Southern Europe moves toward even greater integration; Italy, Spain and Portugal may well have very different cultures, but they are set to have closer ties in the future if the pulp and paper industry is any guide.Looking at the pulp and paper industry in Europe Pulp and paper industry in Europe. Leading companies According to the 2003 PricewaterhouseCoopers Global Forest & Paper Industry Survey [1], the top 10 forest and paper products companies in Europe were: Rank Company Country 2002 Net Sales , it is easy to concentrate on the big Nordic producers. Not only do they dominate the sector in terms of the region's output, but they also control a large proportion of the region's asset base. However, interest in southern Europe Southern Europe or sometimes Mediterranean Europe is a region of the European continent. There is no clear definition of the term which can vary depending on whether geographic, cultural, linguistic or historical factors are taken into account. is growing as consolidation makes its mark against a background of rising output and even some potentially promising demand trends. Italy, Spain and Portugal represent much of what might be termed "southern European" output, although it could be argued that Greece and Turkey are important as well--especially since they often act as "link lines" into Eastern Europe Eastern Europe The countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. and even the Middle East for many customers. Italy was the fifth largest paper and board producer in Europe last year after Germany, Finland, Sweden and France. With paper and board production of just under 9.3 million metric tons last year, Italy has come a long way over the last generation to creep to within half a million metric tons of France in the production stakes. Spain produced a healthy 5.4 million metric tons of paper and board in 2000 along with 1.7 million metric tons of pulp. And while Portugal produced just under 1.5 million metric tons of paper and board, it is still reasonably significant in European terms European terms A foreign exchange quotation that states the foreign currency price of one U.S. dollar. Opposite of direct quote. for the volume of pulp the country produces--over 1.9 million metric tons last year. The paper sector across southern Europe is generally characterized by somewhat smaller paper machines and smaller corporate holdings--many run as family concerns. That is changing though, as the apparently irresistible influence of industry consolidation takes hold and companies pursue efficiency gains with larger production facilities. ITALIAN TALE The largest volume producer of the three, Italy has a diverse set of paper companies. Partly for historical and cultural reasons and partly due to the population's famed engineering skills, the Italian paper industry is teeming teem 1 v. teemed, teem·ing, teems v.intr. 1. To be full of things; abound or swarm: A drop of water teems with microorganisms. 2. with a variety of small and medium-sized producers that are often family controlled. Some fairly large groups also drive the industry, including Burgo with operations around Europe and major investments both at home and abroad. Two major investments completed at the end of 2001--a 400,000 metric tons/yr LWC LWC Lindsey Wilson College (Kentucky) LWC Liquid Water Content LWC Lightweight Coated paper LWC Language of Wider Communication LWC Lincoln-Way Central LWC Lost Workday Case LWC Leave Word Calling LWC Light Weight Concrete paper machine at Verzuolo in Italy and an upgraded 360,000 metric ton/yr pulp line at Burgo Ardennes in Belgium--are prominent features of the company's growth. Despite the efficiency gains these investments have brought, Europe's weak publication papers market is affecting Burgo at present. As the company noted, "The group has specialized its production capacity in the manufacture of graphic paper, mostly coated. Unfortunately, the start of the new LWC production coincided with a period of extreme market weakness. Production was affected by the frequent market-related downtimes in particular for LWC. The capacity utilization Capacity Utilization measures the rate at which a firm makes use of their capital productive capacities, such as factories and machinery. Capacity Utilization generally rises when the economy is healthy and falls when demand softens. was just over 80% [in 2002]." With prices for LWC and newsprint newsprint low grade paper used for newspapers. Old newspapers are fed to cattle as an alternative roughage and may occasionally be ingested by dogs. Significant amounts of lead are accumulated in tissues; no cases of poisoning have been recorded in cattle, though it has been down 10-13% and 5% for coated woodfree, which was already weak, Burgo's results reflected broader difficulties across the segment, showing gross operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: down by 15% for the year. Industry watchers predict a recovery to come for this segment, albeit a slow one (see table). A potentially more important long-term development for Burgo is the fact that another Italian firm has taken a hefty stake in the company. The Marchi Group controls some 23% of Burgo and is looking at further opportunities for cooperation in the future. Any formal tie-up would see the creation of a EUR EUR In currencies, this is the abbreviation for the Euro. