Enso-Gutzeit Oy

Kanavaranta 1
00160 Helsinki
Finland
(0) 16291
Fax: (0) 1629471

Public Company
Incorporated: 1927
Employees: 15,974
Sales: Fmk9.90 billion (US$2.73 billion)
Stock Exchanges: Helsinki London

Enso-Gutzeit Oy (E-G) is one of the leading Finnish companies in pulp, paper, timber, and their products. The company is widely diversified with subsidiary companies in Finland and abroad which give it a major international presence. Enso-Gutzeit Oy is a typical Finnish forest-based company that has developed through acquisitions. Its origin lies in the founding of a sawmill in 1872 on the island of Kotka, off the southern coastline of Finland at the estuary of the Kymi River. Previously sawmills were small and water-powered, as steam-powered sawmills were forbidden by the government. However, a new policy was adopted in 1861 enabling steam-driven sawmills to be erected throughout Finland. This change in policy led industrialists to build sawmills at suitable points on the coast at places where timber could be floated and sawn goods shipped abroad. One such location was the island of Kotka. Here the Norwegian industrialist Hans Gutzeit erected a sawmill, which was opened on November 16, 1872. Hans Gutzeit came from Norway, where the company W. Gutzeit & Co. had built Norway’s first steam-powered sawmill in 1858.

The new mill at Kotka had six frame saws and two circular saws as well as auxiliary machinery of the most modern design at that time. The machinery was powered by a steam engine of about 100 horsepower. To operate the new mill, Gutzeit imported skilled operators from Norway. It was popularly known as the Norway Mill. In 1880 Hans Gutzeit returned to Norway, where the board had its seat. In Kotka, management was given to a residential manager, the Norwegian Christian Holt.

Kotka Island was a favorite place for new sawmills. Soon there were many mills, all of whose logs were floated from the large Páijánne lake system. The competition for the most favorable forest resources was fierce, however, and resulted in ever-increasing prices. The Gutzeit mill began to look for new sources for its raw material. Eventually it found that it could build a mechanical transport facility from Finland’s largest lake system, the Saimaa Lakes, over an isthmus to a small lake, connected to the Kymi River. Large volume, however, was needed to justify this investment, and so Gutzeit started buying forest land in the Saimaa basin. To eliminate a potentially dangerous competitor, Egerton Hubbard & Co, an English-owned St. Petersburg-based company that owned AB Utra Wood Co., a sawmill in the Saimaa basin, Gutzeit purchased the latter company, together with the sawmill receiving a forest area of 100,000 hectares.

During this time, Alexander Gullichsen, another Norwegian, had entered the company as a clerk. He was a very able man and rose steadily through the ranks of the company. He was the first to recognize the possibility of obtaining raw material from the Saimaa basin and it was he who negotiated the Utra Wood deal. Eventually he was nominated managing director of Aktiebolaget W. Gutzeit & Co, the name given to the owner of the Kotka mill when it was incorporated as a Finnish company in 1896 (hereafter called Gutzeit). Although the ownership of the company was still mainly Norwegian, Holt and Gullichsen were considered to be Finns, having become naturalized citizens of Finland.

As a new step in the development of the company, Gullichsen built a sulfate pulp mill at the Kotka sawmill to make use of the waste wood, which up till that time was burned. More important for the diversification of the company was the range of acquisitions generated by Gullichsen’s initiative.

In northern Karelia, not far from the Russian border, was a old iron ore refinery. In 1902 this had been converted into a mechanical wood pulp mill when the old iron works had to be closed. This groundwood mill was incorporated as a company in 1904 under the name of Aktiebolaget Pankakoski. This company was purchased in 1909 by Gutzeit and a board mill was added.

