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Norske SkogCapital Markets Day & Q4 results3 February 2011
AgendaJarle Langfjæran ‐ Head of Investor Relations→WelcomeSven Ombudstvedt ‐ President and CEO→ Introductory remarks (summary 2010)→ Key headlines (Q4 & FY‐10)Audun Røneid ‐ CFO→ Q4‐10, financialsSven Ombudstvedt ‐ President and CEO→ Outlook 2011Q & A
Break
Jan Clasen ‐ SVP Commercial → European market characteristics – an opportunity for Norske SkogTerry Hamilton ‐ SVP Europe→ European operationsRune Gjessing ‐ SVP Australasia, Asia & South America→ AustralasiaGaute H. Andreassen ‐ SVP Strategy→ Pursuing a sounder industry structureSven Ombudstvedt ‐ President and CEO→ Closing remarksQ &A
Session 1
50 m
in
Session 2
90 m
in
10 min
Q4 2010 resultsSven Ombudstvedt, CEO3 February 2011
16
Corporate Management
President &Chief Executive Officer
Sven Ombudstvedt
Senior Vice PresidentEurope
Terry Hamilton
Senior Vice President Commercial
Jan H. Clasen
Chief Financial Officer
Audun Røneid
Senior Vice PresidentStrategy
Gaute H. Andreassen
Senior Vice PresidentAustralasia, Asia & South America
Rune Gjessing
A leading manufacturer of publication paper
• 14 mills in 11 countries
• Revenues (2010): NOK 19.0 bn
(USD 3.15 bn)
• 5 300 employees
• Europe 3 600• Whereof Norway 1 700
• Australasia 900
• South America 600
• Asia 200
• Listed on the Oslo Stock Exchange
• No controlling shareholder
• Credit rating B‐/B2
Global presence ‐ strong European footprint
Saugbrugs (Norway)Follum (Norway)Skogn (Norway)
Bruck (Austria)Walsum (Germany)Parenco (The Netherlands)
Golbey (France)
Singburi (Thailand)
MNI (Malaysia – 34 %)
Boyer (Australia)Tasman (New Zealand)
Albury (Australia)Bio Bio (Chile)
Pisa (Brazil)
Fundamental change in sentiment
• Pricing in Europe
• Market balance
• Cost efforts
• Cost of financing
This is a sustainable business
600
700
800
900
1000
1100
1200
1300
1400
1500
6
8
10
12
14
16
18
20
22
24
31.12.2009 30.06.2010 31.12.2010
CDS BpsShareprice in
NOK
Shareprice 5y CDS
• Operational• Improved demand in most markets
• Prices in Europe at historically low levels
• High prices on input factors
• New long‐term contracts and strong performance in Australasia
• Improved capacity utilisation
• Significant reductions of fixed and variable costs
• Long‐term power supply secured for Skogn mill in Norway
• Restructuring of newsprint contract portfolio
• Financial• Sale of excess power in Norway
• Divestment of non‐core assets
• Significant reduction in net debt
• Stronger NOK
2010 in brief
Q4 2010 in brief• EBITDA up slightly, but still weak
• Seasonal increase in volumes
• Higher prices on input factors
• Improved capacity utilization
• New long‐term power contractfor Skogn
• Property divestments
0
100
200
300
400
500
600
Q4 2009 Q1 2010 Q2 Q3 * Q4**
EBITDANOK mill.
