UPM-Kymmene Corporation

views updated May 23 2018

UPM-Kymmene Corporation

Etelaesplanadi 2
P.O. Box 380
FIN-00101 Helsinki
Finland
Telephone: +358 (9) 204 15 111
Fax: +358 (9) 204 15 110
Web site: http://www.upm-kymmene.com

Public Company

Incorporated: 1872 as Kymmene Aktiebolag
Employees: 36,298
Sales: EUR 9.92 million (2001)
Stock Exchanges: Helsinki New York
Ticker Symbol: UPMIV (Helsinki), UPM (New York)
NAIC: 113310 Logging; 321113 Sawmills; 321211 Hardwood, Veneer, and Plywood Manufacturing; 322110 Pulp Mills; 322121 Paper (Except Newsprint) Mills; 322214 Fiber Can, Tube, Drum, and Similar Projects Manufacturing; 322221 Coated and Laminated Packaging Paper and Plastics Film Manufacturing; 322222 Coated and Laminated Paper Manufacturing; 322223 Plastics, Foil, and Coated Paper Bag Manufacturing; 322224 Uncoated Paper and Multiwall Bag Manufacturing; 322298 All Other Converted Paper Product Manufacturing

UPM-Kymmene Corporation is Finland’s leading forestry company and Europe’s largest papermaking concern. The company consists of approximately 100 production facilities in 14 countries and more than 170 sales/distribution companies. It owns nearly one million hectares of forest in Finland, the United States, and Great Britain. UPM-Kymmene’s operations consist of four main divisions: Paper division (includes Magazine, Newsprint, Fine and Specialty Paper subdivisions); Converting division; Wood Products division; and Other Operations division which includes Forest, Energy, and Real Estate departments. The Paper division is the largest and covers 67 percent of the company’s turnover. UPM-Kymmene is the world’s largest producer of magazine paper. The Converting division’s products include labels, packing, and envelope materials; it covers 14 percent of the turnover. Wood Products manufactures sawed timber, plywood, planed timber, and derivatives such as parquet flooring; this division covers 14 percent of the turnover. UPM-Kymmene’s quality products, dedication to growth, and environmental considerations have made it one of the strongest international companies in the world.

Kymmene Corporation: From 1873 to the 1980s

The inception of Kymmene Corporation almost 120 years ago reflects the early stages of Finland’s paper industry as a whole. The art of making groundwood pulp was discovered in 1846. Axel Wilhelm Wahren, one of the great Finnish industrialists, recognized the potential afforded by hydroelectric power, vast forests, and the proximity of the Russian market and in 1870 leased a section of the largest rapids on the River Kymi flowing through southeast Finland at Kuusankoski. At around the same time Count Carl Robert Mannerheim, father of Finland’s military leader and President C.G.E. Mannerheim, purchased an island in the same rapids and part of the riverbank. The founding meeting of Wahren’s company, Kymmene Aktiebolag, was held on May 21, 1873. A company by the name of Kuusankoski Aktiebolag, established by Mannerheim, began operating in January 1872. In 1896 a third businessman, Rudolf Elving, purchased the Voikkaa Rapids farther upstream and over the next five years built four paper machines, a groundwood plant, and a sulfite pulp mill. The founding of three large mills in the same area within a short period of time raised the prices of the local forestlands and timber, while the resulting competition reduced the prices of the end products. The rival enterprises soon became aware of the advantages of joining forces and in 1904 signed an agreement whereby Kymmene bought both the Kuusankoski Company and the Voikkaa Mill in exchange for shares in the company. The resulting company, the predecessor of today’s Kymmene Corporation, was the largest limited company in Finland and the largest papermaker in the Nordic countries.

By the time of the merger, the individual companies had acquired 76,000 hectares of forest, an area that grew as more mergers took place. The purchase of Stromsdal Board Mill—the supplier of groundwood (used in paper manufacturing) to the company’s paper mills—in 1915 increased the forest area by 21,000 hectares, and it increased by a further 119,300 with the purchase of the Halla sawmill. Halla also had some inland sawmills, and Kymmene became a major exporter of sawed goods.

During Rudolf Elving’s four years as managing director beginning in 1904, Kymmene installed more production machinery than any other firm in Finland to that date. But a disastrous fire at the Voikkaa Mill, in which three machines were destroyed, and a slump in prices on the paper market caused a setback from which the company recovered only under its next managing director, Gosta Serlachius.

The building of the railway from Helsinki to St. Petersburg in the early years opened up new prospects for Finnish groundwood, board, and paper on the Russian market. At the outset Kymmene sold goods on commission at certain points in Russia. The sales areas covered by the local agents were extended between 1910 and 1915, and 1916 saw the establishment in St. Petersburg of the Kauppaosakeyhtiü Kymmene Aktiebolag trading company, registered as a Russian limited company, with sales offices in Moscow, Nizni Novgorod, Rostov, Tiflis, Odessa, Baku, Samara, St. Petersburg, Krakow, and Kiev. Serlachius was followed by Gosta Bjürkenheim as the new managing director. By that time World War I had broken out—initially placing obstacles in the way of deliveries to Russia but later increasing the demand for paper—and Kymmene Corporation’s leading position in the Russian paper market attracted international attention. In October 1916, the London Times, in an article headed “A Russian Paper King,” wrote: “the joint stock company Kymmene is now regarded as the biggest enterprise of the paper industry, not only in Russia, but in all Europe.” In 1917 paper exports to Russia were hindered by the revolution. Lenin’s rise to power put an end to private trade.

In the early decades of the 20th century, Western Europe was not regarded as a major market. Paper exports to the United Kingdom had begun in the first decade, but the first major agreement, for 2,000 tons, was not signed until 1910.

Research into the potential of Western European markets began to advance around 1910. That year Rafael Jaatinen, a correspondence clerk in the company’s sales office, traveled to England to study trading methods. In 1919 the Finnish government sent a trade delegation to Western Europe and North America. One of its members was Gosta Serlachius. In the autumn of 1921, Kymmene laid the foundations for its own export marketing organization. Its first new foreign agency agreement was made with H. Reeve Angel & Co. of England.

