New Abitibi-Consolidated CEO discusses his plans for the newsprint giant to regain market share from strike, improve mills’ performance

Q&A With John Weaver, Newly Appointed CEO of Abitibi-Consolidated Inc.

John Weaver, 52, was named CEO of Abitibi-Consolidated Inc. in January, replacing chief operating chairman Ron Oberlander and CEO Jim Doughan effective Apr. 27. Before joining the former Abitibi-Price Inc., Weaver served as paper machine superintendent for Continental Can Co. and production manager at Smurfit Newsprint Co. At Abitibi-Price, he was production manager and later general manager of Augusta Newsprint Co., and also served as Executive Vice President and chairman of the company’s operating committee.

Pulp & Paper met with Weaver in the company’s Montreal, Que., headquarters to talk about his strategy as CEO. Weaver is focused on regaining marketshare following a five-month strike; moving ahead aggressively with the company’s “cornerstone” strategy to make its portfolio of mills cost-competitive; and the successful start-up of Singapore-based Pan Asian Paper Co. (PAPCO), a joint venture with Norske Skog of Norway and Hansol Paper Co. of South Korea that created the largest newsprint producer in non-Japan Asia.

CORPORATE STRATEGY

P&P: What are your goals as CEO? JW: With Abitibi-Consolidated we’ve laid a good platform by bringing these two companies together. I think that my role is to solidify the company and move forward and start delivering the results to our shareholders that they’ve looked for from the merger. The first challenge is to really focus on customer satisfaction as a low-cost producer while delivering the results that our shareholders have looked for. Our customers have to be happy with the value proposition that we’re presenting to them. I think I’ll be able to explore what’s important to our customers, how do we move on a fast track to cornerstone, and how is that going to result in return to our shareholders. Our direction is generally set, it’s the speed at which we get there and the results that we deliver that’s probably of interest to the community.

How well have Abitibi-Price and Stone-Consolidated come together? The two companies had common goals and objectives. We did have somewhat different cultures, but we created a new culture, an Abitibi-Consolidated culture, and we came up with a vision and values for that company. All the management team are aligned on those vision and values and how we want to move forward. The only thing that needs to be completed is to solidify everybody behind the new leader and move forward on those vision and values. I think we’re almost there. We’ve created our Abitibi-Consolidated way of doing things—now we need to maximize the efficiency of that.

What is the future of the Alabama River Newsprint joint venture with Parsons & Whittemore? Will you rework the sales agreement, or does one partner get out?

I think the only thing that is for sure is that we have to somehow establish a going forward relationship or it’s not going to work. Both parties want to find a solution. You named two or three different possible solutions, and I think they’re all options. What’s the right one, what’s the best business decision? A lot of it depends on what each party wants from the relationship.

We believe that newsprint is our expertise and that newsprint is a good market. We would like to stay in the newsprint business and we would like to stay in Alabama. Whether or not that is possible, we’ll find out.

CORNERSTONE STATUS

As part of the “cornerstone” strategy, how much newsprint capacity will be taken out and on what timetable?

The cornerstone strategy has been a long-standing strategy for Abitibi-Consolidated and there have been discussions inside the company for years or months depending on the particular mill. A lot of them are in the newsprint division. Our strategy is to move 350,000 metric tons out of the newsprint market, about equal share of idled capacity and conversions to value-added grades. At Beaupre, Que., we’re converting from alternative offset to ultra offset, which is a surface-coated product. Following that, the Fort Frances, Ont., mill can move up from 75 to 80 bright grades. That leaves an opening for a newsprint mill to move up and make 65 to 75 bright grades. It’s sort of a domino effect.

Those conversions are going to happen by the first of the year 2000. In terms of idling capacity, some of that will happen during 1999. For instance, we’ve temporarily idled one 110,000 metric ton machine at Chandler and we’re in negotiations to create a new joint venture to run the remaining machine and shut the other machine permanently. And perhaps there will be one or two other small opportunities in the first half of the year for idling machines.

How is the market for the higher brightness grades?

