Global Paper Industry Dynamics, M&A Trends and Opportunities for Chinese Companies
Rainer Häggblom Prepared for CPICC 2018 Content
1. Global P&P Industry Consolidation 2. China Industry Restructuring 3. M&A Trends and Opportunities
Vision Hunters 2 Vision We want to be the first choice for forest industry advisory and strategic consulting services.
INTEGRITY We do what is right - Values we apply the best working standards complying with laws and regulations CLIENT FIRST respecting rules of The client’s engagement. INDEPENDENT interests always We create value for our come first – we go clients by providing the extra mile for tailored solutions based our clients. on independent analytical opinions.
3 Global Strategy Advisory
We are a network of independent thinkers and draw from the deep experience of our global team. We have a passion to turn great ideas to reality. We have expertise covering all critical parts of the forest industry sector:
Fiber Energy
Biorefinery Chemicals
Paper, Paperboard and Packaging Forest Assets
Tissue Hygiene Wood Products
4 Key Client Services We provide strategic advisory services in the forest industry sector and assist our clients in making the smartest strategic choices for future value creation.
Strategic Analysis M&A Services • Corporate strategies • Partner search • Business, market and product strategy • Screening of acquisition targets • Energy strategies • Information memoranda • Conversion strategies • Business and technical due diligence • Second opinions • Post merger services
New Business Opportunities Operations Improvement • Business opportunity screening • Technical feasibility • Development of new business • Operations, maintenance and quality improvement • Market and end use analysis • Supply chain management • Feasibility studies • Strategic sourcing & purchasing
5 A Global Network of Expertise
Collective knowledge of global networks of consultants and associates.
6 Content
1. Global P&P Industry Consolidation 2. China Industry Restructuring 3. M&A Trends and Opportunities
Vision Hunters 7 Global Paper and Board Production
Global Production in 2017 was 420 Mt. Growth up to 2025 is estimated at 46 Mt
North America Asia Europe Mt Mt 200 Mt 200 200
100 100 100 82 76 92 81 194197 210217 0 110100 121106 0 0 2017 2025 2017 2025 2017 2025
Africa & Middle East Latin America Oceania Mt Mt 200 Mt 200 200
100 100 100 8 18 23 22 29 28 37 11 Production 2017 0 4 4 4 4 0 0 Production 2025 2017 2025 2017 2025 2017 2025 Consumption 2017
Consumption 2025 Source: Vision Hunters, RISI
Vision Hunters 8 Most Industries Progress Through a Clear Consolidation Life Cycle
Industry Concentration 1989-2001 (CR3) 100 Defense 90 electrical Aluminum 80 producers Tobacco Distiller 70 Integrated oil and 60 gas Ship- Sport Shoe Rubber building Soft 50 and tire drinks Integrated steel producers Brewers Truck and trailer 40 Diversified manufacturers Food retail food Automotive Confectionery 30 Railroad Diversified chemicals manufacturers Drugs Airlines 20 Telecom Automotive suppliers
10 Utilities Restaurant and fast food Insurance Pulp & Paper Banks 0 Time -10 -5 0 5 10 15 20 25 (Years) Source: Winning the Merger Endgame by Graeme Deans, Fritz Kroeger, and Stefan Zeisel: A.T. Kearney analysis
Vision Hunters 9 Consolidation within Global Industries
Defense electrical Tobacco Ship-building Aluminum producers 70% Integrated oil and gas Soft Drinks Truck and trailer manufacturers Automotive manufacturers Integrated steel producers 35% Drugs PulpPulp & & PaperPaper 30% Restaurant and fast food Railroad Food retail Utilities Diversified chemicals Airlines Telecom Insurance Banks Industry concentration, % 0 10 20 30 40 50 60 70 80 90 100
Source: Winning the Merger Endgame by Graeme Deans, Fritz Kroeger, and Stefan Zeisel: A.T. Kearney analysis
