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LEARNING BY DOING

IT HAS BEEN almost one year since Stora Enso sold its board mill in Pankakoski, eastern Finland, for Euro 20 million ($27 million) to a group of private investors headed by Dermot Smurfit. Some of the same investors were behind the acquisition of the Savon Sellu mill (Kuopio, Finland) from M-real and its transformation into Powerflute. The Powerflute story has been one of success and management at the newly named Pankaboard is determind to copy that success.

Pulp was first made at the Pankakoski site in 1903. In 1909, W.Gutseit & Co.purchased the mill, which later became part of Enso-Gutseit and then Stora Enso. In 1912, a new stone groundwood (SGW) pulp mill was installed along with two board machines. A third board machine was installed two years later and BM 3 still runs today, albeit a totally rebuilt version, which began opera-tion in 1980. In 1996, the world’s first Mestro Condebelt dryer was installed on BM 3.

A new BM 2 replaced the original BMs 1 and 2 in 1979. Now, the mill can produce some 100,000 tonnes/yr of packaging and graphical board on its two units. The pre-cise output depends on the basis weight (of which the mill has a wide range, 150-740 g/m2). For now, Pankaboard is concentrating on the heavier weight products.

However, with tough markets, at the time of the sale, at the time of the sale, the mill was only producing about 60,000 tonnes/yr. In 2007, the budget is 78,000 tonnes. Although this is dependent on the market, Pankaboard CEO, Ari Kotilainen, says the mill is actually running ahead of that pace and expects to be further ahead at year-end. One of the reasons is that the mill now has its own stable of sales agents in place around the world and they are eager to make their mark. Kotilainen esti-mates that the mill can make more than 150 different products if the different basis weights are taken into account. But, the market dictates what is made.

As part of the bridging agreement with the mill’s new owners, Stora Enso agreed to be responsible for sales, power and some accounting duties for one year; Pankaboard takes over these tasks in July 2007.

Pankaboard has signed an agreement with Stora Enso for the purchase of about 35,000 tonnes/yr of kraft pulp, hardwood and softwood, from the nearby Enocell mill. Wood for Pankaboard’s SGW pulp mill is also sourced from Stora Enso. The wood is all spruce.

The stone groundwood mill has three grinding stones and can produce as much sa 90,000 tonnes/yr. Output been cut back in recent years, partly because of market conditions and partly because of a knife debarking sys-tem, which limits capacity, although saves water.

Since the takeover, there have been no major invest-ments, although Kotilainen notes that the mill had been “well invested” and was in good shape. Sales had also been a factor limiting investment.

One project currently underway is to renew the mill’s IT system. Pankaboard had been using the Stora Enso system, but needed to develop its own mill execution sys-tem. This will have an effect on most department: sales, logistics, production (planning and follow-up), quality control, imcoming orders and invoicing. TietcoEnator is supplying the complete package.

The mill’s effluent treatment system was upgraded in 1999 and is stilll in “excellent shape”, says Kotilainen. The mill’s permits are valid until 2015. “There are no real envi-ronmental issues for us”, he adds.

The mill must be doing something right as there is a salmon farm immediately adjacent.

___________________________________________________________________________

REPLACING PLASTICS

 

Kotilainen says the mill’s SGW pulp process is conven-tional. However, the pulp plant is 1,2 km from the mill and the pulp is pumped in a slurry form, 3% consistency, to the stock prep area.

            Both SGW and kraft pulp are on both of the mill’s machines, the amount depending on the grade being produced and the basis weight. Pankaboard used to have an old corrugated container (OCC) process but it was shuttered in 2002 for two reasons.

  • Economics: the mill is far from any urban area that could supply the raw material.
  • Food grade packaging cannot use a recycled furnish.

BM 3’s production is focused on solid bleached sulfate board (SBS) for trays for food applications. It also makes wood pulp board. The basis weight range is 150-720g/m2.

BM 3 is a machine of first. As well as the Condebelt, it also features a Contraflo former, installed by Tampella in 1980. Kotilainen calls it unique in the industry and its main benefit is the excellent fiber orientation it gives.

Especially for trays, the desired orientation is in the Z direction. “The moldability properties of the base paper are best on our machine”.

The mill sells a lot of SBS for trays to Stora Enso , which coats the board and then sells it to converters.

Kotilainen adds that the mill does not use optical brightening agents on either machine although their use for food applications is not forbidden by regulation. The mill also does not bleach its pulp.

