RISI CONFERENCE 1 MARCH 2016

Chief Executive Officer

Berry Wiersum

Sappi Europe

Transformation

TRANSFORMATION

What every Industry CEO should be thinking about:

o Stock market turbulence, currencies, oil and shifting growth patternso “Goodbye cool: hello practical” – Las Vegas Consumer Electronics

showo Artificial Intelligence (AI) and new materials – a new accelerator?o COP21 and its consequences for the European paper industryo Infinite connectivity versus closing borderso Violence in our midsto Quo Vadis imprimatur?o Humanism and the next generation

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Source picture: Internet – yieldedlover.wordpress.com

Currency moves vs USD Data from European Central Bank

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Oil price reduction in local currency

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USD

EUR

GBP

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Real GDP annual growth ratePercentage change on previous yearData from: (2008 – 2014) The World Bank; (2015 – 2016) Goldman Sachs

0.50%

-4.40%

2.10% 1.80%

-0.50%0.20%

1.40% 1.50% 1.70%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

2008 2009 2010 2011 2012 2013 2014 2015 2016

EU (28 countries)

-0.30%

-2.80%

2.50%

1.60%2.30% 2.20% 2.40% 2.40% 2.20%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

2008 2009 2010 2011 2012 2013 2014 2015 2016

USA

9.60%9.20%

10.60%

9.50%

7.80% 7.70%7.30%

6.90%6.40%

6%

7%

8%

9%

10%

11%

2008 2009 2010 2011 2012 2013 2014 2015 2016

China

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Unemployment rate (% of labor force)Data from OECD (EU, USA) and The World Bank (China)

7.44%

9.48%

10.07% 10.12%

11.29%

11.93%11.60%

5.78%

9.27% 9.62%8.95%

8.07%7.38%

6.17%5.29%

4.40% 4.40% 4.20% 4.30% 4.50% 4.60% 4.70%4%

5%

6%

7%

8%

9%

10%

11%

12%

2008 2009 2010 2011 2012 2013 2014 2015

EU (28 countries)

USA

China

Linear ( EU (28 countries))

Linear ( USA)

Linear ( China)

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Aging population – median ageData from Eurostat (EU) and U.S. Census Bureau (USA)

40.440.7

41.041.3

41.641.9

42.2

37.2 37.337.5 37.6 37.7

37.0

38.0

39.0

40.0

41.0

42.0

2008 2009 2010 2011 2012 2013 2014

EU-28

USA

0.0

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Europe’s Consumers Shifting GearLabor Force

EU demographic age composition Consumption of Different Age Groups

Europe’s low birth rate effect will be amplified by decreasing spent of elders US with significantly better demographics, Millennial age cohort

now constituting the largest population group

retire

General government debt, % of GDPData from OECD (EU and USA) and Trading Economics (China)

5969 73 76

87 899492

106116

122 125 124 123

32 36 37 36 37 39 41

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20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013 2014

EU (21 countries;except: Bulgaria,Croatia, Cyprus,Latvia, Lithuania,Malta, Romania)

USA

China

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But Chinese private sector debt increases fourfold!

Incidents of Coincidence

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Source: Angus Madisson, The Conference Board, FT calculations

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Economic Machine Lacks LubricantProductivity GrowthFor the past half century, the twin engines of rapid population growth and a brisk increase in labor productivity powered the expansion of gross domestic product.Labor’s contribution to GDP growth is disappearing, so productivity must pick up the slack. But can it?

“Goodbye cool: Hello practical” Las Vegas Consumer Electronics Show

Previous shows hyped glamour or new devices (3D, 4K TV, etc); 2015 shift towards useful functions

Source picture: San Francisco Cronicle

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Accenture survey of 28.000 consumers shows sluggish demand for new techy devices:

2014 (%) 2015 (%)Buy new Smartphone 54 48Buy new TV or tablet 38 30Buy Smart watch 0 13Wearable health monitors, etc. 0 9

* Falling orders from Apple to Chinese factories

Useful functions are scary …o Wearables move from fashion item to services enabledo More than 150 health, wellness and fitness companies pitch services

to show wearers how to live healthyo BUT 47% of consumers worry about privacy and security of both

devices and serviceso 69% know that hackers can steal their data or infect ito 24% have postponed purchase and 18% stopped using device

Big opportunity for cyber security providers: 82 companies exhibit!o Biggest device hype at the show was the self-driving car!

