In those early days, while many others were taking their profits out of the industry, said Kevin Hayes, managing director of Nelss (UK) Ltd, Nelss’ two owners assiduously reinvested in the business, buying a site at Aizkraukle, about 150km east of Riga.
“They cobbled together bits of second-hand machinery and plant from southern Sweden to get started, but today the site is all-singing and all-dancing,” said Mr Hayes. The old sawmill was replaced about four years ago with a new €20m facility.
“We have gone from a company that was originally trading in wood to become a high-value timber producer. The business has evolved and is continuing to do so,” said Mr Hayes.
“Basic sawn timber from Latvia will soon be a thing of the past. It will have nostalgic value because the pressure on any sawmilling business is to add value.
“We are now enhancing the product through kiln drying, regularising, treating and grading and at last we can stand up and say we are selling a structural product that is fit for purpose which was the ‘holy grail’ 10 years ago. It can compete with engineered products.”
Mr Hayes said the basic added value is kiln drying and the next is grading in terms of structural timber. A more recent requirement in the market is regularising. “Then we pressure treat. Over the past eight years our kilning capacity has grown from two to 14 kilns.
“Five years ago we had one small planer – now we have four planing mills, all doing different things.”
Recently Nelss acquired a 4ha site adjacent to its Aizkraukle mill, bringing the site up to about 40ha.
“It was barren swampland but the groundworks are going in now and it will be levelled out and the main idea is to improve the flow of wood through the mill. A new road will be built and another major project is to build a railhead,” explained Mr Hayes.
Nelss has its own collection yards in Russia and currently the logs travel on rail cars to the Latvian border and are then brought to the sawmill by road. Mr Hayes said building the railhead will improve the logistics and log deliveries tremendously and cut down on the amount of expensive log handling currently required.
“We will also use the land to put in new facilities for timber grading, plus a new sorting plant and additional treatment facilities.
“We have a total production capacity approaching 300,000m3, plus unseasoned boards, fencing and pallet material. In 2005 we had record sales to all markets of 320,000m3, an increase of 20,000m3 on 2004.”
For the UK, Nelss mainly produces construction timber, slating battens and CLS, plus decking, flooring, planed goods, fencing and landscaping supplies.
But, said Mr Hayes, the more Nelss improves its ability to add value, the more it finds itself enticed away from the UK to other markets which are prepared to pay more money for the products.
“We are now dealing with the US and Japan, and more recently started doing business with South Korea and China. The North African markets have also woken up all of a sudden.
“In building a healthy business you have to have a good range of customers in different markets.
“We do quite a lot of DIY material to the US and the products are seriously enhanced because the prices are much more attractive. We can afford to make the packaging and wraps that much better – for instance, the packs have corner protectors.”
In the main, Nelss supplies the US with high grade CLS, planed goods and battens. “They are all sorted and nicely presented and are ready to go straight into the DIY store. We have been doing that for about four years.”
The Japanese market requires top quality CLS for housing construction while in South Korea Nelss is supplying decking. “This keeps things quite varied,” said Mr Hayes.
Added value and UK commitment
In the early years, the UK/Ireland market represented 90-95% of Nelss’ sales, but that has now reduced to about 70%. And, said Mr Hayes, as it increases its ability to produce added value products, it will ship less to the UK and more to other markets. But, he said, Nelss will not forget its commitment to the UK.
Nelss has faced some major challenges since Latvia joined the EU. “The sawmill is in a rural area some way from Riga and any young person with a bit of nous doesn’t want to work a summer in a local sawmill when they go can go fruit picking in Ireland, have some fun and earn a lot more money,” said Mr Hayes.
“This caused some serious labour shortages for a while – we just had to get people in that were available and they weren’t always the right ones. However, that has been resolved now as things have settled down. Currently there is government lobbying to allow immigrant workers into Latvia – but this is not very popular in some quarters.”
Log supply in Latvia is also challenging, due to cost. “Many operators are chasing the same log supply which is forcing us to look further afield. We have our own log collection mills in Russia and a good proportion of our log supply is imported. Last year we achieved FSC mixed source status on our log supply.
“At Nelss we are going to extract as much value from our raw material as we can, at the same time acting responsibly as far as the forest is concerned.”
However, said Mr Hayes, the value process is not just about the wood and enhancing the product. “One of the most profitable areas of our sawmill is co-products or by-products such as bark, chips and sawdust.
“The bark is used to heat and power the mill while the sawdust and chips go into pellet production. We sell it by the boatload to European markets – the demand is good and the prices are attractive. We are now looking at ways of increasing our production of co-products which currently stands at 50,000 tons a year, a bit like trying to get the tail to wag the dog!”
