UPM-Kymmene Oyj

Ladies and gentlemen, dear audience, my name is Jussi Pesonen, I am the CEO of UPM. And I’m here with our CFO, Tapio Korpeinen.

Hello everybody.

Q3 was a milestone quarter in our strategic transformation. The biggest news in the quarter was obviously the decision to proceed with the highly competitive pump mill investment in Uruguay.

The mill will be one of the lowest cost pump operations in the world and as such is attractive investment to us. The project represents a step change in the scale of our pump business.

More importantly, it represents the step change in UPM's future earnings. UPM is in a unique position as we are proceeding with the execution and preparation of the major future growth prospects.

Over the past years, we have been developing attractive and significant growth opportunities than few other companies in this industry. At the same time, we have been building a strong financial standing.

And of course you know, which is very important to me is the organizational capabilities to execute all of that. At the same time, we continue taking actions to ensure our competitiveness in ongoing businesses.

On this front, during the quarter, we announced plans to reduce capacity in Communication Papers and further improve efficiency in our functions by setting up a new business service hub in Poland. Today, we have also announced fast paying energy investment in Germany that will decrease both the CO2 emissions and costs.

Ladies and gentlemen UPM's quarter three actually proceeded well. A good business performance continued our EBIT margin was 13.7 and EBITDA margin 18.2 and we succeeded to maintaining our comparable EBIT at the same level as in the previous quarter.

Compared with the Q3 last year, our sales decreased 6% mainly due to lower pump prices and lower deliveries of the Communication Papers. And our comparable EBIT decreased from that of last year 19%.

Operating cash flow was strong in Q3 at EUR 500 million. At the end of the Q3, our net debt was again below zero.

During this year, our business environment has been impacted by decelerating economy especially in Europe. Demand growth has continued in most of our businesses, but at the same time, it has declined, especially in the Communication Papers.

Sales prices decrease during the Q3 in line with our expectations. Also variable costs are on decrease mode.

At this point, ladies and gentlemen, I will actually hand over to Tapio to have more analysts of the Q3 results. Tapio, please.

Okay, thank you, Jussi. So on this page 3, you'll see the earnings breaches year-on-year and then sequentially between third quarter and second quarter this year.

And as expected, sales prices represented a clear headwind for us in the third quarter coming mainly from the pulp prices, but also from paper prices. As far as paper prices are concerned and Communication Papers, this is the case between the third quarter and second quarter of this year.

Variable Costs decreased. Also, this had smaller impact than the sales prices.

And as you remember, we saw a significant fall in variable cost already in the second quarter. Delivered volumes on UPM level were a positive earnings driver, despite the more moderate demand growth rate in the product markets.

Fixed costs were well under control when compared to the second quarter. Fixed cost also decreased due to seasonal reasons and due to the fact that we had a maintenance shutdown at the Kymi pulp mill in the second quarter.

And in the third quarter, we had no significant maintenance shutdown. And finally, in the third quarter, there was no material contribution from fair value increases of our forest assets, which shows up here in the year-on-year comparison as a negative variance as in the third quarter, we had more contribution from the forest asset fair value change.

Then here we have the comparable EBIT by business area. Biorefining earnings decreased primarily due to lower pump prices.

Our average pulp price was down by 16% from the second quarter, and 25% lower than the third quarter one year ago. On the positive side, we had operationally a very strong quarter in Biorefining.

We achieved new production records both in biofuels and pulp. In addition, one can mention that in biofuels, we reported the best quarterly financial result ever since the startup of the biorefiner in Lappeenranta.

Customer demand for pump and biofuels continued to be good. We have now been able to realize the full production potential from the de-bottlenecking investments that we have made over the past few years in pulp.

At the same time, we have been also able to optimize the Lappeenranta biorefiner so that its production capacity has increased from the original 100,000 tons to 130,000 tons of renewable diesel and naphtha. Communication Papers delivered a solid results, increasing its earnings both year-on-year and sequentially from the second quarter.

Paper prices decreased moderately from the second quarter, but we were able to offset this with lower fixed and variable costs. Lower pulp cost contributed in the third quarter of course.

However, Communication Papers performance is underpinned by the continuous measures that we have been taking to ensure competitiveness. And this work continues as we have announced.

Specialty Papers reported the successful profitability turnaround. Customer demand continued to be good both in label papers and release liners globally.

