UPM announces post-Myllykoski acquisition consolidation plans

Paper manufacturer UPM has said that it plans to reduce its European paper capacity by 1.3m tonnes, following the acquisition of rival manufacturer Myllykoski.

The consolidation of the two businesses, which will include plant closures and the integration of overlapping supply services, will cost around €200m (£176m) and result in 1,170 redundancies.

The Finnish company completed the acquisition in July, adding 2.8m tonnes of manufacturing capacity to its arsenal. At the time, UPM said it would target annualised cost savings of around €100m through the integration of Myllykoski's operations with its own.

Following a review of the combined business it has kicked of its consolidation with the removal of 1.2m tonnes of magazine paper in Finland, France and Germany and 110,000 tonnes of newsprint capacity in Germany.

The company's plans include: the closure of mills in Kouvola, Finland and Abbruck, Germany; the closure of paper machine three at Ettringen, Germany; the transfer of sheeting lines at Albbruck to Plattling in Germany and the sale or other exit of the UPM Stracel paper mill from UPM Paper Business Group. Overlapping paper sales and supply chain networks will also be restructured.

UPM intends to complete the mill and machine closures by the end of 2011, while the Stracel mill sale process will begin in the next few months and is expected to be completed within a year.

Chief executive Jussi Pesonen said: "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.

"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."

UPM will book a write off of around €70m in fixed assets in the third quarter of 2011, while net cash impact amounts to approximately €170m. The company reported a one-off gain of approximately €40m in the third quarter of 2011.