Dispassionate isn't a quality typically attributed to successful people. In some instances, however, the ability to approach investment in a particular business or industry with a certain degree of detachment is the secret ingredient to a soaring stock price, and a healthy roster of clients.
This is the case with Chad Wasilenkoff – the powerhouse behind, and front man of, Fortress Paper. "All of our assets are always for sale – at any given point, we're ready to sell off anything we own, Wasilenkoff tells me, illustrating his readiness to move on should an opportunity present itself. "I'm all about improvement and creating value. With this comes the recognition that all our assets will eventually be sold."
It's a bold statement when applied to an industry vulnerable to speculation and rumour about sales and shuttering of assets. For Wasilenkoff , it's the inevitable and inescapable truth. He views himself as an investor first, and a paperman perhaps second, or third. "I manage my companies like portfolios," he admits.
It wasn't always this way. In his younger days, Wasilenkoff did what most rookie investors do – he chased after hot markets, trying to grab on to the coattails of emerging sectors, hoping to cash in on the flavour of the day. This approach was moderately successful in that it allowed him to raise capital, but it was a poor time in the investment cycle to buy. Piecing together a first rate operations team was an additional challenge, because the brainpower in hot industries was getting snapped up left, right and centre. It was this game of playing 'catch up' that led Wasilenkoff to start playing by a different set of rules altogether. It also earned him the 'contrarian investor' moniker. He would deliberately chase after industries that had fallen largely out of favour and pursue them with what others perceived as displaced vigor. 'I went in to gold when it was depressed, in to copper and uranium when no one else would go near them,' Wasilenkoff recalls. 'I'd pick up assets before these industries came back in to favour. It was a good time to do it, and to find the right people.'
With this kind of a strategy, a hefty personal investment in the forestry industry wasn't much of a stretch for Wasilenkoff. The sector has been crippled by a lack of investment, its competitive edge depressed by lower-cost suppliers and a robust Canadian dollar. It's exactly this unfortunate combination of events that made the industry an attractive investment for Wasilenkoff, allowing him to snap up assets in economically devastated towns for a pittance. "The majority of forestry assets are located in rural towns, where most people had migrated in search of a job, given that a mill is typically a main employer in a region. When you look at the North American forestry sector, most companies have gone through a rough time. The asset was typically built 30-40 years ago, has had no major capital upgrades, and is struggling to stave off pressure from South America and Asia. On the management side of things, these companies have in some cases gone through decades of cost reductions, layoffs, and have devoted their energy to just trying to survive. Many of them have gone through a complete restructuring or declared bankruptcy." This kind of scenario gave Wasilenkoff the upper hand when it came to negotiating with governments for loans and with unions about labour relations. "Thurso is the perfect example," he said, of his most recent acquisition. "I'm coming in at a time where the asset has already been shut down and so while no bank would touch you with a ten foot pole, governments and unions are looking at it from a different angle – they're all about job creation and let's face it – in smaller towns where many of these assets are located – you don't have a lot of other options."
Wasilenkoff may not know paper, but he knows business. As owner of 1/6 of Fortress, an investment he made with his personal funds, he's got enough skin in the game to provide him with the credibility it takes to be a respected leader. "It helps people to understand that our interests are aligned – I need this thing to succeed – I have to make it work. It's not just a passing investment for me, the way it is for another investor who could change their mind on a Monday and sell their stock on a Tuesday." The flip side is Wasilenkoff's employees have learned the sorts of challenges and issues they can engage him on, and when to turn elsewhere for support. "Nobody ever calls me with good news – when the phone rings it's usually because people need me to raise more capital. I'm always here to assist, but my role is a bit different than you might find in another paper company. I'm definitely not the operator."
While his approach is calculating, strategic and arguably somewhat detached, Wasilenkoff holds his employees and the contributions they make in extremely high regard. "I have a lot of respect for these pulp and paper experts – I would never profess to know how to run a mill," he admits. "You won't see me walking the floor, but I like to think I give people a good opportunity to succeed."
Succeed they have. Fortress Paper has two mills which manufacture pulp and paper for two very different products – bank notes and rayon (Wasilenkoff sold off his profitable wallpaper division in April). The markets for these have remained resilient, while demand for traditional uses of dissolving pulp, such as newsprint, continues to nosedive. While these three products have absolutely nothing to do with one another, they illustrate Wasilenkoff's ability to think outside traditional business lines in order to maximize value and find new, unestablished markets for his product. At the same time, he selects markets with a certain degree of predictability and stability, noting the 4-5% growth on the bank note side. "Once you get a contract with a national bank – they don't like to switch suppliers." Rayon is increasingly used as a substitute for cotton and is found in a staggering number of household consumables, from paint thickener to yoghurt, to cellophane to cigarette filters.
