UPM-Kymmene Oyj

Ladies and gentlemen, welcome to UPM Second Quarter 2020 Result Webcast. My name is Jussi Pesonen, I'm the CEO of UPM.

And I'm here with our CFO, Tapio Korpeinen.

Hello to everyone.

In Q2, people and businesses around the world felt the impact of COVID-19 pandemic and the related lockdowns. The COVID-19 lockdowns clearly impacted the market demand for UPM products and the impact was divided.

Demand for graphic papers seriously suffered as a result of the lockdowns. This affected, of course, the profitability of UPM Communication Papers in Q2.

At the same time, strong demand for label materials and specialty papers was further supported by consumer’s reaction during the lockdowns. Our businesses in specialty packaging materials value chain, UPM Raflatac and Specialty Papers, delivered excellent result.

Our financial standing remains strong, as we all know, and our strategy for growth projects continues as planned. In here, our Q2 sales decreased by 20% from that of last year, there were three main drivers for that.

29% lower graphic paper deliveries, 26% lower pulp prices, and 9% lower graphic paper prices as compared with the last year's figures. As you can see from the chart, our last -- quarter of the last year was a record quarter.

Compared to last year, our comparable EBIT decreased by 41% to €203 million and our EBIT margin was 9.8% -- sorry, yeah. Then, if we talk about safety and business continuity during the COVID-19, it did not have directly impact our operations in any material way.

We have implemented extensive precautions to protect the health and safety of our people. And we have been able to ensure business continuity during the pandemic.

These measures have been successful. Only few UPM employees have been infected so far, and we have been able to serve our customers without any interruptions.

I think this is a very good achievement and has enabled this satisfactory result in the highly exceptional circumstances. Ladies and gentlemen, moving into the business part of the consequences and impacts, while our operations have not been impacted by COVID-19 epidemic itself, the related lockdown measures around the world have had significant impact on demand for various UPM products, both positive and negative one.

And let me start with the graphic papers. As many businesses and offices and schools were -- and have been closed, printing advertising and use of office papers fell significantly.

In Q2, the European demand for graphic paper decrease -- demand decreased by 32% from that of last year. But I want to be clear here that the Q2 demand impact is not structural change or even caused by the weak economy.

This is a forced shock, as businesses have been closed, and people have been staying and working from home. Consistently, our order inflow bottomed in end of May and began to recover gradually as European countries started to opening their economies.

The early recovery has been more visible in advertising end uses whereas the demand in office and that kind of uses is still low. As mentioned earlier, Raflatac and Specialty Papers, got additional demand boost during the Q2 from the consumer reactions during the lockdowns as restaurants and the work and school, cafeterias were closed, people increased their purchases of daily consumer goods in the grocery stores.

At the same time, e-commerce grew and these both drivers increased demand for many labeling and packaging materials. In UPM -- in Europe, the Q2 demand for self-adhesive label materials increased by 10% from that of last year.

But here as I want to be as clear that the strong Q2 growth was driven by consumer reactions during the lockdowns. Raflatac and Specialty Papers are highly attractive growth businesses for UPM, offering good market growth and solid barrier to entry.

However, 10% growth in the weak economy is not the new normal, as we all can understand, not for labels, not for specialty papers, nor any other packaging materials. Consistently, as the lockdowns have been easing we have been seeing order inflow normalizing, in late Q2 and Q3.

Finally, some words about pulp. Pulp demand and shipments for us held up relatively well in Q2, supported by good demand for tissue and many packaging and specialty paper products.

Bulk consumption in graphic papers decreased as we all know. But you can see from our report that our pulp deliveries were very strong in Q2, our second best quarter ever, in deliveries.

And this is, I would like to underline, a very strong proof that our businesses are truly separate, market integrated based, and businesses -- business model of UPM is working well. Fall in pulp consumption in our Communication Paper business in Q2 did not impact our pulp sales.

Finally, ladies and gentlemen, I'm happy to say some words about the transformative growth projects both in the new pulp mill project in Uruguay and the biochemical refinery project in Germany and they are well on track. Starting with the Uruguay and all parts of our project are making progress, be it mill site in Paso de los Toros, the pulp mill terminal in Montevideo port or the infrastructure, other infrastructure initiatives.

The total CapEx frame is unchanged and most importantly, the low cost cash position, as it has been estimated, $280 is valid as we speak today. Looking at the COVID-19 pandemic, I have to say that Uruguay as a country has impressed me once again.

The country is very determined to fight against the pandemic and has been very successful in all measures. And the country and the project has been able to proceed as planned.

