Earnings Call: Q3 2020

Oct 27, 2020

Ladies and gentlemen, welcome to UPM's Quarter 3 2020 result webcast. My name is Jussi Pesonen. I'm the CEO of UPM. And I'm here with our CFO, Tapio Korpenen. Hello to everybody. So welcome to this meeting. In Q3, we delivered several in several fronts. First of all, we achieved a satisfactory result in the highly exceptional circumstances resulting from the COVID-nineteen pandemic. Secondly, we took quite a lot of decisive actions and announced significant cost reduction measures to ensure our future performance. In Communication Papers, we are rightsizing our production capacity and in support functions to level of expected demand for their actions. In several other businesses and global functions, we are further improving our cost efficiency. This cost efficiency measures means that in every corner of UPM we take actions. Our safety and health precautions continue to be successful. Our business operations continued without interruptions and our transformative growth projects progress it according to our plans. UPM is really in a unique position. We continue to take actions to ensure performance. We drive for performance in all our businesses. We have very attractive growth projects under construction in pulp and biochemicals. That will deliver significant earnings growth and change of the company's position in the future once completed by the end of 2022. And we will continue developing our next growth opportunities in biofuels. It is typically when the times are good, you need to prepare yourself. You need to have a strong balance sheet. You need to develop projects and put lot of innovation. But when the times are bad, you are then able to continue with your strategy. But I would like to underline that in all times, you need to keep the cost competitiveness under check and that what we are doing. Let's start with the Q3 figures. Our Q3 sales decreased 19% from that of last year quite significantly. This was mainly due to 21% lower graphic paper deliveries and 19% lower pulp prices and then 11% lower graphic paper prices as compared that to last year. Our EBIT comparable EBIT decreased from that of last year. However, comparable EBIT increased slightly from Q2 and our EBIT margin remained clearly above 10%. Our operating cash flow recovered and our final standing remains very strong. Our net debt was only €89,000,000 at the end of Q3. Net debt to EBITDA ratio was 0.06 times and liquidity stood at €2,300,000,000 This put us in a great position to proceed with our transformative growth projects with focus and determination. So far COVID-nineteen pandemic has caused little direct impact to UPM. With our extensive precautions, we have been able to keep the number of infections on a low level across the UPM operations. Our business operations have continued without interruptions. Uruguay as a country is really important to us has implemented very stringent COVID-nineteen measures and has succeeded in keeping the overall level of infections very low level in the country. This combined with our own extensive safety measures has kept UPM sites in Uruguay free of COVID-nineteen cases. This is very important as we today have already more than 2,500 people working on our construction site in Paso de los Toros and also in the port. Our transformative growth projects, pulp project in Paso delos Toros in Uruguay and the biochemicals project in Loina in Germany continue well on track and the planned start up time is well also in plan. While our business operations have not been directly impacted by the COVID-nineteen pandemic, the related lockdowns and containment measures around the world as well as change in consumer behavior have impacted demand for various UPM products. On this page, Page 4, you can see the quarterly demand changes year on year in Europe for graphic papers as well as labeling materials. Like we discussed 3 months ago during the wide lockdowns of the businesses, offices and schools in Q2, graphic paper demand decreased by 32% from that of last year. In Q3, many of the more severe lockdowns have been eased. However, distant work continued in many places and the overall economic activity remained well below pre COVID levels. Graphic paper demand recovered partly being 18% lower than that of last year. In springtime, demand for self adhesive label materials and specialty papers got additional boost as consumers shifted from their spending from away from home categories to packaged daily consumed goods and e commerce. In Q2, European demand for sulfur DC labels grew by 10% from that of last year. In Q3, we saw some normalization of this additional demand. In summer months, there was destocking taking place, which is not typical for the label stock materials. But this year, because of the COVID, it happened in our customers' value chain. As a result, the European demand for label materials decreased by 3% in Q3. However, we estimate that underlying demand continue to be good and on a very solid level. Finally, pulp demand has held up relatively well throughout the year. This has been supported by good demand for tissue and many packaging and specialty paper products. Pulp consumption in graphic paper production has decreased. Year to date, global pulp shipments are up 5% from that of last year. UPM's pulp deliveries continued on high level, one of the highest quarter. We had actually quarter 3 in deliveries once again. Our business model is working well. Low pulp consumption in Communication Papers has not impacted our pulp sales. But