Upm Kymmene Corp

Welcome to UPM's Quarter 3, 2024 results webcast. My name is Massimo Reinaudo. I am the CEO of UPM. Here with me is Tapio Korpainen, the CFO. Hi to everyone on the line. Together, we will illustrate the main elements of the UPM performance last quarter and year to date. Let me start with the key elements that characterize the quarter. Our Q3 results improved both year on year and quarter on quarter, with a good contribution from the fully ramped up Paso de los Toros pulp mill. The earnings improvement, albeit good, was lower than earlier expected, as the market demand of our products slowed down after a strong start of the year. In this slower recovery environment, we are taking decisive actions to ensure the competitiveness of our businesses. While this is important for our profitability, it will also support our growth ambitions going forward. Let's see now these more in detail. Our quarter free sales decreased by 2% from last year. In fact, during the quarter, our volumes realized lower than earlier expected, and this impacted both sales and comparable EBIT in the quarter. Our comparable EBIT totaled 291 million euros, or 11.5% of sales, and it grew 32% year-on-year, or 60% sequentially from quarter two. So, what happened during the quarter? Let's start with the situation in Europe. As said before, and most visible in Europe, the demand has slowed down for most of the UPM products after the strong start of the year. In presence of significant uncertainty, European consumers have remained very cautious with their spending, despite the declining inflation. This led to lower than expected volumes in our consumer-driven businesses. As an example, you can see the familiar graph for self-adhesive label material shipments in Europe. There, you can see that after the strong rebound of the demand in quarter one, the market shipments declined in quarter two and quarter three. Whilst they are still 7% above last year, they were sequentially down 9% versus quarter two. The demand in construction and industrial production related end users as well for the renewable fuels stabilized, but stabilized on a low level during the quarter. In China, On the other hand, the demand continued to be robust for our advanced materials, such as label materials, specialty papers, or plywood for energy vessels. However, the pulp market has been soft during the summer, and this resulted in lower pulp deliveries and decreased prices. Similarly, the fine paper markets in Asia were soft during the quarter. When it comes to North America, consumers have continued to be active. Demand grew modestly for our products and specifically for label materials, specialty papers, and graphic papers. Given our business mix, the slower demand in Europe and the summer slowdown on the pulp market in China have been the two main factors impacting our performance during the quarter. But now I'll hand it over to Tapio for some analysis on the result.

Thank you, Massimo. So here on the left-hand side, you can see our third quarter results. comparable EBIT compared to the same quarter year on year or last year, 23. Two main positives here. First, on group level, sales prices had a positive impact on EBIT. Changes in variable cost had a minor positive impact as well. Fibre costs increased, pulp, recovered paper and wood cost in Finland, whereas other variable costs decreased. And the other point is that we have been able to drive down fixed costs meaningfully, as earlier guided in the third quarter. Our fixed costs were 56 million euros lower than last year. Volumes increased from last year, but less than we had expected. Then on the right-hand side, you can see the EBIT comparison sequentially to the second quarter this year. Here you can see the significant decrease in fixed cost, 107 million euros and higher volumes. The main explanation for both is the high level of maintenance activity in the previous quarter, as we discussed in the call in summertime. In fact, deliveries actually decreased from second quarter to third quarter in some of our businesses. On group level, prices were broadly stable quarter on quarter, whereas variable costs increased. The cost increase came from two sources, wood cost in Finland and pulp costs to the two pulp consuming paper businesses. Changes in pulp market prices realized with one quarter lag as compared to the pulp costs in the pulp-consuming paper businesses. And therefore, specialty papers and communication papers were incurring increasing pulp costs while the pulp businesses experienced a 3% decrease in average pulp sales price. And here you can see the comparable EBIT development by the six business areas. Fibers first improved its comparable EBIT both year on year and sequentially from the second quarter. This was the first quarter of full production at both mills in Uruguay, and there were no maintenance shutdowns in the third quarter. In Finland, wood costs were on a high level, and we took three weeks of downtime at the Kaukas and Kymi pulp mills to optimize our result. During the summer slowdown of the pulp market in China, our deliveries realized lower and our average pulp price decreased by 3% from the previous quarter. Communication papers increased its EBIT from the previous quarter. The average paper sales price was stable while there was a modest recovery in deliveries from Q2. Deliveries decreased sequentially from the second quarter in Rafatak and in the Asian fine paper business of specialty papers. Specialty papers was also impacted by peak pub costs in the third quarter. As a result, comparable EBIT in the two businesses decreased. Plywood performed well considering the slow construction markets. Energy business areas saw very low electricity prices during the summer months, given the seasonally low demand and high supply of renewable power on the market. The Estlink 2 transmission connection to Estonia was out of operation during the summer, further contributing to the low spot prices in July-August. In other operations not shown here, weak markets for renewable fuels continued. On the positive side, the biofuels business started to gradually benefit from decreasing input costs. Operating cash flow for the quarter totaled 242 million euros. impacted by an increase in working capital equaling 73 million euros. Net debt was 2.8 billion euros in total, and net debt to EBITDA ratio was 1.59. The second installment of the dividend for 2023 will be paid on the 7th of November. And here on this slide, you see our outlook for 2024. We expect the fourth quarter comparable EBIT to be on similar level or increase from the fourth quarter of last year. Volumes have recovered from the summer lows, but the demand recovery for our products is lower than we earlier expected. In biofuels, no meaningful volume increases expected in the short term. Average pulp selling price is still decreasing from the fourth quarter, in the fourth quarter from the third quarter. And energy-related refunds are expected to materialize in the fourth quarter in communication papers, similar to previous year. Finally, there's no significant maintenance shutdowns in the fourth quarter. And now I'll hand it back over to Massimo.