Unlike many other Latin American neighbors, Uruguay has taken very stringent COVID-19 measures and has managed to keep the overall level of infections in a very low level throughout the country. And this is of course, confirming the high level of testing and segregation and what have you.

All this combined with UPM’s own extensive safety procedures has kept our sites in Uruguay free of the COVID-19 pandemic. Three months ago, we provided you a sunny postcard of the Uruguay, pictures where we are in the -- in those proceedings of the -- and what is the status of the project.

And now you can see here a postcard which is maybe less sunny, as it is wintertime in Uruguay, but the progress is good. We have been able to actually proceed as planned.

On the left-hand side you see the mill construction site and, in the middle, the housing areas and on the right-hand side of the picture, the Montevideo port. Ladies and gentlemen, what is coming and what is ahead of us, I would like to use this slide to talk about it.

In the coming quarters, we will focus in two main topics. First, we will take necessary actions to ensure the good performance in all our businesses through this exceptional time.

So, kind of ensuring performance is really a key focus of what we do. During the current uncertainty, we have adjusted our operations using measures such as a temporary layoffs and shift arrangements and shuts.

And in addition, we have taken and will continue to take actions to ensure profitability and competitiveness of our operations both during current downturn and in the long run, and we take what needs to be implemented. Last week we announced the closure of the Chapelle, final decision of the Chapelle paper mill in France.

And this week, we decided finally to close the Jyväskylä plywood mill, timely actions as we speak. Our second focus area, obviously and clearly, is that we are successful in implementation of our transformative growth projects, the low-cost pulp mill in Uruguay, and the first of its kind, biochemicals refinery in Germany.

On top of these two, our development work continues to scale up our biofuels business in highly competitive and sustainable way in that area as well. But Ladies and gentlemen, at this point of time, I will hand over to Tapio and Tapio will analyze our result more in detail.

Tapio, please.

Thank you Jussi. Here, analyzing the change in comparable EBIT, we can see that compared with the last year second quarter, the main negative earnings driver was lower sales prices, in all business areas.

Variable costs were clearly lower than last year but could only compensate for part of the sales price headwind. As Jussi described, the lockdowns had both positive and negative volume impacts to European businesses.

On net terms though, the fall in paper deliveries turns the volume impact clearly negative, on group level. However, as you can see here, we were able to reduce fixed costs by about €60 million compared to last year.

This was enough to offset for the lower delivery volumes on European level. When we compare sequentially to the first quarter of this year, the picture is quite simple.

Our EBIT decreased due to lower paper deliveries. Normally, our fixed costs would increase seasonally from the first quarter into the second.

This year, we achieved a small decrease sequentially in fixed costs, which is a fair achievement, but clearly not enough to compensate for the short-term volume impact. We experienced only minor price decreases during the second quarter compared to the first.

On the other hand, variable costs overall did not decrease either. And here on the slide on the right-hand side, you can see the excellent results we achieved in Raflatac and Specialty Papers, as Jussi mentioned, meaning in our two specialty packaging materials businesses.

Over the past two years, both business areas have been consistently working to improve margins and to develop product mix and to reduce fixed costs. And as we discussed already, after the first quarter results, this means that we started this year with very good margins and relatively lean fixed costs.

And now, with the strong demand situation, you can see the impact on the bottom line. On the top row, in the middle, the driver for the sequential fall in Communication Papers EBIT is simply the 22% lower deliveries.

Fixed costs decreased, but also due to the underlying seasonality, only to a small degree. In Biorefining, pulp prices continued on a low level.

In the second quarter, we did not have any pulp mill maintenance shutdowns which we have postponed to the fourth quarter and we were not held back by the strike in Finland, which was the case in the second -- in the first quarter. So therefore, we could run our pulp mills at full capacity.

And as Jussi said, we achieved the second highest quarterly bulk deliveries, up 8% from last year. In the Biofuels business, demand for renewable diesel and NAFTA continued to be good.

Even if the overall fuel consumption in the markets was lower during the lockdowns. UPM Energy achieved a good result, despite lower electricity prices.

Market was highly volatile during the second quarter and we were able to optimize around that. In the second quarter, there was the annual maintenance shutdown at the -- all throughout the Olkiluoto nuclear power plants.

Plywood had a relatively solid quarter, although the market for birch plywood remains weak. Here we have the cash flow, our second quarter operating cash flow was €156 million, as we had an increase of €75 million in working capital.

