Change as a Constant

The North American paper industry is under tremendous pressure. End markets are static at best for many paper products; there is increased competition from low-cost overseas suppliers; and competition for raw materials is putting greater stress on mills.

Additionally, Canadian companies must adjust to the relative strength of the Canadian dollar in comparison to the U.S. dollar, which makes it more difficult to ship material into the United States.

Volatile energy pricing, always a challenge to manufacturers, is another wild card that paper producers like Cascades, headquartered in Kingsey Falls, Quebec, Canada, have to adjust to.

In prepared text, Alain Lemaire, Cascades’ president and CEO, notes that these challenges, along with shifting paper markets, have resulted in Cascades narrowing its focus on packaging and tissue and selling off or closing assets it deems non-essential, such as its distribution assets in the fine paper market.

With this in mind, by changing its organization, Cascades is seeking to position itself as a company that can withstand these winds affecting the North American paper industry.

Cascades’ efforts to reposition itself as it moves forward are evident in a presentation given at a basic materials conference in early December. The title of the company’s presentation, "Cascades: Moving Forward Despite Significant Headwinds" reflects Cascades’ belief that effectively conducting business today is far different from the way it was done years ago.

Rather than chase fast-growing markets, as is the modus operandi for many companies, Cascades is retooling its operations. If that means making significant changes to the composition of its far-flung operations, than so be it.

Cascades, which is one of a few diversified companies in the paper industry, has morphed into a company that has narrowed its focus to include the production of boxboard, containerboard and tissue products. The company has a fairly diverse paper recycling collection arm, which helps to feed its mills, which are located throughout Canada, the United States and Europe.

While narrowing its focus away from producing and distributing printing and writing papers toward the production of boxboard, containerboard and tissue products, Cascades still has an extensive network of facilities. At present the company has more than 100 facilities in North America and Europe, with more than 14,000 employees, making it one of the largest paper companies in the world.

However, its size alone does not make Cascades immune to the pressures that are being felt industry wide. Throughout the past year, the company has taken a number of strategic moves to offset the shifting demands of the marketplace. In the fall of 2007 Cascades sold off one of its Ontario linerboard mills. The company also has inked a joint venture to own and operate a corrugated sheet facility with two other paper companies. In its specialty products group, Cascades has strategically acquired a honeycomb board mill in Michigan.

The asset re-positioning that Cascades has been involved in throughout the past several years is not limited to North America. This past fall Cascades signed a deal to merge its recycled boxboard business with the Italian company Reno de Medici S.p.A. The combined companies have a total production capacity of more than 1.1 million metric tons.

What do all these moves mean for Cascades? Likely it is part of an approach that Cascades is trying to find the right mix to achieve success in a quickly changing North American paper business (as are many other paper companies).

The forest products industry in North America has seen better days, and as more manufacturing moves offshore, companies in the industry are taking steps to stay in business. For newsprint, one of the most challenging grades, it means that two of the largest newsprint producers, Abitibi Consolidated and Bowater, have opted to combine forces.

Cascades also confronts challenges, most notably from the Asian market.

Patrice Clerc, sales and service manager for Cascades’ Recovery Division, notes that one key issue the company is dealing with is ensuring that enough recovered fiber is being collected to feed the needs of its mills.

"There is no miracle solution to the problem of getting enough raw material to feed the Cascade plants," he says. "You have to be more specialized, build new markets."

The company is confronted by many challenges related to its mill operations. The recovered fiber procurement side requires that Cascades continue to focus on strategies to ensure there is enough paper to supply its own mills as well as to sell on the open market.

"You have to organize a better collection method," Clerc says of capturing sufficient tonnage.

Technology, for many companies, is the be all and end all. For Cascades, technological innovation isn’t necessarily the one and only answer. Clerc acknowledges that the company needs to constantly look at ways to do business. An important step is working to improve the perception of the business. "You need to find some new solutions to remedy a problem," he adds.

Issues such as single-stream collection continue to roil the paper markets, and companies such as Cascades need to be flexible enough to take other steps to ensure they get enough fiber to meet their needs, Clerc notes.