Thank you, Tapio. At our Capital Markets Day in September, we provided an update on the next phase of the UPM strategy. We presented a business portfolio, which is based on sustainable and renewable feedstocks and fossil-free energy. With it, we have also indicated where we will be focusing to pursue sustainable and profitable growth. Our portfolio is well positioned for robust growth in renewable fibers, advanced materials, and in decarbonization solutions businesses. Graphic papers will continue to generate strong cash flows. Let's now look at where we are and what we are doing in each of these categories. So let's start with the decarbonization solutions. First of all, the vision. Over the coming years, there will be a strong need for decarbonization solutions in transport and chemical industries. The expansion of the digitalization and the development of AI, as well as the electrification of transportation, the green transition in several industrial segments, will drive a significant growth of demand of reliable CO2-free energy. With our 12 gigawatt hours of generation of CO2-free energy, we are well positioned to capture the opportunities coming from this increased demand. In the short term, Stapio mentioned, electricity prices in the Nordic areas have been low and volatile. We are however entering the winter period where the energy consumption is seasonally higher. In this environment and in the short term, we continue to optimize our production and maximize the value creation on the electricity market through the energy mix we have. In parallel, we are working to capture the opportunities that the expansion of data centers and the industrial green transitions are offering in Finland. In biofuels, the current markets are weak. However, there are some positive signs if we look ahead. On one hand, there have been political decisions recently and proposals that should gradually start improving the demand on the market going forward. I'm referring here to anti-dumping duties and potentially limitations to the transfer of greenhouse gas emissions to future years in Germany. On the other hand, input costs have finally started to decrease, which is going to be having a positive impact on our biofuel business performance. The market price of advanced renewable fuels and the current spot prices of the main raw materials will allow a return to profitable business going forward. In biochemicals, we are looking forward to starting the LOINA biorefinery over the coming months. On site, the refinery is approaching technical completion and commissioning is proceeding. The sequential startup is expected to begin by the end of the year and the wrap-up of production to proceed during the rest of 2025. As discussed at the Capital Market Day, we expect to reach full production and positive EBIT in the biochemical business in 2027. When it comes to advanced materials, the demand has been impacted the most by the unusual cycle last year and inconsistent recovery of this year. with a strong start of quarter one and the softening of the demand during quarter two and quarter three, as mentioned before. These businesses, however, have long value chains, and this makes the inventory play a bigger role here, amplifying any variation in the demand. In other terms, when demand is stronger, There is more openness to raise inventory levels and vice versa when the demand softens. Because this happens at every level of the value chain, this leads to the ample variations in volumes of the past quarters, variations that are higher than the real variation of the underlying consumer demand. We remain confident in the medium to long-run demand outlook for these businesses as the drivers behind them stay unchanged and beyond the demand cycles or the inventory cycles. For this aspect, we see that their growth will exceed GDP growth on average over time and cycles. In addition, these businesses offer good opportunities in faster growing geographies and for targeted M&A operations. However, while we wait to get the boost from the market improvement, we are taking decisive actions to further improve our competitiveness here. This includes simplifications of our organizations and actions on fixed and variable costs. This will improve the performance as well as the ability to fully capture the market recovery and realize our long-term growth ambitions here. In parallel, as indicated earlier, we will continue to explore value-accurative opportunities for inorganic growth to reinforce our presence here after the acquisition and the integration of the graffiti business in the summer. When it comes then to renewable fibers, we have here a world-class low-cost platform in Uruguay. Quarter three was the first quarter of full production at both our pulp mills in Uruguay. This now enables the next phase of cost optimization to begin. In