Kymmene Corporation

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Kymmene Corporation

Post Office Box 1079
Mikonkatu 15A
SF-00101 Helsinki
Finland
(0) 131 411
Fax: (0) 653 884

Public Company
Incorporated: 1872 as Kymmene Aktiebolag
Employees: 17,500
Sales: Fmk13.56 billion (US$3.74 billion)
Stock Exchanges: Helsinki London

The Kymmene group, headed by Kymmene Corporation, Finland’s leading forestry company, has production plants at 16 locations in Finland and in three countries in Western Europe. These business operations are the responsibility of independent subsidiaries. The emphasis of the Kymmene group’s operations is on the paper industry. Its chief products are publication and fine papers. The group is a leading European manufacturer in both sectors, its paper division having a production capacity of over three million tons in 1991. The company is Finland’s market leader in the wood-based panel-chipboard, fiberboard, and plywood—industry and a major producer in the sawmill industry. The Kymmene group is self-sufficient in chemical pulp and derives part of its timber from its own forests, the second largest privately owned forests in Finland, covering an area of 440,000 hectares. In 1991, exports and foreign operations accounted for 85% of the group’s Fmk13.56 billion turnover.

The inception of Kymmene Corporation almost 120 years ago reflects the early stages of Finland’s paper industry as a whole. The art of making ground wood pulp was discovered in 1846. Axel Wilhelm Wahren, one of the great Finnish industrialists, recognized the potential afforded by hydroelectric power, vast forests, and the proximity of the Russian market, and in 1870 leased a section of the largest rapids on the River Kymi flowing through southeast Finland, at Kuusankoski. At around the same time Count Carl Robert Mannerheim, father of Finland’s military leader and president C.G.E. Mannerheim, purchased an island in the same rapids and part of the riverbank. The founding meeting of Wahren’s company, Kymmene Aktiebolag, was held on May 21, 1873. A company by the name of Kuusankoski Aktiebolag established by Mannerheim began operating in January 1872.

In 1896 a third businessman, Rudolf Elving, purchased the Voikkaa Rapids further upstream and over the next five years built four paper machines, a groundwood plant, and a sulfite pulp mill.

The founding of three large mills in the same area within a short space of time raised the prices of the local forest lands and timber, while the resulting competition reduced the prices of the end products. The rival enterprises soon became aware of the advantages of joining forces and in 1904 signed an agreement whereby Kymmene bought both the Kuusankoski company and the Voikkaa mill in exchange for shares in the company. The resulting company, the predecessor of today’s Kymmene Corporation, was the largest limited company in Finland and the largest papermaker in the Nordic countries.

By the time of the merger, the individual companies had acquired 76,000 hectares of forest, an area which grew as more mergers took place. The purchase of Strömsdal Board Mill, the supplier of groundwood, used in paper manufacturing, to the company’s paper mills, in 1915 increased the forest area by 21,000 hectares, and the purchase of the Halla sawmill by a further 119,300. Halla also had some inland sawmills, and Kymmene became a major exporter of sawed goods.

During Rudolf Elving’s four years as managing director beginning 1904, Kymmene installed more production machinery than any other firm in Finland to that date. However, a disastrous fire at the Voikkaa mill, in which three machines were destroyed, and the slump in prices on the paper market caused a setback from which the company only recovered under its next managing director, Gösta Serlachius.

The building of the railway from Helsinki to St. Petersburg in the early years opened up new prospects for Finnish groundwood, board, and paper on the Russian market. At the outset Kymmene sold goods on commission at certain points in Russia. The sales areas covered by the local agents were extended in the first half of the 1910s. 1916 saw the establishment in St. Petersburg of the Kauppaosakeyhtiö Kymmene Aktiebolag trading company, registered as a Russian limited company, with sales offices in Moscow, Nizni Novgorod, Rostov, Tiflis, Odessa, Baku, Samara, St. Petersburg, Krakow, and Kiev.

Serlachius was followed as managing director by Gösta Björkenheim. By that time World War I had broken out, initially placing obstacles in the way of deliveries to Russia but later increasing the demand for paper. Kymmene Corporation’s leading position in the Russian paper market attracted international attention. In October 1916 The Times, of London, in an article headed “A Russian paper king,” wrote, “the joint stock company Kiummene is now regarded as the biggest enterprise of the paper industry, not only in Russia, but in all Europe.” In 1917 paper exports to Russia were hindered by the revolution. Lenin’s rise to power put an end to private trade.

