Stora Enso has decided to invest about 350 million euros to convert the Finnish paper mill in Oulu into a packaging manufacturing mill. The investment includes the transformation of the continuous paper machine 7 into a kraftliner producer based on high quality virgin fibres. Whilst the continuous machine 6 and the plant for producing sheets will be closed. It is expected that production on the converted machine will start by the end of 2020.
«The conversion of the Oulu Paper Mill», explains Karl-Henrik Sundström, CEO of Stora Enso«will enable Stora Enso to further improve its own position in the growing packaging sector and to take an important step forward in its transformation. We have shown our ability to successfully carry out large conversion projects, since we have already converted a continuous machine to produce kraftliner at the Varkaus paper mill». Typical end-uses of kraftliner are in the packaging sector which requires high resistance, quality and cleanliness, as for foods, fruit and vegetables and heavy packages. Production is destined for global export markets.
«Economic growth, sustainability and food safety are key factors in the packaging sector market. This transformation will allow us to supply customers with an innovative kraftliner product with high performance in terms of resistance, printability and food safety», states Gilles van Nieuwenhuyzen, EVP Packaging Solutions of Stora Enso.
Towards a more profitable business
In order to further transform Stora Enso from a declining business with low margins to a more profitable business, the Group will invest about 350 million euros in the conversion in the period 2019-2022. This will increase the estimate of the Group’s investments for 2019 from 540-590 million euros to 610-660 million euros. The market dynamics of coated wood free paper have further deteriorated and therefore Stora Enso must accelerate its own transformation. Following the conversion, the EBITDA margin of the Oulu factory should improve between 15 and 20%, once the kraftliner machine is working at full capacity about four years after start-up. At full capacity, the investment should meet the profitability objective of the Packaging Solutions division, with a return on operating capital ROOC) of 20%.
The investment will include a new line of kraftliner based on virgin fibres (both brown and white top) with an annual capacity of 450 thousand tonnes, the modification of the production factory of cellulose and dryer for brown, unbleached pulp, as well as investments to improve the environmental performance of the factory. The project will start with ground work during the summer of 2019 and about 200 contractors will work on the Oulo factory site during the project.
Restructuring with a fall in employment
The converted Oulu site will give employment directly to about 180 people. The paper mill’s wood consumption will increase from 0.5 million m3 to 2.4 million m3 per year. The wood will be mainly purchased from private forest owners in northern Finland.
Following the co-management process begun on 25 March 2019, 365 people will be permanently dismissed. The initial estimate of the maximum staff reduction was 400 people. The dismissals will mainly have occurred by the end of 2020 when the Oulu factory will stop producing coated wood free paper. Stora Enso will provide support to the people who will not continue to work in the Oulu factory after the conversion. A maximum of 20% of the redundancies can be managed through pension settlements.
«We shall work closely with Stora Enso’s other offices, the town of Oulu and other interested parties» states Kati ter Horst, EVPStora Enso’s paper division«to support those employees who will not have a job in the new organisation in getting back to work. Our support will include outplacement services, as well as individual and group training courses for reintegration into employment. We shall also offer financial support to employees who start up their own company». The restructuring costs will have a cash impact of approximately 19 million euros when paper production stops in the paper mill.
The current capacity of the Oulu paper mill is 1.08 million tonnes of coated wood free paper a year. Typical end-uses of the coated wood free paper are, for example, high quality magazines and publicity. Paper production should continue until the end of September 2020.