quarter four, we will reach the full utilization of the railway connection between Paso de los Toros mill and the port terminal in Montevideo, which will allow a reduction of logistic costs. In the medium term, in addition to get into the targeted cost levels, we will look for opportunity to expand further production beyond the current reached nominal capacity. But when it comes to Finland, our other renewable fibers platform, the situation is quite different. The current wood costs are at an unsustainable level. As commented in other occasions, this is a structural change for the whole industry in the region, and it will require structural solutions. We have large-scale, well-maintained mills in the region, but even for us, it makes sense to optimize production to reduce the highest cost wood sources, specifically when pulp prices end up being soft. Hanks, the temporary downtime that we have announced in quarter three. We also announced efficiency measures in our pulp forest and timber operations in Finland during the quarter. In graphic papers, the objective continues to be a strong free cash flow generation, and the business is delivering on that. Over the past 12 months, the communication paper business has generated nearly 400 million euros of free cash flow, or 33% free cash flow return on capital employed. This year, market demand has been stable after the strong dip last year, but the market decline is expected to continue over the medium to long term. To make sure that our cost competitiveness is maintained, we closed down the Hurt and New Spring meal in Germany during quarter three. and we decided to close down the fine paper machine number 3 in the Nordland Mill in Germany that will take place by the end of the year. The annual fixed cost savings of these measures will be about 45 million euros. and here what you can see are the two slides from our capital market days presentation that visualize our growth ambitions both in terms of portfolio and geographical evolution we have taken recently a major step in the renewable fibers growth and we will drive cost optimization and further production expansion In the short term, this has increased our exposure to the cyclical pulp prices. However, our aim is not to become a pulp company. In the coming years, we will grow in the advanced materials and in the decarbonization solutions businesses, balancing the portfolio. We will also look for opportunities to expand in higher growth geographies. In the short-term weather, in soft markets, our top priority is to improve our competitiveness and performance. In this area, we have taken a number of actions and steps already, and as an example of the impact of what we did, our fixed costs in the first nine months of this year were 71 million euros lower compared to the same period last year. This is a remarkable achievement if we consider that last year we used a lot of temporary layoffs and this year we have the full added fixed cost on top from both Paso de los Toros and the biochemical business in our P&L. Nevertheless, we will not stop there. As said, we will aim to improve our performance while setting ourselves up to capture the recovery and the future growth of these markets. To finish and to summarize, slow markets have impacted our performance in Q3. But despite that, we have increased our profitability both year on year and sequentially. In different businesses, we are working to improve the organizational, operational, and commercial effectiveness. Equally, we are at an advanced stage of developing an AI roadmap that will further enable productivity. Whilst we do not speculate on the evolution of the demand in the next quarters, given the high level of uncertainty in the global economy, we expect our performance in quarter four to be sequentially better than quarter three, and at the level or above quarter four last year, as Tapio indicated. And this is supported by positive seasonality affecting a number of our businesses, like Raflatak, energy or communication paper where we will have the booking of the energy-related refunds mature during the whole year. The recent transformative investment of Passo de los Toros has reached a key milestone last quarter with reaching the normal capacity, but has a still relevant untapped potential coming from both cost improvement and capacity expansion. Loine, we commented it before, will soon start production. Our plans for the next year are being prepared along the strategic priorities shared at the Capital Market Day, having as an objective to create a balanced portfolio that will deliver a profitable growth and attractive return to our investors. This ends the prepared part of our presentation, and we are happy to take your questions now.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Efrem Ravi from Citigroup. Please go ahead.

