Earnings Call: Q3 2019

Oct 24, 2019

Ladies and gentlemen, dear audience. My name is Yussi Pesner. I'm the CEO of UPM. And I'm here with our CFO, Tapio Coropinion. Hello, everybody. Q3 was a milestone quarter in our strategic transformation. The biggest news in the quarter was obviously the decision to proceed with the highly competitive pulp mill investment in Uruguay. The mill will be one of the lowest cost pulp operations in the world, and as such is attractive investment to us. The project represents a step change in the scale of our bulk business. More importantly, it represents the step change in UBM's future earnings. UPM is in a unique position as we are proceeding with the execution and preparation of the major future growth prospectus. Over the past years, we have been developing attractive and significant growth opportunities and few other, companies than few other companies in this industry. At the same time, we have been building a strong financial standing. And of course, which is very important to me is the organizational capabilities to execute all of that. At the same time, we continue taking actions to ensure our competitiveness in ongoing businesses. On this front, during the quarter, we announced plans to reduce capacity in communication papers and further improve efficiency in our functions by setting up a new business service hub in Poland. Today, we have also announced fast paying back energy investment in Germany that will decrease both the CO2 emissions and costs. Ladies and gentlemen, UPM's quarter 3 actually proceeded. Well, good business performance continued. Our EBIT margin was 13.7 percent and our EBITDA margin 18.2 percent. And we succeeded to maintaining our comparable EBIT at the same level as in the previous quarter. Compared with the Q3 last year, Our sales decreased 6% mainly due to lower pulp prices and lower deliveries of the communication papers. And our comparable EBIT decreased from that of last year, 19%. Operating cash flow was strong in Q3 at 1000000. At the end of the Q3, our net debt was again below 0. During this year, our business environment has been impacted by decelerating economy especially in Europe. Demand growth has continued in most of our businesses, but at the same time, it has declined, especially in the communication papers. Sales prices decreased during the Q3 in line with our expectations. Also, variable cost costs are on decreased mode. At this point ladies and gentlemen, I will actually hand over to Tapio to have more analysis of the Q3 results. Tapio, please. Okay. Thank you, Youssef. So on this page 3, you see the earnings bridges year on year and then sequentially between third quarter 2nd quarter this year. And as expected, sales prices, represented a clear headwind for us in the third quarter, coming mainly from the pulp prices but also, from paper prices, as far as paper prices are concerned in communication papers, this is the case between the third quarter 2nd quarter this year. Variable costs decreased. Also, this a smaller this had a smaller impact than the sales prices. And, as you remember, we saw a significant fall in variable costs already in the second quarter. Delivery volumes on UPM level were a positive earnings driver, despite the more moderate demand growth rate in the product markets fixed costs were well under control when compared to the second quarter, fixed cost also decreased due to seasonal reasons and due to the fact that had a maintenance shutdown at the Komi pulp Mill in the second quarter. And in the third quarter, we had no significant maintenance shutdowns. And finally, in the third quarter, there was no material contribution from fair value increases of our forest assets. Which shows up here in the year on year comparison as a negative variance, as in the third quarter, we had more contribution from the forest asset fair value change. Then here we have, the comparable EBIT by business area by refining earnings decreased, primarily due to lower pulp prices. Our average pulp price was down by 16% from the 2nd quarter. And 25%, lower than the third quarter 1 year ago. On the positive side, we had operationally a very strong quarter in biorefining. We achieved new production records, both in biofuels and pulp. In addition, one can mention that in biofuels, we reported the best quarterly financial result ever since the start up of the fire refinery in La Penranta. Customer demand for pulp and biofuels continue to be good. We have now been able to realize the full production potential from the debottlenecking investments also able to optimize the left hander at the biorefinery so that its production capacity has increased from the original 100,000 tons to 130,000 tons of renewable diesel and NAFTA. Communication papers, delivered solid results, increasing its earnings, both year on year and sequentially. From the second quarter. Paper prices decreased moderately from the second quarter. But we were able to offset this with lower fixed and variable costs. Lower pulp costs contributed, in the third quarter, of course. However, communication papers performance is underpinned by the continuous measures that we have been taking to ensure competitiveness. And this, work continues as we have announced. Specialty Papers, reported a successful profitability turnaround. Customer demand continued to be good both in label papers and, release liners globally. And in the Asian office paper markets. Lower pulp costs contributed to the result and our actions to reduce fixed cost showed visible, impact as well. Then Raflatac margins, they are gradually recovering to stay on this positive track. We will continue various initiatives, on margin