knight libertas 250310

8/9/2019 Knight Libertas 250310

1/35

Knight Libertas Credit Conference

London, 25 March 2010

Odd-Geir Lyngstad, Corporate Treasurer and Deputy CFO


2/35

2

Overview of presentation

Company specifics & the industry

Three performance drivers Norske Skogs response

Financials and outlook


3/35

Company specifics & the industry


4/35

4

Norske Skog headlines

A leading producer of

publication paper:

14 mills in 11 countries

Revenue (2009)

~ NOK 20.4 bn/US$ 3.2 bn 5,700 employees

Listed in Oslo no controlling shareholder


5/35

5

The world of Norske Skog

Saugbrugs (Norway)Follum (Norway)

Skogn (Norway)

Bruck (Austria)

Walsum (Germany)Parenco (The Netherlands)

Golbey (France)

Singburi (Thailand)

MNI (Malaysia 34%)

Boyer (Australia)

Tasman (New Zealand)Albury (Australia)

Bio Bio (Chile)

Pisa (Brazil)


6/35

6

Norske Skog in Europe

Seven mills, capacity 3 163 000 tonnes

= 70 % of total capacity

Std newsprint etc 1 763 000 tonnes Magazine grades 1 400 000 tonnes

Good cost position (1st quartile) for

Skogn, Golbey and Saugbrugs(combined 55 % of European

capacity)

Long-term market development:

Newsprint: Most likely declining

Magazine grades: Expect stable or increased

demand

Skogn

Golbey

Parenco Walsum

Bruck

Corporate HQ, OsloSaugbrugsFollum

Skogn

Golbey

Parenco Walsum

Bruck

Corporate HQ, OsloSaugbrugsFollum


7/35

7

Norske Skog in Australasia

Three mills, capacity880 000 tonnes of std

and improved newsprint Only producer, high

market share and good,long-term customer

relationships

Favourable cost positionand historically strong

cash flow

Albury

BoyerTasman

Albury

BoyerTasman

Albury

BoyerTasman


8/35

8

Norske Skog in South America

Two mills, capacity310 000 tonnes of std

newsprint, book paper etc Largest producer, good

cost position

Growth market, somevolatility expected

Opportunities within bioenergy

Earthquake in Chile, March2010 No injuries on personnel, limited

economic impact

Bio Bio

Pisa

Bio Bio

Pisa

Bio Bio

Pisa


9/35

9

Norske Skogs production capacity by

segments

Europe

magazine

31 %

Europe

newsprint

39 %

Australasia

newsprint

20 %

Asia newsprint

3 %South America

newsprint

7 %

Total capacity4.5 mill. tonnes Newsprint etc. 3.1 mt Magazine 1.4 mt


10/35

10

World paper production

7% 18%

21%

49%

5%

Publication paperFine Paper

Packaging Paper and Board

TissueOther

8%

12%

28%20%

1%

24%5%

1%

North AmericaOceania

Latin America

Africa

Other Asia

Japan

China

Europe

TOTAL 391 million tonnes (2008)

Source: RISI Industry statistic 2008


11/35

11

Industry structure

Consolidated

Steep fall in demand for several years

North

America

Less consolidated

Fall in demand in 2009, but less thanNorth America

Europe

Fragmented

Increase in demand overall, regional

variances

Asia


12/35

12

Top global publication paper companies0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000

Catalyst (CAN)

Kruger (CAN)

SCA (SWE)

Oji Paper (JAP)

Holmen (SWE)

White Birch (USA)

NewPage (USA)

Myllykoski (FIN)

Nippon Paper (JAP)

Norske Skog (NOR)

Stora Enso (FIN)

AbitibiBowater (USA)

UPM (FIN)

M-real (FIN)

Burgo (ITA)

Mt

Top 5 share of capacity

Grade NorthAmerica

Europe

Newsprint 80% 60%

Uncoated Mag 80% 80%

Coated Mag 85% 70%

Source: RISI Dec 08, PPPC Oct 09

Newsprint

Coated Mag

Uncoated Mag


13/35

Three performance drivers


14/35

14

Challenging market conditions

Three forces driving performance; Cost wave 2006 2008

Substantial cost increases for raw materialsand energy

Demand drop

Steadily decline in the US since 2001 Significant drop in all markets in 2009

Prices

Historically low price level in the US in 2009

Price reduction of approx. 20% in Europe for2010


15/35

15

Total cost breakdown*

Energy20 %

Distribution

9 %

Labour

14 %

Other fixed

8 %

Other Direct

8 %

Depreciation11 %

Raw Materials

31 %

Total cost Raw materials

Wood

35 %(11%)

Market pulp

9 %(3%)

Chemicals, fillers

etc.