ladies and gentlemen, at this point, I will hand over to Tapio for some further more analysis on our Q3 results. Tapio, please. Thanks, Jussi. Here we see the comparison of the Q3 comparable EBIT to Q3 last year and sequentially to the Q2 this year. So starting with the comparison to last year's Q3, we had 2 main headwinds, sales prices and graphic paper deliveries. Sales prices were below last year in all of the business areas. We did achieve a clear reduction in variable cost, but this offset only half of the price headwind. The negative volume variance that you see here comes from the 21% lower paper deliveries in Communication Papers. We achieved a €40,000,000 reduction in fixed cost in the Q3, which offset clearly more than half of the volume impact. One can say roughly that about half of the fixed cost reductions came from temporary measures. When we compare sequentially to the 2nd quarter, you can see that the negative impact of 5% lower paper prices. On the positive side, variable costs continued to decrease. Paper deliveries increased sequentially as paper demand partially recovered. Fixed cost came down partly due to seasonal reasons and also due to the closure of UPM Chapelle paper mill and Uvascular Plywood Mill. On this following page on the right, you see the continued good performance in Raflatac and Specialty Papers shown here in the quarterly development. As Jussi discussed, demand for labeling materials somewhat normalized in the Q3. Earnings partly normalized as well, but in both businesses remained on good level, thanks to good margins. In Specialty Papers, the prices of fine papers in China were lower than in the 2nd quarter, but demand continued to improve. In the middle, on the upper row, you see communication papers performance. Paper prices decreased by 5% from the Q2. However, thanks to the ongoing cost reduction measures and improved efficiency, the business was able to turn back to positive EBIT in the 3rd quarter. In biorefining, pulp production and deliveries were strong. Biofuels achieved a new quarterly production record. However, pulp prices remained at a low level affecting the profitability of the business area as a whole. Energy continued to deliver stable good performance as the hydrological situation normalized and market prices improved. The business exceeded well in optimizing hydropower in the volatile markets. And plywood delivered relatively stable performance. The market for spruce plywood was good both in terms of demand and prices. However, the market for birch plywood remained clearly weaker. In the Q3, we released some of the working capital increase that took place in the first half of the year. And therefore, as a result, operating cash flow improved in the 3rd quarter from the earlier quarters, totaling EUR 365,000,000. Like Jussi already mentioned, our financial position continues to be very strong. Our balance sheet is almost debt free with only €89,000,000 of net debt at the end of the quarter. Liquidity reserves are high, totaling EUR 2,300,000,000 and there are no financial covenants in UPM's debt or credit facilities. This Page 9 shows our CapEx estimate for this year. Our latest estimate for this year's CapEx is €950,000,000 including €650,000,000 on the 2 transformative growth projects, Uruguay and Germany. This estimate has come down somewhat during the year as the timing of the larger CapEx items gets clearer and closer in time. As Jussi said, the projects proceed in line with the planned start up schedule. And based on this estimate, after this year, we will have invested about EUR 700,000,000 dollars on the 2 transformative projects and about $2,500,000,000 remains to be invested roughly over the 2 coming years. Our outlook for 2020 is unchanged from the previous quarter. So we confirm the outlook for this year, as is shown on this slide. The COVID-nineteen pandemic and the related containment measures as well as the economic downturn continue to cause high uncertainty. One thing to keep in mind here is that we will have significantly more maintenance activity in the 4th quarter than in the previous quarters of 2020. This is mainly due to the 2 pulp mill maintenance shutdowns at Pietasari and at Kalkas Mills that were postponed from the Q2 this year. Now these shutdowns are proceeding with strict safety and health precautions. We expect about €50,000,000 impact on the 2 shutdowns combined in our 4th quarter by refining results. And as always, in this figure, we include the maintenance costs and the impact of last production during the shutdown. And now I'll hand over back to Jussi for some comments on the cost cutting measures and growth projects. Thank you, Tapio. Our focus is clear. We know what we need to achieve in the coming quarters. We will run our businesses efficiently and take measures to drive good performance in everywhere in UPM. We will implement our transformative growth projects with determination and focus on timetables and costs and health and safety of our own people and also project people. We continue to develop the next step of our biofuels business. We are having a plan to grow that business with a 5 times bigger facility. This is how we aim to create value to our shareholders. That is very important. During quarter 3, we took forward plans for decisive restructuring and efficiency improvements. Closing of the Jugascula Plywood Mill in Finland and the Chapelle paper mill in France were finalized early in the quarter. Plans to close Kaipola paper mill in Finland and to sell short ton paper