Norsk TreforedlingsforumNorske Skog

Tom Rogn, Vice President Investor Relations 24. november 2015

Prosessindustrien i Norge har møtt store

utfordringer over en lengre periode -det krever kontinuerlig omstilling

3

Treforedlingsbransjens utfordringer i Norge

• Sterk norsk krone i lange perioder svekker inntektsgrunnlaget når >95% eksporteres

• Et nasjonalt kostnadsnivå tilpasset oljeøkonomien

• Råvarer og energi utgjør ca 70% av kostnadene og har de siste 10 årene økt vesentlig mer enn inntektene

• Transportkostnadene utgjør ca 25% av råvarekost og ca 20% av salgspris

4

Publikasjonspapir var et vekstmarked frem til 2007

0

2

4

6

8

10

12

M tonnes

1996

Source: PPPC

4

2007 2014

Elektronisk substitusjon

Mindre lesing av aviser

og blader

Mindre annonsering

Overkapasitet medførte fallende priser

- 5-8 % per år

Trend demand growth =

GDP growth

• Årlig vekst i etterspørsel snudde raskt fra +1-2% til -5-8%

Description of situation in 2010

• High leverage• NOK 12 billion in net interest bearing debt

• Substantial deterioration of markets and results after 2008/2009• EBITDA from about NOK 2,0 to 1,2 billion

• Traditional industrial organization• Big centralized staffs serving producing units• Measures on cost and volume

• Global presence without synergies across the group

• Leadership focus and resource allocation to «new businesses»

• Inherited challenges:• Legal structures• Shareholder structures• Governance structure• ”The coat was substantially bigger than the man”

6

Large acquisitions – large problems

36 billion NOK used in 10 years

Bruck – 1998

Fletcher Challenge – 2000

Parenco and Walsum – 2001

Pan Asia – 2006

Total

Market value of equity 2002

1 bill NOK

21 bill NOK

10 bill NOK

4 bill NOK

~36 bill NOK

~30 bill NOK

High leverage

Complex and large organisation

Some less profitable mills

7

The restructuring process – A free choice?

• No consciousness about restructuring of Norske Skog– The reality and current situation were the main force for changes

• More conscious attitude: maybe things had been different

• Advantage to wait – (I) forced changes

– (II) existing mills and manning determined restructuring effects

• Necessity of survival: urgency and speed in processes

– Right people management?

– Right legal structure?

– Right analysis?

8

Substantial reduction in net interest bearing debt

Sale of assets

amount to NOK

4 billion since

2010

More than 150

divestments of

small or big

assets since

2010

0

5000

10000

15000

20000

25000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

NOK mill.

9

Turnarounds takes time

Simple cost

cuts

Manning

reductions

Sale of non-

core business

“Brutal” manning

reductions

Closure non

profitable units

Sale of

profitable units

Real restructuringChange of operating

model

10

New operating model established for permanent change

• Simplifying a slow and expensive decision making processes

• Slim down of a large and bureaucratic head office

• Shift focus from volume to cash flow

• Define clear organisational roles and responsibilities

• Simplify legal structure

• Seek cheaper financing

• New business culture (cash flow, responsibility, decision making, consequence)

Fabrikker med høye kostnader forsvinner,

fabrikker med lave kostnader vinner

European newsprint price again at cash cost level

12

• Cash cost pricing leads to supply side action as seen in 2010

• As cash negative capacity is forced out of the market

Magazine prices in Europe are coming up

13

• LWC prices have increased this autumn with market balance and fine paper prices

• SC prices supported by US import duties and improved operating rate in Europe

Energi, oljederivater og fiber nesten 2/3 av kostnadene

Kostnadskomponenter (%)

14

• Energi og kjemikalier er viktige kostnadskomponenter for konsernet • Lavere oljepris gir kostnadsfordeler

• 1/3 av energien er spoteksponert

• Kjemikaler i stor grad avledede oljeprodukter

NOK depreciation increases reported debt

0.9

15

• Underlying net debt significantly reduced

• Current net debt at 2010 FX rates NOK 7 billion compared to NOK 8,4 billion reported

*EUR and USD; 2010 = 100

Net debt and NOK depreciation to EUR and USD

8 000

4 000

3 000

5 000

7 000115

9 000

6 000

1 000

120

2 000

105

100

0 0

95

110

125

NOK mill.

