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Holmen Ab Business Information, Profile, and History

paper modo pulp production

Strandvägen 1
P.O. Box 5407
SE-114 84 Stockholm
Sweden

Company Perspectives:

Holmen's main product areas are newsprint and magazine paper for newspapers, magazines, directories and advertising; paperboard for consumer packaging and graphical applications. In both these areas Holmen has a strong position on the market, which it intends to develop.

Holmen shall grow at a faster rate than the market. Attractive products and product development provide the prerequisites for growth, both organic and via selective acquisitions.

Holmen focuses on high quality and low production costs within each product area. Cost efficiency is achieved by applying large-scale production and the high competence of the personnel.

Holmen shall have knowledge and control of important raw materials regarding purchasing, price, availability and quality by owning forests, power and recovered paper collection companies.

History of Holmen Ab

Holmen AB is one of Sweden's largest forestry companies, active in the paper, paperboard, and timber sectors. Its largest operating unit, generating 53 percent of revenues in 2001, is Holmen Paper, which produces newsprint, magazine paper, and telephone directory paper. The unit's four paper mills (three in Sweden and one in Spain) have an annual production capacity of 1.8 million metric tons. Generating 27 percent of revenues in 2001 was Iggesund Paperboard, which produces bleached board and folding boxboard used to package chocolates and other food products, cosmetics, cigarettes, and pharmaceuticals as well as for graphical applications. Annual production capacity for this unit's three mills (two of which are in Sweden and the other in England) is 505,000 metric tons. Holmen also has three smaller units: Iggesund Timber, which produces and sells sawn timber at a single sawmill with production capacity of 200,000 cubic meters per year; Holmen Skog, which manages one million hectares of forestland in Sweden and is responsible for procuring wood for the group's mills; and Holmen Kraft, which has whole or partial interests in 23 hydroelectric power stations in Sweden and is responsible for the provision of electricity for Holmen's mills. Overall, 86 percent of Holmen's revenues in 2001 were generated within the 15 countries of the European Union. L E Lundbergföretagen AB, a Swedish brokerage firm headed by Fredrik Lundberg, chairman of Holmen, holds 52 percent of the voting rights of Holmen, while the Kempe Foundations, controlled by Holmen's founding family, holds a 16.3 percent stake. Until 2000, Holmen was known as Mo och Domsjö AB (MoDo).

Mid-19th-Century Origins

Holmen's history needs to be seen against the background of the Swedish forestry industry in general. Sweden has long been one of the most heavily wooded countries in Europe, and even now forests cover 68 percent of its territory. Successive Swedish governments have done much to promote the export of forestry products since the middle of the 19th century, when European industrialization increased the demand for timber, and at the same time mass emigration and rising agricultural productivity allowed the release of surplus land for timber harvesting. The legislation that had restricted ownership of forests to the iron industry was repealed, the depletion of the Norwegian forests removed a major source of competition, and the shift in British trade practices toward free trade in the 1840s removed the tariffs and the policy of colonial preference that had kept Swedish products out of what was then the major industrial market.

J.C. Kempe was among the many entrepreneurs who thrived in these circumstances, which, especially in the boom years of the 1850s and 1870s, resembled a gold rush in their impact upon the economy and society. Kempe was a member of a family that had long been settled in Pomerania--then eastern Germany, now western Poland. He went to Sweden to work for his uncle, a sugar refiner, but then entered the forestry industry through a series of accidents. Kempe had a disagreement with his uncle and went to work in a trading office owned by the father of his friend Olof Johan Wikner. Kempe then married Wikner's sister, and in 1823 the two men took over the business after the death of Wikner's father. Their main water sawmill was at Mo, inland from the port of Örnsköldsvik. Kempe became sole owner in 1836 and expanded the business to include iron works, shipbuilding, and manufacturing of wood products. The Swedish sawmill industry started to expand more rapidly around 1850 when steam engines were introduced to replace water sawmills. In 1865 J.C. Kempe built a steam-driven sawmill at Domsjö, near his other mill. By this time he was exporting his timber to Britain, Germany, and France. Mo och Domsjö AB was officially established in 1873.

