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
Start your day with The Independent, sign up for daily news emails
Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
News
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
News
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
television
Arts and Entertainment
art
Sport
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
football
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
fashion
News
The image released by the Salvation Army, using 'The Dress'
news
Sport
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
ebooks
ebooksA special investigation by Andy McSmith
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

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable