The story of Chemigate began in spring 2009 when BASF acquired Ciba, along with its starch operations, and the managers of the starch unit started actively looking into purchasing these business activities from the new owner. Fully confident in our abilities and the expertise of the committed and highly qualified staff, we were able to set up Chemigate Oy in autumn 2009.
At the end of the same year, BASF began the process for selling the starch business. Around the same time, PricewaterhouseCoopers was tasked with sale of the BASF-acquired production of starch-based dry strength additive and fixative (specialty chemicals) businesses, to avoid any clashes with competition laws. In the subsequent “clear and true” competitive situation, Chemigate proved its skills and strength in negotiations, acquiring both the dry strength additive and fixative production and the starch operations on October 1, 2010. On the very same day, we sold the operations for producing native potato starch to another MBO group, led by Ossi Paakki. The time had come to test our mettle and take the reins of the day-to-day operations.
After the transfer of business operations, our most pivotal tasks involved an investment in dry modification and the building of confidence particularly among our key customers. We succeeded in gaining the confidence, and starch sales volumes started to grow. Rising cereal prices and poor starch-potato crops in Europe, coupled with growing demand from the paper industry, led to improvements in the market price of modified starch, lending support to our new business. The shortage of potato starch material, however, tied up our sales resources. We were suddenly busy working with our customers to replace the potato-starch-based products with barley- and tapioca-starch products. The launch of our Scirocco dry-modification project meant that the other resources for production and product development too were tied up.
These early months involved plenty of hard work, but all of our staff members, regardless of their task, demonstrated true commitment to getting Chemigate off to a good start. And we succeeded! The sense of freedom and responsibility in combination with the successful start meant that we were feeling on top of the world.
But then the growing market of 2010 leveled out and our industry customers’ plight inevitably affected us also, leading to the closure of the Myllykoski factory and a decline in delivery volumes. The acquisitions related to the Scirocco project tied up a large amount of our capital, and we signed a financing agreement with Sampo Bank. However, at the end of the year, we started a new chapter in Chemigate’s history as that project reached its commissioning stage. We had a strong belief in the potential of special chemicals, and ACAT in Central Europe and ACM in the Nordic region were given the task of organizing their distribution. In the meantime, we began to review and further develop our product range. Our new financial manager, Mika Vuokila, recruited that spring, was put to the test at the end of the year when the dark clouds of a financial slump appeared on the horizon even though 2011 had, on the whole, been a good year for us financially.
The downturn in the paper industry that took place at the end of 2011, coupled with high prices of starch raw materials – manifested in record prices paid for barley – caused gray hairs for everyone in the organization before we ultimately succeeded in increasing our delivery volumes. With 2012 Chemigate met its first loss-making financial year, forcing us to trim operations and cut costs, even to the extent of having to let several skilled and experienced production employees go. It felt as if we were trapped in a quagmire with no escape in sight. However, everybody realized that we would reach firm land in the not-too-distant future. And we did manage to pull ourselves free, even though we had to make some tough decisions. We also succeeded in strengthening the company’s strategic cornerstone in the course of that year, by transferring the production of some wet-end starches to the more cost-efficient Scirocco line. Indeed, as the market situation started to look up at the end of 2012, we could look to the future with great confidence. The timing of the reorganization of our operations was perfect, and our hard work bore fruit when Chemigate was granted its ISO 9001 quality-management certificate, in August 2012. Our product development team was reinforced with Aki Laine and Silja Knuuttila, recruited with the goal of seeking new growth potential outside the paper industry. We achieved success in marketing our starch products to the gypsum board industry and water chemicals to the fish farming industry. Thanks to our determined work, we were breaking new ground in a broad range of fields. What’s more, growth in the sale of cationic reagents held promise of still better things to come. We turned our sights to China, where the paper and cardboard industries are still booming. We launched our Steed Project with a view to expanding our special-chemicals operations to the Chinese market.
No two years are ever the same, and in 2013 Finland saw a bumper starch-potato crop, giving also farmers new faith in the future. Customers started switching from tapioca starch back to potato starch. The profitability of starch-based modified products increased, a development that was speeded up by the fact that, thanks to all the hard work put in by our sales and production staff, the vast majority of our wet-end starch production was now taking place on the Scirocco line. Sales of cationic reagents also continued to boom. After the properties of the Scirocco-based coating starches were optimized – which required a surprising amount of work – we could focus our energies on the development of Scirocco-based surface sizing products. In August 2013, the Scirocco line made our hearts jump with fright as it suffered a dust explosion. We were fortunate that there were no injuries, and with hard work we even managed to limit the downtime to less than a week. Toward the end of 2013, we could start reaping the benefits of that year’s exceptionally good barley crop, with 2013 turning out to be fairly profitable.
Demand for paper continued to decline, prompting a scaling back of paper production capacity. On the other hand, our industry customers in both Finland and Sweden stepped up their investments in board manufacture. Our cationic reagent sales went from strength to strength, and we gained Finland’s largest market share for modified starches, making us the market leader. This is testament to the success of our strategy based on the flexibility in raw-material selection and competitiveness afforded by Scirocco. Our sales and marketing teams have been able to communicate these strengths to our customers in a credible manner, and our operations have borne out these messages. With specialty chemicals and hydrophobic sizing, we have not quite hit the jackpot yet, but the increase in sales of PrimeBOND products to the tissue industry is a promising development. In 2014, Chemigate posted its best result to date.
Demand from the paper and board industry has remained high this year, but an oversupply of potato-starch products caused prices to plunge in the first part of the year. In addition, we lost some of our market share. However, our sales of cereal-based starches have compensated for this, and since summer the price of potato starch has been climbing again. The latest challenge is the increasing price of barley starch, which will put our flexibility strategy to the test. Sales of dry strength additives have remained low, and, despite our best efforts, demand in China has remained elusive, because the test runs indicated that the products are not suited to the local conditions. Our positive experiences with tissue production in Europe encouraged us to focus on the tissue industry also in China. We believe that sector offers true potential for growth. The Steed team is again moving full steam ahead. The switch from our old ERP system to Oscar might have caused some nail-biting this year, especially in the summer, but we pulled the project off without any inconvenience to our customers.
When I look back on the last five years, I can see a huge number of successes and events that serve to strengthen my confidence in the future. We have the will to get things done! We have a long-term vision and a well-justified belief in our potential! Our product development team and the teams involved in our new business operations are performing their work steadfastly, mindful of long-term goals even though we have not been able to launch all of our new products. The market we operate in is challenging, and it accepts new products only after they have proven themselves. All of this takes time, and we cannot be successful in everything we do. However, our future is full of opportunities, as long as we continue striving for success and focus our resources correctly.
Another of our strengths is our willingness and ability to learn new things. This is reflected in the versatility that is so characteristic of our financial management; the production operations; and, in fact, all our personnel groups and units. We also have – and have always had – the ability to draw the right conclusions and make appropriate decisions on the basis of changes in the market, with regard to both customers and suppliers. Our operations and practices are rooted in our ability to provide top-quality added value reliably for our customers with our entire staff working as a team. This is something we have been extremely successful in!
We should look back on the last five years with great satisfaction and turn our gaze to the future with confidence.
Seppo Lamminmäki
CEO