Expanding into Pulp in the Early 20th Century

Mo och Domsjö, driven by Kempe's wish to make full use of its forest resources, also became one of the leading participants in the pulp industry, which produced the raw material for paper and other products, and which had begun in Sweden in the 1850s. It was in the 1890s that pulp became a leading export. Pulp mills used the lower grades of timber that the sawmills did not want, and much of the waste from the sawmills could also be chemically transformed into pulp in sulfite mills. J.C. Kempe's son Frans built a sulfite mill at Domsjö in 1902-03. The first sulfite pulp mill in the world had been built in Sweden in 1871. Use of sulfite continued to grow, and by 1914 sulfite mill production accounted for more than a third of the company's revenue.

Frans Kempe was also a pioneer in the use of scientific forest management methods. He also worked to provide better housing for the company's workers. Mo och Domsjö continued to innovate and was the first Swedish company to use birchwood, previously used only for fuel, in making paper pulp. Frans continued to expand the company by adding a further sulfite mill.

The Forestry Act of 1903 required regeneration of forests after felling. Even so, new planting could not keep up with demand, and competition developed among the companies as the forests were depleted. By 1906 purchases of land by forestry companies had become a political issue, and the government, fearing the disappearance of peasant landowners, introduced what was virtually a ban on further acquisition of land by Mo och Domsjö and its competitors.

World War I saw a sharp increase in pulp prices, which made sulphite mill production extremely profitable. The company continued to grow under Frans Kempe's son, Carl, who took over the business in 1916. Mo och Domsjö began production of kraft pulp in 1919, by which time pulp had become MoDo's main product. During the 1920s and 1930s the introduction of new saws, ranging from frame saws to mobile circular saws, decreased production costs in some cases, though their use was limited to certain types of lumber. The means of transporting wood and wood products also changed. River floating had been a cheap and popular method, but the growing use of trucks made the distribution of wood products cheaper and freed the forestry companies from the need to site their mills near rivers.

These interwar years saw a slowdown in the forestry industry. The pulp producers' demand for timber was so great that the forests were seriously depleted and the price of timber rose, while their ability to offer higher wages than other sectors of the industry attracted workers away from those sectors and damaged growth opportunities in other industries. At the same time it was difficult to import extra timber from countries such as Finland because they too had restrictions on their timber trade in an effort to protect their rapidly depleted forests. Firms such as Mo och Domsjö, which combined lumber milling with pulp production and owned their forests, were thus better placed to survive this period than their smaller competitors, and even to expand. By 1939 the company was running two large sulfite mills and one kraft mill. During World War II, production facilities at the sulfite mills had to be used for the production of other types of pulp to replace imports, such as cattle feed stocks. This led to increased production of chemical derivatives, which was to provide a foundation for the development of the chemical industry in Sweden into a profitable unit after World War II, offsetting volatility in the company's core forestry industry.

Launching into and Expanding Production of Fine Paper from the 1950s to the 1970s

The output of pulp greatly increased and the mechanization of the production process intensified in Sweden starting in the 1950s. Within the Swedish pulp and paper industry there were major structural changes between 1953 and 1985. There were 129 production units in Sweden in 1953, but only 57 in 1985, though total production continued to increase. With Erik Kempe as managing director, Mo och Domsjö implemented new techniques for various processes ranging from wood handling to digesting and bleaching. In 1951 it constructed a mill for production of fine paper in Hörnefors. In 1959, after Kempe's death, Bengt Lyberg took over as managing director. The company now became interested in petrochemical production, and a site was chosen on the west coast of Sweden, where a plant was completed in 1963. It acquired other companies in the same field, such as Svenska Oljeslageri AB. Mo och Domsjö's interest in petrochemicals lasted until approximately 1973, when it decided to sell off this side of its business because this diversification was not performing the function originally intended for it.

