UPM-Kymmene Oyj

Jussi Pesonen - President & CEO Tapio Korpeinen - CFO

Linus Larsson - SEB Equities Antti Koskivuori - Danske Markets Harri Taittonen - Nordea Markets Lars Kjellberg - Credit Suisse Mikael Doepel - Handelsbanken Capital Markets Rebecca Clements - BlueMountain Capital Management

Ladies and gentlemen, welcome to UPM's Q3, 2015 result webcast. My name is Jussi Pesonen; I am the CEO of UPM.

And I'm here with Tapio Korpeinen. Momentum for improvement continued in Q3 2015.

We had a very solid quarter. Not the best in operationally, we had two pulp mills shutdowns, Kymi and Pietarsaari; we had a strike in Finland, but operating profit was improved from that of last year.

We continued on a positive track in Q3. First, our earnings improvement from Q3 last year, even though we had a tough comparison period, our €150 million profit-improvement program proceeded ahead of schedule; was clearly contributing to our variable and fixed costs.

Currencies continued to be favorable for us, but the net impact after hedges was only €60 million for the quarter. Currency hedges continue to be a burden for UPM paper ENA and paper Asia areas, especially.

Second, our operating cash flow was strong, improving from last year, both in Q3 and in nine months of this whole year. As a result, our net debt continued to go down.

Third, our growth project proceeded well. I'm happy to tell you that both of our bigger investment projects, Kymi pulp mill expansion, as well as Changshu specialty paper machine, are a few weeks ahead of schedule and well under budget.

The Kymi expansion actually started ramping up already in September. Also, Raflatac filmic labelstock expansion was well timed, giving a strong demand growth we have seen in Europe, as before this year.

On page 3, you can see a summary of our financial KPIs for Q3. Four of our businesses, biorefining, Raflatac, paper Asia and plywood, are operating on growth markets and continued to show top-line growth compared with the last year.

These are also the four businesses where we're investing on growth. And the projects are ongoing.

All in all, on a Group level, our sales grew by 5% in Q3 compared with last year. Sales decreased in paper ENA by 2%, whereas sales from other businesses grew by 9%.

The main comparison area, the operating profit, pre-tax profit, EPS, ROE figures, shown here do not include the €265 million increase in the fair value of our forest land in Finland. On such comparable basis, we improved all these earnings KPIs from the last year.

Including the €265 million forest fair value gain, the figures are, of course, much better still. Tapio will discuss for the forest valuation in more details, later in this presentation.

One of the main reasons for the earnings improvement is shown here in page 4, is our profit improvement program. We achieved 96% of the targeted annualized savings of €150 million already during this quarter.

Our efforts to cut variable costs have proceeded well. Furthermore, Q3 figures now include all of the fixed cost reduction from the paper machine closures we implemented during first and second quarters this year.

The fixed cost savings from the paper machine closures have been somewhat bigger than originally targeted. Ladies and gentlemen, now I will hand over to Tapio for some more analysis of our result.

Tapio, please.

Thank you, Jussi. Page 5, you can see our EBITDA development by earnings driver.

The impact from prices, volumes and cost items is shown here in constant currencies; and then, the net impact of currencies, including the hedging, is shown on a separate factor. Compared with last year, we continued to have headwinds from sales prices, especially from publication paper prices in Europe.

All in all, changes in sales prices decreased our EBITDA by about €61 million. We were able to offset this headwind almost completely by reducing our variable costs by about €52 million.

Clear majority of the variable cost reduction is attributable to the actions we have taken under our own profit improvement program. At the Group level, energy has been a slightly positive factor for UPM earnings.

Obviously, the earnings of the energy business area have suffered from lower electricity sales prices which is a part in this sales price variance. But on the other hand, paper ENA has benefitted from lower energy costs; on top of which, we have taken energy-related actions in our own profit improvement program.

And this is part of the positive variable cost variance. Delivery volumes had a small positive impact on our EBITDA in the third quarter.

Fixed costs increased by €9 million. Profit improvement actions, again, especially the paper capacity closures, reduced our fixed costs.

But, on the other hand, in the third quarter we had more pulp mill maintenance than last year. At the same time, also, the expansions in biofuels and Raflatac have added to the fixed costs.

Changes in currencies had a €60 million positive net impact on UPM's earnings, after the hedging result. In the third quarter of 2015, the realized currency hedges decreased UPM's EBITDA by €29 million.

