Pulp and Paper Industry Presentation by K2ihK7P1

VIEWS: 69 PAGES: 26

									           Pulp and Paper
              Products



3/1/2012                    1
Topics
   Industry Analysis
   Weyerhaeuser Analysis
   Economic Environment
   Recommendations
   Macro Impact




3/1/2012                    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


3/1/2012                                 3
Forestry and Paper Products
Industry
   Wood Products – 45% of Industry
   Printing and writing paper
   Boxboard
   Containerboard
   Tissue
   Newsprint
   Real Estate
   Recycling
3/1/2012                              4
 Top 10 Industry Firms
Rank        Company            Country   2006 Net     2006 Net
                                         Sales (MM)   Income
                                                      (Loss)
                                                      (US$M)
1           International      US        24,976       (880)
            Paper
2           Koch               US        23,271       (735)
            Industries-GP
3           Weyerhaeuser       US        16,771       16
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
 3/1/2012   SCA                Sweden    9,091        588        5
Forest and Paper Industry in US
Economy
 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

3/1/2012                                    6
Demand Factors for Forest and
Paper Products
 Housing Starts
                    Direct Correlation to Demand for Wood
                     Products segment in Forestry and Paper
                     Products
                    Also effected by Interest Rates as a lagged
                     negative correlation
                   2500000                  12,000,000,000




                                                             WY Lumber Sales
  Housing Starts




                   2000000                  10,000,000,000

                                            8,000,000,000
                   1500000                                                     Housing
                                            6,000,000,000                      Starts
                   1000000                                                     WY Lumber
                                            4,000,000,000
                                                                               Sales
                    500000                  2,000,000,000
                        0                   0
                          96
                          97
                          98
                          99
                          00
                          01
                          02
                          03
                          04
                          05
                       19
                       19
                       19
                       19
                       20
                       20
                       20
                       20
                       20
                       20




                                 Year



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Demand Factors for Forest and
Paper Products
Exchange Rates- International Trade
                       Value of Dollar directly impacts the price of
                        lumber and raw materials. Imports rise as the
                        dollar value increases
                       China is largest trading partner for wood
                        products
                               Exchange Rate vs Imports and Exports
 Import and Exports




                      10000                             8.35
                      8000                              8.3
                                                                      Wood Pulp Exports




                                                               Rate
                      6000                              8.25
                                                                      Wood Pulp Imports
                      4000                              8.2
                                                                      China Exchange Rate
                      2000                              8.15
                         0                              8.1
                           96

                           97

                           98

                           99

                           00

                           01

                           02

                           03

                           04

                           05
                        19

                        19

                        19

                        19

                        20

                        20

                        20

                        20

                        20

                        20




                                     Year
3/1/2012                                                                                  8
Demand Factors for Forest and
Paper Products
Increasing Level of Substitutes
     Lumber Demand is being addressed by
      alternate materials
     Paper demand is decreasing as electronic
      means take hold and shrinking need for
      newsprint as newspapers lose readers




3/1/2012                                         9
Forest and Paper Industry Costs
and Production Issues
   Energy Prices
          Approximately 10% of all
           companies costs                                              Oil Prices vs COGS
          Companies generally cannot
           increase prices relative to
           change in energy costs                       $50.00                                   20,000,000




                                                                                                              WY COGS (In Bill)
           because products are
           commodities                                  $40.00                                   15,000,000
    Industry Operating



                                            Oil Price
                                                       $30.00
    Efficiency                                                                                   10,000,000
          Generally running 98%                        $20.00
           capacity                                                                              5,000,000
                                                        $10.00
   Raw Materials Costs
          Trees, Solvents, Harvesting                    $-                                     0
   Capital Outlays for Mills                                    96 97 98 99 00 01 02 03 04 05
          Lumber and Paper Mills are
           capital intensive to build and                                    Year
           may become unneeded if
           supply increases and/or
           demand lowers

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Industry Non Economic Factors
 Government and Environmental
  Regulations
     Ecological and animal habitat regulations
      have hindered ability to utilize
      timberlands
     Environmental impacts of plants
 Natural Disasters
                   Hurricanes
                   Forest Fires
3/1/2012                                      11
Weyerhaeuser Introduction
 US Based Company
                        WY Market Share of Total Industry
 $22.629 Billion in
  Sales
                          7%
 $733 Million in Net
  Income                                                    Industry Sales
 49,900 Employees                                          WY Sales

