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Nippon Paper Group, Inc.
Second Medium-Term Business Plan
May 2006
ht tp: / /www.np-g .com/
F i s c a l 2 0 0 6 — F i s c a l 2 0 0 8
President Masatomo Nakamura
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
The 1st Step towards Group Vision 2015
S h i f t i n g O u r F o c u s t o w a r d s A c h i e v i n g S u s t a i n a b l e G r o w t h
2
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
Contents:Overview of Today’s Presentation
3
Second Medium-Term Business Plan Management Issues and Main Policies
Second Medium-Term Business Plan Summary
First Medium-Term Business Plan ReviewAs e c t i o n
Bs e c t i o n
Cs e c t i o n
■Business Environment
■Main Policies ①Reduce Oil Consumption
②Conserve Resources
③Scrap and Build Paper Manufacturing Facilities
④Overseas Business
■Management Issues
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
First Medium-Term Business Plan Review
A
F i s c a l 2 0 0 3 – F i s c a l 2 0 0 5
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
s e c t i o n
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
Ordinary income
50
(¥billion)
100
0FY2003 FY2005FY2004FY2002
62.850.7
39.749.4
-50.6
Initial target
Results
5
A. First Medium-Term Business Plan Review
First Medium-Term Business Plan period
54
81
100
38
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
A. First Medium-Term Business Plan Review
0
20
40
60
80
100(%)
Ordinary income target shortfalls, by business segment
Note: Uses ordinary income of main operating companies—paper: Nippon Paper Industries; household paper products: CRECIA; paperboard: Nippon Daishowa Paperboard
6
Household paper products
OtherPaperboardPaper
Three main pulp and paper businesses fall well below target
71%
87%
99% 100%
−¥50.6 billion
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
-60
-40
-20
0
20
40
60
Raw material and fuel costs
Sales factors
Cost reductions Depreciation and other
(¥billion) Summary of factors affecting ordinary income Comparison of initial targets and results
Note: The analysis of factors affecting ordinary income compares both targets and results with the forecasted ordinary income of ¥38 billion in fiscal 2002.
7
A. First Medium-Term Business Plan Review
Target ¥38 billion → ¥100 billion
Results ¥38 billion → ¥049.4 billion
Initial plan targets Results
43.0
16.0
-45.3
-9.8
46.9
19.6
-19.8
+3.9
+3.6
-38.3
10.0
Difference -50.6
¥62 billion
¥11.4 billion
Improvement
-7.0
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
B
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
s e c t i o n
Second Medium-Term Business Plan
F i s c a l 2 0 0 6 – F i s c a l 2 0 0 8
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 9
B. Business Environment
■Rising raw material and fuel prices
■Maturation of domestic market Advent of an aging society and declining population
■Intensifying international competition Formation of East Asian markets Convergence on international prices
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 10
■Minimize impact of external environment →Reduce heavy oil consumption = New energy boilers, Increase wastepaper usage
■International competitiveness to succeed in Asian markets →Concentrate investment on core domestic mills
■Utilization of accumulated advanced technologies →Actively expand low-density paper and resource-saving paper, launch agribio business in April 2006
■Structural enhancement →Strategically reallocate human resources
→Pass on skills, enhance gemba* capabilities, and train personnel
→for overseas businesses
→Develop holding company structure and strengthen governance
Aggressive management to enhance corporate value
B. Management Issues
* On-the-floor or field
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
■Strategic Investments
①Reduce oil consumption
→New boilers ¥60 billion
②Conserve resources
→Measures to increase use of de-inked pulp ¥15 billion
③Pursue international competitiveness
