 |
Family values prove to be a winner for Haindl
Unrestricted by institutional shareholders, Haindl has made investment decisions for the long term
by Jonathan Roberts
With perfect hindsight, it is easy to pick June 2000 as the right time to have started up a lightweight coated (LWC) PM in Europe. Six months on and supply of the grade is as tight as a drum and prices are rising. LWC is arguably the strongest paper grade in today's market.
Whatever proportion of luck and judgement is attributed to Haindl's decision to build an LWC PM at Augsburg, Germany, ready for startup in the middle of last year, there is no disputing that it has paid off. How often can a producer start up a new PM and see a price rise at the same time? The company's only regret was that the old PM stopped production in April, leaving a frustrating couple of months when Haindl was unable to fully exploit the favorable market conditions.
 |
|
|
Haindl has installed Valmet OptiConcept technology on Augsburg's new PM 3
|
For those who seek evidence of visionary decision-making in business, Germany is a fairly good place to start. So many major companies are still in private hands and financing their expansions through debt rather than equity. As a result, plans can become concrete and steel with a rapidity, which players in equity-financed operations can only envy. The majority of the latest paper industry investments in Germany - Papierfabrik Palm, Gebrüder Lang, Myllykoski - have been made by family-run companies. Family-run implies track record, which is just what money lenders love.
The time taken from decision to startup of the new PM at Augsburg was two years. That is not exceptional these days. It is the time between having the idea and ordering the machine, which can be so much speedier when the stakeholders are among those who had the idea in the first place. Institutional shareholders are notoriously shy of investing in a downturn, which is why so many paper machines are ordered on the crest of a wave, only to start up in a trough. But when the owners are immersed in the business and are prepared to forego dividends for long term goals, then things can happen very quickly. Long term shareholder value is what counts as far as Haindl is concerned, rather than short term return on investment.
Of course, the company still has to be resourceful when it comes to raising finance. Naturally, the company relies on loans with bonds issued to institutional investors from time to time and in 1985, Haindl became the first ever family company in Europe to launch a "zero bond". A zero bond is a bond issue, which is not accompanied by an interest warrant. Instead of periodic interest payments, the difference between the repayment price and the issue price is the income up to the date of maturity. So the investor receives one payment, which is the selling price in the case of a premature sale, or the proceeds from redemption upon maturity.
|
 |
|
The company expects the 400,000 tonne/yr LWC PM to complete its startup curve in 2003
|
Counting up more LWC
Haindl remains first and foremost a newsprint producer, with that grade accounting for more than half of the group's production. Yet the net increase in production for Haindl, which this 400,000 tonne/yr Valmet machine brings, will be 300,000 tonnes/yr of LWC by the time the startup curve hits the top of the chart in 2003. The tonnage is arriving in a market which Hartmut Wurster, director of Haindl's magazine papers division and the man responsible for the PM 3 project, estimates will see 3-3.5% growth in 2001.
Augsburg has not been alone in adding woodcontaining capacity. Switzerland's Perlen Papier pushed the start button on a 150,000 tonne/yr PM in September 2000, which will churn out 75% of its production as LWC. Just down the road from Perlen at Augsburg, Haindl replaced the old PM 9 at Schongau with a brand new Voith Paper machine for SC-B paper production, although the net effect will only be an extra 35,000 tonnes/yr of capacity.
In November this year, Italy's Cartiere Burgo is due to start up a 400,000 tonne/yr LWC PM at its Verzuolo mill. The new PM is Valmet-built and almost identical to Augsburg's PM 3, except that calendering will be offline. The final boost to Europe's woodcontaining sector in the short term comes from Holmen. In October last year, the Swedish producer unveiled plans to install a new 330,000 tonne/yr machine-finished magazine paper machine at its Hallsta mill. The unit is due to come on stream in April 2002.
Haindl was determined not to build a "me too" paper machine at Augsburg. It is true that the new PM is an OptiConcept machine and there are quite a few of those popping up around the world at the moment. OptiConcept may represent cutting edge technology, but Augsburg had its own ideas about how to get the best out of the equipment. The mill has not made life easy for itself by putting both coating and calendering online. In doing so, however, Augsburg has given itself the sort of speed and efficiency potential, which offline options would not be able to achieve. Haindl believes the new PM will need 30% less specific energy consumption than comparable machines. Simultaneous coating of both sides of the sheet is an energy saver, as is the width and the speed of the machine. The minimization of infrared drying with greater emphasis on air drying also cuts energy bills. The machine was designed for simple maintenance, and that saves money. The number of roll sizes was minimized, for example.
But much of the energy-saving happens before the stock reaches the headbox, thanks to Haindl's bold decision to use 25% deinked pulp (DIP), with no special collections of high-grade recovered paper. The mill has simply dictated that DIP brightness should be around 77% - at least eight points higher than might be required for newsprint. Voith has supplied the stock preparation technology and the mill has got its way.
As for running a PM with all this new technology, Haindl has relied on having some experience at mills within the group of all the elements on the new machine. Steyrermühl had the first OptiFormer, for example, and one of the first online OptiLoad calenders. On top of that, there is film press coating expertise on site at Augsburg from the Jagenberg installation on PM 1.
Managing markets
Haindl's most important market is western Europe, which accounts for some 90% of the company's sales. Germany is by far the most important single market, accounting for around 50% of sales. As a result, the weakness of the euro has not been so much of a problem for Haindl. Selling to dollar-denominated markets would seem attractive at the moment, but that would be a short term strategy. Haindl does not go in for short term thinking, as the company's previous actions may have already suggested.
Back in December 1999, Morgan Stanley Dean Witter said, "Years of excessive investment and insufficient returns have led the industry to reduce capital expenditure. Major North American and European companies are all committed not to build new machines." At this point, Haindl was building two new PMs, although it did not, and does not, plan to build any more at the moment. But by the time Augsburg's PM 3 is running at full potential, Wurster is confident that Haindl will have six plants operating at a very competitive level. That was the target and that is the key. Haindl was confident that the capacity was needed. If the analysts are right that prices will peak this year, then efficient machines will be just what is required for survival.
Yet the situation remains that demand for woodcontaining publication papers continues to be boosted by the technology-related advertising boom. Rather than seeing potentially paper-free technologies as a threat, Wurster has only seen advantages so far. "New media generates greater paper requirements for magazines. If you launch a dot.com you still have to do it in print. The highest advertising efficiency is still found in magazines because they can be so targeted. We are confident that the LWC market is stable and increasing," he comments.
Strong economic growth globally in 2000 also helped to push up consumption of publication papers worldwide and direct mail has surged. There is still a substantial net increase in magazine titles, with customer magazines increasing in popularity as a publicity medium. The blot on the landscape is the downturn in the US economy, which Alan Greenspan, chairman of the US Federal Reserve, has acknowledged with, and attempted to avert by, an interest rate cut.
Haindl ranked #8 in the world publication papers production league in 1999 with around 2.25 million tonnes/yr, which puts it 32nd overall in terms of paper and board output. As PM 3 ramps up, Haindl is likely to creep up a place or two in both rankings. With the five largest manufacturers of publication papers still only holding 40% of the market and none claiming more than 10%, it is clear that the consolidation story will run for a good while yet. The Haindl view is that consolidation is to be welcomed, as it helps to avoid overcapacity and promotes price stability.
But then Haindl is in a position of strength. The company is in control of everyone involved in its alliances, if any, and Haindl does not have to hop into bed with anyone it does not like the look of. Now that has got to be worth a few positions on the output ladder.
|
){kind=link}