product mix and cost management. Growth in market demand has continued even in the, European market, that has been slowing electricity market price and successful optimization, of hydro power generation. Hydro power volume was low however, due to the dry conditions, in Finland. Plywood faced slowing market demand we adjusted to this by negotiating, temporary layoffs in our finished mills. You'll see already mentioned our strong operating cash flow in the third quarter, which was totaling 1,000,000. Over the past 12 months, we have generated over billion of operating cash flow and over billion of free cash flow. Last year, we tied up working capital as our prices, for product and raw material inventories were increasing. Now we have been able to release part of that working capital. As a result of the strong cash flow, our balance sheet is back in net cash territory. You may call You may recall that the adoption of the IFRS 16 lease standard in the first quarter increased our net debt by about 1,000,000,000. And, obviously, in the second quarter, we paid the dividend of 1,000,000. So even after that, our net debt is negative and our financial standing is very strong. And this page summarizes our outlook for 2019 We continue to see the same uncertainties in the global economy and business environment that we highlighted already 9 months ago. The economic growth continues, but at a slower pace especially here in Europe. Nevertheless, We expect UPM's business performance to be at a good level in 2019. In the fourth quarter, we expect the average pulp price for UPM Businesses to be lower than in third quarter. This has an impact on biorefining, but, obviously, also on the 2 paper businesses. Biorefining will be also affected by the scheduled maintenance shutdown at the Pribentos Mill in Uruguay. And in communication papers, the result is positively impacted by the annual energy related refunds. Now I'll hand it back over to Yousry for some comments on our strategic actions. Thank you, Tapia. And let's start with the Uruguay and pulp will, where we'll actually come to the project status a third slide of the presentation. But then as we have discussed this matter earlier in our previous webcast in July, It is, I'm proud to present it again. And however, this is not highly attractive and impactful project for UPM. So it's a good and good to repeat the main points of the of the project. We are building, as I said, highly competitive pulp mill in Central Uruguay close to the town of Paso Delos Doros. The mill will have an annual production capacity of 2,100,000 tons of eucalyptus polyp. The mill is scheduled to be starting up in the second half of twenty twenty two. The total investment into the mill port operation and local facilities is about $3,000,000,000. And the main part of the capital expenditure takes place fairly equally over the years 2020 2022. I. E. 20202021 and So why is this a good investment? That's something that I want to I want to really actually emphasize here. Firstly, it will provide a significant growth step for UPM's future earnings So we do have the growth, earn of growth, projects to increase our earnings. With careful planning, And preparation, we have secured competitive and sustainable wood supply for the mill, state of art, mill design, and then efficient loss logistics setup, inbound and outbound for the mill. As a result, the new mill is expected to be one of the most competitive pulp mills in the whole globe. Both in terms of costs, and in terms of safety and environmental performance of the whole value chain. We expect the its cash cost level to be about $2.80 per delivered ton or pulp. This enables attractive returns on investments in various, in various market scenarios. For UPM's bulk business, the project represents a step change. It will grow our pulp capacity by 57% in sustainable and highly competitive deep way. Within our pulp product mix, the share of the fast growing eucalyptus pulp increases significantly, as does the share of plantation based production. The average production cost will decrease and average profitability increases, both because of the new low cost unit, but also because of the synergies within the existing operations in Uruguay. On the page 9, you can see what happens what has happened so far in the project and related infrastructure initiatives. At the mill site, the preparatory work is ongoing, at the Montevideo port, demolition of the old pier and and dredging are underway, and resources and recruitment are proceeding as we speak, as you can see from this slide. The Central Railway project is moving well. As well, forward, initial works has started already and the financing for the PPV project was finalized early this week. Then if we are looking the UPM current project going forward, we are definitely taking care of, of the growth, not only the Uruguay but so other focused investments. Sugar of Plywood Mill expansion was completed in Q3. And pass the project improves our competitiveness as a whole plywood business. As Uruguay is the lowest cost plywood mill in the system. Our 2 release liner expansion projects, the paper machine conversion at our Northland Mill in Germany and then the expansion at the Changshu Mill are well proceeding as they were planned. The technical and commercial studies of the biochemicals refinery in Germany and the biofuels refinery in Finland are advancing. In these two businesses, we are driving the change towards the world's world that is beyond fossil. The rep, represent they represent exciting business, really exciting business opportunities for UPM in a big, vast new market While we are preparing and advancing also the growth projects, as