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Content

1. General economic trends.

2. Forest products markets current situation

3. Forest industries sector’s target

4. Russian state policies and initiatives in the forest

industries sector

5. Sustainable development of the private owned forest

companies

2

1. General economic trends.

3

4

Key macroeconomic indicators(against the previous period, %)

Source: Ministry of Economic Development of the Russian Federation (Mineconomrazvitiya) basic

2016 2017 2018 2019 2020

GDP,% -0,2 2,1 2,1 2,2 2,3

Nominal GDP, bln. rub. 86 044 92 224 97 462 103 228 110 237

The GDP deflator 3,6 5,0 3,5 3,6 4,4

Inflation,% Dec / Dec 5,4 3,7 4,0 4,0 4,0

Inflation,% in the medium. in a year 7,1 4,0 4,0 4,0 4,0

Dollar exchange rate (average for the year) 66,9 59,7 64,7 66,9 68,0

Industrial production,% 1,3 2,0 2,5 2,5 2,5

Retail turnover,% -4,6 1,2 2,9 2,7 2,5

Investments,% -0,9 4,1 4,7 5,6 5,7

% Of GDP 17,0 17,3 17,9 18,7 19,3

Real disposable income of the population,% -5,1 1,2 2,1 1,1 1,2

Real wages,% 0,8 3,1 3,9 1,3 1,5

Labor productivity,% 0,1 2,0 2,2 2,4 2,6

Unemployment,% 5,6 5,2 5,0 4,9 4,7

5

Federal budget: forecast(against the previous period, %)

Source: The Ministry of economic development of the Russian Federation, The Ministry of Finance of the Russian Federation

Budget Basic scenario

1000 bil. rub. 2017 2018 2019 2017 2018 2019 2020

Income 13,49 14,03 14,84 14,68 14,71 15,31 15,98

Including non-oil and gas 8,44 8,91 9,5 8,76 9,25 9,66 10,08

(%, non-oil and gas/Income) 63 64 64 60 63 63 63

Expences 16,24 16,04 16,09 16,57 16,37 16,61 16,85

Balance -2,75 -2,01 -1,25 -1,89 -1,66 -1,3 -0,87

% Of GDP -3,2 -2,2 -1,2 -2,0 -1,7 -1,3 -0,8

47%

2. Forest products markets current situation

6

7

Forest products development in Russia, 2015-2016

Production Consumption Export Import

2015 2016 2015 2016 2015 2016 2015 2016

Lumber t/cbm 41 017 42 582 16 638 16 254 24 440 26 348 62 20

Wood panels t.cbm

Particle board 7 209 7 370 6 205 5 989 1 257 1 610 253 229

Hardboard 492 437 429 452 145 156 82 171

MDF 2 230 2 595 2 329 2 268 336 618 435 292

OSB 618 797 951 1 148 40 68 372 419

Pellets t/tonns 974 1 013 41 60 935 1 076 2 3

Furniture mio rub 97 017 93 750 222 300 243 507 6 800 7 300 41 600 26 900

Plywood t.cbm 3 607 3 759 1 476 1 389 2 206 2 458 75 88

8

Lumber production, new approach 2015-2017

Source: BSG,E&Y

28.9

31.2

32.2

33.5

34.634.7

41

26.4

29.1

30.0

31.2

32.132.2

37,5

22

24

26

28

30

32

34

36

38

2010 2011 2012 2013 2014 2015 2016e

Sawnwood, mln. m3 Softwood sawnwood, mln. m3

Forecast 2016 -2025 and 2025-2030.

The need for additional capacity

in Russia up to 2030

Additional demand in the period 2025-2030.

