UPM-Kymmene Oyj

Jussi Pesonen – President and CEO Tapio Korpeinen – CFO

Lars Kjellberg – Credit Suisse Kartik Swaminathan – Bank of America-Merrill Lynch Karri Rinta – Handelsbanken Capital Markets Johan Sjöberg – Carnegie Investment Bank AB Linus Larsson – SEB Enskilda Mikael Jafs – Kepler Cheuvreux Antti Koskivuori – Danske Markets Henri Parkkinen – Pohjola Bank Edmond Darmawan – GSO Capital

Welcome to UPM’s webcast. My name is Jussi Pesonen and I’m the CEO of UPM.

I’m here with our CFO, Tapio Korpeinen.

Hello everyone.

Today we do have two topics in our presentation. First, Tapio will start with going through the Q2 results.

Our Q2 performance was in line with the expectation. Pulp, Paper, Asia, Label and Energy continued to perform well.

In Plywood and Timber, the improving trend also continued. At the same time, our Paper business reported what we believe will be the weakest quarter for 2013.

But Tapio will shortly go more in details of that. After Tapio’s Q2 update, we will discuss the next phase of UPM transformation.

We need to shift gears now. We have today announced performance improvement and growth programs with targeted combined impact of 400 million.

To make this happen, we are also changing UPM’s business structure and management. In the end, we will have plenty of time for your questions.

But now I will hand over to Tapio. Tapio, please?

All right, thank you Jussi. UPM’s second quarter operating profit and pre-tax profit were stable as compared with the previous quarters.

As Jussi said, this was underpinned by good performance from our growth businesses. Pulp had a strong quarter as prices continued to increase during the quarter and our deliveries were on a good level.

At the same time, good profitability continued in our Chinese and specialty paper operations as will be shown later in this presentation. In Label, profitability was stable.

Now we were able to show good volume growth in Label that more than offset the expanded operations and the associated costs. In Energy, operating profit was affected by seasonality and lower hydropower volume compared to last year.

In Plywood and Timber, the profitability turnaround continued. Our European paper operations experienced a weak quarter.

The main driver for the low profitability in paper during the first half of 2013 is lower sales margins for the European graphic paper business as well as for exports out from Europe. This was obviously disappointing but well in line with our expectations and with our guidance that we gave six months ago.

In the second quarter we also had a negative impact from unrealized energy hedges in the paper profit. In fact, the decrease in our Paper business EBITDA compared with the first quarter came fully from adverse market value change in unrealized energy hedges.

In the first quarter, we had a positive impact coming from this unrealized energy hedges, whereas in the second quarter, we had a 17 million negative impact. The result between Q2 and Q1 is a total difference from -- total difference of EUR30 million coming again from this delta in market value change of energy hedges.

On the positive side, our 90 million fixed cost reduction program progresses on schedule. In the second quarter, we achieved 40% of the total annualized savings.

Combined with previous cost reduction measures, this was enough to offset the impact of lower delivery volumes. We continue to expect the full EUR90 million run rate in reduced fixed cost to be reached by the end of this year.

Going on to slide five, you can see the summary of our volume development in our businesses. In the second quarter, we had higher deliveries than last year in all businesses expect in publication papers.

The lower fine and specialty paper deliveries shown in this graph come from the impact of divestiture of our packaging paper operations. Page six shows the EBITDA development in the second quarter compared to the second quarter of last year.

The main negative earnings driver is paper price. Our average paper price was 4% lower than last year and this is visible also in the paper business area profitability.

Our fixed costs were 36 million lower than last year compensating for the lower paper deliveries. We did have some positive development in variable costs as well, for example in fiber costs.

And the energy costs or the change in the energy costs shown here include the already mentioned impact of unrealized energy hedges. On this following page, we show the EBITDA development sequentially compared to the first quarter of this year.

Here you can see again the 30 million impact from unrealized energy hedges shown also as an equal decrease in Paper business EBITDA. Other than that, we had a seasonal increase in both deliveries and in fixed costs.

Our operating profit has been stable, as you can see on this page 8. Operating cash flow for the first half of the year was EUR187 million.

