UPM, based in Helsinki, Finland, continues actions to secure its profitability in a business environment of slow growth and rising costs. The paper manufacturing giant announced a major corporate restructuring last week, and now says it will close its least competitive paper and pulp capacity in Finland. The number of employees affected by the restructuring is estimated to be 1,600 during 2009 and 2010.
UPM is the parent company of UPM Raflatac, a major supplier of pressure sensitive materials to the label industry worldwide as well as UPM Raflatac RFID, which manufactures RFID inlays.
The planned actions to reduce capacity are aimed at UPM's cost competitiveness and are estimated to provide a positive EBITDA impact. Streamlining of operations is expected to result in cost savings of about €70 million in fixed costs. If all goes as planned, UPM will book in Q4/2008 a €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 €30 million.
"Demand growth for paper in traditional markets has slowed down," says 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."
UPM is planning the possible closure of the Kajaani paper mill and the Tervasaari pulp mill in Finland by the end of 2008, and significant efficiency improvements to UPM's Label Division in Europe in 2009-2010. The company says the improvements to the label division will involve restructuring of its European operations “in order to secure profitability in a weak economic environment.” The division will announce a detailed plan later this year.