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UPM plans restructuring and further adjustments to ensure performance

Friday 28. August 2020 - To ensure the Communication Papers Business Areas future competitiveness, UPM plans to permanently close Kaipola mill in Finland, sell Shotton mill in the UK and adapt UPM Communication Papers functional teams. In addition, the UPM Biorefining and UPM Specialty Papers Business Areas plan organisational changes and personnel adjustments at their pulp mills in Finland, UPM Forest and the Tervasaari mill, also in Finland.

The planned measures would result in cost savings of EUR 75 million. Final decisions will be taken after negotiations with employee representatives are completed.
Planned measures UPM Communication Papers
The continued long-term and structural decline in demand for graphic papers and foreseeable weaker economic growth require immediate action to ensure the performance of UPM Communication Papers. In a declining market, the competitiveness of the plants and local production conditions are of particular importance.
In 2020, lockdowns due to COVID-19 have led to a short-term slump in demand in the graphic paper market. While there are first signs of a normalisation of demand after the end of the lockdowns, the outlook remains uncertain and has deteriorated further worldwide.
The competitiveness of all business areas is a top priority for UPM. This means in particular adjusting production capacity to customer demand and increasing efficiency in production and administration. Therefore, UPM Communication Papers plans to permanently close the Kaipola paper mill in Finland by the end of 2020 at the latest. The planned closure of three paper machines would affect approximately 450 positions and lead to a permanent capacity reduction of 720,000 tonnes of graphic paper per year. Of this, 450,000 tonnes would be newsprint and 270,000 tonnes coated wood-containing papers.
“This is devastating news for our Kaipola mill. The site has competent teams and well-running machines. Unfortunately, external factors such as high logistics costs, regulatory and tax burdens, comparatively high labour costs and rising fibre costs make the mill the least competitive of the remaining UPM sites,” says Winfried Schaur, Executive Vice President, UPM Communication Papers.
UPM Communication Papers also plans to reorganise and streamline its functional teams in Europe and North America. These plans are expected to affect approximately 170 positions in more than 10 countries.
“UPM has a strong commitment to the paper business and to maintaining close relationships with our customers. We are convinced that with our modern production facilities, our skilled employees and our strategic orientation, we will continue to run an efficient and profitable graphic paper business in the future. The worldwide market for graphic papers is still in the order of more than 70 million tonnes, of which more than 20 million tonnes are in Europe. Even if the business is structurally declining, paper mills with a competitive cost structure will continue to operate profitably and with good cash flow in the future”.
“In structurally declining markets, immense efforts are needed to ensure competitiveness, efficiency and high utilisation of our paper machines under all conditions. Of course, local political and economic conditions also have a major influence on the future success of any site. Long-term planning of the regulatory framework is a basic prerequisite for investment and job maintenance,” Schaur continues.
UPM also plans to sell the Shotton paper mill in the UK. UPM Shotton has an annual production capacity of 250,000 tonnes of newsprint and is located in Deeside, Wales. The sale includes the raw material collection, the waste paper sorting and deinking systems, the paper machine and the energy infrastructure as well as the established access to the UK waste paper market.
“UPM Shotton has an ideal market position in the UK. Nevertheless, we are looking for external possibilities to maintain the plant in the long term in times of a permanently declining newspaper market. The paper machine is technically suitable and interesting for a conversion, especially for the container board area, “says Schaur.
Planned measures UPM Biorefining and UPM Specialty Papers
UPM Biorefining is planning measures to increase the efficiency and competitiveness of its pulp production and forestry in Finland. The focus is on an improved cost structure, the digitization of business processes and the simplification of business processes.
UPM will start negotiations with the pulp mills in Kymi, Kaucas and Pietarsaari in Finland on planned changes in the areas of maintenance, production and mill administration. There are around 110 items available.
In the forest sector in Finland, the focus is on aligning service structures more closely to customers and increasing the use of digital solutions and services. The aim is to make customer contact easier, more flexible and ultimately more efficient. These plans concern about 60 positions.
UPM Specialty Papers is planning measures to optimize the cost structure at the specialty paper mill in Tervasaari, Finland. The planned measures serve to increase competitiveness and would affect around 50 positions.
Financial implications
The plans announced today would add up to around 840 positions, mostly in Finland.
If the plans announced today are implemented, UPM would include approximately EUR 115 million (EUR 55 million in cash and EUR 60 million in depreciation) as comparability items in Q3 results. The majority of this is accounted for by UPM Communication Papers. The planned activities would result in annual fixed cost savings of EUR 75 million.
In 2020 UPM already announced the closure of the paper mill in Chapelle, France, the closure of the plywood mill in Jyväskylä, Finland and organizational changes in the UPM Raflatac division. These measures lead to annual fixed cost savings of EUR 45 million.
UPM has continuously increased its cost efficiency over the past few years and, if necessary, will continue to focus on further reducing fixed and variable costs in all business areas and corporate functions.