1 December 2021
“We are going beyond the classic market segments”
The coronavirus pandemic has given a powerful impetus to the development of online commerce, and with it – to the industries that provide packaging to retail. Volga Paper Factory sensed the trend a few years ago and is now preparing to increase the production of light and durable packaging paper. The Deputy General Director — Director for Economics and Finance of Volga JSC Sergey Lomakin describes specifics of this investment strategy and the uniqueness of the technology of the factory.
- In September, Volga Paper Factory announced a new investment strategy. What will change at the enterprise and within what time frame?
- The first step in the large-scale modernization of the paper factory was made in 2019, when we launched a new raw material line – production of thermomechanical pulp. In 2020, the project was successfully completed — the workshop reached full capacity. The years 2020–2021 were devoted to diversification. If earlier the factory was focused on the production of newsprint only, now it also produces packaging – light and ultra-light liners. At the upcoming stage of modernization, with the launch of paper machine No. 6, which was stopped in 2015, we plan to increase the production of the said products. As expected, the machine should reach 100 percent of its design capacity in 2023. As a result, the capacity of the factory will increase by 140 thousand tons per year – up to about 460 thousand tons. At the moment, contracts have already been concluded with our key supplier – the Austrian company Andritz AG, as well as with other partners for the supply of the main equipment for paper machine No. 6.
- Why was Andritz chosen as a key partner?
There are several flagship companies in the pulp and paper industry that provide technology and produce the best equipment. Andritz is one of the big three and currently offers the best solution. In addition, it was with the Austrians that we successfully implemented the first project under the difficult conditions of the first or second waves of the coronavirus pandemic. Representatives of the company could not come to Russia, and for the first time in the history of our industry, the contractor managed the commissioning works completely remotely and did an excellent job.
- How much are new types of paper in demand by the market?
- The main trend of recent years – the reduction of the newsprint market and the growth of the packaging market – has intensified in recent years. The market of packaging types of paper and cardboard is growing all over the world, and in Russia – at a faster pace, because we are still far behind Europe, China, and the USA in terms of the number of parcels per capita. The potential of this segment is very large, especially taking into account the growing turnover of e-commerce. We do not see stabilization, or reaching a plateau, in this trend yet. In this context, we have chosen the blue ocean strategy, that is, we want to go beyond the known market segments and create a new segment – lighter grades of packaging paper. Our results on light liners confirm that such paper is in demand and interesting to the consumer. In the future, 30% of the production volume will be sold in Russia, 30% – in China, the rest – in Asia and Eastern Europe.
- What is the uniqueness of your technology?
- The raw material for the production of packaging paper is a mixture of fiber obtained from thermomechanical pulp and fiber from wastepaper. From an economic point of view, such a composition gives flexibility in terms of cost management and pricing policy — as you know, prices for wood and wastepaper raw materials have a certain volatility. In addition, the use of wastepaper, that is, recycling, is more environmentally friendly.
- Will the expansion of production require additional logging?
- Raw wood is always in short supply. The factory strategically aims at increasing the cutting area and ensure the security of supplies to existing production facilities.
- What are the sources of financing for the new project?
- We use classical bank financing. An agreement has already been signed with our key partner Sberbank, which will provide 80% of the funds, and about 20% will be our own funds.
In addition, we continue to cooperate with the Industrial Development Fund of the Russian Federation — the factory has approved a preferential loan in the amount of RUB 499 million.
- Expert RA rating agency has upgraded the credit rating of Volga JSC to the level of ruA – with a stable outlook. What does this give the factory?
- Ratings are assigned according to a whole set of parameters to those companies that have a certain level of corporate governance, business processes corresponding to the best practices both in terms of investment and management in general. This means that the Company is ready for transparency and cares about the level of trust of customers and all counterparties. Therefore, the receipt of the rating by Volga JSC last year and its upgrade this year is the result of a lot of painstaking work on the transition to the best practices in the market. In addition to the actions aimed at modernization of our equipment, two years ago we started a lot of work on the transformation of business processes. As a result, we provided the rating agency with the necessary amount of information at a very high-quality level and, most importantly, demonstrated the depth of strategic planning. This was the result of the rating upgrade. In the future, we plan to maintain this level.
Nevertheless, we still have quite a lot of plans for further transformation, including our IT infrastructure. This year we approved the IT strategy and noted critical points that require improvement. The modernization will affect both the lower-level infrastructure: machine controllers, and the upper one: ERP systems, production planning, automation of cutting and increasing the level of analytical data available at the factory. Now we almost reached the middle, and by 2023 these solutions should be ready so that the factory, taking into account further product diversification and an increase in production volume, will be well managed.
