Kotkamills Grows Through Extreme Perseverance – And Now Plans to Become the Leading Manufacturer of Plastic-Free Carton Cups
In just a few years, Kotkamills managed to make a huge leap in growth – a traditional company created an increase of more than €200 million in turnover from nothing. Much of this was earned with its familiar cardboard and carton products, but coffee-loving consumers know Kotkamills for its alternative to plastic-coated cups.
The idea for cup carton came about eight years ago on a sailing trip in the Finnish Archipelago. Markku Hämäläinen, the current CEO of Kotkamills and a veteran of the forest industry, saw all the plastic rubbish that had accumulated on the shores.
An acquaintance, who was also a forest industry veteran, had told him recently that now would be time to promote the development of plastic-free carton for food products. He thought that plastic would turn out to be an even bigger problem in the future.
The idea of cups made entirely without plastic coating seemed to make sense. However, Hämäläinen knew well how the forest industry worked, and was not surprised when the idea was not well received.
“The forest industry is very conservative. If something hasn’t been done already for 50 years, it can’t be a good thing. There is a lot of discussion about great innovations in the industry, but in reality very little has been done.”
But the current situation required new uses for the fine paper machines. So why could it not be cup carton?
Hämäläinen decided to start promoting this idea by himself. One of the first issues they needed to address was technology: recyclable material would require several different top layers. In practical production, this would mean a carton machine that is longer than usual. And if the machine was long enough, where would you find a hall long enough to accommodate it?
Another problem to be addressed was funding. The idea seemed appealing already at the design stage, but realising it would cost tens or even hundreds of millions of euros. And who would invest in it? The banks, at least, would not grant them such sums.
An Investor Who Gets Heavily Involved
The first thing to consider is money. Finding investors took time: Hämäläinen says he had already met at least 50 potential investors face to face.
He spent hundreds of thousands of euros of his own money for the investor meeting trips and the required reports. He had to sell his sailing boat, and the family house would have been next in line.
In the end, though, his hard work paid off. The next investor he would meet was Hannu Puhakka from MB Funds. He thought Markku had a different approach to his.
“One decisive factor became clear during our call: Markku had directly asked his customers what kind of products they wanted. The groundwork had been laid with the kind of thoroughness that’s hard to find,” Puhakka says.
In their discussions, the parties came to the conclusion that if they did decide to collaborate, the sum invested had to be big enough that there would be some flexibility when needed. Puhakka estimated that in addition to the acquisition, they would need at least €150 million more, which meant that they needed co-investors.
“It would be a mistake to get involved in something like this without doing it properly. Responsible ownership guarantees that the company is able to operate even in tough situations. We prepared for the worst,” Puhakka says.
A new factory would have cost €400 million, but thanks to the existing Kotkamills factory there was no need to build a new one.
Hämäläinen contacted Puhakka in October 2014, and the following year MB Funds acquired Kotkamills together with the company’s management and co-investors, namely Elo Mutual Pension Insurance Company, Nordic Mezzanine, and Tesi.
While negotiating the deal for the factory with American OpenGate Capital, not a single word was said about the future plans. Otherwise, the seller could have raised the price.
After the acquisition, the factory’s paper machine was transformed into a machine that produces carton for food products. The investment cost €180 million.
It was decided already back then that the machine had to be profitable with normal folding carton. The company did not want to rely only on cup carton, since running the machine is expensive. The fixed costs alone are €30 million per year.
Firm Faith in a Plastic-Free Solution
At first, the situation undoubtedly seemed daunting: no carton had been manufactured in Kotka before, and the cup carton designers did not have even a single customer. However, they had the largest carton machine in Europe at their factory at the time.
Hämäläinen’s faith still did not waver, however. There would certainly be demand for plastic-free carton, even though five years ago plastic was not considered as such a problem as it is today.
Kotkamills was a clear challenger that was bringing something genuinely new to a conservative market.
Something so new that the company even had to figure out a functioning technology by themselves. Prior to its investment, MB Funds ordered a €50,000 test sample of cup carton from another factory, and at the office they heated it with a clothes iron and shaped it to create a mug that resembled a test cup. Next, they held their breath to see if the material could actually withstand different liquids – and it did.
