Finland's paper mills battle the internet

UPM, the world's largest graphic paper producer, is diversifying to cope with falling demand

At least 40cm of snow is still lying on the ground, so Jaako Lehtinen has to use his GPS device to track whether new pine or birch trees need to be planted in Kesimaja's vast forest.

Mr Lehtinen, a dark-haired young hunter and forester, works for UPM, the world's largest producer of graphic paper (the kind that goes in your desktop printer) and Europe's largest maker of newsprint (including the kind used by many newspapers).

He and his colleagues are a hardy bunch. But working in below freezing conditions in the Finnish wilderness is routine compared with the upheaval the company faces.

The paper industry's raw material costs have been rocketing, and since the rapid growth of the internet, demand for paper is in free fall.

Henri Parkkinen, an analyst at Pohjola, says: "The main issue for the paper business is the fact there is declining paper demand and escalating costs. It has been the same story for the past few years. Fifty per cent of the end users are advertisers and they are shifting to mobile and internet."

So how does a company that has been producing paper from the thousand of trees in the Finnish forests survive in an online world?

In Finland, families have owned plots of forest for centuries. It is part of their culture to make a small income from selling the timber and wood products, and replanting for future generations. UPM, based in Helsinki, 100 kilometres north of Helsinki, grew from this tradition, and is now valued at ¤6.8bn (£6bn) on the Helsinki Stock Exchange. But it has been coping with a bleak future. Cutting jobs, as well as trees, has been its focus over the past five years.

"In the 1980s we were growing quickly, but by 2000 demand was flat," says Jyrki Ovaska, the executive vice president of UPM's paper business. "The 2000s were difficult. Demand went down 17 per cent in 2009. But last year there was a recovery, and demand, primarily export driven, was up 4 per cent."

UPM restructured the business in 2006, earlier than some of its rivals. The 35,000 it employed then shrank to 22,000 across 15 countries. Its share price fell below ¤5 a share in 2009 though it recovered to ¤15 this year.

The worst is far from over. Despite that heavy cull, the company might have to repeat the exercise. Mr Ovaska says: "In the longer run, we could have to shut more mills in Europe."

To become a stronger player in the sector globally, UPM is buying debt-laden rivals Myllykoski and Rhein Papier, both with lots of mills in Germany, for ¤900m. Analysts know this will mean closures. Mr Ovaska says: "This business is one of the most capital intensive in the world."

You can see just how intensive at its Kymi paper mill in in Kouvala, 139 kilometres east of Helsinki, where giant rolls whirr 24 hours a day, squeezing pulp into paper. The extent of the machinery needed is staggering. The paper tears often, costing the company thousands of euros each time. Teams work around the clock in a darkened room watching complicated graphs and data on computer screens to spot and fix problems.

The company reported an operating profit, excluding special items, of ¤731m last year. It also reported solid top-line recovery – sales increased by 16 per cent while net debt is down by ¤444m to ¤3.3bn. "Our balance sheet should be investment grade. We have strong cash flow – we generate around ¤1bn a year," Mr Ovaska says.

Those better-than-expected results are due to be repeated in 2011. But UPM isn't resting on its laurels. It is both diversifying and rebranding. Paper, currently 70 per cent of the business, will in time be diluted to about 50 per cent.

UPM now calls itself a Biofore company – a made-up term to cover not only pulp, paper, plywood and timber but also low-emission energy, chemical pulp, nano products, biochemicals, biofuels and bioenergy.

These new strands are not isolated from the old business. The technology is based on its tradition of felling and milling trees. "We are embedded in the biomass business, Mr Ovaska says. "The world has been through many industrial revolutions. Experts suggest the digital age was the fifth. This one was not for us. But the sixth industrial revolution is about bioeconomy – which offers UPM new opportunities."

Paper will still make up 50 per cent of business, though, so UPM has expanded beyond Europe. "In the future, all the growth will be in China, Latin America and India and also Eastern Europe," Mr Ovaska says.

How easy will it be to compete with the developing countries' home-grown businesses, which are already producing much of the paper for their domestic markets? India's Bilt Paper, for example, is expanding and is listing on the London stock exchange this month.

Mr Ovaska defends his position: "We are the only major Western graphic paper producer in China that has set up a large mill and we have been there since 1999 so we are established." It has applied for permission to build a second production line at its mill in Jiangsu and would like to build another three.

The company has the means to expand in both China and South America. It recently paid off ¤500m of debt from the purchase of a mill in Uruguay and will expand by increasing capacity at its existing plants and through new acquisitions.

On top of the erosion of its core business, UPM faces anti-forestry rhetoric from groups such as Greenpeace which recommend increasing the use of recycled paper.

UPM argues that it is impossible to create the world's paper purely from recycled fibres. Some waste paper is not collected in the first place, and much of the fibres that are gathered are lost in the process. "If we relied on only recycled paper we could run out within six months," says John Sanderson, UPM's environment director. The idea that cutting down trees for paper is wrong is a myth, says the company, one which it hopes to dispel.

"People automatically think about cutting down trees, the rainforest and the loss of our forests," Mr Sanderson says. "But this destruction is for cattle, not for making paper. Making paper is not destroying the forests."

The future for UPM is far from rosy but Mr Osaka is not defeatist. "I bought an iPad recently to see what the threat is. Readership habits are changing. But the jury is still out. We may see emedia and paper complement each other – publishers will sell their online packages with their print offering. It is still far too early to say it is the end of printed paper."

The giant rolls of paper at Kymi have not stopped spinning quite yet.

Suggested Topics
News
Jennifer Lawrence was among the stars allegedly hacked
peopleActress among those on 'master list' of massive hack
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
Voices
A man shoots at targets depicting a portrait of Russian President Vladimir Putin, in a shooting range in the center of the western Ukrainian city of Lviv
voicesIt's cowardice to pretend this is anything other than an invasion
PROMOTED VIDEO
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
people'It can last and it's terrifying'
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
Arts and Entertainment
The eyes have it: Kate Bush
music
News
Fifi Trixibelle Geldof with her mother, Paula Yates, in 1985
people
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Application Support Analyst / Junior SQL Server DBA

£40000 - £45000 per annum: Ashdown Group: An established professional services...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Business Development Manager / Media Sales Exec

£28 - 32k + Uncapped Commission: Guru Careers: A Business Development Manager ...

C# .NET Developer (PHP, Ruby, Open Source, Blogs)

£40000 - £70000 per annum + Bonus+Benefits+Package: Harrington Starr: C# .NET ...

Day In a Page

Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor