Vinda accelerating rate of expansion to keep top spot in China

Rapidly growing demand and a desire to stay in the lead have China’s biggest tissue producer pushing an ambitious investment program.

Hugh O’Brian

Let there be no doubt about it: China’s largest tissue producer, Vinda, fully intends to maintain its number one position in the dynamic Chinese tissue market. It is presently undertaking a fast-paced expansion plan that calls for several new paper machines a year for the coming years, meaning Vinda’s capacity will double from 150,000 tons per year as of mid-2006 up to 300,000 by the end of 2008.

“We now have the platform in place to increase our rate of expansion compared to the past few years,” says Mr. Li Chaowang, the president of Vinda. “So this combination of people, capital, market growth and infrastructure will allow us to expand at about 40-50,000 tons per year for the next few years. The Chinese market of around four million tons is growing at about 9% per year, while at the same time many of the smaller low-quality mills, which still supply about 80% of all tissue used in this country, are being closed because of environmental concerns. So we feel comfortable that we can manage the planned expansions and that the market will be able to absorb the tonnage.”

Vinda got started in 1985 when Mr. Li saw an opportunity to produce tissue products in southern China. Previously, he says, most tissue was made in the north of China and shipped to the south. But by establishing production in the south, he felt he could gain a big share of the market.

Thus the first converting lines were started in 1985 and following this success, the first tissue machine, a 2.4-m wide Kawanoe unit, was added in 1992, making 20 tpd. A second 2.7-m Kawanoe machine for 43 tpd was added in 1994 and in 1999 Vinda installed a machine from the American supplier Beloit, which was then the highest technology tissue machine in China. That machine presently makes about 100 tpd and is now running at 1,900 m/min.

STEADY GROWTH IN SMALL INCREMENTS. A key to Vinda’s intelligent and successful expansion strategy over the past 20 years has been to add capacity in relatively small increments of 10,000 or 20,000 tons at a time based almost exclusively on tissue machines supplied by Kawanoe of Japan. By adding tonnage in a smart manner, which allows the market to absorb the tonnage without throwing it out of balance, Vinda has grown since its start in 1985 to become the leading brand on the Chinese market.

Vinda presently has tissue production at five mills located in various parts of the country. The company’s headquarters is located in the town of Xinhui in Guangdong Province, just above Hong Kong. The five mills are located in Xinhui, Hubei, Beijing, Sichuan and Jiangmen near Xinhui. In total the company right now has 10 paper machines. But more are coming.

In fact, the company is putting in new paper machines so rapidly it is a little difficult for an outsider to keep track. The original mill at Xinhui has three PMs but no more space for expansion. The nearby Jiangmen mill, which opened in 2005 due to the lack of space at Xinhui, presently has two machines, started in 2005 and 2006. Two more will be added soon, in March 2007 and June 2007.

The Beijing mill has one PM, with two more planned, one for late 2006 and another in 2007. The Hubei mill has three now and two more starting in late 2006, while the Sichuan site has one PM and another to be started next year. So the plan is for capacity to go to 180,000 tons per year at end-2006, rising to 240,000 tons per year by mid-2007 and then hitting 300,000 tons per year at the end of 2008.

Mr. Li says that once this plan is completed it will then most probably move ahead with mills number 6 and 7 in China, probably around the Shanghai area as well as in the northeast of the country.

BRANDS ARE KING. Mr. Li, who comes across as a modest and down-to-earth manager, says he is very proud that the Vinda brand has been recognized as one of TOP 100 brands in China according to the 2005 national rankings. Vinda is by far the leading tissue brand in all of China as it is the only tissue product on the TOP 100 list.

The group is clearly focused on its brand as it sells approximately 95% of its present tonnage under the Vinda brand name. It makes no private label tissue, with the remaining 5% of its production sold to the away-from-home market, mainly to restaurants and hotels as napkins imprinted with their logos.

Tissue is Vinda’s only business area, accounting for essentially 100% of its sales, as the company has taken the careful decision not to diversify into other areas such as personal hygiene products. The reason, says Mr. Li, is that “our philosophy is to be number one in tissue. We want to focus entirely on that goal and not get distracted by other objectives. Therefore we will focus only on tissue and this will not change in the future.”

As far as product breakdown, output is presently about 70% toilet rolls and 30% other products such as hankies, facial tissue, napkins and some kitchen rolls.

For the future, Mr. Li is hoping to increase production of both kitchen towels and industrial rolls. One has to think that with some creative marketing aimed at educating Chinese consumers about the utility, convenience and hygienic benefits of kitchen towel that demand could take off as household incomes rise, especially in the coastal regions of China.

CLOSE RELATION WITH KAWANOE. Kawanoe has to date supplied all but one of Vinda’s 10 paper machines. The reason for choosing Kawanoe, says Mr. Li, is that the design allows high quality tissue making with lower energy usage per ton of paper compared with other machine configurations. In addition, the fact that the Kawanoe machine can be economically added in increments of 10,000 or 20,000 tons has been very important in allowing the market to adsorb the tonnage efficiently. The relation between the two companies has been so close that they have a technology cooperation agreement.

In mid-2007, when Vinda has reached 240,000 tons per year capacity, it will begin evaluating the possibility of installing bigger machines as it seeks to ramp up capacity for the next growth phase. Says Mr. Li: “We are already talking with the top machine suppliers as we start the evaluation process to see if it makes sense to grow in increments of maybe 30,000 tons per year. We do have the one Beloit machine of that size but don’t feel that it offers any advantages over the smaller units. Maybe the newer designs will be different.”

Vinda has also in recent years made an important change with respect to converting and wrapping equipment as it has installed Fabio Perini SpA and KPL Packaging SpA machines, while it had previously relied heavily on Taiwanese equipment. “We started buying Perini and KPL Packaging lines recently because of two things. First, they established a large service and sales organization in China which made us more comfortable as far as support. And secondly, they launched a new machine series tailored for the Chinese market, making it more affordable and applicable for us in some cases.”

Among the Perini converting lines added are four Sincro 4.0 lines. One started up in 2005 in the Hubei mill, and three more coming this year, with one set for the Hubei mill and two going to the Jiangmen mill. In addition, five local KES Concept X lines have also been added. The new packaging machinery, either already installed or on order, includes over 30 sets of CMW111 single wrapping machines, as well as the T100 new concept multi-wrapper and CMB202 bundler.

FUTURE PLANS MAY INCLUDE IPO. Vinda is presently majority owned by the management team with this group, mainly Mr. Li, holding 53% of the company. Another 27% is held by Hong Kong investors while the remaining 20% was purchased last year by an American investment fund, Cathay Capital.

“As we were developing,” says Mr. Li, “we thought it might be nice to have additional capital accessible for the expansions. In addition, we may possibly do an IPO of the company in the coming years so we feel it is good to have the expertise of a professional investment fund available if we go through that process.”

In the meantime, the top priority is to stay number one in China. Mr. Li says he expects that in the coming 10 years or so the market will be led by four or five big companies making 500,000 to one million tons per year. In addition, he expects many of the small mills to close, as they are polluting and uneconomical. This is clearly already happening.

“Perhaps the biggest challenge,” says Mr. Li, “will be to avoid crashing the market by adding too much capacity in the same place at the same time. The Chinese tissue industry needs to be smart about capacity additions so we don’t sink the market through a foolish investment which is too big for the market to handle.” •

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