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Thominvest

Our First Century


Contents Foreword 5 Thominvest’s century 6

Thomé’s Forestry Office A promising start – and a dramatic ending 9 Heading for the harbours 11 • Timo Brofeldt chooses the timber trade 13 • New products, new partners 14 From crisis to crisis 19

Thomesto trading house A new dawn from eastern timber 22 • Imports lead to exports 25 • The trading house grows and expands 28 The red giant of the East crumbles 30 • Difficulties in new Russia 33 • Divesting the trading house 37

Thominvestas an investment firm In the beginning, there were ships 40 • Investments become a second cornerstone 42 • The rise and fall of the stock portfolio 45 • The Jouhkis become investment bankers 46A fabulous Conventum affair 49 • New generation, new investments 50 • Untying the ropes 53

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Foreword “Our operations are by nature personal. We have always been led by strong personalities. First our founder, then my grandfather and my father, and now us.” – Mylle Jouhki, 1998. Thominvest is a distinctively family business. Since the premature death of our company’s founder, William Thomé, our family has continued his work. The fourth generation is currently in charge. Over the last century, each generation has redefined the focal point of our operations, rebuilding the company on a new foundation to reflect its own vision. Thomé’s Forestry Office, which was established in 1911 to offer forest management services, evolved into Thomesto trading house, which imported wood for the Finnish forest industry. Today’s Thominvest is an active and open-minded investment company. Thominvest: Our First Century tells the story of our company and its owners over the last hundred years. On behalf of our family, I hope our book makes for a pleasurable and informative read.

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Juha Jouhki Chairman of the Board Thominvest


Thominvest’s Century 1911 1918 1945 1951 1957 1964 1967 1969 1978 1988

1991 2001 2002 2003 2008 2009

William Thomé establishes W.G. Thomé’s Forestry Office. Thomé is killed during the Finnish Civil War. Ragnar Saxén and Timo Brofeldt take up the reins. Timo Brofeldt buys out Saxén to become sole owner of the ­forestry office. Timo Brofeldt dies. Leo Jouhki, Birger Herold and Yrjö Tenomaa start to run the ­office together. Merchant shipping operations begin under the name of a sister company, Thombrokers. The Soviet timber exporter, Exportles, appoints the forestry ­office as its agent. Thomé’s Forestry Office becomes the Jouhkis’ family business. The company’s name is changed to Thomesto. Mylle Jouhki becomes Managing Partner of Thomesto trading house. The company’s investment activities are transferred to ­Thominvest, and Thomesto trading house is integrated into the Thominvest Group. Timo Jouhki is appointed President of Thominvest. Leo Jouhki dies and the Soviet Union disintegrates. Thomesto trading house is divested to Metsäliitto. Juha Jouhki becomes President of Thominvest and Timo Jouhki Chairman of the Board of Directors. Mylle Jouhki dies. Kata Jouhki dies. Juha Jouhki is appointed Chairman of the Board of Directors. 6


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ThomÊ’s Forestry Office Sorting timber that has been driven to the harbour sometime in the 1930s. (Lusto/Finnish Forest Management Board)


In 1911 William Thomé (far right) established a company carrying his name: W. G. Thomé’s Forestry Office. The photo shows Thomé returning from a hunting trip in 1899 with his fellow students, future foresters. (Lusto/Hackstedt collection, Finnish Forest Association/photographer: Johan Hackstedt)

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A promising start – and a dramatic ending Thominvest’s story begins in 1911, during the time of Russian rule when Finland was a Grand Duchy. Thirty-year-old forester William Gustav Thomé (born 1880) decided to open a forestry office in Helsinki, the capital of the Grand Duchy of Finland. The business carried his name – W. G. Thomé’s Forestry Office (W. G. Thomén Metsätoimisto). Thomé offered forest management planning and implementation services to forest owners, especially those in the rapidly growing wood processing sector. Thomé had previously worked as a forester in the forest industry and had noticed a niche in the forest management market. In the late 19th and early 20th centuries, sawmills, pulp mills, groundwood pulp mills and paper mills had become major forest owners in an attempt to secure a supply of raw materials. By 1910, the Finnish forest industry already owned over 1.7 million hectares of land. The industry also began to understand the importance of systematic forest management: it could influence not only the industry’s public image, but also the rate of forest growth. Thomé realised that the same fundamental laws governed both forestry and business economics: forest owners also needed to consider the relationship between capital (forest resources) and returns (forest growth). From this springboard, he began to develop rational 9


and productive forest management processes that would easily take root in the minds of industrialists. The forest industry soon formed the backbone of the forestry ­office’s customer base. Orders also came in from private landowners, from Southern Finland’s wealthy manors and businessmen. For example, chocolatier Karl Fazer allowed Thomé to evaluate his ­forests. During its first ten years, the forestry office evaluated a total of 1.1 million hectares of forest in Southern, Central and Eastern Finland. According to a contemporary commentator, W. G. Thomé’s Forestry Office had become the ‘most significant of its kind in the country’ during the 1910s. Thomé himself was even tipped to become the new director general of the Finnish Forest Management Board, which managed the State’s forests. This promising start was, however, curbed by the First World War and the disorder that followed Finland’s independence in 1917. At the end of January 1918, skirmishes between the Red and White Guards escalated into civil war. The Reds took power not only in the capital, Helsinki, but throughout Southern Finland. On 1 February 1918, William Thomé was one of a group of seven men who set out northwards from Red Helsinki towards the White lines. Yet their journey came to a swift end the following day, when Red Guards took the group prisoner. As they stood by the roadside on 2 February 1918, their time on Earth came to an end in front of an execution squad. W. G. Thomé’s Forestry Office had lost both its founder and owner.

