Earnings Call: Q2 2019

Jul 23, 2019

Ladies and gentlemen, their audience, welcome to UPM's webcast. My name is Yussi Pesonen. I'm here I'm the CEO of UPM, and I'm here with our CFO, Tapio Korpeinen. Hello, everyone. When I was walking down here to the con, conference call room, you know, I, I, sum it up that this is my 62nd. Quarterly report. And I have to be saying that there has been quite many big changes and forward looking events in UPM, I'm starting with the closure of Woodcromill and then, acquisitions of Red Bend and Milokoski and the operating model changed, not even speaking about taking the balance sheet to a strong position. But today, I think that this has as kind of historical date and day for me and for the whole UPM. We have to important topics to be discussed. First of all, the result of UPM of the second quarter, which was a 25th consecutive quarter of increasing earnings. And Tapio, of course, will analyze that more in details in few seconds. Secondly, UPS Board of Directors has today made a decision to proceed with the new world class pulp mill investment in Uruguay. It is my great pleasure to also describe this investment more in details later today. But if we move to the Bates 2, the 25th consecutive quarter of earnings is absolutely important for us. And I think that keyword for the Q2 and for the remaining part of the year will be how do we manage and how we are managing the margin. And we have been able to manage margins well in UPM on UPM level, but also in different businesses. So let's start with the Q2 performance. In Q2, our operating model continued to deliver good result. We succeeded in maintaining good margins and our comparable EBIT continued to increase reaching 1,000,000 in quarter. And the slowing economic growth, particularly in Europe was having some impact in our product markets in Q2. However, at the same time, also the cost environment started to moderate. Our operating cash flow was strong increased clearly from that of last year, totaling 1,000,000 in Q2 Our net debt at the end of Q2 was 1,000,000 or 0.19 times EBITDA. So even after the adaptation of the IFRS 16 standards for leases, and paying out a dividend of 1,000,000 during Q2, our balance sheet is, but particularly or practically debt free. This is absolutely a great starting point as we are now being beginning the large investment approach in Uruguay. But ladies and gentlemen, at this point, I will hand over to Tapio for detailed analysis of the result. Topio, please. Thank you, Youssef. On this third slide, you will see First of all, the moderation that is starting to take place in the cost environment and then the continued positive development in our margins in the second quarter. So on the left hand side of this slide, you can see the comparable EBIT development year on year compared to last year's second quarter. And there, still, sales prices continue to have a positive impact on our earnings year on year. And at that, comparison, at that time, at the same time, the increase in variable cost already had only a minor negative impact. Fixed costs decreased from last year. Mainly due to less maintenance than in the same period last year. Deliveries and production volumes had a small negative impact on the 2nd quarter impact second quarter EBIT, mainly coming from lower deliveries and also related to reducing paper stocks in communication papers. On the right hand side, you can see the same development sequentially as compared to the first quarter this year. And here, sales prices had a small negative impact on EBIT. This comes from lower pulp prices. However, variable costs decreased as well having a larger positive impact on our EBIT. About half of this cost relief comes from pulp costs in our paper businesses. But as you can see in this slide, also other variable costs started to increase already in the second quarter. Started to decrease already in the second quarter. Fixed cost increased seasonally compared to the first quarter and also due to the maintenance shutdown at the UPM Kimi Pulp Mill. Deliveries and production volumes had a negative impact on our Q2 EBIT. This was partly due to seasonal reasons. Also due to the maintenance shutdown at the Kymipalt Mill and due to the reducing of paper stocks in communication papers. And here we have the comparable EBIT development by business area. In value refining, EBIT increased from last year, despite the fact that pulp prices were 6% lower. Solid customer demand from our customers continued for power. And therefore, our delivery volumes grew by about 5% compared to the first quarter last year. Also for Advanced Biofuels, demand continued to be strong and our deliveries grew. Many of you remember that last year, we had scheduled maintenance shutdowns at 2 pulp mills and also at Lapenata Bio Refinery where we had the so called turnaround shutdown. And as compared to that, then now we only had the 1 pulp mill down for maintenance. Sequentially compared with the first quarter by refining EBIT decreased due to the 5% lower pulp price and the maintenance shutdown at the Kumi Paop Mill. In Communication Papers, paper prices continued at a good stable level during the second quarter. Comparable EBIT was held back