A Report compiled by
the Boycott Woodchipping
Campaign

Daishowa Paper Manufacturing Company Ltd

Corporate Overview June 1999

Daishowa is the third biggest paper company in Japan, with sales of Y350 billion in 1996, representing a Y300 billion profit in that year. The company has 3,657 employees. Daishowa's paper and paperboard sales volume was 2.682 million metric tons with annual sales of $US 2,448,418,000. (Data is in 1998 figures). Y100 = $1US though exchange rates fluctuate substantially.

Despite its profit margin in 1998, Daishowa actually produced no cash dividend per share to its shareholders, with only $US 0.16 net income per share. In short, Daishowa's shareholders are not making any money. Daishowa's accrued long term debt amounted to $US 1,098,751,000.

Daishowa Paper announced on 18 March 1999 that it has revised down its earnings for the year ended March 1999. It simultaneously announced business improvement measures aimed at raising the company's profitability. Daishowa's new restructuring plans include reductions to fixed costs through staff cuts and reductions in variable costs which involve increasing in-house production capacity for recycled pulp at its 4 production plants in order to cut back relatively expensive external purchases of pulp.

Daishowa's raw material procurement structure was especially expensive compared to its 6 major pulp and paper competitors in Japan. Financial analysts are positive about the news of Daishowa's restructuring announcement, but remain cautious about Daishowa's corporate viability in the medium term. These restructuring measures have been tried twice before with mixed benefit, and if the company funds this most recent restructuring from cash flow, it will not be able to make significant progress with reimbursing its substantial interest bearing debts.

Daishowa may, therefore decide to sell off overseas assets in order to raise funds. Overseas exchange rates and high profitability figures suggest that the company's US subsidiaries (involved in the production of newsprint and telephone directories), rather than Harris Daishowa Australia, are the logical target.

Another part of the company's plans to cut back fixed costs involves cutting back employees at its domestic pulp operations by 10% by March 2000. Of this amount, 3% will be dealt with through expansion of its early retirement program, while the company will also reduce executive board members from 27 to 18, and pay outs to the remaining board members will be cut by 20% - 50%. These cost cutting measures are expected to save the company Y300 million.

Product Manufacture, Distribution and Markets

Daishowa's production distribution - 23% paperboard 77 % paper (51% printing & writing, 19% newsprint, 7% industrial paper).

Daishowa supplies 11.3% of Japan's paper market, 5.4% of the paperboard market and also produces particle board. In 1994, Daishowa's market share included 14.2% newsprint, 12.5% of printing papers and 12.7% packaging papers.

Daishowa does not own any timber production land in Japan and so is wholly dependant on its overseas suppliers in Canada (Alberta), Australia, the US (south-west, south-east and Maine) and Chile. The company has some access to domestic wood and wastepaper supplies but is highly dependant on Southeast Asia and pacific pulpwood supplies. Daishowa also imports pulp from South America, North America and Europe.

60% of Daishowa's raw wood fibre is imported but this maybe somewhat misleading. It is conceivable that a significant amount of the 40% domestic supply, which includes sawmill offcuts, is from foreign logs processed in Japan.

A third of Daishowa's paper intake is domestic wastepaper - 800,000 tonnes in 1994. Domestically, Daishowa's production of newsprint paper does contain a high wastepaper content, around 50%. Wastepaper also makes up between 20% - 80% of some of Daishowa's printing, coated, information and industrial papers. What is actually defined as wastepaper however is ambiguous, and may not be post-consumer waste but rather production offcuts. A significant amount of this so-called wastepaper may still be virgin pulp. Genuine post-consumer wastepaper use in production is probably quite low.

It is crucial for Daishowa to keep raw material costs to a minimum, as they make up about 55.3% of their annual costs, much more than the industry average of the 9 leading paper manufacturers 42.3%. Raw material costs are expected to increase, making the impact on sales as a result of the Asian economic downturn, crucial to the company's short term prospects. Daishowa has a history of reacting quickly to changes in the price of domestic resources and pulp in relation to imported supplies. A fall in the yen relative to international currencies may mean that Daishowa will increase its dependence on cheap imported woodchips and process them in Japan.

Foreign woodchips are imported from Australia, Chile, Canada, Thailand, Russia and the US. Major suppliers are USA 37%, Australia 41% and Chile 14%, who supplied 92% of Daishowa's foreign woodchips through the early to mid 1990's. Australia's market share has fallen over the past few years to around 28% - 32%. Supplying companies include Marubeni Corporation, Weyerhaeuser, Mitsubushi Corporation and Louisiana-Pacific. Softwood chips imports into Japan are small in volume.

Japan accounts for 88% of Pacific Rim pulp imports. Daishowa sources most of its pulp from the USA, Canada, Sweden, Brazil, Chile, Portugal and Finland. This has been bolstered by the downsizing of its domestic pulp facilities by expanding offshore operations, particularly in Canada.

Daishowa produce an extremely wide range of paper and paperboard products. Their products are dispersed throughout the economy and all facets of an average person's life. Only 2% of Daishowa's production is directly exported as paper. These products include, newsprint, general printing paper, books, textbooks, magazines, telephone directories, drawing paper, grocery and shopping bags, stationary, commercial and industrial wrapping papers, speciality paper, paper cups, postcards, paperboard for cosmetics, candy, detergents, playing cards, railway tickets and container board. Particle board products include kitchen and woodwork furniture, partitions and construction.

Therefore, a substantial amount of Daishowa's paper products may be exported, as vehicle and consumer electronic manuals and packaging, and as advertising materials for instance.

Purchasers of Daishowa products

Newsprint - Yomiuri Shimbun, Asahi Shimbun, Nihon Keizai Shimbun, Sankei Shimbun and Chunichi Shimbun, all of which are large daily national newspapers.

High quality paper - Kokuyo (stationary), DaiNippon Printing Co Ltd, Japan's largest printing company.

Lower quality papers - Nippon Telephone and Telegraph (NTT), and the publishers Shogakkukan, Shuueisha, Gakken.

Coated papers - Publishing firms including, Shogakkukan, Shuueisha, Gakken, Magazine House and Kadokawa.

Information papers (incl. photocopy and printing) - Ricoh, Canon, Minolta, DaiNippon.

Industrial - Sumitomo Cement, Mitsubushi Materials, Nippon Salt Industries, Nippon Tetrapac, Showa Denko.

Whiteboard - Kao, House Processed Food Industries, Yamazaki-Nabisco.

Cartons - Asahi Beer, National Federation of Agricultural Cooperative Association, Zennoren, Sony, Sharo, Fuji Film, Toppan Moore (business forms).

In fact, probably most large Japanese companies (including perhaps their overseas subsidiaries), use Daishowa paper products in one way or another.