mill in Wales were announced. The Kaipola mill will be closed down in the middle of December. Streamlining began in quarter 3 in business functions of the communication papers in the Finnish pulp mills, at the Tervasari mill and at the UPM Forest. In addition, UPM Raflatac and UPM's global function announced efficiency improvement plans in October. Unfortunately, many UPMers are suffering of all these actions, but the measures are necessary in the long run. UPM has taken extra measures to support transition from job to job. And I like to thank all UPMers for their work to secure our future commitment and pragmatism during these times of all of us in the company is highly appreciated. Thank you. All of these measures combined with expected to result in annual cost savings for approximately €130,000,000 With the conversion of the Northland PM2, we are also reducing communication papers capacity by almost with these all actions by 1,200,000 tons in 2020 or more than 1,400,000 tons after the divestment of short ton paper mill. Here you can see the quarterly postcard presentation from Uruguay at the pulp mill construction site, civil construction works are proceeding according to the plan. Construction of the chimney is its final phase and the foundation for the other process buildings are proceeding. Underground piping is proceeding as well in very well. The project office and canteen has been finalized as well. At the pulp mill terminal site in Montevideo Pier and Tank areas are well proceeding on construction. And the pulp warehouse and unloading areas steel frames are ongoing. So we are proceeding as we planned. The biochemicals refinery project in Germany is also progressing well and the construction has begun at the site. The pictures are from the groundbreaking ceremony early this month. On the right, you see the Sachsen Anhalt Prime Minister, Doctor. Reinhard Hasselhoff is giving his speech at the event welcoming our innovation and investment. The investment was awarded the Bioact of the year 2020 by the World Bioeconomy Forum in September this year. Ladies and gentlemen, UPM's long term value creation is driven by our spearhead of growth strategy. These are the sustainable businesses with strong long term fundamentals for demand growth and high entry barrier. This year, we have achieved record earnings in Raflatac and Specialty Papers. We continue to see attractive growth opportunities in these specialty packaging materials businesses for the coming years. Our highly competitive pulp mill investment in Uruguay is proceeding as I have been telling in line with the planned start up schedule. With the low cost position and large scale, it represents the step change in UPM's earnings when it is up and running. The biochemicals refinery investment in Germany is also proceeding well. This is an attractive investment which will open totally new markets for UPM's long term growth. Development work continues regarding to our next step in biofuels. Ladies and gentlemen, this page is illustration of UPR's transformation over the past decade. And in the coming years as well, we discussed this among many other topics in our Capital Markets Day and you can find the CMD recording in our website in case you missed the event. In the transformation Phase 1, we set up an efficient and agile operating model. We improved our strong focus on performance and then we strengthened our balance sheet, so that we can now implement also large scale growth projects. But on top of that, we were launching early enough lot of innovations to be prepared. We have prepared the growth projects through truly to achieve the target returns. This is really the interesting part of the transformation Phase 2. This has taken years of preparation and innovation not to forget sustainability work that we have been doing together. We continue to take actions to maintain good performance in all businesses, particularly in our Communication Papers business. Even though we have a strong track record in Communication Papers earnings, EBIT margin in the growing businesses have been clearly higher than that of mature paper business. Thus, the changing business mix drives both earnings and perception of the company. The new positioning is there. This page shows our kind of track record on key sustainability ratings and recognitions. We believe sustainability forms an important part of the competitive advantage and is a good growth driver in many of our business areas, particularly in spearhead of growth businesses. As an example, we have signed the UN 1.5C Climate Target committing ourselves to a significant reduction of the emissions and practicing climate positive forestry, innovating products that are replacing fossil materials and contributing climate change mitigation throughout emission reductions. In Q3, as one of the 41 companies only 41 companies worldwide, UPM was again recognized as a U. N. Global Combat lead participant for our strong commitment to responsible business. We greatly value this recognition. Among some other recognitions, I would like to highlight the CDP where UPM is 1 of only 6 companies worldwide that have achieved A rating in the 3 categories: climate, forestry and water. In MSCSCI ESG ratings, we have highest AAA rating. But ladies and gentlemen, this page is concluding our prepared part of the presentation. And dear operator, we are ready for the Q and A session. Thank you. Thank you. Our first question comes from Alexander Bergelind from Bank of America. Please go ahead with your question. Thank