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Top 10: recovery is in the air but profits remain thin.

2004 did live up to its billing as a turnaround year, but the world's Top 10 pulp and paper companies are a long way from popping the champagne corks.

A resurgence in demand buoyed many annual reports across the paper industry, but there was no shortage of other factors that served to dampen any over-exuberance on the part of papermakers worldwide. Higher input prices for energy, chemicals, recovered paper etc were frequently cited as a drag on corporate profitability along with low operating rates and a soft pricing environment.

For the Europeans, a weak U.S. dollar played a large part in proceedings, helping undermine any idea of pushing through significant price increases. Demand was reasonably robust across North America and prices generally fared somewhat better than in Europe for several grades, but the Europeans found it extremely difficult to translate strengthening demand into higher operating profits as a strong Euro attracted additional imports.

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As for the Top 10 companies, the rankings by total sales (including pulp, paper, converted products, and forest products) have changed from last year. International Paper (1) retains the top spot with a 6.6% jump in sales to US$ 25.5 billion, but proving biggest is not necessarily best, the U.S. behemoth reported a small loss in net profits. By contrast, Weyerhaeuser (2) showed significantly improved profits for 2004 and snatched the number two slot from Georgia-Pacific (3), where restructuring chopped a slice off the top line.

Stora Enso (4) delivered a strong net profit improvement as turnover increased modestly to clinch fourth spot in the league table, keeping Kimberly-Clark (5) in fifth spot despite a robust performance by the hygiene group.

SCA (6) leapfrogged UPM-Kymmene (7) in the contest for sixth and seventh place, but despite the fact that SCA did better in terms of turnover, UPM will still be happy to see the improvements it made to the bottom line. The two Japanese groups included in last year's rankings also managed to show some good results for the year, with the renamed Nippon Paper Group (8) (formerly Nippon Unipac) snagging eighth place as Oji Paper (9) comes in just a few dollars behind at ninth.

Proctor & Gamble (10) is once more a hard one to figure as the split between the business segments make it difficult to calculate a true figure for pulp, paper and converting sales. That task looks as though it will be even trickier next year as another reorganization creates even larger business divisions. For now though, we'll overlook that just as we consider M-Real as a separate paper company even though the Finnish pulp and paper group's parent company, Metsaliitto, would add Botnia, Metsa Tissue and FinnForest's results to the total mix, putting Metsaliitto at the number 8 spot in the Top 10. Who knows, though. Currency movements could yet bring SmurfitStone or Meadwestvaco back into the Top 10 next year.

International Paper

www.InternationalPaper.com

400 Atlantic Street

Stamford, Connecticut 06921 USA

+1 203 541 8000

Chairman and CEO: John Faraci

Total Sales: $25.6 billion

Profile: International Paper is the world's largest paper company, operating a wide range of pulp, paper and packaging and converting plants, as well as merchanting companies, wood product facilities and specialty chemicals plants. International Paper (IP) is active in practically every part of the forest products supply chain worldwide, covering 34 pulp, paper and packaging mills, 145 converting and packaging plants, 26 wood products facilities, 13 specialty chemicals plants, and 2 specialty panels and laminated products plants, along with distribution assets. Additionally, the company owns 50.5% of Carter Holt Harvey, operating primarily in New Zealand and Australia.

Products: IP's output stretches across a broad range of product lines, including pulp, fluff pulp, coated and uncoated printing and writing papers, specialty papers, diapers, sanitary napkins, containerboard, bleached packaging board, converting and specialty industrial papers. Lumber and other forest products account for a major part of the product mix alongside, distribution and chemicals.

Corporate Review: International Paper (IP) set the tone for the market in 2004 noting that markets were buoyant and sales performed well, but input costs were higher.

The company showed 2004 sales well up on the previous year at $25.55 billion, compared to $23.96 billion in 2003 (adjusted for acquisitions and divestments). As a result, increased volumes and higher prices helped push operating profits into a far better position helped further by product rationalization and efficiency programs. Operating profits would have improved further if it were not for the effects of higher energy and raw material costs, but in the end there were other factors that hit the bottom line hardest.

