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Transcript of Knight Libertas 250310
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Knight Libertas Credit Conference
London, 25 March 2010
Odd-Geir Lyngstad, Corporate Treasurer and Deputy CFO
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Overview of presentation
Company specifics & the industry
Three performance drivers Norske Skogs response
Financials and outlook
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Company specifics & the industry
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Norske Skog headlines
A leading producer of
publication paper:
14 mills in 11 countries
Revenue (2009)
~ NOK 20.4 bn/US$ 3.2 bn 5,700 employees
Listed in Oslo no controlling shareholder
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The world of Norske Skog
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)
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Norske Skog in Europe
Seven mills, capacity 3 163 000 tonnes
= 70 % of total capacity
Std newsprint etc 1 763 000 tonnes Magazine grades 1 400 000 tonnes
Good cost position (1st quartile) for
Skogn, Golbey and Saugbrugs(combined 55 % of European
capacity)
Long-term market development:
Newsprint: Most likely declining
Magazine grades: Expect stable or increased
demand
Skogn
Golbey
Parenco Walsum
Bruck
Corporate HQ, OsloSaugbrugsFollum
Skogn
Golbey
Parenco Walsum
Bruck
Corporate HQ, OsloSaugbrugsFollum
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Norske Skog in Australasia
Three mills, capacity880 000 tonnes of std
and improved newsprint Only producer, high
market share and good,long-term customer
relationships
Favourable cost positionand historically strong
cash flow
Albury
BoyerTasman
Albury
BoyerTasman
Albury
BoyerTasman
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Norske Skog in South America
Two mills, capacity310 000 tonnes of std
newsprint, book paper etc Largest producer, good
cost position
Growth market, somevolatility expected
Opportunities within bioenergy
Earthquake in Chile, March2010 No injuries on personnel, limited
economic impact
Bio Bio
Pisa
Bio Bio
Pisa
Bio Bio
Pisa
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Norske Skogs production capacity by
segments
Europe
magazine
31 %
Europe
newsprint
39 %
Australasia
newsprint
20 %
Asia newsprint
3 %South America
newsprint
7 %
Total capacity4.5 mill. tonnes Newsprint etc. 3.1 mt Magazine 1.4 mt
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World paper production
7% 18%
21%
49%
5%
Publication paperFine Paper
Packaging Paper and Board
TissueOther
8%
12%
28%20%
1%
24%5%
1%
North AmericaOceania
Latin America
Africa
Other Asia
Japan
China
Europe
TOTAL 391 million tonnes (2008)
Source: RISI Industry statistic 2008
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Industry structure
Consolidated
Steep fall in demand for several years
North
America
Less consolidated
Fall in demand in 2009, but less thanNorth America
Europe
Fragmented
Increase in demand overall, regional
variances
Asia
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Top global publication paper companies0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000
Catalyst (CAN)
Kruger (CAN)
SCA (SWE)
Oji Paper (JAP)
Holmen (SWE)
White Birch (USA)
NewPage (USA)
Myllykoski (FIN)
Nippon Paper (JAP)
Norske Skog (NOR)
Stora Enso (FIN)
AbitibiBowater (USA)
UPM (FIN)
M-real (FIN)
Burgo (ITA)
Mt
Top 5 share of capacity
Grade NorthAmerica
Europe
Newsprint 80% 60%
Uncoated Mag 80% 80%
Coated Mag 85% 70%
Source: RISI Dec 08, PPPC Oct 09
Newsprint
Coated Mag
Uncoated Mag
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Three performance drivers
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Challenging market conditions
Three forces driving performance; Cost wave 2006 2008
Substantial cost increases for raw materialsand energy
Demand drop
Steadily decline in the US since 2001 Significant drop in all markets in 2009
Prices
Historically low price level in the US in 2009
Price reduction of approx. 20% in Europe for2010
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Total cost breakdown*
Energy20 %
Distribution
9 %
Labour
14 %
Other fixed
8 %
Other Direct
8 %
Depreciation11 %
Raw Materials
31 %
Total cost Raw materials
Wood
35 %(11%)
Market pulp
9 %(3%)
Chemicals, fillers
etc.