Vision Hunters 10 Driver for Consolidation in the Pulp and Paper Industry is Shareholder Value
RawRaw MaterialMaterial AvailabilityAvailability CompetitivenessCompetitiveness
BalanceBalance SheetSheet vs.vs. CapitalCapital Intensity ofof GrowthGrowth ExpertiseExpertise
Vision Hunters 11 M&As in the Pulp and Paper Industry
Examples of Recent Major M&As
Driver: Competitiveness Driver: Competitiveness Driver: Competitiveness Driver: Competitiveness
Driver: Raw Material Driver: Competitiveness Driver: Raw Material
Driver: Competitiveness Driver: Competitiveness
Driver: Competitiveness and Expertise
Driver: Competitiveness and Balance Sheet
Source: Vision Hunters
Vision Hunters 12 Consolidation in the Pulp and Paper Industry
There is still room for consolidation in the pulp and paper industry
Tissue TotalPaper Paper (1
Global Top 5 8.2 Mt 32% Global Top 5 38 Mt 19%
China Top 5 5.3 Mt 43% China Top 5 4 9%
North America Top 5 8.9 Mt 82% North America Top 5 17.5 Mt 49%
Europe Top 5 7.8 Mt 66% Europe Top 5 25.3 Mt 45%
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Fluff Dissolving Pulp
Global Top 5 5.8 Mt 84% Global Top 5 4.1 Mt 50% China Top 5 1.3 Mt 92% Global Top 3 5.2 Mt 76% North America Top 5 1.4 Mt 100% North America Top 3 5.2 Mt 88% Europe Top 5 1.2 Mt 59%
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
1) Including all paper and paperboard Source: Vision Hunters, RISI
Vision Hunters 13 Content
1. Global P&P Industry Consolidation 2. China Industry Restructuring 3. M&A Trends and Opportunities
Vision Hunters 14 China has Led the Industry Growth
Key drivers have been growth in China and in packaging and tissue grades
Global Paper and Board Demand Growth Global Demand Growth by Grade
Mt Mt 40 40 2009-2017 2009-2017 Packaging 47 Mt 2.2% pa 35 Mt 30 30
Packaging 20 20 21 Mt 28 Mt 26 Mt 3.6% pa 1.1% pa 10 10 Tissue Tissue Other 6 Mt 4 Mt 2 Mt Other 0 0
-16 Mt -10 -10 -15 Mt China Other (1 China Other (1 -20 -20 1) Including world total excluding China Source: Vision Hunters, RISI
Vision Hunters 15 Asia Led by China Continues to Drive the Growth
China continues to be the key driver for demand growth but with a decelerated pace
Paper and Board Demand Growth Global Demand Growth by Grade
Mt Mt 50 50 2017-2025 2017-2025 Packaging 40 40 41 Mt 35 Mt 30 1.4% pa 30
20 20
Packaging Other Tissue 10 10 9 Mt Tissue Other 2 Mt 7 Mt 1% pa 6 Mt 4 Mt 0 0 -16 Mt -7 Mt -10 -10
China Other China Other (1 -20 -20 1) Including world total excluding China Source: Vision Hunters, RISI
Vision Hunters 16 Chinese Domestic Fiber Supply is Growing Slower
Chinese fiber supply is limited and fiber furnish is converging towards virgin fiber
Domestic Non Wood Pulp Domestic Wood Pulp Domestic RCF
Mt Mt Mt 70 70 70 2017-2025 2017-2025 2017-2025 60 60 60 61 Mt
50 50 50 48 Mt 40 40 40
30 30 30
20 20 20
10 10 10 11 Mt 12 Mt 5.8 Mt 6.1 Mt 0 0 0 2017 2025 2017 2025 2017 2025
Source: Vision Hunters
Vision Hunters 17 Increasing Share of Fiber is Imported
Imports of all fiber grades, except recycled, have been increasing in China
Waste Paper Imports Pulp Imports Wood Chip Imports
Mt Mt Mt 30 30 30 30 Mt
25 26 Mt 25 26 Mt 25
20 20 20 21 Mt
15 15 15
13 Mt 12 Mt 10 10 10 11 Mt
7 Mt 5 5 5
0 Mt 0 0 0 2012 2017 2025 2012 2017 2025 2012 2017 2025
Source: Vision Hunters, RISI
Vision Hunters 18 Chinese Industry Restructuring
Change is driven by three key drivers
Sustainability and Regulations • Capacity closures and Waste paper import ban relocations • Consolidation Environmental targets and emission reduction • M&A in packaging grades Change driven by urbanization
Overcapacity in Many Grades • Grade change toward Low operating rates consumer grades and specialty paper grades Exits of uncompetitive capacity • M&A in specialty paper grades
