“First of all, we want to offer the consumer a high quality product”

28 june 2021
On the development of Pulp Mill Holding and its assets, the company’s Director for Investments Vladimir Krupchak told Kommersant.

Kommersant: — At the St. Petersburg International Economic Forum, Arkhbum Tissue Group LLC, a subsidiary of the Arkhangelsk PPM, signed an agreement with the Kaluga Region to build the second and third lines of the plant with a capacity of 140,000 tons. How do you assess the already implemented part of the project?

Vladimir Krupchak: — The first line of our new plant “Arkhbum Tissue Group” with a capacity of 70 thousand tons in Vorsino industrial park was launched in 2020. Now a wide range of Soffione’s products is produced represented in B2C, B2B and private label (Kommersant’s note — own brands). The company’s products are successfully sold in Russia, in the countries of the former Soviet Union, Eastern and Western Europe. The 25 % of output in the form of self-produced base paper is sold in the domestic market and is exported to more than 15 countries around the world.

According to the results of the last year “Arkhbum Tissue Group” reached the production capacity, the share of Soffione toilet paper was 4 % — it is a good result in such a glutted market and for such a young company as “Arkhbum Tissue Group”.

Kommersant: — And you are so confident in the demand and the market’s good prospects, having announced the facility expansion?

Vladimir Krupchak: — I am absolutely sure. The pandemic has turned the world upside down in many areas, creating several trends, such as the transition to conscious consumption, when the main criteria of goods, along with price, became the issues of their origin, safety for the environment and health. We have all become more demanding in our choice of hygiene products, including sanitary tissue products (hereinafter — STP) made of paper, which have developed rapidly. In addition, the level of consumption of paper products in Russia is low, about 3.5 kg per person per year. For comparison, in the USA this index is 24 kg, in Europe — 14 kg. Therefore, the Russian tissue market has perspectives for growth, and we will occupy our niche in it among the top three sales leaders.

Kommersant: — How strong is the competition for your main products and what markets are your priorities and most profitable?

Vladimir Krupchak: — The competition has become tougher, and the strongest will survive. Arkhbum Tissue Group has a number of advantages, one of which is its own FSC-certified raw materials produced by the Arkhangelsk Pulp and Paper Mill (trademark license code — FSC-C002853). No other Russian player on the tissue market currently has such a resource portfolio.

First of all, we want to offer the consumer a high quality product in terms of its production, which would be affordable and would displace a single-layer waste paper product from the Russian market. Our strategy in this market is aggression for the benefit of the customer. With the launch of the third line, Arkhbum Tissue Group will expand its product line to the AFH market (Kommersant’s note — Away from Home).

In Russia, the increase in capacity is happening much faster than the natural growth in consumption. The current surplus is about 20 %. There is enough production capacity not only for the domestic market, but also for export, the share of which does not exceed 15 % in the Russian market of tissue. As a rule, these are the near-abroad countries. Our company had a 17.5 % export share at the end of 2020. This was due to the rush demand and we shipped a significant part of our products to foreign markets.

The share of tissue imports from Europe and CIS countries is not large and amounts to no more than 20 thousand tons per year. This is about 3,5 % of the whole Russian tissue market. The fact is that logistics costs do not allow the free movement of FMCG over long distances. The share of logistics in the cost of STP is up to 12 %.

Kommersant: — Why was Kaluga region chosen for the project implementation? What other sites were considered?

Vladimir Krupchak: — We considered several sites in the Central Federal District. For us, the decisive factor in choosing a region for the implementation of the multi-billion project was the unique concept of the Kaluga administration for investors — the placement of production facilities in industrial parks. Taking this opportunity, I would like to thank Anatoly Artamonov, who has headed the Kaluga region for many years and today is the Senator of the Federation Council, as well as the Governor of the region Vladislav Shapsha for creating a favorable investment climate — our project has a confident stable future.

Kommersant: — Who was the general contractor for the construction and where was the equipment purchased?

Vladimir Krupchak: — The general contractor of the plant construction was our long-standing business partner — PSO-13 JSC, which had previously built for us a corrugated board plant in Istra and a shopping and entertainment center in Arkhangelsk.

All equipment at the Kaluga plant is state-of-the-art. All converting lines are Italian. The main equipment — the paper-making machine — was supplied by Andritz (Austria).

Kommersant: — How did you come up with the idea to create a subsidiary structure of APPM that would produce higher value added products for В2С?

Vladimir Krupchak: — The launch of production in Vorsino is an expected result of the progressive development of Pulp Mill Holding in Russia. Thus, we have completed the full cycle of vertical integration from forest cultivation to production of the final product.

15 years ago I defended my PhD thesis on the topic of vertically integrated structures in Russia’s pulp and paper industry and their competitive advantages. For me, it was not only a purely scientific study, but, in fact, a strategy for the development of our holding.

