Employee-owned paper mill closes, with almost 475 jobs lost

Employee-owned paper mill Tullis Russell has gone into receivership, with almost all its 475 employees losing their jobs.

Tullis Russell Papermakers, which was founded in 1809 and manufactured board for cards, covers and packaging from a 100-acre site in Markinch, Fife, had been making significant losses for several years. The final blow came when its most valuable customer went bust.

Parent company the Tullis Russell Group began the transfer from family to employee ownership in 1986 and completed an all-employee buyout in 1994. Its two other subsidiaries, Tullis Russell Security & Speciality Coating, in Cheshire, and Tullis Russell Image Transfer, in South Korea, will continue to trade as employee-owned under the group.

David Erdal, who led the transfer from his family to employee ownership and retired from the board in 2004, is now a writer and researcher on employee ownership. He said the move was forced when the firm’s most profitable customer, PaperlinX, went bankrupt on 1 April.

Tullis Russell Papermakers had already made losses of around £18.6m over the past five years. Most of its sales were to Europe, and the strength of sterling against the euro had taken millions off its bottom line while oversupply in the global paper market was stifling demand.

The company found new custom in luxury packaging and digital applications, but volume fell to 14% below 2008 levels, with a substantially weaker profit margin.

“International pressures have caused the closure of pretty well the whole UK printing paper manufacturing industry,” said Mr Erdal. “No ownership system can save a business undermined by global competition from better-placed competitors.

“European production of printing paper has shrunk in the last ten years from 40m to 29m tonnes. There have been mill closures all over Europe. Tissue and packaging mills remain viable in the UK, but printing paper mills have closed.”

Group chief executive Chris Parr said the move was “terribly sad”. “Since the global recession in 2008 demand across the traditional markets for [Tullis Russell] Papermaker’s products has fallen by 40%,” he said. “Our primary raw material, wood pulp, is now trading at consistently higher price levels than ever before.”

Since March 2014 RWE Npower has operated a £280m biomass plant on the site, which initially halved the mill’s energy costs. Fred Bowden, chairman of the group and Papermakers boards, had hoped this would provide three years without losses and an opportunity to make essential technical changes.

“We thought that would have transformed the business,” he said. “But things moved much quicker than anyone expected.”

The group and Papermakers boards engaged KPMG to manage a trade sale of the mill between October 2014 and March 2015. More than 70 traders considered the opportunity, but all rejected it.

Things came to head with the failure of PaperlinX and on 27 April, Tullis Russell Papermakers went into administration.

“We were having to stop machines,” said Mr Bowden. “The costs of running the mill are dependent on filling machines with orders. We started to go into huge losses.”

Mr Erdal added: “Things happened so fast there was no consultation. It was necessary to go straight into administration. When a company is insolvent it cannot trade, so there was no chance to do things properly.

“When the company was strong it closed a coating mill, in Stoke-on-Trent, in an exemplary way: 18 months warning for everyone; paid time for people to look for jobs; extensive support for job search skills and approach. Because everyone had been briefed every month it was no surprise to them.”

But this was not possible at Markinch.“The most distressing thing was people think we should have been out consulting,” said Mr Bowden, “but our intention was to try to find solution to the problem; to try to find a buyer. Events just overtook us.”

Blair Nimmo of KPMG, joint administrator at Tullis Russell Papermakers, said a second sales round covering everything from brands to equipment was now under way. The amount owed to Tullis Russell Papermakers by PaperlinX and other debtors is not on the record, but its debts are insured.

“Although many have lost their jobs, the employee owners’ shareholdings should retain some value because the two other businesses in the group are continuing to trade,” said Mr Nimmo. “But the papermaking business was the largest part of the group, and the group will lose any value that was ascribed to it, which will affect the value of its shares.”

Almost all the group’s employees – including 475 from the papermaking business and more than 200 in Cheshire and Korea – are shareholders, along with more than 100 former employees.

Mr Nimmo said: “For the employees we tried to be as sensitive as possible. We hooked them up with government agencies. Neighbouring employers have been contacted and some have come forward. Some people have got jobs but it’s going to take time.”

Those involved in the closure pointed out that it was not a reflection on the employee-ownership model.

“Employee ownership is not the cause of this closure,” said Mr Erdal. “All the evidence points to extra productivity, innovation and longevity being characteristic of employee-owned companies.

“In employee ownership, the performance of Tullis Russell Papermakers has been stellar. All other UK printing paper mills but two have closed. Only Tullis Russell stayed viable on its own feet.”

Iain Hasdell, chief executive of the Employee Ownership Association, said: “Employee-owned businesses run very commercially and have to make hard commercial decisions.

“On the other hand the commercial decisions look and feel different in that the workforce understand the issues. There’s a transparency, much more than in an externally owned business.

“In most receivership and closure situations what you find is that the workforce are bitter. In Tullis Russell the workforce is bitterly disappointed but not bitter and that’s because of the transparency, teamwork and co-operation that’s been in place for many years as they’ve tried to battle this global trend.”

Mr Nimmo agrees. “There’s a different atmosphere and feel to this particular case,” he said. “While it was difficult for the employees, both the management and the employees were in the same position.

“It’s not common to see this. In most administration cases the management are very much looking after the business and themselves first and this case wasn’t like that.

“In many ways it makes it more tragic. It’s a big, big business in Fife. It’s a large, employee-owned firm. In some cases it’s the fourth generations of families working there.

“I couldn’t speak more highly of the management team. They’ve tried everything to prevent this.”

But Mr Bowden said there were difficulties within the membership.

“Some people took it badly,” he said. “Some thought we were very deceitful. We had a difficult balance between being transparent and trying to keep people’s spirits up. If we’d have known what was coming I wouldn’t have any difficulty telling people the truth.”

Mr Erdal said: “Tullis Russell will continue. Its other two sites will continue in operation, both of them consistently profitable and successful in employee ownership, with a turnover of £36m. These operations will actually be stronger without the papermaking, which has in recent years sometimes been a financial drain.

“Tullis Russell lasted longer than the conventionally owned companies because of the commitment and productivity of the employee owners. Its employees achieved the transformation of culture to one of participation, involvement and the sharing of wealth.”