In the early decades of the 20th century western Europe was not regarded as a major market. The first exports to the United Kingdom were made in the first decade, but not until 1910 was the first major agreement signed, for 2,000 tons.

Research into the potential of Western European markets advanced through the 1910s. In 1910 Rafael Jaatinen, a correspondence clerk in the company’s sales office, traveled to England to study trading methods. In 1919 the Finnish government sent a trade delegation to Western Europe and North America. One of its members was Gösta Serlachius. In autumn 1921, Kymmene laid the foundations for its own export marketing organization. Its first new foreign agency agreement was made with H. Reeve Angel & Co. of England.

Kymmene was one of the first Finnish companies to make acquisitions abroad. Fearing that the United Kingdom would levy customs duties to protect its own paper industry, Kymmene acquired a majority stake in the Star Paper Mill Co. Ltd., which had a paper mill at Blackburn. The following year, Star took over Yorkshire Paper Mills Ltd. at Barnsley.

Meanwhile, the company had increased its forest holdings in Finland. The need to guarantee its supply of timber led Kymmene to purchase Högforsin Tehdas Osakeyhtio, one of the largest ironworks in Finland, in 1933. Kymmene Corporation thus branched out into a completely new field—engineering.

By the end of 1935, Kymmene owned more land than at any other time until its later mergers with Kaukas and Schauman. In this year it bought Oy Láskelá Ab, which had 100,000 hectares of forest and two paper mills, as well as a sulfite pulp mill situated north of Lake Ladoga. Láskelá’s mills and most of its forests were, however, lost to the Soviet Union as a result of World War II.

The appointment of Einar Ahlman as managing director in 1918 coincided with a shift in paper sales towards the western hemisphere, including the United States, and a more optimistic period following the postwar Depression. By 1937, paper production at Kuusankoski had reached 200,000 tons. By the beginning of the 1920s, Kymmene had four pulp mills. On the completion of hydroelectric power plants and the steam-power plants at the Voikkaa and Kymmene mills, the company was virtually self-sufficient in energy.

During World War II, the production of sawed timber, pulp, and paper had to be curtailed to correspond to the reduction in demand and work force. Some of the company’s engineering capacity was put towards making munitions, and its paper division made utility articles both for the Soviet front and for the areas behind it. One third of the war reparations paid by Finland to the Soviet Union under the terms of the peace treaty ending World War II consisted of products of the wood-processing industry. Because of its size, Kymmene was the chief supplier.

The demand for forestry products remained brisk until the late 1940s. However, price controls imposed by the Finnish government at home reduced profitability. The company was also forced to relinquish about 60,000 hectares, some of it land expropriated by the Finnish government, for the resettlement of evacuees from the parts of Karelia ceded to the Soviet Union.

Not until the late 1950s and early 1960s was the company again in a position to extend its production, with a new newsprint machine at Voikkaa. A new sulfate pulp mill went online at Kuusankoski in 1964.

By 1966 the company was ready to expand its operations abroad. This time it joined forces with Oy Kaukas Ab to found a German subsidiary, Nordland Papier. In the latter half of the 1960s, Kymmene was one of the partners in Finland’s largest forest industry project to date, Eurocan Pulp & Paper Ltd., in British Columbia, Canada.

As one of the suppliers of chlorine for the petrochemical industry, Kymmene decided to expand its chemical interests in the late 1960s and early 1970s. The year 1970 also saw the establishment of Oy Finnish Peroxides Ab in collaboration with the U.K. company Laporte Industries Ltd. and Solvay & Cie S.A. in Belgium, for the manufacture of peroxide.

The output of the paper industry increased together with expansion into other fields. A large machine making supercalendered paper grades went onstream at Voikkaa in 1968, followed two years later by what was at that time the largest fine-paper mill in Europe, at Kuusankoski.

Expansion was also visible in the restructuring of the organization. In 1969, on the appointment of Kurt Swanljung as managing director, the company’s industrial operations were divided into seven fields of production: paper, pulp, conversion, chemicals, metal, sawmill, and board.

Kymmene purchased Soinlahti Sawmill and Brick Works in 1975, and with its subsidiary Star Paper Ltd. acquired the majority holding in the French company Papeteries Boucher S.A. in 1977. The same year also saw the start-up of the U.S. company Leaf River Forest Products Inc. in Mississippi. There were also plans for building a pulp mill in Mississippi. In 1979 the company reorganized its foreign interests in the forestry industry by selling its 50% holding in Eurocan Pulp & Paper and buying all the shares in the Wolvercote Paper Mill at Oxford in England.

