All Rights Reserved. Copyright (C) 2008 Nippon Paper Group, Inc. 1
Aiming to be a “World TOP 5”
Masayuki Hayashi Director (Engineering, R&D)
UBS Global Paper & Forest Products ConferenceSeptember, 2008
All Rights Reserved. Copyright (C) 2008 Nippon Paper Group, Inc. 2
Agenda
Forward looking statementAny statements in this presentation document, other than those of historical fact, are forward-looking statements which are based on management’s assumptions and beliefs in light of information currently available, and involve risks and uncertainties. Actual results may differ materially from these forecasts.
Financial information Financial information presented in this presentation material is prepared based on the Japanese Accounting Standard, if for no additional statements specifying the calculating method.
Copyright statementAll rights reserved. Copyright © 2007 Nippon Paper Group, Inc. Unauthorized use or reproduction of this material in part or in whole is strictly prohibited.
1. Introducing the Nippon Paper Group
2. Business environment
3. Group Vision 2015 and current initiatives
4. 2nd MTBP summary and the image of next steps
All Rights Reserved. Copyright (C) 2008 Nippon Paper Group, Inc. 3
0 5,000 10,000 15,000 20,000 25,000
IP
Stora Enso
P&G
SCA
UPM
OJI
Weyco
Smurfit Kappa
KC
NPG
1. Introducing the Nippon Paper GroupBasic information
Establishment: March 2001Group net sales: JPY1.2 trillion (FY07)
Total assets: JPY1.6 trillionProduction of paper & paperboard: 7.7 million tonsNumber of employees: 13,666
Net sales of pulp, paper & converting operations
(Source: PPI Annual Review, Sept. 2007)
NPG
World Top 10 Pulp&Paper companies
($ million)
1.
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1. Introducing the Nippon Paper Group Corporate history
1993, Merger
1997, Merger
2001, Est.
2003, RestructuringThe Japan
Paper IndustryThe Japan
Paper Industry
Nippon Unipac Holding
Nippon Unipac Holding Nippon Paper Group, Inc.Nippon Paper Group, Inc.
2004, Change in trade name
Sanyo-Kokusaku pulpSanyo-Kokusaku pulp
Jujo Paperboard Industries
Jujo Paperboard Industries
Holding Company
Operating CompaniesJujo PaperJujo Paper
PaperPaper
PaperboardPaperboard
Tohoku PaperTohoku Paper
Japan Paperboard Industries
Japan Paperboard Industries
Nippon Paper Industries
Nippon Paper Industries
Daishowa Paper Manufacturing
Daishowa Paper Manufacturing
Listed/Ex-listed company
Household Tissue
Household Tissue
2008, Restructuring
1972, Est.
1949, Est.
1938, Est.
1913, Est.
1964, Est.
1938, Est.
1918, Est.Mishima
PaperMishima
Paper
Specialty Paper
Specialty Paper
Nippon PaperPapylia
Nippon PaperPapylia
Nippon Paper Industries
Nippon Paper Industries
Nippon Daishowa Paperboard
Nippon Daishowa Paperboard
Nippon Paper Crecia
Nippon Paper Crecia
1.
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25%11%
5%5%
5%5%
24%
31%
28%
18%
7%
4%4%3%
20% 15%
16%
12%
11%
8%
3%4%
4% 5%6%
31%Others33%
Honshu14%
Settsu9%
Rengo6%
5%
5%4%
4%3%
3%3%
2%2%
2%5%
1992
Oji
Daio
Mitsubishi
Nippon Paper GroupNo.1
HonshuKanzaki
1. Introducing the Nippon Paper Group Our position in Japan
1.
Source: JPA etc.
Sanyo Kokusaku Pulp
Daishowa
Jujo
OjiDaio
Mitsubishi
Others
Hokuetsu
Hokuetsu
Others
Jujo
2007
Daishowa
Japan
Tohoku
Nippon Paper GroupNo.3
Oji
RengoDaio
Daio
HokuetsuTakasaki Sanko
ChuoKoaTokai
Marubeni
Paper Paperboard
OthersHokuetsu
TokaiMarubeni
Chuetsu
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131.9 135.5142.6 146.0
125.8 120.9 122.1
17.2 23
133
4332.8
55.765.2
44.748.450.542.4
5.7 1624.4
4.9-0.624.3
1,211.4 1,192.6 1,179.7 1,152.2 1,175.3 1,211.71,290.0
1,165.5
-200
-
200
400
600
800
1,000
1,200
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008E
-25
-
25
50
75
100
125
150
Introducing the Nippon Paper GroupPerformance history
(JPY billion)(JPY billion)
Net sales EBITDA* Operatingincome Net income
1.