29 %(9%)

Recovered paper

27 %(8%)

*Calculated to 90% operating rate


16/35

16

Cost developmentNewspapers (2.01) - Germany

0

20

40

60

80

100

120

140

160

180

01/0

1

01/0

2

01/0

3

01/0

4

01/0

5

01/0

6

01/0

7

01/0

8

01/0

9

01/1

0

EUR

/tonne

Old News - China

0

50

100

150

200

250

300

01/0

1

01/0

2

01/0

3

01/0

4

01/0

5

01/0

6

01/0

7

01/0

8

01/0

9

USD

/tonne

Nordic Power Market - Nordpool

-10

10

30

50

70

90

110

130

150

jun.0

4

jun.0

5

jun.0

6

jun.0

7

jun.0

8

jun.0

9

jun.1

0

jun.1

1

jun.1

2

jun.1

3

jun.1

4

EUR/MWh

Spot Forward

Recovere

dp

aper

Electricit

y


17/35

17

Current cost picture

11% of total costs

S.America & Australasia:

Long term contracts at favourableprices

Continental Europe Market exposure

Norway Fixed contracts

Wood

Recoveredpaper

8% of total costs

Reduced exposure for NS afterdisposals in China and idlingPM2 in Parenco

Upward pressure on prices

Energy

2/3 electricity of which 75%bought under long termcontracts in Norway, Brazil and New Zealand

Higher el-prices in Q1

Rawmaterials

Energy

Raw materials


18/35

18

Current cost picture (cont.)

Chemicals,fillers etc.

9% of total costs

Increased prices end of 2009

Still upward pressure

Pulp

3% of total costs

Upward pressure on prices

Increased price pressure

after earthquake in Chile NS exposure ~200kt in

magazine production


19/35

19

Regional demand for publication paper2009 demand & change 09/08

0

2

4

6

8

10

12

14

Europe North America Asia Latin America Australasia

millio

ntonnes

Newsprint Magazine

Sources: PPPC

Newsprint = Standard newsprintMagazine = Coated, supercalendered and other (improved newsprint etc.)

-18.6%

-16.2%

-13.6%

-25.3%

-11.2%

-6.5%

-19.4%

-12.6%

-28.4% -22.6%


20/35

20

Demand decrease in newsprint

Europe

Demand 14% in 2009

Circulation 1/ 3

Pagination 2/ 3

Newsstandsales/ Freepapers

Subscription

Discontinuedpapers

Editorial

Advertising


21/35

21

Price development

Newsprint pricing: Annual contracts in Europe,

quarterly in N-America

Prices in Europe 2010: Newsprint:

Drop of ~20%on the Continent

Magazine paper: Drop of 5 10%

Newsprint prices inNorth America:

Rock bottom level in Autumn2009, increase thereafter Will have positive impact also

in South America and Asia

300

350

400

450

500

550

600

650

700

jan.07 jan.08 jan.09 jan.10

Germany US East UK

Newsprint EUR/tonne (45 gsm)

Source: RISI


22/35

Norske Skogs response


23/35

23

Debt reduction through asset sales

Sold in 2008

Profitable operations, acceptable price

Reduced NIBD of ~NOK 4 billion

Norske Skogs

mills in S. Korea

Sold in 2009

Marginal cash flow, low price per tonne Reduced NIBD of ~ NOK 1 billion

Norske Skogsmills in China

Various properties sold in 2008 and 2009

More to come in 2010

Energy contracts: Could be partly monetized

Properties etc.


24/35

24

Capacity reductions: A prerequisite

for better pricing environment Norske Skog has actively

closed capacity since 2006 Norway, New Zealand, Czech

Republic and Netherlands In total, around 900 tonnes

2008: Significant closures by a

number of companies:N.A. EuropeNewsprint ~11% ~7%

Magazine ~8% ~6%

2009: Norske Skog was theonly company to closecapacity; Parenco PM 2 inNetherlands

