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Credit report
Credit Research
Norske Skog
25 November 2019
Analyst: Glenn Kringhaug +47 22 01 61 62
27 November 2019
Key Terms
2
Source: ABG Sundal Collier
Issuer Norske Skog AS
GuarantorsMaterial group companies Norske Skog (Australasia) Pty Ltd, Norske Skog Bruck GmbH, Norske Skog Skogn AS, Norske Skog Saugbrugs AS, Norske Skog Golbey SAS,
Norske Skog Industries Australia Ltd., Norske Skog Tasman Ltd., Norske Skog Paper Mills (Australia) Ltd., Norske Skog Paper Mills (Albury) Pty Ltd., and Nornews A/S
Issue amount EUR 125m
Tenor 3 years, maturity 14 June 2022
Amortization 100% repayment at final maturity (bullet)
Coupon rate 3 months EURIBOR + 6.00% p.a. (floor at zero), quarterly interest payments
Status Senior secured (subject to the super-senior status of the RCF, guarantee facility and permitted hedging sharing security with the bonds)
Security(i) Share pledges over the Guarantors, (ii) fixed and floating charge security over (a) Saugbrugs mill, (b) the Skogn mill, the (c) the Tasman mill, the (d) Albury mill and (e) the
Boyer mill, (iii) assignment of shareholder loans and assignment of intercompany loans
Call options Make-whole first 18 months, callable thereafter (all or nothing) at par plus 50%/30%/10% of the initial Coupon after 18/24/30 months, respectively
Equity claw-back Up to 35% of issue amount may be repaid at first call price by primary proceeds raised through an IPO
Special covenants Special covenants include restrictions on shareholder distributions, negative pledge, financial support, financial indebtedness, subsidiaries distributions
Maintenance
covenants
• NIBD/EBITDA shall not exceed 2.75x
• Liquidity (free cash) shall exceed NOK 100,000,000
Incurrence tests With respect to dividend payments, NIBD / EBITDA shall not exceed 2.00x
Dividend restrictions Up to 75% of last years adjusted net profit, subject to the incurrence test being met
Permitted additional
debt
(i) RCF of maximum EUR 31m (annual clean down provisions), (ii) permitted hedging, (iii) guarantee facility, (iv) factoring facility of maximum EUR 40m, (v) financial leasing of
maximum EUR 12m, (vi) leasing in the ordinary course of business that would have been classified as an operational lease prior to the implementation of IFRS 16, (vii) Saugbrug
project facility (NOK 94m), (viii) Golbey loans of maximum EUR 8m, (ix) Bruck boiler facility of maximum EUR 58m (which is subject to the incurrence test being met at
commitment), (x) any credit facility provided by any governmental institution of maximum EUR 10m, (xi) intra-company loans, (xii) subordinated shareholder loans, (xiii) debt in
acquired entities if refinanced within 3 months and (xiv) a general basket of EUR 5m
Permitted disposal The group may freely sell or dispose (i) the Albury mill, (ii) the forest estates in Tasmania, (iii) the Bruck hydro plant, (iv) the Saugbrugs development properties
Change of control Bondholder’s put option at 101% of par value
Documentation /
TrusteeNorwegian law documentation (relevant jurisdictions for security documents) / Nordic Trustee
Credit summary
Low leverage and solid debt service ability: On our estimates, Norske Skog will
have NIBD/EBITDA of 0.4x YE 2019. We estimate that debt service ratio will stay at
~8-9x through the tenor.
Large liquidity buffer: Norske Skog had a cash position of NOK 909m at the end
of Q3’19.
Tight bond structure: We argue that the covenants are strict from the
bondholders’ perspective. The financial covenants include a maximum
NIBD/EBITDA of 2.75x (maintenance) and 2.0x for dividends. The bond will also
benefit from a comprehensive security package based on a full 1st lien fixed and
floating charge security interest in five of the group’s seven mills.
Long track record: Norske Skog has a relatively long track record, and we note
that adjusted EBITDA in the period we have data for (back to 1995) has never been
below NOK 671m.
Strong diversification across client base and geographies: Norske Skog has
~450 different customers spread across the world, with its largest clients accounting
for less than 10% of revenues.
Good asset quality: All of Norske Skog’s paper mills were profitable in 2018 and
have been so in recent years. Our analysis also show that it is well positioned at the
global cash cost curve due to the strong USD.
Low LTV at conservative EV/EBITDA: Even with a very conservative valuation
perspective, we find decent value coverage. Assuming an EV/EBITDA of 4x implies
a net LTV of 16% (on NOK 1bn in EBITDA). By comparison, peers are trading at
~9x EV/EBITDA currently and ~7x historically (but Norske Skog arguably warrants a
discount).
Strong market position: Norske Skog is one of the leading global suppliers of
newsprint and magazine paper, with ~8% global market share in newsprint, ~5% in
SC magazine paper and ~3% in LWC magazine paper (source: RISI).
3
Top of a highly cyclical industry: The paper market is highly cyclical with
relatively volatile price movements and prices currently point down from what seem
to be the top of the cycle. However, this is also true for costs.
High sensitivity: Norske Skog’s earnings are relatively sensitive to price changes,
currencies, etc., and 10% lower prices would shave off roughly all EBITDA, but
lower costs would compensate. By comparison, EBITDA fell “only” ~50% after the
financial crisis, when prices were down ~10-20%. We also note that Norske Skog
uses long contracts and plans to hedge, which reduce the sensitivities short-term.
Publication paper market is in structural decline: Magazine and newsprint paper
have increasingly been substituted by digital solutions. The newsprint and
magazine markets have declined by roughly 5% on average per year for several
years. With no end in sight for digitalization, we expect the trend to continue.
Capacity shutdowns “stopped” when prices moved up: Paper prices have been
strong recently, partly due to many capacity shutdowns following price decreases,
but we have seen few shutdowns in the last couple of years. The lack of shutdowns
is likely leading to decreasing prices.
Asset concentration: ~50% of 2018 EBITDA was from the Golbey plant. Golbey
has an excellent position on the cost curve, but we note that all of Norske Skog’s
mills have had positive EBITDA in the past few years.
Cash leakage: The dividend restrictions are set to 75% of last year’s adjusted net
profit (subject to incurrence test), which implies that roughly all cash flow throughout
our forecast period goes to equity holders.
Leverage does not improve at the time of refinancing: Due to the relatively
aggressive dividends and structural decline of the market, we do not estimate any
deleveraging through the tenor.