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Heading for the harbours When the Civil War ended in May 1918, two former employees took the reins: foresters Ragnar Saxén (born 1889) and Timo Brofeldt (born 1894). The business’ name was also shortened to Thomé’s Forestry Office (Thomén Metsätoimisto). Thomé’s name was already so well known that it was worth retaining even after the change in ownership. Under Saxén and Brofeldt’s leadership, the forestry office continued along the path that Thomé had forged: planning and implementing forest management provided plenty of work throughout the 1920s and 1930s. Between the wars, virtually all of Finland’s major forest industry companies became clients of Thomé’s Forestry Office. Saxén and Brofeldt were not, however, content with traditional forestry operations – they were keen to expand into new areas. During the 1920s and 1930s, Finland exported a considerable amount of unprocessed raw wood, as the domestic wood processing industry still had a relatively low capacity. Mining timber was supplied to Western European mining countries, such as England, Belgium and France, where it was used to prop up mine walls and ceilings. The greatest demand for pulpwood was in Germany. It was between the wars that the forestry office first began to measure export roundwood and it soon became a major provider of measurement services. Finally, in the late 1920s and early 1930s, the office began to act as an agent between Finnish timber producers and foreign buyers. Although the volumes of timber supplied through the agency remained relatively low until after the Second World War, in light of 11


Accurate maps were required for forest evaluation. ThomÊ’s Forestry Office employed not only male forest technicians and foresters, but also women cartographers. (National Board of Antiquities)

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later developments, entering the timber trade proved to be the most significant breakthrough of the era.

Timo Brofeldt chooses the timber trade Finland became embroiled in the Second World War when Soviet forces attacked across its eastern border in late November 1939. This Winter War was followed by the Continuation War, which lasted until the early autumn of 1944. Thomé’s Forestry Office was unable to conduct regular business during the war. There was no longer sufficient manpower for forest management and, when the Germans closed off the Baltic Sea, Finland was no longer able to export timber to the Western Allies. By the outbreak of the Winter War, Saxén and Brofeldt’s partnership had already lasted over 20 years. Yet they had differing visions for the business. As an old-school forester, Saxén wanted to concentrate on traditional forest management, while Brofeldt was leaning towards the timber trade and opportunities to cooperate with the forest industry. After the war, the men decided to halve their joint assets. In 1945, Brofeldt bought out Saxén to become the sole owner of Thomé’s Forestry Office. Brofeldt’s plans soon proved to be workable. Europe was recovering and rebuilding after the war – and it was hungry for wood. Timber exports began to pick up immediately after the fall of Nazi Germany in spring 1945, and the first ships loaded with mining timber sailed for England that autumn. Brofeldt succeeded in clinching these deals. The office’s Finnish clients, the timber exporters, included not 13


only a long list of major forest industry companies, but also Finland’s largest landowner – the Finnish Forest Management Board. This growth in timber trading was thanks to Brofeldt’s extensive network of contacts. He’d been fostering close relations with forest industry companies for years. Another factor that contributed to the agency’s success was also down to Brofeldt’s reputation as a skilled front man. He was a member of numerous official and semi-official committees whose task it was to supervise and organise the raw wood trade in accordance with post-war rationing. But time was running out for Brofeldt, as his health was failing. At the end of the war, he recruited three young forestry professionals: his son-in-law Leo Jouhki (born 1918) and Birger Herold, both foresters, and Yrjö Tenomaa, who had experience in the timber agency business. Brofeldt began to train them up as the company’s new management. He also ‘willed’ his contact network to the trio, by introducing them to the forestry heads of industrial companies. When Timo Brofeldt died after a sudden illness in 1951, his crown princes had been given a thorough grounding in the business.

New products, new partners After Timo Brofeldt’s death, the office became a limited company. Brofeldt’s widow, Margit Brofeldt, was the major shareholder of Thomé’s Forestry Office Ltd (Oy Thomén Metsätoimisto Ab). Jouhki, Herold and Tenomaa acquired the remaining shares for themselves. As the major shareholder, Margit Brofeldt became Chairman of the Board although she was only a figurehead. Jouhki, Herold and Teno­ 14


The forestry office’s owner, Timo Brofeldt (second from right), was known for his good company and for forging business relationships. These characteristics were of material benefit to the forestry office’s business.

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maa handled all the decision-making and routine management. Herold was appointed Managing Partner and Jouhki Vice Chairman of the Board. Forester Kata Jouhki (born 1921), who was Timo Brofeldt’s daughter and Leo Jouhki’s wife, also became a member of the Board. In autumn 1951, she also took responsibility for the office’s administration and human resources. Under its new management, the office began to raise its profile as a timber agency, and its market share in roundwood exports increased. Of the two million stacked cubic metres of mining timber shipped in 1957, one third was supplied through Thomé’s Forestry Office Ltd. The new management also made a determined effort to expand the company’s export repertoire. In addition to mining timber and pulpwood, the office also supplied sawn timber and wooden telephone poles, railway sleepers, and a range of wooden panels. Alongside its traditional partners in Central and Western Europe, the company also began trading with countries in Southern Europe, the Eastern Bloc and the Middle East. Jouhki, Herold and Tenomaa’s agency deals required continual travel and contact with foreign customers. All in all, the 1950s was a good decade for Thomé’s Forestry Office – the company’s operations grew on a broader front and its net sales trebled in the space of ten years. In order to ensure uninterrupted timber deliveries, the owners of Thomé’s Forestry Office Ltd decided to establish a merchant shipping company called Thombrokers in 1957. Its first ship, the M/S Make, was purchased from a shipping company owned by running legend and nine-time Olympic winner Paavo Nurmi. At its height in the mid1960s, Thombrokers had six ships, making it the sixth largest merchant shipping company in Finland. Ships left Finland laden with 16


The forestry office sold square timber, also known as ‘Egyptian spars’, to Egypt. This photo shows some of the office’s Egyptian clients.

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Thomé’s Forestry Office became the Jouhkis’ family business in 1967, when Leo and Kata Jouhki (right) bought out their former partners. Leo Jouhki was a qualified forester, but also a born trader. Under his leadership, the forestry office evolved into Thomesto trading house.

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roundwood and sawn timber and returned from Europe with, for example, coal and coke.

