Norske SkogCapital Markets Day3 February 2011

Jan Clasen ‐ SVP Commercial→ European market characteristics –an opportunity for Norske Skog

3

Beware of Green Wash!• No environmental reason not 

to use paper for communication, billsand packaging

• No industrial product is more recyclable and sustainable than paper

• No CO2 solution without living forestry

• European forests have grown by 30% since 1950 

4

US printed media• US newspaper readership steadily declining since early 1950s• Ratio between editorial content and advertising in average 

US newspaper 30:70 (2005)• In an average German newspaper the ratio was 70:30 (2008)• Different approaches to circulation• Newspapers are not only a business• Book: “The Vanishing Newspaper”• US printed magazine readership has grown since 2002• This week Hearst paid USD 887 million for Lagardere’s

non‐French magazines

5

Media trends • From “reading” to “watching”: The pad makes it move• Will there be publishers in the future?• Print loses advertising market share, absolute income still increases• American Newspapers are an exception, not the rule• “The world after advertising”: The feel‐good of “community” and 

“social networks”• “Only the elderly read printed newspapers!”• Retail uses more and more print, publishing less important for 

consumption• Product development towards “retail paper”, away from “publishing 

paper”• How price‐sensitive is printing paper demand?

6

Newspapers: end‐use developments

• Circulation: subscriptionor no subscription

• Pagination up and downwith consumer spending

• Stable number of titles

• Lower substances 

• Stable size

• Stable advertising income, decreasing advertising share

7

Magazine: end‐use developments 

• Product licensing, not globalisation

• Stable total circulation

• Increasing number of titles

• Increasing pagination

• Stable basis weight

• Smaller size

• Increasing advertising income, decreasing advertising share

8

• Activities promoting the Effectiveness of print media• Activities promoting objective information aboutSustainable aspects of paper and print

• Convince media buyers• Two campaigns:

How do we promote Print Media?

www.printpower.eu www.twosides.info

9

What is the Print Power campaign?

10

What is the Two Sides campaign?

11

Product price development ‐ Germany

400

450

500

550

600

650

700

750

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

Jan 11

EUR/tonne Newsprint SC 56 g LWC 60 g 

Source: RISI

12

Western Europe newsprint capacity

Own assumptions after announcements in 2010PPPC – June 2010, adjusted by idled

9,7

9,4

8,9

9,5

8

8,5

9

9,5

10

10,5

2008PPPC

2009PPPC

2010PPPC

End 2010est

-0,8 mT

PPPC Outlook meeting – June 2010

13

Newsprint capacity changes between 2008 and 2010

• Turkheim (incl UMI)             80• Palm King’s Lynn     400• Perlen (oct 2010)   360

• UPM Kajaani ‐185• NS Follum (incl UMI) ‐130• M&F Ledar ‐30• Holmen Hallsta ‐150• NS Parenco ‐225• Perlen ‐125• AbiBow Bridgewater ‐230• Varkaus ‐290• Maxau ‐195

+840 kT ‐1560 kT

Total ‐720 kT

14

Demand newsprint 2000 – 2010 

 0

 2

 4

 6

 8

 10

 12

M tonnes

’10‘02 ’04 ‘06 ‘08 0

 2

 4

 6

 8

 10

 12

 14

M tonnesEastern Europe Western Europe

Europe

‘00 ’10‘02 ’04 ‘06 ‘08‘00

Source: PPPC

North America

15

Magazine capacity changes between 2008 and 2010

• Plattling 380• Ortviken (rebuild) 30

• SE Summa ‐380• SE Anjala ‐120• UPM Kanjala ‐ 435• SE Varkaus ‐195• M‐Real Kangas ‐100• Papeterie de Lancey ‐130• SE Kabel ‐140• Holmen Wargön ‐145• Duino ‐80• Sappi Kangas ‐210• Others (<60 kt) ‐165

