Financial results for the world's 100 largest forest, paper and fiber-based packaging products companies differed greatly by region. Latin America posted a combined return on capital employed (ROCE) of 9.3%, followed by China with 6.5% and South Africa with 5.5%. The U.S. posted a combined ROCE of 5.4% according to PricewaterhouseCoopers' tenth annual Global Forest, Paper and Packaging Industry Survey, released last week.
Sales revenue of U.S. companies increased by 3.1% from $123.2 billion in 2005 to $127.1 billion in 2006 and net income for the corresponding period rose 8.4% from $5.2 billion in 2005 to $5.6 billion. However, American producers are still concerned about a variety of economic factors, including a weakening dollar, falling demand for newsprint, growing competition from producers in emerging countries and a slump in the domestic housing demand according to the survey.
"Forest, paper and packaging producers everywhere had their margins eroded by the rising cost of energy, transportation and raw materials in 2006. They also faced fluctuating currency exchange rates which have become more significant with the rise in international trade," said Craig Campbell, leader of PricewaterhouseCoopers' Performance Improvement practice for the global forest and paper industry. "The difference in regional financial performance all comes down to the production cost structure in a region and how well producers can absorb the cost increases."
Campbell added that producers in Latin America and some emerging markets have a competitive advantage with an abundant fiber supply, short harvest cycle, plus new technology. They are closer to the growing demand for forest products in Asia when compared to North American and Western European producers.
The global forest products sector continues to be characterized by a small number of very large producers along with many medium and smaller firms. The largest 10 companies in PricewaterhouseCoopers' 2006 list account for approximately 41% of the total revenues, virtually unchanged from the previous year.
Growing competition from emerging markets in South America and Asia continues to pressure U.S. companies to evaluate their asset portfolio and production capabilities, and many U.S. companies are now executing on strategic divestitures of assets in efforts to seek improved performance and returns, according to the study. As such, the U.S. has taken the lead in deal activity, with their global M&A activity reaching $17.3 billion, or 67% of total forest, paper and packaging deal values of $25.7 billion executed in 2006.
New this year,the survey includes a review of the sustainability reporting practices of the Top 100 global forest, paper and packaging companies. The analysis reveals that two-thirds of companies now produce a sustainability report. The review also shows that North American companies produced relatively fewer sustainability reports and obtained less external assurance than their counterparts in Western Europe. Notably, the review reveals that Latin America was the strongest region for sustainability reporting, both in terms of the proportion of companies reporting and the metrics used.
The PricewaterhouseCoopers 2007 Global Forest, Paper and Packaging Industry Survey is available here as a PDF file.
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