UPM plans new cuts to fight paper business decline

HELSINKI Tue Aug 6, 2013 7:29am EDT

HELSINKI (Reuters) - Finland's UPM-Kymmene (UPM1V.HE), the world's biggest graphic paper maker, launched a new cost-cutting plan after earlier restructuring efforts failed to pull its paper business out of the red in the second quarter.

Shares in UPM, which has tried to tackle a decline in European paper demand with mill shutdowns and consolidation, jumped 7 percent on Tuesday after the company said it aimed to cut 200 million euros in annual costs.

The move follows UPM's announcement in January that it would shut down more paper machines and cut 860 jobs. The company employs around 22,000 people.

Europe's paper industry has suffered for years from consumers' growing preference for digital publications over print. Europe's demand for publication papers fell 5 percent in the first half of the year and prices declined 7 percent from a year ago.

The company said the new plan would not involve any capacity cuts, meaning no mills or machines would be shut down. The planned savings will include around 50 million euros of savings from the savings program, it said.

UPM said it would focus on more profitable areas such as energy, pulp and labels, as well the Chinese market. The various projects will help lift its profit by a total of around 400 million euros, UPM said.

While the market cheered the announcement, some investors wanted more details. Shares in the company were up 6.7 percent at 8.96 euros by 0610 ET.

"The targeted savings are very large, it must mean major measures," said Mika Heikkila, portfolio manager at asset management firm Taaleritehdas. His fund owned 0.13 percent of UPM's shares at the end of July.

"The share reaction reflects a certain confidence towards the company's management. However, this plan sounds ambitious, and as an owner I would like to hear something more concrete about it," he said.

UPM's total underlying second-quarter operating profit fell to 138 million euros ($183 million) from 144 million in the previous quarter. More than 70 percent of the result came from the pulp unit, which includes four pulp mills in Finland and Uruguay.

Analysts and investors had expected a large portion of the savings to come from job cuts at UPM's paper unit, which accounted for over 60 percent of the group's second-quarter sales but was still stuck in the red.

The company did not provide any details on job cuts but said the paper business needed to move into a more simple and scalable structure to improve performance further.

Finnish rival Stora Enso (STERV.HE) also launched a major restructuring program in April, aiming to save 200 million euros a year and cutting 2,500 jobs.

(Reporting By Jussi Rosendahl, Editing by Ritsuko Ando and David Evans)

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