+410 kT ‐2100 kT

Total ‐1690 kT

16

Demand Magazine 2000 – 2010 

 0

 2

 4

 6

 8

 10

 12

 14

 16

M tonnes

’10‘02 ’04 ‘06 ‘08 0

 2

 4

 6

 8

 10

 12

 14

M tonnesEastern Europe Western Europe

Europe

‘00 ’10‘02 ’04 ‘06 ‘08‘00

Source: PPPC

North America

17

Wood• The main raw material• 12% of cash cost in 2010• Pricing influenced by:

• Bio energy demand• Pulp prices• Saw mill activity

• Increasing resource base• Wood can become more 

attractive for newsprint compared to recovered paper if harvesting increasesWood consumption

2010 ~5.5 mill m3

Norway

ContinentalEurope

SouthAmerica

Australasia31%

36%

22%11%

Wood consumption 2010 ~5.5 mill m3

18

Recovered paper• 11% of cash cost in 2010

• Volumes• Europe 1.2 mill tonnes

• AA & Thailand 0.3 mill tonnes

• Tight market strongly influenced by demand from China and packaging

Newspapers (2.01) - Germany

-

50

100

150

200

250

87 89 91 93 95 97 99 01 03 05 07 09 11

EUR/tonne

19

Market pulp• 4% of cash cost in 2010

• Volume ~170k tonnes, mainly within magazine paper

-

200

400

600

800

1 000

1 200

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11

USD/tonne

NBSK - Canadian sources delivered to US EastNBSK - Western Europe - Spot Price

20

Energy• 23% of cash cost in 2010

• 2/3 electricity, mostly bought under long term contracts

Terry Hamilton ‐ SVP European Operations→ European Operations

22

Skogn 

Follum 

Saugbrugs

Walsum 

BruckGolbey 

Parenco

Norske Skog in Europe: a key market

• Seven mills – 70 % of total capacity 

• 3.12 mill. tonnes capacity

• Newsprint: 1.58 mill.tonnes

• Magazine grades: 1.54 mill.tonnes

• World‐class management systems 

• ISO 9001 and 14001 certified

• Chain of Custody certification

• Norske Skog Production System

• Industry‐leading health and safety performance

• Strong commitment to continuous improvement

23

Follum (Norway)Facts• 290k tonnes of Improved News, Book 

Paper and CMR (MFC) capacity• 340 employees

Strengths• Lowest cost fibre in Norway• Long‐term power contract covering 

90+% of capacity• New product development (book paper 

and MFC grades) with papermaking capabilities at site

Challenges• Strong NOK• Uncoated mechanical (improved news) 

cost position• High fixed costs with small paper 

machines

(MFC)

European CMR cost curve (delivered Frankfurt) as of Q3-10 from RISI

Cost position 

24

Saugbrugs (Norway)Facts• 545k tonnes of SC‐A capacity• 550 employees

Strengths• High quality and productive machines 

with low technical age• Superior paper quality and preferred 

supplier• Long‐term power contract covering 

90+% of capacity

Challenges• Strong NOK• Central town location and limited 

access to harbour

European SC cost curve (delivered Frankfurt) as of Q3-10 from RISI

Cost position 

25

Walsum (Germany)Facts• 435k tonnes of CMR capacity• 480 employees

Strengths• Superior quality for most demanding 

printers• Favourable site/location on Rhine 

River

Challenges• Mill configuration (off‐line coating 

and supercalendering) adds cost• Purchased steam and power• Wood supply – availability of sawmill 