This is lower than last year for two reasons. First, our EBITDA is lower than in the first half of last year following the weaker performance of our European paper operations.

Jussi will later on tell you what our plans are to improve UPM’s profitability. Second, our working capital increased by 215 million in the first half.

This is more than last year at this time but nevertheless temporary in nature. Therefore, we expect to release this increase in working capital during the second half of the year.

In this slide, you can also see that in the past 12 months, we did not make significant divestitures. The working capital increase is also visible in our net debt.

We expect though our net debt to resume the declining trend during the second half of the year. Page 11 summarizes our outlook for the second half of this year as compared to the first half.

We expect the second quarter to remain the weakest quarter in the year 2013 for the Paper business area. In the second half, we expect the Paper business to benefit from lower costs, partly driven by the earlier announced cost reduction program as well as seasonally higher delivery volumes.

We have achieved small price increases for newsprint in Europe and for SC papers mainly in North America and for some business closed so far in Europe. European fine paper prices on the other hand are under pressure.

All in all, across all paper grades and regions in euro terms, we expect only minor impact from paper prices on our earnings during the second half. In our Pulp business, our production volumes and earnings will be impacted by the annual maintenance shuts in Fray Bentos, Pietarsaari and Kymi mills.

Now I will hand back to Jussi for the second part of our presentation.

Thank you Tapio. This is absolutely an important moment in our strategy roadmap.

UPM is now shifting gears. We will implement a new business structure to drive change, change in profitability, change in portfolio.

So that is definitely after 2008 kind of a new very positive opportunity for us to drive UPM to the next level of performance. As Tapio explained, our Q2 and first half result was in line with the expectations.

However, honestly, they are clearly below the ambition level and potential of the company. At the same time, we have achieved key points in our strategy.

Our current business structure, which we launched 2008 has served its purpose. We were – we have been turning our Pulp and Energy internal resource to a profitable and growing business.

So the business platform has been built over the last five years with their own customer base and they are standing alone. We have restructured our European label business.

We had actually in 2008 a challenge in the performance and now label is steadily growing and performing well. We have also achieved profitability turnaround in plywood and timer businesses which I think that really are – were in our focus as well.

Ladies and gentlemen, now it is time to switch gears and take the step in transforming UPM. With the decisions announced today, we aim to achieve clear improvement in UPM’s profitability in coming one and a half years, when it comes to all kind of actions.

We will address the market challenge in our mature European businesses and ensure sustainable cash flow from our European graphic paper operations. Obviously we realize that the challenges in our paper business in Europe.

But improvement actions are not limited to European business alone; however, we will take actually actions in all businesses, including the well performing businesses. This new structure will drive for the change everywhere in UPM; it is not only the business group but also functions.

We are going to focus growth initiatives over the coming three years, we are dedicating focused investments. We have highly attractive growth opportunities in this company and we will grasp them.

So all in all, we have identified profitability and growth actions with a combined profit impact of totaling EUR400 million. On top of that, we will seek also to simplify our business portfolio as well.

We will look for ways to uncover the value of UPM assets both for the benefit of our shareholders as well as to enable further development of UPM and UPM’s Biofore strategy. This also may involve changes in ownership structures of various businesses.

I have said many, many times on many occasions that there are no holy cows within UPM. Moving on, when looking the page 14, to facilitate the change, we have changed our business structure as well.

The new structure is shown here. Of course the biggest change is first of all in biorefining where pulp, biofuels, and timber will form a great platform for a lot of synergies, a business area but especially in paper where the global steering of paper business now will be split into areas and regional steering.

But not only looking the regional steering but also that the label papers and China will form a growth platform for UPM and then publication papers plus the fine papers in Europe and North America will form another. We believe that simplifying organization, simplifying the structure we will definitely gain a lot and we will achieve the targets of that.

This will also mean that now when the global steering will change, the headquarters of these businesses will be in China, Shanghai and in Augsburg in Germany when it concerns Paper Europe. Moving on the page 15, with these changes and structural changes and management changes, we are determined to improve profitability of UPM.

That is definitely number one goal. But not only that goal, we will also simplify our portfolio.

We have identified actions with total profit improvement impact of 200 million in our business portfolio. A big part of this is related to Paper Europe but not nearly all.