Credit strengths Credit concerns
Source: ABG Sundal Collier
Weak market exposure but tight covenants and solid credit metrics
Albury, AU
Tasman, NZ
Boyer, AU
Golbey, FR
Bruck, AT
Skogn, NO
Saugbrugs, NO18%
22%
10%
15%
11%
6%
19%
510
125
565
265
150 150
265135460
0
100
200
300
400
500
600
Skogn Saugbrugs Bruck Golbey Albury Boyer Tasman
Newsprint LWC SC
'000 tonnes
Norske Skog at a glance
4
Location of mills and share of capacity ~2/3 of revenue from Newsprint
Golbey and Albury are the most profitable
148125
107
324
172
10773
7%6% 6%
13%15%
6%
9%
0%
4%
8%
12%
16%
20%
0
50
100
150
200
250
300
350
EBITDA Margin
NOKm EBITDA margin
Source: ABG Sundal Collier for graphics, Norske Skog for data
Production capacity at the seven mills
65%
18%
17%
Newsprint
SC
LWC
Source: ABG Sundal Collier for graphics, Norske Skog for data
Source: ABG Sundal Collier for graphics, Norske Skog for dataSource: ABG Sundal Collier for graphics, Norske Skog for data
Norske Skog
Other#1
~80%
Norske Skog
Other#1
~30%
Strong global presence
5
3rd biggest producer of publication paper 2nd biggest producer of newsprint
Newsprint market share in Australasia Magazine paper market share in Australasia
Source: ABG Sundal Collier for graphics, Norske Skog for dataSource: ABG Sundal Collier for graphics, Norske Skog for data
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for dataSource: ABG Sundal Collier for graphics, Fastmarkets RISI for data
Rank Company Tonnes (000) Mkt. Share
1 UPM 6,109 13.5%
2 Stora Enso 3,170 7.0%
3 Norske Skog 2,625 5.8%
4 Resolute 2,282 5.1%
5 Nippon Paper 1,817 4.0%
6 Oji Paper 1,759 3.9%
7 SAPPI 1,350 3.0%
8 Holmen 1,150 2.5%
Rank Company Tonnes (000) Mkt. Share
1 Resolute 1,829 8.4%
2 Norske Skog 1,759 8.1%
3 UPM 1,585 7.3%
4 Stora Enso 1,280 5.9%
5 Nippon Paper 1,240 5.7%
6 Oji Paper 1,174 5.4%
7 Palm 980 4.5%
8 Kondopoga 695 3.2%
~450 established customers.
Mainly sold on 3-12 month fixed price contracts with some
opening for price re-negotiations. Contracts specify both fixed
volumes and volumes as a percentage of customers’ total
required volume.
Diversified customer base in Europe, long contracts in Australasia
Customer share of sales, Europe, LTM Q1’19 Customer share of sales, Australasia, LTM Q1’19
Solid customer base
6
Source: ABG Sundal Collier, Company
Top 15 customers
represent ~30% of sales
Highly concentrated
with >30% of sales
attributed to two key
customers secured on
long-term contracts to
2022/2024
Fairfax Media and NewsCorp Australia are key customers.
Long-term relations with domestic newsprint printers, current
contracts in place to 2022/2024. Contracts specifying price and
share of required paper volume to be provided by Norske
Skog, but does not state fixed, minimum volumes.
Sole domestic supplier of publication paper in Australia and
New Zealand (~90% market share).
Complex business model made simple: all about prices and FX
7
Estimated EBITDA using regression model …and estimated EBITDA margin
0
500
1,000
1,500
2,000
2,500
Q1
'96
Q1
'97
Q1
'98
Q1
'99
Q1
'00
Q1
'01
Q1
'02
Q1
'03
Q1
'04
Q1
'05
Q1
'06
Q1
'07
Q1
'08
Q1
'09
Q1
'10
Q1
'11
Q1
'12
Q1
'13
Q1
'14
Q1
'15
Q1
'16
Q1
'17
Q1
'18
Q1
'19
Reported clean EBITDA Estimated EBITDA
NOKm
Correlation = 0.91
Complex business model broken down to four parameters to
estimate EBITDA.
The parameters:
Publication paper prices
Delivery volumes
Cost of fibre (pulpwood)
FX (USD/NOK)
Looking at EBITDA margins instead, we can reduce the
model to two parameters
The parameters:
Publication paper prices
FX (USD/EUR)
Source: Norske Skog, Fastmarkets RISI, LUKE and Bloomberg for historical data, ABG Sundal Collier for estimates
0%
5%
10%
15%
20%
25%
30%
35%
Q1
'94
Q1
'95
Q1
'96
Q1
'97
Q1
'98
Q1
'99
Q1
'00
Q1
'01
Q1
'02
Q1
'03
Q1
'04
Q1
'05
Q1
'06
Q1
'07
Q1
'08
Q1
'09
Q1
'10
Q1
'11
Q1
'12
Q1
'13
Q1
'14
Q1
'15
Q1
'16
Q1
'17
Q1
'18
Q1
'19
Q1
'20e
Reported clean EBITDA margin Estimated EBITDA margin
EBITDA margin
Correlation = 0.91
400
450
500
550
600
650
700
750
800
850
900
2003 2005 2007 2009 2011 2013 2015 2017 2019
UF CF LWC SC News
EUR/t, Germany
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
Jan
05
Jan
06
Jan
07
Jan
08
Jan
09
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
Jan
15
Jan
16
Jan
17
Jan
18
Jan
19
USD/NOK (left) EUR/NOK (right)
USD/NOK up ~55% since '13EUR/NOK up ~30% since '13
Sensitivities - MTM EBITDA ~NOK 1.4bn
8
MTM EBITDA of NOK ~1.4bn NOK at historically weak level
Source: Raw data: Norske Skog, Rest: ABG Sundal Collier
European newsprint price down ~5% in Q3, flat y-o-y
Norske skog exposures Capacity Price level Price change Theoretical Price Effects
'000 t EUR/t EUR/t % sensitivity change on
on EBITDA yoy EBITDA
Output prices (1)
Newsprint, EU 1200 492 49 10% 505 5% 227
Newsprint, Australasia - fixed price 295 542 54 10% 137 0% 0
Newsprint, Australasia - export price 25 533 53 10% 11 -33% -38
SC magazine, EU 460 574 57 10% 226 2% 45
LWC magazine, EU 265 642 64 10% 145 5% 65
LWC magazine, Australasia 135 642 64 10% 74 4% 30
Volume (2)
Newsprint 10% 84 -8% -63
SC magazine 10% 24 -8% -18
LWC magazine 10% 24 -8% -18
Input prices
Electricity Norway spot (3) -800 300 30 10% -24 -15% 36
Electricity ex. Norway (3) -800 300 30 10% -24 0% 0
Electricity gross -5,500 -48
Gas (4) -1,200 200 20 10% -24 -35% 84
Wood (5) -2,785 320 32 10% -89 35% -312
Sawmill chips (5) -1,031 320 32 10% -33 30% -99
Recycled fibre (6) -871 125 13 10% -103 -15% 155
Pulp (7) -42 792 79 10% -32 -23% 73
Chemicals 10% -116 -3% 35
FX exposure (8)
USD/NOK 10% 179 10% 177
EUR/NOK 10% 76 4% 33
GBP/NOK 10% 102 0% 0
SEK/NOK 10% -10 -1% 1
AUD/NOK 10% -78 0% 0
NZD/NOK 10% -19 3% -5
NOK/EUR 9.5 407
(1) Assuming 90% capacity utilisation, NOK/EUR 9.0. 295 kt in Australia has fixed prices until 2022-24.
(2) Assuming 10% gross margin 2018 EBITDA 1,031
(3) 2.6 TWh electricity in Norway. 1.8 TWh on 8y fixed price contract. MTM EBITDA 1,438
(3) 2.9 TWh electricity excl Norway. 2.1 TWh on long-term contracts MTM EPS 8.7
(4) 1.2 TWh gas bought at Bruck. Total heat use 4.2 TWh (but made internally) P/E 4.7x
(5) 2.8 mill m3 pulp wood consumption, 2 mill m3 in Norway. 1 mill sawmill chips.
(6) 0.87 mill t RCP consumption
(7) 42 kt net pulp exposure
(8) Net exposure. Sales in USD, EUR. Costs in NOK.