Of greater significance, however, was the acquisition of Enso. This took Gutzeit further into the field of chemical pulp making and eventually into paper. It also led to a change in the company’s name. Enso was built in 1888 as the first ground-wood mill on the huge Vuoksi River, which drains the Saimaa basin into Lake Ladoga through a series of mighty falls, and was considered too large to be harnessed for industrial purposes. Nevertheless, Baron Adi Standertskjöld, a Finnish industrialist who had sold his groundwood mills at Inkeroinen on the Kymi River, came to the Ráikkölá Falls in 1887 to buy a site on which to build a new groundwood mill. The founder gave the name Enso to the falls and the mill; eventually the name was extended to the township that grew up around them. “Enso” is derived from the Finnish word ensi, meaning “first,” as the mill was the first on the Vuoksi River. The new company was named Enso Trásliperi Aktiebolag (hereafter called Enso). The mill was designed by the Swedish engineer Hedbáck. In order to use the falls as a source of power, a small channel with sluices was excavated beside the main rapids, which were left to flow freely. Nine turbines generated 2,000 horsepower. When the first shipment of groundwood pulp left the mill in February 1889, it had to be transported by horse and sledge to Viipuri where it could be loaded on to a train for transportation to St. Petersburg.

The area was a wilderness. To accommodate the workers, the company had to build houses, for which purpose they constructed a small brick manufacturing unit. The office staff was minimal, consisting of the residential manager, a cashier-bookkeeper, a correspondent-dispatcher and a messenger boy.

In 1907 a “yankee-type” paper machine—that is, a machine equipped with a large drying cylinder of several meters’ diameter called a yankee cylinder—was added. At the same time the company decided to build a dam across the river to obtain more power. However, the Swedish engineering company commissioned for the work failed, and the project had to be discontinued after more than a year’s futile labor. The Finnish engineer A. Sandsund, who took on the work soon afterward, was successful and in 1910 the new dam, the largest of its kind at the time, was completed. The work was extremely expensive and was such a strain on finances that the owners decided to sell the company to Gutzeit. The latter was well aware of the value of its purchase. Gutzeit now owned a mill that could make use of all the small wood which came from the company’s forests when logs were cut for the sawmills. It also had an ample supply of hydraulic power at its disposal. As its first project, the new owner planned a new board machine. New forestry holdings were added by the purchase in 1913 of over 70,000 hectares from the Finland Wood Co.

In 1917 Gutzeit’s driving force, Alexander Gullichsen, died. Another Norwegian, Herman Heiberg, was nominated managing director. Major changes in ownership soon occurred, however. In October 1918 the Finnish government purchased 4,400 Gutzeit shares from the Norwegian owners, becoming the majority shareholder with more than half of the company’s 7,200 shares. Enso’s residential manager Solve Thunström was nominated managing director of the group.

As the Saimaa lake basin was the most important area for wood purchasing and transport, the company developed a lake transport fleet, assisted by a shipyard and machine shop, Laitaatsillan Konepaja, founded by the company near the town of Savonlinna. However it was considered that other shipping companies or shipowners would suffer from Gutzeit’s monopoly on service shops in the district, and a rival machine shop was started in 1917 in Savonlinna, only six kilometers from Laitaatsalmi. The rival company was later named Oy Lypsy-niemen Konepaja. It had problems from the start, and was heading for bankruptcy in 1919 when it was saved by Gutzeit, which had become a majority shareholder. Lypsyniemen Konepaja entered a phase of rapid growth and later specialized in machinery for the pulp industry.

The rapid development of the Gutzeit group in the early 1920s, as well as the decrease in the value of the Finnish markka, compelled the company to increase its capital. In 1923 the Finnish government subscribed for Gutzeit’s new shares, raising government ownership of the company to 87%.

Thunström left the company in 1924 and V.A. Kotilainen was nominated managing director and chief executive officer of the group. The new manager found that the finances of the company were excessively dependent on short-term loans and he concentrated his efforts upon the strengthening of the company’s balance sheet. In a few years he managed to get rid of the short-term debt, and to reduce total borrowings to only 46% of annual sales. The head office was transferred to Enso and in 1927 the company was renamed Enso-Gutzeit Osakey-htiö (Enso-Gutzeit Ltd.).