Kymmene was one of the first Finnish companies to make acquisitions abroad. Fearing that the United Kingdom would levy customs duties to protect its own paper industry, Kymmene acquired a majority stake in the Star Paper Mill Co. Ltd., which had a paper mill at Blackburn. The following year Star took over Yorkshire Paper Mills Ltd. at Barnsley.

Meanwhile, the company had increased its forest holdings in Finland. The need to guarantee its supply of timber led Kymmene to purchase Högforsin Tehdas Osakeyhtiö, one of the largest ironworks in Finland, in 1933. Kymmene Corporation thus branched out into a completely new field—engineering. By the end of 1935, Kymmene owned more land than at any other time until its later mergers with Kaukas and Schauman. In this year it bought Oy Läskelä Ab, which had 100,000 hectares of forest and two paper mills, as well as a sulfite pulp mill situated north of Lake Ladoga. Läskelä’s mills and most of its forests were, however, lost to the Soviet Union during World War II.

During the war the production of sawed timber, pulp, and paper had to be curtailed to correspond to the reduction in demand and workforce. Some of the company’s engineering capacity was put toward making munitions, and its Paper division made utility articles both for the Soviet front and for the areas behind it. One-third of the war reparations paid by Finland to the Soviet Union under the terms of the peace treaty ending World War II consisted of products of the wood-processing industry. Because of its size, Kymmene was the chief supplier.

The demand for forestry products remained brisk until the late 1940s, but price controls imposed by the Finnish government at home reduced profitability. The company was also forced to relinquish about 60,000 hectares, some of it land expropriated by the Finnish government, for the resettlement of evacuees from the parts of Karelia ceded to the Soviet Union. Not until the late 1950s and early 1960s was the company again in a position to extend its production, with a new newsprint machine at Voikkaa. A new sulfate pulp mill went on line at Kuusankoski in 1964.

By 1966 the company was ready to expand its operations abroad. This time it joined forces with Oy Kaukas Ab to found a German subsidiary, Nordland Papier. In the latter half of the 1960s, Kymmene was one of the partners in Finland’s largest forest industry project to date, Eurocan Pulp & Paper Ltd., in British Columbia, Canada.

As one of the suppliers of chlorine for the petrochemical industry, Kymmene decided to expand its chemical interests in the late 1960s and early 1970s. The year 1970 also saw the establishment of Oy Finnish Peroxides Ab—in collaboration with the U.K. company Laporte Industries Ltd. and Solvay & Cie S.A. in Belgium—for the manufacture of peroxide.

Company Perspectives:

UPM-Kymmene’s goal is to be one of the world’s leading companies in the paper industry and to achieve growth exceeding the industry’s average. The aim in pursuing sustainable economic growth is to promote people’s well-being and prosperity. We consider the financial result to be of highest quality when it does not threaten the prosperity of people or the environment.

The output of the paper industry increased together with expansion into other fields. A large machine making super-calendared paper grades went on stream at Voikkaa in 1968 and was followed two years later at Kuusankoski by what was at that time the largest fine-paper mill in Europe. Expansion was also visible in the restructuring of the organization. In 1969, on the appointment of Kurt Swanljung as managing director, the company’s industrial operations were divided into seven fields of production: paper, pulp, conversion, chemicals, metal, sawmill, and board.

Kymmene purchased Soinlahti Sawmill and Brick Works in 1975, and with its subsidiary Star Paper Mill Co. Ltd. it acquired the majority holding in the French company Papeteries Boucher SA in 1977. The same year also saw the start-up of the U.S. company Leaf River Forest Products Inc. in Mississippi. There were also plans for building a pulp mill in Mississippi. In 1979 the company reorganized its foreign interests in the forestry industry by selling its 50 percent holding in Eurocan Pulp & Paper and buying all the shares in the Wolvercote Paper Mill at Oxford in England.

By the 1970s, Kymmene had steadily upgraded its range of paper products. In order to establish closer contacts with its customers and improve its marketing, it decided in 1975 to resign from the Finnish Paper Mills’ Association (Finnpap), which it had rejoined in 1946 after having left it in 1920. The main products not covered by its own sales organization were the newsprint and magazine papers made by the Voikkaa Mill.

The company cut down its range of activities in 1981. It discontinued its petrochemical manufacturing because of structural reorganization in the industry, and it closed the Barnsley paper mill, which was unprofitable. An agreement was made with the Great Northern Nekoosa Corporation for the building of a pulp mill in Mississippi (in which Kymmene would have a minority holding). In order to even out fluctuations in the forestry and metal industries, Kymmene at the end of 1982 purchased the majority holding in Stromberg, a company producing electrical equipment. The parent company was renamed the Kymmene-Strömberg Corporation. In mid-1985, Kymmene-Strömberg sold a major part of its Engineering division, the Hogforsin foundry, and closed the Boucher Mill in Calais, France.

The first in a chain of mergers resulting in the present Kymmene Corporation took place in 1985, when Kymmene procured 45 percent of the shares in Oy Kaukas Ab. Shareholders of the two companies approved the merger on January 7, 1986. The result was a highly integrated forestry concern. Casimir Ehrnrooth, chairman of the board of Kaukas, was appointed Kymmene-Stromberg’s chairman of the board and CEO at the end of 1985, and Fredrik Castrén continued as managing director.

In 1986 the company decided to concentrate exclusively on the forest industry. On June 19 the board of Kymmene-Stromberg approved an agreement selling Stromberg’s business operations to ASEA Ab. The company took the name Kymmene Corporation.

Cooperation with Oy Wilh. Schauman Ab became increasingly close in the course of 1986. A Schauman-Kymmene merger was approved in 1987 and came into force in 1988. The company decided to concentrate on two major fields of production, and consequently Kymmene’s Juankoski board mill, the printing works in Kouvola, and the self-copying paper mill were sold. The emergence of Kymmene Corporation in the late 1980s as Finland’s largest wood-processing enterprise marked the joining of three companies, each dating from the 19th century.

