Figure 1: Survey demographics

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1 Most negative outlook since financial crisis Stagnant demand and price drops expected Priorities on cost reduction, pricing and margin management Digitalization & Industry 4.0 a top priority Plastic substitution opportunities Results from 2019 pulp and paper outlook and Industry 4.0 survey As in previous years StepChange Consulting conducted an economic outlook and Digitalization survey among industry decision makers and participants of the 21 th Annual Fastmarkets/RISI European Conference. The results of this survey were compared to results of the previous five years. The first part of the survey provides an indication about the perception of current market and economic developments in the industry and highlights the current priorities. The second part of the study is dedicated to Industry 4.0. Highlights of the study 80% of European participants of the survey expect downward or sideways economic development in the next 12 months. This represents the worst sentiment since the financial crisis. With regards to the expected development in the pulp & paper segments for 2019, participants have more positive views: 43% of respondents expect an upward development in their sub-sectors while 35% expect a downward movement. The most positive sub-segments are pulp and packaging. On the cost side, a continuously high share of respondents sees increasing raw material, transportation and energy costs. On the sales side, there is a drastic decrease in share of respondents believing in positive price outlook. While 74% of respondents believed in price increases in 2018 this share is only 29% in % of participants foresee declining prices for 2019 compared to only 9% in 2018 with customer demand anticipated to stagnate. The top three company priorities mentioned are cost reduction, followed by pricing & margin management and product development. An area that gained significant importance in the priority list vs is Digitalization & Industry 4.0: 45% of the respondents mention Industry 4.0 as an important topic for their companies a significant increase from a mere 16% in The single most important drivers perceived to change the industry in the next five years are environmental factors, and specifically substitution of plastics. Industry 4.0 & Digitalization is considered the main trend with 73% of the respondents stressing the importance of this factor, Industry 4.0 is seen as a vehicle to improve competitiveness and decrease costs. 40% of companies state they are in the implementation phase of Industry 4.0 projects (either as a full-scale implementation or as single uncoordinated projects). Only 5% of companies say they currently have No work in progress in Digitalization & Industry 4.0. Survey Demographics Top managers and industry decision makers participated in the survey representing a wide spectrum of the industry. Participants included suppliers, producers, converters, distributors, printers & publishers, and service providers from the financial industry and professional services. 41% of the survey respondents are from the paper or paperboard sector, 19% from pulp manufacturing, 10% from converting, 3% from printing and publishing, 7% from financial & technical services and consulting, 3% from merchanting & distribution (Figure 1). Results were analyzed from an overall pulp, paper and packaging perspective and by industry sub-sector. Figure 1: Survey demographics Within the group of participants from paper & paperboard manufacturing (multiple answers were allowed), 40% are from the packaging sector, 28% from coated and uncoated woodfree, 16% from newsprint and uncoated/coated mechanical papers, 9% are from specialty and engineered papers and 5% from tissue. Macroeconomic outlook: sharp turn to negative Respondents from the pulp, paper and packaging industry, have a predominantly negative and cautious outlook on the economic development in Europe. Unlike the previous two years, when the net between up- and downward economic Copyright 2019 StepChange Consulting - Driving change to deliver results. All Rights Reserved. 1 of 7

2 development was 57% this number has dropped to minus 19% (Figure 2). Figure 2: Historical development of macroeconomic sentiment Reversed to negative in all key sub-segments? The specific view on the expected development of the pulp, paper and packaging industry in 2019 is more positive than the outlook on the macroeconomic development in general. 52% of respondents believe their segment of the industry will increase or reach a peak in 2019 (2018: 81%; 2017: 64%). This is the lowest value since Almost half (48%) of respondents perceive their respective business segment to be declining or reaching a trough (2018: 10%; 2017: over 26%). This also represents the most pessimistic view since The share of the most positive responses is higher than the share of the most negative ones among pulp manufacturers and packaging producers (50 and 6 percentage points respectively), and across the industry (9pp) (Figure 4). Sentiment has dropped drastically in all sub-regions in Europe (Figure 3): from very positive in 2018 to negative in Figure 4: Pulp & paper 2019 development by industry segment Figure 3: Economy development expectations by European region The share of positive responses over negative responses fell by percentage points everywhere but in Central Europe, where the drop was a more modest 59 percentage points in 2019 vs Western & Southern Europe (incl. France, Greece, Italy) is the most pessimistic region now with a share of down responses being greater than the share of the up ones by 38 percentage points. Comparing the results from the pulp, paper and packaging (PPP) sector to the results of the respondents outside the PPP sector, it becomes clear that the sector has a slightly more pessimistic economic outlook with only 19% expecting an upwards development compared to 25% among the non-ppp respondents. It is interesting to note that the previous year s Down and Up numbers for the pulp manufacturers were similar to the responses in Looking at other sectors, newsprint has the most negative outlook: 67% of the newsprint respondents believe in a downward development of their sector in Prices down The survey covered questions inquiring how respondents see the development of market parameters and questions about priorities. On the sales side, respondents from the pulp, paper and packaging industry were asked about trends for 2019 (Figure 5). For customer demand, there is a perceived change from very positive to neutral : 35% of respondents foresee demand growth and 35% expect a decline (2018: 69% and 13% respectively). The demand trend is in line with the nearlybalanced picture for the industry in general as shown in Figure 4). This is a sharp decline from the previous year, and a reverse of the trend of the previous 3 years. Splitting this picture to Copyright 2019 StepChange Consulting - Driving change to deliver results. All Rights Reserved. 2 of 7