Net
sal
esIncom
e
*EBITDA=Ordinary income + interest paid - interest received + depreciation
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-
5
10
15
20
25
30
35
55 60 65 70 75 80 85 90 95 00 050
20
40
60
80
100
120
140
1. Business environmentProduction growth in Japan
(CY)
(million t)
Paperboard
Paper
Total
Population(million)
Population
Maturing domestically
2.
P&PB productionP&PB production
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0%
2%
4%
6%
8%
10%
95 96 97 98 99 00 01 02 03 04 05 06 07
Export Ratio=Exports/Domestic production
Import Ratio=Imports/(Domestic shipment+Imports)
Exports in 074.7%
Imports in 07 4.7%
(CY)
*
* Excluding newsprint from Japanese manufacturers’ overseas operations (approx.90kt in 2007)
1. Business environmentImports and exports trend
2.
Paper Import/Export ratioPaper Import/Export ratio
Import flux recently stabilizingExport to pick up with long-term focus
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0
50
100
150
200
250
300
350
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
woodchip ONP OMG OCC NBSK Dubai crude oil Coal
1. Business environmentRaw materials/Fuels price trend
2.
Woodchip, Wastepaper, Pulp, Fuel
Rapid increase in input costFew signs of peaking outInput cost trend
Jan. 2005 price = 100Input cost trend
Jan. 2005 price = 100
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~Group Vision 2015~
Sustainable growth of corporate value through development of each group company
Be one of the top 5 pulp&paper groups worldwide by 2015
Sales turnover JPY1.5—2 trillion
Operating margin > 8—10%
ROE > 8%
Overseas sales > 30%
Market cap. JPY1 trillion
Group Vision 201510-year target of the group
3.
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Evolution to be a truly global player• Continuous replacement to
state-of-the-art paper machines• Expand overseas business• Tie up with foreign players
Group Vision 2015Road Map to the Group Vision 2015
Solidified corporate base
1st MTBPFY03-05
1st MTBPFY03-05
Strengthening domestic businesses
Group Vision 2015Group Vision 2015
Expanding overseas businesses
2nd MTBPFY06-08
2nd MTBPFY06-08
4th MTBPFY12-14
4th MTBPFY12-14
Reformation to survivein the global competition
• Reduce oil consumption• Conserve resources• Large-scale scrap and build• Form alliances• Business realignment
Achieve integration effects and stabilize financial base•Reform manufacturing structure•Reduce interest-bearing debt•Improve productivity
3rd MTBPFY09-11
3rd MTBPFY09-11
2001Integration
2001Integration
3.
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-
200
400
600
800
1,000
1,200
2004H1 H2 2005H1 H2 2006H1 H2 2007H1 H2 2008H1 H2 2009H10
20
40
60
80
100
120
C Heavy oil consumption(12months)Dubai crude oil price
2004Sep. Nakoso
2006Oct. Ishinomaki
2007Oct. Fuji2008Jan. IwanumaFeb. Iwakuni
2008May YoshinagaJun. AkitaAug. ShiraoiSep. AsahikawaSep. Gotsu
2009May Otake
Hea
vy o
il co
nsum
ptio
nC
rude oil price?
* 2010 target
Current initiativesEnergy shift
3.
Heavy Oil25%
Coal27%
Other biomass7%
Purchase 11%Electricity, LNG, etc.
Black liquor
31%
Heavy Oil8%
34%
17%
31%
Installing biomass/new energy boilersto cut heavy oil consumption
10%
(000kl) ($/bl)
FY
Heavy oil consumptionHeavy oil consumption
Cutting emission of CO2 from fossil fuels by 13%* compared to 1990
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0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY2000 FY2002 FY2004 FY2006 FY2008E
WastepaperWood chip
Market pulp
P&PBproduction
(000 t)
Current initiativesSecuring fiber
3.
Improved recycled fiber utilization,minimizing dependency on market pulp
Fiber material consumptionFiber material consumption
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S.Africa Oceania
S.America40
12
18
27
JapanN.America
1
2
24
Asia, Russia
16
8
12
28
13
NPG
(FY2008E)
Japanese excl. NP
G(2007)
Composition by region(%)
Equator Equator
3. Current initiativesSecuring fiber
-32 carriers support stable procurement of wood chip mainly from southern hemisphere.