chips

European CMR cost curve (delivered Frankfurt) as of Q3-10 from RISI

Cost position 

26

Parenco (Netherlands)Facts• 265k tonnes of Newsprint/Improved 

Newsprint and SC‐B capacity• 260 employees 

Strengths• Favourable site/location on Rhine 

River• Flexible papermaking configuration• New SC grade is low cost and market 

acceptance is high• Gas turbine provides power

Challenges• 100% exposure to recovered fibre 

supply availability and quality• High fixed costs and limited capacity 

with single PM configuration

European SC cost curve (delivered Frankfurt) as of Q3-10 from RISI

Cost position 

27

Bruck (Austria)Facts• 405k tonnes of Newsprint and 

CMR capacity• 430 employees

Strengths• Highly regarded local supplier to 

“around the chimney” publishers and printers

• Low‐cost on‐machine CMR capabilities

• Own power plant

Challenges• Scale and technical age of NP PM

European CMR cost curve (delivered Frankfurt) as of Q3-10 from RISI

Cost position 

28

Skogn (Norway)Facts• 560k tonnes of newsprint capacity• 450 employees

Strengths• Productive machines ‐ low technical age • Well‐situated for ocean freight• Long‐term power contract covering 

about 70% of capacity• Secure wood fibre supply

Challenges• Strong NOK

• Exposed to weak GBP with ~40% exports to the UK

• Recovered fibre supply and quality

European Newsprint cost curve (delivered Frankfurt) as of Q3-10 from RISI

Cost position 

29

Golbey (France)Facts• 620k tonnes of NP capacity• 410 employees

Strengths• High quality and productive machines with 

lowest technical age in Norske Skog• Strong delivered cash cost position• Favourable fibre supply conditions:

• RP: long‐term contracts with local communities

• Wood: long‐term contracts with sawmill partners 

• Further opportunities to exploit site infrastructure

Challenges• Maintain leading cost position• Recovered paper supply and quality

European Newsprint cost curve (delivered Frankfurt) as of Q3-10 from RISI

Cost position 

Rune GjessingSVP Australasia, Asia & South America→ Australasia

31

32

33

34

35

36

Norske Skog Australasia 

Corporate headquarters Paper millsOwned plantationsRegional sales office

Boyer, Tasmania

Albury, NSW

Australia

Sydney, NSWPerth, WA

Melbourne, VIC

Brisbane, QLD

Singapore

Singapore

AucklandKawerau

New Zealand

37

Regional Highlights• Sole producer of newsprint and related grades in Australia

and New Zealand

• Supplied more than 90% of the newsprint for Australia and New Zealand’s largest newspaper publishers for more than 10 years

Dominantmarket

position

Long-term Supply

Contracts

Low Cost Producer

Stable Cash Flows

Extensive integration with

customers’businesses

• Well positioned to increase market share into growing Asian export markets

• Opportunity to expand into market for magazine printing grades

Business development opportunities

• Strongly positioned against competing imports and potential market entrants

• High visibility over future capex obligations• High cash conversion

• Favourable commercial terms secure cash flow and minimal working capital requirements

• Low cost plantation-based fibre supply arrangements• Long-term electricity supply contracts with rights to renewal• Cost-reduction capital projects

• Lowest delivered cost to Australian and New Zealand customers

• A cost competitive supplier into Asia

• Relationships of up to 75 years with Australia and New Zealand’s major news media companies

• Long term contracts provide scope to optimise the supply chain and develop innovative processes

• Perform an integral function within key customers’businesses

– newsprint supply process managed on behalf of customers

• Integrated supply chain systems and processes• Customer-site product performance monitoring

• Opportunities in alternative energy market

38

The very big picture:Publication papers ‐ 1.2+m tonnes in Australasia

2009 estimates - ABS, SNZ, NSA

Australasia total

000 tonnes

Newsprint, 670

Book , 25

Directory, 53

UMI, 135

SC, 102

LWC, 204

MWC, 60

000 tonnes

Newsprint, 670

Book , 25

Directory, 53

UMI, 135

SC, 102

LWC, 204

MWC, 60

Norske Skog Sales

Directory, 1% Book 2%

UMI, 13%

Newsprint, 84%

Norske Skog Sales

Directory, 1% Book 2%

UMI, 13%

Newsprint, 84%

39

Improved Demand in 2010

Australasian Demand'000 tonnes

0

200

400

600

800

1,000

1,200

2002 2003 2004 2005 2006 2007 2008 2009 2010

Newsprint grades Magazine grades

Australasian DemandIndex of comparative movements, 2002 = 100

50

100

150

200

250

2002 2003 2004 2005 2006 2007 2008 2009 2010

SNP

UMI

SC

LWC

40

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2005 2006 2007 2008 2009 2010

