Ambitious prospects for the Sappi group which, with the acquisition of the Cham Group’s special papers business, is aiming for a more sustainable growth in sectors with high profitability. Exactly as stated in the strategic manifesto Vision 2020.
Last December the news bounced into the industry media with a great flourish: the South African Group Sappi www.sappi.com, a huge company with 12 thousand employees and factories in seven countries around the world, acquired, for about 149 million dollars, the business in the sector of special papers from the Swiss group Cham Paperhttp://www.cham-group.com. An undoubtedly interesting announcement for the international paper industry, but particularly so for the Italian one, given that, involved in the acquisition, in addition to the production units of Digital Imaging in Switzerland (at Cham), are two high performing paper mills in Carmignano di Brenta (Padua) and Condino (Trento). One can say that the operation, after having passed the scrutiny of the relevant Antitrust Authorities, has today been successfully completed and sees Cham Paper Group permanently leave the “paper” sector in order to concentrate exclusively on property business – that is why the word “Paper” has been removed from the company’s name, which is now simply Cham Group. For Sappi, on the other hand, it is the continuation of a journey mainly marked by diversification of the business: with the annexation of the branch relating to the Swiss company’s special papers, the Sappi group, which develops, produces and sells pulp, special papers, packaging paper, graphic papers and biomaterials, will increase its own importance in graphic specialities and packaging, opening up to new customers and new markets. Especially since Sappi’s existing products, together with those just acquired, can create several economies of scale and synergy. Sappi’s acquisition of a company specialising in the production of special paper in Europe is an essential component to succeed in earning a quarter of its profits from this type of product by 2020.
On the way towards Vision 2020
Furthermore, Sappi is already moving in a very specific direction: it is in the process of converting a site in the Netherlands into a site for the production of special packaging and paper, and it has invested in a packaging production line in the United States.A conversion project has already taken place very effectively in Germany and the acquisition of the Cham business fits perfectly into this scheme on a global scale. We are talking about Vision 2020, the development strategy that the Group announced in 2015, drawn up to obtain, specifically by 2020, advantages of cost, growth through targeted investments, rationalisation of activities in decline, greater cash flow generation in support of the budget and faster development of parallel business.
The Vision 2020 strategy is, therefore, aimed at reducing dependence on traditional graphic paper which has been experiencing a sharp fall in demand. Sappi is prioritising growing markets with higher margins, in practice the dissolved wood pulp sector, but also special paper and packaging.
It is natural, therefore, that their eye should fall on Cham’s business which operated in markets characterised by a growth of between 1% and 5% able to generate good EBITDA margins – that is, earnings before interest, taxes, depreciation and amortization.
«In fact this acquisition» Berry Wiersum, CEO of Sappi Europe declares to Paper Industry Word, «represents a strategic opportunity to increase Sappi Europe’s business in Specialities and Packaging Paper. The Italian sites have a combined capacity of 160 thousand tonnes a year, with the possibility of further development of production volumes of 10 thousand tonnes yearly. It is precisely in these paper mills that some products are made which are complementary to Sappi’s existing portfolio: in this way we can rely on an extended customer base and set up an improved service and greater planning capacity. In short, this integration will open up a large number of routes for growth».
«In particular – continues the manager – this acquisition supports Sappi’s strategy of growth in the field of special papers. The transaction, in fact, significantly increases the importance of Sappi in the flexible and self-adhesive packaging sector, and enables Sappi to acquire a larger share of wallet of prestigious brand owner customers and to pursue key growth in innovation.
In addition, we believe that this acquisition will improve our profitability in the short term and will act as a platform both for organic growth and also for growth of external lines, that is through other acquisitions. Sappi is always very alert to all the options offered by the market, but signs agreements only if they are able to procure real added value. Incorporating Cham’s business, for example, we have increased turnover by 183 million Euros and boosted our gross operating margin by 20 million. That is without counting, at the moment, the positive effect of potential synergies. The final goal is to reach a greater balance in the composition of the group’s EBITDA so that 25% stems from packaging and special papers, 25% from graphic paper, 40% from dissolving wood pulp and 10% from new business opportunities such as nanocellulose, biorefinery products and energy».
A promising scenario
«The decrease in the demand for paper will slow down from about 4%, seen in 2007, to about 2.5% in the next five years», explains Wiersum. «The rate of decline will slow, even if we are not sure when exactly it will happen. We are convinced, however, that it will stabilise in the end, and items which are printed will be printed for good reasons. We are already noticing now that advertisers are starting again to assign more value to the persuasive power of printed publicity. After all, there are several studies which emphasise the effectiveness and therefore it is right to leave space for optimism, in particular for high quality types of paper. Without taking into account that, despite the introduction of the digital alternative, even the book market is growing once again.
If these predictions are correct, we feel that Sappi is well prepared for the future. We have made many investments and done conversion projects in our factories to make them more efficient and manufacture products which are more suitable for each site. Efficiency and a greater focus on the best performing markets will enable us to make our graphic business more profitable. Finally, I feel it is important to emphasise an important aspect», concludes Wiersum. «The people who work in the factories that we have acquired from Cham – 223 in Carmignano di Brenta, 127 in Borgo Chiese and 35 in Cham, editor’s note – will not be affected by any reduction process or restructuring. Because this transaction adds new capacity to Sappi and is not part of a conversion plan. We do not intend to reduce any production capacity. We have taken over all the employees and do not envisage any significant reduction of work, at most a few people may need to relocate. But this point will be taken into consideration during the integration stage in the next few months».