• Text size      
  • Send this article to a friend
  • Print this article

When the chips are down Tullis will be powering on

THE giant red crane that spent much of the summer towering over the paper-making plant at Markinch near Glenrothes has finally disappeared.

focus: Chief executive  Chris Parr believes Tullis is well-placed with virtually no debt and is on the lookout for acquisitions. Main picture: Steve Cox
focus: Chief executive Chris Parr believes Tullis is well-placed with virtually no debt and is on the lookout for acquisitions. Main picture: Steve Cox

The grey building that it obscured stands alone at last, and will soon be chuffing great furls of smoke into the autumn sky.

It might be little more than factory fumes to passers-by, but Chris Parr knows better.

To the chief executive of Tullis Russell, the company that has made paper in Fife for more than 200 years, the new £200 million biomass power plant represents peace of mind.

When owner RWE npower finishes the six-month test period next year, the Tullis management will be able to stop looking anxiously at coal and gas prices. Instead they will get their power and steam from burning wood chips, most of them recycled, using around 17MW of the output from this 50MW plant and selling the rest to the grid.

It will allow the company to shut down the inefficient 1950s power station that sits onsite, putting an end to rising energy costs that have gone up 30% in the past year alone.

"This will make a significant difference to our annual energy bill," says Mr Parr. "It also reduces our carbon footprint by 250,000 tonnes a year [ending the need to buy carbon credits under European Union Emissions Trading Scheme]. It gives us an important differentiation in our sector."

Tullis has endured a year of morale-sapping bad fortune that started during last year's festive season when someone broke into the plant one night and started a fire. Numerous stacks of wood pulp were destroyed, though luckily there were no people in the vicinity.

Firefighters brought things under control before any buildings were damaged, but the plant did not get off so lightly when the ferocious January storms hit days later. They toppled a wall on to a roof and caused severe damage.

Together with the fire, it cost around £1.5 million to repair, though most of it was later recouped through insurance.

Then came an equally unexpected blow from New York of all places. Tullis was one of a long list of investors that had money in MF Global, the Manhattan-based derivatives giant that sank in the spring at the hands of a rogue trader. Tullis has been left out of pocket to the tune of around £200,000, having used MF to protect itself from fluctuations in the carbon price that would no longer have been necessary once the new plant starts producing next year.

"Our claim is in with the receiver, KPMG," Mr Parr says. "We are just an unsecured creditor. It is a huge amount of work to unravel all the machinations."

The wider context for Tullis has not been too clever either. The cost of the bales of white wood pulp that work their way through the company's huge sheds of whirring machinery has leapt into orbit in the past few years. This is thanks to the Chinese, who have massively distorted the market by swiftly becoming the buyers of around one-quarter of the world supply. This has more than offset the fact that European players have been scaling back their requirements for Tullis's most important commodity.

"Opportunistic suppliers," as Mr Parr calls them, have shown little sympathy for the fact this has coincided with a big drop in demand for paper products due to the weak economy, down around 15% in Tullis' case.

In the year ended March 31 2011, the Fife company's paper business made a pre-tax profit of just £1.1m on sales of £141m. This sub-1% margin, which is a loss when inflation is taken into account, was itself a big improvement on the previous year's £2.6m loss.

"We did a huge amount of cost cutting," says Mr Parr. "And we passed some increases on to customers. Some of it we also had to absorb."

Tullis still has two important advantages over its sector.

It does not make ordinary grades of paper, a market so competitive that most Scottish papermakers have been driven out of business in recent years.

It focuses on premium papers and boards that are used for everything from perfume packaging to corporate annual reports to special coverings for undersea cables.

Tullis's second advantage is its specialist coatings arm, which operates not from Fife but from plants in Cheshire and South Korea.

It makes coatings for products as diverse as ceramics, sports equipment and textiles.

Where the main paper customers are in the UK and Europe, coatings is almost as big in Asia as in this continent.

Its £42m 2011 sales might not flatter the Tullis management's vanity to the same extent as paper, but they can thank its £2.8m bottom line for their sanity.

Although much of the company's strategy for the future seems to surround expanding coatings, particularly in Asia through the recent opening of a new distribution outlet in China, Mr Parr deflects any suggestion that paper is just a legacy business made possible by extra-Scottish activities.

"We have had over £200m investment from the biomass plant," he says. "Not many of our competitors could best that. It presents a really good and positive platform for the paper-making business."

He says it is the sort of long-term decision that is much easier for an employee-owned business than for a listed company. The Tullis management is proud of the company's structure, which leads to things like prolific information sharing with staff and employee representative boards. Mr Parr, who must also be re-elected by staff every three years, has his own additional attachment to employee ownership. He joined the company as an accountant on January 13, 1994, the day the switch took place, becoming chief executive in 2007.

Of the company's financial performance since March 2011, he says profits slipped back in the 2011/12 financial year.

He says things picked up in the first quarter of the 2012/2013 financial year, thanks to improving customer demand and pulp prices benefiting from slightly less Chinese exuberance.

The commodity is at least on a plateau, if not coming down slightly, which is helping to create a renewed sense of stability in Fife.

Mr Parr adds the company has virtually no debt and is looking for acquisitions.

He says: "We have net positive funds and a decent bank facility, so we could finance sums of £5m to £10m for an acquisition.

"We are looking for something that is complementary to our specialist coatings business, such as on the security side of things. We are running the rule over a number of potential targets that we have been tracking for some time."

Such a deal might tilt the business's profits engine further from Scotland.

As wood smoke curls into the Fife sky this autumn, the workers might be thankful that their employee ownership structure has no external shareholders asking difficult questions about how long this state of affairs can endure.

Contextual targeting label: 
Finance

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

121184