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 2 billion company. Such a deal could give Italy a regional player with the scale to impact the sector in the long term. Tissue is another traditionally strong area for Italy's papermakers. But even as the country's producers have looked outward for export growth and scale, the inevitable march of consolidation has taken its toil on domestic players. SCA's acquisition of the Italian tissue company, CartoInvest, went through in 2002 for EUR 470 million, including debt. The move continued the longer-term pattern of consolidation that has taken place across Europe's paper sector. As well as offering SCA (Single Connector Attachment) An 80-pin plug and socket used to connect peripherals. With a SCSI drive, it rolls three cables (power, data channel and ID configuration) into one connector for fast installation and removal. a strong foothold in the Italian market, the acquisition pushed SCA's share of Europe's private label market from 24% to approximately 32%, while in the consumer tissue area the group's share rose from 20% to 25%. As SCA's president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , Jan Astrom, pointed out, "Advancing into Italy on a broad front is definitely an advantage and it gives us an opportunity to strengthen our leadership in Europe in consumer tissue products, where we now have 25% of the market." SPANISH EYES Spain has also witnessed Nordic players bringing their influence to southern Europe with the likes of Stora Enso
More recently, though, Holmen was forced to postpone a plan to build a new newsprint machine for the group's Spanish mill. The Braviken and Papelera Peninsular mills had both competed for the privilege of hosting the machine before weak market conditions and collapsing newsprint prices forced the company to shelve shelve v. shelved, shelv·ing, shelves v.tr. 1. To place or arrange on a shelf. 2. the plans. Other multinational groups such as Smurfit Group and Lecta are still doing much to play their part in this part of the world, as they do across much of southern Europe. Indeed, Smurfit just announced in June that it was making a EUR 29.5 million offer for the 64% of Papelera Navarra (containerboard con·tain·er·board n. A corrugated or solid cardboard used to make containers. , sack kraft, etc.) that it does not own. The locals have been quite busy, too. One of the country's biggest domestic producers, Ence, has just completed a two-year, EUR 40 million investment to boost the capacity of the world's largest totally chlorine flee (TCF See Trenton Computer Festival. ) pulp line. From the start of this year, Ence's Pontevedra mill in the northwest of Spain boasts a TCF eucalyptus eucalyptus (y  'kəlĭp`təs): see myrtle. eucalyptus pulp capacity of 365,000 metric tons/yr, and the mill already has preliminary plans to boost that to 400,000 metric tons/yr in the future. Yet Ence is not stopping there. The group is already eyeing further investment at Pontevedra with a EUR 150 million plan to build a tissue line at the plant. The new tissue complex is expected to have an annual production capacity of 60,000 metric tons and hit sales of EUR 80 million. The investment plans underline underline an animal's ventral profile; the shape of the belly when viewed from the side, e.g. pendulous, pot-belly, tucked up, gaunt. the relatively strong performance Spanish companies have managed compared with their northern colleagues. Indeed, Ence reported 2002 net profits up 5% at EUR 28.7 million. As the company's president, Jose Luis Mendez, explained, these "favorable results" have been achieved in an uncertain environment where economic growth in the European Union European Union (EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the European Community is a mere 0.8%. Carlos Reinoso Carlos Enzo Reinoso Valdenegro (born 7 March 1946) is a Chilean football coach who played in the 1970s and 1980s, most notably as a member of the Mexican team, America. He began his career in his home country playing for Audax Italiano. , general manager of the Spanish pulp and paper industry The global pulp and paper industry is dominated by North American (United States, Canada), northern European (Finland, Sweden) and East Asian countries (such as Japan). Australasia and Latin America also have significant pulp and paper industries. association, Aspapel, points out that Ence's strong performance is far from unique among his members. "The main message is that the rate of growth has been running at double the European average for last 10 years," he said. While Spain's paper industry is not stratospheric strat·o·spher·ic adj. 1. Of, relating to, or characteristic of the stratosphere. 