Less sensitive in reality
The sensitivities are less in reality: the impacts of changes in
prices/costs/FX are likely less than indicated on the previous page. If
the market turned sour, management would likely be able to offset
some of the impact through cuts in opex. For instance, prices were
down 10-20% after the financial crisis, but clean EBITDA “only” fell by
~50% (over two years). Furthermore, prices on cost factors are
correlated with product prices, e.g. lower paper prices are linked to
lower costs.
A leading supplier of newsprint and magazine paper
9
Source: ABG Sundal Collier, Company
Prices and costs are linked EBITDA has been relatively resilient vs prices (indexed)*
862 770 787 1,066 671 1,03180
85
90
95
100
105
110
115
120
0
200
400
600
800
1,000
1,200
2013 2014 2015 2016 2017 2018
Clean EBITDA Newsprint SC LWC
Cost split, 2018
Wood16%
RCP11%
Pulp2%
Energy22%Chemicals
10%
Logistics11%
Labour16%
Other12%
* There have been some structural changes in the company (e.g. paper mill shutdown) implying that historical figures are not necessarily comparable
Waste-to-energy facility at Bruck
10
Estimated EBITDA effect of EUR 19.4m*
Capex of ~NOK 700m, mostly financed through bank loans
14.8
7.8
4.30.2
27.1
6.4
1.3
19.4
0
5
10
15
20
25
30
Gate fee Energysavings
CO2savings
Other Sales Opex Tax EBITDAeffect
EURm
464
232
696565
91400
100
200
300
400
500
600
700
800
Capex, 2020e Capex, 2021e Capex Bank loans Sale of hydroplant
Cash need
NOKm
In June, Norske Skog took the investment
decision on the ~EUR 72m facility at Bruck
Expected annual EBITDA effect of ~EUR
20m from 2022 due to reduced energy
costs, CO2 savings and gate fees for
delivered waste.
Comments
Source: ABG Sundal Collier for graphics, Norske Skog for data. *Norske Skog estimates.
Source: ABG Sundal Collier for graphics, Norske Skog for data
Overview of potential new revenue streams
11
Double pellets capacity Biogas plants Waste-to-energy facility Cyrene Nanofibrils Building boards
In process to double
wood pellet capacity to
85,000 tonnes
Opened biogas plant at
Saugbrugs (2016) and
Golbey (2017) using bio-
waste from paper
production
Waste-to-energy facility
at Bruck expected to
give an annual effect of
~EUR 20m
Cyrene, a bio
chemical
alternative to
existing
petrochemical
solvents
Nanofibrils used
in paper,
composites,
paint and other
chemicals
High-strength,
low-weight
construction
boards with no
glue or
chemicals
Norske Skog has identified +25-30 other initiatives
Bio energy projects already initiated New products explored (+3-year horizon)
Source: ABG Sundal Collier for graphics, Norske Skog for data
Conversion potential – 1 mill could add 35% to EBITDA
12
Recent projects with mill conversion from paper to packaging Conversion potential
Company Mill Date Capex (EURm) new cap (t) old cap (t) Capex/t Old grade New grade
Atlantic Packaging Whitby Q2'13 n.a. 300,000 180,000 n.a. Newsprint Linerboard
SP Fibre Dublin Q2'13 32 396,000 317,000 81 Newsprint Linerboard
SCA Ortviken Q4'13 n.a. 75,000 n.a. n.a. LWC/newsprint Kraftliner
Blue Paper Strasbourg Q1'14 n.a. 300,000 n.a. n.a. LWC Containerboard
PCA DeRidder Q4'14 92 355,000 n.a. 259 Newsprint Containerboard
SP Fibre Newberg Q1'15 18 150,000 n.a. 120 Newsprint Recycled linerboard
Metsä Board Husum Q2'15 n.a. 300,000 190,000 n.a. Coated woodfree Kraftliner
Stora Enso Varkaus Q4'15 110 390,000 280,000 282 Uncoated woodfree Kraftliner
Apis Skolwin Q4'15 24 100,000 58,000 240 Newsprint Fluting/testliner
Aviretta Ettringen Q4'15 n.a. 180,000 175,000 n.a. SC Fluting
International Paper Madrid Q2'16 n.a. 380,000 470,000 n.a. Newsprint Containerboard
Domtar Ashdown Q3'16 128 516,000 364,000 248 Uncoated woodfree Fluff pulp
H2 Equity Partners Parenco Q3'16 100 385,000 225,000 260 Newsprint Packaging paper
Pro-gest Italy Q3'16 150 420,000 160,000 357 Newsprint Containerboard
Kruger Trois-Rivieres Q2'17 171 360,000 227,000 475 Newsprint Linerboard
Heinzel Laakirchen Q3'17 n.a. 450,000 260,000 n.a. Uncoated mechanical Testliner/recycled fluting
PCA Wallula Q2'18 126 400,000 200,000 315 Uncoated woodfree Kraftliner
Leipa Schwedt Q2'18 n.a. 450,000 280,000 n.a. Newsprint Containerboard
Kotkamills Kotka Q3'18 170 400,000 180,000 425 magazine Folding boxboard
Verso Androscoggin Q3'18 19 200,000 n.a. 95 Coated woodfree Linerboard
APP Indonesia Q1'19 n.a. n.a. 850,000 n.a. fine paper Recycled containerboard
Copamex Anahuac Q1'19 n.a. 260,000 185,000 n.a. Uncoated woodfree Linerboard
Schumacher Myszkow Q2'19 100 300,000 60,000 333 Newsprint Testliner
Stora Enso Oulu Q2'19 350 450,000 1,100,000 778 Coated woodfree Kraftliner
Hokuetsu Niigata Q2'19 16 130,000 161,000 123 Coated woodfree Corrugated base paper
Fajar Paper Surabaya Q2'19 n.a. 230,000 330,000 n.a. fine paper Lluting
Russian L-Pak Lipetsk Q3'19 n.a. 180,000 n.a. n.a. Coated woodfree Containerboard
International Paper Riverdale 1Q'20 255 450,000 235,000 567 Uncoated woodfree Linerboard/containerboard
Average 116 315,074 294,864 310
Saugbrugs
Capacity ('000 tonnes) 460
Grade SC
Input 100% virgin fibre
Capex/t (EUR/t) 310
Capex (NOKm) 1,369
Old mill (NOKm)
Sales 2,168
EBITDA 125
EBITDA margin 6%
Converted mill (NOKm)
New capacity ('000 tonnes) 460
Kraftliner price (EUR/t) 600
Sales 2,385
EBITDA margin 20%
EBITDA 477
Change in EBITDA 352
ATRoCE 16%
Source: Fastmarkets RISI and Norske Skog for historical
data, ABG Sundal Collier for the rest. *Sales and EBITDA
avg. 2015-Q1'19. Kraftliner price is avg. from 2007-
May'19. Assuming 90% operating rate
Source: ABG Sundal Collier for graphics, Fastmarkets RISI and companies for data
ESG – Renewable and recyclable products
13
Pulp & paper is renewable and recyclable Climate targets and achievements
PAPER PRODUCT
PAPER
PACKAGING
HYGIENE
SAWMILL
WOOD-CHIPS
ELECTRICITYPULP MILL /
BIOREFINERY
RCPSAWLOGS
PULPWOOD
WOOD FUEL
UPSTREAM DOWNSTREAM
WOOD
PRODUCT
Saugbrugs: carbon emissions
47
0.40
10
20
30
40
50
60
2004 2017
CO2 equivalents/tonne
Source: ABG Sundal Collier for graphics, Norske Skog for data
Source: ABG Sundal Collier for graphics, Norske Skog for data
26% of energy from
renewable sources
Environmental ambitions
Recovered 80% of waste from
production to generate energy
Plan in place to be carbon-
neutral at all paper mills
Recycled 0.9m tonnes of
2.6m tonnes paper produced
Achievements in 2018
Carbon footprint reduction of
20% by 2020 vs. 2006
100% certified wood from
sustainably managed forests
Carbon footprint reduction of
31% compared to 2006
Target reduced energy use
and change in energy sources
History lesson – “everything went wrong by the numbers”
14
Net debt vs EBITDA Sales and EBITDA margins
0x
5x
10x
15x
20x
0
5
10
15
20
25
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
NOKbn
EBITDA Net debt Net debt/EBITDA
Net debt/EBITDA
0%
5%
10%
15%
20%
25%
30%
0
5
10
15
20
25
30
35
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Sales (left) EBITDA margin (right)
NOKbn
Source: ABG Sundal Collier for graphics, Norske Skog for dataSource: ABG Sundal Collier for graphics, Norske Skog for dataThe problem was too much debt - not cash flow
0
2,000
4,000
6,000
8,000
10,000
1994 1997 2000 2003 2006 2009 2012 2015 2018
EBITDA Minimum EBITDA
NOKm
Min. EBITDA
of NOK 671m
The reason for the bankruptcy was not weak cash flow, but
rather the unsustainably high debt level.