Usually UPM does working capital seasonally during the first half of the year and releases it in the second half. And here as well, we discussed the working capital situation in the context of the first quarter results and noted then that at the end of the last year our working capital was very low, which partly normalized in the first quarter.

So this combined with the normal seasonality increase the working capital during Q1. Now, during the second quarter, as already was described, we had fast changes in the different European businesses, which were moving actually in the opposite directions, lower volumes in Communication Papers, strong volumes in Pulp, Specialty Papers and Raflatac.

This made working capital optimization in the short term challenging. Communication Papers did release some working capital during the second quarter, for example, inventories decreased despite low deliveries.

However, in this kind of a quite rapid change, the working capital release was relatively minor in the short term. At the same time, I said activity in several other businesses was high, which added to the underlying seasonal increase in working capital.

Our financial position is very strong, net debt decreased from the end of last quarter -- last year second quarter to €301 million, after in the second quarter we paid €693 million in dividends. Our liquidity reserves are high, totaling €2 billion.

This includes the €750 million sustainability linked revolving credit facility we signed in the first quarter and €550 million of bilateral committed credit facilities signed during the second quarter. There are no financial covenants in UPM debt or the facilities.

And here we have our CapEx estimate for this year. The estimate has come down.

We have made more detailed analysis of the timing of the CapEx items. Now, our estimate for this year's CapEx is €1.1 billion including €800 million related to the transformational growth projects.

Our maintenance investment needs are low below €200 million. We have today reintroduced an outlook for 2020.

Obviously, there continues to be high uncertainty for the second half of 2020 due to the ongoing COVID-19 pandemic, due to uncertain development of various lockdown measures around the world and high uncertainty also exists to the consequences in the general economy. However, it's clear that the lock downs in the second quarter had significant demand impacts to several of our businesses.

And as the lockdowns have been gradually lifted in Europe, we have seen signs of normalization in order inflows, like Jussi described earlier. We expect a moderate decrease in paper prices for the third quarter compared to the second quarter and pulp prices are starting, now going into the second half of the year, at a low level.

As you know, we rescheduled two pulp mill maintenance shutdowns from the second quarter to the fourth of this year due to the pandemic, which means that there will be more maintenance in the second half than we had in the first half. And we will continue to take measures to decrease fixed and variable costs.

So now, I will hand over to Jussi for some final comments.

Thank you, Tapio. Ladies and gentlemen, once again our work continues, we will focus on two main topics.

First, we will ensure our good performance in all businesses. And secondly, we are focusing on implementing the transformational growth projects with the good success.

This is how we are creating value to our shareholders. This is definitely clear and has been clear and no change.

UPM’s long-term value creation is driven by our spearhead of growth initiatives. These are sustainable businesses with strong long-term fundamentals for demand growth and high barrier to entry.

Due to strong financial position, we can continue implementing our strategy and our transformative growth projects, even during the current uncertainties. We have today reported record earnings in Raflatac, an excellent result in Specialty Papers, which is the specialty packaging materials area.

We continued to see attractive growth opportunities in the specialty packaging materials for the coming years. And as I said already earlier, we all understand that the Q2 is not the new normal for paper nor for the specialty packaging areas.

But anecdotal comment here that Q2 in this area of Specialty Papers, our specialty packaging materials area was same size as sales as the paper business, Communication Papers, more than €700 million and the EBIT margin was more than 15% for that area, so very attractive area to grow for the future. On our highly competitive pulp mill investment, Uruguay is proceeding in line with the planned startup schedule.

Once up and running, it represents step change in UPM earnings and will grow the business when it concerns volumes and sales more than 50%. So it will be a big, big step up in UPM earnings and growth as well.

And then moving to the right side of the picture, engineering and planning are ongoing for biochemicals refinery investment in Germany, in line with the original schedule. And this also is a very attractive investment, which will open totally new market for UPM’s long term growth.

Development were continuous regarding our next steps of the biofuels business, and that has proceeded well as well. Continued success in the biochemicals and the biofuels businesses has a huge potential not only to grow UPM’s earning significantly over time, but also change the perception and value of the company as well.

And finally, once again, we will keep the foundation which is communication papers, plywood and energy, in a good shape. Ladies and gentlemen, with these words, before concluding my presentation, I take the opportunity to remind you all of the virtual CMD, Capital Markets Day in September.

We have at least three main topics but on top of that, plentiful good discussions. We will definitely focus on the spearhead of growth more in detail and we will discuss about the sustainability in the -- as a major driver for UPM value creation for the future.

And of course, the performance like every day is our -- in our focus. So I wish you all warmly welcome to the event.

