UPM-Kymmene Oyj (UPMKF) Q1 2023 Earnings Name Transcript

UPM-Kymmene Oyj (OTCPK:UPMKF) Q1 2023 Earnings Convention Name April 25, 2023 6:15 AM ET

Firm Individuals

Jussi Pesonen – CEO

Tapio Korpeinen – CFO

Convention Name Individuals

Lars Kjellberg – Credit score Suisse

Justin Jordan – Davy

Robin Santavirta – Carnegie

Linus Larsson – SEB

Charlie Muir-Sands – BNP Paribas Exane

Cole Hathorn – Jefferies

Jussi Pesonen

Women and gents, welcome to UPM’s Q1 2023 Outcomes Webcast. My title is Jussi Pesonen. I’m the CEO of UPM. And I like at all times, I’m right here with our CFO, Tapio Korpeinen.

Tapio Korpeinen

Good afternoon to everybody.

Jussi Pesonen

Let’s get began. Women and gents, we’ve two predominant subjects to be mentioned at the moment. First, we delivered strong Q1 outcomes, although it was clearly held again by short-term lack of volumes. And secondly, I’m completely excited that we’ve efficiently accomplished two of our transformative main development initiatives. This can be a crucial milestone that we had two weeks in the past inside UPM.

The Paso de los Toros shops pulp mill in Uruguay is at the moment ramping up the manufacturing and is already producing high-quality sellable pulp. On the similar time, Olkiluoto nuclear energy plant unit right here in Finland is now in regulatory business manufacturing. Each investments will contribute to UPM’s outcomes and future alternatives for many years to come back.

Women and gents, our Q1 end result was the second finest first quarter in over 20 years. Our gross sales grew by 11% from that of final 12 months, and our comparable EBIT grew by 29% to be on EUR356 million. Working money move was sturdy on the EUR740 million. The principle optimistic driver in our result’s enticing unit margins in a lot of the companies. Additionally, unit margins had been larger than that of final 12 months in all our enterprise areas. We now have succeeded nicely in margin administration.

On the damaging facet, market shipments in most product areas had been considerably beneath long-term pattern because of intense destocking within the product worth chain. This held again UPM supply volumes too as nicely throughout nearly all companies. UPM’s common deliveries to capability ratio was round 70% in Q1.

Women and gents, this can be a crucial slide of the narrative that we’re conveying at the moment. Let’s talk about the destocking impression a bit extra as our evaluation is that the primary a part of the supply quantity weak point is non permanent by nature. What I’m speaking about right here is destocking all through the entire product worth chains downstream, not solely our or our direct prospects’ inventories.

Final 12 months had an uncommon circumstances that resulted in elevated inventories in lots of elements of the worth chain. First, final 12 months, there was a real concern in regards to the availability of all type of items. In lots of merchandise, the markets had been tight, whereas the logistics bottleneck — bottlenecks and provide chain disruptions represented further threat to availability of products or timing of the shipments, holding uncommon security inventory helped to mitigate this threat.

Secondly, price enhance was very excessive over the last 12 months. It made sense to carry some further inventories as all the things was getting dearer every month. In direction of finish of the 12 months, each availability considerations in addition to price considerations began to degree off. On the similar time, the upper rates of interest made holding working capital dearer. Due to this fact, all of the sudden, no person wished to carry inventories and the destocking began. Due to the bizarre background of final 12 months, the destocking has been unusually massive and has lasted unusually lengthy.

On this slide and the image right here, we noticed for instance, European self-adhesive label market shipments for example the depth of the present destocking. And that is, as you possibly can see from the image, this — the supply is FINAT. As you possibly can see, demand for the labels usually has low volatility and wholesome long-term development, usually being 3% to 4%. That is pure because the excessive share of the labor supplies demand serves each day shopper merchandise and finish customers.

On this graph, you possibly can see the impression of the worldwide monetary disaster 2008 and ’09 and, extra lately, the one quarter of destocking after COVID lockdowns had been lifted in Europe in Q3 2020. In Q1, this 12 months, nonetheless, market shipments of self-adhesive label supplies was down by 33% from that of final 12 months. That is clearly impacted by vital destocking.