Thank you. Sort of two questions. Firstly, on the quarter-on-quarter improvement that you were expecting, you did mention kind of the seasonality and the improvement in RASATAC and energy business and the specialty paper. Can you also say how much of it is and expectation on pricing overall in the market versus kind of volumes? And secondly, energy-related refunds, can you give us a number in terms of what you're expecting so that we can kind of strip that out from the quote-unquote improvement for a cleaner underlying trend? And then the second question on raffle attack, Obviously, you put up that chart of the volumes that are still about 30% below the peak levels. It looks like kind of the new normal for demand may be significantly lower than what you had in Q2 2022. Are there any kind of footprint or capacity reductions that you're planning as part of your cost reduction plans there? Thank you.

Okay, thank you, Afran, for your question. I'll comment on the seasonality point and the Raflatak volumes, and I will let maybe Tapio to comment on the energy-related refunds. Yeah, when it comes to the seasonality that I mentioned, well, actually, it goes back to the drivers behind it. So if we talk Raflatak, an important end-use segment, that Raflatak products are addressing is logistics. And during the Christmas time or before the Christmas time, through Black Friday kind of initiatives or other similar initiatives, there is typically and seasonally an increase of the demand. So this is the driver behind the volume recovery that is expected there. When it comes to energy, again, the driver is the increased consumption for eating reasons mainly and principally in Finland. which this one depends by the methodology of the region but from from these while it is i would say realistic to expect an increase in the volumes if we also look at the historical series getting to speculate about prices because it gets much more much more difficult because that is influenced by many other factors But then building on that, I come back to your point or your comment around volumes being down 30% from the peak scene during 2022 or 2023 for Rafletec. Well, actually, if we look at – if we consider that Rafletec and Rafletec products are going – in a number of industrial applications, but a good part of it goes into consumer-driven areas of application. Even though we can assume that 2022 was a peculiar year by a number of measures, I don't think we can assume that industrial demand or consumer demand has decreased anywhere in that scale during this period of time. So, of course, time will tell. There may have been some transformation of that demand, but a little bit like I indicated earlier, this business is characterized by a very long value chain. Many players play in the role, and when the outlook is positive, everyone is more inclined to build bigger inventories. and the effect of this build up sums up over the value chain with the opposite effect when the outlook changes. If we look at the the rapidity of the bounce back And in the second part of 2023, the bounce back of the demand in quarter one, there's a probability that at the beginning of the year with a more favorable outlook for economy and consumption during the year, there has been an element of inventory built or rebuilt. during that has impacted the the performance in quarter one and this inventory has been partially run down along the value chain in quarter two and in quarter three uh in view of the let's say the different situation and all this uncertainty uh which is around so a time will tell but i would not take that the current level is the new new normality Our view is that over time with a stabilization of a few elements, the recovery of consumers buying power and so on, the demand can start to grow again and on a stable base.

Maybe I'll add on this the question related to the energy refunds. As I said earlier, same as last year, this sort of energy refunds and compensations fall to the fourth quarter. We don't give a number in a sense on that, but one can expect that it will be a similar level or maybe a bit lower than last year. So in that sense, a similar pattern in a sense that we had last year.

Thank you.

The next question comes from Cole Hathorn from Jefferies. Please go ahead.

Thanks for taking my question. I'd just like a little bit more color how you're managing your pulp mill network and kind of how you think about the decisions when to produce and when to kind of manage your inventories. I realize that wood costs are elevated in the Nordics. yourself and Metsafibre have taken some downtime. We've seen a little bit of a pullback in the pulp would cost there post that. But, you know, how do you think about that pulp production versus, you know, supplying your customers and, you know, that pulp supply chain is the first question that I've got to follow up on roughly. Okay.

