A.I.A.C. ASSOCIAZIONE ITALIANA AGENTI CELLULOSA

Teija Konttori

8th of June, 2017

Pulp Industry Consolidation- What next?

Agenda

2

1 Most Industries Progress Through Clear Consolidation Life Cycle

2

3

There are Great Examples of Consolidation Within Pulp Industry

What Next?

Vision Hunters - Global Network of Independent Thinkers

Vision Hunters provides clients with strategic consulting expertise

and advice and has carried out over 300 projects globally.

30

0

Over

Projects

10

0

Globally

Experts

Our senior experts have strong practical business and financial and consulting background with an average 25 years of professional experience. 25

Average

Years business

experience

Collective knowledge of more than 100 international

consultants and associates.

Vision Hunters – Global Advisory Services

Pulp

Paper, Paperboard

and

Hygiene and

Biorefinery

Energy

Chemicals

Forest Assets

Wood Products

bio

Specialty Papers

and Packaging

Competencies and Key Offerings

• Corporate strategies

• Business strategies

• Energy strategies

• Second opinions

Strategic analysis

• Partner search

• Screening of acquisition targets

• Information memorandum

• Business and technical due diligence

M&A Services

• Business opportunity screening

• Conversion of assets

• Development of new business

New Business Opportunities

• Technical feasibility

• Operations, maintenance and quality

improvement

• Supply Chain Management

• Strategic sourcing & purchasing

Operations Improvement

Agenda

6

1 Most Industries Progress Through Clear Consolidation Life Cycle

2

3

There are Great Examples of Consolidation Within Pulp Industry

What Next?

0

10

20

30

40

50

60

70

80

90

100

-10 -5 0 5 10 15 20 25

Most Industries Progress Through Clear Consolidation Life Cycle

7

Time

(Years)

Source: Winning the Merger Endgame by Graeme Deans, Fritz Kroeger, and Stefan Zeisel: A.T. Kearney analysis

Industry Concentration

1989-2001 (CR3)

Railroad

Telecom

Banks

Insurance

Airlines

Utilities

Diversified

chemicals

Food retail

Integrated steel producers

Restaurant and fast food

Soft drinks

Pulp &Paper

Defense electrical

Tobacco

Confectionery

Ship-

building

Integrated

oil and gas

Distiller

Truck and trailer

manufacturers

Aluminum

producers

Automotive suppliers

Drugs

Brewers

Automotive manufacturers

Diversified food

Rubber

and tire

Sport Shoe

0

10

20

30

40

50

60

70

80

90

100

-10 -5 0 5 10 15 20 25

Four Stages in Life Cycle That Every Company go Trough…

8

Time

(Years)

Source: Winning the Merger Endgame by Graeme Deans, Fritz Kroeger, and Stefan Zeisel: A.T. Kearney analysis

Industry Concentration

1989-2001 (CR3)

Railroad

Telecom

Banks

Insurance

Airlines

Utilities

Diversified

chemicals

Food retail

Integrated steel producers

Restaurant and fast food

Soft drinks

Pulp &Paper

Defense electrical

Tobacco

Confectionery

Ship-

building

Integrated

oil and gas

Distiller

Truck and trailer

manufacturers

Aluminum

producers

Automotive suppliers

Drugs

Brewers

from 100%

to 30-10%15 to 45% 35% to 70% 70 to 90%

Automotive manufacturers

Diversified food

Rubber

and tire

Sport Shoe

Stage 1 Stage 2 Stage 3 Stage 4

0

10

20

30

40

50

60

70

80

90

100

-10 -5 0 5 10 15 20 25

….And Four Different Strategies

9

Time

(Years)

Source: Winning the Merger Endgame by Graeme Deans, Fritz Kroeger, and Stefan Zeisel: A.T. Kearney analysis

Industry Concentration

1989-2001 (CR3)

Railroad

Telecom

Banks

Insurance

Airlines

Utilities

Diversified

chemicals

Food retail

Integrated steel producers

Restaurant and fast food

Soft drinks

Pulp &Paper

Defense electrical

Tobacco

Confectionery

Ship-

building

Integrated

oil and gas

Distiller

Truck and trailer

manufacturers

Aluminum

producers

Automotive suppliers

Drugs

Brewers

Opening and

Defend

Build and

Scale up

Focus and

Profitability

Alliances and

Balance

Automotive manufacturers

Diversified food

Rubber

and tire

Sport Shoe

Stage 1 Stage 2 Stage 3 Stage 4

Agenda

10

1

2

3

Most Industries Progress Through Clear Consolidation Life Cycle

There are Great Examples of Consolidation Within Pulp Industry

What Next?

