Norsk Gjenvinning Group 4th Quarter 2018 Erik Osmundsen, CEO and Espen Krey Brettås, CFO
Disclaimer VV Holding AS is providing the following interim financial statements for Q4 2018 to holders of its NOK 1,386,000,000 Senior Secured Floating Rate Notes due 2019. This report is for information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy the notes or any other security. This report includes forward-looking statements that are based on our current expectations and projections about future events. All statements other than statements of historical facts included in this notice, including statements regarding our future financial position, risks and uncertainties related to our business, strategy, capital expenditures, projected costs and our plans and objectives for future operations, including our plans for future costs savings and synergies may be deemed to be forward-looking statements. Words such as “believe,” “expect,” “anticipate,” “may,” “assume,” “plan,” “intend,” “will,” “should,” “estimate,” “risk” and similar expressions or the negatives of these expressions are intended to identify forward-looking statements. By their nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. You should not place undue reliance on these forward-looking statements. In addition, any forward-looking statements are made only as of the date of this notice, and we do not intend and do not assume any obligation to update any statements set forth in this notice.
Highlights ▪ Positive development in Recycling ▪ Robust performance in Project Based business General ▪ Successful closing of the M&A transaction with KMT and signed agreement to acquire Øst-Riv ▪ Continued challenging dynamics in the paper and metal downstream markets ▪ Increased with 1.4% in Q4 Volumes ▪ Increased with 0.1% year to date ▪ Operating revenue adjusted for sale of real estate increased with 8.3% in Q4 Revenues ▪ Operating revenue adjusted for sale of real estate increased with 6.8% year to date ▪ Gross profit adjusted for sale of real estate increased with NOK 28.9 million in Q4 Gross profit/ – Adjusted gross margin was down 1.5pp in Q4 margin ▪ Gross profit adjusted for sale of real estate increased with NOK 95.6 million year to date – Adjusted gross margin was down 1.1pp year to date ▪ EBITDA adjusted for sale of real estate was NOK 68.9 million in Q4 – Adjusted EBITDA margin was 5.5% in Q4 EBITDA ▪ EBITDA adjusted for sale of real estate was NOK 322.4 million in 2018 – Adjusted EBITDA margin was 6.4% in 2018
Revenues 1 290 ▪ Increased with 8.3% in Q4 – Driven by higher activity in sale of services and collection/ handling of waste in Recycling and Project Based Business and higher downstream sales within Metal 4 527 4 237 ▪ Increased with 6.8% in 2018 95 – Driven by Projects Based Business due to increased activity within landfills and industrial cleaning – Recycling and Metals also contributing to increased 1 232 1 138 revenues in 2018 Q417 Q418 2017 2018 1 ) Adjusted for sale of real estate
Gross Profit 1 96 ▪ Increased with 5.1% in Q4 – Driven by higher activity in sale of services and collection/ handling of waste in Recycling and Project Based Business ▪ Increased with 4.5% in 2018 2 220 2 124 – Driven by Projects Based Business due to increased 29 activity within landfills and industrial cleaning – Household Collection contributes positively due to change in mix between third party suppliers and own 594 565 personnel Q417 Q418 2017 2018 1 ) Adjusted for sale of real estate
EBITDA 1 -92 ▪ Decreased with 10.4% in Q4 – Driven by higher rent expense from the real estate transactions done in May 2018 (sale/ leaseback), Metals and Household Collection – Recycling and Project Based Business contributed positively 414 322 ▪ Decreased with 22.2% in 2018 -8 – Driven by higher rent expense from the real estate transactions done in May 2018 (sale/ leaseback), 77 69 Recycling, Metals and Household Collection (change in mix between third party suppliers and own personnel) Q417 Q418 2017 2018 – Project Based Business contributed positively 1 ) Adjusted for sale of real estate Q1 Q2 Q3 Q4 ▪ Negative impact from Easter Special ▪ falling in Q1 in 2018 vs. Q2 in Positive impact from Easter falling items 2017 of NOK 12-14 million ▪ ▪ in Q1 in 2018 vs. Q2 in 2017 of M&A transaction costs NOK 4 M&A transaction costs NOK 6 NOK 12-14 million ▪ million million Fire at GMP plant influencing ▪ EBITDA negatively by NOK 6 Divestment of real estate portfolio million