Modest but improved profits turned to accounting losses as IP took a hit on the sale of Weldwood in Canada and Carter Holt Harvey's tissue businesses. Net profits showed a loss of $35 million compared to the previous year's net profit of $302 million.

Weyerhaeuser Corporation

www.Weyerhaeuser.com

Weyerhaeuser Company

PO Box 9777

Federal Way, WA 98063-9777 USA

+1 253 924 2345

Chairman, President and CEO: Steven Rogel

Total Sales: $22.7 billion

Profile: Weyerhaeuser Company is one of the largest pulp and paper companies in North America. The group owns or leases around 38 million acres of forestland, the majority of which is located in Canada. As well as growing, harvesting and distributing pulp, paper and other forest products, the company operates a sizeable real estate division.

Products: Weyerhaeuser's wood products businesses produce and sell softwood and hardwood lumber, plywood, veneer, oriented strand board, panels, engineered lumber products and treated products. The pulp and paper businesses cover pulp, coated and uncoated papers, business forms and bleached board. In addition, Weyerhaeuser produces a wide range of containerboard and other packaging and operates an extensive paper recovery and recycling system.

Corporate Review: Reducing the group's debt burden was again a key element in Weyerhaeuser's operations in 2004 as forestlands were sold and 11 facilities closed as part of an ongoing rationalization program.

Sales climbed in every division as Weyerhaeuser reported a healthy 14% increase in overall turnover for the year to $22.7 billion. The pulp and paper division reported a 6.8% increase in sales with much of the jump down to a combination of higher prices and volumes on the pulp side. The Containerboard Packaging and Recycling division also showed an increase in turnover as sales climbed by almost 5% to $4.54 billion. However, it seems fair to point out that wood products had a stellar year and contributed much to the jump in overall sales.

Georgia-Pacific Corporation

www.GP.com

133 Peachtree Street

Atlanta, Georgia 30303 USA

+1 404 652 4000

Chairman and CEO: A.D. "Pete" Correll

Total Sales: $19.6 billion

Profile: G-P is among the largest producers of tissue products in North America in addition to holding significant positions in markets in Europe and elsewhere. The group is also a major player in the North American containerboard market, as well as operating large-scale businesses producing and distributing building products.

Products: Georgia-Pacific's operates across four principal business areas--tissue and disposable tabletop products such as toilet tissue, napkins, paper plates etc; containerboard and packaging; bleached pulp and paper; and the production and distribution of building products, including various industrial wood products, lumber and gypsum board.

Corporate Review: A much better year in 2004 saw Georgia-Pacific (G-P) drive operating profits up by 30% as net profits almost doubled to $626 million from $324 million in the previous year. As a result, the group's operating profit showed a 8.3% return. Admittedly, a big chuck of the improvement in overall sales came from the building manufacturing unit, which now accounts for 37.8% of sales. But there is no denying the contributions made by the consumer products and pulp and paper units, although the company's comparatively smaller packaging division did shrink.

G-P faced up to some serious challenges with indebtedness in 2004, divesting $1.5 billion of assets including the building products distribution business and stand-alone pulp mills. As well as paying off $2 billion in debt overall, the company cheered financial markets with a 40% dividend increase.

The Consumer Products division saw some margin improvement with higher volumes and sales prices a feature for the year and for 2005 the company is looking for further growth, especially in areas such as Russia and the Baltics. The company also believes that it is on target to achieve its end-2006 goal of extracting $1.2 billion in operating profits from its North American Consumer Products division. Inevitably, G-P's asbestos liabilities remain a worry for investors, but the company is moving in the right direction.

