Opportunities on the Horizon - switching from plastic to paper

The year 2009 saw a strong decline in demand and rising costs, especially in Europe, where 80% of our sales were concentrated. We were badly hit. However, while some competitors were forced to close down, we reduced our consumption of wood and electricity, decreased the cost of manpower and started selling overseas. Thanks to this strategy, we had a 16.5% net profit margin and a turnover of Euro 52 million in 2010. We already expect even stronger results in 2011, with the first quarter having seen a 54% increase in turnover compared to 1st quarter 2010 and a net profit margin of 25%. So, I would say that our objective is to keep the costs at a low level while marketing our products in strategic and profitable markets.

There have been adjustments, with some companies increasing production by 5 to 10%, but it is true that, as far as I know, no company in Europe has announced big expansion plans. I think the industry is really cautious because of what we went through in 2008 and 2009. But with the market being a lot stronger now, I am sure that other European companies are actually looking at possible production capacity enhancement, and so are we.

Our objective now is to be the most cost-efficient and best quality sack kraft producer in the world. In order to achieve that, we are planning three major investments. The first will be a new Metso-supplied cooking plant at our pulp mill, which will be operational in November 2011. Not only will it enhance our pulp capacity from 210 to 325 tonnes/day, but the mill's energy consumption will go down by 25%, water intake will be reduced by 1.3 million m³ and CO₂ emissions will go down by 35%. Our pulp's strength properties will move up by 20% and we will see a positive impact on raw material yield amounting to 3%. Then, we will build a new combined heat and power plant of 32MW, which will provide Horizon with green energy, allow us to generate 100% of our heat internally and sell the remaining heat to the nearby town. And this is just the first step. We are giving ourselves two years to increase our paper capacity from 70,000 tonnes/yr to 115,000 tonnes/yr, with our three current machines being replaced by a single, top quality, cost and energy-efficient paper machine.

All the plans I have mentioned are part of an investment program of Euro 120 million ($172 million). The tissue machine is part of this program and should be built within three years. However, sack kraft remains our core business and investments in that sector will therefore go first.

All markets are volatile and challenging. Having said that, Horizon's strategy is to actively participate in all global strategic markets and ensure that we do not lose the focus in Europe, being in our back yard. While emerging markets will provide the growth impetus to the industry, we see a big opportunity of applications being switched from plastic to paper as the societies in emerging markets are becoming more environmentally conscious.

As our goal is to be top quality producer, we cannot afford to compromise on the fiber quality. Unfortunately in Asia, Middle East and Africa the availability of wood is mainly in form of short fiber. Therefore, in our strategic view no acquisitions are planned in the said regions, unless the industry is able to develop appropriate substitution of long fiber from Nordic softwood. However we will be looking at possible acquisitions in Europe or other relevant countries in the future.

I expect the trend of producers reducing grammages to continue. For example, a few years ago customers were using 90 g/m² three- ply sack to load 50 kg of material. Now, the industry is already delivering high performance products like 80 g/m² two-ply to load the same weight. I think 70 g/m² two-ply could soon become a reality, with paper manufacturers striving to go further down on grammages while delivering high performance paper. In any case, the demanding customers will ensure that the industry keeps rediscovering and improving itself. In such an environment, innovation is the key, and Horizon's goal is to exceed the market's expectations.