And in the Asian office paper markets. Lower pulp costs contributed to the result.

And our actions to reduce fixed costs showed visible impact as well. Then Raflatac, they are gradually recovering.

To stay on this positive track, we will continue various initiatives on margin product mix and cost management. Growth in market demand has continued even in the European market that has been slowing down.

Energy reported another excellent quarter thanks to higher electricity market price and successful optimization of hydropower generation. Hydropower volume was low, however, due to the dry conditions in Finland.

Plywood faced slowing market demand. We adjusted to this by negotiating a temporary layoffs in our Finnish mills.

Jussi already mentioned, our strong operating cash flow in the third quarter which was totaling EUR 500 million. Over the past 12 months, we have generated over EUR 1.6 billion of operating cash flow and over EUR 1.3 billion of free cash flow.

Last year, we tied up working capital as our prices for product and raw material inventories were increasing. Now we have been able to release part of that working capital.

As a result of the strong cash flow, our balance sheet is back in net cash territory. You may recall that the adoption of the IFRS 16 list entered in the first quarter increased our net debt by about EUR 0.5 billion.

And obviously in the second quarter, we paid the dividends of EUR 693 million. So even after that our net that is negative and financial standing is very strong.

And this page summarizes our outlook for 2019. We continue to see the same uncertainties in the global economy and business environment that we highlighted already nine months ago.

The economic growth continues, but at a slower pace, especially here in Europe. Nevertheless, we expect UPM's business performance to be at a good level in 2019.

In the fourth quarter, we expect the average pulp price for UPM businesses to be lower than in the third quarter. This has an impact on Biorefining, but obviously also on the two paper businesses.

Biorefining will be also affected by the scheduled maintenance shutdown at the Fray Bentos mill in Uruguay. And in Communication Papers, the result is positively impacted by the annual energy related refunds.

Now I'll hand it back over to Jussi for some comments on our strategic actions.

Thank you, Tapio. And let's start with the Uruguay pulp where we'll actually come back to the project status as a third slide of the presentation.

But as we have discussed this matter earlier in our previous webcast in July, it is – I'm proud to present it again and however, this is a highly attractive and impactful project for UPM. So it's a good and good to repeat main points of the project.

We are building as I said, you know highly competitive pulp mill in Central Uruguay close to the town of Paso de los Toros. The mill will have an annual production capacity of 2.1 million tons of eucalyptus pulp.

The mill is scheduled to be starting up in the second half of 2022. The total investment into the mill, port operations and local facilities is about $3 billion.

And the main part of the capital expenditure takes place fairly equally over the years 2020 and 2022 i.e. 2020 and 2021 and 2022.

So why is this a good investment? That's something that I want to really actually emphasize here.

Firstly, it will provide a significant growth step for UPM's future earnings. So we do have the growth projects to increase our earnings.

With careful planning and preparation, we have secured competitive and sustainable would supply for the mill, state-of-art mill design and then efficient logistics setup inbound and outbound for the mill. As a result, the new mill is expected to be one of the most competitive pulp mills in the whole globe both in terms of costs and in terms of safety and environmental performance of the whole value chain.

We expect its cash cost level to be about $280 per delivered on pulp, this enables attracted returns on investments in various market scenarios. For UPM pulp business, the project represents a step change.

It will grow our pulp capacity by 57% in sustainable and highly competitive way. Within our pulp product mix, the share of the fast growing eucalyptus pulp increases significantly as thus the share of plantation based production.

The average production cost will decrease and average profitability increases both because of the new low cost unit but also because of the synergies within the existing operations in Uruguay. On the page 9 you can see there what happens – what has happened so far in the project and related infrastructure initiatives.

At the mill site, preparatory work is ongoing. At the Montevideo port, demolition of the old piers and dredging are underway and resources and recruitment are proceeding as we speak, as you can see from this slide.

The Central railway project is moving well, as well move forward initial works have started already and the financing for the PPP project was finalized early this week. Then if we are looking the UPM current projects going forward, we are definitely taking care of the growth not only the Uruguay, but also other focused investments.

Chudovo plywood mill expansion was completed in Q3. And thus the project improves our competitiveness as a whole plywood business.

As Chudovo is the lowest cost plywood mill in the system. Our two release liner expansion projects, the paper machine conversion at our Nordland mill in Germany and then the expansion at the Changshu mill are well proceeding as they were planned.