For the alternative offset and 80-bright grades—used in quarterly reports, computer manuals, and government-issued periodicals—there’s a good market. We’ve been developing it slowly, first with the 80 bright grades and now with the ultra, which, in terms of printability, is a much higher grade of paper. It’s sold a little differently than newsprint and our other products. Often, it tends to be sold through merchants so we are trying to cultivate and learn how to manage that. We have effectively built a 180,000 metric ton 80-bright market, now we’re just going to move up and try to build the same market but in the ultra grades.

Where will the conversions happen?

We think the Fort William mill will pick up a lot of the high bright grades. One advantage it has is its bright pulp and it also is very close to the market. A lot of those periodicals are printed in the Chicago area, so it has a good freight advantage there, especially for truck shipments. The Fort Frances mill will also pick up some of the grades. Both mills are in the Thunder Bay (Ontario) region and close to the Midwest market area.

How much will the conversions cost?

The Beaupre project, which was announced in early 1998, is a C$50 million project. It will be finished at the end of this year. That’s the biggest conversion. I think the Fort William conversion is relatively minor capital, less than C$10 million. So we’re not spending C$500 million to do this. The only other major project we’ve announced is at our Kenogami mill in Jonquiere, Que. That’s an SC-A conversion.

Which non-cornerstone mills are you evaluating?

One of them is the Wayagamack, Que., mill. It’s a groundwood mill, not a newsprint mill. At the West Tacoma mill (in Steilacoom, Wash.), which is not cornerstone, we are trying to convert the small newsprint machine to specialties. And if we can’t grow that market on the West Coast, then the machine may idle.

One of the things that is difficult for Abitibi is that talking about cornerstone tends to give all this focus to our bad apples. We never get to talk about what’s good and that we truly are a low-cost producer. That’s one of the reasons I want to get rid of these non-cornerstone issues. I think we have to begin to clearly demonstrate to our shareholders and the various analysts that we’re low cost, and by talking about all our rotten apples, it’s hard to make progress on that. We’re going to try to talk about the shiny red apples in the future.

It makes the decision much more difficult when a community is largely dependent on the mill.

That’s the big issue in Chandler. The community is very concerned about closing one machine and what that means. But we think the partnership we’re going to form there will create a viable business for the whole region going forward. In the long run, they’ll be better off because Abitibi-Consolidated wasn’t going to invest capital in Chandler and the new joint venture will consider it. At some other mills, it might not be such an easy decision.

SURVIVING THE STRIKE

What has been the fallout from the strike in terms of production problems, employee morale, and customers?

I think the employees and especially the communities are generally back on side and we’re starting to rebuild relationships. We don’t have a lot of major concerns there. Our biggest concern is the fact that we were out of the marketplace for five months. Now we have to regain our marketshare and we’re determined to do that. In general, that’s coming back. Unfortunately, the first quarter is not normally the best quarter of the year and so it makes it a little bit more difficult than it was in the fourth quarter. We will take downtime if necessary to keep from building inventory. We’ll do our share, but we don’t want the industry to think we’re going to carry the load. In reality, even though the U.S. mills tend to think they’re the low-cost producers, today almost any independent study will show you the low-cost producers are in eastern Canada. It’s a combination of all the things that Canadian mills have done to lower their costs and the favorable exchange rate that makes eastern Canadian producers probably the low-cost producers in the world right now.

Were there any production problems during start up?

No. We were really concerned with environmental issues because we had installed brand new environmental secondary treatment facilities in all our mills. That, in conjunction with a cold-weather start up, had us concerned that we might have curtailments due to environmental problems. But that went really well. I think within two weeks the mills were generally up to speed. We had a little bit more trouble in one or two mills, maybe it took three weeks or so, but no significant problems. Certainly by the end of December we were back to normal.

NEWSPRINT MARKETS

Where do you see the newsprint market heading this year?

