Reinforcing The First Medium-Term Business Plan - Nippon Paper Group

Reinforcing the First Medium-Term Business Plan Construction of the corrugating-medium PM building at Zhejiang Jingxing Nippon Paper, China, photographed on May 24, 2004. May 26, 2004 President: Takahiko Miyoshi All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING

Summary of the presentation Ⅰ.Progress of the Business Plan Ⅱ.Reinforcing the Business Plan （1）Reducing the variable cost （2）Reducing the total labor cost （3）Reinforcing paper sales Ⅲ.Basic indices Ⅳ.Strategic move for growth All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 2

Ｉ．Progress of the Business Plan Ordinary income trend and revised plan ( billion) 100 100.0 Originally planned 81.0 85.0 65.0 54.0 50.7 50 39.7 28.6 0 FY2002 FY2003 FY2004 FY2005 est. FY2006 planned All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 3

Ｉ．Progress of the Business Plan Challenges Jump in input cost ・Wood chip price hike (FY2005) ・Coal, oil price soar (FY2005) We need additional measures Stagnant paper sales to offset the challenges ・Imports surged (FY2003 2H ― FY2004) ・Softened price levels (FY2004 2H) All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 4

Ⅱ．Reinforcing the Business Plan Implementing additional measures (FY2005 ー FY2006) （１）Variable cost reduction （２）Total labor cost reduction （３）Paper sales reinforcement Execute growth strategies Increase profitability Sales power Costcompetitiveness Pillars of competitiveness All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 5

Ⅱ． Reinforcing the Business Plan (1) Variable cost reduction Cost reduction 5.0 bn Reduce variable cost per production Additional 1% reduction in FY2005, 2006 (Original target 1.0% 2.0%） Paper mills -Plans：Higher DIP composition, higher yield, reduction of chemicals Asahikawa Asahikawa Yufutsu Yufutsu Shiraoi Shiraoi Reduce energy cost per production Additional 1% reduction in FY2005, 2006 (Original target 1.5% 2.5%） Ishinomaki Ishinomaki Fushiki Fushiki -Plans：More RPF mix incineration, more private power generation Iwanuma Iwanuma Nakoso Nakoso Komatsushima Komatsushima Yatsushiro Yatsushiro Kushiro Kushiro Suzukawa, Suzukawa, Fuji Fuji Iwakuni Iwakuni All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 6

Ⅱ．Reinforcing the Business Plan Contract workers (2) Total labor cost reduction Raise productivity by 11% or more number of employees 20,000 Regular employees 22,750 21,340 Cost reduction 5.0 bn 20,800 6,760 6,340 (Estimated labor reduction: -2,580) 20,170 6,300 6,110 Additional plans ・Early ・Early retirement retirement incentives incentives ・Lowering ・Lowering of of average average wage wage by by accelerating accelerating employment employment transfer transfer of of loan loan employees employees 10,000 0 15,990 15,000 14,500 14,060 Mar. 2003 Mar. 2004 Mar. 2005 Mar. 2006 Note:Numbers are adjusted to reflect all the changes in consolidation base. All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 7

Ⅱ．Reinforcing the Business Plan （３）Paper sales reinforcement Goals ・Maintain price levels ・Reduce total distribution cost Cost reduction 3.0 bn Structural changes in the domestic market (Increased imports, slowed growth) ・Increase sales of highly-value-added products Measures ・Restructure and enhance the sales organization ・Reorganize sales channels ・Reduce logistics costs All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 8

Ⅱ．Reinforcing the Business Plan Summary ー effects of additional measures 〈Measures〉 FY2005 FY2006 Total VC reduction 2.5 bn 2.5 bn 5.0 bn Labor cost reduction 2.0 bn 3.0 bn 5.0 bn 3.0 bn 3.0 bn 4.5 bn 8.5 bn 13.0 bn Sales reinforcement (Distribution and logistics cost reduction) Total All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 9

Ⅱ．Reinforcing the Business Plan Income growth after reinforcement （FY2004 ー FY2006) FY2003 vs FY2004 FY2004 vs FY2005 FY2005 vs FY2006 Ordinary income 39.7 bn 50.7 bn Ordinary income 50.7 bn 65.0 bn Ordinary income 65.0 bn 85.0 bn） 11.0 bn Sales price -3.7 Mfg. cost Distribution cost 11.5 Labor cost 5.5 Materials price Depreciation 1.9 -8.0 Financing etc. 5.8 Other expenses Sales volume 1.9 -3.9 Mfg. cost Distribution cost 9.8 14.3 bn Labor cost 6.5 Materials price -10.5 Depreciation 5.9 Other expenses 1.7 Sales price 0.3 Sales volume 0.6 20.0 bn Mfg. cost Distribution cost 11.0 Labor cost 9.0 Depreciation Materials price 4.0 -6.0 Other expenses 1.0 Overseas businesses 1.0 ( billion) All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 10

