A decade ago 70 per cent of Stora Enso’s sales came from paper, today paper accounts for just 30 per cent of sales © Bloomberg
Nappies for grown-ups, glue, a source of energy, and even building blocks for student housing in Norway and flats in London’s Elephant & Castle district — these are just four of the different ways of using wood that the forestry industry is pushing as it looks for growth.
Few industries have been as battered by technological change as paper and pulp. The emergence of iPads and smartphones has hit the market for print products such as newspapers and magazines hard, robbing many companies of their biggest source of revenues and profits.
But after years as one of the more disadvantaged sectors, there are signs of life among the biggest paper and pulp players. Finland’s Stora Enso, controlled by Sweden’s Wallenberg family alongside the Finnish state, is a case in point. A decade ago, 70 per cent of its sales and just under two-thirds of its profits came from paper. Today, paper accounts for just 30 per cent of sales and a fifth of profits.
“It’s still a very important business as it has been financing a lot of investments in other areas,” says Karl-Henrik Sundström, Stora Enso’s chief executive.
Last year, the company made the biggest Nordic direct investment in China when it opened an €800m board mill in Beihai to make packaging. It has also opened new innovation centres that will examine how to use more and different parts of the tree, as well as new types of packaging.
Mr Sundström says the company’s ambition is nothing less than setting up wood as the ultimate renewable and reusable material. “Everything you can do today from fossil materials you can do tomorrow from wood,” he adds, pointing out that oil shares similar molecules with wood, albeit in different proportions.
Investors seem to like the pitch. Stora Enso’s shares have risen 60 per cent in the past year. Over the past five years they have risen 135 per cent, even if that lags behind the performance of domestic rival UPM-Kymmene.
Stora Enso’s shares received a boost during the first quarter. It recorded its first increase in revenues in five years after its focus on growth areas such as packaging, biomaterials and construction material paid off. But that growth would have been even stronger without the paper unit. Mr Sundström thinks the decline of paper will continue. Rumours have swirled of a possible deal with UPM to spin off their combined paper assets, the two largest producers in Europe. “[Sundström] has worked very hard on that but it is a difficult deal to do politically and socially,” says a senior Finnish businessman who knows the industry well.
Thousands of jobs have been lost across Europe — but particularly in the Nordics — as paper mills have been shuttered. “It’s tragic. We are normally a big employer in a remote area,” Mr Sundström says.
Instead, Stora Enso is focusing on the other 70 per cent of sales where digitalisation is not a dirty word — indeed, internet shopping has led to an increased need for packaging. There is also a big focus on liquid packaging — finding alternative barriers to water or grease to replace plastics. Stora Enso is the largest supplier of bioenergy in Sweden. Mr Sundström argues that the days of calling the group a “paper company” are coming to an end.
But Stora Enso is also trying to take advantage of several megatrends for its paper business, according to its chief executive. An ageing population has led to a boost in the use of fluff pulp in nappies. On Tuesday, Stora Enso revealed plans for a €45m investment in a Swedish mill to make cross-laminated timber, used in construction for ambitious wooden skyscrapers across Europe. And its research department is looking at tree waste parts to replace oil-based fuel and coating for packaging.
Each company in the Nordic forestry industry is taking a slightly different tack. Stora Enso has in some ways become the most diversified through what Mr Sundström calls “a collection of niches”. UPM has a larger paper business and has not gone into packaging but focused on biofuels and biomaterials. SCA, a Swedish company, split itself into a hygiene company focused on nappies and tissues, and a forestry business. The jury is still out on the best approach. As Mr Sundström says: “Everybody is doing something different. In the next 20 years it will be decided who took the best route.”
richard.milne@ft.com