Nippon to reorganize its paper business' production structure
June 1, 2018 – Nippon Paper Industries Co. Ltd. will be reorganizing the production structure for its paper business.
Background and purpose of reorganization:
Since the global financial crisis, domestic demand for paper in Japan has been in a state of structural decline due to development of IT. Since 2009, as the top manufacturer of newsprint and printing paper, with the aim of optimizing the balance of supply and demand, the company has reduced its annual production capacity by approximately 1.7 million tonnes. By carrying out a further reorganization of its production structure on this occasion, Nippon will seek to further optimize the balance of supply and demand, and to improve the revenue structure of its paper business by reducing fixed costs and increasing the operation rate. In shutting down the relevant production equipment, the company will take every possible measure to ensure stable supply and quality for its customers.
By implementing this reorganization of its production structure as part of its sixth medium-term business plan, the company will seek to enhance the earning power of its paper business. Moreover, in order to accelerate the growth of the entire business, it will work on expansion of its business operation in growth areas (packaging, household tissues, healthcare, chemicals, energy, etc.) and early commercialization of new business.
Outline of reorganization of paper business production structure
Hokkaido Mill (Yufutsu) is to shut down all paper production machines and related equipment for the production of paper. In addition to continuing its chemical business operations at the mill, moving forward, Nippon will also advance considerations for the mill to become a location for establishing new business operations; including biomass power generation.
Fuji Mill (Fuji) is to shut down all paper production machines and related equipment for the production of paper. As of May 2018, the mill commenced operation of Crecia-Kasuga Co., Ltd. (president & CEO: Hirofumi Narita), producing household tissue. Moving forward, the mill will seek to utilize its location in close proximity to a major metropolitan area in order to shift towards becoming a production location for household paper products.
Kushiro Mill is to shut down its No. 8 paper production machine due to a decline in newsprint demand. By doing so, the mill will seek to shrink fixed costs and increase production efficiency and enhance its cost competitiveness as a newsprint production location. It is planned to transfer production of a portion of newsprint currently produced using machine No.8 to machine No. 6 at the same mill. As a result, it is planned to transfer (partial) production of heavy-sack kraft paper, unbleached kraft paper and semibleached wrapping paper currently produced using machine No. 6 to the company’s Hokkaido Mill (Asahikawa), and to Shin Tokai Paper Co., Ltd.’s Shimada Mill.
As announced previously, coating machine No. 1 at Akita Mill and coating machine No. 2 at Ishinomaki Mill were both shut down as of May this year. The combined reduction in production capacity of these shutdowns in conjunction with the shutdown of the equipment outlined above is approximately 760,000 tonnes per year (equivalent to 18 per cent of overall capacity).
Nippon plans to continue its employment of the approximately 350 employees involved in the operation of equipment the shutdown of which has been determined on this occasion, based on the assumption of transferal, mainly to growth areas and/or new business operations within the Nippon Paper Group.
Impact of reorganization on paper business revenues
The revenue improvement breakdown (including the effects of shutting down coating machine No. 1 at Akita Mill and coating machine No. 2 at Ishinomaki Mill):
• Reduction in variable cost due to reorganization: 0.9 billion yen
• Labour reduction: 5.6 billion yen
• Reduction in fixed cost, including depreciation: 4.5 billion yen
Extraordinary losses of approximately 20 billion yen are expected to arise in the consolidated financial results for the fiscal year ending March 2019, in the form of fixed asset impairment losses, etc.
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