“Although this idea involved a completely new method, they did not have to develop any entirely new components. All the necessary bits and pieces existed already, and Markku just arranged them in a new way. We managed to add seven layers around the carton, which allowed the cup to withstand even boiling water,” Puhakka says.
Heavy Investment in the Working Atmosphere
In addition to Hämäläinen’s perseverance, Puhakka was impressed by his view of the factory’s atmosphere. Working had to be made pleasant, because only then could the world’s most efficient carton machine operate optimally.
The key factor in a work community is trust, and it is achieved through plenty of dialogue and openness. It was made very clear to the staff that Kotka now has a machine that is designed to run for the next 30 years. Hämäläinen got the employees to join him, to find out together whether the system would work.
And it did. An exceptionally open culture of negotiation has brought a lot of positive attention to Kotkamills, and the factory has, for example, managed to avoid industrial actions.
“Markku was looking for a new perspective on the operations. There is no confrontation between the management and employees,” Puhakka says.
So how has the collaboration between the management and the investors worked during these major changes?
Both think it has worked very well. Hämäläinen is especially grateful for the support he has received from Puhakka. This was needed in difficult situations in particular.
In Puhakka’s view, support is crucial during hard times. The time for constructive feedback comes later, when the most acute difficulties are over.
“I said right at the beginning that one important thing is enough. And that’s telling me any bad news right away. You shouldn’t hide problems – collaboration needs to be completely open,” Puhakka says.
He adds with a laugh that sometimes he received calls even before eight in the morning.
Coffee at a European Marketplace – in a Kotkamills Cup
In the beginning there were several tight spots, and Puhakka describes how the dark circles around Hämäläinen’s eyes would sometimes be an indication of sleepless nights.
But there were also many positive moments. The most notable of these was the American NextGen competition, where the challenge was to find a plastic-free packaging material. Kotkamills was the only industrial operator to receive the top award.
The competition was important, as it was organised by big brands such as McDonalds. Immediately after winning the competition, Kotkamills received contacts and test runs from well-known brands, although the Covid-19 pandemic slowed their advancement on the market.
They received one major customer before the pandemic, in 2019, when the coffee brand Lavazza wanted to use plastic-free carton in its products. This meant that takeaway coffees would be drank from Kotkamills cups across Europe more and more often.
According to Hämäläinen and Puhakka, if not for the pandemic the cup carton would have made a breakthrough internationally by now.
In addition to the pandemic, another surprise was time. Although there was great interest in the cup carton, the route to the end customer was very slow because of all the testing. Price should not be a hindrance, since fully plastic-free carton costs only less than half a cent per piece more than a normal carton cup.
Direct Dialogue in Addition to Direct Action
At this stage, Kotkamills’ profits mostly come from folding carton. Cup carton is sold according to demand. The company would be happy to sell even more cup carton, but for now it is not profitable.
Although the rapid increase in profit from zero to €200 million in a couple of years is due to folding carton, it is not the whole story. Cup carton has been the driving force both in raising funds and in the acquisition of Kotkamills by the Austrian company Mayr-Melnhof Karton AG in December 2020. The Austrian company is Europe’s third-largest manufacturer of folding carton.
Puhakka says that MB Funds would not have become part of such a large-scale deal just for ecological and social reasons.
“However, they were indeed additional motives to becoming involved, and the social reasons were an extremely big plus in the end. It may be that the goal would not have been reached without them.”
In addition to being plastic-free, Kotkamills also wants to promote social responsibility, for example by hiring people from harder-to-employ groups, such as the mentally disabled, and by providing the local hospital district with masks through a familiar network early on in the pandemic. The company invested twice as much in wastewater treatment as the minimum requirements demanded.
Their vision for the future is clear: with its second machine, Kotkamills will move from its current second or third place to become the number one manufacturer of laminate in the world. After three years, cup carton will account for half of the carton machine’s production, and after five years it will be three-quarters.
A sales office will be opened in the United States in spring 2021.