Most definitely, the underlying shopper demand has been impacted by gradual development of — and excessive inflation within the related economies. A number of the main shopper manufacturers firms have been estimating a center single-digit decline of their each day shopper merchandise markets. That is very — that is nonetheless very distant from a 33% decline within the quarterly shipments, as you possibly can see from right here.

Destocking is impacting different merchandise markets and — product markets as nicely, together with specialty papers, communication papers and pulp. Destocking is non permanent. After all, we anticipate that the destocking impression to section out within the coming months and quarters, though it will likely be nonetheless impacting the markets on this quarter, i.e. the Q2. The long-term development prospects stays unchanged and are in most companies enticing. So principally, the long-term view has not modified.

Throughout this sort of short-term turbulence, we proceed to concentrate on managing margins that what we’ve been doing final three, 4 years. This offers us place as soon as quantity begins to recuperate. In the meantime, many variable prices have handed their peak, however the profit continues to be to be materialized within the — in our outcomes.

Now girls and gents, I’ll hand over to Tapio for some extra evaluation of the outcomes. Tapio, please?

Tapio Korpeinen

All proper. Thanks, Jussi. So right here, we’ve the same old slide evaluating the primary quarter to final 12 months’s first quarter after which sequentially to the fourth quarter of final 12 months. And on the left-hand facet in comparison with the primary quarter, year-on-year, you possibly can see that on group degree, gross sales costs elevated and the gross sales worth will increase have been bigger than what was the damaging impression of accelerating variable prices.

And like Jussi already talked about, our unit margins now are larger than final 12 months in all enterprise areas. You most likely keep in mind that most of our Finnish mills had been on strike final 12 months in the course of the strike, then the employee-related mounted prices had been low, explaining a lot of the mounted price enhance year-on-year that you could see right here on the slide on the left-hand facet.

Additionally, you see already described the destocking impression on our product markets. This 12 months, our deliveries had been low because of destocking final 12 months. The deliveries had been impacted by the strike in Finland. Yr-on-year adjustments in supply volumes had no impression on our EBIT on this — on this comparability.

On the right-hand facet, you possibly can see the EBIT bridge in contrast with the fourth quarter. Deliveries elevated — sorry, decreased, as is seen on this image from the fourth quarter and so did mounted price as nicely. First quarter was mild on upkeep, which explains predominant a part of the lower in mounted price sequentially.

Gross sales costs decreased barely from the fourth quarter. And on this comparability, the delta on variable prices is damaging, once more, between the primary quarter and the fourth quarter. Nonetheless, most of that is timing associated, which means the comparability quarter, fourth quarter final 12 months after which associated to the low supply volumes.

Initially, once we take into consideration the fourth quarter, there we had a variety of optimistic power associated objects and advantages which had been booked within the Communication Papers enterprise, as you absolutely bear in mind we had none of these now on this first quarter determine. After which secondly, this kind of supply or volume-related matter is that, after all, there’s at all times a sure lag earlier than the costs at which we buy manufacturing in truly make their manner as a optimistic or damaging impression to the underside line.

So on this case, even when we’ve seen type of the route turning so far as our prices — enter prices are involved, given the low volumes that we had within the first quarter this sort of a lag is longer earlier than it reveals up in our backside line. So the underlying variable price drivers truly had been broadly flat from the fourth quarter to the primary quarter.

And in lots of price objects, we’re over the height already. So clearly, then this optimistic variable price impression is but to materialize in our outcomes. We anticipate that we begin to see reducing variable price impression in our second quarter end result from there onwards.

Then if we go to the next slide, trying on the Q1 enterprise efficiency by enterprise space. Market shipments in most merchandise had been considerably beneath the long-term averages. The companies that weren’t impacted by the low quantity atmosphere the place UPM Vitality and biofuels, and so they achieved sturdy ends in the primary quarter. Communication Papers and plywood, regardless of the low quantity atmosphere achieved good outcomes.

Fibers, I might say, proceed to ship passable outcomes on this atmosphere. And naturally, the enterprise was on the brink of begin up the Paso de los Toros pulp mill. After which Raflatac Specialty Papers, they managed to keep up wholesome unit margins of their product vary, however the ends in each companies go away room for enchancment as supply volumes recuperate.

