2006 Global Forest, Paper and Packaging Industry Survey

The 2006 Global Forest, Paper and Products Industry Survey showed that innovation remains a key characteristic for future success in the global forest, paper and packaging industry. With 2006 economic conditions projected to remain challenging, companies must demonstrate innovative methods.

The survey summarizes the 2005 year-over-year financial information of the PwC Top 100 — the 100 largest forest and paper products companies in the world with publicly available data. The results of the PwC Top 100 show the impact on the industry from increased global demand for resources.

In addition, this ninth annual survey includes a brief synopsis of observations from 17 CEOs of forest, paper and packaging companies around the world. These observations, culled from interviews conducted in the first half of 2006, share views on the state of the industry, the key issues it faces and its future direction. This year's survey also reviews issues raised at the 19^th Annual PricewaterhouseCoopers Global Forest and Paper Conference held in May 2006 in Vancouver, B.C.

Highlights

During 2005, the world economy slowed slightly, with real GDP growth falling from 5.3% in 2004 to 4.8% in 2005. Once again, economic growth in China lead the way with real GDP of nearly 10%.

As a group, emerging markets remained the engine of growth with a combined rate of 7.2%, while industrialised nations posted growth of 2.7%, down from 7.6% and 3.3% in 2004, respectively. Projections for 2006 and 2007 in all regions of the globe indicate similar trends.

Economic Factors

Foreign Exchange Impacts
Forest paper and packaging producers are subject to fluctuations in foreign exchange rates, often incurring the costs of production in one currency and selling in another. Due to volitility in the U.S. dollar over the past several years, foreign exchange rate movements have significantly impacted financial results.

Energy Costs
The year 2005 saw significant increases in energy costs globally. The forest, paper and packaging sector is a large consumer of energy with financial results significantly impacted by increases in energy costs. In addition to price level increases for electricity and oil in the U.S. and Europe, prices for natural gas and liquid natural gas have also increased markedly.

Transportation Costs
The forest, paper and packaging sector is heavily reliant upon the road, rail and shipping industries to deliver their products from production site to end user. Increased competition for constrained transportation assets has increased the costs of transport. The interrelation of oil prices and transportation costs has further compounded the price impact.

Emerging Market Impacts
The emerging market presence has impacted the industry in several ways. With the sub-optimal returns realized by traditional regions (North America, western Europe and Japan) for several years, investment dollars have been reallocated to the higher return regions of the emerging markets. This impacts both capital allocation decisions by producers, as well as equity investment decisions by portfolio managers.