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Williams of Domtar: RISI's NA CEO of the Year

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Williams of Domtar: RISI's NA CEO of the Year

September 05, 2010 - 16:00

BRUSSELS, Sept. 6, 2010 (RISI) -Domtar's John Williams was selected by analysts as RISI's North American CEO of the Year for steadying the company through 2009's pulp and paper industry demand plummet, while also tracking down new revenue streams and slashing debt.

Williams, who was raised outside London and joined Domtar as president and CEO at the beginning of 2009, is the second European to win the top North American CEO honor. He edged out International Paper (IP) chairman and CEO John Faraci, while Sonoco chairman and president/CEO Harris DeLoach finished third.

Williams leads the white paper-dominated Domtar from a mostly "brown grade" background after being the president of Europe's No. 2 containerboard-corrugated producer SCA Packaging.

John Williams’ steady hand through the Great Recession – while also striving for future potential – earns him the 2010 honor

Analysts lauded Williams' performance moving Domtar through the Great Recession, when US paper and board production hit its lowest total in 20 years, and for steering North America's largest capacity uncoated freesheet (UFS) paper and market pulp firm to fluff pulp and energy endeavors while also generating significant free cash flow in 2009.

"John has ... repositioned assets from ‘declining' uncoated markets to ‘growing' markets such as
fluff pulp and energy," said an analyst who voted for him. "Most importantly, he is rewarding patient investors with re-establishing the dividend and
repurchasing shares."

"Williams is starting to position (Domtar) well to succeed going forward," explained another analyst.

Positioning is key for every North American pulp and paper company after the recession and with a changing global landscape, where China is now the world's largest producer country of paper and board, Latin America, chiefly Brazil, continues growing a dominant market pulp position, and online competition keeps powering up against paper consumption.

By yearend 2009, with $5.46-billion in sales, Domtar ranked as the third largest pulp and paper firm in North America behind IP and Georgia-Pacific (G-P); it had generated $310 million in net earnings, from a loss of $573 million in 2008, and despite a 14.5% revenue decline, and reduced net debt by 34% to $1.4 billion. Domtar's share price reached $60 in mid-August 2010, up almost 175% from $21.96 (adjusted for a reverse stock split) when Williams began at Domtar.

"It is as though..... the lights had been turned off when I walked in-and there was no turning back!" Williams toldPPI Pulp & Paper Weekat the end of July. "To loosely quote Winston Churchill, in the face of adverse economic and market conditions, it is no use saying, we are doing our best. You have got to succeed in doing what is necessary."

"Our performance in 2009 has proven that we fare well in difficult circumstances," he added.

PM 5 at Domtar’s Johnsonburg, PA, mill

Customers, cost, cash flow

Williams credited "TEAM effort" and said he led with a back to basics approach. "The idea was not to do anything radical but to simply focus on the fundamentals to deal with these unforeseen, short term challenges. Domtar management and employees focused on three key fundamentals-the 3Cs: Enhancing relationships with customers, improving the cost base, and maintaining a strong cash flow," he said."

The cost base was improved by holding down inventories, he added. "We had to develop what I like to call ‘strategic agility,' vital in an uncertain world," Williams said. "... we never stopped thinking about the future of our business and we always put our customers first."

In the fourth quarter Domtar will finish converting UFS paper machine No. 5 at its Plymouth, NC, mill to enter the globally-expanding fluff pulp business as part of a project with Metso. The company is working on installing a 50-MW biomass-fueled cogeneration plant at the Rothschild, WI, UFS paper mill by first half 2013, and joined Metso and Stora Enso to develop a future pulp mill biorefinery with new pulping technology focused on better steam recovery for greater fiber yield.

Table 1 - Key Domtar details today
- $74 milllion project by yearend 2010 to turn Plymouth, NC, mill to a 100% fluff pulp operation with 444,000 tonnes/yr capacity
- Installing 50 MW biomass-fueled generator at Rothschild, WI, mill in first half 2013
- Joined Metso and Stora Enso on biorefinery project to develop new pulp technology
- In venture to develop nanocrystalline material at Windsor, QC, pulp mill
- Starts a “Paper Because” effort at the end of September, highlighting the importance of paper including environmentally in online banner ads, short videos
KEY DETAILS YESTERDAY SINCE 2000
- 2000: Domtar is the No. 6 uncoated freesheet (UFS) paper producer in North America. UFS producer position in North America
- 2001: purchases five Georgia-Pacific mills with nearly a million tons/yr of UFS capacity for $1.65 billion. Four of the mills still run today
- Acquired Weyerhaeuser’s 10-mill, almost 2.7-million-tons/yr fine papers and market pulp business in 2007 for $3.3 billion to become the largest UFS producer in North America

New frontiers now on horizon

Further, Domtar just established a test plant in a venture with FPInnovations at its mostly UFS as well as market pulp Windsor, QC, mill for turning kraft pulp into commercially salable high value, high strength nanocrystalline cellulose material for sectors such as the automobile and aerospace industries.

"We are very excited to explore new frontiers," Williams said in a release. "The remarkable properties of nanocrystalline cellulose and wide range of potential applications speak volumes about the commercial potential of new fiber-based products that go beyond traditional pulp and paper applications."

These features hold promise, yet one analyst who voted for Williams still praised the management in 2009 and in 2010 of Domtar's UFS network especially since US demand continues declining, with capacity down 20% in the last 10 years. Almost 80% of Domtar's UFS sales in 2009 were to customers in the US.

"To offset the secular demand decline in our core (UFS) paper business, we need to find additional profit streams that will counteract this trend," Williams said. "This must be done either organically or through M&As.