Stora Enso

www.StoraEnso.com

Stora Enso Oy

PO Box 309, FIN-00101

Kanavaranta 1

Helsinki, Finland

+358 2046 131

CEO: Jukka Harmala

Total Sales: Euro 12.4 billion ($16.8 billion)

Profile: Stora Enso is an integrated forest products group with some 45,000 employees in more than 40 countries spread across five continents. The group boasts over 16.4 million metric tons/yr of paper and board production capacity making it the largest in the world on this measure. Stora Enso is listed in Helsinki, Stockholm and New York.

Products: The group is active in several major segments, including graphic and office papers, newsprint, packaging boards and wood products. Most of the production capacity is located in the Nordic countries and Europe, but North America, Latin America and Asia are all becoming more important as the group expands.

Corporate Review: Operating profits may have dropped, but Stora Enso produced a positive result at the bottom line showing net profits of EUR 740 million for 2004 compared with EUR 138 million in the previous year. The group also managed to increase sales, which climbed a modest 1.8% to EUR 12.4 billion.

Sales volumes turned out to be relatively healthy, with publication and fine paper deliveries up 6-8%, but prices were still on the low side in the first half before stabilizing later in 2004. The declining value of the U.S. dollar along with higher energy and chemical costs also impacted results to a degree as profitability declined slightly.

It was a busy year for the company as construction on the massive Veracel pulp mill project in Brazil moved ahead, major rebuilds were undertaken (two in the U.S. and several in Europe), Swedish forestlands were moved to Bergvik Skog and others in Canada sold off, acquisitions of both paper and merchanting operations took place (notably Intercell and Scaldia) and the European Commission opened an anti-trust investigation.

Kimberly-Clark Corporation

www.Kimberly-Clark.com

PO Box 619100

Dallas, Texas 75261-9100 USA

+1 972 281 1200

Chairman and CEO: Thomas Falk

Total Sales: $15.1 billion

Profile: Kimberly-Clark is one of the world's largest hygiene products groups, boasting a host of internationally recognizable brands. The company is focused on building its personal care, consumer care and business-to-business segments worldwide. The group and its equity companies have manufacturing facilities in 37 countries, selling products in more than 150 countries.

Products: Kleenex, Huggies, and Kotex are among a long list of major household brands that Kimberly-Clark is responsible for bringing to consumers around the globe. Across the corporation, three main business segments represent the company's products. Personal care includes the disposable diaper, baby wipe and feminine and incontinence products such as Huggies, GoodNites, Kotex and Poise. The consumer tissue unit manufactures facial and bathroom tissue, paper towels, napkins etc including Kleenex, Scott and Cottonelle. And finally, the business-to-business division makes health and hygiene products for the away-from-home market sold under brand names such as Scott, Kimwipes, WypAll and Safeskin.

Corporate Review: For the paper industry, the spin-off of Neenah Paper was one of the highlights of the year for Kimberly-Clark. The move was completed in November and means that 2004 will be the last year that results from the group's U.S. fine and technical papers and the Canadian pulp mills will appear in K-C's top line. Neenah retains a relationship with K-C through a long-term pulp supply contract, however.

K-C had a strong year as net sales climbed 7.5% in the face of increased price competition in the diaper market in North America and Europe and higher input costs for items such as fiber and energy. Sales hit $15.1 billion and even more encouragingly operating profits were also up 7.5% for the year as efficiency gains offset higher costs.

In the personal care unit, part of the turnover increase was due to the consolidation of Klabin and various currency effects, although volumes were up. However, the group faced a tough operating environment as selling prices in North America and Europe came under pressure. Nevertheless, tight capital spending and financial discipline helped deliver record free cash flow of $1.4 billion in 2004, allowing the company to increase the dividend significantly.

Svenska Cellulosa Aktiebolaget (SCA)

www.sca.se

SCA, Box 7827

SE-103 97

Stockholm, Sweden

+46 8 788 51 00

President and CEO: Jan Astrom

Total Sales: SEK 90 billion (US $13.5 billion)

Profile: SCA is Europe's largest tissue producer. The group produces a broad variety of hygiene products, which account for around half the company's total sales. Packaging solutions and publication papers are also big earners. The packaging group is the second largest business segment contributing around 35% of turnover. Germany, the UK and the United States are the company's top markets, with France, Sweden and Italy following.