AU

D m

illio

ns

Operational Strategic

Stable cash flows

• NSA’s long term contracts deliver a strong revenue foundation, underpinning future cash flows

• High cash conversion

0%

20%

40%

60%

80%

100%

120%

2005 2006 2007 2008 2009 2010

NSA capital expenditure

2007 increase in working capital with significant build in finished goods inventory as a precaution against possible industrial action at Tasman mill

NSA cash conversion

Highly predictable forecast capex profile provides strong cash conversion and free cash flow visibility

• Significant investment over the past five years minimises future growth capex obligations

41

Lowest delivered cost producer to Australasia

Headcount reduction

• Key reasons:

• High availability of low cost, plantation‐based fibre supply arrangements on favourable terms

• Competitors rely on sourcing recovered fibre at volatile market prices

• NSA management has good track record of on‐going cost cutting through:

• FTE reduction

• production management

• incremental operational efficiencies 

• implementing cost‐reduction capital projects

• Long‐term, attractive electricity supply contracts

• Long term logistical arrangements with customers and existing distribution infrastructure

1,399 1,2951,186

1,079 988 892

2005 2006 2007 2008 2009 2010

42

Long term contracts key% sales by type of contract

73%

12%

15%

Contracts to 2015Short term contractsOther

400

500

600

700

800

900

1,000

1,100

1,200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

A$

/ ton

ne

Domestic contract pricing WCT

Australian contract price versus U.S. WCT (A$)

400

500

600

700

800

900

1,000

1,100

1,200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

A$

/ ton

neDomestic contract pricing WCT

43

Highly Integrated with Customers

infrastructureinfrastructure

Local sales team

National footprint

Logistics

Logistics support

•Sales teams in most major centres to maintain consistent and high levels of service to key customers

•Manage large part of customers’ supply chain through proprietary technology and integrated with customer logistics systems

•Existing delivery infrastructure allows regular large scale delivery to customers – no need to warehouse large inventories

•Access to national network allows NSA transportation and delivery systems to service all regions of Australia

44

Asian growth opportunity

Sales track record Long term market

13,6

74

13,7

63

13,3

52

12,8

24

12,3

48

11,9

88

11,3

00

11,8

65

11,3

77

10,8

73

10,4

36--

2,500

5,000

7,500

10,000

12,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Domestic production Imports

NSA Exports (inc Asia and South America)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010e

tonn

es

Total

NSA Exports (inc Asia and South America)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010e

