Implementing sustainable and lean practices has meant SCA’s SWEDEN-based Lilla Edet mill helps the planet and its margins.
A Tissue World report
In many ways, tissue companies operating out of Sweden are holding up a mirror to the future of markets around the world. This is certainly the case when it comes to sustainability. The widespread use of recycled and sustainably sourced products is evident across Swedish society, so it is natural that that ethic should be reflected in its tissue mills. The country and its mills have taken the green lead, but there is also another key reason why the market reflects the future. Just how it has maintained growth in what is an “old market”, one that is mature and saturated, can also offer an interesting insight.
SCA operates two mills in Sweden, and one of which is its Lilla Edet mill located near Gothenburg. The site produces 100,000 tpy. The mill was established in 1881 and SCA has been its owner since 1986. The plant has continued to modernise by investing in de-inking technology and environmental standards, and it now has two recycled fibre lines, three paper machines, and 13 converting lines, run by 450 staff.
As with most markets, the last few years haven’t been easy. Swedish mills haven’t been exempt from fierce competition, overcapacity and raw material price increases. The company has had to implement stringent and often quite costly environmental standards due to increasing demands from customers. And having worked in a fairly saturated marketplace for many years, the Lilla Edet mill has also had to find new markets. Sussan Sandberg has been site manager at the mill since 2007. That the site has both converting and paper making is “the main goal” of most mills, according to Sandberg, and this is largely to do with issues of transport. This is where the site’s Swedish location and history also come into play, and Sandberg adds that the on-site railway line is a “huge advantage”.
The mill mainly tries to sell its own brand, but Sandberg says that of course the retailers want their own, so it is “the usual fight”. Some 40,000 annual tonnes are now for the consumer market, while 60,000 is for AFH. Over the past 10 years, there has also been a dramatic customer drive for embossing patterns onto products, and Sandberg said the company has found new ways to meet this demand in a cost efficient way.
Sustainability is a large part of Sweden’s psyche, and Sandberg says it is ingrained in the country – and at the mill. Operating sustainable practices on site is of course better for the environment, but it has also enabled Lilla Edet to operate a lean business model, and so save costs.
One of the ways it has achieved this is through operating stringent practices through being certified to Nordic Swan and Ecolabel. There is a growing demand in southern Europe for these standards, according to Sandberg, and the company now has 50 AFH products that have Ecolabel certification.
Some 85% of production at the plant is now recycled, and the company uses short eucalyptus fibres as well as birch and pine trees from Sweden. SCA has also boosted its green offering by diversifying the plant, and the company’s sludge combusting plant means that electricity and oil consumption is down. Some 80% of the energy the company uses is sustainable, according to Sandberg. Sweden is, she says, a very stable market, but one where there is little growth: “We are a mature market, and we only have a small population of 9m,” she says. “The tissue industry here is very stable. We are seeing annual growth of between 2-3%, whereas the growth in Russia, for example, is about 10%, as use of tissue is still growing.”
So SCA is glancing eastward, and beyond. Sandberg says one of the opportunities for tissue is the growing demand for hygiene products based on increasing hygiene standards in many parts of the world. Russia, for example, is an important market for the company. “SCA is the leading player there, with brands Tork and Zewa. There is favourable growth there”, she adds.
To increase its presence in the Russian market further, last year SCA invested SEK 1.2bn in a second tissue machine in Sovetsk. The new tissue machine has a capacity of 60,000 tpy and production is based on virgin fibre. Production is scheduled to commence in 2013. The company has also invested in South America: a paper machine in Brazil, and another major investment is also going into Mexico.
However, in an additional interview with TW, the company confirmed that its core market was still in the mature countries, despite all the news on expansion plans. It said that Germany is the biggest market for SCA along with the UK and US. It told TW: “While we look to expand in emerging markets, we also need to stay firmly rooted in the mature market countries as they provide us with stability and earnings. We continue to make the big money there.” It added that it is also important to be close to customers. “Producing tissue products for the Swedish market directly in Sweden makes sense in terms of supply chain efficiency and sustainability, through to less transportation of raw material as well as finished goods.”
On 25 October, SCA announced its third quarter interim results for the months between 1 January and 30 September. Net sales decreased by 1% to just over SEK 79bn, compared with the same time a year ago. Net sales increased by 6% excluding exchange rate effects and divestments.
The company’s Tissue division recorded a net sales decrease of 3% (increased by 5% excluding exchange rate effects) to SEK 28.8bn. SCA said growth in its hygiene operations “remained favourable in emerging markets”. There, its Tissue and Personal Care businesses reported sales increases of 10% and 12% respectively. SCA’s brands TENA for incontinence care products and Tork for the AFH tissue market have also grown their market shares.
Sales of AFH tissue increased by 6%, excluding exchange rate effects, and the company put the increase down to strong growth in Eastern Europe, North America and Latin America.
It also said that its environmentally certified tissue products have led to new contracts in Europe and America. Price increases have also been carried out, and will have further impact during the fourth quarter of 2011.
Sandberg says some raw material price hikes have been absorbed by the company, but they have also managed to pass some on. “In 2009, there was massive overcapacity in virgin fibre,” she says. “When the recession was over, pulp producers had reduced their output. Then the Chilean earthquake affected around 10% of pulp capacity worldwide and many companies just couldn’t get fibre. The general trend across the world was that prices increased, although this level of pricing is declining a little now.” There will continue to be a shortage of recycled fibre for a while yet. Sandberg says this is also affected by sites in China starting production of boxes that are using recycled fibre. “And of course, at the start of the recycling process, people just aren’t reading papers as before: not just because of the recession but also because people are getting their news from online. Newsprint figures are dropping, we are seeing a drop of 20% per year. There is a change and this is pushing up prices.”
Many mills across the world have taken drastic measures to cut capacity and many thousands of tonnes have been cut from production schedules. There has been general discontent, and the Scandinavian region hasn’t been immune. As TW was going to press, Swedish paper workers were issuing demands for a new collective agreement that could see a general wage increase of 3.5%. Swedish tissue companies concerned by the negotiations included SCA.
Exchange rate fluctuations also continue to create problems. Sandberg says: “It is very expensive for us to buy spare parts when the euro is high. And then when the SEK is high, and it is good for us, it is difficult for our customers.”
With all these challenges in mind, it makes the case for Lilla Edet’s use of sustainability even more insightful. By going green even in this sort of economic environment, the company has helped the planet and its margins. This business strategy will continue to be taken up by tissue company’s across the world. As SCA shows, it has been able to use this to its advantage in Western marketplaces that demand environmentally-friendly products, but it has also been able to use it when looking beyond its historical customer base and into emerging markets. How the company continues to proceed from here, will make it an interesting one to watch.