On the business area level, the positive currency impact mainly supported biorefining, whereas the €29 million negative impact of currency hedges affected paper ENA and paper Asia businesses. Most of our businesses improved their performance in the third quarter.

Pulp markets continued to develop favorably which is positive for earnings in biorefining but, at the same time, means higher costs for the two paper businesses. Biorefining also reached good cost efficiency in the third quarter, despite having maintenance stops at the Pietarsaari and Kymi pulp mills; and despite of the political strike in Finland.

All in all, biorefining was able to slightly improve its performance compared to the second quarter. Energy benefited from a combination of good hydropower volumes and volatile electricity market prices in Finland during the third quarter.

We were able to optimize our hydropower in the volatile markets and, hence, reached the best quarterly result this year. Also, Raflatac reached the best quarterly result this year in the third quarter.

Seasonally, it is a good quarter. And this time it was - Raflatac was also able to respond to the market growth with the growth investments that proved to be well timed, especially in Europe.

For plywood, on the other hand, third quarter is seasonally a weaker quarter. Results were, therefore, slightly down from the second quarter, but still higher than in the third quarter last year.

Paper ENA improved from the second quarter, thanks to lower variable and fixed costs and seasonally slightly higher volumes. UPM paper Asia also improved slightly from the second quarter.

Both paper businesses continue to be negatively affected by currency hedges. In paper ENA, the negative impact from hedges was at the same level as it was in the previous second quarter, whereas in paper Asia that negative impact decreased by €2 million.

This page, 7, shows our business area performance as compared with our long-term return targets. On the latest 12-month basis, plywood, biorefining and energy are achieving their targets, plywood even handsomely so.

Raflatac shows a good performance track and is consistently working its way closer to the 18% ROCE target. Over the first nine months of 2015, currency hedges have reduced UPM's operating profit by some €90 million.

And this is almost completely impacting paper ENA and paper Asia business areas. On the last 12-months basis shown here, the currency hedges have reduced return on capital employed by 2.5 percentage points, on average, in the two paper businesses.

Despite the impact from currency hedges, higher pulp cost and lower publication papers in Europe, paper Asia has shown a 7.4% ROCE; and paper ENA a free cash flow return after CapEx and restructuring payments of 8.2% over the past 12 months. As Jussi will later discuss, we have growth projects ramping up or getting close to start-up in biorefining, paper Asia, Raflatac and plywood.

The figures shown here include still very little benefit yet from the growth investments. Our operating cash flow improved by €63 million from last year and reached €363 million in the third quarter.

Over the latest 12 months, our operating cash flow was €1.257 billion which is about the same strong level as in the full-year 2014 or in 2009. As a result, our balance sheet continued to strengthen.

Net debt decreased to €2.465 billion at the end of the third quarter and our net debt-to-EBITDA was 1.87 times. Gearing was 31%.

In the third quarter, we increased the fair value of our forest in Finland by €265 million. In our reporting, this was part of operating profit, excluding special items.

We adjusted two parameters in valuing the forest. We slightly raised our estimate for the long-term wood price trend in Finland.

We do continue to estimate the declining trend in the real wood prices, but now at a slightly slower rate than previously. We also reduced the pre-tax discount rate used for the Finnish forest by 0.5 percentage points to 7%.

At the end of the third quarter, the total value of biological assets in our balance sheet was €1.726 billion which includes our forests in Finland and the U.S., as well as the plantations in Uruguay. We reiterate our outlook for the full-year 2015, as summarized on this page, 11.

When now focusing on the full-year result, we have a track of stable profit improvement which we have been able to demonstrate, in line with our original guidance. Therefore, we do expect a stable run to the end of the year.

In the fourth quarter, we're taking a 20-day shutdown in our Fray Bentos pulp mill in Uruguay which combines the scheduled annual maintenance shutdown, as well as some minor investments, that enable us to continue ramping up production at the mill. Fray Bentos is our largest pulp mill.

And the maintenance shutdown this time is twice as long as it usually has been, so the impact on the fourth quarter will be somewhat bigger than what we have had last year in the fourth quarter. And now, I will hand it back over to Jussi.

Thank you, Tapio. We will now move on to talk about growth projects.

Two of our big growth projects are now getting near completion. And we're turning our focus from the investment projects to a reaping the benefits in 2016 and beyond, both in terms of returns of investment and in terms of top-line growth.

