Return on capital employed (ROCE) fell to an average of 4.5% in 2005 from 5.3% in 2004 – well short of the 10-12% target.
Total global industry sales were up in 2005 to US$340bn from US$328bn in 2004 but operating profits were down by 11% to US$21.6bn.
“2005 showed why it can be so difficult to make a decent return in the sector,” said Robert Barnden, global forest, paper and packaging leader, PwC. “The companies that succeed are ones who are innovative and develop methods to do more with less. Projections for 2006 remain challenging and innovation will again be the key to profitability.”
Factors which have impacted on the industry, include foreign exchange fluctuations, increased energy, transportation and raw materials costs, plus the impact of emerging markets. Rising energy costs will continue to cause concern for the second half of 2006.
For the second year running no European companies appeared in the top performing global companies in terms of their ROCE according to Mr Barnden. “This is a clear indication of why most companies in Europe have embarked on or have in mind major restructuring projects,” he added.
Meanwhile, US forest products producers made modest gains but Canadian producers had a disappointing year, apart from Norbord which ranked top company in terms of ROCE at 23.7%.
The Latin American region held the top regional ROCE spot at 8.6% while Japan stayed at around 3%.
PwC said that interest in China remains strong and the country continues to attract investment growth from Europe, Japan and North America.