And right here, you possibly can see our first quarter money move damaged down into few parts. Working money move totaled EUR714 million for the quarter and free money move after investments totaled EUR416 million. Our first quarter free money move was sufficient to completely cowl the primary dividend fee in April.

We proceed to obtain money influx from power hedges within the first quarter this time with EUR695 million whole optimistic money move impression. Our working capital elevated by EUR400 million within the first quarter, as you see on this slide in the direction of the left, which once more partly is because of timing.

For instance, as our volumes had been low, then meaning additionally that our accounts payables decreased considerably. Additionally, after all, the truth that the Paso de los Toros pulp mill was preparing for the top of quarter startup, then that meant that in that course of, working capital in Uruguay has been on the rise as anticipated.

And clearly, monetary place continues to be very sturdy. Internet debt totaled EUR2.67 billion on the finish of the primary quarter reducing by EUR207 million from the fourth quarter. Internet debt-to-EBITDA ratio was 0.82, and our liquidity totaled EUR6.7 billion on the finish of the quarter.

After which to our outlook. Our outlook for the 2023 12 months is unchanged. Within the first half of 2023, our comparable EBIT is predicted to extend from the primary half of 2022. In 2023, our supply volumes are anticipated to profit from the ramp-up of the Paso de los Toros pulp mill after which OL3 nuclear energy plant unit.

Within the first half of the 12 months, nonetheless, demand for a lot of UPM merchandise is predicted to be held again by destocking within the numerous product worth chains. The opening of the Chinese language financial system from the COVID lockdowns and easing inflation in different key economies symbolize potential for growing demand because the 12 months progresses.

This 12 months 2023 began with a excessive price degree for a lot of inputs, whereas the decrease demand is exerting strain on product costs. Nonetheless, a number of enter prices have progressed previous their peak and the profit is but to materialize in our outcomes. We proceed to take measures to handle margins on this atmosphere.

Within the second quarter, we may have vital scheduled upkeep exercise with the Kymi pulp mill and the OL primary and two nuclear energy vegetation doing their upkeep works and likewise the [indiscernible] biorefinery going by way of its longer turnaround upkeep shutdown. And we estimate the EBIT impression of this upkeep works to be round EUR90 million in comparison with the primary quarter. And eventually, it’s good to notice that there are vital uncertainties, each optimistic and damaging within the outlook for the 12 months 2023.

And I’ll now hand again over to Jussi for some dialogue on our development initiatives.

Jussi Pesonen

Thanks, Tapio. Women and gents, now it’s time to change shifts to a long-term development and the advantage of being a development firm on Biomaterials. The massive information, after all, is that the Paso de los Toros pulp mill has began manufacturing and is ramping up. The mill was prepared for start-up by the top of the Q1, as we promised and as we scheduled. After which we acquired the working allow — last working allow after Jap.

I’ve to say that I’m completely pleased with my crew and our crew in Uruguay, who has been in a position to implement the largest funding undertaking in UPMs, Finnish or Uruguayan historical past in a well timed method and in very uncommon circumstances, together with the pandemic and later, the worldwide logistical debottleneck is subsequent and never even mentioning the horrible conflict in Ukraine.

Now the mill is working, and the elevate is now in the direction of nominal capability and the goal is by the top of the 12 months that we’re on the nominal capability. This image is definitely very good to truly present to you right here. You may see the images of the pulp mill and pulp bales which have been already produced on the mill. And the highest proper nook, the pulp is already within the Montevideo harbor able to be put into the ocean ship and delivered to the purchasers.

The undertaking has been — has massive optimistic impression. It would develop our pulp enterprise greater than 50% with a really aggressive money price degree of $280 per delivered tonne. Now on prime of that, what we’ve been experiencing, then the UPM platform will be optimized for 2 mills, and we anticipate each mills to succeed in related low price degree as that $280 per delivered tonne.

The brand new pulp mill have a major optimistic impression, after all, on the native communities and to the entire Uruguayan financial system. Our plantation-based enterprise platform in Uruguay can also be enabling us to the longer term development alternatives in numerous biomaterials in a sustainable and aggressive method. That may be a very distinctive choice for a corporation like UPM. Competitiveness for the long run is secured by excessive productiveness and steady productiveness enhancements additionally within the forest.