Products: Consumer items such as handkerchiefs, toilet tissue, feminine hygiene and baby diapers provide the largest proportion of the company's revenues. However, packaging solutions such as specialty packaging generate significant returns in addition to the company's publication papers, including LWC, SC and newsprint. Pulp, solid wood products and timber make up the rest of the turnover.

Corporate Review: In his 2003 annual report, Jan Astrom, SCA's president and CEO, said that 2004 would be the turnaround year that would see SCA get back to its full profitability potential. Unfortunately, the financial results do not bear that out as the company came under pressure in several of its main markets and saw profits fall on last year and return on capital employed dip to 7%--the lowest level for several years.

A weak economy in Europe contributed to softening prices while a better performance in North America was hit by higher raw material costs. According to Astrom, though, the company is still doing well relative to its peers in what is a weak business climate.

SCA noted that the personal care segment had performed comparatively well, showing volume growth and stable pricing, but a 3% price decline hit the tissue business, despite the benefits from rationalization and cost-cutting programs. The company also believes that 2005 will be a tough year in its markets and is looking for further rationalization across the group.

UPM-Kymmene

www.UPM-Kymmene.com

UPM-Kymmene Group

Eteloesplanadi 2

PO Box 380, FIN-00101

Helsinki, Finland

+358 204 15 111

President and CEO: Jussi Pesonen

Total Sales: [euro]9.8 billion ($13.3 billion)

Profile: UPM-Kymmene is the world's largest producers of magazine papers by volume, but also produces a variety of other grades and wood products. The group has production facilities in 15 countries around the globe and a sales network spanning five continents.

Products: The company operates five main business areas. Magazine papers accounted for 32% of the company's turnover in 2004, with fine and specialty papers making up 22% of the total and the remainder coming from wood products (14%), converting (14%) and newsprint (13%).

Corporate Review: A fall in sales prices and a stronger euro proved to be a drag on UPM's results in 2004, but a resurgence in delivery volumes and the early completion of a major cost-cutting program helped the group achieve higher operating profits and an increased turnover for the year. The group also managed to shave 8% off its gearing ratio to end the year at 61%.

UPM secured increases in the magazine paper market in North America where capacity was constrained, but Europe proved a tougher nut to crack as a stronger euro played its part. Fine and specialty paper grades fared reasonably well, while newsprint demand stabilized even as prices softened. One interesting point about UPM is that higher energy prices did not impact the group as it is largely self-sufficient in electrical power.

Rebuilds at Wisaforest's pulp mill and Rauma's PM 2 provided some of the highlights in the capex area, but this year UPM is looking forward to the summer startup of a new fine paper machine at Changsu in China.

Nippon Paper Group

www.np-g.com

1-12-1 Yurakucho

Chiyoda-ku

Tokyo 100-0006, Japan

President and CEO: Takahiko Miyoshi

Tel: +81 3 3218 9300

Total Sales: Yen 1,192 billion (US$ 11.4 billion)

Profile: Formerly known as Nippon Unipac Holding, Nippon Paper Group is Japan's largest papermaker and holds a large share of the domestic market particularly with 31%.

Products: The Nippon Paper Group is the merged entity created from the former Nippon and Daishowa groups. The company produces practically every pulp and paper grade from tissue and containerboard to liquid packaging cartons. Pulp and paper forms the vast majority of the company's sales, but the group is also involved in building materials, chemical products and so on.

Corporate Review: There were limited signs of improvement across the Japanese economy in 2004, but the slight upturn that there was allowed Nippon Paper to record a 0.6% rise in domestic sales even as paper prices dipped slightly overall. Uncoated woodfree was one of the worst performers over the period, but the traditional Japanese grade "bitoko-shi" fared rather better and the net result was more or less a wash.