→Scrap and build paper manufacturing facilities ¥63 billion*
Invest ¥300 billion over three years
Concentrate investmentin core pulp and paper businesses,
strengthen domestic business foundation
11
B. Main Policies
* Including ¥7.7 billion of augmenting Ishinomaki mill DIP facility
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 12
Startup MillType
Steam flow
Heavy oil reduction Investment Cost
benefits
Year / Month Company Mill t/h 1,000kl ¥billion ¥billion
2006 Oct. Nippon Paper Industries Ishinomaki Biomass 180 55 5.3 1.1
2008 Jan. Nippon Paper Industries Iwanuma New energy 230 87 11.5 3.2
2008 Feb. Nippon Paper Industries Fuji Biomass 230 103 6.4 1.3
2008 Mar. Nippon Paper Industries Iwakuni Biomass 180 86 9.0 1.6
2008 Apr. Nippon Daishowa Paperboard Tohoku Coal 180 76 5.9 2.0
2008 May Nippon Daishowa Paperboard Yoshinaga New energy 180 89 6.7 2.2
2008 Aug. Nippon Paper Industries Shiraoi New energy 280 55 9.0 2.2
2008 Sept. Nippon Paper Industries Asahikawa Biomass 170 5 6.9 0.9
Second Medium-Term Business Plan period total 557 60.6 14.5
Installation of biomass and waste fuel boilers
Cost benefit figures are based on initial announcements
Second Medium
-Term Business Plan period
In review
Nippon Paper Chemicals Gotsu New energy 50
Nippon Paper Industries Ishinomaki II New energy 70
Nippon Paper Industries Iwakuni II New energy 70
Total 747
B. Main Policies: ①Reduce Oil Consumption
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
10 118 920062005 2007 2008 2009
1,400
1,200
1,000
800
600
400
200
0
16
14
12
10
8
6
4
2
012 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9
Heavy oilraito
25%
Heavy oilraito
8%
Total cost benefitsHeavy oil (1,000kl)
Total cost benefits¥billion
Heavy oil1,000kl
In review
13
Forecast of heavy oil consumption following boiler installation
B. Main Policies: ①Reduce Oil Consumption
Second Medium-Term Business Plan period
Work to eliminate
heavy oil consumption
Ishinomaki
Iwanuma
Fuji
IwakuniTohoku
Yoshinaga
Shiraoi
Asahikawa
Gotsu
Iwakuni II
Ishinomaki II
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 14
Promote use of wastepaper as an industry leader
(1) Increase the amount used in products
(2) Augment de-inked pulp equipment
Goal of the Japan Paper Association
Raise wastepaper utilization rate from 60% to 62% by end of fiscal 2010
B. Main Policies: ②Conserve Resources
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 15
Kushiro 920
Asahikawa 100
Yufutsu 340
Ishinomaki 640
Iwanuma 1,230
Fuji 630
Fushiki 155
Komatsushima 60
Yatsushiro 600
Total 4,675
Iwanuma
800Yatsushiro
Ishinomaki
Kushiro 0
800
1,600
2,400
3,200
4,000
4,800
5,600
Kushiro Asahikawa Yufutsu Ishinomaki IwanumaFuji Fushiki Komatsushima Yatsushiro
Currently (t/day)
Planned increases (t/day)
(t*/day) Further increase in industry’s top capacity
Deinked pulp capacity of Nippon Paper Industries
B. Main Policies: ②Conserve Resources
* metric tonnes
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 16
Large and efficient
manufacturing facilities to compete successfully in Asian markets
Major investment through scrap and build program
Create a robust manufacturing structure with the best
manufacturing facilities
B. Main Policies: ③Scrap and Build Paper Manufacturing Facilities
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 17
B. Main Policies: ③Scrap and Build Paper Manufacturing Facilities
■Overview of Ishinomaki No. 6 machine ①Planned startup :November 2007
②Capital investment :¥63 billion
③Product to manufacture :Lightweight coated paper
④Annual capacity :350,000 t* (daily capacity of 1,005 t)
⑤Machine type :High-speed on-machine coater
⑥Wire width :9,450mm
⑦Operating speed :1,500m/min (designed speed: 1,800m/min)
⑧Operating personnel :8 persons/shift (planned)
⑨Other equipment :Augment de-inked pulp equipment 400 t/day Augment in-house filler (calcium carbonate) equipment 100 t/day
World’s fastest*
* On-machine coaters with blade coater and multistep calendar.