The Condebelt provides excellent strength and elas-ticity for the core board products made on BM 3. The strength is important for the jumbo paper rolls now being produced. The core board does not resonate despite the high speed of modern printing presses. Kotilainen refers to the product as a “super” core board, made entirely from virgin fiber.

The big printing houses need to print on jumbo reels up to 4 m wide at high speed. Therefore, strong cores are needs. “Only the Condebelt technology can give the strength needed”, says Kotilainen. “The market is growing”.

The Condebelt also gives good surface properties to board while retaining bulk. “It’s like a belt calendering unit,”explains Kotilainen. “This is important for frame products.”For tray applications, which are printed on one side, printabitily is excellent.

Strangely, the 22-m long Condebelt unit was installed on top of BM 3’s original dryer because the mill wanted to hedge its bets in case the technology did not work. Now, the web passes through the three sections of the original dryer before passing up into the Condebelt.

The upper layer of the web is constantly in contact with the hot steel belt. The bottom part rides on a fine wire.

The wood pulp board is a very specialized product. The total world market is only in the region of 100,000 tonnes/yr, but Kotilainen says proudly, “We are the biggest and most efficient producer.”

Another niche product belonging to the SBS family is the mill’s PankaFrame product, used for picture framing. This is a totally white board made with kraft pulp. “All of our frame products are buffered with calcium carbonate,” explains Kotilainen, “so the color does not change and the residual acid does not destroy the artwork in the frame”.

The mill also produces a cream colored framing product that uses stone groundwood in the furnish. The total market for these products is only about 15,000 tonnes/yr, but Pankaboard has a 60% market share.

___________________________________________________________________________

THE HEAVIER THE BETTER

 

BM 2 is a seven-cylinder former board machine. “That’s why we can produce the high grammage boards”, says Koilaine. “Each cylinder can remove 100g of water per square meter. The machine has no vacuum system.

            The basis weight range is 275-740g/m2. The trim width is 3.1 m and maximum speed is 150m/min.

            The press section is standard. There is a Yankee dryer along with conventional cylinder dryers. There are three coating stations on the machine, two for the topside, one for the bottom.

            BM 2 focuses on folding boxboard (FBB) and beermat board. Often, the outer plies are made from chemical pulp, mostly birch, the inner plies from SGW pulp. The mill’s main market is high grammage FBB, “The higher the bet-ter is our competitive advantage,” adds Kotilainen. A com-mon use for the high grammage FBB is liquor boxes. The thick and smooth FBB is good for the appication of metal laminates. The mill is also able to produce uncoated FBB specialties that are mainly used in cap seals.

            Rolls from BM 2 can be wrapped or sheeted; about 60% of production is sheeted. There is one roll wrapper for both machines and all of BM 3’s production is sent out as rolls.

            There is one central room from which operators run the front gate, pulp slushing, stock prep for both machines, power boiler and effluent treatment, as well as BM 2. If necessary, the SGW pulp plant can also be run  from here. Bm 3 has its own control room.

            One legacy agreement from the Stora Enso days is the maintenance system. Maintenance is outsourced to Fortek, in which both Stora Enso and ABB are major share-holders, Fortek personnel are in the mill permanently, but may also be called out to the Enocell mill if needed. “We agree on the timing of the maintenance work and the per-sonnel schedules,” says Kotilainen. Although there is a four-day shutdown for the Midsummer holiday, for the most part maintenance work is carried out around the normal board machine shutdowns.

            Other outsourcing agreements include one with the Finnish railway for outbound logistics. Routine accounting procedures-payables, receivables, VAT dec-larations and payroll-are also outsourced.

            The mill has one low-pressure steam boiler. Installed in 2000, it uses biomass: purchased sawdust, bark and sludge from the effluent treament system that is pressed and conveyed to the boiler. Oil is only used during star-tups or in an upset situation. Oil use is low, 200 tonnes/yr. The boiler produces saturated steam at a rate of 14kg/sec at 21 bar pressure. The peak demand for steam is in the winter, 10kg/sec, so the mill does have excess capacity.

            There is also an oil-fired package boiler available as a backup, but it is seldom used. The mill has a liquefied gas storage tank for use in BM 2’s infrared dryer.

            Power is purchased from Stora Enso’s generating facility but, as of July, the agreement will end and Pankaboard will buy its power from the national grid.

___________________________________________________________________________

100% SURE

 

With its current machine base, Kotilainen does not see the mill changing its grade mix drastically anytime soon. “We are always doing product rationalization, getting rid of less prof-itable grades. Is this case the decision will be based on the hourly contribution margin as well as the price per tonne.”

