In 2015 UPM to reduce 800,000 tonnes of publication paper capacity in Europe

Nov 13, 2014. /Lesprom Network/. UPM announced a new profit improvement target with an annualised impact of Euro 150 million by the end of 2015. The target includes savings in variable and fixed costs in all UPM businesses as well as planned capacity closures in the European paper business, which continues to suffer from overcapacity.

“During the past 12 months we have been able to improve our financial performance through streamlining but also through better focus and significant decrease in variable costs. Our new business structure has shown that it is capable of delivering results and we have been able to identify further profit improvement potential in our businesses. This potential we aim to capture in 2015, ” said Jussi Pesonen, President and CEO of UPM.

“The European paper business is a case for itself. We have achieved a turnaround in profitability during 2014. Nevertheless, the current operating rates are unacceptably low and the current economic environment is not promising tailwind for 2015. We plan to adapt our production to meet the profitable customer demand. We also ensure savings without endangering customer deliveries in the structurally declining market”, said Pesonen.

UPM is planning to permanently reduce its publication paper capacity in Europe by further 800,000 tonnes approximately. The capacity reductions are planned to take place in France, Finland and in the UK.

UPM plans a permanent closure of:

    newsprint machine 3 at UPM Chapelle in France
    newsprint machine 1 at UPM Shotton in the UK
    SC paper machine Jämsänkoski 5 at UPM Jämsä River Mills in Finland
    coated mechanical paper machine 2 at UPM Kaukas in Finland.

In addition, the company plans to centralise UPM Paper ENA supply chain planning and order fulfillment activities to Augsburg and Dörpen in Germany.

If all the plans to close capacity would be implemented, UPM’s personnel at the mills would be reduced by approximately 550 persons by the end of 2015. The employee information and consultation processes will start during November in line with the local legislation.

The UPM Chapelle newsprint production line 3 and UPM Shotton newsprint production line 1 have an annual newsprint capacity of 345,000 tonnes. The Jämsänkoski SC production line 5 and UPM Kaukas coated mechanical production line 2 have an annual capacity of 460,000 tonnes of magazine papers, of which 235,000 tonnes of SC paper and 225,000 tonnes of coated mechanical paper. All machines are planned to be permanently closed by the end of Q1 2015.

All four mills will continue paper production on the remaining paper machines on the mill sites.

“We regret the impact of planned closures on our employees who, even under considerable pressure, have been loyal and committed. However, we have to adapt our operations to the changing market environment – this is the only way for a sustainable future. With the planned actions we will ensure the efficient use of our remaining capacity in Europe,” said Bernd Eikens, Executive Vice President, UPM Paper ENA.

The full profit improvement programme includes variable and fixed cost savings in all UPM businesses and functions. As part of the programme UPM will start a review of the production, maintenance and other site operating practices across all of UPM businesses and operating countries. Furthermore, UPM’s programme for variable cost savings will continue.

The total annualised cost reduction impact of Euro 150 million is expected by the end of 2015, compared with the Q3 2014. The fixed cost reduction of the planned capacity closures is expected to be Euro 55 million. UPM will book write-offs of approximately Euro 100 million and restructuring charges of approximately Euro 80 million in Q4/2014.