United Paper Mills Ltd. (Yhtyneet Paperitehtaat Oy)

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United Paper Mills Ltd. (Yhtyneet Paperitehtaat Oy)

P.O. Box 40
SF-37601 Valkeakoski
Suomi
Finland
(37) 7111
Fax: (37) 431 22

Wholly Owned Subsidiary of Repola Oy
Incorporated: 1920
Employees: 18,000
Sales: Fmk10.20 billion (US$2.81 billion)

Nearly two-thirds of United Paper Mills’s output consists of paper, chemical pulp, and board. It also produces converted paper goods such as self-adhesive labels, industrial wraps, consumer packaging, sacks, and stationery, as well as sawn timber, windows and doors, talc, nickel concentrate, and chemicals. It became one of the three industrial groups of the new company Repola Oy, the largest private sector corporation in Finland, at the end of 1990, after 70 years as an independent company.

United Paper Mills was established in 1920, soon after Finland had achieved independence from Russia. Its founder, Rudolf Walden, had spent his early adult life first as an officer in the Russian army, then, in Finland from 1902, as an agent for Finnish paper companies in St. Petersburg. By 1916 he had become the largest single shareholder in AB Simpele, a paper company which had been founded ten years before to produce brown wrapping paper, and had moved on into making higher-quality printing and tissue papers out of chemically treated pulp. Simpele experienced a boom during World War I, only to run into difficulties as the mill closed down—like most of the country’s industry—during the Finnish civil war in the early months of 1918. In the same year Walden became chairman of Simpele, and by 1920 the company was prosperous enough to buy two more mills and to expand its holdings of hydroelectric resources.

Walden had been agent for another paper company, Myllykoski Trásliperi AB, during his years in St. Petersburg. Claes Björnberg, who had founded the company in 1892, was retiring stricken by grief for his son Björn who had been killed during the civil war, and in 1918 his family invited Walden to take over as chairman and principal shareholder.

Both Simpele and Myllykoski Trásliperi required a steady source of sulfite pulp for their papermaking, and achieved this in 1919 by jointly acquiring the majority of shares in Jámsánkoski Oy, which had been operating a sulfite pulp mill since 1887. Walden became chairman of this company too, and took charge of planning for a merger of the three companies. Having already been minister of war, and founder of the Finnish army, he now became a member of the Finnish delegation to peace talks with the Soviets and so was not actually present at the first general meeting of Yhtyneet Paperitehtaat Oy—United Paper Mills Ltd.—in July 1920. As its chairman, and as the holder of about 26% of its shares, he was the unchallenged head of what was then Finland’s second-largest papermaking enterprise.

After the civil war the three companies led by Walden had quickly reoriented themselves toward selling newsprint and other printing paper in Western Europe, so that the latter market took 80% of United Paper Mills’s output in its founding year. Like other Finnish paper companies, it benefited from the policy of keeping the value of the Finnish markka low, which increased export earnings and kept the industry competitive with those of Sweden and Norway, even though Finnish products initially were of a lower quality.

When Walden returned from the treaty negotiations he discovered that about a third of the turnover at the sulfite mill in Jámsánkoski had been wasted on a disastrous attempt to increase production. Walden responded by taking over the managing directorship of the company, further concentrating power in his own hands and slowing down the pace of expansion at Jámsánkoski. The company next worked on increasing the fuel efficiency of its plants and reducing the amount of chemical pulp in the newsprint it produced, thus cutting production costs and placing itself in a position to take advantage of the upswing in demand which peaked in 1925. But other countries, especially Canada, were also increasing output, while setting up tariff barriers against imports. The need for still more cost-cutting impelled United Paper Mills to build its own small power station and a new groundwood mill between 1926 and 1929.

