The Faces of Asian Growth

PWC Global Forestry and Paper Conference, 2011

Overview

  Asia has been, and will continue to be, the growth driver of the forestry and paper industry.

  Many Non-Asian companies have not taken the time to understand the market or its players.

  As a result foreign companies have generally not been successful in the region…(a few exceptions).

  Asian players have limited reasons to consider investing outside the region.

  Despite numerous setbacks, Asian companies have built up cash reserves and are set to prosper.

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Economic Growth in Asia

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012

Source: Asian Development Bank

% Annual Change in GNP

Despite slowdown in 2009, Asian economic growth continues to be strong

3

Paper Demand Development

Source: RISI

Million Tons Newsprint and Woodfree Papers

Uncoated and Coated Woodfree

Woodfree demand has expanded rapidly while newsprint has lagged

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Newsprint

Uncoated and Coated Woodfree

4

Board Demand Development

0

20

40

60

80

100

120

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source: RISI

Packaging consumption has been driven by export success

Boxboard

Containerboard

Million Tons Boxboard and Containerboard

5

Global Paper and Board Capacity Growth

0%

20%

40%

60%

80%

100%

1970s 1980s 1990s 2000-2005 2006-2010 2011-2015

Asiaʼs share of global capacity investments has grown rapidly since 1980s.

Source: Pöyry

Rest of the World

Non-Japan Asia

% Capacity Additions (tons) by Region

Paper and Board Industry Consolidation

0%

10%

20%

30%

40%

50%

60%

70%

80%

North America Europe Japan Rest of Asia China

% Regional production controlled by top 5 producers

The sector has reached modest consolidation levels in Asia

Source: Macquarie Capital/RISI 7

Major Transactions in Asia-Pacific

Year Acquirer Country Business Acquired Country Impl. Ent. Value

US$ Million

2011 International Paper USA APPM (75%) Pending IDN 420

2010 International Paper USA SCA Packaging Asia SWE 200

2010 Nippon Paper JPN YFY China (20%) TWN 560

2010 Chengtong Holdings CHN Tiger Forest and Paper (56%) CHN 375

2010 Nippon Paper JPN Lee & Man (12%) CHN 450

2010 Oji Paper JPN GSPP MAL 320

2009 Nippon Paper JPN Australian Paper AUS 650

2009 Morgan Stanley PE KOR Norske Skog Korea KOR 620

2009 Heesung Electronics KOR Daehan Pulp KOR 270

2009 Shandong Huatai CHN Norske Skog (Hebei) China CHN 140

2009 Global Forest Partners USA Timbercorp AUS 310

2009 Hokuetsu Pulp JPN Kishu Paper JPN 250

2008 Hansol Paper KOR EN Paper (47%) KOR 110

2008 Carter Holt Harvey NZL Weyerhaeuser Australia AUS 490

2008 Moorim Paper KOR Donghae Pulp (51%) KOR 310

Some key transactions have occurred in the last three years

Source: Kauri Capital 8

Acquisition and Investment Activity

North America, Europe and Japan China and Rest of Asia

Acquisitions

Fixed Investments 50 %

50 % 80 %

20 %

Consolidation has not been the major driver in the industryʼs development in Asia

Acquisitions

Fixed Investments

Source: Kauri Capital 9

Leading P&B Players in Asia-Pacific

JAPAN Oji Paper Nippon Paper Daio Paper Rengo Mitsubishi Paper Hokuetsu Kishu Paper Chuetsu Pulp

KOREA

Hansol Paper Moorim

TAIWAN

Yuen Foong Yu Cheng Loong

AUSTRALIA AMCOR Fibre Visy Industries

NEW ZEALAND

CHH Pulp and Paper

CHINA/HK APP China Chenming Paper Lee & Man Nine Dragons Hengan Huatai Sun Paper

THAILAND SCG - Paper Advance Agro

INDONESIA

APP Indonesia APRIL

INDIA

BILT

North Asia contains the regions dominant players

Source: Kauri Capital 10

Leading P&B Companies in Asia-Pacific

0 2000 4000 6000 8000 10000 12000 14000 16000

Hengan

Hokuetsu Kishu

Visy Paper (e)

Mitsubishi Paper

APRIL (e)

Chenming

Nine Dragons

Daio

Japan P&P

Rengo

APP (e)

Nippon Paper

Oji Paper

Revenues US$ Millions

Source: Kauri Capital/PWC

Japanese companies dominate but Chinese companies growing

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Strategic Focus – Tier One

  Japanese companies expanding outside Japan.   Nippon Paper – Australian Paper, Lee & Man, YFY China   Oji Paper – GSPP Malaysia   Rengo – Hung Hing, Asian alliances

  Chinese companies consolidating investments   APP - Pulp acquisitions and paper investment   APRIL - Pulp investment in China   Nine Dragons – Continued capacity growth   Chenming – Domestic paper acquisitions

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Leading P&B Companies in Asia-Pacific

0 200 400 600 800 1000 1200 1400 1600 1800 2000

Moorim

Advance Agro

Huatai

Sun Paper

CHH P&P (e)

BILT

Chuetsu P&P

Yuen Foong Yu

Amcor Fibre (e)

Cheng Loong

Lee & Man

SCG Paper

Hansol Paper

Revenues US$ Millions

Source: Kauri Capital/PWC

Limited growth and some risk adversity

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Strategic Focus – Tier Two

  Limited post-Asian crisis expansion   International Alliances.

  Sun Paper – International Paper   Huatai – Stora Enso

  Foreign company exits or aborted investments   Norske Skog   SCA Packaging (sold to International Paper)

  Cautious investment activity by mid-size players.

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Forest Companies in Asia Major concession holders in Indonesia and Malaysia dominate, with plantation companies expanding areas under management

0 500 1000 1500 2000

Gunns (AUS)

Ta Ann (MAL)

Barito (IDN)

Sino-Forest (CHN)

Wapoga (PNG)

Kayu Lapis (IDN)

RGE (IDN)

WTK (MAL)

Sinar Mas (IDN)

Sumalindo (IDN)

Jilin Forest (CHN)

Samling (MAL)

1000 hectares

0 200 400 600 800 1000

SCG (THA)

Agrolines (THA)

Elders (AUS)

NPI (JPN)

Marubeni (JPN)

BILT SFI (MAL)

Oji Paper (JPN)

Gunns (AUS)

Samling (MAL)

RGE (IDN)

Sino-Forest (CHN)

Sinar Mas (IDN)

1000 hectares

Forest Concession Holders Plantation Companies

Source: Kauri Capital 15

Strategic Focus

  Historic concession holdings retained.   Malaysia and Indonesia

  On-going plantation expansion.   APP and APRIL

  Japanese seeking Asian low-cost fibre security.   South-east Asia versus Australia

  Chinese forestry growth and consolidation.   Sino-Forest as clear industry leader

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Future Development

  Expect Asian companies to stick to Asia.   Why go elsewhere?

  Regional acquisitions as founders exits   Capital release from next generation

  Continued concern over fibre security.   Forests, pulp and recycled fibre

  Limited interest in International Alliances.   Old paradigms old equipment.

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Contact

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