And with this slide, I am not going to repeat any of the other [messages]. I conclude my presentation and dear operator I'm -- we are -- Tapio and myself, we are ready to take questions.

Thank you.

Thank you and good afternoon, everyone. I've just got two quick questions.

Firstly, on Communication Paper and I guess it's really for Jussi. I remember well, back in 2009, you took some very decisive action clearly then to rationalize capacity.

Clearly, I know you've already closed the Chappelle newsprint mill. I guess I'm not asking you to count on specific mills, that would be unfair, but assuming you are reviewing the situation regarding actions that may be required over the next six to 12 months for Communication Paper capacity for UPM?

That is correct, Roger that. Now UPM -- in UPM we are running the optimization model every month, actually.

What should we do and our kind of basic philosophy and strategy is as valid as ever before? And that is, we are we are running with the high operating rates and we are targeting to have up -- high operating rates, and if that -- that actually means actions in the asset restructurings that -- that needs to be then implemented the efficiencies and cost efficiency comes only with high efficiencies of running the asset.

So, yes, it is something that one should consider. But like I said, that Q2 is not representing of the structural change or any of the long-term changes.

That is something that we are also analyzing, as we speak.

Okay, thank you. I've just got a quick follow up for Tapio, really on the CapEx.

Because you know regarding to €200 million less CapEx in calendar 2020. And I just want to clarify, that the €100 million reduction in the Uruguay or spearheads related CapEx, I'm assuming that's just a timing issue that presumably will be just be increased in 2021 or 2022.

And then really the other €100 million that's reduced UPM maintenance CapEx, shall we say? Or how would you describe that Tapio?

Well, roughly. So, yes, basically as I said, we have a better estimate at this point in time of what is the CapEx for this year and in the case of Uruguay, as actually Jussi already earlier mentioned, the overall capital frame that we have communicated in context of the investment remains, as we have earlier said.

So no change there but then more sort of accurate estimate of what will be the CapEx for this year. And also another point related to that, already Jussi said that, again, the progress of the project on-site on the two sites is as planned, so it's only matter of having a more accurate estimate for this year.

Okay, thank you.

And the same for the maintenance CapEx as well.

Thank you Tapio.

Thank you. I have a couple of questions.

If we start, Jussi and Tapio, with what you are talking about the early stages of normalization, you, of course, talked about the paper starting to see improving order books, and somewhat more normalized on the labels business. How should we view the pace of that normalization?

And also if you can comment on the pulp side, which of course was record high deliveries in the second quarter as I guess tissue normalizes a bit now, how does that translate into your order books for pulp?

If I start from the paper, and of course Tapio can comment as well. But paper, we saw the order inflow turning end of May, and then consequently, our deliveries turned one month later, so end of June.

And it has been normalizing, we don't want to go in details because we do have still some uncertainties, but you know, of course, it was total lockdown in Europe, which meant that lot of advertising and a lot of offices and everything was stopped. And of course, then there has been an inventory cycle as well.

And now, we have been getting quite -- quite nicely back on order inflow figures that are better than on the worst moment. So there the trend change is clear.

And that is -- that is for clear. And then of course, you know, talking about Raflatac and Specialty Papers, similarly as well, where there has been a strong demand anyway, we already started like Raflatac good order inflow and Specialty Papers before the pandemic.

And that is something that is now more normal. Pulp deliveries were strong for us and obviously, we have the direct contacts to our customers and therefore we have been able to allocate, as I said, volumes to long term customers without having a challenge of the Communication Papers’ declining markets.

So that they say -- like I said, they create proof point that they are really businesses that are running the sales separately from each other.

But there's no trend change, specifically in the pulp business, negative or positive?

Pulp business, if you just only review the segments, they are quite strongly up from that of last year, 7.0 -- it was at 7.8%. Of course now we do not have all the Brazilian statistics in but that is what has been reported.

Obviously, that doesn't tell the underlying demand changes as well. And that is very difficult, of course, to actually justify what is the underlying demand.

Of course, as in pulp business always, there is inventory cycles as well. Obviously, I don't believe that it is so strong when it concerns the underlying demand but we do have a quite comfortable feeling of the -- of the second half of the year when it comes to volumes.

And just a couple of short ones. Raflatac, you talked about, obviously not a new normal necessarily.

But to just look at the margin, you know, succession about from [call it] 8% to around 15%. How should we think about the new normal in terms of margins at Raflatac?

And then just two question specifically on the costs, I mean, clearly there's been an element of short work weeks, temporary layoffs, etc. So Tapio, if you can comment on that fixed cost reduction that we've seen?

