Mo och Domsjö AB

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Mo och Domsjö AB

Hörneborgsvägen 6
S-891 80 örnsköldsvik
Sweden
(660) 750 00
Fax: (660) 158 45

Public Company
Incorporated: 1873
Employees: 13,414
Sales: SKr18.43 billion (US$3.27 billion)
Stock Exchange: Stockholm

Mo och Domsjö (MoDo) is one of Sweden’s largest forestry companies, and is the third-largest private forest owner in Sweden. The company’s activities were further enhanced by its merger with paper producers Holmens Bruk and Iggesund Bruk in 1988. The MoDo group enjoys a comfortable position in the international markets for forest-industry products, especially writing and printing paper, paperboard, newsprint, and market pulp.

MoDo’s history needs to be seen against the background of the Swedish forestry industry in general. Sweden has long been one of the most heavily wooded countries in Europe, and even now forests cover 68% of its territory. Successive Swedish governments have done much to promote the export of forestry products ever since the middle of the 19th century, when European industrialization increased the demand for timber, and at the same time mass emigration and rising agricultural productivity allowed the release of surplus land for timber harvesting. The legislation which had restricted ownership of forests to the iron industry was repealed, the depletion of the Norwegian forests removed a major source of competition, and the shift in British trade practices toward free trade in the 1840s removed the tariffs and the policy of colonial preference which had kept Swedish products out of what was then the major industrial market.

J.C. Kempe was among the many entrepreneurs who thrived in these circumstances, which, especially in the boom years of the 1850s and 1870s, resembled a gold rush in their impact upon the economy and society. Kempe was a member of a family that had long been settled in Pomerania—then eastern Germany, now western Poland. He went to Sweden to work for his uncle, a sugar refiner, but then entered the forestry industry through a series of accidents. Kempe had a disagreement with his uncle and went to work in a trading office owned by the father of his friend Olof Johan Wikner. Kempe then married Wikner’s sister, and in 1823 the two men took over the business after the death of Wikner’s father. Their main water sawmill was at Mo, inland from the port of Örnsköldsvik. Kempe became sole owner in 1836 and expanded the business to include iron works, shipbuilding, and manufacturing of wood products. The Swedish sawmill industry started to expand more rapidly around 1850 when steam engines were introduced to replace water sawmills. In 1865 J.C. Kempe built a steam-driven sawmill at Domsjö, near his other mill. By this time he was exporting his timber to Britain, Germany and France.

Mo och Domsjö, driven by Kempe’s wish to make full use of its forest resources, also became one of the leading participants in the pulp industry, which produced the raw material for paper and other products, and which had begun in Sweden in the 1850s. It was in the 1890s that pulp became a leading export. Pulp mills used the lower grades of timber which the sawmills did not want, and much of the waste from the sawmills could also be chemically transformed into pulp in sulfile mills. J.C. Kempe’s son Frans built a sulfite mill at Domsjö in 1902-1903. The first sulfite pulp mill in the world had been built in Sweden in 1871. Use of sulfite continued to grow, and by 1914 sulfite mill production accounted for over a third of the company’s revenue.

Frans Kempe was also a pioneer in the use of scientific forest management methods. He also worked to provide better housing for the company’s workers. Mo och Domsjö continued to innovate, and was the first Swedish company to use birchwood, previously used only for fuel, in making paper pulp. Frans continued to expand the company by adding a further sulfite mill.

The Forestry Act of 1903 required regeneration of forests after felling. Even so, new planting could not keep up with demand, and competition developed among the companies as the forests were depleted. By 1906 purchases of land by forestry companies had become a political issue, and the government, fearing the disappearance of peasant landowners, introduced what was virtually a ban on further acquisition of land by Mo och Domsjö and its competitors.

World War I saw a sharp increase in pulp prices, which made sulphite mill production extremely profitable. The company continued to grow under Frans Kempe’s son, Carl, who took over the business in 1916. Mo och Domsjö began production of kraft pulp in 1919, by which time pulp had become MoDo’s main product. During the 1920s and 1930s the introduction of new saws, ranging from frame saws to mobile circular saws, decreased production costs in some cases, though their use was limited to certain types of lumber. The means of transporting wood and wood products also changed. River floating had been a cheap and popular method, but the growing use of trucks made the distribution of wood products cheaper and freed the forestry companies from the need to site their mills near rivers.

These interwar years saw a slowdown in the forestry industry. The pulp producers’ demand for timber was so great that the forests were seriously depleted and the price of timber rose, while their ability to offer higher wages than other sectors of the industry attracted workers away from those sectors and damaged growth opportunities in other industries. At the same time it was difficult to import extra timber from countries like Finland since they too had restrictions on their timber trade in an effort to protect their rapidly depleted forests. Firms like Mo och Domsjo, which combined lumber milling with pulp production and owned their forests, were thus better placed to survive this period than their smaller competitors, and even to expand. By 1939 the company was running two large sulfite mills and one kraft mill. During World War II, production facilities at the sulfite mills had to be used for the production of other types of pulp to replace imports, such as cattle feed stocks. This led to increased production of chemical derivatives, which was to provide a foundation for the development of the chemical industry in Sweden into a profitable unit after World War II, offsetting volatility in the company’s core forestry industry.