These figures does not include additional capacity closures, that is a separate issue. So our business will implement a profit improvement program with simplified business model and variable and fixed cost savings.

We expect to reach the full 200 million improvement run rate by the end of next year and compare that to Q2 this year. we will follow up and update you on the progress of the programs in our quarterly reporting and that is pretty clear to you that now there will be only one figure to follow on the savings side, which is this 200 million starting from zero at this point as we speak.

We will also take focused growth actions. We have earlier announced Lappeenranta renewable diesel refinery and then the new specialty paper machine in China.

We will continue to take steps also in UPM Raflatac, the label stock business that we have and on top of this, we will expand and debottleneck our existing pulp mills to really actually address the profitability and efficiency of that business in bio refining. We target an additional EBITDA contribution through these actions 200 million when they all are in full operation.

To realize this 200 million extra EBITDA contribution, the remaining investment requirement is EUR620 million over the next coming three years. This means that approximately 200 million per year.

Our maintenance investment needs are of course lower and lower and we can maintain the modest total capital level during this period. And as an example, our total CapEx will be for this year approximately 400 million.

Page 17 shows you preliminary figures for the new businesses and for the new structure in H1 first half of the year of this year. It is really interesting portfolio with many opportunities.

The only business area there is an acute profitability challenge is the European paper which I think that we will take a lot of actions when it concerns measures in simplifying the organization, the operating model when it concerns other restructuring measures and obviously consolidation is going to be as it has been within UPM an important part of our – of the toolkit that we will use for chasing the European paper profitability. We have been active and we will be active on that front.

But as I said that in the other business, we will also implement improvement actions even in those businesses that are showing good numbers today. Like I said that there are no holy cows, so basically this will facilitate for the future.

Page 18, another way of looking at the profitability of various businesses. I have I don’t know how many times I have been asked what about your Asian profitability, how the paper companies are making profits in the Asia and this will only show you that it’s a very solid good performing business structure.

Obviously this having less to do with the advertising driven businesses; therefore, obviously these numbers are solid of course we have been running the business as well very efficiently in our Asia and specialty papers. But this also highlights the challenge of our European business, 2.4% of EBITDA margin is simply not acceptable.

Time table for the change, management structure and the new organization is shown here. The new business structure is in effect as of 1st of November, you will get the historical numbers in November as well and then first the financial reporting according to the new structure will start from Q4 this year.

Profit improvement program, full 200 million run rate as I already said will be by the end of next year. Growth initiatives during the coming three years targeted to have an additional 200 million contribution when in full operations.

So this is really what we do. We do have a good plans to now continue and take the new step.

It’s like that we have furnished the room after 2008, now we are walking to a new room where there will be more simplified forward-looking new areas, new businesses type of approach. This is a great opportunity for the company.

Ladies and gentlemen, I will end my actually prepared presentation by saying that profit improvement is really in the core of our hearts and definitely we will change the company to perform better in the future. With these words, dear operator, we are ready to take questions and hand over to you.

Thank you.

Hi, Lars Kjellberg, Credit Suisse. A couple of questions.

Just to clarify, today's statement about a 400 million, 90 million are the cost savings you had previously announced this incremental 110 million. The second question relates to the investment that's going to drive profitability.

I suppose 540 million out of 680 million had been announced previously, is that correctly understood?

Well on the first part, so in that 400 million figure which again 200 million profit, sort of performance improvement 200 million from this growth initiatives in that we have the remaining part of the 90 million earlier announcement. And in fact also in that we have what is expected to come from the fixed costs restructuring or savings in the label business that was announced during the summer here.

So the remaining part of the 90 million and savings from the announced label business restructuring is around 60 million or more than EUR60 million. And EUR36 million of the 90 million is already achieved.

So therefore, in essence what is additional from these other programs is 200 million minus 60 minus, 140 million.

And Lars, for your second question, the total investment required is 680 million including the earlier announced 540 million, so exactly that. Now today, 60 million of that 540 million has already been tied and consumed and therefore the remaining capital expenditure in coming years will be 620 million.

So basically that is exactly correct as you said.

Okay. If I then look upon your sort of 200 million incremental EBITDA, I'm just making a rough guesstimate on depreciation that would imply roughly a 25% return on capital on those investments.

Is that what you're saying or am I doing something wrong?

So if you calculate if you look at 200 million improvement vis-à-vis the additional…

Investment sum.

Investments. Well let’s say again the capital employed figure, return on capital employed figure of course it’s sort of kind of evolves over time when the investments mature, so to speak and operate fully.

So in the beginning it will be less than that.

But Lars, I understand your question very well but when we have been saying that we see the biofuels being a very good investment, that is not changed at all. And especially the pulp debottlenecking will yield good numbers.

Honestly, it’s those kind of things we can do without really big – putting big money on and getting additional good returns. Yes, it is – they are quite good investments.

Order of magnitude, it’s I would say around the figure that you sort of indicated or calculated there.

And today, the incremental of, you said it earlier 540 million was – has been decided, it’s 140 million, is that more debottlenecking of pulp mills plus some incremental growth in Raflatac, if that…

That is correct.

Great. I just wanted to also elaborate a bit.

You talk about change in portfolio and uncover value of your assets. Can you please elaborate a bit what are you thinking there?

Uncover value, is that relating to resource assets or anything else and change of portfolio? I suppose Paper is a difficult business, but can you actually find any buyers for that if you were to try to sell it?

Any thoughts you can share.

I guess that is a topic I knew that this will come and of course this is interesting part of the whole thing. Yes, we will try to find various changes in the portfolio.

I’m not in the position to elaborate all of them, but like I said that there are no holy cows in UPM. Obviously means that if any of the transaction will be really good for the shareholders, as we always believe, then we will implement that kind of changes in UPM.

But basically there is nothing more to elaborate at this point.

Two further questions if I may just to clarify a couple of things. Tapio, you mentioned that you expect to reverse working capital in H2.

Do you actually expect to reverse it for 215 million? And if you want to clarify a bit on CapEx over the next three years.

Should we expect a level around 400 million, is that the appropriate level?

On the working capital figure, I would expect that we will sort of release at least most or vast majority of it. So that certainly is the target.

I would say that let’s say with the announced investments that we have, we will let’s say update on the CapEx guidance as we go but compared to this 400 million guidance for this year, after next year certainly without further decisions and announcements, the CapEx level would then taper down again.

Already after next year?

Pardon?

Already after next year, so 2015, you should be lower again?

We should be starting tapering because bio diesel plant starts up next year, so after next year, we will be in essence done with that investment and then what we have ongoing. After that is a major investment obviously is the Changshu machine and if that is starting up during the first half of 2015, then without further announcements, we should be tapering down.

All right, thank you.

Kartik Swaminathan from Bank of America-Merrill Lynch. Thanks for taking my questions.

Firstly, I wanted to ask about the associated cash costs with the incremental cost cutting that you've announced this morning, so the EUR200 million cost cutting target. Secondly, on the improvements to pulp productivity, is this a cost situation or are you debottlenecking productivity and expect some kind of volume increase to drive this?

Some clarity there would be helpful. And thirdly if you can give us a bit of granularity on the timeline of the startup of the biofuels and wood free special papers.

I know you've given the startup date, but when do you think you're going to see the full annualized run rate of those hit? And finally, just to drill down into the portfolio management again, what's your criteria for evaluating whether you keep a business or not and what's the focus on growth versus return on capital?

There was actually plentiful of questions. First of all, maybe I take at least the biofuels and the growth initiatives first of all biofuels.

Investment in Lappeenranta will be up and running by the end of next first half. So in the middle of next year.

And obviously there will be a startup curve for that as well but by the end of the year we will be running that facility in high level. And obviously like the Changshu investment is obviously the first half of 2015.

But then I missed some of the question. I don’t know if Tapio, you got it?

So you had a question around debottlenecking, could you repeat that?

Yes, sorry. So the benefits coming from the improvement in productivity, is that coming from reduced costs or from extra volume that you're going to get out?

Well in essence it’s obviously both volume is part of it, an important part of it but also when you do a debottlenecking, you do get some additional cost benefit as well.

Is there any way you can quantify the volume increase?

No, not at this time.

