Reuters Forest Forum-UPM ready for more M&A, capacity cuts

* UPM-Kymmene CEO looks to improve paper ops margins

* Says more consolidation possible after Myllykoski

By Jussi Rosendahl

HELSINKI, Sept 14 (Reuters) - Finnish forestry group UPM-Kymmene is on the lookout for more acquisitions and other ways to lower costs as it aims to boost the profitability of its paper business which is struggling with poor European demand, its chief executive said.

CEO Jussi Pesonen did not give details of the specific assets or companies UPM might want to buy, but he said the world's biggest graphic paper maker by capacity is actively looking for further consolidation opportunities after buying rival Myllykoski last year in a deal valued at 835 million euros ($1.08 billion).

Faced with declining demand and despite years of mill closures, Europe's paper industry still has 10-15 percent more capacity than it needs in newsprint, magazine and office products.

Analysts say smaller companies pressured by Europe's debt crisis and rising costs may be forced to close down or put themselves up for sale, providing opportunities for capacity reduction through acquisitions and subsequent closures of facilities.

UPM's Myllykoski deal allowed the company to cut its paper capacity by 1 million tonnes, around 7 percent of its total, but so far the impact on profit has been limited.

The paper unit generated 2 million euros adjusted operating profit, or 0.1 percent of its sales, in the second quarter. This compares with a 22.9 percent margin at UPM's pulp operations in the quarter and a 9.2 percent paper margin three years ago, before falling demand and prices took their toll on sector profits.

"That is not even close to where it should be, the (operating profit) needs to be higher. We will take all of the actions that ... will increase that," Pesonen told the Reuters Forest Forum on Friday without elaborating.

Pesonen said that while there are still further benefits to be reaped from the incorporation of the Myllykoski assets, UPM is also open to new deals that could improve its profitability.

"This is an industry where you still have a lot of potential on the cost side," he said, referring to opportunities to combine mills and companies to bring industry capacity down to more efficient levels.

($1 = 0.7748 euros) (Additional reporting by Ritsuko Ando and Terhi Kinnunen; Editing by Hans-Juergen Peters)