The technical and commercial studies or the biochemicals refinery in Germany and the biofuels refinery in Finland are advancing. In these two businesses, we are driving the change the world that is beyond fossils.

They represent really exciting business opportunities for UPM in a big, vast new market. While we are preparing and advancing also the growth projects as we have the Uruguay ongoing already.

We continue to have a focus to keep our cost competitiveness in the present and current operations. In Communication Papers, we plan to reduce our production capacity by 160,000 tons in less than one year.

Today we have also announced the fast payback power plant investment at the Northland mill and with this investment, we will reduce our energy costs by EUR 10 million per year and we will also reduce our CO2 emissions by 300,000 tons annually. Financially, this attractive with above three year payback time.

The concept is proven, we have similar power plant in our Schongau mill in Germany already in operations. In addition to these asset changes, we continue to continuously improve and take actions in our smart programs in all businesses and all functions.

We aim for the further improvements not only in variable costs and commercial strategies and working capital, but also safety environmental performance. We continuously target efficiencies and that is one of the key topics in UPM efficiency, quality and efficiency and then we are taking actions to secure that high operating rates and efficient production.

But also, we take care of the fixed costs development and we do have a continuous work in all businesses and all functions to reduce fixed costs. And one of the examples of this is the new business center hub in Wroclaw, Poland that we announced in September.

But there are multiple other actions coming as well. In product development, various things are moving on to maybe name a couple of them barrier papers in the Specialty Paper business area, renewable films in our Raflatac business, and then renewable plastics made out of naphtha that is produced in our biofuels business.

But of course, then kind of you know, furthermore comes when the biochemicals and biofuels opportunities are then in on our table. Finally, but not at all, you know, kind of small thing is the digitalization opportunities.

We do have a clear view of taking actions in digitalization, which actually basically improves our efficiencies in the back office, but also when it comes to actually our sales and supply chain as well. Ladies and gentlemen, to kind of summarize the presentation with the spearhead of growth slide, I think that we are well proceeding in all of the planning here and of course, you know the high value fiber segment, we have made the decision during the third quarter, which was a quite significant decision going forward in UPM.

And we as I said continue to take actions to ensure competitiveness and performance in all of what we do. Final two slides before moving into the Q&A session, we have three still left is the cash flow kind of reminding all of us of the capital allocation which I think that is one of the key cornerstones of today's UPM and future UPM is presented here.

The first one is five year cumulative cash flow 2014-2018 and you can see where we have been allocating capital. And that has led to an efficient high profitable growth investments with 1.9 billion, a very strong balance sheet.

As we report it today, we are debtless company with good cash flow and then we have been able to pay an attractive dividend. This is not going to change, dramatically we are going to keep our balance sheets strong.

We definitely focus on performance of strong cash flow, operating cash flow of the businesses. And with these actions and what we do, we are able to pay attractive dividend and to invest to the growth and especially earnings growth.

Obviously, nowadays in UPM, we are proud but also this is important part of our future promise and on the road when we want to go to the beyond fossils strategy. The top ratings of the responsibility and sustainability are important.

And as you can see from this list, we have gained all of that, you know, when it comes to Global Compact lead or Dow Jones Sustainability indices, or CDP programs, and so forth. UPM is actually a top performer on all of that and that is our key cornerstone of our strategy going forward.

Ladies and gentlemen, I would like to summarize my presentation with the summarized slide. Without not going into the details, may be saying that I'm happy to continue with this great group that I have in UPM for the next coming years.

Ladies and gentlemen, I think that this was the preferred part of the presentation. We are ready to answer any of your questions.

Thank you very much. I have two questions.

I'll start with the first one. I'll let you answer that.

So the first one is on graphic paper. And I'm wondering if you're seeing any indication that we are returning towards the trend demand decline?

And also if you think that the current announced capacity reductions is enough to stabilize the market into 2020? And then also into Q4, I mean, you mentioned pulp price is lower, what are you seeing in graphic paper price into Q4.

Are they down as well on average or more flat? That was my first question.

If I actually start with the trend decline, I think that you know, it is difficult to say what the trend line will be. We tend to believe that it will balance back, you know, in some years to come.