201420132011 20152010 2012

NOK depreciation*Net debt

NOK depreciation improves operations

0.9

16

• NOK depreciation makes Skogn and Saugbrugs more competitive• Third machine at Skogn, which was out commercially in 3Q15, will restart in November

• A 1% NOK depreciation improves EBITDA by NOK 30 million per year

Magazine demand holding up

• World magazine demand decreasing half of newsprint. European magazine demand at structural trend

• European standard newsprint demand weaker than expected in 2015, improved newsprint demand flat. Fair market balance for newsprint overall due to capacity closures

• Domestic Australian demand down around 10% for newsprint (Oceania newsprint demand derived from variable trade data). Magazine demand is stable

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PPPC / EURO-GRAPH

Demand YTD August

* Including improved for Europe

Print is a sustainable business

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• Digital ads face threats

• Apple’s new iOS9 operating system to allow users to block all ads through its Safari web-browser

• Digital shift gone too far, print more powerful than realized (WPP, Saatchi & Saatchi)

• Print is the revenue source

• More than 90% of all newspaper revenue come from the print edition

• Digital versions are to a large extent free and cross subsidised by print revenue

• Print is the ad channel*

• Paper ad retention 5 times higher than TV and 10 times higher than online

• 50% of high value goods (cars, domestic appliances) bought with reference to a paper ad

*Australian survey

Newspapers are dependent on print revenue

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I USA sier 70% av kjedene at papir er kritisk for salg

20

Forlagene er økonomisk avhengig av papir

• Trykkpapir genererer mye reklameinntekter

• Søkemotorer kaprer en betydelig del av den elektronisk presenterte reklamen

Reklameinntekter for aviser i USA (%)

Newspaper Association of America

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Papir er nest største reklamekanal etter TV

• Papirdistribuert reklame har en markedsandel på 22%

• Verdens totale reklamemarked er på rundt USD 500 milliarder

Kilde: Zenith Optimedia

Veien fremover - marked

Today

23

Tomorrow

100%

PublicationPaper

75%Publication

Paper

25%Bioenergy

25%Bioenergy

Refinancing done in 2015 allows smart group investments

Growth opportunities beyond publication paper

• Biogas projects at mill sites, started at Saugbrugs

• Construction started and on schedule for year-end 2016 completion

• Wood pellets investments in New Zealand

• Construction started and on schedule for year-end 2016 completion

• Stand-alone concept acquired, expansion to the Tasman site to be considered

• Geothermal power plant at the Tasman site• 22 MW power plant in operation since 2013

24

Unlike fossil fuels, biomass is renewable

Tissue conversion at Bruck in Austria

• JV with partner Roto-cart formalized

• Project progressing in accordance with plan

Nature’s Flame and tissue – growth beyond paper

• Biogas project at Saugbrugs being considered replicated at our other mills

• Stand-alone pellets concept with large on site potential at Tasman

• Tissue project with limited market risk and capex spend through JV partner

25

GOE annual run-rate contribution from growth projects

Prosessindustrien i Norge har en fremtid,gitt visjonære politikere

Omstillingen vil på sikt gi varige effekter

• Om produktene• Våre produkter er resirkulerbare – vi er den reelle fornybare industrien basert på fiber og

energi. Intet produkt resirkuleres mer enn papir

• Ingen miljøgrunn til ikke å bruke papir fremfor digitalt

• Papir vil være en bærekraftig og effektiv kommunikasjonskanal også i morgen

• Om klima• Bioøkonomien vil ikke være bærekraftig uten en slagkraftig treforedlingsindustri

• Ingen CO2 løsning uten en levende skog

• Norske Skogs bioenergisatsing – avfall blir ressurs og gjennom gassproduksjon reduseres CO2 fotavtrykket 70%

• Om samfunnet• Skogindustrien skaper verdier der olje- og fiskeressursene ikke er

• Skogindustrien skaper fremtidige og bærekraftige distriktsarbeidsplasser

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Skogbasert industri har stort potensial

• Basert på fornybart, biobasert råstoff

• Råstoff som kan "brukes til alt" – særlig i en lavkarbonøkonomi

• Kompetanse som konkurransefortrinn

• Men forutsetter• Stabile og bedre rammebetingelser

• Aktiv skog- og transportpolitikk

• Investeringsvilje og kapitaltilgang

• Økt satsing på innovasjon og utvikling

Treforedlingsindustrien er en del av løsningen!

20.03.2013 28

29

Videreutvikling skjer på eksisterende anlegg

Utviklingsområde Ansvarlig

Bio-Chemicals Golbey

Bio-fuel/ Bio energy products Tasman

Bio-gas from anaerobic effluent treatment Skogn and Saugbrugs

PHA from activated sludge for bio plastic Boyer

RCF/ DIP Research – CTP

TMP/ PGW Research – CTP & PFI

Golbey for CTP contract but with participants from relevant BU’s in appropriate steering committee

Micro fibrillated cellulose & nano-cellulose -CTP, PFI & FLPPR

Co-ordinated by Innovation network with Saugbrugs, Golbey & Bruck in R&D steering committees

Fibre/ Polymer Composites Saugbrugs

Boiler Ash – Evaluation and potential applications Golbey

Oriented Strand Board, Cross Laminated Timber, Strand Lumber

MNI, Golbey, Albury respectively.

Dårlige rammebetingelser = høyere kostnader

Regjering og Storting må kontinuerlig

forenkle, effektivisere og harmoniserehele verdikjedens rammebetingelser

Spørsmål & Svar