In addition to Uruguay is up and working, and the quarter was truly nice on that respect that now — the three nuclear energy plant unit has additionally began common business electrical energy manufacturing in April and is working on the excessive capability utilization already. The unit will enhance UPM’s power CO2-free electrical energy technology by nearly 50%. It is a wonderful instance how we live as much as the aim. We create a future past fossils.

Olkiluoto 3 will increase power gross sales effectivity within the nation of Finland and offers a response to the power disaster in Finland and European disaster in Finland. In the long run, our agile and aggressive power enterprise platform opens development alternatives within the inexperienced transition as nicely, doubtlessly, complementing our development in biochemicals and biofuels with the artificial supplies and fuels as nicely.

Then the following web page is in regards to the Leuna Biochemicals refinery, which is taking form. Talking of biochemicals, right here you possibly can see some thrilling photos of our biorefinery undertaking in Leuna, the unit is basically taking form, as you possibly can see from this image. Buyer curiosity for the biochemicals merchandise continues to be excessive, and this has been even larger than what we anticipated two years in the past and offers the arrogance on the enterprise case and development technique.

Women and gents, our focus areas for development stays unchanged. Now we’ve accomplished main development steps in fibers and power. Subsequent development steps can be most probably be in — and on the right-hand and left-hand wings by beginning the scaling up of the biochemicals and companies and by finishing the fundamental engineering within the Rotterdam website in biofuels.

And searching into the expansion choices, the timing of the following steps in Raflatac and Specialty Papers can also be in our focus. On prime of that, in the course of the fibers enterprise, clearly, we’re beginning to construct a subsequent type of section for development principally, placing quite a lot of effort on uncooked materials sourcing and uncooked materials — entry to the uncooked supplies.

Subsequent web page that is acquainted slide reveals the progress of our transformation. Over the previous years, we’ve been in a position to develop our enticing development companies fairly considerably with the relative tight CapEx. The portfolio change has additionally pushed UPM group profitability as the expansion companies have been, on common, reaching 3 instances larger EBIT margin than the mature Communication Papers enterprise.

As you recognize, since 2019, we’ve elevated our CapEx considerably. Now these investments will begin to ship. That is one other manner of our transformation and the expansion. The truthful worth of the forest and power property represents 40% of UPM’s capital employed on the finish of being roughly EUR6.5 billion. We are going to proceed to handle and develop these property for sustainable worth creation. In order that is a crucial a part of the expansion.

Capital employed in our trade operations has — in our industrial operations has elevated considerably in the course of the previous three years to the extent of EUR10 billion. Nearly 1 / 4 of our capital employed, greater than EUR4 billion is expounded to transformation development initiatives which might be — that haven’t but contributed to our gross sales or backside line in Q1 as we communicate, 2023. There are, after all, anticipated they’re, after all, anticipated to generate enticing returns as soon as absolutely ramped up. And this truly represents a major earnings development.

This slide is — reveals our CapEx estimate for the complete 12 months of 2023, which is EUR950 million. And of that, that features EUR750 million, which is expounded to remaining CapEx of our ongoing transformative development initiatives, i.e., on and partly additionally Paso de los Toros throughout this primary quarter.

Lastly, earlier than summarizing my presentation, I might solely remind us of the dividend UPM as to pay and has determined already to pay enticing dividend, and our dividend coverage is that at the very least half of the comparable bps is paid out. The AMG Annual Basic Assembly on the twelfth of April selected a 15% enhance on — in dividend, half of that was paid final week and the remaining half can be paid on November.

Women and gents, I cannot repeat what we’ve been presenting Tapio and myself right here. That is nice quarter from that of — we’ve been in a position to handle our margin in the course of the very unprecedented destocking type of market scenario and the largest factor the long-term and long-lasting contribution is these two development initiatives.

Expensive operator, we’re prepared for Q&A session.

Query-and-Reply Session

Operator

[Operator Instructions] The subsequent query comes from Lars Kjellberg from Credit score Suisse. Please go forward.

