill Joint Stock Co.; Stora Enso Oyj; Orkla ASA; Jefferson Smurfit Group PLC.


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