Interview with Luigi Lazzareschi

Maura Leonardi

“It is our duty and responsibility to make sure that the extraordinary characteristics of this area, its know-how and ability to innovate will not be lost or become land of conquest by foreign entities”.

We met with Luigi Lazzareschi, CEO of the Sofidel Group.

He told us the story about what is today a global reference name for tissue, about his business vision and the future of the industry. Sofidel was born in 1966 thanks the entrepreneurial spur of Emi Stefani, current President of the Group, and of the late Giuseppe Lazzareschi, Luigi’s father.

What are the mainstays that have made Sofidel a world giant in the field of tissue?

I think there are three points we have built our success on: belonging to a strong paper district, the quality of our systems and internationalization. We are proud of our belonging to Lucca’s paper district and consider it an added value to be born in this area where - thanks to the dedication and talent of many entrepreneurs and workers - paper production and converting have attained such high levels. Having modern, high-performing systems is another of the Group’s strong points, for the advantages that this ensures both in terms of production and limiting environmental impact. The third success factor is internationalization, an ongoing process begun in the 1990s. The possibility of producing near our customers - and I’m referring mainly to the large European retail chains - allows us to raise the quality of the service we offer, to reduce logistics costs, to better defend ourselves against the economic cycles of each individual market, to crate scale economies. Today, we are present in 13 countries with 32 facilities strategically located near our customers, above all in Europe. Vicinity to our customers was the choice that allowed us to conquer new markets that were otherwise inaccessible.

Destination: the States. Sofidel is the first Italian tissue company to go to America in search of fortune.

About a year ago we decided to purchase 100% of Cellynne and its three production plants in Florida, Wisconsin and Nevada. Cellynne - today Sofidel America - has a turnover of 165 million dollars and represents 7% of our total dimension. For us, it was a “historic” step. The US market is the most important tissue market in the world in terms of per capita consumption and hence a great spur for growth and a fascinating challenge that we intend facing with deference and determination. Strong of the experience matured in Europe that - with due adaptation to the specific peculiarities of the new market - we would like to partially replicate, we have set important targets for ourselves in the USA. 90% of our production capacity is today dedicated to the AFH segment. Among the immediate goals is the increase in volume and attention to the consumer market, where we feel our growth will mainly be. We are not, however, abandoning Europe where we are continuing to invest, as demonstrated by two recent acquisitions. One concerns some activities of former Georgia Pacific relative to the Thirst Pockets, Nouvelle Soft, Kitten Soft and Inversoft brands in the UK (including the Horwich converting facility) and of the licenses for use of two leading brands in Benelux: Lotus Moltonel and Lotus. And also the one concerning former NTG, the renowned English paper mill that has allowed us to increase our production capacity in an important market such as the British one. Other important investments are currently being made in France (biomass plant at the Nancy facilities, editor’s note) and in Sweden (new converting facility in Kisa, editor’s note).

What does being innovative in the tissue market mean today?

From the point of view of product innovation, in the last few years the industry has not been particularly able to propose important novelties. In the near future, we do not expect to create significant technological innovations, but will focus on consumer mapping and segmentation based on needs in order to identify specific products that can satisfy a broader range of demands. In this sense, our Research & Development office is working full force and in 2014 we intend launching some new products on a European level.

There is also another front we are busy on, and that is sustainability. We have chosen the concept “Less is More” as a source of inspiration for the Group’s commitment on this front and through it, we want to express our attention to consumption and waste reduction that translates into offering higher performing products, optimal also under the sustainability aspect, too. In the United States, consumption levels are much higher than in Europe, American consumption habits are very different from ours. For example, the paper used in the States has features that lead to use more of it than would be necessary. We would like to go against this trend. Top commitment to give our stakeholders “more” in terms of products, values and service, and “less” in terms of energy or water consumption, for example, of use of raw materials, of the production of climate-changing gases, in terms of price, waste, of any kind of negative impact.

What are the dimensions through which you assess growth?

The Group has grown by constantly monitoring its performance on the three variables that decree the success of a given activity. The first, growth - which in our case is by market shares, volumes, employees and geographic coverage - has been constant in last 20 years. The second factor concerns economic results, and Sofidel has a good EBITDA and its figures are above market average. The third is social return, benefits in terms of the wellbeing that our company produces. Sofidel is attentive to this aspect.