« It helps people to understand that our interests are aligned – I need this thing to succeed – I have to make it work. It’s not just a passing investment for me, the way it is for another investor who could change their mind on a Monday and sell their stock on a Tuesday. »
It's difficult to fathom, but what resulted in a highly lucrative investment, was met with initial distaste and outright disapproval from the Fortress board. When Wasilenkoff first floated the idea of scooping up the shuttered Thurso pulp mill, his executive was more than slightly skeptical, and turned it down. Undeterred, over the next two months Wasilenkoff busied himself with number crunching and presented a plan the board simply couldn't refuse. When the Quebec government committed to a loan to help secure the purchase, the project was on its way. Interestingly, Wasilenkoff did not, and still doesn't, have any kind of threshold, conceptual or otherwise, to help define success for the Thurso mill. "I don't manage my portfolio that way," he says. "I don't have a rigid sense of numbers or thresholds – I work opportunity by opportunity. The economics made sense to me and while I never really know the exact moment when an opportunity will become successful, with Thurso I knew that with this investment we'd be a low cost producer and so even in bad times, we'd be doing well. I was confident it was sustainable and that the company wouldn't be at risk."
As is so often the case in the forestry industry, that confidence, at least in part, may have been ill-guided. "Since then we've made some mistakes," Wasilenkof concedes. "The cost structure is not evolving as planned – we're over budget and the thing was materially delayed. But we're in to it now -we can't turn back. There will be some management changes, you can expect that - we need the right people to get the cost structure down."
Thurso used to make a paper pulp, but with Wasilenkoff's purchase, the facility was converted in order to produce a dissolving pulp. These two types of pulp historically traded in parallel, but when the cost structure for dissolving pulp pulled ahead about ten years ago, it began to trade closer to the financials of cotton – a market scenario that made the Thurso purchase attractive. Currently, however, dissolving pulp prices have taken a nosedive, and this has prompted Wasilenkoff to make a somewhat surprising call to temporarily, and partially convert Thurso back to production of paper pulp in a "wait out the storm" strategy. "Dissolving pulp is trading painfully low right now. We will make money producing paper pulp in the short term, and so we want to take advantage of that. It's not a good long term option, because there will be a lot of paper pulp coming online in the next two or three years, so we don't want to be in that business when that happens, but we're very confident that prices for dissolving pulp will increase. When the supply and demand equation crosses again, the business theory should come back into fold."
It's been a hard sell. The strategy hasn't been well received by shareholders, whom, Wasilenkoff says, run static models and tend not to favour short term strategies. "I've been doing a lot of explaining," he says with a chuckle. "We aren't going in to the paper pulp business for the next ten years - we need short term flexibility over the next 6-12 months, to make more money, to take advantage of this short term opportunity and to deflect risk," Wasilenkoff notes, with reference not only to markets for dissolving pulp, but to the ongoing anti-dumping investigation by China. "It's fiscally prudent to be ahead in case something negative happens. All of the experts we've consulted with say there is no support for the imposition of a duty, but we don't want to be caught flat-footed in case they're wrong."
« We aren’t going in to the paper pulp business for the next ten years - we need short term flexibility over the next 6-12 months, to make more money, to take advantage of this short term opportunity and to deflect risk. »
The conversion at Thurso is one more example of a long list of strategic, profitable moves Wasilenkoff has made. His "contrarian" model of investing has proven effective, time and time again. And yet, for a man with a track record of startling precision when it comes to investment, he says he has little to no plan for the future, apart from keeping ahead of the curve. "I consider myself fairly aggressive when it comes to investing, but that said – I don't know where my next opportunity lies. Even though I'm evaluating a number of possibilities right now, it's hard to say where I'll go next. Any product, any country – who knows?" When asked if he might consider another purchase in the forestry sector, Wasilenkoff was somewhat elusive and admits it's challenging to find a good deal in this kind of market. However, when he noted his checklist for investment as, "basically anything that meets our very strict criteria when it comes to deploying capital based on predicted ROI (return on investment) double digit growth, high barriers to entry, unique in the sense that it has the potential for growth but has a low investment point, perhaps something that has undergone a challenging time, but the underlying thesis for business remains intact..." it sounds like any number of Canada's pulp and paper mills could make the cut. One thing remains certain – Wasilenkof f is a man on the move, and it's possible the next move he makes will speak volumes about the future of forestry in Canada.
Fortress is an international producer of specialty pulp, security papers and other security related products. Fortress paper was incorporated in May 2006 and listed on the Toronto Stock exchange in July 2007. The company has since grown to two divisions and employs approximately 640 workers in two countries.
For more information, visit: www.fortresspaper.com