Moving the Sector Towards Higher Value and Profitability Institute of Chartered Foresters April Newcastle, UK

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1 Moving the Sector Towards Higher Value and Profitability Institute of Chartered Foresters April Newcastle, UK Robert Wilson. Wilson Walklate and Associates Ltd Director Consulting Europe, Forest Industry, Renewables and Bioprocess, Amec Foster Wheeler Plc. Senior Director, Capitalmind (M&A Advisory) Project Board and Owners Advisor. Wren Renewables. Other (non-renewable) industries have peaks, we have choices.

2 Moving the Sector Towards Higher Value and Profitability 000 m3ob standing UK Grown Softwood 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Forecast supply (1) GFC Actual (2) Long term forecast supply Agenda 1.Wall of wood 2.Base Camp or Next Summit. Peak Wood. GFC. Global Financial Crisis Source: Forestry Commission Statistics 1.

3 Wall of Wood Mapping Value and Profitability in 1990s to Early 2000s The matrix mapped market attractiveness & competitiveness for opportunities in UK the position is a reflection of the specific opportunity relative to its business sector - not relative to each other. OSB Particleboard MDF EWP Sawmilling Bioenergy (integrated, ROCs) Cartonboard (CTMP) LWC/SC (Magazine) Market Attractiveness* Market Pulp Wood cost is 40-70% of cost of manufacture Competitiveness** White Kraft packaging EWP were defined as: Structural Composite Lumber: Laminated Veneer Lumber (LVL) Parallel Strand Lumber (PSL). Oriented Strand lumber (OSL) Lumber Based Products Glulam Combination Products I-Joists and Beams *Market Attractiveness. Based on import replacement (local market) and European growth (export potential) **Competitiveness. Based on profitability potential new mill primary production only. Fibre and wood quality Direction of value added opportunity 2.

4 Wall of Wood Mapping Value and Profitability in 1990s to Early 2000s - Outcome 000 m3ob standing UK Grown Softwood 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Forecast supply Actual exports other woodfuel fencing panels pulpmills sawmills Long term forecast supply Bioenergy. Integrated (Companies invested and pulled themselves towards top-right of the matrix) 0 3.

5 Wall of Wood Mapping Value and Profitability in 1990s to Early 2000s Forestry sector 4.1 billion GDP, 40,000 people are employed in the forestry and primary wood processing, 55% of Britain's woods are properly managed, 2/3 of timber is imported, 2-3 biggest forest products market in Europe (Grown in Britain) Imports. Love them or leave them. Both every new home-grown product directs revenue and benefits back to UK forests and forest owners... but also Imports underpin and open up the huge UK market for forest products and secondary markets*. Viewed as a total sector (home-grown, primary and secondary*) GDP > 15 billion (~55% is secondary, ~25% is primary (~home-grown), ~20% distribution and recycling) Turnover of ~ Bn p.a. > FTE, >50000 businesses. This makes the UK sector comparable in total turnover and scale to: Forest sectors: Finland, Sweden or Germany. Total Forest Sector comparison to UK Industries: < Electrical; < Construction; ~ British Automobile; >British Aerospace; >Chemicals/Pharma; > Textiles; >>>Steel. *Primary wood: for example sawmills, wood panels, fencing materials. Primary paper: pulp and paper, merchants *Secondary wood: for example EWP, furniture, kitchens, cabinets, windows, joinery, pallets, decking, garden furniture, roofing, timber-frame, shopfitting, crafts. Secondary paper: converting, corrugating, distribution. 4.

6 Base Camp or Next Summit Value and Profitability into the s 000 m3ob standing UK Grown Softwood 20,000 18,000 16,000 14,000 12,000 10,000 8,000 (1) Forecast supply GFC Actual (2) Illustrative scenarios Expansion Targets? - UK population, contribution, northern renewal, Level forest estate, smoothed Decline, cyclical 6,000 4,000 2,000 0 Hardwood Potential Supply 45 years 5.

7 Base Camp or Next Summit Value and Profitability into the s Illustrative scenarios There is a cost to doing nothing Expansion. Full potential. Underharvesting, (re-,new)planting, hardwood, short rotation, genomics Maximisation Multipliers wood, non-wood. Investment Stronger value flow back to UK resource. Level, smoothed. Is level = (relative) decline? Presence, relevance, matured Do better with what we have. Value add, but R&D spend? Replanting, restocking? Investment maintain, consolidation Decline. Portfolio Rationalisation Industry growth and investment elsewhere (off-shore, secondary) Disconnect and marginalisation of value flow back to the UK resource Decline. Worst case Mill shuts, job loses Other benefits loss Increasing imports Replanting? About 40% of home-grown would be highly exposed should home-grown supply decline Programme/Task force for full potential. Forest funds. Less suited UK/Europe. Nordic owner structures best returns Farmer programmes. European successes Industry Step up in resource stimulation Government/FC/Private. Stronger targets 6.