Okay. And just on when you would fully ramp up the improvement from pulp and we can see that coming through, is that more of a 2014-2015 thing or…

In the Pulp business there would be let’s say again during the next three years, so it is a program of several actions that will be taken during the next three years, so we will start seeing the impacts next year but then especially after that.

Okay. And just the final question on how you evaluate potential disposals, do you look at return on capital or growth or if you could just let us know what the key metrics are that you look at?

First of all, we need to look at the value of the business and how much it generates kind of returns back to the company. But that is case by case, of course when it concerns paper business it is a bit different metrics than the other areas.

I’m not in the position to go in details in this as well.

Okay, thank you.

Yes, thank you. Karri Rinta, Handelsbanken.

Firstly on this 200 million profit improvement that you expect from streamlining measures, if I look at what happened in the second quarter, you had 36 million lower fixed costs versus second quarter last year. At the same time, your EBITDA went down 50 million if I exclude the energy hedges.

Does that mean that if you plan to improve your profits by 200 million, you have to take out much more in terms of fixed costs or how do you calculate this profit improvement target of EUR200 million? That's my first question.

I would say the 200 million profit improvement includes both fixed cost savings but let’s say variable costs impacts of programs that we have in our businesses as well. I mean obviously again, if you’re looking at sort of what’s happening in our business historically quarter to quarter or year on year, there are other moving parts in the marketplace that affect the bottom line as well.

So the 200 million as such is the cost impact of the actions that we are planning to take.

Okay, thanks. Then the other 200 million, i.e.

the EBITDA improvement from new investments, can you remind us how much your capacity in Asia, in Paper Asia, will increase on the back of the new paper machine and if there is any reason to assume that the margins in that business would be different from what you now give for the first half, for the margins in the first half?

It is 60,000 tons that will be the new capacity and we do not actually split this 200 million improvement from those to any of the specific investments at this point.

Okay, all right. So you don't want at this point to discuss how much is coming from bio refinery, how much is coming from Asia and how much is coming from the other?

Exactly.

Okay, thanks. Those were my questions.

Yes, thank you. Can you say some – you talked about consolidation of the European paper industry for quite some time now and you have been the only company actually taking some actions now over the past years as well.

Do you see – feel like there is a different sentiment around this now among the other players or are you still the one who is pushing the hardest and the other ones just waiting?

I don’t know if we are pushing the hardest. I think that everybody is starting to realize that it has to be in the toolbox and I would not be surprised that there would be activities that various companies will concentrate on one product segment or a couple of product segments.

So I wouldn’t be surprised. I think that when looking the European paper profitability as a whole, the whole industry, it would be stupid to say that the consolidation is out of the toolbox because I believe that that is one way to really get better performance out, simplifying the business and getting better returns.

So basically that is my view and has not changed and what I have been lately feeling and hearing I think that nobody is arguing against that.

And in terms of the EU competition authorities, has there been any change there in terms of their attitude there that you can feel? And also given your size in some segments it seems that you could have some problems in being very – participating in a major way.

What are your thoughts there?

I think that there is still plentiful of options in Europe and if there is a will, there is a way. And I wouldn’t – I have not felt when Myllykoski was signed, everybody was saying that no, no, it’s not going to be a good deal or it’s not going to go through the Brussels, we haven’t actually seen that yet.

It remains to be seen but I have been always having the opinion, if there is a will, there is a way to solve those issues. This industry needs to be restructured.

The word is restructuring and if consolidation will actually mean restructuring of this industry, it needs to be in the toolbox.

Sure, sure. And in terms of other producers’ willingness in terms of pushing for price increases instead of pushing for volume increases, do you feel any difference there?

I mean it's not just you who are posting poor figures in paper, everyone is doing that right now.

Price is of course a kind of thing that like I have been repeating and we will act based on that, whenever the price could be increased, we will be there, we will be increasing prices. There is a definite need if we are looking how the European business for all of the industry is yielding, our 2.5% of EBITDA margin is definitely representing the good performer of it.

It has to be a lot of still more challenging. Sometimes it is supported by energy or pulp or whatever when looking only figure and therefore this is the industry where we need to have a better margin.