The need for new capacity

up to 2025

Disposal capacity2

The installed capacity in

Russia 2015 1

Necessarypower in

Russia in 2025

Additional demand for the products

of Russia up to 2025

Production 2015

41,0

Without taking into

account the

announced projects

"Gray" market

9

China

Europe

Egypt

Japan

The main flows of sawn timber exports from Russia

Russian producers are concentrated in three regions. Main competition is for raw materials and

logistics. The main markets for the factories of the North-West are Europe, Egypt + minor supplies to

China. The main market of the Siberian and Far Eastern regions: China, Korea and Japan

Korea

Siberian region

Far Eastern Region

10

Plans to increase capacity in plywood production in Russia and Europe

Currently, there are a large number of plans to launch plywood production in Russia

Plans up to 2022 (1000 m³ / g) and the probalility of implementation

Depends on the plans for the production of cellulose in the Vologda region

11

3. Forest industries sector’s target

12

Strategy 2030 for Russian forest sector

Working groups for product segments with the Expert Advisory Board

7

Project group(With the participation of the

Department)

Representatives of industry

and expert community

Bioenergetics

Furniture and

plywood board

industry

Wooden housing

construction and

woodworking

Pulp and paper

industry

Forestry

(Ministry of Industry

and Russia)

Forestry(Federal Forestry

Agency)

Expert Advisory Board(Russian Industry and Trade Ministry)

13

20302015

The significant increase in demand in export markets in the core segments is

forecasted

Sources: McKinsey, BCG, EY

22,9

Logging, mil.cubic meters

0,0

288,3182,3205,2

0,022,0

310,2

34,0

41,0

0,1

58,7

17,2

0,0

24,8Lumber, mil.cubic meters

23,8

Construcrion elements,

million cubic meters

4,3

ConsumptionImport

0,0

4,4

Export

0,02,6

0,0

Production

2,7

0,1

Market pulp, million tons

12,81,0

0,1

2,52,10,1

13,60,6

9,99,9

2,9

8,5

2,91,3

7,0Paper and paperboard, million t

2,9

Wood based panels, mil.cbm

12,0

2,20,0

14,28,6

1,81,2

9,2

6,8

97,0197,952,3 230,3

51,7

Furniture, billion rubles.

(wholesale price in 2015)

84,1

142,6

3,9

0,2

5,7

0,9

2,8Plywood, mil.cubic meters 1,9

0,13,7

1,5

1,4

5,4

1,2

1,6

2,0

1,6

1,6

© Strategy Partners Group 14

Production Import Export Consumption

Cagr%

14

1 – taking into account consumed sawn timber, plywood and wood. panels

2016

Target vision, 2030

0

5

15

10

20

2,83,0

7,5

2,81

11,51

2,6

10,3

6,2 5,7

1,8 1,0

BiofuelCellulose

Roundwood

Packing cartons

Newsprint

Saw-timbers

Tissue

Plywood and veneer

Wood-based panels

Furniture

Wooden houses

Realization of market opportunities

Domestic market

1. Coverage of additional demand for furniture

(+56,0 billion rub.)

2. Satisfaction of additional demand for products of

mechanical woodworking (lumber +7,7 mil.m3,

plywood +1,0 mil.m3, slabs + 3,5 mil.m3)

3. Satisfaction with add. demand in the segments of

sanitary and hygiene products (+0,6 mil.tons),

consumer (+0,2 mil.tons) and junk (+0,6 mil.tons)

cardboard

4. Meeting the growing demand for home furnishings

(+1,7 mil.m3)

Export deliveries

1. Realization of potential in the market of market

pulp of China and Asian countries (+10,7 mil.tons)

2. Preservation of positions in the markets of China,

North. Africa and Europe (+10,2 mil.m3)

3. Covering all additional demand for birch plywood in

the world (+1,1 mil.m3)

4. Development of furniture exports (+44,9 billion

rub.)