by the combined impact of lower deliveries and reducing stocks during the quarter. On the positive side, this reduced our working capital during the quarter and thus contributed to the strong cash flow. Paper demand development in Europe has been somewhat weaker than last year. And part of it is related to the slow economic growth in the region. But then also, thinking about the 2nd quarter figures, in particular, part of it is due to reducing safety stocks created ahead of the expected Brexit, which did not take place in March. And probably also related to postponing purchases to Q3 ahead of the moderate reduction in paper prices in July. To ensure our competitiveness, we continue stringent cost control and asset optimization in communication papers In July, we completed the closure of Plattling paper machine number 10 in Germany, reducing our coated magazine paper capacity by 155,000 tons. And the conversion of Nordland paper machine number 2 will reduce our fine paper capacity by about 200,000 tons later this year, while enabling our specialty papers business to grow in a highly competitive way. And speaking of specialty papers, we achieved a clear recovery in EBIT after 3 weaker quarters, pulp costs started to decrease or we started to feel the decrease also in the bottom line of the specialty paper business, while fine paper prices in Asia actually slightly increased from the first quarter. Demand for our products continued to be solid. Our fixed cost reduction measures started to show results. To stay on this track, we continue our cost management and our product development initiatives as well. Also, our growth projects in Germany and China are proceeding well and will support our growth and competitiveness next year. Raflatac and Plywood showed stable EBIT development from the first quarter in Raflatac sales growth continued mainly due to higher sales prices and improved mix. Also deliveries grew slightly from last year. And then finally, Energy had an excellent quarter here, we had a perfect combination of higher hydro power and nuclear power generation volumes, higher electricity sales prices and lower costs. Even the annual maintenance shutdown at the Ocala Power Plant plants proceeded, smoothly having a smaller negative impact than last year. In the second quarter, we received the update on fixed costs for nuclear power generation from TVO, fixed costs decreased by 1,000,000 for the first half of the year, which was all booked in the second quarter. So roughly about 6,000,000 of the Q2 EBIT in energies related to the first quarter. Then looking at the cash flow, as you see already mentioned, operating cash flow was strong. At 1000000, increasing by 1000000 from last year. Working capital decreased by 1,000,000 during the quarter, mainly due to reduction in stocks. And here we have the updated outlook for 2019 We continue to see the same uncertainties in the global economy and business environment that we highlighted 6 months ago. The economic growth continues, but at a slower pace, especially in Europe. Nevertheless, We expect UPM's business performance to continue at a good level in 2019. In the second half of twenty nineteen, we expect pulp prices to be lower than they were in the first half. Paper prices in Europe and in North America are expected to decrease moderately in the second half compared to the first half of twenty nineteen. On the positive side, we also expect input costs to be lower in the second half than they were in the first half. We will continue our measures to reduce increases of forest assets are not expected to contribute materially to our comparable EBIT this year. And now back to Youssef, it's time to discuss our Uruguay investments. Thank you, Tapias. Let's get ourselves into the details of the investment. But I would like to first start with somewhat of background material obviously in last 3 years in UPM, we have been putting a strategy together which then came to a kind of a picture that we see here, as I call it, the triple tower growth initiative picture where we were presenting this as also in our Capital Markets Day. This slide reminds you of the spare a spare head of growth to 3 focus areas, where we see significant growth during the coming years. And these 3 are long term. The spearhead, all of them are actually attractive long term growth outlook having and, and supported by the global makeup trends. And obviously, one of the topics that we have been always discussing here is that there needs to be a clear entry barrier for the business as well. So basically, that is the kind of background for that kind of information. In specialty packaging materials, on the left, tower, we are growing through the ongoing focused growth initiatives that are, as we speak, around 200,000,000 investments in Finland, in China and in Germany, where the right hand side is still in the development phase, I. E. The molecular bioproducts biofuels and bio chemicals, and those could provide a large new growth platform for UPM for the coming years and decades. Preparation continue for the potential investments are proceeding as planned. But however, today, we will focus on the middle part of the picture, high value fiber. The competitive