The output of pulp has greatly increased and the mechanization of the production process has intensified in Sweden since the 1950s. Within the Swedish pulp and paper industry there have been major structural changes between 1953 and 1985. There were 129 production units in Sweden in 1953, but only 57 in 1985, though total production has continued to increase. With Erik Kempe as managing director, Mo och Domsjo implemented new techniques for various processes ranging from wood handling to digesting and bleaching. In 1951 it constructed a mill for production of fine paper in Hornefors. In 1959, after Kempe’s death, Bengt Lyberg took over as managing director. The company now became interested in petrochemical production, and a site was chosen on the west coast of Sweden, where a plant was completed in 1963. It acquired other companies in the same field, such as Svenska Oljeslageri AB. Mo och Domsjö’s interest in petrochemicals lasted until approximately 1973, when it decided to sell off this side of its business because this diversification was not performing the function originally intended for it.

It was during the second half of the 1960s that the company changed direction under its new chairman, Matts Carlgren, who succeeded Carl Kempe in 1965. In a natural step toward integration, the company began to produce its own paper from its own pulp, building on the success of the Hörnefors mill. Its acquisitions under this strategy included the French fine paper mill Papeterie de Pont Sainte Maxence (PSM) and other fine paper businesses based in Sweden. In 1972 a new plant was opened in Husum which integrated the production of fine paper and of kraft pulp. As it continued to expand and modernize this fine paper division it established an even stronger position within the European market by acquiring wholesaling companies in the United Kingdom, France, the Netherlands, and Norway. Mo och Domsjo also entered the tissue industry, with several acquisitions of companies in Belgium, the United Kingdom, and in southern Sweden. Integrated as MoDo Consumer Products Ltd., these firms manufactured consumer products including sanitary pads, infant-care products, and other soft paper goods. The group’s vertical integration extended into sole ownership of, or partnership in, 30 hydroelectric power stations in the far north of Sweden.

During the 1980s MoDo had concentrated on acquiring shares in Iggesund Bruk and Holmens Bruk, and it now decided to gain control of both. Holmens Bruk was one of Sweden’s leading producers of newsprint. It had originated in the early 19th century, becoming a limited liability company in 1854 and expanding its textile interests alongside its paper production. It bought up forests in southeastern Sweden and established a newsprint mill in 1912-1914. After World War II, the Swedish textile industry gradually ceased to be profitable, and in 1970 Holmens left the industry in order to concentrate on newsprint.

Iggesund Bruk, by contrast, was a leader in paperboard production. It dates back to the 17th century, when an iron works was founded that went on producing till 1953, while a steel-making plant continued to operate for a further 30 years. The group’s involvement in the forestry industry began early in the 20th century with the establishment of a sulfite pulp mill and a kraft pulp mill, and the acquisition of a sawmill in Hudiksvall. During the 1960s sulfite pulp production was abandoned, kraft pulp production was expanded, and the production of paper-board began, with a view to supplying the packaging and graphics industries. The group acquired forests and built up interests in steel, engineering, and chemicals through a series of acquisitions. By the late 1980s, however, Iggesund had divested itself of all its non-forestry interests apart from a 50% holding in a steel firm. Its main product continues to be paper-board, along with some output of pulp and high-quality wood for the furniture and building industries in Western Europe. Mo och Domsjö’s acquisition of the U.K. firm Thames Board Ltd. in 1988 strengthened its position as one of the leading producers of high-quality paperboard in Europe.

MoDo’s purpose in taking over Holmens and Iggesund was to create a third giant in the Swedish forest industry, challenging the first- and second-ranking groups, Stora and Svenska Cellulosa (SCA), by diversifying its output. The MoDo Group also has interests in 25 companies which, since the Group has only 20%-26% of the voting shares, are treated as associated companies.

MoDo showed increased profits in 1987 as the price of pulp rose. In 1988 MoDo decided to sell off its soft paper division to the Finnish company Metsá-Serla. Although this division’s domestic market share was significant, the company’s leaders felt that its share of the European market as a whole was not sufficiently large to justify its existence as a diversification, and that it would be wiser to concentrate on the profitable fine paper and newsprint divisions. In 1989 MoDo showed a drop in sales, but a rise in profits, owing to the sale of the soft paper division.

MoDo and the Swedish forest industry in general have been affected by the general movement in Sweden toward reducing environmental damage. Strict regulation by the Environment Protection Board has led the industry to clean up its operations, to such an extent that several lakes “killed” by forest industry effluent have become biologically active again. However, MoDo’s adoption of more environmentally friendly methods such as oxygen bleaching preceded government regulations, and the company can be seen as a pioneer in the use of environmentally safe production techniques.

MoDo’s profits grew steadily throughout the 1980s, but as the Swedish economy suffers from rising costs of energy and other resources in the 1990s, MoDo will face difficulties. MoDo is structurally sound and will continue to concentrate on strengthening its position within the European Economic Community, which is its main market. There is also some potential for increasing production of newsprint, writing paper, and printing paper for the new markets of central and eastern Europe, although these markets were not expected to be of a significant size until the mid to late 1990s.