Gosta Bjorkenheim had been managing director of both Kaukas and Kymmene. He was the son of Robert Bjorkenheim, the founder, director, and owner of Kaukaan Tehdas Osakeyhtio—the name under which the Kaukas Mill was originally established. Gosta Serlachius, nephew of Schauman’s founder Wilhelm Schauman, had taken the helm of Kymmene Corporation at the beginning of this century.

Gosta Bjorkenheim was one of the first Finnish industrial leaders to recognize the vital need for employers to band together against growing unionism, and he invited the pulp and paper manufacturers to join him in founding an employers’ association. Meanwhile, Gosta Serlachius was building up trade relations with the European and U.S. markets. At his suggestion the manufacturers set up three joint sales organizations: the Finnish Pulp Association (Finncell); the Finnish Paper Mills’ Association (Finnpap); and the Finnish Paper Agency.

Key Dates:

1873:: Kymmene Aktiebolag founded by Axel Wilhelm Wahren.
1904:: Kymmene, Kuusankoski Aktiebolag, and Voikkaa Mill merge.
1917:: Kymmene is the largest paper company in Europe when World War I begins.
1921:: The company begins to export and forms an agreement with H. Reeve Angel & Co. of England.
1930:: The company purchases a large share in Star Paper Mill Co. Ltd. in England.
1966:: Oy Kaukas Ab and Kymmene start Nordland Papier in Dorpen, West Germany.
1969:: Kymmene divides into paper, pulp, conversion, chemicals, metal, sawmill, and board production fields.
1977:: U.S. company Leaf River Forest Products Inc. is started by Kymmene in Mississippi.
1982:: Kymmene merges with Stromberg to become Kymmene-Stromberg Corporation.
1986:: Kymmene-Stromberg and Oy Kaukas Ab merge and sell Stromberg to become Kymmene Corporation.
1988:: Kymmene Corp. merges with Oy Wilh. Schauman Ab.
1996:: Kymmene Corp. merges with Repola Ltd. and its subsidiary, United Paper Mills Ltd., to become UPM-Kymmene.
2000:: UPM-Kymmene purchases the Changshu fine-paper mill in China and Repap in Canada.
2001:: The company restructures to manage increasing growth, purchases majority of shares in ZAO Chudovo-RWS in Russia, and purchases G. Haindl’sche Papier Fabriken KgaA company in Germany.

Oy Kaukas Ab: From 1873 to Its 1986 Merger with Kymmene

One of the pioneers in spotting the potential of birch wood was Robert Bjorkenheim, who had birch in his own forests in southern Finland. Being engaged in the sawmill industry, he saw machine bobbins being made in his father’s homeland, Sweden, and went on to Glasgow to pursue the idea further. On February 6, 1873, Bjorkenheim and three others signed an agreement for the establishment of a bobbin factory at Mantsala on the banks of the Kaukas Rapids.

The first bobbin deliveries went to Scotland, where the largest buyer was Clark & Co. The production figures rose, but little profit was made, and it was 1882 before a dividend could be issued. The dwindling birch resources in the timber supply area, combined with the favorable outlook for this industry, prompted the decision to found a new factory near Lappeenranta in 1890. For 20 years the Kaukas Mill struggled to produce bobbins before selling out to Hugo Standertskjold in 1894. Gosta Bjorkenheim, who later took over the management of Kymmene, was chiefly instrumental in steering the company into clearer waters.

In 1903, Kaukas became a limited company. Gosta Bjorkenheim suggested that a pulp mill be built to use up the waste timber from the bobbin factory, and the mill began operating in March 1897. The customs duty levied on imported pulp was one reason for Kaukas’s decision to build a new sulfite pulp mill in 1904. The first major extensions were carried out in 1912, after which Kaukas was for a time Finland’s largest producer of sulfite pulp.

Initially more than half of the pulp was sold to Russia, while the rest went to the domestic market. On the completion of the second mill, it was necessary to look abroad for markets—first to Germany and later to the United States. The years 1895 to 1914 were a golden era for the bobbin factory. The number of customers rose to 100, but the bulk of production went to large, regular customers in Russia, Germany, Austria, France, England, and Belgium.

In 1916, Kaukas expanded further by buying up all the shares in the Kaltimon Puuhiomo groundwood plant, as well as a considerable area of good forest. Later in the year, Kaukas purchased Osakeyhtio T. & J. Salvesen, thereby acquiring four sawmills and 69,500 hectares of well-stocked forest. The most significant investment in terms of enlarging the company’s forest reserves was the purchase of all the shares in Osakeyhtio Gustaf Cederberg & Co. in 1920, which brought with it 105,000 hectares of forest.

The voice of Jacob von Julin, managing director of Kaukas between the two world wars, was frequently heard on the committees set up on behalf of the industry as a whole to further matters of industrial and economic policy and to boost exports. He was also the chairman of the trade delegation sent by the Finnish government to Western countries in 1919. World War I brought a slump in the bobbin industry, and Kaukas had to look around for other ways of converting timber.

A plywood industry had begun in Finland in 1912, with the start-up of the Jyvaskyla Mill belonging to Oy Wilh. Schauman Ab, which was later to merge with Kymmene Corporation. The decision to build a plywood mill at Kaukas was made in 1924, and it began production in 1926. The main product was plywood to produce chests for tea, meat, and tobacco transport. The output of sulfate pulp tripled and that of sulfite pulp quadrupled in the period between the wars. Between 1933 and 1935 the sulfite pulp mill underwent major expansion. As a result of World War I, Kaukas lost many of its forests and timber procurement areas. During this period Kaukas evacuated many of its most valuable machines. The Kaukas bobbin factory was modernized after the war, and the U.S. method was introduced. Production of bobbins came to an end in 1972.

Kaukas’s plywood industry underwent modernization, including the addition of about 63,000 cubic meters of space, in the mid-1950s. New lathes and glue presses were installed in the early 1960s. These were followed in the 1970s by peeling and drying lines suitable for making spruce plywood. In the 1970s and 1980s the company placed emphasis on further processing of plywood.

The sawmills at Lappeenranta operated along traditional lines until the 1950s, when work began on a new mill, which would increase capacity to 330,000 cubic meters between 1967 and 1971. Later in 1977 a medium-sized sawmill was bought in the northern timber procurement area at Nurmes.

