Ruzomberok: Slovakian success story.
Injecting large sums of capital into the paper industry can be hazardous. Has Mondi avoided the pitfalls and will they continue to do so? Below, CEO David Hathorn shares his thoughts on the company's general investment policies; this article focuses on the company's ongoing investment at Neusiedler SCP's mill in Ruzomberok, Slovakia, known as the Impuls Project.
Mondi is a unit of Anglo American PLC, London, England. Mondi, with extensive interests in the European and South African paper and packaging industries, is the business name for Anglo American's Paper and Packaging division.
SCP Ruzomberok is situated in north Slovakia, surrounded by the magnificent Tatra mountain range in a country whose economy is picking up steam. Mondi (through its Neusiedler and Frantschach units) was an early--and successful--investor in Eastern Europe. The Ruzomberok mill and another in Syktyvkar, Russia, give the company a cost of production on B and C grade copier paper that can compete with imports from Asia and Brazil.
Even the company's non integrated mills perform well, with the Szolnok, Hungary, mill last year being listed as the lowest cost non-integrated producer of copier paper in Europe.
Astute acquisition and timely investment, funded by parent Anglo American, have seen Anglo Paper and Packaging (Mondi) grow to contribute 22% to Anglo American's headline earnings in 2003, making it the second largest contributor to the Anglo group. (In 2002, Mondi was the highest contributor.) In 2003, headline earnings were US$ 368 million, a 2% decrease on 2002, while operating profit of US$ 656 million was marginally higher, with Mondi Europe contributing US$ 471 million and Mondi South Africa US$ 185 million.
LOW COST OPERATIONS
Interviewed at the end of 2003, the division's Chairman and CEO, David Hathorn, explained the company's choice of investments. "Let me put one question to you: How often do low cost and high growth lead to value? Those sexy, attractive, high growth industries, seldom deliver value to the shareholders. Why? Primarily because you pay too much for the asset (because of the growth potential) and end up with a low cost mentality of 'I'm the cheapest guy in town--therefore I can undercut your prices and move my volume.' We like high growth/low costs, but with the right sales philosophy. We have very low cost assets across all our grades in Europe. In kraftliner (both white top and brown) sack kraft and uncoated woodfree we are in the bottom quartile in cost. Effectively, we have a low cost position in all of our products."
Assi Doman, which Mondi purchased in August 2000, is now fully integrated and is delivering significant productivity improvements and strong cash flows. It achieved annual synergies of US$ 30 million as of June 2003, which is well ahead of the acquisition target of US$ 20 million. "While this (sack kraft) is a low growth sector, it has offered meaningful consolidation potential in the industrial packaging industry," Hathorn commented. The company also purchased the remaining 30% minority interest in Frantschach in April 2004, further consolidating its position in the industrial packaging market.
Hathorn's final comment is a telling one. "We've had double digit improvement in productivity every year. Assets come at sensible values; we don't believe one is often able to buy cheap, but we don't overpay. Through consolidation we achieve critical mass and the needed market reach. Once that is done you can start to drive efficiencies."
A GOOD "IMPULS"
The Impuls project is a good example of how Mondi drives efficiency improvement. The total value of the project to expand and optimize the Slovakian mill is about EUR 240 million. A mill employee coined the name "Impuls" because of the anticipated impact on the entire region.
Having purchased 50% of SCP's shares in 2000, Mondi decided in 2002 to begin the Impuls project. In 2003 the company name was changed to Neusiedler SCP.
On the paper side, the heart of the project is the PM 18 rebuild. Initially started up in 1991 to produce printing and writing grades ranging from 40-120 g/[m.sup.2], the machine was built by Voith with a design speed of 1000 m/min. Since 1997 the machine has produced only copier paper.
Neusiedler re-opened talks with Voith in May 2001. In April 2002, Mondi approved the rebuild and by September Voith had a verbal order from CEO Otto Pichler. Negotiations had been underway with the previous owners for a year prior to the order being awarded.
There is effectively just one shoe press nip with a very long shoe on PM 18, providing a longer dwell time for the paper. The single nip press is a major step forward; the elimination of draws means the sheet is supported throughout the process, from the wet end through finishing. The cost differential between installing a single shoe press and a tandem shoe press is enormous and all early results from PM 18 point to success; profiles, grammages and moisture profiles all looked good only days after start up.
The machine now uses 50% less clothing, and energy consumption should drop by about 15%. The length of the machine has been reduced by 5 meters, allowing the potential addition of extra drying capacity (in Ruzomberok's case this means an extra 6 drying cylinders.)
