UPM to Reduce 1.3 Million Metric TPY of Paper Capacity in Europe

As part of the Myllykoski integration, UPM, Helsinki, Finland, reports that it has completed a comprehensive review of the long term competitiveness of its publication paper mills. The review covered asset efficiency, production input availability, and costs as well as end-use markets. As a result of the review, UPM says it plans to adjust magazine paper capacity to match the needs of its global customer base. The company will start negotiations with employees on a plan to permanently remove 1.2 million metric tpy of magazine paper capacity in Finland, Germany, and France, and 110,000 metric tpy 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 PM 3 at the UPM Ettringen mill in Germany
Transfer of 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 plans to temporarily close PM 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 PM 3 at 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 twelve 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," said UPMs President and CEO Jussi Pesonen.

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