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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 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, 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


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.


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)


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



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.


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


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


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


-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


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.



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



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



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


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



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


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


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)


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




-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



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


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


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

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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


* 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


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


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

Disclaimer

Disclaimer

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

securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relat ion to the accuracy, completeness or

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

materials. It should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this material are subject to

change without notice and may differ or be contrary to opinions expressed by other business areas or groups of ABGSC as a result of using different assumptions

and criteria. ABGSC is under no obligation to update or keep current the information contained herein. ABGSC, its directors, officers and employees' or clients may

have or have had interests or long or short positions in the securities or other financial instruments referred to herein and may at any time make purchases and/or

sales in them as principal or agent. ABGSC may act or have acted as market-maker in the securities or other financial instruments discussed in this material.

Furthermore, ABGSC may have or have had a relationship with or may provide or has provided investment banking, capital markets and/or other financial services to

the relevant companies. Neither ABGSC nor any of its affiliates, nor any of ABGSC' or any of its affiliates, directors, employees or agents accepts any liability for any

loss or damage arising out of the use of all or any part of this material.

© 2018 ABG Sundal Collier ASA. All rights reserved. ABG Sundal Collier ASA specifically prohibits the redistribution of this material and accepts no liability

whatsoever for the actions of third parties in this respect.

Norway

ABG Sundal Collier ASA

Pb. 1444 Vika

Munkedamsveien 45E, 7th floor

NO-0115 Oslo

Tel +47 22 01 60 00

Fax +47 22 01 60 60

Sweden

ABG Sundal Collier AB

Box 7269

Regeringsgatan 65, 5th floor

SE-103 89 Stockholm

Tel +46 8 566 28 600

Fax +46 8 566 28 601

United Kingdom

ABG Sundal Collier Partners LLP

St Martins Court, 5th floor

10 Paternoster Row

London EC4M 7EJ

Tel +44 207 905 56 00

Fax +44 207 905 56 01

Denmark


Copenhagen Branch

Forbindelsesvej 12, St.

DK-2100 Copenhagen Ø

Tel +45 35 46 30 00

Fax +45 35 46 30 10

Germany


Frankfurt Branch

Schillerstrasse 2

5. Obergeschoss

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Tel +49 69 96 86 96 00

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USA

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