By the 1970s Kymmene had steadily upgraded its range of paper products. In order to establish closer contacts with its customers and improve its marketing, in 1975 it decided to resign from the Finnish Paper Mills’ Association (Finnpap), which it had rejoined in 1946 after having left it in 1920. The main products not covered by its own sales organization were the newsprint and magazine papers made by the Voikkaa mill.

The company cut down its range of activities in 1981 with the discontinuation of its petrochemical activities—due to structural reorganization in the industry—and the closing of the Barnsley paper mill, which was unprofitable. An agreement was made with the Great Northern Nekoosa Corporation for the building of a pulp mill in Mississippi, in which Kymmene would have a minority holding. In order to even out fluctuations in the forestry and metal industries, at the end of 1982 Kymmene purchased the majority holding in Stromberg, a company producing electrical equipment. The parent company was renamed the Kymmene-Stromberg Corporation. In mid 1985, Kymmene-Stromberg sold a major part of its engineering division, the Högfors foundry, and closed the Boucher mill in Calais, France.

The first in a chain of mergers resulting in the present Kymmene Corporation took place in 1985, when Kymmene procured 45% of the shares in Oy Kaukas Ab. Shareholders of the two companies approved the merger on January 7, 1986. The result was a highly integrated forestry concern. Casimir Ehrnrooth, chairman of the board of Kaukas, was appointed Kymmene-Stromberg’s chairman of the board and CEO at the end of 1985, and Fredrik Castren continued as managing director.

In 1986 the company decided to concentrate exclusively on the forest industry; on June 19 the board of Kymmene-Strömberg approved an agreement selling Strömberg’s business operations to ASEA A.B. The company took the name Kymmene Corporation.

Cooperation with Oy Wilh. Schauman Ab became increasingly close in the course of 1986. A Schauman-Kymmene merger was approved in 1987 and came into force in 1988. It was decided to concentrate on two major fields of production, and consequently Kymmene’s Juankoski board mill, the printing works in Kouvola, and the self-copying paper mill were sold. The emergence of Kymmene Corporation in the late 1980s as Finland’s largest wood-processing enterprise, following two mergers, marked the joining of three companies each dating from the 19th century.

Gösta Björkenheim had been managing director of both Kaukas and Kymmene. He was the son of Robert Björkenheim, the founder, director, and owner of Kaukaan Tehdas Osakeyhtio— the name under which the Kaukas mill was originally established. Gösta Serlachius, nephew of Schauman’s founder Wilhelm Schauman, had taken the helm of Kymmene Corporation at the beginning of this century.

Gösta Björkenheim was one of the first Finnish industrial leaders to recognize the vital need for employers to band together against growing unionism, and he invited the pulp and paper manufacturers to join him in founding an employers’ association. Meanwhile Gösta Serlachius was building up trade relations with the European and U.S. markets. At his suggestion, three joint sales organizations were set up: the Finnish Pulp Association, Finncell; the Finnish Paper Mills’Association, Finnpap; and the Finnish Paper Agency.

Oy Kaukas Ab

One of the pioneers in spotting the potential of birch wood was Robert Björkenheim, who had birch in his own forests in southern Finland. Being engaged in the sawmill industry, he saw machine bobbins being made in his father’s homeland, Sweden, and went on to Glasgow to pursue the idea further. On February 6, 1873 Björkenheim and three others signed an agreement for the establishment of a bobbin factory at Mäntsälä on the banks of the Kaukas Rapids.

The first bobbin deliveries went to Scotland, where the largest buyer was Clark & Co. The production figures rose but little profit was made, and it was 1882 before a dividend could be issued. The dwindling birch resources in the timber supply area combined with the favorable outlook for this industry prompted the decision to found a new factory near Lap-peenranta in 1890.

For 20 years the Kaukas mill struggled to produce bobbins before selling out to Hugo Standertskjöld in 1894. Gösta Björkenheim, later to take over the management of Kymmene, was chiefly instrumental in steering the company into clearer waters.

In 1903 Kaukas became a limited company. Gösta Björkenheim suggested that a pulp mill be built to use up the waste timber from the bobbin factory, and the mill began operating in March 1897.

The customs duty levied on imported pulp was one reason for Kaukas’s decision to build a new sulfite pulp mill in 1904. The first major extensions were carried out in 1912, following which Kaukas was for a time Finland’s largest producer of sulfite pulp.

Initially, more than half of the pulp was sold to Russia, while the rest went to the domestic market. On the completion of the second mill it was necessary to look abroad for markets—first to Germany, and later to the United States. The years 1895-1914 were a golden era for the bobbin factory. The number of customers rose to 100, but the bulk of production went to large, regular customers in Russia, Germany, Austria, France, England, and Belgium.

