RISI’s European CEO of the Year

An interview with Berry Wiersum, CEO, Sappi Europe

MARK RUSHTON

RISI recently announced that Berry Wiersum, chief executive officer of Sappi Europe SA, has been named RISI’s 2017 European CEO of the Year. The award is nominated by a group of investment analysts, industry consultants, and commentators covering the European and global pulp and paper industry. According to nominators, “Wiersum has shown real leadership in adapting to change with the focus on cost control and the increase in the production of specialty papers.”

As this issue of Paper360° went to press, Sappi announced a raft of investments, including several at its European operations. Alfeld and Ehingen mills in Germany, and Maastricht mill in the Netherlands will see investment centered on enhancing specialty paper offerings; at the Lanaken mill in Belgium, PM 8 will shift in production focus to woodfree coated grades.

Paper360° Senior Editor Mark Rushton caught up with Wiersum to discuss Sappi’s success and the outlook in Europe for the industry as a whole.

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 past 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, which noted 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 specialty papers. What cost initiatives has Sappi Europe implemented?

We’ve had a strategic goal to get our net debt level down below 2x EBITDA—and in our financial year 2016, which ended on September 30, 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 on growing the dissolving pulp business in South Africa and North America.

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 specialties 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 PM 2 from its unprofitable graphics products to specialties, 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 Ralph’s 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 that marks a turning point in a company’s fortunes—not because it provided all the answers, which it certainly did not—but because it set out a framework for growth and financial goals for each business segment. It expressed the company values that we had been working on and appealed to inclusive practicality. It was a recipe for transformation and fit like a glove with the agenda we were working toward 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 re-motivate the organization, get everyone thoroughly engaged. 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 toward the humanist approach to a manufacturing company that we now aspire to.

We’re just short of four 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 that 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 specialty business.

On the subject of specialty 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 specialty sector poses?

Alfeld PM 2 is a hungry tiger and it can 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 PM 2 had to be done, which 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 optimize the mix across the whole mill. Out went the cottage industry approach and in steamed the Sappi Performance Engine with its cardinal rules 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 specialty market at the time, and customers were ready for us as a solution provider for sustainable packaging. Now Alfeld is a highly profitable, specialty-only mill and we are very happy with it.

Regarding your growth in specialty papers, is that market share being gained, or is it the development of new products, markets, and customers?

It’s really both. They feed off each other. Customers need the innovation and it needs to be constant. Sustainability is very high on their agendas, along with barrier technology to keep their product fresh and safe. Paper solutions that provide such barriers (and are at least recyclable) encourage 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 we cooperate closely with Sappi North America as they develop their specialty business.

Are there plans to move further into specialty 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; we have some great opportunities on the drawing board that 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 from the uptick in 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 percent seen since 2007 to around a 2.5 percent decline 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 stabilize, 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 Sappi Europe has used over the past 10 years to manage that decline in demand?

First, an attitude of implacable remorselessness never to give up. Second, we’ve always looked for a reason to be hopeful and give our employees a cause to fight for. For that reason, 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 expecting them to have confidence in you. We started these roadshows almost 10 years ago; they are part of retaining engagement and reinforcing determination.

Do you think at some point we will actually see growth again in graphic papers in mature markets?

Yes. It will start from a lower level than today, but when the market stabilizes it will tend to follow advertising growth rates in some form or other.

What areas of R&D is Sappi Europe working on in biofuels, nanotechnology, or other non-core products or innovations?

We have a nanocellulose 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 will very much become core to our business. We have a number of other projects going as well.

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 that has dominated Europe since the end of World War II, 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 that 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, so our coated woodfree sheets business is more or less exclusively through them. The merchants are also diversifying, since they 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 to strengthen the trade defense structure in place. In our view, trade defense 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? 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 remove a big proportion of CO2 emissions from the process, but also 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. (See sidebar to learn more about DES.)

This is really exciting, but it needs new, risk-sharing funding to implement it, and I’m pleased that the new CEPI Roadmap 2050 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 first that they wanted the industry to develop these new technologies, and second some practical help on how to fund these technologies without risking company ratings. This is the kind of thinking that will promote breakthrough technology and transform the European industry into a low carbon, highly competitive, growing industry.

Finally, what challenges in this industry are 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—we would be fools to miss out on it.

Mark Rushton is senior editor, Europe and Asia, for Paper360°. Reach him at [email protected]

Meet Berry Wiersum

Berry Wiersum joined Sappi Europe in January 2007 as chief executive officer. He started his career at ICI Fibres, and served as president of Amoco Fabrics (Europe) and then president of Amoco Chemicals (Europe). When Amoco was taken over by BP, he assisted in the integration of the two groups in Europe. He then joined Pechiney SA in France and ran the CEBAL packaging division; he later joined Kappa Packaging BV as managing director, Packaging Division, and member of the Management Board responsible for paper manufacture and packaging in the Kappa group. Wiersum served as chairman of CEPI (Confederation of European Paper Industries) from 2009-2011.

Innovation Through Competition

When CEPI (the Confederation of European Paper Industries) launched its Forest Fibre Industry 2050 Roadmap back in November 2011, it set some lofty goals: to find ways for the industry to reduce its fossil-based CO2 emissions by 80 percent while creating 50 percent more added value. One major conclusion was that the industry would need to develop breakthrough technologies by 2030 to achieve the targets. CEPI initiated its “Two Team Project,” a kind of year-long innovation competition, to identify these breakthrough concepts.

Of the eight finalists, the winning innovation was Deep Eutectic Solvents (DES). Produced by plants, Deep Eutectic Solvents open 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.

In 2013 the board approved the conversion of Alfeld PM 2 (shown below) from its unprofitable graphics products to specialties, and all of a sudden we had a tiger by its tail,” says Wiersum.

With a history dating back more than 300 years, Sappi’s Alfeld mill is located in Alfeld, Germany. The mill has five PMs and approximately 800 employees.