The pulp market was buoyant after World War II. Later the war in Korea sent raw materials prices skyrocketing. But this was followed by a cost crisis in the Finnish wood-processing industry, the result of fears of impending raw materials shortages and political conflict with the Soviet Union, a major buyer of dissolving pulp used for chemical conversion. The company debated whether to stop manufacturing dissolving pulp altogether, but capital investments brought about a rise in quality and demand.

In the early 1960s the company decided to build a new sulfate pulp mill, which went online in 1964. With a view to the further development of pulp production, Casimir Ehrnrooth, managing director from 1967, proposed that the sulfite pulp mill be closed down and a second line producing long-fibered pine pulp be built at the sulfate pulp mill. This construction was done in the 1970s, and the mill was extended in two stages in the 1980s.

In order to diversify production, a paper mill was established at Dorpen in the Federal Republic of Germany. On the withdrawal of the Canadian company from the joint venture, its place was taken by Kymmene Corporation. Nordland Papier’s first paper machine started up in 1969.

While paper production was starting up in the Federal Republic of Germany, Kaukas began to seek a suitable paper grade to be manufactured from its own bleached sulfate pulp. One of the central figures in the investigations and later in the start-up of production was Harri Piehl, who eventually became CEO of Kymmene Corporation. The choice fell on lightweight coated (LWC) paper, a new type of magazine paper made from pulp, ground wood, and coating. The first production line at the mill started up in 1975 and the second in 1981. The choice of paper grade proved to be right because, with the steady increase in demand, a good price level could be maintained.

Oy Wilh. Schauman Ab: 1873 to the 1988 Kymmene Merger

Schauman, the company that merged with Kymmene in 1988, was likewise founded in the 19th century. Wilhelm Schauman, the founder of Oy Wilh. Schauman Ab, having left his job in a gun factory in St. Petersburg, settled in Pietarsaari and there began processing chicory in 1883.

In 1892, Schauman turned to timber, which soon overtook chicory in importance. In 1895, the year in which his sawmill started up, he started expanding in the Pietarsaari district. He ceased buying his timber ready-cut in favor of standing timber. His exports of roundwood timber brought in good profits.

The second sawmill bought by Schauman in 1900 operated for many years at a loss, but his Pietarsaari sugar mill proved to be a profitable investment. His involvement with sugar nevertheless came to an end in 1919 with the merging of Finland’s sugar mills.

Having sold its sugar interests, the company concentrated on projects that led to the establishment of what is now a market leader in plywood products. He began with boxboard and later added plywood. The Jyvaskyla plywood mill represented a completely new departure. During the early years of World War I, the mill flourished. Sales were good and profits large. Production in Savonlinna began in 1921, and in 1924 all the shares in a plywood mill at Joensuu were acquired.

Plywood was converted into chair bottoms, furniture, and board, and in 1931 a Building Joinery department was set up in Jyvaskyla. Its main products were interior doors. Blockboard production began in Jyvaskyla in 1933 and subsequently moved to Savonlinna. The mills at Jyvaskyla, Savonlinna, and Joensuu merged in 1937 to form Oy Wilh. Schauman Ab.

During World War II the proportion of plywood products rose considerably. One of the most important products was a plywood tent for military use. In 1958 a chipboard mill was opened in Jyvaskyla, in 1962 Schauman purchased a chipboard mill from Viiala Oy, and in 1969 a chipboard mill, built by Schauman, went into production at Joensuu.

By the early 1990s the company had chipboard mills in Joensuu, Ristiina (Pellos chipboard mill), and Kitee (Puhos chipboard mill). The chipboard mills in Jyvaskyla and Viiala were no longer in operation, but Kymmene’s subsidiary, Finnish Fiberboard Ltd., had a fiberboard mill in Heinola.

Schauman’s second cornerstone was laid with the construction of a sulfite pulp mill in Pietarsaari begun in 1934 by a separate company, Ab Jakobstads Cellulosa-Pietarsaaren Selluloosa Oy. Pulp production doubled in the 1950s. The addition of a sulfate pulp mill, a paper mill, and a paper sack plant in the early 1960s meant a great increase in value-added products.

The next major investment in pulp manufacturing came in the first half of the 1970s, making Schauman the largest producer of market pulp in Finland. The Wisapak paper sack plant soon became the largest of its kind in Finland, and in 1969 Schauman purchased the Craf Sac plant in Rouen, France. The establishment of an industrial wrappings unit raised the output considerably. All the former Schauman industrial divisions in Pietarsaari—Sawn Timber, Pulp, Paper, and Packaging Materials—were grouped together to form the Kymmene subsidiary, Wisaforest Oy Ab. The divisions were known as Wisatimber, Wisapulp, Wisapaper, and Wisapak.

Product development and the increase in plywood production continued at a brisk pace beginning in the 1960s. The most important technical innovations were in the field of plywood gluing and the development of a wide range of coated and processed plywood products, as well as the use of spruce as a raw material. Schauman became a world leader in plywood product development and the leading European plywood manufacturer.

Schauman at various points in its history also made furniture, along with more conventional converted panel products. Half a century of joinery production came to an end in 1969. In 1971, Schauman became a producer of large sailing yachts after buying Nautor, a boatyard near the Pietarsaari mills.

Among the advantages of the Kymmene-Kaukas-Schauman merger were greater financing potential and more effective operation and marketing. In order to exploit the advantages of a small company, Kymmene split up its five industrial divisions in Finland in 1990. The registered companies—Kaukas Oy, Kymi Paper Mills Ltd., Wisaforest Oy Ab, and Schauman Wood Oy—became fully owned subsidiaries of Kymmene Corporation. Similar status had already been granted to the subsidiaries abroad: Nordland Papier GmbH, Kymmene France SA, Kymmene U.K. PLC, and Caledonian Paper PLC. This last mill project became the first and only one of its kind in the United Kingdom when it began LWC paper production in the spring of 1989. Kymmene U.K. PLC’s mills at Blackburn and Oxford were sold in the spring of 1990. Expansion through acquisition continued in 1990, when Kymmene bought the large French LWC and newsprint manufacturer Chapelle Darblay SA.