we have the Uruguay ongoing already, we continue to have a focus to keep our cost competitiveness in the present and current operations. In Communication Papers we plan to reduce our production capacity by 860,000 tonnes in less than 1 year. Today, we have also announced fast payback power plant investment at the Northland Mill. And with this investment, we will reduce our energy costs by 1000000, per year. And we will also reduce our CO2 emissions by 300,000 tons. Annually. Financially, it is attractive with the 3, about 3 year daypack time. Concept is proven. We have a similar power plant in our Shongar Mill in Germany already in operations. In addition to these asset changes, we continue to continuously improve and take actions in our smart programs. In all businesses and all functions. We aim for the further improvements, not only in variable costs, and commercial strategies, and working capital, but also safety environmental performance. We continuously target efficiencies, and that is one of the key topics in UPM efficiency, quality and efficiency and then we are taking actions to secure that high operating rates and efficient production. But also, we take care of the fixed cost development. And we do have a work in all businesses and all functions to reduce fixed costs. And one of the examples of this is the new business center hub in Rockclub. Poland that we announced in September. But there are multiple, other actions coming as well. In product development, various things are moving on to maybe name a couple of them, some barrier papers into specialty paper business air here, renewable films in our Raflatac business and then renewable plastics made out of the NAFTA that is produced in our biofuels business. But of course, then kind of furthermore comes when the bio chemicals and biofuels opportunities are then on our table. Finally, but not at all, kind of a small thing is the digitalization opportunities. We do have a clear view of taking actions in digitalization, which actually basically improves our efficiencies in the back office, but also when it comes to to actually our sales and supply chain as well. Ladies and gentlemen, though, to kind of summarize the presentation with the spearhead of growth slide, I think that we are well proceeding in all of the planning here. And of course, the high value fiber segment, we have made the decision during the third quarter, which was a quite significant decision going forward in UPM. And we, as I said, continue to take actions to ensure competitiveness and performance in all of what we do. Final two slides before moving into the Q And A session. We have 3 still left is the cash flow kind of, reminding all of us of the capital allocation, which I think that is one of the key cornerstones of the of today's UPM and future UPM is presented. Here, the first one is 5 year cumulative cash flow 2014, 2018, And you can see where we have been allocating capital, and that has led to a efficient high profitable growth investments with 1,000,000,000, a very strong balance sheet. As we reported today, we are we are a debt less company with good cash flow. And then we have been able to pay an attractive dividend. This is not going to change dramatically. We are going to keep our balance sheet strong. We definitely focus on performance of strong cash flow, operating cash flow of the businesses. And with these, actions and what we do, we are able to pay attractive dividend and to invest to the growth and especially earnings growth. Obviously, nowadays, in UPM, we are proud, but also this is important part of our future promise and on the road when we want to go to the Beyond Fossil's strategy the top ratings of the responsibility and sustainability are important. And as you can see from this list, we have We have gained all of that when it comes to global compact lead or doubts on sustainability indices or CDP programs. And so forth, UPM is actually a top performer on all of that. And that is our key cornerstone of our strategy going forward. Ladies and gentlemen, would like to summarize my presentation with the summarized slide, without not going into the details, maybe saying that I'm happy to continue with this great group that I have in UPM for the next coming years. Ladies and gentlemen, I think that this was the prepared part of the of the presentation that we are ready to answer any of your Our first question comes from the line of Alexander Bergdon from Bank of America Merrill Lynch. Please go ahead. Thank you very much. I have two questions. I'll start with my first one and let you answer that. So the first one is on graphic paper. And I'm wondering if you're seeing any indication that we are returning towards the trend demand decline. And also if you think that the current announced capacity reductions is enough to stabilize the market into 2020. And then just also into Q4, I mean, you mentioned pulp prices lower, what are you seeing in graphic paper price into Q4 or are they down as well on average or is it more flat? That was my first question. If I actually start with the trend decline, I think that this difficult to say what the trend line will be. We tend to believe that it will balance back in some years to come, but Obviously, when we are looking, you know, the actions that has been taking in this industry to balance the supply demand, I think that it is actually quite quite well actually going forward. Of course, our 860,000 tons is a big number as such. But if I remember correct we are talking about then in Europe, the actions this year, either converting paper capacity to packaging capacity or then closures are approaching 3,000,000 tons for the coming years. And