First, all our pulp debottlenecking projects provides a solid basis for volume growth for the next year. Like I mentioned earlier, our Kymi pulp mill expansion started ramping up in September, a few weeks earlier than planned.

Experiences, so far, are very positive. Production ramp up has started very well.

The pulp quality has further improved. And the expansion will also improve energy efficiency of the whole combinate, the whole integrate.

In Fray Bentos, we will make some minor investments during the fourth quarter, as Tapio explained earlier. We're then enable to continue ramping up the production of the mill towards the permit that we have.

The pulp debottlenecking will be concluded when our Kaukas investment will start-up in fourth quarter next year. And that is really then a kind of complete project, starting from Pietarsaari and then finally ending to our Kaukas investment during the next year.

Label materials machine in Changshu, our specialty paper machine project, is progressing well and getting close to its start-up time. It will provide basis for volume growth for the next year in paper Asia in most attractive product segment, i.e., the specialty papers; swing machine high quality glassine and high quality cut size; market leader globally in label materials and cut size in China.

So that is absolutely very good for us, that we're really having an opportunity there. We do have a benefit, that we have a good sales network and, of course, existing customers to ramp up that mill.

Ramp up at the Lappeenranta refinery, i.e., the biofuels plant, has been slower than what we typically expect for the pulp mill or a paper mill project. However, for an oil refinery, the ramp up has been by no means unusual.

So it has been pretty solid on that respect, as well. During the first six months of its operations, we actually found out some technical issues that prevented us from getting to a full production at the refinery.

These issues, by the way, were solved in the maintenance shutdown during the Q3 that we had, actually, in Lappeenranta refinery. Now we're and we will continue, ramping up the production.

And there is a lot of optimization things ongoing on the process. Our customers are happy with the renewable diesel.

Quality is excellent, comparable to premium quality of fossil diesel. CO2 and tailpipe emissions are significantly lower than that of fossil diesel.

Product pricing in the market has been now increasing, contrary to the fossil diesel. And our technology works pretty well.

So, basically, we're having a positive view on how to move on. Page 13 summarizes our CapEx.

This year, our CapEx will be - peak at around €500 million, slightly below our depreciation level. Next year, our CapEx will, again, come down, closer to the previous year's levels.

We will give you more detailed estimates for the 2016 CapEx when we're actually announcing our full-year result, early next year. Ladies and gentlemen, now I would like to summarize the presentations of Tapio and myself.

In Q3, we continued to improve our earnings, cash flow and balance sheet. Our profit improvement program proceeded ahead of schedule.

At the same time, our growth projects proceeded well and are now ready to deliver results out of those projects. I believe UPM is well positioned for the next year.

Our cost efficiency has improved and will improve further. Our big growth projects are about to start contributing in 2016 and beyond; Kymi expansion; other debottlenecking projects in pulp, i.e.; and then Changshu specialty paper machine is coming onstream; Lappeenranta bio refinery is ramping up now to the maximum capacity; and not to forget our smaller projects in Raflatac and plywood.

This year, currency benefits have been, to a large extent, offset by the currency hedges. Hedges rolling over will be positive for - especially for paper ENA and paper Asia.

And I would say, to somehow summarize all in all, that so-called UPM water mill, shown in page 16 in presentation, is working well. Our cash flow and the balance sheet are strong which enables UPM to simultaneously distribute attractive dividend; implement growth projects; and act on strategic opportunities.

Ladies and gentlemen, this was the prepared part of the presentation. Now, we're ready for your questions.

Dear operator, I hand over to you for Q&A session. Thank you.

First, a question on cash flow, if I may. Looking at the year-to-date figure, working capital had a negative effect of €68 million which was, in fact, very much in line with last year.

However, for the full-year 2014 you had a positive working capital impact of €73 million. Could you talk just a little bit about what to expect in that regard as we look at the rest of 2015, please?

Well, I would say, let's say, in the beginning of the year, in the first quarter, when there were a number of questions around cash flow and working capital, that typically within the course of a year we have a swing of couple of hundred million in our working capital, where we typically increase during the first half and then decrease during the second half. And, as I indicated then, then that is now happening also this year.

I would expect that we will reduce working capital during the remaining months of the year. Obviously, we do have a couple of ramp ups happening now, Kymi which is already in production and then later on the Changshu third paper machine which will have some impact.