new pulp mill in Uruguay will represent a large growth step in this area. Page 9 is actually UPM's investment into a world class, pulp 1,000,000 Uruguay, as I said already, we have made today investment decision to produce to make a 2,100,000 tonne E alkaliptus pulp Mill in Central Uruguay near the town of Basodelos Doros as you can see it from the maps here. The total investment is about US2.7 billion dollars. On top, which we will invest $350,000,000 on dedicated pulp terminal port in Montevideo Harbor. And local facilities in Paso Delos Torres as well. The new mill is settle to be starting up on the second half of twenty twenty two. And And the major part of the capital expenditure will take place over the years, 2020 to 2022. Next page, so, is actually describing why it is a good investment Firstly, it will provide a significant step for UPM future earnings. So earnings growth is something that we are always looking after with competitive plantation operations, the scale and the best available technology at the mill and efficient logistics systems. So it's a 3 folded plantations, the mill itself and then the outbound inbound logistics. The new mill is expected to be one of the most competitive pulp mills in the world, both in terms of costs and in terms of safety and environmental performance of the whole value chain. We expect its gas cost level to be about $2.80 per deliver ton or pulp. And this means all fixed cost and variable cost of the plantation operations mill and then logistics inbound, outbound logistics, and delivered to the customer. So it is including all of those costs. We have carefully prepared the prerequisites for the investments as I said earlier, 3 years in very kind of intensive phase, but more than 5 years or close to 9 years of preparation for the possible investment. So we have done that in very careful way. For us, it has been important to ensure sustainable competitive operations long term and to minimize re both in the project phase and during the continuous operations. For Uruguay, the project and the infrastructure development offers significant opportunities for economic and social development. For UPM's pulp business, the project represents a step change it will grow our pulp capacity by almost 60% in a sustainable and high competitive way. With our pulp mill, pulp product mix, the share of the fast growing eucalyptus pulp increases significantly, as does the share of the plantation based production. The average production cost will decrease and the average profitability increases both because of the new low cost unit, but also because of the synergies with the existing operations in Uruguay, I. E. The freight vendor smel. So why is the pulp business interesting to start with? We believe that the long term market outlook for pulp is attractive. Page 12, global consumer megatrends such as middle class growth in Asia urbanization changing demographic and digitalization are driving demand for tissue hygiene, packaging and specialties. This provides a robust base for pulp demand growth. Sustainability, for example, consumers consumers kind of view against plastics could drive further growth in specialties and new end uses. Recycled fiber scarcity worsened by declining graphic paper consumption is also a positive long term driver for the pulp demand. We estimate that the long term In coming three years, only limited additional bulk capacity is expected to enter to enter to the market in the long term, creating a competitive and sustainable wood supply forms in an entry barrier, which limits the rate of the, at, at which which kind of scale the new capacity can enter into the market. Obviously, I think that when I said that UPM has been managing margin well during the last few years, I think that one part of the managing the market is a commercial success, how we are commercially operating. And I think that UBM does have a very solid commercial strategy for the pulp business as well. First of all, we are aiming to grow with our growing customers. UPM is trusted pulp supplier with our own sales and marketing network. Throughout the whole globe. So we have a global kind of presence in all markets. Today, our existing external customer base is representing about 2,600,000 tons of pulp annually in growing end uses in Asia, in Europe, and globally. Pulp is not to 1 or even 2 commodities. There are many different types of qualities of pulp. Not to mention the different levels of sustainability performance as well. We offer a broad multi fiber product portfolio most of our pulp customers are buying 2, 3, even some cases, 4 different pulp rates from us. We provide them with R and D. And especially, I would like to underline a very good technical support to optimize the quality and the cost of their products. Our products and operations meet the highest sustainability standards in terms of forestry biodiversity environmental performance of the mills as well as our stakeholder engagement. We will build on all of this with the new mill in Uruguay. It will increase our offering in sustainable, high quality and cost competitive way in eucalyptus pulp. So what makes our new pulp mill competitive? What are the key prerequisites that one needs to