Cut SheetMarket Update

Current supplysituation

Market Update

Dynamics affecting paper supply and pricing

– Economic Downturn

– Exchange Rate

– Raw Materials

Manufacturing base overview

– Consolidation

– Mill Closures

– Snap Shot of each Manufacturer

Outlook

– Short to medium term prognosis

Market Update

Contents

Market Update

-15%

-12%

-24%

-2%

-

11%

-15%

-

10%

-14%-9%-12%

-23%

-14%

-15%-11%

-6%

-18%

-17%

-12%

-12%

-19%

Significant year on year decline in volumes in all countries

Source: Eugropa - Merchant total sales volumes YTD Nov ’09 vs. PYm

Unprecedented market conditions

We are all aware of how the £GBP has weakened against the €uro.

– There are no manufacturers of Copier Paper in the UK today – all product is imported.

Market Update

Exchange rates

1

1.1

1.2

1.3

1.4

1.5

1.6

Jan

-07

Feb

-07

Mar

-07

Ap

r-0

7

May

-07

Jun

-07

Jul-

07

Au

g-0

7

Sep

-07

Oct

-07

No

v-0

7

De

c-0

7

Jan

-08

Feb

-08

Mar

-08

Ap

r-0

8

May

-08

Jun

-08

Jul-

08

Au

g-0

8

Sep

-08

Oct

-08

No

v-0

8

De

c-0

8

Jan

-09

Feb

-09

Mar

-09

Ap

r-0

9

May

-09

Jun

-09

Jul-

09

Au

g-0

9

Sep

-09

Oct

-09

No

v-0

9

De

c-0

9

Jan

-10

Feb

-10

Euro

's

Market Update

Net Mill Selling Prices – 2009 average

0

100

200

300

400

500

600

700

800

900

1000 904860

825 798 786 759699

605571

USD

/To

nn

e

• Manufacturing in the Eurozone

– $ 699 into UK

– $ 860 into Germany

• Exports into each market:

Market Update

European Paper Mill

UK = 50,000Mts

GER = 65,000Mts$8M / £5.28M

Prices increasing since June 2009

Further increase of 30 euros/mt announced in April

Market Update

Pulp Prices: Evolution

300

350

400

450

500

550

600

650

Jan-0

9

Feb-0

9

Mar-0

9

Ap

r-09

May-0

9

Jun

-09

Jul-0

9

Au

g-09

Sep-0

9

Oct-0

9

No

v-09

Dec-0

9

Jan-1

0

Feb-1

0

Euro

/ M

T

NBSK

Mixed Hardwood

Eucalyptus

Market Update

Production consolidation

10 years ago

v

10 manufacturers

70% of supply

Today

6 manufacturers

88% of supply - UPM- Stora- MReal

- GPS- Mondi- IP

Continued growth in demand for printing and writing papers combined with the increased utilisation rates by the mills (due to excess capacity being taken out of the market) is demonstrated by the shrinking gap between the demand and capacity lines.

Market Update

Capacity v Demand

85%86%

88%

91%90%

92%93%

94% 94%

97%

-1,000

1,000

3,000

5,000

7,000

9,000

11,000

13,000

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Vo

lum

e 0

00

's t

on

nes

Mill

Uti

lisat

ion

%

Utilisation

Demand

Capacity

Economic downturn and associated paper volume decline

– Massive over capacity in the market

– Mills opt for machine closures

A large number of paper mills have ceased production removing 2,441,000 tonnes from the supply chain

Market Update

Contents

Country Mill Group Capacity Country Mill Group Capacity

France IP, Marasquel 85,000 France Paperteries de Chatelles 40,000

Sweden Klippan, Molndal 20,000 UK Garnett, Otley 15,000

Sweden Klippan, Molndal 30,000 UK Sappi, Nash Mill 36,000

UK Thompson, Sunderland 30,000 UK Smith Anderson, Leslie 50,000

UK Arjo Wiggins, Fort William 75,000 UK Townsend Kappa, Snodland 55,000

UK Inveresk, Carrongrove 40,000 Germany Cordier, Salach 80,000

Finland UPM, Voikkaa 410,000 Germany Scheufelen, Oberleggenen 15,000

Finland UPM, Kymmene 150,000 Netherlands Favinni, Meerssen 10,000

Finland UPM, Jamsankoski 120,000 Sweden Klippan, Klippan 60,000

Finland StoraEnso, Varkaus 95,000 Netherlands StoraEnso, Bergheizer 235,000

Norway CPG, Hunsfos 10,000 UK M_real, Sittingbourne 210,000

France Paperteries de Cran 45,000 Germany M_real, Gohrsmuhle 100,000

France StoraEnso, Corbehem 250,000 Sweden M_real, Wifsta 175,000

2,441,000Estimated European Capacity Reduction

UPM– Q4/2009: Earnings per share were EUR 0.57 (-0.56), excluding special items

EUR 0.21 (-0.19). Operating profit excluding special items was EUR 186 million (loss of EUR 46 million). Lead times extending through machine closures – 6 weeks to 10 week

Stora

– Stora Enso, Europe'S Largest Paper Company By Revenue, Said It Plans The Permanent Closure Of Sunila Pulp Mill During The Second Quarter Of 2010, Permanent Closure Of The Now Temporarily Shut Tolkkinen Sawmill By End Of 2009 And A Permanent Closure Of Pm 8 At Imatra Mills During The First Quarter Of 2010. Strikes announced for 3rd March.

Mondi– More heavy restructuring and retrenchment costs sent paper group Mondi

into the red again in 2009, the South African group warned.

Market Update

Major mills – recent news

MReal– Negotiations with employees on the possible closure of Alizay’s pulp mill will

commence without delay. Pulp mill will continue to be shut down during the negotiation process. Due to the possible pulp mill closure Office Papers 4Q 2009 result will include EUR 31 million write offs as a non-recurring item. Related possible non-recurring cash costs will be determined once the negotiations are completed, by the end of July 2010 at the latest.

GPS– Portucel Soporcel's net profit declined 19.8% to Euro 105.1 million for 2009. 2010 –

new machine commissioning delayed. The newest paper machine in W Europe has significant start-up problems and will be undergoing a partial rebuild – 5 months behind schedule.

Other– IP – Tight allocation into loss making markets.

– Suzano – Cuts UK allocation by 50% affecting major UK merchants

Market Update

Major mills – recent news

Unless Ex Mill market pricing reaches sustainable levels supply into the UK will continue to be restricted– Exchange rate– Capacity– Price Inflation– Mills currently actively switching production from Cut Sheet to

other products that give better return e.g. Envelope Base

Further price increases notified from April– MReal– UPM– Stora– IP– Mondi– GPS (tbc)

Market Update

Outlook