Diversification away from paper, for which market demand is falling by forecast 5%/year, key to improved profitability for European papermakers, says Moody's; six of eight European paper companies Moody's follows reported lower profitability in 2013

Debra Garcia

LOS ANGELES , February 27, 2014 (Industry Intelligence Inc.) –

European papermakers aiming to improve their profitability this year would be smart to diversify away from paper, according to a Moody’s Investors Service report released on Wednesday, reported Business Day on Feb. 26.

Market demand for paper is expected to fall by 5% annually, Moody’s indicated in its report.

Six of the eight European paper and forest products companies that Moody’s follows reported in their preliminary 2013 results that their paper operations in Europe suffered further profit erosion last year, Business Day reported.

With paper demand declining, those companies that have diversified more could see greater profitability in 2014. This includes Johannesburg-based Mondi Group, which has integrated its paper and packaging operations, stated Moody’s.

About 70% of Mondi’s revenue is derived from packaging products. The group’s exposure is more in Central and Eastern Europe, where its model is low-cost production and distribution, reported Business Day.

Sappi Ltd., another paper company with headquarters in Johannesburg, has been moving away from graphic papers and expanding its specialized cellulose business, which contributed 92% of operation profit before special items in the fourth quarter.

Greater diversification is “key” for paper companies in Europe, said Matthias Volkmer, a VP-senior analyst at Moody’s, Business Day reported.

The primary source of this article is Business Day, Johannesburg, South Africa, on Feb. 26, 2014.

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