2. Extremely or unreasonably high: "money borrowed at today's stratospheric rates of interest" , it is certainly flying higher than many of its peers. Aspapel's figures show that production was up 4.5% last year, paper consumption climbed by 8.6% and pulp consumption was up 3.5%. In contrast to the sluggish growth across the rest of Europe (see table), Spain's economic performance has helped drive per capita [Latin, By the heads or polls.] A term used in the Descent and Distribution of the estate of one who dies without a will. It means to share and share alike according to the number of individuals. consumption to 170 kg/yr. Reinoso also believes that Spain's papermakers will continue to enjoy above average growth as the country closes the consumption gap with the likes of France (183 kg/cap/yr), the UK (206 kg/cap/yr) and Germany (225 kg/cap/yr). As Reinoso noted, "Ence is doing well, companies like Torraspapel and Sniace are performing very well, and there are lots of announcements for new capacity." This reflects another feature of the Spanish market, where the country's reliance on imports is steadily dropping as homegrown home·grown adj. 1. Raised or grown at home. 2. Originating in or characteristic of a locality: "Rock is homegrown music in the United States, evolved from blues and country and Tin Pan Alley" capacity is added. Metso recently helped Torraspapel complete a EUR 60 million investment at the Motril paper mill that took capacity to 230,000 metric tons/yr. But the Lecta owned company represents just one of many capacity additions and upgrades that have been seen across the country. For example, Saica recently commissioned Voith to optimize PM 9 at its Zaragoza mill in a project that produced a record speed of 1260 m/min on the 8.1 m wide corrugating medium machine. Iberpapel, Alier, Goma Camps, Papresa, Papelera de Besaya and Store Enso are among a host of companies that have featured in investment stories in the industry press in recent months. PORTUGUESE PUSH Moving west, Portugal has also featured heavily in the business press in recent months. In June, Finland's M-real Corporation made a formal bid to buy a 25% stake in the Portuguese pulp and paper company, Portucel Soporcel The Portucel Soporcel Group is a Portuguese pulp and paper company, which has resulted from the union of Portucel and Soporcel. It is one of the five largest European producers of uncoated woodfree paper. , from the Portuguese government. The government is in the process of privatizing the group by decreasing its ownership in the company to 34%. Although M-real's bid is for a minority stake, it would become the biggest industrial owner within Portucel Soporcel. The Portuguese outfit boasts a production capacity of more than one million metric tons of paper and 1.2 million metric tons of pulp, and controls 180,000 hectares of forest. The company's turnover of EUR 1,086 million in 2002 was largely generated through Portucel Soporcel's three mills The Three Mills are former working mills on the River Lee in the East End of London, one of London’s oldest still-surviving industrial centres. The largest and most powerful of the four remaining tidal mills is possibly the largest tidal mill in the world. : Setubal, Figueira da Foz Figueira da Foz (pron. IPA: [fi'gɐiɾɐ dɐ fɔʃ]) is a city of the district of Coimbra, in Portugal. , and Cacia. As part of the bid, M-real plans to transfer its Home & Office division to the Portucel Soporcel group, including four paper mills and one pulp mill A pulp mill is a manufacturing facility that converts wood chips or other plant fiber source into a thick fiber board which can be shipped to a paper mill for further processing. (Wifsta in Sweden, Alizay and Pont PONT Pontiac Salute Maxence in France, and New Thames in the UK). The uncoated fine paper production of Husum paper mill would also be supplied to Portucel with a long-term agreement. As M-real's president and CEO, Jouko Jvaakkola, put it, "M-real has evaluated several options for developing our Home & Office business, and the bid we have made to the Portuguese government would provide a good way to build the future of the uncoated fine paper business in Europe." If successful, the bid would go a long way toward establishing M-real's position as one of Europe's biggest uncoated woodfree producers, as well as providing an important beachhead beach·head n. 1. A position on an enemy shoreline captured by troops in advance of an invading force. 