April 2008
By Graeme Rodden, Editor
Companies that are successful need to keep pushing the envelope and, if necessary, re-invent themselves at various intervals.
Appleton is one such example. In its 100-year history, it has shown itself to be a company that embraces rather than fears change.
Recently, it signed a supply agreement with Procter & Gamble to provide microencapsulated specialty chemicals. The technology is not new. It evolved from the development of carbonless paper (encapsulation of ink), something Appleton pioneered with the National Cash Register Company (NCR) in the 1950s. It has been a core technology of Appleton ever since. The latest twist involves microencapsulating fragrance for P&G's Downy® liquid fabric softener.
Microencapsulation is the process in which solid, liquid or gaseous core materials are encased in tiny shells or capsules (one to several hundred microns in diameter). This allows the controlled release of the core material when the capsule wall is ruptured by mechanical pressure or friction.
From the time the Appleton Coated Paper Company was founded in May 1907 by Charles Boyd, the company's vision has always been based on the idea that one could coat paper and add value to it. The company's fortunes ebbed and flowed over the first century, but it always returned to that core ideal.
A mature market
The invention of carbonless paper has been recognized as one of the outstanding paper-related developments of the 20th Century. Doing away with the carbon sheets made life easier, not to mention less messy, for countless secretaries as well as those involved with purchasing and cashiers handling credit cards.
Although carbonless continues to be a core business for Appleton, CEO Mark Richards admits the market is maturing, particularly in the Western Hemisphere. "It began to mature in the 1990s," he explains.
Although Appleton continued to make enhancements to its carbonless product line and increase its market share, it could not hide the fact that the market was not growing as it had. Changes in technology and the way people communicate (and pay bills) prompted this maturation. Appleton has increasingly looked to the developing world and has gained market share there through its merchandising and product innovation.
The agreement with P&G lifts the technology to a new level. The company approached Appleton in 2004 because it was interested in Appleton's ability to encapsulate ingredients for P&G's household care products and focused in on encapsulating a fragrance. In late 2005, the companies signed a joint development agreement. Significant progress was made and the result was the encapsulation of fragrance for Downy. "We have a global supply agreement with them," adds Richards.
Although some may think of Aspirin or other headache/cold remedies coming in capsules, in this case, the capsule is on a micron (one millionth of a meter) scale. In this case, the capsules are 5-75 microns.
The product is a derivative of Appleton's core knowledge, used to answer a new opportunity. As Richards says, "It's not about making paper; it's about making paper special." And, he adds, "It's also about finding strategic partners."
Simply stated, the technology is in-situ polymerization. "We encapsulate the fragrance and send it to them as slurry in tanker trucks.
The vice president, marketing and strategy, Kent Willetts, adds that this particular application demonstrates Appleton's R&D resources and large-scale production capabilities. "We have impressed our partners because of our ability to do business at a scale that many others cannot," he says. "A lot can do it in a beaker; we can make it in tanker quantities, and do it quickly."
He adds that Appleton is working with other partners that want to use the encapsulation technology. "This is not making a product and selling it; it is a joint development. Because it is chemistry, no two products are the same."
Richards continues, "By working in a collaborative fashion, we can continue to build on our core capabilities and then bring them back to the core business of making paper and coating. We want to stick on the core and continue to leverage these capabilities.
"For a 100-year-old company, we are very open to innovation," says Richards. He adds that the development comes from the technological craftsmanship that Appleton strives for. "Also, we like to delight our partners."
The pioneer of thermal paper
Thermal paper is another of Appleton's core paper businesses. It should be noted that its "coated solutions' business (essentially carbonless) accounted for more than half of Appleton's $1.1 billion revenue in 2005. The development of the thermal paper line is another part of Appleton's legacy of innovation.
NCR began manufacturing thermal paper in 1963. At roughly the same time, 3M Company introduced Thermofax, a machine form making document copies using heat sensitive paper. The equipment competed against legacy mimeograph machines, new Xerox electro-photosensitive copiers using plain paper and new electro-sensitive machines invented by RCA. By virtue of the company's singular coating expertise (and some adept marketing), Appleton leveraged its experimental coater to coat heat-sensitive paper for NCR's printers and 3M's Thermofax Copiers, as well as electro-sensitive paper for RCA.
Richards says the company is looking to continue to grow the thermal paper business and is making investments in the paper mills it operates.
Security papers are the third paper product and Richards says the company has carved out a "nice franchise. We look to lead with our innovation and service."
Richards adds, "If you look at our business as specialty papers with three lines – carbonless, thermal and security – all are growing, especially thermal and security." Overall, the specialty paper market is growing at 3-4%/yr.
Product development is done predominantly through Appleton's research and technology organization that employs 70 people. Or, as Richards puts it, "We do it mostly within our four walls."
However, collaborative development is also done with partners, e.g. encapsulation, and the company has also worked in collaboration with the US government.
A new broom sweeps clean in 2005
In September 2005, following a senior management change, the company restructured itself into three divisions: Technical Paper, Performance Packaging and International.
The first has been discussed. The physical facilities include pulp and paper mills in Roaring Spring, PA, and West Carrollton, OH, as well as the converting plant in Appleton, WI.
It had a paper coating facility in Harrisburg, but this was closed in 1999 due to a decline in demand for carbonless paper. However, two of the plant's coaters were moved to the Appleton plant.