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 18
B. Main Policies: ③Scrap and Build Paper Manufacturing Facilities
■Manufacturing equipment to shut down
Name Annual capacity
(1)Nippon Paper Industries Ishinomaki Mill No. 3 machine 50,000 t
(2)Nippon Paper Industries Ishinomaki Mill No. 5 machine 50,000 t
(3)Fuji Coated Paper Yoshinaga Plant No. 30 coater 100,000 t
(4)Fuji Coated Paper Fuji Plant No. 31 coater 70,000 t
(5)Fuji Coated Paper Fuji Plant No. 32 coater 70,000 t
Total 340,000 t
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 19
0
20
40
60
80
100
Current large coaters No. 6 machine
Variable costs Labor costs
Advantages of high-speed on-machine coaters
■Comparison of productivity Ishinomaki No. 6 machine Operating employees: 44 8,000 t/year/employee Five shut down machines Operating employees: 163 2,000 t/year/employee
■Comparison of manufacturing costs
B. Main Policies: ③Scrap and Build Paper Manufacturing Facilities
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
B. Main Policies: ④Overseas Business
20
Europe : Increase thermal paper production from
36,000 to 66,000 t/year and expand sales Startup operations in October 2006
North America: Expand local sales of North Pacific Papers Corporation’s printing
and publication paper
Pursue business restructuring
Asia : Establish Asian Business Division
China: · Establish local office in South China (Guangzhou)
· Expand corrugated board business
→Increase equity stake in Everwealth Paper Industries (Shanghai)
→Boost production capacity
30 million m²/year → 50 million m²/year (2007) → 100 million m²/year (2010)
· Consider expanding containerboard business
Other: Consider business in Malaysia, Thailand, India, and elsewhere Strategic paper machines to supply Asian market
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
C
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
s e c t i o n
Second Medium-Term Business Plan Summary
F i s c a l 2 0 0 6 – F i s c a l 2 0 0 8
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved. 22
50
(¥billion)
100
002
Achieve integration effects and stabilize financial base
•Reform manufacturing structure•Reduce interest-bearing debt•Improve productivity
65.255.7
50.5 48.4
2nd MTBP
50.0
64.0
80.0
Strengthen foundation of domestic core businesses
•Reduce oil consumption•Conserve resources•Large-scale scrap and build
1st MTBP 3rd MTBP
03 04 05 06 07 08 09 10 11
Operating income
Target: ¥100 billion
C. Second Medium-Term Business Plan Summary
Expand in overseas markets
•Augment state-of-the-art paper machine•Expand overseas business
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
0
30
60
90
Fiscal 2005 results Fiscal 2008 forecast
C. Second Medium-Term Business Plan Summary
Operating income¥billion
23
80.0-29.0
14.5
24.2
45.8
-3.9
Cost improvement
Operating income
Raw materials and fuel
Sales Prices
Sales Volume
Depreciation, etc.
Operating income
Factors affecting operating income (fiscal 2008 versus fiscal 2005)
Fiscal 2005 ¥48.4 billion Fiscal 2008 ¥80 billion+¥31.6 billion
-20.0Additional risks
associated with raw materials and fuels
48.4
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
Operating income¥billion
24
8.03.9
10.1
58.0
80.0
6.4
2.6
6.2
33.2
48.4 12.6%
4.9%
10.0%
72.5%
68.6%
12.8%
5.4%
13.2%
Pulp and Paper Division Paper-Related Division Housing and Construction Materials Division Other Division
Fiscal 2005
Fiscal 2008
Fiscal 2008 operating income targets by business segment
C. Second Medium-Term Business Plan Summary
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
-314
194
220
68 -27
-87
Capital expenditures, investments, and loans
C. Second Medium-Term Business Plan Summary
¥billion
25
Operating income
Depreciation
Sale of assetsInterest-bearing debt procurement
Dividend payments
Three-year cash flow (2006–2008)
Taxes and Other
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
Fiscal 2005 Fiscal 2008 Group Vision 2015
Operating income ¥48.4 billion ¥80 billionDomestic ¥100
billion + overseas
Operating income tonet sales
4.2% 6.4% 8~10%
Operating cash flow * ¥95 billion ¥120 billion ¥150 billion
ROE 3.9% 8.0%
ROIC 5.0% 7.0%
Equity ratio 29.5% 31.2%
Interest-bearing debt ¥692.1 billion ¥700 billion
Debt-equity ratio 1.5 times 1.4 times
Number of employees 12,798 12,000
26
Group Vision 2015 targets
Other targets
C. Second Medium-Term Business Plan Summary: Management indices
* Real cash flow, excluding year-end adjustments
A p p e n d i x
D A T A
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
$51.1/barrel(Chemicals also affected)
up 8%
$54.0/t
Household tissue prices are the retail prices for five boxes of facial tissue in the SCI Survey
Sales factors-19.8 ¥53.4/kg
¥216/5 boxes
FY2005 conditionsMain factor assumptions
¥104.4/kg
Heavy oil-19.8
Coal-6.0
Chips-8.7
DATA. First Medium-Term Business Plan Review: Factor Analysis
Raw materialand fuel-38.3
(¥billion)
Heavy oil Dubai crude $23.5/barrel
Chips Flat
Coal Australian coal $28.8/t
Household tissue ¥280/5 boxes
Sales Prices Domestic paper ¥110.4/kg
Domestic paperboard ¥50.7/kg
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
DATA. Second Medium-Term Business Plan Assumptions
FY2006 FY2007 FY2008
GDP Annual growth of about 2%
Domestic marketPaper and paperboard
Flat
Raw materialsand fuel
Dubai crude $60/barrelRisk of total raw material and
fuel costs rising ¥10 billion year-on-year
Coal (Australian) $50/t
Exchange rates
US$ ¥115
AU$ ¥86
Sales prices
Paper and paperboard
Price revisions Maintain fiscal 2006 prices
Household paper products
Flat
(¥117 first half)
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 statementUnauthorized use or reproduction of this material in part or in whole is strictly prohibited.11
Copyright © 2006 Nippon Paper Group, Inc. All rights reserved.
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