Paper360 - July/August 2014 - (Page 35)

the bottom line | CONSOLIDATION WATCH Conventional wisdom says that the pulp and paper industry is consolidating and that such consolidation is necessary to the long-term health of the industry. In this and future issues of Paper360°, this column, provided by Fisher International, will analyze consolidation within different grades of pulp and paper. european tissue and towel Europe's tissue and towel markets have grown nearly 30 percent in nine years-from 7.4 million tonnes per annum in 2005 to 9.6 million tonnes per annum in 2014 (Figure 1). Population in the region over the same period was about 750 million with a flat to slightly declining rate of growth. So growth in tissue and towel capacity can be attributed to increased consumption per capita, much or most coming from improvement in eastern European economies. Such a healthy market has brought quite a bit of merger and acquisition activity as well as new capacity coming online from small, single mill companies looking to participate in the rise in consumption and predictability of pricing that comes from high operating rates. In 2005, there were 77 firms producing Europe's tissue and towel, and the market was dominated by four companies: SCA, Georgia-Pacific, Kimberly-Clark and Metsäliitto Group (now Metsä Group), who together accounted for about half of the continent's capacity. In 2006, Procter and Gamble sold their five European mills to SCA, amounting to about 250,000 tonnes. In 2011, G-P exited the market by also selling to SCA and adding another 820,000 tonnes to the company. These acquisitions shifted the landscape dramatically as SCA's capacity grew from 1.5 million tonnes in 2005, to 2.3 million tons in 2014-a 56 percent growth in market share or almost twice the rate of overall growth in the European tissue market over the same time period. While SCA exercised an aggressive acquisition growth strategy, other top firms opted for slower, more organic growth; K-C, Sofidel, Metsä and Wepa have all exhibited steady internal growth, bringing on more gradual capacity additions through debottlenecking and/or machine upgrades or even new machines. In 2005, the 77 companies made 7.4 million tonnes per year. In 2014, 121 companies make 9.6 million tonnes. The proliferation of small independent tissue and towel makers has created a highly fragmented market (Figure 2). With so many small market share holders, it is conceivable that as the European population starts to shrink and tissue consumption levels off, smaller, higher-cost mills and those with weaker market positions will shut down. Others may become acquisition targets as the large shareholders fight for a dominant position. The market is still decidedly far from one producer having a market leadership position (30 percent or more market share). There would need to be M&A transactions, new capacity additions, and/or closures of at least 1.9 million tons for any single player to achieve market leadership, depending on the types of transactions and who was involved. Figure 3 shows that a large number of small European tissue and towel firms suffer a disadvantage when compared to the larger, corporately-owned facilities. Figure 3 shows all European tissue companies on the FisherSOLVE™ Viability Benchmark curve which measures long-term competitiveness of manufacturing assets. The steep rise in the index of the companies in the fourth production quartile indicates how many firms have a size disadvantage and that will almost certainly be at-risk during a tightening of the region's tissue market. The example of SCA in Europe at the time the market was growing, is representative of the challenge faced by every player in a growing market: the company had to add 30 percent to its capacity over a 9-year period just to keep its market share from falling. It will be interesting to see how consolidation in the European tissue market plays out as market growth moderates. Figure 1. European tissue and towel capacity. Source: FisherSOLVE™. © 2014 Fisher International, Inc. Figure 2. European tissue and towel market share. Source: FisherSOLVE™. © 2014 Fisher International, Inc. Figure 3. The European tissue and towel competitive ranking. Source: FisherSOLVE™. © 2014 Fisher International, Inc. This analysis was compiled by Jon Kerr, Sr. Consultant, Fisher International, Inc., using Fisher International's FisherSolve™, a data-driven business intelligence tool that contains a paper industry specific database that accurately describes the capacity of every pulp and paper mill in the world making 50 tpd or more. Paper360º JULY/AUGUST 2014 35

Table of Contents for the Digital Edition of Paper360 - July/August 2014

Over the Wire
Pulp and Paper Innovations
Strategic Importance of Water
Making Workers Heroes
Industry Emissions Improve
TAPPI Journal Summaries
Measuring Color Online
Consolidation Watch
Knowledge Builder
Association News
What’s New on
Advertisers Index

Paper360 - July/August 2014