Stora Enso | The new CEO squeezes a profit from the loss-making forest company with the lessons of an American venture capitalist

Believe at least not missing. Stora Enso said on September 18 that the Swedish Annica Bresky is allowed to leave and a Finn is appointed CEO Hans Sohlström. Two days later, the company announced that Sohlström had bought the company’s shares for over one million euros.

Stora Enso’s share then cost 11.8 euros. Its value had collapsed by almost a fifth from a year ago.

The market value of the entire company was only 9.5 billion euros, of which the share of forest assets was 8.3 billion. Investors therefore estimate the value of all the company’s factories and know-how to be just over a billion euros. What does the CEO think about it?

“That’s just how it is. The market is of course always right, but yes, the real value of our business parts is significantly higher. We now have to make sure that it is also visible to investors,” says Sohlström.

This is now the new CEO’s most important task. With his stock trade, he communicated that he believes, at least himself, that it is possible.

The equation is not really that bleak when it comes to the value of the factories. Stora Enso also has a lot of debt, which is naturally deducted from the value of the assets when the total value of the company is calculated.

Still, the valuation is now down, which is because the business is in a bad crisis.

Last year and the year before that, Stora Enso made an all-time record profit. This year, on the other hand, the result has collapsed record-breakingly steeply. Since spring, Stora Enso has been making a loss.

The turnaround has been drastic, as the market for all of the company’s businesses has plunged. Construction in Europe has almost stopped this year, and the price of pulp has collapsed. The demand for cardboard packaging has also decreased drastically, as the people impoverished by inflation and high interest rates reduce their consumption.

Last in 2008, when the situation still looked good, the company still decided to invest more than one billion euros in the modernization of the Oulu factory and the construction of a new cardboard line. It is the company’s largest single investment ever.

In the winter, Stora Enso decided to buy De Jong Packaging, a Dutch cardboard box maker, in a deal worth billions.

“It was the second largest acquisition in the company’s history. So we are in a situation where we have a historically bad result and at the same time last year the biggest investment decisions in the company’s history were made.”

The result must be turned around by any means, so that the company can pay the investments and survive its debt load.

Stora Enso already told in June about a big savings program, as a result of which Sunila’s pulp mill in Kotka, among other things, was closed. Sohlström says that there are no plans to close factories or machines, but that a turnaround is now being sought with other measures.

The purpose is not to change the direction and strategy of the company. According to Sohlström, it’s fine. During Bresky’s time, Stora Enso shut down almost all of its remaining paper mills and invested heavily in board production.

Efforts were made to increase the processing value of sawn timber by opening wood element and glulam factories. At the same time, even more was invested in the development of new products, such as battery material made of wood.

In the company it is believed that the fight against climate change and the importance of carbon sequestration will increase the processing value of wood in the long term.

“The fundamentals are really strong. For example, the Oulu factory will produce folding cartons with a really high added value. It will also be top-notch in terms of cost-effectiveness.”

According to Sohlström, it is possible to apply for an improvement in results by means that “don’t write bulletins about”. But what does that actually mean?

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Sohlström had a ready-made recipe to reverse the result.

To Annica Bresky in September, Stora Enso was fired in a rare straightforward way, for which no proper explanation has been given. However, during his tenure, the company was very successful until this year.

Sohlström was appointed Bresky’s successor from within the company’s board, which is rare. Of course, he himself does not agree to reveal anything about the reasons for being fired.

In this interview, the most likely reason still becomes clear: Sohlström had a ready-made recipe for how to turn the result around. Apparently Bresky hadn’t.

For the past seven years, Sohlström worked at the Ahlström family’s investment company, Ahlström Capital, and at the head of the Ahlstrom company that bears the family’s name.

In 2020, the Ahlströms teamed up with the US venture capital investor Bain Capital. Ahlstrom-Munksjö was delisted from the stock exchange, Munksjö was dropped from the name and Bain became the company’s largest owner.

“Bain Capital are known for being very closely involved in the management of the companies they own. Under their leadership, they always implement a systematic process with pretty much the same formula to improve the result.”

Bain Capital has restructured thousands of companies and usually sold them on at a considerable profit.

Sohlström took this through a power cycle at Ahlstrom. Now he applies Bain’s teachings at Stora Enso. It means that several performance improvement programs are carried out quickly and simultaneously. The programs were already launched the same week that Sohlström started work.

