Concerns and highlights of Korean paper industry

[RISI Asian Forest Product Summit]

2016. 6. 22

1 page

Contents1. Industry Dynamics & Key

Trend P 2 ~ 4

2. Major Issues & Challenges P 5 ~ 9

3. Value Migration Patterns P 9 ~ 10

4. Smart Transformation P 11

Appx. Korea paper statistics by grade (2015)

2 page

Industry Dynamics & Key Trend

Growth rate of Paper and Board has stalled and the previous strong interrelationshipwith GDP has begun to fade out Paper/Board growth rate Vs. GDP growth rate

: Global Paper/Board production volume, Nominal GDP YOY growth rate (1999 ~ 2013)

(Source: World Bank, IMF, RISI)

3 page

Industry Dynamics & Key Trend

World Paper and Board production has been going through slow-down period, Graphic paper’s gradual weakness and Packaging paper’s significant increase

(Source: RISI)

World Paper/Board production (2009 ~2013)

: million metric ton per annum

370397 400 400 402

+4%

+0%

Slow down period

CAGR M/S

Total P&B 2% 100%

Specialty &Tissue 3% 12%

Packaging& Board 3% 56%

Printing &Writing 0% 26%

Newsprint -3% 6%

406

4 page

Industry Dynamics & Key Trend

Paper and Board production in Korea has also been slowed down, Graphic paper (Newsprint + P&W) have been losing ground same as world trend

(Source: KPA _ Korea Paper Association)

Korea Paper/Board production (2009 ~2013)

: million metric ton per annum

CAGR M/S

Total P&B 2% 100%

Specialty &Tissue 3% 8%

Packaging& Board 3% 54%

Printing &Writing 0% 26%

Newsprint -1% 12%

+1%

Slow down period

10.511.1 11.5 11.3

11.8 11.7

5 page

Grap

hic p

aper

gro

wth

rate

(‘05

~’10)

ICT development index (‘05~’10)

Major Issues & Challenges

Emerging of digital infrastructure, contents and devices has led the structurallow-growth of paper & board industry, which is a global trend

ICT Development Index Vs. Graphic paper growth rate

: Information and Communication Technology Index

1

(Source: The World Economic Forum)

Higher ICT development index,

Lower graphic paper consumption-. Top 20 countries’ average consumption

growth of graphic paper: -17%

High possibility to turn downward

of graphic paper consumption

in Korea too-. Newspaper consumption: -17%

(‘05 ~’10)

-. Sluggish consumption growth of

printing & writing paper: less 2%

6 page

Maga-zine

Major Issues & Challenges

CWF market (000 MT) Main drivers

Less 3.0%CAGR(‘04 ~ ‘20e) 5.1%

AD market

Digitali-zation

Flyers/

DM

Catalo-gue

ChildBook

GDP recession

Magazine AD Printed Volume

AD spending DM ratio

Market size Printed volume

Population Printed volume

-10.1% -2.7%

-3.3% -2.4%

+3.0% -13%

-1.2% -3.7%

Korean CWF market is facing difficulties to maintain as decline consumption ofprinting & advertising market caused by economic recession, shrinking its population and IT media development

2

(Source: KPA, KOSTAT, KFAA)

+1%

-5%

(Domestic + Import)

7 page

Major Issues & Challenges

Weakening demand of P&W is inevitable macro trend in the world, it already hashappened in major developed countries

2

(Source: KPMA, RISI)

Major developed countries’ P&W market trend (‘90 ~ ’14)

: thousand metric ton per annum

Europe ◀ Back to ‘96

U.S ◀ Back to ‘80

Japan ◀ Back to ‘90

8 page

Major Issues & Challenges

In the long term, Korean paper & board market will be driven by packaging board andtissue grade instead printing & writing grade

(Source: KPA)

Korean paper & board demand trend (‘00 ~ ‘15)

: Domestic + Import shipment, million metric ton per annum

7.2

8.3

9.19.6

+2.2%

+0.9%

Others

Tissue

Containerboard

Boxboard

Printing & Writing

Newspaper

CAGR

(`10 ~ ‘15)

