“We still expect the market conditions to remain challenging and uncertain in 2024, with continued pressure on demand, prices, and margins,” says Mr. Hans Sohlström, President and CEO of Stora Enso

“We still expect the market conditions to remain challenging and uncertain in 2024, with continued pressure on demand, prices, and margins,” says Mr. Hans Sohlström, President and CEO of Stora Enso

We spoke with Hans Sohlström to gain his perspective on his journey thus far with Stora Enso. We also discussed the key priorities for 2024, both to navigate the challenging market environment and to set the strategic path for the business.

Q: It has been a challenging year for Stora Enso and the whole sector, how would you sum it up

2023 was a challenging year for the whole industry, with lower demand and volumes in general. During the year, we experienced a decline with a speed and magnitude not seen for a couple of decades, with deteriorating market conditions and price pressure for all segments. For Stora Enso, we have faced unprecedented market conditions and need to focus our efforts on what we can control to improve our competitiveness and prepare for an unpredictable future.

The geopolitical disruption has worsened. Global trade and supply chains have been challenged, and a new definition of “global” has emerged when sourcing and moving goods. Moreover, we are facing increasing sustainability demands which we are well positioned to meet. Navigating in this constantly changing macro and business environment requires business resilience as a key component. Despite these challenges, we remain determined to create value for our shareholders.

Q: How has the Company responded to the market and company-related challenges? 

To respond to these challenges, we focus on what we can control. A restructuring programme was initiated in June 2023 to strengthen the Group’s long-term competitiveness, improve profitability and focus capital allocation on strategic growth markets. We closed several production units with low long-term competitiveness. We also took the next step in further empowering our divisions by decentralising operations and creating lean Group functions, to increase agility, accountability, and customer focus. These were difficult but necessary decisions. The restructuring actions will improve our operational EBIT by approximately EUR 110 million annually and affected approximately 1,150 employees who unfortunately had to leave their positions.

We also achieved a significant working capital reduction of EUR 650 million from the peak in the beginning of 2023. This helps generate cash flow, which is a key success factor. 

Last year’s restructuring programme initiated in June 2023 identified synergy opportunities. In February of this year, 2024, we initiated a profit improvement programme resulting from those findings which would improve the Group’s operational EBIT by EUR 80 million annually, with the majority of these savings realised during 2025. This profit improvement initiative includes a potential reduction of approximately 1,000 employees without any new production site closures. Although difficult, this plan is necessary to ensure our long-term success and competitiveness. We are facing persistent weakness in the macroeconomic and geopolitical environment, and need to focus on core business activities which align with our strategy. This profit improvement programme will enable a strengthened focus on competitiveness and cash flow making us more resilient to market uncertainties.

Q: What progress was made towards the Company’s long-term strategic objectives in 2023? A: Our strategy yielded significant progress in 2023. 

We began the year by discontinuing our Paper division, which had been in a market-related structural decline for many years. Instead, we focused on growing in our key areas, most notably renewable packaging, our largest growth area. In January, we completed the acquisition of De Jong Packaging Group, a leading corrugated packaging producer in the Netherlands, which reinforced our position in West Europe. Furthermore, we continued converting a paper line into growing consumer board segments at our Oulu production site in Finland, with production set to commence in early 2025. These strategic investments will strengthen our positions in the attractive segments of renewable, circular, and recyclable packaging materials and solutions.

Q: What have your focus and priority areas been and what are some of your other most pressing priorities? 

First of all, the health and safety of our employees, contractors, and local environment will always be our top priority, and I’m pleased to see our safety performance improving in 2023. Diversity, equity, and inclusion are critical ingredients for creating a good workplace where everyone feels safe, included, and equally treated, with a strong sense of belonging to their teams and to Stora Enso. Since I took over the lead, we have identified four priorities for reshaping the Company to make it more competitive:

Our first priority is to create value by improving our profitability through procurement and operational efficiency, streamlining our organisation, and revising our commercial strategies. These efforts are aimed at achieving commercial excellence and cost-savings while better meeting our Customers’ evolving needs. 

To enhance commercial and operational excellence, we implemented a leaner organisation, with profit and loss responsibility assigned to divisions and business units. This will improve decision-making and faster implementation of actions, as well as result orientation and customer focus.

Our second priority is to release capital, by reducing working capital, and through divestments of non-core activities and businesses. We will focus on optimising our working capital and cash flow management. The divestment process of our consumer board production site in Beihai, China, as well as the forestry operations in the surrounding region, is ongoing and according to our plan

Our third priority is to improve our competitiveness through a revised asset strategy. We will achieve this through focused, timely, and relevant capital allocation in our core businesses and assets, upgrading or expanding our production sites if needed. 

And the fourth priority is to cultivate strong leadership, which is critical to fostering a culture of collaboration, accountability, and agility that supports these goals. We believe that attracting and retaining top talent and building a culture of excellence, innovation, and engagement is essential to our success. 

These priorities will remain central to our efforts as we work towards realising our vision of success.

Q: Your long-term ambition is to offer 100% regenerative products and solutions by 2050. Can you please elaborate on what this means for Stora Enso?

By regenerative we mean providing renewable and fully circular products and solutions that help reduce climate impact by removing more carbon than they emit and that support biodiversity restoration. This long-term ambition is guided by intermediate targets for 2030 in our three key sustainability areas: climate, circularity, and biodiversity.

During the year, we reinforced our climate commitment by joining The Climate Pledge initiative, with a commitment to achieve net zero carbon emissions by 2040, across all three Scope categories. We will continue our decarbonisation journey to improve energy efficiency, increasing the share of renewable energy sources, and working together with our suppliers and customers to reduce emissions throughout our value chain. Our focus on the three key sustainability areas is supported by our commitment to the UN Global Compact’s Ten Principles and the UN’s Guiding Principles on Business and Human Rights.

Q: What are your expectations and focus for 2024 onward?

We still expect the market conditions to remain challenging and uncertain in 2024, with continued pressure on demand, prices, and margins. However, we also see some signs of improvement, such as improving pulp market and normalisation of customer inventory levels across our main business segments. We will continue to focus on our profit and cash generation, commercial and operational excellence, enhancing our competitiveness and increasing shareholder value.

We see strong sustainability trends such as substitution, replacement, and eco-awareness driving demand for new solutions made from renewable and recyclable materials which replace fossil-based materials in the long term. Our growth strategy remains unchanged; however, we need to be proactive and adapt to be successful in a changing environment. We will continue to pursue growth opportunities in our strategic focus areas: renewable packaging, sustainable building solutions, and biomaterials innovation, leading Stora Enso towards a more sustainable future.

The Above Interview of Mr Hans Sohlström, President and CEO, Stora Enso has been extracted from the Annual Report of Stora Enso for FY 2023
 

Web Title: “We still expect the market conditions to remain challenging and uncertain in 2024, with continued pressure on demand, prices, and margins,” says Mr. Hans Sohlström, President and CEO of Stora Enso