Strategy
We believe that our strategy is especially valid in the new economic environment. Leading market positions, low-cost operations and a robust focus on performance have always been key elements of that strategy and in today’s challenging economic times the benefits will be even more pronounced.
For a more detailed review of the Group’s strategy, please refer to the chief executive’s review in the Annual report and accounts 2008.
Leading market positions
At a time of global uncertainty in our industry, we believe it is more important than ever that we continue to strengthen our leading positions in packaging and UFP, particularly in emerging markets. These markets will not be immune to recession, as we indicated at the end of 2008, but they continue to offer above-average long-term growth potential.
In the year under review, more than half the Group’s revenues and more than 80% of our operating profit were generated from our assets in emerging Europe, Russia and South Africa, where we occupy the number one or two market positions in all our key packaging and UFP product segments. It is significant that revenues in or from all three of these regional markets continued to grow in 2008, despite the sharp downturn in demand elsewhere in Europe.
We took steps to further secure our market positions during the year with a number of small strategic acquisitions totalling an enterprise value of €89 million, designed primarily to strengthen the product mix and geographic coverage of our Bags & Specialities business.
High quality, low-cost asset base
We are committed to delivering superior returns, above the average of our competitors, and this commitment is undiminished by the difficult trading conditions. The value of having much of our production in some of the world’s lowest-cost regions is a significant benefit when volumes and selling prices are under pressure.
Over the last four years we have progressively concentrated our production in the lower-cost regions of emerging Europe, Russia and South Africa. 64% of our operating assets and 80% of our virgin-based production are now deployed in emerging markets.
The great majority of our primary raw material is also in low-cost regions. We now own or lease 385,000 hectares of forest in South Africa and have logging rights to 2.1 million hectares in Russia, maintaining our self-sufficiency in two of the world’s lowest-cost fibre-producing regions. This in turn means that we have the potential to source approximately 50% of our Group-wide wood requirements from our own resources.
Our high level of vertical integration in the supply chain, combining low-cost fibre with low-cost production, gives us good security of supply and greatly reduces our exposure to volatility in raw material prices.
Focus on performance
The requirement for continuous productivity improvements and cost reduction is an imperative in our business. Our highly experienced management teams have implemented a continuous series of business excellence programmes in recent years and rigorous asset management is second nature for everyone in our operations. This unwavering emphasis on cost control and operational performance has never been more important than in the current economic climate.
The reorganisation of the Group into two divisions, Europe & International and South Africa, together with the subsequent restructuring of the South Africa Division and the reorganisation of our UFP business, all brought a steady stream of benefits to the bottom line throughout the year.
In 2008 we achieved €128 million of annualised cost savings through a range of initiatives. In addition, we have closed or divested a number of high cost operations and taken market-related downtime, and this process continues. In the last four years, our fixed costs as a percentage of revenue have reduced from 32.5% in 2004 to 27.2% in 2008. Personnel costs as a percentage of revenue have also reduced from 16.2% to 14.6%, over the same period. The 2009 cost savings target is €180 million (3.3% of 2008 cash costs).
Last change: 26/03/2009