Global Trends in the Forest Products industry Council of Forest Industries 2006 Annual Convention at Grand Okanagan Lakefront Resort Kelowna BC April 6 - 2006

by Lars-Göran Sandberg President & CEO, Timwood AB

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TIMWOOD AB

Contents

9 Structural changes in the Forest products industry Sustainability issues Market drivers Key observations

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Historically, an integrated industry structure was driven by the resource. In the future, industry structure will be driven by the customer

FOREST

WOOD PRODUCTS INDUSTRY

Chain of logics: No synergies between customers + a need for integrated forest industries to concentrate to fewer product lines to reach world scale + controlling raw material flow through ownership trends to be of lesser strategic importance Æ Spin-off wood products business.

CHIPS

PULP Energy surplus

PAPER PACKAGING CONSUMER PRODUCTS

BUILDINGINDUSTRY POWER RETAILERS

PRINTERS/PUBLISHERS INDUSTRIAL CUSTOMERS

INDUSTRIALCUSTOMERS

RETAILERS 3

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International Paper announced corporate portfolio restructuring Ê Ê Ê

Global operations with facilities in Europe, Asia, Oceania & South America. Expects future solid growth in platforms in Brazil, Eastern Europe and Russia. Focused largely on pulp & paper and packaging, with 47% and 30% of investment in 2004, respectively. Sold Weldwood of Canada on December 31, 2004 to West Fraser. Ë

Ê

July 2005 announced large “Portfolio change” IP shall focus on two key platform business Ë Ë

Ê Ê

Included 7 lumber, 2 plywood and 1 LVL mill.

Uncoated Papers Industrial & Consumer Packaging

September 2005 completed sale of Carter Holt Harvey to Rank Group (1,1BnUSD) Following “Portfolio change” potentially sale or spin off Ë Ë Ë Ë Ë Ë

SC paper business Beverage Packaging Business Kraft Paper business Arizona Chemical Forestlands Wood products business

• 30% of 2004 sales • 40% of 2004 results • est. to generate 8-10 BnUSD in proceeds

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Canfor increase sales in Wood Products from 49% in ´95 to 77% in ´05 at the expense of Pulp & Paper Sales by product line 1995

Other 11%

2000

Wood products 49%

1,4 Bn. USD

Pulp & Paper 40%

Other 9%

Wood products 52%

1,6 Bn. USD

2005

Pulp & Paper 23%

2,7 Bn. USD Wood products 77%

Pulp & Paper 39%

Source: Company data

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Nexfor→Norbord is now focused entirely on wood panels Sales by product line 1998

2000

Panels 30%

Paper 42%

2,4 Bn. USD

Pulp 12%

Lumber 16%

2005

Panels 39%

Paper 43%

2,1 Bn. USD

Pulp 9%

Lumber 9%

1,5 Bn. USD

Panels 100%

Source: Company data

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Stora Enso has had modest sales growth since 1998 and a stable product portfolio Sales by product line 1998 Other 13% Timber 7%

2000

Magazine Papers 19%

12,0 Bn. USD Packaging boards 24%

Newsprint 17% Fine paper 20%

Other Timber 8% 12%

Magazine Papers 19%

Other 21% Timber 7%

2005

14,8 Bn.USD Newsprint 13%

Packaging boards 19%

Fine paper 21%

Magazine Papers 36%

15 Bn.USD Packaging boards 24%

Fine paper 20%

Source: Company data

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UPM’s product portfolio distribution has not changed much since year 2000; magazine papers and newsprint account for nearly 50% of total sales

Sales by product line 1995

Other 25%

Magazine 23%

8,5 Bn. USD Newsprint Wood 10% products Fine & 13% Converting Speciality Paper Ind 19% 10%

2000 Wood products 16%

2005

Magazine 35%

Converting Ind 13% 10,9 Bn.USD

Fine & Speciality Newsprint Paper 11% 25%

Wood products 14% Converting Ind 14%

Other 1% Magazine 33%

10,6 Bn.USD

Fine & Newsprint Speciality 14% Paper 24%

Source: Company data

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Contents Structural changes in the Forest products industry

9 Sustainability issues Market drivers Key observations

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Environment is one of the most important global issues of today – and it will not go away Share of World’s population involved in international trade 100 90 80 70 60

