Norske Skog Deutsche Bank s European Paper Seminar 10 November 2010 Sven Ombudstvedt, President and CEO
Contents Company specifics Market information Q3, financials, costs and outlook
Company specifics
A leading manufacturer of publication paper 14 mills in 11 countries Revenues (2009) NOK 20.4 bn (USD 3.2 bn) 5 400 employees Listed on the Oslo Stock Exchange No controlling shareholder; foreign ownership ~ 35 % Debt financing: Bank loans ~30% Dom & Int bonds ~70% 4
Global presence strong European footprint Skogn (Norway) Follum (Norway) Saugbrugs (Norway) Parenco (The Netherlands) Golbey (France) Walsum (Germany) Bruck (Austria) Singburi (Thailand) MNI (Malaysia - 34%) Pisa (Brazil) Bio Bio (Chile) Albury (Australia) Tasman (New Zealand) Boyer (Australia) 5
Europe and Australasia are key markets Total capacity 4.5 mill. tonnes Newsprint etc. 3.0 mill. tonnes Magazine 1.5 mill. tonnes Newsprint Standard and improved grades for daily and free newspapers, advertising supplements and paperbacks World wide operations, ex. North America Magazine paper Magazine paper for magazines, periodicals and advertising purposes European operations only Two different grades: SC uncoated paper (supercalendered) CMR coated paper = LWC (Light weight coated) 6
Reduced exposure to standard newsprint in Europe Capacity end 2008 Capacity end 2010 (E) LWC 850 Book / Improved 100 Standard news 1.880 i. Closure of Parenco PM2 ii. Partial conversion of Parenco PM1 LWC 850 Book / Improved 225 Standard news 1.360 SC 550 iii.conversion of Follum PM1 SC etc 685 Total 3.380 tonnes Total 3.120 tonnes
Major player in a fragmented industry Million tonnes UPM (FIN) AbitibiBowater (US) Stora Enso (FIN) Norske Skog (NOR) Nippon Paper (JAP) Myllykoski (FIN) NewPage (US) WhiteBirch (US) Holmen (SWE) Oji Paper (JAP) SCA (SWE) Kruger (CAN) Catalyst (CAN) M real (FIN) Burgo (ITA) Top global publication paper companies 0 1000 2000 3000 4000 5000 6000 7000 8000 Grade Top 5 share of capacity North America Europe Newsprint 80% 60% Uncoated Mag 80% 80% Coated Mag 85% 70% Newsprint Uncoated magazine paper Coated magazine paper Source: RISI Dec 08, PPPC Oct 09 8
Market information
Demand 2010 per region/segment Region/segment World standard newsprint North America standard newsprint Annual change (YTD)* 3.3 % 5.6 % Comments Europe standard newsprint Europe magazine paper (incl. improved newsprint etc) Non Japan Far East Standard newsprint Australasia standard newsprint Latin America standard newsprint 1.6 % Western Europe (+3 %) Eastern Europe ( 3 %) 5.8 % SC ( 3 %) LWC (+10 %) 9.6 % Highest growth in India Increased customer inventories 9.9 % 16.0 % Highest growth in Brazil Increased customer inventories *) Change from January September 2009 vs same period in 2010, Source: PPPC, CEPIPRINT 10
North American newsprint shipments to Europe Tonnes (000 s) Market share (%) NA export to Europe NA market share 900 9 800 8 700 7 600 6 500 5 400 4 300 3 200 2 100 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 0 Source: CEPIPRINT 11
Main trade flows Std newsprint YTD Sep 2010 YTD 2010 254 change 2009 71 % change 22 % YTD 2010 1 056 change 2009 133 % change 14 % YTD 2010 727 change 2009 198 % change 37 % YTD 2010 829 change 2009 559 % change 207 % Source: PPPC 12
Main trade flows Magazine paper YTD Sept 2010 EU to: N.Am S.Am Asia YTD 2010 562 312 817 AA 277 change 2009 66 124 253 85 N.Am to: S.Am Asia % change 13 % 66 % 45 % 44 % YTD 2010 184 145 change 2009 46 50 % change 33 % 53 % Source: PPPC 13
Price development Europe vs. USA US price drop due to currency effects EUR/USD = 1.40 15% price gap end Q3 Average price in Europe last 15 years: 550 EUR/tonne Newsprint Germany US East 700 650 600 550 500 Currency movement 450 400 350 300 Source: RISI 14
Price development Germany EUR/tonne Newsprint SC 56 g LWC 60 g 750 700 650 600 550 500 450 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 400 Source: RISI 15
Demand newsprint 2000 2010e Europe North America M tonnes 12 Eastern Europe Western Europe M tonnes 14 10 12 8 6 4 10 8 6 4 2 2 0 0 00 02 04 06 08 10e 00 02 04 06 08 10e Source: PPPC 16
