Repair offer - Norske Skog › Admin › Public › Download.aspx?file... · • Duration of the maturity profile doubled from 3 years to 6 years following the exchange • Remaining

Repair offerABG Sundal Collier, June 2016

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Paper does not disappear

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• Publication paper one of the most important ad channels in the world• Market share 19% just behind internet, only TV larger

• Market value more than USD 100 billion in 2015

• Leading publishers innovate around paper• Social media and online shops

• Paper remains the brand carrier

• Niche magazine can offer exceptionally targeted ads

• Paper is still the main revenue source for publishers• Newspapers generate more than 90% of revenue from the paper edition**

*ZenithOptimedia **WAN-IFRA

The world ad market 2015 amounted to USD 550 billion*

3

Norske Skog has a better asset portfolio

• Weak factories no longer part of Norske Skog’s portfolio

• Since 2010 Follum is closed and ownership interests in Parenco in the Netherlands and Walsum in Germany ceased

• Existing portfolio has been upgraded

• Investment in new TMP line at Saugbrugs and conversion to magazine paper at Boyer in Australia

• Norske Skog is strongly positioned for the cyclical uptick

• Weak margins in 2014 and 2015 due to investments and trough of the cycle

• Higher margins in 2016 due to better prices, lower costs and completed investments

Norske Skog’s EBITDA margins

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Norske Skog has enhanced its competitiveness

• Norske Skog’s margins have improved relative to competitors

• Portfolio changes and investments

• Industry margins are improving

• Cyclical uptick from non-sustainable prices and margins in 2015

UPM, SE

EBITDA margins

High capacity utilization in the industry

• Planned conversion projects and announced closures to retain high level in 2016 and 2017

• As secular decline in demand is being matched by reduced capacity in the industry

• The capacity utilization improved through 1Q16

• To full capacity utilization for newsprint and 90% for SC and LWC

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PPPC, Eurograph *Company data

European publication paper prices are up

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• Prices in Europe up 3-5% for Norske Skog in 2016

• Newsprint and LWC price growth better than for SC

• European SC benefitting from improved marked balance in the US

RISI

US and Indian prices are also up

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• US newsprint prices markedly up in 2016 following capacity closures

• USD 40 per tonne increase since December 2015

• Less exports from Europe and North America supporting Asian markets

• Newsprint capacity utilization rate for Europe and North America combined estimated at above 95%

• Norske Skog is seeing Asian newsprint prices USD 15-20 per tonne higher so far in 2016

RISI

Publication paper is a seasonal business

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• Publishers print more in the autumn months

• Events, fairs, run up to Christmas

• Market demand roughly split 45/55 between H1/H2

• Seasonally higher sales volumes drives GOE seasonality for Norske Skog

• More uniform production explains WC patterns

Sales volumes GOE

Company data

Debt reduced and extended

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• New equity raised and successful completion of the 2017 exchange offer

• Net debt reduced and group equity increased by more than NOK 1 billion

• Duration of the maturity profile doubled from 3 years to 6 years following the exchange

• Remaining outstanding on the 2016 bond reduced to EUR 74 million after quarter end

Total liquidity and 10 year major debt maturities*

* The effect of the exchange offer to 2017 bondholders, which was completed after quarter end, is included

Group diversifying beyond paper

• Biogas facility at Saugbrugs under construction. Golbey next in line

• Pellets production ramped up as planned to 40 000 tonnes annually

• Tissue project has progressed well, but regrettably not the partnership with Roto-cart

• Discussions with alternative partners are currently ongoing

• Timeline extended from spring 2017 to year-end 2017 due to partner change

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GOE annual run-rate contribution from growth projects

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Norske Skog’s book values are in line with competitors

• Book values of European competitors similar to Norske Skog per ton• On average EUR 280 per ton

• Norske Skog’s European factories are not significantly less valuable than competitors• EY argues for an impairment in Europa of NOK 1,75 – 2,3 billion

• Valuing Skogn, Saugbrugs, Golbey og Bruck combined to NOK 2,5 billion

• For reference the property tax values of Skogn and Saugbrugs alone is NOK 3,5 billion and the insurance value of the European factories are more than NOK 30 billion

UPM, Holmen, SE, Perlen, EY

Capital employed per ton

Group book equity has been restored

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• Reported book equity 1Q16 was NOK – 154 million

• Exchange offer to 2017 bondholders completed in April • Net debt reduced through debt write-off, issuance of perpetual notes and accounting effects

• Group book equity as of date of prospectus around NOK 1,5 billion

Cyclical tailwind lifting operational performance

• Market balance in Europe continue to improve with capacity closures and conversions

• Capacity utilization in the industry to remain above 90% for newsprint and LWC in 2016 and 2017

• European SC market is gaining support from US; closures and import duties on Canadian paper

• Asian export market for newsprint encouraging with price improvements

• Of increasing importance to Norske Skog due to a smaller domestic market in Australasia

• Strong Indian demand from regional newspapers

• Favorable energy costs reducing variable costs by 2-3% per ton in 2016

• Lower energy prices and efficiency measures at all mills

• Fixed costs initiatives continue towards a quarterly run rate of NOK 600 million by year-end 2016

• GOE in 1H16 expected to be above NOK 500 million

• Fruition of diversifying strategy to bring full run-rate contribution within 3-4 years

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Demand declines, but paper does not disappear

• If Norske Skog’s factories in Europe are valued at only NOK 2,5 billion they must close promptly

• The factories in Europe generated NOK 500 million LTM in EBITDA

• In 1Q16 the European factories generated an annualized EBITDA in excess of NOK 700 million

• Our customers are dependent on paper

• Schibsted’s Norwegian newspapers with revenue of around NOK 5 billion in 2015, of which 75% on paper

• Online revenue for Schibsted’s Norwegian newspaper declined by 5% from 2014 to 2015

European demand is extrapolated by average demand decline since 2010 of 5% PPPC

Publication paper demand in Europe