In 1916 Kaukas expanded further by buying up all the shares in the Kaltimon Puuhiomo groundwood plant, including a considerable area of good forest. Later in the year Kaukas purchased Osakeyhtiö T. & J. Salvesen, thereby acquiring four sawmills and 69,500 hectares of well-stocked forest. The most significant investment in terms of enlarging the company’s forest reserves was the purchase of all the shares in Osakeyhtio Gustaf Cederberg & Co. in 1920, which brought with it 105,000 hectares of forest.

The voice of Jacob von Julin, managing director of Kaukas between the two world wars, was frequently heard on the committees set up on behalf of the industry as a whole to further matters of industrial and economic policy and to boost exports. He was also the chairman of the trade delegation sent by the Finnish government to Western countries in 1919. World War I brought a slump in the bobbin industry, and Kaukas had to look around for other ways of converting timber.

A plywood industry had begun in Finland in 1912, with the start-up of the Jyväskylä mill belonging to Oy Wilh. Schauman Ab, which was later to merge with Kymmene Corporation. The decision to build a plywood mill at Kaukas was made in 1924, and it began production in 1926. The main product was plywood to produce chests for tea, meat, and tobacco transport.

The output of sulfate pulp tripled and that of sulfite pulp quadrupled in the period between the wars. Between 1933 and 1935, the sulfite pulp mill underwent major expansion. As a result of World War I, Kaukas lost many of its forests and timber procurement areas. During this period, Kaukas evacuated many of its most valuable machines. The Kaukas bobbin factory was modernized after the war and the American method was introduced. Production of bobbins came to an end in 1972.

Kaukas’s plywood industry underwent modernization in the mid 1950s, including the addition of about 63,000 cubic meters of space. New lathes and glue presses were installed in the early 1960s. These were followed in the 1970s by peeling and drying lines suitable for making spruce plywood. In the 1970s and 1980s, the company placed emphasis on further processing of plywood.

The sawmills at Lappeenranta operated along traditional lines until the 1950s, when work began on a new mill that increased its capacity to 330,000 cubic meters between 1967 and 1971. In 1977 a further, medium-sized sawmill was bought in the northern timber procurement area, at Nurmes.

The pulp market was buoyant after World War II. Later, the war in Korea sent raw materials prices skyrocketing. But this was followed by a cost crisis in the Finnish wood-processing industry, due to fears of impending raw materials shortages, and political conflict with the Soviet Union, a major buyer of dissolving pulp used for chemical conversion. The company debated whether to stop manufacturing dissolving pulp altogether, but capital investments brought about a rise in quality and demand.

In the early 1960s the company decided to build a new sulfate pulp mill, which went on line in 1964. With a view to the further development of pulp production Casimir Ehrnrooth, managing director from 1967, proposed that the sulfite pulp mill be closed down and a second line producing long-fibered pine pulp be built at the sulfate pulp mill. This construction was done in the 1970s, and the mill was extended in two stages in the 1980s.

In order to diversify production a paper mill was established at Dörpen in the Federal Republic of Germany. On the withdrawal of the Canadian company from the joint venture, its place was taken by Kymmene Corporation. Nordland Papier’s first paper machine started up in 1969.

While paper production was starting up in the Federal Republic of Germany, Kaukas began to seek a suitable paper grade to be manufactured from its own bleached sulfate pulp. One of the central figures in the investigations, and later in the start-up of production, was Hani Piehl, now chief executive officer of Kymmene Corporation. The choice fell on lightweight coated (LWC) paper, a new type of magazine paper made from pulp, groundwood, and coating. The first production line at the mill started up in 1975 and the second in 1981. The choice of paper grade proved to be right, for with the steady increase in demand a good price level could be maintained.

Oy Wilh. Schauman Ab

Schauman, the company which merged with Kymmene in 1989, was likewise founded in the 19th century. Wilhelm Schauman, the founder of Oy Wilh. Schauman Ab, having left his job in a gun factory in St. Petersburg, settled in Pietarsaari and there began processing chicory in 1883.

In 1892 Schauman turned to timber, which soon overtook chicory in importance. In 1895, the year in which his sawmill started up, he started expanding in the Pietarsaari district. He ceased buying his timer ready cut in favor of standing timber. His exports of roundwood timber brought in good profits.