Okay. Well, we have utilized in a couple of occasions the definition of platform, a platform in Uruguay and a platform in Finland. That is because we do manage in both geographical areas, the meals in that area. in such a way to optimize the platform beyond the optimization of a single site. When it comes to Finland specifically, we have pushed this element and this notion further in recent time. to better deal with the challenges that the market is bringing in the sense that we are not just looking at the pulp mills, but also, for example, at the saw mills and the wood sourcing as a whole. so that we can really optimize profitability across the platform and not maybe at every single step of the process. Then more on that, I would say in the current circumstances, we have changed our approach. Typically, a pulp mill is run at full capacity 24-7. So it is run to maximize production. In the current circumstances, we have moved to looking at how to run the meal and, say, the platform, so to maximize profitability, which can mean that at time we will run at capacity. In other times, if, let's say, the balance between cost and prices is not just the right one we may take time down like we have done in september let's say with layoffs of three weeks into meals so we will continue doing optimization and we will continue to run this platform the finished platform for for profit going forward and then

Maybe I'll follow up on Ruffletuck and Speciality Tea Paper for the label side of the business. You've talked about the bit of destocking post a stronger H1, but The margins were probably a little bit weaker in Rafa Tak despite the volumes. Is there something else that we should be thinking about? Is that like a feed-in of higher speciality paper or other cost dynamics that maybe have brought down the unit margins and you hopefully set to recover those? And similarly on speciality paper, how do we think about the pricing dynamics there? Thank you.

Okay, a bit of a different situation for the two businesses, although there are some common elements. The common element is the weak demand, as mentioned. And we are talking about a demand for those businesses that is seasonally low so we had a low on a low demand and what that that happens uh uh you know the the sheer impact of your fixed cost the structure on the profitability is is bigger so this is one element which has contributed to the the performance in in quarter three The other element is a bit of lag, as also Tapio mentioned, in the, let's say, in the cascading of input costs through productions. So, for example, in specialty paper, there were still a tail of increased costs. or let's say higher pulp prices filtering through inventories and eating the product during quarter three. So these are the two dynamics impacting the performance of those two businesses in quarter three. Now, having said that, of course, we are not being idle. And in both businesses, we have looked and implemented a number of measures. For example, in Raflatak, we have kicked off during the summer already a streamlining of the organization with adopting a simplified operating model which will increase reactiveness and will have an impact also potentially on cost going forward. Finally, your comment about capacity I would say that capacity and operating rate in this specific space is not such of a relevant element. It does not the same impact it has, for example, in communication paper. And definitely the fact that in this space we expect the demand recovering going forward. We definitely don't want to give up capacity that we will use and we think we will use over time. So we are not there, let's say, at that point of our reflections.

Thank you. To add to that is that, like we pointed out earlier here in the specialty papers, within the result, we had the impact from the Asian fine paper business where we have the combination of soft markets in Asia for the graphic fine papers. And in a sense, like Massimo was pointing out, the sort of bulk price is still peaking in our cost base.

The next question comes from Robin Santaverta from Carnegie. Please go ahead.

Yes. Hi, everybody, and thanks for taking my questions. Now, in terms of the wood raw material costs in Finland, I think you referred to them being unsustainably high and at peak level. What is the output for wood cost in Finland for Q4 and the start of next year? And related to that, what will take downward costs from this peak level in Finland? Is it safety capacity closures or is it increased harvesting? We have quite low levels in Finland at the moment, or is it something else?

Well, Yeah, we have characterized it as unsustainable because the reality is that there is an imbalance between demand and availability. Price and price pressure is putting a strain on the profitability of every business in that space. but still does not solve the fundamental issue that it's not just enough wood to feed the entire demand there. When it comes to, as we said, it's a structural problem, the structural solution, it's either an increase of the supply, which is not very probable, but everyone can have opinions about that, or a decrease of the demand through, let's say, stopping activities. The variable into that is potentially how prices will evolve, prices of pulp or of construction materials. Should they be at a less challenging level than today, that may relieve some of that pressure. But that is the reality right now.

Can I ask how competitive are your three pulp mills in Finland compared to other global software producers at the moment.

This is a difficult to answer question because this is a relative question and we know our competitiveness. We don't know the one of the others. I would say we have three pretty large meals. that we have maintained always in very good order. So I would say that at least in relative terms, let's say in absolute terms, we are pretty competitive, having said that. And repeating myself, we're not immune from the pressure from the market. And so this is why we work to further improve our competitiveness. And we have announced some weeks ago a plan that will potentially include a reduction of 110 people to try and streamline our activities and reduce our cost base there.

I understand. And finally, regarding Pasolos Toros, what are the remaining steps to take in order to reach the production cost level of $280 per ton? And can you give some color on how far above the $280 level was the mill now in Q3?