But obviously when we are looking, you know, the actions that has been taking in this industry to balance the supply demand, I think that this actually quite well, actually going forward. Of course, our 860,000 tons is a big number as such, but if I remember correctly, we are talking about and in Europe, the actions this year, either converting paper capacity to packaging capacity or then closures are approaching 3 million tons for the coming years and then in the U.S.

it is more than 2 million tons. So basically there's quite a lot of happening at that front and especially these big conversions that we see.

And that's absolutely beneficial for the paper makers because it will consolidate as well the industry not only taking capacity out and balance the market. And that's something that we remain to be seen how it goes, but obviously with 860,000 tons, we are taking quite a lot of capacity out of on our own you know, system trying to keep all of the business that we want to keep and at the same time have the efficiencies.

This is a cost game and this is all about reducing our own costs. Then what comes to the paper price – then when it comes to paper prices, I do not – I have never ever actually started to focus any of the paper prices and I'm not doing that even today.

So you don't even have any visibility into the fourth quarter?

Sorry, no, I didn't actually.

So you don't have the visibility into the fourth quarter on pricing, I mean I think...

We do have the visibility for the pricing but like I said that we are not guiding you know prices for the fourth quarter.

Okay. Thank you.

That's clear. And then yes, my second question was more about opportunities in biofuels.

If you could give a bit more color on the feasibility started for biochemicals. And specifically on your feedstock technology, I was wondering if you had any progress on your efforts to use for its use and the Carinata plant in Uruguay has potential feedstock in the future?

That is exactly the commenter on when it comes to biochemicals, obviously, we do have a concept of solid wood, where we are converting solid wood to two different sugars and then having a conversion to different molecules and that we have technology that is now ready for going forward. And obvious now, we are making more kind of deep analysis of the process and designing the process.

And similar to biofuels, yes, the concept is not actually turning only present raw material, which is in our case the oil into the fields but having multiple feedstock Carinata being one of those, and that technology is advancing as well. And deep dive in the business case and process itself is ongoing.

Thank you very much.

Thank you, and good afternoon, everyone. Well done on clearly a very resilient Q3 performance against challenging market conditions.

Can I – I know you sort of to give any sort of outlook but really, you're talking about lower pulp prices quarter-on-quarter in Q4 and Q3, but given the number we're seeing declining global inventories. Do you think we’re somewhere near the trough for stabilization in global food prices?

Start with that first, please.

Well, we maybe don’t forecast pulp prices here on the webcast as usually as the case. Maybe just to comment first on this outlook statement, we are not forecasting pulp prices there either rather just stating in a sense the facts as they are given the kind of curve along which the pulp prices have been now coming down during the past three or four months.

Then that means that in practice, the average pulp price in the fourth quarter is lower than in the third quarter without taking any view in terms of forecast. I think as you can see from the sort of public sources that at the moment, the pulp prices in China seem to be pretty stable, but we will see where they will go and obviously, as we learn more about where the inventories are moving, then that will give some give some, obviously, background to that.

Okay. Thank you.

Just one quick follow-up, you’ve given some detail on the other growth projects already, but can you just give us a bit of an update on the BioVerno naphtha project to where you were collaborating with, I believe Dow and Elopak. Is that something that’s still in the laboratory stage or in customer trials or where is that at this point potentially?

It’s actually we have implemented that together with [indiscernible] has already applied that technology in their mill that have been sold. So, in that sense, it is live example of what can be done so called 100% wood paste milk [ph] cotton.

As you know normally have a milk cotton about 20% is plastic in this case than it’s 100% wood based.

So, this is UPM revenue today than in Q4?

Yes.

I mean which division is sitting in?

Biorefining, it’s part of the output from Lappeenranta.

Thank you.

It’s part of the biofuels business, yes.

Thank you. That’s all I have today.

Thank you. Just to follow-up on the previous question.

Could you give any sort of indicative split of your revenues and operationally that from the three sub sectors within the Biorefining division by pulp, timber and biofuels where we are today?

That we have not done and that we are not doing this kind of one complete, kind of reporting segment that we can tell us we have been repeating that quite many times that the fight biofuels business has been going extremely well. We are clearly above the nominal capacity of the mill and the profitability is clearly above UPM average numbers i.e.

18% EBITDA margin or 13.5% of EBIT margin.

Got it. When you are looking at your volumes, paper and pulp, pulp volumes are, as you pointed out, quite extraordinary record volumes, how do we see that in this sort of phase of a comparatively weak market?