The 1990s: The Establishment of UPM’Kymmene Corporation

In the early 1990s plans were made to merge Kymmene Corporation and Repola Ltd. The merger was approved by both companies’ shareholders and the EU (European Union) Commission, and the two companies operated as a single unit beginning in November 1995. The merger officially took effect in April 1996.

As a result of its merger with Repola Ltd. and its United Paper Mills (UPM) subsidiary, Kymmene changed its name to UPM-Kymmene Corporation. On May 2, 1996, it began trading shares on the Helsinki Stock Exchange, but the company decided not to apply for a listing on the London Stock Exchange, opting instead to have its shares listed on the Stock Exchange Automated Quotations International System in London. The companies hoped eventually to save up to Fmk 2 billion in transportation, logistics, timber procurement, and sales as a result of the merger. Combined products of the merged companies made it the largest paper producer in Europe, with a capacity of over 7 million metric tons per year, and the second-largest worldwide producer, behind the International Paper Co. in the United States.

Shareholders chose Juha Niemala as UPM-Kymmene’s president and CEO once the merger was completed. Formerly he had been executive vice-president of UPM. His broad marketing background gave him the advantage over candidates with more substantial experience in the forestry industry. A strategic committee of three forest-industry veterans—Tauno Matomaki, Yrjo Niskanen, and Casimir Ehnrooth—was formed to act as a spending watchdog for the new president, but shareholders took much of its power away at their annual meeting in April 1997. Niemala did not take the shareholders’ decision to mean he could go on a spending binge. Instead, he put several large investments on hold, although he continued with plant upgrading where necessary.

In May 1996 the UPM-Kymmene Kaipola plant began upgrading its paper machine number 6 (PM 6), which produced lightweight coated printing paper. Already the fastest and mostefficient machine of its kind, PM 6 produced in 1995 approximately 240,000 metric tons of paper, which amounted to 1,518 meters of paper per second. In July 1996 the company started up paper machine number 8 (PM 8), which produced release paper (used in the production of self-adhesive labels), at its Tervasaari Mill in Valkeakoski, in the process increasing the production of release paper to 100,000 metric tons per year. Previously Tervasaari’s capacity for release paper was only 55,000 metric tons per year.

In December 1996, UPM-Kymmene and Nokio Corporation each agreed to sell their 50 percent share of the joint venture Finnish Chemicals to Erikem Oy. Finnish Chemicals provided bleaching chemicals to the wood-processing industry. Including this transaction, UPM-Kymmene sold assets totaling Fmk 3.8 billion in 1996.

Growing into the 21st Century

In August 2000, UPM-Kymmene acquired the Changshu fine-paper mill in China, thereby establishing a key stronghold in the East Asian market. This same year, the company also purchased Repap in Canada, increasing production in North America by 20 percent and complementing the company’s existing Blandin Paper Mill in Minnesota.

In 2001, subsidiary Shauman Wood purchased the majority of shares in ZAO Chudovo-RWS, a birch plywood mill in the Novgorod area, strengthening the company’s position in Russia. UPM-Kymmene purchased all the shares of G. Haindl’sche Papier Fabriken KgaA in Germany. The merger was finalized in November 2001 after scrutiny by the EU regulatory council that was concerned it could create a monopoly. UPM-Kymmene agreed to sell two of the six Haindl mills to its competitor Norske Skog to prevent this. It retained four: Augsburg, Shongau, and Schwett in Germany, and Steyrermuhl in Austria. The addition of these Haindl facilities allowed for a production increase of 11.8 million ton of paper.

A New Structure in 2001

In January 2001, UPM-Kymmene implemented a new structure that organized the company into four main divisions: Paper (that included Magazine, Newsprint, Fine, and Specialty Paper subdivisions); Converting; Wood Products; and Other Operations. The Other Operations division included a Forest Department, Real Estate Unit, and Energy Department. The Paper division comprised the largest division in the company, and the magazine paper subdivision comprised the company’s largest, operating 25 paper machines in seven countries with a turnover in 2001 of EUR 3.5 million. It is also constituted the largest magazine paper producer in the world. The Newsprint division was the largest producer in Europe at the time and included 14 machines in five countries. Likewise, the Fine and Specialty Papers division represented the largest in Europe, operating 17 paper machines in four countries.

Working with the Environment for the Future

UPM-Kymmene is not only the largest private forest owner in Finland, but also one of the largest consumers of natural wood resources. In 1999 they consumed nearly 23 million cubic meters of wood supplied mainly by its private forests in Finland, the United States, and Great Britain. In 2002 the company planned to donate 560 hectares of their forestland to Finland for the development of Repovesi National Park.

UPM-Kymmene generates its own power to run its Finnish mills, utilizing a method that the company states does not generate carbon dioxide emissions or require use of other bio-fuels. UPM-Kymmene has announced plans to invest EUR 127 million in a recycling facility to begin operation in 2004. The Recycling Fibre Pulp facility, to be located at the Shotton Paper Mill in North Wales, is slated to produce 100 percent recycled paper. In addition, the 2001 merger with Haindl helped raise UPM-Kymmene’s environmental standards because Haindl uses 60 percent recycled paper in their papermaking process.

Also in 2001 the company joined forces with competitor Stora Enso and the Tapere University of Technology to research the development of biodegradable barrier-coated and laminated paper/board products and investigate strategies for promoting and expanding recycling efforts. In their efforts to mitigate their enormous consumption of natural resources, UPM-Kymmene has spent EUR 40 million on environmental protection initiatives.

Principal Divisions

UPM-Kymmene Fine Papers; UPM-Kymmene Converting (Raflatac, Loparex, Walki Wisa, Walki Films, Rosenlew, and Walki Can); UPM-Kymmene Forest (Rauma Corporation); UPM-Kymmene Magazine; UPM-Kymmene Newsprint; UPM-Kymmene Other Operations (Timber, Schauman Wood Oy, UPM Stationery, Walkisoft, Oy Nautor Ab); UPM-Kymmene Wood Products (Schauman Wood).

