Tissue and cardboard recycling set for change

The UKs paper recycling landscape looks set for considerable change over the remainder of 2012 with the potential sale of at least one paper mill and the restructuring of two large paper recycling businesses with consequential promotions and job losses.

Two major restructurings are due to take place, one on the packaging side and one in tissue. Both involve Swedish paper giant SCA.

On July 2 2012, UK paper recycler and manufacturer DS Smith, which includes DS Smith Recycling (or Severnside as it was known until a year ago) announced it had completed the acquisition of the packaging (mainly cardboard) division of SCA as planned on 30 June for 1,280 million. This acquisition includes a recycling division in the UK, SCA Recycling.

The other restructuring also involves SCA although it concerns tissue products rather than cardboard. SCA, which is a big player in the tissue sector,is acquiring a business from Georgia-Pacific, in the shape of the latter’s European tissue products business. This includes G-Ps Stubbins recycled-tissue mill in Bury, Lancashire. The deal, which now has EU approval, is due to be concluded on July 20, 2012.

DS Smith and SCA Packaging

A statement from DS Smith on July 2 said its Board believed the acquisition would drive growth in the business and add value for several reasons. These includes the provision of access to new geographical markets across continental Europe which better match the location and scale of key pan-European FMCG customers. The retail sector is known to be a key target for DS Smith both in selling of finished product for packaging and new cardboard boxes and for collection of waste cardboard and paper.

DS Smith has also said it expects to save at least 60 million a year from procurement and operational efficiencies. It is expected that this will include through office and depot changesand some staff losses in the UK although details are yet to emerge.

As is the case with DS Smith and DS Smith Recycling, SCA also had a recycling division, SCA Recycling UK. In recent years, SCA Recycling has employed about 215 people at eight sites across the UK and supported its UK mills. SCA Recycling handled 1.25 million tonnes of paper and sold about half of this to other companies in the UK and overseas its head office was in Kings Mill, Kent and its managing director Ken Stevens.

Commenting on the acquisition of SCA Packaging, Peter McGuinness, DS Smith Recycling managing director, said: ‘The recycling business that is joining us from SCA Packaging is an excellent fit with our existing position in the market, and broadens our reach. The acquisition will strengthen our ability to innovate in landfill diversion and sustainable waste management solutions. By focusing on innovation and customer service we want to build on the positive customer relationships we already have.

Mr McGuinness added: For our existing workforce as well as those joining, this is a great opportunity to learn from each other. That will make us not just bigger, but much stronger too. Together, we are in a great position to help DS Smith towards its overall goal to become the leading supplier of recycled packaging for consumer goods.

MRF

The acquisition also gives DS Smith its first materials recycling facility which SCA Recycling had developed in Southampton. The paper industry, including DS Smith, has in the past been critical of the quality of material from some materials recycling facilities and it is not yet known how DS Smith will develop the plant or whether it may choose to sell it on. The company is also understood to have gained a share in the Casepak materials recycling facility in Leicestershire in which SCA previously had a significant stake.

In the UK, DS Smith competes against SAICA of Spain which has a new cardboard mill in Manchester and Smurfit Kappa, which has a board mill at Snodland, Kent,for which new investment has been agreed, and also in Birmingham.

Tissue

SCAs exit from the packaging business comes at the same time as it moves to expand its tissue operations. Yesterday (July 5) the European Commission approved SCA’s acquisition of American firm Georgia-Pacific’s European tissue business.

In a statement, SCA said that the acquisition confirms its position as a European leader in the industry with an enhanced, integrated European tissue business and well-known brands.

Georgia-Pacifics European tissue business, which consists of 15 plants located in seven countries and the Lotus brand, will be transferred to SCAs ownership on closure of the deal which is expected on 20 July for 1.32 billion Euros.

But, crucially, the EUs permission for the acquisition to go ahead will require SCA to get rid of some capacity, which usually happens through a sale or closure. The EU Competition Directorate said, that SCA must divest itself of Georgia-Pacifics consumer tissue business in the UK including production capacity, Georgia-Pacifics Benelux consumer tissue branded business under the Lotus brand and some of Georgia-Pacifics and SCA`s retailer branded business in Scandinavia including production capacity.

Stubbins

In the UK this means that attention is expected to focus on the Stubbins Mill in Bury which makes tissue products from recycled material. More than half of its production is of consumer product with the remainder away from home products, largely under the Lotus brand.

Koch Industries, which owned G-P, has invested in the Stubbins Mill and a buyer, if the mill is put up for sale, is expected. Within the UK there are few other tissue operators and it is not known whether these, which include Kimberly-Clark and Disley Tissue Ltd of Cheshire, will be interested in acquiring Stubbins, were it to be put up for sale.

Disley Tissue has recently had planning approval for a new virgin pulp machine to be developed alongside its recycled paper machine in Disley but has not yet started construction of the new machine.