Earnings Call: Q2 2020

Jul 23, 2020

Ladies and gentlemen, welcome to UPM Second Quarter 2020 result webcast. My name is Yousry Pesonen. I'm the CEO of UPM, and I'm here with our CFO, Tapio Korpeinen. Out, everyone. In Q2, people and businesses around the world felt, impact of COVID-nineteen pandemic and the related lockdowns. The COVID-nineteen lockdowns clearly impacted the market demand for UPM products and impact was divided. Demand for graphic papers, serially 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 consumers' reaction during the lockdowns. Our businesses in specialty packaging materials, value chain, UPM Praflatek, and specialty papers delivered excellent result. Our final sustaining 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 3 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 €203,000,000 and our EBIT margin was 9.8 Yeah. Then, if we talk about, safety and business continuity during the COVID-nineteen, it did not have directly impact our operations in any material way. We have implemented extensive precourses 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 success 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 achieve achievement and has enabled this satisfactory result in the highly exceptional circumstances. Ladies and gentlemen moving into the, business part of the, con, consequences and impacts, While our operations have not been impacted by COVID, the 19 epidemic itself, the related lockdown measures around the world have, had significant impacts on demand for various UPM products, both positive and negative ones. And let me start with the graphic papers as many businesses and offices and schools where and have been closed, printing advertising and use of office papers fell significantly. In Q2, the European demand for graphic paper, decreased 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 forced sock as businesses have been closed and people have been staying and working from home. Consistently, our order inflow bottomed in endofMay and being, 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 usage is still low. As mentioned earlier, Raflatac and specialty paper 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 Materials. In UPM, in Europe, the Q2 demand for sulfur 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. Raflataca's 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, pulp 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 2nd 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 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 texts, both in, the new bulk mill project in Uruguay and the biochemical refinery project in Germany. And they are well on track. Starting with the Uruguay, all parts of our project are making progress, be it the mill site in Paso Delos Doros, the pulp Mill terminal in, 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 $2.80 is, valid as 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 to proceed as planned. Unlike many other, Latin American neighbors, Uruguay has taken very, stringent COVID-nineteen 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 to high level of testing and segregation and what have you. All this combined with UPM own extensive safety procedures has kept our sites in Uruguay 3 of the COVID-nineteen pandemic. 3 months ago, we provided you a sunny postcard of the Uruguay pictures where we are in the in in those, proceedings, of the and what what is the status of the project. And now you can hear see here a pause card, which is, maybe not less sunny, as it is wintertime in Uruguay, but the progress is, is, good. We have been able to actually proceed as planned. On the left hand side, you'll see the mill construction site and in the middle, the housing areas, and on the right hand side of the pictures, on the video port. Ladies and gentlemen, what is coming, and what is ahead of us. I I would like to use this slide to talk about it. In the coming quarters, we will focus in 2 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 operators using measures such as a temporary layoffs and, and shift arrangements and such. And in addition, we have taken and will continue to take actions to ensure profitability and competitiveness of our operators 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 Chapel final decision of the Chapel paper mill in France, And this week, we decided finally to close the U. S. To apply wood mill, timely actions as we speak. Our second focus area, obviously, and clearly is that we are, we are successful in implementation or our transformative growth projects, the low cost pulp Mill in Uruguay and the first of its kind bio chemicals refinery in Germany. On top of these 2, our development work continues to scale up our biofuels business 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 details. Tapio, please. Thank you. You see. Here, analyzing the, change in comparable EBIT, we can see that compared with, last year's second quarter, the 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 you should describe, The lockdowns had both positive and negative volume impacts to UK And 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 1,000,000, compared to last year. This was enough to offset for the lower delivery volumes on UPM level. When we compare sequentially to the first quarter this year, the picture is, quite simple. Our EBIT decreased due to lower paper deliveries. Normally, our fixed costs would increase seasonally from the 1st 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 early 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 this slide, on the right side, right hand side, you can see the excellent results we achieved in Raflatac and, specialty papers, as Houston mentioned, meaning in our 2 specialty packaging materials businesses. Over the past 2 years, both business areas have been