It was during the second half of the 1960s that the company changed direction under its new chairman, Matts Carlgren, who succeeded Carl Kempe in 1965. In a natural step toward integration, the company began to produce its own paper from its own pulp, building on the success of the Hörnefors mill. Its acquisitions under this strategy included the French fine paper mill Papeterie de Pont Sainte Maxence (PSM) and other fine paper businesses based in Sweden. In 1972 a new plant was opened in Husum that integrated the production of fine paper and of kraft pulp. As it continued to expand and modernize this fine paper division it established an even stronger position within the European market by acquiring wholesaling companies in the United Kingdom, France, The Netherlands, and Norway. Mo och Domsjö also entered the tissue industry, with several acquisitions of companies in Belgium, the United Kingdom, and in southern Sweden. Integrated as MoDo Consumer Products Ltd., these firms manufactured consumer products including sanitary pads, infant-care products, and other soft paper goods. The group's vertical integration extended into sole ownership of, or partnership in, 30 hydroelectric power stations in the far north of Sweden.

Expanding into Newsprint and Paperboard in the 1980s

During the 1980s MoDo had concentrated on acquiring shares in Iggesund Bruk and Holmens Bruk, and it now decided to gain control of both, doing so in 1988. Holmens Bruk was one of Sweden's leading producers of newsprint. It had originated in the early 19th century, becoming a limited liability company in 1854 and expanding its textile interests alongside its paper production. It bought up forests in southeastern Sweden and established a newsprint mill around 1912. After World War II, the Swedish textile industry gradually ceased to be profitable, and in 1970 Holmens left the industry to concentrate on newsprint.

Iggesund Bruk, by contrast, was a leader in paperboard production. It dated back to the 17th century, when an iron works was founded that went on producing until 1953, while a steelmaking plant continued to operate for a further 30 years. The group's involvement in the forestry industry began early in the 20th century with the establishment of a sulfite pulp mill and a kraft pulp mill, and the acquisition of a sawmill in Hudiksvall. During the 1960s sulfite pulp production was abandoned, kraft pulp production was expanded, and the production of paperboard began, with a view to supplying the packaging and graphics industries. The group acquired forests and built up interests in steel, engineering, and chemicals through a series of acquisitions. By the late 1980s, however, Iggesund had divested itself of all its nonforestry interests apart from a 50 percent holding in a steel firm. Its main product continued to be paperboard, along with some output of pulp and high-quality wood for the furniture and building industries in Western Europe. Mo och Domsjö's acquisition of the U.K. firm Thames Board Ltd. in 1988 strengthened its position as one of the leading producers of high-quality paperboard in Europe.

MoDo's purpose in taking over Holmens and Iggesund was to create a third giant in the Swedish forest industry, challenging the first- and second-ranking groups, Stora Kopparbergs Bergslag AB and Svenska Cellulosa AB (SCA), by diversifying its output. In the late 1980s the MoDo Group also had interests in 25 companies, which, because the group had only 20 percent to 26 percent of the voting shares, were treated as associated companies.

MoDo showed increased profits in 1987 as the price of pulp rose. In 1988 MoDo decided to sell off its soft paper division to the Finnish company Metsä-Serla Oy. Although this division's domestic market share was significant, the company's leaders felt that its share of the European market as a whole was not sufficiently large to justify its existence as a diversification, and that it would be wiser to concentrate on the profitable fine paper and newsprint divisions. In 1989 MoDo showed a drop in sales, but a rise in profits, owing to the sale of the soft paper division.

MoDo and the Swedish forest industry in general were affected by the general movement in Sweden toward reducing environmental damage. Strict regulation by the Environment Protection Board led the industry to clean up its operations, to such an extent that several lakes "killed" by forest industry effluent became biologically active again. Nevertheless, MoDo's adoption of more environmentally friendly methods such as oxygen bleaching preceded government regulations, and the company was seen as a pioneer in the use of environmentally safe production techniques.

