The “Smurfit” name is without a doubt one of the most resonant in the global industry with its reach being far and wide and in many shapes and sizes. But what eventually became the vast Smurfit empire of the early 21st Century evolved from very small beginnings in Dublin in the mid 1930s. And what was clear from the very beginning is that if you are going to empire build in the way the Smurfit dynasty has, then inquisitiveness, courage, adaptability and confidence must be in your DNA.
Smurfit relates the tale of the early beginnings: “My father (Jefferson Smurfit Snr), was a qualified tailor and started up a shop in St Helens, Lancashire in the 30’s. He soon realised there might be a more lucrative profession and so he bought a printing business in Dublin in 1938 and learned how to print. Then he realised that what was really in demand in the Ireland of the 1940s, was corrugated boxes. So he bought a book and built his own corrugator.”
Needless to say, in the early years the corrugated side of the business took off to such an extent that the local paper supplier to Jefferson Smurfit and his homemade corrugator took umbrage and refused to supply him with any more paper. “Undeterred, my father bought himself another book and learned how to make his own paper,” continues Smurfit. “He then built himself two 48 inch-wide paper machines and quickly developed the first milligator in the world - the paper came off the machine through a hole in the wall and went straight on to a corrugator.”
During the 50’s and into the early 60’s the business continued to grow very successfully following the tribulations of the world war in the 40’s with the resultant scarcity of raw materials.
The business, then known as Jefferson Smurfit & Sons Ltd, was ready in 1964 to take the next big step in its future growth strategy. It would go public to raise the necessary funding to build a new corrugated plant in Dublin.
Smurfit’s eldest son Michael joined the business in the early 1950s with the other three sons joining shortly after, Jefferson Jnr, Alan, and Dermot joining in 1961 as Mr Paper, and running the paper mill at the age of 22. “Those were amazing times in Dublin in those days. We had always seen wastepaper as our ‘urban forest’ as we had always used 100% recovered paper as our raw material. At that time in Dublin, the rubbish dumps were witness to gang fights over who had the rights to them and there were no weigh bridges meaning all sorts of non-paper heavy items made their way into the raw material store.”
Phenomenal growth surge
The early 60s saw the start of what was to become the Smurfit empire in terms of phenomenal growth. “My brother Michael took over as managing director in 1962, and later persuaded my father to go on a well-earned cruise. While he was away we knocked down the old paper mill and installed our first fordrinnier machine which could make around 30,000 tonnes/yr. At that stage, we were buying in a lot of paper for our converting operations and we badly needed to expand our paper production.”
The company then embarked on a wholesale growth program by acquisition over the next decades which saw it go from external sales of $1 million and 10,000 tonnes/yr production in Ireland in 1964 to sales of $8 billion, production of 13 million tonnes/yr – with a workforce of 78,000 in 38 countries in 2002. The company developed an acquisition strategy that seemed bullet proof; it would buy a minority stake in a suitable enterprise, watch it perform well, and then buy it out completely. “The early 90s were a time of boom and demand for boxes was huge,” says Smurfit, “We were quoting a year’s wait for orders and getting paid up front! In 2002 we were the biggest paper based packaging company in the world, which happened almost all through acquisition, and in all that time we never built a new paper machine.”
The phenomenal rise and further evolving of the Smurfit group over recent times has been well documented, but from Dermot Smurfit’s point of view, he retired from the business in 2002 when Madison Dearborn took the business private. “They were wonderful people,” he says. “But I was 58 and did not want to end up in a different reporting sequence to the one I had with my brothers over the last 40 years.”
Smurfit took a year out, but as with most entrepreneurially fired-up people, it wasn’t long before he was back in the game, looking for new opportunities to get stuck into. After successful investment and management spells in various new ventures including electronic point of sale innovations and financial services, Smurfit popped up once again in the paper industry after he “and a few friends” bought Finnish company Savon Sellu after a chance meeting with the then M-real CEO Jouko Jaakkola. “At a dinner in Portugal, Jaakkola asked me what I wanted to do, I told him I wanted to buy unwanted assets. As it happens he had one.” explains Smurfit. “We bought Savon Sellu from M-real, improved it dramatically and then floated it in 2007 in the hope we could expand it by making further acquisitions.”
As it happened that float coincided with the financial crisis at the time, and the share price crashed disastrously from 100 pence down to 9 pence, however Powerflute, the name of the company that owns Savon Sellu, continues to forge ahead in the production of specialised semi-chemical fluting mainly used for the production of corrugated trays etc., an increasingly growing business for the transporting of fruit and vegetables.
So is Smurfit actively looking for new opportunities in the pulp and paper industry? “Always, and I have a number of possibilities I am looking at right now. Of course the industry will know of our last deal, the purchase and subsequent divestment of Scheufelen in Germany. The mill which produces 300,000 tonnes of coated wood free was in administration when we bought it in January 2009, saving over 500 jobs.
“We subsequently decided to sell it much sooner than we would have wished to a company with pulp assets since we believed this was the best way to protect the workforce from the effects of ever increasing pulp prices coupled to severe weakness in the CWF market.”
Smurfit also privately purchased the Pankakoski Mill from Stora Enso, renamed it Pankaboard and after a couple of tough years that mill is now successfully producing some 100,000 tonnes of speciality boards.
What about the areas outside of the pulp and paper core? “At the moment we have on-going discussions about biofuels which we think could be increasingly important to us.”
Challenges ahead in packaging
But it seems that packaging is at the core of what makes Smurfit tick, and he is convinced that the area of sustainable fiber based packaging is a good one to be in for the future, he says: “Paper based packaging is winning the battle against plastic as people come to realise that paper is much more environmentally sound than a product that comes from crude oil that is not renewable”.
But, of course, this is not all there simply for the taking and with regard to the future of fiber based packaging Smurfit says the industry must be realistic about the challenges ahead, saying there are three main areas of concern: “For wood based packaging papers the future looks very bright, although the price of wood could be an issue as government subsidies to produce green energy by burning the forests force wood prices ever higher.
“For the recovered paper based grades the situation is even more challenging as demand will rise for recovered paper and supply will be short in Europe and the US. This will lead to significant price increases and a loss of competitiveness to wood based grades.
“Finally, yet again, I can see overcapacity looming, but this time in packaging as graphics producers convert their machines to run packaging grades. Some of these will surely go bankrupt in the future (as in the past) and this challenge will turn into an opportunity for the big players over time.”
What lessons can be learned from the past?
After a good half a century in the business as well as some time outside, what does Smurfit know for sure about this industry and what advice can he dispense? “I think we in this industry can learn from other industries how to be more professional in our management of pricing. To do that means that we need to have fewer people with an engineering bias and more with a strong sales and marketing background. We need people who understand that you cannot price your product simply to fill a machine or a converting plant as this leads to serious underperformance.
“We need to move from a “let’s build a big new shiny machine and hope there is a market” to a “what return will we get” mind-set. The fact is the pulp and paper industry is possibly the most sustainable in the world from an environmental perspective. If it could get its record on profitability right, it has the opportunity to be the envy of the world.
And would Smurfit do it all over again? “Of course I would! Personally the paper industry has been a very profitable one for me and my family, but actually more important than that has been the fantastic friendships that I have made with colleagues and industry players alike, that have endured over the past 50 years.”