The market is the message – Bernard Cassell interview for Print21 magazine

There is no substitute for listening to the marketplace when making business decisions. It is something that CEO Bernard Cassell is looking forward to concentrating on now that CPI’s transformation into Australia’ second largest paper merchant is complete. He spoke with Patrick Howard at the Sappi Awards in Boston.

The decision to take over the Australian business of the Red Paper Group and reinforce CPI as the unquestioned second largest paper merchant in the country, is only the most prominent of the strategies that have preoccupied Bernard Cassell in his four years as managing director. During that time a corrosive pricing environment for paper, a rigorous reorganisation of the company’s financing, the sale of loss making divisions and properties together with a restructuring of the graphic machinery division saw the company’s fortunes come under sustained pressure. A long and disruptive court case against Stora Enso didn’t help, even if CPI did eventually come out the winner on appeal.

Now that the dust is beginning to settle, Bernard Cassell is keen to get back to doing what he says he does best—addressing the marketplace and running the business. Sitting in a breakfast room in the Taj Hotel in Boston during the Sappi Awards, it is easy to recognise his enthusiasm for paper merchanting and his conviction that CPI has a vital role to play in a worthwhile industry sector.

Getting up to critical mass
According to his reading of the situation, the takeover of the Red Paper Group’s paper merchanting operations in Australia (while letting go of the CPI paper business in New Zealand) was a necessary growth strategy.
“The industry is evolving very rapidly, the customer base is concentrating and large tenders are becoming increasingly common. To meet the challenge posed by this concentration the merchant sector needs to evolve too. Companies need to reach a certain scale through consolidation otherwise they will remain too small to effectively service the larger customers. Over the years, PaperlinX has enjoyed the advantages of scale, now we will be able to gain similar efficiencies,” he said.

With the creation of the larger CPI, the dynamics of the market are likely to change and become even more competitive. Cassell is determined that, despite its new stature, CPI will continue to attend closely to the market and respond quickly to customers’ requirements, the basis, he insists, of successful paper merchanting. “Our larger scale will enable us to ensure resources are properly devoted to all parts of the industry,” he said.

Despite the concentration, Cassell believes there is little danger of the big two paper merchants reaching a position where they will be able to bring defining pressure to bear on prices.

“In the market PaperlinX will have 50 percent, CPI now will have 30 percent, then Doggetts, Focus, Vilensky and so on. I don’t believe the merger is anti-competitive. Overseas factors decide the price of paper in Australia; international pressures translate into the local market. Major merchants cannot force the prices up. Besides, there are more small paper merchants out there than you can count. It means it is vital that you listen to your customers.”

Same, same, but separate
In a market constantly battling the threats of commodification, emphasising your differentiation is important. Paper merchants have always reinforced a high level of corporate branding. This means that melding different cultures is unlikely to be easy, especially when some employees have been competing against the new ally. In this, Cassell believes CPI and the Red Paper companies—Edwards Dunlop and Raleigh Paper—have a fairly straightforward task.

He maintains that part of the reason why the takeover is such a good fit is there are many areas where the three companies do not overlap. Edwards Dunlop has long been recognised for its concentration on packaging and office products, while Raleigh Paper has a reputation for supplying high-end specialties. CPI Paper is a complete paper merchant with its own array of exclusive products but with a focus on the commercial printing sector.

Cassell is keen to make the point that although the deal is a takeover in fact, it will be a merger in principle, especially where management is concerned.
“It’s business as usual. Every employee has a copy of the management structure. There are as many, if not more, Red Paper managers in that structure as there are from CPI. We intend to operate as a merger and utilise the management expertise that is available to us.

“Gordon Anthonisz stays as general manager at Edwards Dunlop. Les Perrett will continue to operate as the national marketing manager, albeit with responsibility for the larger group. Craig Brown, who replaced Graeme Ross as head of Raleigh six months ago, will continue to head up Raleigh, whilst Graeme Ross, together with David Bull and Lachlan Duncan, will become a small team assisting me in running the business.”

Sales teams will continue to operate autonomously, occasionally “rubbing shoulders in the market”. What savings and synergies are expected to flow from the merger will come from behind-the-scenes logistics. For instance, Red Paper uses overflow warehouses, which, with CPI’s larger storage capacity, will no longer be necessary.

“We obviously hope to make some savings and look at changing the way we’re structured. I’ve spent the past four to five years fixing the company to the point where we have recovered our position. Now we can concentrate on running the business and on getting a good return to CPI shareholders.”

The right mix
In the new group the importance of CPI Graphics division should not be underestimated. Cassell sees the Komori press and finishing machinery business not only as a sector that is returning to profitability, but also as providing the company with a valuable insight into customer behaviour.

“Graphics gives us an intimate knowledge of how our customers’ business works. The machinery division is a very good fit now that the business model has changed. Under Gerard Wintle it is an efficient division producing very good returns.”

CPI is also a long-term ink sales channel, which contributes to the balance that Cassell wants to maintain. He makes the point that CPI’s activities are now in direct proportion to the way printers spend their money—on paper, ink and machinery. It provides revenue stability in the face of price attrition in the paper market.

“Paper is a tough environment that is very competitive. There are cost pressures. Mills want to lift prices. So far they have not been very successful, but price increases are needed,” he maintains. “The figures are public so we all know the appalling returns the major players are currently delivering.

“Sappi took a position 18 months ago and led a price increase in Europe. The other manufacturers took advantage of the initiative to increase market share with results that were not good for the industry.

“It’s not about market share, it’s about efficiency and getting returns on capital. Driving for market share leads to some silly practices.”
If he is under no illusions about the future of paper prices, he is forthright about the supply dynamics coming out of Asian paper manufacturers. The USA recently imposed both countervailing duties and dumping duties on Korean, Indonesian and Chinese producers. Together these ranged from as low as one percent for some Korean mills to as high as 100 percent + for some Chinese producers. The average for Indonesia and China was approximately 30 percent.

In Cassell’s mind this is indicative of the approach that Asian manufacturers have been prepared to use to achieve their market share objectives. He sees little prospect of the Australian Government following the USA and therefore expects pricing to remain very competitive.
Another passion for Cassell is the need for the paper and printing industry to stand up and promote itself strongly for the environmental advantages that paper offers over other communication media.

“When you see steel companies trumpeting their environmental credentials but nothing comes from our industry as a whole, you can see how much we need to do,” he adds.

Given his talent for fighting battles on different fronts at the same time and his obvious commitment to the industry, it might be a standard he will pick up now that CPI is firmly back on track. l