The Company has actually generated accumulated EBITDA of
NOK ~50bn since 2000.
Source: ABG Sundal Collier for graphics, Norske Skog for data
Competitive landscape
Top 10 global newsprint producers Top 10 global SC magazine producers
The 10th biggest graphic paper producer globally
15
Source: ABG Sundal Collier, RISI
Top 10 global LWC magazine producers
1,829 1,7591,585
1,280 1,240 1,174980
695 673 642
8.4% 8.1% 7.3% 5.9% 5.7% 5.4% 4.5% 3.2% 3.1% 3.0%0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0%
0200400600800
1,0001,2001,4001,6001,8002,000
Tonnes (000) Mkt. Share
1,955
1,605
875681
575448 405 391 360 350
16.6%13.6%
7.4% 5.8% 4.9% 3.8% 3.4% 3.3% 3.1% 3.0%0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0%
0
500
1,000
1,500
2,000
2,500
Tonnes (000) Mkt. Share
2,569
1,175
870
520 510 501 495 476 465 400
22.0%
10.1%7.5%
4.5% 4.4% 4.3% 4.2% 4.1% 4.0% 3.4%0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
0
500
1,000
1,500
2,000
2,500
3,000
Tonnes (000) Mkt. Share
The number 10 player globally in graphic paper
Norske Skog is one of the global market leaders in all the
paper grades it produces. Its market position is especially
strong in newsprint, where it is the second biggest player, just
behind Resolute.
Well-positioned on the global cost curve due to a strong USD
16
Global cash curve by region - USD/EUR 1.4 Global cash curve by region - USD/EUR 0.8
0
100
200
300
400
500
600
700
800
EUR/t
Marginal cost producer is European
0
100
200
300
400
500
600
700
800
EUR/t Marginal cost producer is Asian
Other Oceania North America Asia Europe
Global newsprint cash cost curve by region – FX sensitivity analysis
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data
USD vs. EUR
Source: ABG Sundal Collier for graphics, Factset for data
Flat cash cost curve for publication paper
Location is key for fibre, energy and labour costs, and we would therefore argue that ~60% of the cash costs are really incurred in
local currency
This means that FX changes are key to determining where the different regions sit on the cost curve
A strong USD, as we have now, pushes North American and Asian producers to the high end
A weak EUR and NOK means that the Europeans and Norske Skog are better off than in the last 15 years. Since 2011, the USD has
strengthened by 20-25% vs. the EUR and 50-60% vs. the NOK.
0.6
0.8
1.0
1.2
1.4
1.6
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
94
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
20
19
USD/EUR USD/EUR 1.3
USD/EUR
USD/EUR has been below 1.35 in 83% of monthly observations
0
100
200
300
400
500
600
700
800
900
0 1 3 4 5 6 7 9 10 11 12 13 15 16 17 18 19 21 22
USD/t
Golbey PM2
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
Albury
TasmanBruck
Boyer
Skogn PM1
Skogn PM2
Skogn PM3
Golbey PM1
Well-positioned on the global cost curve due to a strong USD
17
Norske Skog’s mills on the global newsprint cash cost curve USD vs. EUR and NOK
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data Source: ABG Sundal Collier for graphics, Factset for data
European publication paper: total capacity per mill (including the Australasian mills)
565510
460390
285 265
150
0100200300400500600700800900
1,000
UP
M
SC
A
UP
M
SA
PP
I
UP
M
Sto
ra E
nso
UP
M
Holm
en
Pe
rle
n
Nors
ke S
kog
Sto
ra E
nso
Holm
en
Pa
lm
Leip
a
SA
PP
I
Sto
ra E
nso
Nors
ke S
kog
Ka
bel
Sto
ra E
nso
Nors
ke S
kog
Pa
lm
Sto
ra E
nso
Bu
rgo
UP
M
Nors
ke S
kog
Pa
pre
sa
Hein
ze
l
UP
M
UP
M
Sto
ra E
nso
UP
M
UP
M
Nors
ke S
kog
Sto
ra E
nso
UP
M
UP
M
UP
M
Ste
inbeis
Sm
urf
it K
appa
Nors
ke S
kog
UP
M
Vip
ap
Vid
em
Bu
rgo
Bu
rgo
Nors
ke S
kog
*K&
NK IP
Pa
lm
Arjo
wig
gin
s
Arc
tic P
aper
Helle
foss
Schönfe
lder
Hain
sb
erg
Be
llesb.
IPZ
S
Schle
ipen
'000 tonnes
GolbeySkogn
SaugbrugsBruck
BoyerAlbury
Tasman
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0.18
0.20
0.22
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
94
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
20
19
USD/EUR USD/NOK
USD/EUR USD/NOK
Correlation = 0.78
~55% stronger USD vs NOK since 2013
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data
-5%
0%
5%
10%
15%
20%
Q1'06 Q1'08 Q1'10 Q1'12 Q1'14 Q1'16 Q1'18
Norske Skog Holmen UPM
Stora Enso Resolute Perlen
EBITDA margin
485
0
100
200
300
400
500
600
Ma
xau
Sa
ug
bru
gs
Kvarn
sve
de
n
Pla
ttlin
g
Jäm
sä
nko
ski
Laa
kirche
n
Rau
ma
Scho
nga
u
Ett
rin
gen
Ren
ku
m
Lan
ge
rbru
gge
'000 tonnes
565510
125
0
100
200
300
400
500
600
700
Go
lbe
y
Eltm
ann
Skog
n
Hylte
Lan
ge
rbru
gge
Kin
g's
Lyn
n
Ren
terí
a
Hürt
h
Scho
nga
u
Ste
yre
rmü
hl
Sh
ott
on
Pe
rle
n
Bra
vik
en
Ch
ap.
Da
r.
Ka
ipo
la
Krš
ko
Sa
ch
se
n
Bru
ck
Kw
idzyn
Aa
len
Sh
klo
v
Ort
vik
en
Ett
rin
gen
An
na
b.-
Buch
.
'000 tonnes
0%
5%
10%
15%
20%
25%
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19
Skogn Saugbrugs Golbey BruckHolmen Stora Enso UPM
Clean EBITDA margin
EBITDA margins in line with the best peers (large European mills)
18
Capacity per European newsprint mill
Capacity per European SC mill
Mill EBITDA margin vs. peers’ paper business margins
Source: ABG Sundal Collier for graphics, Norske Skog and peers for dataSource: ABG Sundal Collier for graphics, Norske Skog and Fastmarkets RISI for data
Source: ABG Sundal Collier for graphics, Norske Skog and peers for dataSource: ABG Sundal Collier for graphics, Norske Skog and Fastmarkets RISI for data
EBITDA margins in line with the best peers
0
100
200
300
400
500
600
700
800
900
1000
0.4 1.7 2.8 4.4 6.0 7.6 8.6 9.4 11.4 12.6 13.9 15.0 17.2 18.7 19.7
EUR/t
Skogn Golbey Skogn
SaugbrugsBruck
Bruck
0
50
100
150
200
250
300
350
400
450
500
0.4 0.5 1.3 1.7 2.3 2.8 3.6 4.3 4.6 5.5 5.8 5.9
EUR/t
SkognGolbey
Bruck
0
50
100
150
200
250
300
350
400
450
500
0.27 0.69 0.85 1.06 1.31 1.59 2.12 2.47 2.96 3.31 3.69
EUR/t
Saugbrugs
0
100
200
300
400
500
600
700
0.5 1.5 2.2 2.4 2.7 3.4 4.5 5.0 5.8 6.3 6.9
EUR/t
Bruck
Relative position in Europe hurt by high local costs in Q4’18
19
European publication paper cash cost curve in Q4’18 Comments
European newsprint cash cost curve European SC cash cost curve European LWC cash cost curve
Important to note that the position on the global cash cost
curve is more important than on the European one.
As long as European producers remain competitive in a global
context they will continue to have a large export market share.
Norwegian mills were affected by significant increases in local
electricity and pulpwood costs in Q4’18.
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data
23
0
10
20
30
40
50
60
70
80
90
Mill
#1
Mill
#2
Go
lbe
y
Mill
#3
Mill
#4
Mill
#5
Mill
#6
Mill
#7
Mill
#8
Mill
#9
Mill
#1
0
Mill
#1
1
Mill
#1
2
Mill
#1
3
Mill
#1
4
Mill
#1
5
Mill
#1
6
Mill
#1
7
Mill
#1
8
Mill
#1
9
Mill
#2
0
Mill
#2
1
Mill
#2
2
Mill
#2
3
EUR/t
Average delivery cost of EUR 39/t
38
0
10
20
30
40
50
60
70
80
90
100
Mill
#1
Mill
#2
Skogn
Mill
#3
Mill
#4
Mill
#5
Mill
#6
Mill
#7
Mill
#8
Mill
#9
Mill
#1
0
Mill
#1
1
Mill
#1
2
Mill
#1
3
Mill
#1
4
Mill
#1
5
Mill
#1
6
Mill
#1
7
Mill
#1
8
Mill
#1
9
Mill
#2
0
Mill
#2
1
Mill
#2
2
Mill
#2
3
EUR/t
Average delivery cost of EUR 56/t
Mills with low delivery costs to important end-markets
20
Skogn well-positioned to export to the UKGolbey is located in the heart of Europe
Paris
Frankfurt
Golbey
No domestic
italian producers
Newsprint: Delivery cost to Frankfurt per mill
Source: ABG Sundal Collier for graphics, Norske Skog for dataSource: ABG Sundal Collier for graphics, Norske Skog for data
Source: ABG Sundal Collier for graphics, Norske Skog and peers for dataSource: ABG Sundal Collier for graphics, Norske Skog and Fastmarkets RISI for data
Newsprint: Delivery cost to London per mill
Skogn
London
0
50
100
150
200
250
300
350
400
450
500
0.48 0.98 1.30 2.11 2.53 2.96 4.09 4.29 4.93 5.62 5.83 6.05
EUR/t
Skogn normalised Skogn Q4'18 Competitors
0
50
100
150
200
250
300
350
400
450
500
0.5 0.8 1.2 1.3 1.5 1.8 2.1 2.6 3.0 3.3 3.7
EUR/t
Saugbrugs normalised Saugbrugs Q4'18 Competitors
Normalised cash cost indicates a better position than in Q4’18, which was affected by unusual factors in Norway
21
Skogn normalised cash cost 17% lower than in Q4’18 Adjusted European newsprint cash cost curve
143 122
125
82
32
32
47
47
39
39
0
50
100
150
200
250
300
350
400
450
RISI Q4 estimate Normalised cash cost
Fiber Energy Chemicals Labor Other
EUR/t
386
322
130 105
131
84
70
70
62
62
44
44
0
50
100
150
200
250
300
350
400
450
500
RISI Q4 estimate Normalised cash cost
Fiber Energy Chemicals Labor Other
EUR/t
436
364
Saugbrugs normalised cash cost 17% lower than in Q4’18 Adjusted European SC cash cost curve
Source: Fastmarkets RISI for data, ABG Sundal Collier for estimatesSource: Fastmarkets RISI for data, ABG Sundal Collier for estimates
Source: Fastmarkets RISI for data, ABG Sundal Collier for estimatesSource: Fastmarkets RISI for data, ABG Sundal Collier for estimates
0
20
40
60
80
100
120
140
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Million tonnes
0
5
10
15
20
25
30
35
40
45
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Million tonnes
Publication paper demand is in structural decline
22
Global consumption of newsprint Global consumption of printing & writing paper
-77%
-62% -60%-55%
-48% -47%-40%
-29%
-18%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
North America Oceania Middle East Latin america Europe China Africa Japan Other Asia
% demand decline since peak demand in the respective regions
Decline in newsprint demand from peak by regions
Source: ABG Sundal Collier for graphics, Norske Skog for dataSource: ABG Sundal Collier for graphics, Norske Skog for data
Source: ABG Sundal Collier for graphics, Norske Skog for data
80%
85%
90%
95%
100%
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Oceania ASIA
Operating rate
Australasian publication paper demand is declining by 7% p.a.
23
Australasian demand for publication paper Exports of newsprint from Australasia to Asia
1,061 1,023961
860788 753
0
200
400
600
800
1,000
1,200
1,400
2013 2014 2015 2016 2017 2018
'000 tonnes
Source: ABG Sundal Collier for graphics, PPPC for dataSource: ABG Sundal Collier for graphics, PPPC for data
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for dataSource: ABG Sundal Collier for graphics, Fastmarkets RISI for data
101131
182
233209
265
0
50
100
150
200
250
300
350
2014 2015 2016 2017 2018 2019
'000 tonnes
Newsprint demand in Asia and Oceania Newsprint operating rate in Asia and Oceania
0
200
400
600
800
1,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
ASIA Oceania
Consumption ('000 t) Consumption ('000 t)
Significant capacity cuts have helped utilisation rates
24
European production capacity per grade
European operating rate per grade
Source: ABG Sundal Collier for graphics, Fastmarkets RISI and Euro-graph for data
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data
European capacity cuts in 2014-2017
Grade Tonnes W-E cap % of eur cap
Newsprint 1,305,000 7,781,000 16.8%
SC 640,000 7,291,000 8.8%
LWC 930,000 8,258,000 11.3%
Publication total 2,875,000 23,330,000 12.3%
UCF 400,000 7,393,500 5.4%
CF 120,000 8,218,000 1.5%
Fine paper 520,000 15,611,500 3.3%
Total graphic paper 3,395,000 38,941,500 8.7%
European publication paper demand is dropping 5% p.a.