Ⅲ．Basic indices -Group’s key figures （FY2003 ― FY2006） FY2003 FY2004 FY2005 FY2006 planned est. Ordinary income （ billion） 39.7 （Ordinary margin on sales） （3.4%） 50.7 65 85 （4.3%） （5.4%） （7.0%） Goal 100 （8.0%） ROE 1.2% 5.8% 6.4% 7.3% 11% ROIC 4.2% 4.9% 6.1% 8.1% 9% ROA 3.2% 3.8% 4.7% 6.1% 7% 1,165.5 1,192.6 1,195 1,210 1,200 50.5 55.7 70 90 106 Reference Net sales （ billion） Operating income （ billion） All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 11

Ⅲ．Basic indices -Reduction of interest-bearing debt （FY2003 ― FY2006） ( billion) Total assets 1,630.1 1,637.4 1,599 1,536 Interest-bearing 851.3 debt 842.3 785 699 Total shareholders’ equity 408.2 429.7 449 472 FY2003 FY2004 FY2005 est. FY2006 planned Debt / equity ratio 2.0 1.9 1.7 1.4 Equity ratio 25.0% 26.2% 28.0% 30.8% 12

Ⅲ．Basic indices - Cash flows of three years （FY2004 ― FY2006） ( billions) 400 300 Breakdown of cash inflow Breakdown of cash outflow Sale of assets 30 Dividends paid, etc. 33 Operating activities 124 Repayment of debt 153 Depreciation Capital expenditures 200 100 228 196 0 （ 382 billion） （ 382 billion） 13

Ⅳ．Strategic move for growth Strategies for corporate growth Domestic: Strengthen international competitiveness Efficiency investment in main mills Strengthen R&D capabilities Overseas: Foray into growing markets Enter into and cultivate Chinese market Utilize idle facilities, and local sales network Diversify risks through joint venture program All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 14

Ⅳ． Strategic move for growth Enter into and cultivate Chinese market 2003 Company Business Controlling share Nippon Paper Industries Trading* Imports, Sales 100% Nippon Paper Industries Chengde* Paper 55% **In-kind Zhejiang Jingxing Nippon Paper Corrugating medium 41% **In-kind Everwealth Shanghai Corrugated sheet 23% Elopak China* Beverage cartons 25% Dec’03 Agreement Shouguang Liben Carbonless base 62% Dec’95 Jan’97ー Est. Operating 2004 2005 2006 F05/1Hー Start services (Sales bases in China) F05/1Hー Est., Construction, Machine transfer Sep’03 F05.1Hー Est. Construction F06/1Hー Operation start-up (150kt) F05/2Hー Operation start-up(150kt） Aug’03 Equity participation F05/1Hー Est., Construction F06/1Hー Operation start-up Full-fledged entry Dec’03 Agreement * Tentative names ** In-kind investments NPI Chengde: Shiraoi Mill PM#2, 4, 5 will be transferred. Jingxing NP: Former Kameari mill’s PM#5 has been transferred. All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 15

Ⅳ． Strategic move for growth Achieve 100 bn target ASAP, aiming for a further leap (Ordinary income: billion) 100.0 Profit from additional measures and new overseas operations 85.0 Full-fledged entry to overseas markets 65.0 50.0 Scrap & build 50.7 Accelerate and continue cost-cutting Growth with high profit and low risk FY2004 FY2005 est. FY2006 planned FY2007― All Rights Reserved. Copyright (C) 2004 NIPPON UNIPAC HOLDING 16

Disclaimer Regarding Forward-Looking Statements Any statements in this presentation document, other than those of historical fact, are forward-looking statements about the future performance of Nippon Unipac Holding and its group companies, 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. NIPPON UNIPAC HOLDING

the First Medium-Term Business Plan Construction of the corrugating-medium PM building at Zhejiang Jingxing Nippon Paper, China, photographed on May 24, 2004. . Reinforcing the Business Plan (2) Total labor cost reduction Cost reduction 5.0 bn Raise productivity by 11% or more (Estimated labor reduction: -2,580)