meet in order to be able to make an attractive investment on this business. Or to look into from another perspective, what are the barriers of entry. As I already summarized, to be competitive and profitable and to achieve attractive returns for the investment one needs to meet 3 hurdles. Competitive and sustainable wood supply for the mill. State of art, mill design and then thirdly, efficient logistic, value chain inbound and outbound to the world markets. So let's certainly look at all of these topics. Would supply, 1st of all, is one of the most important part of the competitiveness of the mill. We have secured Eucalyptus availability for the current freight Bentos Mill years ago and new mill near Bassodelo stores through our own lease plantations and sourcing agreements, long term sourcing agreements with the private partners. So free sources of how we have been able to secure the kind of competitive wood supply. We started to develop our plantation base in Uruguay almost nearly 10 years ago. If I remember correctly, that was year 2010. With the aim of eventually supply the 2nd mill with the sustainable raw material. Now our own and leased plantations in the country are covering 382,000 hectares. We have over 30 more than 30 years of experience in plantation operations in Uruguay, which secures well manage and productive plantations without making compromises on sustainability. Also, this optimizing the plantation operations for the 2 mills will provide synergies for the existing Fayetteentals Mill. Then the second one part of the competitiveness comes from the state of art mill design. The new mill has been designed as an efficient single line operations with the best available technology in this globe. The design critters have been to enable the highest high operating rate, maintainability and energy output. So we have been really putting a lot of emphasis onto the scope. To ensure also the low cost operating costs, excellent safety and high environmental performance during the long life cycle of the mill. So all of these criteria as we have been, clearly putting a lot of emphasis and developing them to the to the phase that we would have the best available mill in this club, most competitive one. The total investment cost is $2,700,000,000, and it is a also a competitive investment level if we compare with the previous projects. Page 14 puts our investment level to the perspective. This is a comparison chart providing by provided by Peru showing the capabilities and specific investment levels of the, of the selected greenfield and brownfield projects with the which on the axis is capacity and then the CapEx per toll. The chart shows that our expected investment is below per ton of capacity. And that is clearly lower than the average cost of these major project especially in the greenfield. Obviously, this chart only shows the level of investment, the attractiveness of the investment, I. E. The returns come from having a both efficient investment level and having the elements of the competitive operations. In place. Then moving to the logistics. The 3rd major part of the competitiveness is obviously inbound and outbound logistics. How do we set up that? This in our case will be secured by the agreed road improvements in Uruguay, the agreed in extensive rail modernization from Central Uruguay to Montevideo Harbor as well as the dedicated pulp terminal at the Montevideo Deepsea, port and harbor. We will construct the modern pulp terminal into the Montevideo port with an investment of 280 $1,000,000. The direct rail access from the mill to the port creates a very efficient supply chain into the world markets. Once again, the new Montevideo Deepsea Harbor also enabled synergies with our existing UPM Freight Ventas Mill. We will also make local investments outside of the mill fence, totaling of 1,000,000 A large part of this is related to permanent and temporary housing in the area. When discussed the status of our preparation, 3 months ago, in our Q1 call, several important pre prerequisites were still under preparation or pending. Now the necessary permits have been granted And the material agreements with the government of Uruguay have been concluded to the satisfaction of both parties. The PPP agreement between the government and the railway construction company was signed in May 2019 Initial works on the Central Railway have been started and the financing of the railway construction consortium is proceeding but not yet finalized. We will begin site works for the mill and dredging of the board immediately in the tendering for the main equipments and the money of the project is, and are going. And as already mentioned, the mill is expected to start in the second half of twenty twenty two. Ladies and gentlemen, I would like to summarize my presentation by stating that the Q2 was 25th consecutive quarter of increased earnings. We expect our business performance to continue on the at the good level in 2019, our investment in on new highly competitive pulp mill in Uruguay will provide a step change in the scale of our pulp business and of course in the UPM's future earnings. At this stage, I conclude the prepared part of the presentation, dear, operator, we are