NOPA Norske Skog 5 April 2017 Carsten Dybevig VP Communication
Norske Skog in brief Publication paper producer in Europe and Australasia Total production capacity 2.7 million tonnes 2016 revenue NOK 12 billion EBITDA NOK 1.1 billion New initiatives to generate 25% of EBITDA by 2020 Biogas, wood pellets, tissue, new materials 2 500 employees, of which 950 in Norway Enterprise value NOK 7.1 billion Net debt NOK 6.3 billion 2
Norske Skog is geographically diverse 4 mills in Europe 3 mills in Australasia Exports towards US Skogn Skogn, Norway (NP: 520kton) Saugbrugs, Norway (SC: 485kton) Exports towards Rest of Asia Albury Saugbrugs Golbey Golbey, France (NP:595kton) Bruck, Austria (NP: 125kton 1, LWC: 265kton) Melbourne Boyer, Australia (NP: 150kton; LWC: 130kton) Sydney Albury, Australia (NP: 275kton) Tasman, New Zealand (NP: 150kton) Boyer Newsprint (Including Improved NP) SC (Uncoated Mechanical) LWC (Coated Mechanical) Key Market Area Tasman Bruck Key markets: Germany, UK, France, US Key markets: Australia, New Zealand, Asia 3
Norske Skog Norske Skog established by Norwegian forest owners in 1962 Purpose to exploit timber resources in central Norway Newsprint production started at the Skogn mill in 1966 Group expanded internationally in the 1990 s Core area defined as newsprint and magazine paper in 2001 First mill closures and divestments within core area in 2006 Portfolio optimization and balance sheet restructuring in recent years 4
Converging paper demand with digital competition Newsprint demand per person converging in North America, Europe and Oceania Quality content is expensive to produce and in need of a viable business model Publishers struggling to shift revenue from paper to new digital platforms Newsprint demand per person PPPC / UN 5
Norske Skog #3 player in Europe Norske Skog has two mills in Norway Newsprint at Skogn SC-magazine paper at Saugbrugs European publication paper capacity And mills in France and Austria Newsprint at Golbey Newsprint and LWC-magazine paper at Bruck Mill capacities ( 000 tonnes) RISI 6
European newsprint balance tight, magazine less so Newsprint utilization rate favorable at 95% Already announced capacity conversions will retain a high utilization rate throughout 2017 SC utilization rate is above 90%, while the LWC utilization rate in the 80 s is too low Already announced capacity conversion/closures supportive for SC in 2017 Newsprint price increase, pressure on LWC Western Europe industry utilization rates Euro-Graph 7
Norske Skog sole producer in Australasia Norske Skog benefits from LT fixed price customer contracts Challenged by secular decline in demand for newsprint Excess production capacity is exported to Asia Newsprint One newsprint machine at Boyer converted to LWC in 2014 Protecting the domestic Australasian position of the group Excess demand is imported to Australasia from Europe and Japan Asian newsprint prices announced higher PPPC Magazine paper PPPC 8
Newsprint price increase, pressure on LWC European newsprint prices increased last year, scope for additional increases this year Tight market balance is supportive on the continent, GBP depreciation lifting UK prices SC paper prices broadly flat, price decline for LWC paper Better market balance for SC than LWC RISI 9
Asian newsprint prices announced higher US newsprint prices increased significantly throughout last year following capacity closures Norske Skog has announced 5-10% higher export prices to Asia from Australasia RISI 10
Factories with high cost die, Factories with low cost survive
Group sensitive to currencies and input factor prices Annual EBITDA sensitivity NOK 30 million to 1% change in NOK Exposure managed through debt denominated in cash flow currencies Energy, fibre and chemicals are key variable cost constituents of the group LT contracts dampen the spot exposure Revenue by currency (%) and sensitivity to FX mill. Cost constituents (%) NOK 10 mill. NOK 10 mill. NOK 10 mill. 12
Norske Skog s debt too high Interest costs on net debt of NOK 6.3 billion consuming most of group cash flows Challenging to refinance secured 2019 bond beyond unsecured 2021/23 bonds Cash and major debt maturities 13
Our CSR policy Norske Skog is committed to contributing to sustainable development. Customers, suppliers and the world at large can rely on us. We take work on issues relating to the environment and social responsibility seriously. 14
Green acceleration or green shift The green shift has taken place over the last 30-40 years El consumption per tonne of pulp is reduced by 35% for 8 years Exemption from electricity tax has resulted in significant energy efficiency improvements ENOVA supported projects have provided energy improvements and competence Biogas contributes meaningfully both environmentally and financially 15
What is the contribution to the green shift from the paper and pulp industry? Road map vision for 2050: Zero emission from greenhouse gas felling 15 mill. m 3 Double value creation Everything made from oil can be made of wood low emissions during product use In the center of the circular bioeconomy! 16
17 EU goal: Integrated market
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Cost assessment - Paper and Paperboard (Source: Technopolis) Regulatory costs as % of VA 2,50% 2,00% 1,50% 1,00% 0,50% 0,00% Climate & Energy Environment Forest-related Labour Product Transport Fees/Taxes/Charges CAPEX OPEX Administrative burden 19