29 %(9%)
Recovered paper
27 %(8%)
*Calculated to 90% operating rate
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Cost developmentNewspapers (2.01) - Germany
0
20
40
60
80
100
120
140
160
180
01/0
1
01/0
2
01/0
3
01/0
4
01/0
5
01/0
6
01/0
7
01/0
8
01/0
9
01/1
0
EUR
/tonne
Old News - China
0
50
100
150
200
250
300
01/0
1
01/0
2
01/0
3
01/0
4
01/0
5
01/0
6
01/0
7
01/0
8
01/0
9
USD
/tonne
Nordic Power Market - Nordpool
-10
10
30
50
70
90
110
130
150
jun.0
4
jun.0
5
jun.0
6
jun.0
7
jun.0
8
jun.0
9
jun.1
0
jun.1
1
jun.1
2
jun.1
3
jun.1
4
EUR/MWh
Spot Forward
Recovere
dp
aper
Electricit
y
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Current cost picture
11% of total costs
S.America & Australasia:
Long term contracts at favourableprices
Continental Europe Market exposure
Norway Fixed contracts
Wood
Recoveredpaper
8% of total costs
Reduced exposure for NS afterdisposals in China and idlingPM2 in Parenco
Upward pressure on prices
Energy
2/3 electricity of which 75%bought under long termcontracts in Norway, Brazil and New Zealand
Higher el-prices in Q1
Rawmaterials
Energy
Raw materials
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Current cost picture (cont.)
Chemicals,fillers etc.
9% of total costs
Increased prices end of 2009
Still upward pressure
Pulp
3% of total costs
Upward pressure on prices
Increased price pressure
after earthquake in Chile NS exposure ~200kt in
magazine production
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Regional demand for publication paper2009 demand & change 09/08
0
2
4
6
8
10
12
14
Europe North America Asia Latin America Australasia
millio
ntonnes
Newsprint Magazine
Sources: PPPC
Newsprint = Standard newsprintMagazine = Coated, supercalendered and other (improved newsprint etc.)
-18.6%
-16.2%
-13.6%
-25.3%
-11.2%
-6.5%
-19.4%
-12.6%
-28.4% -22.6%
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Demand decrease in newsprint
Europe
Demand 14% in 2009
Circulation 1/ 3
Pagination 2/ 3
Newsstandsales/ Freepapers
Subscription
Discontinuedpapers
Editorial
Advertising
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Price development
Newsprint pricing: Annual contracts in Europe,
quarterly in N-America
Prices in Europe 2010: Newsprint:
Drop of ~20%on the Continent
Magazine paper: Drop of 5 10%
Newsprint prices inNorth America:
Rock bottom level in Autumn2009, increase thereafter Will have positive impact also
in South America and Asia
300
350
400
450
500
550
600
650
700
jan.07 jan.08 jan.09 jan.10
Germany US East UK
Newsprint EUR/tonne (45 gsm)
Source: RISI
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Norske Skogs response
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Debt reduction through asset sales
Sold in 2008
Profitable operations, acceptable price
Reduced NIBD of ~NOK 4 billion
Norske Skogs
mills in S. Korea
Sold in 2009
Marginal cash flow, low price per tonne Reduced NIBD of ~ NOK 1 billion
Norske Skogsmills in China
Various properties sold in 2008 and 2009
More to come in 2010
Energy contracts: Could be partly monetized
Properties etc.