We’ve said before that there’s probably about 1 million metric tons of overcapacity in North America, and at least half of that is the loss of exports. We think that Asia has bottomed out and that they’re going to have to restock inventories some. I guess it’s a question of how fast they’ll recover. Unfortunately, now Brazil has everyone worri ed so maybe we won’t see exports recover in 1999. Asia might look a little better but South America might look a little worse. I think it still remains to be seen but that’s the speculation we have today.

Is Abitibi considering using or currently using newsprint hedge contracts to reduce price volatility?

I think the best answer there is that Abitibi’s looking at it, trying to understand it, trying to understand what’s good about it and what’s bad about it. We’re not really big players. We might have 1,000 metric tons (hedged) so we can see what happens and how it works. I think a lot of buyers have similar small amounts (hedged) and they’re trying to figure out how it works. The (former) James Maclaren Industries mill I guess will be the first big breakthrough. (Enron Capital & Trade Resources is hedging the mill’s production.) We’ll all watch that with interest.

How much have exports been affected because of reduced demand in Asia?

With the strike in 1998, it’s difficult to say how much it really did shrink. Basically, we tried to maintain all our sole supplier customers, and we have quite a few in South America that we supported through the strike as well as our sole suppliers in North America. In fact, I think that through the strike we managed to prove that we can support our customers even under unusual circumstances because of our diversity and the fact that we have mills in the U.S. and mills in Canada that aren’t in the CEP (Communications, Energy, and Paperworkers Union). By working with our customers, we were able to keep everybody supplied with paper.

In the long-term, with our Asian joint venture, it’s not our intent for ships to pass in the night. Our intent would be for the Asian tonnage to stay in Asia and our North American tonnage to stay in North America. Our strategy is to be a regional, low-cost producer in a global market. We do have, though, a good market in South America and Europe which we intend to continue to export to, but I think our exports will decline slightly in the next several years.

A GLOBAL PRODUCER

Has it been difficult for the three cultures to work together in PAPCO, your new Asian joint venture?

In general, the three cultures have mixed quite well. I think the real challenge will be once we get into business. It’s a marriage of three people instead of two, so it’s probably going to be even more difficult. Abitibi-Consolidated has several joint ventures, so we realize some of the difficulties that can arise. We’ve tried to look ahead and say OK, we’re going to have this kind of problem, how are we going to handle that. I’m sure there will be little bumps in the road, but we’re optimistic. We think this will be a great company for us to grow in Asia and we’re looking forward to being a real viable entity. We spent two or three years looking to build inroads into China and Asia trying to find the right partner. The fact that we were over there building these things is how we happened to run into each other. We asked, why don’t we do this together?

How will your involvement with Hansol in Korea affect their shipments to North America?

In the short term, both companies have contractual relationships with customers in each other’s area. Hansol has contracts on the West Coast and we have relationships in India and Hong Kong and various parts of Asia. We have to honor our customer relationships but over time we would like to switch those customers over. Maybe customers that buy only for price won’t want to buy from Abitibi-Consolidated, but we’re going to try to convince them otherwise. I don’t think it’s going to happen overnight. I think it’s going to be a transition.

Should buyers expect that the tons marketed in the U.S. for the joint venture will be priced comparably to those produced in North America?

The question is, was Hansol marketing to the best of their advantage or were they just sort of desperate? And now that we have a marketing relationship for them in North America will they be able to get a better price or not? I don’t know. As the whole world becomes more and more global, how much difference can there continue to be in pricing other than freight? If it costs them $100 to ship paper over here, right now they have a huge currency advantage allowing them to do that. In the long run, when Asia recovers, is it going to make sense for them to pay that kind of freight to stay in the North American market? In time, as Asia comes back, that paper will naturally go home to where their mill nets are best. Right now, North America has the best price in the world so everybody wants to sell here.

What are your plans for the newsprint machine you purchased from Peru several years ago?

It’s still in a box. Originally we had planned, as Abitibi-Price, to utilize that in a joint venture in China. Now, with our Asian joint venture, that’s on the back burner. We have a plan B for it but there are no immediate plans. The only thing that’s for sure is we’re not going to build new capacity in North America.

By Nicola Mcintosh, News Editor