Norske Skog: Trading update 4Q14 in connection with today's launch of Senior Secured Notes and exchange offer of existing notes

Today, Norske Skog is launching two separate offers (i) an offering of EUR 250 million Senior Secured Notes (SSN) due in December 2019 to achieve a broader refinancing and debt extension of the group's capital structure and (ii) an exchange offer of existing notes.

For further details please also see the press release "Norske Skog launches offer of EUR 250 million Senior Secured Notes (SSN)". The publication of the 4Q14 results will be delayed to 24 February due to today's announcements.

Trading Update
Consolidated financial statements for the quarter and for the year ended December 31, 2014 are not yet finalized. The information in this statement is based on preliminary internal management accounts and includes estimates and assumptions, and is subject to change as the group's consolidated financial statements are finalized, as further described herein. Undue reliance should not be placed on the information in this statement. 

Developments during the quarter
There were several developments that occurred during 4Q14 that are expected to impact the group's businesses and gross operating earnings positively in 2015. The prolonged ramp-up of the new magazine paper machine at Boyer in Australia was completed. During full year 2014, the ramp-up had a significant negative impact on gross operating earnings. With operations now running in accordance with the investment plan, and assuming this will continue, the new magazine paper machine at Boyer should contribute significantly towards gross operating earnings for full year 2015.

Foreign exchange rates moved in favor of the group's operations as NOK depreciated against the group's major currencies due to NOK correlation with lower oil prices. Since only a low single digit percentage of the group's revenue is generated in NOK, and in excess of a third of the group's total capacity is located in Norway, the competitiveness of the European business should be clearly enhanced by the NOK depreciation. Likewise, the depreciation of AUD relative to USD should impact the Australasian business positively, supporting the domestic price for magazine paper and the margins for exports to Asia.

The lower oil price is also a direct positive for the group, given the energy intensity in production of paper from virgin fiber. The positive effect is somewhat mitigated by the group's long-term energy contracts. However, the low oil price could possibly in addition bring indirect positive effects on other input factors, such as chemicals, which to a large degree are oil derivatives.

A number of substantial capacity closures in the publication paper industry were announced in the quarter. This, price support is expected into 2H15, when the announced closures are completed and the paper is no longer in the market.

4Q14 results
The developments described above had limited impacted on the group's 4Q14 operating result due to lag effects. Preliminary year-end reporting based on internal management accounts indicate revenue of somewhat above NOK 3 billion and gross operating earnings for 4Q14 broadly in-line with 3Q14 at approximately NOK 200 million. The effects of portfolio changes, and a reduction in provision for environmental obligations in 4Q13, limit the meaningfulness of a year over year comparison.

Publication paper Europe

Revenue and volumes were relatively stable from 3Q14 to 4Q14. The weakness in magazine paper continued because of low industry operating rates with capacity reductions announced, but not yet completed in the quarter. Magazine paper thus adversely impacted gross operating earnings, while Newsprint was more stable with a higher operating rate in the industry prior to the announced closures. The depreciation of NOK to a large degree occurred late in the quarter, and thus did not have a meaningful impact on the 4Q14 operating result.

Publication paper Australasia

Revenue and volumes increased seasonally from 3Q14 to 4Q14 and the ramp-up at Boyer was completed. Both these factors contributed towards improved gross operating earnings in the quarter as compared to the prior quarter. The depreciation of AUD against USD benefited price negotiations for magazine paper into 2015. The exchange rate level should also support margins for the export business out of Australasia into Asia.

Other activities

The negative contribution from other activities was larger in 4Q14 compared to 3Q14, due to year-end closing of cost allocations.

Cash flow

Cash flow from operations benefited from a seasonal release of working capital, more than offsetting interest payments in the quarter. Capital expenditures were somewhat higher than in 3Q14, reflecting volatility in investment spending. The redemptions of the remaining NOK bond in October was in part financed by proceeds from accounts receivables (AR) facilities. The group's new AR facility, announced in September 2014 at Bruck in Austria, became effective in the quarter.

Balance sheet

Reflecting working capital seasonality and utilization of the new AR facility, cash balances were seasonally higher at end 4Q14 compared to end 3Q14. Cash balances include restricted cash of approximately NOK 250 million. A liquidity buffer of approximately NOK 200 million is prudent to allow for daily volatility in working capital. Foreign denominated debt, when translated to NOK for accounting purposes, increased due to the depreciation of NOK from end 3Q14 to end 4Q14. Property, plant and equipment also increased due to NOK depreciation, while there will be a negative effect from EUR denominated power contracts in Norway.

The dealer managers for the transactions are Goldman Sachs International and Citi. This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.

Norske Skog
Communications and Public Affairs

This information has been prepared by, and is the responsibility of, our management, and has not been audited, reviewed or verified; no procedures have been completed by our auditors with respect thereto, and undue reliance should not be placed thereon. This information is subject to confirmation in the group's unaudited quarterly report for the quarter ended December 31, 2014 and in the group's audited consolidated financial statements and report for the year ended December 31, 2014.

This press release may include projections and other "forward-looking" statements within the meaning of applicable securities laws. Any such projections or statements reflect the current views of the group about future events and financial performance. Although the group believes that these views and assumptions are reasonable, the statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. No assurances can be given that such events or performance will occur as projected and actual results may differ materially from these projections.