Another industrial unit was soon added to the company. In 1877 Wolter Ramsay founded a small company in Lahti, south of Lake Páijánne, for the manufacturing of bobbins for English textile mills. The company derived the name Tornator Osakey-htio from the Latin word tornare, meaning “to turn.” When Ramsay died suddenly in 1890, the ownership of Tornator was transferred to the Wolff family. Gradually Eugen Wolff took the leading role in the company. His ambition was to establish a large mill on the Vuoksi River and when he heard that the owner of Tainionkoski Manor at the eponymous falls on the Vuoksi River, G. Törnudd, had died in 1894, he convinced his brother, Reguel Wolff, that Tornator should buy Tainionkoski Manor. This led to the purchase of the manor in 1895. During the years 1896-1897 Eugen Wolff erected a bobbin production unit at Tainionkoski, as well as a paper mill and a groundwood mill. He later began to build a sulfate pulp mill at Tainionkoski, and started to manufacture grease-proof paper. This new product proved successful, securing a good market for the company in Western Europe, especially in England. However, by 1918 Eugen Wolff had tired of his pioneering work and sold his shares to the Finnish government.

Enso-Gutzeit had long been interested in Tornator, its neighbor on the Vuoksi River. In 1931 Enso-Gutzeit purchased the privately owned shares of the company. Thus E-G became the owner of all forest-based interests in the Vuoksi Valley and also of the valuable lakeshore at the beginning of the river. The chief executive, V.A. Kotilainen, now had the resources to turn the company into the leading timber, pulp, board, and paper enterprise in Finland. He also had a team of talented specialists at his disposal. A sulfate pulp mill was built at Enso in 1930, but Kotilainen wanted to increase further the share of sulfate pulp in the company’s product line. In the 1930s Enso-Gutzeit built the large Kaukopáá sulfate mill on the southern shore of Lake Saimaa, a gigantic unit for its time. The company had acquired the valuable area through the Tornator merger. Previously sulfate pulp had been of minor interest, but with the development of paper and paperboard packing the process had become more promising. The mill was designed to produce 80,000 tons a year but by 1937 production had increased to 120,000 tons a year.

E-G has always been eager to purchase forest land. In 1913 the total area of Gutzeit forests was 400,000 hectares. The acquisition of Tornator brought another 79,000 hectares and the purchase of a timber company in easternmost Karelia in 1937 brought still more. When World War II began in 1939, E-G owned 523,000 hectares of forest land.

With the addition of new mills and machinery, the company wanted to increase its power facilities. By 1936 Enso had already become the largest paperboard mill in Finland. In 1938 the company decided to make full use of the Enso falls for power production. It planned to increase the height of the Enso falls by adding a dam, raising the water level above the falls so that the Vallinkoski rapids, four kilometers upstream from Enso, were combined with Enso, making the Enso falls 16 meters high. At this time, most industrial power plants were built in rapids or falls of six to ten meters. When war broke out in 1939 this gigantic construction project was still unfinished.

In 1941 E-G acquired all the shares of the Insulite Company of Finland from its founder, an American company wishing to withdraw from Finland. This factory, near Kotka, added another new line of business to E-G. Its product, insulite, was a board made of aspen fibers, and well suited to the needs of the new owners. In Helsinki in 1940 E-G erected a factory to make packaging boxes for special requirements in Finland.

Finland was attacked by the Soviet Union on November 30, 1939. Damage was inevitable as most of E-G’s facilities were in Karelia, near the border with the Soviet Union. Soviet bombs caused some damage to the mills and the raw material woodpiles at Enso and Kaukopáá were burned. The total amount of wood lost was 650,000 cubic meters. The Norway Sawmill in Kotka was completely destroyed by Soviet bombs, but the worst was still to come. In the armistice Finland had to cede a large part of Karelia to the Soviet Union. Among the cessions was the Enso mill town with its large power plant still under construction. E-G also lost the easternmost sawmills and hydraulic power stations as well as almost 100,000 hectares of forest land.

