Lower sales and tighter margins have scarred many of the larger com-panies although acquisitions, disposals and currency movements were reflected in many end-of-year results. A sharp dip in OSB and pulp prices also took their toll on results.

Against this background, which Weyerhaeuser concedes are the worse industry conditions in 25 years, the US giant completed its takeover of Willamette Industries.

Weyerhaeuser’s transition team has been hard at work creating North America’s second largest timber products business. The brief is to absorb rival Willamette Industries and squeeze out savings of US$300m within three years.

Critics say it will alter the face of the timber industry in North America and the changes will have to be achieved in difficult conditions: Weyerhaeuser’s US$194m in profits have dwindled to a US$15m loss.

Analysts agree that 14 months of bitter boardroom battles will mean the task of wringing economies of scale will not be easy. Only a small part of the planned cost savings are said to be coming from plant closures and layoffs.

Profitable plants

Weyerhaeuser wanted Willamette because its plants, including those in Ireland and France, are among the most profitable in the industry, and because Weyerhaeuser needed to grow in line with its larger customers, such as the giant building products retailers.

Willamette’s real strength was as a low-cost producer of paper, producing one in every six sheets that roll out of photocopiers and printers in the US, and one in seven paper bags.

Efficiencies in wood products and timberlands management are targeted to save about 40%, another 30% are to come from paper and other manufacturing, and 30% from administration costs.

The US$7.9bn merger has added 1.7 million acres of timberland, stretching from Oregon to the Carolinas, which supplements Weyerhaeuser’s 5.9 million acres and a further 500,000 acres that are leased and 31.6 million acres in Canada on renewable, long-term licences.

Weyerhaeuser CEO Steven Rogel, who was in charge at Willamette until late 1997, has always maintained he is looking to build the company of his dreams, but insists the merger was necessary to ensure that a major forest products company remains in the north-west of America.

Big hammer

One Oregon-based analyst said: ‘I guess what we’re concerned about with Willamette is that it is a company that was well-run, very profitable, and was an important factor in a lot of small towns in Oregon. To see them being forced to capitulate to the big hammer of Weyerhaeuser is a problem for some of us.’

Other industry figures believe it could prove to be one of the better mergers in a major industry that will combine the best of both companies.

‘I think Rogel wants to make Weyerhaeuser more like Willamette. That’s the message we’ve been getting again and again,’ said one Wall Streeter.

The acquisition is the biggest in a string of purchases by Rogel since he arrived at Weyerhaeuser. In November 1999, he bought Canadian timber giant MacMillan Bloedel for US$3bn and in January 2000 added Boise-based TJ International for US$874m.

Weyerhaeuser had annual sales of US$15.2bn before the Willamette deal and Willamette US$4.45bn. Some 47,200 employees have been joined by about 15,000 from Willamette.

Weyerhaeuser is now second to only Georgia-Pacific, although that may change if GP sheds some more divisions in its effort to transform itself into a consumer products company, rather than a timber company.

The Atlanta-based giant was left in the cold after the Willamette deal because GP had been talking about a potential sale of its building products business to Willamette.

GP is carrying substantial debt and investors fear it could be overwhelmed by 62,000 complaints about asbestos previously used by the company to make wallboard.

GP reported income after special items of US$31m in the fourth quarter, down US$100m from a year ago. One analyst said: ‘In the past 15 years when GP has been hit by very weak economic conditions, they have typically generated red ink. You get the impression that the ship is just being run much more tightly today.’

Exceptionals helped boost SCA profits 12% in 2001 to SKr9.5bn on sales up 23% to SKr82.4bn. Finnforest also had better sales from the acquisition of Moelven. Business in engineered wood and the UK businesses performed well, but last year’s €22.7m profit turned into a loss of €17m.

Reduced prices

Reduced prices for plywood, OSB and lumber hit Boise Cascade Corp. Sales for 2001 were almost unchanged at US$7.4bn, but building product sales were down to US$36.7m from US$52m.

CEO George Harad said: ‘The recession in the US economy is continuing to dampen demand in all of our businesses. We expect to continue to take market-related curtailment and building products markets to be at seasonal low points.’

A sharp deterioration in OSB and pulp prices was largely responsible for the profit erosion at Nexfor, North America’s largest OSB producer, which reported break-even results for the fourth quarter.

However, Nexfor is seeking to buy International Paper‘s three OSB operations in Texas and Georgia to be consistent with its strategy to continue growing its OSB business. Last year it commenced production at an OSB mill in Alabama, completed the rebuild of particleboard line at Cowie and closed plant in South Shields.

Substantial reductions

Operating earnings declined 80% in 2001 to US$35m as the company’s North American building materials, paper and pulp, and European panels businesses all posted substantial reductions from 2000 levels.

This year, OSB production is expected to rise 30% as new mills ramp up. European panel operations, which posted a US$31m operating loss in 2001, will focus on improving margins by reaching design capacity of the expanded OSB mill and gaining cost savings from Cowie.

Days after recording a profits slump, IP announced it was making 185 employees redundant with the closure of its Morton Lumber Mill in Mississippi.

IP had fourth quarter earnings of US$58m, less than half the figure achieved in the fourth quarter of 2000. Earnings of US$214m for the year, compared with US$969m.

IP’s New Zealand unit, Carter Holt Harvey, remained in profit on higher prices for logs and lumber. The largest lumber company and plywood maker in Australia and New Zealand said profits were US$11m, with wood products the best performer in a buoyant construction market.

Weak commodity pricing and a costly exit from the pulp business reduced Louisiana-Pacific to a loss of US$172m. But after paying US$445m to dissatisfied customers who bought Louisiana-Pacific’s Inner-Seal siding, LP could face another onslaught of complaints for a different product.

The wood products company has paid US$7,750 to five customers who bought the com-pany’s OSB sheathing, a plywood substitute used to build hundreds of thousands of homes since the early 1980s. Under certain conditions, the sheathing can lose its strength and snap under pressure.

Plum Creek Timber Company, which completed its merger with The Timber Company last October, said lumber and MDF sales volumes were higher in the fourth quarter, but plywood declined.

Dire consequences

The company expects lumber and plywood prices to moderate, but MDF should improve as premium grade production increases from a new line.

Interfor, which had predicted dire consequences from the US countervailing and anti-dumping duties on Canadian softwood lumber imports, slumped to a C$1.9m fourth quarter loss. Without the C$5.7m pre-tax provision for US duties the company would have had net earnings of C$1.7m. CEO Duncan Davies said the duties were ‘particularly onerous’.

After one of the most eventful years in its history, AssiDomän has recorded a slight increase in 2001 full-year profits, despite seeing its turnover falling by more than half. The company has been de-listed since its sale back to the Swedish government.

Irish builders merchant the Heiton Group improved its market share with aggressive expansion of its Atlantic Homecare and Panelling Centre arms. Chief executive Leo Martin said new housing growth cooled to about 1% during 2001, but he predicted 2-3% growth this year. The company expects to save €2.8m by April by reducing staff numbers by 114 through early retirement, natural wastage and some redundancies.