The same could not be said for net profits though, which rose almost 400% to Yen 24.2 billion from an admittedly low level in 2003. Given the increases in recovered paper, woodchips and energy costs, it seems that the group has managed to deliver some positive results from its rationalization program.

Nippon Paper is also boosting its presence in China by utilizing idle machines at a new plant in China's Hebei Province. The plan is to start production of uncoated woodfree and groundwood grades in 2006.

Oji Paper

www.ojipaper.co.jp

Oji Paper

Giza 4-7-5

Chuo Ku

Tokyo 104-0061

Japan

+81 3 3563 1111

President and CEO: Shoichiro Suzuki

Total Sales: Yen 1,180 billion ($11.3 billion)

Profile: Oji Paper is one the largest Asian pulp and paper producers. The integrated producer is particularly active in the Japanese market, but it also boasts a broad portfolio of forest assets around the globe, which provide 70% of the group's woodchips. Australia, New Zealand, Vietnam, China and Brazil provide much of the group's raw material needs.

Products: Like many of its Asian competitors, Oji Paper runs a wide range of diverse product lines, ranging from newsprint and publication papers to corrugating medium, tissue and thermal papers. Much of the group's chip imports go into supporting production for domestic consumption, but Oji also promotes sales around the globe.

Corporate Review: Sales may be down 2.7% for the year, but Oji Paper will be happy to see profitability moving up as net profits came in 157% higher at Yen 33.1 million. Admittedly, this represents a modest 2.6% of turnover (sales), but after losses in 2002 consistent improvement is to be welcomed.

As Oji points out, the improvement has little to do with macroeconomic conditions. Japan's economy is still facing deflationary pressures and consumer spending remains sluggish, so much of the improvement has had to be secured from cost-cutting and efficiency gains. As a result, several units were streamlined, machines at the Nichinan and Shiga mills were shut down and the mill has invested in paper and plastic fuelled boiler technology to reduce energy costs.

The group has already set itself ambitious targets for future growth with a plan to build a Yen 220 billion integrated pulp and paper mill in Nantong City, Jiangsu Province, China. If all goes to schedule, the mill could be churning out 1.2 million metric tons of paper, including coated grades, when it reaches full capacity in 2011.

Procter & Gamble

www.PG.com

One Procter & Gamble Plaza

Cincinnati, Ohio 45201-0599 USA

+1 513 983 1100

Chairman, President and CEO: AG Lafley

Pulp, Paper & Converting Sales: $10.7 billion

Profile: Procter & Gamble is one of the world's largest consumer goods companies, reporting total sales of $51.4 billion in 2004. The company employs almost 110,000 people in 80 countries around the globe and seeks to deliver top quality brands in a highly competitive global market environment.

Products: The Top 10 will take into account P & G's baby and family care business segment, which covers diapers, wipes, tissues and towels, among other products. Within this segment, P & G controls some major brands in the paper industry, including Pampers, Bounty and Charmin. P & G is a leader in using through-air-drying (TAD) tissue technology to create high-quality tissue products for the consumer market.
TOP 10 GLOBAL PAPER COMPANIES

 2004
 2004 2003
 Sales Sales

 1. International $25,548 $23,955
 Paper
 2. Weyerhaeuser $22,665 $19,873
 3. Georgia-Pacific $19,656 $19,656
 4. Stora Enso $16,779 $15,338
 5. Kimberly-Clark $15,083 $14,026
 6. SCA $13,486 $11,865
 7. UPM-Kymmene $13,292 $12,333
 8. Nippon Paper $11,445 $9,873
 9. Oji Paper $11,327 $10,278
10. Procter & Gamble $10,720 $9,930

