The story of the Bitkovs in Russia

1. The story of the Bitkovs in Russia

2. Transition from Soviet to market economy During Soviet times, all commercial distribution channels were controlled by the State. As a result of perestroika, these channels were lost. Many factories no longer had difficulties accessing supply and distribution channels and could not sell their final product. Igor and Irina Bitkovat that time worked in the forestry Industry and found away to fill the gap, providing raw materials to the forestry companies and selling their final product. To do this, they set up their first company: LesMarketin Novodvinsk, Arkhangelsk Region (northern Russia)

3. Acquisition of two paper plants KFOB 1996, LeningradRegion NCBK 1999, KaliningradRegion In the USSR, factories worked according to guidelines and ordersissued in Moscow After the collapse of the USSR, the factories had to adapt to the rules of the marketplace, but the “Red Directors”were ill equipped to do that. TheBitkovsbought two factories following their bankruptcy, one in Leningrad Region (KFOB), the other in Kaliningrad Region (NCBK)

4. Establishment of North West Timber Company In 1997, the Bitkovs re-branded their company as North West Timber Company (NWTC) and developed a reputation at home and abroad as a successful company focused on production of high-quality papers using the latest technologies “Providing the Prosperity of our Fatherland, we Create new Russian Quality”

5. Reconstruction of the old factories The Bitkovs invested in the re-building of the factories they acquired They immediately created jobs for people in the local communities hard hit by the recession of the 1990s They invested in the skills of the workers They introduced environmentally friendly production The Bitkovs had correctly identified a gap in the market and their business grew rapidly.

6. Tasks of NWTC’s management team Based in St Petersburg,the management team had the following functions: Development of long-term strategies Market analysis Project management Recruitment of industry professionals Investigation and introduction of the most modern technologies Financial organization Industrial lobbying Infrastructure lobbying (gas, energy, transport) Environmental and social responsibility

7. Investing in new technologies 2002 - NCBK, KaliningradRegion Shown here is a newspaper photo of the inauguration of Paper Machine No. 8 with Alexander Melnikov, Mayor of Neman Irina Bitkova, NWTC Chairwoman Vladimir Yegorov, Governor of Kaliningrad Region

8. Installation of new equipment The investment in new equipmentsignificantly reduced pollution at NCBK

9. Modernization project at ???

10. Forest industry experience and credit history NWTC acquired an excellent credit history starting in 1999 In2002,Sberbankgranted the Bitkovsthe status of VIP Customers By 2004 NWTC had demonstrated its ability to manage forestry projects and modernize factories Sberbankis the oldest and largest state bank in Russia

11. Long-term strategic plan for international market expansion NWTCsigned an agreement with the Canadian company Sandwell International Incin 2003??? to upgrade its paper mills The picture to the right was taken at NCBK 3rd from the Left, Igor Bitkov, NWTC Director, and5th from the left, Gordon Brian, Sandwell Engineering IncChairman SandwellInternationalInc-world leader in engineering solutions for the Pulp and Paper Industry

12. SandwellInternational’s feasibility study I Introducing the technology for international expansion SandwellInternational Inc, together with marketing specialists, prepared a feasibility study to introduce world-class technology at NWTC to allow the company to sell its production on international markets The 10-15 year plan developed targets for developing new production for both Russian and international customers

13. Sandwell International’s plan for NWTC The plan had the following aims: Building apaper recycling factory. Construction of new factories to produce a range of final product (notebooks, different formats of sheet paper, albums, etc.). Implement -TCF- Total Chlorine Free technology. Building paper mill 3 to produce high quality paper

14. $450 million credit line for implementation of long-term strategic plan AGeneral Agreement was signed in 2004 with Sberbankfor US$450 million Sberbank’s Leonid Schatz: "With this general agreement, Sberbank’s five years of cooperation with NWTC has ended... All loans were paid on time...Sberbankhas found that all the capital has been invested in the growth of factories ... Based on these five years of NWTC's credit history, Sberbank has decided to move to a new level of cooperation " Signed on March, 2004 in the Grand Hotel Europe, St Petersburg