then in the U. S, it is more than 2,000,000 tons. So basically, there's quite a lot of happening at that front. And especially these big conversions that, that we see And that's absolutely beneficial for the papermakers because it will consolidate as well the industry, not only taking capacity out and balance the market. And that's something that we remains to be seen about how it goes. But obviously, with 860,000 tons, we are taking a lot of capacity out of on our own system, trying to keep all of the business that we want to keep and and at the same time have the efficiencies. This is a cost came, and this is all about reducing our own costs. Then what comes to the paper price? Then when it comes to paper prices, I do not, have never never ever actually started to forecast any of the paper prices, and I'm not doing that even today. Oh, not do you not even have any visibility into the 4th quarter? Sorry. No, I didn't actually. So you don't have any visibility into the 4th quarter on pricing. I mean, I think We do have the visibility for the pricing, but like I said, that we are not guiding prices for the fourth quarter. You, that's Pierre. And then just my second question was more about opportunities in biofuels. Just if you could give a bit more color on the feasibility studies for and also biochemicals and specifically on your feedstock technology. I was wondering if you had any progress efforts to use forest residues and the Carinata plant uruguayas potential feedstock in the future. That is exactly the comment on when it comes to biochemicals. Obviously, we do have a concept of solid wood where we are converting solid wood to a first two different sugars and then having a conversion to different molecules. And that we have a technology that is now ready for going forward. And obviously, now we are making more kind of deep analysis of the process and designing the process. And similar to biofuels, yes, the concept is not not actually turning only present raw material, which is, in our case, crude tall oil into the fuels, but having multiple feedstock, Carinata being one of those. And that technology is advancing as well. And deep dive in the business case and the process itself is ongoing. Thank you very much. Our next question comes from the line of Justin Jordan from Exane. Please go ahead. Thank you, and good afternoon, everyone. Well done on clearly a very resilient Q3 performance against challenging market conditions. Can I I know you sort of love to give any sort of outlook, but clearly you're talking about lower pulp prices quarter on quarter in Q4 and Q3? But given that we're seeing a declining global inventories, do you think we're somewhere near the trough for stabilization in global pulp prices? Can I start with that first, please? Well, we maybe don't forecast pulp prices here on the web call as, usually is the case. Maybe just a comment first on this, outlook statement. We are not forecasting pulp prices there either rather than stating in a sense the facts as they are given the kind of curve along which the pulp prices have been now coming down during the past 3 or 4 months, then that means that in practice, the average pulp price in the fourth quarter, is lower than than in the third quarter without taking any any view in terms of, forecast, I think as you can see from the sort of public sources that at the moment, Pulp prices in China, seem to be pretty stable, but, we will see where they will go. And, obviously, as we learn more about where the inventories are are moving, then that will give some give some, obviously, background to that. Okay, thank you. Just one quick follow-up. You've given some detail on the other spearheads for growth projects already, but can you just give us a bit of an update on the bioverno naphtha, project, to where you're collaborating with, I believe, Dow and Yellow Pack. Is that something that's still in the laboratory stage or in customer trials? Or where is that at this point potentially? It's actually we have, implemented that together with Arla who has already, applied that technology in their milk cartons that have been sold. So in that sense, it is live a live example of what can be done. It's so called 100% wood based milk carton as you know, normally of a milk carton about 20% is plastic, in this case, then it's 100% wood based. So this is UPM revenue today then in Q4? Yes. Which division is this sitting in? Sorry, do we biorefining. It's, it's part of the output from Lappeenranta. Thank you. It's a part of the biofuels businesses. Thank you. That's all I have for now. The next question comes from the line of Lars Gilbert from Credit Suisse. Please go ahead. Thank you. Just to follow-up on the previous question, could you give any sort of indicative split of your revenues and an operational EBIT from the 3 subsectors within the bio refining division, I. E, pulp, timber and biofuels, where we are today? That we have not last done and that we are not doing this kind of one one complete kind of reporting segment that we can tell as we have been repeating that quite many times that the biofuels business has been going extremely well. We are clearly about the nominal capacity of the mill And the profitability is clearly above UPM average numbers, I. E. The 18% EBITDA margin or 10.5 percent of EBIT margin. Got it. And then you're looking at your volumes, paper and pulp, Pulp volumes are, as you pointed out, quite extraordinary record volumes. How do we see that in the in the sort of phase of a comparatively weak market where you've been sending this pulp. And then also on the paper side, thought you indicated in the 2nd quarter that you believe that weakness that we