to improve margins and to develop product mix and to reduce fixed costs. And as we discussed already, after the first quarter results, this may 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 cost 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 4th 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 you see said, we achieved the 2nd highest quarterly pulp deliveries, up 8% from last year. In the biofuels business, demand for renewable diesel and naphtha continued to be good even if the overall fuel 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 Oakwater nuclear power plants. Plywood had a relatively solid quarter although the market for Birch Plywood remains weak. Here, we have the cash flow. Our 2nd quarter operating cash flow was 1,000,000 as we had an increase of 75,000,000 in working capital. Usually, UPM ties 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, in the, context of the first quarter results and, noted then that at the end of the last year, our work capital was very low, which partly normalized in the first quarter. So this combined with the normal seasonality increased the working capital, during during q 1. Now during the, 2nd quarter, as already was described, we had fast changes in the different, UPM businesses, which we're 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, 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's second quarter to 1,000,000. After in the second quarter, we paid 693,000,000, in dividends. Our liquidity reserves are high, total in €2,000,000,000. This includes the 750,000,000 sustain sustainably sustainability linked revolving credit facility we signed in the first quarter and 550,000,000 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 1,100,000,000, including 1,000,000. Related to the transformational growth projects. Our maintenance investment needs are low below 1000000. We have today reintroduced an outlook, for 2020. Obviously, there continues to be high uncertainty for the second half of twenty twenty 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 lockdowns 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 Yousid described earlier. We expect a moderate decrease in paper prices for the third quarter compared to the 2nd quarter And pulp prices are starting, now going into the second half of the year. At a low level. As you the second, quarter to 4th 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 Yousry for some final comments. Thank you, Tapio. And, ladies and gentlemen, once again, our work continues, we will focus on 2 main topics. First, We will ensure our good performance in all businesses. And secondly, we are focusing on implementing 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. UBM's long term value creation is driven by our spearhead of growth, initiatives, these are sustainable businesses which 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 continue to see attractive growth opportunities in these 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 in this area's specialty papers, oh, specialty packaging materials area was same size as sales as the paper business communication papers more than 700,000,000 and the EBIT margin was more than 15% for that area. So very attractive area to grow for the future. On how on our highly competitive pulp mill investment Uruguay is proceeding in line with the plant, startup schedule, once up and running, it represents step change in UBM 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 and growth as well. And then then moving to the right side of the, of the picture, engineering and planning are ongoing for biochemicals refinery investment in Germany, in line with the 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 work continues regarding our next steps of the biofuels business, and that has proceeded well as well. Continued success in the bio chemicals and the biofuels businesses has a 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 to at least 3 main topics, but, on top of that, plentiful of 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 every day is is our in our focus. So I wish you all warmly welcome to the event. And with this slide, I I'm not going to repeat any of the of the message. She said, I conclude my presentation and dear operator, I'm we are Tapi and myself. We are ready to take questions. Thank you. Thank Once your name is announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial 02 to cancel. Our first question comes from the line of Justin Jordan at Exane BNP Paribas. Please go ahead. Your line is open. Thank you, and good afternoon, everyone. I've just got two quick questions firstly on communication paper and I guess this is really for Yuzi. I remember well back in 2009, you took some very, decisive action to the, then to derational and capacity. Clearly, I I know you've already closed the Chapelle newsprint Mill. I guess I'm not I'm not asking you to comment on specific mills. That would be unfair, but I I'm assuming you are reviewing the situation regarding actions that may be required over the next 6 to 12 months for communication pick up capacity for UPM. That is correct. Roger that, you know, 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 upper, 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 assets. So, yes, it is, some that one should, consider. But, like I said, that, Q2 is not representing of the of the structural change or any of the long term changes. That is something that we are also analyzing at, as we speak. Okay. Thank you. I've just got a quick follow-up for Atapia, really, on the CapEx. Clearly, you're now guiding to 1,000,000 less CapEx in calendar 2020. And I just want to clarify that's the 100,000,000 reduction in the Uruguay or Spirit's related CapEx. Presume that's just a timing issue that presumably will be just increased in 2020 to 1 or 2022. And then really the the other 100,000,000 that's reduced UPM maintenance CapEx, shall we say, or how would you describe that time here? 