From crisis to crisis After the good years of the 1950s, the outlook for timber agents began to weaken rapidly in the early 1960s, when timber exports from Finland to Europe waned. Major investments by the Finnish wood processing industry were behind this. Eight new paper machines started up in Finland in 1961 alone. There was no longer sufficient timber left to export, as the Finnish forest industry needed every tree growing within the country’s borders. Finnish roundwood exports peaked in 1961 at over seven million stacked cubic metres, only to plummet to under one million in only four years. This had a direct and dramatic impact on the volumes of timber that the agency could supply. It also put a stop to the office’s profitable measurement services for export timber. In addition to these structural problems, the office also suffered another crisis in the late 1960s. From 1965–1967, an Israeli client had succeeded in conning the office out of a considerable amount of sawn timber using misleading bank transfers. In spring 1967, when the Finnish suppliers presented their unpaid invoices, an acute cashflow crisis threatened the whole company’s operations and its future. This alarming situation was finally resolved when Leo Jouhki took personal liability for the compensation claimed by the sawmills. Herold and Tenomaa, who were less inclined to take such a risk, sold their shares in the forestry office to Leo and Kata Jouhki. Margit Bro19


feldt had already surrendered her remaining shares by this time. And so Thomé’s Forestry Office once again became a family business, albeit now the Jouhkis’. In 1969, its name was changed to Thomesto, into which the Thombrokers shipping company was also integrated. Birger Herold continued at the company’s helm with Leo Jouhki as Chairman of the Board of Directors.

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2

Thomesto trading house Thomesto imported timber not only for the forest industry in Finland, but also into Sweden and Norway. Pictured is the ‘Juno’, a barge that Thomesto operated in the Baltic Sea during the late 1980s.


A new dawn from eastern timber Now that timber exports had dried up, the office had to come up with a new mission. A solution was found in timber imports. In the early 1960s, the wood processing industry’s growing need for raw materials sent Finland’s timber balance sheet into the red: more trees were being felled than could grow in their place. If the forest industry were to keep its brand-new machines running, Finland would have to start feeding its mills with foreign timber. During the early 1960s, Thomé’s Forestry Office started to import timber from a number of sources, such as Sweden, Poland and Portugal. However, the richest timber fishing grounds were much closer, across its eastern border in the wilderness forests of Soviet Karelia. It was only a short distance to the Finnish border and the region’s own forest industry was largely undeveloped. The agency supplied its first load of Soviet timber to Finland in 1962. All exchanges of goods between Finland and the Soviet Union were governed by the rules of the socialist planned economy, something that Finnish importers also had to adapt to. Timber transactions were based on long-term trade agreements between the two nations, which locked down volumes for years in advance. In accordance with the principles of bilateral trade, the balance between exchanges of goods was monitored annually by the central banks of 22


During the 1960s and 1970s, Soviet foreign-trade groups became some of Thomesto’s most important clients and Leo Jouhki made dozens of trips across Finland’s eastern border every year. This photo from 1967 shows a colourful display in Moscow to commemorate the 50th anniversary of the October Revolution. (SKOY, Corbis/Photographer: Marc Garanger)

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both countries using clearing accounts. On the Soviet side, timber exports were centralised on one organisation: the import-export group V/O Exportles (les = forest). The timber importers were Finnish sawmills, pulp mills and paper mills, which reached a couple of dozen in number. 1964 turned out to be the decisive year for the timber agency business. Whilst assisting Finnish companies in Moscow, Leo Jouhki succeeded in getting to know V. N. Akkuratov, the head of Exportles. As a result, in 1964, Exportles appointed Thomé’s Forestry Office as its agent and sole representative in Finland. From then on, the majority of the eastern timber required by Finnish forest industry companies was supplied through Thomé’s Forestry Office. Stateowned companies were the exception – they traded directly with Exportles. Obtaining this sought-after status made the agency an influential player in Finland’s wood processing industry. Timber imports from the Soviet Union were vital to the industry – volumes hovered around 5–7 million stacked cubic metres during the 1970s and 1980s. Industrial companies were also keen to secure Thomesto’s assistance. Thomesto was able to offer not only expertise and language proficiency, but also the personal relationships that were essential for doing business in the Soviet Union. In the 1970s, Thomesto also began to import Soviet wood for the wood processing industry in Sweden and Norway. In Sweden, Tho­ mesto operated through a local subsidiary, Thomesto Svenska. Unlike in Finland, Thomesto was the only importer of Soviet timber in Sweden. And in Sweden, Thomesto operated as an importer rather than as an agent, which meant better margins and larger profits. All of Sweden’s major companies gradually became clients of Thomesto 24


Svenska. Thomesto also imported timber to the Nordic countries from, for example, East and West Germany, Chile, Argentina and Uruguay.

Imports lead to exports Since the early 1960s, the Finnish forest industry had been keen to purchase more Soviet timber than was written into the nations’ bilateral agreements. Which is why Finnish companies began to bypass Exportles and import timber as cross-border trade during the late 1960s. Cross-border trade meant trade between Finland and north-western areas of the Soviet Union, which the Soviet Union handled through a centralised foreign trade group called Lenfintorg. Cross-border trade adhered to a ‘mini-clearing’ principle: for every batch of goods exported, goods worth the same value had to be imported. However, from the Finnish perspective, the bottleneck in this exchange proved to be the imports to Finland, as the Finns had difficulty finding Soviet products that appealed to them. There were, however, plenty of Finnish companies eager to export. Timber imports became the driver for cross-border trade. During boom times in particular, the Finnish forest industry was in practice ready to buy all the timber it was offered. The important thing from Thomesto’s point of view was that timber imported through cross-border trade created an ‘exchange currency’, that is, the chance to export products into the Soviet Union via Lenfintorg. Thomesto therefore evolved into a trading house that dealt in a lot more than just timber. As an agent for Finnish compa25


KOMI REPUBLIC

Murmansk

Archangel

FINLAND

SOVIET UNION Leningrad Vologda

ESTONIA Pskov LATVIA

Novgorod Kalinin

LITHUANIA

Cross-border trade meant trade between Finns and Russians in areas that reached from Finland to Leningrad, the Baltic Countries and Murmansk. Cross-border trade was a form of bartering in which certain batches of goods were exchanged for others.