How much of that would be sustainable and how much would be temporary, if you like? And then finally working capital, of course, a very big outflow.

One would expect in sort of tough markets like to have a working capital inflow. So should we should we expect a kind of normalization back to the working capital that you had end of ’19, by the end of the current year?

Well, maybe a quick comment on those three questions, Lars, if I may. On Raflatac, I would kind of look at the beginning of the year as such, that's in a sense the kind of foundation that we have been building on, let's say both commercially, business mix and let's say cost wise.

So even if let's say this kind of positives from the first part of the second quarter, will sort of normalize, still we have a, I would say kind of a solid margin position to continue with. Obviously, as was discussed earlier, we have had some tailwind from the costs that have helped but then our own sort of actions are the sort of longer-term foundations that we have been building there.

I would say also that for kind of the coming quarters here during the second half of the year, the cost picture is relatively benign, pretty stable cost situation overall from Raflatac point of view. Then on the fixed cost, this if we sort of compare second quarter this year to second quarter last year and the fixed cost change or difference was about €60 million.

One can say roughly half of that is more the sort of temporary or short-term effects of adjusting to the second quarter situation, particularly in Communication Papers. But overall in the company as well, the temporary layoffs that we had to deal with, the volume drop in Communication Papers, but also in the wood products businesses, plywood and timber is one part.

Second part actually is meaningfully, obviously, lower travel and related costs in all businesses and overall in the company because obviously as you know, very, very little travel during the -- during the quarter. And then third point, let's say separate from the fact that we did not have the annual shuts in maintenance then in the kind of ongoing maintenance, there was less activity as well.

You might sort of think about or the next question might be that, okay, so what does that mean? Going forward from here, obviously, some of these temporary cost reductions will reverse because when volumes -- production volumes are recovering, it means less temporary layoffs.

But that's obviously then linked to business picking up as well. But then also, we have taken action to reduce fixed cost, the Jyväskylä plywood mill, the Chappelle newsprint mill.

Plus we believe that we can retain actually significant part of this sort of travel related cost savings during the second half of the year. So, in that sense, I believe we can offset to a large extent, the reversal of any of these kind of temporary fixed cost reductions.

And then we come to the topic that Jussi already commented on, which is thinking about the longer-term outlook and the actions that we have to take related to that. Then in terms of working capital, I said, this is a different situation than what we saw, for instance, in 2008 and 2009, where we had a slow down across all businesses that -- that sort of took place over several quarters.

So obviously, in that kind of a situation, then it is much more feasible and, of course, also necessary to sort of drive down working capital and sort of maintain or improve working capital efficiency. Now we have had a kind of a mixed quarter.

One business particularly quite sharply down in a short period of time, well then on the other hand, volume growth and strong performance in several areas. So in that sort of a situation, as said, it's much more difficult to be as lean as far as working capital is concerned and perhaps realistically one can assume that as the recovery now is uncertain, there might be some, stop and go, kind of periods that we experience, who knows we will see during this coming quarters.

So again, in that sense, optimizing working capital is not as easy. I think we will reverse and we will, let's say normalize, as we seasonally also typically during the second half of the year, do as far as working our capital levels and efficiency is concerned but that remains to be seen, this is a different year from any other year.

Got it? Thank you I'll get back into the queue.

Yes, good afternoon. Now that you talk about paper prices expected to decrease moderately, does it sort of cover combined Communication Papers and Speciality Papers or how is that sort of -- what does that keep in?

And how do you see China in that context, because I understood that the prices dived or took a pretty steep dive already in the second quarter, so if you could comment on these two issues here, please?

Harri, first of all, you know this moderately means mainly of course Communication Papers. In Specialty Papers, we have a different actually -- different drivers and this is something that happened now, end of Q2, early Q3.

So, that is a comment which is related to that. In China we have seen stabilizing prices of course.

During the Q2, we saw the drop of the prices as well as general but, like I said that they are now stabilizing and we have been able to cope with that as well. But mainly this is actually Communication Papers, mid single-digit drop.

Exactly, that's what I wanted to clarify. And on the sort of Raflatac and Label sort of self-adhesive value chain overall, I mean, are you already seeing this sort of normalization in -- in sort of normal -- kind of from peak levels or is it something you anticipate to happen in the kind of further down in the future?

And also related to that, that you've got the Nordland conversion to release liner completed now and how that has gone and absorbed by the market?

