Burgo burgeons at home and abroad

Cartiere Burgo is Italy's largest papermaker. Mark Payne visited its Turin headquarters to discuss the group's structure and strategy with chief executive and managing director Guiseppe Lignana.

Cartiere Burgo was established at the beginning of the century and currently operates a dozen pulp and paper mills in Italy. In 1992, the total output of the group amounted to 1,273,000 tons of paper and 335,000 tons of pulp (see table for mill capacities).

In 1992, sales by the Burgo group amounted to ITL 1,570,000 million (over $1,000 million). Burgo's balance sheet was considerably changed as a result of the merger into the core concern of Cartiere del Timavo e del Sole at the start of 1991. Burgo's net profits fell to just ITL 9.6 billion in 1991, after incorporation on the balance sheet of the new lightweight-coated (LWC) line at Duino Aurisina. Fully 97.2% of consolidated turnover in 1991 was from pulp and paper operations and the remainder sales of other products. Some 68.1% of sales in 1992 were in Italy, 23% elsewhere in Europe, 6.5% in Austria, 1.5% in North America, and 0.8% in other areas of the world.

Expanding horizontally and vertically

Burgo has pursued a resolutely growth-oriented strategy in recent years, involving a number of acquisitions of companies, mills and shareholdings in other concerns, as well as internal expansion. At the same time, it has focused on the printing and writing paper sectors, in the process withdrawing from its earlier joint venture in tissue products with Scott Paper. While a relatively small-scale player in the newsprint sector -- sales amounted to 60,000 tons in 1991 -- Burgo has developed a very strong position in the Italian coated and uncoated graphic paper sectors, with sales of 886,000 and 275,000 tons, respectively, in 1991.

The group has a number of subsidiaries and other concerns acting almost as "satellites" around the core company Burgo. The subsidiaries and affiliates include Cartiera di Marzabotta, Cartiera di Chieti, Cartiera di Toscolano, and Della Torre Carta. Cartiera di Marzabotta, for instance, was acquired in 1989 from the Rizzoli publishing group. Also in that year, Burgo bought the shares it did not already own in Chieti, a 25% holding in Toscolano Maderno from CRDM, and a stake in Cartiere di Arbatax's newsprint mill in Sardinia. At the beginning of 1991, Cartiere del Timavo e del Sole was merged into Burgo, in the process ceasing to be a subsidiary of the main holding company.

Extending sights beyond Italy

Given that in 1991 more than 70% of group sales were in Italy, Burgo has recently developed a strategy which involves the development of a much greater marketing presence than hitherto in key West European markets. To this end, the group recently established three new sales companies: Burgo France, Burgo UK and Burgo Deutschland. Nonetheless, a major weakness in the group's strategy remains the absence of a papermaking base outside Italy -- a factor which it could conceivably seek to rectify at some stage in the 1990s.

Burgo has also been considering the possibility of establishing a sales company in Spain, as well as one in the Netherlands. The group sees few prospects for early marketing opportunities in Eastern Europe.

On the other hand, it already sells considerable volumes -- around 40,000 tons/yr in the USA -- mainly to merchants on the West coast. Nevertheless, an American sales subsidiary is unlikely to make its appearance for the time being.

Greater attention is also being paid by the group to marketing opportunities in its home country. The group has established the Burgo Distribuzione division to target small and medium-sized customers across Italy and to improve service. Related activities have recently included the 1991 acquisitions of the Emilia-based paper merchant Cavallari.

Competing with more capacity

Capacity expansion and mill upgrades and modernization programs are also being undertaken by the group to maintain its competitive position in the early 1990s. During 1991, for instance, Cartiera di Chieti switched its original product lines to high-quality coated woodfree papers as part of a mill upgrade program, while a new LWC paper machine with an off-line coater came on stream at the group's new Duino mill. With a capacity of 240,000 tons/yr, the machine is the widest and fastest of its type in the world.

The overall strategy of mill modernization has involved rationalization of a previously diverse pattern of paper production, with each mill now effectively dedicated to the production of its own specialty in terms of grades.

Burgo is understood to be considering a major expansion into the newsprint sector. The Italian paper industry is remarkably under-represented in this area, with Burgo having a minority stake in the country's sole newsprint mill, Nuova Cartiere di Arbatax. Burgo is reportedly considering the construction of a new 280,000-ton/yr newsprint machine at its Mantova mill. As Lignana says of this project, "We have to choose the best time to start."

Burgo has a strong position in the Italian non-newsprint graphic papers market. In LWC, for instance, the group holds a share of between 40 and 50%, depending on the grade. Europe-wide, Burgo has an estimated 10-11% share of the LWC market and claims fourth position after Kymmene, UPM and Stora-Feldmuhle. In coated woodfree papers, Burgo is the fourth or fifth largest supplier in Western Europe.

Fast to act on environment

The group is not slow to address environmental issues and pays close attention to the requirements in this respect of its customers. The chlorine-free issue is not yet as widespread in Italy as in certain other European markets but is developing apace. Chlorine-free pulps are used primarily for LWC and related papers for sale in markets such as Germany, with particular emphasis on catalog grades.

Burgo is one of the world's largest customers of chemical pulps, buying all of its 600,000+ tons/yr of sulfate requirements. This is seen by Lignana as a considerable benefit in terms of flexibility and freedom to choose the group's raw material source and mix. It provides Burgo with the necessary flexibility to follow market requirements and allows the purchase of chlorine-free pulp in the quantities required by its customers. As Lignana says, "It is in any case quite impossible to consider all [market] situations in the same way."

Recycled fiber is used when feasible, although Burgo's experience in Italy suggests considerable customer resistance to many graphic paper grades based in whole or any appreciable part on deinked pulp. For several years the group has undertaken experiments in making LWC partly from recycled fiber and also feels that eventually a waste-based content of 30% for supercalendered and coated papers could be realistically achievable in terms of market acceptance. Certainly should the Mantova newsprint project come to fruition, a waste-based content of over 90% is envisaged.

CARTIERE BURGO: PRODUCTION SITES AND CAPACITIES

		Capacity
Mill	Main grades	(tons/yr)

Avezzano	Mechanical pulp	65,000
	Coated papers	175,000
Chieti	Coated papers	110,000
Corsico	Coated papers	90,000
Duino	Mechanical pulp	120,000
	LWC	400,000
Germagnano	Mechanical pulp	10,000
	Uncoated printing/writing and computer papers	57,000
Lugo	Art and coated papers	80,000
Mantova	Mechanical and deinked pulp	150,000
	Newsprint and directory papers	100,000
Marzabotto	Mechanical and deinked pulp	55,000
	Newsprint, SC and coated papers	140,000
Sora	Coated woodfrees	165,000
Tolmezzo	Sulfite pulp	45,000
	Uncoated printing/writing	110,000
Treviso	Polyethylene coated wrapping papers	42,000
Verzuolo	Mechanical pulp	60,000
	Coated papers and LWC	210,000