*) Including reversal of an environmental provision of NOK 108 mill.**) Including reversal of provision and income related to pension schemes
• Net interest‐bearing debtNOK 8.9 bn, down NOK 0.1 bn from Q3
• Cash flow
• Property divestments
Debt reduction
0
2
4
6
8
10
12
14
Q2 2009
Q3 Q4 Q1 2010
Q2 Q3 Q4
NIBD
12.2
10.0 9.6 9.510.3
9.0 8.9
• Annual fixed cost level 2010: NOK ~4.3 bn
• Workforce reduced by 51% since end 2005
• Closures
• Downsizing
• Reduced maintenance costs
• In line with target
• Further cost reductions in 2011
• Target run‐rate for fixed costs is NOK 4 bn at the end of 2011
Cost reduction
0
2 000
4 000
6 000
8 000
10 000
12 000
2005 2006 2007 2008 2009 2010
Total Workforce
• Significant price increasepartly offset by higherefficiency
• Only ~5 % increase in direct costs/tonne
• No material impact from currency translation
Input factors
80
120
160
200
240
Dec 2008 Jun 2009 Dec 2009 Jun 2010 Dec 2010
80
100
120
140
160
Dec 2008 Jun 2009 Dec 2009 Jun 2010 Dec 2010
80
100
120
Dec 2008 Jun 2009 Dec 2009 Jun 2010 Dec 2010
Recovered paper
Market pulp
Index: Dec 2008 = 100Source: RISI, Company data
Wood (Norway)
Region/segment Annual change (YTD)*
Comments
World standard newsprint
1.6 %
North America standard newsprint
‐6.0 %
Europe standard newsprint
1.9 % Western Europe (+3 %) Eastern Europe (‐2 %)
Europe magazine paper
(incl. improved newsprint etc)
5.7 % SC (‐1 %) LWC (+10 %)
Non‐Japan Far East Standard newsprint
5.0 % Highest growth in India (+30%) China decreases (‐2%)
Australasia
standard newsprint
5.4 %
Latin America
standard newsprint
11.9 % Highest growth in Brazil Increased customer inventories
*) Change from January‐December 2009 vs same period in 2010
Demand 2010 per region/segment
Source: PPPC, CEPIPRINT
Improved market balance ‐ higher capacity utilisation
• Operating rate substantiallyhigher than Q3
• Increased demand for newsprint in all markets exceptNorth America
• Increased demand for magazinepaper
• Reduced imports from North America
• Increased export from Europe
• Capacity closures in Europe
81 %84 % 85 %
89 % 90 %94 %
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
Q3 2009 Q4 Q1 2010 Q2 Q3 Q4
Operating rate
North American newsprint shipments to Europe
0
1
2
3
4
5
6
7
8
9
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E
%1000 tonnes North American export to Europe North American market share in Europe
Source: CEPIPRINT
Main trade flows – Std newsprintYTD Dec 2010
Source: PPPC
YTD 2010 329
change 2009 ‐104
% change ‐24 %
YTD 2010 975
change 2009 204
% change 27 %YTD 2010 1075
change 2009 625
% change 139 %
YTD 2010 1 341
change 2009 72
% change 6 %
Main trade flows – Magazine paperYTD Dec 2010
N.Am to: S.Am Asia
YTD 2010 246 188
change 2009 49 46
% change 25 % 33 %
EU to: N.Am S.Am Asia AA
YTD 2010 804 422 1077 357
change 2009 109 164 294 294
% change 16 % 64 % 38 % 38 %
Source: PPPC
Price development ‐ Europe vs. USA • Expectation of €515‐530 in
Germany
• Supported by prices in UK and France of ~€520
• We expect price increases in Q2 2011
• Average price in Europe last 15 years: €540‐550
• US price fluctuation due to currency effects ($680)• EUR/USD = 1.38
• USD price in:
• Hong Kong = $675
• India = $685 300
350
400
450
500
550
600
650
700
Jan 06Ap
r 06
Jul 0
6Oc
t 06
Jan 07Ap
r 07
Jul 0
7Oc
t 07
Jan 08Ap
r 08
Jul 0
8Oc
t 08
Jan 09Ap
r 09
Jul 0
9Oc
t 09
Jan 10Ap
r 10
Jul 1
0Oc
t 10
Jan 10
EUR/tonne Newsprint Germany US East
Source: RISI
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
Q4 2010 resultsAudun Røneid, CFO3 February 2011
Key financials Q4 2010
Key figures (NOK mill.) Q4 2010 Q3 2010 Q4 2009
Operating revenue 5 160 4 795 4 909
EBITDA 479 384 472
EBIT before special items 30 ‐129 ‐27
Result after tax ‐198 ‐244 667
• EBITDA: NOK 479 mill.
• Improved from Q3
• Stronger in Magazine paper and Energy
• Higher prices on input factors
• Net result: NOK ‐198 mill.
• Negative effect of NOK 187 mill. from changes in value of energy portfolio and biological assets
• Gain from property sale NOK 110 mill.
• Lower depreciation in Australasia
Key financials 2010
Key figures (NOK mill.) 2010 2009
Operating revenue 18 986 20 362
EBITDA 1 413 2 185
EBIT before special items ‐578 ‐280
Result after tax ‐2 469 ‐1 400
• EBITDA: NOK 1 413 mill.
• Underlying about NOK 1 bn. weaker than 2009
• Newsprint Europe very weak
• Solid results in Australasia
• Stronger NOK
• Net result: NOK ‐ 2 469 mill.