Costs / VA Cost assessment - Paper and Paperboard (Source: Technopolis) 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Climate & Energy Environment Forest-related Labour Product Transport Trade & Commodity 20
Cost assessment - Paper and Paperboard (Source: Technopolis) Product 7% Labour 6% Forestrelated 1% Environment 34% Transport 4% Climate & Energy 48% CAPEX 37% OPEX 25% Administrative burden 3% Fees/Taxes/ Charges 35% 21
Poor conditions => higher costs Government and parliament must continuously simplify, streamline and harmonize the entire value chain framework
Innovation 23
Diversifying beyond paper 25 by 2020 New businesses to contribute 25% of GOE by 2020 Process initiated across all mills, with focus on time-to-cash, GOE and CAPEX Projects possible to replicate at other mills, or scale up at a later stage are considered particularly lucrative. New Business opportunities derived from existing infrastructure and footprint within fiber value chain Still in early phase for the greater bulk of the identified initiatives and possibilities 24
Three main categories Energy Chemicals Fiber Biogas projects: production of biogas from mill effluents Benefits: Increase the mills revenue Reduce operating costs related to paper production In later stages, volumes are to be increased by: Expanding existing production facilities Allowing for external feedstock to be used Pellets production Industry was entered in 2015 when Natures Flame was acquired An alternative and environment friendly source of energy Further strategic options are to expand the capacity at the existing plant and to build a new facility at the Tasman site Currently exploring several options to utilize bio-chemicals Biochemical pilot plant started at Boyer at 2016 year end Fits into general shift of companies, consumers and governments seeking to replace fossil based or other nonsustainable materials with green bioproducts Benefits: Higher utilization rate of raw materials from paper production Diversified revenue streams New business-opportunities, related to resources and raw materials, from existing paper production Different product qualities and potential range of uses for different materials has been researched and tested Benefits: Might secure diversified revenue streams if projects are executed Significant potential for replicating these projects at other sites or locations (not included in estimates) Fibrematrix: Ongoing fiber board project Pilot plant cooperation with large international customer 25
Norske Skog expanding beyond publication paper Tissue and further expansion of pellets export would benefit from a debt restructuring Biogas Project at Saugbrugs (Norway) Timing Phase 1: Q1 2017 completion Phase 2: TBD Impact 27,000 MWh/year; GOE 2.6m/year Biogas Project at Golbey (France) Timing Phase 1: Q3 2016 start; Q4 2017 (injection) completion; and 2018 (sales of BioGNV) completion Impact Phase 1: 17,000 MWh/year; GOE 1.7m/year Phase 2: 18,000 MWh/year; GOE 1.0m/year Description Phase 1: Production of biogas from mill effluents Capex 17m / payback approx. 80 months Phase 2: development project / extension of biogas production Advantages Increased revenue from sale of gas Attractive long off-take agreement Lower waste water treatment cost Reduction of Green House Gases (fossil Co2) Description Production of biogas from mill effluents Capex 7.1m (phase 1) / payback 50 months Advantages Increased revenue from sale of gas Attractive offtake contracts at fixed prices Lower waste water treatment cost Reduction of Green House Gases (fossil Co2) Tissue Bruck (Austria) Timing Start: Late 2017 Ongoing partner and financing discussion Detailed engineering and discussion with machine suppliers Impact 33,000 tons/year GOE 5m/year 1 Natures Flame Bio-Pellet Plant Expansion Timing Main investment Oct-2015 Completion of expansion: 14 months from approval to proceed Impact 85K tons p.a; GOE 1.5m/year Description Newsprint production conversion into tissue Closed down existing PM3 (125 kton NP capacity) Investment in new tissue machine Capex: 25m / payback approx. 60 months Advantages Maximum utilization of existing assets Entering a new market for the group with increasing demand Description Increase existing Bio-Pellet Plant output from 40K tons to 85K tons p.a. Increase thermal energy supply Capex: 4.2m / payback approx. 33 months Advantages Environmental benefit in replacing fossil fuels for heating with renewables Economies of scale Growing Asian market demand 26
Norske Skog projects in the pipeline and more to come.. 27
His Majesty the King opened the bio facility
Biogas production at Saugbrugs Official opening and start of production today Total investment NOK 150 million Funded by Halden Pension, Sparebank1 and Enova grant 10 year offtake agreement with AGA Halden city bus running on Saugbrugs biogas Biogas brings several benefits Economic New biogas revenue stream and reduced paper production costs Green Renewable alternative to fossil fuels and improved urban air-quality distributed by AGA Saugbrugs project currently being replicated at Golbey in France Norske Skog Skogn also to provide biomass residuals to adjacent biogas facility 29
Thank you for your attention!