3Q12 presentation - norskeskog.com€¦ · 3Q12 presentation 1 November 2012. 2 EBITDA 0 50 100 150...

3Q12 presentation1 November 2012

2

EBITDA

0

50

100

150

200

250

300

350

400

450

500

3Q11 4Q11 1Q12 2Q12 3Q12

NOK mill.

3Q12 in brief

• EBITDA NOK 365 mill. (NOK 393 mill. 2Q12)• Weak markets, FX and active capacity management

• Cash flow from operations NOK 550 mill. • Before net financial items of a negative NOK 87 mill.

• Net debt reduced to NOK 6 285 mill.• Down NOK 598 mill. in the quarter and by NOK 1 578

mill. YTD

3

RevenueNOK 4 115 mill. ‐6%

EBITDANOK 365 mill. ‐7%

CF from operationsadjusted NOK 550 mill. +30%

Deliveries901’ tonnes ‐3%

Weak markets and lower capacity

QoQ YoY

‐14%

‐22%

+42%

‐10%

3Q12

4

Key developments in 3Q12

Market • Publication paper prices relatively stable in Europe

• Weak demand• For both newsprint and magazine paper• In Europe and Australasia

• Input factor costs somewhat lower

Norske Skog• Restructuring of Australasian business announced

• Implying net closure of 250 thousand tonnes of newsprint capacity • Conversion of one machine at Norske Skog Boyer to magazine paper• Closure of one machine at Norske Skog Tasman

• Sale of Norske Skog Parenco completed on 2 October

5

EBITDA change from 2Q12 to 3Q12

NOK mill.

‐42

‐ 120 +150

‐16393365

0

100

200

300

400

500

2Q12

Volum

e

Sales

mix

and p

rice

Costs

FX an

d oth

er

3Q12

6

Publication paper prices relatively stable

400

450

500

550

600

650

700

750

2006 2007 2008 2009 2010 2011 2012

EUR/tonne Newsprint LWC SC

RISI, German and US East Coast prices

• European reference prices easing• Newsprint and Magazine prices declined

2% and 3% respectively from 2Q to 3Q

300

350

400

450

500

550

600

650

700

2006 2007 2008 2009 2010 2011 2012

EUR/tonne Newsprint Germany US East Coast

• US newsprint prices flat in USD• And above European level in EUR

7

Weak demand development

EURO‐GRAPH; YTD Sep 2012, PPPC; YTD Aug 2012

‐2.2 %

‐11.0 %

‐3.0 %

‐1.2 %

2.6 %

‐11.7 %

‐1.1 %

World WesternEurope

EasternEurope

NorthAmerica

Asia Oceania LatinAmerica

Newsprint

1.9 %

‐9.9 %

2.5 %

‐10.7 %

‐4.0 %

‐8.0 %

‐5.6 %

World WesternEurope

EasternEurope

NorthAmerica

As ia Oceania LatinAmerica

Magazine

8

• Fibre costs lower

• Recovered paper prices stable• 20% below last year YTD

• Pulp prices easing further• Approaching 20% lower YTD

• Norwegian wood prices trending down

50

100

150

200

Dec2008

Jun2009

Dec2009

Jun2010

Dec2010

Jun2011

Dec2011

Jun2012

Dec2012

500

700

900

1100

Dec2008

Jun2009

Dec2009

Jun2010

Dec2010

Jun2011

Dec2011

Jun2012

Dec2012

80

100

120

Dec2008

Jun2009

Dec2009

Jun2010

Dec2010

Jun2011

Dec2011

Jun2012

Dec2012

Input cost Recovered paper (Europe, EUR/ton)

Market pulp (NBSK, USD/ton)

Wood (Norway, Index)

RISI, German Newspapers (2.01), NBSK delivered N. EuropeCompany data, Wood Index: Dec 2008 = 100

9

• Electricity prices above trough levels• But remaining well below last year• Group has spot exposure in continental Europe