What is corporate social responsibility to you?

Regarding the impacts that our company produces, the question is basically: does our presence have a positive effect on the social fabric in reference?

Working in a field having a high impact on the environment since it requires lots of energy and water to operate, the theme of environmental sustainability in particular is central.

How do you operate in this realm?

We make efforts to reduce the production of climate-changing gases, adopting responsible supply policies for the raw materials and optimizing the use of water resources. As far as the first front is concerned, as the first Italian company and first in the world in the field of tissue, we joined the Climate Savers program. It is a program that sees the voluntary participation of 30 companies that define, together with the association, objectives related to reduction of direct and indirect CO2 emissions. Companies adhering must put forth innovative technological and production improvement solutions capable of substantially reducing their emissions. In 2012, after an investment of over 25 million euro, Sofidel kept faith to the commitment undertaken, reducing its emissions by 11.1% compared to 2007. To have a better idea of this target, it means about 186,000 fewer tons of CO2 in the atmosphere, more or less equivalent to the quantity issued by the electricity consumed by 150,000 Italian families comprised of 4 people in one year. An important and ambitious goal, above and beyond what is required by current norms. In obtaining these results, we were favored by the fact that we could count on manufacturers of paper mill and converting machines who accepted our invitation to develop solutions to optimize the production processes at our plants.

At the same time, we have made some investments in cogeneration plants and in the field of renewable energy with two hydroelectric power stations and three photovoltaic plants, and were able to count on a biomass plant in Sweden. We are currently building another one in France, as I mentioned before. Currently, together with the WWF, we are defining the targets for the coming years that must keep the Group’s increased size and its activities into account. As far as raw materials supply policies are concerned, in 2012, 99.8% of the cellulose we purchased came from certified or controlled forests pursuant to the Chain of Custody certifications FSC, PEFC and FSC-CW (FSC Controlled Wood). As for reducing the use of water, our average consumption is currently 7.6 liter per kg of paper produced, a much lower figure compared to standard consumption in the field that we would, however, like to reduce even further. That’s why we are making some consistent investments such as the at the Delicarta facilities in Porcari (Lucca), for example.

Lucca is the land of tissue and embodies know-how, history and technology. How do you envision the field and its potential in the near future?

The district was born thanks to the farsightedness of great entrepreneurs who, in the 1960-70s with their talent, courage, ability and hard work developed it to a leading-edge position. It is our duty and responsibility to make sure that the extraordinary characteristics of this area, its know-how and ability to innovate will not be lost or become land of conquest by foreign entities. Entrepreneurial culture will play a foundational role in maintaining the leadership of this unique network in the world. Lucca is making a strong effort to sustain entrepreneurial culture through initiatives like the Master Cartario Celsius course, for example, supported by local companies. The course is becoming international, opening its doors also to other countries such as France and Sweden.

What are the drivers of the tissue field today?

For many years paper was considered a commodity and attention was focused mainly on production and quantity. A phase where the main driver was technological innovation. Today, I think the consumer is taking on greater importance. It is the consumer who has a driving role in the market.

It is the consumer who induces producers to meet the most specific demands, to request particular performances, to show new sensitivity - towards the environment, for instance.

The tissue market is a very competitive scenario. What are your points of strength?

If the market was once product-centered, today it is characterized by the centrality of the consumer. It is hence indispensible to dialogue with consumers and to get to know them in-depth in order to offer what they really want and really need. The same holds true for our other interlocutor, large retail chains. Dialoguing, listening, transparency, service culture are for us a primary and constant commitment. Just like our commitment to sustainability, that we consider an extraordinary lever for growth and competitive development. Something that we use more, however, in communication towards the retail segment or in the institutional scenario, looking for collaborators and common goals, than in product communication. To this end, we have drafted a Sustainability Charter that defines our principles, objectives and interlocutors, and a Decalogue that, with transparency and clarity, renders the ten main advantages that we expect public.

You are present in several countries very different in terms of culture: how did you manage to integrate them in Sofidel’s ecosystem?