"While we focus on execution in our core paper business-by putting our customers first and focusing on key market differentiators like FSC certified products-we must also be proactive in finding new and innovative ways to offset this secular decline by migrating toward growth opportunities. The Plymouth conversion is an example of this but the re-purposing of assets alone will not be enough.

"Domtar growth will be guided by three principles: increasing our stream of revenue from growing markets, providing the company with more predictable cash flows over time, and being accretive to stockholders over time."

On UFS, Domtar sells 47% of output for business and office, 29% to commercial printers and publishers, and 24% to converters and specialty paper makers. Forty-one percent of 2009's paper sales were to merchants. In North America, Domtar manages 3.9 million tons/yr of UFS capacity, in front of IP, and is also the largest paper-grade market pulp producer in North America with 1.9 million tonnes/yr of capacity.

Table 2 - Key Domtar financials - 2007-2009 (US $)
2009 2008 2007
Sales (000) $5,465 $6,394 $5,947
Net earnings $310 -$573 $70
Net debt $1,431 $2,155 $2,222
Alternative fuel tax credit $498 n.a. n.a.
Free cash flow $686 $34 $490
Net debt to capitalization 35% 50% 41%
n.a.=not available.
Source: Domtar.
1: The results for 2007 include the results of Domtar from March 2, 2007, the closing date of the transaction that involved the combination of Domtar with Weyerhaeuser’s fine paper business.

White papers on the rebound

Williams at the end of July saw improving white paper demand.

"In our paper business, we have already seen some rebound in commercial printing grades with advertising and direct mail recovering throughout 2010, a sign that marketing dollars are gradually coming back," Williams said.

"However, non-farm payrolls and more specifically white collar employment numbers remain sluggish and the unemployment rate is likely to stay above 9% in the US for some time," he said. "This means that for business paper grades, 40% of our product offering, we anticipate demand improvement only in 2011."

Supporting its paper line, Domtar in September launched a "Paper Because" campaign with online banner advertising and a series of short videos "to highlight the importance of paper in our lives, and the ways in which paper is a sustainable and environmentally sound product," a company official said.

The ads highlight "paper [as] one of the most recycled products on the planet (more than 63% of paper used gets recycled) and our collaborations with respected environmental organizations such as the Rainforest Alliance that encourage environmentally sound, sustainable forestry practices," the official said.

In the global market pulp sector, half of Domtar's capacity is in US and the other half in Canada, while 63% of its pulp ships overseas, especially to China, 26% to the USA, and 11% in Canada.

Domtar in August opened a market pulp sales office in Hong Kong for "solidifying our commitment to the Chinese pulp market," the company official said. The firm no longer buys coated bristols from China's Shandong Chenming Paper after canceling a one-year arrangement in early 2008.

"We are all witnessing the economic power moving toward the east, but the North American and Western economies are still massive, which bodes well for our core business," Williams toldPPI Pulp & Paper Week.

Williams replaced Raymond Royer, who twice won the RISI North American CEO of the Year award in 2003 and 2007. The 56-year-old Williams' experience is diverse, from SCA Packaging, Rexam, Huhtamaki, and Sweetheart International to global beauty and healthcare producer Alberto Culver UK Ltd and the Mars candy group. He is renowned for his international understanding and experience, candor, and capability to quickly and almost easily comprehend dynamics and how they interact, contacts said.

Table 3 - Domtar pulp and paper capacity changes 2001, 2010 (‘000 in short and metric tons)
2010 2001
UFS Market pulp UFS Market pulp
Pulp and paper mills ST MT ST MT
Ashdown, AR 933 86 830 165
Espanola, ON 77 114 80 125
Hawesville, KY 634 47
Johnsonburg, PA 374
Kingsport, TN 425
Marlboro, SC 391 50
Nekoosa, WI 167 206
Port Huron, MI 116 40
Rochschild, WI 147
Windsor, QC 670 33 565 60
Market pulp mills
Dryden, ON 319
Kamloops, BC 477
Plymouth, NC 444
Woodland, ME 398 125 340
Shut pulp and paper mills
Cornwall, ON 220
St. Catharines, ON 50
Lebel-sur-Quevillon, QC 290
Ottawa, ON/Hull, QC 178
New Westminster, BC 175
Port Edwards, WI 187
TOTAL 3,934 1,968 2,655 980
Source: Domtar, RISI company profiles.

English lit major

Raised close to the Greater London area in the small town of Storrington in Sussex, Williams majored in English Literature in college, and later sold pet food and candy bars for Mars, which sells popular M&Ms, Starburst, Skittles, 3 Musketeers, Wrigley gum, and Pedigree. In 1988, almost in his mid-30s, Williams launched into a top executive position as European managing director at Sweetheart, a major food packaging and food service business that in 1992 was acquired by Huhtamaki. This began his climb up the senior management ladder.

Williams will be awarded the CEO of the Year honor at RISI's 25th annual Forest Products Conference in Boston on the morning of October 7, and also will give a presentation as well as speak on the CEO panel in the afternoon. The conference runs from Oct. 6-8. Conference registration and information is www.risi.com/na_conf.

Williams is the 10th man to win the top North American CEO honor, and joins a list of industry notables including IP's Faraci and John Dillon, Jefferson Smurfit's Michael W. J. Smurfit, G-P's A.D. "Pete" Correll, and Weyerhaeuser's Steve Rogel.

The other European-grounded winner in the 12 years of the award was Ireland's Smurfit, who won for his containerboard/corrugated exploits when the award was considered a global honor.