Politics also affected E-G at top management level. Chief executive officer Kotilainen had taken part in organizing services to civilians, such as food supply, education, and medical care, in the Russian area occupied by Finland in 1941-1944, and he had to step down from all public offices at the demand of the Soviets. A new managing director and chief executive officer, William Lehtinen, was nominated on October 1, 1945. He had previously been a member of the board, responsible for sales and marketing.

E-G now had to compensate for the loss of Enso. All of the Enso employees were guaranteed employment at the other mills in the vicinity, mainly at Tornator and Kaukopáá. This led to temporary overstaffing. At the Tainionkoski falls a new hydraulic power station was built in 1945 to compensate for the loss of the Enso station which had been nearing completion. At the end of 1946 E-G purchased the Joh. Parviaisen Tehtaat Oy, an industrial company in central Finland specializing in plywood and mechanical wood processing. In addition to providing an entry into the plywood business, the new acquisition brought a factory for prefabricated houses, a product in strong demand after the war. To domestic demand were added the Soviet war-reparation claims, which included large quantities of prefabricated housing. The Soviet demand for many kinds of machinery as war reparation led to a heavy workload for E-G’s subsidiary, the Lypsyniemen Konepaja machine shop. In 1945, E-G purchased the former metallurgical works in the Vuoksi River Valley of Outokumpu Oy, the well-known copper company, which transferred its activities to western Finland. E-G concentrated its chemical plants in these facilities, specializing in processing the byproducts of the pulp mills. The central laboratories of the company were also transferred there. In 1947, to facilitate international shipment of its products, E-G established a ship-owning company, Merivienti Oy, and a shipping company, Oy Finnlines Ltd., which was Merivienti’s subsidiary.

The company needed new paper mills to realize its strategic growth plans, however. A new newsprint paper mill was built in 1953-1955 at Summa on the southern coastline, east of Kotka. Production of kraft paper was started at the Kotka mills. At the factories in Land, the production of textile bobbins was discontinued and replaced by a paper-converting and box-making plant. The joinery at the Lahti factories was developed. At Kaukopáá a bleaching plant was built and a liner-board machine was erected. The production of white qualities of board, used as packaging for consumer goods, began. In 1959 the decision was taken to build another large sulfate pulp mill near the old Tornator Tainionkoski mills. This new pulp mill with a capacity of 150,000 tons, initially named Kaukopáá II, was renamed Tainionkoski mills after the old Tornator mills ceased operation in 1963. A new mill with production capacity for 100,000 tons of bleached sulfate pulp was built in northern Karelia at Uimaharju between 1962 and 1967.

In 1962 Pentti Halle was nominated chief executive officer after the retirement of William Lehtinen. In the same year, the company moved headquarters into a new building in central Helsinki, designed by architect Alvar Aalto.

The internationalization of E-G began in 1963 when the company became a shareholder in the Dutch Roermond paper mill company. Two years later E-G acquired all the shares of this company, but in 1972 Roermond was sold back to the Dutch. Even though this first experiment in internationalization proved futile, E-G continued in other directions. In order to procure linerboard for international markets, E-G formed a joint venture, together with the Finnish company Oy Tampella Ab and with American interests to establish a U.S. pulp and linerboard mill, Pineville Kraft Corporation, in Louisiana. This mill went into operation in 1968. Later, however, the two Finnish minority partners sold their shares to their U.S. partners. A more lasting investment abroad was the formation of a Canadian venture, Eurocan Pulp & Paper Co. Ltd. (Eurocan) in British Columbia. At first E-G had 50% of the shares, the other 50% being divided between the Finnish companies Tampella and Kymmene. Eurocan went into operation in 1970. It had a sawmill and a sulfate pulp mill plus a kraftliner machine and a kraft paper machine in Kitimat. For years the Canadian company had financial problems and Tampella sold its shares to Kymmene. In 1979 Kymmene sold its shares to E-G. The latter replaced the partnership by an agreement with the Canadian company West Fraser Timber Co. Ltd. in 1980. However, it took years of negotiations and new agreements before Eurocan became a viable business and a profitable investment.