Adjusted earnings by segment 1 -60 ▪ Increased with 21.8% in Q4 – Driven by increase in single collection assignments, Recycling Division efficient operations and project sales 294 ▪ Decreased with 20.3% in 2018 234 12 – Negatively impacted by decreased margin related to paper and plastics with approximately NOK 35 million 69 57 Q417 Q418 2017 2018 ▪ -47 Negative NOK 2 million in Q4 – Driven by high upstream prices (Celsa index) and the Division -11 Chinese import restrictions which led to reduction in 28 Metals global downstream prices for secondary aluminium 9 scrap -2 Q417 Q418 2017 2018 ▪ -19 Negative NOK 19 million in 2018 – Driven by limited inventory in first half of 2018, high upstream prices and the reduction in global downstream prices for secondary aluminium scrap in second half of 2018 1 ) Before internal charges
Adjusted earnings by segment 1 34 ▪ Increased with 135.5% in Q4 Project Based Business – Driven by higher activity in industrial cleaning and the demolition segment due to high activity and increased geographical footprint 80 ▪ 13 Increased with 71.0% in 2018 47 – 22 Driven by strong growth in the landfill business and 9 increased activity in the industrial cleaning segment Q417 Q418 2017 2018 -33 ▪ Negative NOK 1 million in Q4 Household Collection – Driven by the loss contracts that were taken over from RenoNorden post the bankruptcy in addition to challenges related to several other contracts 39 ▪ Decreased with 83.5% in 2018 -4 – Driven by challenging weather conditions in early 6 3 2018, start-up cost on new contracts and the loss Q417 Q418 2017 2018 contracts that were taken over from RenoNorden -1 1 ) Before internal charges
Market development and NG response- Fuels NG response Refuse Derived Fuel (RDF) Refuse Derived Fuel (RDF) • • Focus on increased quality of finished products and RDF markets followed the same trends from earlier and remained stable in more efficient freight solutions to downstream Q4 and were in supply/demand equilibrium. • customers We expect this to continue in Q1 2019. • • Focus on Increasing sales of ancillary services The RDF market has been stable since 2015. • NG continued to increase upstream prices to normalize gross margins Woodchips Woodchips • • Woodchips prices was at the same levels in Q4 after the stabilization NG have benefited from low inventories compared in Q3 after experiencing large gains in Q2. to last year • • The Scandinavian market is still in a short-term equilibrium. Focus on increased quality of finished products • Temperatures in upcoming months will influence future price and more efficient freight solutions to developments. downstream customers • Optimization of customer portfolio downstream to further strengthen gross margin • Our inventories are at satisfactory levels and we have secured contracts for all inventory and next heat seasons’ production
Market development and NG response- Recyclables NG response Mixed metal fraction Metals Metals • Ferrous market prices • Keeping inventories low, back-to-back pricing, (CELSA index) 4% higher on financial hedging average compared to • Improved collection logistics efficiency Q417. • Improved long haul logistics efficiency • Nickel prices more stable in • We will continue our attempts to optimize Q418, lower prices for sourcing to mitigate the lower quality of ferrous copper and aluminum volumes. • Mixed metal fraction has • Continue to adjust upstream prices in our decreased significantly in contracts due to decreased Zorba second half of 2018 and was down 25% in Q4 Paper Paper • Slight increase in Q4 for • Focus on keeping inventories low packaging grades OCC and • Focus on improving quality of finished products to mix paper. meet current challenging market situation • Deink grades for printing • Adjust pricing upstream to compensate for lower paper has continued to prices downstream increase, but not as steep as • Optimization of customer portfolio downstream to in Q3. Spread between strengthen gross margin further Deink and OCC and mix still • Actively seeking alternatives to China on all time high. • New paper machine in place by Easter • For Q1 2019 we expect packaging grades and Deink to decrease slightly
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