you very much. Two questions from my side. I'll start with the first one, which is on graphic paper. So my question is if in the current environment, if you think that there is need for more capacity closures to balance the market going into next year? And also how you see UPM's road here? Do you think that UPM will need to make further closures? So are you happy with measures you've been taking? And how do you think that might be up to others or potentially higher cost producers to go ahead and close capacity? That was my first question. I'll let you answer that and then I'll follow-up on my other question. Thank you for the question. This was a surprising question. When you have been taking 1,200,000 tons of capacity in last 12 months, I was expecting this has been the case in last 15 years as I have been the CEO of the company. Obviously, we take measures when there's a need for taking measures. And basically, with these measures that we have been taking, our internal operating rates are coming to be at least short term on a good level. We are talking about more than 80%, 85%. Of course, everything is very much related to how the paper demand in Europe will especially in Europe will develop. And I only remind all of us that in May, we saw 40% decline in demand year over year, June 25, July 22, August 19 and September 13. So we have seen the normalization in that as well. But quite firmly, I can say, And we take actions when there's a need to take actions. It is what I have been saying for the last 15 years. And I don't remember a year after 2,006 when UPM has not closed capacity. This is for the reason that we keep our cost competitiveness under check. So like I said in the beginning of the call, in the good times you prepare yourself, in the bad times you deliver what's your and you can maneuver throughout the difficulties. But in all times, you need to take care of the cost competitiveness. Obviously, this is related to paper. Your question is to paper. But for me, the euro earned in every business is as important as in the paper business. And therefore, we take actions in all businesses and in all functions. So every corner of UPM is contributing to improve our cost competitiveness. Thank you very much. My second question is on dividend. And I know it's a question for the board, and we'll have to wait for the Q4 results. But I just wonder if you could share a bit your thinking here because I'm getting a lot of questions on dividend and how you think about payout rates here versus the balance sheet and CapEx. And you have given that SEK 3,500,000,000 to SEK 4,000,000,000 illustrative example. But if any comments, how are you thinking about the potential phasing of that? And another question that's come up as well that I wanted to ask you is, in these tough times, has there been any political pressure that we should be aware of against paying large dividends given it's a tough time for the economy and the industry? Thank you. Now if I start from the latter part, have we seen any political pressure on dividend? It's I could understand the kind of challenge if our balance sheet wouldn't be strong if we wouldn't invest. But if you take UPM, we have a €3,000,000,000 investment portfolio ongoing. So we are putting a lot of effort to our future and future earnings growth and the value of the company. And then the balance sheet is rock solid. Therefore, I have not seen any further than maybe public statements that it is not good to pay dividend if you in during these kind of times. But I have not seen any particular point that it would have affected our kind of consideration for these two reasons. As I said, we have all the money to develop the company as in the best way possible with €3,000,000,000 investment money and then the rock solid balance sheet. When it comes to dividend, obviously, you're very right that it is board to make a proposal for the Annual General Meeting. But obviously, we need to think about long term and a bit kind of over these kind of exceptional times as well looking the bigger picture where, of course, the cash flow and the balance sheet are important considerations. We work on that basis in management that we drive for performance, we drive for the implementation of the projects and then at the same time building a platform for very solid predictable dividend for UPM. So the guidance that we have given is not a hard floor or not a hard ceiling in that respect. We need to have a bigger picture. But that discussion obviously comes early next year. Thank you very much. Those were my questions. Our next question comes from Antti Kosova from Danske Bank. Please go ahead with your question. Yes, thank you. It's Antti Koskivov from Danske. Three questions from my side. First one, a follow-up on communication paper and the market balance. You mentioned your operating rates to reach 85%. I was just wondering how does that compare to the total European market? That would be very interesting to you. Yes, I don't have a figure for Antti, I don't have a figure for you. I have at least I'm working for UPM. And for me, the efficiency comes it has always come from that, that you are in all every minute, every day, you are cost competitive and take actions when there's a need for that. Maybe call Mikael later to discuss, I have no statistics. Yeah. I was just trying to get a sense of the overall market balance at the moment or going to 2021. And that was the reason for asking that. But yes, I can take it up with Mikael later on. And then the second question on the