% 50 40 30 20 10 0 1940 Ê

1960

1980

2000

2020

2040

With a strong growth in the share of World population that participates in trade, energy conservation and environmentally responsible use of the resources are key ingredients in maintaining a long-term sustainable growth. 10

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Positive lifecycle assessments are an important tool in the promotion of wood product usage

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Wood frame buildings have a lesser environmental impact than buildings made of competing materials Environmental impact relative to a typical wood frame home 350% 300%

Wood Steel

250%

Concrete

200% 150% 100% 50% 0%

Embodied energy

Global warming potential

Air toxicity

Water toxicity

Weighted resource use

Solid waste

Source: Forintek

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Wood has a good story to tell! Ê

The Wood Environmental Scorecard: Ë

Wood helps in mitigation of climate.

Ë

Wood is renewable.

Ë

Wood is energy efficient.

Ë

Wood is natural, feels pleasant, has an inviting texture, and creates wellness experiences.

Ë

Wood utilisation contributes to sustainable development.

Ë

Wood allows environmental reasoning in product design: rethink, replace, reduce, recycle, reuse, repair

Ë

Wood-based materials offer cost efficiency and competitiveness in building. 13

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Contents Structural changes in the Forest products industry Sustainability issues

9 Market drivers Key observations

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There are three main value chains

Markets/

1. Building with wood – market segments Products

Customers

Solutions

Needs

Services

2. Living with wood – market segments - today and

- today and

in the future

in the future

3. Packaging and Transport

Ê

There are three main areas for consumption of wood based products: Building with wood, Living with wood, and Packaging/Transport. 15

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Building with wood – Civil engineering

One-off objects tailored

Engineering competence

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Project competence

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Building with wood – Residential - new

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Building with wood – Non-residential - new

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Living with wood market segments Home improvement

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Living with wood market segments Hotel interiors

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Living with wood market segments Office systems

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Customers segments are evolving to meet market and competitive demands Building industry Ê Ê

Ê

Ê Ê

Shortage of skilled building workers Focus on increased quality in the whole building process Focus on shorter lead times and increased profitability More prefabrication by suppliers Builders become developers and less involved in production

Distribution channels Ê

Ê

Ê

Ê

Increased dominance of power retailers with large geographical variation Fewer and bigger suppliers that grow bigger with their growing customers (category suppliers) Demands on development of complete portfolio and service Traditional importers/ wholesalers decrease significantly in importance 22

Industrial endusers Ê

Ê

Ê

Consolidation, polarization and internationalization of the industry Increased demand on customized products. Increased demand on sales engineering and direct contact

TIMWOOD AB

The product and service pyramid: from wood products to building parts.

Service requirements Solutions Integrated systems

Combined products

Components

Raw Materials

Specified Date Design Engineering

Specified Date Roof systems Engineering Support Wall systems Floor systems Interior systems Exterior systems

I-joist Gluelam Posts

Interior cladding Exterior cladding

Sawn timber Plywood Impregnated timber Particleboard Other Engineered Wood Products

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Fencing Decking

Week of. Point of purchase Sales/marketing programs

OSB

Month of. Limited service

LVL

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The world of power retailers – larger with more buying power

Sales 2005

$ 312 billion

$ 81,5 billion

$ 43,2 billion

$ 19,0 billion*

6 200

2 040

1 234

221

New stores 2005

1 000 (est.)

150

150

10

Employees

1,6 million

345 000

175 000

84 000 (´04/´05)

Fiscal year end 31 jan ´06

Fiscal year end 31 jan ´06

Number of stores

Fiscal year end 31 jan ´06

Fiscal year end 31 aug ´05 Source: Annual Reports

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Power retailers, builders and their key suppliers are increasingly scanning globally for low cost sourcing

Russia Far East: Fiber Eastern Europe: Labour China: Labour

South America: Fiber Labour

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Contents Structural changes in the Forest products industry Sustainability issues Market drivers

9 Key observations

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Key observations Ê

Major transformation of forest products companies Ë Ë

Pulp being transferred increasingly to southern Hemisphere Some paper grades is being substituted by electronic media

Ê

Wood products a likely winner in the northern hemisphere

Ê

Sustainability issues will be positive for wood products

Ê

Supply of raw material is getting tighter

Ê

Expansion outside NA might be necessary for BC wood products companies

Ê

The market is demanding more value added products, systems solutions and services in all key mega markets segments

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