3 sub-segments, pulp manufacturers and converters are on a more positive side while geographically the European respondents are less optimistic than their non-european counterparts. Figure 6: Historical comparison of cost related trends Figure 5: Historical comparison of sales related trends The number of respondents expecting prices to decrease is considerably higher than the number of respondents expecting prices to increase (41% and 29% respectively). Interesting to note is that these numbers are an almost exact match of the 2015 numbers. Looking at the selling prices in detail, pulp manufacturing is the only sub-segment with positive price expectations. All other segments have a negative outlook. Customer complaints and the required level of customer are expected to grow. The biggest change apart from customer demand can be seen in a sharply increased expectation for late payments and bad debt. Further trends: Digital discovered Industry 4.0 & Digitalization is considered the main trend with 73% of the respondents stressing the importance of this factor. As can be seen later in the study, and similarly to M&A, Industry 4.0 is considered a vehicle to improve competitiveness and decrease costs. On the cost side a high share of respondents continues to see an increase in raw material, transportation and energy costs with transport costs leading the trend. (Figure 6). Comparing with the previous years, it is interesting to note that raw material cost increases are no longer taking the lead but have been surpassed by transport costs (for the first time since 2015) Both raw material and transport cost increases are a perceived trend across all sub-segments. The change in the perceived availability of financing is notable; moving from 9% Down in 2018 to 20%. Pulp manufacturers have the strongest perception about a declining in availability of financing (40%). The perception of M&A and consolidation as a key driver remains high (43%). Increasing importance of Industry 4.0 Cost reduction, pricing & margin management as well as product development are considered the three main priorities. Cost reduction is considered the top priority in 2019, (65% of companies mentioned it as their priority in 2019 vs. 61% in 2018). Pricing and margin management closely follows with 61% followed by product development with 47% (Figure 7) Copyright 2019 StepChange Consulting - Driving change to deliver results. All Rights Reserved. 3 of 7

4 requirements, environmental requirements and capacity consolidation. Figure 8: Expected influence of external drivers Figure 7: Historical comparison of current priorities Industry 4.0 is mentioned by 45% as a priority and moved up significantly to the fourth place (an increase by 29% from 2018). Talent acquisition completes the Top-5 on the list (note: workforce qualification is however not considered a major driver of change in one of the later questions). Supply chain development continues to move up in priority for the 5 th year in a row to 24%. All other items in the companies priority list remain largely unchanged, with one exception -t he noticeable drop in importance of mergers & acquisitions (2019: 22%; 2018: 40%). This appears contradictory in comparison with the perception that M&A is a major trend (Figure 4). This signals that M&A is seen to have an impact in general but doesn t seem to be a top priority on the agenda of the individual companies. The importance of restructuring/consolidation has decreased as well as importance of workforce reduction. The drivers perceived to have the most negative impact are fiber costs, energy costs and new capacities. The importance of regulations and certifications (2019: 21% vs. 2018: 32%), and the perceived impact of electronic substitution (2019: 14%; 2018: 23%) have dropped considerably. Asked for the single most important driver that will affect or change the industry, 20% of participants name environmental issues and substitution of plastic (Figure 9). Digitalization/Industry 4.0 follow in second place (15%) followed by capacity development / consolidation (12%) and concerns about prices and margins (11%). The top priorities from 2018 changes in consumer behavior and availability/cost of raw materials dropped to #5 and #6. Importance of product and service development & innovation as well as substitution by electronic media were mentioned by several respondents (8% in each category). The bottom of the list is formed by macroeconomic and trade war concerns, importance of cost reduction. Very notably the importance of workforce qualification & acquisition of talent comes out last. Industry drivers - Outlook for the next five years The top positive industry drivers for the next five years have changed. The biggest difference is that Digitalization/Industry 4.0 was added to the choice of answers and moved to the second position immediately (59% of the participants believe it will have a positive effect in the next 5 years), see Figure 8 for details. The other key items with a positive impact apart from Digitalization are the impact of changing customer Copyright 2019 StepChange Consulting - Driving change to deliver results. All Rights Reserved. 4 of 7

