Tag Archives: Redundancies

Hollming Works Oy Redundancies and thoughts on competitiveness

Today the Finnish Broadcasting Service YLE informs that the co-decision negotations at Hollming Works have ended, and that as a result 195 people will be made redundant and 55 will be temporarily laid off. The news item informs that the background to these ‘dramatic’ changes lies with the permanently changed operating environment of the company’s five workshops. It states that ‘the demand for the workshops’ production and the compatitiveness have weakened permanently.’

Hollming Works is a company that according to its website:

…is a company made up of five separate business units, which together offer a comprehensive range of services to the mechanical engineering industry. Our focus is on the manufacture of medium weight and heavy engineering products.

Our strength as a supplier lies in our ability to handle turnkey projects, ranging from serial production or customized batches to single production. In addition to the manufacture of components, our services include mechanical and electrical assembly, as well as hydraulic installations. To complete the package, our products come with functional testing, trial runs and, if required, on site installation.

This link provides a bit of history for the company.

A press release from 2012 regarding a new investment mentions a few of its bigger global clients, which include General Electric, Siemens and Atlas Copco. The website of the company gives a picture of a very all-round supplier, which provides a complete package of both manufacturing and services. This link provides (partially in Finnish) a list of processes and industries they have expertise in.

From the profile of this company it is clear that it is a typical provider of high-skilled jobs (in both manufacturing and services) and it is very sad that the company is downsizing so much. The writing has been on the wall though. The Finnish newspaper Kauppalehti has published since 2009 some news on the company in relation to its results. In 2009, its turnover declined significantly, but regardless of that (in the words of the newspaper) its ‘result’ (profit?) increased by some 63%. In 2010, its turnover was nearly half of 2009, i.e. a drastic reduction. The result for 2010 turned into a net loss, but the so-called gearing ratio was satisfactory still. In 2011 turnover declined only slightly but losses increased by some 80% according to the press release. The results for 2012 are behind a paywall,  but earlier this year the co-decision negotiations were initiated, where it was said that the Loviisa unit (which had the investments) was outside the scope of these negotiations.

It is very hard to make solid conclusions on the basis of a single case. But I want to consider two issues that I think influence ‘competitiveness’ a lot. Competitiveness is a relative position, and I do not know in what kind of market Hollming mainly operates (i.e. Europe or global). If the latter, then the development of the euro against the dollar has been very negative for export-oriented firms. Simply put: the euro is simply too expensive. In the case of intra-European competition, the question is not one of exchange rate but of final price (if we now leave out the importance of quality and service around the product). The yearly change in producer prices for the metal industry in Finland (2000=100) looks like this:

Producer prices (2000=100). Source: Statistics Finland

Producer prices (2000=100). Source: Statistics Finland

 

 

 

 

 

 

 

 

 

 

This graph shows the yearly change in producer prices, i.e. prices are still rising but slower. The same graph until 2011, with 2005=100 looks like this:

Producer price index, metal industry. 2005=100. Source: Statistics Finland

Producer price index, metal industry. 2005=100. Source: Statistics Finland

So, apart from the ‘obvious’ drop in 2008-2009, producer prices have increased, although they are currently nearly flat and declining slightly. For all the talk about high wage costs in Finland (which in terms of Real Unit Labour Costs are worrying in that they are higher than Germany’s), this is one thing we should talk about in terms of competitiveness – companies set the prices for their products and services, and that is what customers see. Producers may set higher prices because of higher costs (and certain profit targets) but higher prices mean lower turnover when demand is weak. And then, inside the company, the balance of costs becomes important, which useally (in industry certainly) leads to cutting costs where it is easiest: personnel.

In a case like Hollming’s it is very difficult to say what is the exact source of the lack of competitiveness. Most likely it is a combination of all factors together – demand, rising producer prices, relative share of wage costs, exchange rates. And it is entirely possible that Hollming is very competitive in terms of services and the quality of its products, but exchange rate issues suffocate the company. And no, I don’t think the current Employment and Growth agreement will do much for this kind of company.

Beyond these general issues regarding competitiveness I think it is a bad sign that such an all-round company, which is able to operate in many industries, is in trouble. I hope this is not the ‘canary in the mine’ but I do wonder about the situation in similar companies that are supplier to other industries. This is the industry sector Finland has been very strong in, and it is not quite encouraging that there is not enough demand (in Finland/Europe/worldwide) for this kind of company to operate successfully. Time will tell.