Making adjustments to buying is always an important aspect, and as recovery levels are maximized, working more aggressively with the government to keep the flow of material coming into the plant could become more important.

Throughout the past several years, a number of industries have called for restrictions on various kinds of exports of material. Recovered paper, which is a highly exported commodity, has been seeing quite a surge in shipments. With China being a dominant player in the market, some mills might be tempted to call for the government to take steps to keep more material at home. However, Clerc says he himself doesn’t favor a protectionist approach to exports.

Instead, he would prefer to see a boost in the volume of material recovered for recycling. While the North American paper industry is increasingly competing with offshore mills, Clerc notes that the North American paper industry is highly organized, which is one of the key advantages it has over the Chinese market.

Cascades has been in operation since 1964. The company operates more than 100 facilities throughout North America and Europe, including 21 paper recovery plants, 67 converting operations, three deinking pulp mills and 29 total mills.

As for diversification, the company runs the gamut, with divisions dedicated to the production of boxboard, containerboard, specialty products and tissue.

In an effort to combat the inertia that is plaguing the North American paper industry, Cascades has been laying out a strategy to change its corporate operations. While the company has seen its sales increase modestly from 2002 to 2007, it has sharply adjusted its operations. In 2002, Cascades was well diversified in different product segments, with packaging making up 28 percent of its business; fine paper, 22 percent; tissue, 20 percent; containerboard, 17 percent; and specialty products and packaging, 13 percent.

However, the company reports that it has increased its packaging business to 32 percent of total sales; containerboard to 29 percent; specialty products and packaging, 22 percent; and tissue to 17 percent. Cascades sold off its fine paper segment, including its distribution arm.

Cascades has undertaken 21 moves since 2004, including increasing its ownership of the food packaging company Dopaco and containerboard producer Norampac from 50 percent to 100 percent; boosting its ownership of the Metro Waste paper stock operation from 46 percent to 73 percent; closing two facilities in Europe; and selling its distribution assets.

Refocusing on a core group of products has helped Cascades boost its position in the North American paper industry. For containerboard, the company is now the second largest coated recycled boxboard producer in North America, trailing Graphic Packaging; the seventh largest containerboard producer; and the fourth largest tissue producer.

Pending its agreement with Italy’s Reno, Cascades could be the second largest boxboard manufacturer in Europe.

The company has made some significant moves to strengthen its core businesses rather than planning on idly sitting by and hoping for a return to the halcyon days of the North American paper business. Presently, Cascades is the largest containerboard producer in Canada, one of the 10 largest paper recycling companies in the world; and a leading producer of private-label tissue products. Cascades says it expects to continue to adjust its business to reflect the changing nature of the paper business.

Clerc notes that while Cascades seeks to boost its operations, including those in the recovered fiber sector, the company recognizes the essential need to organize a better collection method as a means to improve collection volumes throughout Canada and the Eastern United States.

With the market for paper in North America constantly changing, according to Clerc, there is a constant: Employees need to think like entrepreneurs. "People need more power. Every employee needs to be an entrepreneur."

Clerc continues, "And, as a company that has become even more global in nature. Employees need to keep their ears close to the ground."

On the recycling side, Cascades has developed a very effective collection program, Clerc notes. Without establishing volume at the beginning, paper mills have to rely on the whims of the open market.

So, with all the moves and machinations, what is Cascades’ short-term outlook? The company has recently noted upward price trends for four of the company’s five core sectors, including containerboard, coated recycled boxboard in North America, coated recycled boxboard in Europe, virgin boxboard in Europe and tissue paper.

Cascades has made close to two dozen moves to alter its operations, and the company says it will continue to take steps in the future to ensure that it flourishes. These steps Cascades will take include: divesting non-core and less profitable assets; working to preserve financial flexibility; working to improve operational efficiencies; focusing on green products and marketing; and increasing recovered paper integration.

The author is senior and Internet editor of Recycling Today and can be contacted at dsandoval@gie.net.