had seen in the quarter were partly relating to some destocking on the customer side. And then sequentially, year on year, at least your volumes are clearly weaker again in Q3. Has anything changed between the two quarters And does the market prospect? Well, maybe on the Pulp question, obviously, we have been sending the pulp to our customers, and what we have commented earlier as well is that, we sell our pulp directly to the customers who are the users of the pulp in tissue making, paper making and board making. And, again, as we have said earlier, they have had, let's say, good sort of demand for their pulp as planned. So that's why then obviously also our deliveries have developed well. So in that as we have, we have not had a, let's say, any negative surprises at that end. And maybe continue with what Tapio said out this bulk thing that we, as we indicated 2 years ago, that we are treating our pulp sales to 3 different segments, IED, hygiene, packaging and paper. That has been one of the reasons that we have had a very solid sales and growth mode with those customers. China has been actually using oil Chinese direct customers have been using the pulp as we have been agreeing with them. I don't know if Utopia have any comment to that, on the paper, obviously, the paper demand and decline has been going somewhat worse than that of last year. Of course, it is in a it is a function of destocking an inventory thing, but also that now the economic growth has been, has been going with the lower pace in Europe as well. So I don't see there any particular reason on that as well. We'll see that how that evolves. If the economic growth will actually go even further down, obviously, paper is not immune to that. We will follow that as well. And where there's a kind of, on the base case, there is a minus 5% trend, growth, you know, if the economic growth will be, low, it it will mean also that the paper demand will move somewhat more down. And especially Germany has been has been causing also some challenges in these two quarters. A couple of more questions. As you mentioned variable costs coming down, of course, pulp is part of that. If you can comment other variable costs that have been coming down, what you see for Q4. And also when you're spending more money in expanding the release line of business, you but your Raflatac growth isn't particularly strong. So how should much would read into that, I. E, what are the market conditions for? For the labels business, I suppose, and why you're not really seeing that in the roughly tax business? And then finally, a detailed question, the non controlling interest was quite big in this particular quarter. What is behind that? Tapia will come to the variable cost on that. Maybe I talk about the release liner Obviously, the global growth has been quite prescascally and actually, and we being number 1 supplier of the release liner, I think that there's kind of very good odds and, and the kind of future outlook for the growth of, of all, all of that Raflatac once and a while it goes down and up, it is not the kind of all the market. The release liner is basically for the labeling, but you know, release liner is used also in our other products as well like hygiene and tapes and all kind of things. So there's a kind of, like, multiple, multiple options to actually sell the new, new production coming on the of the lines. Yes. Wes, if I'll, briefly comment on the variable cost. So, as I mentioned, we already had, in the second quarter, a, a, significant, positive impact from lower variable cost staff coming from power have coming from other topics, again, now in this quarter, a bit less, but coming from, from pulp, But again, also other other sort of areas, including, let's say, the raw materials for our labels business in Raflatac Also, let's say the wood costs having been on the increase, earlier, here in Finland, and they are starting to, let's say, slowly, trend down And, let's say, a number of other areas as well, we are seeing lower market prices for our inputs. Obviously, we're sort of continuing with our, what we call smart spend program looking for our own, own sort of cost saving actions sort of, separate from from whatever is happening with the market prices. And then the, non controlling interest topic there, that relates to our partner in Uruguay and this figure actually, that is now booked in the third quarter is a year to date figure because, with the investment decision, in Uruguay, then, also the agreement with our partner was updated to include also the new pulp mill and update our partnership overall. So that caused some change in our accounting treatment and therefore, then, this was booked in the 3rd quarter. And the next question comes from the line of Harry Tietonan from Nordea. Please go ahead. Maybe if you continue the Raflatac where the sort of top line has declined a little bit for the second quarter in a row. But I mean, is it sort of, if you, is there any, if you split it between price and volume, or can you sort of give you indication on how the volume side of it is and how the price component acts to this small decline in top line. Well, if you look at, let's say, the markets in, in general, We have had good markets, outside of Europe, and we have had, let's say, good volume development also in specials and and, film based labels. And then here in Europe, what has been a bit softer is the is the some of the end uses for paper based labels, but, even there, let's say, so that now the recent figures, from the European market show a, let's say, modest growth. So in that sense, in that sense, market is, here, sort of flat to modestly growing at the moment. And we have