 

 

 

 

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Eurocrisis receding? Really? – Finnish edition

This is a post with some links to Finnish language news about businesses in Finland that recently announced redundancies or forced leave in relation to the economic climate in Finland and/or Europe. The list of links is in reverse chronological order, i.e. latest news first. A warning: from this list you wouldn’t know that the Eurocrisis is receding, as some claim.

Construction firm Lemminkäinen aims to reduce workforce by around 500 This is one of the bigger firms in Finland. Around half of the redundancies will be in Finland. The firm employs around 8200 people in total. It has made losses for some time now, and since 2011 there is some kind of efficiency program going on.

Electrobit starts co-decision negotations again to put 1/3 of workforce on forced leave The Oulu region has been hit hard by the consequences of the fall of Nokia.

METSO’s new unit aims for great savings – up to 750 jobs under threat. Earlier this year, METSO split itself in two parts, dividing the profitable mining division and the not-so-profitable pulp&paper industry division over two separate companies. Now the unsurprising news comes that the pulp&paper division will engender brutal savings, threatening up to 750 jobs (worldwide, that is, but still).

Konecranes starts savings program; up to 600 jobs under threat. The producer of cranes intends to reduce its costs.

The situation of Finnish industry is reflected also in transport. The Finnish rail operator VR announced that the amount of freight has drastically shrunken.

Mining company Talvivaara announces to reduce personnel by 250. Either redundancies or forced leave. Added to this is apparently running out of cash. The company has been much in the news with a huge environmental accident earlier this year.

I stop here, this is the (small) selection of news I quickly found for the period of mid-July until today. Some Finnish companies are doing very well, nonetheless. But I think it is rather worrying that construction companies start to get seriously affected, in combination with a slowing real estate market. The slowdown amounts to 10% less sales over the first half of 2013 than in 2012. I and some others have said that there might be a real estate bubble in Finland, and perhaps now we see the bubble slowly or quickly deflate – if the interest rates stay low, probably many can still afford their houses but banks are nonetheless charging more due to stricter regulation.

Some are happy that the Finnish trade deficit is getting smaller, but unfortunately this is mostly because of decreasing imports – a sign of weakening internal demand I guess.

We’ll see. Insofar I have an educated guess, it feels that the eurocrisis has arrived in Finland through the backdoor, although current budget negotiations make much fuss over the share of GDP of Finnish sovereign debt (estimated to reach nearly 60% of GDP next year). To me, the title of that piece is almost funny and very representative of the Finnish mindset: ‘The Finnish public debt level soon overtakes the gargantuan levels of the 1990s economic crisis.’ 60% to my knowledge was a political consensus, mostly because it was the German level of public debt around the time and the other Eurocandidates should have converged to that level. But 60% is not quite a monstrous level, I’d say…

Oh, and of course the Finnish prime minister suggests more budget cuts and ‘structural reforms’ to ‘bend’ the growth curve of the public debt. Just the right medicine. Not.

There are lots of other interesting things going on in Finland right now, including the budget talks and the upcoming collective negotiation rounds, but that is for later posts.

 

Stora Enso: does the work-force reduction end someday?!?!

When you thought you had covered the recent announcement of Stora Enso’s ‘economizing‘, the company manages to surprise. First with an anouncement of a potential large investment, and today with large co-determination negotiations over approximately 650 redundancies in Finland and about 750 in Sweden. World-wide the goals is to reduce the workforce by 2500 people.

The news item states that the reduction concerns all parts of the company, including services and support.

I seriously wonder what the company aims to achieve here. With less personnel there are less fixed costs, and a potential for increased labour productivity, but how much does the company really want to squeeze its personnel? Has Stora Enso thought about the effects on occupational health? Or does the company simply want to become smaller, give up market share, production capacity? I very much doubt that.

Employees of UPM walk out in Jämsänkoski and Kaipola

A month ago, co-decision negotiations ended at two paper mills of UPM. The results of these negotiations were told yesterday: 41 people lose their job. UPM has earlier announced an ‘efficiency program’ which results in reducing personnel worldwide,(link to a Finnish post) but in particular in Finland and the rest of Europe. One result is the permanent stoppage of PK3 or paper machine 3 in Rauma.