Lars Kjellberg

Thanks. A few questions, beginning with the expansion initiatives. You [indiscernible] now. What do you anticipate as an output within the present 12 months? When do you anticipate the mill to begin to contribute extra materially to the highest? The opposite query pertains to prices. You talked about a variety of prices which have handed peak. And on the similar time, we’ve seen, after all, particularly in Europe and Finland particularly for you, wooden prices developing fairly a bit prefer it feels continues to be rising. How ought to we see the steadiness of these previous peak and the continuation of wooden prices?

After which lastly, you shared a fairly sturdy development, after all, within the label enterprise by way of the destocking impression. Are you able to share with us any views you may have on communication papers, fibers, particularly these two divisions had been on the stocking versus normality, please?

Jussi Pesonen

Yeah, Lars. There have been many questions. Tapio was at the very least writing all of them down. I’ll begin with Paso de los Toros. Now the mill is up and working and just about on the steadiness. And clearly, by the top of the 12 months, we’d be on the nominal capability. In order that — this can be a very type of quick ramp-up — inside in three quarters, you’ll be on the nominal capability. So that’s what it’s. After which relating to EBITDA technology and contribution, that can begin by the top of this quarter.

Tapio Korpeinen

Yeah. Possibly if I’ll touch upon the fee total, one can say that we will see, I might say, clearly, already prices type of turning optimistic in a way tailwind for supply logistics prices, availability has modified fully so far as that’s involved, fiber, recycled fiber pulp, clearly, pulp worth is coming down from the height ranges the place we’ve been, it’s plus on the fee facet for our pulp consuming companies, Specialty Papers and advantageous papers within the compact enterprise space, clearly.

And let’s say, power price, once more, should you have a look at power price final 12 months vis-a-vis this 12 months, I feel, let’s say, most indicators on the market are indicating for, let’s say, a extra benign atmosphere even when, clearly, there’s nonetheless some vital uncertainty right here in Europe, together with no matter geopolitics could carry. After all, in our case, ought to there be, let’s say, one other turbulence within the power markets, then that may be a profit for our power enterprise.

Regarding wooden, very first thing, I might kind of point out there’s that we’ve simply began a 2.1 million tonne pulp mill in Uruguay the place wooden prices are below our management. No concern there. Over time, wooden price will go down in Uruguay. And as Jussi talked about, there’s a really sizable price synergy ahead price for the mixed platform of Fray Bentos and Paso de los Toros now once we are optimizing the wooden provide to 2 websites.

In Finland, clearly, we’ve seen price strain on wooden price as we’re — as an trade or a rustic or a Nordic area type of adjusting to the brand new scenario the place there isn’t any imports of wooden from Russia of all assortments, whether or not it’s pulp wooden, whether or not it’s power wooden and so forth. However I might say, whereas the wooden price strain right here is there, maybe additionally we’ll begin to see some stabilization there, however we are going to see.

Jussi Pesonen

After which relating to the destocking, and also you had been asking the opposite product areas, Communication Papers statistics are saying that the decline on demand or market demand was minus 29%, fairly related and even lower than what it was in Raflatac, as you possibly can see. And what we’ve guided on that Web page 3, the weighted common supply to capability was about 70%. That’s a tough estimate that you could get the magnitude that the way it matches to completely different companies once you evaluate deliveries to capability, clearly, power will not be on this, however you recognize all the remaining.

Lars Kjellberg

If I could have one follow-up query on prices. You could have, after all, for a very long time, shared your money margin price of manufacturing on paper costs, at the moment on Web page 39, you’ve reproduced that, after all, marginal prices have dramatically declined. Is there any the place you possibly can pursue the pricing at an inexpensive versus simply coming right down to marginal price once more? Do you may have a tackle that?

Tapio Korpeinen

Yeah. That is an attention-grabbing query that the consolidation has occurred fairly considerably. There are lots of massive firms which have been giving up within the enterprise. And due to this fact, the type of scenario is completely completely different. I imagine that this pattern will change once more even when we had 10 years or nearly 20 years of fairly difficult instances now when there’s quite a lot of capability that has been transferred to packaging charges, it will positively give us a brand new platform to function in another way.

And as you may have seen that we are going to take our actions to maintain the margins excessive degree by taking our capability down when there’s a necessity for that. However this can be a massive, very attention-grabbing query, and I are inclined to imagine that there’s a brand new period coming, which is one thing that I don’t know even myself at this level of time how that can evolve, nevertheless it received’t be the identical as final 20 years.