Later E-G continued its expansion abroad. In addition to sales offices in many locations in different parts of the world, the company owns production facilities—in addition to Eurocan— in Barbados, France, the United Kingdom, the Netherlands, and Indonesia.

Pentti Halle was to retire as chief executive officer in 1972. The board of administration, the highest authority below the general meeting of shareholders, had already employed Aarne Hildén as executive vice president. He had gained international business experience in the service of Esso, the large oil company. It seemed obvious that Hilden should be nominated chief executive officer, which in Enso’s case also includes becoming chairman of the board. However, intrigues took place within the company, influenced by politicians at high levels, and eventually the post of chief executive officer was awarded instead to Olavi J. Mattila, chief executive officer of Valmet Oy. Pentti Salmi, from within the company, was nominated managing director. This period resulted in a troubled decade for the company, before Mattila retired in 1983. Pentti Salmi was then nominated chief executive officer. Under his command E-G’s business developed steadily.

In the late 1980s major changes took place in the Finnish business world. Mergers, takeovers, and the selling off of divisions were common. E-G and the largest Finnish family-owned industry, A. Ahlstrom Oy, were involved in one such deal. Gutzeit’s managing director in the days before the Enso acquisition, Alex Gullichsen, had already been interested in acquiring the Varkaus mills and factories in the northern Saimaa area when the owner, the Viipuri merchant Paul Wahl & Co., was willing to sell at the beginning of the 1900s. Although details of the deal had already been discussed, A. Ahlstrom Oy managed to buy the Varkaus mills and factories before Gullichsen had reached a decision. Thus Varkaus became one of Ahlström’s most attractive assets. At Varkaus, Ahlstrom built a large pulp mill, a paper mill, a sawmill, a plywood factory, and machine shops. However, during the reshuffle of the 1980s, Ahlstrom found a need to shed some of its financial burdens so that it could afford to remain a family-controlled business. In 1986 the Varkaus pulp and paper mills and sawmills were sold to E-G. Part of the price paid by E-G was the transfer of its machine shops in Savonlinna, Lypsy-niemen Konepaja, to A. Ahlstrom Oy. E-G had finally achieved its aim of taking over the Varkaus mills, 80 years after the intention was first announced.

Other changes took place in the structure of E-G; the company sold its interests in fiberboards and plywood in 1990 to Schauman Wood Oy, a subsidiary of the Kymmene group. Recent political changes in the Soviet Union have resulted in new ventures involving E-G. As part of the company’s forest resources had to be ceded to the Soviet Union after the war, E-G regularly purchased timber from behind the frontier. The new Soviet era of perestroika and glasnost led to new ideas for joint ventures. In October 1989 E-G agreed with the authorities of the Soviet Union to form a jointly owned Finnish company, Enocell Oy, with 80% of the shares held by E-G. Enocell was to take over the activities of the Uimaharju sulfate pulp mill, where a replacement pulp mill is being constructed, from the beginning of 1992. Most of the raw materials would be supplied by the Soviet partner. Another joint venture, Ladenso, has been formed in Soviet Karelia. It will concentrate on forest development and related activities.

Principal Subsidiaries

Tavastimber Oy Ltd.; Enso Forest Development Oy Ltd.; Heinolan Aihiotuote Oy; Pitkápuu Oy; Ensopack Ltd. (Barbados); Berghuizer-Enso Formaatfabriek B.V. (Holland); Berghuizer Papierfabriek N.V. (Holland); Imprex Products (S.E.A.) Pte Ltd. (Indonesia); Enso Rose Ltd. (UK); Eurocan Pulp & Paper Co. (Canada); Papeteries R. Soustre & Fils S.A. (France); Honkalahti Sawmill.