Where you – where you’ve been sending this pulp? And then also on the paper side, I thought you indicated in the second quarter that you believe that weakness that we had seen in the quarter was party related to some destocking on the customer side, and then sequentially year-on-year at least your volume are clearly weaker again in Q3.

Has anything changed between the two quarters? And does the market prospect?

Well, maybe on the pulp question, obviously, we have been sending the pulp to our customers. And what we have commented earlier as well is that we sell our pulp directly to the customers who are the users of the pulp in tissue making, paper making and board making.

And, again, as we have said earlier, they have had, let’s say, good sort of demand for their pulp as planned. So, that’s why then obviously also our deliveries have developed well.

So, in that sense we have not had a, let’s say any negative surprises on that end.

And maybe continue with what Tapio said about this pulp thing that, as we indicated two years ago that we are splitting our pulp sales to three different segments, hygiene, packaging and paper, that has been one of the reasons that we have had a very solid sales, and growth mode with those customers. China has been actually using – our Chinese direct customers have been using the pulp as we have been agreeing that with them.

I don’t know if you Tapio have any comment to that on the paper. Obviously, the paper demand and decline has been going somewhat worse than that over the last year of course it is in – it is a function of destocking an inventory thing but also that now the economic growth has been going with the lower pace in Europe as well.

So, I don’t see there any particular reason on that as well. We’ll see that how that evolves.

If the economic growth will actually go even further down, obviously paper is not immune to that we will follow that as well and where there’s a kind of – on the base case there is some minus 5% trend growth. If the economic growth will be low, it will mean also that the paper demand we will move more, somewhat more down, and especially Germany has been – has been causing also some challenges in these two quarters.

Got it. Couple of more questions.

As you mentioned variable cost coming down of course pulp is part of that. If you can comment, are there variable costs that have been coming down and what you see for Q4?

And also when – you’re spending more money in expanding the release line of business, but your Raflatac growth isn’t particularly strong. So, how should we read into that i.e.

what are the market conditions for the labels business I suppose and why you’re not really seeing that in Raflatac business? And then finally a detailed question.

The non-controlling interest was quite big in this particular quarter, what is behind that?

Tapio will come to variable question and that, maybe I talk about the release liner. Obviously, the global growth has been quite good and actually and we being number one supplier of the release liner, I think that there’s a kind of very good odds and the kind of future outlook for the growth of all of that.

Raflatac, once in a while, it goes down and up, it is not the kind of all the market. Release liner is basically for the labeling but release liner is used also in other products as well like hygiene and tapes and all kinds of things.

So, there’s a kind of multiple options to actually sell the new production coming of the lines.

Yeah, if I’ll briefly comment on the variable costs. So as I mentioned, we already had in the second quarter a significant positive impact from lower variable cost, half coming from pulp, half coming from other topics.

Again, now in this quarter, a bit less, but coming from pulp, but again, also other sort of areas, including, let’s say the raw materials for our labels business in Raflatac also, let’s say the wood costs having been on the increase earlier here in Finland, and they are starting to, let’s say slowly trend down. And let’s say a number of other areas as well, we are seeing lower market prices for our inputs.

Obviously, we’re sort of continuing with our – what we call smart spend program looking for our own sort of cost saving actions sort of separate from whatever is happening with the market prices. And then the non-controlling interest topic there, that relates to our partner in Uruguay and this figure actually, that is now booked in the third quarter is a year-to-date figure because with the investment decision in Uruguay then also the agreement with our partner was updated to include also the new pulp mill and update our partnership over also that cost some change in our accounting treatment and therefore then this was booked in the third quarter.

Okay. Thank you very much.

Yes, good afternoon. Maybe if you continue other Raflatac where the sort of top line has declined a little bit for a while for the second quarter in a row.

But I mean, is it sort of – a is there any – if you split it between price and volume or can you sort of give an indication on how the volume side of it is and how the price component acts to this small decline in top line?

Well, if you look at, let's say, the markets in general, we have had good markets outside of Europe, and we have had, let's say, good volume development also in specials and film based labels. And then, here in Europe what has been a bit softer is the – some of the end users for paper-based labels, but even there let's say so that now the recent figures from the European market show a – let's say, modest growth.

So, in that sense, the market is here sort of flat to modestly growing at the moment.