So, this walk-out (by both salaried personnel and employees, i.e. blue-collar AND white-collar personnel) is a real protest. The shop steward of the salaried employees states that he is very worried about well-being at work, since the workload and the mental stress of the remaining employees will increase even more. Furthermore he states that he is extremely worried about the future of the redundant personnel, because they are not very likely to find work again.

I am quite tired of the developments in the Finnish paper industry. Employers reduce personnel in the hope to make their business more competitive, but they forget that a) it is the final price of the product that influences competitiveness most and b) too much pressure on workers leads to more sick-leave absenteeism, which reduces the well-being and morale of employees even more (let’s not talk about the mental pressure of the threat of redundancies all the time). The fundamental issue here is that energy and raw materials are the main culprits for the paper industry’s competitive position, not personnel. Without a dedicated workforce, you can’t create value, you can’t innovate.

 

Frohnleiten in Austria to close down in 2013

It is not easy to compare different paper mills with different machinery and different histories, but still it looks like W. Hamburger GmbH has put much effort in preserving the paper mill in Styria.

Among the actions taken are, according to the press release:

  • investments,
  • product innovations and
  • a reorganisation of the plant

as well as attempted synergy effects with another mill relatively nearby.

In Finland most paper mills of this capacity have been shut down or have a much wider working width. In addition, in Finland paper machines/mills of even greater capacity have been shut down (notably the Voikkaa, Myllykoski and Kajaani mills). So the statement by the managing director below is laudable, especially given the Finnish experiences:

“Being obliged to close-down a traditional company like Frohnleiten, in which generations have been employed, and which, as an important employer, has revitalised and helped to form the region, is a very difficult task for us”, explains Harald Ganster, managing director of W. Hamburger GmbH today.

Obviously the situation in the Kymenlaakso-region of Finland, where much of the paper industry was concentrated, is very different and despite employer efforts it is difficult to help ‘make the change into a new period of their life easier.’ But the statement by the Austrian managing director do have a different sound to them because of the attempts to keep the mill in business – not only reorganization, but also product innovation and investments. This is not to say that in Finland these things did not happen, e.g. the Summa paper mill is a good example of large investments before it was shut down.
Although it is sad that yet again a traditional paper mill closes down and workers lose there jobs, it is relevant that also in this case the same issues are mentioned as everywhere else, e.g.

  • intensified international competitive context due to over-capacities
  • the current situation in the business sector does not give reason to expect a turnaround
  • Overseas markets cannot be supplied cost-effectively because of the euro-/dollar-exchange rate

This simply is the state of affairs, and the demand for pulp in Eastern Europe and China will only lead to more competition on the European market. To some extent the European paper companies investing in China have brought this onto themselves. By the logic of capitalism, if more profit can be made by competing with ‘Chinese’ products on the European market, this will happen.

So, still no positive news on the European paper market.

 

 

UPM’s cash flow and the simplification of business

To begin with a longish quote (Jussi Pesonen, UPM-Kymmene’s CEO):

“UPM’s business environment in the third quarter of 2012 was impacted by the decelerating global economy. Despite these circumstances, I am pleased that our cash flow continued to be strong and we were able to decrease our net debt and further strengthen our balance sheet. Performance in our growth businesses remained good, but Paper, Plywood and Timber continued to suffer from weak profitability. […]

Energy, Label and Asian Paper businesses maintained strong profitability during the third quarter. Ample hydropower boosted Energy’s performance and Label experienced positive cost development. Pulp profitability was affected by temporary process disruptions at the Pietarsaari mill.

Although both deliveries and prices in Paper were in line with expectations, we were not able to adjust Paper’s cost level enough to improve profitability in the current operating environment. The development of the logistics and energy costs in particular was disappointing. […]

We will use our full toolkit to get Paper’s performance on the right track. Our main focus in the Paper business is to improve margins to maximise cash flow. We have already started to review our costs, margins and structures to make the necessary turnaround in Paper and we have informed our publication paper customers of price increases. We will also investigate consolidation opportunities, and carry out restructuring and capacity closures when needed.(my emphasis)

So, in short: paper and UPM’s traditional saw-mill businesses are weak in profitability. Is this surprising? The CEO does not mention specific markets but the mention of ‘Paper’ versus ‘Asian Paper’ may indicate that he refers to the European and/or North American markets. Well – METLA estimated that the European paper markets will be weak for a long time still, as I mentioned here.

