RISI recently announced that Berry Wiersum, CEO of Sappi Europe, has been named as the RISI European CEO of the Year for 2017.
The European CEO of the Year Award is nominated by a group of investment analysts, industry consultants and commentators covering the European and global pulp and paper industry.
Reasons cited by nominators of Wiersum to win the award were: “Berry Wiersum has performed very well at the head of Sappi Europe in what have been turbulent times for graphic papers. In fact, during his tenure this sector has undergone systemic and often painful change. Wiersum has shown real leadership in adapting to that change with the focus on cost control and the increase in the production of speciality papers”.
Another said: “Wiersum has been a strong leader in the European pulp and paper industry for years, and has built Sappi Europe to be a powerhouse of graphic papers. Latterly he has led the company into the future by diversifying into specialties and paper for packaging. Wiersum has also been a great ambassador for the industry at large; continually pushing the sector to become more innovative, more politically astute and more driven to listen to the needs of customers and stakeholders”.
Wiersum has been the CEO of Sappi Europe SA Group since January of 2007.
PPI: Congratulations, you were a popular nominee, what is your reaction to winning this prestigious award?
Wiersum: We’re all thrilled to bits at Sappi, none more so than me, not just because it is such a prestigious award, but also because this last year was such a team effort at Sappi. Everyone pulled together to make things happen and there is real consensus about what we are trying to do. Morale is high at Sappi at the moment and recognition like this really reinforces that. This was a year that the whole Group did well and too often in the past Europe has struggled to keep up.
Sappi was recently upgraded by Moody’s citing that the company has been “building a track record of solid operational results and delivering on strengthening the balance sheet”. European operations were singled out in reference to cost containment initiatives, and in particular due to increased positive growth in speciality papers. Can you comment on what cost initiatives Sappi Europe has implemented over recent times?
We’ve had a strategic goal to get our net debt level down to below 2x Ebitda and in our financial year 2016 which ended on September 30th, we succeeded. We are determined to keep it there, but there’s more to our strategy than just that. Following the recession of 2008 and the advent of electronic media as a disruptive competitor to our biggest business, we concentrated on cost reduction everywhere and growing the dissolving pulp business in South Africa and North America. Unfortunately starting a dissolving pulp business in Europe just wasn’t viable, so we needed something in which we could grow and we began to focus on the rather small specialities business we had in Alfeld. It had always been profitable, but it was quite a step to double its size at a stroke; nevertheless in 2013 the board approved the conversion of Alfeld PM2 from its unprofitable graphics products to Specialities and all of a sudden we had a tiger by its tail.
In the spring of 2015 our group CEO, Steve Binnie, who had taken over from Ralph Boëttger, after his retirement for health reasons the previous year, called his senior management together to present his strategic vision for 2020. It was one of those occasions which marks a turning point in a company’s fortunes, not because it provided all the answers, which it certainly did not; but it set out a framework for growth and financial goals for each business segment; it expressed the company values which we had been working on and appealed to inclusive practicality. It was a recipe for transformation and fitted like a glove with the agenda we were working towards in Europe.
Up to 2013 Sappi Europe had done much of the conventional cost cutting you would expect from an industry in a declining market; we had closed upwards of a million tons of capacity after the acquisition of M-real’s Coated Graphics business at the end of 2013, overheads were sharply reduced and we became better at managing down variable costs. We could stay afloat, but returns were unsatisfactory. In January 2013 we decided an alternative approach was necessary. We needed something that would remotivate the organisation, get everyone thoroughly engaged and come out winners. And so the Sappi Performance Engine was born. Unashamedly based on the Toyota Production System we trained the top 100 managers in the concept, got the Works Councils involved and started the journey towards the humanist approach to a manufacturing company that we now aspire to. We’re just short of 4 years into it and we have at least that long to go before we can say we’re any good at it, but we see the differences already. Taboos are out; machine efficiencies are up, new practices in logistics and procurement have reduced variable costs and we have a radically new go- to -market strategy for graphics which has lowered the cost of serving the customer and massively increased customer satisfaction. We are quite determined to win in our part of the graphics business and it is now properly profitable. Oh yes, and we also doubled the Speciality business.
On the subject of speciality papers, it was 2014 when the Alfeld PM 2 conversion project started up, can you tell us about how that is going, as well as the challenges and opportunities the speciality sector poses?
Alfeld PM2 is a hungry tiger and it could do in a day what the other machines needed a week for. Customers were very supportive of the investment, but most of them are in food or food related businesses and cannot afford to take risks with a new machine, so all the qualification and requalification of PM2 had to be done and that takes months. We also had our fair share of start-up problems, but by the end of 2014 we had the capacity full and we were beginning to optimise the mix across the whole mill. Out went the cottage industry approach and in steamed the Sappi Performance Engine with its cardinal rule that problems are opportunities and if we don’t hit our numbers in one area we will overcompensate somewhere else. I think timing also helped us with our expansion. There wasn’t much expansion going on in our segments of the speciality market at the time and customers were ready for us as a solution provider for sustainable packaging. Now Alfeld is a highly profitable, speciality- only mill and we are very happy with it.
Regarding your growth in speciality papers, is that market share being gained, or is it the development of new products, markets and customers?
It’s really both and they feed off each other. Customers need the innovation and it needs to be constant. Sustainability is very high on their agenda along with barrier technology to keep their product fresh and safe. Paper solutions that provide such barriers and which are at least recyclable encourages them to put more of their categories into paper packaging and that leads to more market share and enables us to grow faster than the markets we serve. We also have a wider geographic footprint now than we had before and cooperate closely with Sappi North America as they develop their speciality business.
Are there any other plans to move further into speciality papers by increasing capacity at any of Sappi’s European mills?
