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Management Side
Week of 15 January 2018: Does converting old assets make any sense?

Email Jim at jthompson@taii.com

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Converting newsprint machines to produce linerboard has become the rage in recent times. There has also been at least one mill that has converted a portion of its directory paper business to tissue (they did replace the machines, they just used the old buildings). Then there are facilities planning to tear down old machines to build new ones in the same grades.

This latter idea makes sense to me; the two former ideas, I am not so sure. If you are tearing out old machines to replace them with machines that more nearly fit the trim width of today, I think that may be worthwhile. All the other things are in place to make that mill work--fiber supply, customer base, logistics. These key components are centric about this mill site already and bring an important collection of valuable assets, tangible and intangible, to the scenario. These just may overcome other negatives which could include an aging or recalcitrant workforce, poor on-site logistics and so forth.

I don't see this, though, when talking about converting a newsprint machine to linerboard or a directory paper mill to tissue. What are you saving? What are you losing?

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Essentially, it seems to me that one is sacrificing some key advantages for the sake of saving an old pile of iron when one decides to convert an existing machine to an entirely different grade.

Look at what may be wrong or suboptimum in such a conversion: fiber source, energy systems, water and effluent systems, markets and logistics. Up close to the machine, vacuum systems may be inadequate or worn out. All of the electrical components may be out of date, out of spec and not meeting code. It's also likely that the computer system will have to be completely replaced. On top of all this, the fit of the existing labor pool to the new configuration may be completely out of alignment.

So, at the end of the day, what have you saved and why have you done this?

One reason may be that the assets, due to all the gyrations the newsprint industry has endured, just to pick a grade and example, are not realistically valued on the books. Thus, it will be a big hit to the balance sheet to scrap them. This is a bad reason to go down this path, perhaps should even be called fiduciarily criminal. For what leadership has done in such a case is condemn the subject facility to decades of poor performance, which no doubt they and their successors will attempt to cover up with more, as yet unconceived, management and financial shenanigans.

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For more information, please contact Jim Thompson at: jthompson@taii.com Ph. 678-206-6010 Cell: 404-822-3412

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If you want to get into a new grade, do it properly. Start with a clean sheet of paper, so to speak. Analyze the markets, the raw materials, and the logistics. Then build a state of the art mill in a place your research says makes sense, not some place where you have an overvalued pile of rusty steel.

For safety this week, you wouldn't buy a used ambulance for your mill, would you? At least, I hope not. Make sure you have the correct emergency equipment and that it is kept in top working order.

Be safe and we will talk next week.
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