Helsinki, Finland, 10 September 2008 -– UPM is continuing actions to secure its profitability in a business environment of slow growth and rising costs. UPM is reorganizing its business structure and plans to close its least competitive paper and pulp capacity in Finland and to streamline operations in all business groups, units, and functions. The number of employees affected by the program is estimated to be approximately 1600 in 2009–2010.
The planned actions to close capacity would improve UPM's cost competitiveness and EBITDA. In addition, streamlining operations will result in cost savings of about EUR 70 million in fixed costs.
If the closures are implemented as planned, UPM will book in Q4/2008 a EUR 170 million write-off in fixed assets and make a provision for the reduction in the number of employees and other closure costs of about EUR 30 million.
"Demand growth for paper in traditional markets has slowed down," said Jussi Pesonen, UPM's president and CEO. "Overcapacity still exists in Europe and slowing economic growth imposes further challenges. Prices of wood, energy, and fuels have increased significantly in the last two years. UPM's employees have succeeded in increasing the internal efficiency to a new level, but unfortunately, cost pressures have multiplied. The situation is striking particularly in Finland, where wood prices have increased to such a high level that profitable operation of all our units is no longer possible. With today's market outlook and the recent cost development, UPM's paper and pulp production in Finland can not continue in its current form and extent. We have to be humble in heading for this rocky road," Pesonen said.
UPM is planning:
Kajaani paper mill
Possibilities for profitable operations at the Kajaani paper mill have continued to weaken because of increased wood and energy costs and the weak, long-term demand outlook for its main products. The sustainable market structure for newsprint, the mill's main product, is based on recycled fiber and location in the middle of the customer base. Kajaani mill is distant from markets and it uses virgin fiber to produce paper. The mill uses more wood and energy per ton of produced paper than any other UPM mill in Finland. The mill has become unprofitable despite many well-completed efficiency improvements.
"Both the mill management and personnel have worked hard for years to improve Kajaani mill's profitability. No stone has been left unturned and for that I want to give all employees full recognition. The external challenges have just become overwhelmingly big. We need to face the reality now and conclude that a paper mill operating in Kajaani is no longer viable," Pesonen said.
At the Kajaani mill, UPM has 670 employees, of which 535 at the paper mill. The mill's production capacity is 640,000 tons of newsprint, special newsprint, and uncoated supercalendered (SC) magazine papers. One newsprint machine has been idle since February 2008. Through the closures, UPM plans to reduce 13% of its newsprint capacity in Europe, 25% of its special newsprint capacity, and approximately 9% of its SC paper capacity.
According to the plan, UPM's sawmill and wood procurement will continue operations in Kajaani. The sawmill's annual production capacity is 220,000 cubic metres of mainly pine sawn timber. The sawmill employs approximately 100 people and wood procurement employs 34 people.
UPM is currently preparing a feasibility study on pellets production based on forest residues in Kajaani. In addition, the company plans to study the possibility to produce bio-oil at Kajaani.
Tervasaari pulp mill
In the company's view, profitability of pulp production will significantly decrease in Finland in the coming months. The main driver for this is the high price of Finnish wood fiber. UPM has to steer fiber to its bigger, newer, and more competitive pulp mills in Finland. Tervasaari pulp mill is the smallest and oldest of UPM's Finnish pulp mills. UPM sees no signs of recovery of the fiber supply and expects the situation to remain challenging. Tervasaari pulp mill has no prerequisites to operate profitably in the coming wood supply situation.
Tervasaari pulp mill has an annual production capacity of 210,000 tons of pulp. In addition, Tervasaari mill operates three paper machines, which together have an annual production capacity of 370,000 tons of speciality papers. Tervasaari mill has 680 employees; the planned closure of pulp mill includes around 150 people. The planned closure of the pulp mill would reduce UPM's pulp production by 10%. After that, the company would still remain self-sufficient in chemical pulp.
Tervasaari mill's three paper machines will continue production, with no change in their current product portfolio. In future, chemical pulp will be supplied to Tervasaari from UPM's other pulp mills in Finland.
The planned closures would decrease UPM's wood consumption in Finland by 2 million cubic meters annually. This would not reduce the company's wood procurement in Finland. Instead, UPM aims to increase the procurement in Finland.
Efficiency improvement in the Label Division
UPM's Label Division plans to restructure its European operations to secure profitability in a weak economic environment. The Division will announce a detailed plan later this year.
Other streamlining measures
UPM will investigate measures to improve efficiency in all of the company's business groups and functions in the new business structure. A preliminary estimate on the number of employees affected by these measures is around 950. UPM will announce more detailed plans on these measures this autumn.
If all mentioned measures are completed, the Group's total amount of employees will reduce by around 1600 in 2009–2010. This amount does not include the measures of the Label Division or impacts of possible outsourcing.
Negotiations with employees on the possible closures will start as soon as possible. First decisions based on the negotiations are expected in December. Possibilities for retirement, relocation within UPM, and retraining also will be handled in the negotiations.
If the planned closures will be completed, UPM will start a from-job-to-job program focused on the Kajaani region. The program includes, in cooperation with various parties, active measures to support finding a new job and retraining.
UPM Kajaani paper mill manufactures uncoated magazine papers, newsprint, and special newsprint. Its three production lines have a combined annual capacity of 640,000 metric tons. Located in northeastern Finland, the mill employs 535 people. The mill was founded in 1907. In addition, UPM has a sawmill, local UPM forest wood procurement office, and power company (Kainuun Voima).
UPM's Tervasaari paper mill manufactures label, packaging, and envelope papers. The mill's three paper machines have a combined annual capacity of 370,000 metric tons. The mill is located in central Finland and employs around 640 people, including some 110 in the pulp and energy department. The mill was founded in 1872.
The Label Division of UPM is a world-leading supplier of self-adhesive label materials and RFID tags and inlays for a wide variety of needs in product and information labeling. UPM Raflatac (www.upmraflatac.com
) has around 2700 employees and made sales of approximately EUR 1 billion (USD 1.4 billion) in 2007. UPM Raflatac's factories are located in Australia, China, Finland, France, Malaysia, South Africa, Spain, the United Kingdom, and the United States. A new labelstock factory is under construction in Poland and a new RFID factory in China.