January 17, 2013 / 10:41 AM / in 5 years

UPM to cut jobs, paper capacity after more losses

HELSINKI (Reuters) - Finnish forestry group UPM-Kymmene UPM1V.HE is to axe 860 jobs and cut production capacity in its paper business, in a renewed attempt to turn around a unit which has made another quarterly loss.

UPM also said on Thursday it will book a 1.77 billion euro ($2.35 billion) charge for the paper business, which has seen a series of cost cuts and mill closures, when it publishes fourth-quarter results on January 31.

The paper unit made an adjusted quarterly operating loss of 10 million euros, while the group’s adjusted operating profit fell 6 percent to 138 million euros.

The world’s biggest producer of graphic paper has struggled with weak European sales in the past few years. The region’s debt crisis has hit demand that was already falling as consumers shift to the internet from newspaper and magazine subscriptions.

The paper industry has been trying to bolster prices by shutting mills and reducing capacity. UPM’s acquisition of debt-laden rival Myllykoski in an 835 million euro deal last year has had little impact.

UPM said it was to close two paper machines - one at its mill in Rauma, Finland, and another at a mill in Ettringen, Germany - and put a mill in Docelles, France, up for sale.

The measures will cut its graphic paper capacity by 580,000 tonnes. UPM’s total paper production capacity in 2011 was 12.7 million tonnes.

    Paper accounted for 69 percent of the group’s total sales in the third quarter. In October, it said Europe’s paper industry had around 10-15 percent overcapacity in newsprint, magazine and office products.

    UPM shares were up 6.7 percent to 9.37 euros by 1035 GMT. Rival Stora Enso (STERV.HE), which could also benefit from the lower capacity, rose 5.3 percent to 5.45 euros.

    “UPM has too much capacity considering how much paper they can sell,” Evli analyst Markku Jarvinen said. But added that it would take time for the capacity cuts to make an impact. “This will not impact this year’s prices at all,” he said.

    ($1 = 0.7521 euro)

    Editing by Ritsuko Ando and Dan Lalor

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