businesses that has kind of benefited from the COVID-nineteen during the first half of this year. And now you said that in Q3, in labels volumes, there is the destocking impact is visible in Q3. I was just wondering how do you see the inventory levels at your customer side at the moment? Should we expect kind of similar type of negative impact on deliveries also in Q4? First of all, in label stock materials, we have not typically seen any of this kind of inventory kind of buildups and then or swings in inventories. That is not typical for the business. But when the lockdowns came suddenly, there were quite many customers thinking about that, hey, let's call in extra stock. And that has been now the reason for the minus 3%. If I look at the order inflow in UPM, it is in a good level. So that's how we see it today. And then when it comes to Raflatac's performance, it is great to see now 3 quarters consecutive quarters above 10% of EBIT margin, where as last time Tapio explained that we 60% of the good result is in our own doings. And then 40% was kind of supported by the tailwind. For sure. All right. And the last question, just a clarification on the maintenance cost you see for Q4. Just to get it right, is it the maintenance as a total now seem to be €50,000,000 higher as a cost versus Q3? Did I get it right? Well, as I said, we have the 2 pulp mill shutdowns, maintenance shutdowns, Kalkas and Pietasari and also in the case of Pietasari, some days longer than usual maintenance shut down there. So that €50,000,000 relates to the impact of those both in terms of the actual cost of the maintenance and the impact of the blast production as such. Yes. But that is that $50,000,000 is including all the maintenance that you are going to do in Q4, not just those 2 mills? Well, main part is from those 2 mills. Yes. Okay. Thank you very much. Thank you. Our next question comes from Lars Schoberg from Credit Suisse. Please go ahead with your question. Thank you. Of course, there's quite a lot of growth projects coming and I guess starting up in 'twenty two really impacting you in 'twenty 3. In the years between, what sort of measurements or actions are you taking to safeguard profitability? Process to drive profit improvement over and above what can happen in the market? First question. And the second one, I just wanted to hear you, the status report from Cholton where you are in the process of divesting that mill. And finally, are you seeing any pressures up or down on operating costs, raw material costs in any particular part of your business? Lars, if I take the first two actually, the shorter case and then the CapEx. Obviously, as it is actually stated in our presentations as well, we continue with the kind of operative investments and that CapEx as well, obviously, is trying to save some of the money as well to the kind of transformative projects as well. But obviously, short term cost competitiveness investments, they are not in the same size as we had in the previous years when you were talking about like bulk mill debottlenecking so that we have done. But obviously, cost related and maybe some of the quality and the product related investment as well, which are the high yield investments as well. So basically, that part is typically very cost competitive and improving our profits and securing ensuring the profits as well. When it comes to short term, it is early stage. We do have interested parties already. They're actually discussing with, but we will update you when the things are proceeding. Now it is early stage, but quite a lot of interest has been. All right. Luca, you mentioned pulp mills and debottleneck. And of course, your paper capacity is shrinking and your sort of long position in pulp is growing. Just wanted to hear your views on where this pulp is going. Where is it going to find an address as paper mills shut down and pulp mills stay open, which seems to be a bit of a theme? And specifically, how you think about this as a company? No, UPM, when we made the kind of decision in 2,008 to make the separation between pulp and paper ever since that, it has been pretty clear to us that the maturity of the pulp is sold to the market. If I remember correctly, we are roughly 1,000,000 tons using our own pulp today in our own operations in papermaking. So basically, the business has been growing pretty fast in three segments. It is in packaging areas that we sell roughly 1 third or even more today, tissue hygiene another third or more and then the rest in the graphic paper segment where it is shrinking as well as a delivery. So basically, this very well positioned when we made the decision that pulp business is separate business and the kind of commercial strategy is based on the long term targets and long term success of the pulp business and preparing a lot of actions when the Uruguay Passo del Osteros project is completed by 2020 end of 2022. Very actually solidly considering that and happy with the progress that our people are doing to prepare the growth step as well. So basically, this quite good decision that we made in 2,008. Just a final question on pulp and specifically to China. Considering that you have operations in China, you've seen a bit of pricing pressure, I guess, in fine papers. So just wanted to hear a bit how you think about China now. And there's been a flurry of announcements from some Chinese companies building pulp mills, which from the outside doesn't necessarily make a great deal of sense. Can you make any sense of that? And then just also how do you