We have tried to become more international compared to 10 years ago, for example by adopting English as the common language. We have also tried not to impose our culture too much, letting local people manage our facilities abroad after working alongside Sofidel personnel. Still today, it is not so easy to communicate with everyone. In the USA, for example, the 330 people we employ belong to 27 different nationalities. Of course, multi-ethnicity is also seen as an opportunity because it generates stimuli, comparison and innovation.

The economic context has changed. How can companies be competitive today and how are they facing market challenges?

I would summarize by saying that today, the real challenge lies in quality and not in quantity. Yesterday, producing was important. Today, selling is, and in a highly competitive market where price risks becoming the only choice factor, consumers’ preferences must be determined by quality and by the ability of a company to propose products that satisfy their need and demands.

What about the role of private labels? How are they competing with brands?

Today in Europe private labels represent 60% of total production, an important market share that is still growing. PLs have their own identity and their competitors are no longer just branded products but also other private labels. Before, the PL competed with the market’s leading brand, now it must also deal with other PLs by other retailer chains. This triggers price wars, leads to more daring marketing and, in the future, to a greater segmentation of the offer based on the target. In the USA, private labels carry less weight compared to Europe - about 25% of the market - but this figure is growing at a fast rate. In the next decade, private labels will grow substantially and this implies structural changes in US tissue production that Sofidel will be closely following.

Let’s conclude with some hypotheses for the future of the field.

Globalization has greatly changed the production structure of the field. The tissue market is opening up more and more; there are many more players today than there were ten years ago. The general picture thus sees a growing number of producers involved in several different markets simultaneously. Asian, Middle Eastern and South American producers, for example, are going beyond their borders into new markets. In this context I think that for the market, for the consumers and the community where facilities are located, we must hope that competition be fair and based on acceptable standards from an economic, social and environmental point of view. That competition exists, of course, but that it be based on healthy principles, and not on social or environmental dumping or favored by unethical practices. *

Sofidel’s Sustainability Decalogue

Why sustainability makes sense:

1. Cost reduction

Relying on renewable sources, increasing plant efficiency, cutting energy consumption and the use of environmental resources and reducing polluting emissions – these are all factors that translate into savings and improved economic efficiency.

2. Motivated personnel and qualified workers

When on equal pay, working for a company that is attentive to social and environmental issues is more satisfying. A better and safer working environment also increases trust and team spirit and creates the right conditions for workers to perform at their best.

3. Access to tax breaks

Governments and public institutions come down hard through the tax system on companies with poor environmental records whilst sometimes offering tax breaks to those companies that invest in measures that curb their environmental impact and guarantee sustainable development.

4. Higher market standards

Investing in sustainability helps improve market standards and makes it more difficult for companies to resort to unfair competitive methods. It acts as a safeguard against social and environmental dumping, i.e., companies flooding the market with products at rock-bottom prices, while providing fewer guarantees to their workers or not complying with existing environmental regulations.

5. Consumer satisfaction

People are more concerned about environmental resources and the consistency in the behaviour of businesses. A commitment to sustainability helps provide answers to these new concerns and needs.

6. Responding to clients’ needs

A company that is committed to sustainability can also respond more readily to the environmental and social qualification criteria that the public administration and clients build into their purchasing procedures. Simply put, you are more likely to win supply contracts and, therefore, be in a better position to develop solid, long-lasting work relationships.

7. Anticipating more stringent regulation

Sustainability is a very powerful cultural lever of technical and organisational innovation that enables you to pre-empt legal requirements. This helps reduce operating risks, improve the dialogue with public decision-makers and gives you a competitive advantage.

8. Increased credibility and trust

A business that operates in a sustainable way is a business that is working towards becoming fully transparent. Responsibility and transparency are complementary dimensions of sustainability that help build credibility and relationships based on trust.

9. Accessibility to capital

Sustainability indicators and parameters help facilitate access to financial markets.

A sustainable business is a business that can boast competitive advantage when negotiating with banks and financial institutions.

10. Enhanced reputation

Stakeholders increasingly judge companies by the values that they believe in. This is why being committed to sustainability can also enhance your reputation and improve the way stakeholders perceive the company. A good reputation is a fundamental resource that can significantly help create added value for both the brand and the company.

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