tonn

es

Total

Sources: RISI Asian Graphic Paper Forecast

45

Asian region ongoing net importerChina Japan

-

2.0

4.0

6.0

8.0

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

India

-

1.0

2.0

3.0

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Hong Kong

-

0.1

0.2

0.3

0.4

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

-

0.1

0.2

0.3

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Taiwan

Malaysia

-0.10.20.30.40.5

2010

2011

2012

2013

2014

2015

Tonn

es (m

) -

0.1

0.2

0.320

1020

1120

1220

1320

1420

15

Tonn

es (m

)Thailand

-

0.2

0.4

0.6

0.8

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Indonesia

2.0

2.5

3.0

3.5

2010

2011

2012

2013

2014

2015

Tonn

es (m

)Domestic production Exports Imports

RISI Asian Graphic Paper Forecast

China Japan

-

2.0

4.0

6.0

8.0

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

India

-

1.0

2.0

3.0

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

India

-

1.0

2.0

3.0

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Hong Kong

-

0.1

0.2

0.3

0.4

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Hong Kong

-

0.1

0.2

0.3

0.4

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

-

0.1

0.2

0.3

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Taiwan

-

0.1

0.2

0.3

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Taiwan

Malaysia

-0.10.20.30.40.5

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Malaysia

-0.10.20.30.40.5

2010

2011

2012

2013

2014

2015

Tonn

es (m

) -

0.1

0.2

0.320

1020

1120

1220

1320

1420

15

Tonn

es (m

)Thailand

-

0.1

0.2

0.320

1020

1120

1220

1320

1420

15

Tonn

es (m

)Thailand

-

0.2

0.4

0.6

0.8

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Indonesia

2.0

2.5

3.0

3.5

2010

2011

2012

2013

2014

2015

Tonn

es (m

)

Source:

46

Attractive assetsMill Fibre supply and EnergyAlbury Mill, Albury, NSW

Overview Capacity/specifications

Boyer Mill, Boyer, Tasmania

Tasman Mill, Kawerau, NZ

• Single machine mill established in 1981

– full rebuild in 2006• Four lines of thermo mechanical

pulping• 222 FTEs

• Production capacity of 270 ktpa• Maximum speed of 1,600 metres per

minute• Maximum customer trim of 8.505

metres• Produces standard newsprint 42, 45

and 48.8 gsm basis weight grade

• Wood / fibre

– c.430 ktpa– c.57% contracted medium term

• Recovered paper

– c.110 ktpa– c.93% contracted medium term

• Energy– contract pricing through to 2022

• Two machine mill– PM2 built in 1952, rebuild in 1991– PM3 commence production in 1969,

major rebuild in 1989 and efficiency rebuild in 1996

• Three lines of thermo mechanical pulping

• 294 FTEs

• Production capacity of 267 ktpa• Maximum mill speed of 1,200 metres

per minute (PM3)• Maximum customer trim of 6.66

metres (PM2 and PM3)• Produces all standard newsprint,

improved newsprint, book paper and directory grades

• Wood / fibre– c.600 ktpa– c.60% from owned plantations

• Kraft– minimal kraft input– provided under long term contract

• Energy– 825MW/hr per year usage– 1000 ktpa coal– Hydro based green energy

• Two machine mill– PM2 built in 1962, rebuild in 2005– PM3 commenced production in

1975, major rebuild in 2005• Two lines of refiner mechanical

pulping• Two lines of thermo mechanical

pulping• 307 FTEs

• Production capacity of 310 ktpa• Maximum mill speed of 1,160 metres

per minute (PM3)• Maximum customer trim of 6.80

metres (PM3)• Produces all standard newsprint,

improved newsprint, book paper and directory grades

• Wood / fibre

– c.750 ktpa– c.60% provided under long term

contract

• Energy– long term contract in place for

geothermal-based green electricity

47

Strong environmental credentials

Renewable

fibre

• Sustainable plantation softwood solely used – no native timber

• Extensive use of forest industry waste and by-product– thinnings – sawmill chips

• All three mills are Chain of Custody certified

Recycling• Key element in customer partnership

• 78% Australian recovery rate at world best practice (70%+ in NZ)

• Albury recycles over 100,000 tonnes of recovered paper per annum

Water• Albury mill is world’s best practice in water use per tonne paper produced

• Albury introduced a salt interception scheme to remove twice as much salt from the Murray river as it discharges

Carbon

footprint

• 25% reduction in carbon emissions intensity since 1990

• Commitment to further 25% reduction by 2020

• Tasman mill has onsite geothermal power plant and is unique in the world using solely geothermal steam for paper drying

48

Growth OpportunitiesOpportunity /

timing Overview Benefits

Asian sales market

• Secondary market opportunity

• Present

• Growth market opportunity

• 2012-2013

• New business division

• 2011-2015

• Growth of Asian regional demand for newsprint represents a sizeable market

• Existing supply / demand imbalance in Asia is forecast to grow

• NSA is a low cost, virgin-based supplier into Asia

• NSA maintains strong sales and marketing capabilities in the region through the wholly owned subsidiary, PanAsia Paper Trading Pty Limited

