UPM Implementing New Business Structure to Sharpen Operational Focus, Facilitate Portfolio Change

"We are determined to change UPM." – Jussi Pesonen, President and CEO of UPM.

Profit improvement target of EUR 400 million from performance improvement and focused growth initiatives.

Aug. 6, 2013 - UPM will implement a new business structure to drive clear change in profitability. The company will also seek to simplify and further develop its business portfolio.

UPM’s new structure will consist of the following Business Areas and reporting segments: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Paper Asia, UPM Paper Europe and UPM Plywood. Forests and wood procurement will be reported in Other operations. The new structure will be valid as of 1 November 2013.

The new Paper Business Areas will be located at the centers of their markets. UPM Paper Asia will be headquartered in Shanghai, China, and UPM Paper Europe in Augsburg, Germany. The Group Head Office will remain in Helsinki, Finland.

"Changes in management structure will sharpen the targets and required actions for each business. We will address the competitive challenge in mature European businesses and drive profitable growth outside Europe and in biorefining. The new management structure will also increase transparency of the company performance," says Jussi Pesonen, President and CEO of UPM.

"We are determined to change UPM. We will also seek to simplify our business portfolio and uncover the value of our assets. These opportunities will be explored in parallel with the profitability improvement and growth initiatives and may involve changes in ownership structures."

The current Business Group structure, established at the end of 2008, will be discontinued.

“Within the Business Group structure, we have created commercial platforms and market driven business organisations for Energy and Pulp. We have also achieved profitability turnaround in Timber and Plywood businesses and restructured our European label business. Now these are healthy UPM businesses each in their own right.”

“Although the Paper Business Group has been able to improve efficiency and managed change and integration processes professionally, we now need to move into a more simple and scalable structure to improve performance further,” says Pesonen.

Profit improvement through simplified business structure

UPM has identified actions with an overall profit improvement impact of EUR 200 million in its existing businesses. Each business will implement a profit improvement program with simplified business model and variable and fixed cost savings. These planned actions do not include additional capacity closures at this time.

Profit improvement includes the remaining part of the EUR 90 million savings announced in January 2013, as well as further actions resulting from the new business structure and consequent profit improvement programs.

UPM will follow and update the progress of the program in its quarterly reporting. The full impact of the program is expected to materialise by the end of 2014 as compared with the Q2/2013 results.

Growth initiatives for the next three years

Pesonen highlights that since 2007 UPM’s Energy, Pulp, Label and Asian Paper businesses have grown by 43% in the topline. “These businesses have been not only growing but also profitable and enjoy positive long term fundamentals.”

"Biofuels, woodfree specialty papers in China and continued growth in UPM Raflatac will provide top line growth for UPM in the coming years. In addition, we have identified opportunities to expand production in our existing pulp mills. With these development initiatives we are targeting additional EBITDA contribution of EUR 200 million when in full operation."

The total investment requirement in these projects is EUR 680 million, including the earlier announced EUR 540 million in Changshu paper machine and Lappeenranta biorefinery. EUR 60 million has already been invested, and the total remaining capital expenditure in the coming three years would be EUR 620 million.

Group Executive Team appointments

To ensure prompt implementation of profitability improvement and growth plans UPM’s Board of Directors has confirmed the following appointments in the UPM Group Executive Team:

Heikki Vappula has been appointed Executive Vice President, UPM Biorefining. UPM Biorefining consists of pulp, timber and biofuels businesses. It has an annual capacity of 3.2 million tonnes of pulp, produced by four modern pulp mills in Finland and Uruguay, plantation operations, four efficient sawmills in Finland and one in Austria, and a biodiesel plant under construction in Lappeenranta, Finland. In H1 2013, the sales of the business was EUR 1,044 million and EBITDA EUR 234 million. Heikki is currently President for UPM’s Energy and Pulp Business Group.

Tapio Korpeinen has been appointed Executive Vice President, UPM Energy. UPM Energy operates in power generation and physical and derivatives trading. The business assets consist of UPM’s hydro power assets in Finland and shareholdings in energy companies, with total electricity generation capacity of 1,721 MW. In H1 2013, the sales of the business was EUR 242 million and EBITDA EUR 106 million. Tapio will also continue in his current role as the Chief Financial Officer, including responsibilities for Finance & Control, Treasury, Investor Relations, IT, Sourcing and Real Estate.

Tapio Kolunsarka has been appointed Executive Vice President, UPM Raflatac as of 1 September 2013. Tapio is a new member in the Group Executive Team. He is currently Senior Vice President, UPM Raflatac, Emea. His predecessor, Jussi Vanhanen, is leaving the company of his own initiative to pursue a long-standing personal project as well as to act as management advisor in one of the leading consulting companies. UPM Raflatac manufactures self-adhesive label materials for product and information labelling. In H1 2013, the sales of the business was EUR 608 million and EBITDA EUR 54 million

Kim Poulsen has been appointed Executive Vice President, UPM Paper Asia. UPM Paper Asia consists of UPM Changshu paper mill in China and label paper operations in Tervasaari and Jämsänkoski mills in Finland. In H1 2013, the sales of the business was EUR 557 million and EBITDA EUR 84 million. The production capacity of UPM Paper Asia is 1.5 million tonnes of fine and label papers. Kim is currently Executive Vice President, Paper Business Asia Pacific and Corporate Relations.

Bernd Eikens has been appointed Executive Vice President, UPM Paper Europe. Bernd is a new member in the Group Executive Team. Bernd is currently Senior Vice President, Supply Chain, UPM Paper Business Group. UPM Paper Europe produces magazine paper, newsprint and fine paper in 19 modern paper mills in Europe and North America. In H1 2013, the sales of the business was EUR 2,730 million and EBITDA EUR 66 million. The production capacity of UPM Paper Europe is 10.3 million tonnes of magazine, newsprint and fine papers.

Mika Sillanpää has been appointed Executive Vice President, UPM Plywood. Mika is a new member in the Group Executive Team. He is currently Senior Vice President, Plywood. UPM Plywood is capable of producing approximately one million cubic meters of plywood and veneer products in Finland, Russia and Estonia. In H1 2013, the sales of the business was EUR 219 million and EBITDA EUR 21 million.

Kari Ståhlberg has been appointed Executive Vice President, Strategy. Kari is a new member in the Group Executive Team. He is currently Senior Vice President, Corporate Strategy.

Juha Mäkelä continues as General Counsel.

Jyrki Ovaska has been appointed Executive Vice President, Technology, responsible for R&D, Investment Management, wood plastic composite unit UPM Profi and New Business Development. Jyrki is currently President for UPM’s Paper Business Group.

Hartmut Wurster Executive Vice President, Technology, will retire after 12 years in UPM and 31 years of service in the industry. In addition to his main responsibilities his active contribution in the German stakeholder relations has been invaluable.

Riitta Savonlahti continues as Executive Vice President, Human Resources.

Pirkko Harrela, currently Executive Vice President, Corporate Communications, has been appointed Executive Vice President, Stakeholder Relations, including responsibilities for Corporate Communications, Brand Management, Environmental Affairs Corporate Relations and Responsibility.

All members of the Group Executive Team report to the President and CEO. Unless otherwise stated the appointments are valid as of 1 November 2013.

NOTE: All figures in this release are preliminary. Financial reporting according to the new structure will take place from Q4 2013 onwards. Comparable financial figures will be published in November 2013.

SOURCE: UPM