5 Figure 9: Single most important driver of change Industry 4.0 & Digitalization moving forward The second part of the survey addresses Industry 4.0 as an emerging topic on the management agenda (Figure 6) of pulp, paper and packaging companies. The share of companies involved in the implementation phase (either as a full-scale implementation or as single uncoordinated projects) is around 40% in all sub-categories. Most of the efforts are still in the development stage. Only less than 20% of respondents have no work in progress or are just beginning to create awareness (Figure 10). paperboard sector (22%) compared to only 8% within the paper and paperboard sector. Figure 12: Expected benefits from Digitalization / Industry 4.0 The main expected benefit from Digitalization/Industry 4.0 is cost reduction (mentioned by 2/3 of participants) followed by new business models (37%), energy efficiency (33%), new products and sales growth (Figure 12). The other expected benefits (4% of the respondents) included increase in productivity, margin management, and product quality. Figure 10: Development stage of Digitalization / Industry 4.0 Most projects the industry is engaged with are on the production side of the business: digitalization of production processes and predictive analytics (MRO, production planning etc.) with 53% and 41% of mentions respectively (Figure 11). Asked which upstream/downstream part of the industry can gain the highest value from Digitalization / Industry 4.0, the majority of participants see the highest benefits for the middle and upstream part of the value chain (Figure 13) Figure 13: Benefits of Digitalization / Industry 4.0 by segment Figure 11: Current projects within Digitalization / Industry % of respondents mention digital marketing initiatives and 22% supply chain integration as project focus. Smart products (14%) are more important outside of the paper and The segments expected to capture the highest benefits from Industry 4.0 & digitalization are packaging conversion (45%), packaging paper production (30%) followed by printing and specialty papers (Figure 14). Copyright 2019 StepChange Consulting - Driving change to deliver results. All Rights Reserved. 5 of 7

6 The overall picture is consistent throughout different geographies and industrial sub-segments. The only exception is that pulp manufacturers believe that there are bigger benefits for the pulp side of the value stream than the rest of survey participants. Summary & Outlook: The digital remedy? The survey unveils the most negative outlook since the financial crisis. The expectations are stagnant-to-negative especially in Europe. The importance of cost management grows further while Industry 4.0 & Digitalization has made it to the top of the agenda compared to just 2-3 years ago. The expectation is that Digitalization will further help to improve costs in line with company priorities. Most companies have digital projects underway but are stating that they see the biggest obstacles organizationally and in the definition of specific projects with a clear ROI. While the day to day (analog) business is currently under pressure there seems to be a strategic focus on digitalization which might be considered a remedy to some of competitive challenges ahead. Figure 14: Benefits of Digitalization / Industry 4.0 by segment The biggest barriers to Digitalization & Industry 4.0 are believed to be changing the existing process/work organization, identifying opportunities related to Industry 4.0 & calculating ROI, as well as IT systems and infrastructure (Figure 15). Internal awareness (25%), data security (23%) and education and training (19%) follow. Note: Concerns about data security have dropped significantly compared to an early study conducted 5 years ago. Figure 15: Barriers to Digitalization / Industry 4.0 Copyright 2019 StepChange Consulting - Driving change to deliver results. All Rights Reserved. 6 of 7

7 About StepChange Consulting StepChange is an industry focused and independent management consulting company with a proven track record in supporting clients to achieve sustainable value. StepChange provides support to top tier organizations in the industry from strategy development to implementation of operational improvements. With an international team of industry experts StepChange can hit the ground running. StepChange provides innovative and yet pragmatic solutions, placing an emphasis on delivering measurable business results. For further inquiries and comments regarding this Point of View please contact us at leapfrog@stepchange.com. DRIVING CHANGE TO DELIVER RESULTS Copyright 2019 StepChange Consulting - Driving change to deliver results. All Rights Reserved. 7 of 7