In 1924 Walden had become chairman of another company, AB Walkiakoski, which operated five mills for various wood products in Valkeakoski. It had started in 1872 with Finland’s first integrated groundwood and paper mill, but had been so badly hit by the closing of trade with the Soviet Union during the upheavals of 1917-1919, and so mismanaged by speculators controlling the company from Helsinki, that its principal shareholder went bankrupt and Walden was brought in to rescue it. He decided to modernize its plant, to make it specialize in kraft paper, and eventually, in 1934, to see to its merger with United Paper Mills. The merger was followed by the laying of railway track from Toijala to Valkeakoski, of which United Paper Mills paid half the costs and which ended the mill’s reliance on barges for transporting its products.

The opening of an enormous hydroelectric power station at Imatra in 1929 had ensured United Paper Mills enough electricity to permit further expansion. In 1931 it set up a subsidiary, Paperituote Oy, specializing in converting paper into sacks, envelopes, corrugated board, and other products. It acquired an up-to-date paper machine in 1932 and another in 1935, which were used to increase output so as to offset the impact of a 50% fall in newsprint prices between 1926 and 1934. Indeed, the Finnish paper industry as a whole—unlike its foreign competitors—went through the Depression of the early 1930s without stopping production, even temporarily, thanks to the modernization of plant undertaken in the 1920s, the effectiveness of the industry associations created and led by Walden, and the continuing reduction in the value of the markka. United Paper Mills did even better than the industry average in the latter half of the decade, when Finland became the world’s largest exporter of paper since, while overall production doubled, the company’s output nearly trebled. It now began to take part in joint ventures with other companies, such as the Rouhiala power station, opened in 1937; Sunila Oy, a sulfate pulp producer established in 1938; and Kuitu Oy, set up in 1936 to produce rayon and cellophane.

Walden was deeply hostile to labor unions and put a great deal of effort into securing his workers’ loyalty from 1927 onwards, in line with the general policy of the Finnish paper industry. Skilled workers were offered annual bonuses of 10% of earnings in return for contracting not to go on strike, under a system which United Paper Mills retained until the late 1960s, although other companies abandoned it soon after World War II. The company appointed its first welfare officer in 1928. After 1933, partly because of the increasing influence of Walden’s son Juuso in the company’s affairs, wages at United Paper Mills rose above the industry average and a pension scheme was introduced. The company started a housing scheme for employees, providing building sites and special loans. The company also provided health care for its employees and contributed funds to local hospitals. Two other institutions flourished under Walden’s paternalistic regime: the Lutheran church, for which Walden provided buildings, salaries, and administrative assistance in the parishes where the company had mills; and Suojeluskunta, the organization of defense volunteers, which became the main provider of leisure activities for his workers, alongside its women’s equivalent, the Lotta-Svárd organization.

In October 1939 the Finnish government reacted to the Soviet invasion of its Baltic neighbors with a partial mobilization that took more than half the work force away from United Paper Mills. Against the advice of Walden and his close associate Marshal Mannerheim, the commander-in-chief, the government rejected Soviet demands for the lease of several Finnish islands, and Finland itself was then invaded in November. The winter war which followed ended in Finland’s defeat in March 1940, and the cession of 8% of its land area to the Soviet Union. The lost lands had accounted for 12% of Finland’s forests, 20% of its wood and pulp producing capacity, and 10% of its paper and paperboard capacity. They also included two of the company’s small mills, the Rouhiula power station and another power plant, thus causing a drastic curtailment of its output. The company managed to compensate for this, to some extent, by expanding the activities of Paperituote Oy, creating an engineering subsidiary, Jylhávaara, named after one of the lost mills, and setting up Valke Oy to produce glue and window glass.