New sprint capacity

0

10 000

20 000

30 000

40 000

00 01 02 03 04 05 06 07 08 09

1

0

0

0

t

RoWEur

NA

Magazine capacity

0

10 000

20 000

30 000

40 000

00 01 02 03 04 05 06 07 08 09

1

0

00

t OUM

SC

CMR

Source: PPPC, NSI estimates


25/35

25

Cost and capex reductions

Profit improvement program ended 2008 Close to target of NOK 3 billion Main elements; energy, efficiency improvement

and de-manning

Initiated in summer of 2009: Permanent idling of Parenco PM2 Reduced manning by 600 persons (9%)

Reduced maintenance costs Headquarter cost reduction (20%)

Continuous improvement programme at allbusiness units

Investment level reduction

CAPEX in 2010 ~NOK 500 million

Annual costreduction ofNOK 600-700million from 2010


26/35

26

Considerable reduction in net debt

0

2

4

6

8

10

12

14

16

18

2007 2009

Net debt

Net debt reduced byNOK 6.8 bn. since end

2007 Retained free cash flow Net debt effect from bond

buy-back of NOK 643 mill. in2008 and 2009

NOK 5.4 bn. through assetsales

No material currency

impact over this period Gearing: 0.80

16.4

9.6

NOK bn.

9.6

Exploring new opportunities w ithin


27/35

27

Exploring new opportunities w ithinbio fuel - From wood, not from food

1st Generation (Biodiesel andBioethanol): Made from plant crops Available on the market today

Limited CO2 reduction potential Concerns about: sourcing of

feedstock; impact on biodiversity,land use and competition with food

2nd Generation (syntheticBiodiesel / cellulosic Ethanol): Made from non-food feedstocks

(woody biomass)

High CO2 reduction potential No competition with food High fossil substitution potential


28/35

28


29/35

Financials and outlook


30/35

30

2009 Key P&L and CF figures

Much lower volumes

YoY Divestments and closures of

capacity

Unprecedented drop indemand

Improved net resultYoY Positive impact from value

change on energy portfolio andfinancial items

2009 2008Revenue 20 362 26 468

EBITDA 2 185 2 723Depreciation (2 465) (2 6

Special items (1 046) (1 508)

EBIT, IFRS (1 325) (1 407)

Financial items 280 (1 402)

Net result (1 400) (2 765)

CF from operations 1 697 1 9

CF after capex 1 117 6

Shipments, 1 000t 3 894 5 412

Operating rate 79 % 93 %

23)

77

94


31/35

31

Balance sheet & covenants Total assets NOK 33 bn as at 31.12.2009

Reduced by NOK 12 bn since 31.12.2008

Disposal of mills

Depreciation and impairments > capex

Dismantling and environmental costs from gross to net

Equity of NOK 12 bn (36%)

Total assets

Interest bearing debt NOK 13.8 bn

Cash position NOK 4.2 bn

Net interest bearing debt NOK 9.6 bn Reduced by NOK 4.5 bn since 31.12.2008

FX

Disposals

Buy-back of own bonds

Free cash flow from operations

Interestbearing debt

Gearing < 1.4 0.8 as of 31 Dec 2009

Net tangible worth > NOK 9 bn NOK 11.6 bn as of 31 Dec 2009

Covenants

C h d d bt t it fil


32/35

32

Cash and debt maturity profile,

31.12.2009

-5-4

-3

-2

-1

0

1

2

3

4

5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ---> 2033

NOK bn. Cash Bank debt Bond debt

4.2

-0.4-1.9

-3.4

-0.7

-1.0 -1.0

-4.1

-0.1 -1.2

$ 321 mn

$ 173 mn $ 200 mn

493 mn

400 mn


33/35

33

Regional development

European-like drop in demand, but lessaffected by the financial crisis High interest rate level and strong AUD Unemployment rate down

~70% export to the strong growing Asian economies Ongoing long term contract negotiations

Asia Pacific(Australasia)

Growth in economy, but volatile demand

Lag vs. North American price hikes

SouthAmerica

Significant price drop, but very competitivecost position on mills

January shipments up 1% for publication

paper YoY

Europe


34/35

34

Outlook

Somewhat improved demand in the courseof 2010 could be expected, but still not in

balance with capacity Present price level in Europe not sustainable Moderate price increase in South America and Asia

expected

New long-term contracts under negotiation in Australasia Increased cost on certain input factors

expected

Management focus Continuous cost reductions and operational improvements Optimization through capacity management Measures to further strengthen financial position


35/35

Knight Libertas Credit Conference

London, 25 March 2010

Odd-Geir Lyngstad, Corporate Treasurer and Deputy CFO

knight libertas 250310

Documents