“Goodbye cool: Hello practical” Las Vegas Consumer Electronics Show

Source picture: Internet / mixstuff.ru

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Artificial Intelligence and new materials -a new accelerator?

o Next generation’s workmates will be robots with emotions!o Will enable further development of Industry 4.0o Big Data creates new golden triangle of CEO, CMO and CIOo Moore’s Law: Density (=effectiveness) of computer chips doubles every

2 yearso Speed, capacity and size become limited by wafer material – currently

silicono The search for the next generation is on…

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Source picture: Internet – nanogalaxy.org

Is Graphene the answer?

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Potential uses include:

o Ultra-long life batteries, bendablecomputer screens, better solar cells, superfast micro computers

o Graphene oxide bonds withradioactive elements; now in use at Fukushima

o Quantum dots – high fluorescent nano particle for improved imaging –derived from coal

o UK Patent office: Graphene relatedpatent grew from 3018 in 2011 to8417 in 2013

Source picture: Internet rpi.edu

Back to Moore’s Law …

o Silicon now supports 4 billion transistors on a fingernail size wafer o Graphene could increase current speed x100o But Graphene is not a semi conductor, so mobility cannot be turned offo Currently no technology to solve that obstacle

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Source pictures: Internet – chipfiles.ru thedetroitbureau.com

Cautionary tale about Disruptive Technology

o Aluminium discovered in tiny quantities in 1820’s, known as “Silver from Clay”o 1850’s – process found to make a few grammes at a time. Used in expensive

jewelryo 1880’s – Industrial process discovered using electricity; price collapse; still no

volume useo 1920’s – Transformative use finally found in airplanes

Source picture: Internet – aluminiumleader.com

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Industry 4.0 (IoT) Transformative Power

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Employment Impact Of IoTIoT is relatively more disruptive to Printing & Publishing vs Pulp & Paper

Source: BCG Group, Man and Machine in Industry 4.0

COP21 and its consequences for the European Pulp and Paper Industry

o The most important target is that global warming must be “well below 2 degrees”

o India and China start imposing environmental measureso Europe’s commitments far more ambitious than other parts of the

worldo Radical new technology required and governments need to be

educatedo Massive opportunity, but need extraordinary funding and patient

moneyo New role for finance houses, state, Commission, Treasuries and

ETS

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Source: Picture: Financial Times

Infinite connectivity …

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Global Retail E-Commerce

Source: A.T. Kearney

Walls between pure Online and Brick-and-Mortar are already coming down

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Retailers Going Global

Top 10 Global Ecommerce Sales

Online is in many fast-growing emerging markets the safest, fastest way to get products from international brands

“Bricks and Clicks" strategy

of Marks and Spencer: opening

physical stores in a few

markets while expanding

online in many more

Localizing the online presence while maintaining a unified global brand as a key success factor

Source: A.T. Kearney, remarkety.com

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Continuous Connectivity

Interpersonal Connection

Self-expression

Exploration

Convenience

Source: A.T. Kearney

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Ubiquitous Consumer

Moving across channelsMany retail and product options at fingertips, with demand to full visibility into inventory and pricingSoon a futile exercise to pinpoint the share of online sales

Digital technologies enhance in-store experiencePOS Technology, Beacons, Wearables, Augmented Reality, 3D Printing

One-stop-shopping experience Turning stores into distribution centers, pickup sites, and return locations Amazon opening physical locations

Demographics & MobilityMillennials change mobility concept - away from green field shopping centers principleGrowing number of elders looking for local shop suppliesCity center retailers before a new renaissance?