-Coastal mill locations to optimize logistics
Wood chip sourcing mapWood chip sourcing map
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0
50
100
150
200
250
Today Expandable
“Tree Farm Initiative”Expanding overseas afforestation -targeting over 300,000 hectare, -over 200,000 hectare by 2015, with advanced biotechnology, i.e. clonal propagation of “Elite” trees
South AfricaFSC
12Kha(Acacia etc.)
AustraliaAFS
78Kha(Eucalyptus)
ChileCertforChile
14Kha(Eucalyptus)
BrasilAcquired in
Nov.0662Kha+70kha
(Eucalyptus)
S.Africa
Brasil
Australia
Chile
(kha)
Expanding plantation area166kha 239kha
Self sufficiency 1/4 1/3
Current initiativesSecuring fiber
3.
(1 hectare = 2.59 acre)
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Current initiativesPaper production restructuring
1. Startup :November 20072. Product :Lightweight coated paper3. Annual capacity :350,000t (daily capacity of 1,005t)4. Machine type :High-speed on-machine coater5. Wire width :9,450mm6. Operating speed :1,500m/min (designed speed: 1,800m/min)7. Operating personnel :8persons/shift (cutting to 6)
Introducing the latest technologywith Ishinomaki PM #N6
targeting the global market
3.
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-
200
400
600
800
1,000
1,200
Nov
-07
Dec-07
Jan-08
Feb-08
Mar-
08
Apr-
08
May-08
Jun-08
Jul-
08
Aug-
08
Sep-08
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
DailyProduction(Planned)
DailyProduction(Result)
Machine Speed(Planned)
Machine Speed(Result)
Current initiativesPaper production restructuring
Successfully started up Ishinomaki PM #N6 operation
3.
Expertise in on-machine coater operationto support smooth start up
(t/day) (m/min.)
Dai
ly P
rodu
ctio
n Machine speed
All Rights Reserved. Copyright (C) 2008 Nippon Paper Group, Inc. 18
PM/Coater ⊿Capacity Coating cap.・Ishinomaki N6 + 350 + 350・Ishinomaki 3 - 50・Ishinomaki 5 - 50・FCP 30 - 100 - 100・FCP 31 - 70 - 70・FCP 32 - 70 - 70
Sub total + 10 + 110・Fushiki 4 - 10
・Fushiki 5 - 50・Fushiki 6 - 60 - 50・Komatsushima - 60・Waki 3 - 10・Waki 4 - 40 - 20
Sub total - 230 - 70Total - 220 + 40
• Raise operation rate overall• Shift product lineup to:
- growth category- higher margin
• Spread impact over the industry
Reduction by grade・Newsprint - 20・Uncoated - 70・Coated - 70・PPC - 40・Packaging etc. - 30
Total - 230
(000 t)
Current initiatives Paper production restructuring
3.
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0
10
20
30
40
50
60
70
80
NPG Daio Oji Hokuetsu Export Domesti
Current initiatives Paper production restructuring
3.
Minimizing Supply/Demand gap in the coated paper marketwith capacity removal/grade shift and export drive
*Domestic 2008 demand estimated by JPA, and assumed to stay flat after 2008Export estimated by NPG based on Apr-Jul results, internal budget and other information** Based on announcements and analyst reports
New Capacity ** Shipment increase*
Incr.
Incr.
Japanese coated paper market balanceJapanese coated paper market balance
Net capacity increase matchesshipment increase forecast
ScrapIncr. Grade
shift
Incr. ScrapIncr.
800
700
600
500
400
300
200
100
0
(000 t/year)
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Created Overseas sales divisionExploring “New” markets – Oceania, USA
Successfully expanding coated paper exports, and further this year
Current initiatives Overseas expansion strategy
3.
NPI Coated paper ExportNPI Coated paper Export
113196
295 (000 t)
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Put through across the grades last yearUnderway…1. Newsprint April 1-2. Printing, Communication, etc. June 1-3. Tissue June 21-4. Containerboard, boxboard, etc. September 21-
More to go…1. Newsprint 2nd round2. Other paper grades depending on cost situation
Current initiatives Price increase
3.
• Pricing power enhanced through consolidations in manufacturers and distributors
• Shared vision to prioritize “Price” in the flat growth market• Input cost environment to eliminate room for discounting
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80
90
100
110
120
130
140O
ct-0
5
Dec
-05
Feb-
06
Apr
-06
Jun-
06
Aug
-06
Oct
-06
Dec
-06
Feb-
07
Apr
-07
Jun-
07
Aug
-07
Oct
-07
Dec
-07
Feb-
08
Apr
-08
Jun-
08
Aug
-08
A2A3BitokoWFSCoated paper imports
Current initiatives Price increase
3.