Lars Kjellberg

Thanks and good luck.

Operator

The subsequent query comes from Justin Jordan from Davy. Please go forward.

Justin Jordan

Three fast questions. Firstly, returning to your Slide 3 on destocking and as was the 70% capability — sorry, supply capability. Must be kind of basically inferring the same 70% in Q2 and hopefully most likely bettering within the second six months as hopefully destocking in areas like Raflatac or Specialty Paper communication labor ease? Is that kind of — I’m making an attempt to generalize your feedback to a conclusion or is {that a} kind of a good conclusion to succeed in?

And secondly, simply in a follow-up potential unfold for development, are you able to replace us on the extreme business and engineering research which might be ongoing for the potential Rotterdam biofuel refinery, please?

Tapio Korpeinen

Justin, I suppose that in Web page 3, you may have the reply subsequent bullet, you simply take the following bullet level. The impression of destocking is predicted to section out within the coming months.

Jussi Pesonen

Yeah. So clearly, we don’t have a crystal ball in a way how precisely the restoration in a way from this destocking will occur. However once more, if 70% was the kind of tough determine for the primary quarter, we do anticipate this kind of restoration to begin happening. What the share can be, then we’ll see.

Tapio Korpeinen

Justin, nonetheless I missed a bit a part of your second query, which was associated to Rotterdam, however are you able to repeat?

Justin Jordan

Certain. Sorry, simply regarding Rotterdam, clearly, your ready remarks speak about intense preparations for the enterprise case ongoing. I assume now that, clearly, we’re efficiently ramping up Paso de los Toros, which has clearly been a serious undertaking for UPM for a number of years and the sturdy monetary place of the group. Ought to we expect due diligence and — on Rotterdam to be accomplished by the top of 2023 to succeed in an funding determination on that undertaking?

Tapio Korpeinen

That can be determined once we are prepared. I repeat what I mentioned earlier that it’s within the intense section. There’s quite a lot of issues taking place particularly the place we’re doing quite a lot of progress is within the uncooked materials, bankable uncooked materials plan after which, after all, the expertise funding itself and the type of enterprise case preparation. And eventually, then we’re placing quite a lot of effort additionally to know the regulation — regulatory world as nicely.

So principally, how I really feel truly at this level of time now when this peak funding cycle is over, we’re placing quite a lot of effort to develop the following section. No matter we do, 2024 can be down from that of what we’re investing this 12 months, which is EUR950 million. However whether or not we’re doing the choice on this 12 months or subsequent 12 months, may be very a lot associated to once we are prepared. And that is one thing that we do. And naturally, we must be actually positive that it really works as nicely earlier than taking the ultimate funding determination.

Justin Jordan

Nice. Thanks, Jussi.

Jussi Pesonen

Thanks.

Operator

The subsequent query comes from Robin Santavirta from Carnegie. Please go forward.

Robin Santavirta

Sure. Thanks very a lot. Now first query associated to the outlook for Q2. If we have a look at the H1 steerage you may have given, it appears to indicate that the Q2 EBIT, if we exclude the damaging impression from the upkeep truly could be up from Q1 final result. What are the drivers of underlying enchancment in earnings in Q2 versus Q1, we’ve seen pulp costs coming down fairly considerably now lately and paper costs as nicely. Is it quantity? Is it price? And what’s the kind of the important thing drivers for that?

Jussi Pesonen

I feel we’ve lined these pretty nicely however — on this kind of name up to now, however let’s summarize. We now have Paso de los Toros beginning, clearly, turning right into a optimistic contributor to the underside line any more, already having some impression on the second quarter. We now have Olkiluoto 3 volumes, for the reason that begin, let’s say of the demonstration run, so April onwards.

After which we’ve what I already talked about, the issue that we anticipate variable prices truly to show to a optimistic driver already within the second price additionally so far as the underside line is worried, not solely the costs of products that we’ve been buying. After which we additionally anticipate, in a way, in the course of the coming months, then the volumes beginning to come again. And there in that kind of cycle, we’re coming into with very excessive margins. So like we had final 12 months when quantity began to come back again, then additionally the impression on the underside line got here accordingly.