Demand newsprint 2000 2009 M tonnes Rest of the world 18 16 14 12 10 8 6 4 2 0 2001 2003 2005 2007 2009 M tonnes 40 35 30 25 20 15 10 5 0 2001 2003 World total 2005 2007 2009 Africa Oceania Latin America Asia North America Europe Source: PPPC 17
Newsprint Europe and North America is different Europe Large number of nations, languages and cultures Strong tradition for newspaper reading and subscription in many of the countries Publishers believe in printed medias and have invested in new equipment Well developed public transportation Growth potential in Russia and other East European countries USA One nation, but hardly any national newspaper Less tradition for newspaper reading Less public transportation 18
Q3, financials, costs and outlook
Q3 2010 in brief Underlying EBITDA remained weak, in line with previous quarters Slightly improved market conditions Higher prices on input factors Capacity utilisation up to Q4 2008 level Net interest bearing debt down by NOK 1.3 bn NOK mill. EBITDA 700 600 500 400 300 200 100 0 Q3 2009 Q4 Q1 2010 Q2 Q3 * *) Including reversal of an environmental provision of NOK 108 mill. 20
Continued debt and cost reduction Net interest bearing debt down by NOK 1.3 bn. to NOK 9 bn. Proceeds from sale of excess energy Positive cash flow from operations Stronger NOK vs. USD reduced debt value Capex down from Q2 Annual fixed cost level reduced by NOK 600 mill. compared with first half 2009 NOK bn. NIBD 14 12 12.2 10 10.0 10.3 9.6 9.5 8 9.0 6 4 2 0 Q2 2009 Q3 Q4 Q1 2010 Q2 Q3 21
Increased demand higher capacity utilisation 90 % operating rate, marginally higher than Q2 Substantial growth in demand in Asia, Australasia, South America, and for magazine paper Export from Europe to Asia remained high Announced net capacity closures of ~600k tonnes of newsprint in Europe this year Reduced imports from North America 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Operating rate 89 % 90 % 81 % 84 % 85 % 75 % Q2 2009 Q3 Q4 Q1 2010 Q2 Q3 22
Improvements offset by currency effects and higher input factor costs Higher prices on input factors (time lag in accounts) Market pulp spot price peak in Q3 (Magazine paper) Recovered paper continued increase (Newsprint) Wood higher costs in Norway second half 2010 Profitability in Newsprint Europe and Magazine paper negatively affected by currency translations on trade receivables Index: Q4=100 150 140 130 120 110 100 Index: Q4=100 140 130 120 110 100 Pulp/tonne consumption Q4 09 Q1 10 Q2 10 Q3 10 RP/tonne consumption Q4 09 Q1 10 Q2 10 Q3 10 23
Results segments NOK mill. 400 EBITDA Q3 10 * 300 Q3 09 200 100 0 100 Europe News News outside Europe Magazine Energy *) News outside Europe including a reversal of an environmental provision of NOK 108 mill, no cash effect 24
Cash and debt maturity profile 4.5 0.1 0.3 1.7 3.2 0.9 1.0 3.9 0.1 0.1 1.2 0.7 Per 30 September 2010 25
Current cost picture (cash cost) Labour 16% Distribution 10% Other direct 9% Other fixed 9% Chemicals, fillers etc. 10% Energy 22% Wood 12% RP 9% Pulp 3% Energy 2/3 electricity of which most is bought under long term contracts Wood S.America & Australasia: Long term contracts at favorable prices Continental Europe Market exposure, expect some price pressure Norway Long term volume contracts, certain increase in 2H 2010 Recovered paper Reduced exposure after disposals in China and idling PM2 in Parenco Significant cost pressure in 2010 Market pulp Significant price increase, but signs of lower prices during the autumn NSI has limited exposure ~200kt in magazine production 2009 figures, calculated to 90% operating rate 26
Outlook for Q4 10: Seasonal increase in European demand No major changes in prices expected Input factor prices remain high Management focus going forward: Re establish earlier price level and margin in Europe Quarterly contracts also for newsprint Further reduction of debt and fixed costs Positioning for active role in industry consolidation 27
Q & A