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UPM to Cut Newsprint, Magazine Paper Capacity in 2008

December 17, 2007 (Press Release) - Following the review of its asset portfolio against the current cost and business environment, UPM has decided on several courses of action, including removal of production capacity.

The Company today announced the following:

  • removal of 450,000 tonnes of magazine paper capacity by permanently closing the Miramichi paper mill in Canada
  • reduction of 250,000 tonnes of newsprint capacity through the temporary shutdown of one paper machine in Kajaani, Finland, for ten months, and one machine in Steyrermühl, Austria, for two months
  • reduction of label paper capacity with the temporary shutdowns in Finland of one paper machine in Jämsänkoski and one in Tervasaari, both up to three months
  • rationalisation of the Company's self-adhesive label materials operations by closing three old coating lines in Tampere, Finland, and one coating line in Melbourne, Australia, and
  • commencing negotiations with employees on the possible closing of the timber components and planing mill in Luumäki, Finland.

With the exception of Miramichi and Tampere, all the above measures still require negotiations with employees according to the national practises in respective countries.

The decisions are based on UPM's view of the markets and cost competitiveness of the assets. We estimate that next year demand growth will be slower than in 2007 and in the beginning of the year meaningful price increases can be achieved mainly in magazine papers. At the same time the industry will face higher costs of wood, recycled paper and energy. The full year 2007 operating profit, excluding special items, is forecast to exceed that of 2006. The cost development is, however, visible already during the current quarter which will be our weakest quarter of the year.

The annualized cost saving is estimated to be in the range of EUR 50 to 70 million, mainly consisting of reduced wood, recycled paper, energy and personnel costs.

Due to the closure of the Miramichi mill, UPM will book in operating profit costs of approx. EUR 105 million in Q4 of 2007, majority of which will impact Magazine Papers Division. The cash flow impact is estimated to be EUR 80 million during 2008–2009. In addition, income tax charges of approx. EUR 15 million will be recorded from the reduction of deferred tax assets in Canada.

Actions related to magazine papers

UPM will permanently close its paper mill in Miramichi, Canada. The Miramichi mill has been temporarily shut down since August 2007.

“During the temporary shutdown, we have investigated several business solutions to make the Miramichi operation viable. Unfortunately, the current business environment leaves us no options," says Jyrki Ovaska, President of UPM's Magazine Papers Division.

The record strong Canadian dollar has made the export of Miramichi paper to the United States market unprofitable. The Canadian currency has gained 25% this year. The increasing cost of essential raw materials such as wood and chemicals has offset the benefit of price increase for magazine paper. Demand for magazine paper grades in North America has been stable, but globally, there continues to be overcapacity in magazine papers.

UPM has permanently ceased production of 980,000 tonnes of coated magazine paper in 2006–2007 to reduce the structural overcapacity and improve profitability of the business.

Near Miramichi, UPM operates two sawmills in the communities of Blackville and Bathurst, and manages woodlands under Crown forest licenses. The future of these operations is under consideration.

UPM's North American customers will continue to be served by the Company's coated groundwood paper mill in Blandin, Minnesota, USA, and UPM's paper mills in Europe.

Actions related to newsprint

UPM will reduce its standard newsprint production capacity in 2008 by 250,000 tonnes by temporarily shutting down one paper machine (PM 4) in Kajaani, Finland, for ten months and one paper machine (PM 4) in Steyrermühl, Austria, for two months, starting during the first quarter of 2008.

Furthermore, the cost competitiveness of the Kajaani mill will be improved by streamlining and reorganisation which will result in permanent headcount reduction.

"Shutdown for almost a year is an unconventional measure. However, we foresee a changing newsprint market situation in Europe in 2008. The demand growth for standard newsprint is currently flat in Europe, and with continued imports from North America and a decrease in exports to Asia, the European newsprint market is not in balance. Therefore, we need to take action," says Hartmut Wurster, President of UPM's Newsprint Division.

Actions related to label papers

UPM will temporarily shut down two label paper machines for up to three months, one in Jämsänkoski (PM 4) and one in Tervasaari (PM 5), both in Finland. In label papers, there is overcapacity in Europe and the strong euro makes the current exports unattractive.

Actions related to wood products

UPM will start negotiations with employees on the possible closure of the timber components and planing mill in Luumäki, Finland. The financial performance of the mill has been negative and the market outlook for 2008 will remain weak. The closure of the Luumäki planing mill relates to UPM Timber's plans to centralise its planing operations.

Actions related to self-adhesive label materials

UPM will rationalise its self-adhesive label materials production at its Tampere factory in Finland by closing three outdated coating lines, no later than in March 2008.

In addition, UPM will shut down a self-adhesive label materials production line at its factory in Melbourne, Australia. The specialty products produced on this coater have been transferred to other production lines. The Melbourne factory continues to serve the Australian market with a combination of locally produced products and imports from other Asian factories.

Impacts on personnel

UPM estimates that these measures will reduce the number of the Group's personnel by approximately 680, mainly caused by the permanent closure of the Miramichi mill (540 persons), streamlining and reorganisation of the Kajaani mill (60 persons) and the possible closure of the Luumäki mill (50 persons). Rationalisation of the self-adhesive label materials operations in Tampere, Finland, and Melbourne, Australia, will reduce the headcount by about 30 persons.

In Kajaani, Jämsänkoski and Tervasaari, negotiations on possible temporary layoffs will be started with employees. Temporary layoffs are estimated to affect approximately 110 persons at the Kajaani mill. At the Tervasaari mill in Valkeakoski, the temporary layoffs are estimated to affect approximately 90 persons and at the Jämsänkoski mill approximately 70 persons.

About UPM's mills

Miramichi mill has two paper machines, producing lightweight coated paper, with an annual capacity of 450,000 tonnes. The Miramichi paper and groundwood pulp mills employ about 650 people.

Kajaani paper mill manufactures standard and speciality newsprint as well as uncoated magazine papers. The mill’s three machine lines have a combined annual capacity of 640,000 tonnes. The mill is located in the middle of Finland and employs around 600 people.

Steyrermühl paper mill manufactures newsprint and on-line calendered uncoated mechanical paper. The mill's two paper machines have a combined annual capacity of 490,000 tonnes. The mill is located in Upper Austria and employs around 500 people.

Tervasaari paper mill manufactures label papers, envelope papers and bag papers. The mill’s three machine lines have a combined annual capacity of 350,000 tonnes. The mill is located in central Finland and employs together with a pulp mill around 700 people.

Jämsänkoski paper mill manufactures uncoated magazine papers and speciality papers for labels and packacking. The mill’s four machine lines have a combined annual capacity of 870,000 tonnes. The mill is located in central Finland and employs around 750 people.

Luumäki timber components and planing mill manufactures components mainly for window and door manufacturers. The mill is located in south eastern Finland and employs some 50 people.

SOURCE: UPM




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