ready for Q and A session. Thank you. Okay. Our first question comes from the line of Lars Arberg from Credit Suisse. Please go ahead. Your line is now open. Congratulations on this decision for the pulp mill. It's clearly an interesting project. Could you share with us how you think about the returns on this investment, given your different criterias, what sort of what you expect? And if the total investment also includes what you have invested in forest lands. If you can start there, please. Clearly, Lars, obviously, what we have been guiding guiding is the cash cost level of $2.80 per tonne. And then what is the criteria for investment is in our Capital Markets, material, where the return on capital employed for the whole business to to be over the cycle more than 14% and this will meet those criteria. Got it. Thank you. And I'm coming back to you to the results specifically. I'm interested to hear what sort of costs you are seeing coming back aside from Pulp as I mentioned. And also, you know, the energy fixed cost reduction Is that something we should expect also in the second half by about 1,000,000 a year? And then finally, if you think about your, comments on pricing, pulp, paper prices, how do you see the spread between cost and price developing Is that a negative or neutral or whatever how you see it? Yes, this is Tapio. Maybe I'll comment on those questions. So first, starting on the cost development, that's, again, pointed out, it was already visible in the 2nd quarter figures that this kind of a cost environment turned And as said, obviously lower pulp prices is negative for our pulp business, but positive for our pub consuming paper businesses, and we were able to sort of capture that benefit as a lower cost But then other costs started to come down as well. And we would expect that to continue into the second half of the year. And let's say going forward, what we have seen already also in other fiber costs, including particularly wood costs that the market prices started to come down and as the kind of inventory cycle the cycle in the sort of value chain from purchase to harves to consuming the pulp or the wood in the pulp and paper mills and wood products mills is longer, then that takes some time to sort of flow to the bottom line, but we expect that to kind of happen and take place during the second half of the year. Also, let's say, in logistics costs, we are starting to see some moderation as well. So on several fronts, Then to your question in, regarding the costs in the energy business, maybe just as a background, where this particular item is coming from in the costs of nuclear power generation that is charged to us from TBO is included a charge for the estimated future costs of dealing with the final, depository for the spent fuel, nuclear fuel, And, Positivo, which is the company in Finland owned by Tvo and Fortum, who will take care of the final final placement of the spent fuels from Lovizan, Olkiluoto Day, made a revised estimate of those future costs as they do annually, this time, also related to the fact that PositVA made earlier this year decision to move into the implementation phase of that plan for the spent fuel. And therefore, there was a more significant revision downwards therefore, this $12,000,000 lower fixed cost for the first half, but there will be let's say, also as far as the fixed cost is concerned for the rest of the year, a benefit coming for our energy business in the second half as well. And then finally to your question, in terms of pulp and and paper prices, no sort of specific comment on the spread that such, but I would say that, has been visible already in the first half of the year in this environment we expect that we will keep our margins stable the same way in the second half as we have succeeded doing in the first half of the year as well. Just one final question, if I may, just on CapEx, you you raised this year's guidance by SEK 100,000,000. What sort of level of CapEx should we expect in 2020 2021 if you can give us any color on that, please? That we don't have as a figure to give yet. So But as said, the sort of rest of the CapEx for this Uruguay project, and this expected to take place during 2021 2022. And our next question comes from the line of Justin Jordan from Exane. Please go ahead. Your line is now open. Thank you, and good day, everyone. And firstly, I just want to say congratulations to the board for finally reaching this decision. I know there's many, many years of preparation work on into the decision. Can I just firstly just talk about the communication business sorry, communication paper division? I'm just intrigued by your comment of impact of reducing stocks in Q1. Because I guess conceptually if I take a step back, you should be benefiting from lower pulp raw material costs in this division. And is that something that is yet to come through or is that something that has been masked by the impact of reducing stocks in Q2? Maybe if I'll comment on that, perhaps it's a bit of both in a sense that there is some time lag, how quickly the, and at what pace in a sense, the pulp cost benefit shows in the bottom line. Of course, in the case of communication papers, that's most relevant for