But, nevertheless, I expect that we will have working capital coming down towards the end of the year.

Okay. But maybe the full year will not be quite as favorable then as it was in 2014, given the structural changes that you mentioned.

It's possible, but we will see.

Could you also talk a bit more about the Changshu start-up? When exactly do you expect to start commercial production?

And could you also say what kind of product mix you're expecting?

I guess that in the next few months or few weeks we will start to see the production ramp up. We're really, actually, well in timeline.

We have said, as in previous discussions, that by the end of the year we're coming to the window now when the operation starts to be ramping up. And, obviously, it will produce both cut size and glassine from the beginning of the start-up.

So we're not actually disclosing that, what will be the amount of glassine, what will be the amount of cut size, but both will be produced from the beginning of the start-up.

Okay. And may I also ask about paper ENA and how you would describe the prospects for price increases?

And, maybe, if you could focus on what you are seeing in your own operations in terms of operating rates across the various sub-grades.

And then, first of all, actually, if we're tackling - we're having one slide that can be shown here for the price, but the operating rates, for us, it is pretty solid basis at this moment. We, if you remember, during the first and second quarter, were closing 800,000 tonnes of capacity.

Basically, we have been able to keep maturity on the business inside of UPM in-house which is typical for that kind of event, that you keep the best accounts and the customers. Therefore, for us, this is pretty quiet okay at this point of time.

Pricing remains to be seen. But when - if you are looking this picture where the overcapacity in Europe in graphic papers is visible in margin and this picture is all about the cash cost of marginal producer which is the orange line; and then the price development.

And you see two times in the last five years when the price level has been below of the cash cost of the marginal producer. When looking back to 2010 and 2011 increase of the price, that was not market-driven, that was cost push.

And I wouldn't be surprised that we would actually experience similar type of event now. Let's see.

But this is a pretty, actually, illustrative picture. In my 30 years career, this is the second time that prices are on the same level as they were 2010, really rock-bottom.

And I wouldn't be surprised if there will be some price increases in various products. But time will tell.

Like I said, in 2010/2011 we didn't have a market-driven price increase, it was more coming from the cost push. But, on the other hand, you know operating rates are pretty high on the whole industry.

First question on Paper Asia, my impression is that your market outlook is somewhat more cautious than before. Could you describe a bit about the fine paper market in Asia currently, especially the impact of the preliminary U.S.

anti-dumping duties? What do you see in the market today?

Yes, there will be an impact on and that is already visible, that there will be a slight impact on that countervailing duty against five different countries; not only Asian countries, but South American and one European country as well. So that is visible now.

But, on the other hand, now we have a very good kind of solid platform in Asia. We have the best possible sales network.

Obviously, there will be a lot of turbulence in the markets, but I expect that we're having pretty solid position on that event that is now ongoing. Other than that, China is still growing.

There has been a lot of speculation where China goes. But the China GDP growth is expected to be 6%, 7%, anyway, so there is a growth.

But, of course, this countervailing duty is having an impact on the Asia market, as well. We're pretty confident that we're having a very good, solid position on that.

What should we expect for the fine paper demand growth in China?

That is something that nobody exactly knows. There's no statistics.

We do have our own house - in-house view which we have not disclosed. But that's very difficult to find, really, a good statistics, what is the growth expected and it varies from coded papers to un-coded and then cut size.

Our positive angle is that we have the kind of swing machine, where we can really grow both areas. Glassine is growing, globally, more than 4% a year, so, therefore, we're having a very positive view on for the new line that we're putting in, in next few weeks.

And then, the second question about foreign exchange gains and the hedging position that you have, could you quantify, firstly, how much the positive impact has been on the first three quarters this year? And maybe, give a little sight - if we assume that the FX spot rates would remain at these levels for 2016, how much you would expect your 2016 EBIT to be further supported by FX?

On that latter part, as I pointed out, the hedging result or impact on the first nine months is about €90 million. So, again, let's say, that is the part of the currency impact that has not flown through to the bottom line; which, in a sense, if everything else stays the same and as the hedges roll out pretty much, by the end of this year then that will flow through at the current exchange rate into next year's result.

And could you remind me what has been the impact in first three quarters this year?

I don't have the figure here, actually, on the gross impact now available. But maybe, if you get back to us, we can check it out.

Maybe if you could continue with the volume side and paper in - unchanged deliveries. If you compare this quarter to last year, even if you close down the asset, 800,000 tonnes of capacity and 4% up from the second quarter, how have you achieved this?