Because copier paper needs bulk, the press section has large rolls. The old dryer section was removed, repaired, and modified. The dryer section now has 37 heated dryer rolls in the pre-dryer section and 11 heated dryers in the after-drying section. The plan reuses the existing SpeedSizer[TM]; the applicator roll has a diameter of 1300 mm and sizing at a rate of 2X1, 6 g/[m.sup.2]. The mill installed an additional airturn for a contactless web run. A web supporting PTFE coated roll ensures a better web run. An air flotation dryer was also added after the SpeedSizer.
For the calender, the mill rebuilt and reused the existing 2-roll hard nip calender and added an additional NipCorrect[TM] bottom roll to give an even callipered profile at the end of the machine. Nip pressures are 10-75kN/m and surface temperatures on the top roll run at a maximum of 80[degrees]C. The existing Pope reel was reused with some modifications.
The project's new VP Jagenberg winder (type two-drum VariFlex[TM] L series) has a set change time of 30 seconds (compared to the old winder's time of 3 minutes.) The design speed is 2800 m/min and operating speed is 2500 m/min. The old stock prep system was fitted with larger pumps and re-used. A new hood and ventilation system was installed by a Spanish supplier.
New drives were the next big technological change. The mill decided to use modern drives without gearboxes, which helps reduce vibration. Water consumption has also been reduced; as of May 2003, all water goes to the biological treatment plant and paper machine water consumption is down to 8 [m.sup.3]/metric ton of paper produced.
The Impuls project included an upgraded vacuum system, a new steam and condensate system, and a rebuilt lubrication system. Honeywell installed a new quality control system, including a web inspection system with cameras. The web inspection system paid for itself during start up when the mill quickly discovered exactly what had caused a paper break. In one instance, the break was caused by a felt defect.
Before any work commenced, the paper machine's foundations were strengthened in order to withstand the extra vibration. These and the foundations for the new winder were started two months prior to the rebuild.
Voith was also involved in over-hauling and maintaining all parts that would be reused after the rebuild. This process began 8 months prior to the shutdown, and 30% to 40% of the existing parts were re-used in the dryer section.
Metso Automation installed a new DCS system with a decentralized local I/O cabinet and handled all process automation for the project. This included a metsoDNA to replace the existing automation on PM 18, an upgrade of the Damatic XD to metsoDNA, extensions in the pulp mill, and automation for the new recovery boiler and turbine. Pulp mill process control will be concentrated in two new central fiber line control rooms and a new central recovery control room. The work has been carried out in phases during 2003; the entire modernization is scheduled for completion in September 2004.
Visiting the mill just as startup of PM 18 commenced, I was struck by the cross-section of nationalities involved in the rebuild. One project engineer involved in the rebuild laughed and said, "we are the paper mafia," his way of describing a group of freelance start-up engineers. To some, Slovakia might be considered a "hardship posting," but for the most part the team knuckled down and worked well together.
Another striking aspect of Impuls is that it is definitely not a "single supplier" project, but rather a mix of what is considered best technology for the mill within its particular budget.
The pulp mill capacity will be increased to 370,000 metric tons/yr, an increase of 103,000 metric tons. A further increase, to 410,000 metric tons/yr, is likely. The mill decided to implement continuous batch cooking (CBC), a first for standard bleached pulp. The other two references are Smurfit-Nettingsdorf Austria, a plant that produces high kappa pulp for linerboard; and Klabin Bacell, Brazil, which produces dissolving grade pulp for viscose fiber.
Dusan Simo, pulp mill manager, said that after only a single week in operation, results were already better than the mill's previous ROH system. CBC cooking keeps alkali levels the same. One large tank is used for cooking liquor, which is then circulated to different digesters. The mill already had 8 digesters, so by adding a single extra digester and then running on a 24 hour basis the mill added 140,000 metric tons of production capacity just by changing the process. Cost effectiveness has also influenced the decision to increase the use of hardwood for pulp production. Hardwood costs less and has a shorter cooking time.
Cook times for ROH were 220 min for hardwood and 240 min for softwood. The target was 210 min for hardwood and in the first week of operation cooking time was down to 190 min for hardwood pulp.
Simo said that good chip quality is very important. The new technology in the wood room means that accepts from screening, which were 82%-84% before the new cooking system, now average 87%-88%--well above the 85% minimum standard.
The mill found that it needed to debottle-neck its existing chemical recovery plant and add a new one. Andritz is supplying the new recovery boiler and evaporation plant, which will start up August 2004. The mill previously burned gases in the bark boiler but now gas will be directed to the recovery boiler. The bark boiler was changed over to a fluidized bed boiler in 1997 and this year will have its capacity increased in order to handle more bark waste.