think China is doing right now and certainly in your own business? Yes. China is, in my opinion, clearly back on growth track. So it is visible in all businesses that we are having a significant role in China. Volumes are growing. And as does that even the statistics are saying like in the Fine Paper business, we have seen we have seen lately a price increase and there's a lot of kind of announcement of the Chinese players and all of us to improve prices. Raflatac is having a solid position and then the Specialty Papers and Pulp. So China is back on growth and quite a lot of activities is ongoing as we can see it from many other businesses as well that China is clearly growing and on a growth track. And China building its own pulp That is some consideration for how you think about pulp markets going forward? Sure, Lars. It's a kind of where China typically is building pulp mills based on imported raw material, and we'll see how many and how big the volume increase will be in net net effect. I wouldn't rule out that lot of old pulp mills are still to be closed as well. For the environmental reasons, for climate reasons and for the efficiency reasons. So we'll see what happens, but quite challenged to consider to build a pulp mill without having a kind of domestic raw material. But that has been the typical way of in Asia like the Japanese have been making that many years. We'll see. Makes sense. Thank you. Thank you. Our next question comes from Harri Taittonen from Nordea. Please go ahead with your question. Yes, good afternoon. Harri Taittonen from Nordea. Just a couple of questions on the near term sort of outlook. And I mean, just a year ago, you said in Q4, the energy refunds for that amounted to a reasonable number. I think you said that they were up by 20% from the previous year then. I mean, can you just sort of give a bit of color of the dynamics and the quarter on quarter sort of implications now? You didn't have any this quarter in Q3, but there should be probably something coming in the Q4. So some color on that would be useful. Thanks. Well, it's the pattern that we have had, like you said last year, it's in the Q4 when then these are accounted for in the result, primarily in the communication papers. No number to give on that or any kind of guidance further, But of course, one thing to keep in mind that there are both in Finland and Germany, partly also in some other European locations, but let's say the most significant Finland and Germany, there are sort of different sort of mechanisms in place, grid fee refunds and so on, but also this CO2 compensation, which is also related to the CO2 price in the emissions trading market. So if you look at the development of the CO2 price that will also give you some idea about kind of the direction directionally what can be expected. Right. So basically, because of lower volumes and somewhat lower prices, the impact could be negative year on year, but still you could have quarter on quarter, there is a sort of sequential impact on the positive side. On the sort of the paper pricing, you reported about that 5% decline in average pricing, and that was pretty much what the list price has also said. Is that price erosion now in earnings? Or do you see like the average selling price in the Communication Paper side? I mean, should it be more or less flat now? Did it sort of come straight through all at once? Well, that was implemented from the beginning of the quarter. So from that point of view, I think kind of the Q3 performance is reflective of that. Right, right. And the final question, the wood costs in sort of specifically, at least the list prices have been coming down and there's been comments on the very good availability of the sort of wooden continental Europe at low prices with the sort of the black beetle damages. But I mean, was that sort of driving the cost side a lot in Q3? And how do you see the Q4 versus Q3 there? Is that sort of still or is it sort of looking flat? Or what's the direction that you see at the moment? Well, maybe I'll comment, I think Lars also had the question earlier, which we didn't have a chance to comment. I think obviously if you look at the sort of comparison that we had between the quarters earlier in this presentation, obviously, there's been benefit of lower variable costs that we have had year and also sequentially from the Q2, partly because of our own measures as we always do to improve efficiency, partly because of tailwind. It's been, I would say, quite broad in a sense, fiber costs, including wood and recovered fiber and then other sort of inputs like, for instance, the labeling materials have been, let's say, deflationary for us. And I would say that in a sense that is the outlook for the remainder of the year as well. So obviously, wood cost has been part of it, but obviously, there are many other factors there as well. If you kind of look at our kind of developmental curve in terms of how the wood cost develops. Obviously, the wood is sourced over time. So I wouldn't sort of expect big swings quarter after quarter in a sense here, but relatively, let's say, continuous trend there for the remainder of this year. And obviously, early to say too much about next year, but maybe to what Lars was also asking about, we don't see any kind of strong reversal of that kind of a trend next year, so relatively calm cost environment perhaps, but that remains to be seen. Okay. Thank you very much. That's helpful. Thank you. Our next question comes from Robin Santopita from Carnegie. Please go