5. Increase in pellet supplies to Europe and Asia

(+4,2 mil.tons)

Change in the structure of the value added products in the timber industry

of Russia by main product redistribution

Axis X – estimated volume of wood consumed, million cubic meters

Axis Y – estimated value added per unit of raw materials, thousand rubles /cubic meters

5

10

15

20

1,03,0 2,8

1,8

7,4

2,814,5

7,68,2

12,1 12,61

Involving additional

96 million m3 of

logging

Area of the graph -

added value

The volume of consumption of blanks, million m3 (100% = 214

million m3)

0

The volume of consumption of blanks by each segment, million m3 (100% = 310

million m3)

Growth of value-added products

15

Raw materials sourcing by regions of Russia

310

214

+45%

Irkutsk

Karelia 2,23

2,23

Komi (9) 2,53

Khabarovskiy (8) 5,2

2016 2030 Transbaikal + Amur (7) 8,0

30% 44% Omskaya + Tyumen (10) 5,4

Amurskaya (11) 2 8,4

Kostromskaya

1,53

1,33

Kirov

Vologda (6) 1 9,9

KhMAO + resources on the Ob (5) 10,8

Yakutia + resources on the Lena (4) 11,9

Sverdlovsk and Tyumen (3) 15,0

Krasnoyarsk + res. on the Angara (2) 24,1

Tomsk + part of Krasnoyarsk (1) 24,6

HardwoodLarchConiferous

Unused available cutting area by region

(for harvesting sawlogs and plywood logs), million cubic meters. m

Unused logging area

(forest plans)Expert volume

adjustment

Correction for the

radius of accessibility

(300 km + rivers)Output of raw

materialsх%

Level of development

of the allowable cut

Increase of the logging Identification of priority regions with sufficient raw material sources

new productions, million cub. m

Saw logs

Plywood logs

Pulp logs

The demand for additional.

procurement of logs

million cu. м

34

5

55

16

Financing and expected results of the Strategy implementation

1- in constant prices of 2015.

2- taking into account the multiplicative effect

Forecast of the results of the Strategy implementation

+156%

1,4

3,6

2,22%

3,32%

Revenues of industry

enterprises,

trillion rubles

Tax revenues,

billion rubles.

248

74

+235%

20302016

703

+32%

20302016

533 +170

Jobs

2016 2030

хх% Contribution to GDP,%

Investments in the

billion rubles.

Implementation of the

Strategy activities

255

141

2016 2030

The need for

funding in 2018-

2030. ≈ 4.1 trillion

rubles

+81%

1

7

17

4. Russian state policies and initiatives in the forest

industries sector

18

The objectives of the state policies

Economic sphere

Effective management of the

forest sector of the economy and

increase in gross domestic

product in the forest sector on

the basis of market demand

Ecological sphere

Favorable environment for

citizens and preservation of the

biosphere role of Russian forests

Social sphere

Increased living standards of

citizens associated with forests

and sustainable socio-economic

development of forest areas

Tasks

a Improving the management of the forest sector of the economy

b Intensification of forest use and refforestation

c

Development of the domestic market for forest products, including the

stimulation of consumer goods production and the formation of the market for

ecosystem services in the forest area

dIncrease of competitiveness of the Russian forest industry, incl. increase in

production of forest products with high added value

eMaximum satisfaction of the needs of the domestic market with high-quality

competitive timber processing products of Russia and increasing its exports

fIncrease the effectiveness of forest protection from fires, protect forests from

pests, diseases and other adverse factors, as well as from illegal logging

gIncrease in productivity and improvement of the forest composition of forests

on lands for various special purposes

h Preservation of the ecological potential of forests

iIncrease of scientific, technical, technological and personnel potential of the

forest sector of the economy

jdevelopment of international cooperation and negotiation process on forestry

and forestry

k formation of conditions for citizen participation in decision-making in the field

of forest relations

19

Low valuation of forest

raw materials▪ Lack of pulp and paper production capacities

The lack of efficiency

of reforestation ▪ The need for continuous development of new forest areas (extensive model of forest management)

Low investment attractiveness

of the industry

▪ Country-wide macroeconomic risks

▪ The high cost of raising capital

▪ Increased capital costs and construction time

▪ The infrastructure deficit in many forest areas

The high difficulty of

getting wood resources

▪ Low confidence and deficit of public and non-public information about the forest resource