The mill's environmental footprint is being dramatically improved. By 2005, S[O.sub.2] emissions are expected to move from 2002 levels of 1080 metric tons/yr to 300; TRS emissions from 342 metric tons/year to 70; and fresh water consumption from 79 [m.sup.3]/ton pulp to 50.
A key environmental technology for the mill is Metso Paper's high consistency ozone bleaching process, ZeTrac[TM]. The scope of supply also includes rebuilding the existing screening and washing systems and retrofitting the single stage oxygen delignification into a two-stage OxyTrac[TM] process.
The new equipment will preserve pulp quality and increase Ruzomberok's production capacity from the current 900 metric ADT/day to approximately 1300 ADT/day when running hardwood. The two-stage oxygen delignification process will reduce both chemical consumption and costs while increasing yield. The ozone stage, in turn, will lower the AOX amount from the bleaching process, thus reducing the mill's environmental impact. The present bleaching sequence, D-EO-D-E-D, will be modified to run with the Z-EO-DnD sequence.
DISTRIBUTION AND MARKETING
The mill anticipated the increased capacity by ensuring that adequate storage and distribution systems would be in place. In 2002, the mill installed a new mother reel storage area with a capacity of 7000 metric tons. The storage area features regulated temperature and humidity and a fully automated reel handling system.
A new fully automated rack warehouse for pallets, with 8 loading bays and a loading capacity of 250 pallets per hour, was also completed in 2002. The mill also installed a new cut-size line with 126,000 metric tons/yr capacity, 10 pockets and two parallel lines for packaging reams and boxes with the possibility to pack transparent wrappers.
The investment at Ruzomberok dovetailed with a slowdown in demand for cut size papers but demand is picking up again. Neusiedler reiterates the value of its investment in SCP Ruzomberok, saying on their website that "it has provided Neusiedler with highly professional sales experts for Central and Eastern Europe."
Since 2000, the sales organization of SCP Ruzomberok has been used for all exports of the Group to Eastern Europe. In turn, all exports of SCP Ruzomberok to Western Europe have been handled by the Neusiedler organization. All planning, handling, and logistics operations are carried out centrally by the Theresienthal mill, using existing Neusiedler systems. Purchases by the new mill are also coordinated via the Group-wide purchase system. SCP Ruzomberok is already fully utilizing the resulting synergy.
The sales organization has been extended to reflect Neusiedler's growth and they now have sales offices in Moscow, Russia and in Norfolk, Virginia, USA, with one in Shanghai, China being set up this year. After a production increase of approximately 260,000 metric tons/yr in 2003, Neusiedler is planning a further production increase of approximately 200,000 tons/yr for 2004 through further optimization of all plants, as well as an increase in the sales volume of approximately 300,000 metric tons in office paper, raising the total sales volume to approximately 2.3 million metric tons.
SUCCESSFUL COST CONTROL
The investment at Neusiedler SCP in Ruzomberok is just one example of a massive optimization project that has seen an annual cost reduction potential of EUR 33 million realized in 2003 alone. Over the past three years, Neusiedler SCP has achieved a permanent reduction in total costs of EUR 70 million/yr. Process optimization is one factor behind Neusiedler's 10% productivity improvement (measured as production per employee).
Neusiedler's lesson to the industry is clear: optimize productivity and effectively market your product. This year Neusiedler's management systems are being adopted by the entire Mondi Group. The industry will watch with interest.
WHAT YOU WILL LEARN:
* Why 'low cost, high growth' isn't enough.
* How efficiency improvement secured success for the Impuls project.
* How management supports this large project.
* To access the following documents, go to www.tappi.org and type the Product Code in the search engine. Articles from Solutions! are available free to TAPPI and PIMA members.
* "Mondi: Who are they, really?" by Jane Molony, Solutions!, July 2002, Product Code: 02JULSO30.
* "Weak signals for Europe, but a positive 2004 beckons," by Jim Kenny, Solutions!, January 2004, Product Code: 04JANSO53.
ABOUT THE AUTHOR:
Jane Molony is a freelance journalist who edits the Tappsa Journal for the Technical Association of the Pulp and Paper Industry of Southern Africa. She is based in Durban, South Africa and can be contacted by phone at +27 31 7642494 or email at firstname.lastname@example.org.
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|Title Annotation:||Company Profile|
|Publication:||Solutions - for People, Processes and Paper|
|Date:||Jul 1, 2004|
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