Omnichannel shopping

Source: PWC, 2015 retail trends, et al

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Total Price Transparency

Online research preceding purchase – multi-channel sale Retailers’ price matching guarantees…BUT…consumers set online price

reference point based on high rated online retailers – not (necessarily) by lowest price

Source: E&Y, Digital Retail / concordia.ca / birdseyevieweu

… and closing borders

o Migrant crisis, amazingly, took European politicians by surpriseo No preparationo No political consensus among EU leaderso Reactive policies made on the runo Incompetent government and the Peace Dividend under threat

The end of open borders and free movement of people?

Source: Internet / www.theguardian.com (T Schwarz, Reuters)

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Source: Internet/dailymail.co.uk (Getty Images) Source: Internet / thebarentsobserver.com

Growth of conservative nationalism in – or close to -government

o Hungary develops efficient fences to close borderso Denmark announces policy to dispossess migrantso Poland refuses to take migrants and brings media under state controlo UK wants policy to pay no benefits to EU migrants in first 4 years; Brexit?o LePen (F), Wilders (NL) and Trump (USA) gain popularity with anti migrant

policieso Sarkozy 06.01.2016: “Schengen est mort! ”o Growth of trade barriers and disputeso Oil, Saudi Arabia and Iran

Source:businessnews.com.ng

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Source:Die Presse.K Pempel, Reuters

Source: Larensbehoud.nl

Source: YoutubeSource: Youtube

Source: sueddeutsche .de Source: wikiwand.com

Source: foxbusiness.com

Source:  demorgen.be

Source:  thearabdailynews.com

Violence in our midst

Europe has the most violent history of all continentsSome say it’s because of the length of the coastline (!)Terror based violence is not newIsfahan 1388; 100-200.000 people massacred by Timur-I-LengBuilds 28 towers of 1500 skulls each to discourage debate

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Source: Internet / naidunia.jagran.com

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Quo Vadis Imprematur

Source: Internet / nl.123rf.com

Global Advertising Growth

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Regional Advertising Development

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Ad Spend Growth How much is being spent

0

7500

15000

22500

30000

France Germany Italy Spain UK

2014 2015 2016 2017

Source: ZenithOptimedia, September 2015

US$

milli

on

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Google On The Demise Of Print Advertising

Chief business officer of Google Nikesh Arora in 2013:

“…50 percent of all ad spend will switch online in five years…”

Chief business officer of Google Nikesh Arora in 2013:

“…50 percent of all ad spend will switch online in five years…”

Source: www.businessinsider.com/google-just-described-its-incredibly-simple-plan-to-kill-print-advertising-2013-2

Print is hurting but still very much alive!

28%37%

0

20,000

40,000

60,000

80,000

100,000

120,000

2013 2014 2015 2016 2017

InternetOutdoorCinemaRadioTVMagazinesNewspapers

Western European Advertising Expenditure

US$ mio

Source: ZenithOptimedia, September 2015

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Print Keeps Grabbing A Big ShareOver-indexed Spending On Print Ad Relative To Time Spent

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Demographics Against Print…What form of media people of different age would miss

Source: Ofcom, Benedict Adams, Businessinsider.com

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… Or Digital Fatigue?

o Boomerang effect in the US:Millennials behave closer to Boomers

o The lag on digital adoption in Europe also reflected in European Millenials behavior towards digital (more similar to US Gen Xers)

o … will the next European generation imitate the US behavior sooner or later (again)?

o Growth stalls - people are growing bored with new smartphones, laptops and tablets. And new gadgets don’t fill the gap.

Source: Accenture 2015

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…And Digital Ad Blockers Go Viral

o ...despite mobile add blocking just in its infancyo 45 million US citizen installed ad blocking software. Even more people

did so in Europe, over privacy concerns. o In the UK ad blockers grew by 82% in the 12 months to June 2015

Source: PageFair, CEB Global

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Pendulum swinging back?

Martin Sorrell, Chairman of WPP and probably the most important ad man around made a very interesting point last week during a breakfast session at the Broadcasting Press Guild. He said:

"There's an argument at the moment going on about the effectiveness of newspapers and magazines, even in their traditional form, and maybe they are more effective than people give them credit (for)".