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, you see already earlier mentioned the, overall capital frame, that we have communicated, in context of the investment remains, as we have earlier set, so no change there, but, then, more more sort of, accurate estimate of, what will be the CapEx for this year. And, also another point related to that that, already you see, 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, more accurate estimate for this year. And, same for time same for the maintenance CapEx as well. Thank you, Tapia. Thank you. Our next question comes from the line of Lars Shelberg of Credit Suisse. Please go ahead. Your line is open. Thank you. I have a couple of questions. If we start, USC and tap you with what you're talking about at the early stages of normalization you, of course, talked about the paper starting to see improving order books and somewhat more normalized on on the labels business, how should we view the pace of that normalization? And also if you could comment on the pulp side, which of course was record high, deliveries in the second quarter, as, I guess, tissue normalizes a bit and how does that translate into your order books for pulp? If if I start from the paper and, of course, Tapio can comment as well. But, but paper, we saw the order inflow turning end of May. And then consequently, our deliveries turned, you know, 1 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 in Europe, which meant that a lot of advertising and lot of, you know, offices and everything was stopped, and of course, then there has been an inventory inventory cycle as well. And now we have been getting, you know, quite, quite nicely back on on, on, order inflow, figures that are better than on the worst moment. So there's the trend change is clear, and that is That is for clear. And then, of course, you know, talking about the Raflatanga Specialty Papers, similarly as well, where there has been a strong demand anyway. We we already started to like Raflatac's, good order inflow and and specialty papers before the pandemic and, and that that is something that, that is no more more normal Public deliveries were strong for us. And, obviously, we we have the direct contacts to our customers and 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 is a, like I said, a great proof point that they are really, businesses that are running their sales, separately from each other. But there's no trend change specifically in the pulp business, negative or positive? Our business, if if you just only review the seatments, you know, they are quite strongly up from that of last year, 7 point it's 7.8%. Of course, now we do not have all the Brazilian statistics in, but, you know, 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 pieces always, there's inventory cycles as well. Obviously, I don't believe that it is so strong when it concerns the underlying demand, but, but we do have a quite a comfortable feeling of the of the of the, of the second second half of the year when it comes to volumes. And just a couple of short ones, Raflatac, you you're talking about, obviously, not a new normal necessarily, but to just get a look at the margin, you know, succession rep from, call it, 8% around 15%. How should we think about the new normal in terms of margins in Raflatac? And then just two questions specifically on the costs. I mean, clearly, there's been an element of short work week temporary layoffs, etcetera. So, Tapio, if you can comment on on that fixed cost reduction that we've seen, how much of that would be sustainable and how much would be temporary, if you'd like. And then finally, working capital, of course, a very big outflow. One would expect in sort of tough markets like this 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 quick comments on those. Those, those three questions from you last if I, if I may, on Raflatac, I would kind of look at the beginning of the year as such that 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, the 1st part of, the 2nd quarter will will sort of normalize. Still, we have a I would say a kind of a solid, 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 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 from Raflatac point of view. Then on the fixed cost, this, if if we sort of compare second quarter this year to 2nd quarter last year, and the fixed cost, change or difference was about 60,000,000 One can say roughly half of that is, more this sort of temporary short term, effects of, adjusting to the 2nd 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 3rd point, let's say, separate from the fact that we did not have, the annual shuts in maintenance than in the kind of ongoing ongoing maintenance, there was, less activity as well. You might sort of think about the or their next question might be that, okay. So what what does that mean, going forward from here? Obviously, some of this, 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, US could apply would mail the Chapelle newsprint mail, plus we believe that we can retain actually significant part of this sort of trouble, 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, of, any of this kind of temporary temporary, fixed cost reductions. And then we come to the topic that, you'll see 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, as said, this is a different situation than what we saw for instance, in, 2008 and 9, where we had a slowdown 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, and sort of maintain or improve, working capital efficiency. Now we have, have had a, kind of a mixed quarter, one business, particularly, quite sharply down in a short, period of time, while