And have you increased the exports to outside Europe? Or have you got additional market share in which basically we know that the demand and consumption has been declined during this period?

Harri, actually, you just cannot follow the monthly or even the quarterly. If you take nine months, our - the demand has gone down in Europe, roughly, 4%; whereas our deliveries have gone down 3%.

So, basically, one quarter doesn't really change the picture. We have been going down similar amount as the market during the year's course.

Of course, we have a kind of platform to really utilize also export markets, but that is not changing significantly and has not changed significantly. But obviously, there are some pockets where we can utilize our efficient logistic network to deliver also outside of Europe.

We're maybe the only company where we have still a pretty efficient prime route options to go outside of Europe, as well. But looking the deliveries in the nine months tells the story.

We have been going down as much as the market.

Okay, fair enough. I appreciate that it's a short period.

But then, if we still speak to the third quarter, nevertheless, on the cost side the - I think we and the market, was expecting probably a little bit bigger decline in the costs per tonne delivered than what materialized during this quarter. But I guess you can answer the same way, that, that is a short period and one cannot draw conclusions from there.

But is - was there something driving or adding to the cost? Because, at the same time, you did get the benefits from the cost reduction program and [indiscernible].

Yes, there were. But, on the other hand, when you actually have a strike like we had in Finland which was actually running down all our paper mills, although you think that it is cost-neutral, it isn't as well.

So there are - it was not that solid quarter. But nevertheless, once again, it is a short period to just make a comparison.

Yes, yes. On the energy volumes, also the deliveries were very high.

How do you see the potential for the volume development there? And on the energy price hedging, similarly to what you were - on - saying on the FX hedging side.

But in the energy power price, is there a - some cut-off point or time when a big part of hedges roll out and you are exposed to the lower spot prices in the coming, say, two or three quarters' time?

On the volumes, obviously, you have to note that this year, for us and all hydropower producers here in Finland, this year has been quite exceptional. The hydro volumes have been high, amongst the highest in recent years.

And so that obviously has been helping us, particularly as otherwise market prices have been low. How that continues at the moment, the hydro situation is still quite strong.

And obviously, the remainder, we will see as we see how the weather and hydro situation then develops during the coming months and into next year. Again, as was pointed out here earlier, two reason why our average sales price was quite good and clearly above the market price, the hedging; but also, the fact that there have been now, during the third quarter, quite high variations in spot price and also the regulating power price which we have been able to capture.

So that explains part of the price difference to the market. But the reality is that we will, once we get into next year, start again, like we did in the beginning of this year, feeling the impact of the forward curves that have been sliding downwards already during the previous years.

So that will be a factor then starting in the beginning of next year.

Harri, you need to remember that the same applies with then our paper ENA, where the hedges are rolling over as well. So, I guess, that we're actually seeing a benefit on that side then.

And as was pointed out here also earlier, that, for the Group, energy prices actually have been a positive, the net impact has been a positive.

Just a couple of questions, just to follow up on FX, if I may, I'm not quite sure that I fully understand. Basically, what you're saying, you've been un-hedged in bio materials and that's why you don't have any negative hedge impacts there.

And how should we view then the fourth quarter? I guess, some of the hedges should start to roll over now.

Or have you been 12-month hedged in the paper division and zero in bio materials, just to understand how to think about this?

Well, in the pulp business we have a different currency position than in the other businesses, because we have part of our production here in Finland and part of it in the U.S.. That's why the exchange rate impacts are somewhat different.

But otherwise, as we have earlier stated, we're - in principle, we forecast our currency position 12 months' out. Slight differences between businesses in terms of in the faster-moving businesses, like Raflatac or some timber business, we take a shorter forecast.

But, in principle, for the most part, 12 months out and we hedge half of it.

I just wanted to come back to China, as well, Jussi. You just showed the price charts in Europe, of course; and then there's a chart in China, where you see quite a decisive downturn in pricing.

Is that an impact of the talks about slowing demand? Or what is actually driving that price change?

It is, actually, a kind of combination of this countervailing duty and the demand. Demand has not dropped that significantly that we could actually say that, that is a kind of combination.

Most probably, it's a combination of both.

But you haven't seen any decisive slowdown yourself in your business?

Not yet. I guess that we're actually in that position where we sell a lot of paper and pulp into Chinese market.