+1.9%

+1.9%

+3.1%

+1.9%

-2.1%-5.9%

-2.1%

9 page

Value Migration Patterns

Because of its worsening profitability and loosing operational excellence, all of paper manufacturers in Korea are being forced to change its strategy

(Source: Annual Report)

10 page

Value Migration Patterns

Major leading companies are transforming their business portfolio from printing & writing paper business to non printing & writing paper business _ Board & Specialty

(Source: Annual Report)

11 page

Smart Transformation

Moorim’s “Smart Transformation Strategy” is focusing on migration its core valuesto 1) Enhancing paper business, 2) Expanding paper business, 3) New business

Strengthen

Paper Business

Maintain product & cost competitiveness

Solid share in the market (domestic &

export)

-. Concentrate on strategic issues

: operational excellence

Expanding

Paper Business

-. Focus on emerging market

-. Specialized & Value-added products

(Digital paper, Specialty paper, etc)

Advance into

Neighborhood

-. Integrate & expand downstream

-. Provide solution service to customer

-. New business

1

2

3

Dominate untapped markets in advance

Specialized products

Reintegration & Expansion to downstream

Product to Solution

Outside-in

12 page

Appendix. Korea Paper Statics (2015)

(Unit: MT) (Unit: MT)

Domestic Export Total Domestic Export Total

1,333,796 602,547 747,756 1,350,303 50,717 3 1,524,091 749,443 764,447 1,513,890 73,074 113,478

2,919,882 1,671,493 1,216,910 2,888,403 271,452 297,854 1,509,037 736,877 762,312 1,499,189 70,243 96,448

UWF 443,070 436,118 8,905 445,023 45,483 122,011 15,054 12,566 2,135 14,701 2,831 17,030

UWC 88,593 80,151 8,781 88,932 12,834 4,676,706 4,477,947 231,598 4,709,545 176,089 197,974

Other 76,739 62,796 10,794 73,590 11,638 3,666,244 3,529,991 162,927 3,692,918 150,387 190,782

Total 608,402 579,065 28,480 607,545 69,955 122,011 1,010,462 947,956 68,671 1,016,627 25,702 7,192

279,619 280,947 4,048 284,995 43,405 275,262 264,409 6,699 271,108 22,078 42,108

CWF 1,601,584 546,236 1,044,159 1,590,395 101,748 132,834 6,476,059 5,491,799 1,002,744 6,494,543 271,241 353,560

Other 91,559 83,165 8,122 91,287 14,721 2,194 11,601,959 8,568,811 3,036,872 11,605,683 651,952 1,079,860

Total 1,693,143 629,401 1,052,281 1,681,682 116,469 135,028

10,729

338,718 182,080 132,101 314,181 41,623 30,086

185,868 159,506 26,953 186,459 25,232 64,865

122,605 100,828 22,191 123,019 12,921 64,865

63,263 58,678 4,762 63,440 12,311

500,798 464,196 38,930 503,126 11,287 35,585

185,556 179,270 3,579 182,849 22,023 327,993

5,125,900 3,077,012 2,034,128 5,111,140 380,711 726,300

Grade ProductionShipment

Inventory Import

MFC

Liner

Inner

Others

Board total

Paper & Board

Paper total

Boxboard

Coated

Uncoated

Containerboard

Packaging

Kraft

Others

Tissue

Specialty

Printing & Wrting

Uncoated

Coated

Thin paper

Information

Grade ProductionShipment

Inventory Import

Newspaper

13 page

Contact :-. Mr. Steve Kim (steve@moorim.co.kr, Tel +82 2 3485 1681)

Director, Overseas Sales Div. 2, Moorim Paper/P&P/SP

-. Mr. IK Lee (argent23@moorim.co.kr, Tel +82 2 3485 1526)

Team Manager, Overseas Sales Team 2, Moorim Paper/P&P/SP

-. Mr. Sunny Kim (sunjai@moorim.co.kr, Tel +85 2 2121 0071)

Branch Manager, Hong Kong Office, Moorim Paper/P&P/SP

Q & A Session