▪ Complexity and duration of administrative procedures

▪ The low level of centralization of decision-making regarding large projects

▪ The relatively low level of waste paper collection

The limited scale of the

domestic market

▪ The domestic market in Russia is insufficient to create new high-tech industries: the unit capacity of a number of

units in the timber industry exceeds the needs of the Russian market

The low level of technical,

scientific and staffing

▪ The equipment is heavily worn, and often obsolete

▪ A significant number of specialists have no specialized education, payment and prestige of a number of professions in

the timber industry complex are insufficient to attract quality personnel

▪ The number of forest scientific organizations is decreasing, the system of experienced enterprises is almost destroyed

Insufficient the effectiveness of

the system of protection of

forests

▪ About 60% of the area of dead forests is associated with the impact of forest fires, 25% with weather events

and 15% with forest pests and diseases.

Key challenges for the forest complex of Russia

Description Reasons

20

Tax benefits and preferences for TOSER residents

Benefits established

The Tax Code of the Russian

Federation

Note

Exemption from VAT payment (current

18%) within 10 years from the day of

receiving the status of TOSER resident

Establishment of a zero VAT rate for goods (works, services) imported to TACER for use by TOSER

residents

The lowered rate on corporate profit tax

(current 20%)

Zero tax rate paid to the federal budget (instead of the standard 2%) for a period of 10 years;

The tax rate of the corporate profit tax to be credited to the regional budget is:

a) 0% for five tax periods, starting from the tax period in which the first profit from the specified activity was

received in accordance with the tax accounting data;

b) 10% for the next five tax periods.

The lowered tax rate for property tax for

organizations (current 2.2%), received

the status of TOSER residents, is set at

a rate of

0,5% within five tax periods;

1.1% over the next five tax periods.

Exemption from taxation in respect of land for a period of five years from the month of the emergence of

ownership of each land plot.

Application of reduced tariffs of

insurance premiums for employers

7.6% (6% in the Pension Fund of the Russian Federation, 1.5% in the FSS of the Russian Federation, 0.1%

in the FFOMS) instead of the standard 30% (22% in the PFR, 2.9% in the FSS of the Russian Federation,

5.1% in the FFOMS)

The use of accelerated depreciation for

depreciable assetswith a coefficient of 2

Simplified conditions for attracting

foreign labor were established by the

Labor Code of the Russian Federation

The employer does not require permission to employ and employ foreign workers.

Invitations to enter the Russian Federation for the purpose of carrying out work, as well as work permits for

foreign citizens and family members in the territory of TOSER are issued without taking into account quotas

for their issuance.

21

5. Special Investment Contract

A special investment contract (SPIC) is an agreement between an investor and the Russian Federation

(or its entity / municipal entity) in which the obligations of the investor and the RF or its entity are

recorded.

The validity period of the SPIC is equal to the time of the project's release for operating profit + 5 years,

but not more than 10 years. For large projects (the level of pulp-and-paper industry, it is planned to

increase the term to 15 years)

• What the SPIC records:

-stability of the legislative and tax regime;

-stability of requirements for the processes of production, operation, storage, disposal;

-specific measures of state support of the federal (499-FZ "On industrial policy, etc.) and regional levels;

-federal and regional incentive measures (preferences and benefits for public procurement, taxation, etc.)

• What the investor receives:

-tax privileges, fees and benefits for payment of customs duties;

-privileges for payment of rent for use of state and municipal property, including land plots;

-Other benefits and preferences established by law;

-guarantees against adverse changes in the legislation in force

22

До

Government support to the furniture industry

Источник: интервью с отраслевыми экспертами

Types of measures

Support

Furniture

exports

Tariffs,

taxes,

subsidies

Personnel

training

• Modernization of the education system for

engineers of furniture production, including

the exchange of international experience

• Scholarships and grants to the best students

and young professionals

Option "Separate measures" Option "Full-scale support"

• Reduction / avoidance of duties on imported components

• Reduction of contributions to social funds

• Benefits for profit tax for new / modernized productions

• Promotion of Russian furniture through trade representations

• Sponsorship of exhibitions and showrooms

• Financing part of the costs of warehouses

and working capital (interest-free loans to

exporters)