Harri, this is -- this quarter, I was trying to somehow elaborate the whole situation that when the lockdown is tight, then you are seeing a drop and when the economies and societies are starting to open, that means also that the activity starts to improve. And therefore, it is very much related to that when like in Europe, in end of May or during the May, it was totally locked down and ever since that, it has been moving -- moving to the better deal.

The societies have been opening and the lockdowns have been released in many respects. So, meaning that the normalization started to happen on that point.

So that this is a -- I'm trying to say that this is -- the lockdown is a something that has affected positively in Raflatac and Specialty Papers, in those weeks when it was totally locked. And then similarly in the paper business where the order inflow dropped dramatically on those weeks that it was totally locked down.

Understood. There the final question is on the cost of the main cost lines and what are you seeing in the wood price sort of around wood price development or going forward?

It depends. Of course, in Uruguay it’s very fixed, you know what it is.

And in Finland, the wood prices are trending downwards, but moderately.

Yeah, yeah. Okay, thank you very much.

Thank you very much. In terms of the pulp and especially the paper market, the development has been very harsh recently in the market.

So I was just wondering, what are you seeing in the competitive environment in those two segments? Are high cost producers gradually losing ground and market share or are they still out there in the market producing as normally?

And what do you see as the outlook for the competitive environment in both of those segments?

Specialty paper market especially for our -- when it when it comes to release liner and all of that, that has not been that harsh at all. You know, there has been a very good demand.

Demand over the last quarter, consequently do what we see in Raflatac and Labeling business. So, it has been pretty solid and strong market.

Obviously then the Chinese part of the of the graphic papers obviously has had that but you know UPM is having a very dedicated position there as well where we deliver what is our service kind of agreements with our customers. Yes, of course, this is -- when the pulp prices are starting from the very low level and are on the low level, that is definitely challenging the non-competitive assets.

It remains to be seen, what then is the outcome of the structuring of this area, as well.

But in graphic papers in Europe, you're not seeing any major changes in market share distribution?

So did you mean graphic papers and not specialty papers?

Yes, the graphic paper, yeah.

I thought that you were saying specialty papers and that was maybe my comment. Graphic papers you know there's a lot of actions you know, we hear almost every week that somebody is turning their assets into the packaging grades.

You know Norske Skog, a couple of weeks ago and Stora Enso, as we speak is turning that. Obviously, that is definitely changing the world and more to come, I believe.

Have you any consideration of converting, I know you don't want to go into the container board but to convert to some other grades, some of the paper capacity that you have and what ways do you find most attractive?

Nordland is a great example of where we have changed the kind of end use segment totally, you know from graphic papers to release liner specialties packaging grade. So, that is when it suits for us, but why should we go for somewhere where there's a lot of a lot of you know, everybody wants to do.

We are not in the business of, me too, business.

I understand, I understand. In terms of China, apparently some softness in the late spring in a few of your segments but what are you seeing now going into the Q3 in terms of just overall activity whether it's labor, materials, paper or pulp, so the business activity in China for you guys at the moment now and the summer?

Now, that we don't -- don't you know, the guidance is what we have been saying. But of course the Chinese economy is now gradually getting back into the more normal situation which is definitely.

Then consequently coming to our businesses as well, you know we are not immune to economic development and China is gradually getting better.

All right, thanks. And finally, just maybe for Tapio, any kind of guidance or comments on the sort of rough wrestle seen by [fundament] day and night shuts that you will have in H2?

Well let’s say, I said, we will have two shuts in the fourth quarter, Kaukas and Pietarsaari. And typically the pursuit of this -- the kind of cost impact of the maintenance shutdown as such is then €50 million for a big mill.

And then, let's say, lost margin on the sort of volume side there, so that, that gives you an idea of two big mills, where we'll take the maintenance shutdown in the fourth quarter.

That is helpful. Thank you very much.

Thank you. Can I just come back to the Topio’s comments around the cost takeouts and how costs are trending?

In terms of the cost takeouts for this year, would you be able to quantify how big of an impact you expect overall? And how much of that can be regarded as permanent?

Well, as I said, if we look at the second quarter, fixed costs was down about €60 million, I believe for the first half it’s around €90 million down. And we did have, let's say temporary impacts, again, as I described in the second quarter, some impact obviously in the first quarter also coming from the Finnish strikes.

But we have, we have obviously the benefit in the remainder in a sense of the capacity fixed cost actions that were already implemented during last year. Then we announced the cost savings that are coming from the most recent decisions Chapelle, Jyväskylä which are already impacting, obviously not at the full year rate but still impacting already second half of the year.

So there will be additional sort of permanent take out from that. So in that sense, that's why I was commenting.

