Thank you, Ian.
To borrow a phrase
from a well-known New Yorker, this seems like déjà vu all over again. To
be named the top CEO in our industry once is a true honor. To be honored
a second time is almost unbelievable given the knowledge and critical review
your judges apply. I am not only honored, but also humbled to accept this
award on behalf of 58,000 Weyerhaeuser employees who have been critical
to our success.
It’s been quite a year since I was here
last. We’ve acquired Willamette Industries and we’ve completed most of our
initial integration work.
As expected, we’re achieving
the synergies we envisioned ahead of schedule and we’re following through
on our promise to rationalize capacity. At the same time, every Weyerhaeuser
employee is focused on paying down our debt and improving shareholder return.
But, more importantly, we’re creating a new Weyerhaeuser by building
on the strengths of both companies.
Last year, I drew
upon my background as a chemical engineer to describe that process. To illustrate,
I talked about how chemists combine two elements to overcome the limitations
of the individual chemical.
Hydrogen alone, for example,
is a useful element. But when you combine it carefully with oxygen, you
create something even greater – water and energy, two elements vital to
life.
On the other hand, an uncontrolled reaction of
hydrogen and oxygen will result in a disaster. If you don’t believe me,
just look at what happened to the Hindenburg zeppelin.
In
our case, Weyerhaeuser and Willamette were outstanding entities alone. Each
was a leader in our industry and each brought something different to the
table.
Together however, we can be even greater. Together
we can truly be a global leader.
To unlock that potential
means taking the best from both companies and combining them properly –
just like the right combination of hydrogen and oxygen produces water and
energy.
But if we do it wrong … guess what? We produce
the corporate version of the Hindenburg. Fortunately, all signs are positive
and the combination is yielding positive results.
From
traditional Weyerhaeuser, for example, we’re taking our knowledge of forestry
and applying it to the former Willamette timberlands. Not that Willamette
did a bad job of managing forests. It’s just that Weyerhaeuser is the acknowledged
industry leader in forest stewardship. Former Willamette timberlands will
benefit from this knowledge and become even more productive.
Meanwhile,
we’re using Willamette’s experience to teach us how to reduce overhead and
make decisions with greater speed. It wasn’t a question of Weyerhaeuser’s
inability to do that. We’d already started that process.
But
with the addition of Willamette, we’ve accelerated the pace of change and
extended its scope. Our long standing Weyerhaeuser operations are benefiting
from this expertise.
People ask me why I’m convinced
that we truly are getting the best from both companies.
The
long answer involves discussing the processes we put in place to ensure
that Willamette’s strengths weren’t submerged as we combined the two companies.
Within the first month of combined operations, I named Marvin Cooper and
Mick Onustock from Willamette to our Senior Management Team.
I
knew both gentlemen from my days there and I knew they would be strong additions
to the team. But I also wanted to send a signal very early on that former
Willamette employees would play an important role in the new company.
We also made sure we retained quality personnel from Willamette.
I’m pleased to say that virtually every Willamette employee we sought to
keep chose to stay.
This infusion of Willamette personnel,
like new trees putting down roots in the Weyerhaeuser forest, has helped
drive change throughout our company. At the same time, former Willamette
employees are learning how larger organizations require a few more processes.
They’re also learning about the advantages of larger organizations, like
our company wide volume purchasing effort, for example.
However,
there is a little creative tension in the organization. Former Willamette
employees challenge everything that hints of bureaucracy. The catch phrase
is “how does this earn us money?” And that spirit is catching hold. I hear
it now, every day from everybody.
Which brings me to
the short answer. It’s simple. People from both companies have complained
to me. That means everyone is being forced to operate outside his or her
comfort zone and that each group is changing and learning from the other.
The result will be a company that operates with greater safety,
speed, simplicity and decisiveness. It will respond more quickly to customer
needs. It will wring the maximum value out of each dollar shareholders invest
in us. It will deliver improved shareholder returns.
It
will raise the bar on operational performance and then challenge forest
products companies around the world to match it.
But
it will do something even greater. It will provide the foundation for future
growth for Weyerhaeuser.
And that brings me to the main
focus of my speech. What’s the next step for Weyerhaeuser? Where do we go
from here?
To provide a glimpse into our future, we need
to look at our recent past. For in that past lie the clues to our future.
When I joined Weyerhaeuser five years ago, the company was already
on the road to becoming a leader. Weyerhaeuser had begun the process of
focusing on its core businesses.
This process created
a company with a strong financial base and a clearer focus, especially in
timber and wood products. A focus that went all the way down to the way
we grow our trees and all the way back up to how we converted them into
wood products and took them to market.
We sharpened that
focus by looking at what we needed to do to become a global leader in all
our businesses. We asked ourselves four questions:
- What do we want to become and why?
- What are
the strengths we can build on and what weaknesses must we correct?
- Do we have the resources – human, financial and physical – to
take us to where we want to go?
- Finally, do we have
the discipline to stick with our strategy?
To
answer those questions, we began by listening more closely to what our customers
and shareholders wanted from us.