ahead with your question. Thank you very much. Regarding China, you probably started the quarter with lower Fine Paper prices after declines we had in the spring. You said demand is better in China now. Did you see increasing prices in fine papers during the quarter of Q3? And what is the market balance at the moment? There's been some price increase announcements. Do you see balance good enough for higher prices still? Or is this the price we should expect for the end of the year? The volumes recovery has been pretty solid. And like I said, that China is back on track on growth as well. So we'll see and how then the prices will be seen in the future. But there are attempts already of increasing prices in short term as well in Fine Papers. All right. Then also related to China, I guess China now will stop importing recover paper as of 2021. Do you see any changes to sort of your operations or the market environment for you guys either in China or then in Europe on the back of that decision? Not that I know actually at this point that what will be the kind of dynamics of it. But obviously China has been taking volume from Europe as well. So basically this might be positive. But on the other hand, we have seen that a lot of recovered paper will be then processed somewhere else and then the fibers will be delivered to China as well. So it's a kind of a 0 sum game maybe in that respect. We'll see, but takes time, of course and short term effects are there, which is difficult to predict what will be the short term effects. All right. And then finally related to you mentioned the European graphic paper decline sort of 13% in September, which is a large number, but clearly less than in the spring. Now we see lockdowns sort of tightening again in Europe. Is this something that you can see now from order intake at the moment or already now in October? Or how has the graphic paper order intake developed for you guys now post Q3? Actually, these lockdowns that are in the minds and hearts of the decision makers are pretty much as we speak. Therefore, it is hard to say what will be the consequences. And as I have understood in many countries like here in Finland that we are not going to make similar type of lockdown as we made in springtime. So remains to be seen how does that affect. But like I said that it is early to say anything. It is just rapidly actually proceeding thing at this point of time. We'll see, but obviously, the positive development has more or less normalized things somewhat actually more than the springtime or stuff, but we'll see. Don't know yet. Okay. Can you comment on sort of so far what you have seen after September in terms of order intake? No, I won't comment on that. No, we won't comment on that. I understand. Yes, sorry. Yes. Then finally, if I just may, one more on this EUR 130,000,000 cost cutting program. Can maybe Tapio comment a bit on the back of that, how should we expect that to sort of fall down to the bottom line during 2021? So when will this be sort of fully implemented? Well, let's say the actions are being implemented during this year, of course, let's say the biggest sort of first step, which we have talked about is the Caipolla shutdown. And in practice then how it will start impacting our or when the savings start to come, obviously, kind of we will be at the full run rate, I would say, relatively soon by the sort of during the first half of the year or certainly, sort of during next year, the let's say, some of these savings still will not sort of fully materialize from January on, obviously, but let's say, we will sort of get to the full annual run rate during the year and should be as set coming there by the halfway of the year. All right. Thank you very much. Thank you. Our next question comes from Michael Doepel from UBS. Please go ahead with your question. Thank you. Just continuing a bit on the cost savings and just to be clear there, are there any benefits that you expect to see already in Q4 this year or is everything coming next year? Well, let's say of the new actions, of course, that is materializing next year. We do have actions that were impacting already the 3rd quarter fixed costs positively as well like the Schappel and the Uvascular Plywood Mill closure. But of the new decisions that have been now announced or plans that have been announced during the Q3, then there the impact will be next year. Okay. And in terms of the working capital, you mentioned the release that you saw in Q3. What do you expect for Q4? Do you expect to see a further release there? Or how do you think about that? Well, I'd say so that typically we do release cash from working capital in the end of the year or in Q4. This is not a typical year, so we'll see. But typically, that's what you would expect. Okay. All right. Good. Thank you. And then just a final question on the pulp market right now. How you see it? And what's your take on it in terms of the inventory situation, the value chain, how you see demand and pricing tracking right now? I think Jussi gave some comments on that already, but I would kind of just reiterate that, let's say, as far as our volumes are concerned, we have been able to find good demand for our output throughout the year, also in Q3 and particularly in the end uses that also Jussi talked about. And I think we have seen kind of a business recovery in China, let's say, in across the board of the businesses that are relevant for us. So eventually, that will support the pulp market as well. Then as far as the prices are concerned