• European gas prices higher• Only Bruck has gas fired generation capacity

Input cost ‐ Energy

Reuters, NordPool

30

40

50

60

70

Dec 2008 Jun 2009 Dec 2009 Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012

Power Germany (EUR/MWh)

0

200

400

600


Power Norway (NOK/MWh)

Gas Europe (EUR/MWh)

0

10

20

30


10

• SG&A expenses at lower level• Remaining just above NOK 120 per tonne • Despite lower production

Fixed costs coming down

Adjusted for provisions

• Fixed costs noticeably reduced• Cost initiatives and less capacity• Quarterly level down by NOK 200 mill. last

two years

Quarterly fixed costs

800

850

900

950

1 000

1 050

1 100

1 150

1 200

3Q 4Q 1Q2011

2Q 3Q 4Q 1Q2012

2Q 3Q

NOK mill.SG&A expenses per tonne

100

110

120

130

140

150

160

3Q 4Q 1Q2011

2Q 3Q 4Q 1Q2012

2Q 3Q

NOK/ton

3Q12 financials

12

Key financials 3Q12

Key figures (NOK mill.) 3Q11 2Q12 3Q12

Operating revenue 4 799 4 377 4 115

EBITDA 469 393 365

Depreciation ‐429 ‐230 ‐231

Other gains and losses ‐43 ‐46 ‐65

Financials ‐251 ‐242 86

CF from operations adjusted 388 423 550

• Revenues lower• Lower volumes in weak markets• Less capacity

• Costs reduced• Variable: Lower input factor costs• Fixed: Noticeably lower through cost

initiatives and capacity reductions

• New depreciation level YoY• Extended economic life of paper machines

• Other gains and losses• Reduced value of energy assets

• Financials• Accrued interest and FX gain

13

Revenue and EBITDA contribution by segment

Revenue

Magazine40%

Newsprint Europe27%

Newsprintoutside Europe

33%

Magazine21%

Newsprint Europe22%

Newsprintoutside Europe

57%

EBITDA

3Q12

14

Newsprint Europe

• 3 mills in 3 countries• Norway (Skogn), France (Golbey) and

Austria (Bruck)

• 1.3 mill. tonnes of capacity

Key figures (NOK mill.) 3Q11 4Q11 1Q12 2Q12 3Q12

Operating revenue 1 548 1 368 1 115 1 205 1 072

EBITDA 144 141 104 107 86

EBITDA margin (%) 9.3 10.3 9.4 8.9 8.1

Deliveries (‘000 tonnes) 374 333 279 308 290

Operating rate (%) 89 87 83 89 90

• Revenues lower• Lower volumes in weak market

• Less capacity

• Costs reduced• Variable: Lower input factor costs

• Fixed: Lower through cost initiatives and capacity reductions

15

• 5 mills in 4 countries• Australia (Albury, Boyer), New Zealand

(Tasman), Brazil (Pisa), Thailand (Singburi)




EBITDA 246 236 196 218 223

EBITDA margin (%) 16.6 16.6 14.4 15.6 16.9


Operating rate (%) 97 86 86 92 92

Newsprint outside Europe• Revenues lower

• Lower volumes in weak market

• Costs relatively stable• Variable: Stable input factor costs

• Fixed: Lower through cost initiatives

16

Magazine

• 4 mills in 4 countries• Norway (Saugbrugs), Germany (Walsum),

Austria (Bruck), Netherlands (Parenco)




EBITDA 77 139 104 90 84

EBITDA margin (%) 4.9 7.1 5.9 5.6 5.3


Operating rate (%) 89 88 83 90 89

• Revenues stable• Stable volumes despite weak market

• Costs relatively stable• Variable: Stable input factor costs

• Fixed: Lower through cost initiatives and capacity reductions

Leverage ratio

3

4

5

6

7

3Q 4Q 1Q2011

2Q 3Q 4Q 1Q2012

2Q 3Q

Ratio

17

Net debt reduced by NOK 598 mill.• YTD reduction NOK 1.6 bn. to NOK 6.3 bn.

