Europe’s biggest paper manufacturers are making better profits, thanks to lower costs and higher capacity use.

UPM reported that its profitability had recovered thanks to lower costs in Europe and strong cash flow, while Norske Skog attributed its improved margins to “better market balance”.

In its interim report, UPM-Kymmene Corporation reported o perating profit for the quarter (excluding special items) of 194 million Euros (7.8 per cent of sales) compared to 126 million Euros (4.9 per cent) last year. EBITDA was 311 million Euros.

The company announced a new group structure, profit improvement programme and targets for focussed growth initiatives

Norske Skog president and chief executive Sven Ombudstvedt said permanent shutdowns in the industry had contributed to higher capacity utilisation and an improved margin outlook in Europe.

“We are now seeing the effects of (active capacity management) through higher selling prices in Europe,” he says. “Capacity utilisation is currently high for our machines. We will continue to actively cut costs and improve productivity, and assess our capacity on an ongoing basis.”

Operating earnings (EBITDA) in the third quarter were NOK176 million, down from NOK371 million last year, a result of divestments and lower margins. Cash flow from operating activities was weaker because of lower operating earnings and increased working capital.

“The total production capacity has been reduced in line with market demand,” Ombudstvedt says. “A better balance between supply and demand has given room for price increases in the second half of the year. This, combined with a favourable exchange rate development and stable raw material costs, contributes to a brighter margin outlook.”

Net interest-bearing debt increased by NOK 277 million in the quarter, primarily due to the weaker Norwegian krone and negative cash flow. Net interest-bearing debt has increased by NOK 897 million so far this year, of which NOK 565 million is due to the weaker krone.

Ombudstvedt says investment projects are progressing “according to plan”. $84 million is being invested on the conversion of a machine at Boyer, Tasmania, from newsprint to catalogue paper, and NOK 220 million is being invested at Saugbrugs in Norway to reduce energy consumption and fixed costs.

“Both of these investments will have a positive impact on margins,” he says.

Norske Skog is also “temporarily curtailing” production on one of two LWC machines at Walsum in Germany. PM2 at Skogn has been started up again after a two month curtailment.



The Singburi mill in Thailand (pictured) has been sold to a Thai industrial group for US$33 million. Norske Skog says outlook prices are expected to remain “relatively stable” from the third quarter to the fourth quarter. Fixed costs are expected to fall “somewhat” as a result of ongoing cost reduction programmes.

• UPM unveiled a new business structure and 400 million Euros performance improvement programme in August, which is effective from November 1. The company promises clearer targets and action points for each business, increased transparency of company performance, simplified business portfolio and clearer visibility of the value of assets.

Reorganisation of finance and control operations early next year will see 150 shed, 92 of which are in Finland and the rest in China and other countries. Today, UPM announced plans to adjust other ‘global functions’ and restructuring of wood sourcing and forestry activities. “Decisions on planned organisational changes, planned job reductions and plan for support to the impacted employees will be made when the consultation processes have been completed,” says a spokesman.

In total, the new plans announced today are estimated to impact a maximum of 230 positions, of which 150 in Finland and 80 in other countries.