Magazine printing grades

• Conversion of a paper machine to offer SC or LWC print capability

• No existing domestic production of magazine grades

Alternative energy

opportunities

• Transfer of existing mechanical printing grades capability

• Access to the growing market for magazine grades

Multiple opportunities under evaluation

• Production of torrefied pellets

• Cogen and geothermal energy projects

• Biomass handling experience and existing infrastructure

• Scale and experience in driving thermal efficiency

49

Gaute H. Andreassen ‐ SVP Strategy→ Pursuing a sounder industry structure

51

Paper is a well‐positioned product

Advertising strength

Source: Risi, Moberg et al 2007

Kg CO2-ekv/year and unique reader

European energy mix

* Newspaper read on electronic reading devises such as Ipad, Kindle, iRex iLiad etc.

Adspend to revenue per medium

An environmental product

*

52

It is possible to make money in declining market 

Source: PPPC, RISI

Ferry industry

European fertilizer

Steel2004 2006 2008 2010 2012 2014 2016

Million tonnes

8,000

6,000

4,000

2.000

10,000

Newsprint demand will fall… Other industries have managed

Success criteria • Fewer players • Stronger balance sheets • Strong industry leadership

European newsprint

53

70% of Norske Skog’s production capacity in Europe

7%3%

20%

35%

36%

Australasia Newsprint (865 kt)South America Newsprint (310 kt)Asia Newsprint (130 kt)

Europe Magazine (1540 kt)Europe Newsprint (1580 kt) - 15

- 10

- 5

0

5

10

15

Q107

Q106

Q110

Q108

Q109

Europe MagazineEurope Newsprint

Total 4.4 Mt production capacity   EBIT margins Norske Skog Europe 

54

Motivation to work for sustainable industry solution

CompetitorsGain margins throughout the value chain

Investment grade rating gives flexibility

Norske SkogFocused paper company 

NOK 20b invested in publication paper assets

Debt situation requires actions and speed

Fiber Energy Pulp Paper

55

Newsprint needs consolidation

Palm

10%

Holmen

11%

Norske Skog

14%

Stora Enso

21%

UPM*

26%

0

5

10

15

20

25

30

35

40

45

50

7%

Holmen

8%

SCANorske Skog

12%

Stora Enso

21%

UPM*

44%

Capacity share (%)Western Europe

Stora Enso

Norske Skog

7%

SAPPI

12%

Burgo

12%12%

UPM*

35%

NewsprintUncoated Mechanical Coated Mechanical

• Myllykoski acquisition makes UPM clear market leader in magazine

• Not so in newsprint

* UPM inclusive Myllykoski

Source: RISI

56

European publication paper has common destiny

Jan-08

Jan-04

Jan-07

500

0

450

EUR/tonne

850

100

800

750

700

650

600100

Jan-11

Jan-03

Jan-02

Jan-01

550

Jan-10

Jan-06

Jan-09

Jan-05

Jan-00

LWC 60g SC 56g Newsprint 45g 

Source: RISI

Newsprint constitutes the “floor” in publication paper pricing

Publication paper prices Germany   

57

Streamlining company structure and asset portfolio

• Legal clean up/company restructuring

• Objectives: • Stronger operational focus

• Divest non‐core assets

• Simplify organisation and save costs

• Prepare for various restructuring scenarios and more efficient industry structures

58

Sale of non‐core assets

• 2010: NOK 1.1 billion• Surplus energy

• Norwegian property

• Shareholdings and property RoW

• 2011: NOK 0.5‐0.7 billion• Brazil forest

• Various properties, etc.

0

200

400

600

800

1000

1200

2010 2011

Sven Ombudstvedt  President and CEO→ Closing remarks

Q & A