15. Signing of General Agreement with Sberbank The following people participated in the signing ceremony 1. LubovSobershaeva, Representative ofPresidentPutínfor the North West. She said that the government supports the industry in order to implement high technologies and to achieve the social and ecological development. The projects, such as that of NWTC benefitnot just the factories but Russiaas a whole 2. Leonid Schats, SberbankChairman for the North West 3. Irina Bitkova, NWTC Chairwoman. 4. Igor Bitkov, NWTC Director 5. Vladimir Yegorov, Governor of KaliningradRegion.He spoke about the continuous development of NCBK in recent years, as well as the introduction of the most modern technologies. He stressed the environmental and social responsibility shown by the company and noted that this project is unique in the region. 6. MichailDedov, Vice Governor in the Leningrad Region branch of theMinistry of Natural Resources. He said that KFOB is one of the plants that gives the most benefits to the region. He described seeing how KFOB went from bankruptcy to became one of the largest producers of exercise books in Russia. He also talked about how impressed he was by KFOB’s social investment activities that aimed at both its workers and the local communities as a whole.

16. Governor’s support for development of NCBK Vladimir Yegorov(sitting opposite President Putin) was elected Governor of Kaliningrad Region,2000-2005 (After 2005 all governors in Russia were appointed by the President) Governor Yegorovsupported different development projects in Kaliningrad Region, including NWTC’s investment at Neman Neman (circled in red) is a “mono” town dependent for employment on one plant. When the Bitkovs acquired NCBK, unemployment in the town was 97%

17. People close to President Putin who influenced the Bitkovs’ case Andrei Kazmin SberbankChairman, Russiauntil2007 Appointed by PresidentPutin Leonid Shats • Sberbank Chairman for the North West • Appointed by Andrei Kazmin

18. NWTC’s strategic alliance with KadantLamort KFOB RECYCLING PLANT, LENINGRAD OBLAST To modernize the factories, strategic alliances were made with renowned companies worldwide KADANT LAMORTis a French company specializing in pulp and recycled paper. NWTC hired KADANT LAMORTto design and manufacture all equipment necessary to build a recycling plant equipped with the latest technology (tinted paper recycling)http://www.kadant.com/en/

19. Installation of KadantLamort equipment Recycling Plant 2005, Kamennogorsk, LeningradRegion Delivery of equipment from leading international supplier to the paper and pulp industry, KadantLamort The total project cost exceeded €10 million ($13 million), NWTC financed the upgrade out of cash flow and via a loan from Russia Sberbank

20. Implementation of the Strategic Plan - KFOB 2005 RECYCLING PLANT Kamennogorsk, LeningradRegion Reconstruction work completed in new recycling plant

21. Assessment of the investment in KadantLamort equipment KADANT LAMORT INSPECTIONS KFOB was inspected by Bruno Lamort de GayfromKadantLamort, By the Director, of the French Foreign Ministry, Florals Zuber The General Secretary of Pulp and Paper Mechanical Engineering of France, Paul Carpatye They concluded that KFOB was unique in using the most modern technology available and that the investment by NWTC was having positive environmental consequences

22. Cooperation with KadantLamort Inauguration of new paper mill, 16 November, 2005 Pictured from left to right: 1. Irina Bitkova, Chairwoman of NWTC. 2. Mikhail Dedov, Vice Governor, LeningradOblast 3. Leonid Shats, Chairman of Sberbankfor the North West

23. Implementation of the Strategic Plan - Bielomatik Bielomatik A German company that is an international leader in the production of processed paper and high-quality end products The installation of its equipment led to NWTC to becoming the largest Russian producer of finished paper products, such as notebooks, bond paper sheets, albums etc.

24. Recognition of success RECYCLING PLANT RECOGNITION FOR QUALITY MANAGEMENT AND END PRODUCT KFOB, ARKHANGELSK REGION, 2005 Valery Serdukov, Governor of ArkhangelskRegionpresentsIrina Bitkov with an award to mark KFOB winning a regional competition for quality in the category “industrial organizations”

25. New Pulp factory TCF - GL&V 2004 - Agreement between NWTC and GL&V (Canada) leading to the installation of the first mill in Russia to use the latest technology to achieve bleaching totally free of chlorine (TCF) GL&V Pulp and Paper Group is a leading specialist provider to the global pulp industry NWTC headquarters, St Petersburg, 2004 Igor Bitkov with ??? of GL&V