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nies, Thomesto primarily exported construction materials, textile industry products and furniture. Alongside Soviet timber, Thomesto also began to import, for example, foodstuffs and fabric under its own name. One special feature of cross-border trade with the Soviet Union was the prominent role played by trading houses. Unlike individual importers and exporters, trading houses were able to arrange complex deliveries and complementary operation chains. During the early 1970s, Thomesto firmly established its position as one of the leading trading houses for Soviet deals. In the 1980s, Thomesto expanded the scope of its eastern trade to cover construction and project exports. Under this umbrella, Thomes­ to exported, for example, factory sheds, cold stores and a variety of technical processes for the food and drink industry. The most significant of these contracts was signed in 1988 – for a total of one hundred cold stores. Through its construction exports, Thomesto also acquired engineering expertise that the company was immediately able to harness in the mid-1980s, when other types of trade began to wane due to the falling price of oil and the Soviet Union’s economic difficulties. In Finland, eastern trade was long considered to be a goldmine – and in particular those who struck the first veins would get to mine themselves a fairytale fortune. Finnish suppliers sought Soviet export deals, as they usually involved large volumes. The risks were also smaller than normal. Once the names were on the contracts, the money arrived in your account almost as surely as the sun rose in the morning. And it was precisely this profitable eastern trade that fuelled Thomesto’s net sales, which, when corrected for inflation, increased almost ten-fold during the 1970s and 1980s. 27


The trading house grows and expands Trade with the Soviet Union led to transformations at Thomesto in the 1970s. The former timber agent began to develop into a fullblooded international trading house whose operations were not limited to wood, nor even to Soviet trade. The goods that Thomesto bought and sold moved between European countries and even between continents – foodstuffs and consumer goods, a variety of machinery and equipment, chemicals, coal and steel. Thomesto acted not only as an agent, but was increasingly importing and exporting products under its own name. Thomesto’s 1983 personnel competition for the most exotic deal was emblematic of this era. The winner was the sale of Yugoslavian cement to the Comoros, an archipelago nation between Madagascar and Mozambique. Many of Thomesto’s new business operations were incorporated as separate subsidiaries or affiliated companies. The resulting cluster of companies became larger and more international every year until, in the late 1970s, it became known as the Thomesto Group. In terms of units, the Group was at its most extensive in the mid-1980s, when it comprised about 40 separate subsidiaries and affiliated companies in 14 different countries. In addition to major European cities, Thomesto was also represented in Canada, Singapore, Beijing and other locations. In Sweden, Thomesto Svenska also built up a large group of companies that traded in, for example, oil, fish and textiles. Leo Jouhki’s son, Lauri Juhani ‘Mylle’ Jouhki (born 1944) became Managing Partner of the Thomesto Group in 1978. Mylle Jouhki held a master’s degree in economics and had previous work experience in merchant shipping and the forest industry. Although Leo Jouhki had 28


Tromsø

Toronto

Kirkenes

Lahti Koria Helsinki Johanneshov Stockholm Gothenburg Halmstad Helsingborg Hamburg

Beijing

Kiukainen

George Town

London

Rotterdam

Lausanne Geneva

Moscow

Warsaw Vienna

Milan

By the mid-1980s, Thomesto’s subsidiaries and local offices had spread to three continents and a total of fifteen different countries.

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Singapore


officially retired, he continued as Chairman of the Board of Directors and also acted as a guarantor for eastern relations and vital customer contacts well into the 1980s. Leo Jouhki’s younger son, Timo Jouhki (born 1951), also held a master’s degree in economics. He turned his attention to developing the Group’s investment activities. Alongside the trading house, investments formed the second cornerstone of the family business during the 1980s. By the end of the 1980s, Thomesto had, by Finnish standards, become a middleweight company with almost 500 employees in Finland and abroad. The Group’s net sales peaked at almost 1.5 billion Finnish Marks (equivalent to EUR 400 million in 2009). The growth of the trading house also propelled the Jouhki family into the Finnish media limelight.

The red giant of the East crumbles Although Thomesto operated internationally and in a broad range of industries, the majority of its business was ultimately derived from eastern trade in one way or another. Trade continued and profit was made as long as the Soviet Union thrived, or was at least in existence. But the winds of change started to blow in the mid-1980s, when Mikhail Gorbachev, General Secretary of the Communist Party of the Soviet Union, launched a programme of reforms that came to be known as ‘perestroika’. Initially, these political reforms also awakened new hopes at Thomesto. As East and West grew closer and new trading contacts were forged across the Iron Curtain, it was believed that this process 30


Mylle Jouhki, who had experience in shipping and the forest industry, took his father Leo Jouhki’s place as Managing Partner of Thomesto in 1978. He was above all an industrialist and a strategist who sat on the Boards of many Finnish listed companies during the 1990s. Mylle Jouhki became known as Finland’s ‘number-one capitalist’.

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would require agents such as Thomesto, which already had trading experience in both camps. Another reason for optimism was that, in addition to timber imports, Thomesto’s construction exports to the Soviet Union were also doing well in the late 1980s. However, Thomesto’s operating environment was completely revolutionised in late 1990, when politicians decided to abolish clearing trade between Finland and the Soviet Union. In the space of one night, Soviet trade adopted free-market policies and thereby open competition. When Moscow turned off its central money taps, exports across Finland’s eastern border also dried up. These changes crumbled the foundations of eastern trade, and many Finnish export businesses went bankrupt during the early 1990s. Raw timber imports fared better than exports, as the Russians were still eager to sell. However, once clearing trade ended, Thomesto’s existing delivery contracts lost all significance and the Group’s Soviet timber imports to Finland and Sweden contracted in 1991. Thomesto had to rebuild its timber procurement chain completely from scratch and on a new foundation. Increasingly gloomy economic outlooks for the Finnish forest industry also had an impact on timber imports. The volumes of orders at pulp and paper mills plummeted during 1990, and Finland fell into its deepest recession since the mid-1930s. As a result of all this, Thomesto’s net sales in 1990 and 1991 fell to no less than half of their peak value during the 1980s, and in 1991 even the trading house made a loss. There was no way to avoid downsizing measures. Thomesto was forced to divest subsidiaries, close units, wind up operations and lay off personnel. Seventy-three-year-old Leo Jouhki’s death from a cerebral haemorrhage in summer 1991 marked the end of an era. A few months later, the Soviet Union collapsed. 32


