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Automation in finance: In stormy weather, cash is king -more than ever

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Finnish Stora Enso has undergone a colossal transformation: from a mere paper manufacturer to a sustainable specialist in renewable products. Its CFO, Seppo Parvi, has been overseeing this repositioning for nearly seven years. Today he is once again steering the €10 billion turnover conglomerate through turbulent waters. His recipe is remarkably simple: keep a constant eye on your cash flow and your working capital, and make sure your people are always on board.

Mention Stora Enso and the law of large figures pops to mind. Once upon a time the Finnish global industrial player was known as one of the largest paper manufacturers in the world. But the environmentally-aware Finns have changed course over the last decades and started to focus on renewable materials: wood- and biomass-based products are produced and sold worldwide. All this accounts for a turnover of €10 billion, 25,000 employees and a constantly good share price on the Nasdaq stock exchanges in Helsinki and Stockholm. Seppo Parvi has been CFO for almost seven years.

How do you organize finance in a global industrial group par excellence?

SEPPO PARVI: “We actually have a very normal structure, exactly like most other CFO offices. We oversee all the major financial tasks: treasury, group controlling, internal audit, tax, accounting, risk management. Furthermore, we are responsible for the control of all investments, while some tasks have been relegated to us by our company’s history, e.g. we are responsible for the old industrial buildings and we manage all our real estate outside the factory walls.

Some 250 people in all work in finance, most of them here at the headquarters in Helsinki, but also in Stockholm and Düsseldorf. Our shared service centre is in Tallinn, Estonia.”

In Tallinn? What happens there?

“We  have bundled our accounting operations in Tallinn. These operational tasks used to be outsourced, but we brought them in-house again. Now 80 people work in a shared service centre in Tallinn, which is not the cheapest location, but it is close by and we can find a lot of well-qualified people there. Insourcing of operational financial tasks has several advantages: it is cheaper, and it is also easier to automate and to streamline everything throughout the group. Many of the accounting processes have been robotized, which means considerable savings for us. We are  not ready for Artificial Intelligence yet. That will probably be the next step. But let’s be honest: Stora Enso is among the first in the industrial world when it comes to automation.”

What do you see as your main challenges?

‘That is undoubtedly the constant focus on our company’s cash flow, in tandem with a decent working capital management. In a highly capital-intensive business such as ours, this focus ensures success. We are constantly endeavouring to hone all kinds of work processes so as to improve our working capital. We have to determine our spending priorities constantly. All possible investments are carefully screened. What are the risks associated with the investments? Are they well aligned with our strategy? And from my point of view in particular, what impact does an investment have on our working capital and cash flow?

It is striking how your cost ratio rises automatically when things are going well with your business. So we set targets to keep everything under control, come rain or come shine. Our working capital target is 10%. We are currently at 12%. This is a good result in these dark times. We are satisfied with it, even though that working capital is going down a bit at the moment. The fixed costs, on the other hand, constitute a greater challenge, especially now that our business is coming under considerable strain from the COVID-19 pandemic.”

What is the impact of COVID-19 on your business, and more specifically on finance?

“We obviously want our business to continue to register healthy growth. Stora Enso is also up against some major challenges in a global economy that is struggling because of the pandemic. First of all, the fixed costs are going to weigh more heavily. Then our paper department is suffering: people spend less time in the office and therefore make fewer copies. Retailers are printing fewer adverts. People buy fewer printed newspapers during the Coronavirus crisis. So there is overcapacity and that exerts pressure on prices. Fortunately, the paper business has declined increasingly in importance for our group. Whereas it accounted for 70% of our turnover fifteen years ago, today (September 2020) it barely accounts for 20%.  The packaging business is growing slightly because of the pandemic. People continue to eat, so packaging remains necessary; and they are shopping online even more than before. In the current climate, we will still achieve 8.4% EBIT in Q3 2020 — a result we can really be proud of. We call it a ‘strong performance’.”

Is Brexit expected to have any impact on your figures and financial management?

“We generate a turnover of ca. €500 million in the UK. That is barely 5% of our total sales. So the impact of a no-deal Brexit will be there, but it won’t be substantial. We have had enough time to prepare for a hard exit. So we expect a small hiccup, but nothing more. No need to panic over a little turbulence. Finally, it’s also a windfall that we don’t have any production in the UK.”

To what extent is Stora Enso’s financial management governed by its listing on the stock exchange?

“We abide strictly by Finnish, Swedish and European regulations, of course. But in addition to these minimum requirements, we want to introduce additional transparency in our reporting. We have noticed investors and analysts alike expect us to do so. For instance, we devote a special chapter to risk management and sustainability in each quarterly report. But in addition to health and safety, it is also a matter of sustainability, aspects of land ownership and so on. Many investors find the information we provide on such issues very relevant. I dare say that Stora Enso goes a serious step further than its competitors or many other listed companies when it comes to reporting on sustainability.”

How does the cooperation between the CFO office and the divisions and countries work?

“The sectors in which we operate are called divisions. From a finance perspective, we ask them for a lot of information, which makes sense. But we mainly try to ask for information that is also relevant for the divisions themselves. Reports that are interesting only for headquarters are not exactly a smart thing to do. You must always start from the needs of the respective divisions and countries. Take enterprise risk management (ERM) for example. We used to draw up one report a year on it, and that was it. Now ERM has become part of the day-to-day management at the division level. This in turn has created a continuous risk reporting process – and the divisions are reaping the benefits thereof.”

Processes and tools must be identical everywhere: This cannot be an easy task for a large, global organization.

“Every time you roll out a system like ERP, or have an update carried out, you are bound to face challenges. Experience has taught me that such operations are easier if you involve people on the shop floor in the project from the outset. That way you create co-ownership. As you know, two things are always difficult: change management and the communication thereof.”

You’ve been with Stora Enso for quite a while. Taking a look back at your career so far for a moment, what are you most proud of?

“I am very satisfied with the recent work on digitization, our robotic process automation (RPA). I know that we are doing pioneering work in our sector on that front. I also consider the results of our insourcing to a shared service centre a successful operation that I can be quite proud of. We can make serious savings as a result, while keeping the figures literally close to us. We no longer have any hassles with transactions that are carried out by someone who is not directly involved but is working for you far away in another country.”

By Aart de Zitter. Previously published in CFO Magazine

 Want to know more about RPA in finance? IMA organizes the webinar Supercharge your financial operations with RPA en AI on April 20

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