Q3 2020 presentation
22 October 2020
www.norskeskog.com
Third quarter in brief
EBITDA for the period of NOK 73 million, compared to NOK 138 million in the previous quarter
- Gain of NOK 86 million included in the previous quarter, underlying EBITDA improvement
- Volumes improving from Q2 2020, but still impacted by COVID-19 restrictions
Cash flow from operations of NOK 115 million versus NOK -109 million in the previous quarter
- Cash position of NOK 1,093 million following dividend payment of NOK 3.00 per share in the quarter
- Net interest-bearing debt of NOK 628 million
Norske Skog Saugbrugs to permanently close PM5
- Supercalendered magazine paper capacity reduction of 100,000 tonnes
- Redundancy cost of NOK 40 million to be recognised in Q4 2020, and expected annual cost savings of NOK 80 million
Strategic projects progressing according to plan
- Construction of the Bruck boiler and energy efficiency initiatives at Saugbrugs remain on track
- Main studies for European containerboard projects progressing towards final investment decision in H1 2021
Circa Group planning a 1,000 tonnes CyreneTM facility in France
- Norske Skog owns 27.7% of Circa Group (subject to FIRB approval)
- Consortium with Circa Group received a EUR ~12 million EU Flagship grant for construction of the CyreneTM plant
P
Underlying EBITDA improving in Q3 2020 vs Q2 2020
Underlying EBITDA growth driven by better volumes and costs
- Volumes recovering from lows in May and June, but still impacted by restrictions with utilisation of 71% in the quarter
- Industry price decline from H1 2020 to H2 2020, somewhat mitigated by reduced exports
- Lower variable costs mainly resulting from reduced energy prices and recovered paper prices
- Reduction in fixed costs as a result of temporary layoffs at most mills following market-related downtime
- Stronger NOK in the quarter resulting in negative FX impact
- Change in other items mainly relate to gain on sale of Tasmanian forest which occured in Q2 2020
EBITDA bridge Q2 2020 to Q3 2020, NOKm
250
Corporate strategy
Illustrative over-the-cycle EBITDA
Diversify and innovate within fibre and energy
Become a leading producer of renewable packaging
Improve and optimise publication paper cash flows
Agenda item: Publication paper Improve and optimise publication paper cash flows
Illustrative over-the-cycle EBITDA
- Remain a producer of all publication paper grades
- Continue improving mill cost base (NEXT / Therminator)
- Unlock property values (Porsnes Utvikling)
- Close Saugbrugs PM5 to adapt to market changes
- Reposition the Tasman mill towards strategic players
Q3 2020 financials for Europe
- Newsprint, SC and LWC demand decreased by 23%, 15% and 23%, respectively through July this year
- Realised prices somewhat lower in the quarter and modest signs of volume improvement
- Favourable raw material prices
- Stronger NOK in the quarter
Signs of demand improvement into H2 2020
- Western European publication paper demand amounted to ~11.4m tonnes in 2019
- Demand decline seen in August 2020 vs August 2019 implies a demand loss of up to 2.5m tonnes annualised
- So far in H2 2020 there has been announced ~2m tonnes of capacity closures in Western Europe
- Capacity closures announced after price agreements for the second half of 2020 were in place
Industry impacted during price negotiations for H2 2020
- COVID-19 impacted the industry during semi-annual price negotiations
- Publication paper prices down for the second half 2020
- Price negotiations for the first half of 2021 to be carried out towards the end of 2020
Closing Saugbrugs PM5
Sales volume development at Saugbrugs
- Closure of PM5 (SC capacity of 100,000 tonnes) expected to have limited impact on sales volume given current trading
- Norske Skog will have 360,000 tonnes of SC capacity following the potential closure and will remain a reliable supplier of SC magazine paper
- Closure expected to result in annual cost savings of NOK ~80m from 2021 and a one-time restructuring cost of NOK ~40m in Q4 2020
Current operational figures for the Saugbrugs mill (all three machines)
- ‒ SC magazine capacity of 460,000 tonnes
- ‒ ~900k fm3 consumption
- ‒ ~1.1 TWh electricity consumption
Identifying new value in former Saugbrugs administration office
Part of former Saugbrugs administration office in Halden to be used for high school
- Porsnes Utvikling1 to redevelop part of former Saugbrugs administration office for high school purposes
- Financing and municipality lease agreement in place
- Redevelopment completion planned for Q2 2022
- Porsnes Utvikling to develop remaining sections of the administration office and surrounding area
- Norske Skog explores opportunities for areas owned in the 'greater' region surrounding Saugbrugs
Q3 2020 financials for Australasia
- Demand for newsprint and magazine paper declined by 24% through September
- Somewhat higher wood prices following sale of Tasmanian forest
Repositioning the Tasman mill towards strategic players
Sales volume development in Australasia
- COVID-19 causing material demand impact in the Australasian region
- Opportunity for Norske Skog to cover newsprint demand with Boyer mill
- Closure of Tasman (newsprint capacity of 150,000 tonnes) expected to have limited impact on sales volume given current trading