Having been Mannerheim’s representative to the cabinet throughout the war, Walden now became defense minister, and had to appoint his son Juuso as managing director of the company while he retained the chairmanship. In September 1940 he joined with the prime minister, Marshal Mannerheim, and the foreign minister in secretly accepting Hitler’s demand for the transit of German troops and material through Finland— the first step toward the German invasion of the Soviet Union, which began in June 1941, even as the Finnish government was claiming to be neutral. The Finnish army reconquered the lands ceded in 1940 and fought alongside the Germans until September 1944, when it signed an armistice with the Soviets. During these four years the United Paper Mills customers lost in the United Kingdom and the Americas were replaced by the enormous market of Nazi-occupied Europe now open to the company. It used some of its wartime profits to buy up hydro-electricity rights, mostly in north Finland, through the joint venture companies Tyrváán Oy and Pohjola Voima Oy, so that by 1944 it was the third-largest producer of hydroelectricity in Finland.

Under the terms of the 1947 peace treaty Finland ceded the same lands to Stalin as in 1940, so the company once again had to give up valuable assets. The company was also compelled to give up nearly a quarter of its remaining landholdings to the state for the resettling of refugees from those lands. On the other hand, the company’s wartime profits had put it in a relatively strong position to deal with postwar conditions and to respond to the revival of demand for paper worldwide. The prices of paper products, as of other raw materials, rose sharply as the Korean War progressed, only to fall sharply at the end of 1951, causing a crisis throughout the Finnish paper industry.

As the Finnish economy grew, investment in the national electric grid and the railway network increased, allowing the company’s Jámsánkoski mill to abandon its dependence on the vagaries of the Jámsá River for energy and transport alike. The company also received loans from the United States and the new World Bank to finance capital investment, but the high level of inflation in Finland, as elsewhere, and the levying of taxes on excess profits during the Korean War largely undermined their effects.

The immediate postwar period saw major changes in the company’s management. In November 1944, after four years as defense minister, General Walden suffered a crippling stroke and had to withdraw from both politics and business. Juuso Walden carried on as managing director under the new chairman C.G. Bjornberg, the head of the family which had invited General Walden in to run Myllykoski Trásliperi a quarter-century earlier and which now owned an even larger block of shares in United Paper Mills than did the Waldens themselves. Juuso Walden abandoned his father’s hostility to the labor movement, at least partly in response to the 1945 elections, in which the communists won about a quarter of the seats and joined the government, and he was the leader of the employers’ side in the negotiations for the industry’s first collective bargaining agreement. By 1951 average wages in the industry had risen by nearly twice as much as the increase in the cost of living.

Juuso Walden’s plans to expand production put him increasingly at odds with C.G. Bjornberg, since any new share issue to finance such expansion would threaten the Bjornberg family’s dominant position. The consequent battles in the boardroom took on national importance when they were reported in the Finnish press as being between Finnish-speakers—like Walden—and Swedish-speakers—like the Björnbergs. Secret talks throughout 1951 led to the announcement in January 1952 of a final agreement on dividing United Paper Mills between the two factions, with the Björnbergs taking the Myllykoski mill and the company’s shares in the sulfate pulp venture Sunila Oy, in return for surrendering their interests in United Paper Mills. Juuso Walden, still managing director, now took over chairmanship of the board of directors and the company’s head office was moved from Myllyukoski to Valkeaoski.

In 1952, the company’s first full year without the Myllykoski mills, production fell as debts increased following significant investment. A reduction in production costs and a gentle rise in export prices led to an improvement in 1953, though the situation was still considered unsatisfactory, and production costs in Norway and Sweden were still lower. Rationalization on the one hand, and a rise in export prices on the other, led to an improvement in the financial climate in 1954, and new records were achieved in 1955 in all the company’s plants, especially at Simpele and at the new newsprint mill.

The Finnish economy was disrupted in March 1956 by a general strike, but overall production at United Paper Mills was again significantly higher. At the same time, the costs of labor, fuel, and transport all rose sharply after the general strike was settled, and Finland’s weak balance of payments position made the import of some materials difficult. Production went on rising through to 1962, although unevenly, since occasional dry summers lowered the water level in the lakes, reducing the supply of hydroelectricity. In 1959, for example, the water shortage had the effect of raising the average price the company paid for power by 21%. The year 1959 also saw the company establishing a presence abroad with the founding of a subsidiary company, Oy United International.