The second sawmill bought by Schauman in 1900 operated for many years at a loss, but his Pietarsaari sugar mill proved to be a profitable investment. His involvement with sugar nevertheless came to an end in 1919 with the merging of Finland’s sugar mills.

Having sold its sugar interests, the company concentrated on projects which led to the establishment of what is now a market leader in plywood products. He began with boxboard, later adding plywood. The Jyväskylä plywood mill represented a completely new departure. During the early years of World War I the mill flourished. Sales were good and profits large. Production in Savonlinna began in 1921, and in 1924 all the shares in a plywood mill at Joensuu were acquired.

Plywood was converted into chair bottoms, furniture, and board, and in 1931 a building joinery department was set up in Jyväskylä. Its main products were interior doors. Blockboard production began in Jyväskylä in 1933 and subsequently moved to Savonlinna. The mills at Jyväskylä, Savonlinna, and Joensuu merged in 1937 to form Oy Wilh. Schauman Ab.

During World War II the proportion of plywood products rose considerably. One of the most important products was a plywood tent for military use. In 1958 a chipboard mill was opened in Jyväskylä, in 1962 Schauman purchased a chipboard mill from Viiala Oy, and in 1969 a chipboard mill, built by Schauman went into production at Joensuu.

By the early 1990s, the company had chipboard mills in Joensuu, Ristiina (Pellos chipboard mill), and Kitee (Puhos chipboard mill). The chipboard mills in Jyväskylä and Viiala were no longer in operation, but Kymmene’s subsidiary, Finnish Fiberboard Ltd., had a fiberboard mill in Heinola.

Schauman’s second cornerstone was laid with the construction of a sulfite pulp mill in Pietarsaari begun in 1934 by a separate company, Ab Jakobstads Cellulosa-Pietarsaaren Selluloosa Oy. Pulp production doubled in the 1950s. The addition of a sulfate pulp mill, a paper mill, and a paper sack plant in the early 1960s meant a great increase in value-added products.

The next major investment in pulp manufacturing came in the first half of the 1970s, making Schauman the largest producer of market pulp in Finland. The Wisapak sack plant soon became the largest of its kind in Finland, and in 1969 Schauman purchased the Craf ’Sac plant in Rouen, France. The establishment of an industrial wrappings unit raised the output considerably.

All the former Schauman industrial divisions in Pietarsaari, sawn timer, pulp, paper, and packaging materials, have been grouped together to form the Kymmene subsidiary, Wisaforest Oy Ab. The divisions are known as Wisatimber, Wisapulp, Wisapaper, and Wisapak. With an annual output of 540,000 tons, the pulp division is one of the largest in Finland. Wisapaper’s present capacity is 135,000 tons.

Product development and the increase in plywood production have continued at a brisk pace since the 1960s. The most important technical innovations have been in the field of plywood gluing and the development of a wide range of coated and processed plywood products, as well as the use of spruce as a raw material. Schauman is now a world leader in plywood product development and the leading European plywood manufacturer.

Schauman has at various points in its history also made furniture, along with more conventional converted panel products. Half a century of joinery production came to an end in 1969. In 1971 Schauman became a producer of large sailing yachts after buying Nautor, a boatyard near the Pietarsaari mills.

Among the advantages of the Kymmene-Kaukas-Schauman merger have been greater financing potential and more effective operation and marketing. In order to exploit the advantages of a small company Kymmene demerged its five industrial divisions in Finland in 1990. The registered companies became fully-owned subsidiaries of Kymmene Corporation: Kaukas Oy, Kymi Paper Mills Ltd., Wisaforest Oy Ab, and Schauman Wood Oy. Similar status had already been granted to the subsidiaries abroad: Nordland Papier GmbH, Kymmene France S.A., Kymmene U.K. plc, and Caledonian Paper plc. This last mill project became the first and only one of its kind in the United Kingdom when it began LWC paper production in the spring of 1989. Kymmene U.K. plc’s mills at Blackburn and Oxford were sold in the spring of 1990. Expansion through acquisition continued in 1990, when Kymmene bought the large French LWC and newsprint manufacturer Chapelle Darblay S.A.

Principal Subsidiaries

Kaukas Oy; Caledonian Paper plc (U.K.); Chapelle Darblay S.A. (France); Kymi Paper Mills Ltd.; Nordland Papier GmbH (Germany); Kymmene France S.A. (France); Wisaforest Oy Ab; Schauman Wood Oy; Oy Nautor Ab; Combitrans Oy; Oy Finnterminals Ab; Maa ja Meri Oy and Jeuro Oy; Oy Paperi-Dahlberg Ab.