Companies Not Dollar
Denominated
Stora Enso Euro mill [euro] 12,396 [euro] 12,172
UPM-Kymmene Euro mill [euro] 9,820 [euro] 9,787
SCA SEK mill 89,967 85,338
Oji Paper Yen Millions 1,180,400 1,213,200
Nippon Paper Yen Millions 1,192,649 1,165,450

Dollar Exchange
 Rates: 31-Dec-04 31-Dec-03
Euro 1.3536 1.2601
C$ 0.8308 0.7734
UK[pounds sterling] 1.9160 1.7858
SEK 0.1499 0.1390
NOK 0.1592 0.1501

 Rates: 31-Mar-04 31-Mar-03
Jap Y 0.0096 0.0085

 2004
 2004 2003 2004
 Net Profit Net Profit Employees

 1. International ($35) $302 79,400
 Paper
 2. Weyerhaeuser $1,283 $277 55,000
 3. Georgia-Pacific $626 $324 55,000
 4. Stora Enso $1,002 $174 45,30
 5. Kimberly-Clark $1,800 $1,694 60,000
 6. SCA $545 $706 49,919
 7. UPM-Kymmene $1,297 $402 33,433
 8. Nippon Paper $233 $41 na
 9. Oji Paper $300 $103 17,590
10. Procter & Gamble $996 $882 10,000

Companies Not Dollar
Denominated
Stora Enso Euro mill [euro] 740 [euro] 138 45,307
UPM-Kymmene Euro mill [euro] 958 [euro] 319 33,433
SCA SEK mill 3,639 5,075 49,919
Oji Paper Yen Millions 31,300 12,200 17,590
Nippon Paper Yen Millions 24,258 4,880 na

Dollar Exchange
 Rates: 31-Dec-04 31-Dec-03
Euro 1.3536 1.2601
C$ 0.8308 0.7734
UK[pounds sterling] 1.9160 1.7858
SEK 0.1499 0.1390
NOK 0.1592 0.1501

 Rates: 31-Mar-04 31-Mar-03
Jap Y 0.0096 0.0085

 2004
 2003 2004 2003
 Employees % Sales Rank % Profit

 1. International 82,800 6.6% 1 na
 Paper
 2. Weyerhaeuser 56,800 14.0% 2 363.2%
 3. Georgia-Pacific 61,000 0.0% 3 93.2%
 4. Stora Enso 44,000 9.4% 4 476.0%
 5. Kimberly-Clark 62,000 7.5% 5 6.3%
 6. SCA 44,000 13.7% 6 -22.7%
 7. UPM-Kymmene 34,482 7.8% 7 222.6%
 8. Nippon Paper na 15.9% 9 463.1%
 9. Oji Paper 19,600 10.2% 10 190.6%
10. Procter & Gamble 98,000 8.0% 11 12.9%

Companies Not Dollar
Denominated
Stora Enso Euro mill 44,000 1.8% 436.2%
UPM-Kymmene Euro mill 34,482 0.3% 200.3%
SCA SEK mill 44,000 5.4% -28.3%
Oji Paper Yen Millions 19,600 -2.7% 156.6%
Nippon Paper Yen Millions na 2.3% 397.1%

Dollar Exchange
 Rates:
Euro
C$
UK[pounds sterling]
SEK
NOK

 Rates:
Jap Y

The Solutions! Top 10 ranking is based on total sales (turnover),
including pulp, paper, converted products, and wood products, with the
exception of Procter & Gamble, where only the relevant business unit
sales have been included.


JIM KENNY, INTERNATIONAL EDITOR

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. Contact him by phone at +32 2 534 4960, or by email at jim.kenny@dsinow.com.

[ILLUSTRATION OMITTED]
COPYRIGHT 2005 Paper Industry Management Association
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Title Annotation:TOP 10 PAPER COMPANIES
Author:Kenny, Jim
Publication:Solutions - for People, Processes and Paper
Geographic Code:4EUFI
Date:Jun 1, 2005
Words:4102
Previous Article:Appleton and VCP win 2005 Company of the Year Award.
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