And it comes through volumes and it comes through of course prices and costs. So margin improvement is very important and you have – you need to take care of your cost structure but also there is a need for price increase.

And do you feel that the other ones are also doing – taking that approach as well in a better way now than for example earlier this year?

I don’t know whether I feel or not. I guess that this is the need of the industry.

Sure. Another question, talking about the incremental savings now, that would be around about 140 million and I would suspect that will – I think you said also that there's a big majority of that coming from your European Paper operations.

Is that correct?

No, plentiful of actions are there, but like I stated, all business will be challenged, functions, businesses, there are – this is a great opportunity, this is the momentum for UPM to change and we will use that momentum that now when we have actually bring in new executives that are eager to really improve the profitability. So it is not going to be kid of isolated to Paper Europe.

I’m going to push improvements in Asia, in all of the businesses. Of course, like biorefining is yielding good profits, but we can be better.

We can really get kind of through debottlenecking, through efficiencies, through efficient sales and good sales force in that business as well, we can yield better.

Okay. And just a final question then, in terms of the cost cutting programs, I mean they are quite clear what the timetable of that one and the growth initiatives will be for the next three years.

And if I understand your earlier comments upon Lappeenranta and also Changshu, do you think that in three years’ time all these projects will be fully up and running or is that the timetable which one should look upon?

No, that is our guidance today.

Yes, okay. Great.

Thank you very much.

Thank you.

Yes, thank you very much and good afternoon. Coming back to the portfolio changes that you are aiming for, I wonder if you could talk a bit more about that.

Should we think that it may be – in terms of timing, is it more likely that we will in the near to midterm rather see you change portfolio changes in areas where restructuring and the turnaround is well underway, is that correct would you say?

Linus, unfortunately I need to disappoint you. I’m not going to go in this debate actually and like I said earlier, there are no holy cows in UPM.

Obviously it also means that on those areas where we have the most challenge, we need to address the consolidation or structural changes as well. But it is – there is not that kind of guidance that where first or where second or where then later on.

That kind of guidance there is not.

Sure. No I'm trying just to understand the drivers for your ambition to change your portfolio.

Do you find that your portfolio is too diversified?

And did I understand it right that CapEx for 2014 will be higher than for the current year? You guided for EUR400 million this year which was down from previous guidance of 500 million.

Does that mean that we are seeing a higher CapEx figure for next year?

That we have not guided.

Okay. And then just finally, another follow up on the EUR140 million of additional cost savings you announced today.

Could you in any way break that down, how much is Europe versus other parts of the world? How much is personnel versus other kinds of costs any help there?

There is unfortunately not at this stage and obviously like I said, that now the new management starts to push these actions and initiatives which are – many of them are in the pipeline already in the minds of the organizations but there is no split for that at this point.

Okay. Those were my questions, thank you.

Thank you.

Yes, hello. Good afternoon everybody.

Two questions. Most of my questions have actually been taken already, but on Paper pricing you talked there and said that you see some minor increases.

Are those minor increases in line with what we can read in trade magazines? That would be my first question.

And then second, when you're talking about debottlenecking of your pulp business, is this sort of anyhow related to some statements you made roughly a year ago about a potential second pulp line in Uruguay or is that something totally different? Thank you.

I will take the latter part and maybe Tapio then comes to prices and I can also reveal the prices as well. But first of all, if we’re saying that the money we will spend for all of these actions will be 620 million all in all, 680 million; that is definitely not related to second line in possible in Uruguay.

But obviously that is a great opportunity for UPM for the next step. This is more related to our current pulp mills and it is not even debottlenecking might be too mild a word; it will be really capacity increases of those and with definitely minor CapEx spend comparing that of going for new line.

Prices, I think that Tapio if you want to reveal that, please.

Well, I don’t think there is much to reveal there. Of course our price changes are in line with what is happening in the rest of the markets.

So in that sense, we are in line with that.

Okay, perfect. Many thanks.

Yeah thank you. Could you give us an update of the Chinese paper market and the supply demand balance there?

You hear comments and read articles about the possible overcapacity in that market. What's your – how do you see the market right now and what do you expect that to develop in the future?