Shortage of Fiber RCF availability limited due to import ban • M&A in packaging grades Domestic pulpwood availability limited, production partly and pulp based on imported wood chips
Vision Hunters 19 Recent Chinese M&A Activities
Examples of Chinese FDIs in the pulp/fiber assets are mushrooming
Pulp/Fiber
Source: Vision Hunters, Publicly disclosed information
Vision Hunters 20 Recent Chinese M&A Activities
Examples Chinese FDIs in the paper assets have also been numerous
Pulp/Fiber Paper Asset Source: Vision Hunters, Publicly disclosed information
Vision Hunters 21 Chinese FDI in Pulp & Paper
Chinese investments have targeted both green- and brownfield projects
EXAMP. Transactions / Disclosed Investments 2017-2018 Acquisitions by Grade 2017-2018
Company Location Target Grade MUSD Mt APP* Brazil Eldorado BHKP 4 700 3 April Brazil Lwarcel BHKP 465 April Malaysia MNI Newsprint 16 2.8 Chentong Russia New mill BSKP 1 000 2.5 China 22MCC Russia Siberwood BSKP/DP 1 500 Hengan Finland Finnpulp BSKP 13.3 2.2 Lee & Man Vietnam New PM Linerboard NA 2 Nine Dragons USA OTM BHKP NA Nine Dragons USA Resolute RCP 55 1.5 Nine Dragons USA Catalyst Fine Paper 175 Nine Dragons USA Catalyst Fine Paper 175 Nine Dragons Vietnam New PM Linerboard NA 1 1.1 1.1 Shanying USA Verso Kraft Pulp 16 Shanying Holland WPT RCP NA 0.7 Shanying Finland New mill BSKP NA 0.5 Shanying Sweden Nordic Paper Packaging 280 Sun Paper USA New mill Fluff/DP 1 800 0.2 0 Sun Paper Laos New mill BHKP/DWP NA BHKP BSKP DP RCP Paper Packaging
*minority shareholder Source: Vision Hunters, Publicly disclosed information
Vision Hunters 22 Content
1. Global P&P Industry Consolidation 2. China Industry Restructuring 3. M&A Trends and Opportunities
Vision Hunters 23 M&A Opportunities for Chinese Companies
Acquisition targets vary by type and geography
BSKP
BHKP
RCF
Paper Source: Vision Hunters
Vision Hunters 24 Vision Hunters has Broad Experience in M&A
Examples of Past Projects in M&A
Vision Hunters 25 Failure of M&A
Failure of M&A is common leading to a high failure rate
Not thorough enough analysis made
Poor Quality Data
No Strategic Fit
Bad deal structure/valuation
Lack of competences within M&A
List of Poor Execution Reasons for Failure is Mismanagement of Integration Long Cultural Differences
Vision Hunters 26 How to Guarantee Success
Some key issues we have witnessed over the years
Benefits of M&A
Alternative Economies of scale Ways of Organic Growth Growth Competitive edge
Company value creation
Acquisition Knowledge transfer Joint Forces Winning concept
Strategic competition
Entry barrier
Expertise
Vision Hunters 27 Key Conclusions
Potential for M&A in the P&P industry, and especially in China, is buoyant
• There is room for increased consolidation in pulp & paper industry, in China and globally Industry • Major M&As, both globally and in China, have been announced recently and trend is expected to Consolidation continue
• Asia continues as a major driver for paper, paperboard and fiber demand growth. • China is heavily reliant on imported raw materials, and a drastic drop in RCF imports will change Industry the fibre furnish Restructuring • Recent regulatory developments and market competition in China have accelerated pressure for industry restructuring through closures, new investments and M&A, increasing industry consolidation
• Chinese companies are looking for overseas investment opportunities. M&A Trends • Acquiring foreign assets, gives access to new raw material sources in both pulp and paper. and • A series of measures need to be taken into account in order to guarantee a successful realization of Opportunities an M&A
Vision Hunters 28 RAINER HÄGGBLOM Chairman & Partner Thank You! [email protected] +358 40 555 9567 IRIS OLLILA Kiitos! Xièxiè! Consultant [email protected] +358 40 566 2641
Vision Hunters 29