Seesawing Fortunes in the 1990s

The pulp and paper industry suffered through a global recession in the early 1990s, with MoDo consequently posting only a small profit in 1991 and net losses for both 1992 and 1993. The company enacted a number of cost-saving measures during this period, including the closure of a pulp mill and the shutdown of a production line at another mill. MoDo also did not pay a dividend for either 1992 or 1993. MoDo completed one major acquisition during the period, paying FFr 1.46 billion ($250 million) in 1991 to purchase the 83 percent of Alicel/Alipap vid Rouen it did not already own. Alicel/Alipap was a French maker of fine paper.

The early 1990s also saw the formation and abandonment of an alliance between MoDo and SCA. In December 1990 SCA purchased a 32 percent share of the voting rights in MoDo stock. The strategic alliance was forged to promote collaboration in printing, paper production, and joint investments in paper mills. The alliance never really led anywhere, however, as the two companies could not reach agreement on exactly how to collaborate. In September 1992 SCA announced that it was abandoning the alliance, and by early 1995 it had divested itself of all of its MoDo holdings. A large portion of the shares were sold to L E Lundbergföretagen AB, a Swedish brokerage firm headed by Fredrik Lundberg. This company already had a 26 percent voting share in MoDo, and it thus increased its share to a dominant 46 percent.

In August 1994 Bengt Pettersson replaced longtime chief executive Bernt Lof. Pettersson had been the head of Stora Billerud, a packaging unit within Stora. MoDo returned to the black in 1994, bolstered by higher prices and high capacity utilization, and also resumed paying a dividend. Early the following year, MoDo sold its MoDo Packaging unit to AssiDomän of Sweden for SKr 1.2 billion ($167 million). The unit included a pulp and paper mill in Sweden that produced packaging paper and two paper bag companies in the United Kingdom and Germany. Around this same time, MoDo also sold off stakes in the Swiss packaging group RIG Rentsch and the Slave Lake Pulp Partnership in Canada. The funds generated by these divestments helped finance plant investments, including a SKr 2.1 billion outlay on a new newsprint machine, and reduce the company's extremely high debt burden.

During 1995, the industry enjoyed one of its best years since World War II, and MoDo saw its pretax profits skyrocket to a record SKr 5.22 billion ($761.6 million), nearly triple the figure for the previous year. Price increases were the chief reason for the stellar results, and falling prices were blamed for the declines in profits that were recorded in both 1996 and 1997. MoDo recovered in 1998, posting increases in both revenues and profits, although not to the levels reached in 1995.

Focusing on Newsprint, Magazine Paper, and Paperboard As Holmen in the Early 2000s

In early 1999, MoDo outlined a new company strategy whereby it would concentrate on newsprint and magazine paper, through its Holmen Paper subsidiary, and on paperboard, through the Iggesund Paperboard unit. With a strong balance sheet in place, MoDo also announced that it would pay its shareholders a special dividend totaling SKr 3.11 billion ($402 million), which was equivalent to one-quarter of the firm's market capitalization. The company declared, as well, that it would seek an alliance or merger for its fine paper operations, which had been hit hard by volatile demand in southeast Asia and Russia. In April 1999 MoDo and SCA reached an agreement to merge their fine paper operations into a new 50-50 jointly owned company to be called MoDo Paper. The new firm, which began operation in September 1999, was the third largest fine paper group in Europe. In conjunction with this transaction, MoDo also completed its exit from the pulp market by selling off its sulphite pulp mill in Domsjö in early 2000.

