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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
Dec 2008 Jun 2009 Dec 2009 Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012
Power Norway (NOK/MWh)
Gas Europe (EUR/MWh)
0
10
20
30
Dec 2008 Jun 2009 Dec 2009 Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012
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)
• 1.2 mill. tonnes of capacity
Key figures (NOK mill.) 3Q11 4Q11 1Q12 2Q12 3Q12
Operating revenue 1 484 1 423 1 359 1 399 1 317
EBITDA 246 236 196 218 223
EBITDA margin (%) 16.6 16.6 14.4 15.6 16.9
Deliveries (‘000 tonnes) 314 294 276 290 272
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)
• 1.5 mill. tonnes of capacity
Key figures (NOK mill.) 3Q11 4Q11 1Q12 2Q12 3Q12
Operating revenue 1 568 1 966 1 762 1 602 1 580
EBITDA 77 139 104 90 84
EBITDA margin (%) 4.9 7.1 5.9 5.6 5.3
Deliveries (‘000 tonnes) 307 392 356 330 338
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
1000
1500
2000
2500
3000
3500
2006 2007 2008 2009 2010 2011 2012E
Depreciation
Outlook and focus
24
• 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
Q&A
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%
Annual demand (YTD growth)
PPPC; annual 2011 and YTD Aug 2012
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%)
PPPC; annual 2011 and YTD Aug 2012
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%
Annual demand (YTD growth)
PPPC; annual 2011 and YTD Aug 2012
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%)
PPPC; annual 2011 and YTD Aug 2012
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