Principal Competitors

Stora Enso; Abiti-Consolidated; International Paper Co.; Norske Skog; Asia Pulp & Paper.

UPM-Kymmene Corporation

views updated May 21 2018

UPM-Kymmene Corporation

Snellmaninkatu 13
Post Office Box 203
FIN-00171 Helsinki
Finland
(358) 204 15 111
Fax: (358) 204 15 110
Web site: http://www.upm-kymmene.com

Public Company
Incorporated: 1872 as Kymmene Aktiebolag
Employees: 43,636
Sales: Fmk 51.76 billion (1996)
Stock Exchanges: Helsinki
SICs: 2611 Pulp Mills; 2621 Paper Mills

UPM-Kymmene Corporation, formerly the Kymmene Corporation, is Finland’s leading forestry company and Europe’s largest papermaking concern. It has 18 paper mills and six pulp mills in Finland, Germany, Britain, and France. The emphasis of the UPM-Kymmene group’s operations is on the paper industry. Its chief products are publication and fine papers. The combined capacity of UPM-Kymmene’s paper and board divisions was over 7 million metric tons in 1996. The company is Finland’s market leader in the wood-based panel (chipboard, fiberboard, and plywood) industry and a major producer in the sawmill industry. UPM-Kymmene is self-sufficient in chemical pulp and derives part of its timber from its own forests.

Kymmene Corporation: From 1873 to the 1980s

The founding of three large mills in the same area within a short period of time raised the prices of the local forest lands and timber, while the resulting competition reduced the prices of the end products. The rival enterprises soon became aware of the advantages of joining forces and in 1904 signed an agreement whereby Kymmene bought both the Kuusankoski company and the Voikkaa mill in exchange for shares in the company. The resulting company, the predecessor of today’s Kymmene Corporation, was the largest limited company in Finland and the largest papermaker in the Nordic countries.

By the time of the merger, the individual companies had acquired 76,000 hectares of forest, an area that grew as more mergers took place. The purchase of Strömsdal Board Mill—the supplier of groundwood (used in paper manufacturing) to the company’s paper mills—in 1915 increased the forest area by 21,000 hectares, and it increased by a further 119,300 with the purchase of the Halla sawmill. Halla also had some inland saw-mills, and Kymmene became a major exporter of sawed goods.

During Rudolf Elving’s four years as managing director beginning in 1904, Kymmene installed more production machinery than any other firm in Finland to that date. But a disastrous fire at the Voikkaa mill, in which three machines were destroyed, and a slump in prices on the paper market caused a setback from which the company recovered only under its next managing director, Gösta Serlachius.

Serlachius was followed as managing director by Gösta Bjorkenheim. By that time World War I had broken out—initially placing obstacles in the way of deliveries to Russia but later increasing the demand for paper—Kymmene Corporation’s leading position in the Russian paper market attracted international attention. In October 1916 The Times of London, in an article headed “A Russian Paper King,” wrote, “the joint stock company Kiummene is now regarded as the biggest enterprise of the paper industry, not only in Russia, but in all Europe.” In 1917 paper exports to Russia were hindered by the revolution. Lenin’s rise to power put an end to private trade.

In the early decades of the 20th century Western Europe was not regarded as a major market. Exports to the United Kingdom were begun in the first decade, but the first major agreement, for 2,000 tons, was not signed until 1910.

Research into the potential of Western European markets began to advance around 1910. That year Rafael Jaatinen, a correspondence clerk in the company’s sales office, traveled to England to study trading methods. In 1919 the Finnish government sent a trade delegation to Western Europe and North America. One of its members was Gosta Serlachius. In the autumn of 1921 Kymmene laid the foundations for its own export marketing organization. Its first new foreign agency agreement was made with H. Reeve Angel & Co. of England.

Meanwhile, the company had increased its forest holdings in Finland. The need to guarantee its supply of timber led Kymmene to purchase Hogforsin Tehdas Osakeyhtio, one of the largest ironworks in Finland, in 1933. Kymmene Corporation thus branched out into a completely new field—engineering.

By the end of 1935, Kymmene owned more land than at any other time until its later mergers with Kaukas and Schauman. In this year it bought Oy Laskela Ab, which had 100,000 hectares of forest and two paper mills, as well as a sulfite pulp mill situated north of Lake Ladoga. Laskela” s mills and most of its forests were, however, lost to the Soviet Union during World War II.

During the war the production of sawed timber, pulp, and paper had to be curtailed to correspond to the reduction in demand and work force. Some of the company’s engineering capacity was put toward making munitions, and its paper division made utility articles both for the Soviet front and for the areas behind it. One-third of the war reparations paid by Finland to the Soviet Union under the terms of the peace treaty ending World War II consisted of products of the wood-processing industry. Because of its size, Kymmene was the chief supplier.

The output of the paper industry increased together with expansion into other fields. A large machine making super-calendered paper grades went on stream at Voikkaa in 1968 and was followed two years later at Kuusankoski by what was at that time the largest fine-paper mill in Europe. Expansion was also visible in the restructuring of the organization. In 1969, on the appointment of Kurt Swanljung as managing director, the company’s industrial operations were divided into seven fields of production: paper, pulp, conversion, chemicals, metal, saw-mill, and board.

Kymmene purchased Soinlahti Sawmill and Brick Works in 1975, and with its subsidiary Star Paper Ltd. it acquired the majority holding in the French company Papeteries Boucher S.A. in 1977. The same year also saw the start-up of the American company Leaf River Forest Products Inc. in Mississippi. There were also plans for building a pulp mill in Mississippi. In 1979 the company reorganized its foreign interests in the forestry industry by selling its 50 percent holding in Eurocan Pulp & Paper and buying all the shares in the Wolvercote Paper Mill at Oxford in England.

Company Perspectives:

UPM-Kymmene’s ultimate goal is to be a profitable investment for its shareholders. To achieve this aim, the company must secure its profitability and seek controlled growth without endangering its financial solidity.

By the 1970s Kymmene had steadily upgraded its range of paper products. In order to establish closer contacts with its customers and improve its marketing, it decided in 1975 to resign from the Finnish Paper Mills’ Association (Finnpap), which it had rejoined in 1946 after having left it in 1920. The main products not covered by its own sales organization were the newsprint and magazine papers made by the Voikkaa mill.