then, on the other hand, volume growth and and strong performance in in several areas. So in that sort of a situation, I said, it's, much more difficult to be as lean as far as, working capital is concerned. And, perhaps realistically, one can it assume that, as the recovery now is uncertain, there may 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 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 our working capital levels and efficiency is, concerned. But, that remains to be seen. This is a different year from any other year. Thank you. Our next question comes from the line of Hari Taittonen of Nordea. Please go ahead. Your line is open. Yes. Good afternoon. Now that you talk about paper prices expected to decrease moderately, does it sort of cover combined communication papers and specialty papers? Or how how is that sort of a, what what does that keep in? And and and how do you see China in that context? Because I understood prices dived or took a pretty steep dive already in the second quarter. So if you could comment on this 2 issues here, please. Harry, 1st of all, this moderately means mainly cost communication papers, in in, in specialty papers, we have a different, different, actually, different, drivers. And, and it is something that happened now end of q 2 early Q3. So that is a comment, which is related to that. In China, we have seen stabilizing prices, of course, during during the q 2, we saw the drop of the prices as well as general but, like I said, that they are now stabilizing, and, and we have been able to able to cope with that as well. But, mainly, these actually communication papers, mid single digit drop. Exactly. That's what I wanted to clarify. And, on on them, sort of, raffle attack and label sort of self adhesive value chain overall, I mean, are you already seeing this sort of normalization in, in, sort of, normal, 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 got the Northland conversion to release line or complete it now and how that has gone and absorbed the market? Harry, this is this calls, I was I was trying to somehow elaborate the whole situation that when the lockdown is, tight, then then you are seeing a drop. And when when the economists and the societies are starting to open that means also that the activity starts to improve, and therefore, it is very much related to that when And, like, in Europe, you know, in end of May or during the May, it was totally locked down. And ever since that it has been moving moving to the to the better the the societies have been opening and the lockdowns have been have been released in in many respects. So meaning that the normalization started to happen on that point. So that this is, I'm trying to say that this is, the lockdown is, is something that has affected positively in Raflatac and Specialty Papers in those weeks when it was totally locked, you know, and, And then similarly in the in the paper business where the order inflow dropped dramatically on on those weeks that the that it was totally locked down. Understood. The final question is on the cost or the main cost lines. And what are you seeing in the wood price sort of around wood price development for going forward? It depends, of course, in Europe, why it is very fixed. You know, we know what it is, sir, and, in in Finland, you know, the wood prices are are trending downwards, but, but more directly. Yeah. Yeah. Okay. Thank you very much. Thank you. Our next question comes from the line of Robin Santander of Carnegie. Please go ahead. Your line is open. 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 those two segments. Our high cost producers, gradually losing losing ground and market share or are there are there still, out there in the market producing us normally? And what what do you see as the out outlook for for for the competitive environment in both of those segments? Specialty paper market, especially for our when 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, last quarter. Consequently to 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, is having a very dedicated position there as well, where we deliver what is our, service service kind of, agreements with our customers. Yes, of course, this is when 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 then is the outcome of the structuring of this, this area as well. But in graphic papers in in in Europe, you're not seeing any major changes in, mark market share distribution. So did you mean graphic papers, not specialty papers? 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 into the, packaging grades, you know, Noske Skook a couple of weeks ago, and Stora Enzo, as we speak, is is turning that obviously, that is definitely changing the world and, more to come, I believe. Have you have you any consideration of, of, converting? I know you don't want to go into to contain a board, but, to convert, to some other grades, some of the paper capacity that you have and what what grades do you find most attractive? Northland, it's a great example of, you know, where we have change the kind of end use segment totally, you know, from, graphic papers to to release liner specialties packaging grades. So that is, 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 or me too business. I I understand. I understand. In terms of chime, apparently, some softness, in in delayed spring in, in a few, few of your segments, but what are you seeing now going into to Q3 in terms of just overall activity, whether it's labeled materials, paper, or or or pulp, so the business activity in enough for for you guys at at the moment now in the summer? That we don't don't, you know, the guidance is what we have been saying, but course, the Chinese economy is now, gradually getting back into the more normal normal situation, which is definitely then consequently coming to