Difficulties in new Russia The family had already decided on the company’s future ownership principles well before Leo Jouhki’s death. Leo and Kata Jouhki’s wish was to leave Thomesto to those who actively worked for the company. In practice, this meant the family’s two sons, Mylle and Timo, to whom Leo left his share of the company. Their daughters inherited the family’s other property. The division of labour between the two sons was also clear. Mylle Jouhki continued as Managing Partner of Thomesto trading house, while Timo Jouhki focused on investment activities. For Thomesto, the key issue of the early 1990s was guaranteeing timber imports from the east. While the company had previously purchased ready-felled Soviet timber that had already been loaded onto trains or ships, these solutions would now require taking control of the entire timber procurement chain. Thomesto established timber-harvesting companies with local players in Russia, Ukraine, Belarus and the Baltic countries. These companies felled, transported and sold raw timber. They were equipped with Western harvesting technology and the local labour force was trained to use this machinery. The idea was to replace Soviet traditions with efficient Nordic forest management and felling practices. In conjunction with these timber-harvesting companies, Thomesto also established sawmills and companies that imported forestry equipment and machinery. The launch of timber-felling operations in former Soviet areas raised Thomesto’s payroll to new heights. The Group had about 400 employees in the mid-1980s – by 1994, this figure had already risen to over 2,000 employees, the majority of whom worked in Russia. 33


All in all, building up this network of companies was a major investment that had swallowed about 300 million Finnish Marks (equivalent to over EUR 60 million in 2009) by the mid-1990s. These initial investments appeared to be profitable and the new timber procurement strategy seemed effective. Thomesto rapidly offset the decline in business caused by the end of clearing trade, and the trading house, which focused on timber imports, made satisfactory profits during 1992–1994. Thomesto was optimistic that, after a transition period, former Soviet nations would adopt Western business models. However, the full extent of the difficulties in new Russia’s operating environment gradually became apparent. Just about nothing worked as expected. The payment system was at a standstill and money wasn’t moving within the country. Administration was unpredictable, and taxation and customs duty policies were inconsistent. Rail transportation also proved to be unreliable: goods and even entire carriages could disappear on the way from loading stations to the Russian border. Neither did the introduction of a Western timber-harvesting system into a completely different business and working culture go quite as planned. Productivity remained lower than in the West, and there was a higher loss of goods. Thomesto did its best to make these difficult conditions more tolerable. A financial system for timber transactions was agreed on with the Nordic forest industry, and special rail transport agreements were made with the Russians. Thomesto’s Moscow office closely monitored local developments and, when given the opportunity, sought to influence authorities and legislation in advance. In spite of these tenacious efforts, conditions finally proved too much for Thomesto. The value of the rouble collapsed first in 1994 34


The collapse of the Soviet Union forced Thomesto to focus even more closely on timber imports for the Nordic forest industry, and the trading house’s other operations were whittled down. (Lehtikuva Picture Agency/Photographer: Matti BjÜrkman)

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400

EUR million (2009 equivalent)

350 300 250 200

Thomesto Group

150 100

Thomesto

0

1969/70 1970/710 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 1979 1980 1981 1982 1983 1984 1985/86 1986/87 1987/88 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

50

THE NET SALES OF THOMESTO AND THE THOMESTO GROUP, 1969–2000 The late 1980s was a golden age for Thomesto trading house and the Group that sprung up around it.

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and again in 1998, and the Russian economy fell into chaos. When economic trends in the global forest industry took a sharp downturn in 1995, Thomesto was forced to cut back its Russian operations with an iron fist. Thomesto wound down many of its felling companies and divested its forestry machinery trading companies. In addition to problems in Russia, mergers in the forest industry also gave Thomesto less room to manoeuvre. A couple of dozen forest companies still operated in Finland during the 1980s, but by the late 1990s, restructuring had seen that number fall to only four. Identical trends were seen in Thomesto’s second most important market area, Sweden. These new forest giants were able to handle their foreign timber imports more independently. Thomesto trading house was facing an increasingly uncertain future.

Divesting the trading house Thomesto trading house’s status within the Jouhkis’ corporate cluster had been dwindling throughout the 1980s and 1990s. By the late 1980s, the company had been restructured so that Thomesto had become only one part of the Jouhkis’ Thominvest Group and its investment portfolio. However, after the collapse of the Soviet Union, the trading house no longer seemed to be a profitable investment; quite the opposite in fact, as maintaining its operations during the 1990s required sizeable Group contributions. The family had long discussed the divestment of Thomesto. Leo Jouhki would have been ready to divest the firm in the mid-1980s, if a suitable sale price could have been agreed on with potential buyers. 37


The idea of divestment came to the fore again in the late 1990s. However, finding a buyer was not altogether easy, as the trading house was past its prime and making a loss. In 1999, when Thomesto posted its first profitable result since 1994, the Jouhkis knew that the time had come. A potential buyer, Metsäliitto Group, existed in Thomesto’s own customer base. Metsä­ liitto was the only one of Finland’s three major forest clusters that did not yet have its own procurement organisation for imported timber. In a deed of sale signed on 12 September 2001, Metsäliitto acquired the entire share capital of Thomesto Ltd for just over 150 million Finnish Marks (equivalent to EUR 30 million in 2009). As part of the transaction, just over 800 Thomesto employees transferred to Metsäliitto. According to several estimates, the transaction was made at the correct time, or even at the last minute: in a few years’ time, there may not have been anything to sell. The transaction constituted a major change for the Thominvest Group. Thominvest was left with only a few dozen employees and the divestment of Thomesto also cut the family’s ninety-year-long ties to the forest industry. The metamorphosis from diverse trading house to investment firm was finally complete.