The company cut down its range of activities in 1981. It discontinued its petrochemical manufacturing because of structural reorganization in the industry, and it closed the Barnsley paper mill, which was unprofitable. An agreement was made with the Great Northern Nekoosa Corporation for the building of a pulp mill in Mississippi (in which Kymmene would have a minority holding). In order to even out fluctuations in the forestry and metal industries, Kymmene at the end of 1982 pur-chased the majority holding in Stromberg, a company producing electrical equipment. The parent company was renamed the Kymmene-Stromberg Corporation. In mid-1985 Kymmene-Stromberg sold a major part of its engineering division, the Hogfors foundry, and closed the Boucher mill in Calais, France.

The first in a chain of mergers resulting in the present Kymmene Corporation took place in 1985, when Kymmene procured 45 percent of the shares in Oy Kaukas Ab. Shareholders of the two companies approved the merger on January 7, 1986. The result was a highly integrated forestry concern. Casimir Ehrnrooth, chairman of the board of Kaukas, was appointed Kymmene-Stromberg’s chairman of the board and chief executive officer at the end of 1985, and Fredrik Castrén continued as managing director.

Gosta Bjorkenheim had been managing director of both Kaukas and Kymmene. He was the son of Robert Bjorkenheim, the founder, director, and owner of Kaukaan Tehdas Osakeyhtio—the name under which the Kaukas mill was originally established. Gosta Serlachius, nephew of Schauman’s founder Wilhelm Schauman, had taken the helm of Kymmene Corporation at the beginning of this century.

Gosta Bjorkenheim was one of the first Finnish industrial leaders to recognize the vital need for employers to band together against growing unionism, and he invited the pulp and paper manufacturers to join him in founding an employers’ association. Meanwhile, Gosta Serlachius was building up trade relations with the European and U.S. markets. At his suggestion the manufacturers set up three joint sales organizations: the Finnish Pulp Association, Finncell; the Finnish Paper Mills’ Association, Finnpap; and the Finnish Paper Agency.

Oy Kaukas Ab: From 1873 to Its 1986 Merger with Kymmene

The first bobbin deliveries went to Scotland, where the largest buyer was Clark & Co. The production figures rose, but little profit was made, and it was 1882 before a dividend could be issued. The dwindling birch resources in the timber supply area, combined with the favorable outlook for this industry, prompted the decision to found a new factory near Lappeenranta in 1890. For 20 years the Kaukas mill struggled to produce bobbins before selling out to Hugo Standertskjold in 1894. Gosta Bjorkenheim, later to take over the management of Kymmene, was chiefly instrumental in steering the company into clearer waters.

In 1903 Kaukas became a limited company. Gosta Bjorkenheim suggested that a pulp mill be built to use up the waste timber from the bobbin factory, and the mill began operating in March 1897. The customs duty levied on imported pulp was one reason for Kaukas’s decision to build a new sulfite pulp mill in 1904. The first major extensions were carried out in 1912, after which Kaukas was for a time Finland’s largest producer of sulfite pulp.

Initially more than half of the pulp was sold to Russia, while the rest went to the domestic market. On the completion of the second mill, it was necessary to look abroad for markets—first to Germany and later to the United States. The years 1895–1914 were a golden era for the bobbin factory. The number of customers rose to 100, but the bulk of production went to large, regular customers in Russia, Germany, Austria, France, England, and Belgium.

In 1916 Kaukas expanded further by buying up all the shares in the Kaltimon Puuhiomo groundwood plant, as well as a considerable area of good forest. Later in the year Kaukas purchased Osakeyhtio T. & J. Salvesen, thereby acquiring four sawmills and 69,500 hectares of well-stocked forest. The most significant investment in terms of enlarging the company’s forest reserves was the purchase of all the shares in Osakeyhtio Gustaf Cederberg & Co. in 1920, which brought with it 105,000 hectares of forest.

A plywood industry had begun in Finland in 1912, with the start-up of the Jyvaskyla mill belonging to Oy Wilh. Schauman Ab, which was later to merge with Kymmene Corporation. The decision to build a plywood mill at Kaukas was made in 1924, and it began production in 1926. The main product was ply-wood to produce chests for tea, meat, and tobacco transport.

The output of sulfate pulp tripled and that of sulfite pulp quadrupled in the period between the wars. Between 1933 and 1935 the sulfite pulp mill underwent major expansion. As a result of World War I, Kaukas lost many of its forests and timber procurement areas. During this period Kaukas evacuated many of its most valuable machines. The Kaukas bobbin factory was modernized after the war, and the American method was introduced. Production of bobbins came to an end in 1972.

The sawmills at Lappeenranta operated along traditional lines until the 1950s, when work began on a new mill, which would increase capacity to 330,000 cubic meters between 1967 and 1971. In 1977 a further, medium-sized sawmill was bought in the northern timber procurement area at Nurmes.

The pulp market was buoyant after World War II. Later the war in Korea sent raw materials prices skyrocketing. But this was followed by a cost crisis in the Finnish wood-processing industry, the result of fears of impending raw materials short-ages and political conflict with the Soviet Union, a major buyer of dissolving pulp used for chemical conversion. The company debated whether to stop manufacturing dissolving pulp altogether, but capital investments brought about a rise in quality and demand.

In the early 1960s the company decided to build a new sulfate pulp mill, which went on line in 1964. With a view to the further development of pulp production, Casimir Ehrnrooth, managing director from 1967, proposed that the sulfite pulp mill be closed down and a second line producing long-fibered pine pulp be built at the sulfate pulp mill. This construction was done in the 1970s, and the mill was extended in two stages in the 1980s.

While paper production was starting up in the Federal Republic of Germany, Kaukas began to seek a suitable paper grade to be manufactured from its own bleached sulfate pulp. One of the central figures in the investigations and later in the start-up of production was Harri Piehl, who eventually became chief executive officer of Kymmene Corporation. The choice fell on light-weight coated (LWC) paper, a new type of magazine paper made from pulp, groundwood, and coating. The first production line at the mill started up in 1975 and the second in 1981. The choice of paper grade proved to be right because, with the steady increase in demand, a good price level could be maintained.