UPM is yet again going to review costs, margins and structures. Most likely this will at some point mean that there will be co-decision procedures in those places that have weaker-than-average profitability and/or higher costs in some way. Also restructuring and capacity closures are mentioned. It is sad that CEOs don’t actually tell what this entails, although everybody understands. Restructuring means that less people have to do the same work – roughly speaking.
But the point is that over the years there have been many investments abroad to the detriment of the domestic paper industry. Thus, the units most likely on the chopping board are again in Finland, especially in combination with a relatively weak employment protection. Given the geographical/regional concentration of paper industry firms, the Finnish paper industry firms should really do a lot more to get their former employees to a new job, especially since the industry has destroyed so many jobs already.

All the talk about cost examination etc. is self-defeating in the same way economic austerity is: in the process much is destroyed – skilled workers lose their job, skilled workers get a heavier burden at work.

The two other points of the press release are not surprising: Asian paper is doing well, labels also. Energy is doing well – no surprise. Before we know it, UPM is the new E.On in Finland.
Oh, and on a not totally unrelated issue: we have informed our publication paper customers of price increases.What did you say, it is the market that determines prices? Yeah, right. Increasing prices in a weak market is a sure way to lose customers and through that profitability (and indirectly, productivity). Customers have a wide range of options to select alternative suppliers, triggering yet another wave of restructurings.

Non-creative destruction: Stora Enso plans to reduce its personnel by 520 persons in Europe

Here’s a question: if you operate a business in a difficult market, what should you do?
Stora Enso thinks it should reduce its personnel to increase profitability.

Read that again.
How do companies manage to stay ahead of the curve? Yes, cost containment is one part of the equality. But to stay afloat, innovation is needed. Perhaps both process-innovation and product-innovation. Look at Lada – no innovation of either kind, and it fell way behind the curve. Not even the influx of Western capital (investment, innovation, get it?) could help. Or look at Microsoft – it had working processes and a market advantage for its software, but with the advent of smartphones and tablets a new, smaller product was needed. In the time Microsoft worked on Windows Phone, Android and Apple staked out significant claims for their operating systems.
Making paper is  very capital-intensive, but that doesn’t make labour less important. There are at least two reasons why Stora Enso’s decision is a stupid strategy (besides that it is a general strategy of Finnish forest companies by now).

  1. Labour is not simply a cost, as the CEOs of the Finnish paper companies seem to think – employees have intense knowledge about work processes and machinery. Instead of ignoring skills and knowledge, companies could acknowledge the incredible advantage they would have from updating machines instead of reducing the workforce.
  2. Labour is not nearly the biggest cost for the Finnish paper industry. Raw materials, energy and transport are much more significant.

Furthermore, a reduced labour force again increases the pressure on employees to do their duty. The Finnish paper industry does not have a very great record in terms of workers’ well-being, so increases in the workload do not sound like a great development. Even if individual workers may benefit in salary terms from a more diversified job, this is a meagre consolation if one’s health suffers as a result.

 

The markt for paper in Europe is in decline, and there is still over-capacity, which hinders profitability. But European over-capacity is to some extent the fault of the Finnish paper companies themselves, which used European aid to make new investments. These units have often both greater production capacities and newer technology, which makes them more valuable in accounting terms AND relative to competitors (see this post). The core problem for the Finnish paper companies is that the European market is in decline. Finland’s location (with resulting transport costs) and reduced value of raw materials (pine, spruce, birch relative to eucalyptus) do not amend this situation.

 

Reducing its personnel is destruction, not creative destruction which is the process by which the ‘old’ is replaced by the ‘new’. If Stora Enso is serious about improving profitability, it should come up with innovative products, investments which reduce the relative cost of Finnish raw materials for paper production and preferably in this way also increasing its energy self-sufficiency by using more biofuels for its energy needs. If Stora Enso has no such plans but instead continues to reduce its workforce, then it is clear that the company does not have a serious commitment to continue operations in Finland.