8 The New Competitiveness Value and Profitability into the s Wood Cost. Will still be 40-70% of cost of manufacture. UK is 3 rd quartile cost, and aligned with major supply countries Sweden and Finland. Improvement since wall of wood (snapshot) harvesting & transport decreased 15%, and re-allocated to stumpage. Energy Cost. Stays volatile and uncertain. Security drives investment. Profitability. Strong performance since the wall of wood. Well established platform. Bio-business. Volatile and uncertain. On 40 year development path so far. Drive to renewables remains heavily influenced by Government decisions and fossil fuel prices. Molecular focus. Profit (EBIT) Growth p.a 15% /15 10% UK Sawmilling Other Leading 5% Nordic Sawmilling 0% 5% 10% Sales Growth p.a New Competitors to Biomass. Oil, coal. Bacteria, yeast, algae, agriculture (sugar, corn), waste (bagasse, husks, stover), MSW. Select products where biomass is best fit. Biomass Advantage. Huge availability, plantation technology, complementary to food, higher density, C5/C6 (pentoses and celluloses).. recalcitrant feedstock (lignin). 7.

9 Base Camp or Next Summit Value and Profitability into the s 3 scenarios and new mapping to include growth into Secondary and also Bio-businesses (segments - biopower, biofuels, biochemicals, biomaterials) Market Attractiveness Particleboard Liquid Biofuels. European strategy is Electrification OSB Sawmilling Competitiveness Secondary MDF Biomaterials, biochemicals No reason to change current mapping base add more. Include potential of fibre based sector, growth into secondary, bio- Consider a bio generator (molecular based businesses) Task force the targets for full potential resource and hardwood. EWP Bioenergy (integrated, ROCs) Waste to energy (integrated, CfDs, landfill tax) Cartonboard (CTMP) LWC/SC (Magazine) White kraft packaging WtE. examples EWP also includes: Cross Laminated Timber Timber frame Pre-fab. Offsite. Housing Structural Composite Lumber: Laminated Veneer Lumber (LVL) Parallel Strand Lumber (PSL). Oriented Strand lumber (OSL) Lumber Based Products Glulam Combination Products I-Joists and Beams

10 Are we missing a pulp mill/bio-generator? (and molecular know-how) Process Engineering Steam, electricity & district heating Ethanol CO2 R & D Cellulose derivatives Ethanol products fuels chemicals Extractives Speciality cellulose Energy Lignosulfonate Biogas Adjacency and Return on Site The Domsjö Biorefinery cluster in Örnsköldsvik 9.

11 Other Pathways Specialist bio-conversion site hosting Joint venture between Norske Skog (Boyer Mill) and Circa Group will build a $6.6 million (demonstration) plant that will produce about 50 tonnes of a chemical called Levoglucosenone/Cyrene (alternative to solvents derived from petroleum in a range of pharmaceutical and agricultural products). Norske Skog Boyer. Annual production is around tonnes of newsprint, improved newsprint, book grades and light weight coated grades JV Requirement is for hosting sites not necessarily a pulp mill. Norske Skog builds and leases the plant. Ops, utilities, raw materials (sawdust could use any biomass ) Circa Group leases technology and knowhow, and has off-take agreement for marketing, sales and product Extend this concept to other site partners Wood products, Automobile, Aerospace, Chemicals/ Pharma, Textiles making the required biomaterial, biochemical 10.

12 Getting Started Value and Profitability into the s Start with End-Users/Uses, Key Routes to Market Packaging Bioplastic (~5Mnt, ~1% of $market) Hygiene Non-wovens substitute Aerospace, Automobiles Carbon and materials based Dupont. Nomex, Kevlar, Nylon Pharma Solvents Sweeteners.. Build the Structure and Portfolio Grow from the underlying infrastructure raw materials, bioenergy, supply chain. Adjacency. Nearby and parallel products Return on Site. Leverage industrial sites Get Ready for Financing! Industrial/strategic partners Banks and equity investors. Derisking raw materials, technology, operations, offtake. Volumes, prices Agencies. GIB and Infrastructure and Projects Authority UK (large scale) Chemicals. Specialties Bio alternative Reach alternative 11.

13 Conclusions The Sector achievement is highly impressive in (world) terms of building a resource, investment to process and market this, based on competitive advantage. This, plus imported forest products, combined with high UK recycling rates for paper and wood, has created the second largest forest products market in Europe. In total, this sector is a larger contributor (GDP, employees FTE, Sales) than Steel, Aerospace, Chemicals/Pharma or Textiles and about equivalent to Automobiles. It has a key role in the UK s future, rural development, northern powerhouse (and equivalents), value added, plus meeting social and environmental objectives. Key challenges and task forces: Achieving the full potential of the resource. Bringing this potential into play, then building the resource for the future decades, based on sector targets of contribution to a growing UK. Sector Investment. From the above, updating the Sector strategy in terms of target products and markets, incorporating the growth in bio-business opportunities (biopower, biofuels, biochemicals, biomaterials), investment and infrastructure. 12.

14 Moving the Sector Towards Higher Value and Profitability Institute of Chartered Foresters April Newcastle, UK Robert Wilson. Wilson Walklate and Associates Ltd Director Consulting Europe, Forest Industry, Renewables and Bioprocess, Amec Foster Wheeler Plc. Senior Director, Capitalmind (M&A Advisory) Project Board and Owners Advisor. Wren Renewables..Other (non-renewable) industries have peaks, we have choices.