Cham Paper Initiates Comprehensive Restructuring of the Group

Nov. 21, 2011 (Press Release) - The Cham Paper Group is responding to the fast-paced economic climate precipitated primarily by forex effects and recharting its course for the future.

Cham Paper's strong market position is secured by:

  • Focusing production on surface coating, Cham Paper's core competency at the Cham site
  • Injecting vigor into innovation in a technology and R&D center for sustainable Food & Packaging
  • Digital Imaging solutions in Cham
  • Relocation of production operations to the euro zone

The Group's return to profitability will be ensured by way of site location and product portfolio optimization throughout the entire Group with the objective of improving cost structures and lessening the Group's dependence on the development of the Swiss franc:

  • Concentration of the Group's product line on higher-margin products
  • Shutting down base paper production in Cham by the end of 2013
  • Gradual expansion of production capacity in Italy
  • Relocation of selected product groups to Italy

This reorganization will lead to a gradual reduction in the workforce at Cham from 312 FTEs to approximately 100. This process will take place in close collaboration with social partner organizations and cantonal government agencies.

The proposed development of the site situated along the Lorze River — now no longer required — into a new residential and commercial district will open up new perspectives for the Cham Paper Group, the community of Cham and the surrounding region.

The Cham Paper Group, a leading specialty paper manufacturer, is reorienting its course for the future. After performing a thorough evaluation of all possible strategic options, the Board of Directors and the Executive Management Board are initiating a comprehensive restructuring of the Group to sustainably secure the Group's future for the coming decade. The measures initiated take the economic and locational situation of the surrounding community into account while leveraging the development potential of all of the Group's assets. The strength of the Swiss franc is forcing the Group to relocate a large portion of its production capacity to the euro zone.

R&D and surface engineering expertise - the key competencies securing the Cham Paper Group's future

The Cham Paper Group brand has an outstanding reputation in Europe and Asia. The Group's core competency — recognized in the marketplace — is coming to be increasingly focussed on the coating and surface treatment of paper. Thanks to its in-depth coating know-how and expertise in dealing with innovative technologies such as curtain coating, Cham Paper is able to offer products to its customers that provide for process optimization and new solutions, i.e. genuine competitive advantages. One exciting new development is barrier coatings without the use of aluminum and plastic, a pioneering step in the food packaging industry in particular. The Cham Paper Group is positive that these products will help it to generate attractive returns in the long term.

However, not all specialty papers require the same high level of expertise. Price pressure is mounting, particularly in industrial applications such as release liners for labels and graphic arts applications (CCK or clay-coated kraft); the requirements made of production efficiency and locational and cost advantages are becoming more exacting. Forex effects have caused profitable production to no longer be possible for large portions of this market segment in Switzerland. Relocation to the euro zone is of interest in terms of sustainability only for part of these products. The Consumer Goods and Digital Imaging products and glassine papers are more attractive in the long run. The Group has managed to show profitable growth here for years now and the long-term prospects are also favorable.

Portfolio optimization and the reorganization of production allocation will substantially improve cost structures and create currency neutrality

In order to ensure a sustainable return to profitability, the Cham Paper Group will have to quickly withdraw from less attractive markets in Switzerland and Italy. The utilization of production capacity can be thoroughly reorganized and optimized on a per-location basis by the simultaneous relocation of selected product groups to Italy.

The Cham site intends to focus on its core competency, surface coating. To be sure, the new curtain-coated specialty papers for the Consumer Goods segment and the increasingly popular Digital Imaging products are to continue to be produced in Switzerland in the future as well. In order for the Cham mill with its special coating machines to be able to focus entirely on the high value-adding and thus less forex-sensitive surface treatment technologies, base paper is to be sourced on the market in the future. In so doing, the Group's site in Switzerland is to be transformed into a technology, R&D and coating center and specialist solution provider for a wide variety of industries. The proposed steps will result in the shutdown of base paper production in Cham. Plans have been made to decommission the PM4 paper machine in the first half of 2012 and the PM5 by the end of 2013.

Starting in 2012, selected profitable Cham niche products for Industrial Release applications are to be manufactured in the Italian mill in Carmignano. The large volumes of specialty papers for the tobacco industry currently providing for a large part of capacity utilization in Cham are to be produced in Carmignano by the end of 2013. The mill in Carmignano is already focussing completely on Consumer Goods in general, and on flexible packaging products in particular, thus providing for expansion potential. The growing market in China continues to be supplied from Europe.

The Condino site will be further expanded. Concentrating on the production of glassine papers, this Italian mill has successfully expanded its sales during the last three years from 38,000 to 45,000 tonnes. Plans have been made to expand its capacity in excess of 20% by 2014.

Site location and product portfolio optimization throughout the Group will result in a substantial improvement in cost structures and a reduction in the Group's dependence on the development of the Swiss franc. In so doing, the Cham Paper Group is recreating a basis on which profitable growth is possible.

In the course of this restructuring the Group's management structure will also be adapted in accordance with the new exigencies in the course of a highly coordinated undertaking. In one of the first steps CEO Peter Studer will be additionally assuming the management of the Carmignano mill from 1 December 2011. The current mill manager Rainer Kürschner will be leaving the Cham Paper Group at the end of the year.

Close cooperation with social partner organizations

The proposed restructuring of the Cham Paper Group will lead to a gradual reduction in the number of FTEs at Cham from the present level of 312 to approximately ca. 100 by the beginning of 2014. The 2012 trainees will not be affected by these measures. The first capacity reduction step is to take place with the proposed shutdown of the first paper machine in the first half of 2012. This will affect approximately 130 employees. The second step will be completed by the end of 2013 with the proposed production shutdown of the second machine. The Board of Directors and the Executive Management Board have contacted the social partner organizations and cantonal government agencies and are seeking to carefully plan this process with the involvement of all stakeholders in a socially responsible manner. The objective is to sustainably secure 100 attractive, top-flight jobs. Plans have also been made to ensure that the 34 trainees will be able to complete their training.

From an underutilized industrial park to a new residential and commercial district of Cham

By concentrating on R&D and surface coating technologies, substantially less land area will be needed and a large portion of the underutilized industrial park located in the heart of Cham will be available for other uses. To this end, the Board of Directors of the Cham Paper Group has commissioned a number of studies to investigate a step-by-step repurposing of the land area. On the 100,000 m² grounds providing direct access to the A4 and the north-bypass of Cham, new residential and employment opportunities are to be created during the coming decades. Cham Paper will be working hand in hand with local authorities to ensure that optimal perspectives are created - for the community of Cham, its present and future inhabitants and commercial enterprises, as well as for the Cham Paper Group.

Current financial situation; Forex situation and impairment requirements lead to a loss in fiscal 2011 - Return to profitability in 2012

The 2011 operating result is excessively burdened by the impact of the strong Swiss franc. The company is reckoning with a loss from operating activities (EBIT) of approximately CHF 10-15 million. Added to this: value adjustments of assets and tax losses carried forward, restructuring provisions and non-recurring effects of an estimated CHF 80-90 million that will burden the 2011 net result. Of this amount, however, only CHF 20-25 million will affect the Group's cash position over the next couple of years.

More details on the restructuring provisions and non-recurring effects will be forthcoming at the annual financials press conference in March of 2012. Thanks to its sound balance sheet and existing cash reserves, the Group will be able to deal with the restructuring and reorientation process through its own resources. The equity ratio will continue to amount to a comfortable 40%. With a stable economy, the Cham Paper Group should return to operating in the black in the course of 2012.

SOURCE: Cham Paper Group