Oy With. Schauman Ab: 1873 to the 1988 Kymmene Merger

Schauman, the company that merged with Kymmene in 1989, was likewise founded in the 19th century. Wilhelm Schauman, the founder of Oy Wilh. Schauman Ab, having left his job in a gun factory in St. Petersburg, settled in Pietarsaari and there began processing chicory in 1883.

In 1892 Schauman turned to timber, which soon overtook chicory in importance. In 1895, the year in which his sawmill started up, he started expanding in the Pietarsaari district. He ceased buying his timer ready cut in favor of standing timber. His exports of roundwood timber brought in good profits.

Having sold its sugar interests, the company concentrated on projects that led to the establishment of what is now a market leader in plywood products. He began with boxboard and later added plywood. The Jyväskylä plywood mill represented a completely new departure. During the early years of World War I, the mill flourished. Sales were good, and profits large. Production in Savonlinna began in 1921, and in 1924 all the shares in a plywood mill at Joensuu were acquired.

Plywood was converted into chair bottoms, furniture, and board, and in 1931 a building joinery department was set up in Jyvaskyla. Its main products were interior doors. Blockboard production began in Jyvaskyla in 1933 and subsequently moved to Savonlinna. The mills at Jyvaskyla, Savonlinna, and Joensuu merged in 1937 to form Oy Wilh. Schauman Ab.

The next major investment in pulp manufacturing came in the first half of the 1970s, making Schauman the largest producer of market pulp in Finland. The Wisapak sack plant soon became the largest of its kind in Finland, and in 1969 Schauman purchased the Craf’Sac plant in Rouen, France. The establishment of an industrial wrappings unit raised the output consider-ably. All the former Schauman industrial divisions in Pietarsaari—sawn timer, pulp, paper, and packaging materials—were grouped together to form the Kymmene subsidiary, Wisaforest Oy Ab. The divisions were known as Wisatimber, Wisapulp, Wisapaper, and Wisapak.

Schauman at various points in its history also made furniture, along with more conventional converted panel products. Half a century of joinery production came to an end in 1969. In 1971 Schauman became a producer of large sailing yachts after buying Nautor, a boatyard near the Pietarsaari mills.

Among the advantages of the Kymmene-Kaukas-Schauman merger were greater financing potential and more effective operation and marketing. In order to exploit the advantages of a small company, Kymmene split up its five industrial divisions in Finland in 1990. The registered companies—Kaukas Oy, Kymi Paper Mills Ltd., Wisaforest Oy Ab, and Schauman Wood Oy—became fully owned subsidiaries of Kymmene Corporation. Similar status had already been granted to the subsidi-aries abroad: Nordland Papier GmbH, Kymmene France S.A., Kymmene U.K. plc, and Caledonian Paper plc. This last mill project became the first and only one of its kind in the United Kingdom when it began LWC paper production in the spring of 1989. Kymmene U.K. plc’s mills at Blackburn and Oxford were sold in the spring of 1990. Expansion through acquisition continued in 1990, when Kymmene bought the large French LWC and newsprint manufacturer Chapelle Darblay S.A.

The 1990s: The Establishment of UPM-Kymmene Corporation

In the early 1990s plans were made to merge Kymmene Corporation and Repola Ltd. The merger was approved by both companies’ shareholders and the EU (European Union) Com-mission, and the two companies operated as a single unit beginning in November 1995. The merger officially took effect in April 1996.

As a result of its merger with Repola Ltd. and its United Paper Mills (UPM) subsidiary, Kymmene changed its name to UPM-Kymmene Corporation. On May 2, 1996, it began trading shares on the Helsinki Stock Exchange, but the company decided not to apply for a listing on the London Stock Exchange, opting instead to have its shares listed on the Stock Exchange Automated Quotations International System in London. The companies hoped eventually to save up to Fmk 2 billion in transportation, logistics, timber procurement, and sales as a result of the merger. Combined products of the merged companies made it the largest paper producer in Europe, with a capacity of over 7 million metric tons per year, and the second-largest producer worldwide to the International Paper Co. in the United States.

Shareholders chose Juha Niemala as UPM-Kymmene’s president and chief executive officer once the merger was completed. Formerly he had been executive vice-president of UPM. His broad marketing background gave him the advantage over candidates with more substantial experience in the forestry industry. A strategic committee of three forest-industry veterans—Tauno Matomaki, Yrjo Niskanen, and Casimir Ehnrooth—was formed to act as a spending watchdog for the new president, but shareholders took much of its power away at their annual meeting in April 1997. Niemala did not take the shareholders’ decision to mean he could go on a spending binge. Instead, he put several large investments on hold, though he continued with plant upgrading where necessary.

In May 1996 the UPM-Kymmene Kaipola plant began up-grading its paper machine number 6 (PM 6), which produced lightweight coated printing paper. Already the fastest and most-efficient machine of its kind, PM 6 produced in 1995 approximately 240,000 metric tons of paper, which amounted to 1,518 meters of paper per second. In July 1996 the company started up paper machine number 8 (PM 8), which produced release paper (used in the production of self-adhesive labels), at its Tervasaari mill in Valkeakoski, in the process increasing the production of release paper to 100,000 metric tons per year. Previously Tervasaari’s capacity for release paper was only 55,000 metric tons per year.

In December 1996 UPM-Kymmene and Nokio Corporation each agreed to sell their 50 percent share of the joint venture Finnish Chemicals to Erikem Oy. Finnish Chemicals provided bleaching chemicals to the wood-processing industry. Including this transaction, UPM-Kymmene sold assets totaling Fmk 3.8 billion in 1996.

Principal Subsidiaries

UPM-Kymmene Magazine; UPM-Kymmene Newsprint; UPM Pack; UPM-Kymmene Timber; Schauman Wood Oy; UPMKymmene Tervasaari; Raflatac; UPM Stationery; Walkisoft; Oy Nautor Ab; UPM-Kymmene Forest; Rauma Corporation.