Robin Santavirta

All proper. I perceive. Can I simply examine now in Q2, so that you anticipate a optimistic EBIT contribution already from Paso de los Toros, though you’ll — the depreciation will come most likely fall on a lot of the quarter.

Jussi Pesonen

However I received’t kind of give particulars on that as a result of then we are going to see how the volumes develop. However it can begin, let’s say, in any case, have a optimistic delta in comparison with the primary quarter.

Robin Santavirta

All proper. I perceive. Thanks. The second query I’ve is expounded to the strategic initiatives you may have. And I feel you will notice — mentioned that within the fibers enterprise, you recognize kind of your centered on uncooked supplies kind of gathering uncooked materials, I feel you mentioned. What does that imply? Does that imply you kind of plan to broaden the pulp enterprise or is it extra associated to biofuels? What’s it associated to?

Tapio Korpeinen

It’s all truly this enterprise, if any, is definitely the entire companies are — this can be a uncooked materials sport. It’s that we’ve some concepts on, after all, in pulp, but in addition biomaterials, whether or not it’s biofuels, biochemicals, in order that they — principally this can be a distinctive — that we’ve a novel choice in UPM that we do have an amazing platform in Uruguay. And naturally, we’re accessing even globally in lots of areas. And we’re getting ready for development for various sort of biomaterials. And this can be a crucial a part of the profitable implementation of the initiatives.

When you bear in mind, once we acquired Botnia, then we began to purchase land instantly in Uruguay to be ready for 19 July determination of the ultimate funding determination on pulp making. So that is one thing that we are going to positively now put additionally concentrate on prime of that the correct and left wing of the spearhead of development can be in our focus relating to — as the place we’re type of trying development as nicely.

Robin Santavirta

All proper. Thanks very a lot.

Operator

The subsequent query comes from Linus Larsson from SEB. Please go forward.

Linus Larsson

Thanks very a lot. I’d wish to drill down on Specialty Papers for a minute. When you might please elaborate a bit about what the developments had been within the first quarter? I see that on mixture, volumes had been flattish Q1 on This autumn, however margins got here off fairly sharply. When you — as you typically do cut up it up into workplace and the specialty grades. May you please describe the developments possibly the destocking and worth actions that you’ve seen and are seeing in these subsegments, please?

Jussi Pesonen

Effectively, after all, just like the slide you see confirmed you, the destocking impression has been the largest within the specialty packaging or self-adhesive label worth chain. So clearly, the label papers a part of Specialty Papers is in that very same worth chain. So due to this fact, in a way, this quantity impression from destocking was the strongest there. And nicely, let’s say, the margins are one of the best there as nicely. Let’s say, advantageous paper enterprise in Asia and the Chinese language market, let’s say, from a quantity viewpoint has been doing considerably higher, however the margins are thinner.

Linus Larsson

Nice. And the present developments within the second quarter, how are these companies creating now by way of quantity demand pricing?

Jussi Pesonen

I feel nothing additional so as to add in a way that, once more, like mentioned, then this destocking, clearly, we anticipate to begin to kind of unwind our volumes to recuperate in the course of the coming months. And naturally, then advantageous paper enterprise if we see kind of continued optimistic indicators within the Chinese language financial system then ought to profit from that as nicely.

Linus Larsson

Nice. After which simply possibly a element on Paso de los Toros. You probably did share some particulars there. However it appears like we shouldn’t be too nervous about some start-up prices within the second quarter or are there some short-term impacts there? And from what date are you beginning to depreciate the property?

Jussi Pesonen

It has began because the manufacturing has began. And nicely, after all, let’s say, the efficiencies usually are not 100% within the — for the primary tons, however no different kind of particular start-up prices as such.

Linus Larsson

And depreciation is that from mid-April then or…

Jussi Pesonen

It begins when the manufacturing — I don’t have the precise date of April when it began.

Linus Larsson

Okay. Thanks very a lot.

Operator

The subsequent query comes from Charlie Muir-Sands from BNP Paribas Exane. Please go forward.

Charlie Muir-Sands

Good morning. Good afternoon. Thanks very a lot for taking my questions. Firstly, in your Uruguay pulp mills. I feel you mentioned, clearly, you’re aiming to optimize the wooden provide into fragments as nicely. Did you say that you just suppose you will get that mill right down to $280 a tonne as nicely? Did I hear that accurately? And in that case or in any other case, are you able to simply make clear how a lot the manufacturing price of that website is at the moment?