Source: ABG Sundal Collier for graphics, Euro-graph for data
500
1,000
1,500
2,000
2,500
3,000
Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18Shipments incl export European demand
'000 tonnes
2,000
4,000
6,000
8,000
10,000
12,000
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016News LWC SC
'000 tonnes
75%
80%
85%
90%
95%
100%
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
News LWC SC
Operating rate
New round of capacity cuts started – more needed
25
Europe leading the way with new capacity cuts European capacity cuts announced
Outside Europe
Country Company Mill Grade Capacity (kt) When
United States Georgia-Pacific Port Hudson, LA Uncoated woodfree 630 2019
United States International Paper Selma, AL Uncoated woodfree 235 2019
United States White Birch Paper Ashland, VA Newsprint 195 2019
Japan Daio Paper Mishima Coated woodfree 150 2019
Japan Hokuetsu Niigata Coated woodfree 161 2020
Japan Oji Paper Tomakomai Newsprint 200 2020
Japan Oji Paper Tomioka Coated woodfree 130 2020
Japan Oji Paper Ebetsu Uncoated woodfree 45 2020
Japan Nippon Paper Akita Coated woodfree 175 2019
Japan Nippon Paper Ishinomaki Coated woodfree 52 2019
Japan Nippon Paper Fuji Uncoated woodfree 69 2019
Japan Nippon Paper Fuji LWC magazine paper 49 2019
Japan Nippon Paper Fuji LWC magazine paper 17 2019
Japan Nippon Paper Kushiro Newsprint 143 2019
Japan Nippon Paper Yufutsu Newsprint 116 2020
Japan Nippon Paper Yufutsu Uncoated woodfree 88 2020
Japan Nippon Paper Yufutsu Uncoated woodfree 49 2020
Global capacity cuts announced
Source: ABG Sundal Collier for graphics, Fastmarkets RISI and
companies for data
Source: ABG Sundal Collier for graphics, Fastmarkets RISI and companies for data
Europe
Country Company Mill Grade Capacity (kt) When
Germany Feldmuehle Uetersen Coated fine 80 2019
France Lecta Condat le Lardin Coated fine 230 2019
France Arjowiggins Bessé-sur-Braye mill Coated fine 195 2019
France Arjowiggins Bessé-sur-Braye mill Uncoated fine 80 2019
Germany UPM Plattling LWC 155 2019
Italy Burgo Group Verzuolo LWC 400 2019
Sweden Arctic Paper Grycksbo Coated fine 45 2019
Germany Palm Aalen Newsprint 90 2019
Finland UPM Rauma SC 265 2020
France UPM Chapelle Newsprint 240 2020
Finland Stora Enso Oulu mill Coated fine 1,080 2020
23%
8%
4% 4%
1%
0%
5%
10%
15%
20%
25%
Coated fine LWC Newsprint SC Uncoated fine
Share of European capacity
9%
5%
5%
2% 2%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Coated fine LWC Newsprint SC Uncoated fine
Share of Global capacity
Source: ABG Sundal Collier for graphics, Fastmarkets RISI and companies for data
Paper prices have risen 15% since the beginning of 2018
26
European paper prices up ~8% y-o-y, flat in Q2 US prices up ~7% y-o-y, flat in Q2
Since the beginning of 2018, average paper prices have risen 15% to peak, driven by strong macroeconomic fundamentals, all-time-
high pulp prices and a stronger USD versus EUR.
Newsprint rose the most and was up 24%, while SC and LWC were up 18% and 13%, respectively.
Now, however, it seems that prices have peaked and publication paper prices have declined 3-5%.
400
450
500
550
600
650
700
750
800
850
900
2003 2005 2007 2009 2011 2013 2015 2017 2019
UF CF LWC SC News
EUR/mt, Germany
450
550
650
750
850
950
1050
1150
1250
2003 2005 2007 2009 2011 2013 2015 2017 2019
UF CF LWC SC News
USD/st (newsprint in USD/mt)
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for dataSource: ABG Sundal Collier for graphics, Fastmarkets RISI for data
Our paper price model points down 10% from peak
27
ABGSC paper price model vs actual price ABGSC paper price model per grade
-15%
-10%
-5%
0%
5%
10%
15%
20%
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
Newsprint SC LWC
Estimated price change y-o-y %
Capacity utilisation rate is pointing down in 2019 Capacity utilisation rate per grade
Source: Fastmarkets RISI for historical data, ABG Sundal Collier for estimates
Source: Fastmarkets RISI for historical data, ABG Sundal Collier for estimates
Source: Fastmarkets RISI for historical data, ABG Sundal Collier for estimates
Source: Fastmarkets RISI for historical data, ABG Sundal Collier for estimates
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
198
2
198
5
198
8
199
1
199
4
199
7
200
0
200
3
200
6
200
9
201
2
201
5
201
8
202
1
Estimated price change Actual price change
Estimated price change y-o-y
Corr 0.93
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
Capacity utilisation
Capacity utilisation rate
75%
80%
85%
90%
95%
100%
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
Newsprint SC LWC
Capacity utilisation rate
0
10
20
30
40
50
60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Energy cost index, EUR
-100
0
100
200
300
400
500
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
Spread NBSK BHKP
Price, USD/t Spread, USD/t
-
50
100
150
200
250
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
Mixed waste paper OCC
USD/t
Variable costs are moving down
28
Pulp prices are down 30-40% from peak Norwegian pulpwood prices could drop ~10-20% next year
Energy costs are also pointing downRCP prices moving down again (Chinese RCP ban)
Source: ABG Sundal Collier for graphics, Bloomberg for data
Source: ABG Sundal Collier for graphics, Luke and SSB for data
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data
Source: ABG Sundal Collier for graphics, Fastmarkets RISI for data
10
20
30
40
50
60
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
Finland Sweden Lithuania Estonia Norway
EUR/m3
Key credit forecasts
Revenue and EBITDA forecast (NOKm)
Cash conversion
29
Source: ABG Sundal Collier, Company
Leverage multiples
Interest coverage ratio
11,13011,852 11,527
12,641 12,647
10,767 10,504 10,581
787 1,066 671 1,0311,681
962 923 939
7%
9%
6%
8%
13%
9% 9% 9%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2015 2016 2017 2018 2019e 2020e 2021e 2022e
Revenues Clean EBITDA Clean EBITDA margin
2.2x
0.4x
0.2x
0.4x 0.4x
2018 2019e 2020e 2021e 2022e
NIBD/adj. EBITDA
11.8x
8.0x 7.7x 7.8x
2019e 2020e 2021e 2022eClean EBITDA/financial expenses
47%
61%
42%
65%
44%
24%
34%
56%
47%
61%
42%
65%
54%
73%
60%56%
2015 2016 2017 2018 2019e 2020e 2021e 2022eBased on CFO Based on CFO, excluding development capex
Key credit forecasts at bond issue vs. now
EBITDA (NOKm)
30
Source: ABG Sundal Collier, Company
Leverage multiples
1,220
1,061991
859
1,681
962 923 939
2019e 2020e 2021e 2022e
At bond issue Now
0.9x
1.2x
1.5x
1.7x
0.4x
0.2x
0.4x 0.4x
2019e 2020e 2021e 2022e
At bond issue Now
Norske Skog has delivered significantly better results than we expected at the bond issue, partly explained by one-offs but
also better underlying results. It has sold a hydropower plant (NOK 89m sales gain) and has been granted full CO2
compensation for the years 2018, 2019 and 2020, corresponding to ~NOK 120m for 2018 and 2019 (in total), while 2020
compensation is dependent on future CO2 quota prices. It also announced the sale of the Albury mill in Australia, giving net
cash proceeds of ~NOK 700m in Q1’20 and a positive annual EBITDA effect of ~NOK 80m.