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Thominvest as an investment firm Merchant shipping had long been an important element of the Jouhkis’ business. This photo from September 1989 shows Mylle Jouhki’s wife Marjatta rechristening the Finnlines’ ship M/S Finnforest.


In the beginning, there were ships The Jouhkis’ investment activities had begun with, and were still based on, profiting from eastern trade. During the 1970s and 1980s, a significant portion of the capital generated by Thomesto was rechannelled into ships, as affordable taxation made them appealing investments. By this stage, however, the trading house’s transportation needs were no longer the main driver of its merchant shipping business. The core of the company’s new strategy was to acquire and supply ice-class vessels for oceanic freight in the Finnish forest industry. And from the 1970s, Thomesto no longer operated its ships – they were managed by Finnlines, a shipping operator with close ties to the Finnish forest industry. Thomesto and Finnlines’ partnership became quite close, and not least because Mylle Jouhki had previously worked for the company. After a share transaction in 1982, Thomesto also had a 15 per cent holding in Finnlines. However, Thomesto’s merchant shipping business hit a headwind in the early 1980s, when the outlook for international shipping rapidly deteriorated. Cargo levels fell dramatically from autumn 1981, and this downswing continued right up until the late 1980s. Like other Finnish merchant shipping companies, Thomesto was forced to flag out its vessels in order to keep costs in check. Such a problem40


Much of the capital generated by the trading house was reinvested in ships. One of the ships owned by Thomesto was Finnpolaris, which transported Finnish forest industry products to international markets. In summer 1983, this ship was leased to the Indian State for a four-month research expedition to Queen Maud Land in Antarctica.

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atic operating environment made the Jouhkis question the rationality of direct investments in shipping. Thomesto divested the majority of its ships by the end of the 1980s. Finnlines had also restructured its operations when it listed itself as a shipping company on the stock exchange. It was at this point that Thomesto decided to sell its remaining vessels to Finnlines. In return for these ships and their existing Finnlines shares, the Jouhkis’ companies received an 11 per cent holding in the new Finnlines. As the representative of a major shareholder, Mylle Jouhki became Chairman of Finnlines’ Board of Directors.

Investments become a second cornerstone The trading house had invested its acquired capital in securities as well as ships. Leo Jouhki had made some share transactions in the firm’s name during the late 1960s, and the rate of acquisition only accelerated over the following decade. Thomesto primarily acquired shares in its customers (Finnish forest industry companies) and its financers (commercial banks). For example, Thomesto acquired a considerable slice of one of the most successful Finnish forest companies of the 1980s: United Paper Mills (later UPM-Kymmene). The Jouhkis also became the tenth largest shareholder in Finland’s largest commercial bank, the National Joint-Stock Bank (KOP, later Nordea). Thomesto’s shareholdings afforded the company a more weighty status in the Finnish business world than it would have acquired though its trading house alone. They also paved the way for Mylle Jouhki, Thomesto’s Managing Partner, to join the Boards of Direc42


Finland’s financial elite gathered to celebrate Thomesto’s 75th anniversary in May 1986. Their good-humoured hosts are: (from left to right) Kata and Leo Jouhki, Marjatta and Mylle Jouhki, and Timo and Marjut Jouhki.

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tors of several industrial companies. In the Finnish financial world, the Jouhkis were regarded as a family of financially stable entrepreneurs with their own money to invest. During the 1980s, investments gradually inched alongside trading to hold a key position in Thomesto’s business. The nature of these investments also became bolder and more active. Leo Jouhki had been a cautious investor who was content with traditional, passive shareholdings; but Mylle and Timo Jouhki began to undertake active investments. One of the reasons behind this was the deregulation of the Finnish money market in the mid-1980s and the subsequent ‘crazy years’, during which share prices on the Helsinki Stock Exchange made an unprecedented upsurge. The core of Thomesto’s new investment philosophy was to expand out of the forest industry and spread the company’s capital across a range of investments. In early 1990, the Jouhkis divested their major shareholding in United Paper Mills for a good price of 300 million Finnish Marks (equivalent to EUR 70 million in 2009). These funds were used to acquire shares in other Finnish listed companies. In the late 1980s and early 1990s, Thomesto also selected foreign real estate investments. This was no longer a nickel and dime operation. In 1989, the market value of the company’s investments in securities, real estate and money markets rose to over a billion Finnish Marks (equivalent to EUR 250 million in 2009). By the late 1980s, the increased significance of the company’s investment activities led to a reorganisation of the entire Thomesto Group. In 1988 Thomesto was divided into an Investment Group (Thominvest) and a Trading Group (Thomesto) to emphasize the special features of the two different business lines. Thominvest became the parent company of Thomesto. 44


Timo Jouhki became President of Thominvest, while Mylle Jouhki continued to head up the Thomesto Group. Leo Jouhki was Chairman of the Boards of both sections of the Group up until his death in 1991.