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Capacity reductions: A prerequisite
for better pricing environment Norske Skog has actively
closed capacity since 2006 Norway, New Zealand, Czech
Republic and Netherlands In total, around 900 tonnes
2008: Significant closures by a
number of companies:N.A. EuropeNewsprint ~11% ~7%
Magazine ~8% ~6%
2009: Norske Skog was theonly company to closecapacity; Parenco PM 2 inNetherlands
New sprint capacity
0
10 000
20 000
30 000
40 000
00 01 02 03 04 05 06 07 08 09
1
0
0
0
t
RoWEur
NA
Magazine capacity
0
10 000
20 000
30 000
40 000
00 01 02 03 04 05 06 07 08 09
1
0
00
t OUM
SC
CMR
Source: PPPC, NSI estimates
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Cost and capex reductions
Profit improvement program ended 2008 Close to target of NOK 3 billion Main elements; energy, efficiency improvement
and de-manning
Initiated in summer of 2009: Permanent idling of Parenco PM2 Reduced manning by 600 persons (9%)
Reduced maintenance costs Headquarter cost reduction (20%)
Continuous improvement programme at allbusiness units
Investment level reduction
CAPEX in 2010 ~NOK 500 million
Annual costreduction ofNOK 600-700million from 2010
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Considerable reduction in net debt
0
2
4
6
8
10
12
14
16
18
2007 2009
Net debt
Net debt reduced byNOK 6.8 bn. since end
2007 Retained free cash flow Net debt effect from bond
buy-back of NOK 643 mill. in2008 and 2009
NOK 5.4 bn. through assetsales
No material currency
impact over this period Gearing: 0.80
16.4
9.6
NOK bn.
9.6
Exploring new opportunities w ithin
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Exploring new opportunities w ithinbio fuel - From wood, not from food
1st Generation (Biodiesel andBioethanol): Made from plant crops Available on the market today
Limited CO2 reduction potential Concerns about: sourcing of
feedstock; impact on biodiversity,land use and competition with food
2nd Generation (syntheticBiodiesel / cellulosic Ethanol): Made from non-food feedstocks
(woody biomass)
High CO2 reduction potential No competition with food High fossil substitution potential
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Financials and outlook
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2009 Key P&L and CF figures
Much lower volumes
YoY Divestments and closures of
capacity
Unprecedented drop indemand
Improved net resultYoY Positive impact from value
change on energy portfolio andfinancial items
2009 2008Revenue 20 362 26 468
EBITDA 2 185 2 723Depreciation (2 465) (2 6
Special items (1 046) (1 508)
EBIT, IFRS (1 325) (1 407)
Financial items 280 (1 402)
Net result (1 400) (2 765)
CF from operations 1 697 1 9
CF after capex 1 117 6
Shipments, 1 000t 3 894 5 412
Operating rate 79 % 93 %
23)
77
94
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Balance sheet & covenants Total assets NOK 33 bn as at 31.12.2009
Reduced by NOK 12 bn since 31.12.2008
Disposal of mills
Depreciation and impairments > capex
Dismantling and environmental costs from gross to net
Equity of NOK 12 bn (36%)
Total assets
Interest bearing debt NOK 13.8 bn
Cash position NOK 4.2 bn
Net interest bearing debt NOK 9.6 bn Reduced by NOK 4.5 bn since 31.12.2008
FX
Disposals
Buy-back of own bonds
Free cash flow from operations
Interestbearing debt
Gearing < 1.4 0.8 as of 31 Dec 2009
Net tangible worth > NOK 9 bn NOK 11.6 bn as of 31 Dec 2009
Covenants
C h d d bt t it fil
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Cash and debt maturity profile,
31.12.2009
-5-4
-3
-2
-1
0
1
2
3
4
5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ---> 2033
NOK bn. Cash Bank debt Bond debt
4.2
-0.4-1.9
-3.4
-0.7
-1.0 -1.0
-4.1
-0.1 -1.2
$ 321 mn
$ 173 mn $ 200 mn
493 mn
400 mn
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Regional development
European-like drop in demand, but lessaffected by the financial crisis High interest rate level and strong AUD Unemployment rate down
~70% export to the strong growing Asian economies Ongoing long term contract negotiations
Asia Pacific(Australasia)
Growth in economy, but volatile demand
Lag vs. North American price hikes
SouthAmerica
Significant price drop, but very competitivecost position on mills
January shipments up 1% for publication
paper YoY
Europe
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Outlook
Somewhat improved demand in the courseof 2010 could be expected, but still not in
balance with capacity Present price level in Europe not sustainable Moderate price increase in South America and Asia
expected
New long-term contracts under negotiation in Australasia Increased cost on certain input factors
expected
Management focus Continuous cost reductions and operational improvements Optimization through capacity management Measures to further strengthen financial position
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Knight Libertas Credit Conference
London, 25 March 2010
Odd-Geir Lyngstad, Corporate Treasurer and Deputy CFO