the fine paper part of the business to some extent, to the magazine papers where we do consume some chemical pulp as well. Then on the, inventory reduction part, the way in a sense the accounting works is that is that the kind of the realization of the margins in our bottom line is somewhat less when you are selling from stock more so than what you are adding to stock by producing paper. So it's a combination of the 2. Okay. All right. Thank you. I fully accept what you're saying in terms of the long term global pulp demand growth rate being circa 3% from market pulp Can you give us some thoughts as to where you think short term, I think, for the remainder of 2019? Pull price outlook is, I know you talk about lower pulp prices in the second half overall, but do you believe, for example, Chinese pulp prices are attenular trough? Or what's your view on this? Because clearly, there are if you ask 10 investors, there are 20 different views out there at the moment as to where we may or may not be. I'm just interested in your view. Maybe that is the reason that we do not actually put that kind of guidance for there. There's 20 out 20 different views on it. It remains to be seen how the balance of the market will move on as we have seen now, the low inventories are getting downwards even if they are still on the high level, but but that is something that is now happening. And most probably those kind of deliveries that is are not representing the underlying demand. My opinion is that the underlying demand is somewhat better than that of what we have seen in the deliveries, for the reason that there's a kind of inventory correction as well. Just one final question from me. Can you just remind us? I know this may seem like a really boringly annual question from me, but UPM, when you're declaring your dividend as a board, am I right in thinking you based that off your operating cash flow? And the important thing I'm trying to check here is clearly you're signaling a much reduced free cash flow period. Over the next 3 years in 2020 to 2022, but am I right in thinking that should not influence future dividend payments? That should not be the case. Yes, maybe to sort of recap in a sense that we have been discussing earlier First of all, the dividend policies, as you say, it's based on operating cash flow. So it's, before investments, after, obviously, any finance cost taxes or finance cash cost taxes or change in working capital, but pre any CapEx, Secondly, kind of the policy, we have the 30% to 40% range, which is the target where we want to be over time, meaning that it's not a hard ceiling or a floor. So obviously, the board will consider in a sense, let's say, the trajectory on which we have been, as far as our dividend is concerned and kind of what the expectations are for the future and where we are in terms of our financial standing. In terms of ability and kind of a consistent trap as far as dividends are concerned. Thank you. And our next question comes from the line of Alexander Bergland from Bank of America. Please go ahead. Your line is now open. Thank you very much. I have 2 additional questions on Uruguay. So first of all, if you can't comment anything on how long you think it will take to, to reach, full capacity. Is it kind of in the range of 3 years or so? And then the second question is just kind of a clarification on, on the ownership. So I think I've said, you said that you will be having 91% ownership in the project. Does that also mean that you're only going to pay 91% of of the 3,000,000,000 CapEx or or how does that partnership work? Those formal questions. Thank you. Yes. If I'll take that, 3 years is probably a good estimate, of course, let's say, accounting for the factor or kind of taking a note that it's not a linear curve in terms of 3 years, the, let's say, the curve, a startup curve normally for an experience operator such as ourselves is pretty quick in the beginning. And then there is, let's say, a tail of getting to the full capacity for the full days of the year, that takes a couple of more years. And then in terms of the ownership, as we have said, we have a local partner in Uruguay who has been Also, with us in the Fry Bentos project from the beginning, hold the 9% and, in a sense, it's a partnership where they have, in a sense, responsibilities and benefit that mirror ours in that project. Okay. Thank you very much. Thank you. Our next question comes from the line of Mikael Deppel from UBS. Please go ahead. Your line is now open. Thank you. A couple of questions. First of all, on the on the paper markets, what we have seen recently in the European statistics is that the demand declines have been accelerating updates recently. Do you see that as a new trend, since we are coming down faster now compared to the 3% to 5% in in the recent years? Is that a new trend or is this mainly reflecting a weaker cyclical situation and as an inventory adjustments? That would be my first question. First of all, I guess that we have not changed our view of the around 5% trend there. Decline in paper business. And as like Tapio said earlier, that there was inventories on Brexit inventory corrections. And then of course, paper business is also, having a