Net LTV at 16% at trough sector multiple
Peer valuation
16% net LTV at NOK 1bn in EBITDA
Decent value coverage even in a very conservative valuation perspective
31
Source: ABG Sundal Collier, Company . Credit estimates.
Historical EV/EBITDA, sector*
0x
2x
4x
6x
8x
10x
12x
Q1'9
6
Q4'9
6
Q3'9
7
Q2'9
8
Q1'9
9
Q4'9
9
Q3'0
0
Q2'0
1
Q1'0
2
Q4'0
2
Q3'0
3
Q2'0
4
Q1'0
5
Q4'0
5
Q3'0
6
Q2'0
7
Q1'0
8
Q4'0
8
Q3'0
9
Q2'1
0
Q1'1
1
Q4'1
1
Q3'1
2
Q2'1
3
Q1'1
4
Q4'1
4
Q3'1
5
Q2'1
6
Q1'1
7
Q4'1
7
Q3'1
8
Median Historical min Historical max Historical average
* Norske Skog, Stora Enso, UPM, Holmen, SCA, BillerudKorsnäs
To be conservative, we apply relatively strict EV/EBITDA multiples for
Norske Skog for the credit story. Arguments for low multiples are that
the market is close to a cyclical peak and it has weaker exposure (pure
paper) than its peers. If we assume a terminal decline, with a 10-year
life declining by 5% per year, one can argue for a DCF value ~40%
below the perpetuity case and multiples ~40% below peers. A 40%
discount to the cheapest peers (Stora, UPM and Metsä) implies an
EV/EBITDA of ~4x. Even with such a low multiple for Norske Skog, we
find the LTV to be low. We note that the Oceanwood acquisition priced
Norske Skog at EV 3.7bn (EV/EBITDA of 5.3x).
The current market cap implies a net LTV of ~16%.
Steep discount to peers and previous transactions
EV/EBITDA
Peers 2019e 2020e 2021e
Stora Enso 7.6 7.6 7.1
UPM Kymmene 8.0 8.0 7.6
Metsä Board 7.0 7.1 7.3
Huhtamaki 10.9 9.7 9.0
Holmen 13.5 12.9 12.1
SCA 13.4 12.1 11.0
BillerudKorsnäs 9.2 6.8 5.8
Average 9.9 9.2 8.6
Net LTV EBITDA, NOKm
27% 700 800 900 1,000 1,100 1,200 1,300
3.0x 31% 27% 24% 22% 20% 18% 17%
3.5x 27% 23% 21% 19% 17% 16% 14%
EV/EBITDA 4.0x 23% 20% 18% 16% 15% 14% 13%
4.5x 21% 18% 16% 14% 13% 12% 11%
5.0x 19% 16% 14% 13% 12% 11% 10%
LTV EBITDA, NOKm
70% 700 800 900 1,000 1,100 1,200 1,300
3.0x 80% 70% 63% 56% 51% 47% 43%
3.5x 69% 60% 54% 48% 44% 40% 37%
EV/EBITDA 4.0x 60% 53% 47% 42% 38% 35% 32%
4.5x 54% 47% 42% 38% 34% 31% 29%
5.0x 48% 42% 38% 34% 31% 28% 26%
Norske Skog Capacity (t) 2,360,000 2,360,000
EV/tonne (EUR/t) Implied EV (NOKm) Value per share (NOK)
125 2,950 35
150 3,540 42
175 4,130 50
200 4,720 57
225 5,310 64
250 5,900 71
275 6,490 78
300 7,080 85
325 7,670 93
Albury mill transaction price
Valuation support from EV/t in paper transactions
32
EV of ~NOK 4.7bn based on the Albury mill transaction EUR EV/tonne of paper transactions
50
150
250
350
450
550
650
750
850
2004 2006 2008 2010 2012 2014 2016 2018 2020
EUR EV/tonne
Norske Skog valuation by EV/t
Newsprint transactions relevant for Norske Skog
There have been several paper mill transactions (conversion to
packaging) that can be used as pricing benchmarks, using EV
per tonne of capacity.
To estimate EV/tonne for Norske Skog, it is most relevant to
focus on recent transactions containing newsprint mills and
similar assets (see table below).
The Albury mill was sold for ~EUR 200/t, which using the same
EV/t would imply NOK 4.7bn in EV at the new capacity of 2.4
mill t (excluding Albury) or NOK 57/share in equity value.
EV/tonne equal to the average of similar transactions (EUR 200-
250/t), it would represent an EV of NOK 4.7-5.9bn or a LTV of
29-35% YE 2019, or net LTV of 11-14%.
Source: ABG Sundal Collier for graphics, Fastmarkets RISI and FactSet for data Source: Historical earnings: Norske Skog, Rest: ABG Sundal Collier
Source: ABG Sundal Collier for graphics, Fastmarkets RISI and FactSet for data
Company Date EV (EURm) Capacity (t) EV/tonne (EUR/t)
Parenco Q3'12 30 265,000 113
Norske Skog (Pisa, Brazil) Q1'14 55 180,000 306
Shree Rama Newsprint Q2'15 53 144,000 368
Holmen (Madrid) Q2'16 150 470,000 319
UPM (Swhwedt) Q2'16 70 280,000 250
Norske Skog Q2'18 387 2,625,000 147
White Birch (Bear Island) Q3'18 29 234,000 126
Norske Skog (Albury) Q4'19 52 265,000 196
Albury mill
transaction
price
LTV of 29-35%, net LTV of 11-14%
M&A: synergy potential from historical paper mergers
33
Synergies value Norske’s European operations at NOK 3bn Historical cost savings in P&P mergers, % of sales
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Can
Fo
r/N
ort
hW
oo
d
UP
M/M
yll
Sa
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Casca
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s/D
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Je
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Ab
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on
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Wa
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Nexfo
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Ab
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Nors
ke
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IP/U
nio
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ter/
Ave
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New
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/Vers
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r/W
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Ab
itib
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ate
r
Sto
ra/C
on
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ted
Nors
ke
/Fle
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/MacM
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/PI
Sm
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We
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Ab
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Sto
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Ave
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e
Promised cost synergies in % of sales
Paper Europe Sales 7% synergies EV/EBITDA 4.5x
Grade mill t m'share NOKm NOKm NOKm
SC Magazine 460 9% 2,438 171 768
LWC Magazine 265 4% 1,559 109 491
Total Magazine 725 6%
Newsprint 1,200 14% 5,540 388 1,745
Total Publication Paper 1,925 9% 9,538 668 3,004
Australasia 460 3,400 238 1,071
Norske as target
Norske capacity
Norske as target: synergies and value
We have 30 years of data for mergers in the pulp & paper
industry.