The rise and fall of the stock portfolio In spite of its policy of spreading investments, Thominvest’s stock portfolio remained its largest asset throughout the 1990s. In 1995, the company had 700 million Finnish Marks (equivalent to about EUR 150 million in 2009) invested in securities and 250 million Finnish Marks in foreign and domestic real estate. The company’s strategic share investments of the 1990s included the two major Finnish commercial banks KOP and SYP (the Union Bank of Finland), the forest industry company Kymmene and the merchant shipping company Finnlines. Midway through the decade, they accounted for over half of the portfolio’s total value. Thominvest’s largest shareholding was in Finnlines. The early 1990s heralded a harsh period for Thominvest’s stock portfolio, as the Finnish economy had entered a deep and prolonged depression. The downswing that started on the Helsinki Stock Exchange in 1989 continued until 1992 with only brief respites. From time to time during the early to mid-1990s, the Thominvest Group’s financial position was extremely strained. Considerable funds were tied up in the Thomesto trading house’s investments in Russia and the Baltic countries. A simultaneous fall in the value of assets used as collateral led banks to request additional collateral 45


during the early 1990s. In order to free up capital, Thominvest was occasionally forced to sell its investments at a loss. 1995 was an exceptionally tough year, as Thomesto’s risks in Russia began to realise and Thominvest’s investments resulted in a loss. However, Thominvest managed to weather this difficult period and its investments never collapsed. The company’s strategic investments eventually proved to be well-chosen options for a patient investor. Economic recovery during the mid-1990s, combined with the merger of the KOP and SYP banks into Merita (later Nordea) in 1995, notably raised share prices. In the forest sector, the 1996 merger of Kymmene and United Paper Mills as UPM-Kymmene also raised the value of Thominvest’s shareholding. As a whole, Thominvest’s stock portfolio developed exceptionally well in the late 1990s.

The Jouhkis become investment bankers The Jouhkis had launched their investment activities as a means of managing the family’s assets, but by the 1990s, they were taking a more professional approach. Yet their activities were still relatively narrow, as they only encompassed the sale and purchase of shares and real estate. They needed to take further steps into the investment world. It was primarily this desire that made brokering an appealing option in the mid-1990s, as it was deemed to sit well with the Group’s other investment and financial activities. A suitable brokerage firm was found for sale: Arctos Securities, which had been one of Finland’s leading brokerage firms in the 1980s. In early 1995, Thominvest and the Jouhkis’ other investment 46


firm, Thomproperties, acquired Arctos’ entire share capital. The investment soon proved worthwhile, as Arctos’ profit for that year repaid its purchase price twice over. Arctos’ main line of business was brokering, which was supplemented by asset management services and equity funds – both areas that were still in their infancy in Finland. This package was augmented with another transaction in summer 1995, when Thominvest acquired a 45 per cent holding in the listed company OP-Sijoitus Ltd. OP-Sijoitus, which was renamed Arctos Capital, was an investment firm that owned listed equities and real estate. Its greatest appeal lay in the fact that it was a listed company, as Thominvest’s plan was to first accumulate value and later cash in. The Arctos and OP-Sijoitus transactions noticeably raised Thominvest’s profile: owning a recognised brokerage firm and a listed company guaranteed that the media would follow the Jouhkis’ investments more closely, and their views on the investment market were often quoted. Developing the Arctos Group did not stop there. Timo Jouhki’s vision was this: the investment service company of the future would be able to combine a brokerage firm, which handled asset management and funds, with an investment bank’s corporate finance activities. This kind of package did not yet exist in the Finland of the mid-1990s. In order to realise his vision, Arctos needed a partner. It found the partner it was looking for in Conventum, a Finnish investment bank. The merger of Arctos and Conventum came into effect in March 1999 and, by virtue of Arctos Capital’s listing, the new company was listed on the stock exchange. Thominvest and the Jouhkis owned 30 per cent of the share capital of the newly formed Conventum. A new company had been born, and with it a new strategic investment. 47


Timo Jouhki, who became President of Thominvest in 1988, is also known as a successful rally manager. His protégés have included many of the great names in Finnish rally, such as Mikko Hirvonen (on the left) and four-time world champions Juha Kankkunen and Tommi Mäkinen. (Photographer: Marko Mäkinen)

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A fabulous Conventum affair The newborn Conventum’s first steps were extremely promising. The company started up just as both the stock exchange and the real economy were thriving, and the millennial IT boom was still mushrooming. There was growing demand for Conventum’s services in everything from investment banking, asset management and mutual funds to brokering. This was strongly reflected in the company’s share price, which saw a manifold rise during 1999–2000. Even though business was going well, Conventum was already looking out for a new partner by 2000. The company had a workable range of services, but lacked a distribution network through which it could market these services more extensively and grow its customer base. The Finnish insurance company Pohjola, which had an extensive network of offices, looked to be a suitable partner. Negotiations on the merger of Conventum and Pohjola were launched in 2000. That summer, the IT bubble began to burst and Conventum’s share price fell along with the rest of the stock market. It was a prolonged decline and by spring 2001, Conventum’s market value had fallen to a quarter of what it had been a year ago. Although economic trends were clearly experiencing a downswing, it was still possible to get a reasonable price for the company. If the Jouhkis were going to sell the company, they had to do it now. The result of the negotiations between Conventum and Pohjola was announced on 13 June 2001. Pohjola acquired Conventum for EUR 270 million – the Thominvest companies’ share of this was about one third. The sale price was paid in Pohjola shares, so that Conventum’s shareholders received an approximately 20 per cent holding 49


in Pohjola. The Thominvest companies’ total share in Pohjola came to just over six per cent. This transaction changed the nature of the Jouhkis’ strategic investments. Finland’s major insurance companies exercised their shareholders’ voting rights at Pohjola, and a six per cent share was not enough to maintain the same strategy as their thirty-per-cent holding in Conventum had enabled. Thominvest treated its Pohjola shares as an ordinary financial investment, and the majority were sold over the following years. Eventually, the project that had begun with the acquisition of the brokerage firm Arctos in 1994 ended up being quite profitable for Thominvest. The just under EUR 5 million invested in Arctos and OP-Sijoitus yielded a total of EUR 80 million.