            About 85% of production is shipped outside Finland, with close to 50 conuntries contributing to Pankabroad’s customer list. Western Europe and the USA are the key markets.

            For FBB, Kotilainen notes that the “big players” have increased prices, meaning that “the market is healthy”. Being a smaller paper, Kotilainen looks on the bright side, saying that Pankaboard’s FBB market share will grow faster than the share of the other producers because Pankaboard is starting from a smaller base. “The long-term is for more growth”.

            For SBS, i.e., tray board, because of environmental issues (CO2 emissions, oil prices), Kotilainen is “100% sure that the fiber-based products will replace plastics on a fast track. That’s why we are in a lucky position, because we can produce tray board that’s the best in the world.” A barrier layer is needed and although that needs to be plastic at present, the trays are still recyclable.

            For wood pulp boards, growth is not high. However, in North America, the consumption of beer mats is grow-ing because they have been found to be a good market-ing tool, not only for beer but for other products as well.

            There is virtually no growth in Europe because of environmental awareness and changing drinking habits.   

            For example, more beer is consumed at home than in pubs and more wine being consumed.

            Kotilainen says that there are nomerous niches where wood pulp board could be used , such as picture frames. A lot of it is related to GDP growth, he adds. There are many potential end uses that have not been developed. For example, since wood pulp board us very porous, it can be impreanated with chemicals for various applications.

            Now that it is alone, Pankaboard is able to use the facilities of the Finish research institute (KCL) for product development. It also has contract with other research insti-tutes around the world as well as good connections with universities such as Lappeenranta in eastern Finland.

___________________________________________________________________________

  THE BENEFITS OF PRIVATE EQUITY

 

Moving from a large corporation to being an indepen-dent producer obviously meant many changes for the mill and its employees. Kotilainen says the biggest benefit is that specialty board production is the core business  of Pankaboard; for Stora Enso, it wasn’t.

            The owners want to develop the mill and make money. But, for Kotilainen, developing the mill’s potential means investing. This, he reasons, makes the future more secure and it has had a positive effect on the workforce. This has carried over to customers as well.

            As an independent, Kotilainen says one of the biggest differences is being forced to focus more on the bottom line. It’s a simple philosophy that believes that success begets success. “ Making money is the ultimate goal. When we make money, we can develop the mill and make more money.”

            Still, Pankaboard has not lost sight of the larger pic-ture. “The new owners want us to remain good corporate citizens-safety, the environment-in our role to other stakeholders,” Kotilainen adds.

            Pakaboard’s  objective is to meet and, if possible, exceed budget. “We make short-term forecasts,” saus Kotilainen, who likens them to a promise. “The philosophi-cal point is that if you can’t predict your performance for the future, you don’t know your processes (productions, sales). If you know your processes, forecasting is easier.”

            He adds that the owners know the business and sup-port from them is “active”.

            As noted, many of the new owners also created Powerflute. This has been a successful transition so obvi-ously everyone is hoping that the story will be repeated with Pankaboard.

However, there are no real connections between the two mills as the raw materials, products and processes are different. Although the company is always looking for synergies, they won’t be forced. The owners have indicat-ed that it is not something that is needed.

One of the biggesr challenges in the first year has been shedding the Stora Enso ties and forging and inde-pendent Pankaboard identity. “We have made some big decisions,” Kotilainen says. “We have talented people who are interested in our new structure because they see it as straightforward. At the same time we have been able to take better control of our processes.”

He says that the mill could see the benefit of the changes at the beginning of 2007. Also, there is the hope that some overhead costs will be reduced when the ties are cut for good by the end of the year.

But, this brings up another challenge: Pankaboard is responsible for its own cash management. “This is criti-cal. We need to take of ourselves,” Kotilainen explains. “Control of our working capital is very important.”

Staffing was already lean when Smurfit and the Lansdowne group invested. But, further manpower cuts had to be made. There was a collective bargaining procedure that ended in an agreement in November 2006. By mid-2008, there will be 155 permanent employees, a reduction of 40 employees from the beginning of 2006. “The guideline was that we had to have fair treament for those leaving, but we also had to focus on those staying,” Kotilainen states. He adds that the bargaining process went very well. As mainte-nance is outsourced, it is not included in this figure.

If anything, the shift to indepandence has made them “better business people than we were eight months ago”, says Kotilainen. “We’re more broad mined.”.

There is still a lot to do and a lot to learn about run-ning a company, but, as Kotilainen says, “ We’re learing by doing.”

     


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