“We apply the programs from that playbook that produced the best and fastest results.”

Key the tool is the monthly meetings of the management of the business units, where the results are monitored. There, we review what has been achieved, what corrective actions are needed and how they will be implemented.

“We spend several hours on a very in-depth review of each industry and profit unit.”

There is always room for improvement in production efficiency, the commercial side such as pricing, and the use of capital. For example, one billion euros worth of working capital has been committed to inventories and accounts receivable, some of which can be released from there.

Results should appear quickly. At least for now, however, investors do not seem to have changed their expectations. The share price has been running at the same readings as at the time of Sohlström’s appointment.

Of course, Stora Enso does not have any acute problems. The company has a good credit rating, which means that there are no special conditions on its debts, which, for example, would cause interest rates to rise sharply when the result weakens.

A number more important than the last line of the profit report in a crisis situation is the operating cash flow, which tells whether the company’s operations are losing money. Cash flow has been positive so far.

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“That’s why I invested a million euros in the company’s shares on the very second day.”

Trouble are due to the weak economic situation right now. The forest industry is still a very sensitive sector to economic cycles. Before long, construction will pick up again, the price of pulp will rise, and the demand for cardboard packaging will also recover. According to Sohlström, demand in all business areas is expected to be on a long-term growth path.

“That’s why I invested one million euros in the company’s shares on the very second day. I believe and know that we really have a lot of profit and value creation potential.”

Sohlström told HS right in October, in connection with the third quarter results announcement, that no company can afford to just wait for the economic cycle to improve. The operation must be profitable in every situation.

“You can always hope for the best, but no one knows how long this situation will last,” he said.

Sohlström the beginning as CEO sounds tough. However, it is not reflected in the essence. He is smiling, talkative and warm.

Just a few years ago, CEOs often retired in their sixties. It is very difficult to imagine Sohlström, who is almost two meters tall and athletic, as a pensioner for some time to come.

“I have told the government that I will continue as long as it is allowed to continue. This is my dream job. I really like this.”

As a leader, Sohlström thinks he is close to people. The CEO has toured the factories and met the most important customers and investors.

In workplaces the entire staff has been invited to the events and at the end of them the CEO has shaken everyone’s hands at the door. He thinks that personnel at every level must be involved in turning the result around.

“Communicate the goals very clearly and justify what and why we are doing it. The commitment then shows up as a result.”

Then follows a long hockey analogy about the importance of team play and commitment to playing positions.

Sohlström doesn’t promise that there won’t be those, usually nasty, news stories that make big headlines in the future. Right now, there are no plans for them.

“Of course I can’t promise. But all people accept even difficult decisions, as long as they are well grounded, analyzed and justified.”

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Wood is significantly more expensive in Finland than in Sweden.

Stora Enson the structural change of recent years has hit Finland hard. In Veitsiluoto, Kemi, Stora Enso closed the pulp and paper mill two years ago. The company’s last paper machine in Finland runs at the Anjala mill.

In the summer, Sunila’s pulp mill closed down. Machines and factories have been closed in the same way in Sweden as well. At the same time, however, the company has invested heavily in Finland, especially in converting the Oulu paper mill into a cardboard factory.

Sohlström’s eyebrows furrow a little when asked what is causing concern about Finland now.

“Finland’s cost competitiveness is currently weak compared to competitor countries, including Sweden,” he says.

The reason is the cost of the wood raw material. It is due to the fact that the import of wood from Russia has stopped. One tenth of the wood used in Finland came from Russia before the war in Ukraine.

“It poses a challenge for the entire Finnish forest industry in the short term, although after the price spike last spring, the price of wood has decreased a little. It is still significantly more expensive than, say, Sweden.”

Before long, the market will adjust. Felling cannot be drastically increased in Finland, which means that adaptation will mean the closure of some production plants of some forest companies.

To this too Sohlström wants to draw a silver lining in the cloud. In the long term, the outlook is good.

“We are still in the early stages of what value can be created from the forest and our wood raw material in a sustainable way. The forest industry is part of the solution to the world’s biggest environmental challenges,” he says.

Sohlström could clearly talk about this for a long time, but the time allotted for the interview is running out. He still wants feedback.

“Is this what you need now? How did this go?”, he asks.

“Yes, yes, this was quite good this way.”