Forest Products Division Strategies and Initiatives
Industry Environment and Fiscal 2008 Results
Positive economic performance in the first half of fiscal 2008, ended March 31, 2009, was dashed by the emergence of a global economic recession in the second half of the year. The recession’s impact triggered recipitous drops in demand in virtually all product and materials sectors.
In the product sector, sharply higher raw material and fuel prices through the first half of the fiscal year were inevitably shifted to product prices, resulting in weak consumption particularly of printing paper and containerboard. Demand was again hit hard by the financial crisis, with demand in Japan and internationally experiencing almost unprecedented declines.
The materials sector, meanwhile, saw market prices for pulp fall significantly in China and elsewhere around the world from the summer onward, as paper manufacturers slashed production in order to eliminate accumulated product stocks. Similarly, demand for wood chips, which had been firm through the second quarter, lost momentum thereafter.
In this climate, the division acted swiftly to cope with decreased demand and exchange rate volatility in its value chain processes, enacting a range of initiatives designed to cut costs and enhance management efficiency at operating companies.
In the materials sector, we implemented measures to strengthen profitability. We strove to reduce costs pertaining to afforestation and the wood chip and pulp plants managed by operating companies, and made extensive moves to promote sales at optimal locations. Anticipating that the race to secure natural resources will only intensify, we focused on afforestation operations as the path to building a solid earnings structure going forward.
In the products sector, we launched “Printing Management” as a new business model that seeks to rationalize total costs for printing-related services. Elsewhere, a new machine came online at containerboard manufacturer Long Chen Paper (China) Holdings Co., Ltd. in China and established a paper recycling yard in Shanghai as we put plans in motion for securing future earnings.
All told, segment gross trading profit in fiscal 2008 was 42.7 billion yen and segment net income was 6.2 billion yen.
Initiatives in Fiscal 2009
Both the global economic slowdown and weak commodities prices are likely to persist for fiscal 2009. For its part, the division will work to cut costs particularly in production operations and take steps to rebuild its earnings structure. With these actions, we hope to minimize the impact posed by this adverse business environment as we aim to create a framework and operations capable of maintaining and expanding profitability. Conditions demand a more measured response than ever before.
In this climate, we will focus specifically on securing competitive forest resources in the increasingly vital paper and pulp materials sector, recognizing that the price of forest products is widely expected to rise over the medium to long term. In midstream and downstream sectors, Long Chen Paper in China and paper distribution company Intragrated Resources Holdings, Inc. (IRH) in the United States are spearheading efforts to rigorously identify regions and sectors with growth potential in our quest to expand earnings.