And secondly, associated to that, should you’re at kind of nominal full manufacturing outputs for Paso de los Toros by the top of this 12 months, ought to we expect the fee effectivity to succeed in that $280 a tonne by then? That’s the primary bunch of questions. After which one briefly on power or electrical energy, are you able to simply make clear should you’ve been hedging additional ahead than you traditionally have executed and what the standing is in your ahead gross sales of electrical energy? Thanks.

Jussi Pesonen

Possibly I begin with the primary query that you just had been asking that did I say that it will likely be a Tapio say that the entire Uruguay platform relating to money price degree could be 280 degree. Sure, we did, roger that. And that’s truly the place the profit, particularly fragmented may be very a lot useful once we are beginning to optimize the wooden inbound logistics and the place we’re taking wooden into the each mills. So that’s appropriate. Then relating to beginning up the Paso de los Toros, we are going to see what would be the type of money price degree by the top of the 12 months once we are absolutely ramped up. However principally, there’s no motive why it shouldn’t be very aggressive.

Tapio Korpeinen

After which possibly in your query on the electrical energy hedging. So there — nicely, first, as you maybe bear in mind, there was little exercise throughout final 12 months, given, once more, the liquidity within the exchanges dried up nearly fully. There was some further now liquidity however at a a lot decrease degree than what has been, let’s say, usually and even within the latest years and even final 12 months. So the liquidity has been very low. We now have been doing a little volumes, each futures and bilaterals. However the kind of present kind of market circumstances, nonetheless, let’s say, at low volumes.

Charlie Muir-Sands

Thanks. And sorry, simply on Fray Bentos, might you make clear what’s the price base at the moment.

Tapio Korpeinen

We aren’t disclosing.

Charlie Muir-Sands

Okay. Thanks.

Operator

The subsequent query comes from Cole Hathorn from Jefferies. Please go forward.

Cole Hathorn

Good afternoon. Thanks for taking my query. Simply following up on the graphic paper markets and Lars introduced up an attention-grabbing level in regards to the worth and value divergence is the market in a position to run it at decrease working charges extra profitably versus historical past. I do know individuals have been making an attempt to time power prices, et cetera. So I’m simply questioning if the trade as an entire is ready to run extra profitability at decrease working charges.

After which the second query is on the opposite division. Are you able to simply speak in regards to the step-down within the biofuels. It was exceptionally worthwhile within the third and fourth quarter final 12 months. And I’m simply — wished to know the step-down within the different division. Is it only a moderation within the pricing and rising prices? Thanks.

Jussi Pesonen

The Communication Paper enterprise, after all, if you’re type of trying and reviewing what we had been ready to do that quarter, the reply is sure. However after all, it’s, as you may have seen over the past years that the volatility of the profitability has been fairly excessive. However principally, I imagine that there’s the rationale to consider that the type of margin could be higher than previously for coming years for the explanations that we mentioned already relating to consolidation, and there can be quite a lot of much less gamers within the fields and that type of factor.

However after all, it’s not going to be as excessive margin as we’re speaking in regards to the development companies. As I mentioned earlier, they’re like 3 instances extra in EBIT margin. However nonetheless we anticipate that the Communication Paper enterprise is yielding an excellent free money move, which I feel that can truly improve the chance to develop the remainder of the corporate.

Tapio Korpeinen

And possibly on the biofuels enterprise has carried out very nicely, let’s say, from a profitability or margin viewpoint in the course of the first quarter as nicely. Let’s say, motion in fossil diesel costs does have type of an impression on the renewable fuels as nicely however nonetheless, let’s say, vital premium. So due to this fact, monetary end result has been good. And as talked about now within the second quarter, we’ve this so-called turnaround shutdown kind of a bigger shutdown, which is able to impression the second quarter, second quarter outcomes, which we report as a part of this different phase.

Jussi Pesonen

Women and gents, I feel that we’ve used our time, and there are — there isn’t any additional questions. So I thanks all being with us this afternoon. Thanks a lot, and see you. Thanks. Bye now.