Pulp and Paper Industry Presentation

8/8/2019 Pulp and Paper Industry Presentation

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Pulp and PaperPulp and PaperProductsProducts


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Topics Industry Analysis

Weyerhaeuser Analysis

Economic Environment Recommendations

Macro Impact


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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 Forestand Paper industry due to the

changing economic condition


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Forestry and Paper Products

Industry Wood Products 45% of Industry

Printing and writing paper

Boxboard Containerboard

Tissue

Newsprint Real Estate

Recycling


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Top 10 Industry FirmsRank Company Country 2006 Net

Sales (MM)2006 NetIncome(Loss)(US$M)

11 InternationalInternationalPaperPaper USUS 24,97624,976 (880)(880)

22 KochKochIndustriesIndustries--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


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Forest and Paper Industry in US

Economy The entire Industry does $260B in sales

The entire industry employsapproximately 1 million workers

North America accounts for more than

25% of Worldwide Market Share

Industry Represents 1.96% of US GDP


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Demand Factors for Forest and

Paper Products Housing Starts

Direct Correlation to Demand for WoodProducts segment in Forestry and Paper

Products Also effected by Interest Rates as a lagged

negative correlation

0

500000

1000000

1500000

2000000

2500000

199

199

199

199

200

200

200

200

200

200

Year

Hous

in

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

WYLu

mHousingStartsWY Lumber


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Paper ProductsExchange Rates- International Trade

Value of Dollar directly impacts the price oflumber and raw materials. Imports rise as the

dollar value increases China is largest trading partner for wood

products

Exchange Rate vs Imports and Exports

0

2000

4000

6000

800010000

199

199

199

199

200

200

200

200

200

200

Year

Importand

8.1

8.15

8.2

8.25

8.38.35

Ra

Wood Pulp Exports

Wood Pulp Imports

China Exchange Rate


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Paper ProductsIncreasing Level of Substitutes

Lumber Demand is being addressed byalternate materials

Paper demand is decreasing as electronicmeans take hold and shrinking need fornewsprint as newspapers lose readers


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Forest and Paper Industry Costs

and Production Issues Energy PricesEnergy Prices

Approximately 10% of allcompanies costs

Companies generally cannotincrease prices relative tochange in energy costs

because products arecommodities

Industry OperatingIndustry OperatingEfficiencyEfficiency Generally running 98%

capacity

Raw Materials CostsRaw Materials Costs

Trees, Solvents, Harvesting Capital Outlays for MillsCapital Outlays for Mills

Lumber and Paper Mills arecapital intensive to build andmay become unneeded ifsupply increases and/ordemand 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

OilPrice

0

5,000,000

10,000,000

15,000,000

20,000,000

WY

COGS(InBill)


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Industry Non Economic Factors Government and Environmental

Regulations

Ecological and animal habitat regulationshave hindered ability to utilizetimberlands

Environmental impacts of plants

Natural Disasters Hurricanes

Forest Fires


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Weyerhaeuser Introduction US Based Company

$22.629 Billion inSales

$733 Million in NetIncome

49,900 Employees

#3 in IndustryMarket Share

#2 in WoodProducts

W Market Share of Total Industry

93%

7%

Industry Sales

WY Sales


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Market Power Weyerhaeuser is the 2nd largest North

American Company in the Forest and PaperIndustry with revenues of $22.629B in 2005.

They currently have a pending purchase ofDomtar Inc which will give WY more Canadianassets


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Weyerhaeuser Financial

Performance


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Weyerhaeuser Business UnitsProduct Sales

Other

22%

Lumber Sales

48%

Engineered

Lumber Products

8%

P&P Sales

22%


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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


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Economic Environment- Future Housing Starts- Expected to see slight

declines and then stability over next threeyears 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

AnnualSta

Housing Starts


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Economic Environment- Future Interest Rate- will remain constant

based on pull back of investment inhousing market and strong potential Fed

activityInterest Rate with Three Year Forecast

0.00

1.00

2.003.00

4.00

5.00

6.00

7.00

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Year

Ra

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

19961997 199819992000200120022003 200420052006 200720082009

Year

Sta

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Rat

Housing Starts Nominal Interest Rates


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Economic Environment- Future Energy Prices- will remain stable over

next three years pending no significantimpact 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

PriceperB

Oil Prices


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Economic Environment- Future Exchange Rate- current trend is

indicating a stronger US dollar to

most currencies. Also importincreases indicate the position for astronger US Dollar


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Weyerhaeuser Forecasts Demand for lumber will fall due to decrease

in housing starts which started 4Q of 2006which = lower sales

Energy price stability will not allow forreduced costs of production

Due to decrease in demand and stableenergy prices WYs profits will decrease

Interest Rate stability will no fuel a surge in

housing starts


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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 BusinessSector


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Weyerhaeuser

Recommendations Focus on Substitute and Compliment

Products to capitalize on demand andlower production costs

Higher Demand and lower production costin Raw Materials and Energy forEngineered Wood Products

Eucalyptus Pulp available to harvest yearround and primarily based in Asia

Products are not as elastic as currentportfolio


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Weyerhaeuser

Recommendations Expand and utilize transportation business

Make more vertical supply chain to Asia expansionand streamline cost structure

Utilize to take advantage of risk and changes inexchange rates along with import an exportfluctuations

Weyerhaeuser can hedge against potentialinterest fluctuations by managing a portfolio of

variable and fixed rate debt composed of shortand long term instruments. This will helpbalance the Corporations cost of financing withit's interest rate risk.


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Thank You

QUESTIONS

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