2. A first achievement that opens the way for further developments; a foothold: into southern European markets. But a rival bid from a Portuguese firm, Cofina, in conjunction with Lecta means that this one could turn into a bidding battle. The Cofina/Lecta bid also includes an asset swap Asset Swap Similar in structure to a plain vanilla swap, the key difference is the underlying of the swap contract. Rather than regular fixed and floating loan interest rates being swapped, fixed and floating investments are being exchanged. element that the co-bidders argue will create greater value than M-real's offer since the company would have an emphasis on coated fine paper rather than uncoated. Another part of the Portucel privatization privatization: see nationalization. privatization Transfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned saga has been getting lots of attention in the financial press as well. In 2000, the government sold 65% of Portucel's packaging arm, called Gescartao, to Imocapital, an investment vehicle set up between the Portuguese group, Souse, and the Spanish firm, Europac. At that time, the government took an option to float another 25% via an initial public offering (IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. ), but the clause included a time limit of February 2003 beyond which the option would expire and Imocapital would get the right to take up the stake. The government did eventually go for an IPO, but not until after the option had expired. Amid much wrangling and recrimination A charge made by an individual who is being accused of some act against the accuser. Recrimination is sometimes used as a defense in actions for Divorce. Traditionally the underlying theory was that a divorce could be granted only when one individual was innocent and the , the IPO is going ahead. But the affair has left a bitter taste and Sonae reportedly remains unhappy about the government's behavior. It is unclear how things will play out, but there is even speculation that Sonae could try to impact the Portucel Soporcel bidding battle as Sonae controls a minority stake in the company and the privatization will dilute its stake even further. CREEPING CONSOLIDATION While it is not yet clear exactly how the Portuguese pulp and paper industry will reshape itself, it seems clear that long-term trends right across southern Europe appear quite similar--ever greater share ownership and control under the leadership of multinational pulp and paper companies. If that is the case, it is quite likely that average machine widths and speeds will increase to generate efficiencies further down the road. With recycling rates also rising across Europe, it is also possible that there will be more "urban forest" for producers to exploit. This could lead to a broader production balance across Europe that will see less paper traded across borders and more produced for domestic consumption in each country. Meanwhile, the economies of southern Europe--especially Spain--appear set to lift consumption in the medium term, which can't be a bad thing. S!
Quarter Q1 Q2 Q3 Q4 Q1
2002 2002 2002 2002 2003
TOTAL PAPER & BOARD
Italy 2,359 2,467 2,116 2,333 2,477
Portugal 376 370 359 366 354
Spain 1,361 1,373 1,337 1,337 1,389
TOTAL PULP
Italy na na na na na
Portugal 477 501 478 459 472
Spain 435 431 427 426 477
TOTAL GRAPHIC PAPER
Italy 782 789 698 795 828
Portugal 237 231 223 240 223
Spain 372 377 355 370 372
TOTAL PACKAGING
Italy 1,113 1,174 975 1,052 1,157
Portugal 121 120 118 106 117
Spain 722 746 717 735 747
SANITARY & HOUSEHOLD
Italy 319 352 307 338 353
Portugal 15 16 15 17 12
Spain 134 124 111 117 134
GDP Growth
Italy 0.3 1.5 2.5
Portugal 0.4 1.5 2.3
Spain 1.8 2.5 3.0
Euro Area
Average 0.8 1.8 2.7
Quarter Q
Change 2001 2002 Yr on Yr
TOTAL PAPER & BOARD
Italy 5.0% 8,924 9,275 3.9%
Portugal -5.9% 1,407 1,471 4.5%
Spain 2.1% 5,135 5,365 4.5%
TOTAL PULP
Italy na na na na
Portugal -1.0% 1,808 1,915 5.9%
Spain 9.7% 1,720 1,719 -0.1%
TOTAL GRAPHIC PAPER
Italy 5.9% 2,952 3,064 3.8%
Portugal -5.9% 865 931 7.6%
Spain 0.0% 1,413 1,474 4.3%
TOTAL PACKAGING
Italy 4.0% 4,202 4,314 2.7%
Portugal -3.3% 471 465 -1.3%
Spain 3.5% 2,784 2,920 4.9%
SANITARY & HOUSEHOLD
Italy 10.7% 1,225 1,316 7.4%
Portugal -20.0% 59 63 6.8%
Spain 0.0% 469 486 3.6%
GDP Growth
Italy
Portugal
Spain
Euro Area
Average
Source: OECD
IN THIS ARTICLE, YOU WILL LEARN: * Why Italy has a diverse group of paper companies * How merger activity is reshaping the Southern European paper industry * Why Spain's paper industry is flying higher ADDITIONAL RESOURCES: * The Burgo Group web site: www.burgo.com * ASPAPEL (Association of Spanish Pulp and Paper Manufacturers) web site: www.aspapel.es * Grupo Portucel Soporcel web site: www.portucelsoporcel.com About the author: Jim Kenny is contributing editor/Europe, for Solutions! magazine, and is based in Brussels, Belgium. He is the former vice president of editorial for Paperloop and today heads his own company, DSI (Dynamic Systems Initiative) An umbrella term for a suite of Microsoft products that help manage the Windows environment in large enterprises. DSI was introduced in 2003. . Contact him by phone at +32 2 534 4960, or by email at jim.kenny@dsinow.com. |
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