Increases in production were not necessarily matched by improved financial results. Profits fell by nearly a quarter between 1961 and 1962. In general, the first half of the 1960s was not an easy time for United Paper Mills. United Paper Mills took part in Finnish and international agreements on restricting production of chemical pulp, newsprint, and kraft paper from 1962 to 1965 while costs rose steadily. National labor market agreements guaranteed wage increases in every year up to 1968, when the link to the cost of living index was abandoned, and the price of wood, still the company’s chief raw material, rose every year from 1962 to 1965. Kaipola’s fifth paper machine was brought over from the United States in the company’s own ships and installed in 1964, and the opening of this new mill and reconstruction of others allowed the company to increase capacity and improve profits by 1966. Although the following year saw sales of newsprint in particular badly hit by a slump in West Germany and other markets, by 1969 the company’s profits had improved again thanks to the devaluation of the Finnish markka in 1967. The company began a major investment program to reduce water pollution, starting with the installation of a waste-liquor plant, which had the additional benefit of producing a partial substitute for fuel oil.

Juuso Walden retired from his posts of chairman and managing director at the end of 1969, after 17 years in the former job and 30 in the latter. He died in 1972. His successor was Niilo Hakkarainen. Great changes were made to the company’s organization after Walden’s retirement and the whole company was reorganized into profit centers. A Joint Action Committee was created, with representatives of the plant workers, the office staff, and the management of the seven profit centers, to promote participation in the company’s activities in welfare, training, and information. While the forest industry went through another downward cycle between 1970 and 1972 the company went on investing in plant, including a new board mill at Simpele. It also took over the plastic-films business of Sáteri Oy and expanded these converting operations.

In the same period, however, the company had to dispose of its small subsidiary operations in Iceland and Italy and cease production of window glass at Valke. The depression was followed by a boom period from 1972 to 1974, and the Finnish forest industry benefited from the signing of free trade agreements with the European Community in Western Europe and Comecon in the East. In 1974, a new paper machine was installed at Jámsánkoski. As wood became scarcer and more expensive, the company led the paper industry in developing a new, lighter type of newsprint made from thermo-mechanical rather than chemical pulp, to reduce the paper’s wood content and save on transport and storage costs.

The boom was shortlived, however, for the company’s profits from the rising price of paper were soon affected by the combined recession and inflation that began to spread throughout its main customer countries in 1974. One result of the slump was the further disposal of foreign subsidiaries, leaving only one by 1975, Dowdings Ltd. in the United Kingdom. In its domestic profit centers United Paper Mills had to halt production and lay off workers for long periods throughout 1975. Once again subsidiaries were absorbed into the parent company, while the company also acquired the assets of Mikko Kaloinen Oy, which owned two sawmills that had ceased production. Overall output for 1975 was nearly 30% lower than in 1974, and matters improved only slightly in 1976, largely because Raf. Haarla Oy, a paper converter of which United Paper Mills had previously owned 10%, was merged with the company. The year 1977 was the fourth bad year in succession, made worse by the collapse in the price of chemical pulp.

Conditions began to improve for the company and the industry in 1978, although the cutting of prices to regain foreign market share contributed to the fall in the industry’s level of investment to a third of what it had been in 1975. In 1979 the company was able to exceed its own production targets and to begin the restructuring of its operations, centered on an additional paper mill, at Jámsánkoski, with state aid in the form of regional development subsidies and relief on turnover tax.

In 1980, 60 years after Rudolf Walden had founded the company, his heirs—along with the other main shareholders, the Koskelo family—sold most of their holdings to a consortium of six companies, including the conglomerate Rauma-Repola Oy, with which the company was eventually to merge, and Kansallis-Osake-Pankki, one of Finland’s leading banks, whose chief executive Jaakko Lassila had been chairman of the board at United Paper Mills since 1974. The company began expanding abroad once more, starting with the acquisition of paper converting companies in the United Kingdom and West Germany and the establishment of another German production subsidiary, Walki GmbH.