Price trend of major gradesApr.2006=100%
Price trend of major gradesApr.2006=100%
• Price gap between domestic and imported coated paper squeezed • No threat of imports to resurge
(%)
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Target Overseas MktFocus on LWC
Alliance between Hokuetsu Paper
Secure world-class domestic production networkand strengthen competitiveness of international product lineup
Current initiatives Strategic alliances in Japan
NPI IshinomakiN6
Hokuetsu NiigataN9
•Competitive coastal mills•State-of-the-art on-coater machines•Expertise in coated paper production
3.
ProgressMutual OEM-Started to supply from Ishinomaki N6. Jan. 2008--Procure from Hokuetsu N9. Aug. 2008-Technology exchange in various fields and manners
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Complement strengths in paperboardand corrugated product areas Envision deeper relationship
Alliance between Rengo and Sumitomo Corporation
Current initiatives Strategic alliances in Japan
•Sites with competitive market access•Best match to integrate packaging business•Platform to solidify the industry foundation
Container board
Corrugated products
NPG
Rengo
3.
ProgressIncreasing use of NDB containerboard Accommodating wastepaperCollaborating in packaging business
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Yuen Foong Yu Paper Mfg. Co., Ltd.(Taiwan)-Biggest in Taiwan. -P&PB production: 1.3 million ton/year-Strong foothold in Greater China region-Date of agreement: Nov. 2007
SCG Paper PLC(Thailand)-Biggest in Thailand.-P&PB production: 2.7 million ton/year-Leading position in the ASEAN region-Date of agreement: Feb. 2008
Expanding ties beyond borders-Started mill visits and other exchanges-Explore opportunities of collaboration
Afforestation, OEM, Cultivating new markets, etc.
Current initiatives Strategic alliances overseas
3.
All Rights Reserved. Copyright (C) 2008 Nippon Paper Group, Inc. 26
20
40
60
80
100
120
140
FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007FY2008E
Capitalinvestment
Depreciation
2nd MTBP summary and the image of next steps Capital investment
4.
(JPY billion)Capital investment and DepreciationCapital investment and Depreciation
Intensive strategic investments to drive reformation
•
•
•
Scrap &Build 63
DIP 7
BiomassBoilers 76
JPY200 bn of strategic investments
in 2nd MTBP
and other
All Rights Reserved. Copyright (C) 2008 Nippon Paper Group, Inc. 27
2nd MTBP summary and the image of next steps OP targets and results
4.
50
(JPY billion)
100
0FY2006 FY2008EFY2007FY2005
2nd MTBP Period
32.844.748.4
43.0
50.0
64.0
80.0
-37.0
Original targets
Estimation
Operating profitOperating profit
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2nd MTBP summary and the image of next steps OP targets and results by factor
4.
• Input cost impact by far exceeding the assumption• Further price hikes needed • More drastic measures must be implemented
(JPY billion)
0
-100
Raw materials,
Fuels
Depreciation Sales priceOther Sales volumeCost cut
4.3
104.7
8.8
Estimation-147.0
38.8
-12.2 1.5
14.5
45.8
-8.2
-49.0
Originalplan
+31.6 48.4 +31.6= JPY80bn48.4 - 5.4= JPY43bn
-5.4
OP change factors (against 2005 results= JPY48.4billion)OP change factors (against 2005 results= JPY48.4billion)
24.2-37.0
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2006 2007 2008 2009 2010 2011
2nd MTBP
3rd MTBP
Measures
海外展開への本格展開・収益拡大
Ishinomaki N6
Energy shift(Building boilers)
Biz realignment
Hokuetsu alliance
Rengo alliance
Investment in Ishinomaki
Yuen Foong yu alliance
SCG Paper alliance
Overseas afforestation expansionAMCEL acquisition
Strengthen domestic base,Strategic move to overseas businesses
Expand and improve profitability of overseasbusiness,
Move
on to
th
e 2
nd
stage o
f ove
rseas e
xpansio
nSetting a course for sustainable growth•Solidify footing for overseas expansion
1.Cultivate markets (own and collaborative work)2.Building optimal production structure through alliances
•Further enhance int’l competitiveness of domestic units1.Replace production facilities2.Deepen ties with alliance partners •Secure resource
1.Expand afforestation2.Diversify sources
2nd MTBP summary and the image of next steps Formulating the 3rd MTBP
4.
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