As part of a strategy to diversify in the pulp and paper industry, gPS (Grupo PortucelSoporcel) recently bought the young, successful tissue producer AMS Paper. In addition, gPS simultaneously announced it would add a large machine at its Cacia eucalyptus pulp mill to start tissue production there.
Hugh O’Brian
In what appears to be a possible move to become a big player in the tissue business, Portugal’s Grupo PortucelSoporcel (gPS) made a major entrance into tissue production last year when it bought the AMS tissue mill in Vila Velha de Ródão, in the east of Portugal. At the same time, further emphasizing the focus on tissue, the company said it would integrate one of its other eucalyptus pulp mills, at Cacia, with a 70,000 ton per year tissue machine which would start up in the second quarter of 2017.
Previously gPS had been mainly focused in the uncoated wood-free paper grades such as copy papers, made mostly from eucalyptus pulp that it produces at its three pulp mills in Portugal. These are located at Setubal, Figueira da Foz and Cacia, with large printing paper machines located at the first two mills.
The move into tissue is part of gPS’ larger strategy to diversify and balance its businesses, likely to reduce its dependence on uncoated wood free papers. Two other large investments underway include the planting and eventual harvesting of eucalyp-tus trees in Mozambique, where a pulp mill will possibly be built around 2022, and a plant in South Carolina, USA which is making wood pellets.
TISSUE LOOKS APPEALING FOR SEVERAL REASONS. José Miranda, who was CEO and one of the founders of AMS, has subsequently become the head of the tissue business for gPS. He believes that the move into tissue by gPS makes a lot of sense.
“Tissue offers the group growth opportunities in a new and growing paper sector; it’s also a market that’s got clear syner-gies with the market pulp mills; and it is a paper category with quite good profitability as well. At AMS since we started operations in 2009 we have had very good profitability in the range of 20% EBITDA. And we have grown every year both in sales and profitability. I think all those factors were clearly appealing to PortucelSoporcel.”
The acquisition of AMS gave gPS not only a very modern tissue mill at Vila Velha, very close to the Spanish border, but also access to the young and dynamic AMS management team. Clearly AMS competence in tissue will be important as gPS develops in the sector.
To allow integration of the Cacia mill, gPS has over the past year carried out an expansion there of the pulp capacity which was increased by about 70,000 tons to 350,000 tons per year of eucalyptus. The tissue project there includes a “double” machine, and equivalent converting capacity, in an investment that is expected to cost about €120 million.
AMS MILL IS ALREADY INTEGRATED WITH PULP LINE. This business model of direct integration of pulp making into tissue production is quite rare, with only a few mills in the world being directly tied to a pulp mill. In fact, AMS is one of those mills as it has a 1.8 km long pipeline to the adjacent Celtejo pulp mill, which is owned by the Altri Group which has three pulp mills in Portugal and is essentially a competitor of gPS. Miranda tells how that came about.
“When we started AMS my basic premise was to do something that was different from the others. One thing led to another and we ended up building the new tissue mill integrated with an existing eucalyptus pulp mill. I thought it might offer some interesting economic and supply advantages. And it has.”
Miranda had quite a bit of experience in tissue, dating back to 1994, before going out on his own to create AMS around 2007. He started his career in the very small Portuguese tissue producer called Nisa, which was eventually bought by SCA. From there he moved up into various management positions at SCA, eventually winding up in Spain. However in 2007 he decided he wanted to leave and explore his own tissue producing project.
“I left SCA and took a year to plan my project. I was living and working in Spain at that time but came back to Portugal where I thought the market opportunities were better. When I started AMS I only invited two people with tissue making experience to participate in the company. That was intentional; I wanted a fresh look.”
The first investment in 2009 was one paper machine and three converting lines, at a cost of about €50 million. The PM 2, which was completed in September 2015 with the start of the mill’s second PM, had a budget of about €40 million. It also included two converting lines, one starting in July 2014 and the other one in September. Total paper is now 60,000 tons per year, and 65,000 converting.
RISK? CRASH? LET’S GO! “I know”, says Miranda, “the normal way is to start with converting, and then integrate back into papermaking. However, we decided we had found a market opportunity in Iberia, but we needed to control the entire supply chain, specifically our paper supply. So therefore we started with both paper and converting in 2009. We had good investors behind us, who weren’t afraid of risk, a calculated risk. Starting up in 2009, just after the financial crash (sometimes called the Great Recession), was not the best timing. But we just said let’s go, and have been going ever since.”
Miranda says 2015 sales were about €58 million, and for 2016 with the new machine running for the full year they should have €75 million in sales. The main markets are Portugal and Spain for about 95% of its products, which are both brands and private label. The away from home/consumer balance is about 60% away from home and 40% consumer. AMS makes mainly private label tissue for retailers in the consumer segment. In AfH they are about 50% own brand and 50% private label, with AMOOS being AMS’ biggest brand.
MANY NAMES, MANY OWNERS . . . The name AMS is a combination of the names of the original investors in the project. Miranda says that “We have changed the company name several times according to the shareholders at that time, but the AMS part has always been retained.”
Goma Camps, of Spain, was involved as an early partner having joined in late 2008 when the initial project was already moving along but production had not started. In 2014, all the AMS shares were sold to another investor that took 100% of the company. Shortly thereafter, in 2015, the company was sold to Portucel, when the PM 2 project was going full speed.
Both paper machines are from Toscotec with the model name AHEAD-2.0S and Miranda says they both are running amazingly well. “We have a very good relationship with Toscotec. It’s not a typical relationship of supplier and customer; instead it’s a team. They support us perfectly well. PM 1 worked great so for the second one we decided to use Toscotec and are very happy with that decision.”
. . . BUT ONE PHILOSOPHY ABOUT PEOPLE AND EMPOWERMENT. People play a very important role in the philosophy of AMS, states Miranda. “From the start, we have always strongly believed that our main asset is the people we employ. Everything we do has to have a very targeted focus on people, especially in empowering them and building a very strong team. Once that is done we trust people and let them decide; they don’t need other people to decide for them.”
“We also believe in doing things in a very simple way; don’t get complicated. We don’t need to spend hours making Power-Point shows simply for showing them to each other for endless hours. We make fast decisions and get going. People like that.”
As confirmation of those statements, Miranda points to the fact that AMS has during each of the past three years been listed as one of the Top 100 companies in Portugal to work. In addition, the company received a European Community entrepre-neurship award in 2014.
MISSION TO CREATE VALUE FOR ALL STAKEHOLDERS.
AMS has also been clear about creating value. “We need to give value to our stakeholders, and to each of our 220 employees, to our suppliers, our community and everyone associated with our business. We don’t squeeze our suppliers unnecessarily; we see them as partners that we want to give value to, and they should give us value. If you don’t do it that way, you will end up working with the worst suppliers, which is not a good position to be in.”
“We are also very careful with our money. I am an engineer. I believe an engineer can learn good financial and management skills, which I think we have, and use them well. We have a very modern mill but we don’t waste money. When we install a converting line, for example, we analyze every single component, dividing the equipment into each part of the investment to decide what’s necessary or not. We don’t bury extra costs in our budgets; instead we do a real financial engineering analysis. It works well for us.”
Regarding the Celtejo mill next door, which is now owned by a competitor to gPS, Miranda is clear: “It’s business as usual. Our pulp supply from the mill next door will not change. We are an important customer, and they are important supplier. We are not going anywhere and neither are they.” *