Financial strength of U.S. producers and product demand are driving
VANCOUVER, May 5, 2014 /CNW/ - The recovery of the forest and paper
industry continued through 2013 for the majority of North American
forest products companies. Total revenues for nine of the largest US
forest products companies increased 4.8% relative to 2012, while
increases for selected producers in Western Canada and Eastern Canada
were up year over year by 16% and 6.3%, respectively. Net earnings were
also up for the majority of the North American companies in 2013.
However, the story wasn't as good for forest products companies in the
rest of the world, as financial results were generally down in 2013,
based on a sample of the larger producers. European producers showed
revenues off by 3.8% in 2013 while revenues of Japanese forest products
companies were down by 6.9% in 2013. Net earnings were also down in
Europe; however, the Japanese producers reported increases in earnings
due to cost savings.
The financial results for the first quarter ("Q1") of 2014 for the
largest public forest products companies have not all been reported
yet, but so far there have been mixed results. The strongest
performance was in the U.S., where all nine of the largest companies
sampled continued their upward trend in earnings. The downward trend
in revenues continued in Europe and Japan in Q1 of 2014, compared with
the same period in 2013, although earnings increased in both regions.
Canadian forest products companies generally reported lower revenues
and net earnings in Q1 of 2014 vs Q1 of 2013. In Western Canada, while
results varied by company, companies that have reported to date show an
aggregate decline of 14% in Q1 net earnings, dropping to CAD127.8
million for the quarter. Aggregate revenues were also down by 2%.
Eastern Canadian producers reporting thus far have posted an aggregate
loss of CAD45.8 million in Q1 of 2014, and revenues for the quarter
were down by 1% over the same period last year. Difficult winter
building conditions in Eastern regions have been blamed for some of the
declines during the quarter.
"One of the big stories in Q1 of 2014 for global forest and paper
producers is the remarkable financial performance of the U.S. players,
with strong earnings growth in 2013 which continued through the first
quarter of 2014," said Bruce McIntyre, partner and leader of PwC's forest, paper & packaging practice in
Canada. "The aggregate net earnings for nine of the largest U.S.
producers this quarter are USD1.28 billion, up a whopping 19% from the
same quarter last year. Revenues were also up by 3% over the same
McIntyre added: "The financial strength of some forest and paper
companies and generally positive outlook for the sector despite longer
term economic uncertainties, has opened up opportunities for them to go
on the acquisition trail."
The year of the big deal
The aggregate value of mergers & acquisition deals that closed in 2013
more than doubled - from USD4.8 billion in 2012 up to USD10.4 billion
in 2013. However there were fewer deals closed in 2013; 65 compared to
85 in 2012.
"2013 was definitely 'the year of the big deal', with the highest
aggregate value of deals in the last 5 years," said Jason Boyer, a Vice President in PwC's Deals practice. "We believe the drivers for
these deals are the availability of debt at low rates, strategic
acquisitions to secure fibre supply, and the increase in demand for
wood products in the U.S. housing sector and in Asia."
The deals occurring in the U.S. accounted for USD7.9 billion, or 76% of
the 2013 total. Examples of large deals which closed in 2013 are the
sale of Longview Timber to Weyerhaeuser for USD2.7 billion;
Georgia-Pacific's purchase of Buckeye Technologies for USD1.6 billion,
and KapStone Paper and Packaging's purchase of Longview Fibre for
USD1.5 billion. In addition, there were a number of large deals
announced in 2013 that have not yet closed, including Plum Creek
Timber's acquisition of part of MeadWestvaco for USD1.1 billion.
Boyer added: "The big industry deals aren't done yet. We believe there
will be more large deals in 2014. In fact, just days ago Oji Holdings
and Innovation Network Corporation of Japan announced the purchase of
Carter Holt Harvey's pulp and paper business and other related assets
in New Zealand. That deal is estimated to be worth close to NZ$1
Transformative global trends
Along with a return to a more positive financial picture and increased
M&A activity in the sector, CEOs at some of the world's largest public
forest and paper companies identified three major trends that are
transforming their businesses:
Technological advances, such as the digital economy, social media,
mobile devices and big data.
Resource scarcity, coupled with climate change and the need to minimize
their environmental footprint.
Demographic shifts, including growth in the emerging markets,
urbanization and an aging workforce.
McIntyre concluded: "The CEOs PwC recently surveyed said one key aspect
of meeting the challenges of these major trends is to invest in
technology and people who will drive innovation. Innovative ideas,
combined with the right investments, are needed to create new products,
expand markets, and provide a pipeline of fresh opportunities for the
future. Some companies are already taking steps in this direction."
For more information on these and other emerging trends, see PwC's 17th Annual Global CEO Survey.
These and other business topics will be discussed by senior forest and
paper company executives, customers, suppliers, industry analysts and
government policy makers at the PwC 27th Annual Global Forest & Paper Industry Conference being held in Vancouver, British Columbia on Tuesday May 6th.
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SOURCE: PwC (PricewaterhouseCoopers)
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