• Subsidy of interest rates for the purchase of

equipment

a

b

c

d

e

f

g

h

i

23

Traditions of wooden architecture

24

25

Measures to stimulate wooden housing construction in Russia and on

export markets

Domestic

demand

Export

deliveries

• Development of regulatory and technical regulatory framework

• Creation of the mechanism of mortgage lending for the population

• Establishment of a mechanism for targeted subsidizing of interest rates for

mortgage lending

• Inclusion of quotas for the wooden housing construction in state and

• federal targeted programs for residential and non-residential construction

• PR promotion of wooden house building products for the population

(ecology, social environment, etc.)

• Creation of a mechanism for subsidizing of logistics costs

• Creation of a mechanism for the certification of wooden house building

products for export deliveries

Actual positioning of wooden construction

26

A colossal breakthrough in the wooden housing construction was the use

of various types of glued wooden structures

The use of glued beams and glued structural beams of various types in individual

and civil construction. These technologies are actively used today, but they are not

yet dominant in the overall volume of civil construction.

27

Realised projects

Aquapark in St. Petersburg

Aquapark in Rostov

The bobsleigh track in Sochi

Shopping and entertainment center Ligovsky

28

Eventual “green” quarter in Moscow under renovation program

29

1

2

3

1. Current growth rates of the construction

market

2. Regulatory update

3. The mechanism of mortgage lending

4. Quoting through state programs

5. Subsidizing% of interest rates on loans

6. Export incentives

Scenario assumptions

1. Current growth rates of the construction

market

2. Regulatory update

3. The mechanism of mortgage lending

4. Quoting through state programs

1. Current growth rates of the construction

market

2. Regulatory update

3. The mechanism of mortgage lending

Demand for wooden housing construction (million sq. M. / Year)

15.20.00.00.00.24.9

2.0 8.2

20306543212015

16.70.00.01.50.24.9

2.0 8.2

17.30.50.11.50.24.9

2.0 8.2

Forecast 2030 (increase by 49 - 70%)

30

5. Sustainable development of the private owned forest

companies

31

Unified system for accounting of timber and the collection and processing of data on transactions

with timber.

It is a Federal system with information about individual entrepreneurs and legal entities harvesting

and trading timber

THE EXPECTED POSITIVE EFFECTS OF INNOVATION

The most important is the control over the cutting and marketing of timber and suppression of illegal

activities.

1) The recording of all transactions will help to control the timber flow

2) State agencies will have access to the ordered data of all sellers and buyers, price bench mark

3) Increase of budget revenues as a result of the legalization of "grey" or "black market" lumber.

Development of the timber flow inventory system

32

In order to inform a wide range of stakeholders about the approaches tosolving social and environmental problems, as well as the prospects forsustainable development activities of timber companies, in accordancewith relevant international standards, Sustainable Development Reportsare prepared.

Draft Reports are submitted for public consideration to interestedparties, namely representatives of government bodies, non-profitassociations of entrepreneurs, representatives of the media,environmental organizations (WWF, FSC, PEFC).

The results of the evaluation of the reports, as well as the comments andsuggestions made by the interested parties, are taken into account andare reflected in the further activities of the companies

33

A significant number of Russian timber companies are pursuing policies

aimed at sustainable development

RFID-tags for combating illegal logging

In the Irkutsk region, a pilot project on the use of radio frequency labels for the registration of

forest products

The forestry will receive 480

thousand special identification cards

in the form of paper contactless

tickets with radio frequency labels

for marking all wood harvested in

the region as part of the

implementation of the information

system for logging and timber

processing - LesRegistr

34

37

Is there a culture of sustainable consumption in Russia?

FSC – 45,6 mil. hectares

PEFC – 12,8 mil.

hectares

Volume of FSC products 64

mil. м3 RWE

Supply Chain

Certificates

469 45

35

«Green» Corporate Purchasing Policies

36

Is the end user willing to purchase “green” products?

37

THANK YOU!