Sorrell now states that he has seen some "interesting data" that shows higher consumer engagement levels with newspapers and magazines, as well as their ability to generate more attention and focus, which means readers are likely to retain information.

Source: Print Power

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Make Or Break For Digital Magazines

o Drop in numbers for eight of the top 12 UK digital titles in 2015o Readers are still not migrating over to the vast majority of mobile

editions

Source: FIPP, fipp.com/news/features/2016-its-make-or-break-time-for-digital-magaziness

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From Digital To Print

o Print acquires a higher return on investment (ROI) in campaigns than television, and magazines specifically deliver the highest ROI of all media.

o Long-term impact of print - print demands more engagement and attention

o Many online brands, such as Net-A-Porter, Uber, Airbnb and various blogs, have been starting to invest in print magazines as a part of their marketing strategies integrating interactive technology

o Incorporation of print into their digital strategy multiplies the effectiveness of each campaign significantly

Martyn Eustace, Managing Director of Print Power

Source: futuremedialab.info

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Neuroscience

o Digital ads were processed more quicklyo Paper ads engaged viewers for more timeo Subjects reported no preference for either

mediumo Subjects absorbed about the same amount of

information from both media

A week later, subjects showed greater emotional response and memory for physical media ads

Physical ads caused more activity in brain areas associated with value and desire

Effective print ads will drive digital purchases

Source: pri.org/stories/2014-09-18/your-paper-brain-and-your-kindle-brain-arent-same-thing, academia.edu

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Print Spurs Learning And Memory

o Dense text that we really want to understand requires deep reading, and on the internet we don’t do that

o Results show that print readers performed better than Kindle readers

o Most subjects also showed an overwhelming preference for print

Research

Source: pri.org/stories/2014-09-18/your-paper-brain-and-your-kindle-brain-arent-same-thing, academia.edu

DACH Region

2014 2023

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Online Printers Will DominateShare of Online Printers in Printing Market

Source: infotrends.com, zipcon consulting

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Online Print Mass CustomizationCustomer Value

Mass Customized

Mass Produced

CustomMade

UnitCost

Volume Produced of a Given Product

Producing, with the reliability, quality and affordability of mass production, small individual orders where each and every one embodies the personal relevance inherent to customized physical products

Source: Cimpress 2015

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Economic MoatOnline Printers becoming tech firms

$178MSoftware & Technology Investments by Cimpress(2014)

Source: www.beyond-print.de

Platform BuildingCreation of dominating platforms, opening up opportunities for partnersNew power of balances and dependencies similar to Amazon, VW, Booking.com?

The Winner takes it all?

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Print Is Here To Stay….

Source: theawkwardyeti.com

Humanism and the next generation

Manufacturing is about to take a giant leap forward

o Really successful production systems are profoundly humanisto Combine mechanistic breakthrough with emphasis on innovating shop

floor teams o Empowered shop floor teams will take Industrie 4.0 much furthero Prevailing obsolete philosophy: white collars think, blue collars do

(Taylor, early 1900’s)o Cooperation becomes the most sought after value (IBM Global C-suite

study)o Combination of Big Data, AI, new materials, low carbon technology and

humanist innovation o Will revolutionize manufacturing

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Source picture:  pinterest.com

Our children are changing the rules

o React to time pressure by creating the “Last Minute” Societyo Demand patterns – substitution and the Age of the Customero Brand loyalty declines due to infinite choice and customers are

confusedo Reduce risk by consulting Big Data (and dating!) siteso Customer Experience becomes the differentiatoro The retail cull has only just beguno Real environmental performance is top of the agendao The Bowie legacy: Don’t worry about politics and concentrate on the

personal

Source pictures: Internet / youtube.com and cagle.com

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CONCLUSIONS

World is transforming quickly

o New device hype gives way to useful functionso Intense innovation based on need and availabilityo Government and politics continue to lag behind industryo Violent break up of prevailing geo-political systemso The return of humanism and the birth of advanced manufacturingo Our industry has a great, but challenging, opportunity

We are witnessing the end of an era and the start of a second Renaissance!

Source picture: Internet / emaze.com

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Thank you