BRUSSELS, April 1, 2014 (PPI Magazine) - When he took charge of Europe's largest market pulp producer last year, Lars Idermark was faced with the challenge of balancing the interests of Södra's forest-owner members with the needs of increasingly demanding customers and ever tightening environmental standards. A forest owner himself, Idermark is carving out a strategy focusing on sustainable long-term growth in both capacity and quality.
Lars Idermark: As a forest owner and member of Södra, I've had an interest in the company and sustainable forestry for some time, so when the job came up, this was an irresistible challenge. My farm has been in our family for five generations and we have been a member of the Södra co-operative since the 1950s. For me, both the challenge and the opportunity for Södra is its unique structure. The fact that we are made up of some 50,000 forest owners means we have access to a guaranteed supply of sustainably managed raw material, our key ingredient for success. The challenge is to make sure that we make the absolute most of those forest assets to serve both the owners, our members, and our customers. That's what our strategy for the future is all about.
What lessons can the pulp industry learn from the postal business?
Of course there are things that I can bring to Södra from the postal business and customer focus and listening to customers is as important to a cooperatively-owned business as any other. But mainly what I bring is the experience from being a high-level manager in different lines of business for three decades. I have had the pleasure of being CEO for more than 15 years.
What are your plans for Södra? Where do you want the company to be in 10 years' time?
You could sum up our strategy for the next few years as back to basics for the future. Back to basics in the sense that we are very much committed to our traditional markets, for the future in that we intend to grow from that traditional base with a business model based on cutting-edge technology and sustainability.
For Södra Cell, that means reclaiming our former position as the world's leading supplier of market softwood pulp. We want to remain the number one choice for our customers, and that means investing in both capacity expansion and continual quality improvement. That's why we have taken the decision to invest SEK 4 billion (US$610 million) to make Värö Europe's largest softwood pulp mill (see box). We will continue to seek out new markets and applications for wood-based products, but we are bringing our focus back to where it all began, making the most of our forest owners' assets. We intend to invest in all three `of our pulp mills, both in terms of capacity and quality, to ensure that we continue to deliver consistent, optimal quality, and so that Södra Cell grows at least as fast as the rest of the market.
This sounds a bit like Södra is bucking the trend - while other pulp companies are talking of transforming themselves into bio-refineries and seeking new markets, Södra is going back to traditional pulp.
Not really, the goals are not mutually exclusive. Energy remains a very important part of the strategy, especially for Södra Cell. Our mills are virtually bio-refineries already. When the new investment is completed at Värö, it will be a flagship mill in terms of environmental technology and output. Värö sawmill is on the same site and has also been the subject of huge investment. A third of its logs will end up as chips to feed the pulp mill, energy from the pulp mill will feed the sawmill, we already generate district heating and electricity at the mills as well as a range of by-products. We are among Sweden's largest producers of bio-energy and will continue to develop our energy initiatives, in terms of independence from fossil fuels and reducing energy consumption, and as a producer of energy in our own right. But energy for us is a by-product of the pulping process - there would be no energy business without a profitable pulping business.
How do you make pulp profitable in the long term if it's not through reinventing yourself?
The markets for Södra's products are growing by three to five per cent each year, driven primarily by Asia so we need to be part of this.
Growth is a target across the Group, not just for pulp, and we will seek to grow further both within Europe and beyond, especially in Asia. Many of our customers are global and this investment allows us to grow with them. Growth is also a prerequisite for adding value for Södra's owners in the longer term and essential to maintain competitiveness.
While our pulp mills run 24/7 all year round, our sawmills for example, typically run for 16 hours/ day, so we have the potential to increase capacity here relatively easily, optimising earlier investments. The same is true for the interior timber business and Trivselhus (construction). For Södra Skog, an increase in production will mean we need to increase its timber supply.
In addition, we want to create a more unified brand and business model. We hope this will mean that shared resources and staff can be used more efficiently: There will be one Södra in the future, not individual companies and its target is to be 2-3% more efficient each year.
We also want to become even better at adding value for our customers, and we want to move from a concept to a new product more quickly. It's always possible to improve efficiency in all businesses. We are now changing our governance structure. The focus will be to create what we might call "one company".
Does the recent announcement to expand production at Värö mean Södra has given up looking for a new pulp mill investment outside Sweden?
No, but any expansion has to make both business and environmental sense. We are looking to expand our markets geographically at the same time as we seek to consolidate our position in Europe, and it is highly likely that we will be more active on the Asian market in the future. We're open to new ways of expanding geographically but that could mean partnerships with others rather than building new production facilities of our own.
Will any new plans be limited to market pulp for paper? Do you intend to grow the textile pulp business for example?
For the moment, we have no plans to increase capacity of dissolving pulp. We're delighted with the success of the line we switched at Mörrum which is now fully dedicated to textile pulp and has been very well received in the market during its first year, exceeding our expectations. But since we started up the 130,000-tonne/yr line, numerous suppliers have entered the market and prices are falling. It makes no sense to add a second line if the market conditions have changed. This is in direct contrast to the softwood market where no major capacity expansions have been announced for the foreseeable future except ours.
Of the six million tonnes of new pulp capacity announced up to 2017, around 5.2 million tonnes is in hardwood. Inevitably this will mean lower operating rates for hardwood pulp of around 88%, a few percentage points below the historical average. In contrast, the softwood market is projected to remain tight with operating rates in the mid 90s, so the prospects for expansion in softwood are good.
Do you see Södra moving down the specialization line when it comes to pulps? What might be next?
It's always difficult to predict what the future holds, but we do know that end uses are becoming more demanding, which will mean ever-more sophisticated full-service concepts and pulp tailored to specific customer needs. We will continue to listen and react to customer demands, whether this means improving or changing the current portfolio or adding complementary products we haven't yet thought of. There is no doubt that adding value for our customers and increasing their efficiency, productivity and competitiveness will be an integral part of our strategy for the coming years. Creating value for our customers will create value for our members, which is the whole raison d'être behind Södra.