New generation, new investments After the divestment of Thomesto in autumn 2001, Thominvest became purely an investment firm. There were also changes in the company’s senior management at this time. Mylle Jouhki’s health had been failing since the late 1990s and in spring 2001, he slipped into a coma. Although he awoke after a couple of weeks, he never returned to work. Unlike previous generational changes in the family business, preparations were still incomplete. Timo Jouhki, who represented the old generation, took Mylle’s place as the Group’s official operative leader. The brothers’ mother, the eighty-year-old matriarch Kata Jouhki, became Chairman of Thominvest’s Board of Directors. 50


As Mylle Jouhki lay on his sickbed, his eldest child, Juha Jouhki (born 1966), had promised to come and work at the family business. Timo Jouhki’s wish was to move away from operative tasks and focus on planning investments at a strategic level. So in 2002, Juha Jouhki, M.Sc. (Tech.), took his uncle’s place as President of Thominvest, while Timo Jouhki became Chairman of the Board of Directors. Mylle Jouhki’s eldest daughter, Johanna Jouhki (born 1969), M.Sc. (Soc.Sc.), was made Managing Partner of Dreadnought, which managed the other investment assets belonging to Mylle Jouhki’s family. Mylle Jouhki’s youngest child, Julia Jouhki (born 1971), LLM, had been on Thominvest’s Board of Directors since the 1990s. After Mylle Jouhki’s death in 2003, the children inherited their father’s share of Thominvest. The first years of the 2000s proved difficult for Thominvest, as they did for other investment firms. Share prices continued to decline until 2003, and the value of Thominvest’s portfolio fell by over a third in two years. But share prices began to rise steadily from 2003, and the value of the company’s investments soon exceeded 2001 levels. Thominvest made an even more determined effort to spread out its investments during the 2000s. The company sought to split its investments fifty-fifty: half would be made in securities and equity funds and half in other investments, such as unlisted companies, capital investments, real estate investments and hedge funds. Risk management was the aim of spreading out investments, but the company did not shun risks when selecting investments. Instead of its traditional and fairly strong focus on Finland, Thominvest also sought to spread its investments over a broader geographical area. The most significant long-term investment made in Eastern 51


EUR million EUR million 200 175 150 125 100 75 50 25 0

31.12.2000 31.12.2001

31.12.2002 31.12.2003 31.12.2004 31.12.2005 31.12.2006 31.12.2007 30.6.2009* 30.6.2010

Net assets

MSCI World

* Change during the financial year (= an 18-month period)

THOMINVEST’S NET ASSETS, 2000–2010 Thominvest’s net assets including distributed dividends plotted against global stock market trends according to the MSCI World (EUR) index (index 100 = 31 December 2000). Trends in the company’s net assets during the 2000s have been closely linked to stock market trends. The sharp falls in share prices during 2000–2003 and 2008–2009 also had an impact on Thominvest.

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Europe was Trigon Capital, an investment bank that offered asset management and investment services to areas in Central and Eastern Europe and the former Soviet Union. In its capital investments, that is, ventures, Thominvest has sought to acquire promising corporate projects through its own contact networks. Biotechnology, which has long interested Juha Jouhki, is an appealing field, but the company has refrained from focusing too narrowly on any one industry.

Untying the ropes At the turn of the millennium, Thominvest divested its strategic investments one by one. The company’s shares in Merita Bank were sold in the late 1990s and its UPM-Kymmene shares in the early 2000s. The only remaining strategic investment was Finnlines, which was still by far Thominvest’s largest single investment during the first years of the new millennium. Merchant shipping investments had been Mylle Jouhki’s pet projects, but after his illness, the other family members did not show the same level of personal interest in them. At the turn of the millennium, Thominvest began to re-evaluate its holding in Finnlines, as it did its other investments. In summer 2001, at around the same time the Thomesto and Conventum transactions were going on, Thominvest’s Board of Directors announced that the company’s holding in Finnlines could be sold if an opportunity arose at ‘an acceptable price level’. And an opportunity did arise. The Italian Grimaldi family, who were in the merchant shipping business, took an interest in Finnlines. 53


In 2005, they became major shareholders with a 15 per cent share in Finnlines, and also announced their interest in increasing their holding. At the same time, Finnlines’ share price had once again risen to an appealing level after a few modest years. The Jouhkis seized this opportunity. In October 2006, Thominvest sold its just over ten-per cent holding in Finnlines to the Grimaldis for about EUR 70 million. This was, alongside the Conventum divestment, Thominvest’s largest ever transaction. Before divesting Thomesto, Thominvest was one of the top hundred companies in Finland in terms of net sales. It was also one of the country’s most indebted major corporations. The divestment of Thomesto, Conventum and finally Finnlines enabled Thominvest to pay back these debts and accumulate some financial buffers. The Group’s financial figures speak for themselves. In 1995, both the trading house and the investment business were in difficulty. The Thominvest Group’s equity ratio was only 14 per cent, gearing stood at over 160 per cent, and its financial position was extremely strained. The Group’s net assets had fallen to just under 154 million Finnish Marks (equivalent to about EUR 32 million in 2009). By the mid2000s, the Group’s equity ratio had reached over 60 per cent, its gearing had fallen to just over 50 per cent, and the value of its net assets had almost quintupled. 2006 was to be the most profitable year in the Thominvest Group’s history, while the worldwide economic crisis of 2008–2009 hit the Group’s investments hard. Share prices plummeted between autumn 2008 and early 2009, and Thominvest’s investment portfolio halved in value. Share prices began to rise again in spring 2009, and in just over two years the majority of the losses incurred had been recouped. 54


Thominvest’s current owners (in 2010) are Mylle and Timo Jouhki’s children: (from left to right) Juha Jouhki, Tomas Jouhki, Julia Jouhki, Johanna Jouhki and Eemeli Jouhki.

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The current generation has inherited a well-built and well-managed investment portfolio. But what to do with it? One distinctive characteristic of Thominvest’s history has been each generation’s willingness to attempt unprecedented solutions when necessary: the forestry business gave way to the trading house, and the trading house to investment activities. The company has always come to reflect each generation’s vision.

All images are from Thominvest’s archives unless otherwise stated. Cover illustration: Loading the ‘Malla’, a ship owned by Thomé’s Forestry Office. (A painting by Unto Kaipainen, 1961) Publisher: Thominvest Ltd, Helsinki Authors: Laura Puro and Veijo Åberg English translation: AAC Global Ltd Layout: Peter Sandberg Printed by: Otava Book Printing Ltd, Keuruu, Finland 2011 isbn 978-952-92-8832-8

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