our businesses as well. You know, we are not, not immune to economic development and and China is, is gradually getting better. All right. Thanks. And finally, just maybe for Tapio, any kind of guidance or comments on the sort of rough results in by funding maintenance shops that you will have in in H2. Well, let's say, as said, we will have, 2 shots in the 4th quarter, Marcus and Pieta. Sorry. And, typically, the sort of, this thick kind of cost impact of the maintenance shutdown as such is and €15,000,000 for a big mill. And then, let's say lost margin on the, on the, sort of, volume side there. So so that that gives you an idea of 22 big meals, where we'll take the maintenance shutdown in the 4th quarter. Thank you. Our next question comes from the line of Michael Douple of UBS. Please go ahead. Your line is open. Thank you. Can I just come back to the Tapio's comments around the the cost takeouts and and how costs start trending? In terms of the cost take cost for this year, would you be able to quantify how big of an impact do you expect overall and how much of that can be regarded as as permanent. Well, as I said, if we look at the 2nd quarter fixed cost was down about 60,000,000, I believe for the first half is, around 90,000,000. Down, and, we did have, let's say, temporary impacts, again, as I described in the 2nd quarter, some impact, obviously, in the 1st 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 now most recent decisions, sapeleiovascular, which are, already impacting, obviously, not that the full year rate, but still impacting already second half of the year. So there will be additional, sort of, permanent takeout from that. So in that sense, uh-uh, that's why I was comment in, maybe excluding again this, what we discussed just a minute earlier impact on the fourth quarter of the maintenance shuts of the 2 mills. But otherwise, the running fixed costs there, we should be able to, even if, some of these temporary, temporary sort of impacts will kind of reverse a 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. And then 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 you were you were you were your long position in in the 2nd quarter, in terms of market pulp? No. I don't have a figure nor I think it's very meaningful in a sense to look at that on a such a sort of a short, a short period of time. Alright. Thank you very much. Thank you. Our next question comes from the line of Alexander Bergland of Bank of America Merrill Lynch. Please go ahead. Your line is open. Thank you very much. I think most of my questions been answered, but, you know, I got 2 ones. First one, the first one is a bit more of a detailed modeling question, so you apologize for that. But I I believe you renegotiate shaping a pulp contract with, Billerud Koschners and, as a consequence, you would be compensated €15,000,000 2020. I was wondering if, if that figure is in your q 2 numbers or if that's, if that's yet to come. So I'll 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 then will that be And that would not be an underlying number. It would be, adjusted number. I'm not sure if I understood your question there, but, again, the point is that, because 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 over over several periods going ahead. Okay. Thank you. So so moving on to my second question, it's a a bit more of, you know, you know, higher level question, and and it might be a hard one to to answer, but do you think or configure, you know, any, any potential change in, in, in the behavior of customers as a functional of this lockdown not specifically relating to graphic paper consumption. And is there, is there any conversations that you are with your customs, for example, of, you know, a risk that this, this move from, from printed paper to, to digit. So might be might be accelerated because we, get used from working from home or, you know, learning from home in school, etcetera. Yes, did you have any any thoughts on that? Obviously, that is the work that we in end- end use studies we have been doing in UPM for for decades already and, and I guess, that that we are very much focusing on that work today. Obviously, it is clear that this pandemic is changing our behaviors, and, and we need to just then review what are the segments where where there's kind of positive options for us, whether it's into specialty papers, Raflatac and so on. And then we need to we need to really actually go through the structural change, view on, on the paper business, but, but we are not ready yet there. And, of course, 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. Thank you. Our next question comes from the line of Lina Slach of SEB. Yes, thank you very much. On by a refinery. By a refinery, you had you had a strong performance in the second quarter. Shipment to capacity, I think, is in excess of 100%. And you're right 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 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 on the bottom line for the time being. And, eventually, that will start to improve, obviously. So that is obviously, obviously, the the sort of main point that we are kind of referring to to their, of course, our output from the mills, we have debottlenecked over the time, and, we continue to optimize. So there's always always work to be done to improve, and then eventually the new month, a new mill on top of it. So, So we, we continue to work, obviously, in the, in the pulp business on, on the levers that are in our own hands as well. But the main main point about the comment is is more about the fact that, again, we are at the low point in the price cycle in the, in the pulp business. And, that that, that, 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. With that, so that how much we follow that kind of number we don't, honestly, we don't know it