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COMPANIES CUT COSTS

Quarterly Results for the three-month period ending Dec. 31, 1998

Two factors remained the focus of effort to keep industry investors happy: reducing operating costs and consolidation. In their fourth quarter reports, almost all of the 16 companies surveyed here reported continued action in these areas.

For Canfor, 1998 was a year of restructuring. Toward the end of the quarter performance began to turn around, due to the company’s efforts to reduce costs. These efforts included staff downsizing, mill closures and operating changes. (The company took a $145.9 million write-off for its investment in Howe Sound.)

Harmac Pacific reported improved production efficiency resulting in lower per-unit production costs. Millar Western focused on reducing operating and capital expenditures while maintaining near-capacity production levels. Cost-reduction and production-improvement programs have been implemented in each of Paperboard Industries’ plants. The company reported that it expects an annualized improvement in the amount of $10M before taxes, which will be put into place by the end of March. These improvements will result in part from the reduction of the workforce realized at the end of 1998. Toward the end of the quarter a significant adjustment in operating procedures was realized at Unifort’s Port-Cartier, QC, pulp mill. These changes, the company reported, were designed to cut the mill’s operating losses in light of the weakness of the world market, while assuring a sufficient supply of fibre to the company’s specialty paper mill in Trois-Rivires, QC.

The second factor is consolidation. Donohue increased newsprint production by 50% with its acquisition of two Texas mills, while saving costs due to the synergies of integrating of their operations. Rolland reported that it remains on the look-out for acqusition of manufacturing facilities with a preference in the US. In its year end report, Cascades’ president and ceo Laurent Lemaire said that “the consolidation trend initiated two-years ago became stronger in 1998. Pulp and paper manufacturers are responding to increased demand from investors to lower investments in new capacity and to create added value for shareholders.”

Will these trends continue? Well judging by the reports from Paperboard Industries and others, yes. Paperboard said it has “significantly reduced its capital expenditures and will limit itself to investments aimed at maintaining productivity or immediately reducing costs.”

Joan Bailey