Maybe excluding, again this, what we discussed just a minute earlier, impact on the fourth quarter of the maintenance shuts of the two mills. But otherwise, the running fixed costs there, we should be able to even if some of this is temporary, temporary sort of impacts will kind of reverse, obviously, only when the business also recovers.

We can offset that with the fact that we do have permanent cost improvements on the way as well.

Okay, thank you. Then a final question on the pulp volumes in Q2, as you pointed out yourself, they were quite strong, up by about 8% year-over-year?

Could you say how much of that, I mean, on a net basis, how much were you -- were your long position in the second quarter in terms of market pulp?

No, I don't have a finger nor I think it's very meaningful in a sense to look at that on such a sort of a short -- short period of time.

All right, thank you very much.

Thank you very much. I think most of my questions have been answered, but you know, I’ve got two ones.

The first one is a bit of more of a detailed modeling question. So you apologize for that.

But I believe you renegotiated a pulp contract with BillerudKorsnäs. And as a consequence, you will be compensated €15 million in 2020.

I just wonder if, if that figure is in your Q2 numbers, so if that's yet to come. And so I'll stop there and then let you answer that question first.

And then I have another one.

No, it's not, it will be in a sense, accrued over time.

Okay, and would that be -- and that will not be an underlying number, it would be just a number?

I'm not sure if I understood your question there. But again, the point is that because --

It’s a one off [inaudible].

It is a renewal of a contract over time, then basically that sort of benefit is also accounted for over the time of the new contract. So it's over, over several periods going ahead.

Okay, thank you. So, so moving onto my second question, a bit more of a higher level question and might be a hard one to answer.

But do you think or consider, you know, any potential change in the behavior of customers as a function of this lockdown, now specifically relating to graphic paper consumption? Now, is there any conversations that you're having with your customers, for example, of risk of this is move from printed paper to digital might be accelerated because we get used from working from home or learning from home and school etc.?

Yes, if you have any, any thoughts on that?

Obviously, that is the work that we -- end use studies we have been doing in UPM for decades already. And I guess that we are very much focusing on that work today.

Obviously, it is clear that this pandemic is changing our behaviors and we need to test and review, what are the segments where there's all kinds of positive options for us whether it's in the Specialty Papers, Raflatac and so on. And then we need to really actually go through the structural change view on the paper business.

But, but we are not ready yet there and of course and also our customers are considering what will be structural and what will be -- what will be coming back and where the options are. It doesn't necessarily mean only negative things in -- even in the paper business.

Thank you very much. I appreciate the color.

Yes, thank you very much. On biorefinery -- Biorefining you had a strong performance in the second quarter, shipment-to-capacity I think is in excess of 100%.

And you write somewhere in the report that the results leave room for improvement, I wonder if that is only referring to external factors and maybe price in particular or is there still -- do you still see upside in terms of production on the current production footprint that you have or something else?

Well, obviously, the main point there is the point that we, as we all know, we are at the low point in the price cycle. So, that has an impact on the bottom line for the time being.

And eventually that will start to improve, obviously. So that is obviously the sort of main point that we are kind of referring to -- to there.

Of course, our output from the mills, we have de-bottlenecked over the time and we continue to optimize, so there's always work to be done to improve and then eventually the new mill, on top of it. So we continue to work obviously in the pulp business on the levers that are in our own hands, as well.

But the main point about the comment, this is more about the fact that, again, we are at the low point in the price cycle in the pulp business. And that means, leaves room for improvement, I said.

Okay, great, thank you. And on the full year, what’s your expected group net pulp position?

Don't have a figure for that either, yet.

Okay.

I mean that shows that how much we follow that kind of number. We don't, honestly, we don't know it there.

Sure, sure. And then just one final follow up question on CapEx.

I mean, you reduced your 2020 CapEx guidance by €200 million. Do I read it right?

I guess this is a timing question but do I read it right that 2021 will have higher CapEx than 2020 and if so, by how much roughly?

Cannot say yet but probably -- so, as I said, again, particularly obviously the big outflow at the moment is for the Uruguay pulp mill project and there we have in a sense more accurate estimate now than we had in the beginning of the year for the outflow or -- and kind of rate of completion during this year that determines the CapEx figure. We have not changed the overall figure for the investment, so in that sense obviously, one would expect that then we will have more outflow next year but early to give a figure on that.

Okay, thank you very much.

Okay, can you hear me now?

Johannes speaking, perfect, thank you. So a question on your plywood business, earnings is holding up very good, despite, I assume negative COVID-19 effects here in the second quarter.