And those are a bit different to investment goods, as where the slowdown is may be somewhat higher; it's kind of hygiene-type of things or paper related. We haven't seen that at all on that kind of magnitude, as in many other businesses.

Can you remind us when the remaining pulp debottlenecking - how much more are going to get out of Fray Bentos and the Kaukas mill when you're done with those projects?

Kaukas, we have not disclosed. Fray Bentos is our parameter, so 1.3 million tonnes.

And we have been producing somewhere 1.2 million-plus tonnes now, so basically there's additional tens of thousands of tonnes in Fray Bentos. Kaukas will be, we have not disclosed, in the magnitude of similar, couple of tens of thousands of tonnes.

And finally, can you quantify at all the Fray Bentos extended maintenance stop? What sort of quantum are you talking about in terms of costs versus last year?

Well, it will be, obviously, a bit higher than last year because this is almost twice the length that we have for a regular maintenance shut. Typically, for a large mill, in round figures, it's around €10 million and this will be somewhat bigger than that.

And I would guess the margins this year is appreciably higher than a year ago?

Yes, the margins are better this year, that's correct.

Just a quick question on paper. Again, as previously pointed out, I guess, I was a bit surprised what happened on the cost side there in terms of delivered tonnes.

Also, you took away the guidance of paper in improving profitability in the second half compared to the first half. Is that the right way to interpret that, that you're taking away the guidance that the profitability will not actually improve?

Maybe I start and Tapio continues. First of all, guidance was, more or less, focused on the full-year guidance when we're so close to year end.

And paper ENA, we saw the turnaround in the second quarter. And, obviously, yes, partly, when the pulp prices have been somewhat higher it has been somewhat less in the paper side.

But, on the other hand, we have had actually quite good progress in the pulp profitability. And, obviously, the hedges will then rollover by the end of the year.

But our focus was, more or less, on full year.

Yes, as Jussi said, what we wanted to highlight after the second quarter is the fact that we expect a turn in the trajectory as reported for paper ENA which did take place. And the operative performance has turned around even if, obviously, again, because of the hedges, it doesn't show through in the bottom line completely.

And third quarter hedges will roll over. And now, when we're guiding for the full-year result then, as said, we'll have a pretty steady run in terms of improvement vis a vis last year.

Okay. And then, just finally, what was the impact from the one-day strike in Finland on your numbers?

Well, you can say, roughly, somewhere between €5 million and €10 million. Again, we have three big pulp mills here in Finland, so, of course, for the pulp business, shutting down and ramping up pulp mills is where, in a sense, the impact on the bottom line is the biggest.

I have a question regarding the pulp market, looking a little bit out in time. Now we see a couple of new projects gradually coming online in the pulp market for short fibers.

We also see that in the Nordic regions there are several projects ongoing. How should we think about the pulp market?

Should we think in terms of too much pulp or is this new capacity going to be swallowed by demand growth? What is your expectation, please?

This we now need to divide to two discussion areas, short fiber and then the long-fiber discussion, maturity of the new projects in Scandinavia are mainly on long-fiber area, whereas there are some projects in Latin America on short fiber. Short fiber has had a very solid growth year in-year out, actually, over the last five years, 1 million-plus, 1 million minus tonnes per year demand growth; whereas, in long fiber we have not seen very much, nothing.

It has been pretty stable. It has not been declining, but it has been zero to positive number of demand growth.

|Therefore, it depends what you ask. If you are talking about long fiber, there might be some challenges when all of these projects are up and running; whereas, in the hardwood side, it is a bit different story.

Okay. So you're, basically, less concerned on the hardwood side; that's the message?

I don't know if I need to be that much we're concerned over long fiber as well. But, like I said, you need to divide this discussion to a two parts, where the demand drivers are a bit different.

But it has to be - now, over the last five years I don't know how many millions of tonnes we have actually had this extra new supply actually from the markets, but still we haven't seen a big pulp price cycle, because of the demand growth in hardwood.

I just have a question around ratings. I get that you do not explicitly target investment-grade ratings.

But you'll be aware your credit metrics are basically in line with requirements for an upgrade at Moody's and very close at S&P and yet you don't even have a positive outlook now. I take that as being a lack of commitment to wanting even an IG rating.

So, could you perhaps clarify? Because it seems to me that you just want to retain the flexibility, perhaps with a view to grow opportunities in the future; or that ultimately, if none arise, you may look at increased shareholder returns.