Consolidation in Pulp Industry

11

36%

54%

0% 20% 40% 60% 80% 100%

Top 3

Top 5

BHKP

34%

50%

0% 20% 40% 60% 80% 100%

Top 3

Top 5

Dissolving Pulp

21%

35%

0% 20% 40% 60% 80% 100%

Top 3

Top 5

BSKP

79%

87%

0% 20% 40% 60% 80% 100%

Top 3

Top 5

Fluff

Driver for Consolidation in Pulp Industry is a Shareholder Value…

12

Raw Material Availability Competitiveness

Balance Sheet vs. Capital Intensity of Growth Expertise

Fibria – Votorantim Acquire the Aracruz

13

Driver: Competitiveness and

Balance Sheet vs. Capacity Intensity0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

1992 2002 2009 2017Aracruz VCP Fibria

1996 New Pulp line at Jacareí

2002 Start-up Line C Aracruz

2003 Acquisition of Riocell

2000/2003 Acquisition of stakes in Veracel Project

2005 Start-up of Veracel

2007 Luiz Antonio swap for TL

2008 Conpacel

2009 Guaiba Unit divestment

2009 TL start-up

2009 Votorantim acquire the Aracruz

2010 Conpacel and KSR divestment

2012 divestment of Losango forestry assets

2011 Divestment of Piracicaba paper unit

2016 Sales Alliance with Klabin

2017 TL II start-up

Stage 2

+ =

Stora Enso – Veracel and Montes del Plata

14

Driver: Raw Material and

Competitiveness

Stage 2

Veracel 2005

SE 50%/50% Fibria

Capacity: 1.1 Mt

Captive pulp for

Europe and China

Montes del Plata 2014

SE 50%/50% Arauco

Capacity: 1.3 Mt

Growth generator of

Biomaterials BU

Skutskär

Capacity: 540 kt

Fluff Pulp

Further Expansion

Enocell

Capacity: 460 kt

Dissolving pulp

Since 2012

Sunila

Capacity: 370 kt

CMPC – Acquisition of Guaiba Mill

15

Driver: Competitiveness

Stage 20

500

1.000

1.500

2.000

2.500

3.000

2006 2009 2015

1959 Laja Mill

1991 Pacifico mill

1997 Acquisition of 100% share of Pacifico and

Santa Fe

2009 Acquisition Of Guaiba

2015 Expansion of Guaíba

0

500

1.000

1.500

2.000

2.500

3.000

IP Weyerhouser IP +Weyerhaeuser

International Paper Acquire Weyerhaeuser

16

38%

21%

17%

Drivers: Raw Material Availability,

Competitiveness and Expertise

Stage 3

+

Market

Share

Agenda

17

1

2

3

Most Industries Progress Through Clear Consolidation Life Cycle

There are Great Examples of Consolidation Within Pulp Industry

What Next?

Company Ways to Grow are…

18

Economies of scale

Competitive edge

Company value creation

Winning competition

Strategic competition

Stage 2Organic Growth

Acquisition

Joint Forces

Innovation

…But Who will Be Among Players in Stage 3?

19

Acquisition

Expertise

Joint Forces

Scale and competitive edge

Expertise

Knowledge transfer

Entry barrier

Winning concept

Stage 2Stage 3Stage 2

Decades of Natural Fibres

Pulp industry development is in hot sopot of this front!

Key Take Aways

20

1

2

3

4

5

Consolidation is driven by raw material availability, competitiveness,

company balance sheet vs. capital intensity and expertise

Understanding where in life cycle is an industry is a cornerstone of

company’s long-term strategy

To be among winners actions needed from the current players

Consolidation drives the growth and success!

TEIJA KONTTORI

Vision Hunters Ltd OyDirector

Tel. +358 40 533 5312

Email: tejia.konttori@visionhunters.com

21

Thank You!