Also in early 2000, Pettersson stepped down as chief executive of MoDo although he remained on the company board. Replacing Pettersson was Per Ericson, who had most recently served as president of Sandvik Steel. To differentiate itself from MoDo Paper, Mo och Domsjö changed its name to Holmen AB, adopting the name of the newsprint and magazine unit, the company's largest operation. Holmen and SCA also announced that they would make MoDo Paper a publicly traded firm, with SCA selling 35 percent of the shares through a public offering and Holmen distributing 35 percent to its shareholders. This plan was called off in March 2000, however, because of adverse conditions in the stock market. Then in May, both companies agreed to sell their 50 percent interests in MoDo Paper to Metsä-Serla, with the transaction completed in August. Metsä-Serla paid Holmen SKr 6.5 billion ($737 million) for its half-interest, resulting in a capital gain for Holmen of about SKr 2 billion. Part of the proceeds were returned to shareholders in the form of a special dividend and part was earmarked for investing in the company's remaining operations. Even prior to the completion of the sale of MoDo Paper, Holmen finalized the acquisition of Papelera Peninsular from the Spanish company Unipapel for about SKr 2 billion ($231 million). Holmen gained a newsprint mill located south of Madrid that was completed in mid-1998 and that had annual capacity of 200,000 metric tons.

Continuing its drive to invest in its core areas, Holmen announced in November 2000 that it would spend SKr 1.85 billion ($183 million) to replace an old machine at its Hallsta mill in Hallstavik, Sweden, with an improved and higher capacity machine for producing high-quality magazine paper. The new machine was brought into production during 2002. In November 2001, meanwhile, Ericson resigned from his position as chief executive, having apparently been a poor choice for the job. Göran Lundin, who had previously headed up Holmen Paper, took over as president and CEO. Lundin was expected to continue to seek ways to bolster Holmen's core activities through both organic growth and acquisitions.

Principal Subsidiaries: Holmen Paper AB; Iggesund Paperboard AB; Iggesund Timber AB; Holmen Skog AB; Holmen Kraft AB; AB Ankarsrums Skogar; Domsjö Klor AB; Fiskeby AB; Haradsskogarna AB; Harrsele Linjeaktiebolag; Holmens Bruk AB; Husum Copy AB; AB Iggesund Bruk; Lägernskog AB; MoDo Holding AB; MoDo-Iggesund CTMP AB; MoDo Forest Management AB; Skärnäs Terminal AB; Ströms Trävaru AB; AB Överums Skogar; Holmen UK Ltd.; Holmen France Finance SAS; Holmen France Holding SAS; Iggesund Paperboard Asia Pte. Ltd. (Singapore); Holmen Suecia Holding SI; Holmen Espana SI.

Principal Competitors: Abitibi-Consolidated Inc.; Norske Skogindustrier ASA; Stora Enso Oyj; Nippon Unipac Holding; UPM-Kymmene Corporation.

Chronology

  • Key Dates:
  • 1836: J.C. Kempe becomes sole owner of a water sawmill at Mo, Sweden.
  • 1865: Kempe builds a stem-driven sawmill at Domsjö, near his other mill.
  • 1873: Kempe establishes Mo och Domsjö AB (MoDo).
  • Early 1900s:[fsps*2.5]Company builds a sulfite pulp mill at Domsjö.
  • 1919: Production of kraft pulp begins.
  • 1951: MoDo begins producing fine paper at a new mill in Hörnefors.
  • Late 1960s:[fsps*2.5]Company begins producing its own paper from its own pulp.
  • 1972: A new plant is opened in Husum that integrates production of fine paper and kraft pulp.
  • 1988: MoDo acquires Holmens Bruk, a leading Swedish producer of newsprint; Iggesund Bruk, a leading Swedish paperboard producer; and Thames Board Ltd., a U.K. paperboard manufacturer.
  • 1999: MoDo and SCA merge their fine paper operations into the new 50-50 jointly owned MoDo Paper.
  • 2000: Mo och Domsjö changes its name to Holmen AB; SCA and Holmen sell their 50 percent stakes in MoDo Paper to Metsä-Serla; Holmen acquires Papelera Peninsular, operator of a newsprint mill south of Madrid.
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