been able to increase our margin quite well. Yes. Yes. And that probably kind of is the reason also for your comment on the specialty paper that that basically, while you are seeing stronger customer demand. And, so if is there sort of volume upside in the specialty paper, which volumes are still down also compared to last year. So if you are saying that the demand is improving or there's a bit sort of improvement in customer demand, could there be a case for a kind of a top line turning to a positive territory? Yes, the specialty papers is, of course, now actually hosting investments, growth investments, 1 in China, actually, and that will actually increase our aging capacity the old making specialties and then the Northland. And obviously, that will turn, of course, these 2 into the growth mode. Also, when you're when you're sort of looking at this, comparison figures, one thing that you, kind of can notice that when we have been increasing the release liner share in the mix, vis a vis fine paper, graphic fine paper, then the volume in terms of tonnes is less, but the value is more. So that also obviously has a bit of an impact on this hand based volume figures as such. Makes sense. Maybe the last question also bit on the arithmetics here, on the bio materials, you mentioned that there is 16% decline in the prices and, the previous quarter, the decline was only marginal. And now, actually, the market price is moving more or less 10% per quarter. So there's quite a big deviation to what you are saying and kind of reporting compared to what's the underlying market has been doing. So, is there anything you can say about that, then what it might mean for the for the future sort of realized pricemix for you if we are seeing about the similar sort of a decline in market prices for Q4? Well, like I said, this kind of a guidance that we gave is no forecast. Obviously, there's many moving parts. We have the market mix between Europe and Asia. We have the mix between hardwood and softwood. We have, some movement on currencies as well. So in that sense, the kind of the sum of all those moving parts. Thank you. The next question comes from the line of Michael Dobill from UBS. Please go ahead. Just firstly on pulp, given the high deliveries we've seen there, has there been any any change to your net long position in pulp? No, not that I'm aware. It is what, 700,000 tons that, that is the figure. I don't actually even follow that much efficiencies and margins are important. But now I don't think that it has changed anything. Okay. And then in terms of the European graphic paper market, we already talked about that. We've seen quite steep declines in demand. You mentioned the closures, some closures in the market by yourself as some other competitors. But a lot of those are also out in the future, not happening really right now. So if you just look a couple of months out, do you see that the markets are reasonably balanced or would we need to get some further closures now in the short term to, for that to be the case? Dine will so, but obviously, if I, if I don't have kind of split that out of that 3,000,000 tons. So it was if I remember correctly, 3,200,000 tons, And then what goes out in what timescale, but it's something that is absolutely doing the right thing. I we do not start to forecast whether it is enough or or not, but, but obviously, this is a great, great actually kind of trend that people are moving their assets into a packaging or any other products, it will consolidate and also balance the market as well. There will be fewer competitors in the market as well. So basically, the kind of cost curve will get deeper actually. And steeper. And that is a positive thing, not that I have a view on that, whether that is for the couple of months or even next quarter enough or not. We take our actions, when we see the action needed to be taken and time is all? Yes. I think, well, you can take it as a positive factor that a significant amount of those shutdowns are in the future because You can see how our Communication Papers business is performing at the moment in the current conditions and, then this future. Future sort of the exits that are yet to come, they will obviously, then impact the outlook for the for the coming quarters. Okay. And then just a final question on the, on the Chinese market, we've seen some good recovery in the Specialty Papers division in the last couple of quarters. And one thing driving that that you mentioned is a good demand in Asia We also heard of some switching or let's say, a conversion from recycled container bought into the uncoated food free markets in China now, driven by the strong demand due to the 70th anniversary and so on, how should we read that, is that just an indication for the market being strong and demand being good or is this making the markets more crowded from your point of view? First of all, the fine paper market in Asia and as in China has been strong. We have been we have been benefiting out of that. But the one of the positive thing is for us that now when we are expanding our specialty paper capacity in Changshu maturity or competition that are having a swing machine tend to try, run- run- run- in the fine paper side rather than making faculties. And therefore, it makes room for expanding our operations in that side as well. So quite solid, a good demand in Asia this point of time. And how do you see prices develop in there now? Is something that we don't forecast again. You know, this is we can we can go this round and round, but you know, we do not forecast the prices for the future. And the next question comes from the line of Neenus Larsson from SEB. Please go