 #3 in Industry
  Market Share                       93%

 #2 in Wood
  Products
3/1/2012                                                               12
Market Power
 Weyerhaeuser 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




3/1/2012                                        13
Weyerhaeuser Financial
Performance




3/1/2012                 14
Weyerhaeuser Business Units
                               Product Sales

                             P&P Sales
                               22%


                                               Other
                                               22%

              Engineered
           Lumber Products
                                         Lumber Sales
                 8%
                                            48%




3/1/2012                                                15
Weyerhaeuser Strategies and Goals
2007
 Maintain focus on reduction in costs
  of production
 Selective market expansion
 Fund selective growth opportunities
 Continue capital spending discipline
 South American growth



3/1/2012                                 16
Economic Environment- Future
 Housing Starts- Expected to see slight
  declines and then stability over next three
  years      Housing Starts with 3 Year Forecast

                   2500000
   Annual Starts




                   2000000
                   1500000
                                                                                                                               Housing Starts
                   1000000
                    500000
                         0
                             1996

                                    1997

                                           1998

                                                  1999

                                                         2000

                                                                2001

                                                                       2002

                                                                              2003

                                                                                     2004

                                                                                            2005

                                                                                                   2006

                                                                                                          2007

                                                                                                                 2008

                                                                                                                        2009
                                                                        Year



3/1/2012                                                                                                                                   17
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

          7.00
          6.00
          5.00
   Rate




          4.00
                                                                                                                    Interest Rate
          3.00
          2.00
          1.00
          0.00
                 1996

                        1997

                               1998

                                       1999

                                              2000

                                                     2001

                                                            2002

                                                                   2003

                                                                          2004

                                                                                 2005

                                                                                        2006

                                                                                               2007

                                                                                                      2008

                                                                                                             2009
                                                              Year



3/1/2012                                                                                                                      18
Economic Environment- Future
 Correlation of Interest Rates and Housing
  Starts
                              Housing Starts vs Interest Rates

         2500000                                                                      7.00

                                                                                      6.00
         2000000
                                                                                      5.00
         1500000
Starts




                                                                                             Rates
                                                                                      4.00

         1000000                                                                      3.00

                                                                                      2.00
         500000
                                                                                      1.00

              0                                                                       0.00
                   19961997 1998 19992000 2001 20022003 2004 20052006 2007 20082009
                                                  Year

                                 Housing Starts      Nominal Interest Rates

3/1/2012                                                                                      19
Economic Environment- Future
 Energy Prices- will remain stable over
  next three years pending no significant
  impact on supply
                                          Oil Prices with Three Year Forecast

                   $70.00
Price per Barrel




                   $60.00
                   $50.00
                   $40.00
                                                                                                                              Oil Prices
                   $30.00
                   $20.00
                   $10.00
                     $-
                            1996

                                   1997

                                          1998

                                                 1999

                                                        2000

                                                               2001

                                                                      2002

                                                                             2003

                                                                                    2004

                                                                                           2005

                                                                                                  2006

                                                                                                         2007

                                                                                                                2008

                                                                                                                       2009
                                                                       Year


3/1/2012                                                                                                                            20
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




3/1/2012                                  21
Weyerhaeuser Forecasts
 Demand for lumber will fall due to decrease
  in housing starts which started 4Q of 2006
  which = lower sales
 Energy price stability will not allow for
  reduced costs of production
 Due to decrease in demand and stable
  energy prices WY’s profits will decrease
 Interest Rate stability will no fuel a surge in
  housing starts


3/1/2012                                            22
Weyerhaeuser
Recommendations
 Maintain operating capacity at 97% or above
 Increased expansion into Asian markets-
  China
   Take advantage of stronger dollar
   China Demand for Wood and Paper
     Product has tripled- including newsprint
 Continued divesting of timberline assets
 Move focus out of Real Estate Business
  Sector

3/1/2012                                   23
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 Products
     Eucalyptus Pulp available to harvest year
      round and primarily based in Asia
     Products are not as elastic as current
      portfolio
3/1/2012                                      24
Weyerhaeuser
Recommendations
 Expand and utilize transportation business
     Make more vertical supply chain to Asia expansion
      and streamline cost structure
     Utilize 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.
3/1/2012                                                  25
Thank You




            QUESTIONS




3/1/2012                26

								
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