• Significantly down in two year period from NOK 9 bn.

Debt coming down, approaching target levels

Net interest‐bearing debt

5

6

7

8

9

10

3Q 4Q 1Q2011

2Q 3Q 4Q 1Q2012

2Q 3Q

NOK bn.

Leverage ratio lower• Approaching target levels below 4

Net interest‐bearing debt / EBITDA

Covenant level

18

Maturity profile

‐0.9 ‐0.9 ‐1.0 ‐1.1

1.0

‐2.9

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

NOK bn. Cash RCF Bank Bonds

1.1

As of Sep 2012

19

Financial items

• Net interest stable• At around NOK 150 mill. quarter

• Currency gain• 1/3 cash flow hedge• 2/3 non‐hedge accounted debt

• Other • Including gain on bond buy‐backs

‐400

‐300

‐200

‐100

0

100

200

300

3Q11 4Q11 1Q12 2Q12 3Q12

NOK mill.

Currency

Other

Net interest

20

Cash released from working capital

• Working capital released in 3Q12• Operating WC reduced by NOK 130 mill.

• Accompanied by release from Follum

NOK mill.

‐60

182

48

168

130

‐200

‐150

‐100

‐50

0

50

100

150

200

250

3Q11 4Q11 1Q12 2Q12 3Q12

21

NOK mill.

388

591

357

423

550

0

100

200

300

400

500

600

700

3Q11 4Q11 1Q12 2Q12 3Q12

Strong cash flow from operations

(NOK mill.) 3Q12

EBITDA 365

Change in operating WC 130

CF from net financial items ‐87

Other 55

CF from operations 463

CF from operations adjusted

550

Capex ‐106

Divestments 11

Net investments ‐95

CF from operations adjusted = CF from operations before net financial items

22

Capex modest despite development projects

• Capex 2012 below NOK 500 mill. • Level since 2010

• Capex 2013 NOK 600 mill.• Boyer conversion

• Saugbrugs energy efficiency project

• Depreciation lower• Annual level below NOK 1 bn.

NOK mill.

0

500

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1500

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3000

3500

2006 2007 2008 2009 2010 2011 2012E

Depreciation

Outlook and focus

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• Relatively stable volumes and margins through 2012• When the sale of Norske Skog Parenco is taken into account

• Lower variable costs and reduced fixed costs for the year

Outlook

25

• Improve margins• Active capacity management

• Temporary adaptations and permanent closures/conversions

• Continued cost reductions• Fixed cost and energy efficiency measures

• Further identification and sale of unrelated assets

• Reduction of net debt• Cash flow from operations• Sale proceeds and bond buy‐backs

Management focus

Political challenges in Norway

Regulatory measures with immediate effect

• Harmonization of Norwegian and Swedish truck regulations• With respect to weight, length and height

• Current limitations in Norway give Swedish competitors a significant transport cost advantage

• Elimination of property tax for production facilities• At least standardization of valuation principles throughout the country

• CO2 compensation for electricity purchases irrespective of contract date• Under the current framework only Skogn will receive compensation• Saugbrugs will not be compensated as contracts were entered before 2005

• Innovation Norway as funding source for industrial players • Norske Skog is today burden with prohibitively expensive funding

27

• Improve margins• Active capacity management

• Temporary adaptations and permanent closures/conversions

• Continued cost reductions• Fixed cost and energy efficiency measures

• Further identification and sale of unrelated assets

• Reduction of net debt• Cash flow from operations• Sale proceeds and bond buy‐backs