26. Gazprombank loan for equipment purchase from GL&V PROJECT FINANCING 2005 • Loan of US $22,385,000.- for machinery purchased from GL&V EDC credit granted by Gazprombank for seven years, ending in 2012 • NWTC never fell behind in payments but Gazprombankcalled in the loan in 2008

27. Start of construction of TCF plant at NCBK NWTC was the first company to introduce TCF production in the Russian pulp and paper industry At NCBK, the new plant led to significant reduction of chlorine levels in the Neman river separating Kaliningrad Region from Lithuania Bilateral relations between Kaliningrad Region and Lithuania improved as a result Yuri Shalimov, Deputy Governor of the Kaliningrad Region and leader of the Regional United Russia Party, Irina Bitkova and the Russian Patriarch Kirill at the ceremony to bless the start of construction of the TCF paper mill at NCBK (2005). The plant opened in 2007

28. International regulations that served as the basis for NWTC’s environmental policy Base Regulations: • BAT (Best Available Technology) • HELCOM • EU Standards • Russian Regulations • Kyoto Protocol Public Opinion In larger projects NWTC took into account public opinion. For example: The environmental impact of the "Reconstruction of the NPPM Pulp Production" project was approved in June 2005 afterpublic consultationsin Neiman. Debates at different levels: Municipality, Regional and Federal ENVIRONMENTAL ORGANISATIONS Pre and post project consultations were held with environmental organizations: • Greenpeace • HELCOM • Lithuanian officials (border country) • WTTC - Germany • ECO Protection • WWF

29. NWTC meets international environmental standards Recognition by PriceWaterhouseCoopers for the fulfillment of GRI standards in three consecutive years Ecological Accountability reports: Ecological reports submitted by NWTC were in line with the guidelines the GRI -Global Reporting Initiative

30. NWTC’s environmental awards For the implementation of the various ecological projects NWTC was awarded the National Ecological Prize founded by the National Ecology Council of Russia and Foundation Vernadsky VI, for its compliance with GRI standards and was recognized as the best-performing company of its kind in Russia According to the magazine "Wood Industry" and the agency "Lesprom Industry Consulting" NWTC was in the top 15 fastest-growing companies in North-West Russia

31. NWTC’s contribution to the local community • For the community of Neiman, the NCBK plant was the center of its life since the community was formed around the factory. NWTC placed strong emphasis on implementing social programmes: • Annual program of activitiescosting $380,000 • Salary levels: in the Russian pulp & aperIndustry, NWTC had the highestwage rates. equiparetethem with EU salaries • Medical Services for employees:medical posts were established with different specialties: General Practitioner, Dentist, Gynaecologist. NWTC had an equipped physiotherapy room. With these facilities and other programmes such as vaccination and personalized diets, from 2004 to 2005 NWTC reduced the absenteeism rate by30%.

32. Social Responsibility policies NWTC and its impact on the community 4. Improvement of industrial and labor safety: 100% of the staff received training to maintain job security. Every year all employees were handed two pairs of overalls, one for winter and one for summer, including safety shoes. With these measures it became possible to lower the accidents rate at the two NWTC plants. 5. Improvement of hygiene and sanitary conditions. 6. Social guarantees for all employees included: • Facilities to work and to be trained • If people downsizing is not dismissed early retirement age or single mothers • Or people not socially protected • The lower working days and 40 hours / week • Transportation service for workers • The best workers are recognized with awards and honors

33. Construction of factory No. 3 at Neman NEW FACTORY TO PRODUCE PAPER # 3 NCBK A new facility to produce high quality paperin Kaliningrad Region

34. Installation of new equipment NEWFACTORY No. 3 NCBK German machinery in use in the new plant Voith was responsible for its installation and staff training

35. Blessing of new factory No. 3 by Patriarch Cyril in 2006

36. InaugurationofNCBK, Kaliningrad Region, 2006 Shown in the picture from right to left: 1. Vladimir Yegorov, Board Member of NWTC and former Governor of Kaliningrad Region 2. Igor Bitkov, Director of NWTC 3. Irina Bitkova, Chairwoman of NWTC 4. Vitaly Shipov, Deputy Minister of Development of Regions of Russia 5. Grigoriy Boos, Governor of Kaliningrad Region. The inauguration was attended by representatives of VTB, Sberbank and Gazprombank. In the background are bundles of high-quality paper packed ready for delivery.