Paper maker UPM is to close two mills and dispose of another as part of moves to cut its production capacity by 1.3 million tonnes.

The moves follow a review of the long term competitiveness of its publication paper mills following its Myllykoski acquisition. This covered asset efficiency, production input availability and costs as well as end-use markets.

Adjusting its magazine paper capacity to match the needs of its global customer base will result in negotiations with employees on a plan to permanently remove 1.2 million tonnes of magazine paper capacity in Finland, Germany and France, and 110,000 of newsprint capacity in Germany. The plan also includes restructuring of the overlapping paper sales and supply chain networks and global functions.

The planned measures include:

• permanent closure of the UPM Myllykoski mill in Kouvola in Finland

• permanent closure of the UPM Albbruck mill in Germany

• permanent closure of the paper machine 3  at the UPM Ettringen mill in Germany

• transfer of the sheeting lines from UPM Albbruck mill to UPM Plattling mill in Germany

• sale or other exit of the UPM Stracel paper mill from UPM Paper Business Group

• restructuring of overlapping paper sales and supply chain network as well as global functions.

In addition, UPM says it plans to temporarily close the paper machine 2 producing uncoated fine paper at UPM Nordland Papier in Germany and streamline operations in Pietarsaari pulp and paper mills in Finland.

The planned closure of the Myllykoski and Albbruck mills and the paper machine 3 of UPM Ettringen would be scheduled by the end of 2011. The Stracel mill sales process would start this autumn and is expected to be completed within 12 months.

The implementation of the plan would reduce the number of employees by approximately 1,170. Based on the plan, UPM will book in the third quarter of 2011 an approximately EUR 70 million write-off in fixed assets and make a provision for costs of approximately EUR 200 million. Net cash impact from the restructuring plan amounts to approximately EUR 170 million. Annual synergy benefits of the Myllykoski acquisition including the planned actions are estimated to total approximately EUR 200 million.

“The paper industry faces severe challenges due to high raw material, energy and logistics costs, and considerable overcapacity. The profitability of our paper business is clearly below the level required to run long-term sustainable operations. The planned restructuring would further strengthen the cost competitiveness of UPM’s paper operations and reduce the future need for major maintenance investments”, says UPM’s president and chief executive Jussi Pesonen.

 “With the planned actions we would respond to the magazine paper overcapacity challenge for our own benefit. In addition, we would ensure the efficient use of our remaining capacity. However, this plan would not solve the cost challenges of the industry,” he says.

President of UPM’s Paper Business Group Jyrki Ovaska says the aim is to improve the profitability and cost competitiveness of its magazine papers. “The planned measures would immediately reduce the unit costs of UPM’s magazine papers and newsprint from the level before the acquisition of Myllykoski.  In spite of the restructuring, we would be able to serve our paper customers better through our improved product portfolio and geographic scope.

“The planned closures are very unfortunate for the affected employees but restructuring is the only way to make a fundamental improvement in the cost competitiveness of our paper business. UPM will carry out the restructuring negotiations in a responsible and professional manner in line with the national legislation of the respective countries,” says Ovaska.

UPM will consider options to establish a “from-job-to-job” programme appropriate to the local legislation provided the plan proceeds to implementation.  The planned actions will be discussed in the upcoming negotiations with employees and authorities.