- Reviewing mill options (incl. BCTMP) as part of repositioning towards strategic players in the region, conclusion expected Q1 2021
Operational figures for Tasman mill
- ‒ Newsprint capacity of 150,000 tonnes
- ‒ ~320k tonnes wood consumption
- ‒ ~470 GWh electricity consumption
Agenda item: Renewable packaging Diversify and innovate within fibre and energy
Illustrative over-the-cycle EBITDA
- Packaging projects in Bruck and Golbey
- Replace newsprint with containerboard production
- Expected EBITDA contribution of NOK 700-800m
- Expected start-up during H1 2023
Entering the containerboard market with first-quartile capacity
15 Source: External industry consultant (third-party), cost data as of Q3 2019 1) Europe excluding Russia
Norske Skog will be a containerboard producer in 2023
Norske Skog Golbey – France
- PM1 to become a producer of 555,000 tonnes of recycled containerboard
- Current PM1 capacity of 235,000 tonnes newsprint
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Capex estimate of EUR ~250m
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PM3 to become a producer of 210,000 tonnes of recycled containerboard
- Current PM3 capacity of 125,000 tonnes newsprint
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Capex estimate of EUR ~100m
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Strong process and project competence locally at the mills Leading competence on pulp & paper highly relevant in packaging In-house personnel with experience from previous and similar projects
- Working with multiple experienced and best-in-class suppliers
- ‒ Specialised and competitive suppliers with strong reputations
- ‒ Targeting the best solutions from the most experienced suppliers
- Support from experienced technical consultants
- ‒ Engineering and design services also covering delivery interfaces
Agenda item: Fibre and energy Diversify and innovate within fibre and energy
- Pellets: Producing 85,000 tonnes of renewable energy pellets in New Zealand with annual EBITDA of NOK ~30m
- Waste to energy plant: Sustainable energy capacity of 50 MW and EBITDA of NOK ~200m, on track for start-up in H1 2022
- CEBINA: Final product qualification for glue in Q4 2020 and target commercial readiness during Q1 2021
- Bio composites: Decision on pilot facility and potential Innovation Norway grant expected during Q4 2020
- Circa: Biobased chemicals company planning a 1,000 tonnes plant in France with EUR ~12m EU grant, start-up end 2022
- FibreMatrix: Exploring potential for strategic partner in commercial scale fibre board facility, decision during Q1 2021
50 MW of sustainable energy capacity being installed in Bruck
- State-of-the-art 50 MW fluidised bed waste to energy plant
- Proven technology from Valmet, order placed in Q1 2020
- Replace gas consumption with energy produced from regional waste
- Reducing the CO2 footprint of the Bruck mill with 150,000 tonnes
- Significant demand for waste offtake in Austria and surrounding areas
- Increasing landfill regulation to further drive demand for waste offtake
- Full utilisation of incineration capacity, last Austrian plant built in 2012
- Revenue generation from waste gate fees and electricity production
- Expected EBITDA contribution of NOK ~200m
Progressing according to plan towards start-up H1 2022
- Finalised the deep foundation for the boiler
- On track for start-up in H1 2022
- Invested EUR ~15m as of Q3 2020
- Expected remaining capex profile
- ‒ EUR ~10m in Q4 2020
- ‒ EUR ~40m in 2021
- ‒ EUR ~7m in Q1 2022
- EUR ~4m of EUR 54m in local debt drawn as of Q3 2020
- Remaining to be drawn as capex is incurred
EU Flagship grant for a 1,000 tonne CyreneTM plant in France
- Circa1 has developed and a uniquely scalable Furacell process for bio chemicals production
- Technology verification over +10 years, 5 pilot plants and multiple machine supplier tests
- Circa currently sells through Merck KGaA and directly to customers globally
- Bio chemicals are used in electronics, agrochem, pharma (incl. COVID-19 treatments), etc.
- Recently awarded EUR 12m EU Flagship Grant for a 1,000 tonne plant in France
- On 14 Oct, the EU published their chemicals strategy to reach the zero emission ambition
- Toxic and fossil chemicals pose a substantial problem as production is set to double by 2030
- Chemicals produced from biomass waste are essential in replacing fossil and toxic chemicals
Outlook
Clear priorities in the short term
- Actively adapt to market changes
- Reposition Australasian operations
- Maintain a robust balance sheet
Execute on strategy in the long term
- Remain a producer of all publication paper grades
- Become a leading producer of renewable packaging
- Develop and commercialise fibre and energy projects
www.norskeskog.com
Invitation to Capital Markets Day in Q1 2021
Norske Skog ASA Postal address: P.O. Box 294 Skøyen, 0213 Oslo, Norway Visitors: Sjølyst Plass 2, 0278 Oslo, Norway
Phone: +47 22 51 20 20 Email: [email protected] Email: [email protected]
This presentation contains statements regarding the future in connection with Norske Skog's growth initiatives, profit figures, outlook, strategies and objectives. All statements regarding the future are subject to inherent risks and uncertainties, and many factors can lead to actual profits and developments deviating substantially from what has been expressed or implied in such statements.