kind of linked to the general economics and the has been somewhat lower in Europe now. Our kind of view is very solid with that 5%, around 5% And I would not actually draw a conclusion from 1, 1 quarter that there would have been any kind of particular change. Okay. Thank you. And then in terms of pricing, you mentioned you expect somewhat lower pricing on paper in the second half would you care to give some more color on the magnitude of the declines? Definitely, we are not giving any particular number, but if we did have the modern increase in the beginning of the year, I think that this will be similar to that, going downwards. Okay. And then just finally on costs and the maintenance costs that you have, how should we think about you talked about the underlying input cost. But if you think about the maintenance costs, so H2 compared to H1, or Q3 compared to Q2. What kind of a delta should we expect to see there? I believe at the end of first quarter, we talked about roughly $35,000,000 impact of maintenance costs in the second quarter, including everything that has been mentioned here in the biorefining business and Well, let's say, impact of maintenance, obviously, not only costs, but sort of, last margin in biorefining energy. And to some extent, in the Communication Papers business as well, 3rd quarter from that point of view, will be a clean quarter in terms of any major maintenance. And then in the fourth quarter, we will have the Fibentus Mentan has shut down. Thank you. And the next question comes from the line of Lenis Lawson from SEB. Please go ahead. Your line is now open. Thank you very much. And again, congratulations on this very exciting go ahead decision that you made today. I'd like to follow-up a bit on Uruguay, the if you could talk a bit about the scope of the investment correct me if I'm wrong. I think the amount that you have talked about in rough terms before was somewhat lower. The $2,700,000,000. I wonder if you could talk about the scope if that has changed in any way and also in this context, whether there is also an investment need in further plantation expansions, please? If I may actually start with and maybe Tapio continues. Obviously, when we are looking the kind of rough estimate that we gave 2,000,000 tons and 1,000,000,000. That was a rough estimate. And as you can see that it would have been very competitive on that level. Obviously, the scope has changed somewhat with the energy concept is something that we have been improving. There are in all of the areas, there have been some changes. And of course, the capacity is somewhat now bigger So it is a bigger facility. But there are additional kind of facilities as well that to secure that 280 dollar per ton cost level. So basically that's the reasoning that it is somewhat higher on that And obviously, when it concerns the platform of the Uruguay plantations, obviously, we have already secured through these three items, I. E. The own forest and then then the format arrangements leases and then the external long term suppliers But obviously, we are continuing with the development of the plantation platform as well. So that's something that will not stop stop here, but we'll move on. But we shouldn't expect to step up in your investments in owned plantations from now on given the go ahead decision that you've made today. No, we have secured supply for the mill, for the both mills actually and that is the status at this point. With these all these factors, we are talking about 90% sales efficiency already or the kind of secured volumes. And but obviously, hey, we will develop it is feasible to use CapEx for new plantations, we will do so. That's great. Also on the results and the outlook I'd like to follow-up on what you've talked about on variable costs if I look in your graph in your presentation, it looks as if the tailwind, including pulp, obviously, on variable cost in the second versus the first quarter was around 1,000,000. Is that the sort of magnitude we should expect in the third quarter sequentially as well? No, no sort of figure to give on that at this point in time, but I said, we believe that this is a kind of a shift that now took place in the second quarter. And we expect to sort of continue with that during the second half of the year. And I said, about half, in a sense, of the benefit was coming from pulp cost for the paper business. So that can be more or less during the second half of the year, but then also let's say there's the flip flip side of the coin. So then it's the sort of other items in a sense, which we continue, that we will continue to see a a trend in the second half of the year in terms of input costs decreasing. Great. And specifically on wood costs did you have a tailwind sequentially in the second quarter and what kind of market outlook and P and L effect are you seeing in the 3rd and 4th quarters, please? Well, let's say, no sort of no more details on that than what I said earlier that we have seen, let's say, the sort of market prices moderating and that already earlier and that is kind of flowing due flowing through to our bottom line as we are starting to consume, but that would. Okay. Thank you very much. Thank you. And our next question