Could you elaborate a little bit on the earnings outlook? I mean, have you taken out any fixed costs here?

Are you seeing better demand? What's behind the sort of good results in the second quarter?

It is actually I guess that it's a multiple actions that we have been taking. If you remember, we have been investing into low cost countries like Russia and Estonia and that is actually one thing.

And obviously, here in Finland, we have been restructuring. As you know that we have been able to really take actions to improve our cost position.

And last, sorry, this week we made the final decision to close one of the mills. So consistent, long term, many actions and different activities, investing, restructuring, streamlining, a lot of market commercial actions to be competitive and getting the margin.

So multiple, multiple actions that that has caused that solid profits on -- on that area.

Good to know. And I assume you will, you're assuming those benefits will continue for the foreseeable future?

We will work on that, you know, every day.

Yes, yes. Then I have a bit of a different question or more of the market dynamics, and it's about FX.

And I think over the last three months, we have seen a weakness versus the euro. Is it 6%-7%, perhaps?

Do you think this will impact trade flows between Europe and the North America, perhaps to other continents or is it -- do we need to see more of a dollar weakening in order for that to sort of have a reverse negative impact on trade dynamics?

I would say, so that let's say change in trade related to exchange rate fluctuations is still relatively minor. At least, let's say in the segments or businesses that are, let's say, important for us.

Let’s say, trade in those products doesn't sort of ebb and flow just based on exchange rates. So otherwise, obviously, as you know, stronger dollar is better for us.

And that's particularly the case for bulk business where costs are in peso or in euro and the -- let's say, in a sense, the global currency in the pulp trade is driven by U.S. dollar.

Okay, Thanks for clarifying. Then, perhaps a final question, what's your thinking about the great results in the labeling material business.

I mean, not just for the second quarter but for sustainable time. What's the outlook for new supply in the market?

I mean, are competitors doing a lot here, or do you foresee you know, supply to be -- supply growth to be quite muted over the -- let's say one, two years here?

Well, let's say when it comes to Specialty Papers and particularly release liner, where we are now ramping up the new machine in Nordland, after the conversion, the barriers to entry are pretty high in that business in terms of being able to achieve the efficiency and the quality. So, the rate of entry of new capacity therefore has been quite low.

There have been some players adding capacity in the Asian market during the past years, some of them through conversions. Most of them are actually not being able to achieve the quality that we are able to achieve in our Changshu mill with our new machine which we have expanded, as you know already.

So I would say that in that business, again, there sort of barriers to entry puts a dampener to the kind of entry of new capacity or new players. Label materials business is a little bit different business, the barriers are more commercial there because, again, also we can sort of manage our capacity depending on shift arrangements and so on and so forth.

But there the -- let's say, again the competitive structure is quite good. We have two global players and then a clear difference to the next year players.

So in that sense, I think the competitive situation is good for us.

Okay, thank you very much.

Yes, good afternoon. I had a few more questions about pulp.

I was wondering if you could comment on your view about the pulp market now in the second half. For the first half, we saw solid demand from tissue.

Now you're saying that you see graphic paper gradually moving back towards normal and a lot of maintenance has been, in addition to you other people have also rescheduled their maintenance to H2. How does the balance look to you now that we're going to H2?

The pulp demand and pulp deliveries will be definitely very much related to economic development. Then, of course, that is still uncertain how it goes.

Maybe one note here that when a lot of annual shutdowns were postponed from second quarter to the autumn time, it is actually definitely on the supply side it is actually positive in that respect. But we will see there's no -- not that kind of a view that we would actually present here.

And while you don't produce in Brazil yourselves, you sit quite close in Uruguay, do you see an impact on the industry from the COVID-19 situation in Brazil?

That is something that I do not have a knowledge at this stage that what would be the kind of consequences, I have no information on that.

And then on sort of the longer-term view, I mean, you sell a lot of your pulp to China. There have been several reasons, the announcements of quite large integrated pulp and board mills in China with the integrated chemical pulp lines, which is perhaps a bit new.

Do you see sort of shift in this dynamic and what's driving that? And does that have an impact on your pulp business going forward?

China is of course the area where there's not fiber enough, you know, forests and that is actually therefore, China will be always very much relating and tied to the imported pulp which is definitely coming from Latin America, mainly. There has been always these kind of integrated mills as well, so I do not see any kind of particular change in this.

Okay, thank you.

Ladies and gentlemen, thank you for your interest and yeah, we did have a long list of questions and very good. Thank you and have a very nice day.

Thank you. Bye now.