So, if you could clarify around that; and also, maybe give your thoughts on external growth opportunities, what do you see in the pipeline, as well, that would be great. Thanks.

Well, maybe concerning rating, as we have said earlier, we don't see that it makes sense for us to take one target figure or even one credit rating, as the kind of goal for us. But I would say that we have demonstrated, actually, very prudent and good management of our finances and our balance sheet and then, basically, it's up to the credit rating agencies to make their conclusions out of that.

So I think the track record, in a sense, speaks much more than any words about commitment this way or that way. I think, in that sense, you might ask the credit rating agencies rather how they look at us.

But as I said, as far as I'm concerned I think we have a pretty good and solid track record to show. And obviously, again, if you look at how we have been managing capital, here we have been scaling any organic growth investments such that we have comfortably been able to fund those from cash flow.

And again, this year, we're, because of these growth investments, spending a bit more on CapEx. But still, we're able to actually fund that from cash flow and reduce the amount of debt in our balance sheet.

I would only repeat the slide 16, where we have the what is the UPM model. It is run the six businesses on top performance, generating good cash flow.

Then, we have focused investments; attractive dividend to be paid, actually; and then, we're targeting to have an industry-leading balance sheet.

Okay. So you would welcome, well, that's the message, an upgrade.

And on external growth opportunities in the pipeline, would you have much to say around that?

No, we don't, actually. That model is still working in our focused investments and nothing to talk about at this stage.

Just as a follow up to the previous question, I think in discussions, I guess, earlier this year, at different times, on the ratings front my impression was that while you thought you probably had the metrics to get to investment grade that it wasn't a priority for you in terms of, as a company, to be investment grade. And that your concern was that it would potentially limit your flexibility if you did commit to an investment grade rating to take advantage of opportunities that may come up in the market.

Is that still the right read of that stance for you or has that changed?

Well, our stance has been earlier and still is, that we take care of our balance sheet and the credit rating agencies make their own conclusions, based on that. Again, I would say that any sort of steps, whether it's in the organic or M&A area, obviously, we will manage such that either, especially in the organic area, we're currently funding the investments from cash flow.

If we look at the acquisition then, obviously, we want to see sort of a metrics from that acquisition that will not reduce our financing capacity. So, in that sense, I would say that we continue to be prudent with our balance sheet going forward, whatever opportunities we look at.

Sure. No, I don't think the impression was that you would necessarily be looking to become a B creditor, something like that.

But it was more just that the requirements for becoming investment grade from the agencies usually require years of continued stability and that if, in fact, you committed to that it would potentially be limiting if you wanted to take advantage of opportunities that might come up, given that funding costs for a BB aren't actually - they're not particularly onerous at this time.

I think, again, all we can do is kind of point to the track record that we already have which I think is pretty consistent in terms of improving the metrics.

Okay. And then, on to kind of more specific.

On Raflatac, the margins, you definitely had a bump up in margins. Is that something specific going on that's in this quarter or is this part of the ramp up you're doing?

I know you mentioned mix being a factor in your report, as well, but could you just elaborate a little bit more on how sustainable that margin is?

Well, we have been obviously, improving the operative performance as well. In that sense, that sort of work, both in terms of ramping up the investment, but also the operative efficiency of our operations, is in the background as well.

So that should be relatively sustainable, assuming that you don't see big changes in pricing or mix?

I would expect so.

Okay. And then, not to beat a dead horse on the publication paper side or the paper side, but what's going to fix the pricing situation?

Is it going to take a bigger push by the industry on the price front, given that you said it was a cost-led increase out of the 2010 lows? Or will more capacity be required to be taken out?

What needs to happen here to improve pricing and help margins?

I guess, that the both are needed, supply, balance. And supply/demand balance needs to be healthy which currently, by the way is more healthier than earlier.

We took actually 800,000 tonnes and there have been some other closures, as well. And the cost is another factor for the required price increase.

Remains to be seen how this all then goes early next year.

Okay. And given the currency, the hedging that you alluded to, that rolls off as of the first quarter of 2016, is that correct, so that we would no longer see that drag?

That is correct.

Okay. So, one more quarter of that, would it be reasonable to expect that you would get back to last year's margin in paper?

That, we're, unfortunately not guiding.

Ladies and gentlemen, thank you for your interest. Have a very nice day.

Thank you. Bye now.