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

UPM, Helsinki, Finland, this week reported that it will implement a new business structure to "drive clear change in profitability." The company also will seek to simplify and further develop its business portfolio
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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 November 1.
 

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 (see People Section below) 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 of Europe and in biorefining. The new management structure will also increase transparency of the company performance," said 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," he added.

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 organizations 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," Personen noted. "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," he pointed out.
 

In regard to the 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 this past January, as well as further actions resulting from the new business structure and consequent profit improvement programs. 

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

Pesonen said that since 2007 UPM's Energy, Pulp, Label, and Asian Paper businesses have grown by 43% in the top line. "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 the 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.