From 1981, however, recession struck the forest industry yet again, as production costs rose sharply and the construction industry’s demand for timber declined. The subsequent upturn in conditions was symbolized by the establishment in 1983 of a new subsidiary, Shotton Paper Company Ltd., to run an integrated thermo-mechanical pulp and newsprint mill in the United Kingdom, which began production in 1985. For five successive years, 1984 to 1988, United Paper Mills showed excellent profits, while undertaking some reorganization of its activities, including setting up a joint venture in fiber processing with the Swedish company Sunds Defibrator AB, through selling the latter its Jylhävaara fiber processing machinery division; selling the rest of Jylhävaara engineering plant to Valmet Paper Machinery Inc., and building up holdings in pulp mills to secure its supplies.

After five years of success the company’s profitability fell slightly in 1989 as it was making investments equivalent to 30% of turnover, the highest level in the company’s history. New ventures included the building of a paper mill at Strasbourg in France, the magazine paper machine at Kaipola, a new newsprint mill and de-inking plant, also at Kaipola, which processes almost all of Finland’s collected household waste paper and a similar installation at Shotton in the United Kingdom. The company also purchased another rival in the paper industry, Kajaani Oy, and then regrouped all its sawmills in Finland into one subsidiary.

The combination of mergers at home and acquisitions abroad the 1980s can be explained partly by the pattern of distribution of the company’s output. Its main customers had long been in Western Europe, and by 1989, 52.6% of its output was going to the countries of the European Community, 23.3% was being sold inside Finland, 6.3% was going to other European Free Trade Association (EFTA) member states, and only 6% to the Comecon countries and 11.8% elsewhere. Given the moves toward greater integration within the European Community and the dependence of EFTA as a whole on that market, United Paper Mills, like many other Nordic companies, was bound to become involved in further attempts of expansion and diversification, in order to prepare for the fiercer and larger-scale competition which now seemed likely. During the first few months of 1990 Metsä-Serla, another leading company in the Finnish paper industry, made an unsuccessful hostile takeover bid for United Paper Mills, acquiring about 30% of its shares. Rauma-Repola Oy, which had been a major shareholder since 1980, then built up its voting rights to 15.4%, and a proposal to merge with Rauma-Repola, defeated by Metsä-Serla in April, was accepted in June when Metsä-Serla was offered directorships of the merged company and an agreement on future cooperation. The new arrangements were sealed by Rauma-Repola’s taking a 7% holding in Metsä-Serla.

In September 1990 Niilo Hakkarainen was succeeded as managing director by Olli Parola and preparations began for absorbing two divisions of Rauma-Repola, Rauma and Pori, as profit centers of United Paper Mills and for transferring the company’s shares in Sunds Defibrator AB to Rauma Oy, which thus gained overall control of the Swedish firm. The net effect of these changes is that as from January 1, 1991, United Paper Mills, somewhat larger than before the merger, has been one of three industrial groups that form Repola Oy, the largest private sector company in Finland; the other groups are Rauma, which covers metals and engineering activities, and W. Rosenlew, which produces plastic packaging. During its 70 years as an independent company United Paper Mills was successfully transformed into the leading player in Finland’s largest industrial sector, with considerable presence in the European market for paper products and, in more recent years, in production outside Finland too.

Principle Subsidiaries

Finnminerals Oy; Lohjan Paperi Oy; Oulux Oy; United Sawmills Ltd.; Stracel S.A. (France); Raflatac S.A. (France); Walki GmbH (Germany); Walkisoft GmbH (Germany); Shotton Paper Company pic (U.K.); Raflatac Ltd. (U.K.); Walki Converters Ltd. (U.K.); Walkisof U.K. Ltd. (U.K.).