Being the anchor enterprise of Pulp Mill Holding, APPM is today the largest producer of containerboard in Russia and one of the leaders in pulp production. Both board and pulp are semi-finished products from which products with high added value are then produced. The mill supplies containerboard as raw material to our five corrugated board processing plants. Due to the global trend to reduce the use of paper, we began to look for new promising niches, one of which is the production of STP.

Kommersant: — Are you planning to buy new assets or build new facilities? What other sectors would you be interested in?

Vladimir Krupchak: — Our business priorities are still packaging business, but with recycled fiber — the production of testliner with our own company for the collection and processing of waste paper, and, of course, the further development of sanitary tissue products and strong competitive aspects of work — containerboard and pulp.

Pulp Mill Holding intends to invest over 150 billion rubles in the re-equipment of its Russian production facilities. About 30 billion rubles for consumer packaging and more than 20 billion rubles for two additional lines of tissue production.

As for APPM, we are preparing for the construction of a new sulfate-board plant meeting all world requirements with a third board machine (BM-3) with a capacity of 700 thousand tons of products per year on the industrial site of the mill. Over a billion euros will be invested in this project.

The mill plans to rebuild the Pulp Production Shop at a cost of 26.8 billion rubles. Annual capacity of APPM’s third line will increase by 70–80 thousand tons of pulp.

We will start all these projects this year. Investment portfolio — own and borrowed funds.

Kommersant: — So you are still place your stake on containerboard, despite the fact that a number of major Russian players have already announced the expansion of production facilities?

Vladimir Krupchak: — One of the main qualities of the export product is high competitiveness. Today Arkhangelsk PPM is the leader in the production of high-quality containerboard with stable buyers and a wide market. The existing capacity of the two board machines is more than 600 thousand tons per year. The new BM-3 will focus on growing foreign markets, especially Asian markets: the demand for board is expected to double by 2050 in the world. As a result of the implementation of our project, the cooking capacity will be increased up to 1600 thousand tons of board products per year.

Our global project has already been designed. Its implementation period is five years. The new production facility will be located on the site of a sulphite production facility that shut down in the 1990s. The infrastructure of APPM with corresponding reconstruction and capital investments allows to provide a new board production with all necessary things. As part of the construction of the plant, several workshops and related process facilities will be erected.

The new BM-3 will produce kraftliner (cardboard for flat layers of corrugated board) in the density range from 80 to 200 grams per square meter. It will be a wide-format BM with a cut width of 10.5 m on the reel.

Kommersant: — Are there any problems facing the group’s companies?

Vladimir Krupchak: — One of the main ones is forest supply, both in terms of allocation of additional forest areas and forest management on the previously provided areas. We hope for the support of the Governor of Arkhangelsk Region Alexander Tsybulsky in this matter. The implementation of our new global project for the construction of a new board plant will increase the tax deductions of APPM by more than 2 billion rubles a year. We are creating over 370 additional jobs at the plant and 3.5 thousand jobs at the logging enterprises of the Titan Group of Companies, our general supplier of raw materials. Regional contractors will also be involved. About 5,000 people will be involved only in the construction of a plant in Novodvinsk. But our contractors will have to live somewhere (especially since we are in the Arctic zone), and after construction, what to do with so much housing? In this matter, we also hope for the help of the regional authorities: the city of Novodvinsk or the region will acquire housing for their own needs or help temporarily accommodate workers.

Technical reequipment and infrastructure projects of the Titan holding due to the implementation of the new APPM project are estimated at 14 billion rubles according to preliminary calculations. And additional tax deductions of the Titan — 1.4 billion rubles per year.

Our project will also expand regional maritime logistics: export flows to Asia will create the need for regular liner traffic through the Northern Sea Route around Chukotka and Kamchatka.

Kommersant: — What are the main tools of state regulation of the forest sector, how effective are they in your opinion?

Vladimir Krupchak: — Currently, there are mechanisms to support priority investment projects, and corporate programs to improve competitiveness, FER loans, SPIC, subsidies for the transportation of export products, etc. The existing mechanisms are well administered, but from our point of view, the decision-making procedures should be minimized.

Our industry is one of the most capital intensive. Therefore, the support of the state for us is of fundamental importance in this matter. Especially when creating new production facilities: in terms of compensation of infrastructure costs and providing long-term loans for the purchase of imported equipment.

It would be correct to determine for the near future the state pricing policy in relation to timber raw materials: no matter how archaic the system of payment rates for timber is, it should be preserved, at least for the period of creation of timber processing facilities.

I have already mentioned that APPM counts on a set of preferential measures from the state for such enterprises as we are, working under the slogan: "We harvest timber responsibly, restore it on time, process it in a complex chain, invest on a large scale."

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