Holmen Bets Magazine Paper Knock-Off Will Lure Publishers

Holmen AB (HOLMB), which makes the pink paper for the Financial Times, is betting on simpler and cheaper products that mimic magazine-stock quality to win new business as smartphones and tablets cut into newsprint sales.

The Stockholm-based company’s new paper grades such as TRND, which has a matte surface and is a bit thicker than traditional magazine quality, are increasingly used by clients for mail advertising campaigns, Chief Executive Officer Magnus Hall said in an interview. In the next step, he’ll targeting magazine publishers in need to cut costs.

“Our biggest challenge at the moment is in Holmen Paper, to continue the development of new products that can compete with traditional products,” he said. “The pace is very high because of the importance to adapt to the changing market.”

Demand for newsprint is falling as traditional newspapers and magazines increasingly publish online and computers, smartphones and tablets are becoming the main sources of information for readers. Holmen, which exports 90 percent of its output to Europe and this month reported fourth-quarter profit that missed analysts’ estimates, is also hurt by declining demand amid the continent’s sovereign-debt crisis.

The company’s biggest unit, Holmen Paper, generated about 45 percent of the company’s 17.9 billion kronor ($2.8 billion) in sales last year. Holmen also owns saw mills and forest land, makes paperboard-based packaging for consumer goods such as food products, cosmetics and tobacco and offers hydro- and wind power energy services.

Packaging Lifeline

While Holmen’s 5.2 percent increase in Stockholm trading in the last 12 months was less than the 9.2 percent gain of the OMX Stockholm 30 Index, the company still fared better than competitors. Finnish rivals UPM-Kymmene Oyj (UPM1V) and Stora Enso Oyj (STERV) dropped 14 percent and 10 percent respectively and Norwegian rival Norske Skogindustrier ASA (NSG) declined 44 percent.

Holmen, with a market value of 16.9 billion kronor and paper production sites at Hallstavik and Norrkoeping, is under less pressure than other paper companies as it has a diverse portfolio with valuable assets in its forest and energy holdings, Handelsbanken analyst Karri Rinta said. The attempt to sell new paper grades to magazines makes sense as it represents a new market for Holmen which traditionally was selling to newspapers, he said.

“They weren’t in magazine paper to begin with, so they can make the shift without cannibalizing on other businesses,” Rinta said. “The improved newsprint paper is cheaper and good enough, which makes it a winning concept in the long run.”

Good Enough

The TRND newsprint grade offers quality that is good enough for magazine makers while being cheaper as it isn’t given a glossy appearance and uses fewer chemicals, according to spokesman Jonas Lindell. While the paper is a bit thicker, it still weighs less than traditional magazine paper, making it cheaper as buyers pay per ton, he said.

As magazines face plunging circulation and advertising spending, their owners are seeking ways to cut costs.

Bertelsmann AG’s Gruner + Jahr unit, Europe’s biggest magazine publisher, in November decided to shut down its Financial Times Deutschland newspaper and said it will try to sell investment magazine Boerse Online and monthly publication Impulse. Washington Post Co. said this month it may sell its downtown headquarters to relocate to a property that will make its operations more efficient.

Holmen aims to keep the output at its paper unit, which had an operating loss of 99 million kronor last year as sales decreased 5.6 percent, at a stable level, Hall said. At the Iggesund packaging division, the company targets to increase output at a “moderate” pace in the next few years, in line with the market, as the company is investing to remove production bottlenecks.

Clients can cut their costs by between 10 percent and 20 percent if they choose one of the new newsprint grades, according to Holmen. In the longer term, the company is also betting on being able to sell more of its new papers in emerging markets such as China and India to tap the local growth in advertising.

To contact the reporter on this story: Janina Pfalzer in Stockholm at jpfalzer@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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