The Performance Packaging Division was built by the acquisition of American Plastics, C&H Packaging and New England Extrusion between April 2003 and January 2005.
Company employment is 3,000 people and The International Division accounts for the sales and marketing of technical papers outside the US and Canada. It includes BemroseBooth of the UK, which provides secure and specialized print services. However, this subsidiary is for sale.
Although the focus is on core capabilities, it may seem incongruous that the company owns so many plastics businesses. The answer lies in the recent history of the company.
Willetts explains that in early 1990s the thinking was that the carbonless paper business was on the decline so Appleton entered the coated freesheet market in 1995. Its owner at that time was Paris-based Arjo Wiggins Appleton. When AWA decided to divest itself of Appleton in 2001, it kept that part of the business. This forced Appleton to seek new opportunities and it saw the plastics industry as an opportunity to diversify.
However, after the changes in 2005, Richards said he stressed the need to focus on the core. The vision is to be the leader in specialty paper. Therefore, the company will continue to improve and increase its existing product line. "We will look to expand to new specialty markets that leverage our core capabilities," Richards says. "That could be through collaborations, joint ventures or acquisitions."
Appleton's and Richards' philosophy can be simply stated as: "When we leverage our core capability, we win."
Richards says that the sale of BemroseBooth and the expansion of Appleton's West Carrollton, OH, mill demonstrate the commitment to focus on the core.
That being said, there is the possibility of a more prominent role for the plastics end. One of the original hypotheses was to study the potential of a marriage between plastic and paper technologies, e.g., laminates. "We continue to evaluate it today," says Richards.
However, the focus will be on internal growth and then Appleton will see if it needs to go outside for collaborative work to develop new products. "We still want to see how the plastics/packaging businesses fit in.
"We need to continue to improve our core capabilities and then we can look back and see how they can fit in with the other divisions we have."
A seminal event
One of the defining moments of Appleton's history is the 2001 employee buyout. The employees invested $107 million of their own retirement funds to provide the equity portion of the $810 million price. It was one of the largest employee buyouts ever.
The story is more than just dollars and cents. The employees had just met the deadline to gather the necessary funds. Then, their representatives in New York had to meet with the financiers in charge of the sale and arrange the transfer of the money. The meeting was set for September 14, 2001. Then, September 11, 2001.
Very fortunately, no one was directly involved in the tragic events of the day, and the meetings were postponed. In the wake of the disaster, the stock market plummeted. Thankfully, the employees' money had been converted to cash just a few days earlier. Otherwise, the $107 million would have been worth only $89 million. Finally, on November 9, 2001, the sale did go through, but not without a few anxious moments.
Richards says that when AWA decided to divest itself of Appleton, it was only natural that the employees would invest. "If you look at Appleton as a 100-year-old company, we have always had pride of ownership, a leadership position in specialty papers. The employee as owner principle was very appealing and still is.
"If you understand history, you understand what characterizes our employees: technical craftsmanship, resilience to challenge, and a willingness change."
He also notes that in the 6.5 years since Appleton has been employee-owned, the ROI has been 234%.
The employees were able to buy the company from AWA under the terms of the Employee Stock Ownership Plan (ESOP) initiative that was brought about by the Retirement Act of 1974. It was designed so that employees could participate in the ownership of their company in a tax advantageous position. A person cannot buy stock unless he/she is an employee of that company. Because Appleton does reports its financial results to the SEC, the company is compliant with the Sarbanes-Oxley Act. However, it is considered a private company.
Veteran employee Bill Van Den Brandt is manager, corporate communications. He says that the fundamental principle for the employees at the buyout was to grow the company "and we thought we could do it."
Between 2001 and 2005, he adds that management looked for growth opportunities outside the core paper businesses to offset the decline in demand for carbonless paper. The company acquired three packaging companies and BemroseBooth, a provider of business critical products with security features and specialized print management services. "Since our focus is now more on our core businesses, our management team decided to sell BemroseBooth because it no longer complements Appleton's long-term strategic direction." When Richards became CEO in April 2005, he began forming a new executive team. The 8-person team (four women, four men) has strength through diversity, according to Richards. Most of the team came from outside the forest products industry, for example, automotive and pharmaceuticals to name two.
"We took the best and brightest from the paper industry and added others," Richards says, looking for the less obvious paths to problem solutions. "This leads to novel approaches to a growing business and it has worked well thus far. We have made rapid progress."
As can be expected, Appleton's marketing focus is on its core capabilities. It takes a very disciplined approach to marketing, working with its research and technology group. In 2007, 17 new or redesigned products were launched. In 2008, the target is slightly more modest, 10. Richards says, "To be a leader, you have to be an innovator and we have traction in that area."
Besides making specialty paper, there are other capabilities that Richards considers core. They are: coating and formulation; technical development (craftsmanship); customer focus; market understanding; and, brand names.
Willetts pays tribute to the leadership that Richards has brought to the company. "Mark came here with a strategy for ‘playing offense.' In a mature market, you can get defensive; hang on to what you've got. He brought the attitude of playing offense."
This mindset does not end with Appleton's output. Richards knows the competition is global. In the lightweight thermal paper market, Appleton petitioned the US government to have the ITC take action against countries that Appleton believes are dumping paper in the US. "Countries are dumping and that will hurt future investment here," Richards explains. "We are hoping for a resolution in 2008. But, we are still committed to being the leader in thermal paper. It is a growing market and we want to continue to innovate."
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