Chinese paper markets have been growing years ago big numbers, close to 10% increase a year now, lower number of that but of course when the market sizes become more significant of course the growth rate will be lower. Those especially those grades that we produce, we have the opportunity to run on a high level ever since almost 2009 first quarter we have been running our Changshu mill with very high operating rate and same will apply for this year as well.

The reason is that we do have extremely good sales network in the Asian market, and therefore, for us at least that business has giving a good return but it is basically the reason is that we have an efficient sales network in the region. So therefore, it is not only question of capacity, supply demand position in the Asian market.

Of course there are new capacity that has been built, but I don’t know how many years now has gone without any new investment on the field. And now our investment will be almost like labeling material value chain when we are making a release paper machine in Changshu so it doesn’t have any kind of influence on the big businesses like coated fine or uncoated fine.

So you expect to produce mainly release liner…

Yes.

Straight from the startup. All right, okay.

Then the second question relates to energy hedges. Could you elaborate a bit what you mean by unrealized energy hedges in the Paper business in Q2?

Well yes, I mean simply it is a question of first of all the fact that we do for our paper businesses purchases of electricity, we do hedge our sort of forecasted volumes against our forecasted volumes of future consumption of electricity according to a kind of a curve over the years in terms of how far hedged we want to be. And now actually part of those hedges that we have in place do not qualify even though they are in essence there against volumes that we will consume in the future.

Still, they do not qualify for hedge accounting which means that they have to be valued at market value and a change in that market value then goes through our P&L even though actually those – electricity has not been consumed and hedge has not been realized yet. So kind of a cash impact takes place later on in the future year when the electricity is actually consumed and these derivatives actually mature.

But in the meantime if and when they don’t fall within hedge accounting then you have to account for the change in market value.

So does that mean that you have changed your forecasted volumes going forward?

It’s not related to that.

Okay, okay. And that's the same effect I guess in the Energy business side as well?

There is to some extent, there can be the same effect there as well. But again, it’s a question of which of the hedges that are in place qualify for hedge accounting and therefore don’t have a P&L impact until the volume is sold and these derivatives again are realized.

Okay, thanks. Those were my questions.

If you have any further questions on that, it’s a bit complex, you can give us a call or give Mika Mikkola a call.

Excellent. Thank you.

Yes hi, it’s Henri Parkkinen here from Pohjola Bank. Good afternoon.

I have one question regarding your cost-saving initiatives and coming back to this Myllykoski acquisition. Just to remind, are you in a fully run rate regarding those Myllykoski synergies at the moment?

If I remember right, you target some EUR200 million on an annual basis.

Yes, those targets we did achieve, so we are in essence, we achieved the full run rate.

Okay, that's fair enough. Thank you.

Hi, thanks for taking my question. Can you spend a bit of time just clarifying your view of the various paper grades market utilization over the next six months to 12 months and whether you think any further capacity closures would be needed in any of the grades?

That is something that I think that when looking the paper markets are such where the demand goes this year has gone down 5%, 6%. Obviously when that continues there will be a need for further capacity closures in this industry.

Could you give some color as to how certain grades might be different than others the way that you're seeing it?

I think that when looking different businesses, same need applies in every paper grade. The devastating part of it has been always that it’s always too late when the industry has been taking action.

So basically we are always lacking behind, so therefore I guess that the same need for every paper grade is still valid.

And it seems – because it seems like one of the things that you mentioned was that the price increases that you were able to achieve were some amounts in newsprint, some in SC paper and none in magazines. It seemed to indicate that the magazine paper balance seems to be the one that's most oversupplied at this stage.

Would you agree with that and do you think that – when do you think price increases could be achieved in that segment, sub segment?

That is something that we have – that’s UPM way of dealing that we tell what has been implemented. We are not taking actions or talking about when and what.

But obviously I will only repeat the earlier statement that when in any paper grade there will be opportunity to increase prices, we will. And definitely there has been a lot of discussions especially in the magazine grades now to increase prices in Europe as well.

Okay, thank you.

Ladies and gentlemen, we need to close the meeting. Thank you for your participation.

It was a great pleasure to have you here and hope that you will follow UPM in the future as well. Thank you.

Bye.