Yes, absolutely. We have already started a very high quality liner business in Ehingen and supply some of our rigid board grades from Maastricht. Our transformation is by no means complete and we have some great opportunities on the drawing board, which will both grow our specialities and make our graphics business more profitable.
As one the largest producers of graphic papers, Sappi Europe has been on the front line of the hit the industry has taken by the unprecedented uptake of electronic media. According to the latest RISI Graphic Paper Forecast, the rate of decline in demand over the next five years will slow from around 4.0 % seen since 2007 to around 2.5 % for the next five years. Any comments?
I agree with RISI: the rate of decline will slow, though exactly when we’re less sure. In the end it will stabilise and what is printed will be printed for good reasons. We do notice that advertisers begin to see more value again in the persuasive power of the printed advertisement and there are now so many studies that point out its effectiveness, that we see room for optimism, particularly in the higher quality paper grades. The book market is growing again despite the introduction of the digital alternative. We have to remember that paper appeals to more human senses than the tablet or the mobile phone.
Can you tell us about the strategy have used to manage that decline over the last 10 years?
Firstly an attitude of implacable remorselessness never to give up. Secondly, we always looked for a reason to be hopeful and give our employees a cause to fight for. For that reasons Mat Quaedvlieg, our retiring manufacturing director and I do a Roadshow once a year at all the mills and major sites, open to all employees, where we go through the business in some detail and tell them our plans to improve it the following year. We are extremely honest and open because there’s no point in feeding your own people fairy stories and then expect them to have confidence in you. We started these roadshows almost 10 years ago and they are part of retaining engagement and reinforcing determination.
Do you think a point will be reached when we will actually see growth again in graphic papers in mature markets?
Yes. From a lower level than today, but when the market stabilises it will tend to follow advertising growth rates in some form or other.
What areas of R&D is Sappi Europe working on in the areas of Bios, nanotechnology or other non-core products or innovations?
We have a nano cellulose pilot plant in the Netherlands and are now researching applications for this exciting new technology. We are also producing composite mixtures of cellulose and polypropylene on a small scale so far and that looks particularly promising and which will very much become core to our business.. We have a number of other projects going, about which more as they develop.
Moving onto the European situation as a whole, what is your view on how Brexit will affect your businesses in the region? Are there specific scenarios you are preparing for?
It’s a wide topic. The direct effects on our UK business after the referendum were dire, both in volume and margin terms as the market lost confidence and stopped buying. It has been recovering in the last few months, but we have had to announce a price increase just to cope with the decline of Sterling. We are certainly nervous about the apparent threat to the liberal consensus which has dominated Europe since the end of World War 2, since it coincided with the longest single period of the growth of prosperity since 1700. We have concerns for free trade and the closing of doors. Europe’s ability to lead the cause of sustainability in the future is less clear and its ability to act in unison risks being undermined by discord and national interest. On the other hand there will be new opportunities brought about by exactly the technology which has helped to bring about that political doubt and we need to focus on those.
Any comments on merchanting or other sales outlet developments?
As you know, Sappi pioneered an alternative route to market aside from selling purely through merchants. Printers in some European countries were clearly ready for that move, but our relationship with merchants is strong and they are homing in on where they add value. In the UK, for instance, the merchants do a great value adding job and so our Coated Woodfree sheets business is more or less exclusively through them. The merchants are also diversifying as they also cannot survive profitably on the graphics market any more. The arrival of Internet printers is a further disruptive influence on the traditional market structure.
Any comments on duties, policies or politics that are affecting/will affect the industry?
We believe firmly in fair free trade, but will always fight what we see to be unfair competition and dumping practices. We follow the Chinese market economy status case with interest and particularly what the European Commission is proposing as ways to strengthen the trade defence structure in place. In our view trade defence rules need to be robust if only to discourage dumping practices. I know from my own experience what it takes to fight one of these cases and I can assure you, you would not choose to do it unless you absolutely had to.
What is your general view of the business of pulp and papermaking in the European region and what do you think the future holds both in the short term and the long term?
The pulp and paper making business in Europe is experiencing a general improvement based on past capacity management, the growth of packaging and innovation. There is the prospect of revolutionary technology, at least in pulp making through the DES* process, which not only will take out a big proportion of CO2 emissions from the process, but at the same time launch a new industry on pulp sites around Europe, because the new process will isolate the three major components of cellulose in such pure forms.
This is really exciting, but it needs new, risk sharing funding to implement it and I’m pleased that the new CEPI Roadmap2050 is addressing exactly that point. I was also pleased to see a rating agency (Moody’s) and the EIB share a platform at the Paperweek conference in November to discuss firstly that they wanted the industry to develop these new technologies and secondly some practical help on how to fund it without risking company ratings. This is the kind of thinking which will promote breakthrough technology and transform the European industry into a low carbon, highly competitive and growing industry.
Finally - what are the challenges in this industry likely to keep you awake at night?
Recently I’ve been sleeping a bit better, but I do worry about the political situation in Europe and what it might do to free trade, sustainability and mobility of people. My other big worry is whether we will get the transformation of our own business done in time so that we can keep cash and earnings at a reasonable level through the process. We know it will be OK afterwards. The transformation of the industry I regard as a wonderful opportunity which we would be fools to miss out on
*Deep Eutectic Solvents (DES) emerged as winning innovation in CEPI’s Two Teams project. produced by plants, the process opens the way to produce pulp at low temperatures and at atmospheric pressure. Using DES, any type of biomass can be dissolved into lignin, cellulose and hemicellulose with minimal energy, emissions and residues. They could also be used to recover cellulose from waste and dissolve ink residues in recovered paper.