Winner of the 2019 Entrepreneurship Award organised by Enterprise Estonia, the aspen pulp mill Estonian Cell AS is a traditional industry in the world of startups. 100% of the pulp produced in the factory in Kunda, a small town in north-eastern Estonia, is exported to European and Asian paper mills, where it is made into various paper products. The pulp produced by Estonian Cell canbe found in most paper products: wall paper, school exercise books, high-quality art- and printing paper, perfume packaging and even simple cardboard. The company exports to approximately 30 countries annually, from Germany to South Korea.
Belonging to the Austrian Heinzel Group, the Estonian Cell factory is unique in Estonia in many ways. Not only is it a very innovative company that values environmental sustainability, it is also special in terms of numbers. CFO Siiri Lahe points out that last year the annual turnover per employee was over 1 million euros.
The industry is also the biggest electricity consumer in Estonia, consuming more than 2.5% of all electricity in the country. The company started production for the Estonian market in 2006 and has since brought in over 200 million euros in foreign investment; it employs 90 people and more than 500 people are employed in the value chain.
Siiri Lahe emphasises that, even though it is the case in Estonia, there is no reason people should be afraid of industry.
“Heinzel Group has two much larger pulp- and paper industry companies in two small Austrian towns and, in the last few years, they have invested 400 million euros in them. Large industrial investments have been made in Austria, which has one of the highest quality living environments in the world. Austria is a popular travel destination due to its cultural heritage, ski slopes and charming small towns, full of flowers. In this context, the fear of industry seems strange. We should be bolder in learning from the experiences of countries with some of the highest living standards in the world,” emphasises Lahe.
Estonian Cell just won the Enterprise of the Year award, including the title of Foreign Investor of the Year. How important are these awards for the company?
Whereas we were nominated for the Foreign Investor award presented by Enterprise Estonia with our 20-million-euro investment and also expected to win it, the Enterprise of the Year title came as a total shock. We still cannot believe it! This is mostly due to the fact that throughout the time that Estonian Cell AS has been in production, we’ve had to convince the general public and decision-makers about the need for the company in Estonia, about the value we create for the economy by raising the value of low-quality aspen pulp more than fivefold.
Before receiving those awards, I was convinced that we would still have many years of explanatory work ahead of us. And then, unexpectedly, this recognition came in one evening through two awards – Foreign Investor of the Year and Entrepreneur of the Year. Those awards are indeed important for the management, owners and employees of Estonian Cell AS. Several employees sent me text messages during the award ceremony, saying that they are proud of our company!
Was it a surprise that at the time of many success stories of IT companies, this high recognition went to a so-called traditional factory?
In order to manage risks in the economy, there needs to be a balance between fields of activity and priorities. The existence of industry, especially industry which cannot easily be moved from one country to another, should provide a solid base and security in terms of several economic indicators.
It seems to me that Estonians are unappreciative of the value of industry on the economy and many fears stem from our past. Many Estonians over middle age still have images of Soviet factories that didn’t have the best environmental reputation. Younger Estonians have grown up in the Republic of Estonia where the role of industry has been relatively insignificant and hence, they have never seen contemporary and environmentally sustainable industrial production. From the beginning of production in 2006, Estonian Cell AS has used the best available technology in the world, complying with the strictest environmental regulations.
Many people are probably unaware that in modern industry, IT and technology are used in tandem. We are proud to say that the production processes in our factory have been totally automated from the start of production, and production management takes place only via computers. This has enabled us to reach a very high level of productivity with a relatively low number of employees. Namely, our turnover per employee in 2018 was over 1 million euros. This is a significant indicator in the Estonian industrial landscape.
As you export all of your produce to other factories, to what extent is Estonian Cell AS influenced by the global economy?
The global economy influences everyone indirectly, but especially exporting industries are influenced directly by global economic trends. The previous two years were great for our company, mirroring global economic developments. In 2018, the company finally became profitable after several years of losses. This positive change enabled us to deal with unexpected technological challenges as well as to create a 20-million-euro investment programme without bringing in loan capital.
Unfortunately, the global economic situation has drastically changed since the end of last year, after the US-Chinese trade war began. Due to the size and impact of the Chinese economy, we first felt the negative changes on the markets of states near China, but during the year this change started to impact European markets as well. We primarily feel this impact in the decline of sales prices, which brings everything to do with the cost effectiveness and competitiveness of our own prices into focus.
Do you have plans to add value to your produce yourself, perhaps starting to create products from pulp, which would raise export prices?
Throughout the years, Estonian Cell AS has worked in the name of producing various and higher profit margin pulp subtypes. To date, we have created five different products which, considering our one production line and limited storage facility, is still the maximum today. The range of products could be increased by focusing on growing production capacity in the existing factory or by creating another production line. Our current focus is on increasing the production volume of aspen pulp.
In terms of the economy, it would make sense to increase the volume of upgraded paper wood in Estonia, mostly because we have the resource and today about 3 million cubic metres of wood is exported from Estonia as raw material without added value. In order to produce any paper products, it is necessary to first import the rest of the ingredients into Estonia.
It is also important to clarify that Estonian Cell AS produces aspen pulp, and the production technology and -process are significantly different from that of producing cellulose. Whereas in cellulose production the wood is boiled and treated with specific chemicals, the production of pulp entails the mechanical crushing of food and, in order to achieve the required brightness, we only use environmentally friendly chemicals. Therefore, the production of pulp is free of odour.
As a side product from your factory, Estonian petrol stations sell biogas. For this you had to make a notable – and you’ve also said risky – investment. Why did you do it?
Throughout the years, our owner and company have been bold enough to make innovative investments. When establishing the factory in 2006 in Estonia, it was the world’s most powerful and effective single production line at the time. In 2014, we were the first in Europe to start the production of biogas in addition to the main production of pulp, and we became the largest biogas producer in Estonia.
As investments are expensive, those decisions have been made after thorough analyses and calculations. Numerous pilot tests preceded the creation of the biogas complex. We started to explore this issue because the warm sewage water from the production process of Estonian Cell AS is energy-dense due to the wood and chemicals used. We used to go through a lot of trouble to cleanse this water according to requirements, before directing it into the sea.
As our sewage water is rich in organic substances, at a suitable temperature and without toxic ingredients, the research showed that it is very suitable for the production of biogas. Therefore, we were able to make the innovative and risky 11-million-euro investment into the largest single container biogas reactor in Europe, in which live organisms break down the energy-dense organic substance into methane and carbon dioxide.
It is noteworthy that our biogas production was achieved and functions without a support scheme. This investment has enabled us to become the largest Estonian biogas producer. 7-8 million cubic metres of 75% biogas is produced by our factory and, after it is upgraded by our good partners onto the level of natural gas, subsequently sold by Estonian petrol stations.