Management focus

Appendix

30

Group cost categories and relative size• ¾ variable costs, ¼ fixed costs

• Variable costs predominantly energy and fibre

• ⅔ of energy costs contracted, ⅓ spot exposure

• Fibre sourced mainly through wood and recovered paper

• ⅔ virgin fibre, ⅓ recycled

Energy 22%

Labour17%

Chemicals, fillers, etc.10%

Distribution10%

Other fixed9%

Pulp4%

Other direct4%

Wood13%

Recovered paper 12%

31

Group sensitivities

• Variable costs Change EBITDA impact

• Wood +/‐ 5%

• Recovered paper +/‐ 5%

• Energy +/‐ 5%

• Pulp +/‐ 5%

• NOK Appreciating Impact

• EBITDA 1%

• Net debt 1%

‐/+ NOK 100m

‐/+ NOK 100m

‐/+ NOK 70m

‐/+ NOK 35m

‐ NOK 50m

‐ NOK 65m

Annual impact; assuming change in market prices and ST contract prices only, LT contract prices remaining fixed

32

’11/10 = ‐1% YTD = ‐7% ???

Newsprint Europe

0 500 1 000 1 500 2 000 2 500 3 000

UPMStora Enso

Norske SkogHolmen

PalmSCA

Western Europe newsprint capacity by producers (EUR market)

0 500 1000 1500 2000 2500 3000

GemanyUK

ItalyFrance

Other Western EuropeEast Europe

‐10%‐6%

‐7%

‐23%‐12%

‐2%

Annual demand (YTD growth)

PPPC; annual 2011 and YTD Aug 2012

33

’11/10 = ‐1% YTD = ‐7% ???

Newsprint outside Europe

‐ 500 1 000 1 500 2 000 2 500 3 000 3 500

Resolute Forest ProductsWhiteBirchShandong

Nippon PaperOji paper

Norske Skog

Tonnes 000'

Outside Europe newsprint capacity by producers (USD market)

0 2000 4000 6000 8000 10000

ChinaOther Asia

North AmericaLatin America

AfricaOceania

‐1%‐1%

+12%

‐1%

0%‐12%



34

Main trade flows – Standard newsprint

2011 870 (-11%)

2012 YTD 577 (-5%)2011 1 109 (+3%)

2012 YTD 489 (-38%)

Tonnes 000’ (change %)

2011 287 (-13%)

2012 YTD 143 (-10%)2011 1 264 (-5%)

2012 YTD 987 (+24%)


35

’11/10 = ‐1% YTD = ‐7% ???

Magazine

0 1000 2000 3000 4000 5000 6000 7000

UPMStora Enso

Norske SkogSappiBurgoSCA

Western Europe magazine capacity by producers

0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500

GermanyUK

ItalyFrance

Other West EuropeEast Europe

‐9%‐8%

‐3%

‐7%‐11%

‐3%



36

Main trade flows – Magazine paper

WE to: NA SA Asia AA

2011 821 (+2%) 472 (+11%) 1 251 (+14%) 471 (+32%)

2012 YTD 465 (-8%) 311 (-5%) 841 (0%) 321 (+2%)

Tonnes ’000 (change %)

NA to: SA Asia

2011 206 (-13%) 173 (-7%)

2012 YTD 137 (+1%) 97 (-22%)


37

Debt more than halved since 2008

• Net debt reduced from NOK 16 bn. in 2Q08 to NOK 6 bn. in 3Q12

• Reduced debt burden lending no aid to market capitalization (MC)• MC reduced by 80% to NOK 1 bn. in the period

0

5

10

15

20

2Q083Q

084Q

081Q

092Q

093Q

094Q

091Q

102Q

103Q

104Q

101Q

112Q

113Q

114Q

111Q

122Q

123Q

12

NOK bn.

Net debt MC

38

EBITDA troughed in 2010

• TTM EBITDA reached low point in 3Q10 • TTM EBITDA since improved from trough

Trailing twelve months (TTM)

0

500

1 000

1 500

2 000

2 500

3 000

2Q083Q

084Q

081Q

092Q

093Q

094Q

091Q

102Q

103Q

104Q

101Q

112Q

113Q

114Q

111Q

122Q

123Q

12NOK mill.

39

Diverging trends

• Enterprise value (EV) on steady decline • TTM EBITDA higher

0

5

10

15

20

25

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

NOK bn.

0

500

1 000

1 500

2 000

2 500

3 000

NOK mill.

EV EBITDA

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