And we have been able to manage our margin quite well.

Okay. Yeah.

And that probably kind of, is the reason also for your comment on their Specialty Papers that basically, while you're seeing stronger customer demand. And so if there is sort of volume upside in the Specialty Paper, volumes are still down also compared to last year.

So, if you are saying that the demand is improving or there's a bit sort of improvement in customer demand, could there be a case for kind of a top line turning to a positive territory?

Yeah, the Specialty Papers is of course now actually hosting two main investments, growth investments one in China actually, and that will actually increase our Asian capacity of making specialties, and then the Nordland. And obviously, that will turn of course, these two into the growth mode.

Also when you're sort of looking at this comparison figures, one thing that you kind of, can notice that when we have been increasing the release liner share in the mix vis-à-vis fine paper, graphic fine paper, then the volume in terms of tons is less, but the value is more. So, that also obviously, has a bit of an impact on this ton based volume figures as such.

Make sense. Maybe the last question also based on the arithmetic here.

On the biomaterials as you mentioned that there is 16% decline in the prices, and the previous quarter, the decline was only marginal, and that now actually the market prices moving more or less 10% per quarter. So, there's quite a big deviation to what you are saying and kind of reporting compared to what’s the underlying market has been doing.

So, is there anything you can say about that and what it might mean for the future sort of realized price mix for you, if you are seeing about the similar sort of declining market prices for Q4.

Well, like I said, this kind of guidance that we gave, there's no forecast. Obviously, there's many moving parts.

We have the market mix between Europe and Asia. We have the mix between hardwood and softwood.

We have some movement on currencies as well. So, in that sense, that's kind of the sum of all those moving parts.

Yes, fair enough. Many thanks.

Thank you.

Thank you.

Thank you. Just firstly on pulp, given the high deliveries we've seen there.

Has there been any change to your net long position in pulp?

No, not that I'm aware, it is what 700,000 tons that is the figure I don't actually even follow that much. Efficiencies and margins are important.

But now, I don't think it has changed anything.

Okay. And then in terms of the European graphic paper market, you already talked about that we've seen quite deep declines in demand.

You mentioned the closures, some closures in the market by yourself and some other competitors, but a lot of those are also out in the future not happening really right now. So, if you just look a couple of months out, do you see that the markets are reasonably balanced or would we need to get some further closures now in the short-term to for that to be the case?

I will show, but you know, obviously, if I don't have a kind of split that out of that 3 million tons of – it was, if I remember correctly 3.2 million tons, what goes out in what timescale. But it's something that is absolutely doing the right thing.

We do not stop to forecast whether it is enough or not, but obviously it is a great actually kind of trend that people are moving their assets into a packaging or any other products, it will consolidate and also balance the market as well. There will be fewer competitors in the market as well.

So, basically the kind of cost curve will get deeper actually and it’s deeper. And that is a positive thing.

Not that I have a view on that whether that is for the next couple of months or even next quarter enough or not. We take our actions when we see the action needed to be taken and timely sold.

Yeah, I think…

You can take it as a positive factor that a significant amount of those shutdowns are in the future, because you can see how our Communication Papers business is performing at the moment in the current conditions and then this future. Future sort of exits that are yet to come, they will obviously then impact the outlook for the coming quarters.

Okay. And then just the final question on the Chinese market.

We've seen some good recovery in this Specialty Papers division in the last couple of quarters. And one thing driving that you mentioned is a good demand in Asia.

We also heard of some switching or let's say a conversion from recycle container boarding to the wood free markets in China now, driven by the strong demand due to the 17th Anniversary and so on. How should we read that, is that just an indication for the market being strong and demand being good, or is this making the markets more crowded from your point of view?

First of all, the fine paper market in Asia and especially in China has been strong. We have been benefiting out of that.

But one of the positive things is for us that now when we are expanding our Specialty Paper capacity in Changzhou, majority our competition that are having a swing machine tend to try – run in the fine paper side rather than making specialties, and therefore, it makes room for expanding our operations in that side as well. So, quite solid, good demand in Asia at this point of time.

And how do you see prices developing there now?

That the something that we don't forecast again, you know, this is – we can go this round and round, but you know, we do not forecast the prices for the future.

All right, fair enough. Thank you.

Thank you. Yeah, thanks.

Thank you. Hello, everyone.

