pulp and paper products - rajeev dhawan
TRANSCRIPT
Pulp and PaperPulp and PaperProducts
10/24/2007 1
Products
Topics
Industry AnalysisWeyerhaeuser AnalysisEconomic EnvironmentRecommendations Macro Impact
10/24/2007 2
Objective
Present the relevance of the forest and paper products industry to the US economy. Propose a shift and change in strategy for companies in the Forest and Paper industry due to the changing economic condition
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Forestry and Paper Products Industry
Wood Products – 45% of IndustryPrinting and writing paperBoxboardContainerboardTissue NewsprintReal EstateRecycling
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Top 10 Industry Firms
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Rank Company Country 2006 Net Sales (MM)
2006 Net Income (Loss)(US$M)
11 International International PaperPaper
USUS 24,97624,976 (880)(880)
22 Koch Koch IndustriesIndustries--GPGP
USUS 23,27123,271 (735)(735)
33 WeyerhaeuserWeyerhaeuser USUS 16,77116,771 1616
4 Kimberly-Clark US 13,566 1,1675
5 Stora Enso Finland 12,090 (211)
6 Procter & Gamble US 11,877 954
7 UPM-Kymmene Finland 9,907 520
8 Nippon Unipac Japan 9,696 (5)
9 Oil Paper Japan 9,635 (142)
10 SCA Sweden 9,091 588
Forest and Paper Industry in US Economy
10/24/2007
The entire Industry does $260B in sales
The entire industry employs approximately 1 million workers
North America accounts for more than 25% of Worldwide Market Share
Industry Represents 1.96% of US GDP
6
Demand Factors for Forest and Paper Products
Housing StartsDirect Correlation to Demand for Wood Products segment in Forestry and Paper ProductsAlso effected by Interest Rates as a lagged negative correlation
0
500000
1000000
1500000
2000000
2500000
199619
9719
9819
9920
0020
0120
0220
0320
0420
05
Year
Hous
ing Sta
0
2,000,000,000
4,000,000,000
6,000,000,000
8,000,000,000
10,000,000,000
12,000,000,000
WY Lu
mbe
r Sa
HousingStartsWY Lumber
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Demand Factors for Forest and Paper Products
Exchange Rates- International TradeValue of Dollar directly impacts the price of lumber and raw materials. Imports rise as the dollar value increasesChina is largest trading partner for wood products
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Exchange Rate vs Imports and Exports
02000
40006000
800010000
199619
9719
9819
9920
0020
0120
0220
0320
0420
05
Year
Impo
rt and
Exp
o
8.18.15
8.28.25
8.38.35
Rate
Wood Pulp ExportsWood Pulp ImportsChina Exchange Rate
Demand Factors for Forest and Paper Products
Increasing Level of SubstitutesLumber Demand is being addressed by alternate materialsPaper demand is decreasing as electronic means take hold and shrinking need for newsprint as newspapers lose readers
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Forest and Paper Industry Costs and Production Issues
Energy PricesEnergy PricesApproximately 10% of all companies costsCompanies generally cannot increase prices relative to change in energy costs because products are commodities
Industry Operating Industry Operating EfficiencyEfficiency
Generally running 98% capacity
Raw Materials CostsRaw Materials CostsTrees, Solvents, Harvesting
Capital Outlays for MillsCapital Outlays for MillsLumber and Paper Mills are capital intensive to build and may become unneeded if supply increases and/or demand lowers
Oil Prices vs COGS
$-
$10.00
$20.00
$30.00
$40.00
$50.00
96 97 98 99 00 01 02 03 04 05
Year
Oil
Pric
0
5,000,000
10,000,000
15,000,000
20,000,000
WY
CO
GS
(In B
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Industry Non Economic Factors
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Government and Environmental Regulations
Ecological and animal habitat regulations have hindered ability to utilize timberlandsEnvironmental impacts of plants
Natural DisastersHurricanesForest Fires
Weyerhaeuser Introduction
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US Based Company$22.629 Billion in Sales$733 Million in Net Income49,900 Employees#3 in Industry Market Share#2 in Wood Products
WY Market Share of Total Industry
93%
7%
Industry Sales
WY Sales
Market PowerWeyerhaeuser is the 2nd largest North American Company in the Forest and Paper Industry with revenues of $22.629B in 2005. They currently have a pending purchase of Domtar Inc which will give WY more Canadian assets
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Weyerhaeuser Financial Performance
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Weyerhaeuser Business Units
Product Sales
Other22%
Lumber Sales48%
EngineeredLumber Products
8%
P&P Sales22%
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Weyerhaeuser Strategies and Goals 2007
Maintain focus on reduction in costs of productionSelective market expansionFund selective growth opportunitiesContinue capital spending disciplineSouth American growth
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Economic Environment- Future
Housing Starts- Expected to see slight declines and then stability over next three years Housing Starts with 3 Year Forecast
0
500000
1000000
1500000
2000000
2500000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Year
Ann
ual S
tar
Housing Starts
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Economic Environment- Future
Interest Rate- will remain constant based on pull back of investment in housing market and strong potential Fed activity
Interest Rate with Three Year Forecast
0.001.002.003.004.005.006.007.00
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Year
Rat
e
Interest Rate
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Economic Environment- Future
Correlation of Interest Rates and Housing Starts
Housing Starts vs Interest Rates
0
500000
1000000
1500000
2000000
2500000
19961997199819992000200120022003200420052006200720082009
Year
Starts
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Rates
Housing Starts Nominal Interest Rates
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Economic Environment- Future
Energy Prices- will remain stable over next three years pending no significant impact on supply
Oil Prices with Three Year Forecast
$-$10.00$20.00$30.00$40.00$50.00$60.00$70.00
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Year
Pric
e pe
r Bar
Oil Prices
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Economic Environment- Future
Exchange Rate- current trend is indicating a stronger US dollar to most currencies. Also import increases indicate the position for a stronger US Dollar
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Weyerhaeuser Forecasts
Demand for lumber will fall due to decrease in housing starts which started 4Q of 2006 which = lower salesEnergy price stability will not allow for reduced costs of productionDue to decrease in demand and stable energy prices WY’s profits will decreaseInterest Rate stability will no fuel a surge in housing starts
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Weyerhaeuser Recommendations
Maintain operating capacity at 97% or aboveIncreased expansion into Asian markets-China
Take advantage of stronger dollarChina Demand for Wood and Paper Product has tripled- including newsprint
Continued divesting of timberline assetsMove focus out of Real Estate Business Sector
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Weyerhaeuser Recommendations
Focus on Substitute and Compliment Products to capitalize on demand and lower production costs
Higher Demand and lower production cost in Raw Materials and Energy for Engineered Wood ProductsEucalyptus Pulp available to harvest year round and primarily based in AsiaProducts are not as elastic as current portfolio
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Weyerhaeuser Recommendations
Expand and utilize transportation businessMake more vertical supply chain to Asia expansion and streamline cost structureUtilize to take advantage of risk and changes in exchange rates along with import an export fluctuations
Weyerhaeuser can hedge against potential interest fluctuations by managing a portfolio of variable and fixed rate debt composed of short and long term instruments. This will help balance the Corporations cost of financing with it's interest rate risk.
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Thank You
QUESTIONS
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