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PAPER PACKAGING FIRM JCP BENEFITS FROM SWEDISH BUY

Company Profile: AssiDomän Packaging, a.s. Štúrovo

JCP a.s. Štúrovo, Slovakia's largest producer of fluting and packaging paper, announced a few weeks ago its merger with one of the world's largest wood processing groups, the Swedish firm AssiDomän AB, who last January acquired a 91 percent stake in JCP.
The Štúrovo plant is AssiDomän's only Slovak daughter, adding 160,000 tons of semi-chemical fluting to the product portfolio of AssiDomän Packaging, the biggest division of the group.
AssiDomän (AD) ranks among the top ten forest products companies in Europe, with production focused on packaging paper, packaging and sawed timber, generating 1996 sales of 19.3 billion Swedish crowns (SEK - $2.44 billion) and net after-tax profits of 1.4 billion SEK ($177 million). It employs more than 18,000 people, sixty percent of whom live outside of Sweden.


JCP's new general director, Marián Slo

JCP a.s. Štúrovo, Slovakia's largest producer of fluting and packaging paper, announced a few weeks ago its merger with one of the world's largest wood processing groups, the Swedish firm AssiDomän AB, who last January acquired a 91 percent stake in JCP.

The Štúrovo plant is AssiDomän's only Slovak daughter, adding 160,000 tons of semi-chemical fluting to the product portfolio of AssiDomän Packaging, the biggest division of the group.

AssiDomän (AD) ranks among the top ten forest products companies in Europe, with production focused on packaging paper, packaging and sawed timber, generating 1996 sales of 19.3 billion Swedish crowns (SEK - $2.44 billion) and net after-tax profits of 1.4 billion SEK ($177 million). It employs more than 18,000 people, sixty percent of whom live outside of Sweden.

Paper vikings go southeast

After the 1994 merger of two Swedish giants Assi, a paper and fluting producer, and Domän, the biggest forest owner in Sweden, the group continues to expand all over Europe by entering new markets and building or purchasing new production sites. The company's flexibility seems surprising given that it is 51 percent state-owned.

Now the paper vikings seem to be determined to conquer central and eastern Europe. Over the past two years, AssiDomän has acquired eight papermills in the Czech Republic and has begun building new ones in Poland and Russia. In the latter country, AssiDomän acquired the biggest paper producer, Segezhabuprom. Elsewhere in the region, the Swedish company recently became a market leader in Slovakia with its purchase of JCP, from where it will serve regional clients from the Štúrovo plant.

AD officials explain their southeastward drive simply: they follow their Western customers who moved their own production to the region and expect to get the same service at lower costs. The packaging industry in central and eastern Europe was particularly neglected in the old planned economies and therefore, AD officials believe, rapid growth can be expected (the average consumption of paper packages per capita in western Europe is 37kg, while it's only 7kg in eastern Europe).

Long-awaited takeover

Since 1991, when 70 percent of JCP's shares was sold during voucher privatization to investment funds and retail investors, JCP has been looking for a strategic investor who would take the responsibility for serious long-term decisions.

According to JCP's former general director, Juraj Kučera, this waiting dragged the firm into troubles. In 1996, a so-called "white program" - card boards and fluting - generated a loss of 220 million Sk, causing overall net profit to slide to 8.4 million Sk, a mere 5 percent of the firm's 1995 profits. The original business plan for 1997 envisioned continuous downfall in both production and number of workers, as Kučera said about 300 people were to be fired. Moreover, production capacities were used at only 80 percent.

But even in that shape the company yielded - for some, that is. The company KK Profin, whose statutory representatives at the time of sale were Kučera's two sons, bought a 30 percent stake in JCP in a direct sale from the National Property Fund for one-sixth of the market price in August 1996. In February 1997, the whole company, including Kučera sons' stake, was sold to AssiDomän at much higher price. Rumors say the sons have earned about 600 million Sk from the deal.

Big change

After the takeover, major changes were immediately instituted. At the first general shareholders' meeting, AssiDomän replaced JCP's entire top management. The new director's board is now led by Lars Richardson, AssiDomän Packaging's president for central and eastern Europe; the two other members are Anders Haglund, vice president of AssiDomän and Marián Slovák, JCP's new general director.

"JCP Štúrovo will have to come to grips with the hard reality of the market and the evergrowing competition," Richardson said. "To become highly competitive, the company will have to be reorganized by the new management to a customer-oriented firm with a flexible production process."

That is exactly what is happening in Štúrovo these days. According to Slovák, the company will have to change its entire organizational structure and improve its production process and marketing to meet the concern's needs. But he added that initial feedback is already very favorable.

Feeding big fish in the net

Technologically, the Štúrovo plant is quite modern compared to other Slovak firms. The fact that the plant has not too obsolete fixed assets along with a strategic location and interesting product assortment were certainly reasons why JCP was viewed as a valuable prize by AssiDomän.

"The Štúrovo plant is considered one of the most successful acquisitions in central and eastern Europe that AssiDomän has made," Slovák said, adding that the company should be divided into four divisions, instead of the six that exist now.

"When [AssiDomän] came to Štúrovo in May, the company was in the red," said Slovák. In the first half of 1997, the plant earned 59.3 million Sk on pretax profit and had revenues of 1.64 million Sk. 1997 sales growth is expected to be around 7 percent.

Slovák continued that AssiDomän Packaging's main aim now is to augment profits by reducing costs. Production should be greased by eliminating time delays between operations and by a more sophisticated quality control system. The group's strong financial backing will also bring investment, Slovák said, adding that overall 1997 investments will be about 220 million Sk and at least the same next year.

Quality control is in focus, too. At the end of August, the company obtained an ISO 9001 quality certificate for its cardboard plant and is trying to obtain similar certificates for its other plants.

This kind of production, though, is a target for some environmentalists.

To avoid confrontation, one of AssiDomän's main priorities is to introduce an environmental management systems at all its operations.

"The new ecological study for the Štúrovo [plant] is being prepared," Slovák said. "We should soon be able to register for the ISO 14001."


AssiDomän packaging At a Glance
(Figures are through June 1997 unless otherwise noted)

No. of employees: 2,567
Gross profit: 87.5 mil. Sk
Net profit:59.3 mil. Sk
Turnover:1.64 bil. Sk
Total assets:3.68 bil. Sk
Share capital:1.45 bil. Sk
Earnings per share: 41 Sk
Ownership:91% - AssiDomän AB

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