here. Sure. Sure. And then just one final follow-up question on CapEx. I mean, you reduced your your 2020 CapEx guidance by EUR 200,000,000. Do I read it right, I guess, a timing question, but do I read it right that 2021 will have higher CapEx than 2020 And if so, by how much roughly? I cannot say it, but, probably so, as I said, again, particularly, obviously, the big outflow at the moment is for the Uruguay partner 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, and kind of, rate of completion during this year that determines the CapEx figure. We have not change the overall figure for the investment. So so in that sense, obviously, one would expect that then then we will have more outflow next year, but early to give a figure on that. Thank you. Our next question comes from the line of Johannes Grenfellas of Kepler Cheuvreux. Please go ahead. Your line is open. If your phone is on me, Janice, you won't need to unmute that. Okay. Can you hear me now? We can. Yes. Johannes speaking. Perfect. Thank you. So a question on your plywood business, earnings is holding up very good. Despite of, I assume, negative COVID nineteen effects here in the second quarter. Could you elaborate a little bit on the the earnings outlook. I mean, have you taken out any fixed cost here? Are you seeing better demand or 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 you, like, Russia and, and Estonia and and and that is actually one thing. And obviously, here in Finland, we have been restructuring as as as you know, that we have been able to really take actions to improve our cost position and, and last sorry, this week, we made the final decision on the close of 1 of the mill. So consistent, long term, many actions and different activities, investing, restructuring, streamlining, lot of market, the commercial actions to be competitive and, and getting the margin. So multiple multiple action that, that has, 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 on more than market dynamics and it's about FX. And I think over the last 3 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 other continents? Or is it do we need to see more of a dollar weakening in order for that to 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, that are, let's say, important for for us trade, 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, a stronger dollar is is better for us, and that's, particularly the case for for pulp business where our costs are in Peso or in in in euro. And the, let's say, in a sense, the global currency in the pulp trade is is driven by US dollar. Okay. Thanks for for for clarifying Then perhaps a final question, I was just thinking about the great results in in the labeling and material business? I mean, not just for the second quarter, but for a sustainable time, what's the outlook for new supply in the market? I mean, are competitors doing a lot here or do you foresee supply to be supply growth to be quite muted over the, let's say, 1, 2 years here? Well, let's say when it comes to, specialty papers, in particular, the release liner where we are, now ramping up the new machine in, in, Northland, after the conversion, the barriers to entry are pretty high in that business in the 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, in the Asian market during the past years, some of them versions, most of them actually not being able to achieve the quality that, we are able to achieve in our Changshu meal with our new machine which we have expanded, as you know, already. So I would say that, in that business, again, these sort of barriers to entry put a dampener to the, to the, kind of entry of new capacity or new 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 on shift arrangements and and, and so on and so forth. But, they're the, let's say, again, the competitive structure is quite good. We have 22 global players and then a clear difference to the next tier players. So in that sense, I think the competitive situation is good for us. Thank you. And our final question comes from the line of Markku Janovin of Handelsbanken. Please go ahead. Your line is open. 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 reschedule the maintenance to H2. How does the balance look to you now than we're going to H2? The pulp demand and pulp deliveries will be definitely very much related to economic, development of course, that is, that is still uncertain how it goes. Maybe one note here that, that when a lot of annual shutdowns were postponed from second quarter to to the to the autumn time, it is actually definitely on the supply side. It is it is actually positive in that respect, but we will see, there's no, not not that kind of, view that we would actually present here. And, while you don't produce in Brazil yourself, you're sit quite close in Uruguay. Do you see any 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 that what what would be the kind of consequences I have no no information on that. And then on sort of the longer term view, I mean, you sell a lot of beer pot to China. There have been several recent, announcements of a quite large, integrated pulp and, board meals in China with the integrated chemical pipelines, which is perhaps a bit new. Do you see some sort of shift in this, dynamic? And what's driving that? It 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, and that is actually, therefore, China will be always, very much relating and and tied to to the ex imported, you know, pulp, which is definitely coming from Latin America, mainly. There has been always this kind of, integrated integrated mills as well. So I I do not see any kind of, particular change in this. Ladies and gentlemen, thank you for your interest and, and, yeah, we did have a long, list of questions and and very good. Thank you, and have a very nice day. Thank you. Bye now.