Stora Enso expects financial crisis to spread to real economy soon

Forest company sharply cutting production of sawn timber

Jouko Karvinen

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“We have agreed among our selves that the banking and financial crisis is the incorrect term. This will become a crisis of the real economy.”
     This is how Jouko Karvinen, CEO of Europe’s largest forest industry company, Stora Enso, feels about the economic trends in the coming months.
     Stora Enso has seen its profitability weaken in the third quarter from the same period in 2007. However, the Q3 result was an improvement over the second quarter of this year.
     The crisis in the real economy is leading to weaker demand for Stora Enso’s products. In spite of this, the company sees many positive signs on the market. The two important currencies, the euro and the Swedish krona, have depreciated recently, and the price of oil has gone down.
     The company is an exception among Finnish paper manufacturers in that it is not complaining about a wood shortage.
     
In Stora Enso’s interim reports, Karvinen is in the habit of describing cyclical variations in meteorological terms. Three months ago he spoke of a perfect storm. Now he says that the “storm has changed”, suggesting calmer conditions.
     Karvinen’s optimism is based on a new concept: quality pricing, which the company is trying to apply in conditions of weaker demand.
     “Our balance has improved because we have sought a better selection of products and customers. That is how we have managed to improve pricing”, Karvinen says.
     “Whereas the balances have been poor in some European countries, we have moved actively outside Europe to the dollar markets. For instance, in newsprint we have defeated a few competitors even though our prices have gone down less than with other producers.”
     Next year newspaper and magazine publishers will get a taste of this quality pricing. The paper industry has acquired pricing leverage by shutting down old production lines as a way of reducing output. According to assessments, the industry is hoping to boost the price of newsprint by 15-20 per cent.
     
The worst problems facing the Stora Group involve the sawmill industry. Although it posted a profit of EUR 37 million last year, this year it has sustained a loss of EUR 14 million.
      CEO Karvinen, you are known as a man prone to making fast moves. Why have the problems of the sawmill industry not been addressed earlier?
     “Some say that I am too fast. I have no good explanation. The company and I took issue with this matter a bit too late, and that is upsetting.”
     
In August Karvinen sacked the head of the sawmill industry Peter Kickinger and replaced him with the group’s head of strategy, Hannu Kasurinen.
     “Kasurinen is aware that if the manager (Karvinen) starts too late, he will have to act quickly and rather aggressively. We have sharply cut capacity, but not nearly enough”, Karvinen says.
     
In his former jobs in the electrical industry, sections run by Karvinen managed to improve their results with every successive quarter. He has tried the same recipe at Stora Enso, but he has not managed to change the reality that prevails in the forest industry.
     “There have been many improvements, but they cannot be seen in the economic calculations yet”, Karvinen says.


Previously in HS International Edition:
  Stora Enso pulp mill closed down in Kemijärvi (28.4.2008)
  Stora Enso and UPM issue profit warnings (19.6.2008)
  Stora Enso to shut down two factories in Finland and one in Sweden - 1,400 jobs to go (25.10.2007)

Links:
  Stora Enso: Financial results for Q3 2008

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