Basically, both wanted
the same thing – consolidation. Customers wanted fewer suppliers because
channels to markets were changing. They wanted suppliers who could meet
their needs on a national basis while helping them remove costs from distribution.
They wanted suppliers who could provide specific quality and help manage
inventories. And, they want suppliers who can deliver sustainable, environmentally
responsible forest products.
Our owners also wanted to
see consolidation, but for different reasons. Simply put, they wanted better
returns. A fragmented industry could not deliver improved service and efficiencies
that result in better returns. And, our shareholders wanted a larger and
more liquid equity base in which to invest.
We then took
these insights and began looking at what they meant to Weyerhaeuser. I’m
fortunate to have a board whose members draw upon their diverse backgrounds
to improve our company.
I tapped into their experience
in 1999 when the board sat down with our Senior Management Team to update
our long term strategy.
We emerged from those meetings
with a clear focus on growing our timberlands, wood products, containerboard
and uncoated free sheet paper assets. Since then, we’ve also identified
real estate as a business we’ll grow over time.
Adding
the operations in Dryden, Ontario, for example, enhanced our uncoated free
sheet position. MacMillan Bloedel added to our timberlands, containerboard
and structural wood product lines. Trus Joist gave us a major presence in
engineered wood products. And Willamette added strength and manufacturing
know-how to all those lines.
It also meant shedding small,
niche businesses or single-mill operations that didn’t support our growth
strategy. Through this methodical approach we’ve established a leadership
position in North America and positioned Weyerhaeuser for future growth.
Not that we’re done. We may still need to make some additional
moves when the market and business conditions are right.
Which
brings me back to the question of what we’re going to do after we pay down
our debt. What will we do with significant cash flow our operations will
generate? How can we further enhance our ability to deliver shareholder
value?
We really have two choices.
One,
we can further enhance our position in North America. While we can grow
in our current core business lines, that would be limited to filling out
product lines, adding geographic reach or some other move to enhance our
ability to serve customers.
Our second option is to grow
internationally. We’re already growing our international presence “organically”
through small steps. Doing something significant would have to be done through
acquisitions.
Expanding internationally has several advantages.
First, we can continue to focus on what we do best. Growing trees and making
and delivering our core portfolio of products. We’d also achieve some degree
of market diversification to help balance regional economic disruptions.
Finally, international growth puts us closer to customers in expanding markets.
Operating internationally isn’t a new experience for us. Although
we primarily are a North American company, we do have experience in the
Southern Hemisphere – mainly in Australia and New Zealand where we have
timberlands, manufacturing and sales operations.
In Australia,
for example, we produce and distribute 22 percent of the country’s softwood
lumber and have an operation to manufacture and market Trus Joist products.
Meanwhile, in Uruguay, we collectively manage 320,000 acres of
grazing land that we’re rapidly converting into managed forests.
We know from this experience that running international companies
or facilities is difficult to do from the U.S. and it is not the way to
go. Therefore, there is less opportunity to achieve synergies from management
combinations.
So, which strategy are we going to pursue?
I’m sorry, but I’ll have to keep you in suspense for a while because
we haven’t arrived at an answer. Each course has its advantages and disadvantages.
Each could be the right one for our future. Or, we could combine them.
Finding the correct answer – or set of answers – is our challenge.
To get there, we’ll use the same approach we took to develop our current
growth strategy.
That is, by learning where we need to
go and determining how to get there. By negotiating the right price for
the right properties. And by making sure we deliver the maximum results
from each acquisition.
It’s not growth for growth’s sake.
It’s growth for shareholder return.
But we have a lot
of work to do before we undertake additional growth. In addition to setting
our course, we need to focus on three key immediate challenges:
- We must fully integrate Willamette into our operations;
- We must capture and maximize the synergies available from this
acquisition; and
- We must pay down the debt.
And we must do this while dealing with the daily demands
of a daunting economic environment. As you know, many of our markets have
been extremely challenging this year. We’re also dealing with a skittish
stock market, a great deal of economic uncertainty and trade issues with
Canada due to poorly thought out public policy. You’ll hear more about the
Canadian issue tomorrow.
Weyerhaeuser is 102 years old.
As a company, we’ve successfully dealt with challenges before and I’m confident
we’ll deal with the current ones. With our acquisition of Willamette, we’ve
assumed an even greater leadership role in our industry.
We’ll
use that role to make our company and our industry stronger. As we demonstrated
with Willamette, we’re willing to step out of our comfort zone if that’s
what’s required.
In closing, I’d like to once again call
upon the wisdom of that well known New Yorker that I quoted at the opening
of this speech.
In another example of stating the obvious,
he once said, “it ain’t over till it’s over.” It ain’t over yet for Weyerhaeuser,
but perhaps thankfully for you, my remarks are drawing to an end.
In closing, and on behalf of Weyerhaeuser Company, I want to thank
you once again for this award. I deeply appreciate your continued confidence
in me and in Weyerhaeuser.
Thank you.