• Lower depreciations from divestment of assets
• Lower restructuring costs and impairments
• Negative change in value of energy portfolio
• Negative net financial costs (gain from currency and bond buy‐back in 2009)
Results ‐ segments
Q4 09
Q4 09
Q4 09
Q4 09Q4 10
Q4 10
Q4 10
Q4 10
‐100
0
100
200
300
400
Europe News News outside Europe Magazine Energy
NOK mill. EBITDA*
*) Including reversal of provision and income related to pension schemes in Q4 10
Newsprint Europe
• Price levels at record lows
• Seasonal increase in volume
• Higher prices on energy and wood
• Increased demand and reduced capacity have improved market fundamentals
Key figures (NOK mill.)
Q4 2010 Q3 2010 Q4 2009
Operating revenue 1 551 1 374 1 549
EBITDA ‐3 ‐18 151
EBITDA margin ‐0.2 % ‐1.3 % 9.7 %
Deliveries (1 000 tonnes) 429 386 371
‐100
0
100
200
Q4 Q1 2010 Q2 Q3 Q4
EBITDA NOK mill.
Newsprint outside Europe
• EBITDA‐margin unchanged from Q3 (adjusted for one‐off item in Q3)
• Marginally lower volumes in Asia and South America
Key figures (NOK mill.)
Q4 2010 Q3 2010* Q4 2009
Operating revenue 1 504 1 495 1 369
EBITDA 269 369 216
EBITDA margin 17.9 % 24.7 % 15.8 %
Deliveries (1 000 tonnes) 302 307 322
*) Including reversal of an environmental provision of NOK 108 mill.
0
100
200
300
400
Q4 Q1 2010 Q2 Q3 * Q4
EBITDA NOK mill.
Magazine paper
• Increased volumes and improved market mix
• Strong demand for LWC
• Strong export markets
• Higher prices on input factors
• Reversal of pension provisions
Key figures (NOK mill.)
Q4 2010 Q3 2010 Q4 2009
Operating revenue 1 691 1 606 1 674
EBITDA 169 41 162
EBITDA margin 10.0 % 2.5 % 9.6 %
Deliveries (1 000 tonnes) 332 324 314
0
100
200
Q4 Q1 2010 Q2 Q3 Q4
EBITDA NOK mill.
Financial items
• Q4• Minor currency effects in Q4
• 2010 vs. 2009• Fin items 2010 NOK ‐924 mill
vs. NOK +280 mill in 2009
• Large currency gains last year in addition to gains from buy‐back of bonds
NOK mill.
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Currency elements
‐11 ‐48 ‐329 261 ‐20
Cash flow• Q4
• Positive cash flow from operations in Q4 – down from Q3
• Majority of interest payments are due in Q2 and Q4
• 2010• Cash flow 2010 NOK 396 mill. vs.
NOK 1 697 mill. in 2009
• EBITDA down NOK 800 mill. compared to 2010
• Negative cash effect in 2010 from downsizing provisions made in 2009
• Increased working capital
• Capex 2010: NOK 411 mill. vs. NOK 580 in 2009
Cash flow from operations, after financial items and taxes
730
537
101
‐153
336
113
‐200
‐100
0
100
200
300
400
500
600
700
800
Q3 Q4 Q1 2010
Q2 Q3 Q4
NOK mill.
Cash and debt maturity profile
‐5000
‐4000
‐3000
‐2000
‐1000
0
1000
2000
3000
4000
5000
2011 2012 2013 2014 2015 2016 2017 2018 2019 Until 2033
NOK mill. Cash Bank Bonds
4.4
‐0.3
‐1.7
‐0.7
‐1.0‐0.9
‐3.9
‐0.1 ‐1.2‐3.2
‐0.1
Per 31 December 2010
→ Outlook 2011Sven Ombudstvedt, President and CEO
• Improved margins after weak 2010
• Substantially higher prices on European newsprint
• Transition to quarterly contracts
• Margins for newsprint outside Europe still satisfactory
• Higher prices on magazine paper
• Increased prices on most input factors
Outlook for 2011:
Management focus going forward:
• Strategic:
• Positioning for active role in industry consolidation
• Legal clean up
• Operational:
• Re‐establish earlier price level and margin in Europe
• Further reduction of debt and fixed costs
• Sale of non‐core assets
• Refinancing
Q & A
CMD & Q4 2010 presentation
10 min break