Okay. Well, look, if we talk about this decisive, sizable and discrete steps, the very first one was reaching a nominal capacity. which carries together another important element, because the mill produces excess electricity, which is then sold. It provides, let's say, revenues that end up impacting costs ultimately. Another relevant step was the ramp up of the railway connection there, which will be completed by the end of the year. That is an important milestone, which will have also impact on cost. Then there is a number of other, let's say, elements which will go into continuous cost optimization, which go from, let's say, process optimization within the mill to expanding and pushing capacity beyond the nominal level, down the way of optimizing the use of plantations there amongst the two mills we have over there, and the logistic, and so on. So this made us say that we I mean, we are very happy about the cost base we have right now. We know the current level is kind of world-class level, and we trust and we are confident that we can go even farther on that. Some of these actions, when we now talk about optimization, will not materialize in a matter of weeks or months, but can even span over a couple of years or so. And this is letting apart potential and further, let's say, de-bottlenecking of Paso de los Toros, which may require some capital investment. That is also what we mentioned during our Capital Market Day, that can push our capacity in Uruguay, so the sum of the two meals, potentially up to 4 million tons over time. All these elements will contribute significantly to profitability either through volumes or cost optimization or both and with a connection between the two. Thank you very much. Thank you.

The next question comes from Charlie Mule-Sands from BNP Paribas Exane. Please go ahead.

Thank you for taking my questions. Just one to follow up on your answer there. Sorry to press you, but are you saying that you will not reach the $280 per tonne target until you actually expand beyond nominal capacity, and that could take a couple of years? Or is that an opportunity to go even further still? Secondly, also on pulp, I just wondered what you felt about the global supply-demand balance looking into 2025. Obviously, one of your Brazilian competitors is ramping up, but equally there's been some reports of an Indonesian operation postponing or potentially postponing the startup of their capacity due to come online. And then finally, I just wondered at the half-year stage, or the CMD, you gave us the losses specifically related to fixed costs at Loina. I just wondered if you could share that number again in Q3, or I just know whether that sort of steps up further or whether the run rate there is stable still for the second half. Thank you.

Okay, here are two. Let me share the answers between myself and Tapio. I'll pick the first two and then I'll let Tapio to comment about Loina. No, when it comes to this, let's say, cash cost, the target of 280 USD per ton, which was previously indicated, we are not connecting that to further the bottlenecking. That is another, let's say, developmental stage, which was not part of the plan at the beginning. So it's not part of the consideration that led to this number earlier on. Okay, so thanks for raising the point and helping to make clarity about that. When it comes to the demand-supply balance next year, that's a complex question because if you were asking me what would have been the demand at the beginning of quarter three, I would have given you an answer which would have been probably pretty different from what has been the reality in quarter three. So it's very difficult to make predictions, and I would abstain honestly to make predictions. about demand evolution in the future, in the current situation of geopolitical uncertainty. And then on the supply, I can just reflect on the fact that normally new capacity coming on stream, it's always announced and very well mapped and documented. but there is constantly capacity coming off stream, which is normally not communicated in an equal way. So what I'm just trying to indicate here is that in times in low pulp cycles, if we look backward, the amount of capacity exits has been also sizable, to the size of a new pulp meal or potentially even more. So, in a way or the other, the market will reach its balance over the future. But let's also factor the capacity exits into the equation going forward.

Coming to a question concerning the Loina, impact that we talked about in the capital markets days. So, of course, now when we are, let's say, going towards ramp up and getting ready to start production during the remaining months of the year, then we do see some increase in the sort of OPEX. That's part of the picture. No drama there. But let's say in the overall sort of result, it's not the material change.

Thank you very much.

The next question comes from Ramchandra Komath from Barclays. Please go ahead.

Hi there. Thanks for taking my questions. I have a couple, please. First, on the paper, after many quarters of year-on-year drop-ins, graphic paper delivery. It looks like it has stabilized in 3Q, but market is up. And just wondering if you have lost market share in this business and if closing of PM3 at the end of this year will further worsen the situation, I mean, in terms of the market share for UPM. And coming back on our follow-up question on the demand and supply, as you spoke that the cost curve is key here in the pulp business, and if Asian players are adding to the city somewhere, the high-cost producer would exit the business. Where do you see the most exit in this business and where the finished pulp mill of UPM is? placed at the moment when the wood cost is actually one of the highest. Thank you.