Historically, paper mergers have on average promised 7% cost
synergies as a percentage of sales for the target company.
Norske could be very interesting for UPM, Stora, Holmen, SCA
in a future deal:
i) synergies could be substantial for a European player
ii) it gives potential to manage utilisation rates/prices
better for a player with a higher market share
Norske’s European synergies could be NOK 600-700m based
on the historical 7% synergies promised.
If we apply an EV/EBITDA of 4.5x, we arrive at NOK 3bn of
potential deal value for Norske’s European operations.
Source: Norske Skog for historical data, Rest: ABG Sundal Collier
Source: ABG Sundal Collier for graphics, companies for data
Key covenants vs. our estimates
The proposed bond terms include the following financial covenants:
Maintenance covenants:
• NIBD/EBITDA below 2.75x
• Minimum liquidity of NOK 100m
Dividend restrictions
• 75% of last year’s adjusted net profit* subject to NIBD/EBITDA not
exceeding 2.0x.
Subordination
• The bond is structurally subordinated by pension liabilities of NOK 261m,
and factoring (on and off balance sheet), leases and other debt of NOK
622m. In addition, we note that it will enter into a bank loan of up to EUR
58m for the Bruck boiler investment (maturity later than the bond). All
numbers are from the time of the bond issue.
Shareholder loans
• Shareholder loans are fully subordinated to the secured obligations and no
repayment of principal or payment of cash interest under any shareholder
loans (other than as permitted distribution, e.g. a dividend) is carried out
before the secured obligations have been discharged in full.
Overview Net leverage (NIBD/EBITDA) vs. covenants
Strict proposed covenants from bondholders’ perspective
34
Source: ABG Sundal Collier, Company
* Reported net profit + depreciation – maintenance capex
1,681
962 923 939
0.4x
0.2x
0.4x 0.4x
0.9x
1.2x
1.5x
1.7x
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2019e 2020e 2021e 2022eEBITDA NIBD/EBITDA Maintenance (2.75x)
Incurrence (2.0x) At bond issue
Profit and loss
35
Source: ABG Sundal Collier, Company
P&L (NOKm) 2015 2016 2017 2018 2019e 2020e 2021e 2022e
Revenues 11,130 11,852 11,527 12,641 12,647 10,767 10,504 10,581
Clean EBITDA 787 1,066 671 1,031 1,681 962 923 939
EBITDA 774 907 604 1,372 2,948 962 923 939
Clean EBIT 32 392 63 585 1,219 490 451 447
EBIT 19 -947 -1,702 926 2,486 490 451 447
PTP -844 -1,498 -3,317 1,603 2,325 370 331 327
Net profit -1,318 -972 -3,551 1,525 2,194 315 282 261
Adjusted net profit -747 -471 -3,130 1,336 686 537 504 504
Financial covenants (NOKm) 2015 2016 2017 2018 2019e 2020e 2021e 2022e
Maintenance
NIBD/adj. EBITDA, < 2.75x 5.8x 4.7x 8.5x 2.2x 0.4x 0.2x 0.4x 0.4x
Minimum liquidity, > NOK 100m* 102 202 264 743 869 1,782 1,659 1,648
* Excluding restricted cash, assumed by ABGSC
Incurrence
NIBD/adj. EBITDA, < 2.0x 5.8x 4.7x 8.5x 2.2x 0.4x 0.2x 0.4x 0.4x
Balance sheet
36
Source: ABG Sundal Collier, Company Tax assets do not include significant unrecognised off-balance sheet positions
Balance sheet (NOKm) 2015 2016 2017 2018 2019e 2020e 2021e 2022e
Property, plant and equipment 8,570 6,548 4,698 4,483 4,092 3,466 3,508 3,297
Intangible assets 17 279 87 94 87 87 87 87
Other non-current assets 1,033 357 154 212 1,936 1,936 1,936 1,936
Sum non-current assets 9,620 7,184 4,939 4,789 6,115 5,489 5,531 5,320
Trade and receivables 1,894 1,732 1,497 1,403 1,441 1,259 1,260 1,301
Inventories 1,253 1,161 1,148 1,304 1,343 1,175 1,178 1,219
Cash and cash equivalents 271 371 433 912 1,038 1,951 1,828 1,817
Other current assets 94 49 92 157 447 447 447 447
Sum current assets 3,512 3,313 3,170 3,776 4,269 4,833 4,713 4,784
Total assets 13,133 10,497 8,109 8,565 10,383 10,321 10,244 10,104
Sum equity 4,729 2,090 -1,427 2,365 5,590 5,391 5,269 5,153
Non-interest bearing 1,482 1,053 1,211 952 936 936 936 936
Interest bearing 4,263 4,979 1,348 2,318 1,431 1,846 1,928 1,893
Sum long-term liabilities 5,745 6,033 2,560 3,270 2,367 2,782 2,864 2,829
Trade and payables 1,885 1,807 2,056 1,951 2,007 1,729 1,691 1,702
Other 238 137 119 118 161 161 161 161
Interest bearing 536 430 4,802 862 259 259 259 259
Sum short-term liabilities 2,659 2,374 6,976 2,931 2,427 2,149 2,111 2,122
Total liabilities 8,404 8,407 9,535 6,200 4,793 4,931 4,974 4,951
Total equity and liabilities 13,133 10,497 8,109 8,565 10,383 10,321 10,244 10,104
Cash flow
37
Source: ABG Sundal Collier, Company
Cash flow (NOKm) 2015 2016 2017 2018 2019e 2020e 2021e 2022e
Clean EBITDA 787 1,066 671 1,031 1,681 962 923 939
Interest paid, net -432 -471 -184 -70 -121 -120 -120 -120
Taxes paid -9 -4 -19 -20 -123 -56 -50 -65
Other -101 -96 -37 -55 -501 -32 -32 -32
Funds from operations (FFO) 244 495 431 886 936 755 722 722
Change in net working capital -129 -12 -58 -5 32 72 -42 -70
Cash flow from operations (CFO) 115 483 373 881 967 827 679 652
Capex -179 -299 -276 -279 -341 -714 -482 -250
Sale proceeds 2 194 5 1 93 900 0 0
Other 3 0 -8 90 -37 0 0 0
Free cash flow (FCF) -59 377 94 692 683 1,013 197 402
Debt repayment -305 -553 -401 -548 -1,825 -35 -35 -35
Debt drawdown 2,614 1,446 424 332 1,291 450 117 0
Equity issue 0 0 0 0 0 0 0 0
Dividends paid 0 0 0 0 0 -514 -403 -378
Other 0 0 0 0 0 0 0 0
Net cash flow (NCF) 2,250 1,269 117 477 149 913 -123 -11
Cash BoP 710 271 371 433 912 1,038 1,951 1,828
Cash EoP 271 371 433 912 1,038 1,951 1,828 1,817
This material has been prepared by ABG Sundal Collier ASA, or an affiliate thereof ("ABGSC").
This material is for distribution only under such circumstances as may be permitted by applicable law. It has no regard to the specific investment objectives, financial
situation or particular needs of any recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any
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reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the
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