comes from the line of Robin Santavirta from Carnegie. Please go ahead. Your line is now open. Thank you very much. So, first in terms of the Uruguay project, you have agreed with your y on no tax or tax free zone for the new project. How long is that agreement? And that's not also, work for the Fibentos Mill? The tax free agreement? It's actually a free trade zone where there is obviously a lower fixed annual tax that we pay, which is mentioned in our release, it is 30 years long, as we had for the Priva Entos Mill as well. And actually, that Friventos, free trade zone agreement has been agreed to be extended for 30 years starting from now. All right. Good. And in terms of these images that you several time talked about during the prepared presentation with different privateers operation. Can you sort of provide some kind of examples and what kind of mind it is, are we talking about in terms of earnings? We don't have a number. We don't sort of provide that. But obviously, if you think about our operations in Uruguay, we can utilize the platform that we have built there for the let's say, whole business in terms of the plantation operations, the running of the pulp mill sell and all the sort of supporting functions that we have over there. Obviously, let's say, the significant areas of synergy are in the plantation operations as a whole as we are developing and optimizing the whole plantation area for the 2 mills. And then as you see mentioned also in the logistics where the investments that are being made, particularly in the harbor terminal operations will benefit our our Fibentos Mill as well And then, in terms of sourcing and securing the main inputs, for the operations in Uruguay. Obviously, we will have scale benefits, like for instance, in the area of chemicals, but other areas as well. So several areas and, benefit for the existing operations as well, but no numbers to give on that. All right. Thanks. And in terms of the you had 2 other sort of transformative investments that you have been talking about and you're planning biofuel project and the biochemical project. What is the status of those projects and when should we expect an investment decision? Could it be already, during 2020? This is Robin, great 5 minutes after we have announced 2,700,000,000 or 3,000,000,000 invested. Somebody's asking already the next step But this is a very good question. We are moving, as we have planned to actually develop those projects and And like we have been guiding that the biochemicals are somewhat advanced, more advanced than the biofuels, but both are moving on into based on the plan. And when they are ready, obviously, we are making those decisions, but But today, I have no more further information on those. I understand. And then finally, I don't know if I didn't catch the when do you expect to reach design capacity? Is it already during 2024 in year, why? Well, what I was saying earlier to the earlier question that somebody asked is 3 years a good assumption for the kind of startup curve. And I said that that's probably a good, good estimate, again, sort of, noting the fact that it's not a linear curve, but, let's say, the, ramp up during the 1st year for us is pretty quick, but then it takes a couple of more years probably to get to the sort of the full production throughout the year. Question comes from the line of Mark Hervin from Handelsbanken. Please go ahead. Your line is now open. Yes, thank you. I have a few more questions on the pulp mills still. You mentioned that your environmental permit allows more than 2,100,000 tons and 2.1 is sort of the initial capacity. Could you sort of specify how can you go within the current permit and what kind of does it require further investment to increase capacity or how should we interpret that? That is something that we have not disclosed. Pouch mill is designed for 2,100,000 tons. But typically, like in all of this size of the investments you have creep, and creep is only needing some minor CapEx when actually doing so. So basically today we do not have any more information around this. Okay. Very good. And this stage have a view on what the annual depreciation will look like when you're up and running? Well, basically, you can assume 20 year depreciation on the equipment of the mill Okay. Very good. And then further on the 2 other investments that are in the plants biochemicals biofuels. And now that you know the timeline of this investment, does that have any impact on the timeline of those investments, or can you run this concurrently or how does it work? Basically, we have been, from the beginning, resourcing this separately. So basically, it is not the resource question to UPM. It is more how these, these initiatives will develop and get to the stage that we are prepared to take the decision. So basically, there's more on that. That's how we develop those. Okay. So that was the last question. So I'll hand the call back to your speakers. Yes. Thank you for joining us today. And like I said, this is a pretty historical moment to make a big investment, which is one of the largest most competitive power mill in the whole globe. With these words, thank you for joining us and have a very nice day. Thank you. Bye.