Company executive's new motto: 'We treat the air as if it were our own air'

When heavy smog in Shanghai last November caused his 2-year-old daughter to develop a bad cough, Kim Poulsen, executive vice-president of UPM Paper Asia, temporarily sent his family back to Finland.

On his own in Shanghai, Poulsen started to think about the investment plan the company had approved in 2012 and which he had been asked to analyze before the company went ahead with the project.

"Can I be the guy to go to the board and promote the idea of building a new boiler to burn coal and put more soot in the sky?" he asked himself.

He decided he could not.

He looked at the project again and decided to make the boilers more energy efficient and added the best filtration technology that money could buy.

As a result, the amount of energy used to produce 1 metric ton of paper is 65 percent lower than 10 years ago in UPM Changshu paper mill. In addition, UPM Paper Asia uses only 25 percent of the amount of water set by the industry to produce one ton of paper.

"The mills recycle 98 percent of the water taken from the Yangtze River," he says.

The cost of making the mills cleaner and more environmentally friendly is 301 million yuan ($48.9 million; 36.7 million euros) and Poulsen is proud to have to have spent the money.

"We are hungry to deliver short-term profits but are not willing to do it by compromising UPM group values, policies and our long-term strategy. We don't like to come to China and take the resources, land, water and air for granted. We treat the air as if it were our own air," he says.

UPM Paper Asia started construction of a third production unit at its Changshu mill, in Jiangsu province, in June this year. The new unit is due to become operational in 2015 and will strengthen the company's leading global position as a high-quality supplier of labeling materials and will serve the growing Asian markets with a wide range of labeling materials and specialty products.

"UPM has set clear targets for focused growth initiatives over the next three years in biofuels, specialty papers in Asia, label materials and pulp production," says Jussi Pesonen, UPM's CEO and president.

"With these initiatives, we are targeting an additional 200 million euros in earnings before interest, taxes, depreciation and amortization when in full operation. The return on the Changshu investment is attractive and is expected to bring a significant contribution to our growth target."

UPM Paper Asia's operation consists of the UPM Changshu paper mill in China together with the labeling and packaging materials production lines of the UPM mills in Finland. Its main customers are retailers, printers, publishers, distributors and paper converters.

Wood-free specialty papers and labeling materials in China are one of the growth initiatives the group has focused on to achieve its profit improvement targets.

The fine paper market is nearly 40 million tons in the Asia Pacific region, with China by far the largest market and offering the strongest growth opportunities, says Poulsen.

The annual growth of labeling materials is expected to rise globally by 4 percent. More than half of the global growth is in Asia where the most attractive markets are China, Southeast Asia and India.

Demand in the office paper sector is expected to grow by about 6 to 8 percent a year in China, he says.

"Urbanization and consumer behavior will be driving factors to the growth," he says.

A lot of people will be moving to the cities in China, 100 million in the next six years. When people to come to cities more paper will be used. For example, more people will visit supermarkets whose products require stickers. Demand for release paper will increase, an area where UPM is the global leader, he says.

"In the areas where we operate, there is still growth, but the growth rate is becoming smaller," says Poulsen.

Sales for UPM Paper Asia have decreased from 1.13 billion euros in 2012 to 1.11 billion euros in 2013 and operating profits reduced from 101 million euros to 80 million euros in 2013, as fine paper prices decreased in Asia.

Poulsen attributed this trend to the decline in the global printing and publishing business. The packaging materials sector has seen growth, although the growth rate is less than it used to be.

He observed that the intensified investment in paper mills in recent years has led to an overcapacity in almost all the paper grades in China.

"An increasing number of companies are exporting out of China to balance it out, but unfortunately the price level of exports is not healthy," he says.

He believes the oversupply in China will not affect UPM as strongly as other companies because of its Asia Pacific sales network, which can offset the demand and supply problem in China.

Poulsen has been doing business in Asia since 1999.He has held his position in Shanghai since 2013.

His philosophy at work is to stay humble but strong.

"We need to stay humble toward the future because we don't know what is to come. We must also stay flexible, keep our eye on the ball and work hard. Doing those things will keep us competitive," he says.

"It is my philosophy that the way you treat people on your way up is the same way they'll treat you on your way down."

Facing a sluggish economy

The papermaking industry in 2014 is expected to remain slow in terms of growth due to the lack of stimulus policies for related industries, according to an industry leader.

Zhao Wei, secretary-general of the China Paper Association, says that the expected recovery in the first six-months of 2014 did not happen and the situation will remain stagnant in the second half.

Papermaking relies on many other industries as customers, says Zhao, adding the packaging of a refrigerator requires various paper products. But the slowdown in many industries this year has affected papermaking companies.

He says the slowdown in growth is natural after a decade of change and high growth, with some firms having to adjust to changes in the demand for paper products.

The association is giving guidance on the phasing out of outdated facilities and adjusting production capacities, in some cases eliminating products that are no longer in great demand to avoid overcapacity.

Last year, 3,400 paper and cardboard makers in the country produced 101.1 million tons of paper products, a drop of 1.37 percent year-on-year. The consumption of paper and cardboard products nationwide also experienced a decline of 2.65 percent.

Production of newsprint dropped 5.26 percent in terms of production volumes to 3.6 million tons and consumption fell to 3.62 million tons. Uncoated printing paper decreased 1.71 percent to 17.2 million tons, while consumption fell 3.38 percent to 16.27 tons. Coated printing paper production fell to 7.7 million tons, and its consumption dropped to 6.23 million tons.

Household paper products showed a slight growth of 1.92 percent to 7.95 million tons, and demand rose 0.41 percent to 7.34 million tons. Packaging paper fell slightly, with production down 0.78 percent to 6.35 million tons, and consumption fell 0.76 percent to 6.5 million tons.

Nearly 3,000 large-scale papermaking companies saw their revenues rise 5.91 percent to 757.5 billion yuan and profits grow 6.95 percent to 37.4 billion yuan, but 400 companies, 13.67 percent of those surveyed, recorded losses.

[email protected]