May I just follow-up on variable costs and specifically on wood, if you can say, what type of sequential development you recorded in the third quarter and which expect for the fourth quarter, please?

Well, we can say is that, as you know, if you have sort of followed the market information here in Finland, there we saw an increase in the wood prices during last year, but then the market has moderated from that and that is sort of slowly coming through. So, modest, but decline in the wood cost.

You have already seen somewhat of a decline in your own P&L. Is that right?

Due to some extent, yes, but let’s say, it's still yet to come because obviously, there is a lag how quickly it will come through from, let's say the deals to be done, what to be purchased, harvested and consumed. So, let's say flattish so far, but then yet to come.

And in your case, what's that lag before it materializes in your P&L?

With what it can be up to six months.

Okay. And then, you mentioned these energy refunds coming in the fourth quarter within Communication Papers, did you also specify how much that would be?

No, we haven't given a figure on that. We have had in the sense the same in the fourth quarter figures for Communication Papers in the past years as well.

This year, perhaps somewhat higher, because it's partly impacted by the CO2 price, which has been a little bit elevated.

How much was it in Q4 of 2018?

Haven't given a figure on that.

Okay. And then, maybe just one final follow-up just on pulp, that was an impressive volume number, obviously, that the debottlenecking that have been making are showing through.

How much more is there to go, what's your updated nominal capacity for instance for that division?

Well, I'd say in terms of any debottlenecking investments, so the impact of the investments that we have done that is kind of a fully reached at the moment. So nothing further than normal sort of optimization as such.

Okay. Great.

Thank you very much.

Thank you. So, a lot of questions on the input costs declining.

But just to get sort of the full picture here on the selling price input and fixed cost variance. How confident are, you must have sort of quite good view on both selling prices and your cost base for quite some time ahead.

How confident are you that you can keep up sort of the margins have roughly these levels going into next year? Or would that be too optimistic view?

We are not giving that guidance for this the margins, but of course, we do take all the actions to support that the high margins are kept as far as possible and obviously doing everyday work on that as well. So that how we will operate and therefore, like we had in a presentation as well.

Kind of action plans that additional not only the growth investments that we are focusing, but also putting a lot of emphasis on current business and going concern. And that's kind of maybe a strong point of UPM that when we do have this operating model with six businesses, the costs and the top line are close to the management teams of each businesses, and therefore, it is everyday work, every day focused that we are trying to achieve the maximum margin that we can.

So far it has played quite well for us.

Yes, definitely. Then there's the biochemical project.

What is roughly speaking the CapEx sort of number that we should be looking at and will this – what is the plan, what is some kind of timeline would be good to have. Is it within 12 months you set a plan to announce it or is that – will it go into 2021?

We will come back to the CapEx when we do have the decision, you know, it is now too early to of course, we do have a kind of internal figure as a frame for that, but we will come back to that when it is then realizing. And obviously, we're trying to work as hard as possible to get those decisions into our decision making tables.

But I don't want to say that whether it is in 12 months or longer, it might be shorter or at that frame. But of course, we are doing our work today that you know, they could be decided as soon as possible.

All right, thanks. And then finally, you will become one of the largest pulp producers globally.

And obviously, you have studied really closely the market now before the setting up this year Uruguay project. When we look at pulp deliveries globally, they're basically not growing for two years.

Is that a good proxy of the end usage of about pulp or it has something else?

Pulp actually if you are looking at the latest statistics, you know, yes, this year is still you know it is 0.6% down as a delivery globally. When if I remember correctly after first quarter, we were talking about 2.8% down in the first quarter deliveries and now it was 0.6%.

So basically the later part of the year has been going to the right direction. I think that when there's a lot of investment in the packaging and so for the proxy for packaging embrace to grow.

I think that it means directly a proxy for good demand for pulp as well. So I'm not – we do have a very solid view on that trend growth of around 3% going forward.

And that is actually supported by if you are looking hygiene packaging and any other materials that are requiring pulp you know as a kind of proxy. And then considering that you know there will be mechanical pulp based production and papers, you know there will be recycled fibers available on that front as well.

So, pulp is having a quite solid growth prospects for the future.

All right. Good.

Thank you very much.

Thank you.

Ladies and gentlemen, I think that we are having the end of the conference call. So, thank you for joining us today, and have a very nice autumn day.

Thank you. Bye.