Okay, let me take the first question first about the paper business. Yes, demand has stabilized, I would say, this year for the graphic paper, but it's worth remembering where we are coming from with a massive decline last year. In this situation, your question is about market share, and of course we look at volumes. Volumes matter, market share matters, but profitability is our priority. We have adopted and we are adopting, let's say, actions that are aiming to protect profitability and continue to generate good cash, which is what has happened in this business going forward. Volumes have probably declined significantly. a bit in quarter two and then recover in quarter four, also because, let's not forget it, across quarter one and quarter two, Finland has been affected by four weeks of this political strike, nothing to do with UPM specifically, but that ended up blocking the ports and therefore blocking the deliveries from our finished meal. So that has some impact on quarter two, that being re-established together with the work of our COMPAPER team, let's say on protecting profitability, has led to this improvement in quarter three. Sorry, I don't remember the second question.

Yeah, I can comment on that question around, let's say, exit and kind of how the supply reacts in the pulp business. Well, like you know, when there is a down cycle in pulp price, then that usually does obviously lead to temporary curtailment, but then permanent exits as well. And in fact, on the average, if you look at the past years, there's been more than a million tons of capacity exiting the global market. So in that sense, one can expect that to happen. now and in the future as well. There's two kind of different cost curves here, obviously, the softwood and hardwood cost curve for us here in Finland. The relevant comparison is on northern softwood, as we have, as many of our peers in this part of the world have done now, kind of, refocused our pulp mills mostly to softwood, as, you know, the Russian birch pulpwood is no longer available. And then it's a question of competitiveness within that northern softwood pulp curve. And let's say here in the Nordics, North America as well, we have taken short-term curtailment as we have discussed here, even though we have 800,000 ton plus mills here in Finland in our case, so it gives some indication in a sense that it makes sense to sort of curtail and not produce the marginal tons that are no longer contributing to the overall profit of the mill. So then it must be that since there are a number of smaller, less efficient mills, they are under pressure as well. And what action they will take or what kind of restructuring will take place on that cost curve that we will then see during the coming quarters, unless in a sense the market conditions significantly change.

Okay, thanks.

The next question comes from Andrew Jones from UBS. Please go ahead.

Hi. I just want to drill down more into the fiber on the performance. I think you do a couple of things. One, you can quantify how much volume was lost from these shuts in Finland. Secondly, I guess, Can you give us an idea of what sort of pulp price is the break-even for those mills? Maybe on software, I guess, is the more valid metric. And also, the lift in shipments was pretty muted compared to what we were expecting from the ramp-up of the mill. Was production significantly higher than shipments during 3Q, and can you quantify the difference between production and shipments?

Thank you. Well, if I try to sort of take the questions, well, first of all, in terms of the volume impact, so again, 800,000 tons per capacity, both Kymi plus 800,000 plus tons capacity, both Kymi and Kaukas, three big shutdown for each, that's the volume impact. We don't give break-even prices for pulp, but again, it means that, in a sense, for those marginal tons, obviously, we were at the break-even mills as a whole, profitable, but it makes sense not to produce those marginal tons anymore at this current level of market price for pulp and wood cost at the tail of that wood cost curve. And then, let's say, again, don't have a number to give in terms of the difference between production and deliveries as such, but we did have a, as said, full run in Uruguay, and we had, let's say, a slow market in Asia in particular, so we did obviously then also produce the inventory.

Just to clarify on that, when you say a full run, the nominal capacity of the two Uruguayan mills, I think from memory was 3.7 million. Are you saying you're running at 100% or just operating at 90% plus? What's full for you?

No comment other than Basso design capacity is 2.1 and 1.3 is the FriVentos.

Okay, so 3.4 total, so you're full. Does that mean 100% or does that mean, you know, kind of normally you'd operate at 95? I mean, should we actually expect those two mills to produce 3.4 million tons in 2025?

Let's say that's kind of the annual capacity in a normal operation. Okay.

Thank you. Okay. I think with this, we have also utilized the time we planned for this call. Thank you very much for the participation and for your calls. And I'm looking forward to talk to you again at the next quarterly call. Thank you. Have a nice day.