ahead. Thank you. Hello, everyone. May I just follow-up on variable costs and specifically on wood, if you can say what type of sequential development you recorded in the third quarter and what you expect for the fourth quarter, please? Well, we can say is that, as you know, if you have followed market information here in Finland, we saw an increase in the wood prices, during last year, but then the market has moderated from from that, and that is sort of, slowly coming through. So, sort of modest, but, decline in the, in the wood cost. Do you have already seen somewhat of a decline in your own P and L? Is that the right? To some extent, yes. But, let's say it's still yet to come because, obviously, there is a lag how quickly it will come come through from, let's say, the deals to be done, of what to be purchased harvested and consumed. So, let's say flattish so far, but, then yet to come. And in your case, what's that lag before it materializes in your P and L with what it can be up to 6 months. And then you mentioned these energy refunds coming in the 4th quarter within community patient paper did you also specify how much that would be? No, we haven't given a figure on that. We have had in a sense, the same, in the 4th quarter figures for, communication papers in the past. Years as well, this year perhaps somewhat higher because it's partly impacted by the CO2 price, which has been elevated. How much was it in Q4 of 'eighteen? Haven't given a figure on that. Okay. And then, maybe just one final follow-up, just on power that was an impressive volume number. Obviously, the debottlenecking that you have been making are showing through. How much more is there to go? What's your updated nominal capacity, for instance, for that division? Well, let's say, in terms of and the depot bottlenecking investments or the impact of the investments that we have done, you know, that, that is, kind of, fully reached at the moment. So nothing further than normal sort of optimization as such. And the next question comes from the line of Robin Santavirta from Carnegie. Please go ahead. Thank you. So, a lot of questions on the input costs declining, but just to get sort of the full picture here, selling price, input and fixed cost variance. How confident or you must have sort of a quite good view on both selling prices and your cost base for quite some time ahead How confident are you that you can keep up sort of the margins of roughly these levels going into next year? Or would that be a too optimistic view? We are not giving that guidance for these two margins, but of course, we do take all the actions to support that the high margin margins are kept as as far as possible and obviously doing everyday work on that as well. So that's how we operate. And therefore, like we had in a presentation as well, kind of action plans that it is not only the growth investments that we are focusing, but also putting a lot of emphasis on current business and going concern. And that's kind of maybe a strong point of UPM when we do have this operating model with 6 businesses, the costs and the top line are close to the management teams of each businesses for it is, everyday work, everyday focus that we are trying to achieve the maximum margin that we we can. So far, it has played quite well for us. Then in terms of the biochemical project, what is roughly speaking the topics of number that we should be looking at. And will this what is the plan? What is some kind of time timeline would be? Would be good to have. Is it within 12 months you sort of plan to announce it? Or is that, is, will it go into 2021? We will come back to the CapEx when we do have the decision, you know, additional too early to of course, we do have a kind of internal figure as a frame for that, but we will come back to that when it is then realizing And obviously, we are trying to work as hard as possible to get those decisions into our decision making table But, but I don't want to say that whether it is in 12 months or longer, it might be shorter or at that frame. But of course, we are doing our work today that they could be decided as soon as possible. All right. Thanks. And then finally, you will become one of the largest pulp producers globally. And obviously, you have started really closely the market now before the setting up this Uruguay project. When we look at pulp deliveries globally, they're basically not growing for 2 years. Is that a good proxy of of the end usage of pulp? Or is it approximately something else? Pulp, actually, if you are looking at the latest statistics, yes, this year is still, is it 0.6% down as a deliveries globally? When if I remember correctly, after first quarter, we were talking about 2.8% down in the first quarter deliveries. And now it was 0.6. So basically, the latter part of the year has been going to the right direction. I think that when there's a lot of investment in the packaging and then so forth, the proxy for packaging grades to grow, I think that, it means directly a proxy for good demand for pulp as well. So I'm not, I'm we do have a very solid view on that, trend growth of around 3% going forward. And that is actually supported by if you're looking hygiene, packaging and any other materials that are requiring pulp as a kind of proxy. And then considering that less there will be mechanical pulp based production and papers, unless there will be recycled fibers available on that front as well. So Alpi is having a quite solid growth prospects for the future. All right. Good. Thank you very much. I think that we are, having the end of the, of the conference call. So thank you for joining us today and have a very nice autumn day. Thank you. Bye.