that I won't sort of forecast here. Inventories in the producer inventories kind of remained sort of flat during the summer months now. So we don't obviously see There is no sort of statistics on what the inventory is that the customers are holding. But again, if the volume development is positive on the customers business, then that should actually dig into the inventories and or deplete the inventories as well. Okay. Thank you very much. Thank you. Our next question comes from Karl Barthman from Jefferies. Please go ahead with your question. Morning. Thank you for taking the question. Just focusing on the Specialty Paper division, and I know your Northland conversion has started to ramp up from the beginning of the year. With demand being quite a bit stronger in labels and specialty paper, do you see opportunities for further conversions there in the future is the first question? And then the second question on a number of pulp projects that have been announced in Latin America. Could you just give a little bit of color between the difference of pulp projects being announced to those that actually come to be completed late into the future? Because I know that your Uruguay mill, you spent a lot of time making sure that you've got access to sell energy, transport links are in place, etcetera. So just some color on the ability for announced projects to actually end up being built? Those were very good questions. First of all, Northland is now, as we speak, ramping up. And obviously, we think about the Specialty Papers in a broader view than only not in a class scene, but also some packaging rates. And obviously, when there's a time for the further conversions, we definitely can consider that. But the focus today is clearly ramping up Northlande. So when the time is right for the next steps, we'll see that. When it comes to Latin America, it is of course for us it took 10 years to develop the project. And the main aim was $280 per ton cash cost. So we were doing and developing things into the states that we have a high security for the lowest cost possible project in Uruguay. And therefore, it takes time. It is not it's not happening with just making an announcement and then starting to build the pulp mill. A lot of actions in the plantation, a lot of preparation on the grid and energy and the port and what have you. So it takes time to really make competitive facilities and that's the UPM way. Thank you. Thank you. Our next question comes from Linus Larsson from SEB. Please go ahead. Thank you very much. I'd like to ask on La Perranta and your remark about all time high production. I wonder if you could share with us what the production was in the quarter. And also, I'd be curious if you were willing to indicate what kind of run rate return you have on that facility with this improvement that we have seen on output? Thank you for the question. It's quite it was an impressive move that we made. We changed the catalyst in the springtime. We had the kind of stoppage maintenance stoppage and we changed that and we got quite a good setup for the and balance for the mill. We definitely not disclosed the capacity increase, but it was a good step up in production and volumes as well, which is a great news. And when coming into the financials of the mill, it is still performing very well. Unfortunately, we do not give the numbers, but the profitability is good. And what and the reason that I am asking is with the thought of future projects as well. And do you and I know there are a lot of decisions, including locations for the location to be made. But are you expecting that the next project will be even clearly more profitable than the current? And how are you seeing that decision making going given the uncertainty in the overall macro outlook, etcetera? Yes. And how you're weighing different possible location against each other? Yes, we do have the plan for everybody to do who are on the line that we have a plan to make a 5 times bigger biofuels operations. And consequently, of course, we are kind of looking after more efficient mill as well when it comes to how to use raw materials and fixed cost and what have you. So basically, obviously, trying to make even at the same level or better. But with the current level, I would be happy for the next step as well if that would happen. Then we are now as we speak, we are coming to the closure of the next step or next decision, which is then the kind of basic engineering step fell 3 as we call it. And but we have not made the decision. And hopefully in the coming months, we can actually take that step. And during that process, then everything will be reviewed in several locations for the where the best possible return on capital employed will be delivered and that will be then the decision where it will be located. But that work is not decided to start yet, but hopefully in the few months we will be there. And so at the just a final question on that, if I may. When at the earliest would the definite go ahead decision be made? If the fell tree takes minimum 12 months, so when that decision is made, then we are starting the basic engineering and typically it takes 12 months that is our kind of guidance for the investors as well and then the final investment decision comes. So the window for the final investment decision is opening. That sounds exciting. Thank you very much. Ladies and gentlemen, Lea, ladies and gentlemen, I think that we have spent our time. And thank you for coming and joining us this afternoon. Thank you. Bye now. Thank you.