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from Outstanding Investor Digest's August 8, 1997 edition


SOGEN FUNDS'
JEAN-MARIE EVEILLARD ET AL.
(continued from preceding page)


    I thought we were at the bottom of the cycle when we spoke then. And I think we're at the bottom of the cycle again today. But it looks like they're still making money - albeit much less than they made in 1995 because the price of paper has come down so much.
    However, we're still quite positive on Emin Leydier. So we've been buying more.


LOW COST POSITION + FIRST RATE, MOTIVATED MGM'T
= UNUSUALLY HIGH RETURNS IN A SO-SO BUSINESS.

OID: Although Emin Leydier is a paper company, you mentioned last time that it's a high return business - over the full paper cycle anyway.
     Eveillard: Correct. Emin Leydier's return on equity can be 30% or more in good years and the low single-digits in bad ones. But I would think that its return on equity might average 18% to 20% over most cycles.

OID: But how can they earn such high returns in what sounds like such a commodity business?
     Eveillard: First, they're a low-cost competitor - which is what you want in a commodity business.

OID: More "need" than "want", I think. Otherwise, investing in them might be hazardous to your wealth.
     Eveillard: That's true. One of my associates was talking with the management of a much larger Swedish paper company and Emin Leydier came up. And the management of that company said, "Oh, we've approached them. We'd love to take them over."
    However, management controls Emin Leydier. So they can't be taken over against their will. And they have no interest whatsoever in being taken over - at least currently. Also, Emin Leydier's business is not completely the worst kind of commodity paper business.

OID: Talk about faint praise...
     Eveillard: That's because they're in two businesses: (1) paper for corrugated board and (2) the corrugated board
itself.
    That's good for a couple of reasons. First, their corrugated board is used to produce corrugated containers used mostly in food packaging. And those sales, at least, are relatively stable; although it's also used to package other consumer products - including toys. Also good is the fact that to a great extent it's a local business because corrugated board's bulk is such that you don't transport it 500 miles.

OID: Similar to the virtues of rock quarries - as we've been told before by Semper Vic's Tom Russo and the folks at Tweedy, Browne. They're quasi-monopolies within their locales because of high shipping costs.
     Eveillard: That's right. It's generally not cost effective for anyone to transport the product any great distance.

OID: But, if that's so, why don't paper businesses generally earn high returns?

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